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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INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER

HEARINGS

BEFORE THE

TEMPOEARY NATIONAL ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES

SEVENTY-SIXTH CONGRESS

THIRD SESSION
PURSUANT TO

Public Resolution No. 113

(Seventy-fifth Congress)

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

PART 30 No. 1

TECHNOLOGY AND CONCENTRATION
OF ECONOMIC POWER

APRIL 8, 9, 10, 11, 12, 15, 16, 17, 18, 19, 22, 23, 24, 25, AND 26, 1940

Printed for the. use of the Temporary National Economic Committee

UNITED STATES
GOVERNMENT PRINTING OFFICE
124491 WASHINGTON ! 1940

lORTHEASTERN UNIVERSITY SCHOOlof LAW tlBR/^RY

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

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

HATTON W. SUMNEKS, 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 O

Representing the Securities and Exchange Commission fTl

GARLAND S. FERGUSON, Commissioner CD

• EWIN L. DAVIS, Chairman -.

Representing the Federal Trade Commission
ISADOR LUBIN, Commissioner of Labor Statistics
• A. FORD HINKICHS, Chief Economist, Bureau of Labor Statistics ^

Representing the Department of Labor qtj

JOSEPH J. O'CONNELL, JB., Special Assistant to the General Counsel (Oj

* CHARLEIS L. KADES, Special Assistant to the General General

Representing the Department of the Treasury

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

Representing the Department of Commerce

James B. 'Brackett, Executive Secretary

Thkodobb J. Kreps, Economic Adviser

* Alternates.
II

REPRtNTED
BY

WILLIAM S HEIN &. CO INC

BUFFALO. N. Y

1968

CONTENTS

'estiinony of — ''"K^
Barkin, Solomon, economist, Textile Workers Union of America 16831-16877
Beau, Louis H., economist, Bureau of Agricultural Economics, Depart-
ment of Agriculture 16940-16963, 16973-16999

Blunt, I. L., secretary. National Federation of Textiles 16878-16899

Carey, James B., general president of the Electrical, Radio, and Ma-
chine Workers of America, national secretary of the Congress of

Industrial Organizations .'— 16727-16747

Carr, William G., secretary, Educational Policies Commission— 17169-17186
Clark, Harold F., professor of education, Teachers College, Columbia

University ^ 17105-17121

Conze, G. R., president, Susquenhanna Silk Mills 16878-16899

Driesen, Daniel, legislative representative, American Communications

Association (Congress of Industrial Organizations) 16747-16756

Elliott, William S., vice president. International Harvester Co__ 17078-17080

Green, William, president, American Federation of Labor 17122-17140

Gill, Corrington, assistant commissioner. Work Projects Adminis-
tration 17220-17242

Griflath, Paul E., president, National Federation of Telephone

Workers 16697-16726

Harrison, G&orge, president. Brotherhood of Railway Clerks 16609-16669

Holcomb, Ernest, Division of Farm Population and Rural Welfare,

Department of Agriculture 16922-16940

Johnson, Sherman E., head of Division of Farm Management and Costs,

Department of Agriculture 16940-16963

Kennedy, Thomas, secretary-treasurer. United Mine Workers of

America _— 17186-17203

Kifer, R. S., Division of Farm Management and Costs, Department of

Agriculture — 16940-16963

Lubin, Isador, Commissioner of Labor Statistics, Department of

Labor-^ 17242-17267

McCormick, Fowler, vice president. International Harvester Co_ 17001-17040
Merrill, Lewis, president. United Office and Professional Workers of

America ,__. 16796-16829

Murray, Philip, chairman, Steel Workers Organizing Committee. 16453-10516
Nichol, F. W., vice president. International Business Machines Cor-
poration 16760-16796

Norton, John K., professor of education. Teachers College, Columbia

University 17084-17105

Parmelee, J. H., director. Bureau of Railway Economics, Association

of American Railroads 16546-16607

Pelley, J. J., president. Association of American Railroads 16517-16546

Polakov, Walter N., director, Engineering Department, United Mine

Mine Workers of America ^ 17186-17203

Renton, William, of Coverdale, Pa 17195-17199

Reynolds, John W.. Commercial Telegraphers' Union 16688-16693

Rieve, Emil, president. Textile Workers Union of America 16831-16877

Russell, Michael, of New Castle, Pa 16461-16469

Ruttenberg, Harold J., Steel Workers Organizing Committee-- 16453-16516

Sullivan, Rose, American Federation of Labor 16669-16688

Taylor, Carl, Division of Farm Population and Rural Welfare, Depart-

n^ent of Agriculture 16922-16940

Taylor, Paul, professor of economics. University of California.- 17040-17078
Wall, Norman J., Division of Agricultural Finance, Bureau of Agri-
cultural Economics, Department of Agriculture 16963-16973

lir

IV CONTENTS

"Testimony of — Continued. Page

Ware, Caroline F.," associate professor of social history and social

economy, American University ___'__^ 17204-17219

Watson, Thomas J., president. International Business Machines Cor-
poration 16760-16796

Weintraub, David, Work Projects Administration 17220-17242

Whitney, Byrl, Brotherhood of Railroad Trainmen 16899-16919

Winnek, Douglas F 16350-16358

Wright, J. C, assistant commissioner for vocational education,

United States Office of Education 17140-17168

Statement of —

Davie, Watson, director. Science service 16260-16291

Ford, Edsel, president. Ford Motor Co 16319-16349

Hook, Charles R., president. The American Rolling Mill Co 16391-16451

Kettering, Charles F., vice president. General Motors Corpora-
tion 1629^^16317

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

Committee—— 1620^-16267

McCarroll, R. H., engineer. Chemical and Metallurgical Division,

Ford Motor Co : 16319-16349

Moekle, H. L., auditor. Ford Motor Co 16319-16349

O'Mahoney, Joseph C , ^ 16207, 16208

Thomas, R. J., president. United Automobile Workers 16359-16390

Report on the depression of 1873 : 16210

Invention of the art of invention 16212

Why are innovations introduced? , 16213

Important types of technological change_^ 16214

Labor-saving devices 16217

How measure the impact of technology? -c: . 16218

New industries created by technology 16219

Distress to laborers caused by machines 16220

Productivity of labor 16222

Increased capital per unit of product 16224

Shortened working hours 16225

The mining industry ^ 16229

The national labor force 16231

Problem of the ages 16233

The potential working force -- 16234

The efficiency of capital 16240

Technology and the business cycle 16243

Does industry need more capacity? I 16244

Who benefits from technology? : -- 16246

How many are now employed? 16249

Average cost of production- : 16250

Nonproductive workers 16251

The general effects of technology , — 16252

Economic policy . 16255

Technology and modern business empires 16256

Technology' and pressure groups 16258

The world an economic unit 16259-

Technology and war : 16261

America unlimited ^ 16262

Modern industrial research 16270

Government research expenditures^ 16272

Fields for further research 16274

Atomic power 16277

Suggested use of gold 16278

Long-range weather forecasting 16282

Metal alloys 16285

Chemical therapy 16286

Genetics 16287

Spread of technical progress 16290

Group V. Individual research 16293

Research in General Motors , 16294

Patent policy of General Motors 16296

Government aid to research 16299

Accelerating rate of invention 16300

CONTENTS V

Page

Mass production and mass purchasing power — 16303

Photosynthetic energy '. 1 16305

Goperal Motors research budget _ 16307

Interorganizational cooperation 16309

Effect of patents on invention 16311

Cost of industrial research 16:313

Low-priced automobiles 16315

Cost of labor within the Ford plant 16322

Proportion of skilled to unskilled workers 1032.J

A $500 automobile - 16330

New versus replacement car market-- . 16332

Feasibility of lower-priced car ^^__ 10334

Effect on society 163:^7

Technology and migration of industry 16337

Cost of production as measure of effect of technology 16338

Increase of decrease of skill 16341

Supply of labor 16343

Decentralization in Ford Motor Co 16346

Trivision for X-ray purposes ■. 16352

Trivision in aerial photography 16354

Problems of financing development-- 16356

Changes in productivity since 1928 16300

Wages and technology . 16362

Effect of the "speed-up" 16367

1. Intensified labor, (speed-up) i 16370

Speed-up and older worker j!-.^ 16372

Effect of shortened hours on productivity 16375

Plant investment and productivity - 16377

Displacement of men by machines 16378

Production and employment sipce 1929 . 16381

Regularity of employment 16384

Effect of mechanization upon skill 16386

First continuous sheet mill installed in 1926 " 16393

Advantages to labor from continuous mills 16394

Effect of continuous mills on age of workers 16397

Operation of continuous mills at Middletown 16399

Displacement of labor 16403

Production in American Rolling Mill Co 16405

Employment and earnings : 16407

Annual earnings of ARMCO workers 16409

Change in quality of steel 1&413

Decline in sheet steel prices 16415

Proposed reduction in hours ., 16417

Labor costs for steel production 16419

Causes of increased volume 16424

ARMCO research in housing 16427

Displacement of other industries by sheet steel 16428

Financing of new capacity , 16429

Production on continuous hot mills 16432

Lack of investment as cause of unemployment 16436

r^mployment in manufacturing industries 16438

National Association of Mnnufacturers' study of older workers 16443

Provisions for displaced employees 16448

Technological changes in the steel industry 16456

Labor displacement in hot strip jpills 16458

Provision for displaced workers 16460

Chost towns 16409

Cost of production in mechanized mills 16474

New steel technology covers industry 16478

Mergers and consolidations , 16480

Greatest change in employment after 1936 16484

Extent of mechanization cost borne by labor 16491

Steel employment in 1929 and 1939 16494

Increase in production from 1929 to 1939 16497

Interindustry competition 16500

Problem of new entrants to labor force 16501

YI • CONTENTS

! Providing for displaced workers . 16504

Proposed regulation of mechanization 16508

Industrial cooperation invited 16513

Technological change 4n the railroad industry 16518

Ftit^ure progress 16520

Total' labor force on the railroad; -_ 16521

Competition with other forms of transportation 16524

Railroad labor policies 16530

Efforts to increase business 16533

Effect of technology on employment ^ 16534

Effect of- increased business on employment 16536

Distribution of railway earnings 16539

Effect of displacement on avei-age age of workers 16542

Character of the raili'oaa industry 16547

Physical plant of the railroads : 16552

Installation of new equipment 16562

Investments in railroads 1923-39 16564

Railroad purchases of supplies: ^ 16568

Diversion of traflSc from railways 16572

Trend of employee compensation 16577

Railroad costs of operation 16585

Mechanization and wage changes 16590

Details of labor displacement by mechanization _^ 16595

Resistance to technological change 16598

Summary of technological changes 16601

Prospects for employment — : 16605

Technological change in railroad operation 16610

Mechanization in shop service-^ 16611

Railway expenditures for new lines and extensions 1_- 16614

Increased efficiency of engines 16616

Speed of railroad transportation__y ; 16618

Decline in job opportunities 16621

Classification of employees 16624

Distribution of railroad service 16626

Increase of labor productivity 16629

Unemployment in various labor groups 16631

Rate of technological change—: - 16633

Effect of increased traffic on employment 16635

Introduction of dial switchboard 16643

Analysis of labor force 16645

Displacement after 1930 16647

Qualifications for employment in American Telephone & Telegraph Co 16650

Progress of dialization after 1933 - 16653

Change in character of labor force 16654

Increase of business in relation to employment 16658

Opportunity for investment '. 16661

Construction in relation to general operation 16663

Division of revenues in A. T. & T— ., 16604

Possibilities of expansion 16667

Analysis of effect of displacement 16670

Displacement in the Boston area 16672

Dial service versus manual service 16674

Labor displacement as a purpose of dialization 16680

Earnings of employees 16681

Unionization in the A. T. & T 16688

Employee attitude toward the dial_i. i, 16685

Technological change in telegraphy . ^- 16689

Labor displacement in the telegraph industry 16693

Concentration of ownership in American Telephone & Telegraph Co 16694

Reduction of employment ^ 16699

Effect of rate reductions on volume of business 16706

Effect of mechanization 16709

Policies of unions in A. T. & T 16711

Employee policies in the Bell System 16714

Separation pay . 1 16718

Union attitude toward mechanization 16721

CONTENTS VII

Page

Suggestions for cushioning displacement 16724

Introduction of letters relating to insurance hearings 16726

Effect of technology in the electrical industry 16729

Remedies for unemployment 16733

Leveling of skills 16737

Effect of patent rights on technological change 16740

Union agreements as to labor displacement 16743-

Prospects for iil)sorption of unemployed 1 16746

Mechanization of telegraph industry 16748

Union agreements of technological change 16749

Consolidation and labor displacement , 16752

Technology and economic recovery 16760

International Business Machine's share of the business machines industry- 16761

Wages paid and hours worked 16762

Accounting machines and employment - 16764

Advantages of business machine 16767

Direct and indirect I. B. M. employments 16770

Effect of mechanization upon earnings 16775

Physical and social effects of mechanization 16781

Classification of labor force 16783

Training for reemployment 16785

Prospect of foreign markets 16787

Responsibility of industry to displaced workers ^ 16790

Provision for unemployables 16794

The growth and composition of white-collar group 16799

Industrial urban concentration ^_ 16801

Earnings of white-collar workers 16805

Changing status of clerical workers ^ ^ 16807

The introduction of the machine 16808

Rate of introduction of machines 16809

Machine displacement 16811

Effect on skilled workers . 16812

Promotion policies 16812

Public policy and business practice , 16815

Unemployment — secular or technological? 16818

Futile prospects for employment 16821

Union contracts and technological change 16823

Changing status of white collar worker :: 16826

, Non-mechanical changes in technology 16828

Technological change in the textitle industry 16832

Technological advances in cotton textiles 16836

Technological advances in woolen and worsted industry 16839

Technological advances in synthetic yarn 16841

Technological advances in other textile industries 16842

Economic and social effects of technological change 16843

Effect on skilled workers , 16850

The changing character of the textile industrj^ ^ 16852

Union policy regarding technological change ' 16855

Improvement in earnings u 16858

Job tenure . 16859

Separation allowances and i^t-nsions 16861

Unions as a factor in mechanization _- 16864

Migration of textile industry ._ ^1 1 16867

Division of labor in textile plants : ,--i-l 16870

Effect of unionization on production costs 16873

Prospects for increased employment 16878

Shift from silk to rayon _' 16879

Introduction of automatic looms 16882

Shift of production away from silk mills 16887

Reduction in silk and rayon prices 16890

Prospects of continued mechanization 16892

Future of fiber industry : .- 16894

Labor displacement in silk mills 16896

Employment and pay rolls ' 16900

Productivity of railroad labor 16903

VJII CONTENTS

Page

Reemployment program in the railroad industry 16906

Railroad consolidations . 16910

Railroad finances 16911

Six-hour day ___— 16915

-Displacement as a result of consolidation 16916

Technology in agriculture 16922

Labor force on the farm 16926

Earnings for farm laborers 16033

"Gainfully employed" in agriculture 16938

Productivity in agriculture 16941

Mechanization of farming — 16950

Increased efficiency in agriculture 16954

Prospects for increased employment 16958

Effect of mechanization on investment 16959

Comparative costs of operation _ — 16961

Farm indebtedness and farm values 16964

Farm ownership and operation 16967

Farm interest rates 16971

Effect of mechanization on labor costs 16975

Changes in farm labor force r 16978

Increase in farm productivity 16981

Fai^m income : 16982

Prospect of great technological change 16987

Future movement of farm population 16991

Increase of corporate farm ownership 10998

Effect of increased employment on farm production 16996

Mechanization in agriculture ^ 17005

Farmers' demand for mechanization 17011

Major effects of the use of farm machinery 17012

Farm machinery as labor saver 17015

Future trend toward small machines 17017

Effect of tenant farming on mechanization 17020

Cost of mechanizing a small farm 17023

Credit policy of International Harvester 17020

Effect of mechanization on labor costs 17030

Prospect of future technological change 17082

Prospect for increased farm employment 17035

Employment in farm machinery industry 17038

Effects of farm mechanization L 17041

Origin of migrants to the west coast 17044

Sharecropping on cotton plantations 17046

Mechanization in the wheat belt 17049

Corn belt mechanization 17051

Expansion of holdings after mechanization 17053

Agricultural concentration by States 17056

Cash payments to labor , 17060

Citizens' associaticrns and farm labor 17063

Future of family-sized farm 17065

Displacement of farm owners and laborers 17068

Mechanization as a force for expanding acreage 17070

Recommendations to eliminate displacement 17073

Economy of operating large units 17078

Potential production of the United States 17085

Increase in occupational training 17088 •

Possibility of discrimination in vocational training 17091

Increased emphasis on skills^ : 17093

Potentialities of domestic consumption _• 17096

Consumption lags behind production ! 17099

"Mortality" in high-school education 17101

In«?reiS6d p7oi1uctivity of labor 17104

Need for'cataloguing of available jobs 17107

Mobility of labor 17110

Productivity of trained labor 17112

Training to reduce unemployment 17115

Increased competition for highly paid positions 17119

Increase in available labor force , 17124

CONTENTS IX

Page

Production and income since 1929 17127

Increased productivity . ^ . . 17129

Technology and wages 17131

Suggestions for dealing with labor displacement 17134

A. F. of L. attitude toward dismissal wage 17136

The vestibule school 17141

Private schools 1 17144

Public schools 17144

Retraining for t^e employed and unemployed 17146

The need for a larger vocational program 17148

How a larger vocational progranj should be established 17150

Industrial training 17151

Occupational training in public schools 17154

Training of the unemployed 17156

Adequacy of present training program 17159

Efficacy of vocational guidance 17165

Need for economic literacy 17171

Economic information needed 17172

Summary _• 17175

Democracy depends upon economic knowledge 17177

Use of education for recovery 17180

Increased emphasis on skills 17182

Why youth leave school 17184

Increased productivity , 17187

Competition of coal and gas 17193

Dismissal wages ;_ 17198

Labor displacement by mechanization^ 17200

Workers' education 17206

Health program arising out of workers' education 17209

Workers' education in Sweden 17213

Workers' education and economic literacy 17217

Industrial recovery after depression. , 17223

Advantage of size in mechanic,; lion 17226

Effects of mechanization on workers 17229

Effect of mechanization on skills 17232

Increased unemployment among youth 17234

Effects of technology on employment 17237

Income distribution and full employment 17239

Factors affecting labor productivity 17244

Work-creating technological change 17247

Labor and capital saving change 17248

Changes affecting raw materials 17250

Social accounting faulty : 17252

Displacement and the young and old worker 17257

Displacement costs paid by workers : 17258

Displacement costs chargeable to society 17261

Cooperation of employment agencies 17264

Schedule and sununarv of exhibits xi

Mondav, April 8, 1940 16207

Tuesday, April 9, 1^40 16281

Wednesday. April 10, 1940— 16319

Thursday, April 11, 1940 16391

Friday, April 12, IIMO 1645£

Monday, April 15, 1940 16517

Tuesday. April 16, 1940 16609

W^ednesday, April 17. 1940 16639

Thursday, April 18, 1^0 16697

Friday, April 19, 1940 ^ 16759

-Monday. April 22, 1940 168.31

Tuesday, April 23, 1940 16921

Wednesday, April 24, 1^0—, 17001

Thursday, April 25, 1940 17083

Friday. April 26, 1940 , 17169

Appendix 17269

Supplemental data 17597

■Index I

SCHEDULE OF EXHIBITS

Number and summary of exhibits

Intro-
duced
at page—

A ppears
on page—

2428.
2429.

2430.

2431.
2432.

2433.

2434.

2435.

2436.

2437.

2438.
2438-A.
2438-B.
2438-C.
2438-D.
2438-E.

2438-F.

2438-G.

2438-H.

2438-1.

2438-0.

2439.

243^A.

2439-B.

2439-C.

2439-D.

2440.

2441.

Memorandum: Innovations of major importance to
industry

Table: Proportion of hand and machine workers in
selected industries; based on sample inspections in
1925

Table: Employment created by new manufacturing
industries

Chart: Capital invested, horsepower and product

Chart: Productivity, hourly earnings, and unit wage
cost in manufacturing, 1919-38

Chart: Fixed capital investment, output, and em-
ployment in manufacturing, 1919-38

Table: Productivity, output, and employment —
percentage changes between designated years. 1

Table: Index of productivity and unit wage cost in
selected groups of industries, 1919-38 ^--

Table: Production, employment, and productivity
in 59 manufacturing industries in 1936

Table: Occupational distribution of gainful workers,
1880-1939— -as a percentage of all gainful workers. .

Memorandum: Population and employment, 1870-
1940

Chart: Growth of population of the United Spates
1850-1980 ^

Table: Growth of population in the United States,
1750-1980

Table and Chart: Estimated labor force of the future
in the United States, 1940-1980

Chart: Gainfully employed in the United States,
1870-1940

Chan: Percentage of total population gainfully em-
ploved, by occupational groups, United States,
1870-1940 ^.-.

Chart: Number of workers gainfully employed, by
occupational groups. United States, 1870-1940

Chart: Distribution of gainfully employed, by occu-
pational categories. United States, 1870-1940

Chart: Increase in population and in gainful employ-
ment, 1940 over 1870, by occupation. United States.

Charts: Gainfully employed workers in the United
States, by occupational groups, 1930

Memorandum: Capital-savings innovations

Table: Industrial processes ^

Table: Fifty typical installations of material-handling
equipment ^^

Memorandum: The myth o' a profitless prosperity

Table: Statistics on values, production, revenues

Chart: Fixed capital investment, output, and employ-
ment in the automobile industry, 1919-38 ^^-

Table: Indexes of fixed capital, output and employ-
ment in selected industries, 1919-38

16212

16214

16219
16223

16226

16223

16229

16230

16232

16233

16233'

16233

16239
16239

16239
16239
16239

16239

16240

XII

CONTENTS
SCHEDULE OF EXHIBITS— Continued

Number and summary of exhibits

2442. Memorandum: Effects of the radio telegraph and tele-

phone and of radio broadcasting

2443. Chart: Technical progress in travel time

-^444. Chart: Swedish national income and value added by

manufacture compared with U. S. from 1860

2445. Table: Real wages

2446. Statement: The mechanism of photosynthesis and

national or world economy

2447. Statement: Atomic power

2448. News item: Hundred-million-volt, forty-nine hundre*^ •

ton atom smasher made possible at University f
California through gift from Rockefeller Founaa-
tion

2449. Statement: Summary of U. S. Weather Bureau work

in long-range forecasting ,

2450. Statement: A practical application of knowledge de-

rived from the study of plants

2451. Letter from Elton Mayo to Watson Davis on human

relations, executive authority, and unemployment..

2452. Statement: Background of conflicts

2453. Chart: Diagram of a complete rolling-mill plant pro-

ducing sheets

2454. Chart: Diagram of a complete old style hand mill

producing sheets

2455 to 2459. Photographs of strip mills

2460. Table: Continuous sheet and wide strip mill installa-

tions

2461. Table: Estimate of number of workers employed in

industry in hand mill processes

2462. Table: ARMCO production

2463. Table: Distribution of ARMCO sheet shipments be-
• tween continuous and hand mills

2464. Table: ARMCO parent company employment, aver-

age number of employees'

2465. Table: Emplovment, wages, hours, and production,

ARMCO M'iddletown plant

2466. Table: Expenditures for construction, ARMCO

Middletown plant

2467. Table: ARMCO average iron and steel sheet selling

prices

2468. Table: Iron and steel industry . . . employment

wages and production

2469. Table: Iron and steel industry — increase in sheet and

tin-plate production

2470. Table: Distribution of sheet and tin-plate production

to consuming industries

2471. Table: Examples of increased use of sheet steel

2472. Table: Industry expenditures for continuous mill

construction

2473. Chart: Index of hot rolled steel production

2474. Chart: Sheet and tin-plate production and number of

continuous mills operating

2475. Chart: U. S. Department of Labor indexes of employ-

ment in manufacturing industries

2476. Memorandum: Plan for handling hot mill employees

in connection with new finishing mills

2477. Tabic: Continuous hot strip mills in the United States

and cold reduction strip mills

2478. Article: War and steel ghost towns

2479. Table: Displacement of men by automatic strip mills. .
• On file with the committee.

Intro-
duced
at page—

Appears
on page—

16253
16259

17311
16259

16262
16264

16263
17313

16276
16277

17313
17315

16278

17316

16284

17316

16287

17319

16289
16289

17320
17325

16399

16401
16402

/facing
116401

16402

17326

16402
16405

17326
17327

16406

17327

16407

17327

16407

17328

16411

17328

16413

17328

16416

17328

16423

17329

16425
16429

17329
17329

16430
16432

17330
16433

16434

16439

16448

17330

16457
16469
16470

17331
17332
17339

CONTENTS
SCHEDlhLE OF EXHIBITS— Continued

XIII

Number and summary of exhibits

2480.
2481.

2481-A.

2482.

2483.
2484.

2485.
2486.
2487.
2488.
2489.

2490.

2491.
2492.
2493.

2494.

2495.
2496.
2497.

2498.

Chart:
Chart:
Chart:
Table:

Table
Chart:
Table:
Chart:
Table:

Table: Cost of production of tin-plate hand mills

Book: Employment and productivity in a sheet steel

mill, by Jennette R. Gruener

Memorandum: A summary of "Employment and

productivity in a sheet steel mill"

Table: Mergers and consolidations by major steel

producers --

Chart: Pay rolls and man-hours per ton of output —
Memorandum: Explanation of material submitted in

Exhibits 2485-2488

Chart: Man-hours per ton of ingots produced

Wages per ton of ingots produced

Relation of production to pay rolls

Relation of production to employment

Comparison of working force, wages, and
production in continuous butt-weld pipe mills and

in han d style butt- weld pipe mills .

Memorandum: Technology and employment — de-
scription of terms :

Table: Mileage of railway tracks operated

Miles of road constructed or abandoned -..

Locomotives — number and tractive power

Locomotives

Freight-carrying .cars

Freight-carrying cars

Table : I nstallation of new equipment

Table: Passenger-train cars

Chart: New rails laid in replacement

Table: Rails laid in replacement and wooden ties laid

in previously constructed tracks

Chart: Gross expenditures for additions and better-
ments, 1923-39 ----

Table: Gross expenditures for additions and better-
ments

Chart: Railway purchases, 1923 to 1939

Purchases of fuel, material, and supplies

Tons of revenue freight originated

Revenue ton-miles

Freight traffic

Revenue passenger-miles

Table : Passenger traffic

Chart: Average revenue per ton-mile

Table : Average revenue per ton-mile

Average revenue per passenger-mile

Indexes of distribution and rail shipments

Income account, class I railways, United

States

Railway freight traffic trends

Chart: Net income or net deficit after fixed charges. _

Table: Condensed income account

Chart: Total operating revenues, total operating

expenses and net railway operating income

Chart : Rate of return

Table: Property investment, net railway operating

income and ra* e of return

Chart: 1939 and 1916 railway dollar compared

Table : How the railway dollar is spent

Table: Railway operating expenses

2499.

2500.
2501.

2502.

2503.

2504.

2505.

2506.

2507.
2508.

2509.

^510.

2511.

2512.
' On file with the committee.

Table
Table
Chart
Table
Chart

Chart
Table
Chart
Table
Table

Intro-
duced
at page—

16474
16477
16477

16481
16482

16484
16484.
16484
16484
16484

16506

Appears
on page—

16562

16564

16568

16569

16569 ,

16569 I

16569

16570

16572

10572

16:;;^

16573

16575
16575
16577
16577

16577
16577

16577
16577
16577
16577

17341

(')
17341

17342
16483

17343
16485
16486
16487
16488

17345

16516

17346

16552

17350

16553

17350

16557

16558

17351

16559

17351

16562

17352

16562

17352

16562

16563

17353

16564

17353
16568
17354
17354
16570
17355
16571

i73rr

i6.|i72
17355
16573
] 7356
16574
17356

17357

(')
16577
17358

16578
16579

17350
16579
17359
17359

CONTENTS
SCHEDULE OF EXHIBITS— Continued -

Number and summary of exhibits.

2513. Chart: Maintenance ratio

2514. Chart: Five year averages compared with year 1916_.
Table : Railway taxes per dollar of earnings

2515. Chart: Percent of total mileage operated by receivers

or trustees __

Table: Railwav receiverships and trusteeships at close
of each year," 1921 to 1939

2516. Chart: Trend in railway supply costs since May 1933_
Table: Index of railway material and supply costs. _.

2517. Chart: Employees and hourly compensation

Table: Employees, hours, and compensation

2518. Chart: Unit cost of operation

Table: Unit cost of operation

2519. Chart: Freight train speed — miles per hour between

terminals

2520. Chart: Freight cars per train

2521. Chart: Gross ton-miles per freight train-hour

2521-A. Table: Freight operating averages

2522. Chart: Fuel conservation

Table: Fup.l conservation

2523. Chart: Loss and damage expenses per dollar of freight

revenue

Table: Loss and damage expenses

2524. Chart: Casualties to employees in train, train-service

and nontrain accidents

Table: Casualties to employees in train, train-service,
and nontrain accidents

2525. Chart: Casualties to passengers on trains in train and

train-service accidents

Table: Casualties to passengers on trains in train and
train-service accidents

2526. Chart: Total loss and damage and injuries to per-

sons— expenses per dollar of total operating reve-
nues

Table: Loss and damage and injuries to persons, ex-
pense

2527. Memorandum: Detailed analysis of technological

advance in the railroad industry with respect to
maintenance, of way

2528. Chart: Example of labor-saving machine

2529. Chart: Buiro crane

2529-A. Photograph of burro crane

2529-B. Table: Burro crane

2530. Table: A typical main track railroad

2531. Table: Total railway capital outstanding

2532. Table: Investment in road and equipment

2533. Table: Number and tractive effort of steam locomo-

ti ves

2534. Table: Average tractive effort of steam locomotives

in service

2535. Table: Fuel consumed in freight and passenger scrvice.

2536. Table: Locomotives, passenger and freight cars in-

stalled and retired

2537. Table: Average capacity of freight cars in service

2538. Table: Ties laid in replacement

2539. Table: Annual expenditures for small tools and sup-

plies, and roadway jiiachiireiS

' On flie'^th tlie committee.

Intro-
duced
at page-

16577
16577
16577

16577

16577
16577
16577
16577
16577
16585
16585

16586
16586
16586
16586
16591
16591

16592
16592

16592

.16592

16592
16592

16595
16597

16600

16600
16601
16614
16614

16615

16616
16616

16617
16617
16619

16619

Appears
on page—

16580
16580
17360

16581

17360
16581
17361
16582
17361
16586
17362

16587
16587
16588
17362
16592
17363

16593
17363

16594

17364

16594

17364

16595
17365

16599

/Facing

I 16600

fFacing

[ 16600

17366

17367

17368

17369
17369

17370
17370
17371

17371

CONTENTS
SCHEDULE OF EXHIBITS— Continued

Number and summary of exhibits

Intro-
duced
at page-

Appears
on page—

2540. Table: Total number of employees, total number of

hours worked, and total compensation

2541. Table: Average number of employees by major sub-

division

2542. Table: Average hourly or daily earnings of employees

by major subdivisions ,_'

2543. Chart: Average hourly compensation of railroad em-

ployees in the United States

2544. Table: Total operating revenues and total employees'

compensation

2545. Table: Distribution of railway operating revenues

2546. Table: Operating revenue per employee, per hour of

service and per dollar of compensation

2547. Chart: Revenue and wages per ton-mile

Table: Freight revenues per revenue ton-mile, etc

2548. Table: Total mileage of track operated

2549. Chart: Employees and wages per mile of track oper-

ated ■.

2550. Chart: Revenue freight ton-miles per employee

Table: Revenue freight ton-miles per employee

2551. Chart: Total revenue freight ton-miles and total

wages

Table: Wages paid per 1,000 revenue ton-miles

2552. Chart: Gross ton-miles per employee

Table: Gross ton-miles per employee

2553. Chart: Ton-miles per dollar of wages, etc

Table: Wages per 1,000 gross ton-miles

2554. Chart: Operating expenses per 1,000 revenue ton-

miles ,

Table: Operating expenses per 1,000 revenue ton-miles.

2555. Chart: Operating expenses per 1,000 gross ton-miles_.
Table: Operating expenses per 1,000 gross ton-miles..

2556. Table: Revenue freight ton-miles and gross ton-miles

per dollar of operating expense

2557. Table: Operating expenses per mile of road and per

mile of all tracks

2558. Table: Increased efficiency and productivity reflected.

2559. Table: Cost of clearing wrecks, and damage to

property

2560. Tabic: Traffic units

2561- Tables: Decrease in employment opportunities

2568.

2569. Chart : Growth of the Bell System

2570. Chart: Employees and payroll, Bell System ■ —

2571. Chart: Force losses. Bell System

2572. Statement: Technology in the Bell System with par-

ticular reference to employment - —

2573. Chart: Production employment and income distribu-

ted. Bell System, 1919-1938

Table: Production, employment and income distrib-
uted, etc

2574. Article: "The Dial Telephone and Unemployment,"

from Monthly Labor Heview, February 1932

2575. Article: "Text of P^pochal Telephone Decision," from

the Journal of Electrical Workers and Operators,
June 1934

2576. Article: "Costly Dials Make Subscribers Work,"

from the Journal of P'lectrical Workers and Oper-
ators, March 1935

16621

16624

16625

16626
16626

16627
16628
16628
16629

16629
16629
16629

16629
16629
16629
16629
16629
16629

16629
16629
16629
16629

16629

16629
16629

16629
16629
J6629

16640
16642
16647

16656

16664

16678

16679 I (')

1 On flle'with the committee.

XVI

CONTENTS
SCHEDULE OF EXHIBITS— Continued

Number and summary of exhibits

Appears
on page—

2577.

2578.

2579-
2581.

2582.

2583.

2584.
2585.

2586.

2587
to

2604.
2605.

2606.
2607.
2608.

2609.

2610.
2611.
2612.

2613.
2614.

2615.

2616.
2617.

2618.

2619.
2620.

2621.

2622.

2623.
2624.

Article: "Gifford's Chickens Come Home to Roost,"
from the Journal of PJlectrical Workers and Oper-
ators, April 1936

Article: "More Glimpses into Private Life of A. T. &
T," from the Journal of Electrical Workers and
Operators, December, 1939

Tables: St'ected data showing the development
through the years 1926 to 1938, inclusive, of Class A
telephone carriers

Table: Relative activity of Western Electric Com-
pany's pJant-r

Table: Bell System — index of output per employee
and employee man-hour

Table: Progress of dialization in Bell System

Table: Production, employment and productivity
summarv indexes for the telephone industry ^ — Op-
erators: "^1919-37 1

Table: Production, employment and productivity
summary indexes for the telephone industry — all
employees: 1919-37

Appears in Hearings, Part 28, appendix, pp. 15634-
15641

Statement of James B. Carey, general president.
United Electrical, Radio and Machine Workers of
America

Memorandum: List of companies in which workers'
conditions were improved by unionization

Table: Wages and hours of labor at the IBM Endicott
Plant, 1926-1939

Table: Routine clerical workers: Cumulative percent-
age distribution of annual earnings in large and
small cities, 1929 .

Table: White collar workers compared with total gain-
fully emj )ioyed

Table: Growth of clerical class

Table: White collar workers in industry

Table: Clerical and professional workers employed
and unemployed

Table: Distribution of clerical employees in 30 cities--

Table: Median annual income of clerical and profes-
sional employees by age groups

Table: Weekly hours of office employees in private
business, 1928

Table: Overtime compensation table

Table: Productivitv and labor requirements in manu-
facture of cotton textiles, 1910 and 1936

Table: Percent of increase in man-hour output of
processing departments in 1936 compared with 1910_

Table: Man-hour output in textile industries

Table: Index of output per man-hour in the cotton
goods industry

Table: Labor productivity and man-hour require-
ments in manufacturing woolens and worsteds,
1910 and 1936

Table: Changes in man-hour output of woolens and
worsteds '.

Table: Annual fiber consumption in the United States.

Table: Index numbers of wholesale prices of textile
products

16679

16699

16705

16705
16705

16705

16705
16727

16728
16746
16763

16775

16800
16800
16801

16804
16806

16806

16806
16807

16838

16838
16839

16839

16840

16840
16844

16844

(')

17408

17410

17411
17411

17411

17412

17424

17425

17425
17426
17426

17426
17427

17427

17428

17429
17429

17429

17430

17430
17431

17431

On file with the committee.

CONTENTS
SCHEDULE OF EXHIBITS— Continued

XVII

Number and summary of exhibits

Intro-
duced
at page-

Appears
on page—

2625. Chart: Indexes of production, employment and man-

hours in the textile industry

Table: Outstanding statistical facts in address of Emil
Rieve

2626. Table: Indexes of total man-hours and employment

in the textile industry

2627. Table: Spindles in place, 1921-39

2628. Chart: Distribution of silk by trades

2629. Chart: Pfoduction of silk and rayon goods, etc

2630. Chart: Production of woven goods

2631. Chart: Spot silk and rayon prices, yearly averages

2632. Chart: United States consumption of raw silk and

rayon yarn in the weaving industry

2633. Chart: Income reports of silk and rayon weaving

mills -

' 2634. Table: Index of employment in manufacturing indus-
tries and railroad industry

2635. Book: Main Street, not Wall Street

2636. Memorandum: Machinery creates jobs — What of it?..

2637. Chart: Shifts in occupations, 1870-1930

2638. Chart: Working population in agriculture, etc

2639. Chart: Movement to and from farms, 1920-38

2640. Chart: Estimated rural-farm population

2641. Chart: Rural farm, population — total entrants to age

group 15-64, 1930-40

2642. Chart: Totally unemployed and emergency workers,

male, living on farms, November 1937

2643. Chart: Partly employed males living on farms, etc

2644. Chart: Percentage in each tenure class gainfully em-

ployed in agriculture, etc .

2645. Table: Adjusted sharecropper and wage laborer net

income in specified localities, 1932-37

2646. Table: Income of hired laborers

2647. Table: Farm labor income

2648. Table: Agricultural employment in the United States,

1909-39

2649,2650. Charts: Hours peracre

2651. Chart: Variations by areas in labor used per acre in

producing corn , 1 909-36

2652. Chart: Labor used per acre producing cotton in major

areas i

2653. Chart: Man-hours per acre

2654. Chart: Man-hours per 100 bushels

2655. Chart: Tractors; number on farms, 1915-39

2656. Chart: Horses and mules on farms, 1915-39

2657. Chart: Percentage of wheat acreage harvested with

combine in 1938

2658. Chart: Percentage of acreage of corn harvested with

mechanical field picker, 1938

2659. Chart: Labor on a 320-acre central Kansas farm

2660. Chart: Relation of employment in agriculture to the

size of agricultural enterprise -

2661. Chart: Relation of employment in agriculture to agri-

cultural production

2662. Chart: Combined investment in work stock, ma-

chinery and mechanical power en farms operated
with horses and tractors

2663. Table: Comparative costs of operating a 320-acre

wheat farm with horses or with tractor

16843

16845

16846
16850
16879
16883
16884
16885

16886

16888

16845

17431

17432
17433
16879
16883
16884
16885

16886

16889

16900
16909
16909
16923
16924
16925
16926

17433

17434
16924
16924
16925
16926

16927

16928

16928
16930

16929
16930

16931

16933
16933
16934

17440
17441
17442

16938
16941

17443
16942

16944

16945

16944
16946
16946
16947
16949

16946
16947
16948
16948
16949

16950

16951

16952
16952

'16953
16954

16954

16955

16956

16959

16961

17444

' On file with the committee.
124491 — 11— pt. 30-

XVIII

CONTENTS
SCHEDULE OF EXHIBITS— Continued

Number and summary of exhiDiis

Intro-
duced
at page-

Appears
on page—

2664. Table: Comparative cost of operating a 200-acre farm

with horses or with tractor

2665. Table: Expenses of operating plantations with crop-

pers and mules, etc

2666. Table: Comparison of net plantation income under

two systems, etc

2667. Chart: Total farm mortgage debt and ratio of debt to

value of farm real estate, United States, 1910-39

2668. Table: Changes in farm mortgage debt, etc

2669. Table: Estimated amount of farm-mortgage loans out-

standing, 1910-39

2670. Chart: Percentage of the value of farm real estate

belonging to the farm operator, etc

Table: Percentage of the value, etc

2671. Table: Equities in farm real estate, etc

2672. Table: Total farm-mortgage debt, etc

2673. Chart: Short-term loans to farmers held by commer-

cial banks, etc

2674. Table: Total farm real estate taxes, etc

2675. Table: Estimated number of farms changing owner-

ship, etc

2676. Table: Farm real estate held by leading lending agen-

cies, 1929-39

2677. Table: Gross income from farm production, etc

2678. Table: Cash farm income, etc

2679. Chart: Per capita farm and nonagricultural income,

etc

2680. Table: Distribution of gross farm income, etc

2681. Chart: Price comparisons, farm machines and other

products

2682. Chart: The farm dollar

2683. Chart: Origins of migrants to California, 1935-1937. .

2684. Chart: Origins of migrants to Oregon, 1933-1936

2685. Chart: Origins of migrants to Washington, 1932-36--
2685-A. Table: Measures of concentration in California agri-
culture -

2586. Chart: Percentage distribution of number of farms, etc.

2687. Chart: Farms and wage workers, etc

2688. Chart: Average cash expenditure for labor, etc

2689. Chart: Farms employing no hired laborers. Pacific

^region and California -

2689-A. Expert testimony presented at hearings of the sub-
committee of the United States Senj.te Committee
on Education and Labor, etc

2690. Chart: Residence in 1930 of 19,786 agricultural fami-

-lies moving to California, 1930-39

2691. Chart: Residence in 1930 of 1 1,201 agricultural families

moving to the Pacific Northwest, 1930-39

2692. Chart: Potential productive capacity, income pro-

duced, and expenditures for public education, 1929-
1934

2693. Chart: Index of educational expenditures and other

governmental expenditures, 1926-34

2694. Chart: Estimat-ed causes of increase in school cos+s,

1914-30

2695. Chart: Trend in number of youth in the United States,

1920-52

16962

16963
16965

16966

16967
16967
16967
16969=

16969
16972

16973

16973
16973
16976

16982
16984

'17004

17004
17043
17045
17046

17055
17056
17056
17060

17081

17064
17081
17081

17084
17084
17084
17084

17445

17446

16963
17446

17447

16968
17448
17448
17449

16970
17450

17451

17451
17452
17453

16982
17454
/Facing
\ 17004
17005
17043
17046
17047

17455
17057
17058
17061

17456

17456
17457
17458

17459
17460
17461
17462

CONTENTS
SCHEDULE OF EXHIBITS— Continued

XIX

Number and summary of exhibits

Intro-
duced
at page-

Appears
on pat'e —

2696. Chart: Percentages of state and local taxes and ap-

propriations for public elementary and secondary
schools derived from property taxes, etc., 1935-36_

2697. Chart: Effort and adequacy, 1934

2698. Chart: Children under 16 years of age and national

incomes

2699. Chart: Proportion of native sons and daughters living

in other states, 1930

2700. Chart: Proportion of state residents born outside the

state, 1930-- .

2701. Chart: Does education pay?

2702. Chart: Expenditure per pupil in average dailv at-

tendance, 1933-34 .■

2703. Chart: Current expense per pupil, etc., 1930-38

2704. Chart: Per capita retail sales, 1933

2705. Chart: Freedom from farm tenancy, 1935

2706. Chart: Rate per 100,000 population of deaths from

homicide, 1934

2707. Chart: Freedom from infant mortality

2708. Chart: Percentage of children of high-school age en-

rolled in public and private schools since 1890

2709. Chart: ReaUzed private production income, 1799-1937

2710. Chart: Why do youth leave school?

271 1 . Chart: Relation of fathers' occupations to the amounts

of education their children received

2712. Chart: The jobs youth want and the jobs they get..

2713. Chart: To what extent do j«outh receive vocational

guidance from schools? _.

2714. Chart : Test scores of high-school seniors

2715. Chart: Enrollment in vocational schools, 1918-1939..

2716. Chart: Enrollment in federally aided agricultural de-

partments, 1918-1939

2717. Chart: Enrollment in federally aided trade and in-

dustrial classes, 1918-1939

2718. Chart: Enrollment in federally aided home economics

departments, 1918-1939

2719. Article: Cooperative part-time diversified occupa-

tions program .

2720. Table: Number of pupils enrolled in specified voca-

tional schools, federally aided, by type of class,
1318-1939

2721. Table: Amount expended from federal, state, and

local money for vocational education, 1918 to 1939- .

2722,2723. Photographs: Burgard Vocational High School

2724. Chart : Vocational agriculture

2725. Chart: Vocational agricultural departments

2726. Chart: Enrollment in vocational schools or classes

operated under state plans, 1918-39

2727. Chart: Enrollment in federally aided trade and in-

dustrial classes, 1918-39

2728. Pamphlet: Training for the painting and decorating

trade

2729. Chart: Expenditure of funds for trade and industrial

education

2730. Article- Cooperative part-time diversified occupa-

tions . f ogram

1 On file with the co^nmittee.

17084
17084

17084

17084
17084

17084
17084
17084
17084

17084
17084

17084
17084
17084

17084
17084

17084
17084
17084

17084

17145

17145
17158
17159
17159

17160
17163
17167
17168
17168

17463
17464

17405

17466

17467
17468

17469
17470
17471
17472

17473
17474

17475
17476
17477

17478
17479

17480
17481
17482

17483

17484

17485

17486

17489

17490
/Facing
1 17158

17160
/Facing
1 17164

17161

17162

(')

17493

17494

CONTENTS
SCHEDULE OP EXHIBITS— Continued

Number and summary of exhibits.

Intro-
duced
at page-

Appears
on page—

2731. Table: Number of pupils enrolled in specified voca-

tional schools, etQ., 1918-1939

273 1-A. Chart: Enrollment in federally aided home economics

departments, 1918-1939

2731-B. Chart: Enrollment in federally aided agricultural de-
partments, 1918-39

2732. Table: Amount expended from federal, state, and

local money for vocational education, etc., 1918 to
1939

2733. Chart: Number and percentage of persons employed

in different age groups, as painters, glaziers, and
varnishers, 1930

2734. Table: Distributive workers, 1930

2735. Statement: Examples of study units on economic

problems from American secondary schools

2736. Statement: Summary of testimony relating to edu-

cation

2737. Statement submitted by Charles O'NeiU, president.

United Eastern Coal Sales Corporation

2738. Memorandum: Technological disemployment in the

coal industry

2739. Memorandum: Technological changes in bituminous

coal mining and their social-economic consequences.

2740. Chart: Displacement of miners by mechanization in

deep bituminous mines

2741 to 2743. Chart: Displacement of coal miners, etc

2744. Chart: Energy consumption per capita provided by

coal and other fuels related to industrial production _

2745. Chart: Indicesof employment and productivity output

and man-hours worked in bituminous coal industry.

2746. Chart: Tonnage of bituminous coal mechanically

loaded in deep mines

2747. Chart: Petroleum production and revenues in 1937

2748. Chart: Displacement of mines by mechanization

2749. Statement: Technological unemployment and decen-

tralization in the rubber industry

2750. Chart: Industrial pi'bduction during three depression

periods— 1872-1882, 1892-1902, 1929-1939

2751. Chart: Industrial production and the labor supply

during three depression periods

2752. Memorandum: Work Projects Administration, Na-

tional Research Project, reports published as of

April 1940

2753 to 2758. Tables: Indexes of production, employment,
and productivity in various industries

2759. Table: Investment and operating costs or three sizes

of petroleum-refining equipment, 1939

2760. Table: Cost of instrumentation of three sizes of petro-

leum-refining equipment, 1939

2761. Table: Industrial-instrument expenditures per $1,000

worth of machinery and equipment

2762. Table: Trend toward automatic-control instruments .

2763. Table: Automatic control of -heat treating of steel

2764. Table: Concentration of industrial research, 1938

2765. Table: Concentration of research in various industries,

1938

2766. Table: Labor requirements per uiiit of output for

large and small operations

' On file with the committee.

17168
17168
17168

17168

17497
17499
17500

17501

17168
17168

17503
17503

17178

17504

17179

17515

17186

17516

17187

17536

17199

17551

17200
17203

17201
17558

17203

17561

17203

17562

17203
17203
17203

17563
17564

17219

17564

17222

17223

17224

17221

17577

17221

17582

17221

17584

17221

17585

17221
17221
17221
17221

17585
17585
17585
17586

17221

17586

17221

17587

CONTENTS
SCHEDULE OF EXHIBITS— Continued

KXI

Number and summary of exhibits

Intro-
duced
at page-

Appears
on page—

2767. Memorandum: Productivity and employment in

agriculture

2768. Memorandum: EflFects of tractor and motor vehicles

on farm labor requirements

2769. Memorandum: EflFects of changes in field implements

on farm labor requirements

2770 to 2776. Memoranda: Labor requirements in various
agricultural productions. _.

2777. Memorandum: Employment and relief problems and

migration of the lumber industry

2778. Memorandum: EflFects of mechanization of bitumi-

nous-coal mining on labor requirements ^

2779. Table: Employment status of textile workers during

year following mill shut-down in 1935

2780. Table: Duration of unemployment since last job of

weavers and loom fixers who were unemployed in
May 1936

2781. Table: Volume of unemployment experienced during

1926-35 by weavers and loom fixers

2782. Table: Age distribution of cigar-machine operators

and of hand cigar makers whom they replaced

2783. Table: Employment status of hand cigar makers dur-

ing five years following displacement in 1931

2784. Chart: Employment and pay rolls, cement

2785. Chart: Employment and pay rolls, structural and

ornamental metalwork

2786. Chart: Employment and pay rolls, lumber-sawmills..

2787. Chart: Employment and pay rolls, brick, tile, and

terra cotta ^

2788. Chart: Value of building construction as indicated by

building permits

SUPPLEMENTAL DATA

Unnumbered. Letter from William S. Elliott to H. Dewey An-
derson in connection with his testimony

17221
17221
17221
17221
17221
17221
17221

17221

17221
17252

17253
17253

17253

17079

17587
17588
17588
17589
17593
17593
17594

17595

17596

17596
17254

17254
17255

17255

17256

17597

INVESTIGATIOJS OF CONCENTKATION OF ECONOMIC POWER

MONDAY, APKIL 8, 1940

United States Senate,
Temporary National Economio Committee,

Washingt^nt D. C.

The committee met at 10:45 a. m., pursuant to adjournment on
Saturday, March 23, 1940, in the Caucus Room, Senate Office Build-
ing, Senator Joseph C. O'Mahoney presiding.

Present: Senators O'Mahoney (chairman), and King; Representa-
tives Sumners (vice chairman), Williams, and Reece, Messrs, Pike,
Hinrichs, O'Connell, and Brackett.

Present also : Representative Richard J. Welch, of California ;
Frank H. Elmore, Jr., Department of Justice; Dr. Francis Walker,
Federal Trade Commission; George E. Biggs, Social Security Board;
and Dr. Dewey Anderson, economic consultant to the committee.

The Chairman. The committee will please come to order.

Steady improvement in technology has been the distinguishing mark
of our time. No generation in history has seen anything to compare
with the advance of science and invention accomplished during this
generation. More than that, the 10 years since the crash of 1929 have
probably seen the establishment of more new industries and greater
teclinological gains in old industries than any decade since the human
race first began to measure time.

It was in the midst of the depression that commercial aviation
conquered both the Atlantic and the Pacific Oceans. Recovery was
still only a dim hope when the railroads began to introduce the stream-
liner. Communication by telegraph, telephone, and radio was stead-
ily becoming easier and more efficient and more widespread during
the same period. The steady advance of chemistry was creating new
commodities for the convenience and enjoyment and service of man.
Every year saw new and greater improvement in motion pictures,
including the altogether remarkable development of technicolor.

The same decade which has been notable for its steady demand upon
Congi-ess from the States and the cities of the land for ever larger
appropriations to provide work for the unemployed has seen new
achievements in every branch of human knowledge and industry. All
of these are the gifts of technology to mankind. Yet in the face of
them, unemployment of men, unemployment of money, unemployment
even of the machine which technology has developed, remains an
unsolved problem.

It is clear, therefore, that one of the major tasks to be performed
by the use of human intelligence is the adjustment of our wonderful
technological civilization to the immediate and pressing needs of
human living. So today the Temporary National Economic Com-

16207

16208 CONCENTRATION OF FCX)NOMIC POWER

mittee begins this hearing to develop the thought of leaders in the
world of industry, science, and economics, on this all-importaufc
riddle of our time, namely, why it is that in a world of inexhaustible
natural resources, inhabited by men who know more about the
physical and chemical secrets of nature than all the generations which
have preceded them, we still have not learned how to apply the
^wonders of technology to the abundance of nature in such a fashion
as to provide decent jobs for the millions of idle who are able and
willing to work.

The leaders who have been invited here to testify are under no
direction or restriction of any kind. The committee is only seeking
light. We are not trying to prove a case for any remedy or for any
approach. We are not seeking to solicit evidence to justify more
government, or to justify increased expenditures. We are not trying
to prove that men should be regimented by law, limiting their right
to work, or that the use of machines should be in any way restricted
or made more difficult.

I say this because I want to make it quite clear at the outset that
this hearing must not be regarded as in any sense especially designed
to implement the bill to reduce unemployment which I recently intro-
duced and which was by many altogether incorrectly described as a
tax on machines.

No member of this committee, no employee, no witness, can speak
for the committee. In this as in all previous studies, we are pursuing
an objective search for facts. Conclusions have not been preconceived,
but will take care of themselves when the facts have been developed.

In the prej)aration of this hearing, the committee has designated
Dr. Dewey Anderson, an economic consultant for the committee, who
has had broad experience in this general field, to act as counsel and
to question the witnesses.

Are you ready to proceed, Dr. Anderson ?

Dr. Anderson. Mr. Chairman and members of the committee, as
has been outlined by your chairman, tlie hearings that will be con-
ducted in the next 3 weeks will attempt fo get c.t certain of the major
problems of technology', unemployment and the concentration of
industry. In building these hearings, we have sought to get together
and bring before you witnesses who represent large industries, or
industries in which technology is a paramount feature and in which
employment is large.

We do not propose to offer these witnesses as a whole as repre-
sentative of all that is occurring in industry, but rather as case
studies of various aspects of the technological problem. From day
to day, in introducing successive witnesses, we will outline the reason
for bringing them before you and the matters they propose to discuss.

In today's hearing we break open the problem with a basic study
of technology in relation to the concentration of economic power made
by Dr. T. J. Kreps, economic adviser of the committee. Following
his testimony today, Mr. Watson Davis, editor of /Science Service, will
outline new and impending technology, and lay out some of the fields
of technology that are still to be explored.

Dr. Kreps is prepared to discuss the topic at this time as the
witness of the committee.

CONCENTRATION OF ECONOMIC POWER 16209

STATEMENT OF THEODORE J. KEEPS, ECONOMIC ADVISER,
TEMPORARY NATIONAL ECONOMIC COMMITTEE

Dr. Kreps. Technology, or the science of technique, includes all in-
novations in the arts of production and trade brought about by science,
invention, and scientific management. It has created, and is contin-
ually transforming, modern industrialism. Its elemental power
caused and v.ill continue to make necessary continuous changes and
adjustments in our economic, political, and social order. Harnessed
to consumer welfare, -it is a most powerful servant, capable of open-
ing up a vast industrial frontier of unexplored abundance.

Without technolooy the United States would still be a primitive
society. There would be few large factories, hardly any concentra-
tion of production, few large corporations in production, finance,
and trade, a much smaller world-wide interchange of large volumes
of goods and services, less controversy over foreign-trade policy, and
no serious national problem either of idle men, or idle money, or idle
machines. There would also be little, if any, leisure, little release
from back-breaking toil, few comforts and fewer luxuries, at least
for the masses of the people, and certainly no extensive technological
base upon which to build that great democratic civilization which is
our goal and dream.

The problems of technology being numerous and complex, I pro-
pose to raise only a few of wnat seem to me to be the most important
questions and divide my task into three parts.

I. I am going to take a brief glance at the history and background
of technology and ask :

(1) What are some of the important innovations which have
changed modern methods of production and trade?

(2) AVhy is the invention of the art of invention the most impor-
tant of all inventions?

(3) Do technical innovations come along in haphazard fashion or
can thev be predicted?

(4) "^Vlio introduces them? Why?

(5) Will technology transform all branches of human effort, or
is its scope limited?

II. In the second portion, I am going to take a look at some of
the more important economic effects and ask :

(1) How can one measure the various changes caused by tech-
nology ?

(2) What important new industries have been created by tech-
nology ?

(3) What happens when labor is actually displaced? Where do
displaced workers go? How long do" they have to hunt for a new
job? What sort of job do they get? WTiat happens t« their pay?

(4) How has technology affected the productivity of the worker?
(o) What has happened to the occupations of our labor force?

How ?

(6) What special problems are raised by capital-saving inventions?

(7) Who receives the benefits of technology?

(8) Is technology a basic factor in modern business fluctuations?

16210 CONCENTRA'tLON OF ECONOMIC POWER

III. In the third portion, I intend to try to get some notion of
ihe most important general or social effects, and in particular ask :

(1) ^Without technology would there be so much large-scale pro-
duction and such large industrial aggregates as there are today?

(2) Is fhere any connection between technology and the increase in
recent decades of the number and power of pressure groups?

(3) Has technology made the world an economic unit?

(4) If man does not Jearn to control technology, may its power de-
stroy him?

(5) Can it be harnessed to create an "America unlimited"?

Many of the ^lost important technological innovations occurred be-
fore the dawn of human history. About 150 years ago that modem
miracle of scientific advance and invention commonly called the Indus-
trial Kevolution began to speed through the textile industry of Great
Bx'itain. Starting slowly at first, it soon spread not only horizontally
to continental Europe and thence to the rest of the civilized world, but
also vertically with increasing crescendo through industry after indus-
try, iron and steel, railroads, steamships, agricultural implements,
public utilities, automobiles, and the myriad wizardries of chemical
enterprise.

Tliroughout its history/technology has required a price for its bless-
ings, and consequently it has been subject to resistance. Even in
England 150 years ago there were machine-breaking riots, persecu-
tion of inventors, and legal restrictions. John Kay, who invented the
flying shuttle in 1733, had to leave England. Hargreaves, the inventor
of the spinning jenny, was attacked by a mob in his home and his
model destroyed. Crompton, after inventing the spinner's mule in
1779, had to flee into hiding.

Technology for decades has been vigorously attacked as one of the
major causes of depression, not only in the United States but through-
ouu the world. I am going to cite but one example from our own
history.

After the severe depression of 1873, numerous congressional commit-
tees were appointed with special instructions to search for causes.
Thirteen years later, in 1886, th- search culminated in an interesting
volume entitled Industrial Depressions^ constituting the first annual
report of the first Commissioner of Labor, the famous Carroll D.
Wright.

This study, full of lugubrious prophecies that have not come true,
^ives a detailed analysis of labor-saving devices of that day, especially
the detrimental effects. In short, complaints about technology are as
old as the hills. But it should be pointed out with emphasis, they
are no older than certain other complaints that are heard at the
present time. And, being old, the complaints are not necessarily
groundless.

REPORT ON THE DEPRESSION OF 18 73

Dr. Krefs. Now let me just look at some of these other causes which
businessmen back in the 1870's asserted made it impossible for business
to go ahead any further :

Undue influence of agitators.
Disturbed value of gold and silver.
Class legislation.

CONCENTRATION OF ECONOMIC POWER 16211

Extravagance in government expenses.

Depreciation of currency.

National debt.

Acts that startle money lenders, causing them to withdraw funds

and refuse loans.
Low prices for agricultural products.
Fear of adverse legislation relative to banks.
Timidity of capital.

Unfavorable and reckless legislation in Congress.
Uncertainty of the future monetary standard.
Democratic Party in power.
Want of confidence in Government.
Overproduction.
Political distrust.

Want of adjustment between production and consumption.
Enormous taxation.^

In this same report are also listed various remedies suggested by
business for that depression, some by no means unheard of today,
such as —

Good judgment and hard work.
Confidence.

Check legislative derangement of the currency.
Reduce the salaries of officers of the Government.
Abolish all unnecessary offices of the Government.
Rigid economy of the Government.
Local self-government with no Federal interference.
Enact laws against communistic schemes.
Abolish taxation.

Let Government give attention to the individual needs of its citi-
zens.
Elect men of better judgment to Congress.
And, finally, restrict the powers of the President.^

Needless to say, the controversies raised by technology have not
diminished since 1886, nor are they likely to in the future.

The term "technology" in its narrowest sense refers to changes in
technical processes, the machinery, the plant, and equipment used by
businessmen to manufacture and distribute their product. In the
typical instance such changes increase the product per man-hour of
labor or improve the quality. But there have been many increases
in productivity due to factors other than changes in mechanical ap-
paratus, notably improvements due to scientific management regu-
larizing the flow of production, lowering costs, and the like. A change
in floor plan providing a more even flow of raw materials, standardiza-
tion of materials, a faster or more even flow of farm, factory, and
mining products to markets, reducing inventories and lowering the
cost of warehousing, improved factory lay-out and machine assembly,
economies in the use of power, better selection of personnel with re-
duction of labor turn-over, time and motion studies reducing the effort
required by labor to do specific tasks — all those come under the gen-
eral heading of technology.

1 The First Annual Report of the Commissioner of Labor, Industrial Depressions, March
18S6, pp. 61-n:5.

2 liiJ., pp. 264-270.

16212 CONCENTRATION OF ECONOMIC POWER

Technology is consequently much broader than invention or even
mechanical developments. Its sweep does not depend on the genius
of singly individuals. Its advance is like that of a tide, where no
one wavelet is of more than transitory importance. Technical prog-
ress, like the building of a coral island, is the accumulation of the
contribution of multitudes of individuals, capitalists, laborers, engi-
neers, technicians, and scientists.

Changes in technical development are not haphazard. They are
the results of the fundamental onward march of scientific knowledge.
For innovation is a cumulative process, being usually a rearrangement
or combination of earlier inventions and scientific discoveries. As the
number of inventions increases, the number of possible permutations
and combinations multiplies. This can only mean (barring catastro-
phes) that we are facing not the end of invention but, on the con-
trary, an acceleration of the rate of invention. It is entirely prob-
able that we are today on the threshold of a greater period of techno-
logical advance than ever before in our history.

I have prepared an exhibit of innovations that are of major
importance to industry. It by no means comprises a full list of scien-
tific discoveries. For instance, none of the medical discoveries is
listed. Tbls exhibit shows in striking fashion the increase in the
number of such innovations from before the tenth century on to the
present day. For instance, there are only 3 items listed in the tenth
century, four in the eleventh. But by the time we get to the eight-
eenth and nineteenth centuries the list of these innovations runs into
pages.

I would like to offer this exhibit for the record.

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

(The document referred to was marked "Exhibit No. 2428" and is
included in the appendix on p. 17269.)

INVENTION OF THE ART OF INVENTION

Dr. KjtEPs. By far the most significant invention made in the
nineteenth century was, as Dr. Alfred North Whitehead, the noted,
philosopher at Harvard University, has so well stated in his book,
Science and the Modern World, the invention of the art of invention.
Laymen who have no knowledge of the way in which inventions are
made frequently labor under the delusion that inventions are hap-
pened upon by some lucky break, by some peculiar feat of genius, by
some peculiar aptitude for contrivance or manipulation. And indeed
this is the manner in which previous to the nineteenth century most
inventions were actually made.

But after 1850 the progress of science, particularly of the physical
sciences, became so systematized that the invention of a product was
first blueprinted before realized by processes of deduction and syn-
thesis in the industrial plant. Just as astronomers, by mathematical
computations of the most complicated sort, insisted that there must
be another planet in the heavens and later found Uranus, so chemis-
try, particularly after the promulgation by Kekule of his famous ring
theory of the structure of carbon, developed the ability to produce
almost any desired color and property simply by a knowledge of the
architecture of matter. Thus the contact process for sulfuric acid
started with elaborate mathematical computations because that was

CONCENTRATION OF ECONOMIC POWER. 16213

the only practical way in which to find the one best set of conditions
under which the synthesis of sulfuric acid by the contact ' process
could be achieved. The most highly theoretical in modern times is
in many cases the most eminently practical.

It is this technique of scientific blue printing by means of involved
chemical and mathematical formulas which has made the industrial
research laboratory the creator of new processes and new products, the
critic of existing techniques; in short, the industrial and commercial
intelligence section of a modern business. Industrial research labora-
tories today aren't places in which so-called contriving geniuses work.
They are, rather, clusters of workers completely familiar with the most
advanced scientific techniques of analysis who cooperatively explore
the terrain which their theoretical compilations have shown to be most
likely to produce results. Thus, in honoring the inventors of Nylon
recently, the du Pont Co. asked that a group of 11 of their men share
the award. Invention, in short, is a cooperative product, whether by
international collaboration of scientists or by a program of industrial
research financed by large corporations.

WHY ARE INNOVATIONS INTRODUCED ?

Dr. Kreps. The primary purpose of businessmen in introducing
new machinery or new methods is, of course, to reduce costs of pro-
duction. That is first. The displacement of labor, while often a
result, is seldom a motive or cause.

Labor cost is, of course, a highly important item, particularly so in
the less-mechanized industries. But employers are interested in any-
thing that will redurri any other expense on their books. In an article
entitled Invention Und Discoveries^ Dr. S. C. Gilfillan examined a
typical sample of inventions and found only a third to be labor-
saving devices; 8 percent were land-saving, 14 percent were capital-
saving, and 45 percent created new kinds of consumers' goods. Busi-
ness welcomes new machines which economize fuel, power, and floor
space more than those which reduce the expense of labor and of direct
supervision. New machines may reduce one or more of any number
of costs — costs of raw material, maintenance, repair, inventory. If so,
they will in time be adopted.

But reduction in costs is not the onl^ reason. New machines arouse
pride and loyalty and efficiency in their workers. New machines pro-
mote cleanliness and safety in the shop, often make it fireproof. New
machines may change the design or processing or precision of the
prodiict, making it more acceptable to the market. Machines are
tireless, accurate, powerful, obedient, never talk back, and never go
on strike.

Numerous as are the advantages offered by machine, they will never
supplant human effort entirely. Machines may take over back-
breaking, simple, repetitive work. But there are definite limitations.
Even at the present time by far the larger proportion of American
labor is not occupied with machines, nor is it likely to be displaced
by them. There is a vast range of personal and professional services
in which the machine assists the laborer but does not supplant him —
barbering, medicine, and so forth. Even in the industries th^t are
sometimes thought to be dominated by the machine, a careful survey
made by Dr. Harry Jerome of the National Bureau of Economic

16214 CONCENTRATION OF ECONOMIC POWER

Research established the fact that in a representative group of plants
embracing a variety of manufacturing industries 44 percent of the
workers were hand workers even as late as 1925, 52 tDercent being
machine workers, 3 percent being supervisors, and 1 percent being
teamsters. The figures for individual industries are given in detail
in this exhibit, which I submit herewith.

The Chairman. The exhibit may be received.

(The table referred to was marked "Exhibit No. 2429" and is
included in the appendix on p. 17276.)

Dr. Kreps. Note that at that time, even in bituminous coal mining,
82 percent of the workers- were hand workers.

New machines easily arouse popular interest and attention. Hence,
their importance is often exaggerated. But the process of mechan-
ization is neither automatic nor inevitable. It depends on size and
weight of the product, on the uniformity of raw materials, and on
the degree of standardization possible, and the like. Adaptability
to use of power and mechanical and chemical engineering processes
is fundamental. The industry, the firm, the management, the tech-
nical labor force, and, above all, the customers, all vary in willingness
to accept and ability profitably to employ technological advance.

Coming now to the second part of the testimony, the Economic
Effects of Technology, some of the more important economic effects
are given in the outline below. This outline, it should be observed,
is in no way complete or exhaustive. It greatly oversimplifies the
problem because there are so many currents and crosscurrents inter-
acting simultaneously. There are short-run effects and long-run
effects, interindustry and intraindustry repercussions. But the out-
line does indicate the important types of technological change. Mr.
Chairman, I would like to put the outline directly into the record
without reading it in detail.

The Chairman. You want it to appear as a part of your testimony
at this point?

Dr. Kreps. Yes, sir.

The Chairman. Very well; it may be so ordered.

(The matter referred to follows:)

Important Types of Technological Change

I. Inventions of a new product or service in- Representative Problems
volving investment in new plant and new Raised,
enterprise :
A. If making a product or doing a job that
would otherewise not exist:

1. Buoyancy of exploring a new market Credit expansion.

may enlarge business borrowing Cyclical mal-investment.
and with a "multiplier" effect in-
crease the volume of production,
consumption and employment:
(a) Rapidity and extent of success
depends on economic condi-
tions, on market resistance,
on industrial controls, etc.
(6) Often increases inter-industry
and inter-commodity com-
petition.

2. May cause fight for share in con- Mass persuasion.

sumer dollar.

CONCENTRATION OF ECONOMIC POWER

16215

I — Continued.

B, If partly displacing an existitig product

or service:

1. Gives outlet for spirit of gain with

new investment, employment and

production, sometimes in new

areas.

Migration of industry.

Those making old product intensify
efforts to survive.

Abandoned plants.
Ghost towns.

II. Labor saving devices, especially those sub-
stituting machinery and mechanical
power for labor:
A. Manifold effects will depend on whether,
and the extent to which, net savings
are passed on in one or more or aU of
the following ways :
1. To consumers in lower prices: a
positive stimulus to increased con-
sumption, production and higher
standards of living:
(a) Dollar volume of sales as large
or larger:
(i). All the workers attached
to the industry re-
absorbed, e. g., litho-
graphing,
(ii). Consumers get more of
same product; the econ-
omy gets stimulus of in-
creased demand for raw
materials, expanding out-
put, etc.

(aa) Changes in consum-
er expenditure
patterns.
(6) Dollar volume of sales less:
(i). Consumers have more to

spend on other things,
(ii). More volume, higher effi-
ciency, more workers
not only in other indus-
tries but in raw material,
transport and distribu-
tive trades.
2. To labor in:

(a) Lighter work and better condi-
tions:
(i). No change in number
employed but wages
may be lower.
(6), Fewer hours per day or per
week,
(i). If output per worker per
day or per week remains
the same, prices and
production remain the
same.
(aa) Fewer man-hours per
unit of product —
increased leisure.
(66) Shift of demand to
some ex ten t —
home furnishings
to automobiles
and moving pic-
tures.

Large scale production.
Heavier fixed charges.

Occupational obsolescence.
Frictional unemployment.
Vocational retraining.

Price disturbances.

Women in industry.
ChUd labor.

Education for leisure.

"Caprice" consumption.
Greater cyclical instability.

16216

II — Continued.

CONCENTRATION OF ECONOMIC POWER

(ii).

If output per worker per
day rises — lower costs
may mean lower prices
with further results,
same as under (a) above :
(c) Higher money wages per hour:
(i) Shift in pattern of income
distribution, if unem-
ployed without income
are included,
(ii) Larger proportion of pro-
ductive resources ab--
sorbed in making com-
forts,
(iii) More vivid contrast be-
tween scale of living of
laborers in low-wage,
non-industrialized areas
and high-wage areas.
3. To capital in higher profits on capi-
tal: Increased funds available for
further expansion:
(a) If plowed back may increase:
(i) Concentration of produc-
tion in few firms,
(ii) Temptation to unwise ex-
pansion,
(iii) Importance in competition
of length of purse.
(6) If not re-invested may increase
size of stagnant pools of sav-
ings to point where portion
of income stream buying
output of industry is too
small at current prices.

.. type.

(d) Investment decisions

hands — problem of
III. Capital-saving inventions.

A. Rationalization measures, i. e.

in organization of production or labor,
e. g., scientific management, Taylor
system, Bedaux system, standardiza-
tion, etc.

1. Existing firms may produce more

without any rise in investment or
employment.

2. Capital-labor ratio may rise, e. g.,

automatic looms, speeding up of
spindles, higher speed of transport
due to better roads and engines.
B'. Labor- and cost-saving inventions in
capital goods industries.

1. Not so much labor absorbed in in-

dustries producing machines.

2. Without change in volume of savings,

problem of finding outlets for idle
money is made more difficult.

3. Usually old capital must be revalued

by large write-downs or increased
depreciation and obsolescence
charges.

in few
outlets.

changes

"Wastes of monopolistic (50in-

petition.
Excessive capacity.

Inefficient financial Goliaths.

Restricted markets.

Idle money in banks and other
lending institutions.

Men out of work.
Low interest rates.

Temptation to resist techno-
logical change.

CONCENTRATION OF ECONOMIC POWER 16217

Dr. Keeps. I intend merely then to call attention to the fact that there
are three types of innovations here dealt with — I, those innovations
which result in a new product or service involving investment in new
plant or new enterprise; II, labor-saving innovations, especially
those substituting machinery and mechanical power for labor; and
finally. III, capital-saving innovations.

The Ch-vikman. As I recall, earlier in your statement you quoted
some student of technology as endeavoring to classify these various
inventions as to percentages of each. Perhaps it would be well for
3'ou to repeat that statement here.

Dr. Krips. In his sample he found only one-third to be labor-
saving devices ; that is, coming under II.

LABOR-SAVING DEVICES

The Chairman. That is, only one-third of all of the inventions or
improvements of technology are labor-saving in character.

Dr. Kreps. In their direct operation.

The Chairman. And what percentage had the effect of establish-
ing new industries or new plants, new enterprises or new products?

Dr. Keeps. Forty-J&ve percent, as he listed them, created new kinds
of consumer goods, some difference in the product which made it
more salable, and in some cases entirely new products.

The Chairman. Was any attempt made to determine to wnat ex-
tent those new consumer goods were competitive with existing goods ?

Dr. Kreps. He made no such attempt in his sample.

The Chairman. There is that phase of the problem; is there not?

Dr. Keeps. Yes; as I indicate under I, part 2, such innovations
may cause a fight for a share of the consumer dollar, and therefore
lead to the use of various devices of mass persuasion.

The Chairman. In other words, many of these new products are
substitutes for old products.

Dr. Kreps. Quite so.

The Chairman. Rayon is a substitute, at least to some extent, for
silk.

Dr. Kreps. Exactly.

The Chairman. Have you made any catalog of such substitutes?

Dr. Kreps. I have not.

The Chairman. Is any such catalog available ?

Dr. Kreps. I know of none that is available. There have been
given for individual products all the competitive commodities in
the field, of course. I have, myself, in a book on sulfuric acid,
indicated in a chapter the number of substitute commodities, a
phenomenon that I call intercommodity competition, that tended to
share the market with sulfuric acid.

The Chairman. Dr. Anderson, will any of the witnesses go into
that phase of the subject?

Dr. Anderson. Yes, sir; it is a very difficult topic, as you know,
sir, to get the interrelationship, but I "hope that when we move into
automobiles tomorrow we will , directly concern ourselves with re-
pkeement and substitution of automobiles for other products, and in
specific cases- in that way we hope to bring them out in each successive
day's hearings."

124491 — 11— pt. 30- 3

16218 CONCENTRATION OF ECONOMIC POWER

The Chairman. I was thinking rather of commodities like rayon,
plastics, and the like.

Dr. Andebson. We have one hearing on textile fibers which will
treat of that particular one, rayon, and its effect upon the entire
textile market.

The Chairman. I think it might be very illuminating if some
study was made of substitutes as a general subject.

HOW MEASURE THE IMPACT OF TEOHNOLOGY ?

Dr. Kreps. The first problem to which I want to return is the
difficult one of how to measure the various changes caused by tech-
nology.

The impact of technology is not a simple one or a direct one.
Prof. Frederick C. Mills of Columbia University spent more than 10
years directing a staff at the National Bureau of Economic Research
m a study of this problem. He has published 3 large volumes of
findings which will be heavily relied upon in these hearings. Yet
he regards the job as by no means complete. In the National Re-
search Project, Mr, David Weintraub has published more than 60
volumes, and of course one agency that has been assembling, study-
ing, and publishing practically all the fundamental data that is
available on this subject is our own Bureau of Labor Statistics, But
as Dr. Mills has pointed out :

Technical change is a many-sided process that affects economic institutions
in economic activities in numerous ways. The opportunities open to entre-
preneurs ; the tlow of savings ; tlie kind of capital goods required ; ttie rate of
obsolescence ; the soundness of existing investments and of the debt structure
that rests upon them ; the amount of labor needed and the kind of skills
required in the working force ; costs and prices and the distribution of pur-
chasing power^— all these are directly affected by changes in productive tech-
nique. Moreover, the problems raised by technical changes may be quite differ
ent at different times and in different conjunctural conditions. It is a probleta
that calls for realistic, first hand study, that is both intensive (in its bearing
yju the fortunes of single industries and industrial groups) and extensive (in
its bearing on the production structure as a whole and on tlie working of the
price and credit systems).^

Thus, to attempt to measure the amount or economic enectsy ^of
technological change merely by taking, say, a given manufacturing
industry and comparing output with number of men employed or
man-hours worked at different times, say in 1$T0 or 1900 and 1929 or
1937, is not even to scratch the surface of the problem. Many more
measurements are required. In addition to knowing (1) what has
happened to physical volume of total production of all products
and (2) what has happened to the production per worker and per
man-hour of labor in all important branches of business an adequate
analysis requires measurements of such things as (3) primary power
utilized both in total volume and in amount per employee; (4) num-
ber of workers employed; (5) fluctuations in unit prime cost; (G)
money spent for industrial' research ; (7) number and importance
of new manufacturing materials or new processes; (8) figures on
wastage of manufacturing materials; (9) produc ' n of secondary
materials such as scrap iron, rubber, copper, tin, and the like; (10)
number of industrial accidents; (11) extent, degree, and quality of

^Frederick C. Mills, "Industrial Produntivitv and Pricps." in Journal of the American
Statistical Association, No. 198, Vol. 32, June 1937, pp. 247-248.

CONCENTRATION OF ECONOMIC POWER 16219

lighting and other factors necessary to 24 hour a day oppration;
(12) improvement in working conditions; (13) wholesale and retail
prices of the articles manufactured; (14) percentage of new enter-
prises started jx^r year; (15) hourly, weekly, and yearly wages, in
mone}' and in goods; (16) returns to the proprietorship account in
dividends, interest, profits, or managerial salaries, and above all, the
effects on other industries in the shape of interprocess, intercom-
modity, and interindustry competition.

It is obviously impossible to attempt to give even a fraction of
the time and space necessary to an exhaustive analysis. One must
pick and choose and that is exactly what I propose to do.

NEW INDUSTRIES CREATED BY TECHNOLOGY

Dr. Kreps. I am first going to go into the question of what im-
portant new industries have been recently created by technolog}\

The most startling of all accomplishments of technology is that
of creating entirely new products and doing jobs that otherwise
would never be done at all. Without technology we would not have
such marvels of engineering genius as the Hoover Dam, or Grand
Coulee, or the Triborough Bridge. That work would not be done.
Nor would we have such products as the radio, the automobile, the
telephone, the railroad train, alloy steels, plastics, rayon, nylon,
and the like. These and other new industries employ millions of
workers.

A tabulation published by the National Industrial Conference
Board in its interesting study on Machinery^ Employment^ and
Purchasing Paioer, provides a good case in point. I should like
to submit this exhibit for the record.

The Chairman. The exhibit may be received.

(The table referred to was marked "Exhibit No. 2430" and is
included in the appendix on p. 17276.)

Dr. Kreps. It lists 18 industries that have been started in the
United States since 1S70 and now employ millions of men.

These are, of course, by no means all additional jobs. Even the
automobile industry supplanted a large number of little enterprises
that used to make wagons, buggies, harnesses, and other such equip-
ment. Livery stables went out of business, and the farmer's market
for oats, hay, and the like, in large part, vanished.

Moreover, all new inventions have to be bought and paid for,
largely by consumers whose incomes have not been expanded.

Representative Reece. If you don't mind an interruption, do your
figures on motor vehicles include the sales force, which would come
more nearly being the phase of the industry which replaces livery
stables ?

Dr. Kreps. This is the manufacturing end of the industry, not the
automobile vehicle retailing. That is, this does not include garages,
and so forth.

For consumers, the purchase of something new means going
without- something they formerly used to buy, if they haven't had
an increase in income. It is said, for example, that the propor-
tion of income spent for home furnishings and for clothing has
been decreased by the demands upon the budget made by the auto-
mobile for gasoline, repairs, and the like.

16220 CONCENTRATION OF ECONOMIC POWER

Similar comments could be made on all the industries mentioned
in the exhibit. Rayon has, in part, supplanted cotton and woolen
fabries, particularly those of high quality. Manufactured ice -or
mechanical refrigerators have supplanted' the old-fashioned ice plant,
ana the like.

Now, in discussing the second type of innovation, the labor-saving
innovation, one of the most important problems raised is, what
happens to the laborers actually displaced?

The easy answer to this question is usually, "They are absorbed
elsewhere," 'or "They are released for easy jobs in the clerical profes-
sions or in the service trades." This idea had a good deal of validity
when work was plentiful as it was before 1890.

But as Dr. Mills writes in summarizing his studies : ^

A facile dismissal of ^he problem on the assumption that an automatic adjust-
ment to industrial shifts is effected, with re-employment of all displaced produc-
tive factors, is no longer possible.

DISTRESS TO LABORERS CAUSED BY MACHINES

Mr. HiNRiCHS. May I interrupt at that point a moment, Dr. Kreps ?
You say that reabsorption from the displacement that occurred was
relatively simple with rapid expansion. Can you cite evidence to that
effect, and how do you reconcile that statement with the character of
the machine riots which were possibly commoner in the nineteenth
century than they are today ?

Dr. Kreps. The machine riots owe -a good deal of their intensity at
that time to the fact that the machine was something absolutely new,
and they had a good deal more public support in resisting it than they
can get today wnen we are accustomed to technological changes.

Furthermore, we have made adjustments today which were not made
at that time; since the machine was relatively new in Great Britain,
they had not yet developed the various devices for facilitating the
transfer of labor and its employment in other industries that we have
developed in modern times.

My point is simply that when you have, as you did to begin with, an
innovation, say, merely in the textile industry, and your economy is
still 90 percent agricultural, as even ours was in 1790, the amount of
displacement the machine causes is relatively small ; but when you have
become, as we have in recent years, more than 60 percent industrialized,
and you get machine technology, innovations going on in range after
range of enterprise, your problem greatly increases.

Mr. HiNRiCHS. Your statement in all events isn't based on any studies
that were made in that earlier period, tracing through what did happen
to particular groups of displaced workers. For example, one of the
major displacements was the displacement of the home weaver by
machine weaving, and when we come down to date, we have actually
traced through what happens to some of the individuals, as Mr. Wein-
traub did, for example, with silk weavers displaced, with some knitters
that had been displaced in Philadelphia. We don't have any ma-
terials that you know of in the nineteenth centurv that give a contrast-
ing picture of an easy transition at that time as against the difficult
transition at this time with the individual worker displaced.

j.,V^?^o5*^»,^' Productivity and Prices," Journal of the American Statistical Association,
'one 1937, No. 198, Vol. 32, p. 247.

CONCENTRATION OF ECONOMIC POWER 16221

Dr. Kreps. Coming back again to the United States— and I am
talking primarily about the problem here — I think the picture which
de Tocqueviiie gives us of the United States in 1820 indicates rather
clearly whatever displacement took place was readily compensated
for; there were places, frankly, where laborers could go. It is quite
true that in Great Britain such studies as Hammond's The Village
Labourer and The Town Labourer?- Thomas Hood's famous poem,
The Song of the Shirt, and others, indicate that there was localized
distress of a very acute sort. Nonetheless, so far as the economy as
a whole is concerned, I don't believe the problem had nearly the
magnitude, certainly in the United States, at that time that it has
now.

Mr. HiNRiCHS. I don't want to push the point further, but there is a
difference between the effect on the economy as a whole and the effect
on particular workers. We may want to develop that somewhat later.

Dr. Keeps. Quite so.

The Chairman. That differei^ce is apparent throughout the whole
history of the development of technology, isn't it, the effect upon the
economy as a whole and the effect upon particular workers ?

Mr, HixRiCHS. I think that the problem of the relationship with
tlie machine in detail to particular individuals and groups of indi-
viduals is of fundamental and overwhelming importance, and it may
possibly be somewhat confused in discussions of the effects on the gen-
eral economy. I know of no evidence to indicate the fact that ths
problem of individual displacement has not been a very acute one.
Whenever a major innovation has been introduced the evidence of the
nineteenth century in general economic literature seems to me to indi-
cate that effect on the individual was present, was very terrific at that
time, and was handled at that time with possibly less social con-
sciousness and awareness of the problem than I should hope would be
present in our handling of that problem at the present time.

Dr. Krei'S. Certainlj', beneficial as the machines in the aggregate
have been in lightening the work of labor and in increasing the
amount of available product, and even graniing that in the long run
labor manages to find other employment, the question still remains
why those who can least bear the burden are required to make the
sacrifices demanded of them by tlie machine. On this point the In-
dustrial Commission, composed mostly of McKinley Republicans,
slated 40 j^ears ago in its report:

The interest of the man who sees a machine invading nis cratt and thn- n , -
ins to rob him of the opportunity to sell his skill is little affected by the results
Which the introduction of the machine may exert 20 years hence upon society,
upon his trade, or even upon his children. He is concerned with getting bread
and shelter tuday and tomorrow.^

And they go oii to say ;

From the social standpoint, justice might also seem to require compensation
for the destruction of the value of special skill. When a man has devoted ye irs
to the acquirement of an ability, he may be excused for feeling that he has a
vested right in his income from the use of it. This feeling, indeed, is at the
bottom of the machine-breaking and the other less violent means by which men

^John L. Hammond. The Village Labourer, 1760-1832, Longman's, 1917. The Tovn
Labourer, 1760-1832, Longman's, 1920.

' FinnJ Report of the Industrial Commission, House Document No. 380, 57th Consress
1st Session, p. 822.

16222 CONCENTRATION OF ECONOMIC POWER

have undertaken to maintain their hold on work which they have felt belonged
to them.^

Of more than usual interest is the recommendation of this Indus-
trial Commission that —

* * * the only way in which the workmen in a particular trade can, by
their own action, avoid the immediate hardship that results from improvement
of machinery and methods in their own craft seems to be by united action, taken
through some such organization as a trade union. It is believed to be impos-
sible to point out any instance in which unorganized workmen have received
any immediate and visible benefit from the introduction of new machinery in
their trade.^

The problems of isolating such temporary technological unemploy-
ment from other kinds of unemployment is a difficult one. That
accounts, of course, Mr. Hinrichs, for the lack of studies until a com-
paratively recent date. It is mixed up with various other forms of
unemployment : Workers who have lost their employment on account
of seasonal influences, cyclical unemployment, unemployment as the
result of a change in the age composition of the population or over-
crowding in certain branches of the labor market, for example, the
middle classes of women workers, and so-called frictional employment
which represents the reserve supply on the labor market.

Recently some notable sample studies have appeared, among them
that of Dr. Isador Lubin, of this committee, entitled The Absorption
of the Une77iployed by American Industry (published by the Brook-
ings Institution, pamphlet series vol. I, No. 3). In his sample of dis-
placed workers less than a third of those who found jobs returned to
their old industries, the rest beuig unemployed for as much as a year
before they found work.

Another study by Dr. E. Wight Bakke followed certain displaced
Hartford rubber workers.^ During the first year the skilled workers
lost '4.8 months of work, the unskilled 4.6 months. The annual in-
comes of the former group fell to 50 percent of what they had earned
in 1928, the latter to 62 percent. In the third year following the shut-
down, not only were the relative losses of the skilled greater than
those of the unskilled, but the absolute average annual incomes were
lower. As Dr. Bakke says :

Apparently the qualities which helped men to rise £o skilled jobs and high
wages while at work are of limited use in helping to readjust satisfactorily
when the job goes.

It is not necessary to refer to the excellent and graphic studies of
the National Research Project, nor to call to mind The Grapes of
Wrath of John Steinbeck, to emphasize the hardships suffered by
those who are displaced today, even by those who are "tractored
out" on a farm.

PRODUCTIVITY OF LABOR

Dr. Kreps. The next question I want to raise is: How has tech-
nology affected labor's ability to produce? The effect of machinery
upon the average amount produced by the American worker in the
manufacturing industries is strikingly shown in a chart entitled

'7!>iU, p. 824.
" Ihid., p. S25.

3 E. W. Bakke, Former L. Candee Workers in the Depression, lale University Press,
N'ew Haven, 10;j4.

CONCENTRATION OF ECONOMIC TOWER

16223

"Caf>ital Invested, Horsepower, and Product," taken from Carl
Snyder's book, Capitalism the Creator.^

i would like to submit this chart as an exhibit.

The Chairman. The chart may be received.

(The chart referred to was marked "Exhibit No. 2431" and appears
below.)

Exhibit No. 2431

CAPITAL INVESTED, HORSEPOWER,
8. PRODUCT

PER WAGE EARNER IN MANUF.
U.S.

RATIO SCALE

1850 1860 1870 1880 1890 4900 1910 1920 1930 1940

XXVII. THE CAPITAL INVESTMENT AND THE WAGE OF THE WORKER

Dr. Kreps. You will note that the physical product per worker
since 1870 has more than doubled. There has been a striking increase
in the capital invested per wage earner in dollars and in the horse-
power per wage earner. Meanwhile the average hours of work per
week in all industries have dropped from levels of around 60 and
70 in 1870 to the 40-hour week at the present time.

The Chairman. Does that appear on this chart?

Dr. Kreps. You have to read it at the bottom.

The Chairman. Oh, yes; the lower line shows the trend of the
a.er-^ge b.oiirs per week in all industry.

Dr. Kreps. That is riirht.

iCarl Snyder, CapitaUam the Creator, MacMillan, 19^0.

16224 CONCENTRATIQN OF ECONOMIC PawBR

The Chairman. What is the source from which these figures were
taken?

Dr. Keeps. Dr. Snyder, who is an economist for the Federal Ee-
serve Bank of New York, had a vast array of statistical data and
they have been pieced together from that array. To quote all the
sources would absorb considerable time, but he is a rather competent
statistician, and therefore I have taken it from him.

The Chairman. The heavy black line at the top indicates that there
has been a tremendous increase in capital investment as related to the
dollar wages of the worker. Is that correct?

Dr. Kreps. That is correct.

The Chairman. And that, of course, reflects, I take it, the in-
creased cost of plant under modern teclmological tLf„ ,ge. Is that
correct ?

Dr. Keeps. There is a dispute on that point. The statistics do not
speak with one voice.

The Chairman. What is the explanation, then, of the increased
investment ?

Dr. Keeps. First of all, the increased investment is in dollar figures.

The Chairman. Is in what?

Dr. Kreps. In dollar figures, and there is no good way of deflating
dollar figures of capital invested for changes, for example, in the
general price level.

Senator King. We know that a great deal of machinery has been
obsolete, characterized as obsolescent, which has called for very large
capital investments in order to replace the displaced machinery and
to keep up witii the d'^mand for the nev^ products and the demand
of the market for the products.

increased capital per unit of product

Dr. Kj?eps. The point that I think the Senator was raising was the
one whether or not the amount of capital per worker, or rather per
unit of product per worker, had tended to increase. We have to get
back to the dollar figures, and as soon as we do th^t we feel that
certainly the amount of capital kept up with product ; in other words,
there was what we call an intensive application of capital up to 1910,
Since 1910, and particularly since 1925, there seem to have been cer-
tain changes introduced which made it possible to make more product
with less dollar investment of capital-; in other words, innovations
have made it possibl*} for a machine costing less money to do as much
or more work than the old machine; we have. improved the design
and the effectiveness of our niachinery, and it is on that second point
that at the present time the statistics do not speak absolutely clearly,
although they do since 1925. ,

The Chairman. Then what is, in simple words, the significance of
this first line, this upper line?

Dr. ICreps. To indicate two facts, and Dr. Snyder, I think, has
indicated them in his footnote: That the amo'.uit of increase in prod-
uct per worker is largely due to increased machinery, and increased
horsepower in that machinery, put at the worker's disposal, and that
that larger volume of machinery in turn has been due to business-

CONCENTRATION OF ECONOMIC POWER 16225

men taking their savings and placing them in capital equipment at
the disposal of society. That is at least what I take it this chart
represents, and that is the meaning I wished to convey.

The Chairman. Doesn't that mean increased investment in plant
and equipment?

Dr. Kreps. Oh, quite, an absolute increase, positively. I had inter-
preted your q lestion as being one in which you wanted to know
whether the ii crease was more rapid than the increase in physical
product.

Senator Kjng. It was onl}^ a few years ago Mr. Ford discarded
machinei'y and plants that were worth more than 50 to 65 millions of
dollars, and the larger part of his capital new consists of plants
which of course deteriorate from day to day and from year to year
and call for increased investment.

Dr. Kreps. That is right.

Mr. HiNRiCHS. Mr. Chairman, in connection with this chart and
merely to clarif}'^ the record, I would like to comment on that bottom
line for a moment. This chart is constructed on a ratio scale and
that means that the base line of the chart is not a zero line; that is,
obviously hours per week have not gone down to almost zero, but
effectively that bottom line as far as hours is concerned would rep-
resent about 38 hours a week at the present time, and back in 1929
it would have represented some 44 hours.

SHORTENED WORKING HOURS

Dr. Kreps. The point that I wanted to make in connection with
that chart which slightly exaggerates the movement in hours is that
(here had been a declining trend throughout our earlier history. Our
tigures in the Bureau of Labor Statistics would indicate that between
1909 and 1929, let' us say, hours were fairly substantially decreased,
not as much as they have been decreased from 1929 to 1939, but the
late at which hours were shortened was not more than twice as great
in this latter period as in the earlier period, and this chart, merely
from the point of view of the record and from that single point of
view, slightly exaggerates the moA'ement that has taken place; it
has not been quite as extraordinary a movement as it might seem to
be in this ratio plotting. That was a period of unusually rapid and
unusually concentrated change in hours worked. Since 1933, since
J 932 as a matter of fact, there has been relatively little change in
hours worked. Actually they tend now to be longer than they were
in 1932. If you contrast the rate of change between 1929 and 1932
you have an exceptional and extraordinary change in hours worked.
If you consider the 10-year decade as a whole, the shortening of hours
is much less exceptional than it might appear to have been on the
basis of this chart.

I think -I can explain. Senator, that what Mr. Hinrichs is say-
ing is perfectly true, namely, that a reduction, say, of 6 hours
per week when you start from 60, is only 'a 10-percent reduction;
that same reduction taken from, say, 30 hours a week, is a 20 percent
reduction. Therefore, a chart of this order visually, particularly in
that last period, would exaggerate the amount of decline.

16226 CONCENTRATION OF ECONOMIC POWER

Mr. Pike. On the other hand, it dampens the upward movements,
too.

Dr. Kreps. Yes; '* does that.

Dr. Walker. ^^^ did you explain exactly what that top line, capital
invested, means?

Dr. Keeps. Dr. Snyder has taken this with certain modifications
of his own from the successive censuses of manufacture plus a series
that is kept up since 1920, I believe, by the Federal Reserve Bank of
New York.

Dr. Walker. Does it mean plant or all assets?

Dr. Keeps, It does mean all capital invested; it does not mean just
tixed capital.

Dr. Walker. It would be different if there were changes in the
ratio.

Dr. Kreps. If there had been any substantial change in the ratio
of inventories to fixed capital.

Representative Reece. What would be the effect of that top line
representing capital invested, if it were based upon the wage-earner
hour rather than upon the wage earned? The difference would be
much greater, would it not?

Dr. Keeps. That is true. Of course in modern times plants are
tending to operate on a more uniform basis, that is they will tend to
operate, say 2 shifts, 16 hours ; an intensive use of their capital , in
other, words, is taking place, so that you get a modified effecr.

While Dr. Snyder's chart exhibits the rate of growth from 1870
to 1930, the chart which is found in a publication issued this morn-
ing by the Brookings Institution, written by Dr. Spurgeori Bell,
entitled Productivity, Wages and National Income, shows the story
in detail for the last 2^ years for manufacturing enterprise. I sliould
like to offer this chart or the record.

The Chairman. Tin exhibit may be received.

(The chart referrei to w^as marked "Exhibit No. 2432" and appears
on p. 16227.)

Dr. Keeps. Notirj there that the volume of production m manu-
facturing has inci eased more in that period than! the amount of
fixed capital invested. (This is fixed capital only.) In other words,
the productivity of capital has increased. In 1936-37, fixed capital
investment was only 2 percent greater than in '23-24; the volume
of output was 25 percent greater.

The steady decline in total man-hours of employment is also strik-
ing. In general, the productivity of labor seems to have increased
by something on the order of 40 percent from 1924 to '38.

The Chairman. Would vou mind making a comment on clie back-
ground of Dr. Bell?

Dr. Kreps. Dr. Bell is a statistician who for a long time was at
Ohio State University and then has been with the Brookings Insti-
tution for the last year, getting together these figures.

The Chairman. This chart represents the statistics whi<'h he has
gathered while a member of the staff of the Brookings Institution?

Dr. Keeps. Quite so.

In this same volume. Dr. Bell presents a series of charts, all of
them showing this same trend. This is the general pattern.

CONCENTRATION OF ECONOMIC POWER

16227

The Chairman. This upper chart would indicate that there has
been not only a positive gain in the number of wage earners since
1932 until 1937, when it began to fall off, but that there has been a
marked gain of wage earners as compared to the amount of fixed
capital.

Dr. Kjieps. That is correct.

Exhibit No. 2432

Productivity, Hourly Earnings, and Unit Wage Cost in

Manufacturing, 1919-38^

(1923-25 = 100)

INDEX NUMBERS
160

140

120

100

INDEX NUMBERS
160

140

;^= 120

.••*•••

PRODUCTIVITY,

.....-•"''

'""'

' \

..•

••■

HOUl

7iK EAR

MINGS/

\ J

— T-r*-

_ _ — —

^ — —

""n

^*«"

M-

.^^^^^

\
\

/
/

iV/7" tMCi

- COST\

.. 1 . ,

100

Source: Spurgeon Bell, Productivity^ Wages and National Income
(Brookings Institution: 1940)

The Chairman. That is, while fixed capital was falling off gen-
erally during that period, the number of wage earners was steadily
increasing.

Dr. Kreps. That is correct. That tendency is present as one of the
m.ost significant tendencies, I think, since after the World War, since
1920.

The Chairman. .What is the explanation of that in terms of
technology ?

Dr. Kreps. I offer some e'xplanation of it. I am not quite sure ■

The Chairman, (interposing). As you go along?

Dr. Kreps. Yes.

The Chairman. Very well.

16228

CONCENTRATION OF ECONOMIC POWER

(The chart, referred to was marked "Exhibit No. ^33" and
appears below.)

Dr. KJREPS. I may say this same picture holds true for many other
industries. Fixed capital investment, for instance, has either, fallen
off in the automobile, textile, iron and steel, and manufacturinoj in-
dustries, or failed to increase as fast as output.

Exhibit No. 2433

Fixed Capital Investment, Output, and Employment in

Manufacturing, 1919-38*

(1923-25 = 100)

INDEX NUMBERS
1 40

120

INDEX NUMBERS
140

120

100

€0

UTPUT/

•\

N^ 'A

^"''

\FIXED

CAPITAL

=*<;^*'

NUh

1BER OF

WAGE E^

\
>

ARNERS^

•

MAN-HOU

\ - -
\
\

^^^

i_ ..

100

Source: Spureon Bell, Productivity, Wages, and National Income (Brookings Institution,

1940)

Employment and man-hours of labor also fail to keep pace with
output, in most cases actually declining. Productivity shows a con-
tinuous increase over the entire period — no break in trend at any
particular date. These phenomena, while I am showing them in
this exliibit only for manufacturing, I can say from the book also
are true for mining, railroads, electric light and power, and indi-
vidual industries, such as automobiles, iron and steel, paper and
pulp, cotton textiles, and tobacco.

A table summarizing some of these results has been compiled from
his volume and I wish to submit it as "Exhibit No. 2434, Produc-
tivity, Output, and Employment; Percentage Changes Between
Designated Years, in Major Groups of Industries and in Selected
Manufacturing Industries."

The Chairman. The table may be received.

CONCENTRATION OF ECONOMIC POWER 16229*

(The table referred to was marked "Exhibit No. 2434" and is in-
cluded in the appendix on p. 17277.)

Mr. HiNRicus. You said that there was no break in this series on
productivity.

Dr. Kreps. No break in the trend.

Mr, HiNRicHS. I am not questioning your generalization, your
characterizing that wliole period, but there is a minor variation in
there that I would like to point out and emphasize for just a moment,
if I may. You will notice that in your chart between 1931 and 1932
your line stops rising.

The Chairman. Which chart are you referring to?

Mr. HiNRicHS. I am referring to the chart entitled "Productivity,
Hourlj' Earnings, and Unit Wage Costs." ^. That upper line marked
"Productivity" shows a dip in that period from 1931 to 1932 which
we think, in the work that we have been doing analyzing produc-
tivity, is rather significant, not so much in terms of the average for
all manufacturing as more particularly in the components of man-
ufacturing that caused the general line to stop rising. There w^ere
certain lines of manufacturing, notably in the heavy industries, in
which productivity went down very sharply and will go down very
sharply every time the volume of physical production declines. One
of the chapacteristics of a depression is the tendency of the output
per worker per hour to go down, which in large measure may offset
the benefits of reduced labor costs that people seek to achieve through
wage reductions in a period of depression such as we knew between
1931 and 1932.

THE. MINING INDUSTRY

Dr. Kjjeps. I call attention to the fact that in this table, which
gives the same picture for a variety of enterprise generally, the same
trends appear. Employment in the mining industry and in rail-
roads showed an absolute decline in the period of 1923 to 1929. More-
over, in that period volume of output increased 27 percent in manu-
facturing, while the number of wage earners increased only 2.8 per-
cent.

An indication of the steadiness of the trend both in the twenties
and in the th.rties — and I am taking the decades and not particular
years-r-is-indicated in this tabulation, which shows productivity and
unit wage cost for a variety of industries. I should like to submit
this tabulation as an exhibit.

The Chairman. The tabulation may be received.

(The table referred to was marked "Exhibit No. 2435" and is •
included in the appendix on p. 17278.)

Dr. Kreps. By 1938 the productivit}' of labor had increased over
1923-25 levels by 44 percent in manufacture, 44 percent in railroads,
99 percent in mineral industries, 116 percent in electric light ond
power, 40 percent in automobile and parts manufacturing, 51 percent
in blast furnaces, steel works, and rolling mills, 55 percent in paper
and pulp manufacture, 38 percent in cotton textile manufactures, .
and 153 percent in the manufacture of tobacco products.

1 See "Exhibit No. 2432," supra, p. 16227.

16230 CONCENTRATION OF ECONOMIC POWEK

At the same time urit wage costs in 1938, compared with the base
period of 1923-25, liad declined 17.5 percent in manufacturing
in general, the same for railroads, 46 percent for the mineral in-
dustries, 37.5 percent in electric light and power, about 7 percent
in the automobile industry, 6 percent in the steel industry, 25 per-
cent in paper and pulp manufacturing, 22 percent in cotton textile
manufacture, and more than 50 percent in the tobacco industry.
In all these industries, despite the increases in wage rates per hour,
actual wage costs declined throughout the period. That is the sort
of achievement which the machine makes possible.

Output per man-hour and per wage earner have increased con-
siderably even since 1929. Various estimates place the amount in
the vicinity of 25 to 30 percent. The detailed studies made by the
National Research Project indicate that out of 67 industries 23
showed appreciable increases in production, 20 exhibited increases
in employment, but only in 2 of them, the side and upholstery
leather and the rayon industry, was there an increase in the man-
hours of work.

I should like to submit this particular exhibit, taken from the
National Research Project, showing what has happened to produc-
tivity, employment, and prpduction in 59 manufacturing industries
from 1929 to 1936.

The Chairman, It may be received.

(The table referred to was marked "Exhibit No. 2436" and is
included in the appendix on pp. 17279-17281.)

The Chairman. All this material seems to show in a very definite
and clear manner that in terms of wage cost the output is increasing
tremendously.

Dr. Kreps. That is correct. Wage costs have been going down.

The Chairman. That trend is apparently a continuous trend.

Dr. Kreps. It has been in this period, with, as you will notice,
some modification in individual industries, of course.

The Chairman. You say that that is a result of the machine.

Dr. Krbps. a result — I used the machine in an elliptical sense for
technology, a result of improved methods of manufacture.

The Chairman. Is there any dispute about that?

Dr. Kreps. I know of none.

The Chairman. Do you know of any contrary statement or con-
clusion reached by any student?

Dr. Kreps. Not within the range of my information.

The Chairman. Have you heard of any statistics that indicate a
contrary result?

Dr. Kreps. I have not.

The Chairman. One of these charts refers particularly to manu-
facturing, railways, mineral industries, and electric light and power.
That pretty well covers the field of technological production, does it
not?

Dr. Kreps. Dr. Bell estimates that 75 percent of the total employ-
ment is comprised within the sample of industries for which these
figures are here given.

The Chairman. And while this technological advance has been
going on in industry there has also been technological advance in
agriculture, has there not?

Dr. Kreps. Quite so.

CONCENTRATION OF ECONOMIC POWER 16231

The Chairman. Have you covered that?

Dr. IvRErs. I do not in my testimony, although we have hearings
sch'^duled on the problem.

Dr. Anderson. Mr. Chairman, we have a 2-day hearing scheduled
for agriculture, in which we will show the results of about a 3-year
study that has been engaging the attention of the Department of
Agriculture on mechanization in agriculture, which shows exactly
the same tendency.^

Mr. Hini;tchs. When you used the phrase "three-quarters of in-
dustry," you were defining it as productive industries? You didn't
include retail trade and service industries?

Dr. Krei'S. No.

Mr. HiNRiCHS. Nor banking and finance and the other sources of
employment which are rather large?

Dr. Kreps. That is true.

As you notice here, output per man-hour increased in all but 13
industries and declined in only 4 of them. The increase has ranged
as high as 241 percent for rayon, in 8 industries they were in
excess of 50 percent, and in 22 others range from 25 percent to 50
percent. Such is the magnitude of the technological advance in the
midst of which we now find ourselves.

This tendency, it sliould be noted, is not peculiar to the United
States. While I do not want to bring in an embarrassing volume of
statistics, studies conducted by the International Labour Office and
other research organizations show similar increases in productivity —
not of the same magnitude, but increases, nonetlieless — in England,
France, Germany, and as a matter of fact throughout the modern
industrial world. There is one computation for Great Britain which
estimates that the same volume of output could be produced in 1934
as was produced in 1926, with 1,500,000 fewer workers than they had
used 8 years previous

THE NATIONAL LABOR FORCE

Dr. Kreps. Now I want to take up the question, how has technology
changed the occuj^ations of our national labor force?

As. we have already noted, in the last 70 years technology has cre-
ated hundreds of new kinds of jobs and required many new skills.
It has also changed completely the number of workers in various
gioups of occu; ations.

I should like to submit as an exhibit a table taken from Dr. Bell's
work showing occupational distribution of gainful workers from
1880 to 1939. These are in terms of percentages of all gainful work-
ers. Notice that wage earners, since 1880, have comprised between
54 percent to 56 percent of all gainful workers, no great rise, and
even aj\ appreciable fall since 1910. The percentage of clerical and
sales employees has about ti'i])led, from 6.5 ]iorcent in IS'^O to KS.;5
jiprcen in 1939. While the percentage of professional employees has
doubled, it is still only 5.6 percent, and managerial employees 3
percent.

The Chairman. It may bc'received.

See pp 16922-16999.

16232 CONCENTRATION OF ECONOMIC POWEK

(The table referred to was marked "Exhibit No. 2437" and is in-
cluded in the appendix on p. 17281.)

Dr. Kreps. The percentage of gainful workers in self-employed
enterprises has steadily declined from 36.9 percent in 1870 to 18.8
percent in 1939, although the decline is considerably less in the last
10 years than in any previous decade. The percentage among farmers
has dropped more than half, from 27.8 in 1880 to 11.8 in 1939, while
that in nonfarm business enterprises has declined from 8 to 6.6 in
1930, and '6.1 in 1939.

I should add that different technicians in this field get somewhat
different technical results. This is a happy hunting ground of ex-
perts on vital and occupational statistics.

In order to provide ^ome technical footing of our own, with the
usual reservations, I would like to submit a small technical memo-
randum entitled "Population and Employment, 1870-1940," which has
data that have been carefully compiled in a volume which will be
published — it is not yet off tlie press — by Dr. H. Dewey Anderson
and Percy E. Davidson, Stanford University. The publication is
called Occupational Trends. All these figures, as all of you know,
have to start with population statistics, then make some estimates
about the number of gainful workers, at least intercensal, although
there are census records at the end of each decade, and from that
come to certain conclusions about the working force, and what it is
doing,

1 would like to call attention to two or three charts in this exhibit.

The Chairman. You are submitting this in advance of publication?

Dr. Kreps. With the consent of the authors and publishers.

The Chairman. May I ask Dr. Anderson the source of the figures?

Dr. Anderson. Mr. Chairman, the first clinrt is a basic chart built
from data that have been introduced in this committee before, in the
economic prologue discussion,^ the ch^rt with respect to population
and its movement. Its recharting brings out certain facts with respect
to movement.

All of the charts carry sources on them, I think, that are descrip-
tive of them in each instance.

With respect to the population figures themselves, they are taken
from the census, and regroupings were made by a technical staff at
the university. They have been subjected to rigorous criticism by
other experts in the field.

The Chairman. That is to say, they were submitted for comment
to other students before publication?

Dr. Anderson. That is right. For each chapter of the book from
Vv'hich this has been taken, we made up a panel of the people consid-
ered most competent in the field, and submitted the data of the
chapter, including the figures, to them for comment before they were
finally revised for publication.

The Chairman. I notice that there are some statistics taken from
Enterprise and Social Progress as published by the Ni^tional Indus-
trial Conference Board.

Dr. Anderson. That is rieht.

^ See Hearings, Part I.

CONCENTRATION OF ECONOMIC POWER 16233

The Chairman. Did that board have anything to do with the
preparation of any of the other material?

Dr. Anderson. No; nothing whatsoever.

Dr. Kreps. I would like to call attention to two or three points in
these charts, first "Exhibit No. 2438-A", "Growth of Population of
the United States." Population, of course, is continuing to grow and
will do so, particularly in certain age groujis. The rate of growth
since 1860, as you notice, has become steadily lesp. That ought to
solve certain controversies about what is meant when people talk
about declining population.

I would also like to point out in the next chart that we have on our
hands in this next decade a greater problem of finding jobs for youth
than we have had certainly in the past, and that we will have there-
after. In other words, the percentage of the new^entrants is larger
for that decade than in any of the previous ones.

The Chairman. If the percentage of population increase is stead-
ily growing less, as indicated b}^ "Exhibit No. 2438-A," is it not a
proper deduction that the problem will rather be one of providing
for the aged before the youth?

PROBLEM OF THE AGED

Dr. Kreps. That was the next comment I was going to make, that
after this decade of the forties, we are going to have increasing
problems with the aged. The number of workers from 45 to 64 years
of age is increasing rapidly percentagewise, and finding jobs for
men over 40 will in the near future require every scrap of ingenuity
that leadei's in business and Government can summon.

I would like to submit this whole exhibit for the record. It will
be referred to probably many times.

Tlie Chairman. Without objection, the memorandum will be
received.

(The documents referred to were marked "Exhibits Nos. 2438 and
2438-A to 2438-0'^ and are included m the appendix on pp. 17281 to
17299.)

Dr. Anderson. I would like to point out in connection with com-
ments with respect to age groups, that the table supporting the chart
shows that a very substantial number of persons are to be found
among the youth population entering labor, so that would be a con-
tinuing problem, although to a lesser degree of intensity.

The Chairihan. Let's refer to "Exhibit No. 2438-C."

Dr. Anderson. The table 2438-C supports the chart. It is an
important point to make because we are dealing not only with per-
centage of decrease and increase but actual numbers. It is an indi-
vidual's concern that must be faced, and if you will note the figures,
while they do show a downward trend of the youth population enter-
ing labor, as a matter of fact, the number of individuals concerned
is quite large in each decennial period until 1980, there are 6,633,000
people in that population.

The Chairman. As I glance now at "Exhibit 2438-C," isn't there
an apparent error there in the figures for new entrance to labor for

124491 — 41— pt. 30 4

16234 CONCENTRATION OF ECONOMIC POWER

1950? That is represented as a positive increase of 0.9 percent,
whereas the figures show a decrease under 1940.

Dr. Kreps. Tliere is an error in transcription, you are correct, sir.
It should be a minus 0.9.

The Chairman. It should be a minus. Let that change appear in
the record.

Are there any others ? Perhaps you had better run over that.

Dr. Anderson. No; there are no others.

The Chairman. Strange how my eye picked out the only one.

Dr. Anderson. Thank you so much.

Mr. HiNRiCHS. This table is headed "Estimated labor force of the
future in the United States." The next to the last column of the
table is headed "Totals, 20-64 years of age." You are, therefore, re-
ferring to the estimated labor force of the United States less than
64 years of age and not to the total labor force.

Dr. Anderson. That is right.

Mr. HiNRicHS. There is a fairly substantial working group 15 to 19
years of age, many of whom make their entrance at Hiat period, so
that the definition in the first column, "New entrants to the labor
force," doesn't mean that that group is necessarily making its first
appearance, but that you regard them as unstably employed until
they are 20 years of age, and still you do regard them as workers.

Dr. Anderson. That is right. The last column shows what propor-
tion this population is of the estimated entire working population
10 years of age tind over. So there is a substantial number of persons
above 64 years of age, and below 20 years of age, wlio normally seek
gainful employment. The assumption under which the table is made
was that by one means or another, legislative, educational, old-age
pension, and other forces, this group at the top and the group at the
bottom would not enter the labor market.

The Chairman. I wonder, Dr. Hinrichs, if the Bureau of Labor
Statistics has made any effort to check these figures of the National
Industrial Conference Board.

THE POTENTIAL WORKING FORCE

Mr. HiNRiCHS. We are very much concerned in studies of the po-
tential working force ; particularly in connection with our occupa-
tional outlook service we are working on this question of labor sup-
ply. At the present moment the problem of estimating the per-
centages in each group, particularly as it applies to family popula-
tion is extremely difficult. The last fundamental information thai
we have relates to the 1930 census. . The 1940 census is going to show
some very great differences in the percentage of the population who
are ordinarilj^ working, but this is a vital field in wliich we are
working, yes.

The Chairman. Did not t^ unemployment census wliich was
taken a couple of years ago develop any substnntial statistics on this
question ?

Mr. Hinrichs. That, anfortunately, Xvas not fundamentally a cen-
sus, but a voluntary re^gimiation , a so-callrtl sample enumeration
was hitched onto that registration and gave OS ^ yainple census, but
since it was incidental to the registration and was a mere means of

CONCENTRATION OF ECONOMIC POWER 16235

checking on the registration, it raiced perhaps as many questions as
it answered. It did throw some light, on the question, and it indi-
cates what was at the time an unbelievable increase in the proportion
of women, particularly above 25 years of age, who continued to re-
main in the labor market. The 1940 census has been worked out with
the utmost care in the light of the information that was developed
in 1937, and I think is going to give us a more reliable estimating
b;)se than we can derive from the 1937 sample enumeration.

The Chairman. You refer to an unbelievable increase in the num-
ber of women above 25 who remain in the labor market. Why do you
so charact€>rize it?

Mr. HiNRiCHS, Well, I should say, myself, an increase which many
people did not, cannot, believe took place.

The Chairman. In other words, you think the indicated result is
not actually representative of the facts.

Mr. HixRicHS. The doubt arises for this reason : It is very difficult
during a period of extensive unemplojonent to phrase questions with
reference to the status of the worker clearly enough so that you don't
do one of tvco things. You may unduly limit your concept of people
wanting jobs and seeking work. I can illustrate that by saying
that if you insist that a person has to be actively hunting for a job
to be counted as unemployed, you don't make sense when you come
into a community with a single mine or manufacturing enterprise
that is closed down, where the workers will hunt work as soon as
the whistle blows, but as long as the plant or the mine is totally
closed down there is nothing to hunt and everybody in the com-
miuiity knows it.

Therefore, if you make your definition extremely rigorous with
reference to the activity of the individual hunting a job, you tend to
underestimate the magnitude of your problem. If, on the other
hand, you define your question very loosely as one of wanting work,
you may stimulate respondents to say yes, they do want work. The

best example of that sort of thing

The Chairman (interposing). Though they don't need it.
^Ir. HixRiCHS. I regard any person who is actively interested in
having a job as needing a job. A job is not only a means of main-
taining income, it is also a means of maintaining an individual's
self-respect. In most instances there is a very close corollary be-
tween wanting a job for economic reasons and wanting a job in
order to be at home in the society in which the man or woman is
living.

Need, so far as I am concerned, narrowly defined, isn't a relevant
criterion to the question, 'Ts a person employed or unemployed?"
It is relevant if you are asking, "Does this particular unemployed
person need underwriting by the public because he doesn't have a
job?'' Some people, some of the unemployed, come in that category;
others do not.

To just take the other extreme that I am talking about, an over-
registration of a desire for work, you have a large number of peq^le
who are in and out of the labor market. The group in the cities
that come m for the Christmas retail trade are p<^rhaps the best
example — a very important source of income to them, but many of

16236 CONCENTRATION OF ECONOMIC POWER

these people do not normally count upon working throughout the
entire year.

Now, a woman who normally works at Christmas time and not
during the rest of the year goes through a period of transition be-
tween the time in, let's say, September, when she is definitely not
in the labor market, to December, when she is actually employed.
There comes a period just before her employment when she certainly
wants work and is counted at that time as unemployed. Actually,
she becomes unemployed if she doesn't get work in the Christmas
peak. I am not excluding her at certain tirfies from the group of
the anemployed. But I do say that there is a period just before her
annual entry to the labor market when a question whether or not she
wants work may stimulate her to say, yes.

That group is not the bulk of the people who respond, "Yes; we
do (or do not) want work," but it may be large enough by hun-
dreds of thousands, or possibly by a million or so, to make the
question of the enumeration of the different categories extremely
difficult. That, as I say, has been carefully approached in the present
census. It was not possible to do that job back in 1937.

The Chairman. In other words, you don't place very much reliance
in the figures of 1937?

Mr. HiNRiCHs. I think they are significant guides, but I don't
think we learned at that time as much as we should have.

The Chairman. Dr. Kreps, it is quarter after 12. How much more
time will you need?

Dr. Keeps. I could finish in about an hour if there weren't questions.
The Chairman. Well, the committee, then, will stand in recess

until

Mr. Hinrichs (interposing). Mr. Chairman, may I have 1 minute
on tliis table that has been introduced, just to close that?

Mr. Kreps, in this table that was marked "Exhibit No. 2437," which
gives the occupational distribution of gainful workers, 1880-1939,
in percentages, you referred to the relative stability of the per-
centage that wage earners constituted of the total working force,
pointing out some decline in that percentage since 1910. By and
large, those percentages indicate stability.

You referred to this table as showing some of the basic occupa-
tional changes that have taken place.
Dr. Kreps. Groups of occupations; yes.

Mr. Hinrichs. It refers to very broad groups of occupations within
which there may have been very substantial occupational displace-
ments. For example, the relative constancy of the wage-earner pro-
portion between 1930 and 1939 was completel}^ useless from the point
of view of indicating stability of employment for cigar makers. It
doesn't indicate particularly w^hat happened to men that had been
engaged in the hand-rolling process in strip steel mills, so that inside
the constancy of some of these percentages there was a tremendous
churning that was going on in individual occupations, and if we are
talking about technological displacement and its relationship to occu-
pation, you are thinking really along two lines, one possibly tlie effect
that the technological change in general may have in developing a
requirement for a higher skilled group, is for example more profes-
sional people per thousand workers, or more clerical workers, if that
^ere the case ; and then you also need to think the problem through

CONCENTRATION OF ECONOMIC POWER 16237

on the level of the occupations inside each of these distributions of
what happened to ci^ar makers, what happened to steel roll opera-
tors, what happened to hand transfer knitters, and so forth, and
so on.

Is that correct?

Dr. Kreps. Yes; I agree.

Dr. Andehson. Mr. Chairman, may I make one addition that is
pertinent at this point? The table refers to an occupational distri-
bution of gainful workers as the census uses that term "gainful
workers." This is not a distribution of employed workers, as would
be implied from Mr. Hinrichs' remarks. This is a distribution of the
way in which workers say they are normally employed. In other
words, it presents an over all, and doesn't refer to employment or
disemployment or displacement of workers, but it does give you a
framework picture of the distribution of gainful workers seeking
employment or employed.

The Chairman. Thank you.

The committee will stand in recess until 2:15.

{Whereupon, at 12:20 p. m., a recess was taken, to reconvene at
2 : 15 p. m. of the same day.)

AFTERNOON SESSION

The hearing was resumed at 2 : 25 p. m. upon the expiration of the
recess. Senator O'Mahoney, the chairman, presiding.

The Chairman. The committee will please come to order. Are you
read}' to proceed ?

Dr. Kreps. Proceeding next to the question of capital saving inno-
vations, I think it is not overemphasizing the point to say that prob-
ably the most astounding feature of the technical progress which
holds us in its grip at the present time is the extent to which capital
saving devices are being invented, items such as multiplex telegraphy,
fire-protection systems, cheap artificial illumination permitting 24-
hour operation, skyscrapers, geophysical prospecting, and all the
myriad devices of rationalization.

I have prepared a small memorandum indicating specifically what
some of these capital saving devices are, from three sources.^ One
ii an article in the American E con o^nie Review, entitled "Effects of
Current and Prospective Technological Developments Upon Capital
Formation," in which are cited actual tnechanical improvements that
have all resulted in greatly increasing the amount of product per
dollar of investment and per unit of machinery. I will cite just
one to give a notion of the general tenor of the article. In the
electric-utility industry, for example, a topping technique has been put
-nto practice in which exhaust steam from high-pressure, high tem-
perature turbines is utilized by being discharged into the steam
headers of lower-pressure units. This tends to increase the capacity
of existing stations from 40 to 90 percent without an increase in fuel
requirements and without corresponding additions to plant and
equipment, a fact which is sometimes ignored by those who state the
so-called capital investment needs of utilities.

Similarly, I have got together certain excerpts from a study on
inventions published in the two-volume work by Hoover's Committee
on Recent Economic Changes and in that they have a section listing

1 See "Exhibit No. 2439." pp. 17300

16238 CONCENTRATION OF ECONOMIC POWER

a variety of industrial processes and the savings in costs brought
about by these industrial processes.

The Chairman. Do you state what that committee was and how
it was constituted ?

Dr. Kreps. President Hoover, if my memory is correct, had sum-
moned together a committee consisting of experts in various fields,
labor, industrial relations, foreign trade, and the like, to trace the
changes that had taken place in the twenties and they came out I
think in 1930, or thereabouts, with a report called Recent Econ(ym,ic
Changes. In that report there was a rather extensive chapter on
industrial rationalization and industrial innovations. It is from that
report and from a tab^e in that report that I have taken an excerpt
which gives a few examples of the type of capital saving innovations
introduced at that time.

The Chairman. What do you mean by capital saving innovation?

Dr. Kreps. One that enables a given firm to produce the same
volume of business, either in physical amount with the same machine
or with a machine costing less money ; that is, either the product per
dollar of invested capital is larger or sales are larger per unit of
technical equipment, sometimes without supplanting a single laborer.
It still takes one laborer to operate the new machine. He just has
a better machine.

The Chairman. To simplify it, just a cheaper machine to do the
same or better work in terms of output ?

Dr. Kreps. That is correct.

Mr. HiNRiCHS. Capital saving is also labor saving, isn't it?

Dr. Kreps. Capital-saving devices, as my outline indicates, save
labor in the production of the machine, if the machine itself is actu-
ally made cheaper, and in part answers the question whether labor
is reabsorbed in the machinery-making industries. Capital-saving
inventions have tended to reduce the amount of labor that can be
reabsorbed in the capital-making industries.

To quote certain other examples listed in this memorandum, the
American Woolen Co. reports for 1939 that it has only about half
as much plant and equipment today as in 1924, but nevertheless has
the actual capacity to turn out the same amount of goods.

Similarly, in the iron and steel industry the average daily output
of a typical 170-ton furnace increased from 302 tons per day in 1929
to 395 tons in 1939, a rise of 31 percent.

The Chairman. May I interrupt to say that we have with us this
afternoon Mr. George E. Bigge of the Social Security Board, and
I want to say, ]VIr. Bigge, that we will be very happy to have you
ask any questions that may occur to you.

Mr. Bigge. Thank you, very kindly.

The Chairman, The committee, of course, realizes that this is a
subject in which you will naturally be interested, and we will be very
happy to have any contribution you might care to make by way of
question or statement.

Dr. Kreps. To show in detail what happens, I have taken an ex-
cerpt from a study on the textile industry, and cotton spindles spe-
cifically, which shows that cloth production per active spindle has
increased from 276 million square yards in 1929 to 410 in 1939. Al-
though the number of spindles has gone down, the increased effective-
ness of the use of the spindles has actually raised the capacity beyond
what we had when we had more spindles'lO years ago

CONCENTRATION OF ECONOMIC POWER 16239

I would like to submit this exhibit from which I have quoted
certain representative passages, for the record.

The Chairman. It may be received.

(The documents referred to were marked "Exhibits Nos. 2439 and
2439-A to 2439-D" and are included in the appendix on pp. 17300
1^0 17309.)

Dr. Keeps. To illustrate graphically what this means for our prob-
lem of idle money, I might say that it is possible to maintain and
even increase productive capacity in a given industry with an actual
curtailment of demand for capital. Tliis is strikingly shown since
1920 in the automobile industry. I have a chart taken from Mr.
Bell's book on Productivity^ Wages and National Income:^ showing the
decline in fixed capital investment in the automobile industry since 1926
to a level that is now less than 80 percent of what it was in 1926. At
the same time the capacity of the industry has not diminished.

I would like to submit this chart, together with the table, as an
exhibit.

Tlie Chairman. It may be received.

(The chart referred to was marked "Exhibit No. 2440" and ap-
pears below. The statistical data on which this chart is based are
are included in the appendix.)

Exhibit No. 2440

Fixed Capital Investment, Output, and Employment in the
Automobile Industry, 1919-38*
(1923-25 = 100)

INDEX NUMBERS
160

^ Spurgeon Bell, Productivity, U'aj/es and Xational Income, Brookings iDStltutlon, lUJO.

16240

CONCENTRATION OF ECONOMIC POWER

Rates of Retubn on Invested Capital foe Three Major Automobile Companies.

1927-1937

Year

General
Motors

Chrysler

Ford

Year

General

Chrysler

Ford

1927

48.77
45.75
37.02
20.71
15.64
1.34
12.57

43.49
34.91
19. 37

.71

4.35

-6.86

15.68

-3.97

-10.31

13.73

5.79

-4.93

-10.46

-1.20

1934_
1935.
1936.
1937-

15.19
25.62
32.82
28.23

11.10
40.61
61.12
48.89

3.75

1928

3.25

1929

3.98

1930

1.45

Average.

25.25

23.59

1932 .

.04

1933

Source: Federal Trade Commission, Report on the Motor Veh'-"e Industry, Washington,
1939, pp. 487, 618, 671.

Dr. Wai/kek. Is that accounted for in any way by the abandon-
ment of plant ?

Dr. Ej{eps. I don't know the detail of it, and as a matter of fact
the detail will be developed in some hearings that we shall have, so
I would rather have the industry speak because they have accurate
first-hand knowledge. I do want to call attention to the fact that
the decline in fixed capital investment can probably not be ascribed
to a lack "of sufficient profits in the industry to attract new capital.
Throughout this period, and particularly in 1926, the industry en-
joyed substantial profits and rates of return that were really above
that of the average of industry generally. Such profits, however,
failed to attract new capital investment, for, as this study indicates,
the total amount of fixed capital investment in the industry began to
decline in 1926. It is. said that the most extensive investments
actually made in the period were made by one of the firms that did
not have nearly as good a profit record as some other firms. It
changed over from a model T to model A.

In short, the alert, highly progressive managements of the auto-
mobile industry put into practice in their plants the most efficient
new devices, machinery, processes, and tools known, plus all that
scientific management had taught them. They thus created a capac-
ity in excess of their 1937 volume of business. Relative to their
volume of output they put in all the equipment that they needed, but
so much of it consisted of capital-saving devices that total investment
in fixed plant went down.

THE EFFICIENCY OF CAPITAX.

Dr. Kreps. The efficiency of capital has also increased in other
industries. This is not a unique case. I should like to submit a table
of the record of fixed capital compared with output and employment
in manufacturing, class 1 railroads, electric light and power, auto-
mobile and parts manufacturing, iron and steel manufacturing, and
the cotton textile goods industry.

The Chairman. The table may be received.

(The table referred to was marked "Exhibit No. 2441" and is in-
cluded in the appendix on p. 17310.)

Dr. Kreps. Such increases in the efficiency of capital may result,
of course, from production control, time and motion study, budget
control, orderly marketing, intelligent forecasting, improvements in
shipping methods, salvage and waste reclamation, improvement in

CONCENTRATION OF ECONOMIC POWER 16241

service departments and tool control, betterments in inspection and
office methods, but all tend to ^et more output for the same dollar
of capital invested. Tht ::i^nificance of such developments for the
problem of idle money is obvious.

In the woids of Lewis Mumford in his classic volume, Technics
and Civilization:

Whereas the growth and multiplication of machines was a definite character-
isric of the paleotechuic period, one may already say pretty confidently that the
refinement, the diminution, and the partial elimination of the machine is a
characteristic of the emerging neotechnic economy.^

In the thirties, as before, there has been no hesitancy to invest cap-
ital in places where there has been a demonstrated need for it. To
enumerate merely one or two examples, productive capacity in the
rayon industry, in electric refrigerators, and in a number of chemical
industries has more than doubled, even since 1935. Some of the larg-
est chemical companies are now manufacturing substantial portions
of their output in producis they did not even produce in 1929. Mon-
santo Chemical Co. has reported recently that products whose com-
mercial manufacture they had started since 1929 accounted for 39
percent of sales in 1938.

According to Shelby Cullom Davis, treasurer of the Delaware
Fund, Inc., in a pamphlet entitled The Investment Decisions of In-
dustry^ many companies have changed completely from one industry
to another. [Reading:]

Automobile accessory companies became builders of bathtubs, refrigerators
and other household utensils. Automobile companies went into air condition-
ing. * * * Remington Rand went from typewriters to electric shavers,
American Fork and Hoe from agricultural hand implements to sporting goods
and railway track implements.^

In other words, industry has not been reluctant to make new in-
vestments when there was a market. Probably m no instance is this
better shown than by the d^ Pont Co. in their annual report of 1937,
that products relatively unknown in 1929 accounted for about 40
percent of their total sal^s that year.

The Chairman. What year was that?

Dr. Kreps. '37.

Tlie Chairman. In 1937 products which were relatively unknown
in 1929 accounted for 40 percent of the total sales?

Dr. Kreps. That is correct.

The Chairman. Was that in units of commodity or in dollars ?

Dr. Kreps. In dollars. Among these products were some Duco
finishes, Dulux enamels, Neoprene, synthetic camphor, Ponsol dyes,
anhydrous ammonia, synthetic methanol, urea, titanium pigments.
Viscose rayon, cellophane, and cellulose film.

The Chairman. All of those products, I suppose, would fall into
the category of which you spoke this morning when you were dis-
cussing the cooperative nature of modern invention and discovery.

Dr. JKjieps. That is correct.

The Chairman. These could be produced only by group activity,
research, and study of a number of persons in the modern type of
laboratory.

^ Lewis Murafrrd, technics and Civilisation, Harcourt, Brace, New York, 1934, p. 258.
^ Shelby Cullon. Davis, Ttle Investment Decisions of Industry, p. 8.

16242 CONCENTRATION OF ECONOMIC POWER

Dr. Kreps. That is right, by being alert.

The Chairman. Maintained by an institution, or by one of these
large corporations.

Dr. Kreps. Exactly.

In 1927 they had only 10,700 workers making products like this.
In 1937 they had 18,000. During the same period the company's in-
vestment in facilities for manufacturing these products increased
from $65,000,000 to $174,000,000.

The Chairman. How many of these products are substitutes for
natural products and how many of- them are completely new products
that were never used before, and which therefore do not complete, or
compete only slightly, with previously known commodities ^"^ natural
resources ?

Dr. Kreps. That makes a larger demand upon my information con-
cerning the chemical industry than I possess, but it is quite clear that
synthetic methanol represents a substitute for a natural product such
as you spoke of, that some of the finishes represent products new in
composition, products that resulted in greatly decreasing the expense
of painting automobiles and gave us a much superior finish. At the
same time they also displaced some of the inefficient materials and
inefficient hand methods and other methods.

Similarly, cellophane has in part developed a new market, as all
these products tend to do, and in part supplanted an old markets
When I say "supplant"" I never want to be taken to mean 100 percent-
For instance, this morning I talked about the electrical refrigerator
tending to supplant the ice plant, but actually the sales of natural ice
have not gone down a great deal. The need for refrigeration has
become evident to people through the advertisement of mechanical
refrigeration, so you have a larger volume of output, with the older
industry finding a niche in this larger volume.

The Chairman. The electrical refrigerator can go into homes which
could not possibly be served by the ice man.

Dr. Kreps. It works both ways. That is, you see, the factor of
interindustry repercussion, which makes each particular commodity
a study in itself. I have written a book which is devoted to one
product that probably the members of the committee have rarely
heard about, sulfuric acid, and yet problems of this sort arise, inter-
industry competition, intercommodity competition, joint cost, and
developments of one sort or another, interprocess competition within
the same industry.

Mr. Pike. You think possibly among such products ethyl fluid
might be one of the really new nondisplacing things?

Dr. Kreps One would think so. .

Mr. Pike. That is as near as pnything I can think of.

Dr. Kreps. Yes.

Incidentally, in these products, since the first time they were put
.on the market there has been a 40-percent decline in the price quoted
in 1928. That again is a result of progress in technology.

At the present time industry needs more market rather th^n more
capacity. Most of industry is equipped t-o produce a $90,000,000,000
or $100,000,000,000 national income. In the symposium of opinions
of business executives in the New York Sun in its annual-review

CONCENTRATION OF ECONOMIC POWER 16243

edition on Saturday, January 6, Lincoln Cromwell says for the textile
industry :

There is little capital going into new cloth mills. Those we have can over-
supply the market on two 40-hour shifts.

The Chairman. That is another way of saying that the problem
now is one of distribution rather than of production.

Dr. Kreps. Yes; I think that would follow.

The CuAiitMAN. Do you find any diflfei'ence of opinion on that?

Dr. Kkei's. There is some difference of opinion on that topic.

The Chairman. Wliat is the contrary view?

Dr. KijEi's. "Well, some feel that you must have an investment in
capacity irrespective of Avhether that capacity is going to be used or
not, that that investment in capacity then stimulates consumption and
gives better distribution.

Similarly, railroad executives were almost unanimous on the point,
to quote A. N. Williams of the Lehigh Valley Railroad, that —

The railroads are ready for more traffic when it comes. * ♦ * Railroads
are getting more out of their power and equipment than ever before. * * *
We cannot escape the fact that the railroads now handle more tra^c with
less cars and locomotives.

In fact the only industries even at the high level of operations last
fall, equal to 1929, that felt a strain upon capacity to produce w^ere
those that make war equipment, notably the airplane industry. This
means, of course, that calculations tending to show how much obso-
lescence exists in American enterprise, based on 1929 valuations and
so-called nonreplacement, lack solid substance. If it takes only a
$5 machine to produce the same amount of stuff as was produced by
a $10 machine 10 years ago, obviously there is not $5 of underde-
preciation or of obsolescence wliich can be represented as measuring
a demand for capital goods. Such calculations completely ignore the
most significant technological advance of the last 20 years, that of
capital-saving innovation.

TECHNOLOGY AND THE BUSINESS CYCLE

Dr. Kreps. I turn to the question. Before the advent of technology,
was there a modern business cycle? The connection between the
modern cyclical fluctuations of business and the use of large amounts
of fixed capital and equipment is stressed by all analysts of the busi-
ness cycle, but especially by Bouniatian in his classic volume Les
Crises Economiqves} Obviously a great portion of the fluctuation of
business is due to the fact that errors in plant investment are made.

(Representative Sumners assumed the chair.)

Dr. Kreps. The further away from the consumer the original de-
cision to try to fill his demand, obviously the greater chance for
things liappening which were not anticipated. No one wljo has
analyzed the effect of technology on modern life has ever come to any
conclusion different from that which Dr. Harry Jerome of the Na-
tional Bureau of Economic Research summarizes in his volume on
Me-'hanization in Industry^ in the following words:

Finully, while advancing mechanization probably tends to lessen seasonal
fluctuations in industry, there is reason to suspect that it may aggravate

1 Mentor Bouniatian, Les Crises Econon. ques, M. Giard, Paris, 1922.

16244 CONCENTRATION OP ECONOMIC POWER

cyclical fluctuations through intensifying competition, enlarging the function
of capital goods in the economic ' systera,, and * * * increasing the share
of expenditures in those lines, such as durable consumer goods, the effective
demand for which is characterized by sharp reductions when a recession sets in.
In brief, to the extent that medtani-sation contributes to the unpredictability
and the variability of economic processes, it may likewise contribute to an
aggravation of the severity of cyclical fluctuations/

Or, in the words of Eini] Lederer, in his vohime Technical Prog-
ress and Unemployment^ written for the International Labour Office,
"technical progress aggravates the typical phenomena of depression." ^
Investment in capital goods starts credit expansion and usually re-
sults in malinvestment or so-called overcapacity in some line or other.
When the bubble collapses we have the modern business depression —
want in the midst of plenty — a new phenomenon completely differ-
ent from those periods of feast and famine that existed in antiquity.
Depressions then were periods of scarcity. Today scarcity is ane way
of making profits. Today it is abundance that characterizes depres-
sions— a direct result of the miraculous ability to produce goods
given us by technology.

DOES INDUSTRY NEED MORE CAPACITT?

Dr. Kreps. The next question I wanted to deal with has been
argued about a great deal: Who has received the benefits of tech-
nology in the last 20 years? And I don't propose to embarrajs the
committee with a large treatise of statistics on prices and the rest, but
I shall give you the summary results of two or three such studies.

Representative Reece. Would an interruption bother you before
you leave the question which you were discuasmg when 1 came in?
I don't want you to repeat it for my beiiefit, but having only heard
part of it I am not quite sure about the conclusions which you reach.
Wasi this conclusion thf^t we did not need a fu^her expansion of
plants at this time, but that the problem now was largely one of
administration ?

Dr. Kreps. No; I was merely emphasizing that the question of ca-
pacity is one that isn't bothering American business at the present
time; that is, the question of inability to give the consumer what he
can pay for. What they really need is more mari^et, more consumers
coming on the market with funds ready to buy those goods. In other
words, there was no problem of underinvestment in the sense that in-
dustries were beggins: for capital and couldn^t get it.

Representative Reece. We are no^- yet in a position of the young
man who comes into a large inheritance, to be under no necessity
for putting it to work, but only the necessity for administering and
spending.

Dr. Keeps. No.

The Vice Chairman. Doctor, don't you think it is pretty well
agreed by everybody going around tne country, without regard to
statistics or data,- that we have plenty of everything to produce
everything we need if we could just manage to distribute it around?

1 Harry Jerome, Mechanization in Industry, National Bureau of Economic Research,
New York, 1934. p. 22-23.

2 Emil Lederer, Technical Progress and Unemployment, International Labour Office,
Studies and Reports Series C (Employment and Cuemployment, No. 22). Geneva, 1938,
p. 248.

CONCENTRATION OF ECONOMIC POWER 16245

There is no dearth, there are plenty of people to produce food and
there are plenty of machines to produce all the things we need, and
we have plenty of railroads to haul them around.

Dr. Kreps. I would say that is certainly a strong current of
thought.

The Vice Chairman. All the folks who go around the country a
little bit know that pretty well, don't they?

Dr. Kreps. I think so; yes, sir. Sometimes this problem of idle
money is approaclied from the point that somejiow or other there
is an enormous demand in industry, but for some reason or other,
it doesn't attract idle money.

The Vice Chairman. The only reason a person who has some idle
money keeps it idle is because he doesn't know where he can make
a safe investment profitably. If you and I had $50, we would be
governed by the same application, wouldn't we?

Dr. Kjreps. I think so.

The Vice Chairman. And the man who has $.50,000,000 is just the
same sort of a person.

Dr. Kreps. Yes, I think the problem is more market. There is
the neck of the bottle.

The Vice Chairman. Yes, sure. It doesn't take a smart man to
see that. Every man knows that.

Representative Williams. Have you any figures, or are there any
available, that show the percentage of capacity of production that
is now being utilized in general?

Dr. Kreps. There has been no survey of potential capacity since
1929. The Brookings Institution made a good survey,^ and then
there was another one by Loeb and associates, called the Chart of
Plenty^ which has been subjected to considerable criticism one way
or another. We do know, looking at industry after industry and
judging by the reports of executives in the industry — I have just
quoted from the statements given by executives to the New York
Sun in the annual review edition of this year — that in industry
after industry the executives say, "^Ve can fill the demand for an
increased volume of business, even over 1929 levels."

Representative Williams. That being true, of course there would
be no demand for capital investment further along that line, would
there?

Dr. Kreps. There is a school of thought that feels exactly that way,
among which I would class myself.

Representative Williams. But upon what basis does the other
school of thought rest? What is the economic theory back of the
other idea that it is necessary or proper or useful to invest capital
funds where there isn't any necessity for it, from the production
standpoint? I can't see, myself, any basis for that kind of thought.
There may be one.

Dr. Kreps. It is prominently argued, at any rate.

The Vice Chairman. You know, we have a lot of talk here about
credit, about doing something about credit. Well, as Judge Williams
indicates, credit doesn't help yon to sell your goods. Somebody might
borrow some money and buy some of your goods, but when you got

1 Nonrse and associates, America's Capacitv to Produce^ Brookings Institution, 1934.
' Loeb and associates, The Chart of Plentii, Viking Press, 1935.

16246 CONCENTRATION OF ECONOMIC POWER

ready to collect, he probably wouldn't have any more money than
when you sold them to him. We seem to be adopting in this country
the general psychology of the old lady 'who thanked God she had
been able to borrow enough money to pay all her debts, and it doesn't
seem to work. v ,

Dr. Kreps. This controversy is just one of the controversies in the
field of technology, and is no larger than that controversy which I
am now going to raise, which is. Who has received the benefits of
technology ?

WHO BENEFITS FROM TECHNOLOGY?

Dr. Kreps. The extraordinary increase in production represented
by the fact that in the United States in 1933, 43 men produced the
volume of goods that required 100 men in 1899 has been character-
ized by Dr. Mills in an article entitled "Man and the Machine,"
which he wrote for the magazine Today in its issue of November 28,
1936, as—

A new industrial revolution, a revolution that strikes more deeply, falls
upon a much wider front and a more complicated industrial system, and threat-
ens more violent disturbances than did its progenitor of 150 years ago. . . . The
heart of the problem that arises out of such technical and organizational
advance —
he goes on to say, is the question whether it will mean —

on the one hand exceptional prosperity for limited groups, with concurrent unem-
ployment of men and other productive resources or, oil the other hand, higher
living standards for the population at large.

Professor Mills has shown in his studies that prior to 1914 the
benefits of technology were on the whole passed on to consumers and
farmers in the form of lower prices. As a result 112 men were hired
for every 100 men displaced. But after the World War a change
took place. Even in the period from 1923 to 1929 only 91 new men
were employed for each 100 displaced. These may not have remained
unemployed for long at a time. They crowded into such occupations
as hotel services, restaurant cooks and waiters, taxi drivers, beauty
shop employees, garage workers, gas station attendants, and the
like. But they were the first to be throwii out when the bubble broke
in Wall Street in 1929.

If I may be permitted to quote Professor Mills here rather ex-
tensively :

Under prewar conditions, when higher productivity was promptly renected in
lower costs and lower selling prices, new contacts were established without
?reat delay and without persistent hardships. * * * For a number of rea-
sons, the gains in production since the war have gone largely to the managers
and owners of industrial plants and to the men who work for industrial
plants. * * *

Here is the central fact that emerges from this analysis. A host of economic
frictions impede the readjustments made necessary by increasing industrial
efficiency. The machine process itself, with its heavy fixed charges, has placed
major barriers in the way of prompt adaptation of prices to changing circum-
stances. Most of the obligations of a modern business are fixed, in terms of
dollars, and these rigid monetary charges tend to freeze great areas of the price
system. To these elements we must add monopolistic and serai-monopolistic
controls, public regulation of rates, the persistence of customary prices and
scores of other factors that impede price changes and restrict the flow of capital,
labor and enterprise. It is these frictions, apparently inescapable today, that
prevent the prompt and full utilization of technical imprbvements.^

^ Frederick C. Mills, "Man and the Machine," in Today, Nov. 28, 1936.

CONCENTRATION OP ECONOMIC POWER 16247

The Vice Chairman. Doctor, as I understand your statement, it is
that these technical improvements increase the amount of capital
investment necessary to develop a unit of production that is economic
in its operation.

Dr. Kreps. Right.

The Vice Chairman. That is pretty significant, isn't it?

Dr. Kkeps. I think so. I think it is the heart of the problem.

The Vice C'hairman. Mechanical developments tend to put the man
of relatively small capital out of the picture insofar as concerns his
ability to compete with the person vrho has more money and can buy
modern equipment of sufficient size.

Dr. Kreps. In many industries that is the result.

The Vice Chairman. And in addition to that— I don't know
whether this is beside your point — it requires a pretty big producing
unit to be able to maintain an agency of distribution that can get to
the general market. It seems to me that is in the picture.

Dr. Kkeps. That is correct.

The Vice Chairman. I don't want to make a speech, but it seems
to me that regardless of what may be to the advantage of the other
side, the tendency to uniform wages everywhere it seems would tend
to eliminate the small machine of probably not the highest productive
capacity for unit of product. Take a cotton mill, an operator whose
machinery is not the most modern but still can produce cloth, but
not as cheaply as the better machines would produce it — it would
seem that probably the operator of that plant couldn't pay as much
money as the operator of the most modern plant. That seems to me
to be'in the picture. There may be something on the other side that
quite overbalances that» but those things all seem to be tending in the
direction of the concentration of the opportunity to produce and
market.

Dr. Kreps. That is correct.

Representative AVilliams. Did I understand you to say. Doctor,
that during the twenties for every 100 employees displaced, 91 w^re
reemployed?

Dr. Kkeps. In industries in which displacement occurred, that is
correct.

Representative Williams. What has been the record since '29?

Dr. Kreps. We don't have the figures. I am giving you the results
here of about 2,000 pages of statistics in 3 volumes by Frederick
C. Mills, and that study of Mills has not been carried on to date in the
same form. There have been other studies but they don't permit me
to answer your question by quoting any number. We know that
productivity has increased at something like a steady rate right
through the thirties.

Representative Williams. And do you know that the displacement
has been greater or less?

Dr. Kreps. All I could say in the absence of such definite measure-
ments as Dr. Mills gives is that the evidence that I see leads me not
to change what I conceive to be Dr. Mills' contention. In other
words, tnere hasn't been so far as I can see, any tendency for dis-
placement to become less in the thirties than it was in the twenties.

Representative Williams. It seems to me that is rather significant
for our inquiry here to try to determine if we can whether or not

16248 C0NCi^JN-j.KAT10N OF ECONOMIC POWER

that tendency is increasing more and more. Of course, if that study
hasn't been made, we just haven't got tiiat information.

Dr. Kreps. It is a very difficult technical matter to make a rela-
tively simple statement such as the one I have just made.

The Vice Chairman. And your statement is that from the best
study you have been able to make, you are convinced that the increase
of employment has not kept pace with the increase of productivity.

Dr. Kreps. Yes.

The Vice Chairman. And that would seem to indicate, as a matter
of fact, it does not always follow that improvement in machinery
results in better employment.

Dr. Kreps. No, not unless other things are adjusted, prices and a
whole host of other factors, if you are going to get an increase in '
employment with an increase in productivity.

The Vice Chairman. It would seem probable to me that where the
energy, the intellectual energy, of the people is devoted too much to
improving the mechanism and not enough to taking care of the people
who are released by reason of improved machinery, that it would
be a question just how substantial progress that is when you put a
machine in the place of a living human being and he walks the
street and eats the bread of charity. Somebody may brag on the
man who put the machine up there, but it would seem to be a serious
question fundamentally as to just how much good he has done to
society, until society does something about it.

Dr. Kreps. I would agree that if we don't make the economic
adjustments, so the hind wheels of the automobile go as fast as the
front wheels, or our technology — in other words, if we don't synchro-
nize our changes, we are in for major spells of jerky production and
distribution.

The Vice Chairman. The Government is continuing, however, to
offer a premium, to offer an inducement of 17 years of monopolistic
use to anybody who can figure out a machine that will put somebody
else out of a job.

Representative Williams. While we are on that question of pro-
ductivity and the relation to what it was 10 years ago, is it already
in the record wiigther or not there has been an increase or a decrease
in productivity during the last 10 years, from '29 to '39 ?

Dr. Kreps. Yes; I placed in the record this morning a series of
exhibits.

Representative Williams. Have you that in percentages? I am
talking as a whole, not as applied to 'duy particular industry, just
to get that broad picture of it.

Dr. Kreps. As a whole it is about 30 percent, somewhere in that
vicinity, varying enormously from industry to industry.

Representative Williams. But the average productivity has in-
creased during that decade 30 percent ?

Dr. Kreps. In the manufacturing industries which were examined
by the National Research Project.

Representative Williams. During that same time has consumption
kept pace with productivity ?

Dr. Kreps. I don't have the figures on consumption or consumption
per worker. My recollection is — and I would defer to the Bureau of
Labor Statistics in this regard — that real wages per worker employed
are higher today than they were in '29.

CONCENTRATION OF ECONOMIC POWER 16249

HOW MANT ABE NOW EMPLOYED?

Representative Williams, And just one other question now : What
about the number of actually employed compared with '29?

Dr. Keeps. I don't have those figures at my finger-tips. I would
have to go to the Bureau of Labor Statistics and try to secure them.

Representative Williams. To my mind there are some very funda-
mental statistics that we certainly ought to agree on in this hearing
if they are available, and it seems to me they should be, and that is
one of them, whether or not there has been an increase or decrease
of employment in the productive industries in the country and to
what extent the productivity has increased, whether or not consump-
tion has kept pace with productivity, and to my mind, what has
been the labor cost to industry in this production.

Dr. Kreps, I submitted figures this morning showing the decline in
unit wage cost that is accompanying recent increases in productivity.
The reason I hesitated about answering your question on the total
volume of employment is of course that we have had no good record
of the number employed. All of us have to reason from the small
sample for which the Bureau of Labor Statistics is collecting monthly
figures. They are estimates.

Representative Williams. The reason I am asking that question is
to try to get some authentic figures, because it ranges from nothing to
a great many. It has got a very wide range in the discussion that
is taking place in the newspapers and among some of the supposed
economists of the country, and it does seem to me that we ought to
reach some kind of a reasonable, fair, approximate understanding
as to what is the truth about the matter.

Mr. HiNRicHS. Mr. Chairman, there doesn't seem to be a very great
range with reference to the estimate of the number of people employed.
In the case of manufacturing industries the comparisons can be made
quite exactly. In 1937 approximately the same number of people
were employed in manufacturing as in 1929. At the present time the
number is slightly less than it was in 1937 or 1929. The estimates
for trade are not as good as the estimates for manufacturing. They
indicate approximately the same levels of employment now as in
1929. We have no census information on trade since 1935, The
census figures of the present year may indicate that there is some
underestimate currently of the amount of employment.

In the construction field the figures on employment and all other
aspects of that fundamentally important industry are woefully inade-
quate. We do know, however, that construction employment is very
substantially below the levels of 1929. There is some question with
reference to the figures on transportation.

In the railroads we know that the level of employment is substan-
tially below the levels of 1929, As far as we can get any indica-
tion for the total field of transportation that would also be some-
what less than in 1929, The difficulty is there that we measure
the areas where employment is decreasing more accurately than we
measure the areas like ipr'otor trucking where the employment is
increasing, and again I refer, as I have done several times in the
past, to the census information against which we have to put current
estimates periodically as they become available.

12-MOl — il— pt. 30 5

16250 CONCKNTUATION OKl^OOl^OM 1(J TOWEll

If you add up all of the figures that we can now put together as a*
basis of estimating nonagricultural employment, our current esti-
mates of nonagricultural employment would be 33,800,000 people as
against an average in 1929 of about 30,000,000 in nonagricultural em-
ployments. Now if you put together the question marks that people
place against these estimates (not that the estimate could be better
made at the present time, but simply that there are fields for which
informaion is sadly lacking, where there is no basis of making a
really sound estimate) and add up the probabilities, there is a prob-
ability that that estimate of 33.8 million is somewhat too low; we
wouldn't be astonished if in various fields for which we have com-
paratively little information, casual workers, various types of service
industry, we found that in the aggregate that figure was as much
as a million too low.

At the end of a period of 10 years of the most violent changes in-
employment that we have ever known, I do not feel that that esti-
mate IS altogether bad. It means that we are estimating within a
margin of some 2 or 3 percent, and have been looking forward regu-
larly to the fact that just exactly today our information is worse
than it is ever going to be or could ever have been ; that is, we have
come to the end of a 10-year period, a census is now being taken in
this week that will give us a more accurate tying point for this whole
series on the basis of which projections will be made, or estimates
will be made from month to month, over the next 10 years, and in
1949 as in 1939 certain parts of that estimating process are going
to be dangerously inaccurate. But if you say, what is the relation-
ship between employment now and in 1929, within approximate
levels at least we can estimate it, in some lines very accurately, in
other lines less accurately, and the margin of doubt is in the order
probably of a million people as between the judgment of various
people. We are quite sure it is not less than our present estimates
would indicate.

(Representative Williams assumed the chair.)

AVERAGE COST OF PRODUCTION

Acting Chairman Williams. You have already put in the record
the decreased labor cost to industry ?

Dr. Kjieps. I have.

Acting Chairman Williams. Now what has been the actual trend
with reference to the cost of production ?

Dr. Kreps. I haven't, of course, the figures on the total cost of
production, but the unit wage cost

Acting Chairman Williams (interposing). I understand you have
that in, but I am asking now what is the trend so far as the total
cost of production has been during the last 10 years.

Dr. Kreps. In a particular industry?

Acting Chairman Williams. No; over the whole field.'

Dr. Kreps. I am afraid I am not competent to answer that ques-
tion. I wish I could.

Acting Chairman Williams. In other words, whether the cost of
production as a whole has decreased or increased over that period.

Dr. Kreps. Of course it would vary with the industry. -

Acting Chairman Williams. Naturally so, but I am trying to get
a picture of the whole industry.

CONCENTRATION OF ECONOMIC POWER 16251

Dr. Kreps. Prices are lower than they were in some years in the
twenties, and raw material costs are different, and the like.

Acting Chairman Williams. Then I judge from what you say we
have not made any study, there aren't -any jfigures available, to give
us an idea of what the trend has been during the last ten years in
the £eld of production with reference to its costs.

Dr. Kreps. No; we would say on gi-ounds of general theory that
prices and costs tend to be in line. Presumably costs came down in
about the same way that prices have come down, but you are quite
right, there has be«n no survey. There have been, of course, studies
of costs of particular elements in particular industries. There has
been a summation year by year of what has happened to certain types
of costs in those industries.

Acting Chairman Williams. I had the impression that the claim
had been made by certain industries especially that labor cost of
production had been very materially increased in the last few years.

Dr. Kri-:ps. I think that you will find that such claims usually rest
upon a confused notion of what is labor cost per unit as opposed to
wage rates. Wage rates have risen, but of course the wage rate is
not the same as labor cost. The factor of productivity has been
ignored. The charts that I showed this morning indicate almost
universally an increase in wage rates per hour, but at the same time
so much greater increase in productivity that unit wage cost per
unit of product, which is the important item in quoting price, has
gone down, broadly, since the twenties.

Acting Chairman Williams. It would look rather reasonable to
me that that being true, so far as the labor cost is concerned, it migh
probably be true as to the general cost.

Of course I realize that there are a number of elements that go
into cost outside the labor.

Dr. Kreps. I was going to remark that probably some elements
such as taxes may have risen appreciably.

Acting Chairman Williams. Interest may have gone down.

Dr. Keeps. That is correct.

nonproductive workers

Mr. Pike. While you are off the track a little bit, Doctor, may we
take this additional trip around. I was looking at your "Exhibit
2437," which gives me some idea that a great deal of the saving made
in the primary production, the saving in actual wage earners on a
machine, has gone to other people a little bit farther from primary
production, the managers and clerks and the free riders, you might
say. In 1880, against 52.7 wage earners you had 10.9 distribution,
managerial, and professional people; in other words, around 5 wage
earners carried 1 white collar man. In 1^39 as against 54.3 wage
earners you had 26.93 riders, so that every 2 wage earners had to
carry a white collar worker. It probably is inevitable, along with
higher technological efficiency, to have more management and pro-
fessional help around the factory. I would say the laboratory would
be part of it — not really a free rider in that sense, but not directly
engaged in production. There has been more overhead on business
in the way of people not directly at machines.

Dr. KJREPs. Yes; they have been classified by accounting systems
as overhead.

16252" ONCENTRATrON OF ECONOMIC POWER

Mr. Pike. A ditferenco of 5 to 1 as against 2 to 1 in 60 years is
quito marked.

Dr. Kreps. Of course, a niacliine that does the back-breaking job
mny involve substitution of-d clerical worker whor^is just as productive
as were the people doiufj the back-bi*eaking work.

Ml*. Pike. And also they have to put a lot more people on the road
"to peddle them.

Dr. Krkps. The conclusion that something? has happened to prices
since tlie World War which has prevented the benefits of technology
from being fully distributed to consumers is one that is arrived at
by a wide variety of authorities. The Brookings Institution came to
something of the sanlj^ conclusion in a well-known study on Income
and Economic Progress} That situation has not changed in recent
years.

Dr. Mills, writing in the New York Sun as late as January 6 of this
year, stated that while ''some correction of 1933 distortions has been
effected," and he meant by thatihe distortion which his study revealed
in 1933—

there still exist price and wage disparities, exemplified by low farm prices, high
construction costs, high costs of some capital goods and high labor costs iij
certain industrial processes, that make for unemployment, idle equipment and
a low ^volume of production. The benefits of technical progress must be widely
disseminated. Economic bottlenecks are created when the gains resulting from
industrial improvements -are retained by a few. Price reductions are the surest
way of effecting the desirable wide distribution of productivity gains. The ad-
vance of some 30 percent in man-hour output in manufacturing industries since
1929 is only in part refiected in prices to consumers today.

The fact of technology, therefore, makes the work being done by
the Temporary National Economic Committee on concentration of
economic power of crucial importance. For technology is bound to
ca'ise aggravating problems to the economy unless the benefits of the
machine are distributed to the consumer in lower prices. The best
argument for, if not the proof and substance of, technical progress
consists of the lower prices that are quoted to consumers. These
savings from increasing productivity, if passed on to consumers, in-
crease the purchasing power of millions of people and thereby give
increased opportunities for employment to millions of businesses
throughout the country.

THE GENERAL EFFECTS OF TECHNOLOGY

Dr. Kreps. Now I turn to the final part of the testimony, part 3,
in which I try to give some picture of the general effects of tech-
nology. So far we have been talking exclusively about economic
effects, effects on labor productivity, prices, and the like.

Acting Chairman Williams. I would like to ask one question just
before you leave the subject you were just on : Have you any figures
available to show to what extent these benefits in cost and prices
have been passed on to the consumers?

Dr. Kreps. There are variable measures. Dr. Bell, in the study
which was referred to this morning, has figures that would indicate
that while a substantial proportion of the increase in productivity

^ Harold G. Moulton, Income and Economic Progress, Brookings Institution, Washington,
1935.

CONCENTRATION OF ECONOMIC POWER 16253

was passed on to consumers in the form of lower prices, by no means
all of it was.

Acting Chairman Williams. That is not only shown, I assume, in
the reduced price, but perhaps in the increased efficiency of the serv-
ice and the better material, also, that has been passed on by reason
of these technological processes.

Dr. Kreps. Quite so.

Acting Chairman Williams. Not only a lower cost, but better ma-
terials, better goods.

Dr. Kreps. Probably the dominant form in which tjie benefits of
technology have been passed on has been in leisure, shorter hours to
those employed, and, of course, complete absence of employment to
others, whose exact number w^e don't know,

Now, so far, only a few of the major economic effects have been
considered, in fact only those likely to ^ccur at a given moment of
time. But an innovation rarely shows its full power except after
years and decades have elapsed. Moreover, it shows itself with dif-
ferent power in different countries, causing all sorts of changes in
social life, in government, in education, and in religion.

The automobile, for example, affects not only the railroads, but the
family, the size of our cities, the types of crime, the tend<?ncy for
county seats to grow, as well as our manners, and, according to some,
our morals. It has undoubtedly stimulated the growth of suburbs,
changed the nature of much of our hotel business, decreased the em-
ployment of domestic servants, changed marketing areas, and made
oil one of the centers of controversy in international politics. It has
saddled our Stat€ and local governments with a vast burden of debt
for the building of roads, brought in central school systems, dottec;
the landscape with tourist camps and roadside restaurants and pine
board retail huts, in addition to killing and injuring more people
each year in the United States than the American Army lost in battle
during the World War.

A sample of the types of effects which must be studied even to
trace out the more important changes caused by one relatively simple
invention is interestingly shown on Exhibit 2442, which I should like
to submit for the record. I have only taken an excerpt of some of
the changes that are here listed. Each one of those could in turn be
developed. For instance, there is one item, "interest in sports in-
creased, it is generally admitted," and that leads to a nymber of
other effects. I merely introduce this, to indicate the coi.iplexity of
the results that occurs when you try to trace the total effects of
technology, and yet. that- is what statesmen have to do. Fortunately,
economists d,. n^.

I would like to submit this for the record.

(Representative Reece assumed the chair.

Acting Chairman Reix^e. It may be admitted.

(The document referred to was maiked ''Exhibit No. 2442" and is
included in the appendix on p. 17311-17312.)

Dr. Kreps. Obviously it is impossible to do more than name some
of the more important results, and a few of these are indicated in
an outline which shows the different levels of analysis within which
most discussions take place, and I propose to discuss briefly only the
topics that are underscored. 1 should like not to read the outlin^ in

16254

CONCE^TTRATION OF ECONOMIC POWER

its entirety, but to have it introduced into the record at this point, hot
as an exhibit but as part of the testimony.

Acting Chairman Reece. As part of your remarks? It may be so
admitted.

(The niatter referred to follows:)

Levels of analysis

Business policy

Industrial policy

Economic policy

Public policy

Having referenceto

The business en-

The industry or

The economy

The whole life of the

terprise

trade

nation, economic,
political, social, ar-
tistic, educational,
etc.

Enlargement of hu-
man liberties

Protection of weak
against the strong

Primary objectives

More profits either

Expanding mar-

Equal competitive

Elimination of eco-

by increasing or

kets

opportunity

nomic duress and

restricting pro-

Larger share of

Maximum con-

fraud

duction

consumer dollar

sumption

National security

Larger size

Maximum use of

Capacity produc-

Conservation of na-

Increased econo-

government to

tion

tural and human

mic power

secure tariffs,
loans and other
aid

Full employment

resources

Dominant interest

The interest of

The interest of the

Greatest good of the

The national inter-

stockholders or

■ organized, typi-

greatest number

est, i. e., the politi-

proprietors

cally the larger

Consumer sover-

cal, religious and

Industrial empire-

concerns

eignty

. culturalmorescom-

building

prising the Ameri-
can way

Specialist with

The business

The industrial

The economist

The statesman

practical knowl-

manager

leader

edge

The trade asso-
ciation execu-
tive

Types of prices or

"Good prices"

Don't chisel (ump

Prices promoting

M onopoly the enemy

price control de-

Concessions when

of business fall-

maximum con-

of democracy

sired

necessary

acy)

sumption

Uneconomically high

"Stabilized prices

Prices responsive to

prices to regulate

obtained by ad-

competition

consumption, e. g..

justing produc-

Prices uncontrolled

liquor, or insure

tion to consump-

by any one per-

self-suflBciency e. g.

tion, by implicit

son or group

war chemicals

or agreed on for-

Subsidized prices to

mulae,and/orby

promote consump-

"fair or unfair"

tion, e.g. housing

trade legislation

Payrolls

An expense limit-

A barrier to lower

Mass purchasing

A public cost, e. g. in

ing ability to

costs and wider

power vital to

time of war

compete

market

mass consump-

The proof and sab-

A stimulus to la-

tion

stance of public

bor effort

well-being

Costs of technology

Plants, tool* and

Small businesses

Consumer illiteracy

Breakdown of family

machines dis-

displaced

Loss of investment

unit of production

placed

Migration of in-

in labor skills

Standardization of

Increased over-

dustry

Vocational retrain-

work

head

Defensive invest-

ing

Occupational obso-

Market research

ment

Displacedlaborforce

lescence

Cost of developing

Restrictive na-

thrown on com-

Loss of handicraft

market

tional planning.

munity

artistry

especiallycartels

Gigantic economic
states

Wastes of monopoly
and monopolistic
competition

Concentration
of production, em-
ployment and in-
vestment dc-
cisions in a few
hands

Recurrent business
depressions

Factoiy towns

Pressure groups

Increased inter -
dependence

Increased centraliza-
tion of economic
and political con-
trols

Increased destructive-
ness of war

CONCENTRATION OF ECONOMIC POWER
Levels of analysis — Continued.

16255

Business policy

Industrial policy

Economic policy

Public policy

Benefits of technol-

Lowers account-

Promotes stand-

New commodities

Broader basis for

ogy

ing costs by sub-

ardization

and services

higher standard of

stituting me-

Provides common

Inter-industry com-

living

chanical for hu-

basis for associa-

petition

Increased leisure

man power

tional activity

Inter-commodity

Increased opportun-

Affords surer con-

Affords weapon

competition

ity to create a civil-

trol of processes

against outsider

Lower prices

ization

of production

and chiseler

Improved quality

Providosoutletfor

Softens rigors of

Higher wages

surplus earnings

competition

Shorter work week

Implements in-

Less child labor

dustrial empire

Fuller utilization of

building

natural resources

Dr. Kreps. Then I should like to point out that' in the outline I
have sketched the various horizons of thinking on the whole question
of technology. You will find you will be able to identify — I was
going to say pigeonhole — the remarks of most people, and sometimes
even all the remarks that they not only have made but will ever
make, in one of these classifications.

For instance, the first group I list is that of "business policy,"
that which affects the individual business enterprise and its welfare.
Those might be called, if you like, individual effects. Technology, for
example, involves as costs such accounting figures as the plants, tools,
and machinery displaced, the increased overhead, the market re-
search, the cost of developing the market ; the benefits of technology
to the individual enterpriser represent substantially lowered account-
ing costs in addition to affording surer control of production, pro-
viding outlet for surplus earnings of that firm, and implementing
their expansion.

Others will reason from the point of view of an industry. They
^et beyond the individual firm and its problems, and talk about the
industry as a whole, generalizing usually for some section of the in-
dustry. Sometimes the industry is divided into small businesses and
large businesses, those of one process opposed to businesses of an-
other process, businesses in one region sometimes opposed to busi-
nesses in another region, but very often the experience and the eco-
nomic reasoning of people te'nds to be guided by the fact that on
the whole, the horizon of their thought is, Wliat is beneficial to that
industry?

And referring to the costs of technology, as far as the industry is
concerned, the small businesses that are displaced represent a cost
very often causing vigorous protest.

The migration of industry that takes place is a cost to the industry
concerned; the defensive investment that is necessary, the restrictive
national planning that takes place, especially of the cartel type.

ECONOMIC POLICY

Dr. Kreps. Then the level that goes beyond an individual industry
and tries to consider the economy, the wealth-getting, wealth-using
activities of men, is what I have termed "economic policy," and eco-
nomic policy, as you notice, has different objectives from business
policy. A business has to make profits or there will be no business.

16256 CONCENTRATION OF ECONOMIC POWER

But SO far as the economy is concerned, profits is a lure or induce-
ment. " What we really want from our economic structure is some-
thing like equal competitive opportunity, maximum chance for busi-
ness to grow, something like maximum consumption, capacity pro-
duction, and full employment.

Similarly, so far as technology is concerned, technology involves
certain definite economic costs that may not be met by the individual
business, may not have to be met by them, such as the cost of occu-

Eational obsolescence or the cost of retraining workers whose skill
as been supplanted, or finding jobs for workers who are no longer
needed. Even though the business can get rid of them, and even
though the industry can get rid of them, the economy cannot. You
have to support these men. They represent social costs involved.

I should go on to say, so far as economic policy is concerned, that
the benefits of technology in terms of shorter workweek and less
child labor, fuller utilization of natural resources, higher wages, im-
proved quality, lower prices, are benefits which sometimes the indi-
vidual business may not like, particularly the lower prices. What-
ever resistance there is to lower prices is rarely found on the part of
economists.

Now J finally, the legislators' job is more difficult by far, because
the legislator has to consider pulDlic policy, the national interest, the
political, religious, and cultural mores comprising the American way,
and the legislator often has to disregard what is good business and
what is good economics because it is bad public policy.

Mr. Pike. We could get the price of liquor down if it wasn't for
public policy.

Dr. Kreps. And there are certain social costs of technology that
have become important — factory towns, pressure groups, increased
destructiveness of war; and there are certain social benefits to be
achieved, to be achieved not by solving economic problems but by
solving public problems, including that of an increased opportunity
to create a ciAnlization.

Now, as I say, when people argue on the question of technology,
you will usually find them arguing from one or the other of these
points of view, one or the other of these levels, nnd frequently they
ne\"er get away from any one of them.

I propose only to look very briefly at the five points underscored,
namely, the effect of technology in creating certain large economic
units, its impact upon the problem of pressure-group politics, its
impact upon our economic interdependence, its impact upon the in-
creased destructiveness of war, and finally, its promise of a better
civilization.

TECHNOLOGY AND MODERN BUSINESS EMPIRES

Dr. Kreps. Technology, in the typical instance, means the use of
power,- of specialized equipment, large factories, large plant, and
large sums of money. In the railroad industry and puolic utilities,
steel and automobile manufacture, the aggregates of capital required
fdr efficient size are much larger than any but the extraordinary indi-
vidual can suppl,y. Consequently the corporation has been devel-
ol^ed, which could mass the savings and efforts of hundreds of thou-
sands of people so that we might have abundance.

CONCENTRATION OF ECONOMIC POWER 16257

These a<]:gre^ates of industrial production have in the last century
<2:roAvn so much in economic i)o\ver that they have become of primary
si<^nificanct in modern economic life, a significance which Woodrow
Wilson, in an address in 1910 to the American Bar Association,
expressed as follows :

A modem corporation is an economic society, a little economic state — and
not always little, even as compared with states. Many modern corporations
wield revenues and command resources which no ancient state possessed, and
which some modern bodies politic show no approach to in their budgets. * ♦ *

Society cannot afford to have individuals wield the power of thousands
without personal responsibility. It cannot afford to let its strongest men be
the only men who are inaccessible to the law. Modern democratic society, in
particular, cannot afford to constitute its economic undertaking upon tae mon-
archical or aristocratic principle and adopt the fiction that the kings and
great men thus set up can do no wrong which will make them personally
amenable to the law which restrains smaller uien : that their kingdoms, not
themselves, must suffer for their blindness, their follies, and their transgres-
sions of right.

It does not redeem the situation that these kings and chiefs of industry
are not chosen upon the hereditary principle (sometimes, alas! they are) but
are men who have risen by their own capacity, sometimes from utter obscurity,
with the freedom of self-assertion which should characterize a free society.
Their power is none the less arbitrary and irresponsible when obtained. That
a i)easant may become king does not render the kingdom democratic*

This utterance seems unusually prophetic considering the new gov-
ernments where peasants and house painters have made their way
to the top. Large corporate businesses are in no sense private, indi-
vidual businesses. They are economic governments, created by polit-
ical governmental units such as the State of Delaware. As Henry
S. Dennison has stated in an article entitled "Business and Govern-
ment" in a recent issue of the Michigan Alumnus:

* * * The basic pre-supposition that business can be considered as an
entity sepsirate from government is wrong. * * * In the modern world a
large number, often a considerable majority of the citizens, spend the most
significant hours of their lives as part of the business structure. In so far,
therefore.- as business governs the lives of its people when they are working
for it, business i.s, itself, a government within a government. Its possibilities
of affecting the well-being and self-respect of its people for better or worse
cover just exactly the ground which the democratic hypothesis claims as the
primary and essential field of governraent."

This position has been seconded by the noted political scientist.
Prof. Charles E. Merriam, iii a book entitled The Role of Politics
in Social Change. I want to quote only one or two pas.sages:

The great company assumes many of the characteristics of what is commonly
considered a goveniment. It has a legislative body, an executive, an adminis-
tration, a department of state (public relations), a law department, a trea.sury,
of cour.se. It takes on many of the characteristics of what is called bureaucracy.
The heads are invisible and intangible or tend to become so ; they lose contact
with their men ; personnel divisions spring up ; security of tenure becomes an
issue, leading the way to pensions and other forms of insurance. * * *

With reference to their weaker rivals these great ones may lay down rules
of action to which conformity is as important or perhaps even more so than
compliance with the law itself. Manner and mode of production, prices, profits,
areas of marketing — the whole gamut of production — may be swept by the
benevolent supervision of the stronger.

■ Reports of the American Bar Assooiation, 1910, vol. XXXV, pp. 428-430.
''Henry S. Dennison, "Business and Ciovernment," in Michiyan Alumnus; Quarterly
\umber, June 29, 1935, vol. 41, No. 23.

16258 CONCENTRATION OF ECONOMIC POWER

* * * If they do not raise armies, they can organize their own deputies
into coal and iron or other police and carry on struggles In times of industrial
strikes — little short of civil war in some instances; and they may also control
the; local organization of force and justice, or intimidate, if not own.

They may control tlie working conditions and hours of thousands of men,
and, private 'y, shall we say, regiment their conduct to an extent not equaled
by the organization known as the government. * * *

* * * Curiously enough, a corporation may obtain powers under the laws
of some States, giving greater powers than the State government itself may
exercise.

Furthermore, the relations between these larger units themselves become a
problem of far-reaching importance to the community of which they are a part.
Great "companies" may struggle and make war with each other within the
boundaries of tlie State, as railway groups, or steel groups, or oil groups arise
and contend for <^'ie mastery. At the same time comes battle with the smaller
companies, concerns, and individuals, and the pressure of all of them upon the
consumer and upon the worker and upon the state itself.^

TECHNOLOGY AND PRESSTJRE GROUPS

Dr. Kreps. I propose for just a moment to look at the connection
of technology and the increased power of pressure groups. There
have, of course, always been pressure groups, groups with the same
or similar interests, such as the aged, the veteran, farmer, laborer,
banker, manufacturer. All have organizations. Being in the- same
group and hearing over and over again the same sort of experience,
they easily identify what is to their own advantage with that which
benefits everybody — and thus press for higher tariffs, consumption
taxes, higher prices, higher wages. Federal subsidies, lower income
taxes, aiid the like. These pocketbook interests soon develop into
full-fledged matters of emotional principle. I think it is this that
the cynic refers to when he defines politics as a battle of interests
masquerading as principles. These "principles" then become the
group mores not to be questioned internally and the basis for a
friend-enemy classification externally.

Each such major economic group then brings pressure to bear upon
legislatures for favorable legislation, and the resultant legislation
often sets up a department, a bureau, a commission designed to minis-
ter to the needs and promote the interests of those whos& initial pres-
sures motivated the legislation. Thus, in housing, several distinct
agencies exist here and abroad to represent, among others, the separate
economic interests of the contractors, the building and loan societies,
the advocates of governmental housing, and the owners who were
threatened with loss of their homes. As a result there sometimes is
frozen into the governmental structure the same sort of confusion
which exists outside. But it is particularly in the m(jdem era of
specialization and of rapid commtmication brought about by tech-
nology that pressure groups have multiplied, and it is particularly
in the modern era of large-scale production and savings that the
individual interest at stake has become large.

Consumers are hard to organize because no one consumer will gain
or lose a great deal either way, but large units may gain much and
lose much. And large units, as has been shown, tend to have a
technological foundation. Moreover, no one so easily or so readily
raises the funds necessary for maintaining an organization as those

^ Charles E. Merriam, The Role of Politics in Social Change, New York University
Press, New York, 1936, pp. 49-52.

CONCENTRATION OF ECONOMIC POWER

16259

able to tax consumers directly through price maintenanc ;. Good
causes often so abegging. Thus technolo;
number and the power of pressure groups

causes often go abegging. Thus technology has increased both the
th(

THE WORLD AN ECONOMIC UNIT

Dr. Kreps. Next, has technology made the world an economic unit?
The extent to which technology' has reduced the economic dimensions
of the world is indicated in this exhibit.

The Chairman. The exhibit may be received.

(The chart referred to was marked "Exhibit No. 2443" and appears
below. )

ExHiRiT No. 2443

E0TECHNIC5
(to !830's and 40's)
Best regular speed on land and sea lOm.ph.

PALEOTECHNICS

(late 19th, early 20th centuries)
Best regular land speed 65m p h best regular sea speed 36nn. p. h

NEOTECHNIC5

("present era)
Best regular speed in am 200 m. p. h.

TECHNICAL PROGRESS IN TRAVEL TIME

Size of the world, supposing best travel technology in each epoch were
applied over the whole surface of the earth

16260 CONCENTRATION OF ECONOMIC POWER

Dr. Kreps. This is taken from Eugene Staley's World Eeanomy in
Traiixition ^ and is based on technical terminology taken from Lewis
M.unford's book, Technics and Civilization.- Mumford calls the
period which utilized wood as material and wind and water as sources
of power, the eotechnic era. The size of the world in the 1830's is
represented according to the best regular rate of speed on land and
sea, about 10 miles an hour. The period beginning with 1800, which
used coal, iron, and limestone, and mechanical devices, he calls the
paleotechnic era. That, you see, is represented by the small size of
the world, where the best regular land speed is 65 miles per hour, and
the oest regular, sea speed is 36 miles per hour. The present age,
in v'hich chemical interaction, electric power, radio, and biochemistry
are atilized, he calls the neotechnic era. You see the size of the world
today, that little diminutive spot. The latter has been well char-
acterized by a publication of the National Resources Committee en-
titled Technological Trends and National Policy ^^ in the statement:

Four characteristic trends of modern manufacturing, (1) toward continuous
processes, (2) automatic operation, (3) use of registering devices, and (4) of
controlling devices are conspicuotis.

(The chairman resumed the Chair.)

The Chairman. Have you, for ordinary folks, defined the meaning
of these terms?

Dr. Kreps. Yes; I have; just before you came in. The eotechnic
period is one which used wood for material and wind and water
for power. The paleotechnic period is one using iron and steel for
material and using mechanical power. The neotechnic period is the
one we are in at the present time, of chemical interaction, and the
like. I am describing some of the characteristics of this period
as given by the Committee on Technological Trends.

The Chairman. Thank you so much.

Dr. Kreps. They point out :

The last two may embody the new electric eye or ear or only the older
mechanical "senses." Or they may automatically make chemical tests, such as
Sampling furnace gas every few minutes for its proportion of carbon dioxide,
to enable efficient and smokeless combustion, or measuring acidity, or chemical
content by an automatic spectrophotometer/

When you talk things like that, you are talking the neotechnic
era.

Concerning the impact of technology upon nations, Mumford has
made this, it seems to me, classic statement:

Both eotechnic and paleotechnic industry could be carried on within the
framework of European society : England, Germany, France, the leading coun-
tries, had a sufficient supply of wind, wood, water, limestone, coal, iron ore;
so did the United States. Under the neotechnic regime their independence and
their self-sufficiency are gone. They must either organize and safeguard a^d
conserve a world-wide basis of supply, or run the risk of goivg destitute ami
relapse into a lower and cruder technology. The basis of the material elements
in the new industry is neither national nor continental but planetary : this is
equally true, of course, of its technological and scientific heritage. * * *
Under these conditions, no country and no continent can surround itself with
a wall without wrecking the essential, internatiLual basis of its technology

* Eugene Staley, World Economy in Transition, Council on Foreign Relations, New York,
1930, p. 6.

* Harcourt, Brace, New York. 1084.

* Technological Trends and National Policy, National Resources Committee, Washing-
ton, .Tune 1037, p. 24.

* Ibid., pp. 24-25.

CONCENTRATION OF ECONOMIC POWER 16261

* ♦ * Isolation and national hostilities are forms of deliberate technological
suicide.'

Thus it is that today measured in travel tiine, the whole world is
smaller than the eastern seaboard in Washington's day or France
in the reign of Napoleon.

Technology has been making for easier and larger movements of
goods and persons across boundaries precisely at a time when nation-
alistic and pressure group politics seems bent on erecting walls to
resist all these tendencies. The conflict of technology and politics is
at the bottom of the present European mess.

Needless to say, from the point of view of raising living standards
in the world, the forces of technology should be accommodated by the
erection of a system of worldwide economic exchange which, through
movements of capital and knowledge, or indirectly through trade in
goods, would make every region more productive than it otherwise
could be, and raise the income level of every country in the world.

While today population pressure, access to raw materials, and
access to markets are fighting slogans in international politics
[reading] :

One of the fii^t principles for progress towards political peace a- well as
towards economic welfare must be: Lessen the economic significance of political
boundaries.'

according to Eugene Staley in his book World Economy in Transi-
tion.^

TECHNOLOGY AND WAR

Dr. Kreps. The way in which wars have been made more destruc-
tive by the use of machinery need not be emphasized. Despite the
fact tliat wars are carried on only by governments, probably no
machines have been so greatly multiplied or so rapidly improved as
the machinery of death. In the first World War we already had
repeating rifles, hand grenades, machine guns, heavy artillery, mines,
submarines, bombing- planes. Then new expedients such as steel
helmets, tanks, chemical warfare, flame throwers, and antiaircraft
were introduced. Today we have the additional fact of motorization.
But, due to the machine age or due to technology the destructiveness
of war has increased not only on the battle front but (and here is the
important point) on the home front. As Mr. Frederick Lenz points
out in an article entitled "Influences of Modern War" in Plan Age:

The modern battle on land, on sea, and in the air, becomes the true counter-
part of our peace processes. It exhibits all the characteristics of mechanized
mass production and tran.'^port. It stretches the efficiency of standardized de-
struction to the utmost. Despite the human factor involved, it takes on an
objective, measurable character; the role of the fighting soldier is analogous
to that of the modern factory worker who acts as an accessory to the ma-
chinery of which he is in charge. Officers, non-commissioned officers, and
privates represent the three typical strata of our industrial society.^

Modern industr}' and the military machine have in many ways
the same characteristics. The preponderance of fixed capital invest-
ments is paralleled by the mechanization of modem annaments.
Both, when in full action, consume durable goods, steel, coppei,
chemicals, and the like. Both require concentration and regimentr-

* Lewis Mumford, Technics and Civilisation, Harcourt, Brace, New York, 1934, pp. 232-
233 : italics in original.

^ KiiKene Staley, op. cit., p. 320.

' Plan Aye, November 19.J9, Vol. V, No. 9, p. 289.

16262 CONCENTRATION OF ECONOMIC POWER

tion of large numbers of human beings into compact units. In both
the tendency toward rationalization is strong, and standardized pat-
terns promote continuous replenishment of spare parts. Both tend
to plan on a Nation-wide scale, map out campaigns, and rely heavily
on propaganda, stressing heavily that they are only protecting their
ovm.

The military is in fact the ideal form toward which a purely
mechanical system of industry tends. It affords large-scale demand
for absolutely standardized goods. Individual taste, individual judg-
ment, individual needs other than the dimensions of tlie body, have
no effect upon the clothing or equipment of the soldier — all are alike.
Moreover, a nation at war is the ideal consumer. It makes large de-
mands for steel and iron and machinery — that is, the durable goods
recovery so much empl -^sized by certain analysts takes place — and
then in the process of battle these are sunk or shot to pieces. No
problem of overcapacity or resistance to replacement remains to block
further sales.

Technology, in short, not only accounts for a good part of the
increased physical suffering and loss of life in modem war but it
shares no small par^ of the responsibility for the terrific economic,
social, and political readjustments that modern war brings in its wake.

AMERICA UNUMITED

Dr. Krpts. One of the inveterate pathological characteristics of
periods of depression is the hue and cry that opportunities no longer
exist, that the frontier is gone, that the pace of advance in the
future is bound to slow down. So also at present. On the one hand,
there are those who point to the small amount of virgin territory
remaining to be settled in the United States, to the tapering rate of
growth of the population — despite the fact that the number of
families in the 40's is going to increase by a larger absolute amount
than in any previous decade in our history — and similar factors.
Not allowing for the fact that the human mind rarely can see as far
and as distinctly in a forward direction as it can see backward, they
sometimes argue that employment opportunities in the future are
bound to be limited.

Such persons should study the recent industrial history of other
countries such as Great Britain or Sweden.

I wish to submit as an exhibit, a chart from Carl Snyder's book
entitled "The Remarkable Parallel of Sweden and the United
States." It is the middle chart on the easel.

Acting Chairman Reece. It may be admitted.

(The chart referred to was marked "Exhibit No, 2444" and ap-
pears on p. 16263.)

Dr. Kreps. This shows a growth paralleling if not exceeding that
in the United States. Moreover, the rate of increase in value added
by manufacture in Sweden, precisely in the period from 1880 to 1920,
is, if anything, faster.

Now Sweden in 1870 seemed to have no such frontiers ahead of
it as did the United States. Here most of the area, west of the
Mississippi River remained to be settled. vVe were to go through
in succession a rapid development of the iron and steel industry,
two hectic decades of railroad building, and a new era of automo-

CONCENTRATION OF ECONOMIC POWER

16263

biles, construction, and road building. In SwedeJi the land was
already occupied. Its population growth in no sense paralleled that
of the United States. Moreover, from the point of view of the
writer, Carl Snyder, who published this chart, Sweden was "handi-
capped" throughout the period by measures which have come into
effect in the United States only m the past 7 years. To some of
these measures or "handicaps" I should like to call attention.

Exhibit No; 2444

SWEDISH NATIONAL INCOME
& VALUE ADDED BY MANUF.

COMPARED WITH U S. FROM 1860

SWEDISH
.NATIONAL INCOME

U.S.
"NATIONAL INCOME

^VALU£ ADDED
BY MANUr.
IN SWEDEN

IN KR.

rVALUE ADDED

BY MANUF.

IN U.S.

IM$»S

RATIO SCALE

1660

1870

1880

1690

1900

1910

1920

1930

1940

XXX. THE REMARKABLE PARALLEL OF SWEDEN
AND THE UNITED STATES

sonnet' C»P1''«L'SM 'Ht cnEiTOR

They have had a reserve works system, a W. P. A., if you like,
since 18G6, based on a national resources survey made in 1852. They
have about tlie lowest tariff in the world. They initiated a national
power system under a water power administration in 1909, with
scores of municipal and cooperative distributing plants (T. V. A.).
A governmental power network gridirons the whole nation, with
rural electrification covering 60 percent of the farms (as opposed
to less than 20 percent here). They have had a managed currency
since 1920 and frankly ignore the gold standard. The S:ate is a

16264 CONCENTRATION OF ECONOMIC POWER

partner in the largest iron mines of the country, those now of such
importance to Germany. Tobacco profits are used to finance old-age
pensions, which they have had for decades, together with unemploy-
ment insurance and other forms of social security. The State owns
the trunk line railways, the telegraph and telephone systems, and
most of the forests. They have had the basic elements of the
A. A. A. since 1928. Their systems of State liquor control compares
favorably with that of any country in the world. Their govern-
mental aerotransport company has not had a fatal accident in 12
years. They have had full collective bargaining for decades and
since 1909, when Hjalmar Branting came into power (by the way,
to settle a general strike which the King refused to stamp out by
violence or bloodshed), Sweden has been governed most of the time
by its L. O. (Landsorganisationen) with the slogan "The same
possibilities for living securely within the fatherland for all those
"who inhabit it." They have had a consumer cooperative movement
that successfully and aggressively reduced the prices of manufac-
tured goods. In spite of all these "obstacles" Swedish manufacturing
grew faster than that in the United States.

Those who consider Sweden a special case should look at develop-
ments in Germany, Switzerland, the Netherlands, or any other indus-
trialized country, including Great Britain. Even in that tight little
island the increase in real wages from 1840 to 1900 was just as rapid
as in the United States.

I should like to submit an exhibit showing real wages in Great
Britain and in the United States, 1840 to 1900.

(Senator O'Mahoney resumed the chair.)

The Chairman. The exhibit may be received.

(The table referred to was market "Exhibit 2445" and is included
in the appendix on p. 17313.)

Dr. Kreps. (ireat Britain, I might say, has "suffered" similarly
from free trade, full collectible bargaining, and various forms of labor
legislation. In addition to that, it has experienced a deficit in savings
such that slightly more than half as much, that is only 7 percent, of
the national income was saved in 1935 as was saved, 13 percent, before
the World War.

What is the frontier that Sweden and England and many other
countries have developed? It is obviouslv an intensive rather than
an extensive frontier. It is the frontier represented by the needs and
the will to progress of their own citizens. And that frontier stpl
remains to be developed in the United States. As a notable business
magazine. Fortune^ points out in its issue of February 1940:

* * * The tools and exten.sions of industrialization do not exist for their
own sakei Tlioy exist for * * * the cnvsumcr. The entire producers'
goods industry, for instance, whose purpose is the making of tools, is quite
secondary to the real purpose of industrialization. That real purpose may be
defined as an increase in the poiccr to ammme. * * *^

* * * The central economic problem is not a revival in the producers'
industry, although that would help. Nor can it be a revival in "investment" in
Uie old sense of the word. The central economic problem is simply the con-
version of a high i)otential power to consume into an actual power to consume:
a wider distribution of progress.

1 Fortune, Vol. XXI, No. 2, p. 50.

CONCIONTllATION OK r<X>f)NOMfC I'OVVKIl 16205

'I'hf- (trout <IllTororitiiil thnt links yxitonllnl and ;i<'lii;il consunilnt; piwor is
price; und wlial llio n«'vv era cricH tor is a dniHllc (Icclinc in niany iiai-K «»f
IndUHtrinl prices.*

* * * Emi)haHi.s has boon jait on I Ik; ne<Ml for confidciKc in rnakinj; new
Investment; but • • » this emphaslM is both unrealistic atid academic. The;
realistic requirement is, rather, that the businessman should liavf; crmfldcv/;*;
in the ronmimcr: he must have confidence that if he decreases his prices and
his profit nuirKlns ho will jjet a <-orrespi»ndin>? rise in volume.^

• * * In the consumer lies th(! frontier. ♦ * • Hy industrialization we
built a new civilization. And durinj? the last fifteen or twfjnty years, by further
industrialization, we have created the possibility of an entirely new era for
mankind. It is time now to get to work to make that era a reality.'

The ma<;iiitudo of tlie frontier lierc to be explored is evident from
the familiar i)yraniid showing income levels in the United States
which was introduced once before at our hearings.* I would like
to refer to it now.

Dr. Kreps. It shows 8,000,000 families with incomes of hiSS than
$750 a year, and an additional 11,000,0(X) families with incomes be-
tween $750 and $1,500 a year. These families, representing over GO
percent of our population, constitute a vast unexplored economic on^
body open for the kind of pioneering effort which the Swedish and
British have used throughout the past 50 years. Economic i)iofieeis
with vision are needed, able to get outside the shells of their prejudice
and their self-interest. Here are some truly gigantic bridges to Vje
built, economic bridges connecting the needs of these families with
the goods which our superb machines can produce.

There are, in short, two frontiers — the industrial frontier and the
frontier of economic adjustment. Changes in one must be synchro-
nized with changes in the other, just like the front and back wheels
of an automobile. If we vigorously push advances in technology
and refuse to make the requisite economic adjustment, we will set up
grave tensions in our society. Obviously to call a moratorium on
research or on progress of the machine. is both unwise and impossible.
But the shortsightedness of those who argue that the industrial
frontier is gone is only exceeded by the stupid defeatism of those who
wish to call a halt to economic adjustment.

What is necessary is economic balance. Our capacity to produce
goods must not change faster than our capacity to purchase them.

The Chairman. You should state that the other way, that our
capacity to purchase goods should be kept in line with our capacity
to produce them.

Dr. Kreps. Yes; I would agree to that.

The Chairman. Wouldn't you agree that that is a much better
way of j)utting it?

Dr. Ke s. There has to be give and take.

The Chairman. No; the one as you stated it involves the idea of
limitation of production, and the amended statement which I have
suggested does not involve limitation at all, it involves solely build-
ing up of the consuming capacity of these 19,000,000 families at the
bottom of this curious diagram that you have presented.

Dr. Kreps. I agree.

' Ibiil., p. 160 (italics in original)

Mbid., p. 163.

3 Ibid., pp. 14."j, 164.

* See He.irings, Part II, pp. 5424, S-jB-j

124491 — 41— pt. 30 6

16266 CONCENTRATION OF ECONOMIC POWER

The Chairman. In other words, here is a potential market of 19,-
000,000 families which is unable to take full advantage of what
advances technology offers, because they are living in the individual
era, depending upon themselves, whereas all of the great triumphs of
modern technology, or most of them at least, are the product of
some form of organized effort, either in the development of the
technology or in the use of it. Most of these great new inventions
are capable of use only by some sort of collective effort. A railroad,
for example, can be made to serve the people only by the collective
a-ssets, the capital of thousands of people, and the huge industrial
army who operate the railroads. The same is true of every com-
munication system. The same is true of the airplanes. The same is
true of the modern system of public roads, and of the automobiles
which travel those public roads.

These families at the bottom of the scale have not been permitted
to emerge into the area of using what organized technology and or-
ganized industry makes available to them.

Dr. Kreps. That is correct.

It is interesting to note that even before 1932, a committet. of
President Hoover's, writing a two-volume work on social trends,
should summarize their findings by saying :

If, then, the report reveals, as it must, confusion and complexity in American
life during recent ye&rs, striking inequality in the rates of change, uneven
advances in inventions, institutions, attitudes and ideals, dangerous tensions
and torsions in our social arrangements, we may hold steadily to the importance
of viewing social situations as a whole in terms of the interrelation and inter-
dependence of our national life, of analyzing and appraising our problems as
those of a single society based upon the assumption of the common welfare as
the go!al of common effort.

Effective coordination of the factors of our evolving society mean, where
possible and desirable, slowing up the changes which occur too rapidly and
speeding up the changes which lag. The Committee does not believe in a
moratorium upon research in physical science and invention, such as has some-
t' les been proposed. On the contrary, it holds that social invention has to be
stimulated to keep pace with mechanical invention.^

Some of these social inventions have alrearly been applied in Amer-
ican life. Our genius in inventing and exploiting the idea that all
the children of all the people should be educated has led to an in-
vestment in plant in every corner of the United States and created
jobs for millions. If we should catch the vision of building an
American civilization, we could create employment for millions, as
did Sweden, in providing, to use their national slogan, "more beauti-
ful things for everyday life." In every city an art center, an opera
house, with native schools of painting, sculpture, woodwork, handi-
craft, music, and literature; m every home and school and public
building examples of native American artistry; but abcve all in
American economic life a realization of that type of economic and
social adjustment which may lead some future observer to call the
United States, as Marquis W. Childs describes Sweden in his Sweden^
the Middle Way, a —

country where laissez-faire has continued to exist; where the so-called "laws"
of supply and demand have not been wholly invalidated by the spread of
monopoly.^

1 Recent Social Trends in the United States. McGraw-Hill, New York, 1933, p. XV.
s Marquis W. Childs, Sweden, the Middle Way, Yale University Press, New Haven,
1936, p. 161.

CONCENTRATION OF ECONOMIC POWER 16267

Monopoly in its various forms in the United States is tJie enemy
of deniocnicy. If we fail to have sufficient American pioneer red
blood in our veins to insist that there shall be no concentration and
exercise of economic power without the consent of the governed,
technology will never be able to create for us an America Unlimited.

I am sorry to have taken such a long time, Mr. Chairman, for this
testimony.

The Chairman. It was very interesting.

Do any members of the committee desire to ask Dr. Kreps any ques-
tion i

Mr. HiNRiCHS. Mr. Chairman, may I have just a moment? There
were one or two questions that I should like to have asked, but the
hour is somewhat late and it has been somewhat difficult at points
to follow this very interesting discussion. Merely as a matter of
safeguard, therefore, I might want to question the witness at some
later time.

I would like, however, to indicate what you already indicated at
the beginning, that Dr. Kreps spoke in his personal capacity, and
certainly was not representing, more particularly, the point of view
of the Department of Labor in presenting what seems to me to be
in part at least a bridge between the work which the committee has
been doing and the present hearings, presenting it very interestingly
and significantly. That is, in the discussion, for example, of con-
centration of economic power, of prices, with which the committee
has heretofore concerned itself, I think in showing the relationship
between those subjects and the broader problems of technology. Dr.
Kreps has done a very real service.

I should like, however, if I may, to address myself for a moment
to Mr. Anderson with reference to the type of interest which we
feel in the Department very keenly, in the problems of technology
or the machine as such. We recognize these other problems; our
interest in America Unlimited is as unlimited as Dr. Kreps'. As a
matter of fact, I think the phrase might conceivably have originated
within our Department.

The Chairman. It is a good phrase, if more than one wants to
claim it.

Mr. HiNRicHS. It is an excellent phrase, and the more widely used,
the better, and the more widely it is realized that America Unlim-
ited means a very broad attack on the problem, and not a specific
attack by restrictive measures, either with reference to production
or with reference to machinery, presumably the better.

I have gathered from Dr. Kreps' testimony that an attack on the
problem through a mere limitation on the use of machines as such
would be regarded by many as analogous to the machine riot ap-
proach to machinery in the nineteenth century. Merely in passing,
I would put in a footnote that I wouldn't want to make the statement
before we closed an examination of the problem. There has been
some interesting thinking by David Cushman Coyle and others, for
example, as to the poverty a society may find itself in through an
undue rate of obsolescence of machinery, where an undue proportion
of its efforts goes into the creation of plants which are then scrapped
and don't result in consumer goods.

But turning to the particular problems that are involved, Mr.
Anderson, I hope that this is a bridge and not a forerunner of the

16268 CONCENTRATION OF ECONOMIC POWER

attack which is going to be made by all witnesses. This is funda-
mentally important, but there is the problem of the machine itself,
of the group of workers that are thrown out by a specific machine,
or the individual worker that is thrown out in the process of tech-
nological change, with reference to which we in the Department of
Labor have a vital and continuing concern.

The things that we are hunting for are the constructive efforts
which are being made by industrial leaders, by trade union lead-
ers, by thoughtful people in the Government, as to the means by
which that dislocation can be made less in those instances in which
it occurs. It has meant, for example, in the recent past, a fairly
substantial extension of the field of collective bargaining in which,
for example, collective bargaining has concerned itself not merely
with the question of wages and of hours, but has also concerned
itself with such questions as the rate at which machinery is going to
be introduced, and the way in which machinery is going to be
introduced.

To take examples from countries that Dr. Kreps has been talking
about, there has also been a very great interest in such things as
dismissal wages, with which we in the United States have relatively
litth familiarity. Now there is a developing experience in the United
Stales, and a developing awareness of the problem of the dislocation
for the individual groups, on which we need to focus our attention,
and to which hearings on technology and machines as such can very
pro3erly be directed, and should be extensively directed, to find out
the extent to which there is an awareness, the extent to which that
proDlem is being handled in one industry after another, and the
methods that can be applied. And it is along that line that our De-
partment has a very vital interest, that operates in a sense on a nar-
rower level, or operates at least on an un-underlined level of interest,
in that chart that was submitted, and I hope that we can look for-
ward to that material and point of view being developed.

Dr. Anderson. May I express the attitude of the staff in building
up these particular hearings, Mr. Chairman? We had in mind two
approaches. The first one has been reflected in Mr. Kreps' fine docu-
ment, and will be included in the next witness's statement of new and
impending technology. On this first day we planned to orient our-
selves in the problem, to get a glimpse of its size and its ramifica-
tions, to form this bridge between the larger social policy problems
of the economic situation that you have been discussing through the
year, and this more specific topic of technology as it applies in par-
ticular industries. Not only have we had in mind these specific
points, but also as I pointed out this morning successive witnesses will
be in the nature of case studies for the committee. Mr. Ford, for
example, will be here on Wednesday morning, and he will discuss
the whole retooling story of the Ford plant, the thing which every
economist and labor man has been wanting to know about for a long
time. Specifically in detail he will talk about displacement in par-
ticular units of the plant, and the effect of displacement upon workers,
particular workers, in definite lines of production.

We have had in mind, therefore, a .twofold purpose all the way
through. The first task today was to lay a groundwork, as it were,
upon which to build the rest of the structure. Ultimately we hope
that out of this will come some sense of the social obligations, of the

CONCENTRATION OF ECONOMIC TOWER 16269

policies of a social character, that must be fomiulatedi and I liavo
cautioned every ^vitness with whom I have discussed the hearinn:s that
we do not propose to prejud<i:e the outcome of the lioarin^s in any
way, nor do we have anv formuhi or panacea. We intend to look
upon them precisely as Mr. Hinrichs 1ms outlined, a succession of
case studies in which specific data will bo assembled and presented
to the committee for its review.

We are reatly for our next witness, Mf.. Chairman, if the com-
mittee is.

The Chaikman. Did you want to make any comment?

Dr. Krets. Just one statement, that I want to second what Mr.
Hinrichs lias said. As a witness, counsel had instructed me to say
that I was speakin<x for myself, ii\ no way connnittin*!; anyone, and
particularly in no way committinoj the committee as such, or any
part of tiie committee. I am sorry if I failed adequately to carry
out that instruction.

The Chairman. That is clearly understood, I think.

Dr. Andkrson. Mr. Chairman, we are ready with our second wit-
ness for the day, and I mijrht say we have scheduled the hearings
on such a basis that you will have two strong witnesses a day to
contend with.

Mr. Chairman, Mr. Watson Davis is the director of Science Serv-
ice. He is the author of the book. The Advarhcemsnt of Science.
He has written many nrticles in this field, and, when looking over all
possible witnesses to bring to you, on the subject of "New and Im-
pending Technology," your executive secretary and I concluded that
Mr. Davis was the best qualified person we could find. We present
him to you with the subject of "New and Impending Technology."

The CiiATRMAN. Your testimony of course is all a matter of opinion,
isn't it, and the result of your own studies?

Mr. Davis. Not only my studies, but those with whom I have con-
sulted.

The Chairman. If there is no objection, we won't bother adminis-
tering the oath to witnesses who are just contributing expressions
of their opinion and of their own researches.

STATEMENT OF WATSON DAVIS, DIRECTOR, SCIENCE SERVICE,

NEW YORK

The Chairman. Will you be. good enough to state for the record
your background, please?

Mr. Da\7s. My name is Watson Davis. I am director of Science
Service. Science Service is a nonprofit institution for the populariza-
tion of science, with trustees nominated by five bodies: The National
Academy of Science, the National Research Council, the American
Association for the Advancement of Science, the newspaper profes-
sion generally, and E, W. Scripps estate. It has been in exist-
ence about 20 years, and it is operating in the field of keeping the
public informed as to the advances of science. We operate in part
as a press association or a newspaper syndicate and we publish the
weekly magazine. Science News Letter.

The Chairman. How long have you been engaged in this work?

Air. Davis. Approximately 20 years.

The Chahiman. You may proceed.

16270 CONCENTRATION OE ECONOMIC POWER

Mr. D-A^vis, The pace of research, invention, and engineering de-
velopment shows no sign of lagging. On the contrary, science and
the organized knowledge of the world seem to be proceeding at an
accelerating rate.

It does not seem possible to predict with, great definiteness exactly
what new things the world will have in the years to come. But we
may all be very sure that there will be new things, that we live in a
world which will never be finished and is Jiot static today, that most
of the things that we wish to have can be obtained if we put our
minds and our hands to the task. It is one of the important facts
about our world today that we know enough and we have techniques
suflSicient to give us an extraordinarily good chance to develop
through scientific research an answer to a need. We can usually
make an invention if it is deemed sufficiently necessary and if brains
and labor and money are turned to the task. As Dr. Kreps has
noted in his earlier testimony, the art of invention has been invented.

The purpose of my testimony is to give some inkling of the things
that men, looking into the future, believe we should be able to
accomplish, things that once the people know might be achieved
they will desire. Calling upon representative scientific research
workers in various fields, my presentation will skim high points of
what is being done to achieve these ends. Based on the record of
successful research to date, we may be sure that what we set out to
do in the field of research and invention we shall be able to accom-
plish in large measure sooner or later. With a broad and compre-
hensive look at great problems of the future, we should be able better
to comprehend the topic the committee is now considering. It would
appear rather definitely that these great problems will, in the imme-
diate future, become more, not less, urgent.

First of all, just what is science and invention? I want to quote
Sir William Bragg's advice to England at war because it is pertinent
here in America at peace:

Science —

Sir William says —

which is knowledge of nature, is of fundamental importance to the successful
prosecution of any enterprise.

Science is of general application. There is not one science of chemistry,
another of electricity, another of medicine, etc. There are not even distinct
sciences of ijeace and w^r. There is only one natural world, and there is only
one knowledge of it.

Fruitful inventions are always due to a combination of knowledge and of
experience on the spot.

MODERN INDUSTRIAL RESEARCH

Mr. Davis. The investigators engaged in scientific research are the
remakers of civilization and the true molders of history. They may
be called the catalysts of civilization. Now who are they, and where
do they work? They are in our universities, in our Government
laboratories, and in our industrial research laboratories. A few are
on their own, working on their problems when the rest of us play
bridge or go to the movies.

The Chairman. How many of them are on their own ?

CONCENTRATION OF ECONOMIC POWER 16271

Mr. Dav78. That is a very difficult question to answer. Perhaps
your best index would be found in the patent record. I don't think
there are any good reliable figures on that at all.

The Chairman. The general picture that has been presented to
this committee in the patent study ^ and elsewhere is that which was
mentioned by the previous witness, that an increasingly large pro-
portion of research and invention is t^e product of group activity
rather than of the activity of the single individual.

Mr. Davis. I think that is very true.

The Chairman. Fifty years ago it was common to have an in-
ventor work altogether by himself. He may have been a student of
chemistry alone, seeking to develop new chemical properties. But
today would you. say, from your experience, that the reverse is
largely true?

Mr. Davis. Yes; the reverse is true, and even if the person is of
such a nature that he actually is seeming to work alone, he very
often, through literature or through contacts in other ways, is a part
of a group, even if he brings about that group through consultation
or consulting the literature and so forth.

The Chairman. It emphasizes the organizational aspects of modem
society.

Mr. Davis. Oh, very much so; yes. Numerically, they are few,
although their works bulk large in the fundamental reckoning of
progress. Exact figures are lacking but perhaps not over 100,000
individuals are engaged in scientific research in this country. Per-
haps a tenth of these, that is, 10,000, less than a hundredth of 1 percent
of the ITnited States population, strike with the flint of genius from the
steel of learning the sparks that continually kindle anew the forward-
moving torches of science and industry. Throughout the world per-
haps 200,000 scientific investigators in the aggregate are engaged in
the extremely important task of creating new knowledge and new
technologic developments.

On industrial research in the United States, approximately $215,-
000,000 was spent during the past year by 2,000 individual com-
panies, according to a survey by Dr. William A. Hamor, Mellon In-
stitute of Industrial Research's associate director. The survey
showed that 32,000 scientists and engineers are engaged in industrial
research, half of them in chemical, petroleum, and electrical labora-
tories. Some 16,000 more persons backed up these scientists and
engineers as assistants or clerical workers. Leading investors in re-
search during 1939 were du Pont, with a research budget of $7,000,000,
and Dow Chemical Co., spending $1,400,000 on research. About 110
individual companies in the field of chemical industry and 40 trade
associations make research grants to educational institutions. Ap-
proximately 200 college laboratories are used incidentally* for indus-
trial research and commercial testing. About 250 manufacturing cor-
porations are sustaining long-range investigations in research founda-
tions. Many companies with no laboratories of their own turn to the
250 commercial laboratories in the country,

I might say that these figures are rather round and there are in-
quiries under way which will come to fruition in a couple of months

' See Hearings, Parts 2 and 3.

16272 CONCENTRATION OF ECONOMIC POWER

which will probably refine them, but in general I think they are of
the right order of magnitude.

In the universities and research institutions a considerable amount
of fundamental research is done, much of which will eventually be
of industrial and community value in a practical way. In the Fed-
eral Government laboratories much fundamental research is under-
taken with the money available amounting to approximately
$35,000,000 a year.

Again, you can compute that figure differently if you define re-
search differently.

Progressive, forward-looking industries are in the habit of making
it a rule to spend from 1 to 3 percent of their gross income on re-
search. Some large organizations in older industries spend almost
nothing, while a few industrial concerns, born largely of research
and development in recent years, are reported to spend up to 5 and
even 8 percent of gross income in this way. The amount of money
spent by the Government for research on a percentage basis is far
less than that of the average industrial concern.

The Chairman. Do you mean on a percentage basis?

GOVERNMENT RESEARCH EXPENDITURES

Mr. Davis. The Government, on all its scientific educational activi-
ties, spends approximately, or did a few years ago, 1 percent.

The Chairman. One percent of what?

Mr. Davis. One percent of the total expenditures of the Govern-
ment; therefore, the amount spent on research, using the same defi-
nition of research of an industrial laboratory, would be closer to 1
percent.

The Chairman. You wouldn't expect the Government expenditure
for research on a percentage basis to be anything like that spent
by ordinary industry, would you ?

Mr. Davis. I would like to see it larger. The biggest job the
Government has is taking care of the country as such, and that cer-
tainly is as important to the Government as the operation of indus-
try.

The Chairman. Of course a good lot of that activity of Govern-
ment is the constitutional duty of enforcing the laws which have
been enacted from time to time.

Mr. Davis. That is true. Personally, I would like to see the Gov-
ernment spend more.

The Chairman. Surely ; I can understand that.

Mr, Davis. I think it would be a very good investment from a
practical standpoint.

Dr. Anderson. Mr. Davis, isn't it true that Government research
enters a field that is not otherwise properly taken care of or ade-
quately handled, and therefore is vital to fundamental research?

Mr. Daus. Yes; very much. The Government can do certain things
in resear^ih that no commercial concern would be justified in doing.
I think one example of that is the very extraordinary record of the
N. A. C. A., the National Advisory Committee for Aeronautics, in
aviation research, undertaking a job of development which industiy
certainly was in no position to do, and which has revolutionized the
whole aeronautical industry to a remarkable extent.

CONCENTRATION OF ECONOMIC POWER 16273

The Chairman.. Well, the ordinary commercial industry cannot
undertake research except as an incident to its own ent^srprise. It
must be upon a profit basis. The Government, on the other hand, can
undertake research without respect to the profitable phase of it at all.

Mr. Da\t[s. Well, it seems to me, Mr. Chairman, that the Govern-
ment can look at research in very much the same way as an industry
does. As a matter qf fact, one of the most profitable methods of
conducting research is to allow competent scientists to do the sort of
things that they want to do, make the inquiries that they want to
make, with the confidence that as they explore new fields of knowledge
which may in some cases be very remote to the commercial aspira-
tions of that particular concern, there will be enough new knowledge
plowed up, and the results from a commercial standpoint will be
sufficiently large, to allow that.

The Chairman. I assume that you would feel that the product of
Government research should be contributed to the public.

Mr. Davis. Well, it will be of necessity; yes.

The Chairman. In other words, it would not be made the basis of
a profit-making enterprise on the part of Government, but would
be contributed to the public to be used by the public in whatever
form seemed advantageous.

Mr. DA^^s. Some Government research might very well form the
basis of a very profitable activity by commercial concerns.

The Chairman. Yes; but I mean you wouldn't want the Gov-
ernment itself to make profit out of the research.

Mr. Da'vts. The profit to the Government would be its service to
the people. I don't see that it is the function of Government to make
a profit in the industrial sense.

The Chairman. I wanted it to be clear that that was your point of
view.

Mr. Davis. Research, in a very real sense, is international in scope.
I think that is very important. It can be said that it is cosmic in
scope, rather than merely confined to this earth. For what happens
to a distant star or galaxy, when viewed by a giant telescope, may
very well give an essential hint of how atoms act on earth, enlight-
ening and explaining the way to some new industrial process.

As Dr. Raymond B. Fosdick, president of the Rockefeller Founda-
tion, said in his annual report a few days ago :

Scientific growth is almost invariably the result of cross-fertilization between
laboratories and groups in widely separated parts of the world. Only rarely
does one man or one group of men recite with clear loud tones a whole im-
portant chapter, or even a whole important paragraph, in the epic of science.
Much more often the start comes from some isolated and perhaps timid voice,
making an inspired suggestion, raising a stimulating question, the first whisper
echoes about the world of science, the reverberation from each laboratory
purifying and strengthening the message, until presently the voice of science
is decisive and authoritative.

Achievement in science, more often than not, is the result of the sustained
thinking of many minds in many countries driving toward a common goal.
The creative spirit of man can not successfully be localized or nationalized.
Ideas are starved when they are fenced in behind frontiers. The fundamental
unity of modern civilization is the unity of its intellectual life, and that life
cannot without disaster be broken up into separate parts.

What is it that science and technology can do for us in the future?
What developments can be brought about through research ? It seems
worth while to attempt to look at the future possibilities, in terms

16274 CONCENTRATION OF ECONOMIC POWER

of what representative scigJitific authorities believe can be done or
what JSelds of research may prove to be fruitful to our industrial,
personal, and national life.

Being a prophet is always dangerous. Yet those who in the past
have made predictions of things to come have in general, curiously
enough, been too conservative. I am referring to well-considered
predictions by those who are competent to look ahead rather than
the romancing of fiction writers.

FIELDS FOR FURTHER RESEARCH

Mr. Davis. In an attempt to obtain for this committee a well-
documented and expert survey of fruitful fields for future research
and invention, I have consulted with a number of representative
scientists and engineers in this- country. Since the National Associa-
tion of IManufacturers at its recent Modern Pioneers Celebration
selected a group of nationally recognized modern pioneers, men who
are judged to have made major contributions to American industry
from a research and engineering standpoint, this provided an eminent
jury ta which this problem might be put. Many of these men are
very busy. Some of them are absorbed in a particular line of work
to which they have made great contributions. Nevertheless, from this
jury have been obtained valuable suggestions which I am incorporat-
ing in the material to be presented to you. There have also been con-
sulted numerous authorities in various fields of research and their
comments are being made available to the committee.

Eight broad or highly significant fields in which scientific and
engineering developments should be particularly fruitful have been
selected for exploration. These are, of course, just eight fields, and
there are other important fields which, because of the limitations of
time, can not be included. These fields are photosynthesis, atomic
power, long-range weather forecasting, synthetic materials, chemical
cures of diseases, genetics, human relations, and mobilization of
scientific knowledge.

From the experts that I have consulted bv wire I have gotten some
comments, a few of which I want to include. Every one of these
items represents extremely important fields of investigation and ones
which will have very important consequences even in the very near
future, in the opinion of Dr. V. K. Zworykin, director of the K. C. A.
Manufacturing Co.'s electronic research laboratory.

This morning I have a wire from Dr. J. V. Dorr which states :

Your wire shows great vision. It probably understates possibilities and
probabilities of the next twenty-five years.

In the opinion of Dr. William D. Coolidge, director of the research
laboratory of the General Electric Co., Schenectady, N. Y. [reading] :

The experience of the past teaches us that for the future we have much more
to hope from the things that we cannot even dream of today. Prior to the
work of Faraday no one could have envisioned a dynamo, or before Roentgen
an X-ray tube, or before Maxwell and Hertz a radio. These things became
possible only after the fundamental facts and principles had been discovered.
The most successful research organizations are those stressing the ipiportance
of fundamental research looking to the discovery of new facts and principles,
which may not lead merely to improvements in old things but which may lead
to entirely new ones. This of course constitutes an unlimited field for research.

CONCENTRATION OF ECONOMIC POWER 16275

A general comment on the relation of research to industry and
general living has been made by Dr. Charles F. Kettering, who, by
the way, is vice president of General Motors and general manager of
the General Motors research division. In the record I had him presi-
dent of the General Motors Research Corporation, an organization
which has been dead as a corporation for 15 years, but very much
alive from the standpoint of research.

On the question put to him he says :

It is impossible to predict specifically the effect research will have in shaping
developments in existing industries, in creating new ones, and on general living.
It is no more possible for us to tell what the next new industries will be than
it was for Columbus to know that he would reach a new continent when he
set sail to the "West from Spain on a proposed journey to India. Even more
important than his actual arrival in the West Indies was the fact that after
he returned to Spain he still did not know that he had discovered a new conti-
nent. It took a hundred years of exploration after his initial voyage to have
the new continent well defined.

And so it is with research ; the only predictions that can be made are of the
most general nature. Benjamin Franklin predicted that in time the doctors
would know how to cure all diseases. His prediction is just as good today as
when it was originally made. The doctors have made remarkable progress, but
there are still enough diseases that they don't know how to cure to give them
plenty of work over a long period of time before they succeed in fulfilling
Franklin's prediction.

The CH.\iR>r.\x, And to give the patients plenty of trouble.
Mr. Davis. Exactly.

This idea —

Dr. Kettering says —

of our inability to look ahead as to specific accomplishments is something that
must be recognized and its recognition is as important as the actual research
work itself.

Now, to take up these 8 fields: first, the field of photosynthesis.

The utilization of energy from the sun is a primary problem of
mankind. The sun is fundamentally our chief source of available
pcvN er or energy. Heat and electric power are derived from the sun
whether it is generated hydroelectrically or by use of coal and oil.
AH food is manufactured by green plants through the use of sun-
shine. For ages men have fought for, literally, their places in the sun.
The war in Europe is largely a struggle for the fossi^ sunshine of
pas* ages, the oil and coal necessary to modern industry and living.

The problem of solar energy is a very large one. According to
Dr. O. L. Inman, director of the C. F. Kettering Foundation for the
Study of Chlorophyl and Photosynthesis at Antioch College, the best
estimates are that the energy reaching the earth from solar radiation
each year is equivalent to that received from burning 400 septillion
tons of anthracite coal (4X10" tons, or 4 followed by 23 ciphers).
From this source mankind could draw plenty of available energy for
all its needs.

The green plant is the principal converter of solar energy into
useful material for mankind. The process by which it does this is
called photosynthesis, jilthough just how the plant does this is still
unknown. Obviously, this is one of the major problems of our civil-
ization. Yet a rough estimate by Dr. Inman of the amount of money
budgeted in 1940 for this work in the United States is only about
$250,000 to $300,000.

16276 CONCENTRATION OF ECONOMIC POWER

Dr. Inman sees two ways of approaching this probleni so important
to the long-time provision of power to our civilization: First, we
could learn more about plant growth and grow several hundred times
the amount of vegetation we now grow, transforming much of this
into more condensed charcoal from which gas, oil, and so forth, may
be made. Second, through fundamental research we could solve the
mechanism of how to fix with the tools we now have available the
carbon of carbon dioxide and the hydrogen of water into chemical
compounds similar to methane or marsh gas and gasoline; or, by
the addition of oxygen, to get sugar, woods, or fats; and, by the
further addition of nitrogen, to get proteins and so on to thousands
of possible compoimds or molecules with energy stores ready for our
use.

The Chairman. In other words, we may confidently look forward
to the synthetic production of coal and oil and similar carbon prod-
ucts before the natural products have been exhausted.

Mr. Davis. If we get at the job soon enough and hard enough,
because it is a big problem.

The Chairman. Progress is already being made, is it not?

Mr. Davis. Not too much progress is being made. It is relatively
discouraging. But after all, there is only a handful of people who
are really at work on this job at the present time.

Dr. Anderson. Mr. Davis, the point to be made is that it is realiz-
able. In the opinion of this expert, this sort of a future is before us.

Mr. Davis. Yes.

Dr. Anderson. And the period of time involved depends upon the
amount of money and the attention devoted to it.

Mr. Davis. It is a good bet that we will be able to do this in
the future. How soon we are going to do it, no one knows, but
certainly it is a very real problem for the future, and one that is
worth working on, and if and when our supplies of coal and oil
are exhausted, this may be one of the ways that we can take care
of the energy resources of the world.

When man solves this problem of photosynthesis and sets up his
own method of storing radiant energy from the sun, it may very well
not be an exact duplicate of the method used by the green plant. And
it is rather important that it may be even more efficient than the
green plant is.

Dr. Inman says that man has been taking for granted that he can
in some way keep on depending on capital stores of coal, oil, and gas
for energy. He feels that the solution of the problem of photo-
synthesis in a practical way is a long-time research program, which
is the point that you brought up, Mr. Chairman. If it is not started
sufficiently early on a large scale, mankind may find that it was too
late beginning the research, and serious shortage of power and
energy supplies may be visited upon the earth by our failure to begin
research even though we knew the job had to be done.

Mr. Chairman, I have here an expanded statement by Dr. Inman
that I would like to submit as an exhibit.

Dr. Anderson. Mr. Chairman, the number for the record is 2446,
and I submit this as part of Mr. Davis' testimony.

The Chairman. The exhibit may be received.

(The document referred to was marked "Exhibit No. 2446" and is
included in the appendix on pp. 17313-17315.)

'^CONCENTRATION OF ECX)NOMIC POWER
ATOMIC POWER

MiK Dams. Turning to atomic power, within the atom there are as
yei untapped stores of energy which if released would furnish almost
unliniited amounts of power, enough to take care of all the energy
-needs of mankind. A mere 2 years ago the probability of the release
KJi atomic power of any kind seemed fantastic. Early in 1939, the
splitting of the heavy chemical element, uranium, with the release of
an enormous amount of interatomic energy was demonstrated. Labo-
ratories throughout the world that had "atom smashing" apparatus
have been exploring as rapidly as possible with relatively limited
resources this very exciting possibility.

The best opinion at the present time seems to be that which it may
be possible to obtain energy from uranium on a scale of comm.ercial
importance for special uses, this type of reaction if made practical
will at best tap only an infinitesimal fraction of the total atomic
energy around us. The hope of tapping large amounts of atomic
energy seems to lie in the possibility of discovering in the future a
mechanism for atomic annihilation, in the opinon of Dr. M. A. Tuve
of the Carnegie Institution of Washington's Department of Terrestrial
Magnetism, one of the leading investigators in this field. Dr. Tuve,
Mr. Chairman, has prepared at my request a statement on atomic
power which I would like to offer as an exhibit.

The Chairman. It may be received.

(The document referred to was marked "Exhibit No. 2447" and is
included in the appendix on p. 17315.)

Mr Davis. Dr, William D. Coolidge, director of research labora-
tories of the General Electric Co., states :

II has been shown that in the case of the element uranium an enormous amount
of , interatomic energy may be set free, so much, in fact, that if further research
sbows how the process once started may be made self-propagating, we may be
^le to get as much energy from a pound of uranium as from millions of pounds
of coal. This might prove to be a cheai)er source of power than any other. Even
if it were more expensive it might be revolutionary in those applications where
weight and bulk are all important. It also seems possible that further nuclear
research may show how the interatomic energy of some of the more common
elements may be economically set free.

Dr. Lee de Forest, famous engineer, now resident at Hollywood,
Calif., whose inventions have been so important in radio and motion
pictures, states :

The cyclotron as developed by Prof. E. O. Lawrence, of the University of Cali-
fornia, has already justified man's hope that eventually he will be able to derive
by elemental fission cheap, universally obtainable energy in unlimited quantities.
Our oil and coal resources must otherwise be exhausted vpithin a few centuries.
These must be conserved for more essential services than mere i)ower supply.

Mr. Chairman, it happens that this morning there was announced
from the University of California a gift from the Rockefeller Founda-
tion which makes it possible to construct a new and larger cyclotron
or atom smasher, and I have a statement of that which is being dis-
tributed today by Science Service, which I would like to make avail-
able to the committee.

The Chairman. Do you wish to incorporate it at this point?

Mr. Davis. I think it would be suitable, perhaps somewhat edited
to conserve space in the record.

16278 C0NC5ENTRATI0N OF ECONOMIC POWER

The Chairman. Very well, if you will cut it down and edit it, it may
be received.

(The document referred to was marked "Exhibit No. 2448" and
is included in the appendix on p. 17316.)

Mr. Davis. As in the case of the photosynthesis, the amount of
research being conducted upon the problem of atomic power is extraor-
dinarily small compared with the large winnings to mankind if success
should be achieved. Most of the research is being undertaken in
university and scientific institutional laboratories without any com-
mercial objectives. On account of the extreme importance of adequate
power to national economy and military defense, as well as to indus-
try, adequate support of investigations of atomic power would seem
to be a highly justifiable gamble.

SUGGESTED USE OF GOLD

Mr. Davis. In connection with the possible obtaining of practical
power from uranium, the use of a few tons of the gold stored at
Fort Knox, serving no useful industrial or scientific purpose, would
be helpful. Such use of the gold would not involve its loss. The
most practical methods that have been suggested of concentrating
uranium is through thermal diffusion or through centrifuging.
The uranium would be in the form of a complex gaseous fluoride
which is highly corrosive to ordinary material but which is resisted
by gold. If sufficient gold to construct the necessary apparatus could
be loaned by the Government to research laboratories, this particu-
lar investigation would be very much speeded. The gold after the
experiment could be returned to storage and even while in practical
use would not lose its value as an asset in the United States Treasury.
Perhaps some of the same gold that was prized by the Egyptian
pharaohs could be used in this experiment since gold is one of the
most imperishable materials on earth.

The Chairman. How much p-old would be needed for an experi-
ment of this kind ?

Mr. Davis. Oh, a ton or two. It wouldn't be very much. It
would be really just a loan of that gold, and you might have to loan
a Treasury guard or a few soldiers to orotect it, but even that wouldn't
cost very much money.

The Chairman. There ought to be a headline in that : The witness
proposes the Government loan two tons of gold. [Laughter.]

Mr. HiNRiCHS. Incidentally, it was an economist about 300 years
ago who first suggested that gold might reach the point where it was
going to have to be used as a commodity, and this seems to me to
be an interesting demonstration of the cultural lag that it takes
to make an inventive suggestion free.

The Chairman. I haven't looked at the Treasury statement this
morning, but I am conscious of the fact that the gold at Fort Knox
is measured in ounces, not in tons.

Mr. Davis. It might do a good deal more good in a scientific lab-
oratory than at Fort Knox.

The Chairman. I wouldn't be at all surprised.

Mr. Davis. It still could be used to back up currency, of course.

CONCENTRATION OP ECONOMIC POWER 16279

The work on atomic power shows the internationalism of scientific
lesearch, and again I quote from Dr. Fosdick, that:

In the case of the breakdown of uranium during the past year, the early
tentaitve questionings came from Rome; they were caught up at Berlin, were
eargerly heard at Paris and Copenhagen, and then spanned the Atlantic and
were seized upon here so enthusiastically that literally within hours, rather
than within days, the critical experiments had been checked and extended at
Columbia University, at the Carnegie Institution of Washington and in Law-
rence's laboratory at the University of California.

There has been some fear that the sudden production of a new
energy source of large magnitude would be economically disturbing.
The experience has been that any development of this sort from a
practical standpoint can be introduced only over a period of years
even when it is once perfected. The benefits to the community at
large from cheaper power would be so large that if and when atomic
power or other power of low cost is achieved it would well be worth
while to make the necessary economic adjustments.

Dr. Anderson. I wanted to ask a practical question bearing upon
the subject of this hearing with respect to the time element of such a
new, cheap power. When you say it would come in gradually, do you
mean gradually enough for us to make the economic and social
adjustments necessary to its use without a great loss?

Mr. Davis. I think that is a very difficult question to answer, I
should think that if we had atomic power in such a way that you
could apply it, probably it might take a decade to get it into such
form that you could actually use it in a torpedo or automobile or
some device of that sort.

From the experience that the world has had in making itself at
home with innovations of a technologic sort, perhaps 100 years isn't
too long. There might be a certain amount of difficulty.

Dr. Anderson. In other words, a 10-year span would be so short
in terms of its far-reaching effectsi that some serious dislocation
might occur from such a wide-sweeping thing.

Mr. DA^^8. Yes; it might in the same sense that dislocations have
occurred through the use of radio, perhaps.

Mr. HiNRioHS. May I ask a question in that connection. Dr. Davis.
Does the practical application of a basic scientific principle, such as is
applied here in the development of atomic energy, ordinarily make
itself immediately available as a substitute in a whole series of fieldsi,
or does it become available in parts, as it were. Potentially we may
need to think of readjusting our whole source of power sup*
ply with all of our mines, all of the people engaged in the produc-
tion and distribution of electric power, all of the people engaged in
the production and distribution of petroleum. A decade, two dec-
ades, for that sort of transition would be a terribly short period.
I am interested to know whether in fact the practical applica-
tion of the basic scientific principles does manifest itself over the
whole field at once, or whetner it tends rather to be a matter of a
decade or so of development of one use, another decade in the devel-
opment of another use, and so on.

Mr. Da\7s. I think it is on the order of a decade-for-a-use type of
development. That is certainly true in radio. Radio came relatively
slowly. That is, we had radio approximately at the turn of the

16280 CONCENTRATION OF ECONOMIC POWER

century, and we didn't have broadcasting until approximately 2,
perhaps 3, decades later.

I should think, particularly if you began to use uranium, that is
if you used the energy from uranium efficiently, that would be the
first practical development. Nobody knows what will be the first
practical development or whether there will be any, but if there is,
that would probably be a very limited use. And if annihilation of
the atom were achieved, that might bring about much more general use.

Dr. Anderson. Just to follow that for one moment, because it
has some important bearing on the whole problem of technology,
is it true that the state of our knowledge has come to a point where
we are able to make the application much faster than we ever did
before, and that there is some prospect of wide-sweeping changes
occurring more rapidly than has been true in the past?

Mr. Davis. I think that is true. We are certainly getting certain
applications such as sulfanilamide, which I want to talk about later,
that have come in a good deal shorter time than such developments
would have taken place a decade or two decades ago.

Mr. Pike. You would see nations like Italy and Japan, which have no
fuels of their own, who wouldn't wait two decades to put that into use.

Mr. Davis. No. They would put it in use once it was achieved.
One of the amazing things is that the crucial experiment was done
in Germany. Instead of being bottled up as a military secret, prob-
ably partly because they didn't know what they had, it was allowed
to get out into scientific literature.

The Chairman. Mr. Davis, it is now 5 o'clock,

Mr. Davis. I will speed it up, Mr. Chairman.

The Chairman. I think that some of the members of the com-
mittee feel that this might be a good time to suspend for the evening.

Dr. Anderson. The schedule for tomorrow begins with Mr. C. F.
Kettering in the morning, Mr. William Green in the afternoon. Mr.
Kettering has promised to be here by 10 o'clock if the committee
chooses to meet that early. But we can delay his presence a half
hour or longer if Mr. Davis is to finish, because we should have
Mr. Davis' testimony. I think the testimony ought to be in this order.

The Chairman. Yes; I think it ought to be in this order. Sup-
pose we recess until 10 o'clock in the morning and have this witness
proceed at that time, and he will then probably be in position to
finish in half an hour or so, do you think ?

Mr. Davis. I should think so ; yes.

The Chairman. Unless there is objection, that will be the program.
The committee will stand in recess until 10 o'clock tomorrow morning.

(Whereupon, at 5 o'clock, -a recess was taken until Tuesday, April
9, 1940, at 10 o'clock.)

INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER

TUESDAY, APRIL 9, 1940

United States Senate,
Temporary National Economic Committee,

Washington^ D. C.

Tlie committee met at 10:15 a. m., pursuant to adjournment on
Monday, April 8, 1940, in the CauciN Room, Senate Office Building,
Senator Joseph C. O'Mahoney, Wyomrtig, presiding.

Present: Senators O'Mahoney (chairman), and King; Representa-
tives Williams and Reece; Messrs. Hinrichs, Pike, O'Connell, and
Brackett. Present also : Frank H. Elmore, Jr., Department of Justice,
and Dewey Anderson, economic consultant to the committee.

Tlie Chairman. The committee will please come to order.

Are you ready to proceed ?

Dr. Anderson. Mr. Chairman, we are proceeding with the "svitness
who was on the stand yesterday afternoon, Mr. Watson DaA^is, who
will continue his testimony on new and impending technology.

STATEMENT OF WATSON DAVIS, DIRECTOR, SCIENCE SERVICE,
NEW YORK— Resumed

Mr. Da\is. Mr. Chairman, we had gotten to the point in my testi-
money where we were considering atomic power. During the night
an event has happened which might have some significance in that
connection. The German occupation of Copenhagen brings perhaps
into jeopardy one of the great centers of research upon atomic
physics, the laboratory of Prof. Niels Bohr, and it is quite possible
from a long perspective of history that it may be more important than
some of the military consec^uences of the events that have occurred
in the last few hours.

. I had gotten to the point in the testimony yesterday where we were
discussing the possible economic consequences of the production of
new energy from a source of large magnitude like photosynthesis or
the energy within the atom.

Because the problem of atomic power is in essence bound up with
radiation of all sorts and atomic particles, attention is called to the
future fruitfulness of more knowledge about electromagnetic radia-
tions and atomic particles, especially the electron. The electron, the
unit of negative electricity, is of course fundamental to the whole elec-
trical industry with its wide ramfications, including radio, felephony,
television, and so forth. There are many undeveloped possibilities,
in ultra-high frequency electromagnetic waves as a means of com-

16281

1244^11— 41— pt. 30 7

16282 CONCENTRATION OF ECONOMIC POWER

munication, including television, frequency niodulation broadcasting,
and so forth.

A new field of great practical importance, in which the electron
I)lays a major role, involves the use of streams of electrons as though
they were beams of light. Dr. V. K. Zworykin of RCA, a pioneer in
this field, foresees many important applications of electron optics to
industrial and scientific problems. By means of a microscope that
uses electrons instead of light radiation, the scientist is developing
a means of delving further into the depths of tkings about us than is
possible by means of visible or even ultraviolet light. The electron
microscope promises to have important applications to biological,
medical, and industrial research.

Atoms that are made to explode, artificially radioactive elements, a
relatively new achievement in physics (the textbooks of a few years
ago will state that radioactivity is found only in naturally occurring
substances, in such elements as radium) are proving to be useful tools
for research. Whether they vrill have practical industrial use is a
matter for the future to tell.

Not only to explore the universe but to determine the fundamental
properties of matter, the astronomer turns large telescopes to the
heavens, where in the stars are found temperatures and conditions
of matter which cannot be attained here on earth. From these ex-
plorations of the universe, much of our fundamental knowledge
about the nature of matter has come, and in the future it can be
expected that additional information of technological importance
will be snatched from the heavens in this way.

It is conceivable,, in the opinion of Dr. Lee de Forest, that we
may be able to tap subterranean sources of heat in many localities
for power and heating purposes. A long-term heat-storage discov-
ery or invention might permit us, in his opinion, to store and use
solar energy in enormous quantities, but today he sees no promise
of such. Adequate fuel crops are conceivable but Dr. de Forest
believes that climatic vagaries would seem to make this uneco-
nomical.

The direct conversion by combustion, of co^l into electricity is a
possibility upon which some research is being done. If this were
accomplished efficiently the present round-about method of power
production, burning coal to make steam for use in engines or turbines
which in turn drive dynamos to generate electric power, would be
replaced by a direct one-step process.

LONG-RANGE WEATHER FORECASTING

Mr. Davis. Turning to the problem of long-range weather fore-
castings, the weather is so important to the conduct of everyday
affairs, industrial activities, and human activities in general, that
knowledge of what the weather is to be in the future is of immense
practical importance. At present the weather forecasts issued every
8 hours covering up to 2 days in the future are so much a part of
our daily life that we take them for granted. The providing of
these forecasts by the U. S. Weather Bureau is one of the most
important of goYernmental functions.

The prediction of what the weather will be weeks, months, and
years in the future is one of the important jproblems still to be

CONCENTRATION OF ECONOMIC POWER 16283

solved. If it were possible to know what the weather was co be next
year, or several years from now, whether the growing season in
various regions was to be satisfactory or unsatisfactory, whether the
winter was to be abnormally cold, whether there was to be too little
or too much rain, the savings to agriculture, industry, and the natiou
would be very large. Such information would be of great use in
planning pei-sonal activities in the future. Botli supply and demand
of commodities are greatly affected by weather conditions, and long-
range predictions that would reduce the hazard due to weather would
be of great benefit. On a national or international basis reliable
knowledge of the weather to come would allow the Government and
business to make plans for meeting changing conditions, wliich with-
out long-range weather forecasting, assume the shape of emergen-
cies. Disastrous famines might be averted. Unmanageable agri-
cultural surpluses might be reduced.

Research and progress on this problem holds out the hope that with
enough work, adequately supported, there is a good chfince that
weather forecasts considerably further in advance of what is now
possible will be developed. Prediction of the seasonal trends may be
possible for years in advance.

Prediction of the weather as a general pubKc service has been a
function of the government in practically sll parts of the world.
Long range weather forecasting could hardly be considered the
foundation of an extensive industry itself, but business and industry
will benefit to a large extent when and ii the long-range forecasts
are possible,

Trends iij long range forecasting research are shown by the follow-
ing developments, made known in statements obtained from repre-
sentative investigators :

"Short" long-range forecasts for 5 days in advance, on an experi-
mental basis, have been made by the United States Weather Bureau
during the past 2 years, based on a combiuLtion of statistical studies,
synoptic tecliniques, and physical theory of the general circulation of
the atmosphere. These forecasts have been subjected to rigid verifi-
cation tests and have lately become sufficiently successful to warrant
a broader try-out.

The extension of present forecasts from 2 days to 2 weeks, and the
making of forecasts of temperature and precipitation for seasons and
even years in advance, on the basis of solar radiation, are considered
possible by Dr. C. G.. Abbot, Secretary of the Smithsonian Institu-
tion, as the result of extensive research.

Long-range forecasts for the United States are considered possible
for the future by Dr. Charles F. Brooks, director of Harvard Uni-
versity's Blue Hill Meteorological Observatory, but he feels that the
problem is no easy one and would take much woik at groat expense
to solve to a generally useful point. The value of such forecasts,
however, would far exceed the cost. In one study of world weather
it has been found that conditions in the Southern Hemisphere indi-
cate subsequent abnormalities in the Northern Hemisphere more
often than do antecedent conditions in the Northern Hemisphere
itself.

I have here, Mr. Chairman, statements on behalf of the U. S.
Weather Bureau, Dr. C. G. Abbot, and Dr. C. F. Brooks, which I
should like to submit as exhibits.

16284 CONCENTRATION OF ECONOMIC POWER

The Chairman. Th,ey may be received.

(The document referred to was marked "Exhibit No. 2449" and
is included in the appendix on p. 17316-17319.)

Mr. Davis. In the opinion of Dr. Lee de Forest, universal strato-
sphere flying and better interpretation of information obtained from
radio transmission phenomena, cosmic rays, sun cycles, and earth-
wide meteorological data will enable twenty-first century man to re-
liably forecast long-range weather conditions for agricultural and
other planning.

Turning to synthetic materials, bountiful as Nature has been in
supplying the earth with materials useful to man, research and in-
vention have created important synthetic materials, many of them
unknown in nature, which play extremely important parts in our daily
economy. Many of these are familiar to us in our daily life : drugs,
dyes, and chemicals from coal tar, a multiplicity of plastics or synthetic
resins, alloys of iron and other metals, rayon, and so forth. In the field
of textiles or fabrics alone in the last few years, chemistry has given
us nylon, a silklike synthetic fiber made basically from coal, air, and
water; vinyon, another synthetic fiber; synthetic wool, made from
casein of milk or other protein ; and even fibers of glass. Clay has
been transformed into a synthetic mica which potentially makes us
free from overseas export of this essential mineral needed by industry.

I'or the future, particularly if power is obtained by discovering the
secret of photosynthesis or from within the atom, it may "he considered
a crime against society to burn coal or oil for power or heat, because
their chemical constituents are so much more valuable than their
energy content.

On behalf of the General Motors Research Laboratory, in a com-
ment on the possibility of extended chemical utilization of oil and
coal, prepared by T. O. Richards, head of the laboratory control de-
partment, it is declared :

Oil and coal have long been considered as finished products that only needed
a certain amount of refining to put into commercial form. Within the last few
years petroleum particularly has come to be considered as simply a source of
chemical compounds which can be torn down and built up and rearranged into
particular compounds of specific commercial value. The utilization of coal as
a raw chemical material to be used as a building block for chemical compounds
has- barely begun, but it will become an important chemical industry. Just what
products will be made, we don't know.

Du Pont comments as follows in a statement on this possibility pre-
pared by Theodore G. Joslin, director of public relations department:

In our judgment, coal and oil will serve as valuable sources of raw materials
for the synthetic organic chemical industry. It is our belief that there will be
great developments in the future, but we do not see the future clearly enough
to want to speculate for publication on what these possibilities will be. Beyond
any doubt, many millions of dollars will be spent on research in connection with
these problems, but it is impossible for anyone to make an accurate estimate.

The artificial production of diamonds is a possibility foreseen by
Dr. William D. Coolidge, director of the research laboratory. General
Electric Co. Such an accomplishment would be of great industrial
importance and the production within the last few months of high
pressures in the order of 3,000,000 pounds per square inch is a step
in this direction. Dr. Coolidge states :

Diamond, the hardest known substance, would have much more extensive use
as an abrasive material for grinding operations and for rock drilling if it were

CONCENTRATION OF ECONOMIC POWER 16285

less expensive. Through research on the effect on graphite of high pressure
combined with high temperature it might be possible to learn how to make
diamond artificially and relatively inexpensively.

The production of refractories which would .withstand higher
temperatures than the furnace linings now available would be of
great industrial importance. Failure of the flirnace linings is now
the controlling factor in the production of high temperature in-
dustrially. With respect to this problem Dr. Coolidge says:

Power from coal or other fuels could be produced more economically through
the use of steam or other vapor if higher temperatures and pressures could
be employed. We are now limited by the high temperature strengtii of present
metals. Current metallurgical research indicates possibilities in this direction
and the importance of the problem warrants much further research effort.

Common building materials are susceptible to considerable im-
provement, as these two observations by Dr. Coolidge will indicate:

Present reseai'ch on road materials is showing how the life of a pavement may
be economically increased. Further research in this direction should lead
to improved highways with all that this means in better living conditions and
in the strengthening of our national defense.

Further research on plastics and other materials is certain to contribute
greatly to the solution of our important housing problem.

MEl'AL ALLOYS

Mr. Davis. The science of metallurgy has only begun to tap the vast
domain of metal alloys. There are millions of combinations pt
metals possible that are not yet investigated. Only about a thousand
alloying combinations of metals have been studied and most of these
are inadequately investigated. Millions of binary, tertiarj^ and
quaternary alloy systems still need investigation. Among them .there
undoubtedly many hundreds of combinations which would be strik-
ing improvements over alloys now in use.

Some of the unusual metals being used in alloys will give indica-
tion of the possibilities for improvements in metals in the future.
'According to information supplied by Dr. Oscar E. Harder, assist-
ant director of the Battelle Memorial Institute, Columbus, Ohio, the
unusual new elements being used in steel include silver, titanium,
tantalum, columbium, and vanadium. These elements are being used
in stainless steel. A columbium-containing heat-resisting alloy has
been patented recently. Silver is used in bearing metals, as is cad-
mium. Tantalum and columbium are being used as pure metals and
as the carbide for making bonded carbide tools. During the past few
years high-speed tool steels in which molybdenum has replaced tungs-
ten in whole or in part have been developed to where they are ac-
cepted by industry. Metallic manganese is being made by an elec-
trolytic process.

The old dream of the alchemists, transmutation, has been achievevd in
the scientific laboratory. Although relatively small amounts of ore
element have been changed into another, almost every element has
been transmuted into some other element. This holds out the possi-
bility that in the future when large amounts of power are available,
and when more is known about the constitution of the elements, it
will be possible to manufacture the rare elements from the common
elements.

16286 CONCENTRATION OF ECONOMIC POWER

As Dr. Lee de Forest puts it [reading] :

Today's astonishing, althougli as yet meager, atomic transmutations abund-
antly justify ttie hope that eventually we may be able to manufacture all rare
metals from those more nearly inexhaustible and located within our reach.

He adds that —

many other elements will soon be in the rare category if present rates of con-
sumption continue.

CHEMICAL THERAPY

Mr. Davis. Turning to the chemical cures of disease, the remark-
able success in the use of sulfanilamide and its related chemical com-
pounds in treating a large variety of diseases, some 40 different sorts,
focuses attention upon the possibility of further chemical cures of
disease in the future. While the results obtained with the sulfanil-
amide chemicals are truly remarkable — they have changed the
routine method of treatment of many diseases — there are still many
diseases of economic importance that are not successfully treated.
There is hope that chemotherapeutic agents can be developed for the
control of infectious and other diseases not now successfully treated.

The economic loss due to illness is appalling. The manufacture
and distribution of drugs to be used by physicians is in itself a large
industry. It is evident that there are many economic implications
in the treatment of disease and the problem of human health.

A healthier population which will result from the application of
medical advances should be an economically more secure and effec-
tive population, capable of greater consumption and production. A
slowing population growth, undesirable from the standpoint of con-
sumption of industrial goods, may be counteracted to some extent
by the lengthening life span and the ability of individuals to en-
gage in active work during a longer period of their life.

Despite the advances in medical treatment, there are non-infec-
tious ills such as cancer and heart disease that are unsolved problems.

In the opinion of Dr. Perrin H. Long, of the Johns Hopkins
Hospii-il in Baltimore, who brought sulfanilamide to America, there
aJB still chemotherapeutic advances to be made. He states:

While great advances have been made in the chemical treatment of bacterial
and parasitic diseases, there is every reason to believe, if research is prosecuted
vigortjusly in the laboratories of the chemical and pharmaceutical companies
of this country, that more effective chemical compounds can be elriborated for
the control of infectious diseases, for t xar^ule : We still do not have as effective
drugs as we need for the control of in^^:!tions caused by the typhoid-colon
group of bacilli, the staphylococci, and we have nothing that affects such
diseases as the common cold, influenza, infantile paralysis, or the other virus
diseases. All of these piublenis ought to be attacked. 1 can not estimate how
much money is being spent on chemotherapeutic research in this country at
the present time, but my rough guess would be in the neighborhood of 2'/^ to
3 million dollars, that is, if one leaves out or does not consider the experi-
mental work that is being done on syphilis.

About 20,000 substances related to sulfanilamide have already been
made, according to Prof. Paul D. Lamson of the Vanderbilt Uni-
versity School of Medicine. The task of trying all these on diseases
in which they may be helpful is a gigantic one. In Professor Lara-
son's opinion, we are for the first time faced with a public which has
come to see that cures can be produced with 'chemical substances.
1 he public is beginning to see that something can be done about the

CONCENTRATION OF ECONOMIC POWER 16287

problem of disease and that the time has come to do it. In Professor
Lamson s opinion, investigation should be conducted to find out how
the animal body works, by using chemical substances as exploratory
probes, thus giving the knowledge needed for the development of
better treatments of disease.

In recent years the chemical nature of vitamins and hormones has
been discovered and many of them have been synthesized. Striking
cures of diseases have resulted from th& use of vitamines and hor-
mones therapeutically. One of the latest disease conquests has been
the abolishment almost overnight of the bleeding tendency in jaun-
dice patients who have to be operated upon, by injections of the new
synthetic vitamin K.

According to Dr. Walter Simpson, of the Miami Valley Hospital,
Dayton, Ohio, in a communication transmitted by Dr. Charles F.
Kettering, experiments now under way indicate that by combining
relatively large doses of arsenic compounds with artificial fever it
may be possible to reduce the minimum time for the treatment of
syphilis from 18 months to a few days. When the treatment for
syphilis becomes simpler and cheaper, we shall be well on our way
toward the eradication of this great destroyer of mankind.

Statements by Dr. Simpson on vitamin K, pneumonia, syphilis,
and malaria are made available to the committee, and I would like
to offer these as exhibits.

(Senator King assumed the chair.)

Acting Chairman King. They may be received.

(The document referred to was marked "Exhibit No. 2450" and is
included in the appendix on pp. 17319-17320.)

Mr. Da\7s. To an even greater extent than in many other fields,
the development of medical research is an international undertaking.
This is shown vividly in the case of the sulfanilamide compounds.
The first hint of this amazing development came in conneclion with
the dye industry in Gennany, and the drug actually was shoveled
around an industrial plant for years before its medical usefulness
was discovered. German, French, British, and American institutions
all played important parts in the development of this drug, which
has brought such brilliant results in the treatment of disease.

GENETICS

Mr. DA^■IS. The living plantr and animnlc Lhat populate the earth
constitute one of our most important natural resour<;es. Primitive
man, by selecting the best plants and animals for his purpose and
allowing them to perpetuate themselves, made remarkable advances
in quality and usefulness of his crops and his livestock.

Since the turn of the century, when the scientific fundamentals of
genetics began to be known, this process of scientific breeding of both
plants an:l animals has been greatly speeded. The superior grain,
fruits, and ve<^etables, the more efficient animals, from the standpoint
of milk, the improved meat and wool production that the farmer
now has, are indications of what can be done through Ihis Improvecl
process of invention applied to living things.

In recent years the role of man's part in invention of new plants
has been recognized tlii'ough the inauguration of plant patents

16288 CONCENTRATION OF ECONOMIC POWER

Industry has always used to a large extent the products of the
farm and forest, but tliere is an awakening realization that agricul-
ture can furnish more of the raw materials of industry than it now
does. Improved crops and animals will play an important part in
this promising movement.

Promising possibilities for further advancement are seen by scien-
tific investigators working in the field of genetics.

Dr. A. F. Blakeslee, director of the department of genetics, Car-
negie Institution of Washington, Cold Spring Harbor, Long Island,
N. Y., states :

Scientific plant breeding, known as genetics, is responsible for the conscious
development of superior types of plants and their preservation against the
ravages of disease and other unfavorable conditions/ The economic value
could be cited of crossbred seeds in corn which gives increased yield from
hybrid vigor, hybrid vigor in forest trees, the development of rust-proof grains
and other disease-proof crops through hybridization and selection. Genetics
is at the basis of improvement in the present wide range of agricultural and
horticultural forms. In the future, genetics will play a greater role than in
the past, with ability to control increase of chromosome number by such stimuli
as colchicine and by other methods, new species and variety will be made up
in order to meet special needs. In ways and to an extent impossible to imagine
at the present time, I believe geneticists will exercise conscious control of
evolution to the betterment of mankind. Important sources of raw material,
such as cellulose from cottons, paper pulp, and cornstalk waste, as well as
plants as sources of food, are all controllable by genetics methods.

Dr. E. D. Merrill, administrator of the botanical collections of
Harvard University, Arnold Arboretum, Jamaica Plain, Mass.,
states :

It is very diflBcult for one to indicate the tangibles in genetics in reference
to plants and plant breeding. I personally doubt if any new major industries
can be developetl on the basis of research in this field ; but, manifestly, many
existing industries could be increased in importance by the utilization of exist-
ing and potential knowledge within the general field of genetics and plant
breeding. New significant social developments could hardly be expected, but
the increased utilization of knowledge in industry would have a very favorable
refiex action on our whole social set-up. I would be inclined to forget genetics
as gf>netics, and emphasize plant breeding. Too many individuals are working
on abstruse phases of the general subject of genetics, and too few well-
trained men are devoting their efforts to the actual problems of breeding plants
for resistance, adaptability, yield, and other similar factors.

Prof. M. F. Guyer, professor of zoology of the University of Wis-
consin, states :

The application of genetics to domestic animals is very important from the
standpoint of resistance to disease. The genetic constitution of the host is
no less importarit than the nature of the invading germ. Many investigations
indicate this. The work .should be greatly extended.

Dr. W. C, Curtis, professor of zoology of the University of Mis-
souri, states:

Considerin« th»/t all our most important knowledge in genetics has been
acquired since IdOO. it is not surprising that practical applications are just
beginning. With the theoretical foundation now established and being rapidly
extended, it v/ill be surprising if important applications are not forthcoming
in the next few decades. Such has been history in all branches of natural
sciei^ce once the liasis has been laid in fundamental kuerwiodge. Such applica-
tions'have already been made in many instances in dometicated plants. Appli-
oations to animals are more difficrlt but are on the way. The possibilities of
human appHcaticns with advancing knowledge are very great within the limits
that such knowledge can be applied to human beings.

CONCENTRATION OF ECONOMIC POWER 16289

It is possible that in the years to come the greatest contribution of
genetics to our society will be the conscious evolutionary improve-
ment of our human population that it will make possible.

The way in which human beings get along with each other, at work
and in general living, is perhaps the paramount problem of industry
and the world at large. Human relations in the factory, in the com-
munity, and in the home, might not seem to be at first consideration a
problem for research and technology. As a matter of fact, it seems
probable that the metliods of scientific research applied to this great
problem in which the reagents are human beings w^ill be capable of
producing useful and fruitful results with as much assurance as they
do in less animate fields. Admittedly, the difficulties in this field are
larger because we are dealing with ourselves and we always feel
that we know all there is to know about ourselves.

Man, as an individual and in the group, is the subject of investiga-
tion by psychologists, psychiatrists, teachers, administrators, and
others who deal with various human problems. It would seem logical
that some of the findings in these fields might be applied profitably to
the difficult relations in the fields of business, politics, and interna-
tional aflfairs. Any scientific developments or researches that would
minimize the conflict between labor and management in industry
would be likely to pay large dividends. Any scientific inquiries that
would be likely to minimize the chances of economic and military con-
flict between nations would likewise be very profitable.

I have turned for an analysis of the situation with relation to the
problem to Dr. Elton Mayo, professor of industrial research of Har-
vard University's Graduate School of Business Administration. He
sees thre« outstanding present and future problems in industry and
general living. They are : better human relations, executive authority,
and unemployment. He finds the amount of research being done on
these problems so small as to be negligible. It is only the obvious
aspects of the difficulties ^hat are being studied, and the various in-
quiries deal only with palliative measures for the symptoms instead
of diagnosis of malady.

I have a statement from Dr. Mayo I should like to submit as an
exhibit.

Acting Chairman Kixg. It may be received.

(The document referred to was marked "Exhibit No. 2451" and is
included in the appendix on pp. 17320-17324.)

Mr. DA^^s. This material from Dr. Mayo is particularly pertinent
to the subject under discussion by the committee because of the fact
that it does go into the human basis of conflict between employers
and employees, and I think it is worthy of rather detailed considera-
tion. However, I am not going to take the time of the committee to
read these quotations.

I have an excerpt from a document by Lawrence K. Frank that I
should like to offer as an exhibit that discusses the background of
conflict.

Acting Chairman King. It may be received.

(The document referred to was marked "Exhibit No. 2452" and is
included in the appendix on p. 17325.)

Mr. Davis. I should like to call to the attention of the committee
the very difficult problem of the mobilization of knowledge.

16290 CONCENTRATION OF ECONOMIC POWER

SPREAD OF TECHNICAL PROGRESS

Mr. Davis. With the acceleiating pace of scientific research, inven-
tion, and development, the distribution, interpretation, and utilization
of the knowledge already obtg^ined become increasingly important
problems.

The normal way of announcing a scientific discovery is to publish
a paper in a scientific journal or the report of a scientific institution.
An invention is made public^ through the issuance of a^patent; in
effect, the inventor tells the world what he has done in exchange for
a monopoly of his invention for a limited time. Scientific meetings
and conferences are an effective way of exchanging scientific informa-
tion and results.

There has been built up through the years a vast and complex
scientific literature containing the results of past researches. These
journals, books, reports, etc.j are accumulated in libraries. The chan-
nels of publication are relatively adequate. It is usually possible for
any important scientific contribution to be published in at least
abbreviated form in a scientific journal. The facilities for keeping
on file in libraries the scientific literature are also relatively adequate.

The great failure of our organization of our written knowledge
lies in the inability of anyone to put his finger upon all the literature
on a given subject with relative completeness and at a reasonable cost.
Our organized knowledge as contained in the printed literature is
extraordinarily poorly indexed from the standpoint of its efficient
utilization.

In a few fields, such as chemistry, there are abstract journals which
do an invaluable job. But in many fields bibliographic resources are
quite inadequate, resulting in investigators not being able to discover
what researches have been made in a particular line of inquiry in the
past.

New mechanisms recently developed, or in the process of develop-
ment, which may be called new tools for intelligence, are likely to
prove useful in this needed mobilization of knowledge.

The card index was a major invention in connection with scientific
information services. Of similar usefulness is 'microfilm, reduced-size
images on photographic film, which can produce with facility and
low cost single copy editions of anything that a camera lens can see.
Microfilm is in practical use, making available to scientific workers
copies of articles in libraries which they need in their researches.
It i^ also being used to publish upon demand extensive research
reports which it is not practical economically to print in extenso and
distribute widely.

With mechanical and photographic devices already existing, under
development, or capable of being developed in the future, the mar-
shaling of the scientific and technical knowledge of the world so that
it may be used to the fullest extent would seem to be a project that
could be contemplated if the need were realized, attention were given
to the problem, and means were available. It would be of immense
benefit to the world to create what H. G. Wells has called engagingly
a "world brain."

CONCENTRATION OF ECONOMIC ^OWER 16291

Most of the scientific literature has been listed by title or abstract
bibliography somewhere in abstract journals or in special bibliogra-
phies or large card compilations. Microfilm would make it possible to
multiply the cards under various subject classifications and to copy
them for distribution to the scientists and inventors that need them.
A great many fields of development would come to fruition in such
a project. This is a large project that will require cooperation be-
tween different kinds of research workers and even between different
nations to make it effective. It is of such magnitude that it is prob-
ably a matter for public rather than industrial support. The cost
would be considerable but the returns to industry and the community
at large through the speeding up of research and invention would
make the project a very profitable undertaking to the community at
large.

Better coordination of research and the exchange of information
about research in progress between investigators will also help in our
mobilization of human knowledge.

It is very important that the public be informed about the progress
of science and invention and the possibilities of further advances.
Cooperation of the press and other media of distribution of news and
information is essential in this connection.

Acting Chairman King. Thank you very much. Are there any
questions?

Who is your next witness?

Dr. Anderson. In calling the next witness, I might refer to the
closing remarks of Mr. Hinrichs yesterday and outline once more
the issue of these hearings. We have had in mind not only the oral
hearings conducted with your questioning, but the published record.
In doing so, we have devoted the first day, yesterday, and half of
today, to the general topic under review. We have called, in the
first place, an economist to give a detailed statement of what tech-
nology looks like in terms of economics. You have now had Mr.
Watson Davis, who is a scientific writer, who has outlined the scope
of impending technology, and we wish to call now a man whom we
selected with great care, Mr. C. F. Kettering, vice president of Gen-
eral Motors Corporation, and general manager of the Research
Laboratories Division of General Motors. We bring him before
you as the third member of this general review section, to speak
as an industrial engineer on the topic that he knows best — technology
and the social economic horizon.

Mr. Kettering has prepared a statement which is submitted to the
committee at this time, and I understand his secretary will read
that statement to the committee as the opening of his remarks. Mr.
Kettering has been before the committee before and you know him
so well that he doesn't need an introduction. I know^ his lively
treatment of the topic will call forth a great deal of questioning from
many. We begin with his statement, and then, as Dr. Kettering
says, it is up to you, and he is at your disposal for any questions.

Acting Chairman King. The committee is well aware that Dr.
Kettering has been before the committee, as you have indicate*!-
It isn't necessary that he be sworn again.

16292 CONCENTRATION OF ECONOMIC POWER

STATEMENT OF CHARLES F. KETTERING, VICE PRESIDENT, GEN-
ERAL MOTORS CORPORATION, IN CHARGE OF RESEARCH,
DETROIT, MICH.

Mr. Paul Garrett, secretary to Mr. Kettering (reading) :

We have been accused of producing unemployment by too many inventions,
yet the facts are that we haven't enough new things to provide suflBcient jobs
for all of the people who want to work. Someone said years ago that neces-
sity is the mother of invention. Necessity for invention then was to produce
machines and devices which would save human labor because there were so
many more things to do than there were hands to do them. Today, necessity
is again calling on the inventors to produce new things, because we have
more hands than we have jobs to do.

We know that this call for new products from the inventors and industries
will not go unheeded. Many of these products will come directly from, a
system called industrial research, a process which is American through and
through. This is a process of cooperative invention and it will surely bring
into our industrial machinery many new products and improvements.

In the field of automotive transportation, with which I am most familiar,
we are not even predicting when you hear that the next ten years will show
a rate of improvement greater than that of the past ten years." TTiis fact is
established as clearly as anything in the future can be established. Scores
of research projects are now under way in the industries which make auto-
mobiles, trucks, buses, tractors, airplanes, and Diesel locomotives. This is also
true in every one of the Industries which make and supply the materials for
our industry, such as petroleum, rubber, steel, fabrics, chemicals, etc. Success
in only a small percentage of the projects now in mind will give American
workmen thousands of new jobs and will increase the value of the trans-
portation dollar more than can now be realized. Statistics show that of the
millions of people who earn a living in the automotive transportation business
only about 10 percent are employed in making the vehicle.

In research laboratories all over the country we now have men who are
learning to think. In the management of the automotive and associated in-
dustries, we have enlightened executives who have learned how to spend money
to give research man the opportunity to think. They are providing the tools
to make ideas come alive.

I like to think of this mass production of ideas as a team play in an immense
effort to readjust our economic system so as to put to work our excesses of men,
money, and materials. Our team includes many men, many companies, many
industries.

Speaking from my own experience, I think particularly of the automobiles of
tomorrow, the airplanes of tomorrow. They are being built right now in
secluded laboratories by specialists in fuels, metals, ceramics, rubber, plastics—
by designers of engines — by petroleum technologists — by others who are devoting
their lives to improving such humble but indispensable engine parts as valves
and fuel pumps, lubricants and gasoline, for these oil products are now as
much a part of the engine design as the crankshaft and pistons.

Progress encounters new and more diflScult problems. Each year the road
ahead is steeper. When Orville and Wilbur Wright made their historic flight
of 120 feet in 12 seconds, they had to think only of the process of flying, but
now, just 36 years later, when you buy a ticket to Europe the company which
operates the airplanes has a thousand additional problems and it has to take
the question of successful flight for granted. But we in America take progress
on this road for granted, as we also take for granted blessings unknown any-
where else on the face of the globe. This has happened partly because we are,
in a healthy sense, an unsatisfied people. We who make automobiles are not
satisfied "with the fine new model that rolled off the production line today. It
may be the best car that has been built up to now. But tomorrow, so help us,
we'll build a better one. The chemi.sts who spin a silken thread from a magic
brew of air and water turn back to their laboratories bent on new discoveries.
The petroleum engineer makes a better gasoline. Now, he says, well make it
cost less. And he does.

Thinking men are driven by a God-given dissatisfaction with present achieve-
ments. Through such men, industries are revolutionized. And even if research
workers and their companies were content to rest on their laurels, you and a

CONCENTRATION OF ECONOMIC POWER 16293

hundred million others would not let us. Somehow, because you are Americans,
you demand and think you have a right to expect more value, more usefulness
from everything you buy, and I think you have.

That's why our tempo of progress is Speeding up. American industry is
cultivating ideas as its richest investment in the future. We are looking for
young Marconis, young Bells, young Edisons. We have many of them in our
laboratories now. We encourage them. They are taught to look upon progress
as a road that has no end.

If we give them the opportunity of free enterprise, they will contribute
freely. In every industry — those existing and those to come-^— their improve-
ments will demonstrate clearly that what we have today is not enough or good
enough. That is why, with all conviction, I say that the future is boundlesSv
It holds a treasure of great and good things for all of us to share and of jobs
enough for all of. us to do.

Acting Chairman Kjng. Do you desire to supplement the state-
ment that has just been read?

Mr. KETrERiNG. If you care to ask any questions, I will be very
glad to answer them.

Acting Chairman King. Do any of the members of the committee
desire to ask Mr. Kettering any questions?

Mr. Pike. On one point, Mr. Kettering. You say that the process
of industrial research is American through and through. How does
that differ, say, from the German process of research, which for very
many decades was regarded as tops in the world ?

GROUP V. INDIVIDUAL RESEARCH

Mr. Kettfring. I think .the main difference is the fact that you
get a group of men to cooperate. I think the particular thing is, our
concept of industrial research is not so much an individual working
on a problem as a group of men working on a problem. In the Ger-
man industi'ial research they usually segregated the individuals on a
specific problem, and here we

Mr. Pike (interposing). Under competent direction you work the
problem out.

Mr. Kettering. You see, if you can pick a problem, it may be a
many-sided problem, and therefore you have to correlate the activi-
ties of a group of them. I think that particular thing is original
in this country.

Representative Williams. In that work, do you confine that coop-
eration to the ones in a particular industry, or do you work in coop-
eration with research laboratories from other industries?

Mr. Kettering. The thing I was particularly speaking about was
a particular research in any industry in which is required the serv-
ices of metallurgists, physicists, chemists, and so forth. You see, the
average inventor is pretty much of a personalized thing. He likes to
work alone. The great difficulty is the transition period from the
individual as an inventor to the group as an inventor; that is what
I was trying to develop — group invention rather than individual
invention.

Representative Williams. In other words, you have a separate
and independent research department

Mr. Kettering (interposing). Oh, yes.

Representative Williams. In your company taat works not in
cooperation with other companies, but within their own group.

16294 CONCENTRATION OF ECONOMIC POWER

Mr. Kettering. Yes. We work with other organizations in the
problems developed. If it is necessary to work with a chemical
company or oil company, we will work with them, understand. But
we originate the problems that pertain specifically to our industry.

Representative Williams. How many men have you in your
research division?

Mr. Kettering. About 400 or 500.

Kepresentative Williams. And what is your annual expenditure
on that branch of the industry ?

Mr. Kettering. I will have to guess. I would say it is in the
neighborhood of $1,500,000 to $2,000,000. That has nothing to do
with the engineering of the General Motors products, you understand.
We have nothing whatever to do with the products General Motors
makes. We have only to do with broadening the base. You see, we
work only on new industries, trying to develop new industries to
take up the slack in employment.

Dr. Anderson. Will you describe the set-up of industrial research
within General Motors and then within the organization of which
you are also the head ?

research in general motors

Mr, Kettering. I will be delighted to do that. Our particular
set-up is something like this. There is no very definite way in which
you can draw departmental lines of research because they shift
almost with every product, but for the sake of generalizing the situ-
ation we have our laboratory set-up divided up like this : We have a
department of chemistry, and in that department of chemistry we
have allocated all of the specific problems that have to do with the
chemistry of our industi^y, which will be paints, varnishes, fuels,
and all of the others — metallurgy, and so forth — in that chemical
department, and we are departmentalized to the extent of having a
fuel-research department, a rubber-research department, plating,
and so on; then in the material division, which comes under the
general head of chemistry, we have our metallurgical department;
then material tests, and so on.

(Senator O'Mahoney resumed the chair.)

Mr. Kettering. Then we have a department of physics, and in that
department we have all the ordinary apparatus that goes with a
department of physics. We have our X-ray department, we have our
high-voltage department, our ignition departments, and spectroscope
and all of the other facilities that would be in a high-^rade physical
laboratory. And those are all equipped with technicians, and it is
the correlation of the technician, say, in the physics department
with the technician in the chemical department that I was talking
about particularly w^hen you asked the question.

Then we have a department of design, because all of these ideas
have to be formulated finally into a concrete thing, and if it were
a Diesel engine, "we would design a Diesel engine for a service, but
not as a product, because you have to design something that you can
put in and prove the principle. So we have a design department.
In that design department we design apparatus, build it, and subiect

CONCENTRATION OF ECONOMIC POWER 16295

it to test, without any idea whatever as to how it is going to be
manufactured.

After we have had demonstrated the fundamental principal of that,
then some manufacturing division takes that, and we act only as
consultants, and have nothing to do with the final application.

Dr. Anderson. At that point, how do you determine upon the
projects to be investigated by the scientific section of your organi-
zation ?

Mr. Kettering. We have a committee of about three or four men,
consisting of myself and three or four of my assistants, who try to
select the general subject of investigation. Of course, from Mr.
Watson- 'Da Vis' discussion, you could see there are a million things to
investigate, but research men are quite hard to get, and therefore
you have to select what you might call the control problems that
control an industry, and we are the ones who select those problems,
and

Dr. Anderson (interposing). On what basis do you make the
selection ?

Mr. KJETTERiNG. We make our selection very largely on this basis:
looking down the road, what are the most impc.tant problems that
our industry has? The most in>portant single problem the industry
has is the question of fuels, so fuels have been one of our researches
ever since the laboratories were started. In fact, long before our
laboratories were started, when I was running my own laboratory
in Dayton, I had been working on this fuel thing since about 1913,
and some of the same boys that started in 1913 are still on the job,
and every^ year we think we know a little something about it and
the next year we slip back a little bit, but I think we have gained.

But the reason that is an important problem is because with our
best automobile engine that we have today we are utilizing lesss than
5 percent of the total efficiency of the fuel. That isn't because we
don't want to utilize any more. That is the best we have been able to
do. That is, there are theoretically about 450 miles, if you could
use all the energy in a gallon ol gasoline,, in a gallon, A mall car,
Chevrolet, Ford, or Plymouth, would go about 450 miles on a gallon
of fuel. I don't think anybody claims we are getting that, but I think
we are getting 5 percent of it. As long as there is a 95 percent waste
factor in that thing, you can see right away you can t let that go
rteglected. The fuel and the engine are so tied together that you can't
treat one without treating the other, ycu see. They are integral parts
of each other, so engines and fuels have been and will continue to be,
as long as tlie industry last.--, I think, a major problem, and it was out
of that work on the study of engines and fuels that we developed
this new Diesel engine which we use on these high-speed trains, sub-
marines, and so forth, because we were simply trying to see if the
thinking that we were doing was applicable in these other lines, and
that has worked out very well.

Dr. Anderson. When you mate a discovery within fuels, such as
ethyl or some other discovery, is that discovery then patented by the
company, in the company's name? What is your policy with respect
to control of the discovery?

16296 CONOBNTRATrON OF ECONOMIC POWER

PATENT POLICY OF GENERAL MOTORS ^

Mr. KiTiTERiNG. That varies with every one of them. There is no
rule. We have no rule on that thing at alL We take out patents,
and they are usually turned over to the division that is going to
market the thing. They become the property of the commercial
organization.

Dr. Anderson. So that research beyond the actual discovery and
perfecting of an invention does not move over into its application.

Mr. E^ETTERiNG. No; you can't do that, and I am glad you mentioned
that point because that is one of the places we have to watch. Any
new device, it doesn't make any difference what it is, is two things.
It is a principle and it is a product. Now, when you put the product
on the market first, it is bought by a few people who think they want
it. They immediately begin to reflect back on the modifications of
that, and it is purely the function of engineering from then on. If
you take your research men to do that you don't do another research job
for 10 or 12 years, so what you have to do is to set it pretty clearly,
and when we set up our researcli laboratories we set this very clear and
distiiict line, tha^t we were to have neither authority nor responsibility.

Mr. Pike. That is where the individual inventor is in a pretty
bad fix. He hasn't any separate sales and engineering organization.

Mr. Kettering. I went through that several times myself.

Mr. Pike. You did a very good sales job on one of yours.

Mr. Kettering. That is still going on. The weakest thing — when
I say the weakest thing that the technical man per se has, it is that
he only knows three dimensions; length, breadth, and thickness. He
deals with the material relationships completely, while there is a
fourth dimension that we say goes into that, and that is the eco-
nomics— how much it is going to cost. The thing doesn't become a
product until its cost is brought down to the place where people can
buy it. You have to get a man cost-consicious, and of course you can't
be cost-conscious when you haven't anytliing to work on.

Dr. Anderson.- With that divorcement between research of a pri-
mary and secondary character and its application, the scientific men
are not in any sense responsible for the economic aspects of the prod-
uct. They are not concerned with whether or not it is put on the
market immediately, whether it is held off the market, whether it
goes on in partially completed form for trial and error in purchasers'
hands, or anything of that sort. They have nothing to do with that.

Mr. Kettering. No, no. You couldn't have anything to do with it,
you see.

Senator King. My recollection is that we have many examples of
brilliant investigators and researchers and inventors who have, at the
same time, had considerable business ability, and associated them-
selves with others in putting their product upon the market to their
great advantage.

Mr. Kettering. Oh, that is all right ; yes.

Senator King. There is no assumption that the inventor lacks skill
as a businessman.

Mr. Kettering. Oh, no.

Senator King. And as •omoter of the product which he has
invented.

1 In this connection see also Hearings, Part 2, pp. 328-372.

CONCENTRATION OB\FOONOMIC POWER 16297

Mr. Kettering. No; but merely to facilitate the organization,
here is what we have. We have 1,000 people who can make and
narket a product to one who can originate it. The system that we
liave set up is a conservation of our originating talent.

^fr. HiNRicHS. It does, however, distinctly separate the two
functions,' so that the inventor, the developer, the research man, has
no interest in the question of whether the product is marketed or is
pushed into competition with existing processes.

Mr. Kettering. He has. You have to draw some line where his
responsibility stops, see. For instance, we will take our srtlall truck
and bus engine. The men who developed that in the research lab-
oratory as a principle elected to go into th« factory. There were
about 100 or 125 of the boys who had been in that development end
who elected to go into the commercial phases of it, so they moved
bodily out and went with the thing. They always have that oppor-
tunity to do it if they want to do it.

Mr. HiNRicHS. It does involve a clear-cut separation of the in-
ventive scientific function and the subsequent decision to commer-
cialize the product.

Mr. Kettering. Yes.

Mr. HiNRiCHS. And you now haVe a situation in which fundamen-
tal scientific research on a very large scale is bein^ conducted in
enterprises which have an extremely heavy stake in existing processes
as well as in the prospective process, whereas in the individualized
inventive function the inventor's stake in . the past is orditiarily
comparatively slight, has been frequently very slight, and his stake
in the future may be very large. There is some change in that
respect in terms of the commercial application of the product, isn't
there?

Mr. Kettering. I don't quite grasp the point you are making
there.

Mr. HiNRicHs. The decision now to apply scientific investigation
has to be made by a commercial organization with a very heavy
investment in the methods of production which have characterized
the past, and an investment which might be jeopardized by the
I)rompt application of scientific discovery, and you introduce a com-
mercial consideration into the question of whether it is worth while
to apply.

Mr. Kettering. Well, are you asking whether or not we hold back
things because they might interfere with something that is already
on the market?

Mr. Hinrichs. I was asking in the first place whether it is correct to
assume there is a change in the general situation. My second ques-
tion was going to be, does that mean that at any point the application
of invention is held back, and how is that conflict reconciled by the
company between its interest in its existing investment and its inter-
est in the application of a new principle which might result in sub-
stantial economies in the future to users of the products, but might
also involve jeopardizing, for the time being, a rather large invest-
ment that has not yet been fully amortized.

Mr. Kettering. I can only speak for my own industry. We are
always behind. Our people say we are slow. We are not getting

124491— 41— pt. 30 8

16298 CONCENTRATION OF ECONOMIC POWER

stuff out fast enough. Almost all of our things are new things, and
don't interfere with anything that we have already got.

Representative Wiixiams. May I just interrupt for a moment.
There is a call of the House, and I ask to be excused.

Dr. Anderson. If a research worker discovered a means of utiliz-
ing not 5 percent but, say 50 percent of the full content, and it
resulted in a drastic alteration in your automobile, what would be
the procedure? You have startling inventions. What happens?

Mr. Kettering. Of course, I couldn't draw a conclusion from a
fictitious thing.

Dr. Anderson. Let's take an example that you have had in the
recent past, of a great change. Has it in any way been held back?

Mr. Kettering. Never, never; we have never had that condition
in our industry at all.

Senator King. Even in your large group of investigators, there
may be some person who prefers to pursue a very narrow field, and
he achieves success in that, and of course coordinates that.

Mr. Kettering. For instance, here is a particular fellow that may
be a specialist along that ]tne. Let him work his specialty in co-
ordination with some other fellow's, of which that is a component
part.

The Chairman. I gather from what yoa say, Mr. Kettering, that
it has been your experience that the researcher and the inventor are
constantly endeavoring to produce a commodity, a new invention, a
new product, at a cost which will make it commercially profitable
to the producer.

Mr. Kettering. Not necessarily. You can never make them profit-
able in the beginning.

The Chairman. But your constant effort is to bring it out so you
can put it on the market and dispose of it at a profit; isn't that it?

Mr. Kettering. Ultimately. Of course, we never have anything
to do with it except at the beginning.

The Chairman. You are head of the research laboratory and you
have to do with this long preliminary study which is intended to
bring forth the new invention or the new commodity or whatever the
discovery or invention may be.

Mr. Kettering. That is right.

The Chairman. The problem of marketing is not 'your problem.

Mr. Kettering. Not in the least.

The Chairman. But it is true, I take it, that the research expert is
constantly faced with the problem as to whether or not the particular
study on which he is working will result in a product which can
be marketed successfully.

Mr. Kjittering. That is right.

The Chairman. For example, my attention has been called over a
long period of years to the effort to find new industrial uses for agri-
cultural products. It is a very desirable end to be achieved, because
obviously, when we find new industrial uses for agricultural prod-
ucts, we will be successful in benefiting the producer of agricultural
products.

Mr. Kettering. That is right.

The Chairman. One of these studies has been designed to make
alcohol at such a cost that it can be used in automobiles as a fueL,

CONCENTRATION OF ECONOMIC POWER 16299

but to date, it is my information, science has been unable to produce
the alcohol at a cost low enough to make it commercially available,
isn't that correct?

Mr. Kettering. Yes.

The Chairman. That is to be found throughout the line of scien-
tific research, is it not?

Mr. KETrERiNG. Yes. As I say, the great difference between the
fundamental principle and the product is one of economics. That is,
you may have a fundamental principle that is all right but it. isn't
a product yet because it hasn't beeii whipped into shape from the
pomt of view of its over-all economics.

GOVERNMENT AID TO RESEARCH

The Chairman, Have you any thought about what may be done,
by society, or by Congress, or by the State legislatures, to enable
science to pursue its studies more rapidly by making better markets
for the products which you are working with?

Mr. Kettering. Of course, the big problem in that, Senator, is the
fact that the process of getting the new industry is almost diametri-
cally opposite from the process of operation. For instance, you take
any industry that is a manufacturing operation ; they are set up on a
schedule of production depending upon the reports from the field,
from the sales department, and the current markets of raw materials,
and everything. In other words, you have got to budget a modern
industry very carefully or the sheriff will get you. You can't go
on just making a lot of things ad lib.

The 'Chairman. That is true.

Mr. Kettering. Now, remember that is 99.9 percent of that in-
dustry's business. Wlien you come over to the research and develop-
ment thing, you can't answer any of the questions on the forecast.
You don't know when you are going to get the thing done, whether
it is going to work or not, and whether it is going to have any value
whatever, because it is an intangible thing.

It is the lack of understanding between the operating ends of in-
dustry and the development phases — they are almost diametrically
opposite in their whole content.

The Chairman. In what way are they diametrically opposite? We
are coming to a very interesting point and I would like to develop it.

Mr. Kettering. They are diametrically opposite because you can't
forecast what a thing is going to be worth before it is developed.
I can only work on a very small detailed thing. "When are you
going to get that thing done?" I don't know. We have been
working on problems — as I say some of the men who started with
me in 1913 are still working on this fuel problem.

The Chairman. The inability of the rssearcher to predict when he
wijl finish his studies or exactly what he will produce, and the in-
ability of the operator to predict what the result will be, does not
in itself indicate there is any opposition between the two.
i. Kettering. No.

The Chairman. The operator will be most anxious to put on the
market the product of the research laboratory as soon as it can be
disposed of at a profit.

16300 CONCENTRATION OF ECONOMIC POWER

Mr. Kettering. There is no opposition. There is just impatience.
That is, therp is a terrific impatience between operations and
researches.

Th^ Chairman. The operator then is very anxious to have you get
through with the job so he will ha^ea new product to dispose of.

Mr. Ketfering. That is right.

The Chairman. That is what you meant?

Mr. Kettering. That is right. Now then, it is a lack of under-
standing. For instance, there is another kind of accounting. You
take the detailed cost accounting that is absolutely essential in an in-
dustry, it is quite different from the actuarial accounting used in in-
surance. You have to apply the actuarial type of accounting to re-
search; not what a specific problem is going to cost, but what rea-
sonable percentage of the problem you undertake will come through.

Mr. Pike. What is your mortality?

Mr. Kettering. Oh, I would say 99 percent.

Mr. Pike. Naturally, a lot of these things do efid up in thorough
and bitter disappointment.

Mr. Kettering. When I said 99 percent, I wouldn't say 99 percent
of the long-range things but 99 percent of the workaday things you
are working on today will be a failure. In other words, that is* the
biggest problem we have in keeping the morale of our personnel up.
If you were to walk through a research laboratory with me, the
thing that would perhaps discourage you is that almost every one of
the projects is in a jam, the thing "busted" up yesterday, you see.

accelerating rate of invention

The Chairman. I hav een reading over the prepared statement
which you presented at tbo i cutset — unfortunately, I wasn't here when
you went on the stand — rand it suggested several questions which I
should like to direct to you. In the first place, beginning toward the
end, I note this statement : "Progress encounters new and more diffi-
cult problems. Each year the road ahead is steeper."

Do you mean by that that the progress of science and invention is
getting more difficult ?

Mr. Kettering. If you read the rest of that, it is explained there as
to what I meant. You have to take more things into consideration.

The Chairman. But as a matter of fact, standing alone, that state-
ment doesn't convey a correct=.idea.

Mr. KETrERi>fG. No; not if you pull it out, because that was a
preliminary statement to another paragraph which came after that.

The Chairman. The impression I have had has been that the pace
of progress is constantly accelerating.

Mr. Kettering. That is right.

The Chairman. And because of the accumulated wisdom and in-
vention and development of the past, we can expect larger and larger
gains in the future; isn't that correct?

Mr. Kettering. Well, I don't know, because there are many things
that we take for granted. If a young man who comes to work for us
can survive two shocks he usually makes a pretty good man. I am
talking of the young man who is a graduate of one of our technical
institutions. The first shock he gets is that we are working on such

CONCENTRATION OF ECONOMIC POWER 16301

terribly elementary things, because we don't know much. If we don't
know a thing, we usually give it a Latin or Greek name.

The Chairman. I have noticed, during the process of these studies,
that lack of knowledge is frequently covered up by a mass of words
and statistics.

Mr. Kettering. And so we say if the boy can survive the fact that
we are working on terribly elementary things, that we don't know
very much about anything

The Chairman (interposing). Of course, elementary things are
frequently, I think, the most important, and that leads me to this
thought. I think the most elementary of all problems is the problem
of jobs.

Mr. Kettering. That is right.

The Chairman. And work for people.

Mr. Kettering. That is right.

The Chairman. And that leads me to this quotation from your
statement :

I like to think of this mass production of ideas —

And I like your phrase "mass production of ideas" because I think
that correctly describes our modern condition —

as a team play in an immense effort to readjust our economic system so as to
put to work our excesses of men, money, a:nd materials. Our team includes
many men, many companies, many industries.

Now, it is implicit in that stateinent that there is an excess of men,
that there is an excess of money, that there is an excess of materials,
which is not being used, and that there is something in the economic
system which needs readjustment

Mr. Kettering (interposing). They haven't got. the projects.

The Chairman (continuing). In order to enable society to put to
use these several excesses. Have you any contribution to make on
that?

IMr. Kettering. That is why I say we are behind technologically
rather tlian ahead. We are 'way behind. And I was going to explain
why we are behind, because we have taken for granted i great
many things. Going back, speaking of the young man, I say he must
survive two shocks, one that we are working on such ter.-ibiy ele-
mentary things, and the next that nothing he can find in the
books will help him out very much on it. We have used this ^ery
simple illustration. You rub your hands together and they get
warm, and why is that, and the fellow says, "That is quite simple,
that is friction," and yet if you pursue that, you say, "What is fric-
tion?" and you end up by saying, "The thing that makes your hands
warm when you rub them together." You don't know a single thing
about the mechanism of why your hands get warm when you rub
them together.

It is hard to get men back to those things and that is the reason
I think we are behind. We haven't been willing to go back and take
those very tedious jobs.

The Chairman. Those tedious jobs, I take it, can be pursued suc-
cessfully only by large, comparatively large, cooperative effort such
as that which is illustrated in your research laboratories.

16302 C(^NCENTRATION OF ECONOMIC POWER

Mr. Kettering. Well, I don't know. I think that individuals can
work on that kind of thing. In fact, there have been some very good
individual contributions made, both in this country and abroad, on
this mechanism of friction.
_ The Chairman. All right, suppose you can get suflScient investiga-
tion of these elementary things to satisfy you, what would be the
result?

Mr. Kettering. You immediately begin to broaden out, for instance,
you take on some of the things that are available now but not per-
fected, we will say. We have heard a lot of talk, we will say, about
air conditioning. Air conditioning has done a very, very good job,
but yet the economics of air conditioning perhaps haven't reached
the point at which it can be of general usefulness.

We are trying to find out what we can do to make this thing more
flexiblcj easier to handle, more easily installed, and things like that.
In other words, that is an economic problem. We know in our climate
up North that one of the factors that is involved, especially in air
conditioning in the wintertime, is very low humidity. That requires
a new type of window.

The Chairman. To what extent do economic conditions prevent, if
at all, the use and development of inventions and discoveries which
have already come into the scientific consciousness ?

Mr. Kettering, I think they have a lot of retardation in the be-
ginning because you don't know quite what the problem is, you see.
For instance, I was going to mention on this window business — in
trying to hold the humidity up in our section of the country where
it gets rather cold in the wintertime, we have to have double windows.
There are a number of people that have been working on that, and
if we ever get at satisfactory double window, then you immediately
would see quite a change in the method of building structures, in
houses, and everything else. But we haven't had it yet. We are
getting closer to it all the time.

Take television as a new industry. It will have to struggle along
quite a long while before it strikes its pace, because you can hit
tne middle of the road but very rarely, and then it is an accident.

The Chairman. What is in the back of my mind in asking these
questions may probably best be illustrated by reports which have
come to us in Congress with respect to housing, for example.

The statement is frequently made that so-called slum-clearance
housing in some communities has progressed physically to a very
advantageous point. That is to say, very fine apartment houses have
been constructed, but it has been found that these new apartment
houses are not being occupied by the low-income groups for whom
they were originally intended. • In some instances it is said the
destruction of the slum to make way for the new and improved
modem housing project has. resulted only, in some instances, in the
moving of such families into worse slums, because the group at the
bottom of the scale were not economically so situated as to make
use of the new product.

Now, isn't it true all through the field that markets are essential
to the development of research, and science, and invention?

Mr. Kettering. The only time we get those research problems
which you mention there is when they are reflected back from the

CONCENTRATION OF ECONOMIC POWER 16303

field. For instance, suppose we develop the best thing we know how
to do in a research, and it is turned over to the manufacturing divi-
sion to make and sell, and suppose they try to put that on the
market, and after a couple of years they come back and say, "This
is pretty good, but it doesn't fit the market. Now, you fellows will
have to take another cut at this, make another study of this." Very
seldom do they do that, because that organization immediately sets
up its own development and research department for that particular
product, you see.

The Chairman. If it were possible to increase the market, either
by opening, up new fields in other countries, or by increasing the
purchasing power of the masses of the people in America, would not
that in itself be of tremendous assistance to the scientist in his efforts
to develop new products?

Mr. Kettering. Sure. Of course, the average scientist doesn't get
that far in the picture.

The Chairman. Of course, that is one of the phases of this matter
we are studying.

Mr. Kettering. We can help the scientist best by taking his
thought or his idea and developing it into a tangible shape.

The Chairman. You started your statement with this sentence,
which was of great interest to me: "We have been accused of pro-
ducing unemployment by too many inventions." By whom have you
been accused?

Mr. Kettering. Well, the newspapers and others. It has leaked
in through various sources. I don't know where it comes from.

The Chairman. I often wonder if that isn't a misunderstanding.
For example, there was distributed to the members of the commit-
tee today a pamphlet, apparently issued by Iron Age, entitled "The
Threat to the Machine," and on the second page of this I find a
statement attributed to me. It reads as follows — my name, in the
first place, and then quoting: "Science and invention are to blame
for the present unemployment in America."

Now, I am not conscious of ever having made any such statement.

Mr. Kettering. I never saw that.

The Chairman. I know you didn't. I am taking advantage of
your presence here, you see, to make a statement with respect to
that.

Mr. Kettering. That is all right.

MASS production AND MASS PURCHASING POWER

The Chairman. That statement, of course, doesn't begin to repre-
sent my attitude toward the machine. Never in my conscious mo-
ments have I ever intended to intimate that science and invention
are responsible for unemployment.

I ithink there can be no dispute about the fact that science and
invention have immeasurably increased the standard of living in
the world, and particularly in America. But while the standard of
living has unquestionably been increased, it seems to me it has also
become less stable than it used to be. Our grandfathers lived at a
very much lower scale; they didn't have electric lio;hts, they didn't
have automobiles, they were content to get along with kerosene lamps

16304 CONCENTRATION OF ECONOMIC POWER

or candles; they didn't have any of the luxuries or comforts which
we have, but they could support themselves because they vere living
upon the land.

Mr. Kettering. That is right.

The Chairman. Their economy was on a lower plane, but it was
stable. Now, our problem is to make certain that the undoubted
advance of technology will redound to the benefit on a stable basis
of the masses of the people, and that their purchasing power will
be so increased that the scientist may make constantly increasing
gains. Do you agree with that statement?

Mr. Kettering. Yes. You have to broaden your industrial base.
That is the reason why we have the excesses of men, money, and
materials. We simply haven't got the projects. We are behind
on the project-getting end of this thing. That is what I am getting
at.

The Chairman. I think there is a good deal of misunderstanding
of what is meant and intended by persons who are studying this
problem, and I wanted to make clear here in questioning you, that
at least speaking for myself, I want to do everything in the world
to aid technology and to aid the machine, to make wider and wider
use of it.

I recognize the fact that labor-saving devices are desirable and
excellent and beneficial in every possible way, but I also recognize
the fact — at least it seems to me to be a fact — that the market for
all technological advance depends absolutely upon the ability of
the masses of the people to use what the scientists are producing.

Mr. Kettering. That is right.

Hr. HiNRicHs. Along that same line, I have one or two questions.
Your part, I judge, in this team play that you refer to is to make
fundamental scientific advances which may be of either of two sorts.
It may result in a totally new product ; it may result in a very much
better use of an existing product, or a product which is substituted
for an inferior product now in use. An increase of fuel efficiency
from 5 to 7I/2? perhaps 10 percent, would result in substantial econ-
omy in the use of fuel and probably to an extension of the use of
automobiles.

Now you implied in your discussion that the business organization,
the operating and sales end, has the job in this team play of making
the products of scientific research widely available.

Going back to your first page, you say that there is a necessity
for producing new things because we have more hands than we have
jobs ^o do. There is no question that people at present are unem-
ployed, but you would hardly sry that in a physical sense the peo-
ple in the United States were at the present time well supplied with
the goods that we know how to make and know how to use, would
youf That is, we have, roughly, two-thirds of our population with
family incomes of less than $1,500 a year. As far as I can calculate,
it would take an addition of about $50,000,000,000 to the national in-
come to raise the group that is below $1,750 to $1,750. We don't
have the technical capacity nor the hands to produce an additional
$50,000,000,000 worth of goods at the present moment.

So that there really are two approaches that are conceivable in
team play. One is the stimulation and the easy flow into the econ-

CONCENTRATION OF ECONOMIC POWER 16305

omy of new products. The other part of the team play of your sales
or<ranization, your producin<i: or<ranization, is to make existing things
available at the lowest conceivable costs in order to get tne widest
possible distribution within the existing distribution of income.
Would you agree Avith that general statement?

Mr. Kettj:ring. Yes.

Dr. Anderson, Mr. Kettering, getting back for a moment to this
divorcement between invention as your industrial researchers con-
duct it, and the application of invention that is carried on by the
business end of your plant, I wonder if you would hazard a state-
ment as to how general that situation is in industry?

Mr. Kettering. No, I wouldn't. I, think that every industry is
set up. depending upon its operating conditions. You see, we oper-
ate on a decentralized basis. Tliat is, our automobile factories, Cadil-
lac, Buick, Chevrolet, Oldsmobile, and so forth, are all operated as
individual units.

That makes it rather easy for us, then, to have a centralized
detached laboratory. Now, in an organization in which you have
your engineering and your research and your design and everything
tied up together, it will work differently. There is hardly any general
rule that I can say on how to put that up. We just happen to be
fortunate in our set-up to be able to get that sort of thing.

Mr. Pike. And still there are some things you say you are inter-
ested in that are not close enough to the automobile business to put
them in youi- laboratories; for instance, your chlorophyl research,
where you go out to Antioch.

Mr. Kettering. That is a personal thing. The reason for that
is that you couldn't ask any industry to take that on. I have been
interested in that one for a great many years, and we are interested
in that. You know, the word "chlorophyl" is just the Greek word for
''green leaf," and we don't know any more about it in Greek than
we do in English.

PHOTO- synthetic ENERGY

The only reason we are here is because of the ability of a plant to
trap the sun's energy. I felt that was important enough to set a
group of scientific fellows to see if we could find out how it is done.
Out of that has come a lot of very, very interesting things already,
aJthough that is absolutely set up as a purely scientific research. It
has nothing whatever to do with. business or anything else, and we
liave been on it about 10 years now and we have been able to clarify
a lot of things. Some practical things have come out of it. For
instance, this question of why certain pastures are poisonous to white
stock but not to black stock.

There are certain pastures in which only black sheep can be pas-
tured, or black cattle. The reason for it is that there is some weed or
something that the cattle eat that sensitizes them to light. Now, if
they are white, that lets some of the undestroyed radiations go into
the blood stream and tiiey get quite sick. Well, some practical things
Jike that have come out of tliis already.

We know a ton of hay dried in the dark is worth about four tons
drieU in the light.

16306 CONCENTRATION OF ECONOMIC POWER

The Chairman. That is pretty far afield from the motor industry,
isn't it?

Mr. Ketteking. This is my scientific golf game.

Dr. Anderson. Mr. Kettering, why is it with such a practical pros-
pect as you have indicated, that industry does not undertake such
basic research as your study of chlorophyl ?

Mr. Kettering. I think the reason for it is that there is no way in
the beginning of drawing a line between the question of whether it is
fundamental or whether it is some fellow's hobby, because if you try
to follow all those hobbies you would just go out of business in a
hurry.

Dr. Anderson. That leads to the next question: How does your
corporation determine on the fund, the size of the fund, the amount
to be placed at your disposal for research?

Mr. Kettering. They leave that entirely to us. We ask for an
appropriation to cover what we believe is an honest interpretation of
what we are able to do.

Dr. Anderson. Is that fairly general in industrial research?

Mr. Kettering. I couldn't answer that.

The Chairman. In presenting your request for an appropriation
you have to make some justification of it, I assume.

Mr. Kettering. Not very much, Senatpr. We are pretty well
known in our organization.

The Chairman. Of course, you are pretty well known outside of
your organization, too.

Mr. Kettering. I mean by that, we have been working along cer-
tain definite lines. We set up our projects just about as I outlined.
For our physics department we would like to have so much money
for that, and here are the problems that are in there, and here is the
probable new thing we would like to put in if things work out dur-
ing the year. Then we put a cushion in there of X number of thou-
sands of dollars that this thing can be automatically pulled out or
shoved in.

'The Chairman. The output of your laboratory over the years has
paid for itself, has it not?

Mr. Kettering. They still give us money.

The Chairman. They wouldn't do it if you weren't paying; isn't
that right?

Mr. Kettering. They never tell us. The only way we know whether
we are going along right is when we see the corporation building a
building to make new things they, never made before.

The Chairman. Industrial research, I suppose, is keyed to its
utilitarian phases.

Mr. Kettering. Not nearly so much as you would think.

The Chairman. Then to what extent are you permitted to go out-
side of utilitarian objectives?

Mr. Kettering. I am going to assume that you mean by utilitarian
that thing which is obviously applicable to our industry.

The Chairman. Oh, no. I think that in your case, or in the case
of any similar or comparable research laboratory, the corporation
would be very glad to accept your judgment that the eventual result
of a particular line of inquiry is likely to produce something of value
to die corporation.

Mr. Kettering. I can tell you how that is e\aluat'ed.

CONCENTRATION OF ECONOMIC POWER 16307

GENERAL MOTORS RESEARCH BUDGET

The Chairman. That is what I would like to know.

Mr. Kettering. In dividing our appropriation, we say that it has
worked out about this way : about 40 percent of our appropriation
goes to consulting services to our divisions. We are a free consulting
engineering operation to all of our divisions, and they come there and
talk to us about this, that, and the other thing.

The Chairman. In other words, they bring to you their immediate
problems.

Mr. Kettering. They don't bring the problems there so much as
they come and ask us to come out to their place and help them work
on a thing there.

The Chairman. But it is an immediate problem that they want
worked out.

Mr. K-ETTERiNG. That is fine, for two or three reasons, because that
keeps us very definitely in touch with our industry. Then there is
about 30 percent of our budget that is applied to more or less ad-
vanced engineering and where we have to design the apparatus to
demonstrate the principle; and then there is 30 percent that is very
long-range material.

The Chairman. It is conceivable that the 40 percent represented by
your assistance to the various divisions, and the 30 percent which is
represented by the development of problems which you yourself see
for the improvement of the industry will produce sufficient results
to carry the other 30 percent without profit.

Mr. Ketiering. Because you see the 30 percent, we will say, of
design and engineering, 4 or 5 years ago was the top 30 percent. It
is working this back down into that thing, because it is surprising
how long it takes, sometimes, to get a thing clarified enough in your
mind to put it down on a drawing board and make a piece to repre-
sent it.

For instance, you take the simple thing of a spectroscope, which
is this method of splitting light out as an analysis factor in a foundry.
Well, we have been playing on that for a great many years, but it is
only recently that we have been able to get a spectroscope which is a
highly scientific piece of apparatus, that you could put out in a
foundry. Yet, if you had come to the practical board 20 years ago,
they would have said, "We don't see how you can do that." But all
the fellows all along the line have been making improvements — the
optical men, the glass men, and so on — and finally you have an object
of scientific accuracy in a light-proof case and you can put it in your
foundry and a fellow can make his analysis and control his steel very
much better than he did before. So that intangible 30 percent is
going to come of age some of these days, so you have to have that
put in."

It is just like a calendar. You have a calendar here of 365 days
and you keep tearing one off each day, and it gets iliimier. That
is the way it is with products. Ever} ihae you take one off you
have to put a new intangihle one on the bottom, c>tlierwise you run
out.

Dr. Anderson. Mr. Kettering, how much money did you budget
last year for resean'h in General JSIotors?

Mr. Ketthring I think it was between $1.. 500,000 and $2,000,000.

16308 CO"NCENTRATION OF ECONOMIC POWER

Dr. Anderson. What percentage would that be of total General
Motors expenditures for the .year?

Mr. KE'm:RiNG. I haven't the slightest idea. Do you mean from
an engineering standpoint?

Dr. Anderson. Yes.

Mr. Kettering. I couldn't tell that, I think we could get those
figures for you. You take an organization like the Buick ; they have
their engineering expense divided into two classes. They have what
they call research, a group which has to do particularly with their
product, but this would only be a very, very rough guess ; I imagine
the total engineering and research budgets for the divisions would be
around ten or twelve million dollars, so that I should say our specific
research thing was maybe about 10 percent. Those figures are purely
guesses, and we can get them for you if you would like them.

Dr. Anderson. You made a point a moment ago that you didn't
know precisely wdiat is going on in other plants with respect to
research, but I would like to question how independent of each other
large business units, supposedly competitive units in the same busi-
ness field, are in the research field.

• Mr. Kettering. Well, they are independent in one waj and in an-
other way they are not. They bring all of this stuff together through
their engineering societies. For instance, we have a very fine society
know^n as the Society of Automotive Engineers, the S. A. E, We
have a research committee in that, and through the papers and so
on I think everybody knows w4iat the general problems of the in-
dustry are. As to what is being specifically attacked by each organ-
ization, I don't think we attempt to find out. Chrysler is working
on problems that we are on. We don't make any attempt to find out.
I am; perfectly sure if we asked they would tell us, but we don't
abuse the courtesy.

Dr. Anderson. How near standardized has the product become as
a result of this general knowledge of research in the full field?

Mr. Kettering. Not very much standardized, because there are
always many approaches to the thing. You take in our own corpoja-
tion we have two schools of engineering so far as engines are con-
cerned, the so-called L-head and the valve-in-head engine, and you
can't standardize those two. Each of those groups sticks to its own
view-point.

Dr. Anderson. Why is that?

Mr, Kettering. Because a man's experience and his work have been
along one line, and the two things aren't alike. There are a lot of
things different in them. When the valve-in-head fellow tries to
step across he tries to carry the valve-in-head practice and vice versa.

Dr. Anderson. In other words, you would say that there is little
hope from the research side to come to the standardization in which
there would be a common product,

Mr. Kettering. I think that would be very dangerous. You might
agree on a standard today, and say that this thing is the only thing
we ought to make, and tomorrow, if you went ahead, you would find
out something else. We have seen that happen in materials like
steel, in which they w'anted to standardize a kind of steel; and a few
months afterward we found out that if they had, they would have
taken the wrong one. ISo; I think you wftot to keep the front of

CONCENTRATION OF ECONOMIC POWER 16309

industry fairly broad, and specific standardization can be very
dangerous.

INTERORGANIZATIONAL COOPERATION

Dr. Anderson. Undoubtedly basic research is carried on both in
industrial research laboratories and in universities and Government
laboratories.

Mr. Kettering. Yes.

Dr. Anderson. Do you have any estimate of the dependence of
industrial research laboratories upon the universities and Government
research?

^Ir. IvETrERiNG. They work together in a great many cases ; in other
lases they can't. But there are good working arrangements — you
ake between the Bureau of Standards and industry, and between the
iiniiversit}' laboratories and industry — but there are certain of those
problems. For instance, let's take a very specific case.- Take the
injector that we use in our Diesel engines. That was a very difficult
problem, because it parted from what you call conventionalism. We
arrived at a conclusion from other work we had done that we had
to raise the injection pressure from, say, 4,000 pounds to 25,000
pounds. When you begin to try to pump oil at 25,000 pounds it
introduces quite a problem. The argument was that if you made this
thing accurate enough so that you had to fit a piston into a little
barrel so accurately that oil at 25,000 pounds wouldn't leak by, logic
said if that is the case, you only need to move that a couple of times
until that accuracy will be worn away.

It didn't work out' that way at all. It doesn't wear at all. We
have injectors back from locomotives that have been run a million
miles, and they are still absolutely accurate. But if you make a little
more clearance it wears very rapidly.

There was a thing on which it took us years to get over the hurdle.
The limits that we use, the tightness of the fits, can best be illus-
trated by saying that if you take a human hair, that is three-
thousanJths of an inch in diameter, and you cut that up into 120
equal pieces, the size of one of those pieces is the limit we have.

To make that commercial was regarded as an impractical thing,
and they said, "It is impractical because if you make it that close
it will wear." If j^ou make it that close it doesn't wear. Why, we
don't know. We have all the time to be investigating such terribly
elementary things.

Out of that, of course, came quite a step in the so-called Diesel
engine development.

Now, answering your point, the university laboratory can do cer-
tain types of work that have to do with fundamental principles.
You take one piece of research work that is being done in a univer-
sity that is tremendously important is by Dr. Lawrence out on the
cjTlotron. That certainly could be done only in a university, and
that depends on Dr. Lawrence. Then Dr. Urey's work on heavy
nitrogen. Many of these universities are doing splendid work.
What you have to do is gather them up and write them up, and
see how iiuich of it you can use in today's product.

Dr. Anderson. There is no thought in your own mind that indus-
trial research is actually supplanting basic

16310 CONCENTRATION OF ECONOMIC POWER

Mr. Kettering (interposing). Oh, no, no. We are still shy. We,
need much more of it all the way through.

Dr. Anderson. Do you think there is any danger of basic research
to lag for lack of funds due to the fact that industrialists are apply-
ing more and more of their funds to their own research?

Mr. Kettering. No; I haven't seen that to be the case at all. I
have two or three of these researches which I co,uldn't and wouldn't
ask industry to do. Chlorophyl is one, some of the medical work
we are doing at Dayton, and one or two other things, and you just
couldn't ask industry to do that to start with. That is the reason
why I have underwritten those, to get them started. After a while
they may go on their own.

Dr. Anderson. Is there a lack of capable people for research work?

Mr. Kettering. No; there is not a lack of specific technicians.
Ydu can get somebody to do anything you want done. The lack that
we ha^Ye is the keeping of those people on a definite track. In other
words, tke one great temptation you have when you are working on
a research problem is, you are uncovering something new. That
something new may be just a way station on this thing you are
working on. The great temptation is to run off sideways. It is a
grapevine; you want to run off there, but to keep the fellows on
through to destination first is your problem. Then you can always
come back and do this afterwards — the problem is to keep men's
minds definitely on a problem until you get that solved, and that
furnishes your survey line from which you can do all your other
work.

Dr. Anderson. What are the incentives that inventors in your
industrial plant have, the monetary incentives? Do they gain by
the invention made?

Mr. Kettering. They gain in this way. We don't give specific
bonuses to the inventor. We give the bonus to the laboratory, and
the reason we do that is because we want to keep these fellows from
becoming individuals. If we gave the bonus for a new invention to
the specific man under whose care it was done, then these fellows
would just begin to make little cliques, but if the laboratory gets the
thing

The Chairman (interposing). That is your team play.

Mr. Kettering. That is the team play, and it works out very well
because everybody is assured something every year.

Dr. Anderson. What would a bonus look like, say, for last year?

Mr. Kettering. I can't tell you.

Dr. Anderson. It doesn't apply to a particular project that has
been consummated.

Mr. Kettering. No; what they do, they give the laboratory a
bonus depending upon what they think we have done.

The ChairivI^n. I like that phrase of yours, Mr. Kettering, about
team play. It suggests to my mind the desirability of putting a lot
more people who are at the bottom of the social scale on the team
so that they will benefit equally, or at least to some extent, from the
wonderful progress of technology. I think it will wtork both ways.

Mr. Kettering. Most of us came from there anyhow.

CONCENTRATION OF ECONOMIC POWER 16311

EFFECT OF PATENTS ON INVENTION ^

Mr. O'CoNNELL. Mr. Kettering, I would like to ask you a question
or two relative to the patent system which has, as I understand it,
the general purpose of promoting progress in science and the useful
arts. I wondered if you had any view as to the importance of exist-
ir.g patent laws as regards the type of invention you have been
describing, so-called group activities.

Mr. Kettering. I think if there is any modification in the patent
laws, it ought to be made by the patent department and, say, the
patent solicitors, and that sort of thing.

Mr. O'CoNNELL. I understand they would do it. I thought you
might have some views on that.

Mr. Kettering. We are celebrating tomorrow the one hundred and
fiftieth anniversary of the first patent law that Washington signed
150 years ago. You never get anything perfect, but I think our
patent laws are pretty good.

Mr. O'CoNNELL. It is a fact, if I understood the testimony, that
the type of invention that you have been describing is more or less
on the increase, the cooperative activity by large organizations.

Mr. Kettering. I think it would have to be. For instance, on a
complicated thing like that injector, we had to have the expert
metallurgist, expert physicist, and all that. There wasn't any one
of those fellows that could have done that job.

Mr. O'CoNNELL. Wouldn't it be the fact that organizations such
as yours would function and continue to operate even if there were
no such thing as a patent system?

Mr. KmTERiNG. So far as patents concern an organization like
ours, I think they are only important from one standpoint, and that
is 01 preventing other people from coming in and saying they did
the thing, so you have to patent a lot of things as a protective thhig.
I think patents still have an enormous value from the standpoint
■of the inspirational effect they have on people, and certainly for the
small concern they are vital, very vital.

Mr. O'CoNNELL. Addressing ourselves solely to the type of organ-
ization you have been describing, it occurred to me that even in the
absence of any patent laws at all, the mere force of competition in
the industry would probably require the type of organization you
have been describing.

Mr. Kettering. I imagine so, yes; but I am a terribly optimistic
person on what can be done if we get coordinated right, if w^e get
the thing understood as to what our problems are. Only 10 years
ago we didn't have enough people to supply the job and I think we
can do this job. I say, if we have brains enough to get out of the
cave, I think we can keep from going back in.

The Chaiioian. That is a very hopeful statement.

Mr. O'CoNNELL. I don't want to press the point, Doctor, but ap-
parently organizations such as yours would undoubtedly continue
to function and would be forced by competition to function even
were there no patent laws.

Mr. Kettering. We don't run our organization for the purpose
of taking out patents. We think only of the general problems. And

*Por general discussion of this subject see lleaiings, Part 2.

16312 CONCENTRATION OF ECONOMIC POWER

I would like to say, if any of you are out in Detroit any time, we
would be glad to have you spend a day or an hour, whatever time
you have, to take a look around and see how it is done.

The Chairman. I shall take advantage of that.

Mr. Kettering. It is quite different when you see it from how you
talk about it, when you see what foolish little things we have to
work on to get a link cleaned up.

The Chairman. Doctor, have you given any thought to this ])rob-
lem of coordination which you have just mentioned?

Mr. Kj^ttering. We have thought about it a lot.

The Chairman. Do you want to testify about it?

Mr. Kettering. No, no. It hasn't crystallized in any specific thing.

The Chairman. Don't you think vre ought to try to crystallize it ?

Mr. Kettering. Well, I am doing that. I think within our own
industry we have it pretty well worked out.

The Chairman. That is true. There can be no question about that.
The record of General Motors demonstrates that.

Mr. Kettering. But we are working very closely with educational
institutions and everything else, and we are trying out a few experi-
ments this, that, and the other way, and I think some of these days
we will have something that we can give you, at least a program, at
least something to prove wrong, and I haven't it crystallized enough
to lay that on the table for you today.

Mr. Pike. Of course the production department is here again a
little bit impatient for results.

Mr. KErTTERiNG. I think that is a good stimulating thing. I have
no objection to the impatience of the production department.

Mr. Pike. There is one thought I had in mind. As a small part
of this coordination you spoke of interindustry cooperation-:— and
it occurred to me the development and commercializing of ethyl
fluid, perhaps, was a fairly good example of cooperation between
yourselves, du Pont, Standard of Jersey, and Dow Chemical — there
must have been research by all of those organizations in one way or
another to make that thing go.

Mr. Kettering. Well, for instance, you take the one particular thing
in that; when we started to make that material the total production
of bromine in the world was only 600,000 pounds, and Ave couldn't
think of starting anything unless we had at least 2.000,000 pounds a
year. I had to go and bargain my shirt almost to get the Dow
Chemical Co, to drill the necessary salt wells to produce the bromine.
We knew we couldn't continue that, but there is 1 pound of bromine
for every 10 tons of sea water; that is 1 part to every 20,000. We
have a plant at Wilmington, N. C, taking 43,000,000 pounds of bro-
mine out of the sea this year. That couldn't have been done by any
individual. We just had to have it, because that was the only supply
of bromine that was available in that quantity, and you see that is a
very small percentage, 1 part in 10 tons.

Mr. HiNRiCHS. Mr. Chairman, I would like to come back to your
question for just a moment on the bonus at the bottom of the heap.
That sometimes shows up in the form of larger wage incomes, but I
am thinking of the situation in which the bonus on invention is often
the specific displacement of a particular group of workers, or of a
particiilirT individual as the process changes. Your phrase is that
through these men, without giving dissatisfaction, industries are rev-

CONCENTRATION OF ECONOMIC POWER 16313

olutionizod. A revolution of any sort may be a very necessarj thing,
but it is inevitably a very disturbing thing in the area in wliich it
occurs.

In the Bureau of Labor Statistics, Congress set up what it called
an occupational outlook service, and I am interested in the problem
of the point at which it is jiossible to visualize the changes which are
coming so that they lend themselves to planning by business execu-
tives, by trade-unions, by those who are concerned with the operation
of an industry in an effort not to stop progress but to minimize the
dislocations which are inherent in this revolutionary process.

Now, is it possible at the stage when one of these machines leaves
your laboratory as demonstrating the practicability of the principle
or the fact that a principle will work — is it possible at that stage to
forecast even api)roximatelyj not in detail, but what in general the
area of the impact of that upon the technological structure will be?

Mr. Ketteking. No. Take the Diesel engine. We made the Diesel
engine without any regard to where it would go. It went in the
railroad industry first, and yet nobody would have anticipated that,
and nobody even predicted it. As Mr. Harriman said, they tried it
out purely as a means to see if they couldn't do something to have
people look at a raiiroad train again, and the fact it was a success
was as much a surprise to them as to anybody else.

The Chairman. Sort of a matter of general research in the begin-
ning?

Mr. Kettering. Yes.

Mr. HiNRicHS. At what stage did it become possible to see where
this was going, what its impact was going to Be?

Mr. Kettering. It isn't even evident yet what it is, and 5 years
ago — to show you how you can't tell — we didn't have a plant to
make the Diesel engine, and we bought a piece of ground outside of
Chicago, out at La Grange, 111, We built a little plant. there for
three hundred people and broke ground just 5 j^ears ago now\ We
have between 3,000 and 4,000 people working directly in that plant,
and perhaps 5 times as many working indirectly in it, and nobody
could predict from year to year what was going to happen, and we
can't do it today. We haven't the slightest idea what that business
is going to be..

Mr. HiNRicns. Do any of jour principles and does any of your
work affect the production practices of your own establishment?

Mr. Kettering. We have nothing whatever to do with any pro-
duction problems.

Mr. HiNRiCHS. That work is all in the engineering, designing, and
research division of the operating companies?

Mr. KETrEKiNG. That is right.

Mr. HiNRiCHS. And it is at that level you would have to work if
you were trying to anticipate change in the going occupational
structure?

Mr. Kettering. Yes.

CX>ST OF industrial. RESEARCH

Dr. Anderson. Getting back for a moment, Mr. Kettering, to this
cost of research, you indicated in your own division you sy)end
approximately $1. 500,000, and the total General Motors expenditure

124491 — 41— pt. 30 0

16314 CONCENTRATION OF ECONOMIC POWER

would be approximately ten to twelve millions of dollars. If it
could be assumed that other large units in this business would spend
correspondingly, it would appear, would it not, that it cost a great
deal to carry on the day-by-day research necessary to produce an
automobile ?

Mr. Kettering. Yes.

Dr. Anderson. Would you hazard a guess as to what effect that
would have on the smaller units within the business? Is it true that
that is an advantage so large that it would be a hindrance of smaller
business?

Mr. Kettering. No; they can buy those units — they can buy prac-
tically all that stuff on the open market.

Dr. Anderson. They can buy what you produce in your research
laboratory?

Mr, Kettering. Yes ; as soon as it gets into production.- There
is a great advantage in having a large company put it on the market
first. For instance, this hydromatic transmission we are putting on
the Olds this year is quite an expensive thing and is being worked
out. We have got up to a production of a couple of hundred a day
now, but the independent transmission manufacturers have an article
for sale almost exactly like that.

Dr. Anderson. In other words, you would say it works just in the
contrary way?

Mr. Kettering. I would say it doesn't work either one way or the
other. In other words, the automotive industry has never been very
.tight on patents. I mean, we have never triecl to hold exclusiveness
at all.

Dr. Anderson. Wlio takes out the patents, your division or the
corporation from the operating side?

Mr. Kettering. We take out the. patent in the name of some indi-
vidual, whoever originated the project.

Dr. Anderson. Your division takes it out?

Mr. Kettering. Or the company, the General Motors Corporation
under the name of the particular fellow.

Dr. Anderson. And what about intercompany use of patent rights?

Mr. Kettering. That is always done.

Dr. Anderson. One more question. From 1920 to '30, the econo-
mists quite generally in the literature regard the automobile as having
been largely responsible for a generally high level of employment and
general prosperity, and you have indicated that there is a lack of
projects, of new areas of performance which need to be explored and
made practical. Do you anticipate in the decade 1940-50 anything
comparable to the automobile?

Mr. Kettering. Xo; I haven't, but we started one in this railroad
business, the Diesel engine business. That has grown pretty healthily
and we are feeding in new things all the time. The length of time
that it takes an industry to become an important factor is around
10 or 15 years, and you never can tell when you start them out how
far they are going to go.

But you take the aviation industry. That is only 36 years old.
It started when they made the first flight. Its development has come
in the last few years because we have learned how to make engines,
and thinjTS like that.

CUINCKISIKATION OF ECONOMIC POWER 16315

So I tliink all yon have to do, if wo can n:et everybody to under-
stand that he on<;ht to po ahead, tluvt the thing should be done —
but a lot of people are pretty glooriiy today.

The Chaiuman. The common assertion is that we may not- look
confidently for a boom through the development of aviation as we
did through the development of the automobile, because the auto-
mobile was obviously much more suited to universal use than the
airplane.

Mr. KETTEinxG. I think that is true. But yoit take things like
radio. There were great contributing influences on employment.

The Chairman, Because the radio can be used by the masses of the
people.

Mr. Kettering. The interesting thing about radio is that the de-
velopment of the parts that go into radio has made possible doing
a lot of other things that never could have been done abstractly.
So the interrelation of these things can't be anticipated at all.

The Chairman. It has been said that the building of the railroads
contributed to the era of prosperity after the Civil War because that
construction made a demand for almost unlimited quantities of mate-
rial, for labor, and for capital ; and then the development of the auto-
mobile industry and the development of the radio ihdusti-y likewise
had a very beneficial effect ui)on general prosperity.

As a research expert, do you see anything to take the place of
railroad development, motor development, radio development, in
anything ?

Mr. Kettering. Yes; I do.

The Chairman. What do you see?

Mr. Kettering. I think in these new^ types of locomotives that you
could perhaps re-do to a large extent the method of railroad trans-
portation.

The Chairman. That would be rehabilitation of the existing roads?

Mr. Kbhtering. And when you go around, you .can go around the
second ttioe. You take housing — certainly many of the new factors
being developed in other industries w^hen applied to housing, are
tremendous. In fact, I think that is one of the big things. When I
speak of air conditioning, I mean the control of humidity and tem-
perature the year arouncl, not just the summer time. That is little
understood, and that is going to have a tremendous effect which we
haven't broken open yet, you see.

The Chairman. Are there other questions. Dr. Anderson?

Dr. Anderson. No.

Tlie Chairman. Any other members of the committee?

LOW-PRICED automobiles

Mr. HiNRiCHS. I have just one. This is a chart which was intro-
duced yesterday referring to income levels in American life.^ You
are talking about new industries. I would like to call your attention
to the fact that the automobile industry itself has on several occa-
sions become a new industry by digging deeper into the going struc-
ture. That is, prior to. 1914, you were selling automobiles generally
in the $5,000 income class and above. That is that very thin, long,
white line with about 800,000 families in it. Then during the war

' Sec "Exhibit Xo. OHS, " supra, p. o440.

16316 CCJNCENl RATION DF ECONOMIC POWER

you dug down in the next level of 1,500,000 families, in the $3,000
bracket. At the present time, the automobile industry has, of course,
done a magnificent job in supplying transportation to the American
people, but a relatively small percentage of the population in the
income levels where these -families are concentrated still has auto-
mobiles.

Take the* group, for example, from $2,500 down to $500; in that
group some 50 percent of the families have automobiles — a much
higher proportion at the higher income levels, something like 10
percent in very old cars at the lower income levels.

Now, there is an opportunity for the development of a new indus-
try, if there is any way to furnish a larger proportion of these people
at the lower-income levels with cars, either by raising their incomes,
which puts them into a ditferent class, or by lowering prices and costs
in such a way that that group can be served in precisely the same way
that the automobile industry has heretofove reached down and bored
deeper into this population that becomes denser, the further down
you go.

Now, is there any prospect, in terms of the research work, as you
see it, in the automobile industry, of digging more deeply than we
now have?

Mr. Ketfering. That wouldn't be a thing that would contact us.
That looks to me more a matter of engineering, economics, manufac-
turing facilities, and so forth.

Mr. HiNRicHS. That is, you pass the ball to other members of the
team, quite properly?

Mr. Kettering. It doesn't belong to us anyhow, you see. That is,
if we should accidentally discover a new way of developing power,
something like that, that would make the automobile cheaper, then
that would immediately pass over to us, but as the thing stands today
we haven't anything — that is, we have gone around this circle many,
many times; in other words, the automobile consists of an engine,
transmission, axle, and so "forth. Every one of those we have been
around dozens and dozens of times to see if it is possible to break
what we might call the conventional points of view in it, and, of
course, we go far afield in that, but none of them have been fruitful
of anything, because you remember there have been 60 or 65 million
motorcars made, aiid there has been an awful lot of engineering done
on that particular thing. That is, your chance of changing specifi-
cally to any great amount the present type of motorcar isn't very
great, only by such radical changes as fuels, metallurgy, and things
like that, and, of course, thoy are being followed right up to the last
minute.

Of course, there are 2% used cars sold in the market for every
new car that is put out, so you have quite a large production of rea-
sonably low-priced cars.

Mr. HiNRicHS. The chances, then, of a very much greater extension
of automobile production for complete servicing of the people with
cars, so far as scientific possibilities are concerned, seems to depend
upon the distribution of income rather than on the cost of the car?

Mr. Kettering. That is as our knowledge stands today. I wouldn't
say our knowledge we get tomorrow or day after tomorrow wouldn't
help', but we know what our limiting factors are today, and we

CONCENTRATION OF ECONOMIC IX)WER 16317

haven't been able to push any of them over. We are working at
them all the time.

Dr. Andkkson. Automobile trade publications make much of the
fact that after the periixl of sharp reduction in delivered price of
automobiles that came, say in the early '30's, when it began to flat-
ten out, we had a period in which you engineers built more quality
into the car.

Now, will this quality improvement ever suffice to do what Mr. Hin-
richs has suggested? Will it not continue to keep that big buying
group in the lower part of the pyramid using old cars?

Mr. Kettering. I don't know. Of course, the adding of radios
and heaters, and that kind of stuff, which is apparently what the
public demands, we don't try to follow at all over in our place.

Mr. Pike. Of course, if you ever got anywhere with your fuel
problem, you would have some sort of an answer to this. I think it
is a fair statement to say it costs as much to run a $50 car, of tvhich
there are a great many

Mr. Kettering (interj)osing). I agree with you.

Mr. Pike. xVs it does to run a new $600 or $700 Chevrolet or Ford
or Plymouth, and I believe it would be a fair guess that it is the cost
of operation rather than the first cost that keeps a great many families
in the lower bracket from owning car^.

Mr. IvETTERiNG. I told you fuels and motors are the two ^o. 1
problems, and have been ever since (he research laboratories were
organized.

Mr. Pike. You get us 200 miles. on a gallon and there will be a
whole lot more peoj^le able to own and oi)erate a caiL

Mr. Kettering 1 can't promise that today.

The Chairman. Are there any other questions?

Dr. Kettering, we are again very much indebted to you for an in-
teresting and stimulating discussion.

(The witness, Mr. Kettering, was excused.)

The Chairman. Is theie to be a session this afternoon?

Dr. Anderson. Mr. Chairman, unfortunately, William Green, who
was to have been here this afternoon, was unable to be here so there
will be no session so far as we are concerned.

Tomorrow morning we will have Mr. Edsel Ford, and in the after-
noon, Mr. Thomas, U. A. W. A. They both definitely said they will
Ije here, and unless we get a later annoniu'ement we know they will be.

The Chairman. The connnittee will stand in recess until 10:30
tomorrow morning.

(Whereupon, at 12:30 ]). ni.. a recess was taken unlil Wednesday,
April 10, 1940, at 10:30 a. m.)

INVESTIGATION OF CONCENTKATION OF ECONOMIC POWER

WEDNESDAY, APRIL 10, 1940

United States Senate,
Temporary National Economic Committee,

WdsJi'mgton, D. C.

The, committee met at 10:40 a. m., pursuant to adjournment on
Tuesday, April 9, l^^O, in the Caucus Ilooip oenate Office Build^iiiy;-,
Senator Joseph C. O'Mahoney, of Wyominji:, presiding.

Present: Senators O'Mahoney (chairman), and King; Representa-
tives Sumners (vice cliairman), Reece and Williams; Messrs. Davis,
O'Connell, Hinrichs, Pike, Kreps, and Brackett.

Present also : Frank H. Elmore, Jr., Department of Justice ; Com-
missioner Charles H. Marsh, Federal Trade Commission; George E.
Bigge, Social Security Board; and Dewey Anderson, economic con-
sultant to the committee.

Tlie Chairman, The committee will please come to order.

Dr. Anderson. Mr. Chairman and members of the committee, on
tliis third day of hearings we are* fortunate in having Mr. Edsel
Ford, president of the Ford Motor Co., Mr. R. H. McCarroll, who
is seated in the middle of the trio, engineer of the chemical and
metallurgicjil divisions of the Ford Motor Co., and Mr. H. L. Moekle,
auditor for the Ford Motor Co. These three gentlemen have kindly
consented to come and share with us their knowledge of the techno-
logical processes in the Ford Motor Corporation. Mr. Ford has sub-
mitted a statement to the committee which Mr. McCarroll, I think,
will read. It was in answer to questions directed to him concerning
technology and his answers are contained in the statement which he
is prepared to enlarge upon at the committee's pleasure.

Bx'^vond that, however, he is also here to tell that very important
story of the change-over from one model of Ford production to
another, which involved the building of the Rouge plant, so that
we have two aspects of the Ford Motor Co.'s testimony, one their
response to questions directed to them on the problem of technology,
and then following that Mr. Ford's contribution concerning the re-
tooling story and its implications.

Mr. McCarroll will i)roceed with the statement of the Ford Motor
Co. with respect to these particular questions.

STATEMENTS OF EDSEL FORD, PRESIDENT; R. H. McCARROLL,
ENGINEER, CHEMICAL AND METALLURGICAL DIVISIONS; AND
H. L. MOEKLE, AUDITOR, FORD MOTOR CO., DETROIT, MICH.

Mr. McCarroll. The information set forth hereunder is compiled
for the use of the Temporary \ational Economic Committee of the

16319

16320 CONCENl'IlATION OF ECONOMIC POWER

Congress of the United States, created pursuant to Public Resolution
113 of the Seventy-fifth Congress, and is intended to be submitted
in this form and to be made a part of its records of the hearings
•during the period of April 8 through April 19, 1940, on the subject
of Technology and Its Relationships to Economic Recovery. The
information is compiled in accordance with an outline suggestive
of the scope and character of the hearings attached to letter dated
January 24, 1940, from the Temporary National Economic Commit-
tee addressed to Mr. Edsel B. Ford and -signed by Mr. H. Dewey
Anderson. Examples are given from plant operations in some cases
better to illustrate the statements made.

The Ford Motor Co. has pioneered m the contimuil development
of labor-serving and labor-saving machinery. With such machinery
and technological improvements it not only has been able to lower
costs and make more desirable products but it has helped to increase
employment.
'Question 1, on the effect of investment :

What is the effect of technological change on the use of new cap-
ital?

Answer, In the operations of the Ford Motor Co. technological
change in the way of improvements calls for the continual investment
of new capital. A recent and good illustration of this is the develop-
ment and use of a new type of cylinder liner which is now being
introduced and made a part of the product. At present (March 1,
1940) this is taking 12 men off the former type cylinder work, but
is adding 386 men to the work in the manufacture and installation
of the new part. In 60 days the added employment from this new
development, which improves motor operation, lessens the amount
of oil used, and decreases maintenance cost to the owner, will be
about 500 men. The capital expenditure to equip the factory for
this job so far has been about $880,000. The total expenditure by
the Ford IMotor Co., for new and improved machinery, together with
the necessary buildings, during the year 1939 was about $36,000,000.

Question 2. To what extent has technological change become related
to the size of an industry and its control of substantial capital ? Is
it true that the complexity and cost of modern techniques place them
beyond the use of small independent business, thus giving an advan-
tage to multiple-unit industries and monopolies?

Answer. It is true that some technological changes in the line of
improvements and new developments require much time and money
and therefore, it is believed, can be done more readily by large indus-
tries. Many improvements probably would not be put to use except
for the facilities of large industries, especially where their effective-
ness depends upon large production. It is necessary at times to
spend hundreds of dollars a day over a period of years before a new
method or article can be put in production. The improved Ford
crankshaft and method of making it is a good example of develop-
ment of this type.

It is not believed technological advances are beyond the use of
small independent businesses, as this company always has taken ad-
vantage of such advances. Many ideas for new developments can
be worked out by individuals o^- small businesses. As an illustra-
tion, mention may be made of new mechai ical devices or new plastic
materials and parts. Work of the kind ihat the Ford Motor Co.

CONCENTRATION OF ECONOiMIC POWER 16321

is doings on the industrial use of farm products would be in this
class. Reference is directed to pao:e -1, chapter 5, Background 1940
Census by Department of Commerce, Bureau of the Census, on "Cash
Crops For Use In Industry," where it is stated :

The 1940 Census will carry an important message to the farmer ip the
measure of the increased industrial use of his i)roducts. An example: Soybeans
were first imported in 1804 but it was not until 1910 that there were enough of
them to show in the census report. Since then the acreage has jumped to morf
than 6,000,000 acres, mostly as a result of expanded commercial use. They are
utilized for everything from oil and paint to automobile accessories; to bread
for humans, and food for livestock.

Question 3. "WTiat are the effects of patent rights on technological
development ?

Answer. Patent rights can be used or misused. When used as
they are by this company, they help to advance development. Every
attempt is made to develop their widest use at the lowest possible
cost.

When patent rights are held by those who make no effort to put
them to good use, they may retard development. However, when
considering modification of patent rights, there must not be over-
looked the incentive given to thought and work and development by
the possible compensating returns from proper use of patent rights.

Question 4. What would happen if technology were freely devel-
oped^ Wliat retards use of available technological devices? Are
we slower or faster than we should be?

Answer. It is assumed that "freely developed" in this case means
"without patent rights." If this is so it is believed this question is
answered by the reply to question No. 3.

It is believed the use of some devices is retarded by the fear of
capital to make the necessary investment under the present limiting
conditions, whereby it shares in all the losses but in little of the
profit. The chances against success are too great. Too, the theory
of scarcity (to which this company does not subscribe) rather than
that of plenty is another retarding factor.

Usually, full use is slower than desired. Some advances come as a
series of intermittent or gradual and continual steps to the final total
improvement desired. It is estimated that the time in general be-
tween the conception of an idea and its use in practice is from 1 to 5
years.

Effect on labor:

Question 1. What is the effect of technological change on the vol-
ume of production, the number of workers employed in that pro-
duction, and the vohnne of wages paid?

Answer. It is believed that the effect of technological change (im-
provement) has been and will be to increase the volume of produc-
tion, to increase the number of workmen, and to increase the volume
of wages paid.

The amount of pay roll and purchases per Ford, Model T, with its
about 5,000 parts, in 1926 was $454.42.

The amount of pay roll and i)urchases per Model A (the 4-cylinder
car which succeeded the Model T in 1927) with its about 6,000 parts
in 1929 was $526.84.

16322 CONCENTRATION OF ECONOMIC POWER

COST OF LAROR WITHIN THE FORD PLANT

Mr. McCarroll. The amount of pay roll and purchases per Model
V-8 (which was placed in production in 1932), with its about 16,000
parts, in 1939 was $683.23.

The Chairman. I notice that you combine pay roll and purchases.
Have you any figures on segregating those two items?

Mr."McCARROix. Not in this particular report. We combine them
for a very definite^^-eason, because the purchases total up to hours
of work, and if you don't include both of them you don't get the full
story.

The Chairman. What do you mean by purchases ?

Mr. McCarroll. All material purchased outside and going into
the car.

The Chairman. Is there any way of segregating the two?

Mr. McCarroll. They are segregated in our records, but we haven't
segregated them here because we believed they would be much more
informative if we gave them together.

Tlie Chairman. You do know what the difference is?

Mr. McCarroll. Yes ; it is in the company records.

The Chairman. Could you tell me approximately what proportion
this figure, in each of the two instances, was for labor alone?

Mr. McCarroll. I haven't that figure here. Mr. Moekle says that
Tv^e don't have that figura here. It is in the records.

The Chairman. I understood that 'you didn't have it. I won-
dered if you could give an approximate figure.

Mr. Ford. We would be glad to furnish it. Senator.

The Chairman. You don't care to make an approximate figure ?

Mr. MoEKLE. The reason we haven't got the figure, and it may be
a little difficult to get, is the fact that at different tim?s the volume
or the work done inside our factory changes. It goes from inside the
factory to outside and from outside to inside.

The Chairman. I can understand that, but T thought for example
you could say whether or not of this sum in 1926, of $454.42, for
example, 50 percent was labor, or 60 percent, or 70 percent. You
are probably familiar enough with your figiires and 3^our accounting
to give us some notion.

Mr. McCarroll. You will find a figure coming a little later which
will give you amount of purchases per unit during two different
8-year periods, and I think we can get the figure you are after by
comparing that figure'with the figure we have just given you, which
amounts to about the figure that Mr, Moekle is talking about now,
about 25 percent inside and about 75 percent outside.

The Chairman. Of labor ? Of course it is obvious that when you
purchase any material to be used in a motor there must be labor
costs combined in that purchase price, because it took labor to pro-
duce the commodity or the article somewhere else.

Mr. MoEKLE. Roughly about 25 percent of these figures represents
labor in our own plants and about 75 percent represents the price
paid for materials, services, and so on from the outside.

The Chairman. Would you say that that proportion held true in
1929 and also in 1939?

Mr. MoEKLE. Roughly.

CONCENTRATION OF ECONOMIC POWER 16323

The Chaikman. In other words, the proportion of labor in the
factory apparently remains about the same.

Mr. MoEKLE. Yes.

The Chairman. Thank you.

Senator King. And there m a gi-eat deal of labor, however, is there
not, in the })roduction of what might be called raw material? For
instance, as I understand, the corporation owns coal mines and min-
eral depoits and oj^erates those, and the costs of labor in obtaining
the^e raw materials would be pa^-t of the cost, or the entire cost, of
the product.

Mr. McCarroll. You can really figure every cent paid out goes for
labor in one form or another.. Figure it all the way back in any
material— transportation

The Chairman (interposing). Actually, cost of labor is a very large
factor in every step of the industrial process, isn't it?

Mr. McCarroll. You can reduce practically all of it to labor if you
want to go back far enough.

Dr. Anderson. Just to retouch the question that Senator O'Ma-
honey has asked, does the modern Ford plant, say the Dearborn
plant, do more of its production than the old Ford plant?

Mr. Ford. Do you mean by that that many more parts of the unit
are manufactured by ourselves?

Dr. Anderson. Proportionately, what would it look like? You
say you have about the same labor cost, your purchases and produc-
tion within your own units are about the same now as they were
formerly ; but isn't it true that in this intervening period you have
integrated your plant tremendously, so that appreciably more of your
product is made under your own roof ?

Mr. Ford. That is true. We have taken on a great many inore
parts.

Dr. Anderson. Does that mean that you have bought more and
more on the outside? Your total is greater now than it was?

Mr. MoEKLE. Yes ; but the proportion in the total is approximately
the same,

Mr. Ford. There is one factor in that that may be illuminating,
and that is the fact that there are about 16,000 parts in fhe car we
make today as compared with 5,000 parts in the car we made in 1915.

Dr. Anderson. So you continue to buy on the outside about the
same quantity of equipment and materials.

Mr. Ford. I coulcln't answer that offhand as to quantity but we buy
a great amount of material on the outside. We have between 5,000
and 6,000 suppliers.

The Chairman. "What would the answer be in terms of parts them-
selves ; for example, of the 5,000 partes of the Model T Ford in 1926,
what proportion were manufactured by the plant itself, and what
proportion were purchased from outside?

Mr. Ford. I don't think I can .answer that in accurate figures,
Senator, but in general there were many more parts purchased on
the outside at that time compared with today; we purchased many
more things on the outside which we did not make any part of
ourselves.

The Chairman. You purchase more outside today, more of the
16,000 than of the 5,000. Did I understand you correctly?

16324

CONCENTRATION OF ECONOMIC POWEK

Mr. Ford. I don't believe so. Wluit I meant to say was that we
purchased a great many more parts on the outside in the earlier days
than we do now.

The Chairman. A larger proportion of the 5,000 parts of 1926

Mr. Ford. Were purchased on the outside. .

The Chairman. Than of the 16,000 today ?

Mr. Ford, That is right.'

Mr. McCarroll. Records show that during the past 6 years, both
the labor and the purchases per automotive unit produced by Ford
Motor Co. have steadily and substantially increased. For example,
during the two 3-year periods ending February 29, 1936, and Novem-
ber 30, .1939, the average daily production was almost identical, but
average labor-hours performed in the factories increased consider-
ably. The details are as follows :

Period

3 > ^ars ended —
Feb. 29, 1936- .
Nov. 30, 1939.

Average daily
production

3,276
3,267

Total hours

448, 947, 000
507, 294, 000

Average hours
per unit

179. 13
201.95

Mr. Hinrichs. In that connection these are total hours in all of
your plants for that volume of assembly, I take it?

Mr. McCarroll. Total hours in the Ford Motor Co. only for that
number of units, and then averaged over the number of units pro-
duced during those two periods wliicli were selected because they
were alike in the volume of production, so you could get a good
comparison.

Mr. Hinrichs. During part of that latter 3 years there was a tire
plant that was producing part of your tire requirements?

Mr. McCarroll. That is true.

Mr. Hinrichs. That extension of your activities would be included
in that' larger number of hours?

Mr. McCarroll. That undoubtedly accounts for part of that dif-
ference there, but when you consider the figures we mentioned before
when we include both purchases and hours within the plant, and
dollars for this plant, you will see why we used that combined figure
as being the more important and the more imformative one, because
it takes out of all consideration just points such as you just raised
then.

Mr. Hinrichs. I judge from your earlier answers that on balance
you feel you are doing about the same proportion of outside pur-
chasing in these two periods. Would that be correct?

Mr. McCarroll. I believe that is true. Furthermore, the follow-
ing figui*es also taken from the company's records, for 6 calendar
years, clearly show that accompanying the increase in the average
h8urs of labor per unit there has been a gradual increase from year
to year in the labor cost per unit produced. These figures are the
more significant in view of the fact that even in 1934 the minimum
daily wage paid by Ford Motor Co. was $5, the minimum being
raised to $6 the following year :

CONCENTRATION OF ECONOMIC POWER 16325

Labor cost
Calendar year : per unit

1934 $119.41

1935 130.01

1936 — ^ 145.24

1937 160. 99

1938 190.39

1939 197.84

Dr. Anderson. Mr. McCarroll, just at that point, may we go back
to the previous question. Your labor cost per unit is per unit, such
as the vehicle. I understand you have gone into extensive tire produc-
tion. You have developed a foundry; you are doing more of your
own rolling of steel. If you took out all those things for all years
in the trend would you still hold that the cost per vehicle for labor
is greater now in the Ford plant than formerly ?

Mr. McCakrolx,. Yes, sir.

Dr. Anderson. Could you give an approximation of the amount?

Mr. McCarroll. No; I can't; without the figures.

Dr. Anderson. Could you supply us with such a figure? It is a
very important one, if we can get it.

Mr. McCarroll. Mr. Ford says he would be glad to. The figure
is here.

Representative Reece. But the amount of labor required to produce
the unit would be the same, whether it was done in your company or
done in another company from which you purchased.

Mr. McCarroll. Approximately. The thing that influences that
increase is, of course, the thing Mr. Ford mentioned a minute ago, that
every year there are added parts, not only a few but a great many,
and that is the thing more than anything else that is affecting the in-
crease in labor-hours going into the car and in money cost of the car.

Representative Reece. But based upon your experience the amount
of labor required to produce the parts is approximately the same
whether the parts are produced in your plant or some outside plant
from wliich you purchase the parts?

Mr. McCarroll. As a general rule that would be true. Of course it
would be affected by the efficiency of the equipment that two people
ndght have.

Repr-^-sentative Reese. What I have in mind, and what I am driv-
ing, at is in a general way the amount of labor that is required to
produce a unit.

Mr. McCarroll. That would probably be on an average quite true ;
yes.

proportion of skilled to unskilled workers

Mr. HiNRiCHS. These figures I understand represent the total num-
ber of man hours of labor required by an increasing number of parts
and the average hourly earnings of the workers engaged in that process,
and your wage rates have obviously increased in this period. I am
interested also in the change in the internal composition of the labor
force, irrespective of its relationsliip to wage rate. For example, lias
there been a tendency not only within this period but over a longer
period of t-ime, to decrease the proportion of skilled workers and in-
crease the proportion of semiskilled and unskilled?

Mr McCarroll. I think you will find there are some questions di-
rected toward that answer later on, and suppose we cover it by ou»"

16326

CONCENTRATION OF ECONOMIC POWER

answers there and if that is not sufficient, why then we will be glad to
try to answer further.

Mr. HiNRiCHS. I am sorry to have anticipated you.

Mr. Ford. I think there is one jDoint that might be added on that
subject which might clarify that in a very simple wording, and that is
the fact that the average or lower minimum rate has remained more or
less static. Our average wage has gone up consistently, indicating
more skilled pay.

The Chairman. I didn't hear that statement, Mr. Ford.

Mr. Ford. The question was asked as to whether the labor cost of the
car was paid out to more highly skilled workmen, or whether, due to
the improvement of processes, we were employing more unskilled
labor.

The Chairman. And what was your answer ?

Mr. Ford. My answer to that was that our average wage is on the
increase continuously. That would indicate these men are becoming
more skilled and are receiving higher rates.

The Chairman. Then the answer would be that skill is increasing ?

Mr. Ford. More skilled men are involved at the present time than
in the past.

Dr. Anderson. Mr. Ford, would your consistent average increase in
wage rates indicate a change in the composition of skills used or
would it mean simply in the over-all increase in wage rates, regardless
of skill ? How do you make the direct connection between the wage-
i-ate increase average and the increase in skill of workers employed?

Mr. Ford. The lowest rate, our minimum rate, applies to only the
most unskilled labor, sweepers, cleaners, and common labor. Every
ether classification of rate is based on skill. These men are classified,
based on the skill of the job. Now, of course, the trend has been
upward for the last several years; the general scale is on the upward
turn.

Dr. Anderson. You would say two things are at work ; the average
wage rate in your opinion is moving up and also the composition of
3^our labor force is altering with more skilled workers employed,
relatively 2

Mr. Ford, yks; I would think so. There is less hand labor and less
unskilled labor involved and more semiskilled.

Senator King. With these improvements upon your car, of course,
it calls for a larger proportion of skilled labor, I assume, and that

Mr. Ford (interposing). Yes; the fit and technique is becoming
more complicated and involved all the time. We are putting things
into our product which will make for a great deal longer life. All
those things are highly technical and highly developed, which calls
for more skill.

Mr. MoCarroll. The foundry department is noted for the vast
amount of technological improvement and installation of so-called
labor-saving machinery. Therefore, it seems of interest to present
below, figures on the number of men employed in this department in
the years listed, showing also amount of production at those times.

Tinner

ProductiOl

Number
of men

Men per
car

Year

Production

Number
of men

Men per
car

1933

414, 953
1, 193, 121

2,345
6,311

0. 0057
.0053

1937

1930 .-

1,117,241
803, 751

7, 330
6, 310

0 0066

1935

.0079

CONCENTRATION OF ECONOMIC IX)WER 16327

The Chairman. Wliat is the unit of production?

Mr. MoCarroll. The unit of production is in the foundry where
there is a number of motors produced during that period.

The Chairman. This, then, refers to the production of motors?

Mr. McCarroll. This refers to the production of motors.*

The Chairman. Thank you.

Would it be a proper inference that the increase of men per car in
1939 is due rather to the decreased production than to *:he difficulty of
production?

Mr. McCarroll. It undoubtedly has something to do with it, but
the thing we luive mentioned before comes into it there; for instance,
in the foundry we cast a great many of the motor parts. In that
year we started putting, these valve-seat inserts into intakes as well as
the exhaust. Well, now, that iust doubles the number of those parts
that we make every day and there are a good many other parts that
come under that same kind of heading.

The Chairman. So both factors would operate?

Mr. McCarroll. Both factors would operate.

Dr. Anderson. There must be a third factor. Supposing you put
in a column on hours worked so as to get at the actual technological
etfect of change; the hours must have been changing during this
period of time?

Mr. McCarroll. Yes.

Dr. Anderson. It is true that your over-all number of men in-
creased there, but the difference in working time would have an
unusual effect, a decided effect upon that last column of men per car ?

Mr. McCarroll. That would go back to the figure which we have>
used in the case of the whole plant, of the number of man-hours per
unit. We stated this in a slightly different way here, and we stated
it in the other way in the case of whole units because this would be
interesting information.

Dr. Anderson. And could you supply us with the man-hours for
this particular division?

Mr. McCarroll. We could.

Dr. Anderson. That would fit into a column there. Also, is there
any way of measuring under this tabulation, not on the basis of
motor production but on the basis of the product of this particular
division of the plant, so as to get at the measure of technological
increase?

Mr. McCarroll. Yes, sir; it would be possible to get that.

Representative Reece. And, Mr. Anderson, if he supplies that
information, might it not also be helpful if he would supply .the
lalx)r cost: ?

Mr. HiNRiCHS. Would the figures for the assembly line for the
assembling of the motors show the same story that your foundry
story has; that is, this, like any other partial piece of work, repre-
sents a changing situation with respect to your materials purchased.
As those are increased and decreased, obviously your own hours show
a similar change?

Mr. McCarroll. Yes.

' In a Iptter dated April 20. 1940, from the Ford Motor Company, Mr. Moekle says,
reeardini; this table, "The iinit of production is cars produced rather than motors, as
Mr. McCarroll stated. Ilowevpr, the theory under which we we.e working called for
the production of car*,' and we believe our use of cars rather than motors is better."

16328 CONCENTRATION OF ECONOMIC POWER

Mr. HiNRicns. Your assembly of the engine has always been clone
within your own establishment. Does the assembly line for engines
show the same results, or could you supply similar figures for the
assembling of engines?

Mr. McCarroll. Usually it would show the same result.

INIr. Ford. 'I don't quite get the drift of the question. As I under-
stand it, the question is whether in the assembly of motors there is
more stability to the cost per man, or the man cost per motor as
compared with the complete car, as these figures show.

Mr. HiNRicHS. Well, I wasn't thinking of it in relationship to
the complete car, but rather as possibly a more clean-cut illustration,
less subject to variations in terms of what you were purchasing on
the outside. Obviously every time you shift your practice with
reference to the foundry department, as you manufacture internally,
3'our hours or man-days go up. As you purchase on the outside, they
go down. Your assembly on the other hand has throughout this
period been done completely within the confines of your own com-
pany, and I was wondering if the assembly of engines would show
this same kind of relationship you have here.

Mr. Ford. There are more parts being added to the engine all the
time, which would tend to increase the labor cost per engine, I sup-
pose, due to refinements. As Mr. McCarroll mentioned, the bush-
ings that go into the seats of the valves, these cylinder liners that we
are putting in now, wdiich are very hard steel liners, and go in all the
cylinder barrels, and various things like that weren't in an engine
10 years ago. That keeps adding to the cost of that assembly for
additional parts.

Mr. HiNRiCHS. And similar things have added to the costs of the
manufacturing operations in the foundry?

Mr. Ford. Oh, yes.

Mr. HiNRiCHS. You have been processing more parts in the
foundry. None of these exhibits are intended to indicate that a
given part i-equires moje man-hours on higher labor cost today?

Mr. Ford. Probably they require less man-hours, but the product
becomes more and more complicated all the time and there are more
parts being added.

Mr. HiNRiCHS. I understand that.

Mr. Ford. And the refinement is becoming greater.

Senator King. As I understand, many of the parts which are
involved in the construction of an automobile you purchase from
other manufacturers of parts, if not entire plants. I assume you
can't control the costs of those commodities that you purchase from
other people?

Mr. Ford. Those costs are controlled by competition. We have
several sources for practically every part we buy.

Senator King. But some of the parts which from time to time you
purchase from other persons you have to pay higher prices for by
reason of the competitive demands, and that necessarily increases
your aggregate cost?

Mr. Ford. Naturally.

Senator King. For the car ?

Mr. Ford. But if those prices on the outside increase there is some
basic reason for it which would perhaps apply to other things we
buy. and also to our owii.

CONCENTRATION OF ECONOMIC POWER 16329

I'he Chairman. What has been the trend of prices of the outside
parts ?

Mr. Ford. That varies with the design. If we were buying today
the part that we bought 10 years ago we would be buying it at a
very much lower price probably than we bought it at that time ; but
the fact is that we are buying an entirely different type of part,
which goes into a different vehicle.

The Chairman. Then the price tends upward because of the im-
provement, does it?

Mr. Ford. The price per unit is upward, yes; and the price per
part. If the same type of part were being bought today that we
bought 10 years ago, the tendency would be that we are buying it
probably at a less price than we did then because of refinements in
manufacture.

Senator King. But you are making better cars and with better
parts?

Afr. Ford. Spending more time on parts; better raw materials
going in, which cost more, and much better finish ^ much more inspec-
tion.

Senator King. And the finished product calls for more technologi-
cal improvement and higher costs with respect to some of the parts
that go into the car?

Mr. Ford. A great deal.

Senator King. And what is the effect upon the final price to the
consumer ?

Mr. Ford. Well, the price trend has been somewhat up as compared
with the old model T and model A, which we built, but it is still
competitive.

The Chairman. It is a much better car ?

Mr. Ford. Competitive; the whole trend is that way. No longer
what you might call a very low-priced motor car. The public ap-
parently demands lots of room and lots of power.

The Chairman. Of course, your company was the pioneer in the
low-price field?

Mr. Ford. Yes.

The Chairman. And you are still in the low-price field, of course,
although the tendency of the price may be upward because of the
improved character of the car?

Mr. Ford. The whole field has risen. The whole low-priced field
has risen; the price of the vehicle.

The Chairman. But still the level of price is lower than before
the pioneering effort of your father began; isn't that correct?

Mr. Ford. The level of the price is higher. You mean when large
volume started? Oh, yes; surely.

The Chairman. And the reason why it was possible to produce the
original Ford car for a low price, in other words, the reason that your
father was able to pioneer in this field was that he was able to tap
a much larger market than the high-priced car could tap ?

Mr. Ford. Oh, quite, and that was only possible with low prices.

The Chairman. So that after all the basic cause for the expansion
of the industry has been the lowering of the price to reach a larger
number of possible purchasers?

Mr. Ford. That is right.

124401 — 41— pt. .?0 ^10

16330 CONCENTRATION OF ECONOMIC POWER

The Chairman. So that the market is the essential factor in the
growth of the industry?

Mr. Ford. That is quite correct.

Dr. Anderson. If that is true, Mr. Ford, and in the light of your
statement of a moment ago that there is no low-priced car in the
sense of the earlier product of your father, what do you -think is the
prospect of a new car in the low-price field that will fill that gap,
that will reach that purchasing mass we have been speaking of who
cannot at the present time buy even the low-priced new cars ?

Mr. Ford. There have been several factors that have entered into
that problem since the day that we built a very low-priced car. The
first one was that those cars were being sold to original owners to a
great extent, to people who hadn't owned a motorcar before. In the
meantime they purchased that car and many others, and have created
a used-car field, used-car market. Now the used car is merchandised
by a dealer, and his market for that used car is the man who formerly
bought a new car in that very low-priced field. He is in the' $200 to
$400 class for a used car.

Dr. Anderson. You leave the person with low purchasing power the
used-car field rather than attempting to provide him with a new unit,
giving him all the efficiency of a new unit?

Mr. Ford. That is the way it exists today. We have hopes that
some day we will have a low-priced unit again that will supply the
purchaser with a new car at a lower price and a more efficient opera-
tion than in the past.

Dr. Anderson. Is there any technological reason why that hope
couldn't be realized shortly?

Mr. Ford. None whatever, except the question of buying power,
whether there is a sufficient volume of buying power in that field to
warrant a low-priced product which can be. produced only in large
volumes.

A $500 automobile

Dr. Anderson. In other words>, if you could see a market for 1,000,-
000 to 2,000,000 cars a ye^fr, say at $500, you could produce the cai ?

Mr. Ford. We could produce the car all right; yes.

The Chairman. Now just to repeat what I understand you to have
said, an increased market for technological advance depends upon
an increase of purchasing power; is that correct?

Mr. Ford. Mass purchasing power.

The Chairman. Mass purchasing power?

Mr. Ford. I believe so.

The Chairman. That is the essential need for further technological
improvement ?

Mr. Ford. I believe so.

Mr. McCarroll. In the Ford Motor Co.'s exhibit at the New York
World's Fair, there was in operation a display illustrating how
machinery creates employment. Perhaps this may have been seen
by members of the committee. There, side by side, a man was pound-
ing out hub caps by the slow hand method and a mighty progressive
machine was stamping them out with great rapidity. The man made
one piece while tlie machine made 2,160 pieces, and at first glance
it would seem that this machine might eliminate 2,159 jobs, but a
study of the figures proves otherwise.

CONCENTRATION OF ECONOMIC POWER 16331

Representative Reece. Will you. permit a further interruption? I
am interrupting to refer particularly to the summation which the
chairman made. He stated that the ability to make a low-priced
car and sell it would depend upon mass purchasing power, but what
would the effect be- if our standard of living had been raised so
that when this mass purchasing power came about the people de-
manded a better car than was the case when you produced your
original low-priced car? Would it then result in the production of
a new low-priced car or an increased volume of cars comparable to
the present so-called low-priced cars?

Mr. Ford. We feel there is always a field way down below that
everybody in the world wants a motor car. It is a question of
being able to afford it, and we feel the lower the price of a motor car
adequate for general use, the greater the market will be. If the cost
of living, the standard of living, had been higher — you. mean if it
were highe than it is today or had been higher in the past? I
didn't quite get which you meant.

Representative Reece. I might state it this way. We have a greater
mass purchasing power today tlian we did when your father pro-
duced the original low-priced cars, but with this mass purchasing
power is going a demand for a better car, for better service, which
you are supplying in accordance with the demand?

Mr. Ford. Yes, that is true. We are supplying the demand as it
exists today among the class of people that can buy new motor cars.
There are strata underneath buying used cars. We feel that if a
low-priced new car were produced to fit that price class they would
buy tliose cars rather than the used cars, because of the increased
efficiency. Tliere is still a great mass of buying power underneath the
present standard.

Representative Reece. I agree with you in that statement.

Dr. Anderson. Mr. Ford, then I take it that the future of the auto-
motive, the new car building, industry at the present time, unless you
can tap a new consuming public, is inseparable from the sale of old
or used cars?

Mr. Ford. ,It is inseparable because those old or used cars exist and
they have to be disposed of. The unfortunate part is that the dealer
lakes them in as part allowance on his new car. If the dealer could
make a clean case deal, or clean deal without the itsed car being in-
volved he would be a lot better off, perhaps, than he is, because he
takes those i^sed cars in and it is somewhat of a gamble as to the
salability of them. He either fixes them up, or sells them as is, and
t iiere is an element of risk involved and the tendency is to over-allow
sometimes on that used car.

The Chairman. Tlnit is wholly the risk of the dealer, isn't it? It
isn't passed on to the manufacturer?

Mr. Ford. The dealer takes tliat risk, entirely.

The Chairman. He is the judge of how much he shall allow and
he takes the gamble as to what disposition he can make of the used
car?

Mr. Ford. That is right. Of course, there is a great amount of
skill involved in that in apprr.ising these cars.

The Chairman. Oh, naturally.

Mr. Ford. But the sales factor has a loi to do with it, too. If the
salesman has a deal about ready to break and there is a question of

16332 COKCENTRATION OF ECJONOMIG POWER

$25 or $50 l)etween the appraisal of this used car and what the owner J
expects from it, well thei*6 is sometimes a compromise and the dealer 1
therefore makes the sale but he gives up part of his gross profit.

NEW VERSUS REPIiACEMENT CAR MARKET

Dr. AjsIderson. Mr. Ford, following up that question I asked a
moment ago, I notice in the Autom,ohile Foots a/nd Figures recently-
published the heading of a table that spans a long period of time, ^
showing that in the last year, 1938, the replacement market took all
of the new cars sold in the United States. In other words, new cus-
tomers in the over-all, people who did not own cars, did not appear
in the ehops in sufficient numbers to offset the replacement market.
They balanced. Everybody coming in turned in a car in order to
buy a new one. Now, if that becomes a trend, does that offer any
hazard .to the market for new cars in the United States?

Mr. Ford. It may.

The Chairman. Do you agree with that premise, Mr. Ford? 1
thought I saw Mr. McCarroll shaking his head.

Mr. Ford. I don't know what those figures are.

The Chairman. The statement as I gather from Dr. Anderson is
that the original purchaser has apparently disappeared from the
motor market. Is that true?

Mr. Ford. Well, I wouldn't think it were true 100 percent; no.

Senator King. That can't be true in view of the fact that yo^j,
just a day or 2 ago turned out your twenty-eight milliofith car.

Mr. Ford. Mr. Moekle said 15 to 20 percent don't turn in cars.

Mr. MoEKLE. I don't know the exact figures but we do know some
percentage, 15 or somewhere around there, of what we call clean
deals, that is purchasers come in and buy cars without trading in
an old one.

Mr. Ford. Those people may have disposed of their car before the
deal, before they came^to the dealer for a new car.

The Chairman. But the replacement factor is a constantly in-
creasing one, is it?

Mr. Ford. Increasing problem. Until a new field is tapped by
lower prices.

Mr. HiNRiCHS. At lower prices, the market now is certainly not
saturated. You wouldn't contend there is a saturated market?

Mr. Ford. I wouldn't, by any means. As I said before, everybody
wants a motorcar. It is a question of whether they can afford it. If
you lower the price, the greater the field.

Mr. HiNRiCHS. About one-third of the families at $900 to $1,200
buy a car; about half of those at $1,200 to $2,000 have cars; so that
at lower prices there is a presumption of a vast untapped market,
isn't there?

Mr. Ford. I believe so.

Mr. HiNRiCHS. Now, development of the Ford Motor Co. in recent
years has been in the direction of tapping that market through lower
prices and lower costs?-. Or have they been rather in the direction
of giving the existing mattet a better product at essentially the same
price, slightly highipF Slightly lower?

CONCENl^RATION OF ECONOMIC POWER 16333

Mr. Ford. The latter is what we have been doinfr of late. We
haven't attempted, of course — we naturally wish to reduce the cost
of the car as we can, but we are not taking parts off the car to do
it. We are adding all the time to tlie ref^iement of the car, because
we feel that is the car that is in greatest aemand at the present time.

The Chairman. The table which Dr. Anderson referred to is taken
from Automobile Facts and Figures^ published by the Automobile
Manufacturers Association, twenty-first edition, for 1939, and this
table would indicate that in 1930, '31, '32 — in those 3 years, there
were no new buyers and multiple car owners and that the replace-
ment market took up all of the cars sold in the domestic market;
that in 1934, '35, '36, and '37 new buyers appeared again in increasing
proportion but disappeared wholly in 1938.

Mr. Ford. 1938 was a bad year; 1937 was good; and 1939 was much
better than '38.

The Chairman. It would appear from this table that the disap-
pearance of the original purchaser is accounted for by the poor years.

Mr. Ford. I should think so.

The Chairman. In every other year there is a substantial original
purchaser market.

Mr. Ford. Yes.

Dr. Anderson. It might be added that the chart show5> and figures
tend to bear out the fact, that while the trend is not constant
downward trend of new purchasers, there is a tendency that cor-
roborates your point that somebody has to find some way of tapping
new purchasing markets for low-priced cars.

Representative Reece. If the present car owners, however, were
unable to trade their old cars in, that is, if the market was not avail-
able for the used cars, they themselves would use their cars for a
longer period of time and not buy as many new cars as they do at
this time ?

]Mr. Ford, I believe that is true, and then when he did dispose of
them he would have to dispose of them at a lower price.

Representative Reece. Dispose of them at a lower price or they
would go to the junk heap?

Mr. Ford. Any introduction of a new low-priced car will have a
very drastic effect- on the used-car market. It will tend to lower
the whole range of used cars definitely.

Representative Reece. And from the utility standpoint many of
the used cars which are taken in by the companies are very useful.

Mr. Ford. They are useful?

Representative Reece. Yes.

Mr. Ford. They are transportation, but they are not sufficient
transportation, as the new car is perhaps.

The Chairman. You don't expect to have him say the used car
is as good as a new car?

Representative Reece. I included the words "had a high utility
value." They give us luxury and comfort that our old car didn't
have, if it is only 1 year old; although our old car is 1 year old, and
we feel the urge for a new one, it still runs very successfully and gets
us back and forth without any difficulty, so strictly from utility
standpoint it serves the purpose.

16334 CONCENTRATION OF ECONOMIC POWER

FEASIBILITY OF LOAVER-PRICED CAR

Mr. HiNRicHS. Mr. Ford, you mentioned the fact that the used-
car market might be seriously disturbed for a period of, I take it,
several years during a transition to a really low-priced car. Has
that factor played an important part in your considerations as to the
businesslike feasibility of introducing a low-priced car at any time?

Mr. Ford. It has been one of the factors that we have considered
right straight along. I don't think it would perhaps stop us from
producing a job of that kind when the time comes, because w^e feel
that perhaps a situation of that kind might take care of itself. There
will be some losses involved, of course, but there will be greater
profits and greater benefits wdien the thing has stabilized itself and
w^orked itself out. It isn't an element that prohibits us fronl doing
it. There have been many other factors besides that one.

Mr. HiNRiCHS. Technically, you can do the job?

Mr. Ford. I believe so,

Mr. HiNRiCHS. What is the chief inhijjiting factor?

Mr. Ford. We have felt with the vast number of unemployed peo-
ple and the depressed state of the farmer, and so forth, that there
perhaps wasn't the buying power for that type of car that there
might be later on.

The Chairman. The chairman intervenes now, noting that Mr.
McCarroll has read only a small portion of the original statement.
Perhaps we might expedite the presentation if we permit him to
])roceed and then we will ask the questions later on.

Mr. MoCarroll. Tliank you. The automatic machine produces this
part at about $0.12 each, but there was spent $115,000 for the ma-
chine and dies.

The first point to consider is that machinery begins to create
employment before it goes into production. Divide the cost of the
press by a day's wage, say $7, for every dollar of material cost is
ultimately reducible to someone's work. At this rate the press and
dies represent 16,428 days work.

Next consider making the article by hand. A man can be equipped
with hand tools for $24. This would seem to be a big saving over
the $115,000. But the $24 must be multiplied by 2,160 which would
be $51,840. Then there would have to be a factory to house those
2,160 men wdiich would cost at least $500,000 for the building and
land, and about $83,000 per year for maintenance, heat, light, and
taxes, making- a total of $634,840. Now, as a practicable business mat-
ter, such a development could never be realized, but imagine that
this were done and that the hand worker could turn out 2.7 parts
in an 8-hour day, then the part would cost about $2.50 each, as against
$0.12 on the machine. If this practice were followed throughout
all the manufacture of an automobile, it is calculated that the cost
of making a Foi'd car "yvould exceed $17,000. At sue i a cost, not
more than about 50 cars a year would be sold. There would not
be work for more than 1 of the 2,160 men, none for most of the more
than 125,000 men now in the Ford industry alone.

Could this be avoided by paying for the hand work just wht't
it would be worth by comparison? Hardly, for under that arrange-
ment a man on this job would earn about $0,18 per day.

CONCENTRATION OF ECONOMIC POWER 16335

Three million men are normally employed in making, selling, and
servicing cars, because, with machinery, cars can be* produced at
prices people can pay. And that, in turn, creates jobs at wages that
enable people to buy. The cars, the jobs, the wages would not be
there, were it not for machinery.

Some who object to machinery still think they have a point. They
say "We'll grant that we, need the machinery we have now, for
it has created most of the jobs there are toda}'. But let's not have
any more. Let's freeze things as they are and keep the jobs we
have." In the opinion of this company's management, that again
nhows a lacl of understanding of the w^ay things work. There is
no point in enying that manufacturing costs are constantly cut by
taking certa.n men off certain jobs because better machines have
made those men unnecessavy on those particular jobs. But that doe-
not mean that the total number of jobs has been permanently de-
creased. The Ford Motor Co. has been cutting costs for many years,
but as has been shown, there are many more man-hours of work in
today's Ford car than in the model T or model A, Cutting costs
enables the company to put more in the car, and it takes mo're men
to put it there.

In the following cual figures comparing 3 separate 12-month
periods which had l similar average daily production, it will be
observed that there has been a progressive increase in both the total
hours of labor and in the average hours per automotive unit pro-
duced.

Period

12 months ended-
Jan. 31, 1935.
Apr. 30, 1938
Nov. 30, 1939

Average
daily
pro-
duction

3,074
3.115
3,069

Total hours

146, 373, 000
168, 790, 000
173, 668, 000

Average

hours

per

unit

186.74
211.64
220.18

With regard to purchases the following figures from the company's
records for the same two 3-year periods referred to earlier show that
during the same time that labor hours and labor cost per unit were
increasing, the amount of purchases per unit produced also was
increasing.

Period

Average
daily

produc-
tion

Purchases

Pur-
chases
per
unit

3 years ended—

Feb. 29. 1936

3,276
3,267

$1,198,609,000
1,259,242,000

$478.24
501.30

Nov. 30, 1939

The.se purchases were exclusive of those for plant facilities.
Here, reference is suggested again to the Government publication.
Background 1940 Census, page 4, chapter 4, but it- is asked that the

16336 CONCENTRATION OF ECONOMIC POWER

whole text be read, rather than just the heading "New Products Hurt
Old Ones" which seems misleading.

For instance while certain silk fabrics declined from 386,000,000 square yards
in 1927 to 109,000,000 in 1937, rayon fabrics advanced from 66,000,000 square yards
to 947,000,000 square yards.

This shows a net gain of 604,000,000 square yards.

Electric stoves and ranges more than doubled while gas cooking stoves and
ranges declined only slightly. Electric clocks rose nearly 50 fold in 10 years while
other clocks declined by half.

And on page 5 —

Probably no figures in the manufactures census tell more as to the changed
habits of Americans in transportation than those having to do with automobiles,
carriages, and wagons. Jn 1904 we made only 20,000 passenger motor vehicles but
then we made 937,000 carriages, buggies, and sulkies. In 1937 we turned out
3,847,000 passenger motor cars and only 900 buggies. Horse-drawn wagons
reduced from 644,000 in 1904 to 108,000 in 1937 and motor trucks rose from a
production of 160 to 602,000.

Many other figures can be gotten from this Government Publication
which, it seems, further justify opinions expressed herein on the sub-
ject under discussion.

It is also suggested that note be taken of Mr. Justin W. Macklin's
(First Assistant Commissioner of Patents) article in Nation'' s Business
for January, 1940, under the title, "Labor Saving Machines Make More
Jobs."

Question 2. What does the size of industrial unit, the type of owner-
ship or management, and the kind of industry have to do with the
rate and character of technological change?

Answer. Regarding size of unit, you are referred to the answer to
"Effect on Investment" — question No. 2.

Regarding type of ownership, it is believed that results may be
much more quickly accomplished where efficient compact management
is demanded and developed and such management is given a free hand
than where, due to an unduly complicated corporate structure, much
red tape must be gone through before a development may be started
or carried through.

Regarding the "kind of industry," it is preferred to confine re-
marks herein to experiences in this company for obvious reasons.

Question 3. What kinds of technological change result in perma-
nent displacement of workers?

Answer. This company has no knowledge of any technological
improvement that has resulted in the permanent displacement of
workmen, in the sense that generally cooperative willing workmen
cannot thereafter find employment. If there are isolated individ-
uals seriously affected, undoubtedly they should be and can be com-
pensated without impeding for the use of civilization generally the
great benefits of new developments.

Question 4. How many and what kinds of workers are displaced
by technological changes in particular industries, and what becomes
of them?

Answer. As far as this company's information goes, there is no
Icnown permanent displacement of workmen in this industry, as
under normal conditions they are absorbed in jobs created by one or
another technological change.

CONCENTRATION OF ECONOMIC POWER 16337

Question 5. What is the annual vohune of technologically dis-
placed workers in particular industries? What is the aggregate
effect of technological displacement on the labor force employed in
these industries?

Answer. In this industry there has been no permanent displace-
ment.

Question 6. What is the effect of technological change on occupa-
tional skills, indiA^dual earnings, and social-economic status of
workers?

Answer. The technological change has increased occupational
skills, increased individual earnings, and improved the social-ecQ-
nomic status of workers.

Question 7. What is the effect of technological change upon var-
ious age groups and sex groups of workers?

Answer. Teclniological change has made possible the use of men
older and with less physical strength. This company has use for
very little female labor.

EFFECr ON SOOTETY

Question 1. Wliat are the effects of technological development in
the "one-industiy town?"

a. On employment.

h. On pay rolls.

c. On community agencies and activities.

Answer. As some members of the committee may already know,
the Ford Motor Co. has 14 small plants located within a radius of
60 miles of Dearborn, in an effort to help rural communities by the
decentralization of industry where possible. This is its only direct
contact with "one-industry towns." Wliere technological change has
affected these plants, it has been found both convenient and desirable
to make arrangements to maintain or increase the amount of labor
in those places.

TECHNOLOGY AND MIGRATION OF INDUSTRY

Mr. McCarroll. Question 2. With technological change having
made possible standardization of industrial processes, what is the effect
on the migration of industries? What causes these migrations ? How
do they occur? "Wliat do they leave behind them in the way of social,
economic, and human gains and losses? "WHiat do they accomplish in
these respects in their new location ?

Answer. This company has had little direct contact with the migra-
tion of industry. So that its industry at Iron Mountain, Mich., might
not '"migrate" from there when the average amount of wood decreased
from about 850 pounds per car to 34 pounds per car, other jobs, such
as tlie station wagon assembly, were moved to our Iron Mountain plant,
stion 3. What is the extent and character of the bidding made
by States and localities for the transfer of businesses? Is there need
for economic and social policy to mitigate or eliminate the undesirable
features focuul in this situation?

Answer, No experience has been had with the bidding of different
localities for transfer of business. In a few instances benefits offered
locally to any new industry have been received, but the decisions to

16338 CONCENTRATION OF ECONOMIC POWER

establish this company in such places were dictated by other consid-
erations.

Question 4. How successful are public and private agencies in meet-
ing the problems of vocational training and placement, retraining and
replacement of workers?

Answer. At the company's main plant, it maintains its own train-
ing schools with more than 2,000 students. This has been advantageous
both for the students and the company.

Question 5. Is technological development resulting in degrading or
upgrading of workers ? In either case, what is the effect on purchasing
power and standards of living ? Is there need for the formulation of
social policy in this connection ?

Answer. It is believed technological development is resulting in up-
grading of workmen. It makes for increased purchasing power and
increased standards of living. The laws of cause and effect and the
natural desires of businessmen and employees for improvement from
every social angle are accomplishing this without a formulated social
policy.

Question 6. How successful are the various industrial plans for
spreading work, annual income payments, wage-and-hour adjustments,
in-service training, intraplant shifting, etc., in adjusting the labor
force affected by technological change?' Is there need for legislation
along these lines?

Answer. It is believed that this company has been very successful in
these matters under the conditions, and that it will continue to improve
its handling of them. The company strives to lead in improvements
along these lines. It does not believe that new legislation is necessary
or helpful tothese ends.

Concerning Ford plant extension and replacement, the records show
an outlay for the past 6 years of $169,152,000. Plant equipment
scrapped or otherwise disposed of amounted to $96,682,000. Yet, at
the end of 1939 after these important improvements in plant were
made, employment by the company, for a like volume of production,
slood at a 10-year peak of approximately 125,000 men. During the
years 1927 to 1929, inclusive, the compajiy's annual gross outlay for
replacement or expansion purposes ^\ns $36,000,000.

It is believed that the foregoing comparative figures taken together
establish definitely that employment by Ford Motor Co. during the
past 6 years has not been affected adversely by any possible technolog-
ical reaction. On the contrary, the company, even with improved
working facilities, has steadily employed more men, paid out more in
wages, and purchased more materials per automotive unit produced.

The Chairman, Do you care to ask any questions now. Dr.
Anderson ?

COST OF PRODUCTION AS MEASURE OF EFFECT OF TECHNOLOGY

Dr. Anderson. "Well, Mr. Ford, before moving over into this very
interesting retooling story, I would like to ask two or three questions
concerning parts that we covered here and didn't ask questions about.
In answering the question as to the effect of technological change on
the volume of production, the number of workers employed in that
production, and the volume of wages paid, you listed 3 periods of
time and the number of parts used, and each period showed an

CONCENTRATrOX OF KCOXOMTP IMWER 16339

increase in tlie anioun( of pay rolls and purchases of cars. The last
statement is, ''The amount of ])aY roll and ])urchases per model V-8
(wliich was placed in production in 1932) with its about 10.000
parts in 1939 was $G83.23." What is that, the V-8 "60" or the V-8 "85"?

Mr. FoHD. I couldn't say as to that. There is very little difference.

Dr. Anderson. So there won't be any significant difference in one
or the other?

Mr. MoEKLE. It is a composite.

Dr. Anderson. Then I take it the $G83 means the total cost in
terms of pay roll and outside purchases, but not in terms

Mr. Ford (interposino;). All purchases for ))roduction.

Mr. MoEKLE. It is not the cost per car. It is the amount of
purchases and pay roll per unit produced.

Dr. Anderson. Per car produced.

Mr. MoEKLE. Which includes, of course, materials that are resold
or sold-as service parts. It wasn't possible to segregate that.

Dr. Anderson. What proportion of your total production would
that be?

Mr. Ford. Service parts?

Dr. Anderson. Would it run anything like 15 to 20 percent?

Mr. Ford. It runs about $10,000,000 a month, but I can't tell you
what it is in number of parts.

Mr. MoEKLE. I suppose 10 or 15 percent is somewhere near.

Dr. Anderson. Then, in other words, to get the production cost of
that car you would have to deduct parts and accessories sold for
replacement or sale on the outside.

Mr. Moekle. Yes. This wasn't made with the intention of sliowing
the cost |)er unit. Ii was made to show the trend of purchases of
labor and materials per unit.

Mr. Ford. More and more going into the unit as years go on.

Dr. Anderson. It goes beyond that. If there are 10 to 20 percent
of accessories in here,-the unit basis of production will not be a suitable
one for determining change over a period of time. You would have to
take out this element.

Mr. Ford. Those parts are all manufactured ; they involve labor.

Dr. Anderson. But they don't involve labor on that particular car.
The measuring unit is a bad one at that point, isn't it?

Mr. Moekle. We thought it was all right.

Dr. Anderson. I want to lead you to a curious point, then, if it is
all right. Your cost here is $683, and according to the Federal Trade
Commission's report your V-8 "60" at that time was selling for $666,
f. o. b. your factory.

Mr. Moekle. This is not the cost.

Di'. Anderson. So your costs were above your f. o. b. selling price.

Mr. Ford. This is not cost. This is a lump sum of all the material
and labor for a given period, divided by the number of cars, and we
only did that for comparative reasons. It has nothing to do with the
actual cost of the car at all.

Dr. Andfj^son. And to get at the actual cost of production y(ui
would have to proceed in quite a different way?

Mr. Moekle. Somewhat different; yes.

The Chairman. What are the differences which produce the dif-
ferent fi'nire? If we are not to regai'd this as cost, why not?

16340 CONCENTRATION OF ECONOMIC POWER

Mr. MoEKLE. The diflFerence is, altogether, that this includes all
purchases and all pay rolls, and a certain amount of the purchases and
pay rolls goes into service parts, parts that are sold, service parts and
accessories that are sold separately from the car.

Mr. HiNRicHS. This would also include, I take it, materials put into
inventory for the time being ; that is, all material purchases during a
calendar period.

Mr. M0EKL.E. It would.

The Chairman. There is no duplication?

Mr. MoEKLE. There is no duplication.

Mr. HiNRiCHS. Suppose the proportion of your repair parts or re-
placement parts, and your invenfory within a calendar year, wotild
change from one period to another. They are not constant. There
may have been a higher proportion of repair part production in 1938
than in 1929, with which you are making a comparison.

Mr. MoEKLE. If inventories were proportionately different ill one
period and another, it would make that difference.

Mr. HiNRicHS. Actually, in 1939 you were somewhat building up
inventory, weren't you, in anticipation of 1940?

Mr. MoEKLE. I don't think so.

Mr. Ford. Not abnormally.

Mr. MoEKLE. Not abnormally. We don't have accurate figures here,
however, on that point.

Dr. Anderson. My point, Mr. Ford, was that the question con-
cerned the effect of technological change on the volume of produc-
tion and the number of workers employed in that particular produc-
tion. To answer that question, we need some measure — some unit —
which eliminates as many fallacious elements as possible.

Using the measure you do, it would be possible that in your plant
you had gone into businesses quite removed from the production of
automobile units and thereby swollen your number of workers em-
ployed and the volume of wages paid. In other words, the character
of the business would have much to do with the figures in the over-all.
My point, therefore, is that only on the basis of some comparable
unit, such as actual motor cars produced, could we get at a measure
of the effect of technological change on volume of production or upon
the number of workers employed.

Mr. Ford. You feel that this example isn't quite an accurate one?

Dr. Anderson. I wonder if you consider it precise enough to get
at such a question.

Mr. McCarroll. Don't you think that in some ways it is better,
because, although sucli parts as the radios and heaters are included
undei' what we call parts sold separately from the car, they are a
very definite part of the car and a very definite part of the labor that
goes into the making of the car, and it is just those extra. things that
are being put on the car, both as regular production and as service, if
you like, units, that are helping to cause this increase in the amount
of labor in the car.

Dr. Anderson. In other words, you don't have any figures to show
what the trend with respect to replacement parts and accessories is.

Mr. MoCarroll. We haven't separated that figure in Here.

Dr. Anderson. You see it could reasonably be, Mr. McCarroll, as
there are more old cars on the market, that we have an increase in
replacement-part business that becomes a vital Dart of vour total

CONCENTRATION 0T< ECONOMIC POWER 16341

business. You say it already amounts to some $10,000,000 a mO.^th,
which would mean an appreciable part of the total.

Mr. Ford. It doesn't fluctuate very much.

Mr. BiGGE. Isn't there much more change over a period of time
due to the change in the model itself rather than the proportion of
total cost that is spent on the replacement parts, and so on, in con-
nection with your outstanding cars? It seems to me the major
change is in the character of the car that you are turning out.

Mr. Ford. The unit is building up all the time.

Mr. BiGGE. And you can't cojuparc today's costs of producing a
model T with the 1924 cost of producing a model T because it isn't
produced today.

Mr. Ford. Here is one instance which is rather illuminating. The
demand for remote-control gear sliift, which is up on the steering
wheel, has become universal, and we, as well as the rest of the indus-
try, have installed that method of shifting gears. Well, we used to
run a lever from the transmission directly up, with a ball on the end
of it, and you shifted the gears with it. But because of the engineers'
creation of this change and the popularity with which it was re-
ceived by the j^ublic, we have had to put this remote control on,
which requires 40 parts, compared with one or two parts, and yet it
doesn't function any differently than the old method did, but those
parts all have to be designed, tooled, and produced, which all adds to
this involved product which we are building today as compared to
the early days.

INCREASE OF DECREASE OF SKILL

Dr. Anderson. I am interested in more elaboration of the point
with respect to the upgrading of workers due to technological change.
Some people have labored under the impression that once a belt-line
conveyor is installed you get a semiskilled to unskilled level of
worker doing almost automatic things. I can remember a Charlie
Chaplin film in that respect.

Your testimony is quite the reverse; that as technological innova-
tions increase in a large institution such as youri?, the proportionate
number of skilled workers in the labor force increases.

Mr. Ford. I don't think you can quite call them skilled workers,
but the standards are increased, and of course you have to take into
consideration the fact that all these devices and machines, the ma-
chine tools that are built and designed for this so-called technologic^ "
change for greater efficiency, all require the highest type of skill
manufacture those machines.

Dr. Anderson. Those would be the tool and die makers. What
proportion are they of the total labor force?

Mr. Ford, They are about 10 percent of our total direct labor.
We have perhaps 40,000 to 45,000 men on direct labor, and 4,000 to
5,000 tool makers.

Dr. Anderson. About 10 percent of the total, then?

Mr. Ford. Of course, they are not considered direct labor, though. .
But you are asking the proportion.

Mr. HiNRiCHS. That .comes back to the same question that I was
asking earlier. I would expect an increase in the skill in any par-
ticular occupational level, more skill among your semiskilled work-

16342 CONCENTRATION OF ECONOMIC POWER

ers, for example, as you improved your process, but would it be
possible to indicate what has happened to the proportions of the
groups of workers that you would regard as skilled workers, as
opposed to semiskilled, in three quite distinct periods, say 1920, 1929,
and 1939? Is the proportion of skilled today as high as it was in
1929, as high as it was in 1920?

Mr. Ford. I don't believe I could answer that, offliand. I would
say that because of the refinement that goes into the product as com-
pared with 1920, for instance, the natural tendency is for those men
to all require more intelligence, or for us to require more intelligence
of those men, and they have to improve their skill.

Mr. HiNRiCHS. I am thinking of this sort of a situation : I am very
much interested in terms of the work that we are doing in the chang-
ing levels of occupational demand, and if it would be possible to
make a reasonable answer, not offhand but at some later time, with-
out giving you too much work, I would appreciate it.

Mr. Ford. We w^ould be very glad to make a study of that.

Mr. HiNRiCHS. Conceivably you might have 10 out of 100 skilled
workers today, and have had 15 out of 100 in 1920. The 10 might
be on the average a more highly skilled group than the 15, and yet
the change in that demand for skilled labor as a proportion of the
total is rather significant with reference to the changing occupalional
pattern. If you can throw further light for us

Mr. Ford (interposing). I would like to askJVlr. McCarroll or Mr.
Moekle if they can. I don't believe I can, offhand.

Mr. McCarroll. 'Wlien we were studying some of these questions on
here, while we didn't get those detailed figures to which you refer, we
had to keep in mind several things that are different in different de-
partments, but I think it will be very easily proved by these figures
that we are going to get lihat increase in skilled and semiskilled, and
we haven't had them separated in any way. For instance, the boys
coming out of the trade schools are making every year a much larger
proportion of the total number of men employed, and they are cer-
tainly much more skilled than their predecessors were.

Mr. HiNRiCHS. A second question along the same line : again, if it
can't be answered at this time, I would appreciate an answer later if
it is convenient. Are these people who are coming out into the skilled
jobs coming out with a highly specialized skill, or with an all-around
skill? Is the. proportion of those who have to have the all-around
skilled training increasing, or is it becoming a very specialized type of
skill?

Mr. Ford. I w^ouldn't think so from our experience. The men that
we are making in our apprentice schools, our trade schools, are men
that have a well-rounded-out experience in all types of mechanical
operations.

The Chairman. Would you say, then, that the effect is not to make
an automaton out of a man ?

Mr. Ford. Not in our business, we feel definitely.

The Chairman. So that the experience which the man gets in a
modern plant such as yours is such as to give him a well-rounded
mechanical knowledge and capacity ?

Mr. Ford. Yes, sir.

The Chairman. And could you switch him easily from job to job?

Mr. Ford. Very easily.

CONCENTRATION OF ECONOMIC POWER 16343

The Chairman. What type of skill is required of the individual
worker in tending these machines?

Mr. Ford. Average intelligence, not any great technical experience.
A machine-tool man requires a little training. They go into a de-
partment in many instances green.

The Chairman. We were discussing the skilled, and I was wonder-
ing just what type of skill is required of the worker beyond intelli-
gence to handle the machines,

Mr. Ford. Do you mean skill based on past experience, training skill,
skill from training, or education?

Dr. Anderson. From machinery.

Mr. Ford. Not a great deal.

The Chairman. Then what does the skilled worker do?

Mr. Ford. He is a different type. He is a toolmaker, a patternmakei-,
a jig and die-fixture maker.

The Chairman. And to what extent does the worker merely manipu-
late a machine and to what extent does he, by his own intelligence,
shape the product ?

Mr. Ford. The machine shapes the product. That is practically
automatic. He has the intelligence to put them on, to operate the
machine and not get caught in it, and that, I would say, would just
require average intelligence.

Dr. Anderson. Let me ask, what is the training period for an
assembly line worker to make him proficient?

Mr. Ford. The assembly line worker goes on the line as a green
man. I am assuming th-at he probably would get as proficient as
he ever will be inside of 30 days.

Dr. Antjerson. In 30 days he attains maximum efficiency?

Mr. Ford. That is on plain assembly. That has nothing to do
with machining parts.

Dr. Anderson. On machining parts, what would be the training?

Mr. Ford. You me^n on an automatic machine? I should think
a few days.

Dr. Anderson. And you wouldn't call the person working at pro-
ficiency in a few days a skilled worker?

Mr. Ford. Not a technically skilled worker; no. He is skilled at
the work he is doing.

Dr. Anderson. But he is not classed. generally as a skilled worker
in the plant?

Mr. Ford. No. As we all understand skilled work, that means
craftsmanship — toolmakers, patternmakers, die makers, and so on,
the highest class of employee we have.

SUPPLY OF labor

Dr. Anderson. Is there any oversupply or undersupply of workers
in any of the levels in which you demand workers? Can you get
all the workers you need?

Mr. Ford. We can get all the common labor we need. It has
been very difficult the last year or two to get toolmakers; pattern-
makers of the higher skills are in great demand.

Dr. Anderson. What is that due to?

Mr. Ford. It is due to the style change people want in a motorcar.
Detroit is the center of the motorcar industry and either the sales

16344 CONCENTRATION OF ECONOMIC POWER

department or the buying public seem to want a new facial front on
their automobile every year, and that requires a vast outlay for dies
and tools and new fixtures every year to comply with that. We
spend about $5,000,000 a year on just style changes.

Dr. Anderson. Do you propose, in your trade schools, to train
those very workers needed most?

Mr. Ford. Our trade school boys all come out technical workers
if they are so fitted mentally. Then we have an apprentice school
for employees who are older and don't go into the technical arts
quite as much, who come out more of the skilled assembler, garage
man, service man. He knows the motorcar, he knows the function
of the internal combustion engine, but he couldn't sit down and read
a blueprint and make a die or tool or fixture.

Dr. Anderson. Let me ask, do you see any prospect in the im-
mediate future, knowing the market as you do, for what would be
comparable to full employment in the automotive industry?

Mr. Ford. You mean by that, whether the market will increase to
the point where there would be full employment?

Dr. Anderson. You have overcapacity at the present time, do you
not?

Mr. Ford. We have ; yes. I think we are running three-quarters of
our capacity. .

Dr. Anderson. Do you see any prospect in the immediate future
of that thing being stepped up ?

Mr. Ford. I couldn't comment on that.

Dr. Anderson. You are not projecting?

Mr. FoRD". I really don't know.

Dr. Anderson. From a businessman's standpoint you are not mak-
ing any decisions of your own to occupy the whole plant?

Mr. Ford. No ; we are trying to build a product that will compete
and be as successful as we are able to do it, and we hope that they
will continually increase in volume, but there is no way of estimating
that.

Mr. HiNRicHs. Coming back to this question of the capacity of
your different groups of workers, the assembly worker, you have indi-
cated, is trained to full production in about 30 days. What general
requirements have you in hiring such a man? You indicated average
intelligence, and I suppose actually you aim at something a little
better than that if you can get it.

Mr. Ford. Yes ; we do. We naturally want to get the best type of
employee we can.

Mr. HiNRiciis. What about physical stamina ?

Mr. Ford. They are all given a physical examination for their
insurance and our insurance against occupational disease and that
sort of thing.

Mr. HiNRiCHS. The average worker on the assembly line now has
to work under very considerably higher tension than was true in the
earlier days of motor production.

Mr. Ford. Did you say tension ? I wouldn't think so.

Mr. HiNRiCHS. You would feel there was no greater tension now
than there was in the days of essentially hand assembly ?

Mr. Ford. I think parts fit together better than they did 20 years
ago. My own observation in observing the line is that the men seem

CONCENTRATION OF ECONOMIC POWER 16345

to have more leisure time, take it in a more leisurely manner, and
seem to know, what they are doing. There is no stress that I can see.

Mr. HiNRiCHs. Would it be your feeling, for example, that an aver-
age man over 45 would fit on any of your assembly linei, or that a
younger man would be more satisfactory?

Mr. Ford. I should think either would be satisfactory. We have
a great many men that are past the age of 45 who do any work that
is assigned to them.

Mr. HiNiiicHS. What has been happening to the average age of
workers in your plant ? Is your average age higher now than it was
in 1929, the age of the average worker?

Mr. Ford. I believe it is. ' We had some figures a while ago on that.

Mr. McCarroll. Mr. Cameron had some figures on that which he
used on the air, which showed there had been some increase.

Mr. Ford. That is my impression. I would have to verify that
before I would want to make a definite answer.

Dr. Anderson. I wanted to refer to the question of seasonality and
its effect upon production and workers. How sharp are model
changes in your plant? How long a period of time does it take to
make a model changeover, annually?

Mr. Ford. We usually consider approximately 2 months are in-
volved, but that means from the time the assembly line cuts down
until the new model is rolling off the assembly line. In the meantime,
the only people that are involved in that shut-down are the assem-
blers, but they, in turn, are starting to assemble the new product long
before it appears to the public before it appears in.th,e dealers' show
rooms, so that there is about a 2-months period until we start to get
settled, but that doesn't mean every man is unemployed for 2 months.

Dr. Anderson. What do you think would be the unemployment
period for the people involved in that changeover who are not perma-
nently employed?

Mr. Ford. I should think in a normal year about 30 days.

Dr. Anderson. Then they spend their 11-month pay over a 12-
month period of time. Is that about right?

Mr. Moekle. That would be about right. They would have to.

Mr. Ford. That is right.

Dr. Anderson. Wliat do you find them doing in the off months?

Mr. Ford, We try to brmg that period at a time when they can
do some gardening and get the benefit of the summer months. That
is usually from the middle of August to the middle of September,
or all of August.

Dr. Anderson. They do stay in the vicinity of the plant ?

Mr. Ford. Not necessarily. They may go off on a vacation. They
may take their families off to the woods. They look forward to it.

Dr. Anderson. Do you find, then, in this condition, labor turnover
of any substantial size as a result of a shut-down of that character?

Mr. Ford. No, sir.

Dr. Anderson. They come back?

Mr. Ford. Right away.

Dr. Anderson. Do you see any evidence at all of a halt in the move-
ment or migration of people? I understand that the population
studies show you people in the automobile area have pulled approxi-
mately 200,000 to 300,000 people from the South and Midwest to the
motor area. Is there any halt in that movement of people?

124491— 41— pt. 30 11

16346 CONCENTRATION OF ECONOMIC POWER

Mr. Ford. I really don't know. I should think so, but I don't know.

Dr. Anderson. Are there more people at the gates waiting and
asking lor jobs, or less than we have had during the trough of the
depression ?

Mr. Ford. In the past 18 months there have been less, but there
are still a great many looking for employment. There is still a big
welfare load in Detroit.

Dr. Anderson. Do you think, Mr. Ford, that that problem of the
unemployed is related throughout various industries? If, because
of the situation of your plant in regard to size of output, efficiency
of production, and cost, it does not experience an ovef-all technologi-
cal displacement, do you liink that this situation is general in indus-
try, or that it has any bearing upon the load of unemployed in the
Nation ?

Mr. Ford. I would hate to comment on that, because I am so ig-
norant of all those facts. I know what our own industry does, but
I know very little of other industries.

Dr. Anderson. Is your industry disturbed about the size of the
unemployment population in the United States?

Mr. Ford. Yes ; I think our industry is as conscious of that as any
industry and are trying as hard, if not harder, to create more jobs.

The Chairman. How do you try to do that?

Mr. Ford. Create more jobs? By this so-called more highly de-
veloped product that we are producing, in design, requiring more men
to produce it.

The Chairman. What could be done to cooperate with you in that
effort? How could Congress, for example, help you or industry in
general to create more jobs in private industry ?

Mr. Ford. Well, there has been a feeling of uncertainty in, the
minds of a great many people which I suppose has a tendency to
arrest development, to arrest purchasing. I really don't know, I
am sure. It seems to me a thing that has to wear itself out.

The Chairman. You don't think there is anything that we can
positively do?

Mr. Ford. I hadn't thought about it. This is a new thought to
me.

decentralization in ford motor CO.

The Chairman. It occurred tome that perhaps you might have
been think about it because of the effort which the Ford Co. has
been making toward decentralization. The paper this morning, on
page 7, quoted, in response to the question "What are the effects of
technological development in the one-industry town," your state-
ment, "As some membei-s of the committee already know, the Ford
Motor Co. has 14 small plants located within a radius of 60 miles of
Dearborn, in an effort to help rural communities by the decentaliza-
tion of industry where possible."

Mr. Ford. Yes.

The Chairman. What was the motivation for that? What was
the purpose of bringing about decentralization if possible?

Mr. Ford. We wanted originally to show an example of how a
small stream could be developed hydroelectrically. We took the
Rouge River and bought dam sites along the Rouge River as far
as we could, depending on the flow of the river, and we put these

CONCENTRATION OF ECONOMIC POWER 16347

small plants in there. Tliey are hydroelectric plants. The source
of power comes from the^e generators.

The Chairman. But your purpose was to decentalize industry.
Why?

Mr. Ford. That went along with it. We wanted to show how a
small stream could be utilized for ]X)wer output, and naturally if the
power was being produced it would have to be consumed.

The Chairman. Did you think that that would create more jobs?
Mr, Ford. I don't think it created any more jobs, because we took
those departments away from the main plant and put them out in
the small plants.

The Chairman. How did it help the small community?
Mr. Ford. That was the best thing about it, the way it affected
those small communities.

The Chairman. It struck me that it would be, and I thought you
might describe it for us.

Mr. Ford. These plants are created; I know one plant has 6 or 7
men in it, but that is a very minimum. They range from 40 or 50
up to 300, and we have 1 plant where we make starters and gener-
ators, in Ypsilanti, Michigan, which is a larger town, with perhaps
1,200 people in it. When you take 1,200 people in a new industry
with a minimum wage of $6 a day, and that money is spent in that
community, it revives the whole community.

The Chairman. It doesn't necessarily create more jobs, you say,
but it does /improve the community and the standard of living for
the worker.

]Mr. Ford. We didn't transfer very many of the men when we
transferred this operation. We tried to employ local labor in and
around those small communities. We found work for the men who
had been doing that paritculai* job in the main plant on other things.
We built this small plant, the hydroelectric plant. We employed
local labor, farm or semifarm labor, either men who had been w rk-
ing on farms by the day or farmers or small-town citizens who hacn't
any great skill.

The Chairman. Your objective here was rather social improve-
ment than the self-interest of the industry itself?

Mr. Ford. That is right. We tried to prove a point on social
improvement, and to show the possibility of developing a small
hydroelectric unit taking this one stream, as an example; and inci-
dentally, in every instance where we have moved these departments-
out there and the local men have operated them we have found that
our costs have been less than in the main plant.

The Chairman. So that social improvement is a desirable thing
from the point of view of industry?

Mr. Ford. Decidedly, and decentralization, I think, has a great
part to play in it.

The Chairman. But you don't have any suggestions to us as to
]:)ositive steps that might be taken by othei-s to push forward this
desirable ideal on which you have been working.

Mr. Ford. Well, all those suggestions are things that might create
an urge on the part of other people to do the same thing. I don't
know — we like to do it. But we aren't representative, necessarily,
of all industry. They all have their different problems.

16348 CONCENTRATItDN OF ECONOMIC POWER

The Chairman. If it is to be done upon a broad scale, it must be
done by the action of the entire population.

Mr. Ford. Where the most benefit would occur.

The Chairman. That is right.

I gather from your testimony, which has been most interesting,
two simple facts, and I am going to ask you whether they correctly
represent the picture that yoii have of this problem. The first is
this, that without the modern machine and, technological improve-
ment it would be utterly impossible for an organization like the
Ford Motor Co. to supply cars on so large a scale to so many
people.

Mr. Ford. That is absolutely correct.

The Chairman. And the second is that it would be impossible for
the Ford Motor Co. to i^se the machines which have this beneficial
effect without a kirge-scale purchasing power upon the part of poten-
tial customers.

Mr; Ford. Yes,

The Chairman. And the conclusion to be drawn from that is tliat
the measure of technological advance is the capacity of the masses to
buy the products of technology.

Mr. Ford. Absolutely correct.

The Chairman. You agree with all those?

Mr. Ford. I agree with that decidedly.

Mr. Davis. Mr.' Ford, your company has a nuttiber of assembly
plants throughout the country, has it not?

Mr. Ford. Yes, sir.

Mr. Davis. Were they established solely from a transportation
standpoint, or for other reasons, or both?

Mr. Ford. Well, I should say both. Originally from a transpor-
tation angle, because we have had them a great many yea^rs.

Mr. Davis. But you have found them beneficial from other stand-
points as well?

Mr. Ford, I believe so, just the same as these small manufacturing
plants have been beneficial. They, of course, are located in larger
communities, but I think they have their beneficial effect in those
communities. But it isn't quite the same parallel as these small
plants in these very small communities, where you see the effect a
great deal more. /

Mr, Daves, In other words, your assembly plants are located in
fair-sized cities, are they not?

Mr, Ford, In Louisville, Atlanta, Kansas City, Chicago — all the
big cities where there are distribution centers, trading centers, so
that that doesn't apply quite as effectively, although I do feel that,
by giving employment in those communities at the wage scales we
pay, there must be some benefit.

Mr. O'CoNNELL. May I ask a question, Mr, Ford? I notice on
page 7 of your statement a sentence to the effect that technological
change has made possible the use of men older and with less physical
strength. Converting that possibility into the realities of the situa-
tion as regards your company, does that remain merely a possibility,
or is it a fact that you use more?

Mr. Ford. That is a fact. These machines are much less difficult
to operate. We have devices for handling materials that enable a
man of much less physical

CONCENTRATION OF ECONOMIC POWER 16349

Mr. O'CoNNELL (interposing). It would enable them, but in terms
of your labor force would it be the fact that your labor force now
is generally composed of older and less physically strong men than
was the case 20 years ago?

Mr. Ford. They are older. I wouldn't say about less physical
capability.

Mr. O'CoNNELL. It Occurs to me that this possibility to which you
refer would, generally speaking, continue to be only a possibility.

Mr. Ford. We don't go out and try to hire older men for those
particular jobs. The men are naturally getting older day by day,
but we have no restrictions on age when we do hire them.

Mr. O'CoNNELL. You have no general rule?

Mr. Ford. Not at all. We try to take our share of all types —
crippled, blind, and incapacitated people — and work those into our
industry in what we think is the proper proportion.

The Chairman; Are there any other questions?

Mr. Hinrichs. Along that same line, Mr. Ford, most of your
changes in your labor force, I presume, occur during the period of
rehiring after a shut-down?

Mr. Ford. After a drastic shut-down due to depression of change
of model.

Mr. Hinrichs. Change of model, and a rather drastic shut-down
occurs every year.

Mr. Ford. I wouldn't call those drastic shut-downs. That month
is common in the industry. Everybody expects that. I mean where
we are down for 3 or 4 months due to one cause or another, there is
a ";reat turn-over.

Air. Hinrichs. But it is at those times that you make your general
clianges in the composition of your labor force as regards the
industry. '

Mr. Ford. We send out notifications to these men that have been
on our pay roll, as we reemploy, and we find many of them have
drifted back to their original homes, have gone into other businesses.

Mr. Hinrichs. Have you ever studied your rehiring on the basis
of the age composition of the people who were laid off prior to one
of those shut-downs?

Mr. Ford. No, sir; I don't think so.

Mr. Hinrichs. Would such a study be sufficiently significant from
the point of view of your own management interest to w^arrant an
analysis for the last several years of the age of the groups laid off .
and rehired at the opening of the new model? If so, I would be
very much interested in seeing what that is on different 5-year age
intervals.

Mr. Ford. We will be glad to see if w^e can get that information
out. I am not sure; I suppose it would be available.

The Chairman. If there are no other questions, let me thank
you again, Mr. Ford, for coming here and cooperating with us so
efficiently. We appreciated very much your statement.

(The witnesses, Messrs. Ford, McCarroll, and Moekle, were ex
cused.)

The Chairman. The committee will stand in recess until 2 : 15.

(Whereupon, at 12:35 o'clock, a recess was taken until 2: 15 p. m.
of the same. day.)

il6350 CONCENTRATION OF ECONOMIC POWER

AFTERNOON SESSION

The liearing was resumed at 2 : 25 p. m., upon the expiration of the
recess, Senator O'Mahoney presiding.

The Chlmrman. The committee will come to order.

Mr. Anderson, Mr. Chairman and members of the committee, our
first witness this afternoon is Mr. Dou<^las F. Winnek^ who will tes-
tify about a new technology and offer examples of it so the com-
mittee can ask questions pertinent to an understanding of the begin-
ning of a great new technological product. Mr. Brackett and I went
to some pains to corroborate, the statements that you will hear thisi
afternoon and to determine the fitness of witnesses that might
do this sort of thing for us and we hope to bring you at least two
more JDefore the hearings are over.

We wanted to give Mr. Winnek a brief time with you in the dis-
cussion of a very revolutionary new technological change, three-
dimensional photography.

TESTIMONY OF DOUGLAS F. WINNEK, NEW YORK CITY

Mr. Winner, Good afternoon, gentlemen. I am the reputed in-
ventor of trivision.

The Chairman. Do you have any doubt about it?

Mr. Winner. Trivision is not a trade name, trivision being the
name I have given to what has been heretofore known as stereoscopic
photography, or threa-dimensional photography; trivision being the
word which to me simplifies the technical description of the process
considerably. Three-dimensional photography or trivision has been
sought after for a good many years, as you may or may not have
known, and it started as far back as 1861 when Wheatstone and
Brewster, two British scientists, thought that the supreme excellence
of photography should lie in its ability to truthfully record objects
as the two eyes see them, rather than as one eye alone sees them.
Wheatstone developed the old familiar stereoscope that I am sure we
are all familiar with, and was possibly responsible to a great extent
for a very well-known photographic concern here in the country
making a tremendous fortune out of the old stereograph, I think you
all remember.

The Chairman. Do you contend that one eye does not take in the
three dimensions?

Mr. Winner. Yes; I do that.

The Chairman. Is it only habit that makes me think I see the
three dimensions if I close one eye?

Mr. Winner. As a result of considerable experimental work and
research in photography, I am thoroughly convinced that 90 percent,
approximately, of the perception of depth or space, or the illusion of
solidity and plasticity, is due to binocular vision. About 10 percent,
I should say, is the result of all of the tricks that are now being used
in Hollywood, especially by Walt Disney.

The Chairman. When I close my eye I am not conscious of any
loss of depth.

Mr. Winner. I think primarily because you have had sufficient ex-
perience with two' eyes to know that there is space there. If a one-
eyed man were to argue -with me or debate on the subject I am sure

CONCENTRATION OF ECONOMIC I^OWER 16351

he would Siiy, "I see depth, too." I think that is priiiuiiily due to
experience, certainly not binocular depth. The best proof of binocu-
lar depth is to close one eye and walk dowii a strange stairway. I
wouldn't re<?ommend it. You will find that you will have consider-
able difficulty.

Another interesting thing about binocular depth is that when you
hold a card, your hand, or anything solid in front of you and look
at it first with one eye and then with the other you will see two
distinctly different images. It is the fusion of those images in the
brain in the optic thalmus that produces the rather amazing but
natural result of depth or space.

Photography for generations has been, with few exceptions, com-
pletely lacking in three-dimensional relief. The stereoscope, the red
and green glasses that you see once in a while in the motion-picture
field, the polaroid glasses, the oscillating shutter device that was at
one time quite popular in New York theaters, were all methods of
producing two distinctly different retinal images; that is, the right
eye and left eye were provided with two different pictures. The
illusion of depth heretofore has required some visible viewing device.
Trivision or third dimension by my method introduces, I believe,
for the first time the three-dimensional photograph without the
necessity of any visible viewing device.

The interesting thing about trivision, distinct characteristic of tlie
method, is that we are able to take an ordinary photographic film,
emboss it by momentarily softening it, putting minute microscopi-
cally small invisible beads or lenses on one surface of that film. We
take any film on the market and run it through a machine which
momentarily softens one side and impresses it with this lenticulated
surface, as I call it, or minute beaded surface.

That surface takes the place of the stereoscope, and when you look
through it, always keeping it between your eyes and the image on
the emulsion or printed page or on the motion-picture screen, that
surface, oven though it is invisible and part of the film, performs
the same function as the old stereoscope, and once again your two
eyes are allowed to see two distinctly different views, and you get
the illusion of depth. I could go on for quite a while talking a )out
it. Let me show the pictures to you and probably they will do
more than I can to convey the idea.

May I suggest that you hold them to the light? These are trans-
parencies; look through them w^ith the folder face toward you. This
discovery is relatively new. It is the result of a number of years of
development work starting as a hobby on my part, and since Sep-
tember last I have devoted my entire time to it. I have a small
group of engineers helping me in Mount Vernon, N. Y. These pic-
tures you are now^ view-ing have been made just recently, I believe
most of them are less than a month old.

Dr. Andersox. Are these the first evidence of trivision known?
Are these the first pictures that we have of this character?

Mr. Winner. I lielieve they are. About a 3'ear ago we produced
a few black and white experiments, but to my knowledge these are
the only pictures of this type in existence. The interesting thing
about trivision is that we are able, by momentarily softening the film,
to impress it with this surface, then take the film and put it into any
camera which you may have, the amateur camera or the professional

16352 CONCENTRATION OF ECONOMIC POWER

camera. By clojing the lens down to a horizontal openinjr, rather
than to a small peephole, as you usually do, we produce this illusion
of depth. The negative with no further apparatus contains this
effect.

(The vice chairman assumed the Chair.)

Dr. Anderson. Mr. Winnek, in your judgment what is the prac-
tical use of such a thing as this?

Mr. Winner. The invisible stereoscope, or, if you wish, this lenticu-
lated or beaded screen, even though it be out of sight on all film used
for commercial purposes, lends itself to use both in the taking film and
in the print. Unfortunately, I am unable to show it to you at the
moment, but certainly within a month we will have a photographic
print paper. I only wish we could have waited to show you those.
A photographic print paper that will probably serve every commer-
cial use that ordinary glossy or semiglossy photographic paper now
serves is certainly within immediate reach, and due to the character
of the product will probably be used everywhere that ordinary paper
is used.

trivision for x-ray purposes

Mr. Winner. Similarly, we find in the laboratory as a result of
(considerable experimentation ifi X-ray, a great possibility of apply-
ing this film to X-ray work. We are making surgical X-ray pictures
with them now, although they are quite crude, naturally, due to the
newness of the machinery ; they are very remarkable, nonetheless.

Dr. Anderson. What is the advantage of the trivision over X-ray ?

Mr. Winner. The distinct advantage of the three-dimensional film
or trivision film in X-ray is that it provides for the first time a
three-dimensional result without the necessity of the old stereoscope.

Dr. Anderson. You were speaking about the value of the X-ray.

Mr. Winner. It is embarrassing, possibly — it certainly is to me —
for the average inventor to talk about his product and claim it is
the most wonderful thing in existence in the industry. I sincerely
believe that trivision is probably a re voluntary product, certainly an
evolutionary one, one that fulfills the demand for natural appearance
of photographed objects. In X-ray this contribution probably will
be more valuable than in any other field we will go into. There the
physician will be able to make an instantaneous exposure on this film
of the heart or the lungs.

I deliberately select a part of the body that naturally respires or
in which there is normal movement. This instantaneous shot will
])roduce for the first time on one film a three-dimensional picture of
the subject, just as he would have seen had he looked into the subject
with X-ray eyes.

By-the slightest motion of his head, just as he would normally look
at something from left to right^he will actually be able to look around
the bones and beyond them. If you look at those pictures again for
a moment you will notice that by moving your head to the right or
left you look around the object in the foreground and see something
that has been behind it.

I would like to call your attention to the picture of the lilies. One
lather amazing thing about that picture is that you can hold it up
against the light and take a pencil and project the pencil right down
through the heart of the lily. As a matter of fact you will feel as

CONCKNTirATTOX (»F KCONOMIC I'OWKII 16353

though you touched the lily long before you have touched the film,
Tlie picture uctually projects space, and you think it is Sf)lid, even
though it isn't. In X-ray that illusion of solidity, with the addi-
tion of the panoramic quality, is tremendously valuable, I air sure.

Dr. Anderson. Beyond the scientific use in X-ray, what would be
its commercial uses?

Mr. Winner. Recently I gave up what has been a rather poor living
as a photographic expert in.New York and delved into this hobby, con-
verting it from a hobby into a business. The first pictures that
showed possibilities for commercial application, suitable for window
and counter display purposes, were made last July. A large advertis-
ing display company in New York became interested in them and
offered to make a market study for me.

As a result of that market study they told me that in their opinion
they could keep a plant C(mtinuously busy producing pictures for
display ])urposes, both transparent and i)aper, when we got the paper.
Since then I have held back commercial application for the interim
period for the purpose of building the production machinery capa-
ble of producing not only a transparent film but the paper as well.
My thought now is to purchase film, ordinary photogi-aphic film, from
every film manufacturer and to convert that film, in a plant here in
this country, into third-dimension film suitable for use in ordinary
cameras.

The Vice Chairman. Have you testified as to the relative cost ?

Mr. Winner. I haven't as yet, sir. A rough estimate, and I think
quite a fair estimate, would indicate that the increase in manufacturing
cost, or the cost of converting that film in our plant, not the manufac-
turer's plant, would be about 5 percent over the ordinary manufac-
turing cost of that film. In the manufacturer's plant it would prob-
ably be less since the necessity of shipping the product from one place
to another is eliminated. Ultimately I believe that trivision w411 be
licensed to the manufacturers.

I think the products is of such a character that the manufacturers
in the photographic film industry, possibly photographic equipment
industry, and certainly in the graphic art industry, where we will
reproduce these pictures by varnishing the page and embossing the
varnish right on the press, should be licensed. I presume that is the
simplest way to exploit most efficiently certain machinery, ai)paratus,
and film materials that have been developed to produce third dimen-
sion under the patents.

The Vice Chairman. Can you treat a completed photograph or
l)aiiiting and give to it that third dimension?

Mr. Winner. When you take an ordinary photograph it is monoc-
ular; when you take it it is just a one-eye picture; you can put all
the ridges you })lease on the surface of it, antl it will not be converted
into a three-dimensional picture. AVe must photograpl) three-dimen-
sionally to begin with.

Mr. PiRE. You Iiave to do it with the raw film, before exposed?

Mr. Winner. We do; yes.

Mr. PiRE. Would you have to?

Mr. Winner. I think it might be possible to take ordinary film
in (•(imj)lic!>ted equijMiient and make a series of views and combine
th<'in optically, but it would not be practical.

Mr. PiRE. Wouldn't be anv sense in it?

16354 CONCENTRATION OF ECONOMIC POWER

TRIVISION IN AERIAL PHOTOGRAPHY

Mr. Winner. One of the most, if I may use the word, dynamic
possibilities, and items of interest, at the moment to me is the applica-
tion of trivision, almost immediately, to aerial photograj^hy. With
the action over Norway, a great many people are war-mmded, as a
result of the front pages. My men and I have given considerable
thought to photography from the air on this film, using slightly dif-
ferent aerial equipment, of objects on the ground, terrain, topog-
raphy, camouflaged trenches, gun pits, and buildings of that sort.
The normal camouflage would not be of much value here.

We would build up on one film the three-dimciisional picture. An
interesting feature of the trivision film in aerial photography and in
X-ray is that for the first time we are able to calibrate the film
itself.

The Vice Chairman. Able to do what?
Mr. Winner. Calibrate the film.

The Vice Chairman. What happens to it when you do that to it ?
Mr. Winner. We can put a faint ruling on the film with a scale
at each edge of the film. When the' picture has been made, simply
by holding it to the light and wiggling it back and forth there is a
relative displacement of images on that film. The movement of the
images is in direct proportion to the third dimension and can be read
directly on the scale. The aerial photographer can go up in the air
above the gun range and with an infrared filter and telephoto lens
can photograph objects in safety on the ground. The picture will
have the same magnification and the same depth as the objects on
the ground, and all the dimensions can be easily and accurately
measured on the film.

Similarly, the X-ray film being calibrated will offer the physician
a very accurate way of diagnosing exact distances.

The Vice Chairman. You mean you can measure accurately the
distance between objects by a picture?

Mr. Winner. Yes, sir; you do so simply by looking at the film;
the slightest motion of your head, once you have focused your eye or
eyes on any one point of focus, will reveal a displacement of images
on all other planes. That is, the further away an object is from the
point of focus the greater the motion of the images on that plane.
The Vice Chairman. What I mean is, Can you measure in feet or
miles?

Mr. Winner. Yes. By calibrating the aerial film, we would be able
to read directly and instantaneously the exact number of meters, miles,
or feet. The unit of calibration you might want to put on there will
determine the answer.

The Vice Chairman. You mean you have something on the film that
measures the distance between objects?

Mr. Winner.' Yes, sir ; that is right ; it will be especially valuable
in X-ray and I am sure very valuable in aerial photography.
Mr. Pire. Like putting latitude and longitud. "nes on a map?
Mr. Winner. Somewhat similar. I don't know uhether or not I am
using the proper technical language — cross-hatch lines with the scale
at the top and bottom. One feature of trivision is that it will prob-
ably apply to motion pictures. I have tried to identify myself for a
number of years now, even though it has been a hobby until recently.

CONCENTRATION OF ECONOMIC POWER 16355

as beiiijx the one inventor in the photoj2;raphic industry with a third-
dimension idea who didn't expect to revolutionize motion pictures
overnight.

I pay tribute to all the other inventors; a great many of them, I
think, sincerely believe they have the answer to the third-dimensional
motion picture.

The Vice Chairman. How many patents, have you testified, do you
have on this thing?

Mr. Winner. I believe I have as many as 5 patent applications in
Washington and as many as 200 others on their way in. Commissioner
Coe and Mr. Braekett invited me down in what certainly are the early
stages of development.

The Vice Chairman. Two hundred applications for patents on this
matter you are talking about?

Mr. Winner. We havfe- as a result of considerable work in the past
few years developed over 200 patentable developments suitable for
application as the finances justify it in this field. I believe that the
distinct feature, the interesting thing about trivision is that it is the be-
ginning of a new industry, not a series of gadgets. We have developed
new X-ray camera equipment, new X-ray tubes, a new aerial camera,
new rangefinders, all utilizing the principles of trivision. Certainly
an amateur will be able to buy this film very shortly, I presume between
now and the fall, and put it in his camera or one of our cameras, which
we will ])robably sell. These cameras will give additional depth.

You will be able to take the film back to the drug store, and 48 hours
later, after we have processed it in our plant, get back third-dimen-
sional pictures.

The Vice Chairman. How many patents have you on making the
picture distinguished from the mechanism through w^hich you dis-
play it?

Mr. Winner. Of the material we have been developing, I would
say tliat probably 200 of tlie disclosures, a little less, are necessarily
mechanical ideas. I would say that out of the 200 disclosures we
have extrtacted or are extracting no more than 6 basic or fundamental
ideas, methods of, and apparatus for — mostly methods of. The
stronghold, at the moment, from a patent viewpoint lies in our ability
to do something that men hate tried to do and haven't done before
successfully, namely, putting these little invisible beads on the plastic
film or on the plastic resinous coating of the print paper, so that they
are optically accurate and permanent in character.

The ridged material is not new as an idea.

The Vice Chairman. Wliat is not new?

Mr. Winner. The idea of putting ridges on a film for the purpose
of producing a stereographic result, third dimension, or color. Dr.
Herbert Ivez

The Vice Chairman (interposing). When you say the idea of put-
ting those ridges on so as to create the third dimension — what other
word did you use tliere?

Mr. Winner. T am sorry, I don't know myself.

The Vice Chairman. The idea of making pictures stand out.

Mr. Winner. The idea of j^utting a ridged screen or a grating
between the ej^es of an observer and the photographic plate for the
purpose of producing color or depth is not entirely new. I think the

16356 CONCENTRATION OF ECONOMIC POWER

distinct contribution here is the reduction of that idea to practice in
almost every field of photography.

Dr. Anderson. Mr. Winnek, when you speak of creating new in-
dustry, are you thinking in terms of an absolutely new industry? Is
there nothing in the field? How much of a displacement of other
industries will this thing cause?

Mr. Win:nek. I have given considerable thought to displacement
of labor and machinery, or possible replacement, if you wish, by the
process, or due to the process. I think that shortly the public will
demand third-dimensional pictures because they will see some and
expect them. I think that tri vision, or the process displayed here, will
undoubtedly permit the conversion of existing equipment very quickly
to eliminate flat photography and produce third-dimensional pho-
tography. I think the market will demand it almost as fast as we can
produce. I don't foresee a displacement of labor.

I do feel that the activity of the industry will increase considerably,
certainly during the novelty period, which can exist for quite some
time, and in the graphic art industry where textbook illustrations will
no doubt sooner or later be printed in third-dimension, I think there
will be new jobs, but to what extent I can't say.

Dr. Anderson. Once l\aving gotten over the main hump of invent-
ing a thing of this kind, what confronts you as an inventor, business-
man, in carrying on to a practical industry ?

PROBLEMS OF FINANCING DEVELOPMENT

Mr. Winner. I would like to reduce it to inventor in the first
place. For the last few years as a result of having been very
active as a more or less engineer — I have no college degree and con-
sequently I presume I don't qualify as an engineer — I have specialized
in photography and for a number of years have been very active ih.
jobbing out my time and that of my men in developing photographic
equipment and methods. In September I seriously decided to give
up that business and go into this as a business, and since then I have
definitely sought the proper financing, because money is necessary to
carry on and convert from this laboratory exhibition stage into a
producing stage.

Fortunately I met a display company official who immediately
grasped the opportunities. I have no connections other than moral
with them or with anybody else, as yet. I have from time to time met
and discussed with businessmen the thought of their putting money
into the thing. Long before I decided to go into this thing as a busi-
ness I did explore the possibility of gettng finance back of it. I
found that the first thing the businessman thinks of, I presume quite
justifiably, when you go to him with an idea, is just what merit has
it, just what patent protection can we get or have you got? As a
businessman he is naturally subconsciously, or consciously, thinking
of a trading position, and to justify any finance put into it. Un-
fortunately it has been my experience that the more revolutionary
an idea is the more difficult it is to get the original finance. The
more revolutionary an idea the more patent expense, more patent
development cost, you are confronted with; the more gamble there
would be on the part of investors and the more difficult it is to
interest that investor.

CONCENTRATION OF ECONOMIC 1X3 WER 16357

I have met with continuous faihire for a number of years now.
I, for a while, was considerably ashamed of it; I thought I didn't
know how to promote it, or the product w sn't any ^ood. Recently
I gave up seeking money or discussing finance and for almost a
month and a half now the young men and myself in the laboratory
have resorted to making gadgets and selling them. We have a photo-
graphic exposure pencil, for example, and little nonsensical gadgets
that certainly are not utilitarian in quality, just novelties. We find
that those seem to sell very quickly and from the revenue derived we
hope to keep ourselves living comfortably and get this product on
the market.

Dr. Anderson. Let us look at this matter of capitalizing a new and
revolutionary enterprise such as this that you say would likely result
in a whole new industry. We have heard a great deal of risked capi-
tal and the venturesomeness of promoting businessmen. You have
had some experience in that connection, haven't you?

Mr. WiNNEK. Yes; a little.

Dr. Anderson. What does it sum up to? You say you haven't
been able to raise the capital in that way, Have you had people who
were willing to go in with you on some terms?

Mr. AViNNEK. r^aturally the first thing that enters into the mind of
anyone in the photographic industry, looking at this picture or these
pictures, is, "Well, I should imagine the boys in Rochester or Bing-
hamton or New Jersey, the film manufacturers, would just love to get
hold of that" and I sincerely believe as a result of many friendly
and helpful contacts with them that they are all interested in the
development, more or less. I think that the attitude of the business-
man in that industry is, ''Well, when you get something, when you
have successfully demonstrated there is a market, there will be time
enough." It is pretty revolutionary; there is an awful gamble
attached to it,

Mr. Pike, You will get a much bigger price for it then ?

Mr. Winner. Possibly, One thought has impressed me tremen-
dously from time to time, about the advisability of different means of
marketing, to do justice to the process, looking at it from both a
selfish and a business viewpoint — I mean my selfish viewpoint, not
that business is necessarily selfish — I think the greatest revenue
could be derived by licensing all of the film manufacturei-s, rather
Than to go imder the wing of one exclusively, or attempting to do
business with one alone. The contacts with the three manufacturers
I have mentioned indicate that any oae of them would be more than
glad to help, provided there was some exclusiveness attached to it.

I think that by purchasing the film and the product of these m-an-
ufacturers and converting it ourselves and reselling it we would more
or less keep their good will and hope, in due time, to build up a posi-
tion that would merit and justify licensing relations with all. I think
there is money available for developments of this character. There
are two ways of getting it: one is to give a stoclj promoter a set of
pictures to put in his pocket — and I am sure that the enthusiasrt
displayed to me by a few of my friends who are in that businesi?
indicates that they would like and Sre ready to go out and raise
money through the novelty value of the product.

T think thp other wav would be to offer a nirouifactuicr -the ex-
clusive sales of the prorluct. My natural deSire is to refrain from

16358 CONCKNTPiATION OF ECONO:\[ir rOWKU

granting any exclusive rights. I think that a great deal more can
be accomplished and developed without that exclusiveness.

Mr. Pike. That is why you are going to take all of the film first
and then process it? Establish the attractiveness of it in the mar-
ket and then you think they will all come running?

Mr. Winner. Well, not exactly, but very close to it, I believe, once
we have demonstrated there is a market and are selling their film.
If the film is all I really believe it is, the public will demand it, and
the manufacturers will have to have it.

Mr. Pike. One more question. I would like to ask — I think you
have covered it, but I am not clear. So far you are using the coat-
chrome, or something similar, just for transparencies?

Mr. WiNNEK. We are using an ordinary color film, simply running
it through tlie machines and taking our pictures.

Mr. Pike. Now, when you come to putting it on a print, must the
picture have been taken on that sort of fihn? I mean, when you
really get so you can make the print with your process on the gela-
tine, or whatever it is.

Mr. Winner. The prepared jihotographic paper might be used
in the camera, but undoubtedly a negative made on pj-epared film
would be necessary first.

Mr. Pike. When you finally get so you can make a print of it, must
(he print be done from this prejiared film in both cast s?

Mr. Winner. Yes; or from a ])repared film. Referring once more
very briefly to the technical end of it, the ridged surface on the
negative resolves the })icture into a depth picture when you look
at it. The ridged surface on the projection screen, on the X-ray
film, on the print paper, or on the magazine page (in that case the
resinous coating is embossed with a warm roller almost simultaneously
with the print) servos as the viewing device.

Mr. PiRE. About what is the size of the little cross hatches?

]\Ir. Winner. On the present film I believe about ?00 to an inch;
on the commercial film that we propose to release almost innnediately,
onei way or another, we will have certainly no less than 300. The
object is to get the ridges so small that you don't see them.

Mr. Pike. Same as a half-tone or something of that sort?

Dr. Anderson. Mr. Chairman, we have promised Mr. Thomas, the
next witness, we would get him out of here this afternoon and if-
there are no other questions of Mr. Winnek (we wanted to give
you a glimpse of a new technological develoivment in the making),
and we will ])roceed with our liext witness.

Mv. Winner. Thank you.

The Vice Chairman. Thank you very nuich, sir.

Dr. Anderson. Mr. C^hairman and members of the committee, Mr.
R. J. Thomas, the

Tlie Vice Chairman. We Inven't been swearing tlic witness. We
used to do it but found it didn't do any good.

Dr. Anderson. Mr. R. J. Thomas, president of the United Auto-
mobile Workers. Is such he is in daily contact with the in^'ustry
which we have been discussing for the last '2 days. He is to piesent
a statement to the connnittee and is available for (luestioning at this
time.

('()N('i:ntkati(>n of ioconomk^ powiok 16359

STATEMFNT OF R. J. THOMAS, PRESIDENT, UNITED AU.JMOiilLE
WORKERS, DETROIT, MICH.

Mr. Thomas. Gentlemen, I would like to say that I think I am
])retty much qualified to discuss this problem for the automobile
industr}', due to the fact that I have only been out of the automobile
shops for the past 3 years. I spent over 15 years working in the
automobile shops and actually have personal knowledge and know
what happens in the autf)mobile ])lants.

More than any other industry the auto industry has lieen credited
with stimulating and jnomoting the prosperity of the 192()'s. Basing
its expansion upon the accumulation of %»ealth in the country through
American primacy in post-war years in the world's economic and
industrial life, the auto industry set the pace of national prosi)eritv.

The value of its product increased from $30,000,000 in 1904 to $3,-
000,000,000 in 1919, and over $5,000,000,000 in 1929. Employing di-
rectly 12,000 woi-kers in 1904, the auto industry gave jobs to 343,000 in
1909 and 447,000 in 1929 (Census of Manufactures). By 1929 the auto
industry, according to claims of the Automobile Chamber of Com-
merce, provided either directly or indirectly for the employment of
over 4,000,000 Americans.

This tremendous expansion in production and employment was
linked up with an even more striking accumulation of profits. From
1919 to 1929 profits of major automotive companies had averaged
year by year 21 percent of their net worth. And net worth had risen
steadily from $606,000,000 in 1919 to over $1,500,000,000 in 1929.

At least 100.000 men and women found employment directly in the
auto industry during these years who would otherwise have found no
gainful occui)ati()n. For the most part these new workers required
to turn out a constantly expanding automobile production came from
the agricultural regions of the South and the Midwest. Distress in
the farm belt, together with the displacement of farm labor by im-
proved technology, was providing the auto makers with a generous
resem-e supply of labor. Between 1920 and 1930 over 200,000 native
whites of native parentage migrated to the State of Michigan, drawn
by the magnet of jobs in the auto shops (C. W. Thornwhaite, Infenwl
Migration in the United States, p. 20). These people had seen the
advertisements of employment in the papers of Georgia, Alabama,
Tennessee, or Mississippi. They found economic salvation (for the
time being at least) by migrating to such cities as Detroit, Flint, and
Toledo. Their new purchasing power helped prop up our economy
against the underlying threat of economic crisis. Expanding auto
production in those years gave the Joads of that time a chance for
employment and a decent life.

While ex])ansion of the auto industry was providing jobs for hun-
dreds of thousands of Americans, another and contrary process was
going on within the industry itself — the increasing displacement of
labor by technological progress.

During the 20's this process was almost always relative, not abso-
lute, in its effects. While the total demand for labor to produce at a
given level was being constantly reduced, an equally constant rise in
the level of production increased the over-all demand for labor.

16360 CONCENTRATION OF ECONOMIC POWER

The cloarest picture of these tendencies is given in a recent study
by the National Research Project of W. P. A. On the basis of the
National Research Project figures it can be estimated that man-hour
n-oductivity in the auto industry rose from 100 in 1919 to 234 in 1929.
n other words, a group of auto workers able to produce 100 cars in
1919,' were able to produce with the same labor time in 1929 a total
of 234 cars.

But in spite of this increased man-hour productivity the National
Research Project figures show total employment increasing by 30 per-
cent from 1919 to 1929. Now this increase in employment was brought
about despite increasing man-hour productivity, as is made plain by
the rise in production between 1919 and 1929 — from 100 to 312.

So long as the buying power of the public was sufficient to allow
this explosive growth of production, total displacement from the in-
(kistry was no immediate menace to the auto worker. This mass pro-
duction was the keyr.»te to the prosperity and efficiency of the auto
industry.

Compare the development of the auto industry with that of the
59 industries studied by the National Research Project. From 1919
to 1929 auto production rose 212 percent ; in the od industries it rose
44.9 percent. Employment in the auto industry rose by 30 percent;
in the 59 industries by 1.6 percent. In productivity the auto industry
rose 134 percent while the 59 industries could squeeze out an increase
of only 43.2 percent.

Since the automobile industry is included among the totals for the
59 listed above, the 1.6 percent increase in total employment between
1919 and 1929 may be attributed to this one industry. Only a phe-
nomenal increase in auto production kept the country from an over-
all decrease in its employment in this period.

CHANGES IN PRGDUCTIVITr SINCE 192 8

Mr. Thomas. As was noted before, the tendency of improved ma-
chinery to displace labor in the auto industry during the 1920's was
balanced out b}' a consistent expansion of production. But when the
purchasing- power, which had allowed this expansion, slumped dis-
astrously m 1929 and the the years following, the story was a very
different one. Accumulated relative displacement of lal jr became,
in those years, absolute. Had something close to the 1919 level of
productivity been maintained, even the low level of production from
1930 to 1934 would have insured an employment of nearly twice the
actual employment. But vrith advanced technology, employment
sank lower and lower until in 1932 and 1933 only 54 percent of 1929's
labor force was employed.

Nor did the coming of the depression check the trend toward ever-
increasing man-hour productivitv. By 1935 man-hour productivity
stood at 112 percent of 1929; by 1936, at 116 percent; and, according
to recent figures worked out by the National Research Project, at 117
percent in 1938. This is the over-all picture proved by the most
reliable and accurate studies tlif.t have been made in the industry.

That the displacement of necessary labor for a given level of pro-
duction in the auto industry has taken place, is bej^ond question.
However, the Automobile Manufacturers Association, in a recent

CONCENTRATION OF ECONOMIC POWER 16361

study by Andrew T. Court {Men, Methods, and Machines^ 1939),
expressed a different i)oint of view. Says Mr. Court :

During 1937 employment in automobile factories averaged 15 percent higher
than in 1929 although production lagged 10 percent below 1929 levels.

Mr. Court concludes:

There has been no aggregate technological displacement of labor in auto-
mobile factories despite the introduction of countless new and more productive
machines and processes.

In making this cheery estimate Mr. Court has neglected to take
into consideration two or three factors of primary importance:

First, Mr. Court's figure for employment in 1929 is taken from the
Census of Manufactures. His figure for 1937 is estimated from the
indexes of the Bureau of Labor Statistics. Unfortunately for Mr.
Court's thesis, the Bureau of Labor Statistics figures are not neces-
sarily comparable with Census of Manufactures statistics. Econo-
mists generall}' estimate that the Bureau of Labor Statistics partial
survey of the industry indicates employment figures for the entire
industry about 15 percent higher than they are in actuality. The Bu-
reau of Labor Statistics figures are, therefore, constantly revised
downward to coincide with more complete statistics from the Census
of Manufactures. For 1937 the Census of Manufactures lists 479,341
wage earners in the motor vehicle, motor vehicle bodies, and parts
industries. Mr. Court estimates for the same year, from the Bureau
of Labor Statistics, an employment of 517,000. Exactly why this
economist should choose the unrevised Bureau of Labor Statistics
figure is a question toward which I can offer no solution. At any
rate, comparing employment between 1929 and 1937, using in both
cases the Census of Manufactures as the source, it appears that em-
ployment rose from 447,448 in 1929 to 479,341 in 1937. In other
words, instead of Mr. Court's 15 percent rise in total employment, we
have a rise of only 7.1 percent.

Mr, HiNRiCHS. Mr. Thomas, I don't want to stop you at this point,
but I would like, for the sake of the record, to comment on that,
later. Please continue vour testimony now.

Mr. Thomas. Secondly, Mr. Court neglects to take into considera-
tion the shortening of hours per week which has taken place through-
out the automobile industry as a result of collective bargaining. Aver-
age hours per week in 1929, according to the National Industrial Con-
ference Board, were 46.8. In 1937, according to Bureau of Labor Sta-
tistics, average hours in the industry per week were 35.8 hours.

This single factor, which Mr. Court does not consider worthy of
reference, is more than enough to explain a 7 percent rise in the total
number of men employed in the industry.

What is essential, however, in determining total labor displacement,
is not the total number of men whose names may be on the pay rolls
of auto companies, but the actual number of man-hours worked at a
given level of production. On this basis, according to the National
Research Project figures in 1937, 92 percent of 1929 production was
obtained, with 82.1 percent of 1929's man-hours. This figure is clear
evidence of the actual labor displacement which has occurred.

To get a fuller realization of what these statistics mean it is neces-
sary to estimate the total employment at 1929 hours DPJ'-week, wMch
would have been available in 1937 A^ssuming, then, that t^ie average

16362 CONCENTRATION OF ECONOMIC POWER

auto worker had worked 46.8 hours a week in 1937, only 366,0^0 men
could have been employed in the industry to obtain 92 percent of 1929's
production. With shorter hours per week, 479,341 were actually em-
ployed. This means that in 1937, 112,000 jobs, at least, were saved by
the union's battle against long hours.

It may be noted also that wages for this increased group of workers
were larger in 1937 than in 1929. Total wages paid in 1937 were
$756,000,000 ; in 1929, $733,000,000. These facts suggest very strongly
that unionism in the auto industry has not only protected the" auto
worker against the menace of technological unemployment; in addi-
tion, the stability and general welfare of our economy as a whole have
been supported. One hundred thousand auto workers can provide the
life blood for a city of upwards of 1,000,000 inhabitants. That this
city was not wipeel out by the force of technological change can be
explained only by the growth of collective bargaining as supported
by the National Labor Eelations Board and other progressive Govern-
ment agencies.

WAGES AND TECHNOLOGY

Mr. Thomas. It has been claimed by various representatives of auto-
mobile manufacturers that the relatively high wages paid in the indus-
try have been made possible by "technological progress." Said Mr.
Sloan, of General Motors :

In the automobile industry improved methods resulting in constantly increasing
efficiency have made possible wage rates well above the level of industry in
general.

Our friend, Mr. Court, has similar opinions. He says :

The gains from technological advances show in many ways. Weekly earnings
of factory workers in the industry have averaged 24.3 percent above the
comparable average for all manufacturing industries for the past 10 years.

It will be granted without question that wage rates in the auto-
mobile industry are somewhat higher than those paid throughout
industry in general. To explain this differential on the basis of the
industry's improved technology is a highly questionable procedure.
Far more relevant to the issue are t>vo facts :

First, competition for workers in the industry. From the earliest
days ot automobile manufacturing up to the mid-twenties, expand-
ing production required an expanding labor force. This labor force
could be supplied only if automobile employment were made suf-
, ticiently attractive to recruit new workers. Workers in the auto-
mobile industry in the old days, moreover, were of comparatively
high skill. Carpenters, cabinet makers, sheet-metal workers, black-
smiths, and others would move into the industry only if the bait of
liigh wages were offered. As a result of this, during the twenties the
automobile industry was among the higher-paying industries of the
country. So anxious were automobile manufacturers to overcome
this relative shortage of labor that their advertisements continued
to appear in Southern newspapers and their employment agents
continued to be active even after a more than adequate labor force in
Michigan and other automobile centers had been built up. After
1929, needless to say, competition among auto manufacturers for
workers languished considerably. With hundreds of anxious annli-
cants for every job, high wagers were no longer necessary. T"bus the

CONCENTRATION OF ECONOAIIC POWER 16363

depressiorij with its millions of unemployed workers, drove wages
down precipitously after 1929. The average hourly wage rates were
75 cents in 1928, 62.8 cents in 1932, and 59.9 cents in 1933.

It should he, noted, of course, that in' the years 1928 to 1933 as
wage rates were being pushed down technological progress was mov-
ing forward rapidly. Although man-hour productivity in 1931 and
1932 apparently fell, this is explained by the decreased efficiency of
a low production level. Correlation between technological progress
and hitrher wage rates is to be found in the minds of apologists for
the indiistry and not in its statistical records.

Secondly, union influence on wages. It would seem exceedingly
difficult to prove that the rise in wages from 59.9 in 1933 to 92.2
in 1938 and 92.8 in 1939 can be accounted for by technological
progress. Much more relevant to the issue would seem to be the
union's policy of demanding higher wage rates. Auto workers are
now organized to bargain collectively for better wages. Employers
are no longer able to beat down wages by playing one employee
against another.

Further evidence toward this conclusion is seen in the fact that a
considerable differential in hourly wage rates exists between organ-
ized and unorganized automobile plants. For instance, the Chrysler
Corporation is paying at the present time an average hourly rate of
97 cents. The Ford Motor Co., protected from organization by
various agencies, pays an average hourly rate of about 87 cents.
Automobile M'orkers doubt very much that Mr. Ford would pay even
this rate were it not for his desire to forestall organization.

The experience of 1937 and 1938 is final proof for our thesis that
high wages are to be credited to union organization rather than
technological advance. The latter part of 1937 and all of 1938 were
depression years. Auto production and employment slumped to 1932
and 1933 levels (1938 production, 51.8; employment, 63.3; man-hours.
44.2).

But wage rates did not slumj) accordingly, as in earlier depressior.
years. Instead they rose from 88.5 cents in 1937 to 92.2 in 1938 and
92.8 in 1939. Again it was demonstrated that only when union or-
ganization is strong may workers secure any share of the benefits of
technological progress.

General Motors has and continues to earn more money for its owners than
any manufacturing corporation in the history of the world. Although its total
assets as of Decemher 31, 1937, totaling .$l,n6(),000,0(X) were slightly exceeded
hy'a few other corporations, yet its average yearly earnings in the 2,0 years of
its corpomte existence have exceeded those of all other corporations.

So reports the Federal Trade Commission in a recent study of
the automobile industry.

Even for the 11-year period, 1927-37, the Federal Trade Commis-
sion finds G. M. profits averaged 35.5 percent of total investment in
manufacturing. This average was made in spite of dei^ression con-
ditions.

For the same years the Chrysler Corporation made an annual aver-
age return on total investment in the auto industry of 27.27 percent.

These truly remarkable figures on profits suggest very strongly
who the principal beneficiaries of increased productivitv in the in-
dustFv have been.

16364 CONCENTRATION OF ECONOMIC POWER

To make any i-eliable estimate of the benefits of technological
advance to the car owner during recent years is impossible. It is
clear that the modern automobile is the product of a whole series of
improvements. Competitive conditions existing in the industry have
forced manufacturers to improve the quality and the appearance of
automobiles with a fair degree of consistency.

Whether the progressive elimination of competition in the indus-
try would have the effect of checking improvement in the product
is a question on which we have been unable to obtain any reliable
information.

The experience of the Ford Motor Co. since the change over in
1927-28 has not encouraged other manufacturers to make any basic
changes in over-all methods of production. In this connection a
recent statement by one W. J. Cameron, of the Ford Motor Co., is
interesting. Mr. Cameron said in his Sunday Evening Hour of
March 3, 1940, in reference to the Federal Trade Commission report :

The report shows that the cost of making a Ford car is higher' and profit in
selling it is lower than for others in the low-price field. Why this higher cost
of making and this lower profit in selling? Is it due to wasteful expensive
Ford manufacturing methods? On the contrary, everyone adopts them. Or
does it indicate that more quality is built into Ford cars? Some members of
our organisation complain that too much quality is built into Ford cars. It
takes too many years to wear them out.

I want it understood that I am quoting Mr. Cameron, not myself.

The Vice CHAiRMAN. What do we get out of this advertising
anyhow ?

Mr. Thomas. Those familiar with the auto industry will recog-
nize, of course, that the low-profit margin on Ford cars is not to be
explained on the basis of super value created in the car. Rather
it is to be explained on the basis of high overhead costs per car
which follow inevitably upon a level of production lower by far
than capacity.

(Senator O'Mahoney resumed the chair.)

Mr. Thomas. The Federal Trade Commission report (p. 672) indi-
cates that in the years since 1927 Ford's average annual rate of
return on the total investment during the entire 11-year period
was 0.04 percent. This means simply that because of low sales high
overheaci costs per car wiped out the anticipated profit margin.

In 1929 the Ford Motor Co. ran somew^here close to capacity pro-
duction, turning out over 1,600,000 vehicles. In 1932 and 1933 the
Ford Motor Co. turned out a little over 300,000 vehicles. Even in
1937 the Ford Motor Co. turned out only 900,000 vehicles. Place
over against this the total productive capacity of the company — in
the neighborhood of 1,800,000 vehicles — and the high overhead cost
per unit is evident.

These figures on Ford production in relation to productive capac-
ity will serve to explain the $91,000,000 profit made by Ford in 1929
as well as the $74,000,000 loss marked up by the Ford Motor Co.
in 1932. Mr. Cameron's effort to explain these losses as evidence of
his company's generosity is not very happy. This incident serves
to illustrate as well the fact that heavy investments in new machinery
sometimes serve to defeat their own purpose; that is, the reduction
of costs. Without seeking to analyze this subject in detail, it is
apparent that heavy investments in new machmeiy are profitable
Wfjen a steady mass market is assured.

CONCBNTRATION OF ECJONOMIC P/)WER 16365

When operations proceed at near capacity, then the tremendous
saving in labor costs is sufficient to wipe cut investment in ma-
chinery and return kish profits. But when operations are at a low
level, capital expenses refuse to be laid off, speeded up, or techno-
logically displaced. They continue exacting their heavy toll in unit
costs per car. To counteract this tendency the employer naturally
seeks to reduce labor costs still lower, though in this case primarily
through the intensification of labor itself. This is one of the keys
to the tremendous development of raw speed-up in the industry after
1929.

Other manufacturers have preferred to keep their plants up-to-
date by a series of small yearly changes. This appears to be Ford's
method now.

Mr. Court claims that these yearly change-overs in automobile
models have restricted the rate of technological displacement in the
industry. He says, "Thus the prospect of model change delays or
eliminates entirely the use of many labor-saving machines." Mr.
Court apparently had not read the report of the General Motors
Corporation for 1938. Stating its policy on model change-overs,
G. M. announced that its purpose is —

To inject into each new series of products * * * features which promotp
comfort and convenience and add to greater appeal from the standpoint or
appearance * * * (go that) the time during which the original purchaser
operates any one car is reduced and there is a flow of relatively up-to-date
cars into the used-car market. * * * The rapid evolution of design neces-
sitates a more rapid turn-over of productive equipment * * * with resulting
benefit to costs, because advancing technology is always producing more
efficient instruments of production.

In other words, the corporation believes the change-over in models
with its r'^cessary season of slack production is desirable in that it
gives the company an opportunity to introduce labor-saving improve-
ments in machinery and technique.

Most auto workers believe that these labor-saving improvements in
machinery bulk much larger than do actual improvements in cars
produced.

The Vice Chairman. "Would you like to stop for a moment there?
What is the statement you just concluded?

Mr. Thomas. ''Most auto workers believe that these labor-saving
improvements in machinery bulk much larger than do actual im-
provements in cars produced."

The Vice Chairman. What do you mean by that? I don't quite
get that.

Mr. Thomas. In recent years there hasn't been very much change,
mechanically, in an automobile. I have met many manufacturers
who tell me quite frankly that the reason they change models annu-
ally is not because they are producing a better car but so they will
have a better sales field, something different. It is like keeping up
M ith the Joneses. They change the model so the man doesn't want to
drive last year's model.

Ihe Vice Chairman. AVliat I didn't get is quite the connection
betwi^en the proportion of new devices to the new feature of cars.

Mr. Thomas. What I am trying to sa^ is that the technological
improvement in the industry, the change in machinery, is very much
greater than the change in the automooile would warrant.

16366 CONCENTRATION OF ECONOMIC POWER

The Vice Chairman. You mean, then, that these technological
changes are for the purpose of increasing the productivity of the
individual ?

Mr. Thomas. That's right.

The Vice Chairman. That is what you mean?

The Chairman. But Mr. Ford made the statement this morning
that there are about 16,000 parts ill the 1939 model as compared
with about 5,000 parts in the 1926 model.

Mr. Thomas. I don't doubt that statement at all. That is prob-
ably true. There are many more parts in the average automobile
today than there were a number of years ago, but following that
theory, does that mean that in 10 years from now there are going
to be 32,000 parts in the automobile? That change from 5,000 to
16,000 parts was done through a few years there, when the techno-
logical improvement in the automobile itself was greater. For the
past several years there hasn't been that improvement.

The Chairman. His testimony w^as that in 1926 they had 5,000
parts ; in 1929, 6,000 parts ; in 1939, 16,000 parts, so that in the past 10
years there has been quite a change in the inherent quality of the car
and not alone in its style or fashion.

Mr. Thomas. That is correct. But as I say, in the last 2 or 3
years that hasn't been the case at all.

The Chairman. You are telling us that the change in the machin-
ery in the last 5 or 10 years has not been very great?

The Vice Chairman. Just the opposite, is what he says. He says
tlie change in machinery has been great, but the change in machinery
lias been out of proportion to the change in the automobiles.

Mr. Thomas. That is right.

The Chairman. I see.

The Vice Chairman. And the point seems to be that this change
in machinery is to increase the production of the individual working
man.

Dr. Anderson. Beyond that, isn't it to increase the salability of the
product ?

Mr. Thomas. That's right.

The Vice Chairman. How about that? That seems to me to get
i\t cross purposes on that.

Mr. Thomas. No; you might increase the sale of an automobile
without improving anything mechanical about it at all. If you have
noticed, they put a bulge in here, leave a running board off there,
and just by changing the looks of the car they make the car salable.

The Vice- Chairman. What I am trying to get at is the substance
of the point you make, that the new devices are increased out of pro-
portion to the improvement of the car. Do you mean by "improve-
ment" the improvement in the wearability of the car or the looks of
the car, or is it the new devices to increase the number of cars which
a given group of employees can produce ?

Mr. Thomas. The improvement has come about — well, J have had
a manufacturer, or several manufacturers, say to me, for instance, on
some certain skilled trade— of course, I disagree with what Mr..
Ford said on that this morning, because I have had manufacturers
say this to me— that they are developing new technological processes.
When I go in and ask for a wage raise for a certain skilled trade, they

CONCENTRATION OF ECONOMIC POWER 16367

say, "Well, if you ^et that wa^je rate too high we will put a machine
in to do the job which can do it cheaper."

The Vice Chairman. There is something to that, too, isn't there.

Mr. Thomas. Certai)dy; that is what has happened. The auto-
mobile manufacturer has only put in technological improvement to
reduce wages.

The Chairman. To reduce cost.

Mr. Thomas. That is right. Well, that is wages.

The Chairman. It is a very important element in the cost, prob-
ably tlie most important.

Mr. Thomas. That is right.

The Vice Chairman. Now, have you ever figured out, with regard
ro any more improvement for increasing productivity, how much you
Avoukl have had to reduce wages to keep human beings doing what
liiese important machines have done?

Mr. Thomas. I can't answer that question.

The Vice Chairman. Has anybody ever gone into that at all ?

Mr. Thomas. I haven't. I heard Mr. Ford ask that question this
morning. He told about what the car of years ago would cost if it
were sold today.

The Chairman. There was testimony, of courge, this morning, that
wages would have to be reduced to a perfectly ridiculous level, if you
could hire enough persons to produce the same number of cars at the
same cost.

Mr. Thomas. I agree with that.

The Chairman. That is perfectly obvious. There is no dispute
about that.

Mr. Thomas. That is right.

EFFECT OF THE "SPEED-UP"

Mr. HiNRiciis. While you have been interrupted, Mr. Thomas, you
used the phrase "gross speed-up." What do you mean by that?

Mr. Thomas. Well, for instance, today, or the other day, a man
walked into my office. This man happened to work for the Ford
Motor Co. He was a very good friend of mine. He is a younger
man than I am — considerably. He was a metal finisher in the plant
and, by the way, is not a union member. He walked in and sat
down and talked to me about a half hour, and then he stood up. This
man i- in a i)erfectly healthy condition, but when he stood, because of
the way he had to work in the plant, he fell dow^n on his knees, be-
cause he had been used to being in that position so much that he
couldn't stand up after sitting down like that for a short while.

The Chairman. Do you mean that that is characteristic? You
give us a single instance. Do you want us to understand that that is
characteristic of all workers?

Mr. Thomas. No; I wouldn't want to do that. I want it under-
stood that there are a lot of workers in that same condition.

The Chairman. You are contending that the speed of work wdiich
is r(Mjuired is too great for many men to stand.

Mr. Thomas. That is right. I myself, working in the automobile
industry — of course in the organized plants we try to overcome that
to a great extent — over a period of years, when I was a much younger
man than I am now, have worked, well, there was no limit to the

16368 CONCENTRATION OF ECONOMIC POWER

hours, and when we worked, I suppose most of the time the average
was a 9-hour day. I would say that was about the average, and
when I went home from work I sat dowm and tried to read a news-
paper but I was so tired I couldn't do it. I would immediately go
to sleep, or my hands would be so sore, maybe, from working on a job
that I couldn't open them after I got up out of bed in the morning.
I would say that 5 years ago in the automobile industry that was
generally true.

The Chairman, But it is not true now ?

Mr. Thomas. Not generally in the industry. It is quite generally
true in the unorganized part of the industry.

The Chairman. You attribute that change to organization ?

Mr. Thomas. Yes ; I do.

I have a number of cases here of statements that men have made
to me who work at the P'ord INIotor Co. I ^\•onder if I could read
them. It will take only a few minutes.

The Chairman. Surely.

Mr. Thomas. First, these are each different men whom I have
spoken to at the Ford Motor Co. The names of these w^orkers I
don't want to give out,' it should be quite obvious to everybody why
I don't want their names in the record. I am quoting what the men
say:

The foreman says "Step on it." So much has to be out a day. Production
is raised every day. If behind, I have to work faster.

A second man says:

When we start working on these frames our foreman and his two bosses
threaten us worse than slaves. Not even a chance to blow my nose.

A third:

The threat of being fired or laid off; boss and foreman standing behind
the men's backs.

A fourth man:

He (speaking of the foreman) would tell the men "Either get them out or
go home." Wliy can't they handle the working men like human beings?

A fifth:

Whip-cracking, browbeating, bulldozing, a tyrannical and autocratic attitude
is assumed and maintained at ah times by all officials from foremen up. No
improvement is too extensive or complicated as long as it tends to speed up
production, but practically no improvement is ever considered concerning the
comfort or wellbeing of the workmen. We have no relief to get to the toilet;
no attention is paid to ventilation and <^oinperatures. Toilets, coat rooms, and
exits are over-crowded. We sit yn the fioor to eat lunch. The floor is oily
and full of ruts which are full of water and oil. Hell !

That from a worker employed 16 years by the Ford Motor Co.

Representative Sumners. Do you think that is, from your observa-
tion and experience, a correct picture of the conditions in the plant?

Mr. Tnoivf AS. I have talked to hundreds of men from the Ford Mo-
tor Co., and I can go right down the line, and that is the picture I
get from them. I have been at the gates of the Ford i)lant. It so
happens that I was there once and Ford put me in jail, but I have
been out at the gates of the plant and any reasonable person who
would ^o and v.^atch the Ford men coming out of work and then go
to the gates of any other automobile plant, I don't care what com-

CONCEiNTRATION OF ECONOMIC POWER 16369

pany it is, could see the difference in the spirit of the men coming
out from work.

Dr. Anderson. Let us look at the assembly line of two of these
different firms. What marks the difference in the speed-up of the
Ford assembly line over any of the otlier motor groups?

Mr. Thomas. Well, as I said, 5 years ago there probably was very
little difference. Of course, originally Ford was the originator of
the conveyor lines. That was one of the biggest technological im-
})rovements in the automobile industry, and Ford was the originator
of that. Up to about 5 years ago men would start to work on those
lines and as they got broken into the job the foreman at the end of
the line would turn a crank to make the line go faster; and he would
just keep turning that crank, making the line go faster and faster
each day. Finally, the men with the least resistance or the men who
were a little grayliaired, or maybe physically weaker than the others,
found it impossiole to stay on the line, so they were replaced by, well,
better athletes, I would say.

Mr, HiNRicHS. But daily increase in speed at the beginning of a
season is a necessary part of the process of getting a new- model
under way, isn't it ? That is not the thing you are complaining of.

Mr. Thomas. We are talking about two different things, I agree
that what you are talking about has to be done. The thing I was
talking about continued throughout tlie year.

^Ir. HiNRicHS. And the union. now concerns itself with this ques-
tion of the amount of effort required?

Mr. Thomas. The union concedes that a man, or especially a group
of men working on an assembly line, when they first start on a job,
are not at their top efficiency to do an honest day's work until after
about 30 days, I would say ; but after that, after they reach "a certain
speed, then we claim, in our organization — well, in some companies
we negotiate joint standards with the companies, but, after that, if
a man protests the speed at which he has to work, we have the right
in all our contracts to take that up with the management as a griev-
ance, and they are pretty generally settled by negotiations through-
out the industry,

Mr, HiNRicHS. Which of the companies are negotiating joint
standards?

Mr. Thomas. The companies that are negotiating joint standards
are, most of them, small companies. I believe the Briggs Manufac-
turing Co., a body company, is one of the biggest companies that is
doing that.

Mr. HiNRifHS. From the union point of view, are you finding
conditions in those plants more satisfactory?

Mr. Thomas. Oh, yes ; considerably so. I might say that I was in
with one manufacturer the other day — I hate to state the names of
manufacturers because it might give some of them a bad reputation,
and we are getting along well with them now — and he said:

I am glad we got the union in here. We used to be known all over the city as
a butcher shop, and today we have good labor relations, and we want to keep
that.

Dr. Kreps. Coming back to the subject of technology, maybe I am
anticipating something you are going to deal with, but I have been
wondering whether technological change in the industry can be meas-

16370 CONCENTRATION OF ECONOMIC POWER

ured in terms of displaced workers. You seemed, as I looked at it,
not to separate the amount of work that is done, such as the figures
that you just gave on man-hours, from the amount of employment
that you think does not exist because of technological displacement
as such. Now, as I say, maybe you have some measurements further
down the line in which you allow for sedsonal and cyclical change::
and for other types of unemployment besides technological unem-
ployment. Is that correct?

Mr. Thomas. Yes.

Dr. Keeps. Maybe you would like to go on with your statement,
then.

Mr. Thomas. I think this has to do with the question you ask right
here: Speed-up in the automobile industry.

1. INTENSIFIED LABOR (SPEED-UP)

Speed-up in th©^ automobile industry is a controversial subject. Cer-
tain authorities explain that there is no such thing. The unanimous
testimony of 400,000 auto workers stands definitely and lUiaTiimously
against that conclusion. They have experienced the terrific speed-up
of the modern auto shops.

The N. R. A.'s study of the automobile industry issued early in 1935
points out :

The automobile industry throughout its history has always been efficient and
became more efficient through the decade of the 1920's. At the end of this decade
it had reached a peak of practical efficiency ; that is, efficiency that takes into
account human capabilities from an effective and industrial engineering stand-
point. The industry led the country in effective time study of its operations and
the time-study men gradually brought its operations to this efficient peak.

I might say, in speaking of this time study, I have been time studied
on a job. By the way, because the workers in the automobile plant
had been speeded up so much, there was a tendency on their part, when
aTnan came around to time study them, to try to cheat on that time
study if they possibly could, and I might say I was the same as every
automobile worker. One clay I w^as being timed on a spot -welding
job, and I tried to get as good a time as I could on the job, and I was
given my time on that particular job the next morning. I went to work
on the job and I tried my best to get out the number of pieces I had
been timed for the day before, and it was impossible to do,

A lot of workers at the plants say that to me today, and a lot of
times I have thought, well, maybe they just don't want to do so much.
Yet I know what my own experience was, that it was just impossible
for me to make the time study which they had made upon me.

The Chairman. You were glad enough to make that record while
you were being timed.

Mr. Thomas. But I didn't make that record.

The Chairman. When you were being timed you made a record, as
I understood you.

Mr. Thomas. No the fact of the matter is, I tried to slow down.

The Chairman. While you were being timed ?

Mr. Thomas. While I w^as being timed, and the next day I couldn't
keep up with that time.

The Chairman. But slow down time

CONCENTRATION OF ECONOMIC POWER 16371

Mr. ThomAs (interposing). The poiliL I am trying to make, this
time study that they talk about doesn't mean a thing because they set
men witli stop watches to take the employee's time, and it used to be
the system in the automobile industry that the man in charge of tlie
time-study department got a cut on added efficiency every time he
could cut time and get the men to do so much more work. The result
was, instead of taking honest time, they would look and see what your
record was last year, and maybe boost a little more for the last model.

Mr. PiitE. You both were playing tricks, and he won.

The Vice Chairman. You mean the next day you couldn't go as slow
as you went the first day ?

Mr. Thomas. The next day I couldn't go as fast as what the com-
j)any claimed I had gone the day before, but I actually knew I hadn't
gone that fast.

In other words, before the depression even began automobile pro-
duction was carried on A\ith eveiy scientific method for squeezing
a maximum quantity of work per hour from the individual worker.
Jobs were broken down and timed to the fraction of a second. Men
were offered bonuses to exceed the production on the rates established
by time study men. When these levels had been surpassed the new'
attainments were accepted as normal, and intense pressure was ap-
]>lied for higher and higher records of output. With the coming of
the depression the univei"sal testimony of the auto workers is that
sjieed-up increased beyond the powere of human endurance.

Quoting again from the N. R. A. report of 1935 :

The only reason that it (speed-up) can exist as at present is because of the
luige available supply of labor through which as one man falls by the way-
side, anotlier is there to take his place.

'Tf you don't like this job there are thousands outside the gate
who do." That was management's stock reply to every grievance
and admonition to everyone who fell behind the frantic pace of the
assembly line.

Hounded by foremen, supervisors, and time study men, workers
"turned out production" with no regard to standards of health or
safety. Miserable as job conditions may have been, they were less
miserable than the chronic disaster of an auto worker's life — unem-
ployment. Altliougli the N. R. A. brought a slight upward revision
of wage rates, those gains according to the testimony of thousands
of auto workers were nullified by the exactions of this increasing
speed-up.

Summing up workers' testimony on this development during 1933
and 1934, the N. R. A. report states :

Evorywliere workers indicated that they were being forced to work harder
and harder to put out more products in the same amount of time, and with
less WDrkers doing the job. There was a tendency to excuse the automobile
manufacturers for lack of steady work. "That is caused by market condi-
tions." P.ut when it comes to increasing their work loads they are vigorous
in denouncing the management as slave drivers and worse. If there is any
one cause for a conflagration in the automobile industry, it is this one.

It would be untrue to say that since the organization of the
U. A. W. speed-up has be^n absolutely eliminated from the automo-
bile industry. Auto workers are producing even yet on levels above
those of most industrial workers in this country. But the more
vicious features of the speed-up system have been eliminated in the

16372 CONCENTRATION OF ECONOMIC POWER

organized plants at least. Workers ai-e no longer subject to dis-
missal at the whim of a foreman or company spy. Unfair produc-
tion standards are negotiated with management and in most cases
eased down. The vicious piece-work system has been eliminated
from many plants. "Slave driving" has been replaced by collective
bargaining, and an industrial dictatorship has given away to the
recognition of human rights.

Only in the unorganized plants does the speed-up system still
prevail.

SPEED-UP AND Oi^DER WORKER

Before the coming of the union, few men over 40 could be found
on assembly lines or basic production jobs in automobile plants.
Most operations had been simplified and specialized until they re-
quired no experienced skill for satisfactory production. It is alleged
that in the Ford plant 43 percent of the workers require 1 day to
learn their jobs, 36 percent up to 8 days, 6 percent up to 2 weeks,
14 percent from a month to a year, and only 1 percent more than a
year.

Mr. Pike. What is thei basis of that? Have you any idea who
made that statement?

Mr. Thomas. We have — whether Ford recognizes it or not — a
local union in the Ford plant, and this is from our people who belong
to our union in the Ford plant.

Mr. Pike. That is, workers in the plant believe that is about true.

Mr. Thomas. Yes.

The Vice Chairman. Is the difference in the time to learn how to
do that work, due to the difference in the ability of the individual
to learn or the difference in the difficulty of the work to be done?

Mr. Thomas. It mi^ht be both. This means that experience and
skill are relatively minor assets in a modern auto plant. Instead
the ability to endure incredible demands upon nerve and muscle are
wanted — not patient craftsmanship.

Some of these older workers find places on the few skilled jobs
remaining in tht aiito plants. Others are relegated to sweeping floors
or running elevators. But the vast majority are simply laid off
and allowed to shift for themselves.

Says the N. K. A. report :

The most tragic situation in the industry was revealed to us through the
testimony of the older workers. They had service records of 10, 15, 20, 30,
years, often in one plant and occasionally in one department of a plant.
Always their story was the same. After many years' service with less layoff
than anybody else there came a time (often in the early years of the depres-
sion) when they began to be laid off early and were taken back only during
the busiest season of the year. That happened for several years and then
finally they did not get back at all. Seldom if ever were they told that they
were too old. They were merely told that when there was something for
them they would be called back. But they were never called back.

Protection for the worker over 40 through a seniority program has
been one of the central objectives of the uiiiion. The U. A. W.-
C. I. O. is proud that it has saved thousands of older workers from
unemployment and a hopeless dependence on charity at the prime of
life. However, an adequate social-security program alone will pro-
vide salvation for that group of older men who are unable to meet the
still ^^"-orous demands of automobile production.

CONCENTRATION OF ECONOMIC POWER 16373

To deny that this problem of the older worker exists is irre-
sponsible folly. Mr. Court claims that —

The automobile industry increased the proportion of men 45 years or over
between 1920 and 1930 by 9 percent, according to the U.S. Census. The
normal expectation, considering this rate of growth of the industry during
this period and using the performance of other industries as a criterion, was
for a decrease of 7.1 percent in the proportion of these older men.

The Chairman. Mr. Thomas, have you made any computation of
the ages of your members?

Mr. Thomas. No.

The Chairman. How many membei-s are there in your organiza-
tion now?

Mr. Thomas. We have contracts covering some 400,000. There
is something I would like to explain at this point. In the automobile
industry as a whole there are peaks and valleys. When a new pro-
duction season starts usually their employment goes up to the peak.
There are thousands of automobile workers in the industry who
only get 2 or 3 months' work out of a year.

The. Chairman. How many persons?

Mr. Thomas. I said thousands — I imagine, guessing — I was gomg
to take a guess. I would say 15 or 20 percent of th automobile
workers don't get over 3 months' work out of the year, and I don't
know that those figures are anywhere near correct. I am just guess-
ing by my own experience.

Dr. Anderson. Will you explain that, please? Why is that?

Mr, Thomas. Wlien they bring out a new model, and as the old
model goes down, salesmen and dealers try to get all their current
models off the showroom floors as quickly as possible. When they
start in production on a new model, they. try to have their dealers'
stocks built up to a great height, have their dealers filled up full of
cars before they announce a new model, which means that there is a
tremendous amount of work during those 2 or 3 months. After those
dealers are supplied, then they usually go below normal for about, I
would say, 8 or 9 months, and then there are about 3 months in tjie
industry, as a general rule, in which only the various oldest workers
in the industry work at all.

Dr. Anderson. You are coming to such seasonality in a moment,
I know, but according to the testimony of Mr. Ford this morning
%\ ith respect to seasonality, there is a lay-off of a month for a small
proportion of the total force.

Mr. Thomas. Of course, as I heard Mr. Ford this morning, I think
what he said there is at least 75 percent wrong. I happen to know
from experience at the Ford Motor Co. — I have been working around
or watching that plant for a long time — there are great peaks and
valleys where thousands of men are called in and thousands, after a
short time, are laid off who are never brought back to work.

Dr. Anderson. So the idea of an 11-month working year, even for
those who are not hardest hit by the yearly model changes, would
not, according to your observation, be correct?

Mr. Thomas. That is right. Anyone coming to Detroit wouldn't
have to look very far to find, even at peak seasons, thousands of
automobile workers on the streets, on W. P. A., and every place else.

Dr. Anderson. Do you have any figures in your union respecting
seasonality in the plants in which your union works?

Mr. Thomas. We have.

36374 CONCENTRATION OF ECONOMIC POWER

Mr. J. H. WiSHART (director of research, U. A. W.-C. I. O.,
Detroit, Mich.). We have a statement on that in 1934.

Dr. Anderson. Would it be possible, without too much trouble,
for your able statistical staff to compile figures on seasonality of
workers as you know them?

Mr. WiSHART. I think that can be done.

The Chairman. You have not compiled statistics on the average
age of your members?

Mr. Thomas. We have a comparatively young membership.

The Chairman. That would be a pretty good indication, would it
not, of the age of automobile workers, the average age of your mem-
bers? That would just about tell the story, wouldn't it?

Mr. Thomas. That is right.

The Chairman. Don't you think it might be a good thing for you
to do that? You could probably do it without a gi'eat deal of
difficulty.

Mr. Thomas. I think so. According to a Brookings Institution
report, in 1938-39, 7.2 percent are less than 25 years old; from 25 to
29, 16.6 percent; 30 to 34, 18.8 percent; 35 to 39, 17.6 percent; 40 to 44,
14.8 percent; 45 to 49, 11.8 percent; 50 to 54, 7.4 percent.

The Chairman. That is about equal to the first group you men-
tioned, isn't it ?

Mr. Thomas. Yes. From 55 to 59, 3.5 percent; 60 and over, 2.3
percent.

The Chairman. What is the authority for those figures?

Mr. Thomas. That is written by William Herndon McPherson,
Labor Relations in the Automohile Industry. This is compiled for
the Manufacturers' Association.

The Chairman. Does he state, on the page from which you read,
the source of his figures?

Mr. Thomas (reading) :

Estimated by the Automobile Manufactures' Association, based on a 10 percent
sample of employees of member firms.

The Chairman. Do you have any reason to believe that that is
inaccurate ? •

Mr. Thomas. I just don't know.

The Chairman. You would assume that it is fairly accurate?

Mr. Thomas. It is fairly accurate, I think. Ford, of course, doesn't
belong to the Automobile Manufacturers' Association.

Dr. Anderson. Mr. Thomas, figures of that kind, standing by them-
selves, haven't very much comparative value. I presume you treated
of the topic of older and younger workers in your paper.

Mr. Thomas. Yes; I have ah-eady mentioned as I went through
here that we are having absolutely no difficulty in the organized
plants today. In every contract we have, we have seniority provi-
sions, and w^e are having no difficulty at all with aged workers.

The Chairman. What are those provisions?

Mr. Thomas. It is occupational seniority, and a man can't bump
another man off his job, regardless of how old he is.

The Chairman. Just on account of age, regardless of how old he
gets?

Mr. Thomas. That is right. We protect his job, no matter how^pld

The Chairman. Suppose hia productivity falls off?

CONCENTRATION OF ECONOMIC POWER 16375

Mr. Thomas. In an automobile company there is always a place
where a man can be used no matter how old he is. For instance, !n
the Chrysler Corporation they have one department of old men; in
the Dodge plant in Detroit there are men there who are working
who are extremely old. I went through there the other day. One
man was formerly a superintendent of a plant, some 76 years old now,
who is working on a bench there. It happens that at this time he
belongs to the union. He had a grievance and we took up the
grievance for him. Tliey call it the old men's department, and they
have work there which they are capable of doing.

EFFECT OF SHORTENED HOURS ON PR0DUCT1\^TY

The Chairman. In the earlier days of the labor movement it was,
I think, pretty well demonstrated that shortening the hours of labor
tended to increase the productivity of the worker.

Mr. Thomas. That is right.

The Chairman. \Vlien instead of working 10 or 12 hours a day
the worker was required to labor only 8 hours a day, he did a better
job for his employer and he was a better citizen, too, because his
health was better. That is correct, is it not?

Mr. Thomas. I wouldn't say that he had done a better job. The
average automobile manufacturer — when you are working in there,
it is pretty hard for an employee to do a better or worse job.

The Chairman. I wasn't talking about the automobile manufac-
turer in presenting that question. I was talking about the history
of the labor movement.

Mr. Thomas. That is true ; yes.

The Chairman. That was true, was it not? Now then, what is
your impression of the result upon productivity of these activities of
the union which you are describing?

Mr. Thomas. Well, I don't think there is any question that we
have less productivity, because we have lessened the speed-up.

The Chairman. But you feel that you compensate for that in the
condition of the worker, is that' correct ?

Mr. Thomas. That is right.

The Chairman. How much have you lessened productivity?

Mr. Thomas. I would doubt very much that it would be over (in
the industry as a whole) 5 or 10 percent. Ten percent would be a
large figure, in my estimation.

The Chairman. Tliat productivity, thus reduced 5 or 10 percent,
compares with the productivity of 5 or 7 years ago in what way ?

Mr. Thomas. I think there is a big fatigue factor. When men
worked 10 or 12 hours a day there was a big fatigue factor, and
when they went to 8 hours a day, many manufacturers got out the
same production — and this i? not taking technological improvements
into account at all. The Ford Motor Co. especially was able to get
out the same amount of production in 8 hours that they had formerly
done in longer hours. In the organized plants, I don't think we have
cut productivity any, in comparison with the hourly productivity of
a 12-hour day, for instance.

The Chairman. In other words, the elimination of the fatigue
factor does not decrease productivity.

Mr. Thomas. That is risfht.

16376 CONCENTRATION OF ECONOMIC POWER

The Chairman. What is it that has decreased productivity ?

Mr. Thomas. Well, the organization.

The Chairman. I mean what requirement of the organization —
what practice that you now require?

Mr. Thomas. If a member of ours is working on a job and he
feels so fatigued that he can't keep up with that job any longer,
he places a grievance.

The Chairman. It is the elimination of the speed-up, then.

Mr. Thomas. That is right. It is the elimination of the extreme
speed-up. There are still speed-ups, but it is extreme speed-up.

The Chairman. Speed-up of s ^ch a character that it becomes a
grievance which can be presented to the proper committee and
argued out.

Mr. Thomas. That is right.

The Chairman. So that the elimination of the fatigue factor of itself
does not decrease productivity, but the elimination of excessive speed-
up does.

Mr. Thomas. That is right; yes.

Mr. HiNRicHs. As a matter of practice, have most of those griev-
ances risen in connection with standards that have already been in
practice, or have they originated when the speed has been further
increased ?

Mr. Thomas. We have very few. We have some, but the pro-
portion is very small on jobs, as you say, that have been standard.
We pretty much generally go along with that.

Mr. HiNRiCHS. When you say that productivity has been de-
creased, do you mean that you had restrained the increase in pro-
ductivity, held back the increase?

Mr. Thomas. That is right.

Mr. Hinrichs. Rather than actually decreased productivity ?

Mr. Thomas. That is right. Another thing, when I say that, of
course, there are many times violent disagreements between us and
the management on where there is a speed-up or a slow-down. We
go into production on a new model, for instance. The management
has figures from a previous year of what amount of work they were
able to produce, but they have made what they consider is a techno-
logical improvement. Uur workers find that it is not a technological
improvement in many cases; it is a hindrance, so that actually they
are able to do less work after the "improvement is made than before.

I ran across that in several instances in the last year. The man-
agement put fewer spot welds on the floor board of a car, which is
all steel now, than they had the year previously ; so .they said, "You
ought to be able to do more of them," but when we went in to nego-
tiate on the thing we found that even though they were putting fewer
welds on, the ones that were left were in more awkward places,
so it actually took more time.

Dr. Anderson. Mr. Thomas, has the union ever attempted to re-
strict introduction of new technological processes?

Mr. Thomas. No.

Dr. Anderson. You accept the introduction, and then attempt to
control . their use?

Mr. Thomas. That's right. Well, I don't know ; you say "control
their use." We often get accused of that. When I go out into a

CONCENTRATION OF ECONOMIC POWER 16377

]>lant I tell every member of our union that I want him to jrive
niunan:ement a fair day's work. Now, a fair day's work is a hard
(hin<i;^o measure, sometimes, I mean. I don't want any of our people
stanclinjx around, I want them to work steady, but I don't want
them to be like race horses, either.

Dr. Anderson. But the union is conscious now, as perhaps it hasn't
been in the past, that there is a technological- prochictivity increase,
and are you attemptinj^ to reach any understandino; with the manage-
ment about it? You say the slow-down is part of that. Are there
< ther ways that you attempt to control production?

Mr. Thomas. I still don't admit that there has been any slow-down.
I say we have gone to normal. There has been no slow-down. We
have tried to stop the management's speed-up rather than have a slow-
down. In our opinion we don't try, in an}- way, to hinder technological
improvements. In fact, we go along with what perhaps Mr. Ford
would say, in that we agree with technological improvements, but what
we ask for is that the savings made with those technological improve-
ments should be shared to a greater extent with the workers.

Dr. Andeuson. Is that why you referred a few moments ago to the
large net earnings on capital ? Do you infer that that is an improper
situation?

Mr. Thom.vs. Yes: I do.

Dr. Anderson. What, in your judgment, should be the prevailing
situation ?

Mr. Thomas. I don't think Mr. Ford's money should get any bigger
return than what I get on mine.

Mr. Pike. It doesn't, by the record.

Mr. Thomas. We will say General Motors, or Chrysler.

PLANT INVESTMENT AND PRODUCTIVITY

Mr. Pike. There is a point there, I think, that perhaps might be
made that was perhaps missed. You said that Ford's low earnings are
very largely due to the fact that he has a very large plant not very
much used. Isn't it true that both General Motors and Chrysler, also,
have substantial plant capacity not used to its peak?

Mr. Thomas. Not to such a large extent as Ford, because Chrysler's
and General Motors' production has increased more rapidly in the last
few years than Ford's has.

Mr. Pike. There is also another point, Mr. Thomas, that in the auto-
motive industry there is a very high speed of production as compared
with plant investment, where you can say $1,000,000,000 of investment
can produce $3,000,000,0t)0 of automobile, or so. So the importance of
plant investment to output isn't anywhere near as great as it would be
in many other lines where you have, say, only $1 of output per dollar of
investment, or as in the public utilities, where you have $1 of output for
5t=6 of investment. The burden of fixed interest charges, whether paid
by the public or whether paid to the bondholder, as in Mr. Ford's case
paid to himself as a shareholder, is nowhere near as great on the pro-
duction.

Mr. Thomas. That is correct.

Mr. Pike. So it is pretty difficult for me to see that any great pro-
portion of the difference in earnings can be due to the differences in the
plant.

124491—41 — pt. 30 13

16378 CONCENTRATION OF ECONOMIC POWER

Mr. Thomas. There is another factor that enters into Mr. Ford's
case. I am not sure of the figure, I believe I could say honestly that
Mr. Ford has thousands of service men on his pay roll who put noth-
ing into the automobile at all. They are just there; well, in the
union we call them "good squads."

Mr. Pike. I have heard the expression. I never knew it meant
service men.

Mr. Thomas. When you put thousands of service men on your
pay roll who have nothing else to do but to go out and w^atch other
workers to see that tliey don't w^hisper to each other and that they
don't talk and that they keep away from other departments, you
are bound to have a high overhead.

Again I must accuse Mr. Court of not hitting the nail right on the
head. According to the Census of Occupations, 17.4 percent of auto
employees were 45 or over in 1920. In 1930, 19.1 w^ere 45 or over.
This is an increase in proportion of 9.8 percent. In all manufactur-
ing and machine industries 26.2 percent were 45 or over in 1920 and
29.5 percent in 1930. This is not a 7.1 percent drop in proportion, as
claimed, but a 12.2 percent increase. Even by 1930, then, before the
weeding-out process had become most ruthless, more than II/2 times
as many (proportionately) workers 45 years of age or older were
employed in all industries as in the auto industry?

DISPLACEMENT OF MEN BY MACHINES

Mr. Thomas. It is impossible at the present time to give any full
or adequate survey of changes which have been taking place in ma-
chinery, techniques, and methods of production generally throughout
the industry. With tens of thousands of operations involved, this
subject is one which requires a special analysis by a group of trained
engineers and economists provided with specific facts on production
costs. We intend, rather, to give certain examples of changes which
wnll indicate general tendencies and illustrate the techniques in-
volved. Obviously, the examples will not by themselves prove that
there has been an over-all displacement of labor in the industry.
Representatives of the manufacturers may well cite changes in ma-
chinery and products for the improvement of automobiles which have
tended to increase the necessary manpower in automobile produc-
tion. That tl ere has been over-all displacement of labor is proved
not by these examples but by the general statistics regarding pro-
duction and man-hours of employment which we have already cited.

Approaching this question of technological change generally, it
call be said that the tendencies pointed out in 1935 by the N. E. A.
report summarize most of the persent developments in the industry.
Since 1935 there have been few, if any, basic changes in the method
of manufacture or machinery. Rather there has been a continuation
of incessant small changes w^hich individually may have had no
considerable effect, but which in the aggregate have served to in-
tensify tremendously total labor displacement.

1. The N. R. A. report, for instance, lists the introduction of a
photoelectric automatic inspection device used in the inspection of
wrist pins. This inspection robot was introduced in one of the de-
partments of the River Rouge Plant of the Ford Motor Co. in 1935.

CONCENTRATION OF ECONOMIC POWER 16379

It resulted in the displacement of 8 out of 10 workers previously
employed on the inspection job.

The robot proved so satisfactory on wrist-pin inspection that a
similar machine was designed for application in the camshaft section
of the same department. On that job now 4 men are doing the work
formerly done by 18.

Mr. Pike. Do they do as good a job?

Mr. Thomas. A becter job.

With thisbackground of success, another robot was designed along
similar lines to inspect crankshafts weighing 75 pounds each instead
of 18 pounds for each camshaft. When this machine is finally
introduced it is exj)ected that 2 men will be able to do the work
formerly done by 90 on this job.

2. The most striking example cited by the N. E. A. report of techno-
logical advance was the labor saving achieved through the introduc-
tion of the all-steel automobile body. According to estimates made
in the report the all-steel body was turned out at a cost of $30 less
per unit. This was done in spite of heavy costs for steel and new
equipment.

Since 1935 no such revolutionary change has taken place in auto-
mobile body makin^:. Rather, there has been the development of more
satisfactory and efficient machinery reducing the number of stamp-
ings necessary for a body and turning out a product requiring much
less time for finishing and repair.

The Chairman. I presume that you have no objection to the ma-
chine, have you?

Mr. Thomas. No.

The Chairman. Because the statement is frequently made that any-
body who presumes to discuss this question of technology and its effect
upon the human element is necessarily an enemy of the machine. But
I gather from your testimony here that you and your organization
recognize that the machine has made a most invaluable contribution
to society.

Mr. Thomas. Tliat is right.

The Chairman. And you are not in any sense, in discussing the
desirability of better human application, desiring to displace the
machine?

Mr. Thomas. No ; we don't want to do that.

The Chairman. I thought it would be well to bring that out.

Mr. Thomas. In this phase of the industry the development of
strip mills in the steel industry has had considerable effect. Sheets
are now received from the steel mills made exactly to size for the
stamping out of car bodies. This has eliminated the jobs of scores
of shearmen who previously were required to trim steel sheets to size.

In painting bodies, considerable changes have been realized within
the last few years. In one medium-sized plant the substitution of
synthetic enamel for Duco paint has reduced the number of coats
from 2 to 1, eliminating sanding operations altogether and dividing
the number of paint operations in half. This change resulted in the
displacement of 250 men in 1 department that I know of. I might
also add that the manufacturers always say when they make an im-
provement like this, "It is better for the customer." But you I jok
at any automobile that was painted 3 vears ago, and it is a perfectly

16380 CONCENTllATION OF ECONOMIC POWER

smooth job. Look at any cheaper automobile today (the liigher-
priced automobiles still use Duco), in any automobile in the cheaper
price class, you will find what is called by the manufacturer an
'•orange peel" iiiiish. It is very wavy if you look at it very closely,
and it is not nearly the smooth glossy finish that the automobile of
2 or 3 years ago had on it.

The Chairman. To what do you attribute that ?

Mr. Thomas. Before Duco they put many coats on, and they did
a lot of hand polishing on it to bring, out a high luster. With the
paint they ha"ve today they don't need to do that. The luster comes
out without any rubbing whatsoever, but any spray-painting job
leaves that orange-peel effect. It is not perfectly smooth and it
doesn't have any rubbing done on it at all.

The Chairman. But it is just as durable.

Mr. Thomas. It is just as durable. It may be more durable.

The Chairman. And the appearance is as good ?

Mr. Thomas. The appearance is not as good.

The Chairman. Except for this orange-peel appearance. That is
the only defect?

Mr. Thomas. That is right. Any automobile manufacturer him-
self will admit that.

The Chairman. And it is a cheaper finish, is it ?

Mr. Thomas. Oh, nmch cheaper, because they do away with over
half the employees in putting it on.

The introduction on this same job of an automatic paint sprayer
in place of the dip method formerly used has eliminated approxi-
mately 90 men. This is in another department.

8. Constant changes are taking place in the thousands of machines
used for turning out the various mechanical parts going into the
construction of an automobile. The types of changes here might be
listed under three main items :

(a) Increase in the operations performed by a single machine.
For instance, in many plants where previously 4 or 5 stamping
presses were necessary, a midtiple press has been introduced. Dies
are now constructed so that the whole series of stamping operations
may be done on one machine.

(b) Speed-up of the machine through improved cutting tools.
The use of diamonds or carbide tips speeded up many drills, cutters,
milling machines, broaches, lathes, and other machines.

(c) The simplification in operation of machine has made it pos-
sible in many cases for a single operator to increase the number of
machines he can run.

(d) The introduction of conveyors in handling bodies, parts, en-
gine blocks, and so forth, has gone on consistently throughout the
industry.

In one plant, for instance, a conveyor system was installed for the
making of car cushions. Wliere before a single worker did the com-
plete assembly, now on the conveyor line workers are assigned to one
small part in the whole assembly job. This has resulted in an in-
crease of 200 percent in producticm. Steadily during the pafet years
the efficiency of co7iveyors has been increased and their use extended
over wider and wider sections of the industry.

The Chair i\rA^.-T4K^fii I would take it as a resiilt of the conditions
you are now describing] there would necessarily be a displacement of

CONCENTRATION OF ECONOMIC POWER 16381

labor unless the market for the increased product which the new
process is capable of puttinp: cut were increased proportionately.

Mr. Thomas. That is ri^ijht.

Dr. Anderson. Just to add one more question to tli-lt, is it your
contention that the reason why we do not see the absolute technoloji'-
ical displacement effected in the automotive industry is that very fact
of still meeting an expandinjr or large market demand?

Mr. Thomas. No; the automobile industry is not at the moment
Bixpanding.

Dr. Anderson. I said "an expanding or large market demand."
You can take your choice.

Mr. Thomas. I think Mr. Ford was right in one statement he
made. It was along this line, i^nt if they only put 5,000 parts into
a car there probably would bt lUother half of the auto ^^ orkers who
wouldn't be working today, because of technological improvements.
But the fact that there are many more parts is the only reason they
have been able to stabilize the thing as much as they have.

Mr. HiNRicHS. I think you also mentioned the reduction of hours
as being a very important factor.

Mr. Thomas. That is another factor; yes.

PRODUCTION AND EMPLOYMENT SINQE 192 9

The Chairman. But the output of the automobile industry is not
expanding now, is that your statement?

Mr. Thomas. Yes. I think I read a report in the newspaper last
night by one expert who claimed that last month there were as many
automobiles built as in any other time in history with the exception
of 1929, and it was very close to the figure of 1929, yet there were
many mope people working in the industry in 192^ than there are
today.

The Chairman. Have you definite figures to show that?

Mr. Thomas. I haven't definite figures, only from what I know
in my own experience in the industry.

The Chairman. Is there any statistical basis for that statement ?

Mr. Thomas. I think there is. What I base my estimate on is
that practically every plant in the automobile industry isi employing
fewer peof a today.

The Chairman. That is a very important statement, if I under-
stand you correctly. If 10 years ago the prodiiction of automobiles
was practically the same as it was last month, and the production
last month was accomplished by fewer workers, that would be a very
significant statistical fact.

Mr. Thomas. I think that could be very easily proved.

Mr. Hin'Richs. You meant, didn't you, Mr. Thomas, that it was
accomplished with fewer man-hours. Did you also mean a smaller
total number of people on the pay roll?

Mr. Tho:mas. Yes.

The Chairman. Will you look into that and furnish us a statement?

Dr. Anderson. Mr. Chaii-man, Mr. Thomas has. in his last table of
his document, a table showing tlie story through 1936. Do vou have it
built up beyond '36 to '38?

Mr. Wishart. We have it for '37 and '38 here.

16382 CONCENTRATION OF ECONOMIC POWER

Dr. Anderson. It will settle the question immediately.

Mr. WiSHART. If I may be allowed to read the figures, production
in 1937 was 92 ; employment, 107.1.

The Chairman. Now you are talking in terms of indexes.

Mr. Wishart. That is right, and we are taking 1929 as 100. In other
words, in 1937 there were 7.1 percent more workers who had employ-
ment for a part of the year than there were in 1929 ; in 1938 employ-
ment was 63.3, with production at 51.8. Naturally the figure is higher
for this year. My guess is that total employment, the total number
of workers whose names were on pay rolls in 1939 was perhaps a trifle
under 1929.

The Chairman. And what about the output?

Mr. Wishart. The production index for 1939 hasn't been worked out
yet on this basis, so there is not much that can be said. Production
will be lower than it was in 1929.

The Chairman. Well, of course, then there is no comparison. The
statement as you made it is not borne out by these figures.

Mr. Thomas. But proportionately I say what I said is true.

The Chairman. That is still your analysis of the statistics?

Mr. Thomas. Yes; that is my best estimate.

The Chairman. All these economists make a lot of estimates, you
know.

Dr. Kreps. You certainly agree that the man-hours are much lower.
Whether or not the number that were reported on pay rolls was lower
is another question.

Mr. Thomas. I think the names on pay rolls are less.

The Chairman. I think it would be a very important fact to develop
if it is a fact.

Dr. Anderson. Is it possible for you to get such data ?

Mr, Thomas. I think it is; yes.

Dr. Anderson. Will you supply it to the committee?

Mr. Wishart. We hope to provide that.

Mr. Thomas. I might say, in talking about these changes, I had
another experience with technological improvement myself in an
automobile plant. I happen to be a welder. I have done the plant's
gas and electric arc welding, I got a job in the Cadillac Motor Car
Co., and was welding rear-axle housings by hand, and they paid $1
apiece for welding those rear-axle housings. Their production aver-
aged about 100 per day, which required, obviously, 10 welders. We
did 10 housings apiece a day, which we were paid $10 for doing.
There was an engineer who worked for the company, and I worked
with him quite a lot — a Mr. Goodspeed was his name — who developed
the Goodspeed automatic head for welding. That machine would
turn out more than enough in a day, with one man operating it, for
the day's production, and the wages were less than the $10 which
each one of us originally received.

The Chairman. That machine was capable of turning out more
than 100 welded housings?

Mr. Thomas. Which formerly the 10 men had turned out. I was
quite interested in the analysis Mr. Ford made, arguing that the cost
of these machines offset the number of people laid off. I can take
an average mechanic and take this Goodspeed head. Of course, it
was wortn something to the man who invented the taing, but it is
such a simple affair, and they use only one in a plant, that if any

CONCENTRATION OF ECONOMIC POWEIl 16383

decent mechanic at all couldn't build one in two weeks' time I would
think he was a pretty poor mechanic.

Mr. HiNRiciis. What happened to you 10 men? Were you given
other jobs in the Cadillac plant?

Mr. Thomas. The 10 of us were given other jobs, yes, but we were
given less skilled jobs; that is, most of them were. I continued weld-
nig there for several years, but most of those 10 men were given less
skilled jobs. Thoir wages were cut. Some of them, of course, left, be-
cause they thought they had opportunities of finding a job for their
trade some place else.

Here are a few more examples of changes along the lines suggested
above which have taken place recently in the automobile industry.
In the production of mowings, graining was formerly done by hand.
Tins operation was replaced by an automatic graining machine which
has increased output per man by 400 percent.

On a press used in the manufacture of clutch release bearing
springs an air valve was installed, operated by foot, thus enabling
the operator to increase production by 90 percent.

On the operation of division channel fabrication in an automotive
hardware plant a drill press was moved closer to the operator, and
the table lowered. On this job production was increased from 542
per hour in 1938 to 794 in 1939.

The introduction of an automatic polishing machine used for the
finishing of many parts and accessories occurred in one automobile
parts plant in 1938. Before a man had been polishing stock on indi-
vidual grinding wheels. With the introduction of the polishing
machine, production per hour for each man on one typical part
increased from 100 to 500.

Automatic machines were installed in 1938 in many plants for the
milling, reaming, and boring of many cylinder blocks. Previously
this operation had required six machines; now the whole job is done
by one operator on one machine. The job of the operator is to feed
housings to the machine and move on finished housings as they are
ejected.

Changed methods introduced in one plant in 1939 in the setting
of tappets in engines has resulted in an increase in the number of
tappets set per hour by 1 man from 96 to 201 Before tappets had-
been set hot: that is, engines were running and m'-W warmed up;
operators had been setting the old-style cap screw tt. opet and lock-
ing them in i)]ace. One man did a complete one on one engine and
then moved on to work on the next.

Now tappets are s^t in cold engines as they move between the
operators on a conveyor. Self-locking tappets arc used which are
supposed to stay set without a lock nut. Tappets set in this manner
are reported to give less satisfactory operation, but the change has
been vindicated by the tremendous savings in labor.

In I nc motor-assembly plant the installation of conveyors for the
handliuir of car bodies as they are trucked in from body phints lias
resulted in considerable saving in labor. Before bodies had been
handled on push buggies — that is wliat the workers call them (they
are a tint truck) then stored until called for on tlic production line.
Now with the conveyor picking up the bodies they are produced in
the proper number of earh style and are run directly onto the assem-

16384 CONCENTRATION OF ECONOMIC POWER

bly line. This has meant the loss of jobs to 25 of the 105 men previ-
ously engaged in this work.

In one medium-sizod automobile plant a v.diole series of millinc;
operations on engine blocks are due for elimination within the next
year. A broaching machine .costing $750,000 is due for installation.
One operator using an air hoist will lift the engine block onto a rail
which will force it through this broaching machine. It is expected
that the installation of this machine will mean doing away with 126
men in a department now employing 641.

These examples, as has been suggested before, represent only a
fraction of the continuous changes going on in the industry. There
is no reason to believe that this rate of .change will be slowed dov,n
in the years to come. Every resource and ingenuity of engineering
skill has been, and is being, applied to this problem of reducing the
amount of human labor necessary for a given quantity of produc-
tion. From discussions with men experienced in the engineering side
of the industry it can be said that few major changes either ir^ the
production or methods are to be expected within the next few years.

The onlf/ basic change is likely to come about through the intro-
duction of plastic bodies. Already we are informed that some pro-
duction of plastic bodies has been carried on in European automo-
bile plants. Although there is some evidence that these new bodies
have not yet been developed from the ]X)int of ])ractical production,
those familiar with the industry predict their introduction within 10
years at the outside. The coming of the plastic body would mean a
tremendous teclmological displacement through the elimination of
labor necessary in stamping, painting, and finishing automobile
bodies.

REGULARITY OF EMPLOYINIENT

Mr. Thomas. In listing the blessings which the auto i dustry has
achieved for its workers, Mr. Court, whose figures Ave have had
occasion to refer to before, mentions stability of employment. He
says:

The average record of continuous employment (In the same plant) for men
employed in the plants of members of the Automobile Manufacturers Associa-
tion (lurins 1938 was about 6 years. One-fifth of the men had 10 or more
years in one plant.

Here again Mr. Court is giving the automobile manufacturers
credit for what the union has accomplished in the face of their
opposition. Stability of employment through the seniority system
has been and continues to be one of the principal objectives of our
union. However, the U. A. W.-C. I. O. cannot share Mr. Courts
satisfaction even with present conditions in this phase of the auto
workers' life

The average record of continuous employment, as Mr. Court states
it, does not reflect- necessarily year-round employment. It is well
knoAvn that a large proportion of workers whose only employment
over a long period of years may be in one plant will have only partial
emplo/ment.

A study made by the United Stales Department of Labor, Bureau
of Labor Statistics, on stability of employment in 1934 states:

Ono> third of the motor vehicle employees work throughout the year. Ono-
nalf of the employees had less than 6 months work. Another quarter worked
6 to 10 months.

CONCENTRATION OF ECONOMIC POWER 16385

With constant fluctuations in production thi-oughout the year there
are also constant fluctuations of emph)yment, as the Department of.
Labor statement indicates.

Mr. HiNiacHS. May I make one connnent at that point. I don't
have the fi<:;ures. I am sure you are quoting them correctly. As
you have indicated, those figures relate to employment in an indi-
vidual plant; in sonie instances — and we weren't able in that study
to determine finite how many — the worker may have had employ-
ment opportunity in two plants. The general picture that you give
of the large volume of short-time employment is quite correct. I
don't want to minimize your statement, but I would like to make it
technically quite accurate at that point because those figures have
been in a good deal of controversy.

Mr. Thomas. I would like to say this: You say the worker may
have had employment in more than one plant. In the automobile
industry that would be unusual, to say the least. The automobile
industry strives and they compete with each other. They are all
trying to, beat the other fellow, so the result is they all come out
practically at the same time, and they have their peaks and valleys
atj the same time, so it is practically impossible for an automobile
worker to work in more than one plant for the duration of a year.

It should be noted that the Bureau of Labor Statistics study here
includes salaried employees, who usually work a full 12 months, in
addition to hourly rated employees.

Now this is the question you asked awhile ago.

Organized labor has learned through centuries of experience that
the intent to check or destroy new machinery is plain social folly. We
do not stand for artificially increased labor requirements in the pro-
duction of any of America's basic commodities. What we are con-
cerned about is that such technological advance should not be entirely
at the expense of American workers, and the stability of Ajnerican
economic society.

It is our })elief that in the pa-st the benefits of technological improve-
ment have been monopolized by the rulers of our financial and indus-
trial systems. More efficient production has meant a greater and
greater accumulation of wealth in the hands of the most powerful.
This has been accomplished by what appears to be an actual decline
in the total share of wealth produced going to the employees of in-
dustry. AYe are opposed to this tendency not only because we feel
that it is unjust. We are opposed to it because we recognize that con-
tinued technological advance is impossible without an adequate mass
market to consume the products of our new skills.

We believe in genuine technological progress, based upon and re-
sulting in the greater welfare of the mass of our people. We are
opposed both to the vicious speed-up system, which has nothing to do
with genuine technological progress, and to the monopolization by
the favored few of the benefits flowing from new productive power.

xVs the experience of the automobile industry shows, technological
displacement is realized primarily through the failure of markets to
expand in proportion to an expanding productive capacity. This, the
United Auto Workers feel, is one of the basic causes for the unem-
ployment, insecurity, and economic hopelessness of our present time.
We are proud of our contribution to the solution of these problems

16386 CONCENTRATION OF ECONOMIC POWER

through the fight for the economic security of our own people. Or-
ganized hibor does not believe that a solution to present-day economic
problems will be found in the discovery of new and improved products.
We believe that new and improved products will appear and bring
industrial prosperity when the buying power of the American people
as a whole is sufficient to make their pruduction profitable. The ex-
perience of the automobile industry would seem to bear this out.
American prosperity during the 1920's w^as based on automobiles, but
automobile sales in turn were based upon the high level of income
enjoyed by the American people during the first quarter of this cen-
tury. Without that high level of income the automobile industry
would have no more effect in developing our prosperity than it had
in such countries as England, France, and Germany, In these coun-
tries, although technological advance proceeded as rapidly as in
America, consistently low-mass purchasing power made impossible
the circulation of new products to the general public.

The Chairman. Any further questions, Dr. Anderson?

Dr. Anderson. These figiires on Ford production related to pro-
ducing capacity will serve to explain the $91,000,000 profit made by
Ford in 1929 as well as the $74,000,000 loss marked up by the Ford
Co.in 1932. It serves to illustrate as well the fact that heavy in-
vestments in new machinery sometimes serve to defeat their own pur-
pose, that is, the reduction of costs. I wonder if you would accept
this qualification, although it may not necessarily explain the Fard
situation. The obsolescence of a model and the loss of a market might
reasonably explain Ford's difficulty, rather than his investment here
in heavy production machinery that didn't yield.

Mr. Thomas. That is another factor that enters into it, I bWieve;
yes.

Dr. Anderson. Would you hold that any machinery is installed by
a motor maker without having first, from an economic standpoint,
determined that it will reduce cost in a particular unit where it is
to be placed ?

Mr. WiSHART. That is on the assumption of a certain mass produc-
tion; yes.

EFFECT OF MECHANIZATION UPON SKILL

Dr. Anderson. I want to refer to a question of Mr. Ford's we had
before you started this afternoon, and that is this one of degrading
of workmen, which seems to be of real importance not only in terms
of the satisfaction of the workers involved but in terms of purchasing
power and general social well-being. Beyond what you have stated
in this document, what do you think is occurring at the present time
in the automotive industry? Are workers being degraded to the semi-
skilled and unskilled level, or is there increasing use of skill in the
fiutomotive industry*?

Mr. Thomas. In tbe automobile industry the tendency is more
toward lower skilled occupations all the time?

Dr. Anderson. Do you see any immediate prospect of full em-
ployment in the automotive industry?

Mr. Thomas. I don't.

Dr. Anderson. What, in your judgment, is the proportion of un-
employed automotive workers, either registered with unions or non-

CONCENTRATION OF ECONOMIC POWER 16387

union workers, available for labor and seeking work, in proportion to
the total force?

Mr. Thomas. Well, that is pretty hard to estimate, due to the fact
that in our industry, as I said in this statement, a lot of men come
into the industry from southern States and during the depression
j'ears have gone back there and we have no way tf account for them
now. If I would give a guess it would certainly be a very, very
rough guess.

Dr. Anderson. In other words you have had an influx from states
other than the automotive states?

Mr. Thomas. We are in bad shape today. A lot of them have
left the state.

Dr. Anderson. Do you know anything about the circumstances of
those who left to find employment in their home states?

Mr. Thomas. No, they can't ; as far as I can learn they keep everj'
once in a while coming back to Detroit, trying to get jobs, and I
have talked to a number and they say it is impossible for them to
get jobs any place.

Dr. Anderson. Who were those people who came from other states ?
Were thc}^ farmers, or people from the farms?

Mr Thomas. Yes .

Dr, Ander5on. And they made

Mr. Thomas. They were perhaps sharecroppers and small tenant
farmers.

Dr. Anderson. This trend toward shorter hours, do you see any
evidence that that trend is flattening out? Is there any leveling off
of the hours of employment?

Mr. Thomas. In organized shops we have got it pretty much leveled
off now per day, if that is what you mean. It is pretty much an
8-hour day now in the industry.

Dr. Anderson. Are you directing any effort toward an annual wage?

Mr. Thomas. Well, we are trying in alt our negotiations to convince
management that it would stabilize the industry a lot more if they
would agree to an annual wage and we also think it would help the
unemployment situation. We think the automobile manufacturer
is well able to afford it by establishing a 6-hour day, 30-hour week.
Of course we haven't been able to sell that to the manufacturer yet.

Dr. Anderson. Well, what are the annual earnings, average annual
earnings of wage earners in the automotive industry? Let me put
it this way, is it possible to get figures from your uniou that will
indicate, by grade of labor, the rates of pay and earnings of workers?
Do you have any such data ?

Mr. Thomas. We could get a large cross section and try to strike
an average on something, yes, but it would be a very difficult job.

Mr. Anderson, Wei], in your new labor contracts are you turning
increasing attention to such matters as lay-offs and dismissal pay
and retirement and other social benefits?

Mr. Thomas. Yes, but that is another thing we have made very
little progress with at all. The automobile workers have been called
"dead-end kids" in the labor movement-. The automobile industrial-
ists who so many years ran the industry as open shops, fight violentlv
against any new innovation in the industry, and it is a hard job
for us to make any progress at all on what we feel would be of any

16388 CONCENTRATION OF ECONOMIC POWER

economic benefit to the country at large. They would resist with
their last dollar, I guess, if it became necessary. The Automobile
Manufacturers Association themselves say that in the season of '^iS
and '39, the average was $1,328; in '37 and '38 it was $906.

Dr. Anderson. That is average full-time earnings ?

Mr, Thomas, Yes. No automobile worker — I say no; 95 percent
of the automobile workers never work a full year. I don't believe
I ever worked a full year in the 15 years I was in the automobile
industry, that I recall.

The Chairman. What was that figure?

Mr. Thomas. For the season of 1938 and 1939, $1,328.

The Chairman. The average?

Mi-. Thomas. Yes.

The Chairman. And what does that include in the category of
woiik ? Does it include everybody in the automobile industry 'i

Mr. Thomas. This is employees.

The Chairman. Does it include the office employees?

Mr. Thomas; Only hourly rate employees, and it doesn't include
the Ford Motor Co.

The Chairman. Now, do you regard that as accurate?

Mr. Thomas, I think it would be very close ; yes.

The Chairman. In other words, the average hourly employee,
though he doesn't work a full year, earns more than $100 a month
in the year?

Mr. Thomas. In a good year. Of course 1938 w^as considerably
lower than that.

The Chairman. This figure, then, refers only to a specific year?

Mr. Thomas. That is right.

The Chairman. And what would you say w^ould be the average
for the last 10 years ? Of course that might be an improper question
because of course you had the depression years.

Mr. Thomas. In these figures here the season of '33 and '34 was
$749; '34-'35, $1,014; '35-'36, $1,294; '36-'37; $1,399: '37-'38, $906;
'38^'39, $1,328,

The Chairman. By and large that is a much better record for
labor than would have been possible 15 or 20 years ago, probably,
isn't it?

Mr. Thomas. Yes ; but I remember 15 or 20 years ago when living
costs were considerably lower, too.

The Chairman. That is true, but I mean it is true, is it not, that
there has been a general improvement?

Mr. Thomas. There has been in the last several years, as I stated
in my brief here; in the last several years in which we have had
organization we have increased wages considerably.

The Chairman. In other words you don't deny there has been an
improved condition?

Mr. Thomas. Certainly not.

The Chairman. But contend the improvement isn't sufficient to
sustain our economic system?

Mr. Thomas. That is right.

The Chairman. And it doesn't provide employment for all who
need jobs?

Mr. Thomas. That is right.

CONCENTRATION OF ECONOMIC POWER 1638^

The Chairman. You are quoting from this book of the Associa-
tion of Automobile Manufacturers. Did you also bring this docu-
ment to the room?

Dr. Anuki;son. I am responsible for that, Mr. Chairman. I brougiit
it the first day and handed it to the connnittee, the documents' that
were available. This particular document, I might say, is' from the
Automobile Manufacturers Association; the study is considered the
basic economic study in the field and so far as I know literature of
this kind it is the most competent job th .t has been done.

The Chairman. Well, I note it begins with this sentence from Don
Quixote, to the effect: "No greater knight errants have sought to
exorcise the imagined devil in labor-saving machinery." I suppose
you have read this document. Is that the tone of it ?

Dr. Anderson. After the first paragraph the economists who wrote
this document apparently moved into some economic analyses and
foro;ot about the first paragraph.

Mr. Thomas. These fio-ures I quote here are from a study by the
Brookings Institution, wdii -h they got from the Manufacturers' As
sociation.

The Chairman. Well, I observe that the author of this pamphlet
distributed by Dr. Anderson is Mr. Andrew T. Court, an economist
wliom you have quoted, apparently, from time to time.
Mr. Pike. Not with the highest approval, however.
The Chairman. That is what I am getting at.
Mr. Pike. He has quoted a good many of those same figures.
The Chairman. I am told that Dr. Court is in the room. Would
it be proper to give him an opportunity to dispute Mr. Thomas?

Dr. Anderson. I might say. by way of explanation, Mr. Chairman,
that in these hearings we have made every effort to secure all the
facts available.
The Chairman. I hope so.

Dr. Anderson. In these hearings we have tried to get all attend-
ing parties into the room for ihe discussion of their particular points
of view. We early asked the Automobile Manufacturers^ Associa-
tion to have a representative speak for them here. As a starting point
we made an analysis of this document, which was their statement of
the case. Since Mr. Paul Hoffman, of the Studebaker Co., could not
come to testify, the}' decided not to have a representative at the
hearings, but it was agreed that if any witness should refer to this
study, we would give them an opportunity to be heard in refutation.
If Mr. Court is here and would like to be heard now we would be glad
to hear him.
The Chairman. Is Mr. Court present?

Mr. Court. I am present. The questions raised mainl}' are tech-
nical questions between the relative usefulness of the figures from
various -Government departments, and I don't think I am prepared
to comment on that.

The Chairman. All I want to say is, Mr. Court, if you do care to
make any statement, I am sure the committee would be very glad to
have you do it at your own convenience.

Mr. Court. Thank you very much. Not at this time.
The Chairman. Are tliere any other questions to be asked of Mr
Thomas?

16390 CONCENTRATION OF ECONOMIC POWER

Mr. HiNRiCHS. I indicated earlier that I wanted to make some
observations with reference to the reference to census figures in the
Bureau of Labor Statistics figures. There is no essential controversy,
but I think that a clearer statement of the facts might be helpful
for the record. The increase from 1929 to 1937 which appears to be
larger in the Bureau of Labor Statistics series than in the census
figures, is due to the fact that in 1937 and before we had included
the steel-making and foundry establishments in the automobile in-
dustry, and the 1937 census excluded them from its count of the
industry. In 1929 those particular ")arts of the industry were rela-
tively unimportant. We normally adjust our classifications to corre-
spond with those of the census so that there won't be any difference
in the two sets of figures. Our figures, however, are compiled pri-
marily in order to show month-to-month fluctuations between census
periods, and the reports come to us voluntarily from the various
manufacturers.

The automobile industry was apparently unable to furnish us a
break-clown of their employment figures on a monthly basis. It was
indicated by the census figures and in order to get comparable fig-
ures from month to month we have had to carry our figures forward.
Now there is no question that there is a discrepancy between the
two. It doesn't have anything to do with the reliability of one set
or the other. One merely needs to know the differences in content,
which in this case affects on the one hand the automobile figures
aiid on the other hand the iron and steel figUx^es.

The Chairman. In other words every statistician will defend his
estimates ?

Mr. HiNRiCHS. Our figures are perfectly all right, but the point of
view for which they are published differs.

Mr. WisHART. TVe were not attacking the Bureau of Labor Statis-
tics or the Census of Manufactures. W^ were attacking the com-
parison of tilings fundamentally noncomparable. As you have
pointed out, the census figures and B. L. S. figures cover different
sections of the industry; since the B. L. S. has not included the same
things, of course, there is a discrepancy there which appeared to
cover up the actual '^echnological displacement which had occurred.

The Chairman. If there are no other questions, Mr. Thomas, we
are very much -ndebted to you for your presence here and your testi-
mony. The committee will stand in recess until 10 : 30 tomorrow
morning.

(Whereupon at 5 : 10 p. m. a recess was taken until 10:30 Thurs-
day morning.)

INVESTIGATION OF CONCENTKATION OF ECONOMIC POWER

THURSDAY, APRIL 11, 1940

United States Senate,
Temporary National Economic Committee,

Washington., D. C.

The committee met at 10:40 a. m., pursuant to adjournment on
Wednesday, April 10, 11)40, in the Caucus Room, Senate Office Build-
ing, Senator Joseph C. O'Mahoney, AVyoniing, i)resi(ling.

Present: Senators O'Mahoney (chairman), and Kin<2:; Representa-
tive Williams; Messrs. O'Connell, Pike, Hinrichs, and Brackett.

Present also: George E. Bigge, Social Security Board; Frank H.
Elmore, Jr., Department of Justice, and Dewey Anderson, economic
consultant to the connnittee.

The CHAiR:\rAN. The committee will please come to order.

Dr. Anderson. We propose today to present two witnesses, both
familiar with the steel industry, to examine into the problem of
technology in steel. This morning's witness is Mr. Charles Hook,
president of the American Rolling Mill Co. ; ^ this afternoon's wit-
ness, Mr. Philip Murray, chairman of the Steel Workers' Organizing
Committee. Mr. Hook has prepared a statement and is now ready
to testify.

STATEMENT OF CHARLES R. HOOK, PRESIDENT, THE AMERICAN
ROLLING MILL CO., MIDDLETOWN, OHIO

Mr. Hook. It is not my intention to attempt any theoretical analy-
sis of the effects of technological innovations on employment. It
seems to me, however, that most economists and businessmen are
agreed that technological improvements tend to stimulate the demand
for labor, and do not of themselves bring about prolonged periods
of unemployment.

I believe it has been tlioroughly established that ever since the in-
troduction of power machinery, there has been a continuous increase
in the output per man-hour in industrialized countries. This in-
crease in man-hour output, as we all know, has been accompanied by
increased em))loynient, shorter Avorlving hours, improved working
conditions, and an ever-advancing standard of living.

It is true that the introduction of a labor-saving device may cause
some inunediate displacement of individual workers. Likewise,
workers in some trades ma}' be displaced vviien new products, as was
true of the automobile, appear upon the market. Such temporary
dislocations are inevitable in a progressive society, and they need

' See Hearings, I'arts 19 and 2t>, for prin-ious testimony of Mr. Hook.

16391

16392 CONCENTRATION OF ECONOMIC POWER

cause concern only when the displaced workers are unable to find
other employment without prolonged delay.

It is my observation as a businessman that the time which must
elapse before any displaced woi^kers are reabsorbed into other lines
of work depends upon general business conditions and the relative
freedom from causes whirli restrict the free flow of capital. The
elapsed time is brief when all factors are favorable, as during the
postwar period of the early 1920's, when employment gained simul-
taneously with many technological advances.

The elapsed time may be longer when general conditions are unfa
vorable as they have been in recent years, but the experience of the
last century seems to provide no evidence for concluding that tech-
nological improvements cause permanent unemployment or help to
bring about prolonged depressions.

Periods of business depression always give rise to efforts to locate
the focal point of infection. This is not the first time the finger of
suspicion has been pointed at so-called technological improvements
as the chief cause of unemployment.

The" clamor against improvements in manufacturing techniques
has been raised many times during the past 150 years. On such occa-
sions the charges have been show^n by subsequent events to be un-
founded and fallacious. Notwithstanding these lessons of history,
the old exploded theory, like Banquo's ghost, has come to life again
wearing the label of "technological unemployment."

Actually it is impossible to measure precisely the broad effect of
the introduction of a machine upon either employment or output per
man. Many factors enter into the determination of changes in em-
ployment and man-hour output.

Technological innovations relating to blast furnaces and open-
hearth processes, mechanical and electrical equipment, labor-saving
devices, improvements in supervision, better working conditions, in-
centive systeias, and so forth, are all factors which may perma-
nently influence change in output per man-hour. To attribute a
given increase in output per worker to any one of these many
factors would seem to me highly theoretical and, from a practical
point of view, impossible to demonstrate with any acceptable degree
of accuracy.

Since I regard it as w^holly unfeasible to attempt any precise
measurement of the effect of technological change on employment, it
is my intention, following these preliminary Remarks, to present for
the consideration of the committee a factual record. This record will
cover changes in a large unit of the company with which I am asso-
ciated and in which the continuous sheet mill represents the outstand-
ing tech.nological improvement. '

For that purpose, I have chosen the period covering the years 1926
down to 1937, because it M^as during that period that all but one of
the continuous sheet rolling mills were introduced into the steel
industry.

Following the presentation of data relating to my own company,
I shall show comparable data as to employment in the iron and steel
industry for the same period. All tliese data show conclusively that
the installation of continuous mills have not reduced employment.

With the committ^-e's permission I will present this factual record
in considerable detail with charts and tables.

CONCENTRATION OP ECHDNOMIC POWER 16393

nRST CONTINUOUS SHEET MILL INSTALLED IN 1926

Mr. Hook. Before doing so, I should like to comment briefly on
some of the striking changes in the steel industry which have taken
place since the invention of the continuous sheet rolling mill. Since
the first continuous sheet rolling mill was put into operation, 27 such
mills had been installed by 1937, representing a total investment by
the industry of approximately $500,000,000. Building that equip-
ment has provided work for thousands of workers in the construction
and equipment industries.

It has been alleged that 85,000 to 90,000 workers haye been dis-
placed by the continuous j^ieet-mill process. Such a claim is shown
by an examination of the facts to be wholly without foundation.

In 1926 a total of 1,2C4 hand mills for producing hot rolled sheets
and black plate were in existence. The greatest number of men that
could have been employed on these mills, on 3-shift operations, would
have'been approximately 43,000, or only about 10 percent of the total
number of workers employed in the entire iron and steel industry at
that time.

Obviously, if all of the hand mills in existence in 1926 had been
eliminated by the introduction of continuous sheet mills, the total
number of job displacements could not possibly have been even one-
half of 90,000. But actually there are still 750 of those mills in exist-
ence with approximately half in operation. That is a reduction of
the number of men employed on hand mills of about 27,000. But for
the steel industry as a whole we had an actual increase of working
forces of 117,000 men from 1927 to 1937. Total employment in the
steel industry increased from 427,000 in 1927 to 544,000 in 1937, ac-
cording to figures of the United States census, an increase of 27.4 per-
cent, while in the meantime the population incre9,se has been 11.2
percent, according to the same source.

Mr. HiNRicHS. Just one question at that point. You use the phrase
"27 continuous sheet rolling mills" and then you speak of 1,264 hand
mills. Are the hand mills separate enterprises?

Mr. Hook. They are the old method, tHe old sheet mills which I
will show in a picture in a few minutes.

Mr. HiNRicHS. I see ; they arc separate enterprises and not a part
of the factory enterprises, with 3 or 4 mills.

Mr. Hook. No; they are not separata. We make sheets on the
old steel mill, just as we make sheets on the continuous rolling mill.

Mr. HiNRicHs. And the mill that you refer to as a hand mill is the
machine, not a factory.

Mr. Hook. Oh, no; it is a machine. In other words, we made sheets
on these old hand mills prior to 1926, or in our case prior to 1924.
Now then, we introduced to do that same job the continuous sheet
rolling mill. Do I make myself clear?
Mr. HiNRiCHS. Quite.

Mr. Hook. Of course it is true that when a continuous sheet mill
replaces hand mills more jobs are atfocted than those" of the immediate
hand mill crew of some 8 or 10 men. Other jobs on operations back
in the plant leading up to the hand mill or connected with its main-
tenance are afiected also. But that does not mean that such jobs are
eliminated. In most cases they are merely changed.

124491— 41— pt. 30 14

16394 CONCENTRATION OF ECONOMIC POWER

Men who were skin passers, shearmen, handlers, oilers, weighers,
picklers, and cranemen on the hand mills are doing the same kind
of work on the continuous mills. I have cited only a few examples.
There are many more.

Not only are such jobs held over in the continuous mill operation,
but in some categories the number of men required is greatly increased.

Moreover, the continuous mill creates new jobs which do not exist
in the hand mill. I will name only a few of these, such as bearing
setters and helpers, welders, recoil operators, and stitcher operators.

Another factor bearing upon the record of increased employment
in the steel industy is the significant increase in the production of light
flat rolled products from 6,327,000 tons in 1926 to 10,793,000 tons in
1937. Ihat required more workers in the blast furnace, the open
hearth, and in all finishing, processing, and shipping departments.
It must also be realized that many new technical, administrative, and
selling jobs have been created by this increased volume of production.

I am sure that there is unanimous agreement among consumers
of sheet steel that the improvement in quality and properties of this
product, resulting from the continuous mill, has made possible exten-
sive improvements in many widely used consumer articles. Notable
among such improvements are those in the automobile, washing ma-
chine, electric and gas range, kitchen cabinet, and refrigerator indus-
tries, all of which have resulted in providing for the consumer a
a constantly improved product at a steadily reduced price.

Steel users not only have benefited from improved quality, which
makes for possible lower fabrication costs, but they have also enjoyed
the advantage of lower prices as well. From 1926 to 1939 the aver^
age prices of all iron and steel sheets realized by our company declined
31.1 percent.

ADVANTAGES TO Lu\BOR FROM CONTINUOUS MILLS

Mr. Hook. Advantages from the continuous sheet mill process have
come to labor in two important ways.

First, workers have benefited from the lightening of their task and
from the improvement of working conditions in the rolling mills. As
a former woi'ker in the mills myself, I speak from personal experience
when I say that the w^ork on the old style hand mill was one of the
most arduous and difficult of any in the steel industry. The continu-
ous mills, wherever they have been installed, have completely elimi-
nated all of the difficult and taxing manual phases of work in the
rolling mill.

Second, worke;'s have benefited from the broadening of markets
brought about by the continuous sheet mills. Changes in the quality
and properties of sheets made by the new process are so great as to
amount practically to the introduction of an entirely new product
in the steel industry. It is a product which lends itself to uses and
applications utterly beyond the scope of old style sheets

Accordingly, workers are employed in the production of large ton-
nages of sheet steel for uses who'^y nonexistent before the appearance
of the continuous mill. I could inention, for example, the steel auto
top, and one-piece auto fenders, each of which is stamped at a single
operation from a single wide steel sheet.

CONCEl^TRATrON OF ECONOMIC POWER 16395

Moreover, since 1926, average earnings, of workers in the steel indus-
try have increased from 63.6 cents an hour to 84.7 cents an hour, a
gain of 32 percent. Meanwhile, there has also been a substantial
shortening of hours of work.

The hot-rolled production of other than light flat-rolled products
in the yea^s 1926 to 1937 shows a reduction of 11 percent, or approxi-
mately'3,')00,000 tons, while at the seme time the light flat-rolled prod-
ucts increased approximately 4,500,000 tons, requiring about 45,000
men. This number of men is more than was previously employed in
all of the sheet mills in 1926. It is evident, therefore, that the intro-
duction of the continuous rolling mill' has not been accompanied by
a decrease in employriient, but on the contrary, since its adoption, the-
number of workers in the steel industry has materially increased.

Now, Mr. Chairman, with your permission

The Chairman (interposing). Now to what do you attribute, Mr.
Hook, this material increase in the number of workmen?

Mr. HooK.^ I am going to show you in the charts that follow, and
some of the exhibits, one small exhibit that I have here.

The Chairman. I see.

Before you turn to the charts, it just occurs to me to make this
comment. I think that in the entire discussion of technological im-
provement arid its relation to unemployment, there is constant danger
of misunderstanding of the terms in which people are talking.

Mr. Hook. ,That is possible.

The Chairman. There is no doubt, I suppose, that there are persons
who believe and who say that the mxchine as such is responsible for
unemployment, but I can't recall any person in any responsible posi-
tion as having said that in my hearing, or of saying it in any docu-
ment that I have read.

The question, I think, revolves around the actual fact of labor
displacement.

Mr. Hook. That is right.

The Chairman. Which apparently is recognized by all industrial
leaders, and is apparently recognized in your statement.

Mr. Hook. No; I think I said not displacement — pardon me.
Senator.

The Chairman. This is what you say on the first page :

It is my observation as a business man that the time which must elapse before
any displaced workers are reabsorbed into other lines of work dei)ends upon
general business conditions and the relative feedom from causes which restrict
the free flow of capital.

Mr. Hook. Correct.

The Chairman. Now that sentence seems to recognize tliat there
is such a thing as displacement of workers.

Mr. Hook. Temporary, becaur;e I s ly until they are reabsorbed.

The Ch/.irman That i= right. And the question therefore, revolves
around the ability of industry as a whole, business as a whole, not
merely mechanical industry but the whole economy, to reabsorb per-
sons who are displaced, because there is apparently such a thing as
displacement of individuals.

Mr. Hook. That is possible, but taking it as a whole

The Chairman (interposing). Is it possible or is it a fact?

16396 CONCENTRATION OP ECONOMIC POWER

Mr. Hook. If that individual is displaced, another man is employed,
maybe 30 miles away.

The Chairman. That is right. That is exactly the point

Mr. Hook (interposing). Plus anotlier man, probably.
The Chairman. That might be very true. That, of course, is the very
point of impact. The particular person loses a job though another,
or 2 or 10 jobs may be created somewhere else. And the problem of
reabsorbing the displaced worker as set forth in this sentence of yours
is, as I see it, the heart of this problem. Do you agree with that state-
ment?

Mr. Hook. Well, it is a problem and industry has been making a
great many studies. For instance, the National Association of Manu-
facturers now. Senator, have a committee at work, just as we studied
the worker over 40 and proved fallacious the general statement, that
is, often made, that industry was not employing the worker over 40.
And that report shows that in recent years the proportion of men over
40 are greater than they were in the twenties.

The Chairman. And I think it would be proper for me to say here
that my observation of this whole economic problem throughout this
study has given me a great deal of encouragement by reason of the
very obvious effort that is being made by men like yourselves, and by
organizations like the National Association of Manufacturers, to study
the very problem that we are studying, and to bring about beneficial
social results. I think there can be no doubt about that. We are all
working, as it were, toward the same end.

There can be^no doubt, either, it seems to me, that the development
of technology and the introduction of new devices like your continuous
mill, which have the result of enabling you to produce your sheet at a
lower price, necessarily results in making that sheet available for com-
modities and other industries for which it was not available at the
higher price, and thereby tends to open the door of opportunity to
those who didn't have the open door before.

Mr. Hook. Correct.

The Chairman. J was curious, however, to ask you whether the re-
employment of workers as indicated in yotir statement, of more work-
ers than had been in the industry before, tends to keep your cost up,
and if it doesn't — which apparently is not the case from your conclu-
sion— how is it that with maintenance-of-labor costs you still can reduce
the price of the commodity ?

Mr. Hook. I will show that to you, I think very clearly on the charts.
Senator.

Senator King. A temporary displacement doesn't mean a perma-
nent one. Of course that is a question that answers itself.

Mr. Hook. No, indeed. Senator.

Senator King. In other words, when you introduce machinery in
which you displace A, B, and C, perhaps with the new machine A would
be employed and X, Y, and Z be employed.

Mr. Hook. Correct.

Senator King. So there would be a temporary change or transition
from one position to another.

Mr. Hook. And as T go through his explanation using facts, the
actual factual records, I think many of the questions that may come to
your mind, Senator, will be cleared uP-

CONCENTRATION OF ECONOMIC POWER 16397

The Chairman. Of course, some of us are looking at this problem
as a whole and not from the point of view of a i)articular industry.
Unemplciyment is a major fact that stares us all in the face. Now,
this unemployment is not by any niQans all industrial. Some of it
is agricultural, some of it is professional, and what not. It is to be
found in all lines of endeavor. But for years now Congress has been
trying to make work for persons who apparently are unable to find
work in normal avenues, and our problem, the problem of the Na-
tional Association of Manufacturers, and the Association of Automo-
bile Manufacturers, and the problem of Congress, is how to coordinate
the efforts of all to lift this burden of making work off the Govern-
ment which is doing it only by piling up debt.

Mr. Hook. We agree with you on that, Senator, 100 percent.

EFFECT OF CONTINUOUS MILLS ON AGE OF WORKERS

Mr. HiNRicHS. I would like to come back for just a moment to
your stateinent about the possible displacement of a worker here and
the emploj^ment of another worker 30 miles away, or even next door.
Most of these hand mills were in operation in the early twenties,
"vvere they not?

Mr. HcoK. Correct. Some of them still are operating today.

]Mr. HiNRiciis. Some of them still operating. Let's start, for ex-
ample, in 1923. You had a fully equipped hand-mill staff wnth per-
sonnel. Minor improvements would possibly reduce the total
amount of labor that you needed in the mill, possibly some expansion
of the mill might require j^ou to add a few work 's. 3y and large,
however, you had, barring large fluctuation in tlie total volume of
production, relatively steady employment from yea,r to year.

With that group fully employed in 1923, you would have tended
to hire the same people in 1924, the same people in 1925, in 1926.
There were deaihs, retirements, accidents, and that sort of thing, so
that you did have some new hiring, but it is a tendency in any busi-
ness enterprise that is fully established, for the average age of the
^vorkers in that establishment to rise from year to year, isn't it?

Mr. Hook. Yes; as the individual company gets older, you
don't

Mr. HiXRicirs (interposing). Your workers get older with you.

Mr. Hook. Of course.

•Mi;. Hinrichs. Now then, you come along to 1933, 1936, and 1937,
and open a new mill. Insofar as the workers in this old hand mill
are displaced and not provided for in the new mill or transferred
to the new mill, the workers who were in that hand mill in 1935 are
a relatively old group as comj^ared with the .otal working population,
l)ecause a verv high proportion of them were with you back in 1923,
1920, 1915.

Mr. Hook. That's correct.

Mr. Hinrtchs. When 3^ou come to open up a totally new em-
ployment opportunity as a business enterprise, you are not normally
hiring a straight cross section of the working pojiulation. There,
starting up a new enterprise, you are much more likely to be hiring
younger workers. Isn't that true?

16398 CONCENTRATION OF ECONOMIC POWER

Mr. Hook. No ; that is not necessarily true, Mr. Hinrichs. Let nie
tell you just what did happen, because we don't need .to theorize
about it. The continuous rolling-mill process has eliminated the old
back-breaking jobs so that in the plant now, the continuous mill, the
fellow can work to an older age than he could under the old process
because the old process was so hard, and I hope that I can persuade
you to come out to Middletown and see this in operation ; see the old
with the new.

Mr. Hinrichs. I have seen them, but I recognize that fact. I also
saw a mill in which a very high proportion of a high-school class
had been hired. I wasn't theorizing when I spoke about the tendency
of business, of a new enterprise, to hire younger workers. You will
find, for example, if you take relatively,' new industries, as com-
pared with relatively oldel- industries, in the census figures, there is
a very great difference between the average ages in the old industries
and "in the new industries. It may not be applicable to your particu-
lar situation, but it is not a theoretical situation; displacement in
older plants tends to be of an older age group and hiring in new
plants tends to be of a somewhat younger age group. The equivalents
that you are setting up in this process of one worker here and one
worker there is very often a problem of hiring a man of 45, or put
ting a man of 45 on the labor market again and hiring workers gen-
erally 25 to 45 years old (the preferential hiring ages) if you are
looking forward to an establishment that you are going to have oper-
ating de novo from year to year.

Mr. Hook. You are talking about two different things. For in-
stance, you are talking on the one hand about a new enterprise, and
what we are discussing here is the effect of a new process on those
who weriB formerly operating and making the same product by an-
other method. Now, they are two different things, and what I am
saying to you is that this new process, having eliminated the old
back-breaking jobs, has made it possible for these old men to work
tQ a longer number of years in the plant than they could have under
the old process.

Mr. Pike. Still in the same enterprise.

Mr. Hook. And still in the same enterprise.

The Chairman. Do you show that in your charts?

Mr. Hook. Yes.

The Chairman. May I say, then, I must apologize to you, Mr.
Hook, because last night you requested me to permit you to make
your statement before the questioning, and I was the first to offend.

Representative Williams. I would like to ask a question before you
leave that.

Mr. Hook. I want to do everything I can to enlighten -you.

Representative Williams. I see from your statement that the ac-
tual employmeait in the steel industry during '^»e 10 years under con-
sideration increased 177,000.

Mr. Hook. It is 117,000, I think, Mr. Williams.

Senator King. Was that for the whole steel industry ?

Representative Williams. That was the whole industry, as I under-
stand your statement.

Mr. Hook. Of which we are a part — blast furnaces, steel works, and
rolling mills.

CONCENTRATION OF ECONOMIC POWER 16399

Representative Williams. Of course, that is evidently not true as
to other industries.

Mr. Hook. I am only here giving you the facts with reference to the
steel industry, but we have a chart at* the end — by. the v ay, we are
using Department of Labor figures — which shows the results in man-
ufacturing industries as a whole, and I think maybe we v'ill ansVver
the question that is ii) your mind, Mr. Williams, at that time.

Representative Williams. I wonder if you have the facts which
would show the productivity of the industry during those 10 years,
as compared with the number of increased employment. What is the
relative improvement in productivity during that same period?

Mr. Hook. We will show you that very clearly.

The Chairman. All right, then, Mr. Hook, we will allow you to
proceed with your charts and we will try not to interrupt until you
are finished.

Mr. Hook. It is very difficult, I realize, to get a picture of this thing.
T only wish I could get the whole committee to come out to Middle-
town, so you could study it for 2 or 3 days, and then I think we could
make it very clear to you.

Senator King. Mr. Hook, I was not quite clear from your state-
ment, when you stated 117,000 persons were employed in the steel
industry. Aren't there a lot more than that number employed?

Mr. Hook. That is the increase, only the increase during that period,
Senator.

operation of continuous mills at mIddletown

Mr. Hook. Now, if you have a copy — I hope we had copies for you —
of this diagram, because it is difficult eye strain for you to see it from
here, but you can look at this and glance down at the diagram that
is in front of you.

Dr. Anderson, These are to be exhibits in the record, or are these
appended to the testimony?

The Chairman. Will you be good enough to see that each is prop-
erly numbered as Mr. Hook discusses it.

Mr. Hot^K. I will try to the best of my ability to give you a picture
of the chart.

Dr.. Anderson. The exhibit number is 2453. If you can give it a
name we can identify it as well.

Mr. Hook. "Diagram of a complete rolling-mill plant producing
sheets."

(The chart referred to was marked "Exhibit No. 2453" and is on
file with the committee.)

Mr. Hook. The object of this diagram is to show you a complete
plant. This happens to be a diagram of the American Rolling Mill
Co.'s Middletown, Ohio, plant showing the various departments of
the plant, starting with ore and coal, right through to the finished
product. And we have here a flap, because here is where the con-
tinuous mill was put in. In other words, the men who worked on the
old hand mills, which are being displaced by the new continuous mill
worked in the section outlined on the chart in heavy ink, beginning
with the third row of drawing. The men that worked in the blast
furnaces made the pig iron that was taken to the open-hearth fur-
naces— we show eight open -hearth ste^.l furnaces, where we take the

16400 CONCENTRATION OF ECONOMIC POWER

hot metal, mix it with scrap and limestone, and the product is a steel
ingot. That steel ingot is taken and heated in what we call the
soaking pits. In other words, the ingots are put in there to soak
so that both the outside and the inside of the ingot have the same
temperature. That is very important, because when the ingot comes
from the open hearth over to the soaking pit, the inside of that
ingot is probably in a molten state, and you see we have to let it
soak so that the ingot is the same temperature all the way through.
Then that ingot is taken out of the soaking pits, and wei will
describe the old process first, and go through what we call the slab
mill or the blooming mill. Under the old process w^e made a billet,
we will say 8 by 8 or 6 by 6, depending on the size of the sheet bar
we are going to make, and then that billet was taken and rolled
through what we will call the bar mill, and when we got through
we had, possibly, a sheet bar approximately 110 feet long, and rang-
ing from, say, three-fourths or one-half inch thick up to maybe
11/2 inches thick, depending upon the thickness of the sheet that
you were going to roll out of it.

Well, then that long sheet bar — and we will say this is that long
sheet bar — on emerging from the bar mill, was cut up into pieces.
We call those the sheet bars for the sheet furnace. In other words,
f we were going to roll a sheet 24 inches in width, we cut this bar
J6 inches in length, because you have to allow for the scrap on both
ends. When the sheet is sheared out you have a perfect pattern 24
inches in width.

Then thos^ sheet bars-^and you can remember that when I show
you a picture here later — were put back and forth by hand through
these old sheet mills. In this plant of the American Rolling Mill
Co. at M^ddletow ' there were 22 units with 2 stands each; one is
a roughing rrjilLan one is the finishing mill. Lifting the pair into
the pair-heati^:i§ furnace, lifting them out, putting them on the floor
plate iji front of the roughing mill, swinging those bars over from
the roughing mill jco the finishing mill, and putting them through
the mill, taking theifn off, putting them into the furnace, was all done
by manual work, and some of those packs weighed 150 pounds. If
you ever worked in a rolling mill you will know what that means.

The Chairman. This device that you are explaining, the old de-
vice, is not dissimilar to the mills by which copper wire is rolled,
is that right?
Mr. Hook. That is a different mill.

The Chairman. It is a different type, but I say it is not dis-
similar. I have been in copper-wire factories out in Montana.

Mr. Hook. The old rolling mills, where they rolled out copper
sheets, are not dissimilar, because they had to make the slab and
work from the slab and roll it through by hand just as we did sheets.
Then we took these short bars, as I said, and put them through
these old sheet hand mills, and when we got through we had a
number of sheets. We call that a steel sheet, the green steel sheet.
That is finished tc gage, to the thickness that you want, at this
point.

Then those sheets were taken and put through what we call two-
high cold mills, simply to flatten them and give them temper. Then
they were put into annealing furnaces to anneal them, or to bring
the structure back to a proper state so that they can be worked, but

BxHiBTr No. 2464

[ Submitted by the American Boiling Mill Co.]

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CONCENTRATION OF ECONOMIC POWER 16401

before they went in there they went through batch picklers. This
chart shows the continuous mill area for pickling, but in the old
process, with these 22 mills, this area took a smaller space. This
is the space that the new mill takes, and this represents approxi-
mately the area we needed for annealing under the old process.
This is the area that we anneal in in the continuous process, 30
that under the continuous process a large number of men were in-
creased in this al'ea here, here, and here, to the finished product.

Now, that is the old process.

Now, I want to show you that the new process affects directly only
the men who were employed in the area marked out in the chart
with a heavy black line.

Because some people might get an idea that this new continuous
process affected the workers all over, and it was only in that rolling-
mill department — —

The Chairman (interposing). In order that this may be under-
standable in the record, I think we ought to give this slip sheet
another exhibit mmiber.

(The addition to the chart referred to was marked "Exhibit No.
2454" and faces p. 16401.)

Mr. Hook. Now, in the continuous process, we use the slabbing
mill just the same, but, of course, the whole bar mill is cut out.
There were very few men on that. And we start with a slab which
comes through the slab-heating furnace and then it goes through
without stop, right through this series of mills in Exhibit No. 2454,
say, 12 four-high continuous mills, or 3 or 4 two-high, and the balance
four-high, and emerges at the end, maybe 1,200 feet: long, rolled up
like a big roll of paper. And then that is taken, if it is to be further
reduced for certain purposes, to what we call the cold-strip mill,
and in some instances we take the 0.109 thickness sheet and reduce
it cold, without any heating at all, in those 3 stands of mills.

Of course, that is a continuous process, whereas before j^ou had
these 22, which meant 44 distinct gi'oups of mills, and here you have
one continuous plant that does all this work and makes, oh, in that
particular plant at least 3 times the tonnage that the old plant made
on those 22 hand mills.

This was presented simply to give you a picture of the fact that
this continuous mill only went into part of the plant, and only
affected men in part of the plant.

Now, this pictures the old mill. This is what we call a roughing
mill. The man put the bar into the mill and when he got through,
he swung around to this mill. It was put in the furnace and heated,
and here is the roller putting the pack through the old-style mill
by hand. There is the hot pack on the next mill, lying on the legs
ready to be taken off by the heater.

Mr. Hook. This shows the back side of the mill, with the man who
had to catch the pack when it came through, raise it up, push it
over to the other side, so the fellow on the other side could catch
it, as this other ])hoto shows. So you cp;n see the kind of back-
breaking work that they had.

Dr. Anderson. That man on the catching, what is he technically
callexl ?

Mr. Hook. Catcher, in the old mills.

16402 CONCENTRATION OF liCONOMIC POWER

Now, here is a picture showing; you the hot-strip mill. It shows
1, 2, 3, and 4 stands, but there are 8 others down through the plant that
you can't see.

Mr. Hook. This is the cold-strip mill where I told you we would
take a 12-gao;e sheet in a coil — see how it is rolled up there like a
big roll of paper — and start it in one side and bring it out the other,
a highly finished 22-gage sheet.

(The photographs reiferred to were marked "Exhibits Nos. 2455
to 2459" and are on file with the committee.)

Mr. Hook. The table entitled "Continuous Sheet and Wide Strip
Mill Installations" is simply to show you the 27 . installations and
when they were put into operation; the American Rolling Mill Co.
is the first one in 1924, and next is the plant of the American Roll-
ing Mill Co., at Butler, Pa. The middle column of figures gives
the size, that is, the length of the rolls. The size of sheet that you
roll on those mills on those length rolls would be approximately 6
inches narrower than that length.

The last column shows the annual capacity figures, the average
gross tons that those mills w^ould probably produce.

(The table referred to was marked "Exhibit No. 2460" and is
included in the appendix on p. 17326.)

Mr. Hook. The purpose of the table entitled "Estimate of number
of hand workers employed in industry in hand-mill processes, includ-
ing preparatory, rolling, and shearing operations" is simply to reit-
erate what we said in the statement, that in 1926 there were 1,264
of those old-style mills, and those 1,264 made a production of 6,327,-
874 tons, with 165 tons per worker on sheets and 125 on black plate,
black plate being what we use for tin plate and products of that
kind. The number of workers required to operate the 1,264 mills
was 42,405.

(The table referred to was marked "Exhibit No. 2461" and is in-
cluded in the appendix on p. 17326.)

The CiT^iRMAN. That is an estimate, you say, Mr. Hook?

Mr. Ho K. That is pretty accurate, because it is taken from a fig-
ure from our own records of what the men actually produced per
man.

In 1940 there were 750 of these mills still in existence.

The Chairman. Let me interrupt again. You speak about the es-
timated nmnber of workers. That also comes from your own rec-
ords?

Mr. Hook. Yes, sir; and checked with other plants. Wliere do
you get that, Mr. Brooks?

Mr. Earl Brooks (statistician, American Rolling Mill Co). You
have reference to those in 1926.

The Chairman. That is right.

Mr. Brooks. Those in 1926 are derived by dividing our average
production per worker in those units into the total production for
(he industry.

The Chairman. Then the figure is derived by a computation.

Mr. Brooks. That is right.

The Chairman. And not by a pay-roll check.

Mr. Brooks. That is true. Through the integration of producing
facilities in the ^teel industry, so far ;is I know there is no separation
of 'employment b}' depar^^ment

CONCENTRATION OF ECONOMIC POWER 16403

The Chairman. How do you determine the avera<jje production
per man ?

Mr. Hook. That was from our own actual records of what the. men
in the mill produced at that time per anmim.

T\w fiiiure could vary very little from that.

The Chairman. In other words, we can accept that as substan-
tiallx' accurate.

Mr. Hof)K. It is substantially accurate, as accurate as it can be
figured. If j'ou take 2,000 off, it wouldn't amount to much.

Mr. HiNRicHs. Going back to your first diagram, this 165 gross
tons, this picks the steel up in the sheet furnaces — is that right — and
carries it forward.

Mr. Hock. That is where it is produced, yes.

Mr. HiNRiCHS. So that you got

DISPLACEMENT OF LABOR

Mr. Hook (interposmg). On that first, that is it. On all the mills
of that type in the country, in that department, 42,405 men were re-
quired, or were at work at that time in 1926. In 1940, as I say,
tiiere are 750 still listed. Approximately half of those mills are still
in operation. For instance, on the diagram which you have in front
of 3'ou, we show the continuous mill displacing the old-style mills,
but that actually hasn't happened. We still have in that Middle-
town plant about 500 men at work on the old-style mills. Part of
the work is done on the continuous mills and finished on the old-style
mill, because there are certain products which we have not yet been
able to make finally on the continuous mill ; that is, on the cold re-
duction mill, and that is true in another plant of ours at Zanesville.
Ohio, where the old process, with some improvements in the way of
tables and automatic catchers at the back of the mill — is operating
pretty much as it did in 1928. It is hand work. So all together,
we have over a thousand men in all our plants in the American Roll-
ing Mill Co. I can give you the exact figure. It is over a thousand
Mien still working on old hand mills, 1,036, Mr. Brooks says.

Now, then, assuming, and this is estimating from the number of
mills that are still actually operating, we estimate that 27,405 — no,
15,000 are still employed in old-style mills, so that the total displace-
ment could not have been more than 27,405. You see, if all those
other men have l:»een displaced

Mr. HiNRiCHS. (interposing). You speak of those things in opera-
tion. This last year has been, in the last months, rather exceptionally
active. Are these roughly half, say, 375 hand mills, operating more
or less continuously or are these essentially, in large part, stand-by
equii)ment that comes in at a very busy season?

Mr. Hook. The half, I think,, are operating regularly, not just
stand-by. You see, there are a number of companies that have no
continuous mills at all, tliat are still operating; for in.stance, right
near us. the Newport Rolling Mill Co. has 22, I think, or 26 old-style
mills that are still operating.

Mr. HiNRiCHS. Some of those mills in the beginning of 1939 were
closed down pretty tight, weren't they?

Mr. Hook. Not the half that I "am talking about. Half of the
705, and I should say that of course I havon't the record but I think

16404 CONCENTRATION OF ECONOMIC POWER

that a number of the half that we are adi^ittiiig that are closed down
permanently, were operating in the last half of 1S39. In other words,
some of the plants who have the continuous mill process weren't
able to make all the tonnage that they had orders for on their con-
tinuous mills, and they supplemented them with their old hand mills
that had been shut down for several years.

Mr. HiNRiCHS. If you see an assured tonnage of that sort ahead,
you build the necessary continuous mills and close down the substan-
tial portion of the balance, don't you? Technically, it is only a lim-
ited field that these hand mills that are operating would hold in the
industry.

Mr. Hook. I am perfectly willing to say to you, Mr. Hinrichs, that
I think evejitually all of the hand mills will go out of existence,
because it is not the economical method to use. Wlien we find out
how to make these certain products which we still have to make, at
least partially, on the old hand mills, and we are hard at work on
that, the old hand mill will go out of existence, and it will all be
made on the continuous mills. As I say, this was simply to show
the general statement that the number of men that were said to have
been displaced could not have been.

The Chairman. I am interested in knowing, Mr. Hook, if you
have the figures, which perhaps you have later, how many have been
actually displaced.

Mr. JHooK. They haven't. We have increased

The Chairman (interposing). You say 27,000 could have been dis-
placed. That is the maximum that could have been displaced.

Mr. Hook. That's right, to date.

The Chairman. What has been the actual displacement in that par-
ticular department?

Mr. Hook. It has been increased.

The Chairman. In that department that we are talking about?

Mr. Hook. Well, not , in that department, but I mean for that
operation, the total number of men that are employed in reducing
the slab or the billet down to the sheet has been increased.

The Chair;man. You mean — I ann not sure I understand yet what
you mean by that. I had in mind that there ivas a displacement so
far as that particular work is concerned, withii. the sheet that we
had here, the operations w^^^hin this sheet.

Mr. Hook. No.

The Chair.man. The continuous rolling process?

Mr. Hook. That's night. I don't know just what it is. Have you
got that figure? I think we have the Middletown plant. We can
show it to you exactly. The fact of the matter is

The Chairman (interposing). I got the impression from what has
been said here that there was a decrease in the number of employees
wi!hin that particular area.

Mr. Hook. In that particular department. I think that is true.
I don't know that we have got the exact figures.

Mr. Brooks. It is very difficult to work up any figures showing
the exact amount of displacement which could be applied to any one
nnill ; in other words, the size of the mill, the lay-out of the mill, and
certain variations in producing methods might influence that. Also,
the size of the hot mill unit replaced would influence it. I can give
you a case exariiple, using this Middletown plant, in rough figures.

CONCENTRATION OF ECONOMIC POWER 16405

There were roughly about 1,075 men employed in the area outlined
there prior to the adoption of the continuous mill. There are roughly
250 operating men left in that particular area on the mills them-
selves, doing actual operating work. There are other maintenance
men, of course, in addition to the 250.

Mr, Hook. Well, that is just in the old-style hand mill. There are
500 men in that department still.

Mr. Brooks. That's right.

Mr. Hook. In 1929, as I recollect it, the total employment in that
particular department was 1,191.

Mr. Brooks. Discounting the fact that part of those mills are still
operating, those two figures would be the relative forces required.

Mr. Hook. But some of those men have gone over to the strip
mill, so that the total number of men in that particular plant in the
old department, plus the continuous mill, probably, how many are
in the strip mill?

Mr. Brooks. That is 250 on the hot and cold strip mill.

Mr. Hook. Well, on the hot mill.

Mr. Brooks. I don't believe I can tell you off-hand.
. Mr. Hook. You haven't got it. We give you all those figures
broken down, but we are going to give you the plant now as a whole.
That is what you are interested in, to know whether those men were
taken care of in other departments.

Mr. HiNRicHS. Was the capacity of the cold sheet mills the same
as the capacity of the hot strip mill?

Mr. HooK. Oh, my, no. Well, I think you didn't catch that. We
made 20,000 tons a month on the 22 old hand mills, in a pretty good
month, and we made on the hot strip mill as much as 64,000 tons in
one month.

Mr. HiNRiCHs. So that in terms of the relationships of capacity
and labor, in that limited segment, the relationship is roughly 1,075
men who could produce 20,000 tons and 250 men who can produce
64,000 tons.

(Representative Williams assumed the chair.)

PRODUCTION IN AMERICAN ROLLING MILL CO.

Mr. Hook. Pardon me; I think you will see that when we come
along, because we give you the output per man-hour, the change in
the output per man-hour, which is the thing you are trying to get at.

Now, in the table entitled "Armco Production" is shown the total
production of what ve call the parent company. That is all of our
plants. In 1926 the total production was 431,347 tons ; in 1937, 1,203,-
736 tons, or an increase of 179 percent between 1926 and 1937.

(The table referred to was marked "Exhibit No. 2462" and is
included in the appendix on p. 17327.)

Mr. Hook. In sheets alone we produced in 1926, 428,996 tons, wliicli
represented 99.3 percent of the total production of that ])lant.

In 1937 we had 1,203,736 tons, of which 1,110,414 were sheets. In
other words, 92.2 percent of the total production was sheets. The
reason we present that picture to you is to show you that the Amer-
ican Rolling Mill Co. is essentially and completely a sheet-producing
plant. In other words, there are not a lot of other things involved
in these figures with respect to the American Rolling Mill Co., and

16406 CONCENTRATION OF ECONOMIC POWER

this continuous process has to do with the manufacture of sheets and
strips only.

Now here we have taken out our Butler, Pa., plant, just to be sure
that our figures are very conservative and comparable, covering the
same plants. In 1926 we had 431,347 tons and 99 percent was sheets.
Now, we took out the Butler plant because it is a continuous mill plant,
to throw back the picture into the old parent company; this Butler
plant we bought in 1927, so we have thrown it out, so that our figures
would be comparable, and even, after throwing it out it stills shows
that 94,8 percent of our total production was sheets, and the increase
in tonnage, of course, went from 428,996 to 847,753 in '37, a 97.6 percent
increase m those plants that we owned before we took over Butler.

Mr. HiNRiCHS. I was wondering why the base period of comparison
with 1926 was used throughout here; 1937 was a year of very ex-
ceptional activity.

Mr. Hook. Correct.

Mr. HiNRicHS. 1926 was more nearly average.

Mr. Hook. Tliere was only one continuous mill operating at that
time, and that was the American Rolling Mill Co.'s mill at Ashland,
Ky., and all these other mills have come in since that time.

Mr. Brooks calls my attention to the fact, and we will show it on
another chart later on, that the ingot production in these 2 years was
approximately the same — 70 percent of capacity.

Mr. Hook. Now the table entitled "Distribution of Armco Sheet
Shipments Bet°ween Continuous and Hand Mills" is interesting, to
show distribution of our shipments as between the hand mills and the
continuous mills.

(The table referred to was marked "Exhibit No. 2463" and is in-
cluded in the appendix on p. 17327.)

Mr. Hook. In 1926, 64.1 percent of the production was rolled on the
old hand mills, whereas in 1937, only 28.2 percent was rolled on the
old hand mills. Rolled on the continuous mills, in 1926, 35.9 percent;
in 1937, 71.8 percent of the production of Armco.

Mr. Pike. But you still rolled in '37 more actual tonnage on your
hand mills than you did in '26.

Mr. Hook. Exactly.

Now, to show that this displacement is troing on very gradually, in
any event particularly in our plant, remember that we are entirely a
sheet plant, but all of that 313,136 tons was partially rolled on the
continuous mill. The old bar mill is completely eliminated, but even
with that, you see, we made more tonnage on the old hand mills than
we did in 1926.

Mr. HiNRiCHs. Finished more, or made more ?

Mr. Hook. We produced more of these green sheets that I was tell-
ing you about. In that year we made 274,835 tons and here we made
313,i36. That is the finished sheet.

Mr. HiNRiCHS. What about 1939? Would that show the same sort
of picture ?

Mr. HooK. In 1939 I think the figrre would be approximately the
same.

Mr. Brooks. It would be slightly lower, because our total tonnage
was lower.

CONCENTRATION OF ECONOMIC POWER 16407

Mr. Hook. We can give you all that, but I hope you will come
out and spend several days there.

Mr. HiNRicHs. I shall.

Mr. Hook. Of course we are talking about employment, and all
these things have an effect on the employment. This table, "Armco
Parent Company Employment, Average Number of Employees,"
shows the American Rolling Mill Co. employment. The total em-
ployment in 1926 was 6,876; in 1937 it was 13,253, or an increase of
92.7 percent. But again we take out the Butler plant, because you
may say it is not fair to include it because that is an entirely new
acquisition, so that we go right back to the old company basis, and
we have a 51.5 percent increase in the average number of employees
for '37 over '26. ^ .

(The table referred to was marked "Exhibit No. 2464," and is
included in the appendix on p. 17327.)

Mr. Hook. I think, Mr. Williams, that begins to answer some of
the questions that were in your mind.

EMPLOTltfENT AND EARNINGS

Mr. Hook. Now let's see what happened to employment, wages,
and hours, in this table '"Employment Wages, Hours, and Produc-
tion, Armco Middletown Plant."

(The table referred to was marked "Exhibit No. 2465," and is
included in the appendix on p. 17328.)

Mr. Hook. This is a rather interesting story, we think. In 1926,
the average number of employees at this Middletown plant* that
produced nothing but sheets, and by the old hand method, was 3,278.
In 1937 it was 4,327, or an increase of 32 percent.

.Pay roll (wages only) — that is, those who are paid on an hourly
basis— in- '26 was $5,125,208; in 1937, $7,234,256, or an increase of
41.2 percent.

Shipments, 221,382 net tons in 1926; in '37, 403,805, or an increase
of 82.4 percent.

Now the question comes to your mind, and I had better answer it
before you ask me, "Well now, is that a fair indication of what
happened in the industry?" I have to make an admission which we
don't like to, and say we did not keep up with the industry, but as
compared with that particular plant the increase of the industry w^as
greater than ours. The increase in industry was 82 percent, sheets
only.

The man-hours: in 1926, 32.5; in 1937, 19.1, or a reduction in man-
hours per net ton of 41.2 percent. Of course we couldn't have got
the reduction in price if we couldn't have decreased the cost, which
you will see later.

Wiige cost per net ton is $23.15; in 1937, $17.92, or a reduction of
22.6 percent.

Now let's see what happened to earnings of these men. The mini-
mum wage rate in 1928 was 37 cents, in '37, 621/2 cents, or a 68.9
i:)ercent increase. The average earnings per hour was ^9.8 cents in
'26, and 93.6 cents in 1937, or an increase of 34 percent.

I was rather interested in the question that was asked Mr. Ford
yevSterday (it hasn't anything to do with this) whether, as they had

16408 CONCENTRATION OF ECONOMIC POWER

increased the parts that ^yent into the car, the average skill required
was lowered or increased.

Well, the introduction of the continuous mill has increased sikilled
labor. In other words, there is a gi-eater need for men of increased
skill, because we are dealing, for instance, on these continuous strip
mills, with measurements of split thousandths. When I wag out in
the mills as a worker, we thought a one-sixty-fourth fit was pretty
good.

Mr. HiNRicHS, Your skilled workers in your old mills were your
rollers, were they not.

Mr. H(K)K. Yes ; your roller and your l^eater were the two men par-
tiquarly skilled. The other fellows — well, we. called them skilled,
but it was largely knack. You got into the swing of things, but the
roller was really a skilled man.

Mr. HiNRiCHS. How many rollers would you have had in this
layout?

Mr. Hook. Three times 22.

Mr. HiNRicHS. So you would have 66 rollers.

Mr. Hook. Yes.

Mr. HiNRicHS. And at the present time, how many rollers

Mr. Hook (interposing). We have 27 at Middletown, in the old
plant.

Mr. HiNRicHs. But in the new plant, how many men do you have
to correspond to your own rollers?

Mr. Hook. Well, you have a very highly technically developed
general forem.an, and assistants under him, and your maintenance
men have to be more skilled, and then you have your men all
along the line, the roll setters and men that do the various jobs.
You have • an average skill in the continuous mill which is higher
than the average skill in the old-style mill.

Mr. HiNRicHS. That is, such skilled men as you have that take the
place of these 66, have a higher skill now, on the average, than those
66 rollers?

Mr. Hook. Well, no; I wouldn't say of those 66 rollers, because
they were very skilled men. That was a real job.

Mr. HiNRicHS. How many men do you have in this mill here [ex-
hibit 2453] who are highly skilled workers? There were 66 rollers
in the old process who were a highly skilled group. How many
people correspond to them in the new continuous niill ?

Mr. Hook. Every man in that continuous mill isi a skilled worker
now. I would have to have the force report here, and again, if you
come out, we will show you those fellows at work, and then you can
see, get this picture.

Acting Chairman Williams. Is that average earning per hour,
shown at 34 percent, largely due to the increased number of skilled
workmen that you have acquired on account of this new process?

Mr. Hook. That has had an influence. That isn't entirely the
case; for instance, when we went to the shorter workweek, we in-
creased the average rate per hour, of course, to take care of that
change over, but in part, it is due to a higher average skill.

Mr. Brooks calls my attention to the fact that under the old opera-
tion we couldn't have sustained, wouldn't have stood for a labor cost
of that kind. We couldn't have got enough for the sheets.

.CONCENTRATION OF ECONOMIC POWER 16409

Mr. HiNRicHS. Part of tluit increase in averaj^e hourly earnings
lepresents a decrease in the proportion of common laborers in your
force at the present time, doesn't it?

Mr. Hook. Oh, the common laborer in the mill today isi almost
idiminated. It is a very small pro[)()rtion, and when I was in the
mill, it was a very large proportion.

Mr. HiNRiciis. A third to two-hfths?

Mr. Hook. I would hate to make an estimate. I would be guessing
at it, but we could get that together.

Mr. HiNRiCHS. But it was very high, and now it is virtually
limited?

Mr. Hook. Years ago it was a very large proportion of the men.

Mr. HiNRicHS. Even in 1926?

Mr. Hook. Of course, by that time, the number of wliat we call
conunon laborers had been reduced, but proportionately in '2G, it was
very nuich higher than, of course, it is in '37 and today.

We have shown a reduction of 21.8 percent in the average hours
per week. The average earnings per week have increased from
$32.32 in 1926 to $33.88 in '37, or an increase of 3.8 percent. xVnd if
we adjust for the difference in the cost of living to get real earnings,
the real earnings in 1937 were $38.28 as compared with $30.99, or
an increase of 231/^ percent.

Now I think we all agree — and I know you do, of course — that
what a man is interested in is, "What can I buy with a day's work?"
That is the figure that really counts with him. It isn't the wage
rate, necessarily, because it doesn't do a man any good to jump from
$5 a day to $10 a day if he can't buy more of l^he things that he
wants to buy and use with the $10 than he could get with the $5.

ANNUAL EARNINGS OF ARMCO WORKERS

Mr, HiNRicHS, He is also interested in what he can buy in the
year." What about the regularity of employment?

Mr. Hook. I am glad you asked me that ({uestion. In other words,
what was the annual earning of these men ? We will give you that.
These are our figures, actual.

The actual average earning of all the men who worked for wages
in 1926 was $1,685, and for the industry, $1,627. In 1929, our figure
was $1,605; in the industry, $1,746. Rather interesting there. We
had a drop, and the industry went up.

In 1937, ours was $1,766; the industry, $1,630. In 1938, ours was
$1,398; the industry, $1,203. In 1939, ours was S1.893, so you can
see the advance in annual earnings, and we had made no adjustment,
for instance, for 1939, for the difference in cost of living. That
would go over $1,900, of course, well over that.

Dr. Anderson. I would like to have you supply, for the average
annual earning of $1,983 in 1939, the average immbcD of employees
that received that wage.

Mr. Brooks. That is a total company figure. There was an aver-
age of 9,742.

Mr. HiNRicHS. That would compare with 4,327 in 1937.

Mr. Hook. That was a single plant.

Dr. Anderson. Let's have something that corresponds to the table.
What was the average for the Middletowji plant at that same time?
i244»i — 41— pt. no 1.5

16410 CONCENTRATION OF ECONOMIC POWER

Mr. Brooks. The average for that rate was 3,335. Now those em-
ployment figures up above inchide salary as well as hourly labor.

Dr. Anderson. That is total employment in the plant?

Mr. Hook. That is total employment, but the figures from there
on down are all wages. .

Dr. Anderson. What if you squeezed out the salaried group there?
What would you have, so as to make it comparable?

Mr. Brooks. You would have roughly, I would say, about 3,025 in
1926, and in 1937, roughly 4,000. That may not be exact.

Dr. Anderson. Would the figure you gave me, 3,335, be correct
for 1939?

Mr. Brooks. That is correct.

Dr. Anderson. In other words, a reduction of approximately 700
men. This gain was made in average annual earnings from $1,766
to $1,893. The difference was a gain made at the expense of 700
workers ?

Mr. Hook. No; you are dealing with averages. That is not the
case, Mr. Anderson. For instance, the first three quarters of 1939 —
it wasn't until the first of September that we got on that high oper-
ating rate in 1939, and the average number of workers was reduced
as a result of not having as high employment in those periods when
we weren't working at the^ same high rate. The 1937 average rate
was higher.

Dr. AndJsrson. What you are saying is tha.t you can't compare
annual earnings here, on any basis such as we have just discussed,
with the average number of employees for the years indicated.

Mr. Hook. The fact of the matter is that the number of men who
worked actually got a certain total pay roll, and if you divide that
total number of men who worked into your total pay roll, you get
the dollars that they earned.

Dr. Anderson. The point I was trying to make was whether there
was a difference in the number of men who worked and enjoyed this
better circumstance in terms of an annual wage in 1 year as com-
pared with another. ' •

Mr. Hook. Well, we will furnish you with the exact figures.

Mr. Brooks. At the end of 1939 there were approximately 4,000
people working in that plant, total employment.

Dr. Anderson. Of course year-end figures wouldn't suit the pur-
pose either, would they ?

Mr. Brooks. Not for the determination of an annual wage, they
would not.

Mr. HiNRiCHS. As to the method of computing that annual wage,
you have divided pay roll by a certain number of employees in
arriving at it, is that correct?

Mr. Hook. That is right.

Mr. HiNRiCHS. And what is the average number of employees that
you have taken ?

Mr. Brooks. It is the average of the day-to-day em|^<iyment in
that plant.

Mr. Hinrtchs. That means in effect, then, that this average pay-
roll that you have is the amount which would be earned by a man
who worked 365 days of the year, minus Saturdays and Sundays.
Is that correct ?

CONCENTRATION OF ECONOMIC POWER 16411

Mr. Brooks. No; that is not correct. It is simply the total wages
divided by the average number of workers employed in the plant
throughout the entire year.

Mr. HiNRiCHS. I think you will find, if you check the arithmetic
and loo;ic of the thing, that that is eflfectively the amount which
would t)e earned by a man who worked full time. Just by way of
illustration, I recQgnize the fact that the figures are not strictly
comparable and I may have made a mistake in arithmetic, but mul-
tiplying the figure of $33.88 by 52 weeks, my rough calculation is
$1,762 as against your figure of $1,766. So that these average earn-
ings that you are giving are full-time earnings, and irregularity of
employment-

Mr. Brooks (interposing). No; the full-time week is 40 hours per
week.

Mr. HiNRicHS. Yes.

Mr. Brooks. And we only average -36.2. In other words, we did
not average in that plant the full-time hours per week in the
industry.

Mr. HiNRiCHS. You corrected me at one point. It is not full-time
in the sense that it is 52 weeks, of 40 hours each.

Mr. Brooks. That is correct".

Mr. Hinrichs. But it is 52 weeks of work times the average num-
ber of hours per week worked by the people in your plant.

Mr. Brooks. That is right.

Mr. Hinrichs. Now, that does not give the annual earnings, say, of
a group of workers who have an irregular employment opportunity,
to the extent that there is employment for 2 or 3 months and then no
employment. That fluctuating employment has not entered into your
average.

Mr. Brooks. That has entered in. That may represent the average
wage of men who worked any place from a week up to the full year.
It may range from your minimum- wage right up to $2.50 to $3 an
hour. It is the composite of the entire plant and all the people who
worked in it.

Mr. Hinrichs. On an essentially full-time basis.

Mr. Brooks. Yes ; 36.2 hours per week.

Mr. Hook. When we are talking about the question of displacement
of workers, we have got to take into consideration the number of men
that were employed in the manufacture and the installation, the build-
ing of the plant, and the installation of the machinery. Now this
table, entitled "Expenditures for Construction, Armco Middletown
Plant," is an exact figure at this Middletown plant. Between '27 and
'37, when we introduced the continuous mill in that plant we spent
$20,492,778 actually. In other words, we estimate that the man-years
of employment amounted to 9,000, or we employed during that time
an average of 819 men at .full time at approximately $7 a day. You
have got to take that into consideration when you are talking about
displacement, and, by the way, we did use on that construction a num-
ber of the men who had formerly worked in the mill wh-en we were
running the old style full time.

(The table referred to was marked "Exhibit No. 2466" and is in-
cluded in the appendix on p. 17328.)

Mr. Hinrichs. Were those $20,000,000 spent year by year, or did
the bulk of it come in a limited period ?

16412 CONCENTKATIOX OF ECONOMIC POWER

Uv. H(.OK. The bulk of it came from 1928. Just last year we spent
$;},r)00,()()() of it. No; not of that $20,000,000, but we did spend that
in improving that plant which doesn't show here — $3,500,000. Be-
tween '27 and '37— maybe we have got the figures here to give you,
just how it was spent.

In the years^27 to '28, inclusive, there were $8,059,950; in '29,
$1,512,008; and ';'>0; $1,050,000; '31, $280,000; "32, $210,000; '33, $341,-
000; 1934, $240,000; 1935, $5,427,094; 1930, $171,000; 1937, $1,834,000.
And, of course, when you order machinery, the machinery manufac-
turers start back, and they are ordering supplies, and it follows
through quite a period of time before you pay the bill.

Mr. HiNRiCHS. That, of course, is an extremely important source of
employment and we on this committee have been very much inter-
ested in the role that -construction expenditures and capital expendi-
tures have played in the maintenance of the level of business activity.
But essentially those expenditures, as I listened to tliem, were made in
2, or possibly 3, years. The first figure that I recall is a figure of
roughly $9,500,000, I believe; then a figure of $5,400,000; and then a
figure of something over $1,000,000. The employment that was
created by this activity was a concentrated employment that occurred
in those years. From our point of view, looking at the economy as a
whole, it is a very important source of employment if it is continuous,
if in 1 year it is being done in Armco, and in another year it is being
done in another company, and so forth.

It isn't that 819 would not be comparable to the figure of 1,075 men
in your hand mills. Those 1,075, barring business fluctuations, are •
employed more or less continuously. Those 9,000 people work roughly
a year or two, or at the most 3 years, on an extensive basis. At .that
time' the employment was even greater than 9,000. At other times
Armco's activities — there is no criticism implied — were not giving
rise to the employment of these particular individuals. They
couldn't.

Mr. Hook. Of course, you are correct to a very large extent, but
this shows when we paid the bills. Now, as you know, lots of times
you wait until the installation was complete, you hold back a certain
amount. It has been going on more gradually than your expendi-
ture shows. For instance, in 1935, the order was probably given
for a lot of.it a year before, and the work in those equipment plants
was going on, and finally concentrated with a lot of bills very sud-
denly. If you ask our treasurer, he will tell you about it.

(Senator O'Mahoney resumed the chair.)

Mr. Hook. This table entitled "Armco Average Iron and Steel
Sheet Selling Prices," is mteresting only in one respect. Of course,
I discussed tlie question of price before this committee last November,
and these siime figures were presented to you, except we didn't have
ihe 1939 figures at that time, naturally. And it is simply presented
liere to »how that., starting back when the first continuous mill was
in opertition, you ^ee the big jump in the average realized price that
we received for all the sheets — what we received for what we shipped.
In 1923 it was $100.15, going right on down, of course, in that very
depressed period of 1933, and before we had that big increase in
wage costs, it got down to approximately $40; in 1937, $04.50; in
J-939, $57.31.

CONCENTRATION OF ECONOMIC POWER 16413

(The table referred to was niarla>(l ''K.\lii])it No. 2467'' and is in-
cluded in the appendix on p. 17328.)

Mr. JrlooK. '1 liat very ^reat reduction in the price of the product,
of coui'se, encouran^ed (he use, and is responsible to some extent —
Ave don't claim it all — for the increased prodiiction which we showed
you before in our Middletown sheet-production })lant; is responsible
for helping to increase the production which we sold, which meant
more employment for the men in the mills.

CHANGE IX QUALITY OF STEE

Mr. Hook. In addition to the fact that we irave them the sheet
at a very much lower price, the inteiestin.g thing is, the difference in
([uality. For instance, I ha^e here, and 1 can pick it up with one
hand, the old Ford fender. Mr. Chairman, when I started

The Chairman (interposing). It is interesting how much of this
testimony revolves around Ford and the Ford car.

Mr. Hook. It does, doesn't it?

The Chairman. Of course, Mr. Ford was the pioneer in the mass-
production field.

Mr. Hook. Well, in 1911 and 1912, we started to make what we
called a high-finish sheet, and when we look at our present-day sheet,
it was a pretty rough piece of worlc I traveled to Detroit a great
deal during those days trying to help find out what we had to do to
a sheet to make it useful. We put as high as 16 and 17 coats of
]iaint on that sheet in those early days.

This is the model T Ford fender. I don't know how many coats
that has on there, but if you could look at that sheet you could see
right tlirough the paint how imperfect the surface was. Then look
at this big sheet I am going to show you now, which is a modern
Buick fender sheet. This sheet sold in 1923 for $135 a ton, and for
that sheet last year the market price, if they got the market price —
the}' didn't always get it, as you know — was $62 a ton.

The Chairman. How much larger is that sheet than this?

Mr. Hook. This fender is made up of two jjieces.

The Chairman. But the prices that you are quoting are par-ton
])rices.

Mr. Hook. That is correct.

The Chairman. This modern $G2-a-ton sheet is how much better
than the old sheet?

Mr. Hook. Well, Senator, tliere wasn't any process that the steel
industry knew anything about, under tlie old hand-mill process, by
which we could produce a sheet to make that part. That is stamped
out of one piece, in one operation. I can ])ick the Ford fender up
and run all over with it. I can't do it with the new one.

In other words, if we had attempted to make one like the Buick
fender in the day of the old one, I don't know wdiether, because I am
neither a pressman nor an automobile producer, they could have
clone it, even if they had tried six or seven parts.

The Chairmax. How many parts are in the old one?

Mr. Hook. Two in this, and you can see what it is. That is the
Ford.

16414 CONCENTRATION OF ECONOMIC POWER

Now, over here I have an old Dodge fender. I could pick this up
and run away with it, too. You can see from there, I think, the
weld. That is probably a repair, but ri<r}^t here is where they were
joiiied. Even that fender had to be made out of two pieces, and I
don't know whether you can see this bulge, Senator, but right liere
there is a kind of bulge which was put into the fender to give it
strength, and when I was out in the mill trying to develop this bet-
ter sheet we ran into trouble. We used to call it '•corn meal" struc-
ture. In other words, we just couldn't get a surface fine enough,
smooth enough, so that the imperfections wouldn't show through o^i
three or four operations. We just couldn't have put only two coats of
Duco on this sheet. You wouldn't have had it. Nobody would have
run the car. It was a horrible mess.

The Chairman. This is most interesting testimony, and it is obvi-
ous that we are not going to be able to finish in any reasonable time
now, so if there is no objection I think the committee may recess until
2: 15 o'clock, and if yoa will be good enough to come back this after-
noon we will proceed. '

Mr. Hook. I am delighted. I am at your service.

The Chairman. If there is no objection, the committee will stand
in recess until 2 : 15.

. (Whereupon, at 12: 15 o'clock, a recess was taken until 2 : 15 p. m.
of the same day.)

AFTERNOON SESSION

The hearing was resumed at 2:35 o'clock, upon the expiration of
the recess, Senator O'Mahoney presiding.

The Chairman. The committee will please come to order. You
may proceed, Mr. Hook.

Just before we recessed, Mr. Hook, you were illustrating the two
fenders. One was the old Ford fender. What was the price per ton
of that sheet of steel? I have forgotten what price you gave.

Mr. Hook. Back in 1923, before the continuous mill came into
existence, that slieet sold for $135 a ton.

The Chairman. And the present price for the other sheet is $60^
a ton?

Mr. Hook. $62.

The Chairman. Do you know how much steel is now used ir
fenders as com])ared with the amount in 1923?

Mr. Hook. Well, I can't answer that exactly. Senator. If you look
at that old fender there, and look at this one, you have to make the
best estimate you can. I haven't the relative weights.

The Chairman. The reason I asked the question is, this noon I
happened to meet Mr. Kettering, and told him of your interesting
testimony this morning, and he said, as I recall it, that in his opinion
the automobiles now use at least twice as much steel as they did in
1923.

Mr. Hook. I think that is probably true. We figure about 1,400
pounds. We have a chart showing that for the automobile industry,
but it does not show the weight for the car. We have that at home;
I'n sorry. I tried to think of all the things you might ask for.

The Chairman. Oh, yes; that is impossible.

Mr. Hook. I will be delighted to send that to you, because we have
sot it.

CONCENTRATION OF ECONOMIC POWER 16415

DECLINE IN SHEET STEEL. PRICES

Dr. Anderson. Mr. Hook, I wanted to ask you a question while
we are on this topic of the decline of iron and steel selling prices in
your plant. Would that be representative of the industry, in your
mind, or not?

Mr. Hook. Yes; for tliat product.

Dr. Anderson. For that particular product?

Mr. Hook. Yes ; that is, for sheets.

Dr. Anderson. Let me ask this question, then. Is this to be taken
as tlie decline in steel sheet selling prices only?
• Mr. Hook. Tl^at's right.

Dr. Anderson. In other words, you have isolated, out of all the
products of your plant, steel sheets, and we are comparing identically
the same product all the way through.

Mr. Hook. That's right.

Dr. Anderson. Tliat is not a decline, then, in prices of your
products, whatever they might be?

Mr. Hook. Not the others; but, of course, sheets, as we showed you
this morning, are ovar 90 percent, the lowest percentage of any one
plant being about 92 percent sheets.

Dr. Anderson. But we are only concerned here with sheets.

Mr. Hook. That's right. In other words, the product that is made
on the continuous mill.

Mr. O'CoNNELL. May I ask a question there? Speaking generally,
Mr. Hook, as I recall the testimony in the other hearing we had on
steel,^ a picture of the price of steel products generally over a com-
parable period would be quite different from that, would it not?

Mr. Hook. You are correct.

Mr. O'CoNNELL. Tlipre has been a relatively greater decline in the
price of sheets than in almost any other steel product?

Mr. Hook. Correct.

Mr. O'CoNNELL. To what do j^ou attribute that ?

Mr. Hook. That is the technological deveU-pmont. the introduction
of the continuous sheet mill. Not only that, as we tried to say in
our opening remarks; we don't credit that droj) entirely to the in-
stallation of this innovation, because management efficiency and other
things that we tried to enumerate did have a part in that.

Mr. O'CoNNELL. I understood you to indicate tliis morning that, as
far as this product is concern :d, it was somewlmt more i-esponsive to
price reductions in terms of the volume than some other steel
products ?

Mr. Hook. Decidedly so.

Mr. O'CoNNFXL. There has been ai)parently quite some controversy
among people wlio do some thinking on tlie subject, as to how elastic
the demand for steel is, and from what you say this morning, I
lake it that it is your belief that for this ])arti('ular steel product
tlie demand is to a greater extent responsive to pi-ice changes than in
some of the other steel products.

Mr. Hook. Yes. You see there was technological development with
resj)ect to other {products in earlier years, from, say, 1910 to 1920.
There were develoi>ments of the contiiuious mill for rolling sheet

' See Healings, Part 19.

16416 CONCiONTRATION OF ECONOMIC POWER

l)ars. For instance, when I started to work in our little plant at
MiddJetowii we made sheet bars, first on an old two-high break-dowti
mill with three-high finishing mill with a lot of passes and the men
did a Jot of very hard physical work. That was supplanted by what
is known as the continuous Morgan sheet bar mill, and that develop-
ment came in, I forget when. Mr. Eppelsheimer, perhaps you re-
member.

Mr. Eppelsheimer. About 1900,

Mr. Hook. It was about 1900 that the Morgan mill was developed,
so there was a lot of change in the price of other products, the sheets
having gone on for many, many years by this old method until we
found a way of doing it continuously.

Mr. O'CoNNELL. Speaking generally, are sheets ordinarily sold to
a few large buyers as distinguished from a lot of smaller buyers?

Mr. Hook. No; we have a chart showing the distribution of the
product to the various industries.

Mr. O'CoNNELL. I will be interested in that.

Dr. Anderson. May I refer, in this matter of prices, to the state-
ment that you submitted to the committee, on page 5, the fourth para-
graph down, we have this statement:

Steel users not only have benefited from improved quality which makes for
possible bwer fabrici;tion costs, but they have also enjoyed the advantage of
lower prices as well.

Th'en you take from 1926 to 1939, "the average price of all iron and
steel sheets realized by our company declined 31 percent."

I l/ake it that is this illustration here, and we are dealing with steel
sheets only.

]Vtr. Hook. That is right.

Ill this table, entitled ''Iron and steel industry (blast furnaces,
ste^l works, and rolling mills) employment, wages, and produ'^tion,"
we. jump from the pure sheet plant and use the American Rolling
Mill Co. because we develo])ed this continuous process. We make
practically nothing but sheets. We will see what the effect on the
entire iron and steel industry has been, because in this chart and
othet^ I think that will be obvious,

(The table referred to was marked "Exhibit No. 2468" and is in-
cluded in the appendix on p. 17328.)

Mr. Hook. Noav, we have taken the iron and steel industry, blast
furnaces, steel works, and rolling mills, and we show employment,
wages, and productif>n. The reason we use 1925 in this instance and
'26 before is because here we are using the United States census
figures. This is a census year. I thought I had better explain that
right off the bat.

The average number of wage earners in '25 was 399,914; in '37,
502,417, or a 25.6-percent increase, during which time the population,
as I noted in my preliminary statement, increased 11.2 percent.

The pay roll, which is wages only, not salaried workers, increased
fiom $660,297,150 to $817,777,929, oi- an inci-ease of 23.8 percent.

The steel production — lliis is steel in.^ots — increased from 45.-
119,113 tons in '25 to 51.599,000 in '37, or a 14,4 percent increase.

The CiiAiR]\iAN. Mr. Hook, do those figures with respect to pay roll
and waofe earners indicate tliat the rate of wages has not increased?

Mr. Hook. We will have that down below, Senator. Down here
we have the average earnings per hour. .

CONCENTRATION OF ECONOMIC POWER 16417

The Chaibman. All right, I will wait until then.

Mr. Hook. We will come to that.

The man-hours per gross ton of steel — that is all rolled products —
are 28.12 in 1925 and 19.83 in 1937, or a reduction of man-hours per
gross ton of product of 16.2 percent.

The labor cost per gross ton of steel increased from $14.68 to $15.85,
or an increase of 8 percent.

You remember we showed you that in the sheet mills operating in
our own plant, with the continuous process of production, we had a
decrease in labor cost per gross ton, but taking the industry as a
whole, there was an increase in the labor cost.

Now, had we not introduced the continuous mills, and had not
the sheets and strips i-epresented such an important part of this total
steel production of 51,000,000 there, then this increase would have
been considei-ably more.

The Chairman. This is the curious thing that suggests itself to
my mind. The percentage increase of wages is less than the per-
centage increase of the number of wage earners, and yet the labor
cost })er ton has increased. How do you explain that?

Mr. Hook. The shorter hours. You see the average workweek
m 1925 was 50 hours, whereas in 1987 it was 38, so we had a reduc-
tion in the numbef' of hours that the men worked of 23.6 percent.
That accounts, too, for a large part, if not all,x)f the increase here of
the average number of wage earners.

The Chairman. That is, the reduction in the number of hours re-
sulted in an increase in the number of wage earners.

Mr. Hook. Correct.

The Chairman. And do you think that was the cause of practically
all of -the increase in the number of wage earners?

Mr. Hook. We have the exact figures. It covers practically all
af them — not in our case; now we are talking about the industi*y.

Dr. Anderson. Might I ask 'a question concerning that labor cost
per gross ton of steel ? What is the source for such a figure ? How
do you get at such a figure ?

Mr. Brooks. That is simply the steel production and the wia,ge
figure.

Dr. Anderson. You computed it from the available data there?
We don't have any source for any such thing as that for the industry.

Mr. Brooks. You could take it out of the Biennial Census of Manu-
factures. Those figures are shown.

PROPOSED REDUCTION IN HOURS

The Chairman. May I ask, Mr. Hook, how do you look upon the
suggestion, which is sometimes made, that increased employment could
be provided by a further reduction of the number of hours which
each worker would be permitted to work?

How do you look upon that suggestion?

Mr. Hook. Well, I don% look on that favorably, because I think
we have reached a point now where, with an average production —
well, say you get 70 percent — in order to keep their earnings up per
week and per annum you would have to have a considerable increase
in the wages, in the hourly rate, and I don't

16418 CONCENTRATION OF ECONOMIC POWER

The Chairman (interposing). What is the average week in the
iron and steel industry now? Is it 40 hours?
Mr. Hook. Yes; 40 hours. Over and above 40 hours is time and a

half.

The Chairman. So what you are saying to us is that if, for .ex-
ample, the workweek were reduced to 30 hours, such an increase of
the hourly rate would be needed to enable the worker to obtain the
' same income that he receives for a 40-hour week as to be uneconomic
as far as the industry is concerned.

Mr. Hook. That is my opinion, Senator ; and T think you would
reduce the use of the product upon which they are dependent for
their work.

The Chairman. In what way?

Mr. Hook. By increasing the cost to a point where jou would be-
gin to seriously affect its use.

The Chairman. Of course, the 40-hour week in itself was resisted
by industry, looking at it as a whole. Every shortening of the
workday and the workweek has been resisted as this movement has
gone along from year to year. That is true, isn't it ?

Mr. Hook. Well, speaking for the steel industry, that was a vol-
untary act.

The Chairman. Yes, in this case ; but I am now going back many
years. In the steel industry at one time the 12-hour day was rather
common, was it not ?

Mr. Hook. Yes, indeed.

The Chairman. And it was some struggle before that was aban-
doned.

Mr. Hook. You are correct.

The Chairman. Now, what do you think is the minimum workweek
that would be economic in the industry ?

Mr. Hook. I think we have reached the very minimum now. Sena-
tor. I think it would be a very serious matter to attempt to go any
further.

The Chairman. Because of the increases in cost that would result
to the consumer; is that the idea? -

Mr. Hook. It is bound to do that.

The Chairman. And, therefore, in cutting down the market for
the ppoduct. ' .

Mr. Hook. I think so. I think you would limit the uses in many
instances.

The Chairman. Do you see any argument against those conclu-
sions? Is there another side to it, in other words, as you look at it?

Mr. Hook. No;T think I see only the side that I am favorable to,
I am afraid. Senator.

The Chairman.. I guess that is the way with most of us.

Mr. Hook. That is quite a study, though. I appeared before the
National Industrial Recovery Board when Mr. Clay Williams was
chairman, Senator, and I think my detailed testimony on the 30-hour
week is a matter of record some place here in the Government files.
With the break-down, which I haven't here to substantiate my posi-
tion, I think we presented pretty conclusive evidence that it would
be a very serious mistake to attempt to go to a 30-hour week.^

' See Employment Provisions in Codes of Fair Competition, National Recovery Admin-
istration. January 31, lO.SS, Volume 2, Part I, pp. 7G7-804.

CONCENTRATION OP ECONOMIC POWER 16419

LABOR CX)STS FOR STEEL PRODUCTION

Mr. HiNRicHS. Mr. Hook, this morning you indicated tha^ in the
Armco plant the labor cost for sheets in 1926 was about $23.15. I
presume that the cost in 1925 would have been about the same?

Mr. Hook. Yes.

Mr. HiNRicHS. Now, the labor cost per gross ton of steel that you
show on this chart is an average for the entire industry, $1*4.67.

Mr. Hook. That's right.

Mr. HiNRiCHS. Sheets had a very much higher labor cost?

Mr. Hook. Pardon?

Mr. HiNRiCHs. Sheets had a substantially higher labor cost?

Mr. Hook. Yes.

Mr. HiNRiCHS. It follows, therefore, with other products which
had a substantially lower labor cost per ton, which I suppose would
have been the heavier steel roll products ?

Mr. Hook. For instance, if you look at your diagram that you have
in front of you which I used this morning, "Exhibit No. 2453," to show
a steel plant manufacturing sheets, sheet bars stopped before you
started in the old-style hand mills.

Mr. HiNRiCHS. I am not criticizing the higher price of sheets. I
am criticizing this lower figure here, in terms of the significance of
-the change from $14.67 to $15.85; during this period between 1925
and 1937, the composition of the steel products going to make up
those 45,000,000 and 51,000,000 tons has changed quite drastically.
Sheets, you indicated this morning, had increased from some 6,000,-

000 to some 10,000,000 tons. Structural steel shapes, on the other
hand, are less. Steel rails, I believe, would be less.

Mr. Hook. Yes.

Mr. HiNRiCHS. So that the high-cost items, or let me put it the
other way, the items with a high labor content and high labor costs
in the steel industry, have been increasing between 1925 and 1937.

Mr. Hook. Can I interrupt?

Mr. HiNRiCHS. And the low-labor costs and the low-labor-content
items have been decreasing?

Mr. Hook. May I interrupt you just a second?

Mr.*^HiNRicHS. Yes.

Mr. Hook. This figure is on steel ingots, which is the beginning
of. the operation before you begin to roll. These rails and every-
thing else are made from that, and this labor cost is based on the
first beginning of rolling; that is, before you start to roll the steel
ingots.

Mr. HiNRicHS. Your pay-roll figure is the census pay-roll figure,

1 believe?

Mr. Hook. That's right.

Mr. HiNRiCHS. The census pay-roll figure covers

Mr. Hook (interposing). Everything.

Mr. HiNRicHS. The pay rolls in blast furnaces, steel works, and
rolling mills?

Mr. Hook. Correct.

Mr. HixRiCHS. And would include the pay rolls of the final rolling
process, sheec pay rolls, for example? Your ingot figures are com-
parable figures, I presume. I don't remember the figures, but I am
sure they are.

16420 CONCENTRATION OF ECONOMIC POWER

Mr. Brooks. No, they are not, Mr. Hinrichs. Our labor costs per
ton were based on finished sheets. If we had used ingot production,
it would have come out lower on both ends. In other words, the
1926 figure would have been lower, and the 1937 figure would-have
been lower, but the relationship would have been somewhat the same.

Mr. Hinrichs. You mean to say that these labor-cost figures are
specially weighted by the different rolled products? Let me ask my
question in another way. If you had had this same proportion of
heavy-rolled products in 1937, with reference to the 51,000,000, as in
1925, and the same proportion of light-rolled products, that figure of
$15.85 would have been smaller than the one that you have there.
I don't know how much.

Mr. Brooks. Yes ; it might have been.

Mr. Hinrichs. It would have been?

Mr. Brooks. Yes; I believe it is true that it would have been. -

Mr. Hinrichs. Now that same criticism, then, applies to this 23.12
and 18.38 man-hours.

Mr. Brooks. Correct.

Mr. Hinrichs. Those are the number of man-hours required to
produce a gi-oss ton of steel, but the steel that you are talking about
is of a changing composition. It i^ a finer product, so that if you
are trying to report the technological development as it has affected
man-hours of labor, the figure that you gave this morning of a de-
crease from 321/^ to 19.1 is a very accurate picture for sheets.

Mr. Brooks. Sheets alone.

Mr. Hinrichs. And we don't have the same figure before us now
for the steel industry as a whole, or for any other steel product.,

Mr. Hook. That is correct. You have an indicator.

Mr. Hinrichs. Rather crude ! [Laughter.]

Dr. Anderson. The question that follows naturally from Mr. Hin-
richs' question to you is whether you propose to use this to make a
comparison of unlike things, this compared with your previous state-
ment in the morning, with respect to steel sheets ?

Mr. Hook. Well, it is the best comparison that you can make with
the available information that you have.

Dr. Anderson. In other words, at the outset, you'd say it would
be a very crude comparison.

Mr. Hook. Well,. maybe we ought to admit that, that it is a crude
comparison, but it is a comparison, ^nd there has been an increase, and
of course, if the relationship of the finished products in 1937 is the
same as the relationship between the various finished products in
1925, then that is an accurate statement. Now just what the change
in relationship has been

Mr. Pike (interposing). It is not inaccurate to say that the pay
rolls have gone up ? It is not inaccurate insofar as the wages are
concerned. Some of the deductions from it may be quite inaccurate
as to the gross ton of steel, if the composition has changed a great
deal, but from the point of view of w^age warnings, pay roll, those
figures are accurate, aren't they, in the steel business?

Mr. Hook. My attention is called to the fadt that the Brookings
Institution have used the same basis of figures.

Dr. Anderson. That is true of the Brookings Institution. I have the
form in that book, but it is definitely dealing with the problem only
of blast furnaces, steel works, and rolling mills. They make it that

C50NCENTRATION OF ECONOMIC POWER 16421

sort of a tabular display, but they are not trying to make any com-
parison between it and over-all, and any part of the industry that
might be included in it.

]VIi". Hook. I'm not trjring

Dr. Anderson (interposing). In other words, you are just submit-
ting this as an evidence of what is occurring in these things in the
over-all.

Mr. Hook. Yes. Tlie best figures that we could ^et from Brook-
ings Institution, but it shows what has happened m the iron and
steel industry in 1025 to '37 inclusive.

Dr. Anderson. Let me just make one comment, and ask a question
that arises from if, if that is what this is supposed to show. You are
taking 2 years, 1925 and 1937, and making a comparison between
them, and saying that that is a trend of what has occurred between
1925 and 1937. Is that right?

Mr. Hook. That is. correct.
. . Dr. Andeirson. Might I point out that I don't believe any statistical
procedure would permit you to draw such a conclusion, because you
have two end points only and you don't establish a trend thereby.
All you have done is compare one year, 1925, and another year, 1937.

What has occurred between might be quite contrary to anything
that is displayed in the last column of percentage of change; in the
table from which you quoted, that is precisely drawn out. If you
had taken 1938 as your end year, you'd have shown a quite different
picture, or if you had selected any other base year than 1925, you'd
have shown a different picture.

' Mr. Hook. Well, you know why we took this period of 1926 to
1937, in this case, 1935. It is because, between those periods, the
continuous mill came into operation and it has had its effect.

Dr. Anderson. I tried to make the point earlier, Mr. Hook, that
what we were dealing with was a single display here, and it wasn't
purporting to show what did occur in the continuous sheet-mill
process. In other words, to use this as an evidence of what might
have occurred in your part of the industry wouldn't be reasonable
because this course includes it and many other factors. It is an
inclusive set of data and not one that is detailed enough to permit
such comparisons.

Mr. Hook. Well, it does show- the trend within those periods, un-
questionably.

Dr. "Anderson. As a matter of fact^ my point is, Mr. Hook, that
you can't establish a trend by comparing 2 years. I w^ll give you a
good example of it. I just happen to have it, because of a piece of
work that I have done recently. If you Lake agricultural gainful
workers in the United States from 1870 to 1930, you establish the
fact that their number has increased 77 percent.

But if you spot the intervening censal periods you find that by
1910 the peak lias been reached, and that by 1930 there was an actual
decline in numbers from 1900. In other words, you had a broken
trend line. The fiirure for 1870 was lower than 1930, but it rose from
1870 to 1910, and then dropped off to 1930. That is a trend; you
don't compare 1870 and 1930 and think you have a trend, just as you
don't compare 1925 and 1937 and establish thereby a trend. You
have to put in every intervening year. Isn't that correct?

16422 CONCENTRATION OF ECONOMIC POWER

Mr. Hook. Let's take this. Let's be really practical. There is no
question but that is what happened so far as pay roll is concerned,
so if everything? else is out the window the industry did increase its
pay roll from 1925 to 1937 by 23.8 percent.

Dr. Anderson. Mi^ht I just question something at that point.
Now we will put in different years and see what happened. Based
on an index, 1923-25 equals 100, 1925 stood at 99, according to the
Brookings figures. This is total wages paid. In 1937 the figure
stood at 122.5. Put the next year in, and you have 1938 Standing at
68, or decidedly -below 1925. * You would thereby have a decided drop
in total, wages paid if you used 1938.

Mr. Eppelsheimer. What page is that ?

Dr. Anderson. Page 299.

Mr. Hook. They weren't comparable in operating rate. Let's put
in .1939. Maybe we should have . put in 1939. We will prepare- a
chart for you and send it back.

Dr. Anderson. That is rjght; I think any trends would require
just such a procedure.

Mr. Hook. All right; we will be glad to present and get some
facts in for 1939.

The Chairman. What is the general trend as you kiiow it? Is it
up or down?

Mr. Hook. Wages have been' up. We can see that.

Mr. HiNRiCHS. I am sorry; I have just one more question on that
chart. As I put those figures together, there is another figure which
you could have used here, which was the total number of man-hours
worked in the industry. You show an increase of roughly 400,000
to 500,000 workers. Then you show average hours per week on the
second line of the second half of your chart.

Mr. Hook, I think maybe we have those figures; we will see.

Mr. HiNRiCHS. Multiplying those two, you get figures of rougtily
2,000,000^000 man-hours per week in 1925, and 1,917,000,000 man-
hours — I have my decimal point wrong — in 1937.

Mr. Brooks. I have the calculated figilres.

Mr. HiNRiCHS. Would you include them, please?

Mr. Brooks. The man-hours were 1,043,000,000 in 1925, and have
been reduced to 99,728,000 in '37.

Mr. HiNRicHS. So that the maintenance of the employment figure
between 1925 and 1937 depended in very large part upon that de-
crease in hours per week that you show on the bottom of the chart.

Mr. Brooks. Yes. But the sheet-producing unit, the American
Rolling Mill Co., was up in man-hours. That is the point. We are
talking about technological development, and where that technologi-
cal development affected a plant making that product, the man-
hours went up, and later on you will see some figures here that will,
I think, enlighten you and you won't worry so much about that
chart.

Mr. Hook. The table entitled "Iron and steel industry, increase in
sheet and tin-plate production" shows th.e increase in sheet and tin-
plate production in the iron and steel industry. In 1926 the total
hot-rolled products, 35,495,892; hot-rolled products and sheet and tiu
plate, 29,168,018 ; or in 1926 there were 6,327,874 tons of sheet and tin
plate. In 1937 the total hot-rolled products amounted to 36,766,38^"

CONCENTRATION OF ECONOMIC POWER 1642b

a 3.6 percent increase in this period. The hot-rolled products 'other
than sheet and tin plate went down to 25,972,079, or a decrease of 11
percent in the products other than sheets.

(The table referred to was marked "Exhibit No. 2469" and is
included in the appendix on p. 17329.)

Mr. Hook. The sheet and tinplate alone went up to 10,793,592, or
an increase of 70.6 percent in the particular end of the industry
where this technological development was introduced. Or there was
an increase in sheet and tinplate between those periods of 4,465,718
gross tons, and we figure that that is equal to giving employment to
45,000 men.

Now, I think that is very enlightening and gives you

Dr. Anderson (interposing). Mr. Hook, might I ask you now, if
you did splice on the successive years, has that been a continuous
trend? Increase in sheet and tinplate has been moving up since '37
as well?

]Mr. Hook. I don't ^now whether we have the figures, so I couldn't
say definitely that that is true. I do'n't think that progression has
kept up.

Dr. Anderson. That 10,000,000 tons is not a peak that represents
that artificially high year of '37?

Mr. Hook. No ; '39 would show about the same as '37.

Dr. Anderson. It has held after that?

Mr. Hook. For instance, in our own case I will give yon the exact
figures and I think we ran right along with the industry. I don't
think we are any smarter than the rest of %hem, and in 1937 our
shipments were '1,131,000; in '39, 1,033,000, so it kept up pretty
much the same.

Dr. ANDt:RsoN. I*f that is true then you would say that your part
of the entire steel industry is even more important today than in
1937, because the indices- for total output have dropped in '38, and
I suppose they are still down in '39. In other ^Yords, this would
be accentuated by later figures.

Mr. Brooks. I can answer your original question. In 1938, which
is the 'atest break-down of figures we have, sheets were 35.8 percent
of the lotal. hot-rolled production, which is a greater percentage, I
believe, than is shown in '37, when it was 29.4 percent of the total.

Dr. Anderson. So that is really true ; it is increasing.

Mr. Hook. It is increasing.

Dr. Ant>erson. And you would say now that sheets have become a
predominant factor in the industry, making for whatever pros-
perity the industry shows?

Mr. Hook. It is a very important factor in it, that is so, almost
the domitiant factor.

Mr. HiNRicHS. Mr. Hook, you spoke, I think, of an increase of em-
ployment of 45,000. Did I hear you correctly?

Mr. Hook. This 4,465,718 we just estimated is equal to an increase
of

Mr. Hlnrichs (interposing). Forty-five thousand people?

Mr. Hook. Forty-five thousand men all the way through.

Mr. HiNRiCHS. Turning to Exhibit 2461 presented this morning,
an estimate of the number of workers employed in the industry in
the hand-mill processes, there is a line on it, "Estimated number of

16424 CONCENTRATION OF ECONOMIC POWEIl

workers (sheets), 4,237,847," approximately the same figure that you
have there — slightly smaller, and an estimated employment of 25,682.

Mr. Hook. In that department alone. We have taken credit here
for the employment all the way. through in all the departments, not
just ...

Mr. HiNRiCHS (interposing). This is only in the mill', and stops
at the strip pickler, which didn't exist, I take it?

Mr. Hook. It is right in that group where the continuous mill
was installed to take place of the old hand mill.

Mr. HiNRicHs. And this thing includes the process all the way
through to the railroad car?

Mr. Hook. That is, of, course, an estimate.

Senator King. Mr. Hook, I would like to ask one question. I
know that many of the witnesses who come here don't expect all the
members of the committee to be here all the time, because we have
other committees. I have been in other committees all day, and I
am sorry when we don't have the opportunity to be here all the
time to listen to you, but we will read all that is said by the witnesses
who appear.

I want to ask you whether or not you are familiar with the testi-
mony that has been given by Mr. Fairless and other respecting the
development, and production, and changes in the steel industry.^

Mr. Hook. Fairly so. Senator,

.Senator King. Would you say that your testimony with respect to
the figures which they gave as to production arid employment, and
so on, are substantially in harmony with those, or materially dif-
ferent?

Mr. Hook. I should think they ought to coincide.

Senator King. I wondered if you made an examination to see
whether there were any coincidences or any divergences.

Mr. Hook. I think we went through those figures fairly well, the
Steel Corporation figures, and so far as 'I know there were no in-
consistencies with respect to our figures.

Senator King. I might add that I was present during the testi-
mony of many of the witnesses concerning the steel production, and
I am reasonably familiar with their .testimony,- and I am not familiar
with yours because of being compelled to be in. other committees
today.

Mr. Hook. That was my bad luck.

CAUSES or INCREASED VOLUME

Mr. HiNRicHS. You do very definitely connect this increase of
$4,465,000 with the decrease in your selling price from $100 to $57 ?

Mr. Hook. Oh, yes.
' Mr. HiNRiCHS. And we can assume that the earlier witnesses would
probably indicate that .there was an important relation between price
and volume.

] Mr. Hook. Remember, Mr. Hinriclis, we didn't take credit for the
increased volume entirely due to the price change, but to the in-
crea'sed quality of the product which made possible a thing of that
kind that cduldn't be made before.

1 See Hearings, Parts 18, 19, 20, 26, and 27.

OONCENTUATION OF ECONOMIC POWER 16425

Mr. HiNRicHS. That is, if you didn't have a better product, it
couldn't have been used, but it was hipjiily desirable in your opinion
to have lower prices in Qrder to ^et volume use.

Mr. Hook. We are perfectlj^ willing to admit that competition as
other mills came in had something to do with lowering the price,
because tlie return on the investment- hasn't been w^hat I think it
should have been.

Dr. Anderson. But is it not the lower price that makes it possible
to use the larger thing instead of the little thing that used to be
used? (Referring to the fenders on exhibit before the committee.)

Mr, Hook. Undoubtedly.

Dr. Anderson. In other words, when steel approaches the con-
sumer's market, steel has to be concerned about lower prices, or as
low prices as possible.

Mr. Hook. Yes ; that is what we are working for, to find ways and
means of decreasing the cost of the product to make it available for
larger use.

There was a question asked this morning and I think this fable,
''Distribution of sheet and tin plate production to consuming indus-
tries,'^ will show it. Iron Age is the source of our information. Mr.
Brooks reminds me that these totals down here don't agree with the
totals which we have used, probably because they are obtained in
a different way and they are distributed, but it is approximately the
same. The distribution is probably fairly accurate, and this table is
only presented to show the increased use of sheet and tin plate in
these industries.

(Tlie table referred to was marked "Exhibit No. 2470" and is in-
cluded in the appendix on p* 17329.)

Mr. Hook. In the automotive industry it increased 142.9 percent
in that period; agriculture, 95.7. This is very enlightening — there
was a redtiction of 27.2 percent in the construction field — and in the
export field, an increase of 68.1.

Jobbers and warehouses, an increase of 170. To those of us in
the industry that is a very interesting and significant figure, because
jobbers sell to the very small manufacturer and to the tinner and
to the man who is rnaking repairs, and that is a very encouraging
increase to us.

The Chairman: You interpret that to mean that there has been a
v^ery remarkable increase in the consuming power for this product
of small independent products of one kind or another?*

Mr. Hook. Apparently. That is what is indicated to us.

T!.e Chairman. Is that the fact from your experience?

Mr. Hook. Yes ; it is.

The Chairman. To what do you attribute that increase?

Mr. Hook. Well, I say the question of price and quality both come
in there.

"^he Chairman. No; I mean how does it happen that there are
more users, more small users of sheet and tin-plate? What dp they
use it for?

Mr. Hook. Oh, there are innumerable purposes. Senator. For
instance, there are little gadgets that are now made out of sheet steel,
and this little manufacturer who onl})- uses a few tons, can't buy by
tne carload, goes to the jobber and buys.

124491— 41— pt. 30 16

16426 CONCENTRATION OF ECONOMIC POWER

The Chairman. What does this little manufacturer do with the
steel plate? And there any new industries, new products?.

Mr. Hook. He will stamp it out into articles of various kinds,
maybe an ash tray. This one is made out of glass, of course, bui
we are trying to get him to make it out of steel.

Senator King. The .ingenuity of man manifests itself in different
uses to which steel products may be put, as well as in the plastics
and glass, and the other products.

Mr. Hook. That is right.

The Chairman. These new uses are being developed by small man-
ufacturers, independent enterprises?

Mr. Hook. Yes..

The Chairman. And not by the large enterprises?

Mr. Hook. Yes. For instance. Senator, I think I called your at-
tention in November to a very unique product which we have devel-
oped and put on the market in the last 2 years, known as zinc grip,
and the continuous mill made that possible in part, only, but it is a
method of galvanizing sheets, that is putting a spelter coat on them,
so that that coated sheet can be put in a press and stamped out with-
out that spelter breaking off.

Now formerly, you would have to take a black sheet and stamp
it, because the spelter or the zinc wouldn't stick on it, and then you
would pickle that sheet and then put it in a hand-dipped operation,
which was very expensive. It took a great deal of spelter.

So now the man with a sheet which only costs $2 a ton at the
present time above the price of ordinary common galvanized sheets,
can stamp these articles out at very much less cost to him. There-
fore, it is increasing the use of the material and makes it possible
for him to sell his product at a lower price and create a wider
market.

This is simply a break-down.

Dr. Anderson. Mr. Hook, I am curious to know because of the
great importance of the construction industry and its prosperity to
the prosperity of the Nation and the reduction of unemployment,
why you have the construction industry there in the red with a de-
cline in use of steel and tinplate,

Mr. Hook. Of course, there are two reasons for that, in my opin-
ion. The prime and important reason has been that the flow of
private and corporate savings into the capital goods industry has
been retarded, and I think that is one of the very important things.

Then I think that the construction industry, certain parts of the
construction industry — and when we are talking about construction
we must differentiate between the big construction items, big build-
ings, and so forth, and the home-building field — in the home-building
field Avhere there are great needs now, we believe, for additional
homes, we haven't liad the advance in mass production, I think we
have been held back, I think unwisely, by some of our labor freinds
where the rate has been kept too high, and the use of that labor in
the construction of homes has actually been held back. In other
words, T think more homes would be built, and I think they would
have had more hours of labor and w6rk, and more earnings over the
year, if that hadn't been true.

Dr. Anderson. In the new developments in steel, these unusual
things that have occurred in the last 10 or 15 years, do you see what

CONCENTRATION OF ECONOMIC POWER 16427

would amount to an entrance of steel into the construction industry
in an increasing way so as to reduce the cost of home building?
What is the future in your mind of that thing?

ARMt:0 RESEARCH IN HOUSING

Mr, Hook. We think so. We have been spending a good deal of
money in research in that field in the last several years. We have
just, for instance, finished building a little unit — not so little, 27
houses is not such a small unit — of steel houses, and dollar for dollar
we think that the buyer is getting a very much better product and
more value for has money; well insulated, thoroughly insulated in
fact, termiteproof and stormproof, tornadoproof — very many things
that we think make it advantageous to the buyer.

Dr. ANDf:BSON. Is the widespread use of steel for housing or do-
mestic homes in tlie immediate offing, in your opinion, or not?

]Mr. Hook. I wish I could answer you in the affirmative. Dr. Ander-
son, but I don't know. We are trying very hard to reduce costs in
tliat field and get a home which can be built at very low costs. We
have made a lot of progress and we are building very good houses
at very reasonable figures at the present time.

Mr.' O'CoNNELL. Mr. Hook, looking at "Exhibit No. 2470" and
relating it to the question I asked a little while ago about the price
behavior in the sheet portion of the steel industry, I notice that
two classes of buyers, the automotive and the metal container, con-
situte a little over 50 percent of the steel sheet buyers, and those
industries, I take it, are characterized by a few in the industry, but
large units.

Mr. Hook. Very large units. For instance, the metal container,-
that is' largely tinplate as you know.

Mr. O'CoNXELLu Would you say. that that fact, the fact that there
are large buyers on that side, was a factor which helped to produce
the reductions, the 5ubstant^ il reductions in sheet prices ?

Mr. Hook. I don't think tJ lere is any question about it.

Mr. O'CoNNELL. You see, that price behavior is not characteristic of
the steel industry generally as I would understand it.

Mr. Hook. The other branches of the industry haven't had the tech-
nological improvements that made it possible for the price to be
reduced.

Mr. O'CoNNELL. They haven't had the large buyers, either.

Mr. Hook. Oh, some branches have. You take in the railroads, for
instance, they are very large buyers.

Mr. O'CoNNELL. Lately ? Not lately.

Mr. Hook. Not what we would like to see, of course.

Mr. O'CoNNELL. When we heard the story about the way the price
of tinplate was arrived at in the prior hearing,^ it apparently was a sit-
uation in which the Carnegie-Illinois representatives sit down with
the representatives of the American Can Co. and thrash out a price,
which apparently from your figures has tended to be a rather low price,
relatively low over the years. In other uses of steel, take structural
shapes or something like that, where you have a multitude of small
buyers, the price has apparently remained relatively high as compared
to the price of tinplate ; isn't that true?

16428 CONCENTRATION OF ECONOMIC POWER

Mr. Hook. I am not competent to express an opinion on tinplate be-
cause we don't make tinplate and I would rather not discuss a subject
that I am really not competent to discuss.

Mr. O'CoNNELL. It seemed to me that the fact that" there are two
groups of buyers representing about 50 percent of the market for sheets
might have been a yery important factor in bringing about the price
reductions that there is evidence of.

Mr! Hook. Of course, they can order in large volume, and if you can
get a large tonnage of one size to put through your mill, that is quite a
differei.t operating problem than if you have to take that same tonnage
and divide it up into innumerable sizes.

Mr. O'CoNNEix. Yes ; but purely on the bargaining side I take it that
a large buyer is in a better bargaining position than a multitude of
small buyers.

Mr. Hook. I don't think there is any question about that.

Mr. O'CoNNELL. And that would have some effect on the price struc-
ture, wouldn't it ?

Mr. Hook. It would have some effect on that, of course. But here
you see are jobbers, they are small buyers, and yet there were 1,092,000
toils to jobbers and warehouses, and that has greatly increased, Mr.
O'ConnelL in the last few years.

Mr. O'ConNell. Yes: J. can see that.

DISPtACElvniNT OF OTHER.INDUSTRIES BT SHEET STEEL

Mr. HiNRicT' s. Just iojie more question on "Exhibit No. 2470" in
terms of increases of eniployment. You have been emphasizing the
contribution which the <sheet industry has been making to total em-
ployment and pointing out, quite properly, that capital construction
itself is important, and feo forth. There are some deductions that need
to be made, too. That isi not your business, but in terms of the furniture
item down here, it is a i^elatively small item, or in terms of the automo-
tive item on the top, th/e introduction of plate represents in part simply
business that would n/ot otherwise have been done, but there has been
at the same time some displacement of other products, hasn't there?
There is less wood usfed in automobiles for example, less wood used in
furniture which has been displaced by plate.

Mr. Hook. Of course I am not competent to answer that question
accurately, but you take the great increase in the number of auto-
mobiles that are produced since the introduction of steel into the
automobile; I question whether there has been such a tremendous
reduction in the amount of wood taken as a whole, i don't know.

Mr. HiNRiCHS. The number of automobiles isn't

Mr. Hook (interposing). Maybe Mr. Ford could have answered that
question for you.

Mr. HiNRiCHS. I thought he testified the number of automobiles in
1j37 was not larger than the number of 1929, for example ; about the
same number or a slightly smaller number.

Mr. Hook. Yes ; but we began to use sheet steel in the automobile in
large quantities before the twenties. Of course, here in recent years
the metal top has come in, when we were able to produce a sheet that we
could make it out of. That undoubtedly reduced the amount of wood
in those tops very considerably.

CONCENTRATION OF ECONOMIC POWER 16429

Mr. HiNKiciis. To some extent, textiles. I think I remember there
used to,be n textile finish on the top.

Dr. Anderson. Mr. Hook, just to put a cap on that point, you
wouldn't want to say that this represents new industry. You would
say, wouldn't you. rather, that in all of the points listed here there is a
certain amount or replacement that is a substitution of your product
for something that has been used formerly?

Mr. Hook. Oh, to some extent. Dr. Anderson, but I don't think that
has been a serious thing. I think the increased use — for instance, just
see how much the automobile is using that fender; you can see with
your own eyes, this old fender and the one today, multiply that by four.
We have increased the actual amount of the steel because the public
wanted it, Mr. Ford said yesterday, if^you remember, that they* spent,
I think I am correct in remembering he said, about $5,000,000 to change
the face of it. This w-as one of the things we have done to help them
change the face, when you look at the nose of that fender. .

This table, "Examples of Increased Use of Sheet Steel," is pre-
sented to shotv you there are other industries in addition to the
automobile. In electric refrigerators, we have contributed of course
to some extent in the reduction of the cost, due to the cheaper, as
well as better grade of steel that they are able to use in these enam-
•eled parts; and the same way in the electric washing machine. A
few years ago, this tub, which is made by some of the manufacturers
out of enameled material — that iS, you stamp the tub and enamel
it — just couldn't be made from the old sheet.. We have improved it
and that has made it possible for them to make a better product,

. (The table referred to was marked "Exhibit No. 2471" and is in-
cluded in the appendix on p. 17329.)

Mr. Hook. They have decreased the average unit price of their
product 58 percent in electric refrigerators, and increased the number
of units 1,027 percent during this same period, and the electric yaw-
ing machine has decreased in price 51 percent and increased in use
75 percent.

Dr. Anderson. Mr. Hook, how much do you think the matter of
increased volume has had a bearing in reduction in price as over
against the diflference in use of materials?

Mr. Hook. They couldn't get the increased volume until they were
able to bring their price dowm so that they could get the increased
volume. In 'other words, it wasn't only the technological develop-
ment— we contributed, but all along the line the other manufacturers
(hat were furnished them with parts had contributed, and they,
themselves, have introduced more efficient methods.

FINANCING OF NEW CAPACITY

Mr. Hook. We sliowed you what we spent at Middletown for the
construction of this mill, and here in this chart, "Industry Expendi-
tures for Continuous Mill Construction," is the total for the industry.
We won't argue over that distribution, Mr. " Hinrichs, of whether it
wa.s in 2 years or not, but the total amount of money is fairly accu-
rate, because that is from the Institute, and then rechecked with the
manufacturers who furnished mills and equipment, and so forth.

16430 CONCENTRATION OF ECONOMIC POWER

(The table referred to was marked "Exhibit No. 2472" and is
included in the appendix on p. 17330.)

The Chairman. Does that represent new capital i

Mr. Hook. Yes, sir.-

The Chairman. I mean in the sense of a new contribution and not
a plowing in of earnings.

Mr. Hook. Oh, well, that depends upon the particular company.
We had to borrow all ours. Now, some of the companies were more
fortunate, sir, and had cash surpluses that they could use and go
into their working capital, but most of the companies did. financing
that introduced these continuous mills.

The Chairman. Would it be fair to say that most of this was new
financing either by way of borrowing or stock sales or such ?

Mr. Hook. Of course, I would be guessing at that, Senator, and
maybe I oughtn't to make a statement.

The Chairman. But in your own case it was a case of borrowing.

Mr. Hook. That was borrowing, I know that.

Mr. Hinrichs. I am not going to take exception to your statement,
but I wasn't trying to be unfair to you this morning and I would
like to go the other way now. Actually the chart that you intro-
duced this morning showing mills built in '26, '27, '28, '29, '30, in
fact in every year down to 1937, indicates that the industry as a
whole (irregularly it is true, because the volume wasn't the same in
every year) was making a net' contribution . during that period
through the construction industry.

Mr. Hook. That is true.

Mr. Hinrichs. This particular branch of the steel industry is
pretty nearly through on this thing and it is going to be something
else. My criticism now would not be on a year-to-year basis but on
a decade to decade basis if I were making it, and I wouldn't want to
quarrel with you on that score. You have a very legitimate point
on this one that you could have made.

Mr. Hook. You have helped me out. You see, I didn't see it quite
as quickly as you did.

Mr. Hinrichs. There is one question on this though, that I would
be interested in. It is along a slightly different line, having to do
with the concentration of sheet mill operations'.

If I figure at all correctly, the minimum ante to get into this game
is in the neighborhood of $8,000,000. The smallest mill that you
listed was a little over 200,000-ton capacity, and the cost per ton of
capacity seems to be in the order of $40.

M3,ny of those mids that you spoke of, the 1,264 mills, were in
rather. small establishments a number of years ago, weren't they, in
the sheet business ?

Mr. Hook. No.

Mr. Hinrichs. It has always been in large

Mr. Hook (interposing). The relationship of tonnage hasn't
changed so materially. Take the Steel Corporation, I think todav
(we will have to examine the records very carefully because I am
guessing now which I ought not do, but, I know you are not going
to hold me to it) the proportion of the sheet steel production of the

CONCENTRATION OF ECONOMIC POWER 16431

country, for instance, indicates that the Steel Corporation produces
today approximately the proportion it did back in '26.

Mr. HiNRicHS. I wasn't speaking of it in connection with the
United States Steel Corporation or the idea of concentration in
some one or two companies, but rather the concentration of business
in essentially large producing units, so that some 8, 9, or 10 com-
panies come to have virtually complete control of this particular
field. I am not implying an improper control, but the operations
in this field have come to be concentrated in a relatively small num-
ber of operating companies, whereas fonnerly there was a fringe of
small companies operating with hand mills. Isn't that true?

Mr. Hook. You are correct, that it ig possibly more concentrated.
That is, the proportion of the total capacity of the country today is
larger with respect to, say, those 10 companies, than it was in 192G.
Remember, there are still a lot of the old hand-mill companies that
are working profitably, because they are making special products to
some extent that it is difficult to make on the continuous strip mills.

Dr. Anderson. Is that the explanation for their operating on a
profit basis, the small hand mills? I have got the impression from
this testimony that this is so distinctly an advantage from a produc-
tion standpoint that I can hardly imagine small hand mills operating
successfully profitably against your competition.

Mr. Hook. They do, but some of these hand mills are still operating
on the specialties which I told you we ourselves must still produce
on our hand mills, and when we find out how to make all the products
on the continuous mill, I am perfectly frank to admit that they will
either have to go to a continuous mill process or I think they will be
eliminated, just as my father was eliminated from the carriage
business.

Dr. Anexerson. Is it true that there has been a process of elimina-
tion of the hand mills going on, say, since strip mills came in ?

Mr. Hook. Oh, yes; there has been. For instance, take our old
Twenty -third Street mill, which was a part of the Ashland plant
when we bought it back in 1921. I forget how long we ran it —
2 or 3 years, maybe 3 years. It has gone completely, and many of
the old hand mills of the Steel Corporation have gone completely,
and that tonnage is now made on the continuous mills.

Dr. Anderson. Do you have any idea as to the number of concerns
that have been closed as a result of the continuous mill ?

Mr. Hook. No ; I couldn't answer that question.

Dr. Anderson. Do you know of any such figures ?

Mr. Hook. There doesn't come to my mind any particular plant
that I can think of that has actually been eliminated and put out of
business entirely by the continuous mill.

Dr. Anderson. What really happens? What occurs if they are
not actually eliminated ?

Mr. Hook. Their operations to some extent have been reduced,
and, as I say, they go into the manufacture of f»roducts in small
quantities. It isn't profitable to make small quantities on these big
mills. That is one of the things you have got to do. The little mill
can make the over-the-counter stuif, and do that more profitably
than we can.

16432 CONCENTRATION OF ECONOMIC POWER

Just think of it. I told you this morning, we make a coil running,
anywhere from 12,000 to as high as 17,000 pounds out of one slab,
just rolled up in a great big roll like a big roll of- paper, and it con-
tains from 12,000 to 17,000 pounds, from 6 to 8 tons.

Mr. HiNRicHS, I am confused at one point, probably because I
haven't come to Middletown yet. This morning I understood you
to say that you were operating your hand mills on material which
had already been through the continuous strip.

Mr. Hook. Through the hot continuous strip, partly rolled down
on the hot continuous strip, and finished on the old hand mills,

Mr. HiNRicHs. So the survival of the hand mill in part depends
now upon having a hoi continuous. strip operation in conjunction with
the hand mill. Is that correct ?

Mr. Hook. Not necessarily. For instance, just 30 miles from us;
Mr. Hinrichs, at Newport, Ky., is the Newport Rolling Mill Co.,
operating what we call improved old hand mills. -In other words,
we have tables running from the furnace down to the rolls so that the
man needn't by main strength and awkwardness pick that pack up
and throw it on the floor plate. Then in back they have mechanical
catchers, and the screw is operated by the roller, who stands and
operates it just as he did on the old hand mill. I think they have 26
mills. .

This chart really sums up all we have been talking about, if you
stop and analyze it, because this dotted line is the United States Bu-
reau of Employment Index, blast furnaces, steel works, and rolling
mills, and you can see where that has gone,.using the 1923-25 average
as 100. ,

(The chart referred to was marked "Exhibit No. 2473" and appears
on p. 16433.)

Mr. Hook. This line is the sheet and black plate production that
we have been talking about that is made on the continuous mills, and
this production has been very largely influenced, of course, as we
have tried to present to you, by this continuous rolling-mill process.

PRODUCTION ON CONTINUOUS HOT MILLS

Mr. Hook. This black line here is the total hot rolled production,
and the production of sheet and.black plate is a part of that, so when
you eliminate that, then you find that you have this line of hot
rolled products other than sheets. So you can see what the increase in
the sheet and black plate production has done to the curve for the total,
and where it would have been without that.

Dr. Anderson. Mr. Hook, would it be possible to insert two more
lines, breaking up the Bureau of Labor statistics, employment indixes,
so that we could compare labor and production in one part of the
'industry with labor and production in another? If you had the two
more lines there, we might have an excellent summary of your argu-
ment that this process does not, even within its own part of the
industry, adversely affect employment.

Mr. Hook. Well, maybe we can get the Census Bureau to get that.
There are no available figures now.

Dr. Anderson, I don't think they are available. I was just won-
dering.

OONCENTRATION OF ECONOMIC POWER

16433

Mr. Hook. I wish we could have done that for you, Doctor, but
we feel that this is very significant, and really sums up the story prettv
well.

The CiiAiKMAN. May I ask whether that trend exhibited upon
"Exhibit No. 2473" is still apparent, or has there been any change?

Exhibit No. 2473

(Submitted by the American Rolling Mill Co.]

IHPEK OF HOT SOUfD STHL mOKim

Uvi. 1923-1925-100)

Mr. Hook. Yes; you remember the question wa3 asked a little
while ago, and we looked at our figures, and we found that it had
continued during this period.

The Chairman. This ends in 1937, but it is still going on.

16434

CONCENTRATION OF ECONOMIC POWER

Mr. Hook. Yes. In other words, this has affected favorably the
trend of the total production. It is continuing, in other words, to be
a larger portion of the total production of rolled products. The chart
"Sheet and Tin Plate Production and Number of Continuous Mills
Operating" 3hows that these continuous mills didn't come in all at
once.

(The chart referred to was marked "Exhibit No. 2474" and appears

below. )

Exhibit No. 2474

[Submitted by the American Rolling Mill Co.]

sum & TiMPLATi mmmH ScNOlOf
^ amrimus MILLS opEmm ^^

^d/i

2B
16
24
21
10
(8
SO

6
4

JJtO
200
I6C
\60
HO

60
40
20

Iki

yfCottth

Oper,

r —

*^^

. /

y Ma ef shed ad

/^M

•w

193^

—

Mr. Hook. Here is our first mill. It started in 1924, but we start
with li)2G. Then the next mill in '26, that was the Butler, and then
the Weirton mill came in here;. and if we went back to "Exhibit No.
2473," you could see how these mills came in during this period, and

CX)NCENTRATION OF ECONOMIC POWER 16435

it showed that the index of sheet and bhick-plate production came
right along after this bad period in '32. It came right along with
the introduction of these mills.

The Chairman. It is observable that tliis upward trend began ap-
parently in 1933, didn't it ?

Mr. Hook. Yes; yes, it did. We got the first boost, you see, before
1929 was over. We got a couple of these mills installed, our mill, and
the Butler mill and the Weirton mill were going before 1929, and I
think the small mill at Gary, at the steel corporation, and we did
get a jump in there, you see, in production during those periods, but
that might have been a natural rise. In other words, I don't know
that I can credit this to the continuous mill. [Laughter.]

The Chairman. On the previous chart, "Index of Hot Kolled Steel
Production,'' "Exhibit No. 2473," there is a perfectly amazing increase
beginning in 1934, of your steel and black-plate production. That
line, '35, 36, and '37, is practicall}- vertical-, it runs up so rapidly.

Mr. Hook. That is when you got the real effect of all these mills,
because the majority of them came in from '33 on, where they really,
begsin to jump.

The Chairman. And the next chart, "Exhibit No. 2474," shows that
the index of sheet and black-plate production has almost kept pace
with the number of continuous mills operating. ' Now, you have been
disposing and marketing the products without difficulty all this time?
[Laughter.] ,
Mr. Hook. I wish we could say that was true, Senator.
The Chairman. Well, let me put it this way. Has it been going
into inventory or the channels of trade?

Mr. Hook. Oh, no; it has been going into the channels of trade;
absolutely.

The Chairman. So that it is an active industry and it still remains
active.
Mr. Hook. Very.

The Chairman. Expanding industry.
Mr. Hook. Yes.

The Chairman. I hope your profits are expanding, too.
Mr. Hook. Unfortunately, they have not. I am not particularly
pVoud of the financial record. [Laughter.]

The Chairman. Njjw, to what do you attribute this increased de-
mand for your product ?

Mr. Hook. Well, particularly to two things — the very great im-
provement in the quality, making it possible for the man who used it
to reduce ills cost because of lower fabricating cost, and the lower price
at whicli he was able to buy.

The Chairman. Now you have told us that you were employing

more persons

Mr. Hook (interposing). Correct.

The Chairman (continuing). During this period. Now, if all
industries were showing the same results, we probably would have a
much less difficult unemployment problem than we have, wouldn't
we?

Mr. Hook. Definitely.

The Chairman. AVell, have you, from your observation and ex-
perience, any opinion to express as to whether or nov the conditions
in your industry are indicative of conditions in other industries?

16436 CONCENTRATION OF ECONOMIC POWER

LACK OF INVESTMENT AS CAUSE OF UNEMPLOYMENT

Mr. Hook. No, they are not, because I tliink that the hirge pool of
unemployment today is the result of the lack of capital financing; in
other words, the deficit in capital financing which I discussed the
last time I appeared before this committee,^ and of course, as you
know, I think that I have very definite views on that, and if we go
back. Senator, to the report of the Durable Goods Industries Com-
mittee, which was submitted to the President on the 14th of May 1934,
and you follow through what has happened, those of us who were
members of that committee and who have studied the matter since,
believe that the things that we pointed out are still pertinent, and
other things have happened, of course, since that time, that we think
have affected the flow of corpohite and private savings into production
and trade. I am encouragecl by one part of the joint resolution, which
created your committee ; in section 2 it says :

It shall be the duty of the committee, (a) to make a full and complete study
and investigation with respect to the matters referred to in the President's
message of ApriJ 29, 1938, on monopoly, and the concentration of economic power
and financial control over production and distribution of goods and services,
and to hear and receive evidence thereon with a view to determining, but withooit
limitation, (1) the causes of such concentration and control and their effect
upon competition, (2) the effect of the existing price system and the price policies
of industry upon the general" level of trade, upon employment, upon longrterm
profits, and upon consumption, and (3) —

And this is the point I want to bring up —

the effect of existing tax, patent, and other Government policies upon competition,
price levels, unemployment, profits, and consumption —

And then (b) says —

to make recommendation to Congress with respect to legislation —

and so forth, on the foregoing subject.

I say it is encouraging to me because you haven't started on No. 3
yet. [Laughter.]

The Chairman. You'd be surprised. [Laughter.]

Mr. Hook. When you give business an opportunity to come down
here under clause 3, and we haven't yet appeared on that subject, I
think we will have quite a number of things to suggest that have
militated against the flow of corporate and private savings into pro-
duction and trade, particularly into the durable-goods industries,
where I think your large pool of unemployment still exists.

In other words, there has been a using up of tlie capital assets of
the country, and we haven't kept up with replacement, ordinary re-
placement.

Here — and I will be glad to leave this — the Machinery and Allied
Products Institute have made a very exhaustive study and they said
here :

The need for constant replacement of capital goods is seen when we note the
decline in value of such prc-perty in daily use. A study by the National Bureau
of Economic Research revealed that business capital is consumed at the rate of
more than eight billion dollars per year. This amount of durable wealth in
business, that is, capital goods, must be replacvHl each year if we are to maintein
the nation's stock of durablj weaith, to say nothing of expanding it for growth.

1 See Hearings, Tart 20, pp. 10805i-10830.

CX^NCENTRATION OF ECONOMIC POWER 16437

.And I believe that therein lies largely the answer to this (question of
unemployment. I am firmly convinced that with the proper study of
the things which have militated against the flow o+' corporate and
private savings into production and trade, the Congress can encourage
business in such a way that confidence will be established and we will
reinstate that flow, we will encourage that flow of capital, and that,
in my opinion, is what is' going to change this unemployment picture.

The Chairmax. Of course, I might

2Jr. Hook (interposing). In other words, we want to get them off
the Government relief rolls and onto the pay rolls of private enter-
prise.

The CiiAiRJMAN. I might say, and it may not be beyond the bounds
of propriety, that my personal views 'have for a long time been that
Congress might, with great success, endeavor to encourage so-called
private industry to take up the slack in unemployment by some form
of encouraging private investment.

One thought that I had in mind was to give employers of labor some
form of a credit to be measured by the number of persons employed,
but it is always difficult to suggest a formula without at the same time
awakening fears. Not ever^'body w^ho comes before this committee
comes with the same objective attitude that you bring here, Mr. Hook.

Mr. Hook. Thank you, sir.

The Chairman. And not everyone realizes that the committee is
endeavoring to discover something and not trying to make a goat out
of the witnesses who come here.

Mr. Hook. I don't feel like that. »

The Chairman. I know you don't and that is why I can say it tf»

Mr. Hook. I am, of course, quite frankly of the opinion that when
we really get into a serious investigation under (3) of section 2, a lot
of information can be brought here that has a very decided bearing on
it, but M e would have to spend a couple of days.

Mr. HiNRicHS. May I ask a question at this point, please? Mr.
Hook, what was the year that you were quoting there from the Na-
tional Bureau of Economic Researfch?

Mr. Hook. 1938.

Mr. HixRicHs. That was a year of depression. I wonder if you
wouldn't like to introduce in the record later, not now, a comparison
of the net additions to business capital as shown by the National
Bureau for 1929 and 1937?

Mr. Hook. Yes ; I will.

Mr. HiNRiCHS. Just to give a. year of active business.

Mr. Hook. We will prepare those figures over a period of time,
and be very glad to have that opportunity.

Mr. HiNRicHS. May I ask, has the sheet industry been unusually
venturesome, and are you restrained at the present time so much by
fear as by the 13,500,000 tons of continuous strip capacity shown
in "Exhibit No. 2460"?

Mr. Hook. I fully expected that question to.be asked some time —
"V\'^re we more venturesome than anybody else?" Well, it was a
case of necessity. When a fellow comes along with a method of
doing a thing 'that you have got to adopt to keep up with the pace,
you go out and break your back to find the money to do that job.

16438 CONCENTRATION OF ECONOMIC POWER

to keep from going out of business, and that is just exactly what
happenec;!. We have proved by the introduction of this process that
a quahty of material could be produced that could not be produced
by any other method,^and if they wanted to keep in competition with
the game, it was necessary to go out and put in one of these plants.

Mr. HiNRiCHS. Do I read your figures in "Exhibit No. 2460" incor-
rectly? By the end of 1929 there were 3,000,000 tons of continuous
strip capacity. Between 1929 and 1932 there was some further build-
ing of strip capacity. I would assume that the capacity finished in
1930, and very likely that finished in 1931 was projected in 1929,
but even including that capacity, there was only a comparatively
small increase during the period when business was sliding off and
you had no idea what your future volume would be. By the end
of 1932 you had 5,400,000 tons.

Mr. Hook. That is right.

Mr. HiNRicHS. Of continuous capacity.

Then, in this later period, when you saw a rising volume of busi-
ness and saw some security in the future, there was' a very rapid
introductidn of continuous strip mills, so that by the end of 1937
you had 13,347,000 tons of capacity, a little more than 4 times as
much as you had back in 1929.

Now, is that an incorrect reading of those figures ?

Mr. Hook. Those dates are correct. I haven't in mind, you caii
tell me what it is — but will yon refer there to when the sheet and
tube plant w^ent into operation?

Mr. HiNRicHs. Youngstown?

Mr. Hook. Yes.

Mr. HiNRicHS. In 1934, and a second one in 1935; the Indiana
Harbor in 1934.

Mr. Hook. That is when- it actually was turned over. Of course
they were some months breaking it in. But what actually took
place, the sheet and tube technical men and operating men visited
our plant many times during the period say, from 1928 particularly
and 1929, up to the time when they made their decision to go ahead —
and they were considering it all the time, making their estimates
and finding out how they were going to raise their capital and so
forth and so on, until finally they saw that it was inevitable.

EMPLOYMENT IN MANUFACTURING INDUSTRIES

Mr. HiNRicHS. Didn't they also have in mind the line "All manu-
facturing" on this chart headed "Indexes of Employment," Exhibit
2475, or on the earlier chart, the total production, Exhibit 2473 that
black line that goes sloping off from 1929, when it stood at 104.6, to
1932, when it stood at 65 ? That must have been also in their minds
during that period when they were on the brink of considering build-
ing. Had they been maintaining employment, they would probably
have been in the game very much earlier than they were; don't you
think so?

Mr. Hook. I don't think there feany question about it.

Mr. HiNRTCHs. And when they saw that line turn up in 1932 and
1933 about that time it began to look as though there were some sense
in a businesslike investment.

CONCENTRATION OF ECONOMIC POWER

16439

Mr. Hook. They knew by that time that if they were goin^ to stay
in the sheet game in a big way and hold their proportion of the indus-
try they had to do it. ■

Tlie Chairman. Now, what does the chart, "United States Depart-
ment of Labor Indexes of Employment in Manufacturing Industries"
show ? You produced that chart for a purpose.

(The cliart referred to was marked "Exhibit No. 2475" and appears
below..)

Exhibit No. 2475

[Submitted by the American Rolling

Mill Co.]

US.D£Pr. OFlAm /NmS ^fUmYMfNT

IN MAMumnMue iMPUsrim$

(mmmiY^H. i9u-nis-ioo)

90
90

TO
60
SO
40

, I

mfces.,am

110

90
60

60
SO

tadlUlbJ^m.

uatk

\ttllL

Eflr^

tkr^

}

/ .

^ooa

1929

/930

msf

I9U

Mr. Hook. It is just comparative, that is all.

The Chairman. Isn't that the answer to the question that I asked
you a little while ago?

Mr. Hook. Yes ; I think it is.

16440 CONCENTRATION OF ECONOMIC POWER

The Chairman. You feel that this chart correctly represents the
condition ?

Mr. Hook. Yes.

The Chairma.n. Then, reading it, we find that thfe blast furnaces,
steel plants, and rolling mills have shown the same striking increase
which was. shown on your other chart from 1932 to 1937, an increase
which you. tell us by your figures for 1938 and '39 is continuing.

Mr. Hook. Yes.

The Chairman. I asked you a little while ago if that increase in
your business of capacity and of output Avas comparable- with condi-
tions in other industries, and you said you weren't able to speak for the
other industries.

Mr. Hook. No ; this is the steel industry only. This is all manu-
facturing

The Chairman. What does that line show with, respect to all manu-
facturing?

Mr. HopK. Here is your nondurable goods.

The Chairman. First let's deal with "all manufacturing." What
does it show with respect to all manufacturing?

Mr. Hook. Here it is. Here is your curve of all manufacturing. It
lags way behind.

The Chairman. But it shotvs an increase, does it not ?

Mr. Hook. It hadn't reached, in 1937, the 1923-25 base.

The Chairman. What increase does it show from 1932 ?

Mr. Hook. All manufacturing ? Well, it starts at, say , about 65 and
goes up to less than the base.

The Chairman. It has gone up from 65 to almost 100 in the 5 years
from 1932 to 1937.

Mr. Hook. That is right.

The Chairman. Now, Vhat has been the effect on durable goods,
according to the chart which you have produced?

Mr. Hook. Durable goods has not kept pace with all manufac-
turing.

The Chairman. But what has been the actual effect? It increases
from what — from 65 in 1932 to what, to about 95 ?

Mr. Hook. To about 95.

The Chairman. So that in all three of these items which you have .
produced here there has been a steady and very striking increase of
production, has there not?

Mr. Hook. Yes ; there has been that.

The Chairman. The nondurable goods apparently showed a strik-
ing increase from 1932 to 1934, and then tended to level off until
1936, and then began running up slightly again. Is that not correct?

Mr. Hook. But they didn't get the drop that all manufacturing
goods, and especially durable goods, had.

The Chairman. That is right, because the nondurable goods are
the ccmsumer goods.

Mr. Hook. Yes.

The Chairman. In other words, this chart which you have pro-
duced here shows that these substantial lines of industrial activity
have had an obvious increase since 1932. ,

Mr. Hook. That is correct. I don't know where we would have
been if it hadn't.

CJONCENTRATION OF ECONOMIC POWER 1644 A

The Chairman. Well, with respect to your industry, you are wa
above the point which you occupied in 1929.

Mr. Hook. Correct, and that is why I showed by that other chart,
Senator, ^'Exhibit No. 2474," that the sheet tin and black plate pro-
duced on these continuous mills affected that very largely.

The Chairman. I ask you these questions because recently I read a
report by Standard Statistics which sliowed that in 1939 the 669
leading corporations — utilities, railroads, and manufacturing corpora-
tions— had a net income in 1939 of more than 80- percent greater than
in 1937,- and yet we still have the unemployment problem.

Mr. Hook. Well, in the meantime. Senator, over this period of
time, 1932 to the present time, we have had an increase in the em-
ployable men. If we had kept up the normal increase, -this figure
shou^' oe way beyond where it is. If we had kept the normal trend
going, we had an increase between 1926 and 1937, I think we showed,
of 11.2 percent in population, therefore, we should have had an in-
crease over that same period from 1926 to 1937 to keep up with that
trend.

Now, in 1926, you see, the all manufacturing and. durable goods
lines started at practically base. We oyght to have had somewhere
around 111, or something of that kind.

The Chairman. Well, this is the question that frames itself in my
mind. If we had an increase in durable goods from an index of 55
to 95 in a period of 5 years, as shown by your chart, and an increase
in all manufacturing from 59 to 99 in the same 5 years, an increase
of production in nondurable goods from an index of 80 to 102, an
increase in all manufacturing from an index of 65 in 1932 to 99 in
1937, and an increase in blast furnaces, steel plants, and rolling mills
from 60 to 115. can it be said that any of these industries were suffer-
ing any lack of confidence during those 5 years ?

Mr. Hook. Well, yes ; I think so, because it should have gone way
beyond where it is in the natural course.

The Chairman. Of course, we never are satisfied with the expan-
sion which we have.

Dr. Anderson. But, Mr. Hook, looking at the chart again and its
title, you have a chart that does not depict increases in durable
goods or nondurable goods, or manufactured articles, but the labor
employed in such activities. You would have to put an entirely .dif-
ferent chart on there to determine what had happened to production
during the^e years.

Mr. Hook. Yes.

Dr. Anderson. Speaking in terms of our topic, namely, technology,
if you laid alortcrside that chart, which indicates the use of labor in
a very rou^. way, as you will agree, because these are labor
indices

Mr. Hook (interposing). That is right.

Dr. Anderson. And not actually full-time employment, a series
that would depict the thing the Senator and you have been talking
about, what is your guess? Would it show total technological dis-
placement of labor as this product moved upward from the trough
of the depression or not?

Mr. Hook. No; I don't think so.

124491 — 41— pt. 30 17

16442 CONCENTRATION OF ECONOMIC POWER

Dr. Andeeson. In other words, you would hold that productivity
per unit produced on this rising market out of the slump of the
depression had not increased in the over-all?

Mr, Hook. The labor per unit probably has gone down. If it
hadn't, we wouldn't have got the increase in production. The in-
crease of production has kept up the employment to where it is.

Dr. Anderson. So you recognize the item of labor per unit as a
factor ?

Mr. Hook. We do.

Dr. Anderson. And you linked with it, in order to have an over-all
incre-ase, increasing production of such proportions as to take care
of individual displacement as it occurs. That is your thesis?

Mr. Hook. That has been the case.

Dr. Anderson. Mr. Chairman, might I have the witness refer back
to the testimony statement for a moment or two to ask several ques-
tions that we want in the record ?

Mr. HiNRiCHS. May I talk to "Exhibit No. 2475" for a moment?
Mr. Hook, I would like to give you a chance at this point in the record
to introduce a table showing the annual averages of these several lines
of employment in each year from 1926 to 1937. I don't know when
your chart was drawn, and I don't recognize the terminal figure.
Actually, the increases of employment appear to' have been greater
than those that are indicated on your chart, and it may be that your
chart is not adjusted to the final census figures.

Manufacturing employment in 1937 was very slightly higher than
it had been in 1929, and all of the indexes for 1937 are somewhat
higher than they appear to be on your chart. I am sure that there
was simply some slip in possibly the old and not revised figures, and
I would like to have you have a chance, at your leisure, to correct the
final record on that thing.

Mr. Hook. They were taken from the Survey of Current Business,
as issued by the Department of Commerce. This happens to be the
1938 supplement that those figures were taken from.

Mr. HiNRicHs. There are two factors that haven't been taken into
account, then, I think. One is the fact that the census changed its
definition of what was manufacturing. Back in 1929 they included
railroad repair shops and several other industries as manufacturing
that don't appear in 1937, and there are always small adjustments
that the Bureau makes in its figures, which were released in Septem-
ber of the past year. I will be glad to supply you with those.

I was going to suggest that ihe chart be withdrawn, but so much
discussion centered on tha thing that I think I would leave the chart,
unless they prefer to withdraw it and insert the table in its place
later.

The Chairman. I think the chart can remain,

Mr. Hook. I will let Mr. Brooks confer with you, and we will work

it out.

Dr. Anderson. I know we have imposed upon you greatly today.

Mr. Hook. You haven't imposed upon me at all.

Dr. Anderson. From our standpoint it is only because of the serious-
ness of the problem we are discussing, and your wide knowledge and
comprehension of it, and this remarkable paper and presentation that
you have made, that I want to probe a little bit further in order to

C?ONCENTRATION OF tiOONOMIC POWEH 16443

have certain things in the record that seem to me to be extremely
important.

NATIONAL ASSOCIATION OF MANUFACTURERS' STUDY OF OLDER WORKERS

Dr. Anderson. One of the problems of technology that cor jerns
everybody of late is this matter of the elimination from employment
of the older worker. This morning you referred to the National
Association of Manufacturers' study of workers over 40. I take it
it was this document, Men Over 40, that you had reference to. From
your reading of the document, you came to the conclusion that there
was no evidence to support the charges of various groups that are
mentioned here — the American Legion and veterans' organizations —
that older workers are being eliminated from industry.

Mr. Hook. They, cooperated with us.

Dr. Anderson. Might I point out that from my own standpoint as
a student of the problem, and I think this is agreed in by others who
have studied it, this pamphlet in no sense, in any comprehensive way,
permits that conclusion. I draw your attention to the final chapter,
the final supplement. No. 3, from which most of the data are derived,
and I hope later you will add something for our record on this topic
if you differ with me. The table was based on group insurance sta-
tistics of life insurance companies covering the years '23, '28, and '37.
The age distribution of industrial employees had altered as follows:
those over 40 years of age who were covered by group policies, indus-
trial workers, were 31.7 percent of the total^in '23, 33.7 percent in
'28, and 32.3 percent in '37.

In other words, from '28 to '37 there was a decline in the proportion
of people aged 40 and over covered by this insurance.

That would lead me to believe that these data show nothing con-
clusive with respect to retaining older workers in industry generally.

Mr. Pike. Do you happen to know, Dr. Anderson, whether the
insurance companies themselves may have changed their policy regard-
ing insuring employees in the groups over 40?

Dr. Anderson. Nothing is indicated in the pamphlet, which, by the
way, is important becanise it has had wide distribution.

IVfr. Pike. During the hearings on insurance ^ we had some indica-
tions that in some instances they changed the views about the desir-
ability of certain forms of insurance, and I don't know whether group
insurance was involved.

Dr. Anderson. The National Association of Manufacturers did one
other thing. It sent out a questionnaire to its members and got back
returns for the year '37 and the year '38. I point out again that you
cannot tell anything decisively from 2 successive years by way of a
trend of conditions, but I simply want to add that the number of
reports returned for 1937 was 2,089, those for 1938 were 1,582. I
haven't read the pamphlet recently, but I remember in the rea^lmg
I made of it, and I trust my memory is correct, that it does not i^.clude
detailed analysis of the study, so that we do not know the exact iden-
tity of the respondents in the 2 successive yeai >. We do not have what
scientific students of the problem consider a safeguarded study.

* See Hearings, Part 10.

16444 CONCENTRATION OF ECONOMIC POWER

There was a difference there of 6 percentage points in the 2 succes-
fiive years; on tHe down-sweep over the peak employment year of
1937 to '38 there seemed to be a retention of older workers in the indus-
tries. So far as I know, however, there is no substantial body of
evidence in this or any other document that proves that industry as
a whole is retaining its older workers, and I wanted to ask Mr. Hook
if, in his analysis of the problem, he had discovered such data, and
if he did have them, would he supply them to the committee for its
use,

Mr. Hook. I referred to that. Dr. Anderson, because it was conducted
by a subcommittee under the employment relations committee of the
National Association of Manufacturers, and it was conducted in con-
junction with the service men and several other organizations. I hap-
pened to be chairman of the resolutions committee in 1937, when rep-
resentatives of those various organizations appeared before our com-
mittee and argued that men over 40 were being eliminated and were
not being given an opportunity. We said, "Well, c'ome along and join
with us and let's find out what the facts are. We will furnish the
money and you cooperate," and if you will read what they said about
the study on the very first page you will find that they were very
complimentary and very appreciative^ of the work which we did.

I would have to go through it and study it carefully

Dr. Anderson (interposing). It was not my thought, Mr. Hook, to
criticize the study so much as to raise the question which it seems to
me industry should be more concerned about — and I was pleased to
see your own concern about it'— namely, the elimination of the older
worker. I was wondering whether you have data from your own
plant to indicate what has occurred there.

Mr. Hook. We have. I hope Mr, Brooks has them here.

Mr. Brooks. I have it only back to 1929, and the percentage in 1929'
and 1939 of workers over 40 is practically the same — 30 percent in
both years.

Dr. Anderson. In '29 and '39?

Mr. Brooks. Yes, sir.

Mr, O'Connell. Do you have it for any intervening y^ars, or just
for those two ?

Dr. AndersoS". Let me just ask this one point, then. That is a 10-year
period of time, and you know that during that period of time the
proportion of older people in the population has been increasing. If
that is true, and we don't have the information for those years avail-
able, it would show that there was no tendency on the part of your
firm to employ older workers in preference to other workers.

Mr. Brooks. Well, your total employment has increased in this pe-
riod, I believe.

Dr. Anderson, Might I ask this, Mr, Hook. If we were to frame
you the headings of a table that would bring out this point, could you
supply us with the information from your company records?

Mr, Hook. I think we can. We will be delighted to give you any
information, Doctor, that you want and we can furnish,

Mr, Pike, May I ask one more question along that line ? It is normal,
I think, for the growing business to pick its employees out of the pool
which is normally becoming employable, whereas in the declining
business it is also normal, isn't it, for the concern to keep on with the

CONCENTRATION OF ECONOMIC POWER 16445

men that it has, or if it has to drop people, to drop the youngest people
that it has? I wonder if, in the concern that is growing, the average
age of the employees would probably not increase, and might even
tend to decrease it. A concern that is standing still, or contracting,
such as the railroads, might find its average age of employees increas-
ing. I would think that generally — I wouldn't say invariably — the
human manager dealing with the human machine would tend to keep
his old people and discharge the younger ones without family obliga-
tion. So that, since your own business has grown substantially durmg
that 10 years, it might be that your percentage of old men hasn't in-
creased because you have been picking them out of what is normally
the large pool of those employables, that is, those coming of age.

Mr. Hook. Correct. Unless you were making a real effort to hold
your older-than-40 men in the period, the percentage would have
markedly decreased, because the number that you would employ as
you increased your production, of course, greatly increased the total.
In other words, your older men represent a smaller percentage of the
total in 1937.

Now, if your percentage remains the same, that shows that you really
have employed a larger percentage of the older men. You haven't let
them off, you have kept them on.

Dr. AxDERSoN. That is right, you haven't let them off.

Mr. HiNRicHS. What age groups have you ?

Mr. Brooks. They are in 5-year groups.

Mr. HiNRiCHS. What was the percentage of 30-35 in 192'9 ?

Mr. Brooks. It was 15 percent.

Mr. Ht-strichs. And 40-45 in 1939, 10 j^ears later ?

Mr. Brooks. It was 13.78 percent. May I explain that the distribu-
tion is changing. These are taken from group insurance records, and
I might point out in 1929, that distribution covered 8,858 employees,
"whereas in 1939 the distribution covered 11,210 employees. Now, this
is not to be confused with total employment because not all employees
are included.

Mr. HiNRiCHS. Mr. Anderson, I wonder if instead of asking for a
special tabulation, it wouldn't be helpful, at least in the first instance,
to have that distribution inserted in the record, if that is a proper
request. There is the information.

Mr. Hook. This chart ? Yes.

Mr. HiNRiCHS. If that meets our needs, nothing further may be
needed in the way of a special tabulation.

Mr. Hook.' We would be glad to give you any records we hr.ve.

Dr. Anderson. You don't have the story of the data on new
entrants?

Mr. Brooks. I don't have it with me.

The CHATRiTAN. You do have it, then ?

Mr. Brooks. It could be gotten by going back through all oi our
employment records over a period of years.

The Chairman. I didn't mean to suggest that.

Mr. Brooks. It is not tabulated.

Dr. Anderson. In the hiring of new employees, you make no dis-
tinction on the basis of age?

Mr. Hook. No.

Dr. Anderson. That doesn't come in at all ?

16446 CONCENTRATION OF ECONOMIC POWER

Mr. Hook. Oh, naturally, for instance, yoti wouldn't take a man 60
years of age and put him up on a crane handling 60 tons of hot metal.

Dr. Anderson, But you do not have any form or anything ?

Mr. Hook. No, indeed.

Dr. Anderson. I want, then, to read from your statement, and,
without belaboring the point that I raised earlier in the day, ask you
something concerning the whole statement on this basis. You say:

For that purpose, I have chosen —

in order to determine what has happened here —

the period covering the years 1926 down to 1937, because it was during that
period that all but one of the continuous sheet rolling mills vpere introduced
into the steel industry.

Following that, your testimony has been based in display after
display on these 2 years, 1926 — —

Mr. Hook (interposing). Period.

Dr. Anderson. 1926 period; 1937 period. I wonder if it would
be possible in order to get the true picture — and I think you agree
that would be necessary — to get the intervening years on the same
basis? Could you extend your table and just give us the table that
you have here, just supply the inter^^ening years?

Mr. Hook. You mean give you 'he information for each year?

Dr. Anderson. Just as you have it in the tables, but each year
separately.

Mr. Brooks. Would you want that on the single plant, we used as
the case example or the total company? I think the single-plant
illustration, since it is the only plant where the old hot-plate process
was actually replaced by the continuous -mill, would probably be
more illuminating for your purposes.

Mr. Hook. Otherwise you confuse other products.

Dr. Anderson. For example in "Exhibit No. 2461," "Estimate of
Number of Workers Employed m Industry in Hand Mill Processes In-
cluding Preparatory, Eolling, and Shearing Operations," 3-0U show
2 years, and on that basis you come to this conclusion which is so
extremely interesting to me, and I know to the committer, that there
was a net increase of 42,000 workers.

Mr. Brooks. What was that statement?

Dr. Anderson. You say the estimated number of workers is an
increase in 1926

Mr. Brooks (interposing). No; that is not an increase. The 42,000
workers are those who were in employment on those mills in 192^.

Dr. Anderson. Right; but now you get a net

Mr. Pike (interposing). Of 27,000 decrease.

Mr. Brooks. A possible decrease in that number ; yes.

Dr. Anderson. The possible decrease is on the basis -of the 2 years
compared is what I am trying to say.

Mr. Brooks. That is right; it is on the basis of the total tonnage
manufactured in 1926, which I believe was the greatest sheet and
tijnplate tonnage year up to that point.

Dr. Anderson. My point is this: I am led to believe by reading
and study of the problem, and conversation with people engaged
in the industry, that the displf>.c^ment effects of the continuous sheet-
rolling process are most noticeable following 1937. In other words.

CONCENTRATION OF ECONOMIC POWER 16447

I understand that these mills were introduced gradually, as you
pointed out today; they finally began to have the increasing pro-
portion of all production; and in the last 2 or 3 years noticeable
changes have occurred.

Now I refer to your comment that some 90,000 people are sup-
posed to have lost employment as the result of tnis continuous sheet-
rolling process.

Mr. Hook. That was the statement that has been made.

Dr. Anderson. And that statement has been made, as I remember,
within the last year or so, and I understand it refers to things that
have happened within the past 2 years. Would it be possible to
carry your figures forward through '38 and '39 ?

Mr. Hook, I think we can.

Mr. Brooks. Well, it is rather difficult to carry them forward on
the basis we have used, because in the year 1926 there was very little
continuous-mill tonnage. There was only one continuous mill actu-
allv in operation throughout the year. Therefore, we could take the
unit of production per man and divide into it and arrive at a reason-
ably correct figure of the total correct employment.

That is not true in 1939. Th6 only way you could ever carry
those figures through would be by a check-up with every manufac-
turer of sheet steel to see how many people he has employed on those
mills.

Dr. Anderson. In other words, you have to go into estimating
for such a year as '39.

Mr. Brooks. We did make a checTi-up on which we based our esti-
mate of 15,000, contacting a number of producers as to what mills
they were operating.

Dr. Anderson. I wonder if you would be willing to go through
the tables at your leisure and give us the sources, where they are not
indicated, and the bases of computation where such things were
computed ?

Mr. Brooks. Yes ; I would be very glad to do that.

Dr. Anderson. Such data are lacking in certain instances and
when we read these at our leisure we want to know what they are
based on.

Mr. Hook. When you come to Middletown, Doctor, and we go into
this more thoroughly, we can get a lot of those figures, a lot of
information.

Mr. Brooks. Dr. Arderson, could you give me a list of those in-
stances where you want the references?

Dr. Anderson. Yes; we will do that, if you will permit us to raise
the questions we have been talking about here and hand them to you
so you can fill them in.

Mr. Brooks. All right, sir.

The Chairman. Yen testified a little while ago that reduction of
price was an important factor in increasing the distribution of your
product and all steel products?

Mr. Hook. That is correct.

The Chairman. So, I take it you agree with the testimony of Mr.
Ford yesterday, and of other witnesses, in response to my questions,
that increasing the capacity of the masses to purchase commodities
is one of the most important factors in providing for increasing
prosperity, technological advance, and general welfare.

16448 CONCENTRATION OF ECONOMIC POWER

Mr. Hook. You are right, Senator. I referred to that a little while
ago when I commented on the things that I thought could be done to
bring that about, in order to get the men off the relief rolls and onto
the pay rolls of private enterprise.

The Chairman. Where they ought to be, of course.

Mr. Hook. Where they ought to he.

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

PROVISIONS FOR DISPLACED EMPLOYEES

Mr. HiNRiCHS. Mr. Hook, I wonder if you care to comment briefly
on what you did with reference to specific workers in terms of pre-
venting a dislocation and a displacement. Jobs were changed by this
process, changed quite extensively. You commented that the over-all
employment was perhaps even greater than it had been in your
company.

Mr, Hook. Well, in our particular case, I can give you exactly
what we had, because I have here a copy of the notice. We called all
the men together who worked on the old-style mills, in our auditorium,
oh, I think it was the 4th of January 1929, and we explained to
them what was going to happen, that we thought that eventually the
1,191 men (I think I remember correctly the number employed at that
time in the old-style sheet mill department) would all be dismissed
and we would have to find jobs for them in other departments. If
we couldn't find jobs for them, we worked out a separation allowance,
and I will read it to you, and theA I will give it to you for the record.
We posted this afterward after explaining it to them. The subject
was, "P. an for handling hot-mill employees in connection with new
finishing mills." [Reading:]

1. We do not expect to be able to find jobs for employees who have been
with the company for less than one year.

2. Jobs will be found on new finishing mills for as many men as are necessary
for their operation and every effort will be made to place as many as possible
in other positions in our various plants.

The employment department will have charge of placing men.

3. Men who are not placed will be given half pay for as many months as
fhey have years of service but not more than 6 months and with a minimum
of $50.00 per month.

4. No special payment as outlined in Paragraph Three will be given to men
who are placed in any of our plants.

5. Any man who accepts a position in our plants, but decides within a period
of 30 days that for some reason he is not able to go on, will receive the pay-
ments as outlined above.

In other words, he had 30 days in which to decide whether he'd
take, his separation allowance or keep the job which we put him on.
[Continuing.]

6. Continuous service with full insurance will be carried for the period men-
tioned in Paragraph Three on all men who are not placed in our plants.

7. If an employee gives up a job and receives payment as above and then
smarts with the company later his special payments wiL cease and he will not
receive them again if he rhould leave the company's emplc v a second time

8. If requested, the company vill be glad to assist in pl&''ing men with other
companies if positions cannot be found in our plants.

(The document referred to was marked "Exhibit No. 2476" and is
included in the appendix on p. 17530. )

CONCEINTRATION OF ECONOMIC POWER 16449

Mr. Hook. Now, as a matter of record, because I think vou will ask
me the question, "Well, how many men were employed f" Well, at
Middletown, in that plant, 393 received their separation allowance.
The rest of them were taken care of, and we paid those 393 $208,233,
or $530 per man. At Ashland, Ivy., and I mentioned that we shut
that old hand mill down after the new continuous mill had been in
operation 2 or 3 years, there were 199 -men. They received $76,660
or $385 per man. So there was a total of 592 men. The total amount
we paid was $284,893, or an average of $481 per man.

Now some of those men got as high as, oh, $1,900, for instance, a
roller.

The Chairman. Five hundred a id ninety-two men out of how
many ?

Mr. Hook. Well, at Middletown, there were 393 out of 1,191, as I
recollect. Now, of those 393 who got their separation allowance, most
of them are back again in the plant. They bought gasoline stations
and several of them thought they'd start a little grocery store with
the money that they got. They had the experience that many people
have had who go into business. They failed, and so they came back
and worked in the mill, so there are not .very many of those men out.
Some of them are now on what we call our idle-time pay roll. We
do not have within our company what we call a definite pension plan.
We take each case, and I forget how many men are on the idle-time
pay roll now. Do you know?
Mr. Brooks. I don't know exactly, but I'd say offhand about 110.
Mr. Hook. Who are on the idle-time pay roll. In other words, we
use that term. The men like to feel that they are still in our employ.
They are doing something. We may call on them for a little service,
so they are not pensioned. They are just on the idle-time pay roll.
Each case is judged on its own merits. In other words, one man may
need more assistance than another, depending upon whether he is
married and has a family that are still dependent upon them.

Mr. HixRicHs. They are not compensated for the amount of time
that they do work for you ?
Mr. Hook. Oh, no. That is just a monthly allowance.
Mr. HiNRicHS. Now, these 199 men in the Ashland plant were all
of the employees in Ashland. Is that correct ?

Mr. Hook. Well, no. We took some of those men. There were
more men than that employed in that plant. I forget just how many
were employed there, but we took men from what we called the
Twenty-third Street plant, which was the old plant, now dismantled,
and we took them down into the new plant as we increased the pro-
duction down there. We took them out of the old plant and put
them into the new, and many of those men are now working down
in the new plant who were formerly employed in the old plant.
Mr. HiNRicHS. They were given the same options as the people in

the old plant. They had the option of staying or of taking a

Mr. Hook (interposing). Yes. Yes; we found jobs for them in
the new plant, or they could take their separation allowance, and in
tnat case many of those men are back.

Mr. HiNRiCHS. Some of those separation allowances were volun-
tary, I judge. With otliers, there was a clause in there that you

16450 CONCENTRATION OF ECONOMIC POWER

would keep them if you could. Otherwise they'd get a separation

allowance.

Mr. Hook. Correct. ,, . x i; i.u coo

Mr HiNRicHS. Now, is it fair to assume that most of these 592
men were men for whom you couldn't find ]obs at the time^ _

Mr Hook No. Quite a nmnber of those men were ottered ]obs,
and thev preferred to take their separation allowance. A good many
of them have told me since, "I wish I hadn't taken it and stayed
in the mill because I'd be further ahead now," because they have
had to come back into the mill and take positions that are lower-paid
jobs than they had before. i • ^i v,

Mr HiNRiGHS. So that at the time you were making the change-
over you also had to go out into the labor market and hire new peo-
ple for' these jobs that were available to the old people, but which

Mr. HooK (interposing). To some extent, that is true.

Dr. Anderson. How widespread is this separation pay-roll allow-
ance method in the industry as a whole ? rr.! XT .• 1

Mr Hook. I can't answer that question, Doctor. Ihe National
Association of Manufacturers' Committee on Employment Relations
has a subcommittee working on this plan, and we have been urging
manufacturers throughout the country to plan ahead when they
know that the technological development is going to displace tem-
porarily a certain number of men, and try to plan ahead and tram
them for jobs.

Mr. HiNRiCHS. This took place within your own establishment and
your business was expanding over this period in total employment?

Mr. Hook. Correct.

Mr. HiNRiCHs. There has been some displacement in hand mills
that have failed, closed down completely, I presume. Hasn't there?

Mr. Hock. Oh, I must presume, also.

Mr. Hinrichs. Has the industry made any industry-wide effort to
deal with that problem ? Those are men who are not your individual
responsibility, as the executive of a single company, but they are the
outside casualties for the industry as a whole.

Mr. Hook. Industry-wide, no. Each company has carried out its
own program, whatever it may be.

Mr. Hinrichs. Have there ever been any discussions as to what
approach of that sort is even feasible?

Mr. Hook. Oh, there have been discussions amongst executives, nat-
urally, as we discuss all sorts of problems amongst ourselves, but not
as an organized discussion. But there has been organized discussion
in the National Association of Manufacturers' Employment Commit-
tee. For instance — this hasn't anything to do with this, but I only
use it as an illustration — at the present time, we have a very able
committee studying the problem of' regularization, and I don't, know
whether you have seen our latest report on that or not.. I think it
would be very interesting to you, particularly. If you haven't it, I
hope you will get it.

Mr. Hinrichs. Casualties of that sort, the small plant that has 100
or 200 employees that closes up, would have to Ipe handled, if at all,
on the basis of an industry approach to the problem. There isn't
any surviving respotisibility by a responsible employer to deal with
the problem, is there?

CONCENTRATION OF ECONOMIC POWER 16451

Mr. Hook. Well, if a company actually goes out of business,
why

Mr. HiNRiCHS (interposing). That, however, has been a part of the
process, as a reflection of tliis large extension of these very large
units, hasn't it?

The Chairman. Mr. Hook, were you going to make another com-
ment ?

Mr. Hook. No; Mr. Brooks was just calling my attention to the
fact that there are a good many companies that are folding up for
other reasons than tecnnological development.

The Chairman. AVe are very much indebted to you for a very
interesting day. It has been very nice to have you here.

Mr. Hook. Thank you.

The Chairman. Tomorrow morning, Mr. Philip Murray, who was
to have been called today, will be the first witness. The committee
will stand in recess until 10 : 30.

(Whereupon, at 4 : 50 p. m., a recess was taken until Friday, April
12, 1940, at 10:30 a. m.)

INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER

FRIDAY, APRIL 12, 1940

United States Senate,
Temporary National Eoonomio CoMivnTTEE,

Washington, D. C.

The committee met at 10:40 a. m., pursuant to adjournment on
Thursday, April 11, 1940, in the Caucus Uoom, Senate Office Building,
Semitor Joseph C. O'Mahoney, Wyoming, presiding.

Piesent: Senators O'^Mahoney (chairman) and King; Represent-
atives Williams and Reece; Messrs. Henderson, Pike, Hinrichs.
O'Connell, Kreps, and Brackett.

Present also: Boris Stern, Department of Labor; Frank H. El-
more, Jr., Department of Justice^ William T. Chantland, Federal
Trade Commission; and Dewey Anderson, economic consultant to
the committee.

The Chairman. The committee will please come to order. Dr.
Anderson, are you ready to proceed?

Dr. Anderson. Mr. Chairman and members of the committee, we
devoted the day yesterday to management's story in the steel indus-
try as told so ably by Mr. Hook. Today we propose to present to
the committee a witness able to discuss the problem from the side
of the workers. Mr. Philip Murray, chairman of the Steel Workers
Organizing Committee of the C. I. O. is the witness to be presented
at this time. He has with him his technical assistant. I presume
you will swear them.

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

Mr. Murray. L do.

Mr. RuiTENBEEG. I do.

The Chairman. You ma}' be seated. Dr. Anderson, it would ap-
pear that Mr. Murray has a rather substantial statement to make,
and in the interests of expedition, if it is agreeable to you, I will ask
members of the committee, so far as possible, to refrain from inter-
rupting the witness until he has completed his statement. If we can
make our notes as we go along, then we can ask the questions after
Mr. Murray has concluded, and I think probably we will get better
results.

TESTIMONY OF PHILIP MURRAY, CHAIRMAN. STEEL WORKERS
ORGANIZINvl COMMITTEE; ALSO HAROLD J. RUTTENBERG,
ASSISTANT

Mr. Murray. Mr. Chairman and members of your committee, I
welcome thi^; occasion to present testimony to the Temporary Na-

16453

16454 C(5?fCENTRATI0N OF ECX)NOMIC POWER

tional Economic Committee on tlie social and economic effects of
technology, and want to express my appreciation to the members of
the committee for this opportunity.

Although the purport of my testimony is national in character, the
bulk of 'my observations are confined to the basic iron, steel, and
tin producing industry, which I shall hereafter refer to as the steel
industry. The spirit in which I present this testimony is a cooper-
ative one, as it is my understanding that the committee's function
is to arrive at the essential basic facts about our economy for the pur-
pose of devising solutions to the chronic economic ills with which it is
afflicted.

Tlie most vital of these chronic economic ills is unemployment. The
crux of the unemployment problem, particularly in relation to the
displacement of men by machinery and other technological improve-
ments, seems to lie in the unwillingness of industrialists and certai"'
of our statesmen to recognize the facts. Before discussing technolog-
ical unemployment in the steel industry, I want to make a few general
observations.

The upswing in business and industrial activity, which reached a
peak in the last quarter of 1939 has demonstrated irrefutably that
the American economy has not kept pace with the advance in tech-
nology during the past decade ; and that industry is not expanding to
absorb the workers displaced by technology. Last November and De-
cember industrial production in the Nation as a whole surpassed the
all-time peak in 1929, with fewer workers.^ In the great industrial
district of Pittsburgh production rose 6 percent from August 1929
to November 1939, but during this period man-hours worked declined
19 percent." It is plainly observable, therefore, that the most crucial
problem confronting our economy is the failure of employment to
keep pace with production. The seriousness of unemployment is
demonstrated in Pennsylvania, where 24 percent of the working popu-
lation was unemployed last December, the month when national in-
dustrial production was higher than in 1929.^ At the same time unem-
ployment in the Nation as a whole was a discredit to our industrial
civilization, the estimates ranging from 9,000,000 to 11,000,000 unem-
ployed workers, men and women idle through no fault of their own,
men and women no longer wanted or needed by private industry.

Occasional pronouncements from men in high places seem to be
focused upon the elimination of unemployment when our national
annual income rises several billion dollars above the peak year of'
national income. The goal of a $90,000,000,000 to $100,000,000,000 an-
nual income is i:npossible of attainment as long as industry in Amer-
ica continues its present practices. To eliminate unemployment by
raising the national income is getting the cart before the horse. The
national annual income cannot be raised until the unemployed are
])ut back to work. And as long as industry continues its present prac-
tices of eliminating workers to maintain profits, our national income
cannot be raised above the level of recent years.

^Federal Reserve Bulletin, February 1940, p. 81. (Mr. Murray's footnote.)
2 PittsburRh Business Review, December 29, 1939, Burfc.iu of 'Business Research, Uni-
versity of Pittsburgh, Pittsburgh. Pennsylvania, pp. 17-18, (Mr. Murray's footnote.)

» Pennsylvania Public A.ssistance Statistics, October 1939, Department of Public Assist-
ance, Commonwealth of Pennsylvania, Harrisburs, Pennsylvania ; and correspondence
between the Research Department of the Steel Workers Organizing Committee and the
Department of Public Assi.stance. (Mr. Murray's footnote.)

CONCENTRATION OF ECONOMIC POWER 16455

The apologetic attitude of political and industrial statesmen con-
cerning a solution of this problem of unemployment might very well
be likened to the attitude of leading industralist^ and Republican
statesmen during the period 1930 through 1932, when they said that a
policy of waiting would result in a return of prosperity. The attitude
of industrialists and certain statesmen of today concerning the solu-
tion of the present unemployment problem is the same. We are told :
"Let's wait and things will eventually straighten themselves out."
The Nation and its people have been going through this period of
waiting for more than a decade, and here we are with 11,000,000
people still idle, whilst the heavy hand of taxation, directly attrib-
utable to Nation-wide unemployment, engulfs the country and jeop-
ardizes the perpetuity of our democratic form of government. In
recent years this "Wait-and-things-will-work-out-all-right" attitude
has been altered slightly by saying no one shall starve. But even this
slight alteration is being abandoned, and less than a quarter of the un-
employed are being given meager W. P. A. jobs.

On every hand we hear the cry of industry, and also we hear the
cry from Government: "Give us greater productivity, increase our
efficiency, lower the production costs of our commodities, and thereby
create greater buying power, and this will afford the cure for all the
unemployment evils confronting the Nation." This has been the
battle cry of America for a period of almost 8 years. Labor has
responded to it. Efficiency ha^ been increased. Workers have co-
operated, applied more energy, put forth greater effort, and in-
creased productivity. What has been the reward? It has been a
lower annual income for labor, a greater number of men thrown out
in the streets, and a shorter work year for the- workers still em-
ployed. The greater efficiency ^is not being passed on to consumers,
but is going into corporate profits, which surpassed 1929 profits in the
last quarter of 1939. All this while millions of workers are idle. Here
is another case of working men and women responding to a national
emergency, giving their all in reply to the battle cry of industrialists,
politicians, and economists. And what has been labor's reward? In •
return for their cooperation, the workers of this Nation have unem-
ployment, poverty, and all the misery that trails in the wake of both.
Monopolistic controls have grabbed up the fruits of greater efficiency
and turned them into the highest corporate profits in the history of
America.

Almost every corporation and company in America today main-
tains an army of industrial engineers and efficiency experts, whose
duty it is, through the process of time evaluating of jobs, to increase
the productivity of the individual, and thereby lower the costs of
prod\iction. The science and ingenuity of man in developing processes
and methods to increase production and increase efficiency has run
amuck in the United States during the past 10 years. There has been
no planning, and so far as I am aware there have been no checks or
restraints. As a matter of fact, every agency of government, every
leader and owner of industry, and almost every economist of national
repute, has loaned every effort toward the attainment of this goal of
ever-increasing efficiency in American industry. Indications point ^^o
continuing improvements in efficiency and production during the ye .rs
to come. Out of this situation there may develop the greatest pros-

16456 CONCENTRATION OF ECONOMIC POWJER

perity or the craziest national economy ever recorded in the history
of any civilized nation.

In this machine age, is this age of technological improvement going
to spell the. downfall of our democracy? Or are these improvements
in the production facilities of modern industry going to be utilized
to promote the social well-being of our national population, and
thereby maintain for America the best form of democratic government
we believe to be anywhere in the universe? Factual investigations
conducted by responsible economists and statistical organizations re-
veal the very alarming fact that the trend in American industry to-
day, due to the introduction of machines and other improvements in
efficiency, is toward greater monopolistic control in all kinds of in-
dustrial and manufacturing enterprises. Technology, for example, is
building a new^ monopoly in the steel industry.

In substance, the present program of industry, insofar as I am
able to observe with relation to the introduction of new mechanical
devices and other technological improvements follows this pattern :
Introduce a machine or a new method; increase productive efficiency
15, 25, or 50 percent; increase hourly wage rates a fraction of this
percentage; lower the number of man-hours per year considerably;
lay off such other men as may not be required where the new ma-
chine or the new method for increasing productivity has been intro-
duced; and gobble up most of the benefits of greater productivity into
profits. There is the situation in American industry today. It seems,
therefore, to be the bounden duty of the leaders of industry, govern-
ment, banking, farming, and labor to get together under the auspices
of the Federal Government and do something of a constructive nature
to put more people to work, to absorb in industry the people who are
now unemployed, and to give the youth of the country a chance in
life, thereby increasing the national income, and alleviating the pr*^s-
ent high taxation imposed upon our people for the purpose of main-
taining an impossible economy, an economy made impossible of
maintenance through taxation because of the failure of private in-
dustry to employ the unemployed workers of America. I shall have
more to say about this proposed national conference on unemploy-
ment in the concluding part of my statement.

The Chairman. Perhaps I may interrupt you here, Mr. Murray,
because I note that you have come to the conclusion of your general
observations. If any member of the committee wishes to ask any
questions on the general observations, this might be an appropriate
time to do it without actually obviating the rule laid down at the
outset.

Dr. Anderson. Mr. Chairman, the general observation depends upon
certain other parts of the general statement, and I have some questions
that I wanted to reserve until a later time.

The Chairman. Very well, I just wanted to give everybody a chance.

TECHNOLOGICAL CHANGES IN THE STEEL INDUSTRY

Mr. Murray. Xo industry has been harder hit by technology during
the 1930's than the steel industry. I^efore discussing the new steel
technology, its social and economic consequences, I w^ant to make the
position of *^^he Steel Workers Organizing Committee on technological
changes pe. rectly clear. The Steel Workers Or -anizing Committee

CK)NCENTRATION OF ECONOMIC POWER 16457

does not oppose technological advances; in fact, the Steel Workers
Organizing Committee approves them and condncts a continuous edu-
cation campaign amongst its members in favor of technological
improvements. The attitude of the Steel Workers Organizing Com-
mittee, unlike that of the run-of-mine employers, does not stop there.
In approving technological changes, the Steel Workers Organizing
Committee's objective is to secure the participation of labor and con-
sumers in the economic benefits of such changes and to eliminate the
devastating social consequences of such changes on workers, their
families, and entire communities.

Those who choose to charge the Steel Workers Organizing Com-
mittee with opposing technological advances misrepresent the Steel
Workers Organizing Committee's position for the purpose of erecting
a smoke screen behind which they try to deprive workers, as well as
consumers, of the benefits of technology. These parties would likewise
have us believe that there is no such thing as technological unemploy-
ment, and in their attempt to prove tliis they try to create the im-
pression that workers are participating in the benefits of technology
when, as a matter of fact, sucli is not the case. 'My purpose in this
discussion is to present the facts of the new steel technology, as briefly
as possible^ in their logical sequence.

The story of the new steel technology during the past decade is one
of technological unemployment, the permanent displacement of work-
ers, the elimination of skilled workers no longer young in years, the
ruination of complete communities, the abrupt closing of entire plants,
tlie cancelation of labor's contribution to national purchasing power, a
constantly rising labor efficienc}', the failure to reabsorb the displaced
workers to create a corresponding number of jobs elsewhere, the
inadequate participation of labor and consumer, and the intensification
of control of steel-producing facilities in fewer and larger hands.

The largest single technological improvement of the 1930's has been
the continuous automatic steel strip mill. Twenty-seven of these
mills, commonly called hot strip mills, have been built to date with
a combined annual capacity of 15,000,000 tons.^ The first mill was
operated in 1924, and the twenty-seventh mill was put into operation
in 1938. I am submitting a list of these mills with full particular's,
and the members of the committee have a copy of that exhibit.

(The table referred to was marked "Exhibit No. 2477" and is
included in the appendix on p. 17331.)

Mr. Murray. The cojnmon contention that increased wage rates are
responsible for technological improvenients has no validity in con-
nection with the automatic strip mills. The facts in this case show
the opposite. All of the automatic strip mills were completed, under
construction, or authorized to be constructed by the resi:ective- steel
companies before steel wages were raised in 1936 and 1937. The intro-
duction of the hot strip mills preceded the current level of hourly
wage rates, and not vice versa. The introduction of these mills,
' herefore, cannot be attributed to higher wage rates. Mr. Charles R.
Hook, president of the American Rolling Mill Co., estimates the total
cost of the 27 mills at one-third of a billion dollars.^ The respective

1 steel Facts, June 1939, American Iron and Stcci Institute, New York City, p. 2.
(Mr. Murray's footnote.)

2 Pittsburgh Press, December 13, 1937. (Mr. Murray's footnote.)

1:^4491— 41— pt. 30 18

1 6458 CONCEINTF ATION OF ECONOMIC POWER

companies have announced the aost of individual hot strip mills at
figures ranging from $2 "5,000,000 to $45,000,000.

The hot-strip mills produce only flat-rolled steel products. Their
capacity of 15,000,000 tons almost duplicates the old-style hand-mill
capacity for flat-rolled pro^Jucts. In 1929 the capacity of the old-
style mills was 15,600,000 tons of flat-rolled products (plates, sheets,
black plate, and tin platp).i The peak annual production of flat-
rolled products on strip and hand-style mills was 16,900,000 tons in
1937. Thus the modefc automatic hot-strip mills, with a capacity of
15,000,000 tons, can haudle most of the demand for flat-rolled products
made on the steel industry.

For technical reasons certain flat-rolled products can be rolled only
on the old-style mills. But since 1929 an increasing percentage of
the industry's flat-rolled production has been on the automatic hot-
strip mills. Automatic strip-mill production of tin plate, for example,
far exceeds the hand-mill production of tin plate at present. In 1936
only 23 percent of the tin plate was produced by the strip mills. In
1937 the percentage rose to 35 percent, in 1938 to 61 percent, and in
the first 9 months of 1939 to 76 percent. In the meanwhile, the tin-
plate hand mills have been abandoned with lightning speed, as I shall
discuss later. It is plainly observable that before long virtually all
of the tin-plate hand mills will be permanently abandoned. And
within a few years only a handful of the old-style plate and sheet mills
will still be operating. The automatic hot-strip mills are fully able
to handle virtually all of the demands for flat-rolled products. If,
at. any time in the future, demand should exceed present automatic
strip-mill capacities, additional strip capacity will be built instead of
operating the old-style high-cost mills ; this, in fact, is what has been
taking place recently in the tin-plate division of the steel industry.

LABOR DISPLACEMENT IN HOT STRIP MILLS

Mr. IVIuRRAY. The extent to which the strip mills eliminate workers
is incredible. Mr. John D. Knox, a practical mill man and associate
editor of Steel Magazine, recorded the following conversation with an
official operating a strip mill with whom he discussed how much labor
(the strip mills) displace technologically : ^

"At the rate of 2500 tons a day and working 24 days a month," I said, "you'd
deliver to the shipping end of your mill OO.OCio tons monthly or exactly what a
plant with eight conventional sheet mills would produce a year. In other words,
on the basis of gage for gage your mill will pi^oduce 12 times the output of a con-
ventional eight-mill sheet plant."

"Sure thing, and with a lot less men Take your eight hand mills," he con-
tinued turning the leaves of his notebook until he came to a blank i)age.

"You have a crew of 112 men per turn," he said writing these figures at the
top of the page. "Now add a cranesman, a sheet bar stocker and a couple of
helpers, a yard clerk, and four shearmen and their helpers and you have a total
of 125 men or 375 required to man the mills per 24-hour day.

"Now let's see. On the back of the heating furnaces of this continuous mill we
have a heater and a couple of helpers, a furnace charger, a furnace stocker and a
couple of helpers, a clerk in the slab yard and a couple of cranemen. That's a total

1 Directory of the Iron and Steel Works, Twentv-second Edition, 1935, American Iron
and steel Institute ; Twenty-third Edition, in38 : .Annual Statistical Report of the Ameri-
can Iron and Steel Institute, 1939; and Steel, November 6, 1939. (Sources of data In
this and succeeding paragraph.) (Mr. Murray's footnote.)

"Steel, October 22, 1934, "Continuous Mills Voracious in Cost, Rut How they Produce]",
by John D. Knox, pp. 19-23. (Mr. Murray's footnote.)

C?ONCENTRATION OF ECONOMIC POWER 16459

of 10 men," he said adding up the figures lie had set down after each of the
occupations.

"On the mill proper we have a he^d roller and one assistant, a gager, a rougher
and his operator and helper, a couple of rolls hands, a speed regulator and his
helper, a finisher and his assistant, a looper operator, an operator for the runout
table and his helper, an inspector, a recorder, a roller leveler operator, a hot bed
recorder, a shear foreman and his crew of eight men, one torchman for burning
cobbles and three cranemen.

"That is a total of — let's see," and adding up the column he arrived at a total of
32 men to operate his mill or 42 men per turn including the furnace attendants.
"This is 126 men to andle the mill per 24 hours."

"In other words," I chimed in, "with 126 men in the slab yard, on the furnace
and overseeing the mill you can turn out 2500 tons a day whereas it would take
96 sheet mills of the conventional tys with a combined crew of 4512 men to pro-
duce an equivalent tonnage."

"Yes sir, that's about the set up ''

This tremendous increase in production for each worker employed —
that is, that 126 men in the automatic steel mills can produce the same
tonnage as 4,512 men in hand mills — represents a 97 percent reduction
in man-hours, according to Mr. Knox's figures. Human labor is prac-
tically eliminated on the hot-strip mills. Electrical power is substi-
tuted. Steel is rolled on the hot-strip mills at speeds approximating
a half mile a minute. The large numbers of men formerly required to
roll steel are no longer needed.

Such wholesale elimination of workers has been devastating. The
strip mills are displacing 84,770 workers, 38,470 of whom have already
been disconnected from the steel industry.^ Just 10 days ago in Mas-
sillon 500 workers in Republic's sheet mill there were given this notice:

We regret to advise you that on account of the permanent discontinuance of
operations of the Massillon sheet mills your services are hereby terminated.

Please find enclosed your copy of the "Termination Notice to Employment
Office." This form should be presented to the paymaster to secure any earnings
which may be due you.

Also find enclosed "Workers Copy" of Form UC 406, "Separation Report for
Total t^nemployment" as provided under Unemployment Compensation.
Yours very truly

(signed) REyuBuo Steul Corporation

(The chairman. Senator O'Mahoney, resumed the chair.)

Mr. MuBRAY. And 500 men walked out and 500 men are walking the
streets of Massillon today ; they have nowhere to go. That happened
only 10 days ago.

This notice was given to these 500 workers on March 29, 1940, and
within tlie next few weeks between 500 and 600 more will receive the
same notice.

In the Niles, Ohio, plant of the same company 450 more workers are
also out of employment, as Republic Steel has discontinued its sheet
mill there also. A public announcement of the discontinuance of the
mill in Niles was published in the newspapers on March 28.

These workers have not been disconnected from the industry one by
one. They have been cast out a thousand at a time. Fifteen hundred.
And in one case 3,000 workers were told to go home and never to come
back, as their mill would not work again. Aside from the inhuman
effect this wholesale abandoning of mills has on the individual worker,
look at what happens to entire communities. Property becomes next
to worthless, business drops to a fraction of previous levels, families
are kept in existence by W. P. A. and relief, the social fabric of the

' See 'Exliibit Xo. 2479."

16460 CONCENTRATION OF ECONOMIC POWER

town is torn in shreds, and the only means of making a livelihood is
taken away from workers, many of whom have never known any other
way of earning a living. All this happens because technology has
found a new method of production, in this case the automatic strip
mill. The financial cost of a strip mill is $15,000,000, $20,000,000, or
$40,000,000. But the social cost of this automatic mill is far greater
in terms of human misery, personal tragedy, and wrecked mankind.
Look at the worker immediately displaced.

A large percentage of these technologically displaced workers are.
skilled men. They have -spent yeare acquiring their skills, and now
private industry has no use for them. These men are no longer young
in years, though they are not too old to work. But they are unem-
ployed, discarded by the steel industry because profits cannot be made
from their skills any more. These men are capable of many more
years of good work, but private industry is no longer interested in
them because most of them have reached the ripe old age of 40 years.

Rather than relate the tragic circumstances of these men who are
victims of the strip mills, I have brought one of these skilled hand-
mill workers with me to tell this committee his own story in his own
way.

Michael Russell has not been employed on one of the United States
Steel Corporation's strip mills for a very definite reason. The vice
president in charge of operations of a large steel firm told me that he
had hired a completely new force of men for his strip mill, mostly
very young men. He explained : "A hand-mill worker is used to pro-
ducing from 5 to 10 tons in 8 hours, and he can't get used to seeing a
thousand or more tons produced on a strip mill in the same time. We
have to break in new men on the strip mills who have never seen a
hand mill operate." The comparatively few hand-mill workers who
have been employed in automatic strip mills — and remember 37,000
of them are out completely — are working as laborers or semiskilled
workers, and are receiving wages one-half to one-third of their former
daily earnings. The social effects of the strip mills are doubly
devastating.

Now, Mr. Chairman, with your permission I would like to present
to your committee, Mr. Russell. He typifies one of those 37,000 men
who have been cast out on the streets. Mr. Hook produc?ed for the
benefit of the committee yesterday some of the new technological
improvements that have been brought about in industry in the form
of examples of mud guards and fenders. I want to submit for the
benefit of the committee a .piece of our human wreckage here, Mr.
Russell.

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

Mr. Russell. I do.

The Chairman. Do you care to make a statement here?

Mr. Russell. Yes, sir.

The Chairman. Did you want to question him. Dr. Anderson, or
Mr. Murray?

Mr. Murray. I should like to, if you don't mind . Mr. Chairman.

Dr. Anderson. Will you question the witness? He'is your example.

CONCENTRATION Ot ECONOMIC POWER 16461

TESTIMONY OF MICHAEL RUSSELL, NEW CASTLE, PA.

Mr. Murray. Mr. Russell, how old are you?

Mr. Russell. I am 48.

Mr. Murray. Forty-eight years of age. How long were you an
employee of the Steel Corporation before }*ou were summarily dis-
charged or dismissed in 1937?

Mr. Russell. About 32 years.

Mr. Murr.\y. What was your occupation with the Steel Corpora-
tion prior to your dismissal in 1937?

Mr. Russell. A roller.

The Chairman. A what?

Mr. Russell. Roller.

Mr. Murray. A roller is one of the highest type of skilled crafts-
men in the industry, is he not?

Mr. Russell. That is right; yes, sir.

Mr. Murray. And therefore one of the highest paid?

Mr. Russell. That is right.

Mr. Murray. You are a married man, are you not?

Mr. Russell. I am.

The Chairman. ^Miat were you paid?

Mr. Russell. Well, in the neighborhood of from $12 to $16 daily,
depending on how much tonnage we produced, but as an average it
runs anywhere from $12 to $14 or $16 a day.

The Chairman. What was your average?

Mr. Russell. Daily or pay period?

The Chairman. Well, let us say your average annual earning.

Mr. Russell. Well, for the year of 1937 I can give you a brief
statement here; I have it on a card which was given to me at the
time; $2,842.99.

The Chairman. That was your annual compensation for the year
19371

Mr. Russell. Yes; minus 19 days of November, also of December,
not working. In fact it would have been more than $3,000 if I had
worked the balance of the year.

The Chairman. You worked all but 19 days that year?

Mr. Russell. In November when they terminated my work. That
is when we were shut down, in 1937, November 11.

The Chairman. Ho»- did that working year compare with the
ordinary working year in your experience in the industry?

Mr. RussKLL. Well, this in fact was one of the be^ years we had
because there was a great boom on at the time.

The Chairman. What was the poorest year you had during your
experience?

Mr. Russell. I) don't have the definite figure but it ran in the
neighborhood of $2,000 or $2,400 yearly anyhow.

The Chairman. Then would it be proper to say that your earning
in this highly skilled employment was never less than $2,000 a year?
'Mr. Russell. That is right.

The Chairman. Over how many years?

Mr. Russell. In the neighborhood of 20 years that I have rolled.

Senator King. Do you have any persons working under you?

16462 CONCENTRATION OF ECONOMIC POWER

Mr. Russell. Yes, sir; a roller in a hot mill is responsible for
ei^ht men besides himself.

Senator Kino. Did they receive as large wages as you received {

Mr. Russell. They did not.

Senator King. What were their average wages per day?

Mr. Russell. As a rougher he would average in the neighborhood
of $9 or $10 daily ; that is a roller's assistant.

Senator King. Each of those men under you received approxi-
mately $8 a day? , , <.

Mr. Russell. Well, they would average better than that, some of
them $10 or $11, heaters and so on.

Senator King. Did you work for the same company all these
years ?

Mr. Russell. I did ; yes, sir.

Senator King. What company was it ?

Mr. Russell. Carnegie-Illinois Steel Corporation, better known
as U. S. Steel.

Senator King, In the same mill, were you, all those years?

Mr. Russell. In different mills; the Shenango and New Castle
plant.

The Chairman. And was this the scale of wages throughout your
experience of 20 years ?

Mr. RusseiJj. They vary up and down there with different scales
from time to time, you know, and some were larger in some years and
some years they were lower.

The Chairman. Wasn't there a substantial improvement in wages
during those 20 years?

Mr. Russell. Well, yes, there were, there were some.

The Chairman. What did you get when you started?

Mr. Russell. When I started first they didn't have what is known
as the four-part system ; there was a three-part system at that time.
When I first started in the mill a roller made $10 a day on a level,
very large wages, but it gradually came up as wages came up in the
industry at the time.

The Chairman. How about the number of working hovirs in the
day?

Mr. Russell. We had to put in 8 hours daily.

The Chairman. When?

Mr. Russell. Every day we worked.

The Chairman. But when did the 8-hour day begin?

Mr. BusSELL. Well, I began working 8 hours in the hot mill ; they
started in at midnight at 12 o'clock.

The Chairman. You misunderstood my question. In what year
was the 8-hour schedule instituted \

Mr, llussELL. Eight hours always in the hot mill.

The Chairman. Always?

Mr. Russell. Yes, sir.

The Chairman. During the 20 years, then, the 8-hour day was the
rule?

Mr. Russell. That is right.

Mr. Murray. The weekly hours, of course, prior to 1937 were 48 and
55. wasn't it, 6 day3 a week ?

Mr, RussEi.L. That is right.

CONCENTRATION OF ECONOMIC IX)W^.rv 16463

Mr. Murray. There is a distinction in the classifications of labor
there, and the labor rates at the mill that Mr. Russell worked at No-
vember of 1937, ranging from a minimum of 621/2 cents an hour for
common labor, with the maximum of the rollers based upon entirely
the production. They were piece workers, and those rates may have
ranged anywhere from $8 to $15 a day, depending upon their produc-
tion and their efficiency to produce in the old conventional hand-mill
type of furnaces.

Dr. Anderson. Mr. Russell, you were on piece rates?

ISIr. Russell. Yes ; tonnage rates ; that is right.

Dr. Anderson. And were you at the peak of the tonnage rates of
employed workers?

Mr. Russell. That is right.

Dr. Anderson. Anybody get any more than you did per tonnage
rate?

Mr. Russell. Based on

Dr. Anderson (interposing). In other words, you are the highest
skill known in the industry in the old hand-mill process?

Mr. Russeix. The roller ; yes, sir.

Dr. Anderson. And this top wage that you have just indicated, an
annual earning of $2,800, is a good year? — '37 is your peak earning?
Did you ever earn any more than that ?

Mr. Russell. Not thalt I know of becausp I always worked on a
femall mill. The other mills, larger mills — in fact, they make around
$4,000 in the bigger mill, see, $3,000 and $4,000.

Dr. Anderson. A man in your class of work?

Mr. RussELi- Yes, sir; bigger force on the same type of mill.

Dr. Anderson. What do you suppose the average worker in the
plant in which you have been employed wa^ earning when you were
earning $2,800?

Mr. Russell. Well, I don't understand that; you mean the average
worker, lowest-paid man in the hot-mill department?

Dr. Anderson. You perhaps wouldn't have the figure. You got
$2,800 that good year, and I was wondering what the average worker
might be earning in the same mill that year.

Mr. Russell. Well now, in the tonnage part of it, some of them
would average around $7 and $8 a day ; $7 at least.

Mr. Murray. We have a collection of all the statistical matter with
reference to the average wages of men employed in Mr. Russell's
mill, and all other mills that I know of throughout the country, and
for Mr. Russell's particular mill in the year 1937 the gross average
earnings of all employees approximated $1,658.

The Chairman. We interrupted you, Mr. Murray, in the questions
you were going to ask Mr. Russell. You may proceed.

Mr. Murray. You are a married man, Mr. Russell ?

Mr. Russell. Yes; I am.

Mr. Mur.RAY. How many in your family?

Mr. Russell. Four.

Mr. Murray. Four children, and your wife.

Mr. Russell. Four children ; six in the family.

Mr. Murray. Were any of your family working in the Shenango
and New Castle Works when you were laid off?

16464 CONCENTRATION OF ECONOMIC POWER

Mr. Russell. When I was laid off there was a son-in-law of mine
at work, but there aren't any at work at this time at all.

Mr. Murray. All off?

Mr. Russell. All off.

Mr. Murray. How many men were laid off in your mill in No-
vember 1938?

Mr. Russell. Sixteen hundred.

Mr. Murray. Sixteen hundred automatically displaced?

Mr. Russell. That is right.

Mr. Murray. That is, thrown out by an order of the Steel Corpora-
( ion that there was no more work for them.

Mr. Russell. That is right.

Mr. Murray, And your two sons were thrown out into the streets
with them ?

Mr. Russell. That is right.

Mr. Murray. Have you been able to get any employment since^ you

ere laid off in November 1937, any employment of any description
in private industry?

Mr. Russell. We tried ill 1938. I had a brother-in-law living up at
Erie and he wrote me a card and asked me to come up, because he
thought we could get some work on the docks up along Lake Erie, the
shipping docks, labor work and all that; so I took my son and
another friend of mine and we drove up to Erie to investigate. There
wasn't any work on the docks, so coming back home, on Twelfth
Street, I noticed a plan with a sign, "Acetylene welder wanted."
That is a trade I did follow for a few years, acetylene welding and
cutting, so I stopped and applied for the job, went in the employment
office and asked if they were looking for welders and he said, "Yes;
we are," so I told him what I wanted.

He sent for the general foreman and the foreman came out and he
told him what I wanted and told him to put me to the test to see
whether I did know what acetylene work was about. It was all right,
he took me back to the employment office and said, "The man is all
right, he came out very favorably on the test."

The employment agent asked me, "What is your name?" and I told
him. He said, "Where are you from?"

I said, "New Castle."

He said, "How old are you?"

I said, "47."

He said, "Hell, man, you're too damn old to start with this com-
pany now."

That is what I was confronted with right there. There was no
way out, T was too old to start w4th.

Mr. Murray. What are you doing at the present time ?

Mr. Russell. Working on W. P. A.

Mr. Murray. What are you getting?

Mr. Russell. $48 a month.

Mr. Murray. $48 a month ?

Mr. Russell. Yes, sir,

Mr. Murray. And you are the only one in a family of six that h
working, are you ?

Mr. Russell. The boys are working on W. P. A., but they art.
married and living by themselves as individuals.

CONCENTRATION OF ECONOMIC POWER 16465

Mr. Murray. So that the $48 is all that you get to provide the needs
of your wife, and how many dependents?

Mr. Russell. One son.

Mr. MuKRAT. One son and yourself. You pay your rent

Mr. Russell (interposing). That is right.

Mr. Murray. And your food and medical and other obligations,
and maintain your home on $48 a month.

Mr. RusspXL. Well, with $48 a month we maintain paying the
rent and some of the food, but as far as medical attention and cloth-
ing and so on, those are neglected. We can't afford to get it because
the money won't reach that far. We have to skimp along, and as far
as rent is concerned, we couldn't get a home like I had when I was
working in the mill, paying $25 or $30 a month rental, so I had to
get one of the boys and we rented a big house of 8 rooms and a 3-room
finished attic, so there we split the house up together and split the
rent, and all utilities so we could get by.

Mr. Murray. So that your married sons are now living with you?

Mr. Russell. One of them is living there, and my daughter and her
liusband are living there. They have their own apartments but it is
all in the same household, and that is how we manage to get by.

Senator King. Did you acquire a house cf your own during those
yeai"S when you were working?

Mr. RusSEix,. Yes; I did.

Senator King. You owned your own home?

Mr. Russell. I owned two homes at one time, during the World
War, but I disposed of them when the World War was«on, and I
never owned any since.

Representative Williams. At the time you were let out of employ-
ment, what reason was given for it?

Mr. Russell. They didn't give us any reason at all, to be honest
about it. They just told us the mill was down, and that was all there
was to it.

Representative Wiljliams. Did they shut the mill entirely down?

Mr. Russell. Absolutely down.

Representative Williams. Permanently?

Mr. Russell. They told us that was the end of the mill.

Tlie Chairman. Has it ever been reopened?

Mr. Russell. Never reopened; no, sir.

Representative Williams. And these 1,600 that were let out with
you represented the entire force in the mill?

Mr. Russell. Yes, sir.

Representative Williams. What became of them, if you know?
Did they make any effort to secure employment for them in some of
their other mills?

Mr. Russell. Probably some of them did go about, but hundreds
and hundreds in New Castle are doing- the same thing as I am doing
at the present time.

Representative Williams. Do you know why the mill was shut
down ?

Mr. Russell. The only reason for it was the strip mill that is in
operation that put us put of work.

Representative Williams. The old process had become obsolete,
and they had by this new process of continuous rolling supplanted

16466 CONCENTRATION OF ECONOMIC POWER

the work that was being done by some other plant by that new
process.

Mr. Russell. That is right.

Mr. Pike. Has the mill been dismantled?

Mr. Russell. No, sir ; it is still there.

Mr. Pike. It has never been used since ?

Mr. Russell. No, sir ; it has not.

PROVISION FOR displaced WORKERS

Dr. Anderson. Mr. Russell, we were told yesterday in Mr. Hook's
testimony, and showed evidence that when he made the change-over
to the hot-strip continuous mill, he announced to the workers the
condition, what was going to take place, and offered them the alter-
native of a dismissal wage amounting in some instances to a sub-
stantial sum, which many of them took as they were dismissed
because of the change-over to the continuous-strip process.

In your experience, did anything like that happen ?

Mr. Russell. No, sir ; it did not.

Dr. Anderson. When were you notified that the mill was going to
close down, the day you were dismissed ?

Mr. Russell. No ; I can give you an answer to that. It was in 1937.
That year was a veiy good year. Mr. Sturdy, who was superintendent
of the New Castle works at that time, when we first got word of that,
and Mr. Hall, they took all us rollers in the office for a meeting and
they explained and told us at that time that they insisted on us rollers
making these men, our crews — that we see that these men got to work,
because they had so many orders ahead, and thev held us responsible.
They said, "We have been working on it since the previous year."
That was in about the latter part of September. Then in November, I
think just about the first part of November, we got word the mill was
going to shut down, and it did shut down on November 11, and it hasn't
moved since.

Dr. Anderson. But you didn't get any dismissal wage benefit?

Mr. Russell. No, sir ; nothing at all.

Dr. Anderson. And you had, according to your testimony, 1 or 2
weeks' notice. Was word given to you by the plant superintendent?

Mr, Russell. No; it was just word out through the plant.

Dr. Anderson. Just a rumor?

Mr. Russell. Just a rumor was what it was; yes, sir; but it did
come.

Senator King. Was a new plant constructed to take the place of the
old, only changing the process ?

Mr. Russell. As far as I know, it was the strip mill down around
Pittsburgh.

Mr. Murray. The Iroquois works, a new stripping mill erected at
Clairton.

I think, Mike, you might have gone astray in stating you had no
work in private industry following your dismissal in the New Castle
work in private industry following your dismissal in the New Castle
job at the Shenango works of the United States Steel Corporation?

Mr. Russell. You are right ; that did slip my memory. I was called
back in the Shenango mill in the latter part of December in '37. We

CONCENTRATION OF ECONOMIC POWER 16467

went there, in fact all of us rollers, and they rehired us as catcher
helpers on the job that I had started at 32 years ago as a boy.

The Chairman. How many of you were rehired?

Mr. Russell. I should say about 200 anyhow, about that. They
put me on the job where I started 32 years ago as a catcher helper.
I didn't like it, in fact, to be lowered away down like that, but I had
to take it or I couldn't draw compensation or get on relief to get a
W. P. A. job, so I had to take that and do as I was told, and I was let
out July 8, 1938.

Mr. Murray. You were let out July 8, 1938, in the Shenango
works ?

Mr. RussELi.. That is right.

Mr. JSIuRRAY. What happened in the Shenango works?

Mr. Russell. The orders got so slack, it was a 40-mill plant and
they were only operating 20 mills, so they doubled the staff up.

The Chairman, How far from New Castle is Shenango?

Mr. Russell. Tliey are all in one town, probably half a mile apart.

The Chairman. Is the Shenango mill still working?

Mr, Russell. No, sir; it is not.

The Chairman. Is that closed down?

Mr. Russell, It is.

Mr. Murray. How many men did the Shenango works employ
before it was permanently abandoned by the Steel Corporation?

Mr, Russell, In the neighborhood of 3,600.

Mr. Murray. And they were automatically displaced by the same
order ?

Mr. Russell. That is right.

The Chairman. As I get your story, you spent 20 years acquiring
a skill as a rolling mill operator.

Mr. Russell. That is right.

The Chairman. The hand-mill operation.

Mr. Russell. That is right.

The Chairman. And when you had reached this peak of skill as
a result of 20 years of work, a new process was invented which did
work that you had been doing, more efficiently and at greater speed
than the hand-mill that you and your associates had been operating,
could operate, is that right ?'

Mr. Russell. That is right.

The Chairman. Therefore, the new mill which was constructed in
another town took the work away from your mill and from the
workers in the mill ?

Mr. Russell. That is right.

The Chairman. The mill at New Castle has never again been
opened ?

Mr. RussEiu. That is right.

Tlie Chairman. And the workers at New Castle who were dis-
placed have never since obtained work at anything like the com-
pensation they were getting when the new continuous mill came
into operation and displaced them ?

Mr. Russell. Tliat is right.

The Chairman. And you and many others have been compelled
for the most part since that time to support yourselves upon inade-
quate W. P. A. wages?

Mr. Russell. Yes; that is right.

16468 CONCENTRATION OF ECONOMIC POWER

The Chairman. And without the W. P. A. you would have had
no opportunity to work at all ?

Mr. Russell. That is right.

Dr. Anderson. Mr. Russell, I wanted to ask a question. If you
had been employed in one of the new strip mills after being laid
off when the hand process was done away with, what would you
have done? Your skill is not called on in the strip mill now, is it?

Mr. Russell. Now you are asking something I can't answer, be-
cause I don't know anything about a strip mill. I never saw the
inside of one, never got the opportunity to see inside one.

Dr. Anderson. Did you go and apply as a roller in a strip mill?

Mr. Russell. I didn't think I could because it is a different system
altogether from the hand packing.

Dr. Anderson. Then the only place you could dispose of the skill
you have taken 20 years to perfect is another h^nd-process mill.

Mr. Russell. That is about all.

Dr. Anderson. What is happening to the hand mills? Have you
tried to locate wopk in hand mills ?

Mr. Russell. In fact there isn't any. They are all down. They
are doing away with all the hand-packed mills.

Dr. Anderson. Is that the general impression among workers such
as yourself?

Mr. Russell. It must be, because we are always looking around and
can't find any, we don't know where to go.

Dr. Anderson. Was there any attempt made by the mill for whom
you worked to retrain you, to fit you into some other part of the mill?

Mr. Russell. No, sir; none whatever.

Representative Williams. Your statement that there are none seems
to be entirely in contradiction to what Mr. Hook said yesterday when
he said there are practically half of them still maintained, as I re-
member his testimony.

Mr. Russell. I don't know what Mr. Hook's intentions are. In
fact I don't know; I have never seen the inside of the strip mill, I
don't know anything about the strip mill.

The Chairman. Perhaps it might be worth commenting that Mr.
Hook was testifying with respect to the firm of which he is the head.

Representative Williams. No, not as I understood him; I under-
stood him with reference to the whole industry that there were prac-
tically half of them left in operation, the hand mills he was talking
about.

Mr. Pike. I think he said there were about 750 still standing and
about half of the 750 or 375 were still in operation, not necessarily
full operation but still used a good part of the time, and some of them
as I think you said, Mr. Murray, were still necessary for certain finish-
ing operations.

But probably not in your area, not anywhere near you.

Mr. Russell. Well, yes ; there was a plant there in Farrell, a hand
type mill that operated part-time, but it has been down for the last
6 weeks, too. We don't know whether that will reopen or not.

Mr. Pike. There wouldn't usually be many jobs left in the few
left. The people who have got the mare going to hold onto them
pretty strongly, I should think.

Dr. Anderson. Mr. Hook's statement was, "But actually there are
still 750 of those mill? in existence with approximately half in opera-

CONCENTRATION OF ECONOMIC POWER 16469

iion." That is three hundred-some-odd mills that require your skill
are still in operation. Have you applied to any of those 300 mills to
see if you can get a job?

Mr. Russell,. I don't know where they are at to get a job. I know
in aur district there aren't any in operation, so I wouldn't know where
to go. They would probably be away off from our town, and I
wouldn't haA e any means to get there to applj' for work anyhow.

Mr. Murray. I think it might be well to make a distinction here,
lest a wrong impression is created, a distinction between a plant and a
mill. Mr. Hook said that there were some 375 mills still in operation.
I think Mr. Hook might support me in saying that only affects some
40 plants, the 375 mills. And the distinction ought to be made there
lest the impression be created that there are 375 huge hand-mill plants
still in operation.

Dr. Anderson. Mr. Murray, where would those 40 plants be located?

Mr. Murray. I will endeavor to set that out for the benefit of the
committee here during the course of my testimony. If the committee
has no further questions to ask I am through with Mr. Russell.

(Mr. Russell was excused.)

GHOST TOWNS

Mr. Murray. The strip mills have reduced entire communities to
ruin. Thriving steel towns have been converted into ghost towns over-
night. New Castle, Pa., and that is the town Mr. Russell comes from,
a steel town of 50,000 people, is a typical example. In the last 3 years
4,500 hand-mill workers have been permanently displaced in this
town. A few years earlier 1,200 Bessemer steel workers were dis-
placed in New Castle, a total of 5,700 victims of technology during the
1930's in a single steel town. As a consequence, private job opportuni-
ties have dried up. High-school graduates cannot find work, and are
lucky to get an opportunity to go to a C. C. C. camp. Sixty-four
percent of New Castle's population — 7,000 families — have been receiv-
ing some form of State or Federal assistance, or have been trying to
get such aid. The State and Federal Governments have been spend-
ing approximately $3,G50,000 a year in New Castle. But even as the
plight of the town got worse, the Seventy-sixth Congress reduced
W. P. A. wages $5 a month and cut the number of W. P. A. jobs by
more than 50 percent. I am submitting here a thorough study of New
Castle made by the research department of the Steel Workers' Organ-
izing Committee.

(The document referred to was marked "Exhibit No. 2478" and is
included in the appendix on pp. 17332-17339.)

Mr. Murray. Other steel towns have likewise been reduced to ruin,
while still others are on the verge of it. These towns are the victims
.of corporate irresponsibility. Boards of directors sitting in the finan-
f/ial centers of the Nation pass economic legislation, based exclusively
on their profit-and-loss statements. In one decision they wipe out a
complete mill and ruin an entire town, and they do it apparently
without any thought of responsibility for the social consequences of
their decision.

The record of the steel industry during the past decade in abandon-
ing entire plants, or large departments of plants, in one knockout
bloAv reveals an ijmorance and disconcern of social conditions that

16470 CONCENTRATION -OF ECONOMIC POWER

defy description. From 1929 to 1939, 53 old-style hand plate, sheet,
and tin-plate plants have been permanently abandoned. Some of these
plants were departments of large integrated steel works, but a large
majority were separate plants. There were 38,470 workers displaced
in these abandoned plants. I am submitting a list of these plants,
indicating the parent firms, the location, products produced, and num-
ber of workers- displaced in each plant by years. More than 50 percent
of the workers were displaced in 1937 and 1938 with the result, as I
shall point out later, that the effects of the strip mills on the volume
of wages and employment in the steel industry have not been substan-
tial until recently.

(The table referred to was marked "Exhibit No. 2479" and is in-
cluded in the appendix on pp. 17339-17341.)

Mr. Murray. The strip mills are not through with their killing.
Fourteen plants or departments of integrated steel producers arc on
the industry's death list. These old-style hand mills are scheduled
to be abandoned permanently. Some of them have worked irregularly
in recent years, and some are completely idle at present. Twenty-two
thousand nine hundred and fifty workers are employed in these plants,
soon to be thrown into the streets, to be made idle through no fault
of their own, and no longer wanted by the steel industry or by private
industry generally. I have a list of these plants. I feel it incum-
bent upon myself to refrain from adding any additional handicaps
to the respective communities in which they are located, and to
refrain from hastening the day of their final abandonment. There-
fore I am not submitting the list of these plants to the committee,
but if the committee would like to see the list I shall be glad to submit
it in confidence. About the eventual abandonment of these plants,
there is no doubt. Several steel employees have already discussed
the abandonment of these plants with the Steel Workers' Organizing
Committee. And with abandonment of these plants the number of
prosperous steel towns will decline, while the number of ghost
steel towns will increase. But the effects of the strip mills do not
st^p here.

The largest single step toward monopoly in the steel industry dur-
ing the past decade has been the automatic strip mills. These expen-
sive mills,* which small companies operating the obsolete hand-mills
cannot afford to install, are further concentrating the control of
steel-producing facilities in the hands of fewer and larger companies.
In the steel industry at present there are 18 small independent com-
panies with obsolete hand mills, whose future is definitely limited.
These companies employ a total of 23,350. Their combined capacity
for flat-rolled products is 2,350,000 tons, or 15 percent of the indus-
try's hand-mill capacity in 1929 for plates, sheets, black plate, or tin-
plate.^ Daily they are losing business to the strip-mill producers,
and before long their entire business will have been gobbled up by
the huge strip producers, and these small independent companies will
have closed their doors for all times.

Thirteen of these 18 companies are under contract with the Steel
Workers' Organizing Committee or another C. I. O. affiliate. The
executives of these firms have told me and my associate officers, in the

» Directory of the Iron and Steel Works, Twenty-third Edition, 1938, American Iron
and Steel Institute. (Mr. Murray's footnote.)

CONCENTRATION OF ECONOMIC POWER 16471

course of negotiations, that they do not expect to be able to stay in
business mudi longer. I personally know that several of these com-
panies would have closed their doors by now if it had not been for
the revival in business of last fall. I, of course, have a list of these
18 small companies and shall gladly submit it to the committee in
confidence, if the committee desires it, but I do not want to add to
the credit, financial, and other difficulties of these companies by
advertising their dire condition publicly.

With the strip mills firmly in the saddle, these small independent
companies are doomed to extinction. The changes in the basing
point system of pricing that were made in June 1938 have added' to
the diflficulties of these companies, because their plants are located in
one producing district. But even if these changes had not been made,
the days of the small companies would still be numbered. The Steel
Workers' Organizing Committee has not made any statement on these
changes in the basing-point system of pricing, and it is not my pur-
pose to 'comment on them as such, I merely refer to the observable
effects of these changes in connection with the small steel firms I am
discussing. The president of one of the small companies told me
that the June 1938 changes merely cut a few months or years off the
life of his company, that neither his company nor his competitors
could hold out indefinitely against the automatic strip mills. An-
other president of a small company told me the only kind of business
his plant has been able to get in the last several months is what the.
strip-mill producers will not handle. Since 1929, he told me, his
company's share of the sheet business of the industry has declined
more than 70 percent.

These companies are doomed, because their obsolete mills depend,
in the main, upon manual power; while the automatic strip mills
derive their power primarily from electricity. The difference in the
cost of production is fatal to the smaller companies. Men cannot
compete against electricity. This is plaifiiy demonstrated by a com-
parison of the cost of producing a gross ton of tinplate, for example,
on the hand mills with the automatic strip mills.

The Chaieman. Mr. Murray, I must interrupt you, because that
sentence, "Men cannot compete against electricity," by many would
be interpreted as a statement on your part that you wanted to do away
with electricity. I know you don't want to do it and I want to give
you the opportunity to say so at this time.

Mr. MuKRAT. Of course, I have already said, Mr. Chairman, that
our committee and our organization and our whole C. I. O. movement,
is in" complete accord with technological advancement and progress,
and the increasing of efficiency and productivity, and there is nothing
here which I have made in this statement, I hope, that will create the
impression in the public mind that there is any opposition being mani-
fested by me against the introduction of electrical devices in industry
today.

The Chairman. Your whole theory is that technological advance,
the use of improved devices, the use of electricity, the use of all forms
of power for industrial production, should be accompanied by some
sort of social care for the workers and the businesses and the towns and
communities which are affected by the change.

Mr, Murray. That is quite right. That is the basis of this presen-
tation, as a matter of fact.

16472 CONCENTRATION OF ECONOMIC POWER

Representative Williams. Of course, what you are stating now is
simply the effect that the introduction of these various modern appli-
ances has had upon the working man in displacing him.

Mr. Murray. Quite true. I am trying to explain to the committee
not only the devastating effect it is having upon the working man and
his family, but the misery and poverty that is trailing in the wake of
these things because of the manifestations of social irresponsibility
indicated by these large corporations in meeting with Government and
labor, and these other interested groups.

The Chairman. May I ask at this point, in your experience how
many of the companies which employ the improved devices also en-
deavor by the payment of displacement wages or other separation
allowances of any kind, to take care of the human factor ?

Mr. Murray. There are no companies that I know of in the steel
industry that are doing it. Perhaps Mr. Hook's company did that
some 20 years ago; his company may be doing it today, I don't know

The Chairman. He testified yesterday that he is doing it.

Mr. Murray. I understood he said he was doing so,- but insofar as
I am aware, I know of no single company or corporation manufac-
turing steel in this country today that is making provision to take
care of these disappointed Americans that are being thrown out of
American industry, in Jiny way, shape, or f oriji.

The Chairman. And with how many companies are you personally
acquainted ?

Mr. Murray. Well, I have collective bargaining agreements in 70
percent of the industry, with some 638 companies.

The Chairman. And your testimony is of 638 companies with which
you have collective bargair;ing agreements, you know of no company
which has adopted any separation allowance to take care of the
displaced worker.

Mr. Murray. I know of none ; none whatever.

Dr. Anderson. In the companies with which you do not have bar-
gaining agreements do you know of any such arrangements ?

Mr. Murray. No, I know of no such arrangements anywhere in
the steel industry, none whatever.

Representative Williams, I take it you haven't any agreement
with Mr. Hook's company, the American Rolling Mill Co. ?

Mr. Murray. No, Mr. Hook is an affable gentleman when he ap-
pears before the committee but a different type of gentleman when he
appears back in Middletown.

The Chairman. Now, Mr. Murray!

Representative Williams. I didn't mean that, but he said he had
such an arrangement and you wouldn't know about that. That
is why I said, you evidently haven't an agreement because he said
he had the arrangement and you said there were ijo arrangements.

Mr. Murray. No, as far as I know, Mr. Hook has no desire to
talk to me. I am quite willing to talk any time he wants to.

Representative Reece. If I may revert to page 3 which was read
before I came in, I notice on line 3 in speaking of the industrial con-
ditions existing at that time you say :

Unemployment might very well be likened to the attitude of leading indus-
trialists and Republican statesmen during the period 1930 through 1932, when
they said that a policy of waiting would result in a return of prosperity.

CONCENTRATION OF ECONOMIC POWER 16473

Then you go on and say :

The attitude of industrialists and certain statesmen of today concerning the
solution of the present unemployment problem is the same.

Do you have any particular reason for designating "Republican"
statesmen in one caseand "certain statesmen" in the other?

Mr. Murray. Nothing other than the fact we had a Republican
administration way back there and I was making an indirect refer-
ence to the chickens in pots and cars in garages back there, and that
was about the only suggestion that was offered in those days, so far
as I know, to cure the unemployment conditions of some -5,000,000
citizens who were idle then.

Representative Reece. But you say the same suggestions have been
offered at this time by industrialists and certain statesmen. Now.
we don't have a Republican administration today and I was wonder-
ing why you used party reference in one instance and not in another,
since we are dealing with purely an economic situation here in which,
of course, party consideration has no relationship.

Mr. Murray. Well, I am sorry if the implications have created
the impression in your mind that this dart was directed at the Repub-
lican Party, because I certainly did not mean it that way. I sim-
ply meant we had a Republican administration back there, and that
the only cure they suggested then was to wait. Now I don't see
anybody waving their arms in the Federal Congress today about
this unemployment situation — just nobody at all.

The Chairman. Oh, well,- look at the chairman, will you please,
and say, "Yes, there is somebody."

Mr. Murray. Well, perhaps they are not making public the things
you are saying. Chairman O'Mahoney, but I would be delighted if
this Congress would get exercised about this situation and do some-
thing about it. That is how I feel about it.

The Chairman. Of course it may be appropriate to say that the or-
ganization of this committee was in itself a very definite attempt to
bring about a solution of this question. I may say that as long ago as
1935 I introduced a bill in Congress which in its terms called for
just such an industrial conference on unemployment and economic
conditions as you mentioned a little bit earlier, and I am glad to be
able to say that there are a number of Members of Congress, both
Democrats and Republicans, and others also, who are not affiliated
with either party, who are seriously concerned with this question of
unemployment.

Mr. MuRit\Y. I think it might be well to say there, Senator
O'Mahoney

Senatr^r King (interposing). Let me supplement what was said by
the chairman, if you will pardon me. I agree with what the chairman
has stated, and I understand this committee is charged with the re-
sponsibility, at least I so interpret our mandate, to inquire into our
economic and industrial situations and to make such recommendations
for the alleviation of the situation as the evidence justifies. And I am
waiting anxiously to hear what you have to suggest as an antidote
for these evils, and what you have to suggest as a means to alleviate
the conditions.

Mr. Murray. I think it might be well, Mr. Chairman, for me to say
to the committee that there is nothing in this statement that can be

124491 — 41- -pt. 30 19

16474 OONCE .TRATION C^F ECONOMIC POWER

construed as disparaging insofar as the committee here is concerned,
because I have the greatest admiration for the work which the chair-
man of the committee has been doing in promoting a better under-
standing of thousands of industries and endeavoring to ascertain
through the means of these hearings what it is that groups of citizens
are doing about it.

The Chairman. I didn't mean to imply vou were disparaging the
work of the committee, or indeed of anybody. I was merely bearing
out what I understood to be your attitude, that in this reference you
didn't mean to make any invidious comparison.

Mr. Murray. That is right.

The Chairman. We have a problem. It wasn't solved in 1932 and
prior thereto, and it hasn't particularly been solved yet. As a matter
of fact, we only have W. P. A. to provide a little bulwark against com-
plete disaster for men like the human exhibit that you brought here
this morning in the person of Michael Russell.

COST OF PRODUCTION IN MECHANIZED MIIXS

Mr. Murray. I stopped at that place, Mr. Chairman, that men can-
not compete against electricity. This is plainly demonstrated by a
comparison of the cost of producing a gross ton of tin plate, for
example, on the hand mills with the automatic strip mills. The fol-
lowing cost of production figures were given to me in confidence, and
I cannot divulge the companies involved. The standard measurement
of tin plate is a base box amounting to approximately 100 pounds.
The total cost of production of a base box of tin plate on hand mills
is $4.72, Of this cost, labor amounts to $1.52. I am submitting a
table, "Cost of Production of Tin Plate on Hand Mills," giving the
full details of these costs.

(The table referred to was marked "Exhibit No. 2480," and is in-
cluded in the appendix on p. 17341.)

Mr. Murray. The total cost of production of a base box of tin plate
on an automatic strip mill is $3.91. Of this cost, labor amounts to
$0,643 per base box, a reduction of 57 percent from the labor cost on
the hand mills. Other strip-mill items of the cost of production
amount to $0,067 per base box mor^ than on the hand mills, par-
ticularly because of higher depreciation charges. Thus the strip mills
can produce tin plate $0,808 a base box cheaper than can the hand
mills. This amounts to a savings on the strip mills of $17.77 per
gross ton. This difference is so great that the integrated steel com-
panies have almost completely abandoned their hand mills, and thus
four small tin plate companies with only hand-mill facilities freely
admit that they will be compelled to go out of existence in the near
future.

The Chairman. Do you happen to know what the employment is
of white-collar workers in these mills of which you speak that are
about to go out of existence ?

Mr. Murray. The percentage of thf^ whole?

The Chairman. Yes.

Mr. RuTTENBERG. The ratio is about 10 percent salaried and white-
collar workers, one salaried or white-collar worker for nine laborers.

The Chairman. The picture you are drawing is not only of the
displacement of the day worker or the hourly rate worker but also of

CONCENTRATION OF ECONOMIC POWER 16475

the displacement of white-collar workers and the injury of independ-
ent producing companies and also the injury of the communities in
which they operate, so I want to know how many of these white-collar
workers might be involved in this movement that you are describing.

Mr. Murray. That is quite true ; there is, and might I follow through
at that point and explain to the committee another situation that de-
velops in connection with the maintenance of these dying hand mills
or obsolete or antiquated mills. The hand mill desires, of CQurse, to
live, it wants to live, it fights to live ; it knows that life to it is a ques-
tion of the surv'ival of the fittest in the great competitive field. It
cannot compete and pay the same wage that is paid at the low-cost,
high-producing, more efficiently managed big mill, with better machine
facilities. The employer who owns the small hand mill comes in a
state of desperation to the organization and says, "Give me a chance
to live, won't you ? Help me along. Won't you agi-ee to a cut in our
wage rates here so that we can live for another 2 or 3 months?"

Now, there is an economic repercussion that runs through this dis-
torted competitive picture in the steel industry today that constantly
confronts the workers employed in the industry, reducing their social
standards, to meet these newer conditions created by the production of
these large continuous mills.

Mr. Chantland. Mr. Murray, if your figures are right, the hand-
mill cost on a base box of tin was $4.72 and the strip mill was $3.91.

Mr. Murray. That is right.

Mr. Chantland. Representing a savings between the two processes
of 81 cents a box, while the savings on labor or the reduction in labor
was $1.52 and $0.64, or 88 cents, so that the reduction of labor was
7 cents more a box than the total savings ?

Mr. Murray. Perhaps my expert can explain that to you, but it is
my understanding that in arriving at that figure he was trying to
determine the difference in the actual labor cost, and the figures showed
a difference in labor cost amounting to a^'^roximately 88 cents, al-
though the over-all cost may have been only bu .

Mr. Chantxand. That is right. Reduction in labor is greater than
total saving.

Mr. Murray. No ; I think that the reduction in labor is a distinct
situation from the one to which you make reference, and I believe that
Mr. Ruttenberg can answer that.

Mr. Ruttenberg. The total difference is between $3.91 on the strip
mill and $4.72 on the hand mill ; it is a reduction of a total of approxi-
mately 88 cents, of which 80 cents is reduction in labor costs.

Mr. Murray. Does that explain it?

Mr. Chantland. Then your total cost of the strip mill is $3.91.

Mr. HiNRiGHS. You don't give the detail in that exhibit for the
costs of the strip mill, but I think that the steel cost would be the
same in the two types of mill and the tin cost would be the same
in the two types of mill, and the materials and supplies essentially
the same.

Mr. Ruttenberg. The reduction is almost exclusively in the labor
costs.

Mr. HiNRicHS. And the increase of 6 cents tha*: you mention is
almost entirely the depreciation item.

Mr. Ruttenberg. That is right.

16473 CONCENTRATION OF ECONOMIC POWER

Mr. HiNRicHS. That would mean, then, that if these hand mills
were to stay in business in competition with the automatic strip mill,
if the hand mills disregarded that whole depreciation item of 12
cents, which is the only capital charge in the thing, if they regarded
their equipment as worth absolutely nothing and didn't charge any
depreciationj but just mined it out and cut their wages more than in
half, they still would not be effectively competing with the automatic
process. Is that correct?

Mr. KuTTENBERG. That is so true that virtually every hand mill
that produces tin plate for the integrated companies that have strip
mills is down, and they are producing ojj the strip mills.

M^. HiNRiCHS. And that process could be kept alive only up to the
point where the machinery itself couldn't be used any longer if you
didn't maintain any depreciation.

Mr. KtJTTENBERG. They would live as long as they had any fat to
live on and when they didn't have that they wouid have to close their
dcors.

The strip mills' advantage in producing sheets is even more fatal to
the hand-mills. An official of a small hand-mill sheet producer told
me his direct labor cost to convert a ton of billets into sheets for 13-
gage sheets, which is his average, amounted to $6.50 a ton, plus $1.30
a ton for indirect labor costs, or a total labor cost of $7.80 per ton of
sheets. The strip mills have reduced the over-all cost of production
of sheets and strip, according to Mr. Eugene Grace, president of the
Bethlehem Steel Corporation, by $6 to $8 a ton.^ Thus, if the entire
labor cost on the sheet hand mills were eliminated, the cost of- pro-
duction would still exceed that of the automatic strip mills. In other
words, even if the hand-mill workers donated their labor to the small
hand-mill companies, they still could not successfully compete with
the automatic strip mills. Certainly with such a wide difference in
the cost of producing sheets, wage sacrifices on the part of the hand-
mill workers will not save either their jobs or the companies that
employ them. As a matter of fact, all of the 14 small, hand-mill
sheet companies pay wages at present that are below the prevailing
wages in the steel industry, and they cannot be reduced further.

Efforts of these small companies to reduce their costs and remain
competitive have been exhausted. Several of these companies have
installed three-high semiautomatic mills for the production of sheets.
These mills eliminate around 1 out of everj^^ 5 workers required to
produce an equivalent tonnage on the hand mills, and reduce the
over- all cost of production $4 per ton of sheets, on the average. The
effect of the '^emiautomctic mills is to prolong the life of the com-
panies that install them, but the savings of these mills are not enough
to enable the companies that have them to compete indefinitely
against the strip mills. The president of the small sheet company,
which first installed semiautomatic mills, told me more than a year
ago that if he could keep his company alive for another 4 years he
would be satisfied.

Prior to the installation of semiautomatic mills, the small sheet
mill companies, particularly during the twenties, pared their costs
to a bone. As an example, I am submitting a noteworthy study of
employment and productivity in a sheet-steel mill, by a thoroughly

1 Wall Street Journal, July 28, 1939.

CONCENTRATION OP ECONOMIC POWER 16477

competent student, Dr. J. R. Gruener. This is the only copy we
have of the book, but there is a summary in the paper.

The Chairman. We will be glad to have it for tlje files.

(The book referred to was marked "Exhibit No. 2481" and is on
file with the committee. The document summarizing this book was
marked "Exhibit No. 2481-A" and is included in the appendix on
pp. 17341-17342.)

Mr. Murray. This is a printed volume of some. 80 pages. This
study, based on the company's own records, briefly summarized
shows, as a result of technological improvements made from 1925 to
1929, the company eliminated 312 workers and reduced man-hours
by 47 percent, but its monthly pay roll by 34 percent, or $34,816, and
still increased its production by 13 percent. In other words, the
hand-mill companies had reached their peak of efficiency when the
strip mills were developed, and they. are helpless before the onslaught
of the low-cost automatic strip producers, as hand-mill costs cannot
be slashed any more.

The economic effects of the strip mills, therefore, are the elimina-
tion of the smaller companies, a>id the further concentration of
steel-prod' icing facilities in the hands of the few large steel com-
panies. Tlie new steel technology is accentuating monopoly in the
steel industry.

The Chairman. It is now 12:15 and you still have some time to
go, so we will postpone the rest of your statement, if you have no
objection, until the afternoon session. I was going to ask, however,
whether in the matter that is still to be presented you intend to deal
with the statement which has been made that though there has been
this big advantage in technology through the introduction of the
continuous mill and workers have been as a result necessarily dis-
placed, they have by and large been absorbed in new industry or in
avenues that liave been created as a result of the improvement. Do
you deal with thf«t subject later?

Mr. Murray. We deal with the failure of industry to reabsorb or
new enterprise to absorb.

The Chairman. The committee will stand in recess until 2 : 15.

(Whereupon at 12: 15 the committee recessed until 2: 15 p. m.)

AFTERNOON SESSION

(The hearing resumed at 2 : 20 at the expiration of the recess, Chair-
man O'Mahoney presiding. )

The Chairman. The committee will please come to order. You
ended just before you got to New Steel Technology Covers Industry
of your prepared statement.

TESTIMONY OF PHILIP MURRAY— Resumed

Mr. Murray. With your permission, Mr. Chairman and members o^
your committee, I would like to expedite the reading of this paper by
asking that with the beginning of our subject dealing with New Steel
Technology Covers Industry on page 18, running over to the last para-
graph on page 21, all of this matter which I won't read unless you
insist upon my reading, be included in the record.

16478 CONCENTRATION OF ECONOMIC POWER

The Chaikman. That is a very customary request in the House of
Kepresentatives. All you are asking is for leave to print. We will
grant it.

Mr. Murray. Then the matter which I refrain from reading deals
largely with the individual displacements of perhaps one, two, or
three men on jobs, and it will be interesting, I suppose, for the guid-
ance of the committee in their final determination of the facts to be
presented.

The Chairman. That material will be printed in the record as part
of your statement in the order in which it appears in the statement
itself.

(The omitted portion of Mr. Murray's printed statement appears
below:)"

NEW STEEL TECHNOLOGY COVERS INDUSTRY

The new steel technology has been displacing labor in all branches of the steel
industry, and has not been confined to the production of flat-rolled products. The
cumulative effect of all the technical improvements made in the steel industry
during the past decade, some small, others large, has been v" severe on employ-
ment as the huge, dramatic technical improvement of the automatic strip mill. I
shall not impose upon the time of the committee by relating all of these smaller
technical improvements, but I do feel it is important to recite a few tj-pical ones
briefly. I have chosen the following cases of relatively smtll technical improve-
ments from our files at random, as illustrative of what is happening in every one
of the branches of the steel-producing industry.

Case No. 1 : A large steel company, firmly established in the trade, invested
$750,000 o improvements in its open-hearth department. Sixty-two employees
were eliminated in the department a" a result of the . improvements, which
amounted to an annual pay-roll saving of $118,000. In addition, the company
effected savings in coal consumption and other savings, which amounted to
$257,000 a year. Thus the company's annual savings in cost totaled $375,000, or
enough to write off its $750,000 investment and interest in less than 2V2 years.
The technical improvements enabled the men remaining on the pay roll— =and
recall that 62 were eliminated — to produce in 133 days the same amount t< steel
that formerly required 200 days. The result was tliat even though the men ^ade
more money per hour, their over-all annual earnings remained the same, as che
tuimber of hours of work a year was reduced correspondingly with the increased
tonnage per hour. Incidentally, the company sought a reduction in tonnage rate,
but the S. W. O. C rejected the company's request for the reason stated above.

This case illustrates how the employment year of steel workers in being reduced.
Increased mechanical efficiency r.aeans steel workers no longer can look forward
to 5 days' work a week for 50 steady weeks a year ; in fact, a steel wo'"ker is lucky
if he is employed 75 percent of the year.

Case No. 2: One of the industx-y's largest wire companies, through technical
improvements, increased ihe speed of its cold wire drawing machines from
115 revolutions per minute to 150. As a consequence production rose from
2,185 pounds per 8-hour turn to 3,000 pounds per turn, or an increase of 37
percent. Here again the company sought to reduce tonnage rates from 14 to 22
percent. Production had been increased to such an extent, it was argued, that
the employees involved would be able to increase their daily earnings by 7.2
percent, despite the 14 to 22 percent proposed cuts in their tonnage .ates.
The S. W. O. C. maintained in this case, as in the open-hearth case I h.ive just
discussed, tliat daily earnings are not a fair measurement, because the annual
earaings uf the men were reduced in direct proportion to the increase in their
output per hour. Toimage wage rates were adjusted to the mutual satisfaction
of the company and S. W. O. C, recognizing the principle that workers should
participate equally with the company, directly and immediately, in the benefits
of technology. In another case, a wire company in its fine-wire department
Increased the revolutions per minute of i*"s machines from 350 to 450, or 28
percent. Production rose from 1,200 to 1,800 pounds per 8-hour tu-'n, or 50
percent. Here again the 12-month employment year was cut at least by one-
fourth.

Case No. 3 : Large numbers of men have been eliminated in the primary
operations of the steel industry by the introduction of the scarfer. Scarfers.

CONCENTRATION OF ECONOMIC POWER 16479

with their acetylene torches, can bum the bad seams out of billets 3 to 5
times as fast as chippers can chisel them out with their air-pressure chisels.
In the steel foundry of the Bethlehem Steel Co., Bethlehem, Pa., five to six
chippers formerly worked 8 hours each to clean the scale from a certain
product, at a total labor 'cost for this one operation of $31.20. Now one man
with an acetylene torch and one helper does this same job, at a total labor
cost of $10.08, or a reduction in the total labor cost of 70 percent. At least 2,500
workers have been eliminated in the steel industry during the past decade In
the shift from the chipping to scarfing method tor taking bad seams out of
slabs, billets, etc.

Case No. 4 : There are technical improvements that eliminate as few as 1
wrker, or 3 on 3 shifts. In the blooming mill department of a large steel
works 1 man was employed as a stamper on each operating shift. . His duties
were Jo place small metal numbers in the slot of a stamp hammer, and to strike
the billet with the hammer to imprint the heat number for identification pur-
poses. This job, affecting 3 men, 1 on each shift, has been eliminated. Now
a small air-controlled cylinder directly above the hot billet has been installed.
It is controlled by a switch placed near the shearman who operates it along
with his other duties with no extra corapensaton. The heat numbers t re
changed by the production recorder, vrho likewise does not receive any extra
compensation for his increased duties. Countless cases of this description can
be related. I can cite numerous other cases, and the story is the same: 1 man
here, 3 men there, 12 men here, etc., are being displaced by technical
improvements. The effects of these improvements have been that fewer and
fewer workers and less and less man-hours are required to produce more and
more steel products.

Mr. Murray. Might I summarize this by beginning on the last
paragraph of page 21 : All this means irregular work for the steel
workers who are considered regularly employed. They might work
5 days a week for a month, or for 2 months. Then they will be cm-
ployed 4 days a week, or 3 days a week for a month or more. As
the year goes on they might get 5 days' work a week for a few more
months. Then they might be laid off for a week, sometimes for a
month or more. A pick-up in business comes. They are called back,
and are employed 5 days a week for a while. They might get 6 days
a week for a couple of peak weeks of production. Then they go down
to 3 and 4 days a week work. All this adds up to partial employment
for the entire year. Steel worker? who are considered regularly em-
ployed suffer periodic unemployment or slack employment evei^
year. The number of steel workers who are employ-^d a full ^/ days
a week for 50 weeks a year is insignificant. The vast majority of
workers attached to the steel industry are affected adversely by the
increased technical efficiency of the industry. Instead of being em-
ployed a fiiU year, the f^verage steel worker is idle from one-fifth to
two-fifths of the year, and only employed from 60 to 80 percent of th9
time. Because in this time all the steel consumed for the entire year
can be produced.

The Chairman. The conditions which you have just described as
existing in the steel industry are v^ery similar to those which exist in
the coal-mining industry, are they not?

Mr. Murray. In the coal industry, of course, that industry is keyed
with men enough, invested capital enough, and coal mines enough, to
produce approximately 85C,000 000 of coal annually, where the con-
sumptive requirements of the Nation are reduced to something ap-
proximating 400,000,000 tons now. The coal industry on the basis of
its present industry set-up only affords about half iime to all of the
worlkers emploved in that industry. In the steel industry, according to
our analysis of the whole thing throughout the past 10 or 11 years, we
find that, due to the introduction of new machines, improvements in

16480 CONCENTRATION OF ECONOMIC POWER

efficiency, and other technological improvements, the steel industry is
equippeii today with men and money and plant-equipment facilities
to produce approximately all of the Na.tion's ordinary normal 1929
requirements on about 7y2 months' work each year.

The Chairman. I was about to say

Mr. Murray (interposing). And that situation, of course, is be-
coming worse from the standpoint of the introduction of new ma-
chines constantly in the industry ^ providing only part-time employ-
ment for those who are kept in industry, and, of course, as I have
already stated, displacing some 88,000 people from the industry within
the next 2 years.

Representative Williams. That would mean an average employ-
ment of men about 7 or 8 months a year ?

Mr. Murray. That is right, on the ba^is of 5 days per week and 40
hours.

The Chairman. Well, in terms of unemployment during the week
ind during the year I could have imagined that you were describing
conditions in the coal-mining areas of my own home State.

Mr. Murray. Quite true. What is true in Wyoming is true in
Pennsylvania, true in Illinois.

The Chairman. And when the worker who constitutes the bulk of
the population, of the coal-mining population, or a steel-producing
community, is unable to work but a portion of the time, his lack of
purchasing power is felt not only by the businessmen of the par-
ticular community but also by your whole economy; isn't that right?

Mr. Murray. Quite true, and. Senator, I want you to know that the
interest that we are manifesting in endeavoring to eflfect a cure for
these bad economic conditions is prompted wholly and very unsel-
fishly to help not only industry but the community and the State and
the Nation as well. We believe what we are offering here in the intro-
duction of factual matter dealing with unemployment in steel is not
something that is promoted by my union to immediately help my
union, but rather to help the industry, to stabilize the functioning
end of the industry, and to help the community and the Nation as well.

The Chairman. It is all keyed into the purchasing power of the
masses, as was testified here by Mr. Ford and Mr. Kettering a few days
ago, and when we build up that purchasing power by stable employ-
ment at real wages we increase the market for every businessman in
the land, do we not ?

Mr. Murray. That is right.

Now with your permission, Mr. Chairman, on page 22 I should like
to eliminate from the reading of the paper that portion of the paper
that deals with mergers and consolidations and merely again to sum-
marize by referring to the last paragraph of that article on page 23.

(The omitted portion of Mr. Murray's printed statement appears
below :)

ME3SOEES AND CONSOLIDATIONS

Included in the new steel technology are savings resultir^ from mergers of
steel companies and consolidations of subsidiaries of the larger steel producers.
During the thirties United States Steel consqlidated the Illinois Steel Co., Car-
negie Steel Co., Lnriiin Steel Co., and the American Sheet & Tin Plate Co., all
subsidiaries, in the Camegie-IUinois Steel Corporation. The West Leechburg
Steel Co. meiged into tlio Allegheny Steel Co. in 1936, and 2 years later the Ludlum
Steel Co. merged with the Allegheny Steel Co, into the AUegheny-Ludiim Steel
Corporation, The Hepublic Steel Corporation ahsorb^d the Corrigan-i.lcKinney

CONCENTRATION OF ECONOMIC POWER 16481

Steel Co. and the Canton Tm Plate Corporation ; and the Truscon Steel Co. merged
with Republic. The Seneca Iron & Steel Co. waS merged into the Bethlehem
.Steel Co. and later consolidated along with the Pacific Coast Steel Co., Southern
California Iron & Steel Co., and the McClintic-Marshall Construction Co. The
number of steel companies going out of existence during the thirties as a result
of mergers and consolidations by the major steel producers was 18, while 8 others
were merged but have kept their separate identities. Only 2 new companies
were formed as a result of these mergers and consolidations, all of which are
listed in exhibit No. 2482, which I am submitting.

In addition, there have been other managerial improvements, like systems of
budgetary control, etc., that have been introduced in the steel industry in recent
years, the net effect of which has been to contribute to a shrinking labor force.
This has also been the effect of the mergers and consolidations that took place in
the steel industry during the past decade.

Dr. Anderson. Mr. Murray, do you want to introduce the exhibit?

Mr. MuBR.\Y. I want to introduce the exhibit and I want to intro-
duce all of the other material in the record for the guidance of the
committee.

Dr. Anderson. The exhibit then will be "Exhibit No. 2482."

The Chairman. Jt may be received.

(The table referred was marked "Exhibit No. 2482" and is included
in the appendix on pp. 17342-17343.)

Mr. Murray. I endeavor at this point to impress upon the committee
the fact that these mergers and consolidations that have taken place
in the steel industry within comparatively recent years are in some
measure, or do in some measure contribute toward the unemployment
situation in the steel industry through the promotion of greater effi-
ciencies and the centralization of the operating efficiencies of the
management. I continue by stating :

The net effect of the automatic strip mills, of other technical improvements, of
mergers, consolidations, and the like — in brief, of the new steel technology — has
been an increasing volimae of technological unemployment in the steel industry
during the 1930's.

I come now to the statistical measurement of technological unem-
ployment in the steel industry. There are two ways to measure
employment. One is in total employment, or the number of wage earn-
ers. The other is in man-hours, or the number of hours worked. The
latter (man-hours) is the more accurate measurement of employment,
from the point of view of both the employer and labor. The number
of wage earners at any given time is not an accurate measurement of
employment. From labor's point of view the imber of wage earners
may be too high for the given production because of part-time work,
as no consideration is given to the effect of sharing the work on actual
working time. From the employer's point of view the number of wage
earners may be too low for the given production because of overtime
^vork, as no consideration is given to the extra days actually worked.
On the other hand, man-hours, the actual number of hours worked to
produce a given output, gives consideration to part-time work and
overtime work. Finally, the changes in the number of hours worked
per week, as these changes affect employment, can be seen only by
man-hour comparisons.

Thus in measuring employment, it is obvious man-hours is a far
more accurate picture of the volume of employment than is the number
of wage earners. In other words, the volume of employment in man-
hours in relation to production is the real way to get at the heart
of the problem of technological unemployment.

16482 CONCENTRATION OF ECONOMIC POWER

I am submitting here ^ chart, "Pay Rolls and Man-Hours per Ton
of Output."

The Chairman. It may be received.

(The chart referred to was marked "Exhibit 2483" and appears
on p. 16483.)

Mr. MuKRAT. This is a chart showing the trend of pay rolls and
man-hours per ton of output of hot-rolled iron and steel products in
the steel industry from 1923 through 1939. This chart is based on
figures from the National Industrial Conference Board, a private sta-
tistical agency whose board of directors is composed of leaders of
industry.^

This chart shows that since 1923 the number of man-hours per ton
of steel output has declined 36 percent. In other words a little more
than 6 steel workers can turn out as much steel now as 10 could in
1923. The decline has been most severe since 1936, when the huge
labor displacement by the automatic strip mills began. Almost half of
the decline has taken place since 1936.

The impact of the hew steel technology on pay rolls demonstrates
why our economy is in a rut. Pay rolls per ton of steel produced have
declined 10 percent since 1923. In other words, the labor cost per
ton of steel produced now is 10 percent less than in 1923. This 10-
percent reduction was made from 1924 to 1929, during which time
hourly wage rates remained unchanged. The labor cost per ton of
steel now is approximately the same as in 1929 ; that is, the index of
pay rolls per ton of output on this chart stands at 89.4 in 1929 and
90 in 1939. During the same period, however, from 1929 through
1939, average hourly earnings increased 29 percent, or from 65.4 to
84.2 cents per hour.^ Thus during this 10-year period total pay rolls
for a comparable output remained the same despite an increase of
29 percent in hourly earnings. Technological improvements are re-
sponsible for this condition. It is plainly observable, therefore, that
labor is not participating in the benefits of the new steel technology.

A full-view effect of this technology, however, on pay rolls and
employment can best be had by looking at the last 4 years in the steel
industry.

The Chairman. Is that statement disputed by any observer of the
steel industry?

Mr. Murray. Might I say for your information, Mr. Chairman,
that this statement which I now read is largely derived from figures
produced by the American Iron and Steel Institute, the National
Industrial Conference Board, and from other private and statistical
agencies with whom we have no connection, and in addition to that
based upon factual studies of all those matters by my own department
of research in the city of Pittsburgh, which has made a current review
lasting now for a period of approximately 5 months, into all of the
factors having to do with this question that I now present to the
committee.

Mr. Pike. I think, Mr. Murray, that your statement is almost
exactly true in dollars and cents, and I think Mr, Hook's figures
yesterday bore it out pretty well, but they at least have gained in

^Iron and Steel, January 1940, National Industrial Conference Board, page 6. (Mr.
urray's footnote.^
a Steel Facts, F(
Murray's footnote.)

Murray's footnote.^ , „^ , ^ ^.^ ^ o /»»

'Steel Facts, February 1940, American Iron and Steel Institute, page 3. (Mr,

CONCENTRATION OF ECONOMIC POWEIt

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16484 CONCENTRATION OF ECONOMIC POWER

several hours a week of leisure which they didn't have before. If
there is any gain, it is in more off time a week rather than in dollars
and cents.

Mr. Murray. Of course, my complaint here is predicated upon
the assumption that there is too damned much leisure in the steel
industry. I don't think that they are giving them enough work. If
your mind is meeting my mind, and I doubt that it is, of course we are
both right.

Mr. Pike. We would agree that 70 hours a week was much too
much for a man to work over a long period, and that there was a
real desirability for social reasons to pull those hours down first,
saj', to 60 and then to 54 and to 48 and possibly to 40, but somewhere
in there comes the question of when you have got too much time on
your hands and I am interested to get your point of view. Would you
only ask, then, for 30 hours in order to spread the work more, and
not because 30 hours would be better for the men ?

Mr. Murray. Well, I intended of course to cover that phase of
it in the later discussion of this problem.

Mr. Pike. All ri^ht.

Mr. Murray. Is it all right if I shoot it in a little later ?

Mr. Pike. Yes.

GREATEST CHANGE IN EMPLOYMENT AFTER 1936

Mr. Murray. The most vital period during the thirties has been
from 1936 through 1939. It is during this period that hourly wage
rates rose more than 26 percent; that is, of the 29-percent increase
since 1929, most of it took place since 1936. The new steel technology
of the thirties did not begin to reduce pay rolls and employment, in
substantial amounts, until 1936. It is since then that the productive
efficiency of the industry increased by 21 percent. During this period
wages per ton of ingots produced rose as a result of the increase in
hourly wage rates, but by the end of the period, in September 1939,
wages per ton of ingots produced had returned to the level prevail-
ing before the increase in hourly earnings. From August 1936 to
September 1939 technology reduced the number of man-hours per ton
of ingots produced from 18.7 to 14.7, or more than 21 percent.

These facts were arrived at through careful and extensive analysis
of the basic facts compiled by the American Iron and Steel Institute
on monthly ingot production, total monthly hours worked by hourly,
piece work, and tonnage workers, and total monthly wages (in whole
dollars) received by this group of steel workers. I am submitting
an explanation in "Exhibit No. 2484" of the nature of these basic
facts and the method of their analysis.

The Chairman. It may be received.

(The document referred to was marked "Exhibit No. 2484" and is
included in the appendix on p. 17343.)

Mr. Murray. I am also submitting four charts that illustrate these
facts. I then make reference to the charts which are "Exhibits Nos.
2485, 2486, 2487, and 2488."

The Chairman. They may be received.

(The charts referred to were marked "Exhibits Nos. 2485 to 2488"
and appear on pp. 16485-16488.)

CONCENTRATION OP ECONOMIC POWER

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CONCENTRATION OF ECONOMIC POWER 16489

Mr. MuRKAY. I am submitting this explanation and illustration of
the facts as exhibits to avoid consuming the committee's time on
technical matters, and if after looking these facts over any committee
members want to discuss them with me or the S. W. O. C. research
staff, we shall gladly oblige.

In connection witli this body of information I want to discuss,
briefly, three important questions. One is the relation of hourly
earnings of steel workers to steel prices. The second is the relation
of the new steel technology to national purchasing power. And the
third is emploj'ment.

Might I just take the time of the committee while I present one of
those charts?

(Senator King assumed the Chair.)

Acting Chairman King. Which exhibit is that?

Dr. Anderson. "Exhibit No.' 2488."

Mr. Murray. I wanted to make a comparison here because I think
this is graphic and describes in vivid fashion just about what our
situation is todav in the industr3\ You will note at the left side
of the chart there the August output of 1936, 4,184,287 tons. Sep-
tember 1937 there was an increase of 2 percent over the August 1936
production, or 4,289.507 tons. In September 1939 there was a drop
of 1 percent below the i937 production to 4,231,310 tons. Those are
three fairly comparable months.

You will note here in the middle of the ehart reference is made
to the number of employees in those particular periods.

In August 1936, 444,953 employees produced the 4,184,287 tons.
I want to explain this figure here. In March of 1937 the Steel
Workers Organizing Committee negotiated the agreement with the
steel industry reducing the workweek from ¥ to 40 hours. That
condition necessitated the employment of an additional 58,000 work-
ers, bringing the total number of employees in the steel industry in
March of 1937 up to 503,643.

.'-cting Chairman King. That is the entire United States?

Mr. Murray. In the United States. In September of 1939, 2
years later, when the full impact of technological improvement was
beginning to be felt, this force of 503,643 workers employed in Sep-
tember of 1937 producing a comparable tonnage to that of Septem-
ber 1939, we find the industry in September 1939 giving employment
to 415,171 workers, or, as you will note, a reduction in the working
force approximating 88,000 below the September 1937 figure.

In the last column we find 3 months in 3 separate years, August
1936, September 1937, September 1939, 3 comparable months, 3 com-
parable tonnage figures. How do we explain this reduction from
•37 to '39? It is explained by the number of man-hours given the
employees of the industry in those 3 years. In August of 1936 the
employees in the industry worked 78,208,172 hours to produce 4,134,-
287 tons. In September of 1937, the employees in the industry
worked 79.230,977 man-hours to produce 4.289,507 tons. Here again
we come to the impact of the new technology. In September of 1939,
the same tonnage was produced tliat was produced in September of
1937 and yet this tonnage was produced by 62,171.423 man-hoursr
or a reduction in man-hours n the iiidustrv' below the 1937 fi?^ui*e
of approximately 17,000,000.

124491— 41— pt. 30 ^0

16490 CONCENTRATrON OF ECONOMIC POWER

Acting Chairman King. What would be the difference in wages
in the aggregate ?

Mr. Murray. Well, the hourly rates

Acting Chairman King (interposing). I mean the entire amount
which was paid.

Mr. Murray. In "Exhibit No. 2487," Senator, I offer an explana-
tion of that, to show you that despite the fact that our wages
have increased approximately 27 to 28 percent since 1936, the ton-
nage is about the same, monthly pay rolls are here recorded, showing
that the pay roll for August 1936 — and I again deal with the same
3 months and the same comparable tonnage — the monthly pay rolls
show August 1936 $52,278,846, in August of 1936, distributed
amongst 444,953 workers.

In September of 1937, when production had gone about 2 percent
above the 1936 figure, the pay roll for that montli was $66,800,712.

In September of 1939, when we had the full impact of our 27- or
28-percent wage increase, the pay roll was approximately the same as
the pay roll in August of 1936, $52,921,352.
Does that answer your question?
Acting Chairman King. Yes, sir.

Dr. Anderson. Mr. Murray, referring to your "Exhibit No. 2488"
for just a moment for an explanation, your three bar charts on pro-
duction are what? Ingot tons? What is the production measure
there ?

Mr. RuTTENBERG. Open hearth and Bessemer ingots.
Dr. Anderson. The second set of figures then on employment of
wage earners is wage earners in those particular things, in the open
hearth and Bessemer?
Mr. RuTTENBERG. Wage earners in all operations in the industry.
Dr. Anderson. Isn't that an incomparable comparison? Aren't
you making a comparison here of production, which is total tonnage
ingot production?

Mr. RuTTENBERG. If we followed through and had all finished pro-
duction to compare with the wages it would be the same. The stand-
ard accepted measurement of production in the industry is ingot pro-
duction, and the relation of that to total employees in all parts of the
industry and ta the total wages paid in all parts of the industry is
comparable.

Dr. Anderson. In other w^ords, though these are not precisely the
same and you are not making a comparison between people employed
in that particular production only, you would find no difference if
you did make such a comparison.

Mr. RuTTENBERG. The comparison of ingot production in each 3
months is the same as the comparison of all other types of production
throughout the industry.

Mr. Murray. And as a matter of fact, we are using here the same
yardstick to measure these things that the American Iron and Steel
Institute and the National Industrial Conference Board and other
statistical organizations use to arrive at conclusions.

Acting Chairman King. Such a relation as you have stated here

Mr. Murray (interposing). It is an established relationship that
has iDeen used in terms of results down through the history of the
industry and we have merely followed the procedures adopted by the
industry itself.

CONCENTRATION OF ECONOMIC POWER l^

Acting Chairman King. So they would be based upon a common
denominator when you are trying to relate one to the other.

Mr. EuTTENBERG. Yes ; the common denominator in the steel indus-
try is open hearth and Bessemer ingot production. It is used
throughout the hearings on the steel industry ^ that Mr. Hook
referred to yesterday.

Mr. MuRiLVY. It has been contended before this committee and else-
where that "substantial reduction in prices could not be effected with-
out great reductions in wage rates." ^ This contention, no doubt, is
based on the face that from August 1936 to September 1939 (produc-
tion being comparable in both months), average hourly wage rates in
the steel industry rose more than 27 percent, or from 66.8 to 85.1 cents
per hour. This increase in hourly wage rates, however, has not re-
sulted in any increase in total wages per ton of ingots produced. The
amount of wages per ton of ingots produced in August 1936, and
September 1939, was the same, $12.50 a ton.^ Thus despite a 27-percent
increase in average hourly wage rates, total wages per ton of ingots
produced, within a 3-year period, were not increased. This was ac-
complished, of course, by the reduction of 21 percent in the number of
man-hours per ton of ingots produced during the same perioij.
Through technological improvements the steel industry has elimi-
nated the effect of increased average hourly wage rates on the labor cost
of steel production. In view of these facts, derived from the figures
of the industry's own American Iron and Steel Institute, the conten-
tion that price reductions can only be made with "great reductions in
wage rates" is unsound and unfounded in fact.

EXTENT OF MECHANIZATION COST BORNE BY LABOR

Mr. Murray. The only basis for this contention is that if the money
required to install the labor-saving machinery that made possible the
increase in productive eflSciency cannot be charged to the consumer,
then labor should pay for the machinery through lower hourly wage
rates. Labor in the steel industry, through the Steel Workers' Organ-
izing Committee, will not take wage cuts to pay for machinery that
displaces thousands of steel workers. And no responsible person in
industry or Government should ask labor to pay for technological im-
provements out of its pay envelope. Without wage cuts, labor in the
steel industry has paid dearly for technological improvements in the
last 4 years. Thirty thousand steel workers have helped pay for these
improvements with their jobs.* The organized steel workers have
the power, and have exercised it, to stop wage cuts, but lacking the
cooperation of the industry they are unable by themselves to stop this
wholesale displacement of workers. That is why, on behalf of the
Nation's steel workers, I am bringing this matter to the attention of
this important congressional and governmental committee.

Now, let us look at what has happened to the purchasing power of
workers in the steel industry during the last 4 years. In 1936 and
1937 the Steel Workers' Organizing Committee raised average hourly
earnings for hourly, piece work, and tonnage workers 26 percent,

1 See Hearinps, Parts 18, 19, 20, 20, 27.

* Verbatim Record of the Proceedings; of the Temporary National Ecoiioniic Comir
Volume XI, No. 6, January 2."', 11)40. pa^es 240-241. (Mr. Murray's footnote.)

' See '•ExhiMt No. 24S6," .supra, p. 16486.

* See "Exhibit No. 2488," supra, p. 16488.

16492 CONCENTRATION OF ECONOMIC POWER

or from 66.8 cents per hour in August 1936, to 84.3 cents per hour in
September 1937 (both months being comparable in production).
During this same period total monthly pay rolls rose in proportion to
average hourly earnings — a monthly pay roll rise of a little more than
$14,500,000, or from $52,200,000 to $66,800,000.

This was a substantial contribution to national purchasmg j^ower
of which the Steel Workers Organizing Committee has been justly
proud. Having won an increase of $14,500,000 in total monthly pay
rolls, however, the Steel Workers Organizing Committee has been
helpless to prevent the steel industry from taking it away through
technological improvements. And that is just what has happened.
By September 1939, 2 years later, when production returned to the
same level of September 1937, total monthly pay rolls failed to like-
wise return to the level of September 1937. In fact, total monthly
pay rolls in September 1939, were virtually what they had been before
the 26-percent increase in average hourly earnings, or $52,900,000.
Thus from August 1936, before the increase in hourly earnings, to
September 1939, total monthly pay rolls merely increased by 1.2 per-
cent, or to the same extent as production. In other words, despite
the increase in hourly earnings, the benefits of technology are not
being passed on to steel workers in higher total monthly pay rolls.
The new steel technology has not added to national purchasing power
through increasing the industry's monthly wage bill ; but, on the con-
trary, has ctit down the national purchasing power of consumers to
the extent of a 9-percent increase in finished steel prices from 1936
to 1939.1

At first glance, it would seem impossible to maintain the same
monthly pay roll for comparable pi eduction after hourly earnings
had been raised by more than one-fourth. A close look at the em-
l^loyment situation August 1936, September 1937, and September 19.39
(all 3 months being comparable in production), however, shows how
increased hourly earnings have failed to raise total pay rolls.
Greater productive efficiency, resulting from technological improve-
ments, reduced the number of man-hours worked in the steel indus-
tr}' and the number of steel workers employed. Consequently the
higher hourly earnings are being paid to fewer steel workers, with
the result that total pay rolls have remained stationary.

I The Steel Workers Organizing Committee reduced the maximum
workweek in the steel industry in 1937 from 48 to 40 hours. As a
consequence, 58,690 more workers were required to produce an equiva-
lent tonange in September 1937 than in August 1936. This repre-
sented a substantial contribution to reducing unemployment. But it
did not stick because of technological advances. The number of
wage earners in the 2-year period from September 1937 to September
1939 dropped from 503,000 to 415,000 — an elimination of more than
88,000 workers — or a decline of 17^/^ percent in the number of steel
workers needed to produce an equivalent tonnage. Compared to
August 1936, when maximum hours were 8 per week higher, the
number of steel- workers in September 1939 was ^0,000 less.
(Senator O'Mahoney assumed the chair.) \
The Chairman. Is tliere any dispute about those figures?

ii-on ana Stoel. January 1940, National luuustrial Conference Board, p. 6. (Mr.
Murray's footnote.)

CONCENTRATION OF ECONOMIC POWER 16493

Mr. Murray. There may be, I don't know. I suppose there might
be. Mr. Hook evidently yesterday said something that would run
quite contrary to what I am saying here today.

The Chairman, What is the source of your figures?

Mr. Murray. The source of our figures is the facts, the records of
the industry, the American Iron and Steel Institute, the National In-
dustrial Conference Board, and a complete record of the employment
figures taken from almost every plant in the United States.

Representative Williams. As I remember, Mr. Hook said the in-
crease during perhaps a period of 10 years for the entire industry had
been 117,000.

Mr. Murray. Number of employees.

Mr. Pike. That was '26 to '37.

Mr. Murray. Well, unfortunately Mr. Hook stopped with your com-
mittee in the year 1937, when, as I have already stated to this com-
mittee, the impact of these technological improvements was beginning
to drive right into the heart of the industry and force people onto the
streets.

Dr. Andersox. Let me read from Mr. Hook's statement and ask your
clarification or criticism for the record:

But for the steel industry as a whole we had an actual increase of working
forces of 117,000 men from 1927 to 1937. Total employment in the steel industry
increased from 427,000 men in 1927 to 544.000 in 1937, according to the figures of
the United States Census, an increase of 27 percent, while in the meantime the
population increase had been but 11.2 percent.

Now you are discussing here what ? Are you discussing the working
force available for labor in steel or the actually employed labor forcel

Mr. ISIuRRAY. I am discussing the actual number of people employed
in the industry in those years.

Dr. Anderson. But Mr. Hook was discussing the available labor
force employed and unemployed.

Mr. Murray. Well, of course, I assume it is taken for granted there
are 10 or 11 million people who are available for work in the country
who are idle today and can't get jobs.

Mr. Pike. There is not much difference in the figures. You had
503.000 in 1937 as against 530,000-odd.

Dr. Anderson. The other difference to be noted, if the first is not a
difference, is that you carry your figures on through 1939. He stops
at 1937, as you indicated.

Mr. Murray. That is right.

Dr. Anderson. If you had stopped at '37 do you presume you would
have shown the increase of 27 percent in figures?

Mr. Murray. I don't know. I haven't prepared a statistical survey
of the situation from '27 through.

Mr. Ruttenberg. There isn't any basic controversy about the in-
crease in total employment from 1927 to 1937. Mr. Murray did not have
an opportunit}' to hear the information presented yesterday by Mr.
Hook and he was not here when that part was presented. It brought
us up to 1937. Our information substantially is the same, showing
a tremendous rise in employment from '36 to '37. It is since 1937
that the high cost obsolete hand mills have been abandoned in large
numbers in the industry. From 1937 through 1939 employment has
dropped and the impact of these 27 continuous strip mills is observable

16494 CONCENTRATION OF .p:conomic power

now in the drop, and there is no controversy or conflict in the figures;
merely, these figures bring us up to date through 1939, whereas Mr.
Hook left off in 1937 when employment was exceptionally high and
before the total impact of automatic strip mills had been felt in the
industry.

Senator King. I take it it is your contention that if Mr. Hook had
brought it down to date, to 1939 or the beginning of 1940, his figures
would have been comparable to yours.

Mr. RurrENBERG. Yes. These fimires are from the American Iron
and Steel Institute, sheets 1 and 2, and are supplied to all members of
the institute, and they cover more than 90 percent of the industry.

The Chairman. Sheets 1 and 2, you said ?

Mr. RuTTENBERG. Ycs.; that is in "Exhibit No. 2484" where we
submit a complete explonation of the source and method of analysis.

The Chairman. Sheet. " and 2 of what ?

Mr. RuTTENBERG. The American Iron and Steel Institute.

The Chairman, Of what document? Name the document.

Mr. RuTTENBERG. It is described in "Exhibit No. 2484." It is
known as the American Iron and Steel Institute, New York City,
statistical sheets 1 and 2, which are distributed to companies in the
steel industry which supply data to the American Iron and Steel
Institute.

The Chairman. Those sheets were issued as of what date ?

Mr. RuTFENBERG. They are issued monthly.

The Chairman. The particular ones you quoted from were issued
when?

Mr. RuTTENBERG. Periodically each month.

The Chairman. So this is a composite figure from sheets 1 and 2
issued monthly over the period included in this survey.

Mr. RuTTENBERG. YcS.

STEEL EMPLOYMENT IN 192 9 AND 1939

Representative Williams. According to your survey now let's have
the plain statement, if you can make it, as to whether or not there are
more men employed in the steel industry now, say in 1939, than there
were in 1927.

Mr. RuTTENBERG. The actual figures we have further on in Mr.
Murray's statement; he goes into the year 1929 as compared to 1939,
and during that period of time total employment was virtually the
same. The American Iron and Steel Institute reports total employ-
ment for 1929, the average for the year, as 419,500 employees. They
report the average annual employment for 1939 at 423,000 employees.
In other words a total employment in '39 was substantially the same
as in '29, despite a drop of 36 percent in the average hours worked per
week in the respective years.

Repiesentative Williams. Right in that same connection have you
the unit output of the steel industry ?

Mr. RuTTENBERG. Yes.

Representative Williams. What is it, '29 and '39 ?

Mr, RuTTENBERG. The per-unit output, the figures of the American
Iron and Steel Institute in "Exhibit No, 2485" only go I ick to 1933,
and we have that here, showing how many man-hours are worked to
produce each ton of ingots. As Mr. Murray observed in his state-

CONCENTRATION OF ECONOMIC POWER 16495

ment, the drop from 1936 to 1939 was 21.4 percent, or froni 18.7 to
14.7 man-hours per ton of ingots produced.

Kepresentative Williams. What I am trying to get at is what the
total output was.

Mr. RuTTENBERG. The total actual output in the month?

Representative Wilijams. The total actual output of '29 compared
with '39.

Mr. RuTTENBERG, The output of 1929 was in excess of 1939.

Representative Williams. Now, let's have the figures, if you have
them.

Mr. RuTiENBERG. I don't have them immediately at hand, but we
have comparable production jBgures for these months that Mr. Mur-
ray has explained on these charts.

Representative WyxiAMS. That chart doesn't go back to '29, does it?

Mr. RuTTENBERG. No ; it goes to '36.

Representative Williams, \\niat I am trying to get at in my own
mind is the number of men that were employed in '29 compared with
'39, and also the output of the industry for the same period of time.

Mr. RuTTENBERG. The output — I have just given the employment
for those 2 years; the output for 1929 wa3 greater. I can recall, I
think, there were 54,000,000 tons produced in '29 ; '39 was several mil-
lion tons below that, less than 50,000,000 tons.

The Chairman. So that the output has been decreased?

Mr. RuTTENBERG. Yes.

The Chairman. And the figures on total employment that you gave
were practically tlie same, I understood you to say ?

Mr. RuTIENBERG. YcS.

The Chairman. That is in terms of men, but that figure does not
reflect the actual condition because of the change in the number of
hours worked per man ?

Mr. RjTTENBERG. Precisely.

The Chairman. Is that right?

Mr. RuTTENBERG. Precisely so.

The Chairman. Now, could you prepare a statement for a table
which will give these figures which Congressman Williams has asked,
so they would appear in the record?

Mr. Murray. We would be delighted to furni3h you with those
figures.

Dr. Anderson. Mr. Chairman, I have them here, handed to me in
Monthly Labor Information Bulletin of the B. L. S. Production in
1929 was 54^00,000 tons ingots; 1939, 45,800,000 tons ingots; emplov-
ment in the 2 years, 419,000' workers in '29; 415,000 workers in '39. '^I
think that answers the Congressman's question.

The Chairman. Proceed, then, Mr. Murray.

Mr. Murray. Measured in man-hours the drop in employment is
more pronounced. From August 1936 to September 1937, man-hours
rose 1 percent. But from September 1937 to September 1939 man-
hours declined 2I1/2 percent, from 79.000,000 to 62,000.000 man-hours—
a drop of 17,000,000 man-hours in the short space of 2 years.

Briefly summarized, the period from August 1936 to September
1939 shows that the steel industry, through the installation of techno-
logical improvements had done the following:

1. Maintained the same labor cost of production despite an in-
crease of more than one-fourth in hourly wage rates.

16496 CONCENTRATION OF ECONOMIC POWER

2. Eliminated $14,000,000 from the total monthly pay envelopes
of the steel workers from 1937 to 1939.

The Chairman. I will have to interrupt you because I am now
examining the chart from the B. L. S. to which Dr. Anderson called
attention. This shows, with 1929 as a basis, a production of 54,300,-
000 tons ingots, which is designated 100 percent. A total employ-
ment of 419,000 workers designated 100 percent, and weekly pay rolls
amounting to $14,060,000, which is also designated as 100 percent.
So the figures for 1929 represent a 100-percent base of production,
employment, and pay roll. In 1937 the production was 91 percent
of 1929, but employment was 120 percent, a very great increase ; and
weekly pay rolls amounted to 112 percent, an increase of 12 percent.
In 1938 production had fallen off to 51 percent of 1929, employment
to 88 percent of 1929, and pay rolls to 83 percent of 1929. Now as
to 1939, production amounted to 45,800,000 tons ingots, which was
84 percent of 1929. The workers numbered 415,000, or 99 percent,
and the pay roll $12,410,000, or 88 percent, so we have this conclu-
sion, that in 1939 in the steel industry, though the production had
fallen off by 16 percent, the employment had fallen off only 1 percent
and wages had fallen off 12 percent.

Mr. Murray. That is a very good analysis and in substance sup-
ports the contention of the organization, my own organization, with
relation to

The Chairman (interposing). But it indicates, you see, that it
required more persons proportionately to produce the output in 1939
than it did in 1929.

Mr. RuTTENBERG. I think there is a footnote. Senator, that ex-
plains that chart, at the bottom of the chart in connection with the
comparison of j'our drawing.

The Chairman (reading) :

These data presented for all manufacturing industries combined and for a
few selected industries are not suitable for use in measuring changes in labor
productivity in these industries.

Well, of course, that is one of the difficulties I am constantly find-
ing about statistics. The experts come in here with statistics and
after you have read them, then there is a footnote in small type which
savs, "Pay no attention to them."

IVTr. Stern. Would. you mind reading the next sentence? It ex-
plains why.

The Chairman (reading) :

Labor productivity is generally measured in terms of output per man per hour.
The figures of employment given here cannot be used as an indication of actual
man hours worked because they include total as well as part-time employ-
ment and the ratio between the two varies greatly from industry to industry,
and from month to month in the same industi-y- Pay rolls are a better criterion
of man hours worked, but they are greatly affected by changes in the hourly
earnings. Until more precise information is available on actual man hours
worked in the separate industries land a better method is devised to measure
changes in industrial output, studies of changes in labor productivity from
such data as are presented here are bound to be inconclusive and at times
even misleading.

Dr. Anderson. Mr. Chairman, to protect my profession, I would
like to comment that I didn't read the last section of that chart in
presenting the data to you for the very reason that you have now
discovered, and furthermore

CONCENTRATION OF ECONOMIC POWER 16497

The Chairman (interposing). You have been holding out on me?

Dr. Anderson. I was holding out for that very reason, because it
is very plain we do not have the adequate body of data to do the thing
attempted in the last part.

The Chairman. Of course, one of the purposes of this hearing is, if
possible, to develop statistics upon which all can agree.

Dr. Anderson. And I am only sorry that Mr. Hinrichs and Mr.
Lubin are not here because they are responsible for this document,
and I know they would be the first to tell you that one of the great
needs in the United States is an adequate body of data, of factual
material upon which we can actually build national policies; and that
depends upon many developments, including an adequate budget for
the Bureau of Labor Statistics.

The Chairman. I have heard that story on the Appropriations
Committee many times and the next .time I hear it I am going to have
some of these charts with me and find out why we can't get accurate
information.

Mr. Murray, You see, Mr. Chairman, the best answer — and it
doesn't require the effort of any statistical expert to get the answer — ^is
to be found in the men that are walking the streets.

The Chairman. I think you are quite right about that.

Mr. Murray. That is the answer.

The Chairman. No matter what increase of production we show.

Mr. Murray. I just don't care how much, industrialists or any
others care to indulge in the magic of figures about these things. I
am living among steel workers. I visit their homes. I talk to them.
I meet with them. I really live with them. I know the conditions.
Mike Russell appeared before the committee today as just one of
5,000 idle people in one community in the city of New Castle. I
coould take this committee to Martins Ferry, Ohio, to Mingo Junc-
tion, Ohio, to Elwood, Ind., to Monessen in Pennsylvania, to Brad-
dock, to Duquesne, to Homestead, and there are the figures, but they
are the figures of human beings walking the streets out of jobs.

Now there just simply isn't any statistical set-up that can deny
that sort of a situation. It is there.

The Chairman. Well, there were statistical set-ups in some of the
columns just a few weeks ago which undertook to prove that there
were only about 2,000,000 persons unemployed now, in the entire
Lountry.

Mr. Murray. Of course, Dorothj'' [Thompson] doesn't work in a
steel mill. Now with your permission, Mr. Chairman, I would like
to continue here.

increase in production from 1929 TO 1939

Mr. Pike. Mr. Murray, I think that question of Congressman Wil-
liams was wpII answered in your chart, "Exhibit No. 2483," which
you really didn't call much attention to.

It happened at the end of 1929 and end of 1939 the pay rolls are
almost exactly the same per ton, but they certainly wandered all over
the place in the 10 years intervening. The man-hours you show most
graphically in the last 2 or 3 years.

Mr. Ruttenberg. This measurement by the National Industrial
Conference Board was made in conjunction with the American Iron

16498 CONCENTRATION OF ECONOMIC POWER

and Steel Institute and it shows a progressive decline in man-hours
per ton of output for 1929 on down through 1939, or a drop from
approximately 82 in 1929 down to 64 in 1939, and this is the statistical
chart that shows the story that Mr. Murray has been telling in human
terms, existing in these various towns he has mentioned. It is the
only one on a national basis that exists anywhere, so far as we are
able to determine.

The Chairman. Now, according to this chart, the average was the
condition that existed in 1932 ; that is your base.

Mr. RUTTENBERG. Right.

The Chairman. That is 100 percent, and it shows that in 1932 the
peak of man-hours was reached at 110; that it has fallen off pre-
cipitously since then until in 1934 it was below 85.

Mr. Pike. Below 65.

The Chairman. In 1934 it was below 85. In 1935 it was about 82 ;
in 1936 it was just below 80; in 1937 it was at 75 ; showed a slight in-
crease in 1936 ; and in 1939 had dropped to below 65. In other words,
in 1939 in terms of man-hours the record was less than 65 percent of
what it had been in 1932 and that, I take it, can be regarded as a more
accurate representation of the facts than the actual number of persons
employed.

Mr. RuTTENBERG. Precisely.

The Chairman. Because the persons employed may not be working
as many hours as they were in previous years. Is that your point of
view?

Mr. Murray. That is right.

The Chairman. And this chart from which I have been reading
was prepared by the National Industrial Conference Board on the
statistics gathered by the American Steel Institute; is that correct?

Mr. RuTTENBERG. On statistics gathered jointly by the Conference
Board and the American Iron and Steel Institute.

The Chairman. Now neither of these institutions is a C. I. O.
affiliate?

Mr. RtriTENBERG. Not so far as we are aware.

Mr. Stern. For the sake of the record, ihe chart refers to man-
hours per ton, not to the man-hours worked. It is the time the labor
time consumed to produce a ton of product. It isn't total man-hours
worked.

The Chairman. That doesn't tell the story of employment, either,
then. That doesn't tell our employment story at all.

Mr. RuTTENBERG. This tells the employment story precisely, I
think. It shows the man-hours per ton. "When you referred to
man-hours per ton going away up in 1932 that was a reflection of a
low operation, and as operations become on a comparable basis in
'39 you have your precise number of hours of men you had to work
to produce a given ton of output, a'^id that measures progressively
the fewer hours of work required to produce the same output.

The Chairman. That is right, but when you get to that statistical
and expert formula you are getting away from the human problem
in which I am particularly interested anrl trying to develop the fact.
I am sorry, Mr. Murray ; if you will proceed.

Mr. Murray. I am glad that you clarify those things.

3. Raised product'v^ efficiency by one-fifth.

4. Displaced 30,000 stee^ workers.

CONCENTRATION OF SOONOMIC POWER 16499

5. Increased finished steel prices 9 percent. In other words, the
steel industry is able to produce the same amount of steel with
30,000 fewer workers. The steel workers who are currently em-
ployed are receiving more than 26 percent higher wages per hour,
but at the expense of 30,000 steel workers who have been displaced
and are receiving no wages from the steel industry. And the steel
workers still attached to the industry are idle one-fifth to two-
fifths of the year, because the increased productive efficiency enables
them to produce all the steel consumed each year in three-fifths to
four-fifths of the year.

Now with your permission again, Mr. Chairman, I would like to
dispense witli reading the next 4 pages, and have them placed in
the record.

The Chairman. All right, it will be included in its regular order
in your printed statement.

(The material referred to appears below:)

Needle.ss to add, if the Steel Workers Organizing Committee had not raised
wage rates and lowered weekly hours during this 4-year period, 1936 through
1939, the. situation would be much worse, than it is today. As I have previously
noted, the automatic strip mills were introduced into the steel industry before
the birth of the S. W. O. C. The increase in output per man-hour, the
reductions in pay rolls and employment, and the displacement of workers was
virtually an accomplished fact before the steel workers were successful in
organizing their union. Therefore, if the steel workers had not organized,
as they did, in 1936 and 1937, wage rates would not have been increased to
the extent that they were, nor would the maximum hours per week have
been correspondingly reduced. Consequently, the net contribution, after 3
years, of the S. W. O. C. has been to prevent —

1. The reduction of the total monthly pay rolls of the steel industry by
more than V^ the amount of the increase in hourly earnings.

2. The permanent elimination of 58,000 steel workers from their jobs, or the
difference in the number of workers required to produce an equivalent tonnage
on a 40-hour week as compared to a 48-hour week.

In other words, the S. W. O. C. has been the only cushion to the devastating
effects of the new steel technology. S. W. O. C. raised monthly pay rolls by
more than $14,500,000 a month for a period of a couple years. Technology
eliminated almost all of this increase. But S. W. O. C. stopped technology
from reducing total monthly pay rolls by one-fourth. S. W. O. C. saved the
jobs of over sr* ( 0 steel workers. If S. W. O. C.'s contribution had not been
made, there Nvould be today 88,u00 displaced -steel workers instead of 30,000,
and instead of the steel industry's contribution to consumers' purchasing
power remaining virtually the same, it would have been lowered by more than
25 percent

The 10-year employment record of the steel industry, from 1929 through
1939, shows the extent to which technology has eliminated workers. The
American Iron & Steel Institute reports an average of 419,500 wage earners
in 1929, as compaied to 425,000 10 years later in 1939.' As I have noted, in
1937 considerably more workers were employed as a result of the shorter
workweek instituted then, but they mostly have been eliminated by ttvhnology.
Thus in 1939 the number of wage earners was only 5,500 more than in 1929,
or a rise of l%o percent in 10 years. But during this 10-year period average
weekly hours declined from 55 to 35 a week, or 36 percent. Thus, instead of
more men being employed to get out the same tonnage in ^'he shorter week, the
number of wage earners has remained virtually stationary. In presenting in-
formation to this committee the United States Steel Corporation, for its own
operations, computed the number of wage earners that would be required
Curing the thirties on the basis of prevailing weekly hours in the year 1929."

1 steel Facts. February 1940, American IroD and Steel Institute, pages 2, 3, and 4
(Mr. Murray's footnote).

^TNEC 'Exhibit 140"J," Actual Number of Employees And Number That Would Have
Reen Re(iuirod on Basis of li»i;9 Hours Per Week, United State^■ Steel roriwratlon ,ind
Subslaiaribs {WIt Murray's footnote).

16500 CONCENTRATION OF ECONOMIC POWER

The corporation did this by multiplying the actual number of employees
in each year or month by the number of hours worked per week during the
period and dividing by the number of hours worked per week during the year
1929.

By this method we find that on the basis of weekly hours in the year 1929,
steel industry in 1939, the year just past, would ha^e employed only 270,000
wage earners. This represents the elimination of» 150,000 wage earners, or
a decline in employment of 35 percent. In other words, if reductions in the
maximum hours of work per week had not been effectuated from 1929 to
1939, 150,000 steel workers conceivably would have been displaced in the past
10 years. In addition, nothing has been done to expand steel employment,
which is today at virtually the same levels as 1929. It is plainly observable,
therefore, that technology has been at .the root of unemployment since 1929,
and since that time the steel industry has failed to give employment to young
workers becoming of employable age without displacing older workers. On a
net b^sis, the steel industry, the wealthiest in the country, has failed to
absorb in its working force any of the increase in employable workers resulting
from our rising population in the last decade. As a matter of fact, as I noted
earlier in my statement, more than 40,000 steel workers now attached to the
steel industry are scheduled to be displaced by the automatic strip mills. You
will recall I showed by actual figures that 38,470 of the 84,770 workers
scheduled to be eliminated by the strip mills have already been laid off per-
manently in the past 10 years. Therefore, the steel industry has failed in both
respects; it has not absorbed any new workers, and secondly, it will soon be
employing fewer workers than in 1929.

Dr. Anderson. There were no exhibits?

Mr. Murray. None that I know of in thr-t whole thing.

INTERINDUSTRY COMPETITION

Mr. Murray. The new steel technology is not creating new jobs
elsewhere to compensate for the jobs directly eliminated in the steel
industry. The automatic strip mill, for example, instead of adding
to total employment by creating new industries or expanding old
industries to offset its devastating effects in the steel industry, is
robbing jobs from old-established industries. The new jobs created
through the development of new industries utilizing the automatic
strip mill output, or through the expansion of old industries using
the automatic strip mill output, are virtually canceled out. A major
strip mill product, for instance, is tin plate. A new use developed for
tin plate in recent years has been to pack beer in tin cans. But beer
cans, in turn, mean fewer glass bottles and other containers, and
correspondingly less employment in these lines.

Sheet steel is another major strip-mill product, and a new outlet
is being developed for sheet steel in the plumbing-fixture industry..
But this inevitably means the displacement of workers now employed
in foundries producing cast iron enameled plumbing fixtures. An-
other outlet for sheet steel, still in a very early stage, is prefabricated
steel housing.

The Chairman. But yesterday Mr. Hook presented a chart which
showed various commodities which he said are now being manu-
factured which were not manufactured previously, with the product
of the old hand rolling mill. That may not have been true of each
one of the items which he mentioned, "but among those industries
which have come into existence and which are using tin plate, for
example, was the electric refrigerator. Now the electric refrigerator
obviously can be used in places where the old-style refrigetator, filled
every morning by the iceman on his rounds, could not be used;

CONOENTRATION OF ECONOMIC POWER 16501

electric refrigerators are used in farms and ranch homes where it
would have been impossible to get ice, where the cooling device was to
stack things in a cellar. The development of the Delco system and
of rural electrification has made possible the use of electric refrigera-
tors where they never were before, and where they are not displacing
any other commodity but are adding a new convenience to the home
and for the benefit of the housewife.

I think that we must acknowledge that there are new commodities
coming into existence, don't you think, which do not displace ?

Mr. Murray. Of. course, that is undeniably so. However, I am not
prepared to say that I am in perfect accord with the idea that the
mere introduction of an electric ice box has given more men jobs
because ice boxes were substantially used in the larger centers of
population in years gone by and did comprehend the employment
of workers, particularly lumber workers, and the icemen that we
hear talked about quite frequently are not in the picture any more.
Of course in the rural districts where rural electrification ha% en-
enhanced work opportunities and has perhaps put an occasional ice
box in a farmer's home that was able to buy one, it has added some-
thing to the comfort of that particular farmer and perhaps given
another fellow a job.

The Chairman. I may say the impression that has been made upon
me in my study has been that undoubtedly advancing technology
creates many new jobs. At the same time it undoubtedly displaces
many workers, and the problem is the human problem, the absorption
of the particular person who is displaced.

Now you brought your human exhibit here this morning- in the
person of Mike Russell. He was displaced. Some new ]ob may
have been created in some other and distant town, but it isn't a job
for him. He must then depend upon the contribution of the Federal
Government through W. P. A. appropriations to provide a most
meager income for his family, and it is how we are to take care of
the particular person who is displaced that to my mind is the most
pressing question in this whole problem. Do you agree with that
statement ?

PROBLEM OF NEW ENTRANTS TO LABOR FORCE

Mr. Murray. Oh, in substance I do. I think that it is all right,
Senator; yes. Of course, it isn't merely a question of absorbing peo-
ple who are actually displaced by new technological changes. That
isn't the sole factor that disturbs this Nation or upsets our economy.
It is the very definite inability of American enterprise and American
industry to give employment to the newer generation that is coming
along. When I talk of 30,000 ste<el workers being definitely thrown
out in the streets during the past 3 years I am merely talking about
people who had jobs in this industry in 1936, but necessity compels
me to think about these younger people who have been pouring out
rf our schools and growing up and who are physically fit, wondering
what the great captains of industry are going to do about them.

I know the steel industry isn't going to do anything about them,
unless there comes into their hearts and their souls and their minds
the consciousness that there are some definite social responsibilities
tv^ot run beyond the payment of ordinary dividp^ds to stockholders.

16502 CONCENTRATION OF ECONOMIC POWER

The Chairman. Well, could the steel industry, or any industry by
itself, meet this problem ?

Mr. Murray. No ; I don't say so. I think that in all fairness to
any industry ; I don't say it is a one-industry problem.

The Chairman. It is a national problem?

Mr. Murray. It is a national problem. I merely use the industry
as one of many industries where ownership, management, have not
indicated to me, and so far as I am aware, have not indicat<^d to gov-
ernment any desire to do anything about it, excepting that the new
technology produces new enterprises and perhaps m the days to come
will give work to the coming generations, but that kind of an attitude
has not been fruitful of any results during the past 11 years. Eleven
years ago we heard that, 10 years ago, 9 years ago, 8 years ago, and
today one of America's most distinguished leaders in the field of busi-
ness, represejiting a great body of organized wealth and business in
this country, appears before this committee and says there is nothing
to be worried about, th-at the newer technology creates new enterprise.

My God ! Ten years ago we were told that — 11 years ago. I
believe in the introduction of new enterprise — I hope some day it
will come. Mr. Hook perhaps could lecture this committee about
high taxes, free enterprise. I am here not to lecture but rather to
persuade and plead with and talk to this Nation through the medium
of this committee about our Government and our industries in this
country and labor getting their heads together and doing something
to save this Nation of ours; to save these institutions of ours in this
country; to save this form of government by providing this much-
needed employment to these idle people. It has just simply gone
beyond the stage of guessing any more about it. I would like, Senator,
and this isn't said disparagingly about you, either, because I have a
great fondness for you and you have been doing a great work over
here, given ^eat study to it; I haven't been able to find any indus-
trialist in this country that is willing to offer any solution, and I can't
find the politicians that will do it because the proposition doesn't seem
to have, in the language of the streets, any political sex appeal; it
doesn't seem to be a very good vote getter ; at least that is what they
think. . And as one layman — and I am a very ordinary layman, hum-
ble in spirit, who wants to do the right thing — I think our Federal
Congress should lead the way.

I think the President of the United States should be asked, ir
the form of a congressional resolution, to draft into public servict
some of the important men in this country and tell them to get tc
work for 6 months, a year, yes — ^however long it may be — to settle
this problem of unemployment in this country, because I get over my
desk — I represent half a million steel workers — every morning pleas,
prayei-s, from a lot of people in this country, and there isn't a single
solitary thing that I can do to help them; I can't do anything. I
represent a great big union. Well, I am utterly helpless because there
is evidence of a lack of desire on the part of government, on the part
of business, to be cooperative in providing the proper kind of solution
for this situation.

The Chairman. I am glad you have made that statement, Mr.
Murray. I feel, from my own experience, that much of what you
have said is true, but I can tell you this: since the study of this

CONCENTRATION OF ECONOMIC POWER 16503

committee begjan, and that is considerably over a year ago, I have had
occasion to talk with many business groups as well as with leaders of
all other groups, and I have come to the very definite conclusion, and
I take the liberty of conveying it to you, that a great majority of all
the people in this country in every classifiication, whether they are
industrial leaders or workers or farmers, want to see this problem
settled and they are willing to settle it, and most of these, by far the
most of them, express exactly the same thought that you have ex-
pressed here, namely, that they want to save our form of government,
our democratic institutions. I am sorry to say that there are a small
percentage of persons on the two extremes who spend so much time
calling one another names that the 95 percent of the people in between
don't have very much opportunity to get their thought over.

One of the hopes of this committee has been that it might prove the
microphone, as it were, through which there could be conveyed to the
country a sensibility of the necessity for cooperative and immediate
action to put people to work in private industry so that the Govern-
ment would not be under the necessity of continuing to expand and
to grow and to apparently control things. I think we have both been
a little bit off the direct subject.

Mr. Murray. We are both getting a little bit sentimental. Now,
with your permission, Mr. Chairman, and, of course, again reminding
you of my request to include in the record, I should like to cooperate
with the committee and expedite the reading of this paper and not
read "Jobs Not Created Elsewhere," and continue -over to p. 41
from 33.

(The material referred to appears below:)

It is estimated that a prefabricated steel house can be produced and erected
with one-fourth of the labor required to build a house by conventional methods.
But any such development on a large scale would cost the jobs not only of a
great body of building-trades workers, but also of brick and clay, lumber,
cement, and other workers now employed to produce building materials.

The facts about our national economy attest that this vicious circle of tech-
nological unemployment, as illustrated by the strip mill, is typical of technologi-
cal developments in industry generally during the past decade. In the last year
of the thirties production reached the levels of 1929 and exceeded them, but total
employment was below that of 1929 by 1,000,000 to 2,500,000 workers. In discuss-
ing this question the Federal Reserve Board states : *

"The larger total volume of output currently (January 1940) than in 1929 re-
flects continued technical progress during the decade: the number of persons
.employed, excluding those working on relief projects, is slightly smaller than 10
years ago and those with jobs are working much shorter hours."

Also in this period, the Board noted, ix)pulation has increased about 8 percent.

The impact of technology on our economy during the 1930's has been one of the
major factors retarding a sound recovery and sustained prosperity. The problem
of this technology is twofold.

First, ways and means must be found to provide for the men and women,
their families, and their communities, who are the victims of technological change.
Industry must assume social responsibility for the human beings who are dis-
carded by new industrial techniques that industry owns, controls, and installs.

Secondly, ways and means must be found to distribute the benefits of tech-
nology to everyone in the country, to arrest the trend toward a declining working
force, and to provide employment — the means of life, liberty, and the pursuit of
happiness — to the large mass of men and women, one-third of whom are young
men and women, who are today idle through no fault of their own, who are idle
because of the failure of private industry to provide them with jobs.

1 Federal Reserve Bulletin, February 1940, p. 81.

16504 CONCENTRATION OF ECONOMIC POWER

PEOVIDING FOB DISPLACED WOEKEBS

Let us consider the first of these problems, the men and women who are dis-
employed by technology.

The cost of technology has always been enormous socially. With every tech-
nical improvement since the beginning of the Industrial Revolution has comt.
the displacement of labor, the upheaval of human beings, the dislocation of
towns and entire regions. The history of technology in industry is a story of
continual change in productive techniques and processes and the continual dis-
regard of the human suffering caused by these changes. This disregard for the
victims of technology has to be changed to solicitation for their welfare.

A half -century ago puddlers produced the bulk of iron in the United States.
Today iron puddling is almost a vanished art. Huge blast furnaces, costing
from $4,000,000 to $6,000,000 each, produce the bulk of iron at present. Tech-
nology has played a major role here. The number of blast furnaces^ since the
World War has declined 49 percent, while the average annual capacity of each
furnace has increased 131 percent. The National Industrial Conference Board '
reports :

"The installation of labor-saving devices, such as contrivances for mechani-
cal charging of raw material — ore, coke, and limestone — and machine casting
of molten pig iron has increased the efficiency of blast furnaces. The effect of
these changes and the increased size of the blast furnace units have had com-
paratively little effect on the size of the labor force attending individual fur-
naces because a substantial increase in the daily output per furnace has not
required a proportionate increase in the amount of labor."

Just as radically, open-hearth steel production has supplanted the bessemer
steel process, which produced a majority of the steel at the turn of the century,
but now accounts for less than 10 percent of the current steel output. In their
wake the seamless-tube mills likewise have left many lap-weld and butt-weld
tube mills obsolete and abandoned.

The social costs of each of these major technological changes in the steel
industry in the past half century have been incalculable in terms of human
suffering and misery. The detailed sto y of each one is merely a repetition
of the story of the automatic strip mill. My purpose in citing the history
of steel technology during this period is to show that it is a continuous process,
as regular as the flow of the Ohio River. It is always taking place. At this
very moment several steel companies are installing continuous butt-weld pipe
mills, whose impact on employment and wages is to reduce them further.

A brief look at the continuous butt-weld mills gives an indication .of how
severe the new steel technology is on employment and pay rolls. The 8-hbur
crew on a hand butt-weld mill consists of 34 workers. On the continuous butt-
weld mill an 8-hour crew consists of only 9 workers. The output per 8-hour
period on the continuous mill is increased from 12 percent, for 1/2 -inch pipe,
to 60 percent, for 3-inch pipe, or from 65 tons of ^-inch pipe to 73 tons, and
from 84 tons of 3-ineh pipe to 135 tons.

The labor cost per ton of 14-inch pipe is reduced 78 percent, or from $3.85 a
ton on the hand mill to $0.86 per ton on the continuous mill. For 3-inch pipe
the reduction is 84 percent, or from $2.98 a ton to $0.47 a ton. These figures
are from the records of one of the companies operatiiig a continuous butt-weld
pipe mill. I am submitting "Exhibit No. 2489," a comparison of the hand-mill
and contmuous-mill crews, showing the wages of each member of the crew per
hour and per day, and the 8-hour wage bill for the entire crew on each type
of mill The labor cost per ton of pipe was computed on the basis of the
production figures I have just cited, which were given to me by company
oflScials as typical 8-hour performances.

A continuous butt-weld pipe mill displages exactly 100 workers. A full force
consists of 4 crews, or 136 workers on a hand mill. For the continuous mill the
lull force consists of 36 workers, or a redaction of 75 percent. Continuous butt-
weld pipe mills are a recent innovation. Republic Steel Corporation just put 1
of these mills in operation last fall in Toungstown and is building another 1.
Jiethlehem Steel Co. started operations on 1 in Sparrows Point a few months ago,
and IS constructing another one. Another was announced to be built in Indiana
Harbor last July, and Wheeling Steel Corporation announced construction of a

fo^tn'^t''e.r'* ^*^^'' "^'^^ ^^""' ^''*'*'"^' Industrial Conference Board, p. 7. (Mr. Mn ray's

CX)NC5ENTRATrON OF ECONOMIC POWER 16505

continuous pipe mill for Benwood last November. The National Supply Oo. is
building anpther continuous miU, having put 1 in operation a few years ago.
In other words, a total of 8 continuous butt-weld pipe mills have been installed
in the last. couple years or will have been installed by the end of this year.

The combined net displacement of these 8 mills amounts to 800 pipe mill
workers. Like the sheet and tin plate workers displaced on the hand-type mills
by the automatic strip mills, these pipe mill men, in the main, are skilled workers.
Thy have spent years acquiring their skills, which are no longer neededr and
many of them are beyond the most favored age for hiring in the steel industry.

This continuous displacement of workers by technology is an old story. It is
going on in the steel Industry right this moment, and it will continue to. take
place as long as leaders of industry are permitted to evade responsibility for the
social consequences of the technology which they control.

• I want to publicly inform the steel companies that are this minute installing
continuous butt-weld pipe mills that the Steel Workers Organizing Committee will
not stand for one single steel worker being thrown out in the street, without
adequate compensation, as a result of the installation of these automatic pipe
mills. I invite these companies to sit down at the conference table with the
S. W. O. C. and work out, through the normal processes of collective bargaining,
ways and means for taking care of the workers being displaced by the continuous
pipe mills. This invitation Is also being publicly extended to all steel companies
in connection with the installation of technological improvements in the future.

I know of nothing more contemptible in public life than for industrial leaders
to issue pronouncements that the workers they are throwing on the streets —
workers they are displacing with new machinery — will some day be reabsorbed
by private industry somewhere. This callous attitude toward human suffering
is the cause of social upheavals, of the destruction of democracy that may trail
In .the wake of technology unless the people vested with the control of t'KJhnology
are made to assume adequate social responsibility for its consequences.

Classical economic pronouncements about the automatic reabsorptlon of dis-
placed workers by private industry, whether true in the long run or not, are just
so much dribble to the men and women who are deprived of their accustomed
way of making a livelihood. These pronouncements can be classified with the
myths of the 1920's that no intelligent person can have faith in today, in view of
the striking failure of our economy in the last 10 years to reabsorb the victims
of technology. Something more than pronouncements of economic theory — in this
instance, demonstrated fallacious — is needed.

I join with Mr. Edward R. Stettinius, chairman of the board of the United
States Steel Corporation,' in the idea he expressed In his lecture. Human Factors
in Economic Progress:

"When a whole community can stumble into despair with the stoppage of a
single pay roll, it is seLf-evIdent that industry has fp^-reaching social implica-
tions which should be matched by an equal sense of Social reponsibility. It is
no exaggeration to say that one of the most Important functions of business
administration, on the large scale, is the social function. Having helped. to
create the modem society, the businessman will not be excused from the duty
of coping with its problems."

One of these problems of modern society is the displacement of workers by
technology. I Invite the leaders of industry to cope with it, to put the idea
expressed by Mr. Stettinius about Industry's social responsibilities into practice..

I wiU not be sidetracked in my efforts to prevent technology from casting
workers out of our economic* machinery, by engaging In any debate on whether
these workers will or will not find other jobs 5, 10, or 20 years hence. As a
famous economist once said. In the long run we are all dead. The problem of
the victims of technology is an immediate one. I say to the leaders of Industry
keep your economic theories in textbooks. So far as the workers of this great
Nation are concerned, they want to know only one thing — when do-they get
jobs? When are they going to be protected from losing their jobs every time a
new contraption or a new invention Is discovered? When are their children,
the youth of this Nation, who are roaming the streets today, going to get jobs?
This Is the question. This is the big problem of today. And I agree heartily
with Mr. Stettinius when he says, "Having helped to create the modern society,
the businessman will not be excused from the duty of coping with its
problems."

^ "Human Factors In Economic Progress," by Edward R. Stettinius, Jr., Alexander
Hamilton Institute, New lork, pp. 5-6. (Mr. Murray's footnote.)

124491 — 41 — pt. 30 21

16506 CONCEN'J'UATION OF ECONOMIC POWER

Here is the twofold problem of technological displacement and unemployment.
Businessmen, leaders of industry, have to cope with it. The code of social
responsibility for industry must be enlarged. Two decades ago industry as-
sumed social rtsi)onsibility through workmen's compensation for the workers
injured in mines, mills, and factories, and for the families of workers killed
on the job. In the past decade industry has assumed some measure of social
rt^ponsibility for workers who are too old to work, and for workers who are
seasonally unemployed through old-age pensions and unemployment compensa-
tion. In this decade another social responsibility must be assumed by industry.
This responsibility is to workers who are technologically unemployed, thrown
out of work by new machinery.

By what right does industry assume the prerogative to say : "Here is a new
machine. It will bring benefits to society. Therefore, it is installed." By
what right does industrj displace workers, ruin communities, reduce consumers'
purchasing power with technology before that technology can possibly bring any
benefits to society as a whole? Only by the right made by power does industry
bring ^bout such social liabilities before bringing about any social gains. Why
should workers and their families be thrown to the wolves today, just because
industry says it has found a new machine that will benefit society tomorrow?
What if it fails "to benefit society? What if it does benefit society tomorrow?
Today there are human beings that must be provided for. This is the crucial
problem of technology. Technological unemployment is unnecessary. It must
be eliminated.

No longer can we afford, as a Nation, to set our eyes on that future when
specific technological improvements will bring social improvements, while at the
same time we fail to see the human misery wrought in our midst by these
very technological improvements. The social cost of technology, as clearly
demonstrated by the automatic strip mill in the steel industry, is greater than
we can bear. Unless the social cost of technology is eliminated, it will drag
us Into economic, social, and political ruin.

The social cost of technology must be eliminated. No longer can we afford to
wait for the economic benefits of technology to offset the tremendous social cost
at its inception, because the social cost of technology for more than a decade has
been far greater than technology's economic benefits. This social cost must be
eliminated, or else technology will cease to be a boon to mankind. Industry must
assume social responsibility for technological improvements, by seeing that they
are introduced under conditions that stimulate instead of retard employment, to
see that workers are not displaced, to see that towns are not reduced to ruin, to
see that I^here is no immediate social cost in terms of displaced workers, impover-
ished fairilies, devastated communities, and bankrupt regions.

Dr. Anderson. There is an exhibit on page 36 to be included.

Mr. Murray. Yes; if you please.

The Chairman. That will be received.

(The table referred to is marked "Exhibit No. 2489" and is included
in the appendix on p. 17345.)

Mr. Murray. I will conclude with the introduction of my recom-
mendations.

The Chairman. Very well.

Mr. Murray. I want to discuss, briefly, practical ways in which in-
dustry can assume social . responsibility for technological improve-
ments. In many instances this can be done through the normal proc-
esses of collective bargaining. Technological improvements should be
introduced without workers having to pay for them through the loss
of their jobs. This can be done through collective bargaining, in
many instances, along the following lines :

1. The workers to be displaced by technical improvements should
be reabso^oed in the regular labor turn-over of the companies install-
ing them.

2. The workers to be displaced should be notified at least 6 months
in advance. From then until they are^ finally displaced, they should

CX)NOENTRATION OF ECONOMIC POWER 16507

be given opportunities to learn how to do other jobs where openings
develop periodically. Where necessary, expert vocational guidance
and training should be provided for those workers who cannot easily
adjust themselves to other jobs,

3. Those workers for whom there are no openings when they are
finally displaced should be employed in some capacity until regular
.jobs open up for them. The wages paid those workers until they are
placed on regular jobs should be charged to the original cost of the
technological improvement.

4. Displaced workers who suffer a reduction of 10 or more percent
in their average daily earnings as a result of being absorbed on lower-
paying jobs than their original ones should be paid a job compensa-
tion of 3 percent of their earnings while in the service of the company.

Mr. Pike. That would be total earnings.

Mr. Murray. Up to the time they were demoted or given a job where
a lower rate is being paid.

The job compensation payments should be charged t6 the cost of the
teclmological improvement.

, 5. The displaced workers who, for various reasons, cannot be reab-
sorbed in other jobs should be paid a dismissal wage of XO percent of
their earnings for a 10-year period, but not less than $500 to those
workers with less than 10 years of service. The dismissal wages shall
be charged to the cost of the technological improvement.

This plan will help eliminate the social cost of the technological im-
provements. Jobs will be found for most of the displaced workers,
and those who are not reabsorbed will be compensated, in part, for
the loss of their jobs ; while tliose who suffer reductions in their earn-
ings by being reabsorbed on a lower-paying job will, in part, be com-
pensated for this.

This practical plan is not offered as the final solution for all the
problems incident to the installation of technological improvements.
Instt;ad, I am offering these concrete suggestions for .practical con-~
sideration by the parties to collective-bargaining agreements in in-
dustry; the objective being to eliminate the heavy social cost of
technology.

There is no reason why this plan cannot be adopted by management
generally where collective bargaining is practiced. Collective bar-
gaining in the basic industries, however, is practiced on a company-
wide basis, and therefore cannot cope with large technological im-
provements, like the automatic strip mill, that are industry-wide and
national in character. Consequently, in the absence of universal col-
lective bargaining, congressional regulation of the introduction of
large technological changes is necessary. It is not my purpose to out-
line in final detail such regulations. At this time I want merely to
indicate broad general outlines.

The objective of these regulations should be to eliminate the social
cost of technology. This means that technological improvements
should be installed at such times and under such conditions as not
to displace workers, bankrupt communities, close up complete mills,
and otherwise disrupt the social fabric of industrial districts.

16508 CONCENTRATION OF ECONOMIC POWER

PROPOSED REGULATION OF MECHANIZATION

Mr. Murray. These regulations might take the following form :

1. It should be compulsory for industry to pay adequate dismissal
wages to all workers Avho are displaced as the result of technological
changes.

2. The Federal Government should conduct a large-scale vocational-
training program for displaced workers w^ho are paid dismissal wages,
so that they will be better adapted for other jobs in industry that thev
might be able to secure, when their dismissal wages are exhausted.
It is essential that labor should participate in the administration of
such a vocational-training program.

3. In addition to compulsory dismissal wages, other measures de-
signed to have industry immediately reabsorb workers displaced by
technological changes should be adopted.

In connection with the proposal that congressional measures might
be enacted to provide industry with incentives to keep workers affected
by technological changes on the pay roll until they can be reabsorbed
in the normal labor turn-over, I want to make a few general observa-
tions. At the present time, for instance, when a technological im-
provement is installed that displaces, say, 100 w^orkers, they are thrown
on the streets. State^ relief has to be provided for them. They draw
unemployment compensation benefits for a period of time. W. P. A.
jobs have to be found for them. N. Y. A. and C. C. C. assistance
has to be provided for their children. All this assistance industry
has to pay for in the form of taxes. Here is an opportunity for
industry to do something about* reducing its tax bill, about which
it has been complaining. Instead of throwing these displaced workers
on the streets every time a technological change is made, industry
should plan technological changes in such a way that the w^orkers im-
mediately affected are kept on the pay roll and eventually placed in
regular positions in the normal labor turn-over. Thus the money
that would otherwise have been paid to these displaced workers in
relief grants, work-relief wages, and so forth, would be saved, and
industry's overall tax bill would be accordingly reduced.

It should therefore be the policy of the Federal Government to see
that technological improvements are carefully planned and properly
introduced by industry so that they do not displace regularly em-
ployed workers. In this way the. men and women, their families, and
communities who have been the victims of technological changes in
the pa^t, would be provided for, and industry wotild asslime social
responsibility for the workers, their families, and communities who
otherwise would be discarded by new production methods and
processes.

These proposals are designed to prevent regularly employed work-
ers from being added to the ranks of the unemployed, and thu3 only
deal with part of the problem of technological unemployment. The
other part of this problem — the major part of the problem of techno-
Ibgical unemployment— is to find ways and means to distribute the
benefits of technology to everyone in the country, to arrest the trend
loward a declining working force, and to provide employment for
the large mass of men and women who are today idle through no fault
of their own, who are idle because of the failure of industry to provide
them with jobs.

CONCENTRATION OF ECONOMIC POWER 16509

By making provisions to absorb displaced workers in the normal
labor turn-over, idle workers and young workers becoming of em-
ployable age, who would be absorbed in the normal labor turn-over
if there were no displaced workers, remain unemployed. It is neces-
sary, therefore, that proposals be adopted dealing with the major
problem, which is that of finding jobs for workers who are presently
unemployed and are not being absorbed by private industry because
of the rapid strides of technological improvements. In connection
with this larger problem, congressional measures might be enacted
which are designed to —

1. Pass on to consumers generally the economic benefits of tech-
nological improvements whicn are not being passed on in large enough
amount^ at the present time, or are being passed on too late to pre-
vent our economic machinery from becoming jammed.

2. The maximum workweek in basic mass-producing industries
which are highly developed from a technological point of view should
be reduced. The performance of the steel industry in the past 10
years, as I have shown, illustrates the vital necessity for a further re-
duction in the maximum workweek. At the same time the population
of the country a^ a whole has increased approximately 8 percent.
Thus, despite a decrease of more than one-third in the average work-
week, the steel industry, the wealthiest in the Nation, has failed to
absorb any of the net increase in employables resulting from our ris-
ing population. With the present rate of technological change in the
steel industry, in the course of a short period of time thousands fewer
workers will be employed than at present, unless the maximum work-
week is further reduced to the level of approximately 30 hours a week
at prevailing earnings or more.

In conclusion I want to refer to the proposal which I mentioned at
the beginning of my statement for a national unemployment confer-
ence, to be called by the President of the United States, of leaders
of .Government, industry, labor, and farm groups. A conference of
this description would obviously necessitate a broader discussion of
our whole national economy, and encompass an exchange of ideas
that might develop constructive proposals to which each of the groups
represented in. such a meeting might subscribe. It necessarily would
entail lengthy discussion that presupposes a healthy development of
long-range economic planning. It seems to me that the suggestions
which I have offered your committee could very well be made effective
by the Federal Government, pending the outcome of the joint deliber-
ations of the participants in the conference which I have suggested.

That concludes my statement to you, Mr. Giairman, and added to
the statement, as you will note, are a number of exhibits and a great
deal of material which I would like to have in the record.

The Chairman. The exhibits have been admitted as we went along.

Dr. Anderson. The hearings for Monday begin with railroads, two
successive days of railroad hearings Monday and Tuesday. The first
witness is Mr. Pelley.

The Chairman. Of the Association of American Railroads.

Dr. Anderson. Mr. J. J. Pell^, president of the Association of
American Railroads; Dr. J. H. Parmelee, Association of American
Railroads; and presumably Mr. Norris, president of the Southern
Railway, will present the data for railroads on Monday. On Tuesday

16510 CONCENTRATION OF ECONOMIC POWER

we will have Mr. George Harrison, president of the Brotherhood of
Kailway Clerks, Mr. A. F. Whitney, president of the Brotherhood of
Railroad Trainmen.

The Chairman. When the committee recesses it will recess until
Monday morning at 10:30.

Before I go for a vote in the Senate, Mr. Murray, may I express my
personal gratification at your presentation here today and the appre-
ciation which is felt I know by all members of the committee. We
were very glad to have you here and we feel that you made a distinct
contribution to this study. It may be that some members of the com-
mittee may desire to question you a little bit further, and I will ask
Mr. O'Connell to preside.

(Mr. O'Connell assumed the chair.)

Dr. Anderson. I have a few questions that I think are of impor-
tance, even though the hour is growing late. Mr. Murray, in your
exhibits, you have a very important document concerning ghost towns,
Exhibit 2478, which refers, as I take it, to New Castle, Pa., only. I
wonder if you could describe for us what is occurring in this unusual^
phenomenon in industrial cities and towns of ghost towns caused by
technological changes in steel manufacture.

Mr. MuERAY. If I may be permitted, Mr. Chairman, to offer New
Castle as a typical situation of a number of towns that are commonly
referred to now in the steel industry as ghost towns, the city of New
Castle has a population of approximately 50,000 souls. The commu-
nity is one which was almost wholly dependent upon the steel indus-
try, some 5,000 steel workers being employed. in recent years there at
the Shenango and New Castle works of the United States Steel Cor-
poration. A few years ago, approximately 6,000 were employed in the
steel industry in those two works at New Castle.

The employment of those 6,000 people, pay roll, earnings, cooper-
ated toward the upbuilding of a very flourishing community — street
railways, mercantile establishments, other small business enterprises
which leaned rather heavily upon the local basic industry. Large
municipal buildings, churches of all denominations, reflected the pride
of these 50,000 people who had been living in this community down
through the years. The decision of the United States Steel Corpora-
tion, for business reasons, permanently to abandon the Shenango
and New Castle works, immediately threw the entire working popula-
tion of the city of New Castle out m the streets. That originally took
place in November 1937 at New Castle, and later, in 1938, took place
at the Shenango works of the same corporation. Since 1938 when
the Shenango works closed down, 72 percent of New Castle's 50,000
people are living on relief in one form or another.

The investments of the people in that community that have grown
up throughout the years have disappeared. The values of real estate
have been completely dissipated and are gone. Civic bodies, political
organizations, businessmen, leaders of its .various churches in that
community, have had committees come ove'r to see me in Pittsburgh
about what it was that we might be able to do to help them. I have
conveyed them over to the offices of the Steel Corporation, with prayer
on their lips that the Corporation might do something about reopen-
ing those plants and producing work.

CONCENTRATION OF ECONOMIC POWER 16511

Mr, Pike. They might as well have put one of those strip mills back
in that same town, mightn't they? Did you ever find out why they
didn't?

Mr. Murray. I don't know.

Acting Chairman O'Conneix. But the strip mills which resulted in
the closing of these mills were built in some place other than New
Castle.

Mr. Murray. I can describe that, of course. Only last week the
leaders of business and the leaders of religion, the leaders of labor, the
leaders in the field of politics, had a meeting in New Castle to see
what they might be able to do through local incentive to promote local
enterprise and at least give some of their people work.

Now that is one town, the city of New Castle, 50,000 people. One
fell swoop on the part of the Steel Corporation has created for that
community the most despairing condition that I know of anywhere
in America for such an extraordinarily lar^e number of people.

The Steel Corporation has closed its Mmgo Junction plant down
there close to Steubenville, Ohio. Mingo Junction is a. community of
some 9,000 or 10,000 people. Business houses, churches, homes — tneir
values have all been completely dissipated as the result of the decision
of the Steel Corporation to close its Mingo Junction plant now.

Martin's Ferry, the same ; the Monessen plant of the Steel Corpora-
tion, the same ; the Elwood plant of the Steel Corporation in Indiana,
the same.

These ghost towns which have been created as the result of this
mass laying off of people, mass discharge, thousantis of people, con-
stitute a very, very serious problem, I have had their committees
representing the city council, the local business organizations, come
over here to Washington, journey down to the Department of Lf»bor,
come over here to see their Congressmen; they have gone do^\li to
New York to meet with the executives of this corporation to see
what could be done about it. The reply of the corporation has always
been that competition, new skills, new efficiencies, new tochnic^ues in
production, have forced them to do the things which they are doing,
Mr, Pike, That doesn't explain why they moved away, though.
Isn't there a good supply of labor? What is wrong with the locality
as the place to put a .-trip mill? Did they ever tell you that?

Mr. Murray. Perhaps Mr. Ruttenberg can tell you what is wr?ng
with the locality there.

Mr. RuTTENREr.o. This question is partly tied up with the con-
solidations. All these plants Mr. Murray has been mentioning were
formerly part of the American Sheet & Tinplate Co., which was
concentrated with the Carnegie-Illinois in 1936.
Mr. Pike. That was all corporate fiction,

Mr, Ruttenberg. With the abandonment of the American Tinplate
plants, the products they produced, sheet and tin plate, are being
coordinated with Carnegie-Illinois with its other organizations. . Con-
sequently the Irvin strip mill, the most recent and largest in the
industry, opened in 1938 by the United States Steel Corporation, is
adjacent to the large byproduct coke ovens of the corporation that
supply the gas that is used in some operations in Irvin. It is close
to the plant that produces the slabs that are rolled into semifinished
steel products at Irvin, and it is likewise located on the river, the
Monongahela, and river transportation is available.

16512 CONCBriTRATION OF EC50N0MIC POWER

It is estimated that the cost of production in a strip mill at Irvin
is approximately . $5 a ton cheaper than it could have been in New
Castle because of the transportation to and fro of semifinished and
finished products.

Mr. Pike. They didn't make the ingots at New Castle ?

Mr. RUTTENBERG. No.

Acting Chairman O'Conneli.. It was the same reason that resulted
in their determination to build the plant at Irvin rather than at, New
Castle; in other words, it was purely a matter of business policy
on the part of the company, and had to do with how efficiently they
could do it.

Mr. RuTTENBERG. It had to do with bringing their plants together.
New Castle is an inland town and Mingo Junction and M^irtin's
Ferry are along the river.

Mr. Pike. They would save a heap by this move.

Dr. Anderson. I would like to ask one or two questions more about
the ghost town situation which you have so graphically portrayed.
Is this ian inevitable accompaniment of mergers due to the tech-
nological advance of the steel industry, as manifested in the con-
tinuous strip-mill process?

Mr. Murray. Well, it is a manifestation of what occurs when large
consolidations are effected, and savings in producing costs, and so
forth, result. I assume that the reason for the Steel Corporation's
building of a tremendous continuous stripping mill at Irvin, near
Clairton, was that it was good business on tlie part of the Steel
Corporation from the standpoint of economics. The Irvin works
gives employment to some 4,200, three shifts. These 4,200 men, plus
the machinery which is provided for them there, are capable of pro-
ducing a quantity of goods sufficient in size to meet the combined
productive efficiencies of some 18,000 or 19,000 workers who were
employed in those old hand-mills before the Irvin works was
produced.

Mr. Pike. That is almost entirely a new works, isn't it?

Mr. Murray. -It is a new works. It went into operation in full last
year. However, it isn't confined to the United States Steel Corpora-
tion.

Mr. Pike. Of course, not.

Ml*. Murra^ I read into the record today where Republic has been
doing it, Bethlehem has been doing it, and they have all been doing
it from the standpoint that they contend it is good business practice.

Mr. Pike. In Bethlehem, we might say Lebanon is practically dis-
carded, or are you familiat with that?

Mr. Murray. I know there have been continuous changes taking
place in the closing up of certain mills in given plants, and the cen-
tralization of their production facilities at certam other points, but
the transportation that has taken place in steel ia extraordinary, and
the impact of it has been felt very hard dijring the past 3 years.

Mr. Pike. Yes ; it shows very clearly hdre.

Dr. Anderson, fhat leads me to the point tl\at I wanted to get some
informatipn on, namely, with this increasing tempo of mergers, some-
how linkeJ with a different type of manufacture based on the new
technology, is it your feeling that iiu)re or fewer ghost towns, can be
anticipated in the immediate future f

CONCENTRATION OF ECONOMIC POWER 16513

Mr. Murray. I think we are safe to assume that there will be more
^host towns. I didn't disclose the names of these 18 companies that
T talked about here today, but I am prepared to give them to the com-
mittee in confidence, and at least 10 of those companies are the only
establishments in their communities.

Dr. Anderson. And that means 10 ghost towns.

Mr. Murray.' It means that there are 10 small communities that
will be confronted with a state of distress akin to that prevailing
in New Castle and elsewhere.

Dr. Anderson. That leads me to the question as to whether you
have a suggestion to add to your list of suggested things to be done
with respect to social policy affecting gliQst towns.

Mr. Murray. I have suggested that the matter of final detail with
reference to the introduction of new machines in industry, and par-
ticularly as those things relate to the regulation in a legislative way,
is one that might very well be a subject of conference. I have sug-
gested here that none of these things should take place in this
country of ours without ample notice in the first instance, and then
means of compensation provided for the directly affected communities
and individuals.

INDUSTRIAL COOPERATION IN^^TED

Mr. Murray. I do think that unless industry moves to do some-
thing about it cooperatively with labor, the only answer to the
situation lies in providing proper legislative enactment here, the
details of which I of course will be prepared to discuss with any
congressional committee at the proper time.

I might say here that our research forces at the offices of the Con-
gress of Industrial Organizations are preparing a considerable amount
of material to be presented to your committee at a later date upon
the whole national economic situation, national industrial situation,
and Mr. Lewis has asked me to come over here and present it for
the C. I. O. at that time. No doubt that will encompass some other
suggestions with relation to these legislative enactments about which
I am talking here today.

Dr. Anderson. In your contacts and deliberations and negotia-
tions with management and industry, would you care to say whether
there is a spirit comparable to the one that the Senator manifested
today, and you, with respect to the need for an immediate attack-
upon this problem?

Mr. Murray. Well, in my confidential discussions with the mag-
nates of industry — and I have many of them, dealing in a business
way with our collective bargaining arrangements— there has been
no disagreement with me that something will have to be done. They
don't offer any particular remedy, but confidentially they are willing
to indicate to me a desire to be cooperative at the proper time. But
their fear lies evidently in the inability of any one industry to solve
this problem by itself.

I have talked to leaders of the National Manufacturers Associa-
tion. Mr. Howard Coonley addressed a meeting with me at Des
Moines, Iowa, a few weeks agQ, the Farm Institute meeting. I posed
to the farmer's a sugge. n of a national congress to bring the lead-
ers of business and the aders of labor and the leaders of finance

16514 CONCENTRATION OF ECONOMIC POWER

and government and agriculture together, and while Mr. Coonley
didn't suggest publicly a willingness to do those things, after the
meeting was over he came around and said, "I think that is a good
idea. I think we ought to get together. I think something ought
to be done about it."

Now Mr. Coonley, I suppose, is an estimable fellow. It may be
that he is willing to try and do what he can about it, I don't know,
but he at least indicated a willingness to participate in a meeting.

I presented to the President of the United States 3 years ago a
desire on the part of labor to bring all of these forces together under
one roof, around one table, and talk it out, not in a spirit of selfish-
ness or one trying to take advantage of the other, but the group to
l3e brought together for the purjwse of rendering a service to this
country, doing something about it. I find no indication from the
administration of any desire on their part to do anything about it,
insofar as holding a meeting is concerned. Perhaps they are going
to find a panacea here. They might find it here. I hope they do.

But I am constrained to believe that unless the Federal Congress
moves to arouse the interest of the people of this country in the
need of bringing these special groups together, working out an
agreement, our situation is going to get much worse than it really
is today. It simply has to be stopped, and we can't fool or tempo-
rize much longer with it, and the only way to stop it is for the service
of these important men in this country to be drafted, commandeered.
Tell them, "You are citizens of the United States, you have a task to
perform to help reconstruct the economy of the greatest democracy
in the world. You have got a job to do to save human beings," and
labor should help to do that job just as unselfishly as business must.
But it has got to be tackled on that basis.

Acting Chairman O'Connell. I would like to ask you one question
which related to one of your recommendati(/ns in your statement.
You referred in your statement ^ to the possibility that congressional
measures might be enacted which would be designed to pass on to con-
sumers generally the economic benefits of technological improvements
which apparently you assume or believe are not being passed on at
this point, or at least not being passed on rapidly enough.

What do you consider to be some of the factors which prevent the
benefits of those technological improvements from being passed on at
the present time ?

Mr. MuEEAY. I don't know. I don't charge business here with vio-
lating any law.

Acting Chairman O'Connell. No.

Mr. Murray. Or fixing any prices.

Acting Chairman O'Connell. I have heard that they have been
known to.

•Mr. Murray. But evidences are at hand which very well indicate
that although the cost of producing steel has gone down, at least dur-
ing the past 18 months, the price of steel has gone up.

Mr. Pike. I believe we call it stabilizing, Mr. Murray*

Mr. Murray. There might be something akin to the word "stabiliz-
ing" being used there.

1 See p. 16509.

CONCENTRATION OF ECONOMIC POWER 16515

Acting Chairman O'Connell. You were thinking in partj I take it,
of monopolistic practices or the power of very large, highly mtegrated
industrial organizations to control their prices and products, and that
sort of thing, were you not, to some extent?

Mr. Murray. Oh, yes. I am speaking as a citizen, a taxpayer, and
I am very much opposed to monopolistic tendencies or practices
wherever they may aevelop.

Mr. Pike. This is one of those instances, going back to the strip mill,
where they have passed on quite a bit to the consumer. Really their
price per ton to the customer has dropped quite substantially. I don't
think there is any argument about that. At least I haven't heard any.
But so many other things have happened where the saving has been
much more reluctant to get on to the final consumer? In this case it
looks as if there had been a good part of the saving passed on.

Mr. Murray. I have no argument to make here about any monopolis-
tic practices in the steel industry with reference to the fixing of prices,
or anything like that.

Acting Chairman O'Connell. But in part you had in mind the gen-
eral desirability of either under existing law or more effective laws
making competition work, I take it.

Mr. Murray. We believe technological advancement lends itself to
increased productivity and the lowering of cost and the passing of
savings on to the consumer.

Acting Chairman O'Connell. I think we would all agree it is very
desirable and very essential that such benefits do be passed on in order
to bring about the necessary increased ability to purchase on the part
of the masses of people, but this statement implied that to some extent
at least the benefits of technological change were not 'being passed on,
either at all, or at a sufficiently rapid rate, and it occurred to me you
had in mind the general desirability of effective legislation or enforce-
ment of legislation involving such statutes as the Sherman Act.

Mr. Murray. I think the implication there might very well also be
one of not expanding employment to reduce •the cost, pass it along to
the consumer — that there is a complete sense of social irresponsibility,
I mean, in these procedures that have to do with the introduction of
machines. The corporation or management under present competi-
tive practices merely resorts to the expedient thing, the thing that
will effect an immediate saving to meet the price of a competitor,
somebody somewhere else that has the same kind of a machine.

Acting Chairman O'Connell. Isn't that almost essential, assuming .
a competitive- situation ?

Mr. Murray. I am not going to dwell in the realm of these myste-
rious things with you here today, Mr. Chairman, about what all these
competitive practices might lead us into. I read a lot about them,
but the more I read them, the more confused I become. My interest
here today runs mostly toward this one thing of unemployment, and
I unfortunately have created an impression in this implication here
of something that I didn't really intend.

Acting Chairman O'Connell. Have you any other questions, Dr.
Anderson ?

Dr. Anderson. No.

Acting Chairman O'Connell. As the Chairman said, we are very
grateful to you.

16516 CONCENTRATION OF ECONOMIC POWEK

(The witness, Mr. Murray, was excused.)

Dr. Anderson, Before the committee adjourns I would like to
introduce as an exhibit a description of the terms which we have
been dealing with, which we have worked out, to be printed in the
record for your use in the discussion of the data as it develops.

Acting Chairman O'Connell. It will be printed in the record.

(The document referred to was marked "Exhibit No. 2490" and is
included in the appendix on pp. 17346-17349.)

Acting Chairman O'Connell. The committee will stand in recess
until Monday morning at 10 : 30.

(Whereupon, at 4:30 p. m., an adjournment was taken until Mon-
day, April 15, 1940, at 10:30 a. m.)

INVESTIGATION OF CONCENTRATION OF ECONOMIC.POWER

MONDAY, APBIL 15, 1940

United States Senate,
Temporary National Economic Committee,

Washington^ D. G.

The committee met at 10:40 a. m., pursuant to adjournment on
Friay, April 12, 1940, in the Caucus Room, Senate Office Building,
Senator Joseph C. O'Mahoney, of Wyoming, presiding.

Present: Senators O'Mahoney (chairman); King, and White;
Representatives Williams and Reece; Messrs. O'Connell, Hinrichs,
Pike, Kreps, and Brackett.

Present also: William T. Chantland, Federal Trade Commission;
Frank H. Elmore, Jr., Department of Justice; and Dewey Anderson,
Economic Consultant to the committee.

The Chairman. The cionmiittee will please come to order.

Dr. Anderson. Mr. Chairman, we oj^en tliis morning with evidence
on the railway systems of America, the effect upon them of tech-
nological improvements, and the two witnesses for today represent
railway management. Mr. J. J. Pelley is the first witness, president
of the Association of American Railroads, located in Washington,
D. C. Following him will be J. H, Parmelee, with the Association
of Americiui Railroads, who will present a detailed analysis of the
railway structure and its development.

The Chairman. Mr. Pelley, you haven't appeared before us before,
have you ?

Mr. Pelley. No.

The Chairman. Will you be sworn, as is our custom ?

Do you solemnly swear tlie 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. Pelley. I do.

The Chairman, You may proceed.

TESTIMONY OF J. J. PELLEY, PRESIDENT, ASSOCIATION OF AMERI-
CAN RAILROADS, TRANSPORTATION BUILDING, WASHINGTON,
D. C.

Mr. Pelley. At the outset let nie emphasize that our railroads
constitute a progressive, dynamic industry, seeking at all times new
means of producing more efficient, more economical, more adequate
transportation service. This has been true in tlie past, it is true
today, and it will be true of the future.

16517

16518 CONCENTRATION OF ECONOMIC POWER

Ten years of economic depression and an even longer period of
subsidized and growing competition have forced the railroad industry
greatly to curtail annual capital improvement work, purchases of
fuel, material and supplies, and normal employment. The handicaps
with which the industry is now faced are great, but they are not
insuperable. They can be surmounted, and the industry will again
be in the market on a large scale for new equipment, new rail and
cross ties, ballast, fuel, and many other items of materials and sup-
plies. Improvement work requires employment of additional labor,
both in the railroad industry and the industries from wiiich it buys
supplies. An increase in traffic to more nearly normal levels will
also mean additional employment for railroad maintenance and
operating forces.

I need point only to the year 1937 as an illustration of what I
have ii- mind. That year represented the culmination of 4 successive
years of improvement in traffic and earnings from the depths reached
in 1932 and 19C3. Even in that year, 1937, earnings were far from
adequate for the real needs of the industry, yet capital expenditures
for the year exceeded $500,000,000, purchases of fuel, materials, and
supplies'^ approached $1,000,000,000, while railroad employment ex-
ceeded 1,100,000 persons.

Then came the recession of 1938, and retrenchment again became
necessary in order to keep expenditures within the limits of revenues.
Capital expenditures fell 55 percent under 1937, railroad purchases
were reduced 40 percent, while railroad employment declined 16 per-
cent.

TECHNOLOGICAL CHANGE IN THE RAILROAD INDUSTRY

Mr. Pellet. Technological progress has always been a factor in
American 'railway history ; it has not developed overnight. The ap-
plication of steam as a source of energy to means of locomotion was
one of the outstanding technical advances in the history of civilization.
From the early days of the railroad down to the present time, pro-
gressive improvement has taken place in equipment, in track, in sig-
naling, in the development of automatic devices, and in the use of
coal, fuel oil, electricity, and other modern forms of power. Hand
in hand with these physical betterments have gone improved organi-
zation and operation.

These factors have always been at work in the railroad as well as
other industries ; otherwise we would have a stationary economy. The
record of railroad expansion in this country to Nation-wide propor-
tions is one of the vital chapters in American history. It was accom-
plished by continuous and consistent progress in the technical field.

More recently, in the absence of technological advance, the industry
would have been unable to render the efficient services required of
modern transportation agencies. As it is, railrop,ds are giving the
public the fastest, most efficient, and most satisfactory service in their
history.

Mr. HiNRicHS. Mr. Pelley, may I interrupt at that point? I mis-
read that thing so badly that from the point of view of- the record
you may want to emphasize the fact that there have been technologi-
cal advances and not an absence of them, that if you had not these
teclmological advances you "VYOUld not have had the efficient service
that you have been getting.

Mr. Pellet. That is right.

CONCENTRATION OF ECONOMIC POWER 16519

The Chairman. What you meant was that more recently, without
the technoloo;ical advances which have been developed, the industry
would have been unable to render such efficient service.

Mr. Pelley. That is right.

Technological factors are closely intertwined with what I may call
economic factors. The latter include traffic, rates, earnings, relations
to the Government, and finally the extent of competition.

While there has always been a relationship between economic and
technological factors, the economic factors of the past were of a dif-
ferent type from those of more recent years. During the earlier years
of railway development the country was expanding, its population
was spreading over the whole country, and competition existed to only
a limited degree. The problem then confronting the railways was to
keep ahead of the growing transportation demands of the country.
This called for large investments and large-scale expansion of facili-
ties, as well as purely technical improvements in plant and equipment.
The principal stimulus to technological progress in those days was the
urgent need for more mileage, more equipniBnt, and more men to oper-
ate the plant. This stimulus was added to the incentive that is always
present in a business enterprise, namely, so to conduct the enterprise
that it will produce a return on investment.

In more recent years the problem has changed from one of rapid
physical expansion to one of an intensive struggle against depres-
sion, and against growing competition. With the advance of high-
way and waterway construction, the latter completely and the former
to a large extent subsidized by government, a great decrease in rail-
way revenues has occurred, aggravated by reductions in rates made
necessary by subsidized competition with the railroads.

In the past, today, and in the future, the railways have applied,
and will continue to apply, the principle of mass production that has
been so effective in building up manufacturing and producing indus-
tries. In the railway field this principle takes the form of mass
transportation. In no other transportation industry, except perhaps
on the Great Lakes and the high seas, is it possible to handle lar^e
aggregates of freight more efficiently and at lesser cost per unit. This
principle has been sound in the past and will continue to be effective
in meeting future competition.

The railroad industry has been struggling against serious handi-
caps in recent years. One handicap has been economic depression,
which has seriously influenced the trend of railroad traffic and earn-
ings. This situation is complicated by such economic changes as de-
centralization of industry, development of hydroelectric power, and
substitution of fuels and other materials, all of which tend to reduce
the total volume of goods transported.

Secondly, there has been increased competition from other agencies
of transport. To meet tliese difficulties, railroad managements have
adopted every possible means of operating efficiently and econom-
ically. They have reduced operating expenses in approximately the
same ratio as revenues have declined. They have reduced the cost of
handling the average ton of freight 1 mile and the average passen-
ger-train cars 1 mile. This they have done by introducing specific
measures of economy, by installing every possible means of im-
proving their plant, their rollintr stock, and their methods of opera-
tion, all of which constitute^ technological progress.

16520 CONCENTRATION OF ECONOMIC POWER

What the industry needs in order to meet its competitive handi-
caps is equality of treatment by the Government as between the rail-
roads and other agencies of transport. We believe that each transport
agency should be required to pay its own way. None should occupy a
position in which it receives special favors from the Government, and
each should be under the same general type of regulation as other
agencies.

I believe the adoption of this principle as a national policy is on the
way, although its development is a slow process. But to the extent
that it is adopted and put into effect, railroads will be enabled to meet
Iheir present handicaps. With these handicaps removed, the industry
will go forward in its field. I, for one, do not hold the view that we
have reached the ultimate in railroad development.

The railroad industry must continue to progress. The pressure of
competition will exert a strong influence. We do not fear that com-
petition if it is fair competition, for it can be met by further ad-
vances in technology. The industry will adopt and adapt itself to
all kinds of improvements growing out of chemical, physical, tech-
mcal, and other discoveries and inventions. To do otherwise would
be to fall back in the race for its rightful place in the economic or-
ganization of the country. .

To keep abreast of progress, new money will be required. New
investment will be needed for further modernization, replacements,
and improvements to plant. The margin of profit on which the rail-
ways have been and are now operating is so small that they must look
to the money market for large sums of new. capital in the future if
they are to hold their own in the field of technological progress. They
can secure those funds if the competitive handicaps I have referred
to are removed.

Specifically, it has been estimated that the railroad industry would
be justified in spending $500,000,000 or m.ore annually for new and
improved equipment, rail, ties, ballast, machinery for shop and track
work, and other capital improvements. The' average capital program
of the railroads over the period from 1923 to 1930 was $843,000,000
per year; since 1931, the average has been only $259,000,000. per year.

FUTURE PROGRESS

Mr. Pellet. The effect of future technological progress on railroad
performance and employment will be a definite one, although it is not
easy to outline it in specific terms. If and when the railroad industry
is relieved of the handicaps against which it is now struggling, it will
be able to regain much of the traffic it has lost and should, in addition,
obtain a larger proportion of the future increase in freight and
passengers than it now has.

. The future volume of employment in the railroad industry will
depend largely on the trend of traffic- and earnings. With a "return
to better economic conditions, and removal; of the competitive handi-
caps now confronting the industry, railroad traffic may show so great
a future- increase that even with increased efficiency in handling it
a greater number of em])loyees will be required. Railway manage-
mcaite will be more than glad to increase their forces under such
conditions.

CONCENTRATION OF ECONOMIC POWER 16521

It should not be overlooked that technological pro<rress in the rail-
road field stimulates employment in other industries. Purchases of
equipment, rails, ties, machinery, and other products from other indus-
tries tend to increase employment in tlie shops and factories of those
companies from which railroads buy, and which prosper only when
the volume of railroad purchases is on a high level.

I close, as I began, by emphasieing that the railroad industry is a
dynamic industry, that it will continue in full force and vigor for
many years to come, and that it will progress in the field of technology
in the future as in the past.

That is all of my direct statement, Mr. Chairman.

Dr. Anderson. Mr. Pelley, before the questions Avhich I know will
come readily from the committee members, the railroad industry is a
highly regulated industry, is it not?

Mr. Pelley. Yes, sir.

Dr. Anderson. That is, if you propose to do anything which in any
drastic way affects the number of people employed or the wage rates
paid, what must you do about it?

Mr. Pelley. Which one do you want me to answer ?

Dr. Anderson. Let's take both.

Mr. Pelley. We have to get 'the approval of the Interstate Com-
merce Commission for most of the things that we do.

Dr. Anderson. So that the railroad industry would represent some-
thing different than we have had heretofore in these hearings in that
we are now looking at a highly regulated, monopolistic industry.

Mr. Pelley. That is correct, and it is an industry that has been
regulated for a lon^ time.

Dr. Anderson. You have been a practical railroad man for many
years, Mr. Pelley?

Mr. Pelley. Yes, sir.

Dr. Anderson. And you have seen the effects of the up and down
swing of the business cycle, employment and unemployment through
the years.

Mr. Pelley. Yes, sir.

TOTAL LABOR FORCE ON THE RAILROAD

Dr. Andei?son. What is the total of persons normally regarded as
laiJroad men in the country, have you any idea?

Mr. Pelley. At one time there were 2,000,000; probably there are
now 1,200,000 or 1,300,000.

. Di". Anderson. With the present volume of employment in the
railroads, then how many persons customarily employed are not now
engaged in railroad^ work?

Mr. Pelley. Well, it is a little difficult to give an accurate estimate
of that. We now employ about 1,000,000 men. Just how many of
them have wnited around for employment, or gone elsewhere, it is
pretty difficult to say, because many of them have had to wait a
long time ; some of them couldn't wait, they had to seek employment
elsewhere. I think it is a safe figure to say that probably 1,100,000
men are now looking to employment in the railroads.

Representative Williams. Right in that connection, when was it
at its peak of emph^yment?

121491 — il— pt. 30 22

16522 CONCENTRATION OF ECONOMIC POWER

Mr. Pellet. In 1930. We had about 2,022,000 men employed in
1930, and that was the peak, Mr. Williams.

Dr. Anderson. Since that peak time, these workers who were nor-
mally in the regular force of railway men have gotten older, some
of them have dropped by the wayside, couldn't wait, as you say.
You would fix the number that is not now employed at about 100,000
to 150,000?

Mr. Pellet. Well, I repeat, it is rather difficult. If I am correct
in saying that there are 1,100,000 men looking to the railroads for
employment, and are either employed regularly or waiting for their
turn with an upswing in business to be called back, then there would
probably be 100,000 waiting, because there are about a million work-
ing now.

Senator King. But from the peak of 1930, 900,000 have lost their
jobs?

Mr. Pellet. That is right, Senator King. Many of them have
died or retired, and many of them have gone elsewhere, and prob-
ably many of them have given up hope of ever getting bac: to the
railroads and have taken up work in other lines of business.

Dr. Anderson. What is the average of railroad workers ?

Mr. Pellet. Probably Dr. Parmelee could give you a little better
answer on that than I could.

Dr. Anderson. You recognize, gentlemen of the committee, that
Dr. Parmelee is following with a very detailed analysis of the rail-
road plant equipment and railroad force and I don't want to move
into an area that he is going to explore.

Mr. Pellet. I think he will be able to give you a very good answer
to that figure.

Dr. Anderson. Except that I want to raise this point as a conclusion
on the previous question about the number of people available for labor
and not now employed.

If by some circumstance, almost a miracle, I suppose, the railroad
business should go back to its height of prosperity in the immediate
future, would there be a need for recruiting new labor other than
those now waiting for work?

Mr. Pellet. There would. I think, Mr. Anderson, it might help
you in your question if I were to tell you that in 1937 we had pretty
good business and then the railroads were employing some men who
had never before worked on a railroad; they were looking for new
men. They probably gave some of their old men the call and they were
employed somewhere- else and did not want to give up their chances
where they were to come back to what might be temporary employment
on the railroad, so they had to seek the menj they even hired new
brakemen. I kn^w of some cases where they hired new men in trans-
portation service in 1937.

Senator King. So in 1937 you took on new men, and doubtless you
would give preference to the old men, that is, to those who had been in
the employ in the past.

Mr. Pellet. That is right. We always give preference to the old
men, and by agreement, for that matter, which we are very glad to do.
They have the first call.

Senator King. That situation would indicate, would it not, that be-
tween 1937 a considerable number of that 900,000 had found positions
in other fields of employment?

CONCENTRATION OF ECONOMIC POWER 16523

Mr. Pelxet. Yes, sir; and some of them were so well located that
they did not want to come back, consequently some of the railroads had
to hire some new men who had never before worked on railroads.

Representative Williams. About how many new men were taken
on in 1937? Covering the period, «vve will say, from the lowest de-
pression, to what extent was the railroad employment increased, say,
from '32 or '33, whenever it was at its lowest ebb, to '37, when it reached
its highest point ?

Mr. Pellet. Probably 150,000 men, Mr. Williams, I should say, as a
quick estimate, from the depths of the depression in '32 and '33 to the
peak of '37, probably 150,000 men.

Representative Williams. And what proportion would you say of
those were new men ? Have you any idea about that ?

Mr. Pellet. Very few.

Representative Williams. Since that time what has happened with
regard to employment?

Senator King. Since '37 ?

Representative Williams. Since '37.

Mr. Pellet. We are down about 100,000 men.

Representative Williams. Since '37 you say there is 100,000 off.
What has become of those men ? Where are they and what are they
doing?

Mr. Pellet. Some of them are waiting to be called, some of them
probably are not employed at all, and some of them have found
something to do elsewhere.

Senator King. Some availed themselves of their retirement privi-
leges, too, did they not?

Mr. Pellet. Yes; quite a number of them. You could probably
get in a taxicab here in Washington and find drivers who are fur-
loughed firemen on some railroad. I have, a number of times. They
find something to do — some of them; some of them don't, waiting
to be called back.

Representative Wiliiams. Is there any particular line of the rail-
road industry from which the majority of those were let out of em-
ployment, or was it general?

Mr. Pellet. Pretty general. I should say more in the maintenance
department, maintenance of equipment and maintenance of way,
than in the transportation departments.

Representative Williams. And those were the lower paid em-
ployees ?

Mr. Pellet. Yes.

Senator King. I suppose there is considerable reduction in the
number of employees in the mechanical departments and in those
departments or branches of the industry which manufactured cars
and engines.

Mr. Pellet. That is right. Senator King, and of course the time
comes when the only men you could get are in maintenance; if you
run trains you have got to employ men, but you can defer main-
tenance; that is what railroads generally do when they are forced
by financial circumstances to retrench.

Senator King. There is very large obsolescence leading to obsolete-
ness, if I may coin that phrase, in the mechanical appliances, engines,
the cars, and so on.

16524 CONCENTRATION OF ECONOMIC POWER

Mr. Pelley. Not so much as you might tliink. There are some, but
it is not as aggravated as it is generally believed to be. The rail-
roads have kept up their plants pretty well.

Senator King, feut the cars, with the usage to which they are
subjected, whether rough or otherwise, do not last many years, do
they? That is to say, you are constantly compelled to replace the
cars.

Mr. Pelley. Replace or rebuild. A rebuilt car will be nearly as
good as a new car, and a rebuilt locomotive will be, not as good as
a modern locomotive necessarily, but as good as that locomotive was
once.

Senator King. A large cost is inevitable, then, in the rebuilding
of the engines and the cars? •

Mr. Pelley. Yes; but before a railroad enters into a rebuilding
jjrogram it works out pretty scientifically what is the wise invest-
ment. Is it wise to rebuild or buy new? No railroad starts into
any sort of a rebuilding program without analyzing just .what is
the better investment for it, to rebuild this locomotive, to rebuild
this particular lot of cars, or to go in the market and buy some new
ones. There is always some rebuilding, but the turning point comes
there between the rebuilding investment and the new purchase in-
vestment, and they always take the one tliey at least believe to be the
wiser.

COMPETITION WITH OTHER FORMS OF TRANSPORTATION

Senator King. What is your greatest competitor, the river traffic
or the trucks?

Mr. Pelley. The highway.

Senator King. The highway?

Mr. Pelley. Oh, yes.

Senator King. I suppose that has cut into your earnings, into your
tonnage, as well as apparently into the passenger traffic very
considerably.

Mr. Pelley. Very considerably. If you were to ask me to give
you a figure as to the extent of it I probably would say that they
have taken 25 percent of our tonnage and probably 35 percent of
our earnings, the explanation of that being that we lost to the high-
ways not only the tonnage that has been lost but the revenue that
has been lost by reason of the necessity of reducing rates in order to
stay in the traffic at all. That feature of it is very aggravated, be-
cause I do not need to tell you gentlemeji that when you reduce a
rate you are just taking that money out of the net income. There is
no way of knowing what the total of the two together would be, but
I should say it is anywhere from 25 to 40 percent.

Senator King. The Government and the taxpayers pay for the
highway, to that extent helping the trucking and the automobiles,
and you have to pay your own taxes.

Mr. Pelley. That is riglit.

The Chairman. You i)ay a lot of taxes.

Mr. Pelley. We pay a lot of taxes.

Senator King. It is about $800,000,000 a year, isn't it?

Mr. Pelley. Mr. Parmelee will give you the exact figures.

CONCENTRATION OF ECONOMIC POWER 16525

Dr. Anderson. Is that what you mean by establishing fair treat-
ment with respect to the competitors in the transportation business?

Mr, Pellet. Yes.

Dr. Anderson. The future of the railroads depends, according to
your statement, in a large measure upon establishing parity of treat-
ment. How could that be done?

Mr. Pellet. Well, it could be done in this way, simply by having
all the agencies of trans])ortation pay their own way and by regulat-
ing them on a fairly comparable basis.

The Chairman. How do you propose to make them pay their own
way? What are the factors which in your opinion would constitute
doing that?

Mr. Pellet. Well, Senator, I ha\e not come up here to criticize
anybod)', and far be it from me

The Chairman (interposing). Any answer you give in response
to a question by a member of this committee certainly can't be inter-
preted as criticism, and I think we ought to be able to take a little
criticism if necessary.

Mr. Pellet. Well, you get a lot of it; probably much of it isn't
justified.

The Chairman. Just eliminate the word "probably," will you?
. Senator King. Use the word "deserved," perhaps

The Chairman. Let each man speak for himself.

Mr. Pellet. I didn't come up here to argue our case. I came
here to tell you about railroad employment, and since I am asked a
question, you asked me how this could be brought about. I suppose
you gentlemen know that you appropriate large funds here to de-
velop these inland waterways, to take traffic off the railroads.

Tne Chairman. We appropriate a lot of money for inland water-
ways and a lot of money for highways.

Mr. Pellet. That is right. I think I had better analyze this just
as I see it. I will attempt to put the responsibility where I think it
belongs and I hope you will accept it as what I believe to be a fact. '

The Congress has gone quite a distance to meet what my views are,
at any rate, regarding regulation. They passed a motor regulatory
bill about 4 years ago ; trucks and busses are now under the Interstate
Commerce Commission.

You have a bill passed here at the last session of Congress by both
Houses, now in conference, regulating the waterways, and I would
iust like to pay my compliments to you on that, because I think you
nave done very well in recent years in trying to stabilize this industry
insofar as Congress is concerned.

I doubt if there were ever two committees in Congress that liave
worked more diligently, more intelligently, than Mr. Lea's committee
and Senator AMieeler's committee in working out the transportation
problem. At the last session of Congress those bills were passed,
and they are now in conference, and we are hopeful that at this ses-
sion spme law will come out of it, and the. regulation of waterways
is in both of those bills.

There is another feature in the two bills that I prize rather highly.
There is a declaration on the part of Congress that all of these agencies
of transportation shall be treated equally insofar as regulation is con-
cerned; that declaration of policy, I believe, is in both bills, and

16526 CONCENTRATION OF ECONOMIC POWER

no doubt will be in the law. It is the first time that Congress has
ever so declared itself.

Senator King. The regulation would include rate-making, as well ?

Mr. Pellet. Yes, sir.

Senator King. So when you speak about the regulatory provisions
of the bill you include, obviously, the power to make rates for the
waterways, and perhaps of highways?

Mr. Pellet. Yes. The Commission now has the power to make
rates with reference to highway traffic. Congress passed a law — I
think it became effective in '35 — and you are now about to pass, I
hope, a bill that will give the Commission authority to regulate water-
ways.

Senator King. Without taking any credit to myself in reference to
the highways, I offered a bill many years ago for regulation of the
busses and trucking, because of the obvious competition and the neces-
sity of some form of regulation over the interstate transportation.

Mr. Pellet. Now, to finish the national aspect of the waterway
thing — and this is the important thing, as we see it — if the Con-
gress is going to continue to appropriate large sums of money to
develop inland waterways that are really not needed to handle the
transportation of the country, and will result in taking that much
traffic off the railroads, whatever it may amount to, we think that you
ought to impose a toll or some basis of payment so that the Govern-
ment will be reimbursed to some extent for all of this money. I don't
think it is fair to our industry, and we do not think it is fair to the
taxpayer, to be frank about it, to spend all this money and get none
of it back, because these users of the highways which these funds
are used to build and maintain, do not pay anything, I think in
passing, I have some figures which might be of interest to you, and
I think they are exactly correct.

The Government has spent in maintaining the 12-foot channel of
the Ohio River about $145,000 per mile of that river, and you spend
about $4,000 a year maintaining it.

Senator King. Per mile?

Mr. Pellet. Per mile. Now, I would just like to contrast that with
the railroad situation. The average mile of railroad in the United
States, fully equipped, cost $62,000 a mile, against $145,000 for this
Ohio River, and it costs us an average of about $2,000 a mile to main-
tain that railroad.

Now, we say this added transportation really is not needed in the
outset, but if you gentlemen differ with that and want to provide it
anyhow, then we think the users ought to pay for it.

That is the one big thing that Congress has to do with, in my
opinion.

Mr. Pike. May I ask this question, Mr. Pelley? In making that
comparison, do you have the ton traffic on the Ohio, as compared to
the typical mile of railroad you mentioned?

Mr. Pellet. Not just in my mind, I haven't, but you know your-
selves, 1 am quite sure, that the greatest use of it is made by large
industries, and they don't pass it on to the consumer.

Mr. Pike. Steel and fuel, very largely?

Mr. Pellet. Very largely.

Now, this money is spent under the guise of cheap transportation to
the consumer, and the people who are supposed to be the beneficiaries

CONCENTRATION OF ECONOMIC POWER 16527

of this cheap transportation don't get it at all. The large industries,
many of them, use it, and they charge the consumer just the same as
if it had been shipped by rail, the higher rate. So it is supposed to
be cheap transportation, and it is transportation with a lot of hidden
costs that are not generally disclosed, and the consumer doesn't get
the benefit.

Senator King. Is it true with respect to the steel industry, using it
in a broad way, that on the greater part of the transportation — that
is, from the Mesabi Range over the lakes and over the railroads
which are owned by the steel companies — there is no subsidy from
the Government?

Mr. Pellet. No ; not on the Great Lakes. I speak particularly of
inland waterwaj^s. Now, I am still stating facts and not criticizing.
Not only does the Government spend this money to provide these
waterways, they have gone into the business themselves, operating on
the Mississippi and Warrior Rivers. I think I can

Senator King (interposing). That is what General Ashburn has
been handling for many years since the war?

Mr. Pellet. Yes; inaugurated, I was told at the time, in 1919, to
help the railroads handle the business and inaugurated as an experi-
ment, with the intention of selling it to private interests later on.
Nothing of that kind has ever happened, and it is being expanded.
We think that the Government ought to go out of that business.

Now, that is supposed to be cheap transportation. I am told that
a very large percentage of goods that move into Mobile, Ala., for
illustration, move in by barge, and the retail prices in Mobile are
higher than they are in the outlying districts which it is impossible
to reach by the barge line. I mention that only to point out that the
consumer really does not get the benefit of it.

Mr. O'Connell. How would it help the railroads if that barge line
were sold to private enterprise?

Mr. Pellet. I think it would help them in this way : It wo aid be
put on a true basis, then, if private industry, could operate the barge
lines at a profit.

Mr. O'Connell. Has General Ashburn's organization operated at
a loss?

Mr. Pellet. Well, yes.

Mr. O'Connell. I understood the contrary.

Mr. Pellet. I know ; but I say yes.

Senator King. The capital has all been furnished by the Govern-
ment, and that is all loss.

Mr. Pellet. I wouldn't say General Ashburn would agree to that,
but the facts are it has been operated at a loss.

Representative Reece. Is there any shortage of transportation
facilities in this area proposed to be served by the conflicting project?

Mr. Pellet. There is not. There is not any shortage of transporta-
tion anywhere in the United States of that kind. There is a large
surplus everywhere.

Dr. Anderson. Moving then to a conclusion

Mr. Pellet (interposing). Would you mind— I wanted to answer
Senator O'Mahoney.

The Chairman. I don't think we have reached a conclusion yet.

Mr. Pellet. My conclusion is, either stop appropriating money to
develop the waterways that are not needed, or make the users pay.

] 6528 r!ONCENTRATION OF ECONOMIC POWER

On the highways, I don't see a great deal that Congress can do about
that.

The Chairman. But you regard the highway appropriations as in
part at least Government subsidy for a railroad competitor ?

Mr. Pellet. We do, Senator, but we have never gotten into the
position, and probably never will — at least, I won't — of opposing
highway construction. Some highway construction I might oppose,
but generally people want good highways — I like them myself — and
we don't want to get in that position.

The Chairman. The reason I asked you the question, of course, was
because of your statement that what the industry needs in order to
meet its competitive handicaps is equality of treatment by the Gov-
ernment as between the railroads and other agencifes of transport.

Mr. Pellet. That is right.

The Chairman. So, obviously, you were dealing with more than the
waterways.

Mr. Pellet. That is right. Did I say "the government" or "gov-
ernment"?

The Chairman. You said "the government."

Mr. Pellet. I meant all government.

Now the highway problem is very much a State problem. The
State decides what they shall pay, not the National Government, and
therefore it is a matter that has got to be handled in the various
States, and what we say is that we ought to make them pay what
they should pay for the use of the highways, and then restrict the
sizes of these motor busses and trucks to dimensions that the o^her
25,000,000 users of the highway feel is fair and right, and that is all.

The Chairman. Did you happen to hear or read the recommenda-
tions that were made to this committee last Friday by Philip Murray,
head of the Steel Workers Organizing Committee?

Mr. Pellet. No, sir..

The Chairman. I think you might have been interested in them
because the thought that comes to my ihind is that you and he are
taking just about the same position, but with respect to a little dif-
ferent problem.

Your position is that the Government, both State and national,
should do something to help the railroads against the competitive
handicaps which are imposed upon the railroads by reason of tech-
nological advance in the construction of waterways and highways,
and that these new aidvances, competitive modes of transportation,
should be made to pay their own way. Now Mr. Murray's position
was that the steel worker is suffering because technological advance
in the development of the continuous steel mill has displaced him.
He is suffering from the handicaps of competition just as the rail-
roads are. So Mr. Murray suggested to us that we make the tech-
nological advance, namely, the continuous steel mill pay its way,
just as you suggest that we make the highways and the waterways
pay their way.

Now, his suggestion, of course, is that the displacement • of labor
by the continuous mill should be regarded as one of the costs, of this
technological advance, so that human labor wpuld not have tb bear so
much of the brunt, that is particular human labor. Your position
is that the railroads themselves should not be compelled to bear the
whole burden of this advance.

CONCENTRATION OF ECONOMIC POWER 16529

Mr. Pelley. That is right.
. The Chairman. Do you think that this comparison is out of line?

Mr. Pellet. Well, X don't know, Senator. Maybe the steel com-
panies are besfring it now. I really don't know.
• Dr. Anderson. Mr. Pellej, with respect to

The Chairman (interposing). I was going to ask another question.

Mr. Pellet. May I elaborate a little more on this thing and I
think I will clear it up. In these States I said some progress is being
made. You know, we say the highway people don't pay what they
should. Some of them say they do. Not all of them, but some of
them say they do. We go along and don't get very far with it. You
may or may not know that this Committee of Six that was appoi ted
by the President suggested that a temporary board be appointed to
determine just that factor. There is nobody to determine it. Nobody
says who is right. We say that they don't pay, and they say, some of
them, that they do.

The reason I am encouraged about it and think we are making some
progress, the States have begun to look into it. They are spending all
these millions of dollars and not getting it back, and. the time has
come when they have got to look at it and see where the money is
coming from. In two States — Illinois and Missouri — the State au-
thorities on their own account have made a very comprehensive study
to determine, whether or not the commercial use of the highway is
subsidized, and in each case they found that the commercial user is
subsidized.

I feel if these other States Would make the same sort of study, they
would find the same facts. And then it is their job, it is the respective
State governments' job to regulate that, and I think they are going
to be forced to soon because they just can't keep on paying out,
spending many millions more each year than they get back for the
\highways, and I think necessity, will force them to do that.

The Chairman. Have you finished that statement ?

Mr. Pellet. Yes.

The Chairman. When I was called to the telephone, I understood,
you testified that the peak of labor employment by the railroads was
reached about 1920?

Mr. Pellet. That is right.

The Chairman. And how many persons were employed then?

Mr. Pellet. The exact figure I would say is about 2,022,000 — say
2,000,000 men.

The Chairman. And employment fell off thereafter, reached a low,
and then picked up again and reached another high point in 1937 ?

Mr. Pellet. Yes.

The Chairman. It was then how much ?

Mr. Pellet. About 1,100,000.

The Chairman. Now, today, what is the employment?

Mr. Pellet. About 1,000,000 men, in round figures.

The Chairman. Now the railroads have recognized, have they not,
the importance of taking care of displaced labor in the so-called
^Washington agreement?

M^. Pellet. Yes.

The Chairman. Briefly, what is that agreement?

16530 CONCENTRATION OF ECONOMIC POWER

RAILROAD LABOR POLICIES

Mr. Pellet. Senator, I think I should explain that. Since you
brought that up, the natural question here is, What can the railroads
do about this labor? Of course, there' are some things we can do and
there are some we can't do, and I wish I had something constructive
to suggest to you that might be done, but I can tell you what we do
in taking care of our employees. I believe the railroads are the first
to have a voluntary pension plan. My information is that the first
voluntary pension plan in this country was made in 1882. Now, the
railroad I worked for for many years established a voluntary pension
plan 39 years ago, in 1901, and these pension plans have been fairly
liberal. For every year that he was in the service, a nuin would get
1 percent of his average salary during his Inst 10 years in the service.
To state that precisely, if a man had worked 40 yeai s and had averaged
$100 a month, he would get $40 a month peiision as long as he lived.

Well, some 90 percent of the railroads, probably 95, had these vol-
untary pension plans. A few had none, and, of course, the men
wanted a pension on all roads.

The Chairman. When you speak of a voluntary pension plan, you
mean that the railroads themselves adopted the plan voluntarily?

Mr. Pellet. Voluntarily, and paid all the costs.

The Chairman. And the workers Avere not required to pay any
part of that cost, is that a correct understanding?

Mr. Pellet. That is right, they were not required to pay anything.

The Chairman. In any of the plans?

Mr. Pellet. In any of the plans that existed ])r'i()r to the enact-
ment of this law. It was all voluntary, all sup])lied by ihe railroad
management.

Then, as you very well know, the men AAanlod a Inw giving them
a pension and many of us couldn't quarrel very much with them
about that. This was a voluntary thing and they could visualize
that the railroad might get into such financial difficulty that they
wouldn't be able to pay it. After they had worked all these years,
it mighl be shut off. So as you gentlemen know very well, we agreed
Avith them on a pension plan and we now have one under the law.

We also have an unemployment insurance j)lan. :i law that was
passed here that costs us about $60,000,000 a year. Tiiis pension law
costs us about $()0,000,0()() a year-^ percent of, sav, a $2,000,000,000
pay roll. 'J'here is about $120,000,000 in round figin cs that the rail-
roads are being taxed each year for the benefit of tlieir men.

In addition to that is the thing you mentioned. Senator. We made
an agreement with the men, the so-called Washington Agreement,
that covers men displaced by reason of an act of two or more rail-
roads. If two railroads get together and consolidate a facility, those
men are provided for under the Washington Agreement. There might
be 8 or 10 railroads involved in it. That is a rather liberal arrange-
ment. For instance, if a man is displaced by reason of a consolidation
or coordination, under the Washington agreement if he has been in
the service for 15 years, he will get 60 percent of his salary for 5
years, which certainly gives him a chance to adjust himself, and it
may be that he can get employment elsewhere. The chances are that
he can because the youngest men on the road are always displaced.

CONCENTRATION OF ECONOMIC POWER 16531

The Chairman. Now, the railroads are far ahead of other indus-
tries in this regard, are they not?

Mr. Pellet, Some individual industries may have done as miich.
I would say generally, yes, Senator; and we feel this way about it,
that while we regret as much as anybody could the necessity of dis-
placing men, we are now doing for them about all, or maybe a little
more than, the traffic will bear.

The Chairman. What is the necessity of displacing men? To
what extent is that a problem ?

Mr. Pelley. Well, I don't know just how you want that answered.

The Chairiman, You say you regret the necessity of displacing
men. Now, obviously there is this problem of labor displacements.

Mr. Pelley, Yes.

The Chairman. Otherwise, you wouldn't have made that Wash-
ington agreement. Now to what do you attribute this displacement?
The combination of railroads or the substitution of one facility for
more than one would have that result. Are there any other factors ?

Mr. Pelley, Well, of course, the railroads have built up a plant
to handle probably twice as much business as they have got, I say
twice as much; I don't think that is overstating it. They haven't
got it, so they must pull in in every way they can, reduce their ex-
penses in every possible way to meet the increased costs of operation
we have had, the increased prices of material, and more taxes — this
$120,000,000; much of that is

The Chairman (interposing). In other words, to maintain this
plant which is double the capacity of the business that you get, it
becomes necessary, in the effort to economize, to curtail the number
of employees?

Mr, Pelley. Well, the loss of revenue has brought that all about,
but to answer you fully, there have been a great many instances
where railroads could joift together, use one facility and eliminate
another.

Senator King, Use the same roundhouse and machine shops,

Mr. Pelley, Yes, and in that way you would eliminate some men.
That is what I meant by coordination and consolidation of facilities.
In one instance they abandon some service and the other railroad
does the business for both railroads.

The Chairman, Hoav about the improvement in locomotives?

Mr. Pelley. We have had a tremendous improvement in loco-
motives which is all technological, as I pointed out.

The Chairman, And that has resulted in h>n<^er trains, and be-
cause of longer trains we have had these vari.Mis bills to limit the
number of cars to be hauled by one locomotivp,

Mr, Pelley. Well, that has had something to do with it, but it
looks as if that has reached the limit and might be going down. We
have speeded up our trains so much, and in many instances many
freight trains are running like some passenger trains used to run.
That long-train problem, I think, is probably on the wane. That
has reached the peak in my opinion.

The Chairman, I wasn't talking about that. I was wondering
whether this improved rolling slock, enabling you to use longer
trains and faster trains, has had any effect upon employment.

Mr. Pelley, Well, yes ; it has.

The Chairman. It has reduced employment.

16532 CONCENTRATION OF ECONOMIC POWER

Mr. Pelley. Oh, yes ; and tlie construction of the locomotive itself,
better material, better design, has eliminated a great deal of repair
work, which has eliminated some men.

Senator King. You have improved your tracks, too, with heavier
rails so that has caused a great deal of expense, but in the long
run it has cut down some of the expenses for maintenances.

Mr. Pellet. Yes.

The Chairman. So that here is a definite case illustrating that
technological advance has displaced human labor.

Mr. Pelley. There isn't any doubt of it.

The Chairmaist. What is the mileage, the railroad mileage, today
as compared with mileage in 1920 ?

Mr. Pelley. Oh, I would say that we have abandoned probably
19,000 miles since then, 18,000 or 19,000 miles.

The Chairman. What percentage would that be of the total ?

Mr. Pelley. The maximum was a little over 250,000 miles.

The Chairman. The maximum reached when?

Mr. Pelley. In 1920.

The Chairman. And to what extent has abandonment of line con-
tributed to labor displacement?

Mr. Pelley. Well, some, not a great deal. Of course it is always
a. branch line that never did employ very many men that has been
abandoned. That hasn't made a -very large difference.

Senator'KiNG. Did, the large railroads have much invested in the
short-line railroads, rural railroads? They had so many in Illinois
and Indian^,, We have some in our State that have been abandoned
as I understand. I was wondering if they were controlled or owned
or operated to.any extent by t-lie railroads.

Mr. Pelley. You don't mean the electric lines.

Senator King. The electric lines.

Mr. Pelley. Very little, perhaps the New Haven owned more than
the rest put together.

Senator King. Of course, there has been a great loss there.

Mr. Pelley. I think the Southern Pacific has one electric line and
outside of that I wouldn't know. where to tell you to find any others
except on the New Haven ; they had a great many of them up there, in
fact practically all of them.

The Chairman. Would I be correct in assuming that the railroads
as a whole have more equipment now than they ever had?

Mr. Pelley. No, sir ; they have less.

The Chairman. How much less?

Mr. Pelley. Dr. Parmelee will give you those exact figures, but we
have about 700,000 fewer cars and a good many fewer engines.

Representative Williams. How much less «arloadings and transpor-
tation business do you do, and passenger traffic, comparing 3937 with
'20 ? During the loss, we will say, of a million men in the employment,
how did the general business of the railroads compare?

Mr. Pelley. The general business dropped down about 50 percent
when it was at its lowest. It Was cut just about in half.

Representative Williams. Let's take it in '37, if you have that, the
late peak of employment.

Dr. Anderson. Much of the ground that is being covered by question
and answer will be given in very considerable detail by Dr. Parmelee.

Representative Williams. I just wanted that general picture, if y

CONCENTRATION OF ECONOMIC POWER 16533

had it, with reference to the amount of business that was done during
those years in comparison to the number of men who were employed.

Mr. Pellet. You asked for a particular year?

Representative Williams. I asked at the peak and in '20 when you
said there were 2,022,000 men employed and then in '37 when it
dropped off practically 1,000,000.

Mr. Pellet. You won't mind if Dr. Parmelee answers this. It
liappens that this chart starts with 1921.

Representative Williams. Well, the best you have.

Mr. Peixet. I think your question is a better question, though,
because business was better in 1920 than it was in 1921.

Dr. Pakmelee. Can we work this out and give it to you?

Representative Williams. Yes.

EFFORTS TO INCREASE BUSINESS

The Chairman. Let me ask just one more question, Mr. Pelley, and
I will turn you over to Dr. Anderson. What has been the policy of the
railroads toward increasing traffic upon the roads? What do you do to
build up business?

Mr. Pellet. Well, of course, first of all we solicit all we can, and
then we make rate adjustments if it is necessary to get business or to
retain business. If we see we are about to lose business to a competitor
because of a rate situation we try to meet it.

Senator King. But you have to go before the Interstate Commerce
Commission to get the rate.

Mr. Pellet. Yes ; but I will say we don't have much trouble getting
that ; we don't have a great deal of trouble getting authority. Some-
times we do because they might think that it is not in the public inter-
est to reduce the rate, but those are the two things that we can do.
And, of course, we oner better service, we improve our service, and
try to give any kind of service that will get the business.

Dr. Anderson. Do you find any difficulty, Mr. Pelley, in obtaining
immediate reductions from the Interstate Commerce Commission?

Mr. Pellet. Oh, I think probably I would have to say not a great
deal. " The Commission cooperates pretty well.

Dr. Anderson. So rate reduction as a procedure for attracting new
business is the real way to go ahead ?

Mr. Pellet. You know there may be some cases where the Com-
mission might feel that it is not in the public interest.

Senator King. Frequently or occasionally applications are made;
for instance, you get a market in the East for a strawberry crop or
peach crop or some perishable crop and you can't keep it indefinitely
(in my State we frequently get markets in the East for superior
vegetables, and so on). By the time that you convert it, and you
easily convert it because you want the traffic, and we get the Interstate
Commerce Commission converted, the crop is wasted. I have in mind
a peach crop. It is lost before you can get the rate which you are
willing to give us carried into effect under the direction of the Inter-
state Commerce Commission. I ought to say, though, that they are
very responsive and do all they can, but still you have that hurdle to
cross whenever you want to cut a rate.

Mr. Pellet. That is true, but I would say that they cooperate very
well.

16534 CONCENTRATION OF ECONOMIC POWER

Representative Reece. Would you say, Mr. Pelley, that technologi-
cal advancement is the major cause of the decline in railway employ-
ment ?

Mr. Pellet. No, sir.

Representative Reece. It is loss of business.

Mr. Pellet. Loss of business.

Representative Reece. The railroads are the servants of business
and not its masters.

Mr. Pellet. Yes.

Representative Reeoe. There must be business before there is any
major increase

The Chairman (interposing). Loss of business may be attributed
to some extent at least to unemployment, I suppose. All the factors
that enter into a depreciation, that is the cause of loss of business.

EFFECT OF TECHNOLOGT ON EMPLOTMENT

Representative Reece. That has to do with the other phase of the
question I was about to ask. How does the number of people em-
ployed in the transportation industry today compare with the number
of people employed in the transportation industry in 1920 in relation
to the amount of traffic moved ?

Mr. Pellet. I would say there are more employed in the whole
transportation industry today than in 1920. I haven't that

Representative Reece (interposing) . I realize you are speaking in a
general way.

The Chaerman. Do you mean the whole transportation industry ?

Representative Reece. Yes ; in relationship to the amount of traffic
being moved.

The Chairman. You weren't speaking of the railroads alone?

Representative Reece. That is right. I was including bus and
water.

Mr. Pellet. I would say, Congressman Reece, that there are more
men employed in transportation today in relation to the tons moving
than in 1920.

Representative Reece. Then, Mr. Pelley, how would you account
for your statement that loss of employment is due to technological
advancement?

Mr. Pellet. Oh, it is ; some of it, a great deal of it is.

Representative Reece. But when you take the transportation indus-
try as a whole, is that true ?

Mr. Pellet. Well, the fact, Mr. Reece, that there might be more
men employed in transportation as a whole, if you consider the char-
acter of the work done by these various agencies, and the way they
do it, it wouldn't necessarily follow that none of our men have been
displaced because of technological reasons. For instance, just visualize
5 men on a train, if you please, handling as many tons as probably 100
fellows on trucks would handle; you have to have a driver for every
truck, and some of them have 2, one to relieve the other.

Representative Reece. Yes; and you would say the loss of your 5
men was due to technological development, that is motor truck, but on
the other hand it resulted in the employment of 100 people in another
phase of the transportation industry at the same time. The net result
was an increase of employment in this particular instance.

CONCENTRATION OF P]CONOMIC POWER 16535

Mr. Peii-et, Not because of technology. We just lost this business,
that is the reason they put their men to work, and it takes more men
to handle the same tonnage in trucking than on the railroads, so there
would naturally be an increase in employment there.

Senator Kin6. The technological development to which you referred,
which was included in your answer to the Congressman, referred to
the waterways and to trucks.

Mr. Peixey. I was confining my statement to the railroads only.

Mr. O'CoNNEix. On that line, Mr. Pelley, my attention has been
called to an exhibit that w^as introduced before this committee last
week as Exhibit No. 2441,^ and it refers to the volume of traffic on
class I railroads in 1920 and in later years, and the volume of employ-
ment in the same years, and it might be interesting to note that on an
index basis the volume of traffic in 1920 was 105.3, and in 1937, 84.9,
about a 20-percent reduction. Now, if we take employment figures
during the same year, we find employment in 1920, 118.4, and in 1937,
62, so that with the 20-percent reduction in volume of traffic you have a
little more than 50 percent reduction in the volume of employment, and
I take it that the difference would represent roughly at least the extent
of technological change.

Mr. Pelley. Well, and possibly deferred maintenance, but certainly
a big fraction of that would be technological impro^'iement.

Mr, O'CoNNELL. I don't quite see how deferred maintenance would
figure. Volume of traffic is physical volume of traffic and employment
is wages.

Mr. Pelley. Well, you have got all the costs there. Maintenance
means

Mr. O'CoNNELL (interposing). It is all employment of course. I
see ; you mean you might have cut down on your maintenance force.

Mr. Pelley. Mr. Williams, I believe that answers your question.

Representative Williams. Yes; largely. That is along the line
of it.

Mr. Pelley. Dr. Parmelee will give you that figure.

Mr. Pike. I think it is true that in 1920 you were making up a lot
of previous deferred maintenance that was deferred during the war, so
that you had really an excess number of employees at that time on
maintenance. That would be my memory. You were just coming
out of Government hands ?

Mr. Pelley. Well, there was some maintenance deferred because
it wa3 difficult to get men to do it.

Mr. Pike. Labor efficiency wasn't very high at that time.

Mr. Pelley. It wasn't very high, and the plant had been pretty well
used up.

Mr. Pike. You had really deferred maintenance in there that you
were tidying to make up at that time as I remember.

Mr. Pelley. I think that is right. In other words, you think, Mr.
Pike, that this ^,000,000 men was somewhat inflated.

Mr. Pike. That is what I mean, beyond normal for the technologi-
cal status at that time.

Mr. Pelley. No doubt about that ; yes, sir.

Mr. HiNRiCHS. Did that stepping up of activity to overcome the old
plant concentrate in 1920 or did it begin more particularly in 1923 —
1922, or '23?

1 Spi» nnnpndlx. n. 17310.

16536 CONCENTRATION OP ECONOMIC POWER

Mr. Pelley. It started in 1920 with reference to maintenance, but
in 1923 the railroads entered into a plan to fix it so there never would
be any more railroad shortage of transportation in this country.
They bought a great deal of equipment and they built larger and
better terminals and improved the equipment and the general line sit-
uation a great deal, and spent about $7,000,000,000 in doing it, so the
real campaign started, as you 3Uggest) in '23.

Senator. King. So the railroads had run down a little bit during the
war.

Mr. Pellet. Well, they were pretty severely used, -Senator. King,
during the war; yes.

Senator King. You had to employ in many instances, or did em-
ploy in many instances, persons who had not been skilled in labor.
You employed young men, and older men and women in some of
your activities,

Mr. Pellet. That is right.

Dr. Anderson. Your thesis is, Mr. Pelley, as I get it from this state-
ment that the railroads of America are a dynamic industry.

Mr. Pellet. That is right.

Dr. Anderson. That being dynamic they can take advantage of any
chance there is to go ahead in terms of increased volume of business,
increased employment, better times leading to prosperity in that in-
dustry generally.

Mr. Pellet. That is right.

Dr. Anderson. And you point out in the beginning of your state-
ment an example of it.^ You 3ay that after the trough of '32-'33, you
need point only to the year 1937 as an illustration of what you have in
mind.

Mr. Pellet. That is right.

EFFECT OF INCREASED BUSINESS ON EMPLOTMENT

Dr. Anderson. I would like to read you some figures from Mr.
Parmelee's own compilation in order to bring out a point that may
be of crucial significance to this discussion of technology. I am
taking data directly from his compilation that he will present to us
this afternoon, in comparing 1933 with 1937. I took total mileage
operated, total tracks rather than that first figure given, and it
showed in comparing '33 with '37, now, decline of about 3 percent.^
Freight ton-miles shows an increase, and this does show the dynamic
quality of your industry, from the trough in '32-'33, or '33 here, to
'37, of 45 percent.^ Passenger-miles showed an even greater increase,
or 51 percent.* The number of employees used, however — and this
I take it is average number of workers engaged in the industry, it
doesn't talk about full-time einployment — increased only 15 percent.''
That is, the volume of freight ton-miles and passenger-miles in-
creased 45 or 50 percent. The number of employees increased, how-
ever, only 15 percent. The total hours worked increased some-
what better, considerably better, 25 percent.** The total compensa-

' See p. 16518.

* See ^'Exhibit No. 2491," appendix, p. 17350

» See "Exhibit No. 2501," appendix, pp. 16570, 17355

* See "Exhibit No. 2502," appendix, p. 17469.

»See "Exhibit No. 2517," appendix, pp. 16582, 17362.

* Ibid.

CONCENTRATION OF ECONOMIC POWER 16537

tion paid almost kept pace with the freight- and passenger-mile
increases, namely, 41 percent, but your unit cost of operation actually
declined with this 45-percent increase in freight ton-miles. There
was a decline of 1 percent in unit cost of freight operation, and an
increase of only 6 j^ercent in passenger unit costs/ Now, the ques-
tion I would like to ask, if these figures are correct, is. Is it likely,
even with an upswing of business of such proportions as indicated by
these figures, from '33 to '37, that this is the characteristic trend with
respect to employment, that employment will not be comparably in-
creased with the volume increase of business of the railroads?

Mr. Pelley. 1 think that is a fair deduction. You understand
that unless business is very heavy, some more business can be taken
on with very little cost. That is, you have got an organization set
up to handle a certain volume of business that fluctuates, so therefore,
if you take some more business, you can handle it at very little added
cost, and with very little need for more men up to a certain point.

Trains run full. You have got a certain fixed number of em-
ployees you can't dispose of, even though your business may be at
very low ebb, and when the business comes. on you don't add em-
ployees to that particular switching yard, or whatever it may be.
There are just many fixed men around whose immber doesn't fluctu-
ate, so therefore, when your business increases, you can handle it
without adding a great many more men. It does not always follow
that if you have a 10-percent increase in business you are going to
have a 10-percent increase in employment, because many of your
men are fixed, and they are there to handle big business or little
business, and their expense does not fluctuate at all.

Di'. Anderson. So that if we thought in terms of a much ex-
panded railroad industry, in terms of volume of freight- and pas-
senger-miles, and volume of business, we must be very careful, must
we not, not to assume immediately that this dissipates the whole
problem of unemployment in railroads?

Mr. Pellet. That is right.

Dr. Keeps. I should like to continue the line of reasoning that
Mr. Pelley was following a moment ago. I recollect that m the
hearings on the Works Financing Act of 1939, Mr. Pelley testified
that even in 1937 there was a capacity to take care of 25 percent
more traffic than was being taken care of at that time.

Mr. Pellet. What time is this?

Dr. Kreps. In 1937. He said in his statement that —

We could take on about 25 percent moi'e business than we now have with
this equipment that is now ready, and by repairing different oars we probably
could handle more business than we are handling now.

That is on page 72 of this print.

Pursuing Dr. Anderson's line of questioning, it would take some-
thing in excess of 25-percent increase in the railroad traffic over 1937
before you would begin to get proportional additional employment
to traffic; is that correct?

Mr. Pf_llet. I wouldn't say that far; I would not say 25 ])ercent
more. You see, you are going to have some added employment im-
mediately ; you are going to run nn i v- trains, yon are going to employ
more men to run theiii.

» .Spfi "Exhihit No. 2r,\H." appendix, pp. lr.-,,S(!. 17:'.6'_'.
1244!)1— »1— p(. .".0 — 2.T

16538 CONCF.NTRATION OF ECONOMIC POWER

Dr. Kreps. I um still correct, am I not, that according to your own
figures and estimates that you were operating even in 1937 at some-
thing like 75 percent of capacity 'i

Mr. Pelley. Oh, yes.

Dr. Kreps. Therefore, there could have been a considerable expan-
sion in volume of traffic over 1937 without much increase in addi-
tional employment. As you have testified to Dr. Anderson just a
moment ago, the increase from 1933 to 1937 did not result in cor-
responding increase in employment because you had the capacity
already there, and you had to have men in 1933 to keep the plant
in a stand-by condition. I am trying to get, you see, an estimate of
the amount of increase in railroad traffic that would be necessary,
(a) before we would get more additional employment, more than a
proportional increase. in employment, and (6) before we would get
any substantial increase in employment.

Mr. Pellet. Now, any sizable increase would bring some addi-
tiofial employment.

Dr. Kreps. But not proportionally?

Mr. Pellet. No ; I wouldn't think so.

Mr. O'Conneli.. May I ask this question right there, Mr. Pelley?
During the same hearing to which Dr. Kreps has referred there was
some discussion with regard to the existing plant of railroad com-
panies, particularly rolling stock, as to whether it was in good shape
or whether there was need of replacement.

Mr. Pellet. What hearing is that ?

Mr. O'CoNNELL. The works-financing bill of last year, before the
Senate Banking and Currency Committee. You testified and Mr.
Eastman testified. There was some extensive discussion about just
how obsolete, or how much need of replacement there was in the rolling
stock of the various railroads. A little earlier you indicated that the
physical plant of the railroads was in general in much better condi-
tion than is popularly supposed. It seemed to me in that same hear-
ing that there was some testimony to the effect that rolling stock was
relatively old, from which I would derive two things : that a substan-
tial amount of it was in need of replacement, and that the operation
of the equipment now being used probably results in a higher main-
tenance cost than were the equipment replaced.

Mr. Pellet. Yes. I think the latter is particularly true.

Dr. Anderson. Mr. Pelley, I wanted to pursue this point from the
standpoint of a downward swing in the volume of business and see
what the effect is upon the labor force employed.

I did the same thing, took Mr. Parmelee's figures and made a com-
parison now, between '29 and '39. Freight ton-miles were reduced
25 percent ; ^ passenger ton-miles, 27 percent ; ^ number of employees
employed in that reduced business, 41 percent; ^ and unit cost of
freight operations, 9 percent; and passenger operations, 15 percent.*

Now, it would appear from these figures that either on the upswing
or downswing of railroad, business, labor fares badly. Just as you
pointed out thot on the upswing of business there is considerable like-
lihood that labor will not share proportionately in increased business,

1 See "Exliil.it No. -2501." appendix, p. 17355.

2 See "Exhihit No. 2."02," appendix, p. 17355. '
» See "Exhibit No. 2.")17," appendix, p. 17361.

* See "Exhibit No. 2518," appeadlx, p. 17362.

CONCENTRATION OF ECONOMIC POWER 16539

SO on the downswing labor is displaced more rapidly than the volume
of business drops. Would you explain that ?

Mr. Pellet, Well, of course, when the business goes down, the rail-
roads have got to put the expenses down with the business, and with
the wage bill being 60 percent of total expenses on a railroad, it is just
impossible to reduce expenses a great deal without touching the men.
You have got to reduce your employees, that is all. Some of it is
better methods — you find cheaper ways of doing things — and some of
it, of course, is simply deferred work.

You see, you couldn't do much with your expenses on the railroad
unless you get into the men ; it is unfortunate, but it is true, because
some 60 percent of all of our expenses are the men.

Dr. Anderson. Now, that leads to a question of great concern, it
seems to me, from the standpoint of this problem and the railroads'
dilemma.

On page 16519, you make the contrast between problems of the rail-
roads in the past, when the big problem, I take it, the principal stim-
ulus to technological progress in the early days was the urgent need
for more mileage, equipment, and more men to operate the plan.
Tliat was during the days when you were developing the transporta-
tion system of the Nation?

Mr. Pellet. That is right.

Dr. Anderson. Would you say the transportation system of the
Nation, overall, in the gross is adequate at the present time? I am
thinking now in terms of mileage of track, of facilities available for
anything like a reasonable increase in business over present business.

Mr. Pellet. Yes.

Dr. Anderson. Then you say, "In more recent years, the problem
lias changed from one oi rapid physical expansion to one of intensive
struggle against depression, and against growing competition." We
developed that thought a while ago. In this new problem, is it true
that since labor is such a large proportion of the total cost, and the
railroads are forced to face intensive price competition, railroad labor
is likely to be more adversely affected than it was formerly by
changes ?

Mr. Pellet. Woll, I don't know that I would say "more adversely,"
because in the past 10 years, the railroads have had to do everything
they could do to reduce their number of employees and therefore
reduce their expenses.

Now, it will probably be just as severe in the future as it has been '
in the last 8 or 10 years, but I doubt if it would be more so.

DISTRIBUTION OF RAILWAY EARNINGS

Dr. Anderson. I wanted to get your jud^ent on one other point,
Mr. Pelley. This new book of the Brookmgs Institution treats of
railroads in several instances. I read this statement from page 35 of
Spurgeon Bell's book Prodicctivity, Wages, and National Income:

Wages declined as a percentage of total income in contrast to salaries and
earnings to capital. The relative trends of the sevaral shares as percentages
of total income in j'ears of comparable prosperity are indicated in the table
which follows :

It will be seen that wages as a percentage of income declined materially in
the 20's. The percentage in '36-'37 was appreciably below that of the -early
'20's ; salary as a percentage of income declined somewhat in the '20's, but rose

16540 CONCENTRA'I'ION OF ECONOMIC POWER

ill the '30's to a figure above that of the early '20's. Earnings on capital in
relation to the total income increased markedly in the '20's, and then declined
sharply in the '30s. In '36-'37 the percentage was, Iiowever, above that of
'23-'24.

I realize that hurried reading of that kind makes it difficult for
you to follow, but the point made is that wages declined as a per-
centage of total income in contrast to salaries and earnings of capital.

Mr. Pellet. In what period?

Dr. Anderson. The twenties and the thirties are being compared.
Does that seem to you to be a fair staten^ent of the situation? It is
true that in these two periods under review, wage earners' income did
not follow the same course as salaried workers' income, in relation
to total earnings? In other words, did salaried workers profit more
by tlie conditions that are now operative than wage earners ?

Mr. Pellet. I had not thought that that was true in the twenties.
I don't question it, but I had not thought that that was so. I
thought the wage earners kept up pretty well.

Dr. Anderson. Do wage earners and salaried workers in the rail-
roads industry receive the same treatment with respect to these prob-
lems of employment and unemployment, that you have been indicat-
ing earlier, such as retirement and other privileges?

Mr. Pellet. Oh, yes.

Dr. Anderson. There is no difference?

Mr. Pellet. No. Now, that wouldn't apply at all times to the
salaried officers, but pretty generally, it does.

Dr. Anderson. Well, is it true that in the period of declining em-
ployment they are affected equally? Put it this way: is the salaried
labor force more stable than the wage-earning labor force, or lees so ?

Mr. Pellet. Probably, yes; a little more stable. I should think so.

Mr. O'Connell. I have one collateral question that relates to what
you had to say earlier in ydur testimony about the degree to which
competing methods of transportation have been subsidized in one
Avay or another. Are you familiar with the report of Mr. Eastman's
committee which is referred to in the morning press as just having
been released on that same subject? ^

Mr. Pellet. I have not seen the finished report. 1 have had mom
or less information about it from time to time, as the report was
being made. But I really haven't seen the finished report, and don't
know exactly what it says.

Mr. O'Connell. The news report or article indicated it had been
widely circulated in draft form to the various interested people.

1 thought you might have seen it.

. Mr. Pellet. I have seen the draft of it sometime back. In fact,

2 or 3 years ago when the first draft came out. But I don't know
how the finished product looks.

Mr. O'Connell. Unless it is wrongly reported, it seemed to me
that the report comes to a somewhat contrary conclusion from that
reached in the statement. I don't think we can discuss it, but I
thought the existence of the report ought to appear in the record,
and as 1 understand it, it comes tx) a somewhat different conclusion
than you do.

> Joseph Eastman, Public Aids to Transportatioil, CJovernmcnt I*rinting Office, Wash-
ipgton, 1940.

rONCENTRATTON OF KOONOMIP I>OWEIl 10541

Mr. Peixey. If (lie final ioi)oit is aiiydHiij;" like the diaft 1 once
saw, then it difi'ers a great deal from my view.

Dr. Anderson. Mr. Pelley, we referred earlier in the hearings to
the period of •21-'22, when the railroad industry was taking back
its enterprise and beginning to operate again after a period of
Government operation. This same Brookings treatise argues that at
tliat time unionization had flourished, under Government encourage-
ment, to a point where labor would be able to maintain the gams
realized during the period of Grovernment control. Then this state-
ment follows, which I would like very much to have you comment
on:

Tliis rise in the wages of labor had a stimulating effect on the development
of labor-saving devices and the improvement of labor management so that
labor costs might be brought more into accord with wage costs jirevailing
before the Government secured control of the railroads.

Mr. Pelley. I think that is a fair statement.

Dr. Anderson. And that is exactly what occurred, was it?

Mr. Pelley. I think so, yes, sir; I would say that is a correct
statement.

Dr. Anderson. Would you say that it is generally true that when
wage rates are moved upward by some agreement in the railroad
industry, railroad management makes every effort to nullify the
etfect on total cost by technological improvements?

Mr. Pelley. Yes, sir ; I think any other answer would be less than
frank. I think they do.

Mr. Pike. You wouldn't just narrow that down to railroads?

Mr. Pelley. Well, I wouldn't care to comment on industries that
I do not know much about, but I know that that is true of the indus-
ti-y that I have spent my life in.

Mr. HiNRiCHS. In that connection, Mr. Pelley, even under condi-
tions of vStable wages, isn't the railroad industry making continuous
efforts to decrease labor costs?

Mr. Pelley. Yes, sir.

Mr. HiNRiCHS. In your judgment does that situation cliange very
.sharply at a time when a wage increase is granted?

Mr. Pelley. Well. I don't know that I would say very sharply,
but it changes, there isn't any doubt about it.

Mr. HiNRiCHS. Can you illustrate it concretely, because it is at
variance with some of the experience that we have found in other
industries, some of the heavy manufacturing industries, for example.
Can you illustrate out of the railroad experience where this time
relationship between a wage increase and increased efficiency of
labor has been demonstrated?

Mr. Peli^ey. No ; I couldn't, but certainly it stinmlates manage-
ment to look about to' see what they can do in the way of reducing
the munber i)f employees to meet as nnich of that increase as they
can, and it at least brings them to a very careful looking over;
they are looking all the time for reductions in expenses, but it
certainly at least brings on a special campaign to reduce the number
of employees as much as possible to offset the increase in wages. I
think that is about as much as I can say about that.

16542 CONCENTRATION OF ECONOMIC POWER

EFFECT OF DISPLACEMENT ON AVERAGE AGE OF WORKERS

Mr. HiNRiCHS. While I have interrupted, may I ask another ques-
tion ? When displacement occurs on the railroads, it is not the older
worker on the railroad that is affected, but the younger. Is that
correct ?

Mr. Pellet. That is correct.

Mr. HiNRioHS. So the complaint which we have heard frequently
with reference to other industries as to the peculiar disadvantages of
technological displacement to the older worker would not be true of
railroads?

Mr. Pellet. No, sir.

Mr. HiNRiOHS. That is a provision of your various collective agree-
ments, is it not, and has been developed by the railroads in con-
junction with the unions?

Mr. Pellet. That is correct.

Mr. HiNRiCHS. That situation holds for the transportation workers.
Does it hold in the shops in the same way ?

Mr. Pellet. Yes, sir.

Mr. HiNRiCHS. How about maintenance of way?

Mr. Pellet. The same way,

Mr. . HiNRiCHs. It holds true throughout the entire realm of rail-
road work?

Mr. Pellet. Yes, sir; if the man is qualified to do the work, the
senior man gets it. I don't know of anybody who was ever dis-
qualified.

Dr. Anderson. Mr. Pelley, do you think that is an impediment to
efficient operation or not?

Mr. Pellet. Well, sometimes that is questioned, but we feel that
it is right, and if it does bring about some deficiencies here and there,
we feel that we ought to absorb them.

Dr. Anderson. In other words, in your industry management has
some regard for ethics in this respect. By "right" you mean moral
right?

Mr. Pellet. We think it is fair treatment to the men to give the
senior men the work, and otherwise we have generally felt the sen-
iority rule was the men's rule, and we think it is fair. We are
criticized sometimes because probably we have some of our older men
on passenger trains or meeting the public. Some of our patrons might
prefer to see some snappy young man in the job, and we get a little
criticism of that kind, but not much. We feel that the traveling
public generally are very much in sympathy with these older men
having the jobs because they have had much experience, and they
knnw that they are efficient, sober men and that they are in good
hands when they get on trains manned by men of that type. We just
think it is right ; we agree with the men 100 percent on the seniority
rule. We offer no objections to it at all. In fact we are for it.

The Chairman. Have you finished with'Mr. Pelley?

Dr. Anderson. Mr. Pelley has kindly consented to come back this
afternoon and be with Mr. Parmelee to answer any questions that
might arise in the discussions that will follow the presentation of Mr.
Parmelee's figures.

The Chairman. Mr. O'Connell referred awhile ago to the report of
Mr. Eastman. Of course, I think that that deals with a little differ-

CONCENTRATION OF ECONOMIC POWER 16543

eHt subject from what we are handling here, namely, technological
improvement and labor, but it occurs to me to suggest, Mr. Pelley,
that perhaps in the interim between now and this afternoon you
might care to look at some of the press reports on Mr. Eastman's
four-volume study which apparently has just been made public,
because he deals with this whole question of public aids to trans-
portation, including highway transportation, waterway transpor-
tation, and air transportation, and apparently he makes an attempt
to evaluate the total amount of public aid to the railroads from the
period of construction down to more recent aids by way of R. F. C.
and P. W. A. Likewise, he attempts to evaluate the Government
aids to waterways in construction of the waterways, and to the air
lines in various subsidies, mail contracts, and the like, which have
been extended to them. Whether it would be appropriate to go
into the matter I do not know, but since we opened it this morning
perhaps somebody may want to ask you some questions this after-
noon, although it may be more desirable to keep our attention upon
rhe question of employment and technological advance.

Mr. Pellet. I will be very glad to answer any questions I can. I
will have a look at it. I have seen the draft, Senator, some time
back, but I have not seen the finished report.

The Chairman, Of course, to me the significant thing about it is
this. I don't want to go into any attempt to analyze the correct-
ness or lack of accuracy in this report or any other report, but it is
significant that throughout the history of the Government, ever since
the Constitution was drafted and the First Congress sat, we have been
appropriating public money for the aid of business of one kind or
another. Congress has never ceased appropriating money to stimu-
late business since it first began to appropriate for rivers and har-
bors. Wlien the railroads came they constituted a technological
advance that put the canal companies out of business. Of course,
now the railroads are having their little troubles with waterway
and highway transportation again. But the whole problem, so far
as those of us sitting on this side of the table see it, is how the Gov-
ernment may aid all forms of business and what adjustments of one
to the other can be made so as best to provide full employment for
the masses of the people now living, and living each year,

Mr. Pellet. That is right.

The Chairman. The committee will stand in recess until 2:15.

(Whereupon, at 12:25 p. m., the committep recessed until 2:15
p. m. of the same day.)

AFTERNOON SESSION

The hearing resumed at 2:20 o'clock, Senator O'Mahoney, the
chairman, presiding.

Dr. Anderson. Mr. Pelley is with us for an answer to a question
you asked him just prior to the luncheon hour.

Mr. Pellet. Mr. Chairman, that was quite an assignment you gave
me during the lunch period, but I want to say that I had seen a
draft of this report, and it seems the final report is somewhat similar
to the draft. They find some rather astonishing things. The fii'st is
that they take the position that goveninients of all kinds ought to
pay 60 percent of the cost of maintaining highways and that the users

16544 CONCENTRATION OF ECONOMIC POWER

of the highway ought to pay only 40 percent, and with that assump-
tion they find that the highways are not subsidized. They call it aid.
I call it w*hat it is, subsidy. And that is the basis on which they
conclude that the users of the highways are really paying a little
bit more than they ought to pay.

We don't agree with that at all. When 1 say "we" I don't mean
the railroads necessarily,

^ think I ought to tell you this, that when this draft came out we
had a look at it and we employed three very outstanding highway
engineers in this country, no one of whom ever earned a penny from
a railroad : Dr. Breed, who is the head of engineering of M. I. Ti,
supposed to be one of the best technical scL. )ls in the world; Mr.
Downs, who is a highway engineer in West Vir^ inia ; and Mr. Clifford
Older, of Illinois, the father of slab highway construction, one of the
most eminent highway engineers in the w^orld. And they wholly dis-
agreed with that. They say that the users of the highway ought
to pay about 75 percent instead of 40, and that Government ought to
pay about 25 percent.

You can see what a wide difference that would make. This first
draft that I saw covered a period of some 11 years. I didn't have the
time to check just w^hat years they were, but they were the last 11
years fo^' which figures were available at the time this study was
started.

The Chairman. I suppose it may be said that the users of the rail-
roads pay the entire cost of the railroads.

Mr. Felley. That is right. ,

The Chairman. And all of the construction charges of the rail-
roads are assessed against that revenue?

Mr. Pelley. That is right; yes.

The Chairman. But, of course, it is true that through the years,
Government has aided and even subsidized the railroads in their con-
struction program.

Mr. Pelley. Yes. I say "yes"; I mean no. I will tell you aboat
that just a little later.

The Chairman. I Know your point of view, Mr. Pelley.

Mr. Pelley. If you want me to

The Chairman (interposing). I was going to lead up to th^s: I
realize, of course, that the Government in consideration for that
may have been able to obtain a lower freight rate on certain ship-
ments.

Mr. Pelley. That is right; yes.

The Chairman. And that is a substantial item and has been
through the years. Whether or not that is covered by Mr. Eastman's
report, I don't know, but on the other hand, the increased traffic w^hich
comes about as a result of the development of highways mures to
the benefit of the railroads, at least to some extent — how great an
extent, I don't know. That is true, isn't it?.

Mr. Pelley. Oh, yes; it makes a lot of business for the railroads in
raw materials that go into the manufacture of automobiles, the fin-
ished product itbelf. Oh, yes; it has made a great deal of

Tlie Chairman (interposing). I observed from the report of Mi-.
Eastman's study this morning that reference was made also lo
R. F. C. and P. W. A contributions. What the analysis of those was,
I don't remember. But the sum total, as I recall from the newspaper

CONCENTRATION OF ECONOMIC POWER 16545

account was that Government has contributed about $1,433,000,000
to the raih'oads in one way or another.

Now, what there is to offset that, of course, I don't know, because
1 have not read the report.

Mr. Pelley. I think the raih-oads got $1,449,000,000. It is very
interesting to analyze his figures, liowever, when you analyze it and
take out of it what ought to be taken out of it, why, it is an entirely
different figure altogether.

Now, to get along with this highway thing, I wanted to finish this
statement to show you just how far apart we are. In that 11-year
period I mentioned, Mr. Eastman s report indicated — and 1 think the
figures are i-orrect, so far as I know— that about $19,000,000,000 had
been spent on highway construction and mainteiumce diiring that
period.

Well, he said that the users of the highway had paid $124,000,000
too nuich; the final report changes that a little. These 3 experts
tl>at we emph)yed — and 1 repeat, no one of them has any interest in
the railroads — said that the users of the highways had paid about
$9,750,000,000 too little, so if you would add $9,750,000,000 to $124,-
000,000, you see how far apart these people are, and that oidy em-
ph^asizes the importance of finding out what the real facts are by some
authoritative body that is absolutely disinterested except to get the
facts, and let the people know what the facts are.

Now, Mr. Eastman says that these large trucks are paying too
much, and he gives a scale of how much too much they are paying.
As I said to you this morning, only two States have ever made a real
study of it, and it was made by the highway departments of those
States, Illinois and Missouri. In Illinois they found that these
larger trucks were subsidized to the extent of $966 per truck per
year, and in Missouri — and I am sorry Mr. Williams is not here
to hear this — they run up to about $650 per truck per year, The
sum total of what I am saying is that this report on highway sub-
sidies doesn't seem to be of very much value.

Mr. Pike. There is certainly a very wide difference of opinion.

Mr. Pelx-ey. Of course you see what brings about that wide dif-
ference is that these people say that the State ought, to furnish 60
percent of the highway, whereas these other people who made this
study for us say that they ought to furnish 25 percent.

Mr. Pike. Of course, you could never get together on a set of
facts as long as you started your premises so far apart.

Mr. Pelley. That is true.

The Chairman. As I read this story, if I may interrupt, it ap-
parentW is just a preliminary to another study.

Mr. Pelley. I should think so. It couldn't be more than that.

'Tlie Chairman. Because it appears that Mr. P^astnuin has recom-
mended in this report that a three-man board should be set up by the
President to investigate the whole problem of inequities in public
contributions to the various transportation agencies revealed by the
newly published data.

Mr. Pelley, I think that is very sound.

The Chairman, That opens up the whole field and it is probably
outside of the scope of the T. N. E. C.

Mr. Pelley. That is a very soun I'ecommendation.

16546

CONCKNTRATION OF ECONOMIC POWER

Mr O'CoNNELL. Mr. Chairman, I apparently precipitated this dis-
cussion, and it does take iis pretty far afield. I should just like to
say that my only reason for mentioning the report was that in Mr.
Pelley's statement he was somewhat dogmatic to the effect that other
means of transportation were in fact being subsidized to the disad-
vantage of the railroads, and it occurred to me that the record ought
to show at least that there is a very wide difference of opinion between
interested people on that particular point. I am perfectly willing
to concede that this is not the place for us to discuss the merits of
the two positions, but I think it should be noted that there are two

]X)sitions. „ , i ^

Mr. Pelley. That is all right. It is pretty generally known that
there are two positions, and of course we don't agree at all on this
railroad subsidy. I could prove it to you here and now that the Gov-
ernment has made more money out of advancing these so-called sub-
sidies to the railroads than we have, and they have been making about
$7,500,000 a year out of it.

The Chairman. Thank you very much.

(The witness; Mr. Pelley, was excused.)

Dr. Anderson. Mr. Chairman, the second witness for railroad man-
agement today is Dr. J. H. Parmelee of the Association of American
Kailroads. Mr. Parmelee is presenting to you the basic material that
is so important in judging this problem, and he is doing so in a
booklet that he has prepared for the committee, which we should like
to have introduced. We have made exhibit numbers for each one of
the displays in the book.

The Chairman. Then as the witness proceeds with his discussion,
if at the appropriate time you will suggest a number

Dr. Anderson (interposing). I think we have given them numbers.

The Chairman. You want these exhibits (o be introduced as he
explains it.

Dr. Anderson. That is right. This is done so that we will have
them in the record. I did want to say by way of compliment to
Dr. Parmelee that it is an unusually able, comprehensive statement
of the situation. I have never seen so compact an array of data-
discussing the various ramifications of the railroad problem, and I
personally want to thank him for having spent the time on getting
guch material tog&tlier for our use.

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?

Dt. Parmelee. I do.

TESTIMONY OF J. H. PARMELEE, DIRECTOR, BUREAU OF RAIL-
WAY ECONOMICS, ASSOCIATION OF AMERICAN RAILROADS,
WASHINGTON, D. C.

Dr. "Parmelee. My name is J. H. Parmelee. I am the director of
the Bureau of Railway Economics, and have been director of that
bureau since 1920, the bureau being one of the units or departments
of the Association of American Railroads.

As Mr. Anderson has stated, the bulk of my statement to the
committee this afternoon

CONCENTRATION OF ECONOMIC POWER 16547

The Chairman (interposing). May I interrupt to ask you what
your functions are as director of the Bureau of Railroad Economics?

Dr. Parmelee. I think our bureau, Mr. Chairman, could be de-
scribed as the economic and statistical headquarters or clearinghouse
of the steam railroads of the United States.

The Chairman. Maintained by the railroads?

Dr. Parmelee. Maintained by the railroads as a division of their
national trade association. The slogan, if you call it that, or the
instructions which the bureau has from the railways which main-
tain it, are to make, as far as we can do so a completely scientific
study of transportation problems.

character of the railroad industry

Dr. Parmelee. My statement to the committee will be largely an
explanation, with some analysis, of this booklet to which Dr. An-
derson has referred. Before I enter upon that analysis, however,
may I make one or two general statements about the railway indus-
try as a sort of background for the presentation of this material.?
I do not need to call the attention of the committee to the fact that
the steam railway industry in the United States is the only Nation-
wide carrier of general commodities. It has a Nation-wide network
over the whole country; it serves all the cities and all the States and
a great portion of the smaller cities and towns, and it enters into
96 percent of all the counties of all the States of the Union. It is
the one indispensable carrier of freight serving every day regard-
less of weather conditions, climatic conditions or otherwise; and it
is always called upon with unusual emphasis at times of emergency,
in times of flood and other natural catastrophe or in times of na-
tional, political, or social emergency.

Despite the rather heavy competition with which the railroad in-
dustry has been confronted in recent years, it still handles more than
60 percent of the total commercial freight traffic of the United States
and more than 50 percent of the total commercial passenger traffic
of the United States. In addition to being the outstanding comnjercial
traffic agency of the United States, it is, as has been pointed out to
the committee, already a large employer of labor, having 1,000,000 or
more men in its employ at the present time ; it is a large purchaser of
the commodities produced by other industries. For example, it pur-
chases some 25 percent of the total coal produced in this country. It
produces and uses some 20 percent of the total steel and iron products
of the United States. It utilizes 60 percent of the steel-rail output,
which is, of course, to be expected.

It utilizes some 20 percent of the total timber cut in this country,
and it utilizes smaller proportions of a large number of other com-
modities, cement, and other items that are used in operation or in
construction.

It has been estimated that for every man employed directly by the
railroads through their purchases of supplies they furnish employ-
ment indirectly to at least one other man. In otlier words, that for the
million men who are employed by tlie railways there are probably at
least another million men whose employment indirectly depends upon
the purchases made by the railways.

16548 CONCENTRATION OF ECONOMIC POWER

The railway industry in addition is a large taxpayer. Its taxes last
year amounted to aboiit $1,000,000 a day, or $365,000,000, and all of
those taxes, as has been pointed out to the committee, go directly for
governmental pur})oses. In other words, none of it goes back to the
railroads for the purjjose of maintaining their own highways, the
highways over whicli they operate.

There are some differences, however, between the railway industry
and other industries. Some of these have already been mentioned in
your previous discussion, and I can mention them, I think, rather
t)riefly and pass on. The railroad industry is one of the most com-
f)letely coordinated industries in the United States. Although several
hundred different units, corporations, operate the railways,, all having
a separate legal identity, they do operate more or less as a common
system. This comes about through the fact that they have a standard
gauge of track, they have completely interchangeable locomotives and
cars, not only as to the complete units of equipment but also as to the
various accessories, two of the most important of which are the stand-
ard coupler and the standard air brake, which are interchangeable on
all cars; and finally they have an arrangement by wdiich freight cars
travel, regardless of their ownership, over the lines of all railways
freely from one end of the country to the other. Under the arrange-
ments laid down by the Interstate Commerce Conmiission, they oper-
ate on joint rates and routes so that freight and passengers can be
shipped or travel from almost any one point in the United States to
almost any other point on a joint rate.

For these reasons the railway industry can be looked upon in a
certain sense as a coordinated industry, working as a common unit for
a common end.

Again, the railway industry is a service industry. That fact was
also mentioned this morning. Being a service industry it may not pro-
duce its product and store it in advance, as many other industries may.
It produces its product, which is the service of transportation only, as
and when demanded. One result of that situation is that the railway
industry may not build up a surplus of product over a given period,
perhaps employing labor for that purpose, and then close down or
i-elax its efforts during a period of slight demand, but it must continue
to operate, regardless of the demand, 24 hours of the day, 52 weeks
in the year.

It must always be ready to serve any demand which may be made
upon it.

Again, the railway industry is, as has been stated, a strictly regulated
industry, probably more so than any other single industry in the
United States. That leads, among other things, to a certain amount
of reduction in managerial discretion, and also to a certain inflex-
ibility in its rate structure, which is its price structure, which makes it
difficult to pass certain added costs on to the public.

Finally, the railroad industry has been and is confronted with this
very perplexing problem of competition, to which the committee has-
nlready given considerable attention, and I need not dwell on that
])oint further.

Now the railway industry of this country is classified by the Inter-
state Commerce Commission into two general groups — what the Com-
mission calls line-haul railways, which operate between terminals, and

rONCENTRATION OF EO0NO]\fTr! POWER 16540

the so-called switchiiiir and tennliuil companies, the latter being what
may be considered to be the small links in the large network to which
I have referred. The}^ do the switching work in and around terminals,
they are the connecting link^ between railroads in terminals, and to
some extent they operate bridges and ferries. In the general statistics
which the Interstate Commerce Commission uses, switching and
terminal companies are seldom included, not because they are not an
import^mt part of the railroad system, but because the very nature
of their work makes it ditficult to secure comparable statistics to those
of the line-haul railways.

Attention is usually devoted to the line-haul railways, the second
large group, those which operate between terminals.

Now, there are in this country a total of 896 operating railway
comi)anies as reported by the Interstate Commerce Commission, of
whicli 244 are switching and terminal companies. Deducting that
figure from the total, we have a remainder of 652 line-haul com-
panies. However, of those 652 companies, only 136 are classified as
class I companies; that is, com])anies whose annual revenues are in
excess of $1,000,000 per year each. They are sometimes known as
million-dollar railways.

The Chairman. How many of them?

Dr. Parmelee. One hundred thirty-six, Mr. Chairman, and those
companies operate 94 percent of the total line-haul mileage and take
in 97 percent of the total line-haul -revemie. So that while they are
less than one-fourth in number they are from 94 to 97 percent in
terms of traffic and mileage importance.

The Chairman. Is there any interrelationship among them?

Dr. Parmelee. Control, you mean? Yes 5 in some cases there are
companies which have 50 percent, or more or less, interest in other
companies.

The Chairman. Have you made any study or calculation wnich
would enable you to say how many groups there were in terms of
control among the 136 ?

Dr. Parmelee. No; I have not in just that way. The Interstate
Commerce Commission publishes each year a list of all the railway
companies in the United States and does just what you suggest.
That is to say, where there is any common relationship between rail-
roads they put them all in one group and indicate exactly what is
the nature and extent of the relationship between them.

Dr. Anderson. Mr. Parmelee, do you remember the last figures
from the Interstate Commerce Commission ? Out of those 136 roads,
how many independent class I roads would we have, considering
affiliations?

Dr. Parmelee. I don't believe that I could answer that question
iipecifically. I would say, however, chat the number would not be
greatly reduced. There are some affiliations among the larger com-
panies. There are more affiliations, however, in the sense that some
of the larger companies control some of the smaller ones, anjd in that
way have created what we con.sider to be a railway system.

Dr. Anderson. Is the trend in the direction of further concentra-
tion, through control either of other class I controlling affiliates or
of class II railroads? Is there a trend?

Dr.- Parmelee. I would say the trend is not very marked at the
present time, largely because of the consolidation provisions in the

16550 CONCENTRATION OF ECONOMIC POWER

Transportation Act of 1920, and partly because of the depression
during the past 10 years.

Mr. Pike. Things are in reverse really at the moment, aren t they,
Mr. Parmelee, with gome of the 1920 purchasers turning out to be no
control at all, Missouri Pacific, Erie, the New Haven, to some extent?
Those common shares are either going to disappear or represent such
a small amount of control that the control is going back to the public.

Dr. Parmelee. To the extent that the stock is being wiped out as
it is in a number of these reorganizations.

Mr. Pike. Two of those organizationg will be wiped out entirely,
and the third one

Dr. Anderson (interposing). What you are saying is, isn't it, Mr.
Parmelee, that the reason for the failure of the trend toward concen-
tration is that certain legal enactments- and other noneconomic arti-

ficialities are preventing it ?
Dr. Parmelee. I dor t

like to put it in quite that language. It is
a fact that the Interstate Commerce Commission has for a nurnber of
years recommended to Congress that the consolidation provisions of
the Transportation Act be repealed, at least that part of those provi-
sions which set up the general plan. The economic depression of the
past 10 years has done these two things which have been mentioned :
It haS' slowed down for obvious reasons any desire to build up larger
systems, and it has, as Mr. Pike indicates, or is having, at least, a
trend toward wiping out the present common, and in many cases
even the preferred, stockholder.

Now, with that brief introduction, Mr. Chairman, may I turn to
this statement which is before you?

The Chairman. Now, your introduction has had to do principally,
however, with the general phases of the railroad industry, the general
problem, hasn'tr it?

Dr. Parmelee. I was trying to give you a very brief picture of
the industry as we have it spread before us, Mr. Chairman; yes.

The Chairman. Now, before you begin to comment upon your
various tables and exhibits, would you care to make any general
statement about the relationship of the technological advance of the
railroad industry and the problem of employment?

Dr. Parmelee. May I answer you this way, Mr. Chairman ? I
was about to say in introducing this statement, that one of the things
that I think, it will show the conimijtee, and I think it speaks elo-
quenly on that subject^ is that there has been over a period of years
a very marked advance in technology.

After I get through with the statement, I was going to turn, if I
may, to some of the specific things which "have been done in the
railroad industry which have brought these technological advances
about, not going into detail, of course, for that would be out of the
question. Time would not permit, and I am not a technical expert,
but I was hoping that after that had beeji shown to the committee,
if there were any questions as to some of these more general matters,
we might discuss them at that time.

Mr. O'Connell. May I ask two questions with reference to your
general statement? One was a statement to the effect that it had
been estimated that an indirect employment of about a million men
was generated by tlie operation of the Bureau of Industry. How is
that computation arrived at?

CONCENTRATION OF ECONOMIC POWER 16551

Dr. Parmelee. That is a rather general estimate. I can only tell
you who is responsible for the estimate : the officers and some of the
research people of the Railway Business Association, which is a trade
association of those who manufacture railroad supplies, equipment,
and so forth. They have made their own studies, and have arriyed
at that conclusion, which is purely an estimate and can be nothing
else.

Mr. O'CoNNELL. In looking at one of your tables, I noted that in
the past 8 or 10 years, the amount spent for equipment and on road-
ways, construction, and so forth, was very substantially less in
amount per year than had been the case during the twenties.

Dr. Parmelee. Yes.

Mr. CCoNNELL. That would seem to me to indicate that whatever
indirect employment was being created during these recent years was
probably not as great relatively as it had been during the previous
decade, when much more money was being spent for maintenance
and new equipment.

Dr. Parmelee. That is true. Those figures fluctuate up and down,
and they are in line with the volume of purchases and the volume
of capital expenditure.

Mr. O'CoNNELL. But that indirect employment consisted in large
l)art, at least, of employment created in producing such things as
new rolling stock and equipment, and so forth.

Dr. Parmelee. Equipment, steel rails — 2,000,000 tons of steel rails
in the course of a year make a good deal of employment — production
of ties and ballast, fuel, and any one of the 70,000 different items the
railroads purchase.

Mr. O'CoNNELL. Then the other question I had was about the
statement you made to the effect that the price structure, so to speak,
or the rate structure, was somewhat inflexible, partly, at least, be-
cause of Government supervision, and you indicated that that made
it somewhat difficult to take into account increases in cost, since the
inflexible rate structure made it difficult to pass on increases in cost.
That would also put you, you say, on the downswing. Would it be
as difficult to pass on decreases in cost, because of the inflexibility of
the rate structure?

Dr. Parmelee. Well, the competitive pressure on the railroads
to reduce their rate is so great and has been for some years, that, gen-
erally speaking, it is much easier to secure a reduction than an increase.
I am speaking of rates. And the reductions have been made in a
great many commodities, hundreds of them, in fact, over recent
years, when it would probably be very difficult to get increases on
the same commodities and to the same extent.

Mr. O'CoxNELL. You mean that an application for reduction in
rates would be more apt to be favorably handled by the regulatory
agency than an application for an increase?

Dr. Parmelee. An application for a reduction, generally speak-
ing, is not complained of by anyone, and about the only time that
it would be even suspended and considered would be when there
was a complaint, possibly by some other railroad.

Mr. O'Connell. Or by some of the competitors?

Dr. Parmelee. Or by some interested shipper, or if some member
of the Commission staff felt that a proposal was being made to effect

16552 CONCP^NTRATION OF ECONOMIC POWER

a cut which inio:ht go below the reasonable minimum and might
upset the rate structure with respect to that particular commodity.

The committee does occasionally step in and in effect establish a
minimum below which it will not permit a carrier to go. But those
are occasional instances.

Mr. O'CoNNELL. Just a question on procedure. When the railroad
proposes to increase or change a rate-structure, either in the upswing
or the downswing, what do they do, file a new tariff schedule?

Dr. Parmelee. The tariff is filed with the Commission, and it
remains on file 30 days. If no objection is raised or no suspension
is made by the Commission itself, it goes into effect automatically.
It may be suspended, however, and of course, if a complaint is filed,
the Commission usually suspends it and has a further investigation.

I said a moment ago, Mr. Chairman, that I thought this little
booklet would speak eloquently of the progress of the railroads in
the field of technology in recent years, and when I use the word
"technology" — I am going to use it frequently — I am willing to
adopt the definition submitted to the committee last week by Dr.
Kreps.

So far as the railroads are concerned, I think we might use the
word "technology" as merely everyday language, meaning "progress
in the art of good railroading." I think the committee would under-
stand what that means in all of its aspects.

PHYSICAL PLANT OF THE RAILROADS

Dr. Paijmelee. May. I direct your attention first, Mr. Chairman,
to page 7 of this booklet, which has been submitted to the Committee
under the general title of Railways of the United States^ Their Plant.
Farilifies^ and O peration^ and is dated 1940.

Page 7 is submitted as "Exhibit No. 2491," the upper half of
tlie page. I think there is little comment needed on this exhibit,
Mr. Chairman, except to point out that the peak of miles of road,
so far as the period covered by this table is concerned, was in 1929
when 260,570 miles of ro.nd were operated in the United States.

(The table referred to was marked "Exhibit No. 2491," and is
included in the appendix on p. 17350.)

Dr. Parmelee. This table, by the way, applies to all line-haul
railways, not just the Class I railways. In 1939 that total had
been reduced to 246,800. The reduction, however, in the final or
right-hand column, "Total, all tracks," has not been so great. "All
tracks," the committee will understand, include not only miles of
road — that is, mileage extending between termini — but includes the
second main track, the third, fourth, fifth, and sixth main track, each
counted as a single mile, and it includes also the so-called yard tracks
and sidings, yard tracks being the tracks within terminals, and sid-
ings being sidings oiit on the road, mostly for the purposes of one
train passing another.

Senator King. There are many miles of tracks in the large stations,
are there not? For instance, take the station here in Washington.
When you look at the tracks, you would think you have far too many
sidings of tracks; -they parallel each otHer there. I would imagine
it would be 40 or 50 tracks.

Dr. Parmelee. That is true in the larger terminals, and you will
notice that the yard tracks and sidings total 121,000 miles throughout

CONCENTRATION OF F^CONOMIC ^OWER 16553

the United States, a considerable mileage. What I was atxoiit to say,
Mr. Chairman, is that the percentage reduction in the total tracks has
not been so great as in the 'miles of road. So that to some extent
the industry, while it has been abandoning and cutting down some of
the branch lines, has on some of its main lines been actually in some
cases increasing its second and third main tracks, what you might call
its subsidiary tracks. In other words, its growth has been in a sense
intensive within the industry, and not extensive.

That will be brought out, I think, by looking at the lower half of
page 7 of the booklet, "Exhibit No. 2492."

(The table referred to was marked "Exhibit No. 2492" and is in-
cluded in the appendix on p. 17350.)

Dr. Parmelee. That shows the miles of road constructed and the
miles of road abandoned in each year from 1921 to 1939, together with
a total for the period. You will observe that during the period as a
whole, 19 years, 7,377 miles of new line were constructed, whereas
22,180 miles were abandoned, indicating a net loss of about 15,000
miles.

Senator King. Did the new lines extend from one city to another
where there had been no railroad communication previous to that
time?

Dr. Parmelee. If there had been no prior railroad communication;
yes, sir; but in some cases Senator, a proposal to add lines between
cities where communication already exists has been turned down,
cither by the I. C. C. or by some State commission, on the grounds
that there was adequate service already in that particular section.

Senator King. What I was trying to get through my mind is whether
"new lines" meant into fields which had no lines, or whether it in-
cluded parallel lines between two points, added because of increased
service or for reasons which seem best to the user of the line.

Dr. Parmelee. If it happened to be a new company putting in the
field a paralleling line, that would be counted. I was trying to point
out that there would be very little of that sort of thing, mostly new
lines in new territory, I think and you will notice from the footnote
these figures do not include adjustments, reclassifications, relocations,
and so forth, within the industry; they are actually new lines of
railroad.

Now, this loss of 15,000 miles during that period may seem to be
serious, but when it is considered that that 22,000 miles of abandon-
ment is practically all branch lines, and all of it has been subjected
to careful investigation by the Interstate Commerce Commission be-
fore the abandonment may take place, all those facts taken together
indicate that the abandonments were economically justified and that
on the whole, they probably strengthened rather than weakened the
railroad structure as a whole.

The railroads have not abandoned any of their main stems of rail-
road mileage in recent years. Tliat, I think, is a point of sufficient
importance to emphasize to the Committee.

Dr. AndeJRson. Dr. Parmelee, the question I wanted to raise was
a trend in abandonment. In your table, the heavier yearsof aban-
donment coincided with the trougli of the depression, more tlian half
the 22,000 miles of abaiulonment of loads oeciirred from 1032 to 193!>.

ll'4H)l- 41— pt. .".0 24 ■

1Q554 CONCENTRATION OF EOONOMIC POWER

I was wondering whether you would care to comment on' whether
it is an economic procedure that forces abandonment, or what.

Dr. Parmelee. I would say it is a cumulative procedure which grows
out of both the impact of competition and the depression. Sometimes
abandonment is proposed and either suspended or actually denied by
the Commission. Then it is brought in again a year or two later, and
at that time secures a favorable response.

In other words, these things accumulate as you go along, and I
would say, speaking rather generally, that- it was a cumulative
procedure.

Dr. Anderson. Well, if that is true, how do you account for the
fact that the second column, '31 through '39, shows about double the
rate of abandonment as the first column, 1921-30, representing rela-
tively good years.

Dr. Parmelee. I think that follows from what I said. The second
column to which you refer is the period of this depression as against
the first column, which was a period on the whole of rather good busi-
ness. But as the depression went on, and also as the competitici was
increased, which has been true of the last 10 j^ears, you hav^e this
cumulative effect and the cumulative stimulus to abandon mileage and
economize.

(Senator King resumed the chair.)

Dr. Anderson. Now a further question. There seems to be little or
no diminution in the yearly rate of abandonment except for 1933.
Would you care to hazard a guess as to what the future holds in terms
of abandonment of railroads?

Dr. Parmelee. I don't think anyone could make a guess on that. I
would say that a certain amount of abandonment is necessary, even
in good years, as business shifts. In some cases abandonment is due
to the fact that a particular forest area is cut over, or some other
natural product is exhausted, or something of that sort. Businesses
move from one place to another and business conditions bring it
about that certain lines of railways lose a large part of their traffic.
All those things go on at all times so that I w^ould say it is very
hard to answer.

Mr. Pike. It is possible, isn't it, Mr. Parmelee, that it is easier to
effect an abandonment of a road if it has gone into receivership than
it is when the parent road is in good financial condition, is able to
take losses in a general pinch? I was thinking particularly of a
reorganization plan brought out for the New Haven over this last
week end. In that plan the lease by which the New Haven controlled
the Old Colony is disavowed. If it goes through, the Old Colony
disappears from the New Haven system, and there is substantial
doubt as to whether it can exist as a separate road. If the New Haven
were not in receivership it could not disavow the lease. I think there
might be some time during receivership where a road with a great
many miles of light-traffic branches could make its willingness to
abandon more effective than if it were in a good financial position.

Dr. Parmelee. Yes; I think it may be that in the process of reor-
ganization an abandonment may more easily be brought about. How-
ever, I think that public resistance to abandonment is no less in the
case of a reorganization than if the carrier is a prosperous one.

CONCENTRATION OF ECONOMIC POWER 16555

Mr. Pike. It is merely that the receivership road can say, "Well,
we are not going to keep this lease. As far as we are concerned the
abandonment is effective. The child now is on your doorstep, not on
ours."

Acting Chairman King. While it isn't pleasant to point out our
losses and business failures, have you any evidence tending to show
losses to those who have invested, primarily, in the construction of
railroads, and, secondarily in their stocks and bonds, during the past
10, 15, or 20 or 30 or 40 years?

Dr. Parmelee. Losses from what source, Mr. Chairman?

Acting Chairman King. Losses by those who have constructed rail-
roads, put up the capital for their construction; the railroad has gone
into the hands of the rex:eiver, and the original stockholders lose all
they put in; the bondholders lose perhaps all they advanced. Is
there anything to indicate the aggregate losses sustained by those who
have made investments directly and indirectly in our railroad sys-
tem? It goes, perhaps, into hundreds of billions and much farther.

Dr. Parmelee. I know of no figures on that, Mr. Chairman, but
as you say it must be up in the billions.

Acting Chairman King. Is there any capital available now of a
venturesome character, or any character, for the construction of rail-
roads ?

Dr. Parmelee. Mr. Pelley touched on that this morning. I might
say very briefly I think I know what was in his mind. He said he
thought that if some of these handicaps which he outlined were re-
moved, new capital would be available, not of the stock variety per-
haps but loan capital on very favorable rates of interest. That is true
today so far as our equipment obligations are concerned. A railroad
in receivership or in the hands of trustees the other day sold an issue
of equipment trusts at a net figure of 2 percent per year. They were
in the hands of trustees, if you please, and some of the more prosper-
ous railroads have done better than that. Now, the mortgage bonds
are in a little different class, of course, but even there, Mr. Chairman,
when the conditions are somewhat more fully stabilized they will be
able, in our opinion,. to continue financing on a conservative basis.

Acting Chairman King. Then the receivers' certificates would have
a greater value than the stock or the bonds in some of these roads
which are in the hands of receivers?

Dr. Parmelee. By value I assume you mean security — a prior lien,
in other words.

Acting Chairman King. Marketable value.

Dr. Parmelee. Yes ; probably, because they have a prior lien.

Acting Chairman King. You have indicated there that receivers'
certificates would be sold at 2 percent interest?

Dr. Parmelee. Oh, but that isn't a receiver's certificate, Mr. Chair-
man; that is an equipment trust obligation; that is a mortgage on the
equipment, and that was put out by the company, by the corporation,
not by the receiver.

Now, the people who bought those certificates evidently expect that
company, that particular company, to come out of the hands of trus-
tees in a short time, and make enough money out of their operations
to meet the payments on the equipment.

16556 CONCENTRATTON OF Ef'ONOlVrTr, POWEk

Acting Cluiirinan King. Well, 1 assume there are ^sometimes mul-
tiple indebtednesses; the indebtedness to the original stockholders,
then the indebtedness to the bondholders, then the indebtedness to
the mortgagees, and then indebtedness to the receiver3, and then
indebtedness such as you have just described, so there would be. several
layers of indebtedness.

Dr. Parmelee, There are several layers over layers on gome of the
properties.

Dr. Anderson. Mr. Parmelee, one more look at this construction
side of the chart. I take it that construction of new railroad miles
means use of labor?

Dr. Parmelee. Yes; of course.

Dr. Anderson. And therefore of materials?

Dr. Parmelee. And materials, and a radiating influence.

Dr. Anderson. So that anytliing that could be done to stimulate
railroad construction to bring it back to the period '21-'29 would be
most beneficial to labor?

Dr. Parmelee. Yes; there is no question about that.

Dr. Anderson. If you will note the period from '21 to '29, you will
see that the range was considerable, from something around 946 miles
of road in the peak of '28; with a decided drop in '31-32, to 149 in
1937, which Mr. Pelley indicated was an unusually dynamic year in
the railroad industry. Do you care to hazard a gu^ss as to what the
future might hold by way of a reasonable year-by-year occunation of
the field? Could it correspond to the period '21-29?

Dr. Parmelee. I wouldn't even like to hazard a guess on that because
a great deal depends on the development of certain kinds of traffic
in new territories, and things of that sort. The development of oil
in the Texas field made a good deal of business for some companies.
I haven't any doubt that that mileage in the Texas field is included in
this 1921-30 group that you speak of. To what extent we will have
things of that kind in tlie future I am unable to say.

Dr. Anderson. In your studies you undoubtedly have gone into
detailed analyses of miles of new road constructed. Have you come
to any conclusion, from past experience, as to the type of new roads
likely to be constructed?

Dr. Parmelee. I would say it would be very largely in new fields.

Dr. Anderson. Dependent upon the general business situation.

Dr. Parmelee. Oh, yes; almost entirely, and particularly new
enterprise. -^

Acting Chairman King. Well, those new enterprises that you have
in mind would be largely in the present manufacturing and industrial
centers, would they not?

Dr. Parmelee. Not entirely, Mr. Chairman. Going back to my
Texas oil fields illustration, there was development of a 'natural prod-
uct, an exploration. The Texas fields, I understand, are the largest
fields in the world now. That would not have been suspected a few
years ago.

Mr. Pike. If I am not mistaken, Mr. Parmelee, most of that mileage
that was built down there was in the Lower Rio Grande Valley by
the present subsidiaries of the Missouri Pacific and up in the Pan-
handle by the Santa Fe, mostly to get at the prospective wheat lands
of western Kansas and the Texas Panhandle. I think if you look at

CONCP^NTR.VriON OF PXOiNC^MIO POWER

16557

it you will Hnd really very little actual extension of inilea<>;e built to
serve oil fields. The Texas & Pacific jjoes throu<!;h most of them, but
there was very little real extension of milea«Te, as I remember

Dr. Parmelee. There has been some.

Mr. Pike. Oh, some, but I dcm't think very much. I think you will
lind most of that was aj^ricultural.

Dr. P.AR:\rEr^E. I was usinp; that as illustrative.

I would like to turn your attention, Mr. Chairman, to the chart
and supportinfr table on page 8.

(The chart referred to was marked "Exhibit No. 2493" and appears
below. The statistical data on which this chart is based are included
in the appendix on p. 17351.)

ExHiHiT No. 2493
LOCOMOTIVES - NUMBER AND TRACTIVE POWER,

O^ (T^ O"^ ^T^ <T^ (T^ <y^ ty^ CTn On CT^ (7s ^n CT^ O^ OS CJ^ On (7^

140

135
130

125

120

115

110

105

100

95
90

85
80

75
70
65

ige

•ac

ti.\

)01

'^N

*^,

lum

)er

1 a

)

>•

. J

*^.

**,

>%.

140
135
130
125
120
115
no
105

100

95
90

85
80

Index numbers 1921 « 100.

NUMBER OF LOCOMOTIVES IN SERVICE

Dr. Parmelee. That shows the number of locomotives in service
of railways of class I at the end of each year 1016 and 1921 to 1929,
and the average tractive power of steam locomotives in pounds
l)er unit. I would direct your attention primarily to the chart,
which shows that whereas taking 1921 as 100 there was an almost,

16558 CONCENTRATION OF ECONOMIC POWER

steady and rather sharp decline in the number of locomotives in
service down to about 65 in 1939; there was also a rather sharp
upward trend in the average tractive power, from 100 in 1929 up
to 137 in 1939.

Acting Chairman King. Was that increase due in part to the
development of the Diesel engine?

Dr. Parmelee. Very little. These are just steam locomotives.

Now the net result of the smaller number and larger tractive
power of locomotives w^as that the aggregate tractive power, which
is perhaps the important thing to think about, declined 11 percent
in that period. Someone may say, "Well, did you have enough
power? Did your business drop off during that period, and did
you have enough locomotives with that 11 percent drop in locomo-
tive power to takeicare of the business?" Between 1921 and 1939
there was actually a decline of 4 percent in the business — when I say
business there I am including the freight and passenger business in
terms of traffic units — so that you had a decline of 11 percent in
power and a decline of 4 percent in business. Tlie answer to the
question whether you had enough locomotive power in 1939 is found,
I believe, in the fact that during the w^hole of 1939 you had a very
good surplus of locomotives in serviceable condition, a large number
of them in white lead, that is, joints painted with white lead and
put away as a reserve against the need for more power. Now the
maximum number of locomotives so stored during the year 1939 was
3,845. The minimum number was 1,507.

Mr. Pike. You had to pull them out pretty fast in September.

Dr. Parmelee. The minimum, I was about to say, came during tlie
peak traffic in the fall. The average throughout the year was 2,828.
That would seem to give the answer to the question about power
in the year 1939.

The same general answer, I think, would be made to the question
with respect to freight-carrying cars shown in the chart and sup-
porting.

(The chart referred to was marked "Exhibit No. 2494" and ap-
pears on p. 16559. The statistical data on which this chart is based
are included in the appendix on p. 17351.)

Dr. Parmelee. Here, too, you will observe, looking at the chart,
that the number of freight-carrying cars in service declined rather
rapidly from 100 in 1921 to 70.5 in 1939. At the same time, the
average capacity of the freight-carrying car in tons was increasing,
reaching a total of 117 in 1939 as compared with 100 in 1921.

The net of those two trends was a decline in aggregate tractive
power of 14.7 percent. The freight traffic showed a decline over the
same period of 8.7 percent, that is ton-miles, so that we have a de-
cline in traffic of 8.7 percent and a decline in capacity to handle the
traffic of 14.7 percent. Was there enough capacity to take care of
the business in 1939? The answer there, too, is found in the figures
of freight-car surplus during the year. There was no appreciable
car shortage during the year, although on a few occasions there were
a few hundred cars short at one or two places, the shortage- being,
I think, in every case taken care of within a period of 24 hours, so
that speaking generally it may be said that there was no car short-
age in 1939, There was a surplus of cars at all times during the

CONCENTRATION OF ECONOMIC POWER

16559

year, the average for the year being 194,000 in round figures, with a
maximum of 291,000 and a minimum of 84,000, even at the time of
peak traffic.

Acting Chairman King. I don't quite follow your last statement.
Where do you find the figures or proof on page 9 in support of what
you have just explained?

Dr. Parmelee. Those figures do not appear on the page. I was
simply giving them to the committee as an answer to the question
as to whether in view of the trends shown on this chart there was
or was not adequate freight-car capacity in 1939.

Exhibit No. 24W
FREIGHT-CARRYING CAR3

>-* (>i rr) 't \r\ \0 e~ CO (TNOrHCMfv^^ lr\vO C^OO CT^O
C7^ ^^ O^ ^ C> O^ ^N CT^ CT^ ^N ^^ On ^n ^s ^s (ys cys ^v <7n o^

120

115
no
105

100

95
90

75
70

ert

pac

it;

■

'"«•.

*■»,

•*-

■•s

nbe

r J

n i

ler

ifio

^v.

Index nunzbere 1921 = 100

120
115
110

105

100

95
90

85
80

75
70

Mr. HiNRiCHS. Is 1939 a critical year as a test of the adequacy
of capacity? Anticipating slightly on pa^e 17 of your report, you
show the tons of revenue freight originated as 1,016,000,000 in 1937,
902,000,000 in 1939. As a whole 1939 was a year of rather low busi-
ness, and I thought that it ^as in 1937 that railroads received some
test of the pressure of relatively full volume against capacity. The
question that is asked with reference to railroad capacity now is
not so much whether it adequately handled the traffic originating in
1939 as whether it could handle the sort of expansion of business that
might reasonably be anticipated beyond 1939 levels.

Dr. Parmelee. I think that is a very proper question to ask. Dr.
Hinrichs, and I might answer it this way : You can speculate a good
deal about these things; I think we all appreciate that. I think the
test for railroad traffic came last fall during the 4 months from Sep-

16560 CONCENTRATION OP KCONOMTC POWER

tember 1 to the end of the year. From August to October, as you
know, we had the largest relative rise in freight traffic that we have
ever had in that same 2 months, and the actual freight traffic for the
last 4 months of '39 was slightly greater than for the last 4 months
of '37. It was at that time that the real test of railroad capacity came
and the railroads, with the slight exceptions I have mentioned, met
the test. .

Mr. HiNRicHS. But now let's see ; the last 4 months of 1937, in terms
of business activity, showed a general falling off. That decline be-
came very sharp in October, at just the time that the railroads are
ordinarily called on to meet the seasonal peak in the movement of
agriculture. That is, you squeezed through 1937 partly because a
decline in manufacturing volume occurred when you were meeting
your usual seasonal peak in agriculture. Was that so ?

Dr. Parmelee. Yes, that is true; the peak almost always comes in
October. I did not mean to enter into an argument with the com-
mittee as to whether we have enough equipment in hand, that is,
freight cars, to take care of possible future increase of business; but
I am simply using the last year we do have here on this chart, '39,
and answering that question as to '39. Now, the important thing is.
to have equipment enough to meet the peak in each year. You don't
have to worry very much about the rest of the year if you can meet
your peak traffic demand. That is why I compared the peak in 1939
with the peak in 1937. Now, at the same time, we should recognize
that on January 1, 1940, the railroads had more freight cars on order,
new cars, than they have had on January 1 for a number of years.
I haven't those figures in front of me, but that is a^fact, so I think
we can take that into account in this evaluation of the freight-car
capacity of the railroads at the present tirfte.

Acting Chairman King. I want to ask, in view of several questions
which have been asked, have you sufficient facilities now to meet not
only the present demand but the immediate future demand for freight
and passenger cars so far as you can judge what the future will bring
for it?

Dr. Parmelee. I wcmder if you are willing to let Mr. Pelley answer
that question.

Mr, Pellet. Yes ; we have, Senator, enough equipment and can get
enough in time to meet any transportation emergency that might
arise. To answer Mr. Hinrichs a little further, I think, last fall there
was a great deal of apprehension as to whether or not we coidd handle
the business because nobody knew where it was going to go. As the
doctor said, we had -the most precipitous rise in railroad traffic, August
to October, that has ever occurred on the American railroads.

Acting Chairman King. In the same time.

Mr. Pelley. Yes, sir; the same period of time. It went up more
(juickly than ever before. Of course, the war was on and everybody
who was around here during the other war began to think right away,
"Will the railroads be able to handle.it?" There was much interest,
proper interest too, for that matter, and some apprehension, I think,
that was due more to experiences of certain shippers and certain
company officers during the previous war, but at no time was our
capacity threatened, and we would have taken care of it if business
had kept on going up ; I wouldn't say how far, but we were not
alarmed about it. We were vei'y sorry that it quit going up. My com-

CONCENTRATION OB" ECONOMIC POWER 16561

l)lete answer to you, Senator, is that we can meet any transportation
emergency that might arise, no matter what the conditions are,
whether we should become involved in this turmoil or not. There
would be no apprehension on the part of the railroads as to whether
or not we would be able to meet any situation that might arise.

Acting Chairman King. That rather precipitous rise in demand for
transportation grew out of the situation abroad, did it not?

Mr. Pellet. Absolutely, I think partly in anticipation of price
advances ; people bought before they w ere quite ready, and deliveries
were made before they were supposed to have been made ; and partly
liecause of anticipation of delay in receiving what one might order.
The two things put together, I think, caused this precipitous increase.
We moved goods in November and December that might otherwise
liave been moved in January and February. I have had shippers
tell me that. I know that is true.

Mr. O'CoNNELL. Does your organization have any figures or have
you made any study as to the physical characteristics or age distribu-
tion of such things as your freight cars? I have heard it said that
most of the freight cars or a very substantial amount of your rolling
stock was quite old, say, 20 years or more. Do you happen to have
any study on that?

Mr. Pellet. We have figures but we haven't got them here. We
could get them for you.

Mr. O'Connell. I think it was testified before the committee con-
sidering the financing bill last year that 40 percent of all the freight
cars in the country were more than 20 years old and that only 3
])ercent of the locomotives now in use had been built within the past
10 years, and other testimony along that same general line. It oc-
curred to me that the ability of the railroads to meet a continued high
peak of operations would depend somewhat upon the ability of the
existing equipment to stand the gaff over a period of time. Wouldn't
that be a problem?

Mr. Pellet. Yes; but, as T said this morning, a rebuilt locomotive
is as good as it was, practically so, when it was new. The same applies
to a rebuilt car. We have not as much obsolescence of equipment as is
generally felt to be true. I haven't the exact figures in my mind, and
I don't know that Dr. Parmelee has them, but we would he glad to
submit them.

Acting Chairman King. I understood Mr. Pelley's testimony this
morning to be that your locomotives were practically as good as
new, if they were not entirely new, because of your maintenance ex-
j^enses and charges, and the same with your cars, so that your cars
were all in good condition.

Mr. Pellet. I wouldn't say that. Senator, but as a matter of fact
someone quoted some figures from me this morning, I think, con-
cerning the percentage increase in business that we were able to
handle, that we could handle 25 percent more than last year, and by
repairing the locomotives and cars in bad order we could handle 45;
I think we probably said 40 this morning. Of course tliis accelera-
tion in business last fall brouglit about some very extensive repair
programs. Some railroads reduced the bad orders to a minimum,
lioping that this business would continue, so oui* bad-order situation
is much bettor than it was a year ago, and it is very well in hand.

16562 CONCENTRATION OF ECONOMIC POWER

We would like to have an opportunity to run a race with this busi-
ness and see if we couldn't keep ahead of it.

Dr. Parmelee. Right on that point, Mr. Chairman, it may be
interesting to the committee to know that between August and Janu-
ary, which is the latest month for which we have figures, the rail-
roads reduced their percentage of unserviceable or bad-order freight
cars from 12.2 percent down to 8.6 percent. An average of about
6 percent is regarded as normal. You always have certain cars in
the shops and so on, so you can't reduce your percentage to zero, but
if you have no more than 6 percent of your cars in bad order you
are considered as being in very good physical condition.

I would like to proceed, if I may, with some of these exhibits, mov-
ing along as rapidly as possible, because your time is running short.

Turning to page 10, "Exhibit 2495" shows the number of locomo-
tives of different classes and the number of freight-carrying cars
installed in each year from 1927 to 1939.

(The table referred to is marked "Exhibit No. 2495" and is in-
cluded in the appendix on p. 17352.)

INSTALLATION OF NEW EQUIPMENT

Dr. Parmelee. I would like to call the attention of the committee
at this point to a factor which I shall refer to again, which has
already been referred to, that the somewhat improved business of
1937 had a heartening effect on a great many different activities of
the railroads.

You will notice looking at this exhibit that the number of steam
locomotives installed in 1937 showed a considerable increase over
those of the next preceding 4 or 5 years, and was greater also than
in any year since. And the same thing is true of the freight cars.

The table at the bottom of page 10 is a statement of the number
of passenger-train cars in service, class I railways, each year down
to 1939.

(The table referred to was marked "Exhibit No. 2496" and is in-
cluded in the appendix on p. 17352.)

Dr. Parmelee. Now, there, too, I would like to make the comment
in passing that between 1921 and 1939, while the number of cars in
service declined about 30 percent, the business in terms of passenger-
miles went down about 39 percent. So that the demands on the pas-
senger-car capacity declined faster than the capacity itself.

Page 11 also shows a chart and supporting figures. It shows the
number of long tons of rails laid each year from 1921 to 1938, and
the number of wooden ties laid, classified as treated and untreated.
You will notice that here, too, the number of tons of rail and the
number of ties laid in 1937 showed an increase over preceding and
over succeeding years.

(The chart referred to was marked "Exhibit No. 2497" and appears
on p. 16563. The statistical data on which this chart is based are
included in the appendix on p. 17353.)

Acting Chairman King. That table doesn't show 1939, does it ?

Dr. Parmelee. It doesn't. I am sorry to say we haven't those
figures complete as yet, Mr. Chairman.

Acting Chairman King. Would they be substantially the same as

CONCENTRATION OF ECONOMIC POWER

16563

Dr. Parmelee. We think there will be an increase although we
haven^t the exact figures. One interesting thing in connection with
the ties is a point to which I shall refer later, and that is that there
has been a very marked increase in the number and percentage of
treated as compared with untreated ties. That is one of the forward
steps in technology on the railroads.

Briefly stated, during the first 4 years of the period covered by
''Exhibit No. 2497," the average percentage of treated to total ties was
48.2 percent. In other words, less than one-half of the total ties
installed were treated. In the last 4 years shown in the table, 1935
to 1938, inclusive, the percentage of treated ties was 78.5 percent; had
gone up from less than half to more than three- fourths. Treated
ties, of course, last a great deal longer than untreated ties and while
they cost more by pernaps 50 percent, they last probably three times
as long.

jjJxHiBiT No. 2497
NEW RAILS LAID IN RCPLACEMCNT

I 2,400

2,200

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

2,400

r-l

i-t

CM
i-t

C\J
ON

CM
ON
rH

ON
CM

C7N

CJN

■ ON

ON
I-t

ON
ON

2,200

'ts

Ss.

2,000
1,800
1,600

1,400

«s

1,200
1,000
800
600
400
200

Scale t Thousemds of long tons.

Dr. Anderson. What is the life of a treated tie?

Dr. Parmelee. It is believed to be somewhere between 20 and 25
years, although they haven't been in the tracks long enough to reach
an exact figure.

Dr. Anderson. And the difference would be that an untreated tie
had to be removed say in 7 or 8 years ?

Dr. Parmelee. In about 7 to 8 years, depending upon the character
of the tie and kind of wood it was, and the place where it happened to
be, and the amount of traffic, 'and all the other considerations.

Dr. Anderson. Has there been any movement in the direction of
even a more permanent tie than the treated wooden tie?

16564 nONCRNTRATTON OF EOONOMTC POWER

Dr. Parmelee. Yes; steel and concrete ties luive botli l)een tested,
but so far they have found nothing better, I believe than a treated
wooden tie.

Acting Chairman King. Creosote is still the best treatment ?

Dr. Parmelee, Creosote and zinc chloride.

INVESTMENTS IN RAILROADS 192 3-39

Dr. Parmelee. The chart and supporting table on page 12 sliows
the amount of money spent by the railroads in capital improvements,
what are known technically as additions and betterments, charged to
capital account each year from 1923, when their improvement program
began, to which Mr. Pelley referred this morning, and 1939. This
shows that over the 17-year period covered by the table and the chart
the annual average of capital expenditures for the various purposes
indicated was $534,000,000.

(The chart referred to was marked "Exhibit No. 2498" and api)eais
below. The statistical data on which this chart is })asod aic included
in the appendix on p. 17353.)

' Exhibit No. 2498

gross expenditures for additions
and betterments - years 1923 to 1939, by iiems

$9,073,533,000

Other equipment
$185,631,000

Acting Chairman King. I don't see that.

Dr. Parmelee. I have obtahied that figure, Mr. Chairman, by divic
ing the total of $9,073,533,000 by 17, which is the number of yeai-s
covered.

Acting Chairman King. I see; yes. May I inquire whether any of
that was new capital, or v;as it borrowed money ?

Dr. Parmelee. It came from various sources, Mr. Chairman. Some
of it was borrowed money ; some of it was out of depreciation reserves,

CONCKNTKATION OF ECONOMIC POWER 16565

some was out of net earnings, and from whatever source it might come.
Part of it was new capital, borrowed money.

Acting Chairman King. No part of it was what might be denomi-
riated as original investment, was it?

Dr. Parmeler. Original in the sense that you were borrowing new
money; yes.

Acting Chairman King. Well, was any part of that received for sale
of stock?

Dr. Parmelee. A part of it. During the better years of that period,
in the later twenties some stock issued by some of the railroads
was sold for cash, but that was a comparatively small proportion of the
total.

Acting Chairman King. By and large, the greater part of that
capital investment was borrowed money?

Dr. Parmei^ee. A considerable part of it; yes.

Dr. Anderson. Do you have any idea as to what proportion of the
total was borrowed money?

Dr. Parmelee. I couldn't answer that question, Mr. Anderson. I
think you had some figures put into this very hearing by Mr. Barriger,
if I remember rightly, on that very subject.^

Dr. Anderson. Do you know w'hether the railroads went into the
market to borrow that $262,000,000 in 1939, or did they find it within
their own reserves and depletion accounts?

Dr. Parmelee. My answer there would be that most of the $133,-
000,000 in the "Equipment" column, which is about one-half of the
total, was borrowed under equipment trust certificates. As to the re-
mainder, $128,000,000, I am unable to answer your question.

Dr. Anderson. Would you hazard a guess as to the size of a normal
borrowing, when the railroads are in the relatively healthy condition
they found themselves in, say, in the twenties?

Dr. Parmelee. Mr. Pelley made the statement this morning that
the railroads could easily in fairly normal conditions expend $500,-
000,000 a ytar or more on their projDerty in the way of improvement
work.

Dr. Anderson. And if they sought $500,000,000 a year?

Dr. Parmelee. To what extent that would have to be borrowed de-
pends a good dear on the circumstahces which were in effect at he
time, of course.

Dr. Anderson. I was going to put it this way. If they sought that
nuicli money annually, what prospect is there of their findmg the
money within their own coffers, or of having to go into the open mar-
ket for it?

Dr. Parmelee. That would depend entirely on the degree to which
their net earnings came back and that, of course, is a very difficult
question to answer in advance.

Acting Chairman King. Many of the railroads would find something
like the lean place which old Mother Hubbard found when she wanted
something for herself or her dog? I don't want to be critical.

Mr. Pelley. Senator, you are interested in the amount of these
capital expenditures, that had securities issued against them ? Well, I
should say that 60 percent of these were made out of earnings; not

' Sec Hearings, Part 0, pp. 3561-357G.

16566 CONCENTRATION OF ECONOMIC POWER

many of them capitalized by roads now paying interest on them;
probably 60 percent was spent right out of money they made.

Acting Chairman King: Earnings which ought perhaps to have
been applied to liquidating obligations matured or unmatured, and
denying any dividends whatever to stockholders?

Mr. Pellet. Well, in some instances the money was spent rather
than pay dividends, probably, but they either had to make the im-
provements out of earnings or finance them and issue securities against
them in order to improve their plant, keep abreast of the business; it
was a perfectly proper thing to do and a very laudable thing to do, and
we probably would be in better shape — I know we would — if we made
all of them out of earnings.

Acting Chairman King. Those earnings were in part due to drain-
ing various resources which perhaps ought to have been retained or
ought to have been applied for additional development.

Mr. Pellet. No ; I don't follow that. The railroads were reasonably
prosperous in the twenties, and they were expanding their properties ;
they entered into this big prograrn in 1923, and spent about $7,000,-
000,000 before they finished it, and much of that was done right out
of the earnings of the property.

Acting Chairman King. I had in mind when I made that former
observation the fact that I had received some letters from stockholders,
some from mortgage holders, during the past few years indicating that
they thought that instead of utilizing some of the earnings for the
purposes you have indicated there ought to have been some payment
in the discharo-e of obligations and in paying some dividends to the
stockholders.

Mr. Pellet. Yes; since you raise that I would like to clear up a
point, if I may. You know many people think that our debts have
been increasing; they haven't; they have been decreasing. Thirtj^
years ago the railroads owed $606 for every $1,000 invested in their
property. Today they owe only $429 for every $1,000 they have in-
vested, so instead of our debts increasing, they are really decreasing,
contrary to the general public feeling about them.

Acting Chairman King. Proceed.

Dr. Parmelee. Just one other comment on "Exhibit No. 2498,"
Mr. Chairman. Again I call attention to the fact that in 1937, which
was one of the better years of the thirties, the best year since 1930,
the amount expended for additions and betterments showed a very
large and very healthy increase and has since fallen off. "Exhibit
No. 2499"

Mr. HiNRiCHS (interposing). May I ask a question for just a mo-
ment? Taking these last exhibits, 2495 to 2498. They all show a
very substantial level of capital activity, capital accretion, in 1937;
freight-carrying cars average about as many as you had from 1927 to
1930. Your total expenditures for equipment are about up to the
averages of the 1920's, in contrast with the situation where, for
example, in 1932 or 1933 you added only 1 steam locomotive and 13
electric and oil, gas, and electric locomotives. Now does that seem
to yoii to indicate that you get capital investment in the railroads
when, and only when, you begin to approach reasonably close to ca-
pacity operations, that your program hasn't been controlled essentially
in terms of whether there was a general feeling of confidence, but

CONCENTRATION OF ECONOMIC POWER 16567

rather in terms of the very specific feeling that you now had reached
a point calling for additional equipment for prospective traffic?

Dr. Parmelee. I don't think it is quite so simple as that, Dr.
Hinrichs. You remember that 1937 was the fourth in a series of
years, each of which showed some increase in traffic and earnings
over the next preceding year. In other words, it was the end, in a
sense, of a cumulative period of improvement and betterment in earn-
ings. Now I haven't any doubt that some of the railway manage-
ments would have been glad to make some of these capital improve-
ments in some of the earlier years, but it was a financial restriction
that was on them. But as you got an increase year by year over a
period of years, the psychological effect would be that perhaps we
were now on a permanently upward trend, or at least a trend that
would continue for some time in the future. Therefore we can afford
to go out and do some of this improvement work which we have
wanted to do for some time. As a matter of fact, they- guessed
wrong and things turned down very sharply in '38, and we have
only come part way back in '39 and '40.

But I think the psychology of the situation was more important
than any other one factor.

Mr. Hinrichs. More important than the fact that your freight-
car loadings were down to within 10 percent of the levels back in
the 1920's, possibly 13 percent?

Dr. Parmelee. That partly underlies the psychological factor, of
course. But there are two factors in this business : partly what you
need, and partly what you think you can afford to pay or what
you have to pay with.

Acting Chairman King. Would it be your view that notwithstand-
ing the fact that hundreds of millions, and perhaps billions, have
been lost in railroad development for various causes not necessary to
enumerate, some of which probably would be charged to control by
the Government, others to competition from subsidized organiza-
tions, you still think that there is a good future for the railroads and
that regardless of the losses which have been sustained, there has been
great good to the country in the development of the railroads ?

Dr. Parmelee, I think there is no question about the last remark
you made, Mr. Chairman. Now about the future, I would make two
general remarks and I don't want to get into too much detail. In
the first place when we talk about the railway industry we ought
to recognize that there are a number of railroads in the country
which are prosperous ; they have more than made their fixed charges
right through the depression period every year, so that there are a
number of companies w^hich can finance reasonably on a sound and
fairly low interest basis at any time. They always have and they
probably always will, so far as we can look into the future. That is
one answer.

The other is that people are looking for safe investments at low
rates of interest, and their judgment as to buying the securities of
any particular company, whether prosperous or not at the moment,
will depend entirely on their forecast of the probable earnings of
thftt company in the future. Those forecasts would be very care-
fully, probably rather conservatively, made, but if they conclude, as
they will in some cases, that there is security in the future earnings
for that particular investment, they will buy.

16568

CONCENTRATION OF F.OONOMIC POWER

Acting Chairman King. Well, I had in mind (m that question the
fact that so many railroads have been in the hands of receivers.
Some have gone through very dark days, such as the New Haven and
Union Pacific in its earlier days, the Rio Grrande, the" Western Pacific,
and Rock Island, so that there is a considerable pessimism on the part of
some persons as to the future of the railroads. But from your state-
ment, and the statement of Mr. Pelley, it seems to me that the clouds
are breaking and we have reason to believe that this very important
part of our economy is to be preserved and to continue rendering very
effective and important service for the benefit of the people.

Dr. Parmelee. I think that is a very sound position to take, Mr.
Chairman. I think that is in line with what Mr. Pelley said this
morning and I certainly am in accord with it.

RAILROAD PURCHASES OF SUPPLIES

Dr. Parmelee. I think I have reached now, Mr. Chairman, page 13,
"Exhibit No. 2499," chart and supporting table on material purchases,
'J'he only comment I think I need make on that is to point out that
in a period of 17 years the railroads expended approximately $17,000,-
000,000 for fuel, for forest products, for iron and steel products, and
for all the miscellaneous items which they buy from other ii^dustries.
That is an average of approximately $1,000,000,000 per year over good
and bad years. And agam you will notice that in 1937 they came very
close to that billion dollars— $966,000,000.

(The chart referred to was marked "Exhibit No. 2499" and appears
below. The statistical data on which this chai't is based are included
in the appendix on p. 17354.)

Exhibit No. 2499

RAILWAY PURCHASES - 1923 TO 1939

$16,989,636,000

CONCENTRATION OP ECONOMIC POWER 16569

Acting Chairman IOng. Well, would that include capital
investment ?

Dr. Parmelee. These are just purchases of materials and supplies,
the great bulk of which, Mr. Chairman, are used in operations. They
are either consumed, like fuel, or used like steel rails, and other things,
in their operations.

Dr. Anderson. Mr. Parmelee, I wonder if it would help to expedite
matters if we could move quickly through the next two sections and
get over into the part that concerns some technological developments,
with your comment on anything that occurs to you in these two
sections so that we could run through them and not lose what you
wanted to give us by way of a connected account.

Acting Chairman King. When you say "section'' you mean pages
17 and 18?

Dr. Anderson. I am thinking now of pages 16 to 38. That deals
with freight and, passenger traffic and revenues, expenses and income
of the railroads, and moves over to the section concerning employees
and their compensation, which will be Mr. Parmelee's introduction to
this techi ^ogical topic as such. Would it be possible to do that?

Dr. Pari^^elee. I will try to move as rapidly as possible, Mr. Ander-
son. On page 17, Mr. Chairman, there- is a table labeled "Exhibit No.
2500," which shows the originating tonnage of freight on the railways
of class I on each year from 1931 to 1939.

(The table referred to was marked "Exhibit No. 2500" and is
included in the appendix on p. 17354.)

Dr. Parmelee. I think the only points that need to be made in
connection with this exhibit are first that from 1921 to 1939 there was
a decline of 4 percent in the total freight tonnage, but that that
decline was quite different as related to different groups of com-
modities. There was a decline of actually 65 percent in the so-called
l.c.l. freight, or less-than-carload package freight, the final column
in the table. There was a decline of 38 j^ercent in animals and
their products, such as livestock, which now largely moves by truck ;
tliere was a decline of 34 percent in products of forests, lumber and
timber products; there was a decline of 20 percent in products of
agriculture; there was a decline of less than 3 percent in the products
of mines, which shows where the railroads are still practically
supreme in their particular field, and there was an increase of
35 percent in manufactures and miscellaneous. Those are largely
the miscellaneous classes of manufactured goods.

A very important and significant increase.

Dr. Parmelee. "Exhibit No. 2501" is a chart, with supporting
data, showing the freight traffic over the same general period in
terms of tons originated and revenue ton-miles.

(The chart referred to was marked "Exhibit No. 2501" and appears
on p. 16570. The statistical data on which this chart is based are
included in the appendix on p. 17355.)

The same general picture is shown for passenger traffic in the
chart, with supporting figures on "Revenue Passenger Miles."

(The chart referred to was marked "Exhibit No. 2502" and appears
on p. 16571. The statistical data on which this chart is "based are'
included in the appendix on p. 17355.

124491— 41— pt. 30 25

16570

CONCENTRATION OF ECONOMIC POWER

Dr. Parmelee. Here, however, the passenger traffic showed a
decline of a little more than one-half, and has recovered about one-
third of that decline.

"Exhibit No. 2503" on revenues per ton-mile shows the gradual
decline in price of freight transportation on the railroads in terms
of average revenue per ton-mile.

(The chart referred to was marked "Exhibit No. 2503" and appears
on p. 16572, The statistical data on which this chart is based are
included in the appendix on p. 17355.)

Exhibit No. 2501
REVENUE TON -MILES

460
440
420
400
380
360
340
320
300
280

260
240
220

(7*

5
(T*

OS
OS

jr- i-l rHi-li-l •Hr-lr.|<Hr-lr-4fHf-l>-l<-l<H iH r-lr-l>-lrH

440
420
400

380

360

3*0

320

300

?^0

260
?40

220

Scale - Billions of toi-milea*

Dr. Parmelee. I want to say that this is not an exact measure,
because the average revenue per ton-mile depends on several factors,
one of which is the actual rate per ton-mile. However, it is an ap-
proximate measure, and the committee will note the general down-
ward trend.

Mr. HiNRiCHS- That chart has been drawn in such a way as to show
relatively small changes. It appears to be a very precipitous decline.
Actually, you start with the post-war period of a generally high-
price level, and relatively high freight rate back in 1921. You come
down to the end of the 1930's with a rate of about 1.08 cents per ton-
mile, and that declines so that through the period from 1934 to 1939
it is in the neighborhood of 0.98 cent per ton-mile.

CONCENTRATION OF ECONOMIC POWER

16571

The decline is about a 10 percent decline during that period, as
indicated by your table. Is that correct?

Dr. Parmelee. I didn't get the years you were comparing.

Mr. HiNRicHS. The period 1926-29, and the period 1934 to 1939,
\vith an unusually low point in 1937 that I suppose reflects, among
other things, the composition of the freight loadmgs in 1937.

Dr. Parmelee. It represents that in part. In part, the latter part
of that year, in November and December and in March '38, there was
an increase in certain of the freight rates. Those increases are re-

ExHiBiT No. 2502

REVENUE PASSENGER -MILES
RailviayB of Class I

CNiCMCM C>JCNJ CgCgCM C^rr^r^r^r^i^c^r^r^r^r^^
<y^ On <j\ On (7n <7n Cn (Jn <y\ (7n qn (Jn CTn CJn CTn on (Jn on o^ (Jn

40
38
36
34
32
30
28
26
24
22
'0
8
16

. i

)

38
36
34
32
30
28
26
24
22
20
18
16

Scale - Billions of passenger-miles.

fleeted, of course, in 1938 and 1939 averages, but do not appear in the
1937 average.

Mr. HiNRiCHS. But in general, contrasting tha late twenties and the
period since 1934, there has been approximately ft 10-percent change.

Dr. Parmelee. About 10 percent, roughly.

Mr. HiNRiCHS. A 10-percent change in the revenue per ton-mile.

Dr. Parmelee. Yes ; that is correct.

Mr. Hinrichs. While the general price level would, of course, de-.,
cline considerably more than that.

Dr. Parmelee. I have some figures on the prices railroads pay or
have paid, a little later on in this same statement.

16572

CONCENTRATION OF ECONOMIC POWER

The passenger figures are shown in "Exhibit No. 2504."

( The chart referred to was marked "Exhibit No. 2504" and appears

on p. 16573. The statistical data on which this chart is based are

included in the appendix on p. 17356.)

Dr. Parmelee. That shows an even sharper decline in terms of

average revenue per passenger-mile than was the case in terms of

Exhibit No. 2503

AVERAGE REVENUE PER TON-MILE
Railways of Class I

eg <Mrg c>4C\i<>4cvj^'*^rororO'^'^PO'^'^'^^
lyx C^ <Js O^ ^v ^\ ^ Ov O^ ^*k ^ CT^ CT^ ^v CT^ CT^ O^ CT^ ^v ^s CATlta

, W^ W^ W^ V. V ■• W V.

cents ^ ^ r-l <-( iH rH fH
1.280

1.260
1.240
1.220
1.200
1.180
1.160
1.140
1.120
1.100
1.080
1.060
1.040
1.020
1.000

.980

.960

.940

.920

rH rH iH

rei

; I

jni

)er

Qil

S-*

1.280

1.260

1.240

1.220

1.200

1.180

1.160

1.140

1.120

1.100

1.080

1.060

1.040

1.020

1.000

.980

.960

.940

.920

average revenue per ton-mile; in fact, during the last 5 years, the
average revenue per passenger-mile has been the lowest in the history
of the American railway.

DIVERSION or TRAFFIC FROM RAILWAYS

Dr. Parmelee. "Exhibit No. 2505" is a comparison in chart form
of the trend from 1928 to 1939 of an index of general distribution,

CONCENTRATION OF ECONOMIC POWER

16573

with an index of railroad shipments. The index of distribution is
the upper or the dotted line, while the index of rail shipments is the
lower or heavy line.

(The chart referred to was marked "Exhibit No. 2505" and appears
on p. 16574. The statistical data on which this chart is based are
included in the appendix on p. 17356.)

Dr. Parmelee. In each case, the figure for 1928 was taken as 100,
and the entries for the remaining years were plotted on the basis of
that as 100.

Exhibit No. 2504

AVERAGE REVENUE PER PASSENGER-MILE

Railways of Class I

OS CT^ ^^ CT^ llT^ CTs CTs CTs CTs CT^ CT^ ^s CTs OS OS CTs OS OS Os Os
g _, 4j.'~' *"* <— trHi—t >-<<Hi— (i— t rH(— 1<Hi-|iH t-t r-i r-i t-i r-i i-i ~ __ a _

3.100

3.000
2.900
2.800
2.700
2.600
2.500
2.400
2.300
2.200
2.100
2.000
1.900
1.800
1.700

■V

■s

18 (

en
pa:

I3€

r
ng

IV e

ir-

nui

ni:

•x

3.100
3.000

2.900

2.800

2.700

2.600
2.500
2.400
2.300
2.200
2.100
2.000
1.900
1.800
1.700

Distribution is worked out on the basis of ttiose commodities
which in 1928 moved by rail, weighted according to the actual dis-
tribution of traffic in 1928. The important thing from the point of
view of the Committee, I think, is to look at the figures for 1930.
You will notice that the entry for distribution is 80, which means
that in 1939 actual distribution of commodities in this counti7 that
moved by any and all forms qi transportation was 85 percent as
great as it was in 1928.

The actual movement by rail in that year, 1939, was only 70 per-
cent as great ae it was in 1928. The difference between 85 and 70 is

16574

CONCENTRATION OF ECONOMIC POWER

Exhibit No. 2505

INDEXES OF DISTRIBUTION AND RAIL SHIMHENTS
1928' too

me 1929 1930 mi 1932 1933 1934 1935 I936 1937 1936 1939 1940

120

100

I/O

100

{

Z)\

If/a/

mot

Ivffk

)

\
19

70
60
50

•

\
\

•7^

CI!)

IL Si

ffPM

fiV73

40
30

10
0

(Awn

y^ m

^1/

car/oc

din^:.

30
70

Th* distribution Indax portnys the trand lA th« total quantity
of e OBBod It iaa moving tran producarto conauoar. It rapreaen'ta tha '
traffic floB of the country, by whatavar channal it May go«

^^Flriuraa i,n cirela'rapraaant approxioata pareantafa dlvaraion
V-/of traffic fron tha raiU ainea 1928. •

10
0

CONCENTRATION OF ECONOMIC POWER 16575

the spread or diversion of rail traffic to other forms of transporta-
tion. In other words, it is that part of the total movement of
freight which, had the railroads carried the same percentage of the
total in '39 as in '28, would have gone by rail.

Now, 70 is 18 percent less than 85 as a matter of percentage rela^
tionships. That 18 is shown in a round circle on the chart which
seems to indicate that so far as the thing can be measured at all,
18 percent of the traffic which since 1928 might have moved by rail,
has actually been diverted and has gone to other forms of trans-
portation.

Mr. Pike. That is a pretty general list; it covers a wide spread
of commodities; does it not? :

Dr. Parmelee. Yes; and of course the Committee will understand
that even in 1928 the railroads had lost a good deal to othei forms
of transportation, so the 18 percent does not give the whole amount
of loss to competitive forms, but only that portion which has been
lost since 1928.

"Exhibit No. 2500" is a condensed income account of the railways
of class I from each year after 1929 to 1939.

("The table referred to was marked "Exhibit No. 2506" and is
included in the appendix on p. 17357.)

Mr. HiNRiCHS. Going back. Dr. Parmelee, for a moment to "Ex-
hibit No. 2505," you have filed with the Committee a technical memo-
randum as to the way in which those various indices have been con-
structed. Have you a copy for the record ?

Dr. Parmelee. I have it here, and if the Committee would like,
I would be glad to submit it.
Dr. Anderson. It can be marked "Exhibit No. 2507."
(The document referred to was marked "Exhibit No. 2507" and is
on file with the Committee.)

Dr. Parmelee, That is entitled Raihoay Freight Traffic Trends.
Senator King, "^ould you like to have the exhibit printed, or
would you just have it filed?

Dr. Anderson. I understand it will have to have an exhibit number ;

it need not necessarily be printed, but we will take it as a file exhibit.

Mr. HiNRicHS. In connection with the figures on diversion,^ there is

a very rapid jump that occurs in 1933. From 1933 through 1938 there

was not a very great change in your 'version ratio.

It is possible that that increased diversion that occurred between
1929 and 1939 was due to the relatively slow movement downward of
freight rates during that period. The big drop occurred between 1932
and 1933, but up to 1932, which is when general prices had been going
down considerably, there had been only a very slight movement in
average revenue per ton-mile.

My first question would be, therefore, do you think that the devel-
opment of that spread is related to the maintenance of freight rates
during that earlier period of depression?

Dr. Parmelee. I think that is rather a hard question to answer. Dr.
Hinrichs, becpnse the oncoming of the depression during that period
was of course a feature which overwhelmed all other economic factors.
Now, whether the relative level of the freight rates had anything to
do with it, or to what extent they affected it, it is very hard to say.

1 See "Exhibit No. 2505," appendix, p. 17356.

16576 CONCENTRATION OF ECONOMIC POWER

I do know this, if I may add to that, that as the traffic was being
gradually diverted away from the rails, the carriers naturally were
stimulated to further reductions in their rates, which brings about the
so-called erosion in freight rates, the nibbling away of a rate in order
to retain or regain traffic on the rails.

(Mr. Pike assumed the chair.)

Mr. HiNRjOHS. Those are separate problems, almost, are they not,
the retaining and the regaining, in a very considerable measure ? Busi-
ness relationships and ways of doin^ business persist from year to
year, and will stand considerable stram before a change-over of proc-
ess or of methods of doing things is undertaken. Once that transition
baa been made, it becomes much more difficult to induce the business-
man to swing back to the older method, and the problem of retaining
traffic is somewhat simpler than the problem of regaining it, wouldn't
you agree?

Dr. Parmblee. I agree thoroughly, but I would also say that the
railroads have been trying to do both. They are trying to retain their
traffic and in many specific cases they are also trying to regain traffic
which they hope has been lost to them only temporarily.

Mr. HiNRiCHs. To go back to the period 1929-32, you show in your
table that the potential traffic was cut almost in half. The index stands
, at 54.' During that same period, in "Exhibit No. 2503" you show that
the average revenue per ton-mile was 1.08 cents in 1938, and was 1.046
cents per ton-mile in 1932 ; that is, there had been a reduction in the
revenue per ton-mile of approximately 2 percent.

Now, what -were the devices that the railroads were using most
energetically during the period 1929-32 to retain their share of the
freight traffic of the country?

Dr. Parmelpe. There are two, I would say, in particular. One is
this erosion of rates or the gradual reduction of rates, here and there,
over specific routes, and on specified commodities in order to offset the
effect of competition, and the other is, of course, an effort to improve
operations, particularly in the matter of speedy transportation — more
speedy service.

I will show you figures later on which will show that during that
period, as well as before and since, there has been a marked increase
in the average freight transportation.

Mr. HiNRicHS. Would it be your impression that a net reduction in
rates of 3 percent during that period was effective competition against
the reduction of rates that were being offered by truckers, for
example?

Dr. Parmelee. That average was made up probably of a great many
larger and smaller reductions in specific cases, and it is very hard to
generalize on the basis of an average. I would say that many reduc-
tions which were made were greater than that average.

Acting Chairman Pike. If there is any way to dodge over to page
36, 1 think we might try to do it.

Dr. Anderson. Mr. Chairman, I am very thankful to you for the
suggestion, because, as you know, we have a heavy schedule and we
are trying to hear two witnesses a day.

Acting Chairman Pike. It does seem to me that the material in
between where we have just been and page 36 or 37 is very interesting,
but I don't think it bears quite as directly on the topic the committee

CONCENTRATION OF ECONOMIC POWER 16577

is working on as from page 37 on. I wonder if we might print the
material between there in the record.

Dr. Parmelee. I might then briefly refer to the exhibits which
should be noted on each page and pass on.

(The charts referred to were marked "Exhibits Nos. 2508 to 2516"
and appear on pp. 16577-16581. The statistical data on which these
charts are based are included in the appendix on pp. 17358-17361.)

Exhibit No. 2508
NET INCOME OR NET DEFICIT AFTER FIXED CHARGES

900
600
700
600

500

400
300
200
100

0
100
200

r-l

ON 0\

1-4 ft

rr\

UN
ft

OS
ft

•-4

©s
CI
OS

t-i

900

»t

iBi

;om

•

flrY>

10C\

600
500

400
300
200
100
0

100

[>ef

200

sSij

tsJ

Scale -.millions of dollars

Dr. Parmelee. I would like, Mr. Chairman, just a minute to call
attention to the price figures rn "Exhibit No. 2516," which are indexes
of the price the railroads pay for the commodities they buy. We use
May 1933 as 100 only as a matter of convenience, because we ha])-
pened to start our index on that date. In December 1926, the only
previous year for which we have any figures, the index was approx-
imately 150; it dropped to 100 in May 1933, which was about the
bottom of the depression, and has since come back to approximately
133. In other words, the price has gone up about two-thirds of the
way it came down from 1926 to 1933.

TREND OF employee COMPENSATION

Dr. Parmelee. I think some comment should be made on "Exhibit
No. 2517," which deals with the general trend of employees, hours,
and compensation of employees of railways in class 1.

/•'he chart rererred to was marked "Exhibit No. 2517" aiul a^jpears*
on p. 16582. The statistical data on whicli this chart is based arc in-
cluded in the appendix on p. 17361.)

16578

CONCENTRATION OF ECONOMIC POWER

Exhibit No. 2509

TOTAL OPERAT(NG REVENUES, TOTAL OPERATING

EXPENSES AND NET RAILWAY OPERATING INCOME

Railways of Class I

Scale - Ullllons of dollars

•-• CM f^ ^ \r\ \0 t-~ aO (T^Or^ CM i-n^ WNvOe~oO 0^2
CM CMCMCMcvlCMCMCMCMrnrO'^'^rO'^rO'^i^lr^^

Shaded portion r«pr«Bents Net Railway Operating Income*
Entire bar represents Total Operating Revenuea*

CONCENTRATION OF ECONOMIC POWER

16579

Exhibit No. 2510
RATE OF RETURN

5. -00^

d.50

4.00
3.50
3.00

?.5o
2.00
1.50
1.00

5.oo;i

4.50

4.00

3.50
3.00
2.50
2.00
1.50
1.00

Exhibit No. 2511
[Submitted by the Association of American Railroads]
1939 AND 1916 RAILWAY DOLLAR COMPARED

JIBOR

FUEL, MATERIALS ("1916
AND SUPPLIES,ETC. |_1939

ALL OTHER
EXPENSES

TAXES

NET RAILWAY ri9l6

OPERATING INCOUE '[1939

] 28.9

44.3

16580

CONCENTRATION OF ECONOMIC POWER

Exhibit No. 2513

[Submitted by the Association of American Railroads]

MAINTENANCE RATIO

(Ratio of total maintenance expenses to total operating revenues)
Railways of Class I

cy\ CTn OV CT^ C7^ <^ CTs ijN J^ ^ C7N (7s C7> CTx <y\ (J\ <y\ <T-> C7> <T^

24
22
20
18
16
U
12
10

."»

i»^

Maintenance of Equipment

'^,.-%

">..

I^intanance of Way and Structures

24
22
20
18

■14

Exhibit No. 2514
[Submitted by the Association of American Railroads]

FIVE YEAR AVERAGES COMPARED WITH YEAR 1916
L_J Cents per dollar of total operating revenues
m Cents per dollar of net railway operating income before taxes

4.4

13.1

Year 1916

1921-1925

1926-1930

1931-1935

1936-1939

36.3

37.7

CONCENTRATION OF ECONOMIC POWER

1658J

Exhibit No. 2515

[Submitted by the Association of American Railroads]

PER CENT OF TOTAL MILEAGE OPERATED BY RECEIVERS OR TRUSTEES

f-|Csir^^Xr\v^t--ooax Q

CVJCMCMCMtM CNJfMCNJCM <^

CT\ CT^ On On On ctn cjn on On On

•Hi-trHrHt-tMiHi-HiH r-i

0<. ON

OO ON
ON ON

3fl

■n

—

36
34
32

r~~

Ifl

--K

Exhibit No. 2516

[Submitted by the Association of American Railroads]

TREND IN RAILWAY SUPPLY COSTS SINCE MAY. I»33

As oft

38
36
34
32
30
28
26
24
22
20

18
16
14
12
10.,

A
2
0

llay, 1933 « lOU
40 60 80 100 120 140

16582

CONCENTRATION OF ECONOMIC POWER

Dr. Parmelee. In 1916, prior to the entrjr of this country into the
war, the average number of employees on this group of railroads was
1,647,000. Mr. Pelley has stated, the peak of 2,0^2,000 was
reached in 1920, which was largely a year, or at least in part a year,
of Federal control or Federal guaranty. In 1921, you will notice a
figure of 1,660,000 in round figures, with some ups and downs follow-
ing in part the increases and decreases in traffic. That figure remained
between 1,600,000 and 1,800,000 from 1923 to 1929, when it was still
1,660,000. It showed a sharp drop in 1930, when the traffic also showed
a sharp decline, another drop in 1931, another one in '32, and still an-

ExHiBiT No. 2517

[Submitted by the Association of American Railroads]

EMPLOYEES AND HOURLY COMPENSATION

Railways of Class I

rHCMro^lr\vuC-coa^OrHCMro^\r^\i5t~OOONO
CMCMCMCM CMCMCvJCNJCvJ rorO'*1'Orn<^'*lromrn^
O^ Qn OS On OS OS OS OS OS OS OS Os Os Os Os Os Os Os' Os OTs
r-t r-i t-t r^ r-i r1 f-t r-{ r-i r-l>-llHr-lr-lr-lr-tr-(r-<i-tr-(

120 i~T — 1 — 1 — I — I — I — I — I — 1 — I — I — I — 1 — I — I — I — I — I — I 1 120

115

110

105

100

95
90

75
70
65
60
55
50

/
•

--1

•^

^^^

ira

frnp

ge h

oirl

{

en
f

Lge
iUlP

mbi

?21

))

115

110

105

100

95
90
85
80
75
70
65
60
55
50

other one in '33, when we thought it had reached the bottom of the
depression period, 971,000. There was an increase in '34, a slight
decrease in 1935, another increase in 1936, when a 3ubsidiary peak
of 1,115,000 was reached in 1937. Following, however, the precipitous
drop in business we had in 1938, the number dropped to 939,000, a
smaller figure than was reached even in the year 1933, with some come-
back to about 988,000 in 1939.

Acting Chairman Pike. Not quite as low in total number of hours.

Dr. Parmelee. I was coming to the h6urs in just a moment.

Turning to the hours, it will be noticed that the hours per man per
year very generally show a rather sharp decline over the period, from
3.150 hours in 1916 down to around 2,500 hours in the last 4 or 5 years.
However, between 1938 and 1939 there was a slight increase in the
number of hours, wbirh means more regular employment for the men,

CONCENTRATION OF ECONOMIC POWER 16583

some of the men going from 4 clays a week to 5 and from 5 to 6, and
(hings of that sort, the increase, however, not being a very large one.
Turning to the average compensation in the last two columns of
the table, both on a ba^is of cents per hour and dollars per employee
per year, the story, except for the period of the temporary deduction
m wages from 1932 to 1935, is a story of almost steady increase, both
average per hour and average per year. As a matter of record, I
should perhaps say that on February 1, 1932, the employees took a vol-
untary deduction of 10 percent in their wages, and that ran, by a suc-
cession of agreements between managements and men, until July 1,

1934. On that date the deduction was changed from 10 percent to 714
percent. In other words, 2i^ percent was restored. On January 1,

1935, another 21/2 percent was restored, and on April 1, 1935, the re-
maining 5 percent was resto'red.

I should perhaps say at this time that while that deduction did
not apply to higher-salaried forces, most of the forces that received
higher salaries received cuts much in excess of 10 percent; several
of them got 3, 4, and 5 successive cuts that in the aggregate amounted
in some cases to as much as 50 percent. Some of those cuts have not
yet been restored.

Mr. HiNRicHS. I am not sure that I altogether understand this
table. How is that average number of hours per employee figured?
That is an annual average?

Dr. Parmeij:e. That is an annual average, based on the total
number of hours paid for, so far as the aggregate hours are con-
cerned. The average number of employees is, of course, the aver-
age of the midmonth count 12 times a year, added together and
divided by 12, That average in turn is divided into the aggregate
of hours to get the average number of hours per employee.

Mr. HiNRicHS. But how does it get up as high as 2,500? What
would be full-time hours?

Dr. Parmelee. The average number of men is probably men in
full-time positions, which would be somewhat fewer or smaller in
number than the total number of men employed at any time during
the year. The number of men shown here is really what might be
called the standard number of positions, working positions.

Mr. HiNRiciis. These are the number of men actually at work on
a particular day.

Dr. Parmelee. On the 15th of each month or the nearest working
day, if that day happens to fall on a Saturday or Sunday.

Acting Chairman Pike. Are any of these hours constructive hours?

Dr. Parmelee. Yes; they may be; it is what is known as the
hours paid for.

Acting Chairman. Pike. You say you have 8 hours paid for on
a 3-hour run.

Dr. Parmelee. Why, if they operate only 3 hours and are paid
for 8, the 8 go in there.

Mr. O'CoNNELL. What is the average workweek in the industry?
What number of hours is customary?

Dr. Parmelee. Forty hours, Mr. Pelley thinks.

Mr. HiNRicHs. On a full-time basis that is 2,080 hours.

Acting Chairman Pike. Some of it must be constructive, more
hours paid for than hours worked.

Dr. Parmelee. They are, Mr. Pike.

16584 CONCENTRATION OF ECONOMIC POWER

Acting Chairman Pike, Some work 55 hours a week on the aver-
age, 50, anyway.

Mr. O'CoNNELL. A 50-hour week for 50 weeks of the year would
produce 2,500 hourSj and the average number per employee is 2,520
in 1939. I have a little difficulty in squaring that with the 40-hour
week.

Dr. Parmelee. Remember that the railroad works 7 days a week.
That doesn't mean, oi course, that the average man works 2,520, but
I explained that this was really a count of the normal number of
positions.

Acting Chairman Pike. Then the average man did not receive
$1,886.

Dr. Parmelee. No ; it is the average per position, not the full-time
positions but the normal number of positions. A position might not
run for the whole year, but it is the average number of positions
which are counted on the 15th of the month.

Dr. Anderson. Mr. Parmelee, do you have any data that show by
actual record the full-time earnings of persons emplo3^ed in railroads ?

Dr. Parmelee. I think the best thing of that sort is made by the
Railroad Retirement Board for the years 1937 to 1938. I haven't those
figures before me, but they show the number of men who in each of
those years received pay in each of 12 months. Even that doesn't mean
necessarily full-time employees, but a man receiving pay in each of
the 12 months throughout the year comes pretty close to being a
steady, regular, full-time employee, and they show the earnings of
those men.

Dr. Anderson. Do you remember what it is?

Dr. Parmelee. They come about to the $1,886 or very close to it.

Dr. Anderson. That is, the average compensation per employee here
you think is about normal for a full-time employee.

Dr. Parmelee. I think it is a little less than a full-time position.
In other words, these are not quite full-time positions.

Dr. Anderson. Do you remember the B. L. S. study on the earnings
of 1,000 railroad employees? ^

Dr. Parmelee. No ; I do not thiiik so.

Dr. Anderson. 1 have a little break-down of it that came to my
attention, and I remember that of the thousand employees — I have
forgotten his complete controls— Goodrich got 980 railroad men at
work in 1932 normally employed railroad workers, and for that grouj)
he found 38 percent of them earned less than $1,000 in that year,
66 percent earned less than $1,500, and 18 percent earned $1,750 or
better. I wonder if you have any comparable figures, or figures that
show something contrary to that for average full-time earnings.

Dr. Parmfx.ee. I don't know of any special study that has been
made in the industry that would compare with or parallel that.

Dr. Anderson. You would say that these average compensation
figures per employee would give us the .average, and a moment ago
you said it was very difficult to genei-alize from an average. I
wonder what the median would look like on the same distribution.

Dr. Parmelee. On that I would suggest that j'ou take the rather
detailed studies of the Railroad Retirement Board and work out a

^Carter Goodrich, Earninys and Stantlnrdx nf Livinn of 1.000 Ifailnau Employees Dur-
ig the Depression. Bureau of Labor Statistics, Washington, D. C, 1034.

CONCENTRATION OF ECONOMIC POWER 16585

median on the basis of 6-, 8-, 10-month men, men who worked in
each 6 months or 8 months or 10 months of the year. My recollec-
tion— and I am not quite sure about this — is that the Railroad Re-
tirement Board showed for the year 1937 an average for what you
might call the 12-month men of $1,815, or about $1,800. The figure
here is $1,781.

Mr. Pellet. I am afraid the committee may have the wrong im-
pression about the workweek. Of course, the railroads have made
some efforts to spread tlie work as much as they can, but pretty
generally now maintenance-of-way men are on a 5-day- week basis.
The workweek is ordinarily about 48 hours, but many men work as
many as 7 days a week; I think that possibly 48 hours would be
about a normal week, or G days of 8 hours each, laying off on the
seventh day.

Acting Chairman Pike. Do you take the whole 7 days?

Mr. Pellet. Generally C days a week.

Acting Chairman Pike. That is still above the figure. You
wouldn't get 2,520 hours a year.

Dr. Pakmelee. The committee will recall that the railroads are
not under the hour provisions of the wage and hour law.

Mr. HiNRicHS. May 1 suggest that Dr. Parmelee be allowed to
insert in the record at this point a brief explanation of what these
differences are? Obviously there must be some explanation, partly
the statistics technique.

Dr. Parmelee. What do you mean by differences? I would be
very glad to explain how these figures are arrived at in a somewhat
more adequate! way.

Mr. HiNRicHs. A brief interpretation of what that 2,500 figure
really means in terms of the average hours that these men work do
receive, because no explanation so far seems to fully account for it.

Dr. Parmelee. I would be very glad to do so if the committee
would like to have that done-
Acting Chairman Pike. I think there should be a sort of explana-
tion there. There are two or three places where there seem to be
obvious inconsistencies in the figures as presented, which are prob-
ably not inconsistencies at all, but which probably need a little
elaboration. I think it would be a very sensible thing to do.

(Senator O'Mahoney resumed the Chair.)

RAILROAD COSTS OF OPERATION

Dr. Parmelee. "Exhibit No. 2518," shows the unit cost of operation
to the railroads in the freight service per 1,000 revenue ton-miles,
and in the passenger service per passenger train car-mile.

(The chart referred to was marked "Exhibit No. 2518" and appears
on }). 16586. The statistical data on which this chart is based are
included in the appendix, on p. 17362.)

Dr. Parmelee. The table you will notice ends with the year 1938,
the latest year for which information was available at the time this
booklet was printed. However, knowing that the situation in 1939
was somewhat different than in 1938, and making a special tabulation
of some 90 percent of the railroads — that is, railroads handling some
90 percent of the general traffic in 1939 — I am able to present to the
i-.i4J0i— n — pt. :;(i 2G

16586

CONCENTRATION OF ECONOMIC POWER

committee at this time for 1939 some preliminary figures which are
open to some slight possible change in the future. I would like to
read into the record the entries for 1939 on this table. Under freight
expense total, 6.36; transportation 3.12; under passenger expense total,
0.259; transportation, 0.124. Those lines could easily be extended on
to correspond to these figures I have presented.

Mr. HiNRioHs. In spite of the very substantial increase in hourly
rates between 1932 and 1939, the transportation freight expense is
about the same as it was in 1933.

Dr. Parmelee. Slightly less than in 1933 ; that is right, and that has
been brought about very largely, in my opinion, by technology, which
is shown in some of the later exhibits in this statement.

12.00

a
e

•g 11.00
I

:: 10.00

o
u

I 9.00

^ 3.00
a>

g- 7*00

«« 6.00

5-00

Exhibit No. 2.518
[Submitted by the Association of American Railroads]

UNIT COST OF OPERATION

Ot CNJCNJCM CMCM CMCMCNJ rn rn rry ^^rnm'^nT^rO.it
CT^ ON cyx CT\ CTn OS ^v OS Os Os ^\ OS OS OS OS OS Os Os Os Os
i-l i-lrHeH iHr-l iHiHrH r^ ,-i r-i r-t iHr-tr-lrH rH iHH

•a

ta]

en
as

3en

:pe

1S(

ill

ir-

mi:

. 1

-gh

-N

1U(

in-

ni:

'0/

Smm

-X

•*«•,

.38

.36

•30

.28

•34 S
•a

.32

.26 E5
I

.24 •

In Exhibits Nos. 2519 to 2521-A, for example, are shown certain
freight-operating averages for the years 1921 to 1939.

(The charts referred to were marked "Exhibits Nos. 2519 to 2521"
and appear on pp. 16587, 16588. The statistical data on which these
charts are based are marked "Exhibit No. 2521-A" and are included in
the appendix on p. 17362.)

Dr. Parmelee. These five averages or series of averages are by no
means all- that might have been presented to the committee. They are,
however, believed to be fairly representative and significant. They
relate to freight-train speed in miles per hour between terminals, and
that figure incidentally, of course, includes all delays on the road and
all hours spent in intermediate yards representing the actual average.

CONCENTRATION OF ECONOMIC POWER

16587

17-.
16.
16.
15.
15.

14.

14.
13.
13-

12.
12.
11.
11.
10.

Exhibit No. 2519

[Submitted by the Association of American Railroads]

FREIGHT TRAIN SPEED
MILES PER HOUR BETWEEN TERMINALS

ON OS

CM ro ^ lr\ vO t—

eg (-n «it u^ sD

O^ CTn CT^ ^** ^^ CTn ^^ CT^ ^\ ^N CT^ CTn CT^ ^^ ON cyx ^\ CT**
fHi-t r-4t-(/-tnHr-lr-lr-»rHi-H<-l,HrHi-«.-ttHi-l

>-•

/"'

■^

17.0
16.5
16.0
15.5
15.0
14.5
14.0
13.5
13.0

12.5
12.0
11.5
11.0
10.5

Exhibit No. 2520
[Submitted by the Association of American Railroads]

FREIGHT CARS PER TRAIN

50
49
48

47
46

42
41
40

39
38

r-4

OJ
CM
CTN
i-t

CM
CT^
rH

r-t

CM
ON

CTN

CM
ON

CM
ON
r-l

0
On

(TN

CTN

<TN

ON
rH

i-H

50
49

r —

)

(

44
43
M

41
40

39
38
37

Scale: Number of freight care.

16588 CONCENTRATION OF ECONOMIC POWER

Exhibit No. 2521
[Submitted by the Association of American Railroads]
GROSS TON-MILES PfR FRErGHT TRAIN-HOUR

CTN ^\ QS ^N ^N O^ C7^ CT^ CTN ^^ ^^ ^^ ^^ ^S ^S ^\ -O^ CT^ ^^ ^^

r-lr-^r^^^r^r^r^r^r^■-lr^r^l-^^^r^r^r^^-lc^r^

Scale: Thousands of. Gross ton-fflllo3.

The Chairman. The freight train, according to this exhibit, is mov-
ng at a much faster rate than it used to move 10 years ago.

Dr. Parmelee. That is true, Mr. Chairman. That is the product,
generally speaking, of two factors working together ; one is actually
higher speeds while in motion, and second a very great reduction in
the amount of delay between terminals.

The Chairman. Both those factors are the products of technological
advance.

Dr. Parmelee. Both of tliem; yes, sir. Delays, for example, may
come about through break-downs of equipment. If you have better
equipment and take care of it better through technological methods,
you have fewer break-downs and fewer delays.

The Chairman. Of course, the better your equipment the fewer
your repair jobs

Dr. Parmelee. That is true ; and if your track i^ in better shape that,
loo, enables you to get along with fewer delays.

Freight cars per train, the average number of cars in the train, also
has shown some increase.

Net tons per train ; the word "net" in that title means the revenue
plus the nonrevenue company freight in the train but does not include
the weight of the train. It is the tons of freight, whether revenue-
producing or non-revenue-producing.

The Chaihman. These three exhibits portray a striking fact to
me; namely, that tlie general advance of freight-train speed and the
general ^SLin of gross ton-miles per freight train-hour proceeded up-
ward without interruption by reason of the depression, but witli

CONCENTRATION OF ECONOMIC POWER 16589

respect to freight cars per train, beginning in 1930, coincident with
the depression you had a sudden sharp drop for 1931 and 1932.
Freight cars per train had reached a peak of 48 in 1930, and a de-
pression low of less than 44 in 1932, but the number of freight cars
per train had been constantly increasing since. How would you ex-
plain this effect of the depression upon the number of freight cars
per train, while it had no effect upon the technological advance
which is to be seen in the other two charts?

Dr. Parmelee. Some of these factors, Mr. Chairman, do have as
one of their component elements the volume of the freight handled,
there is no question about that, and the factor to which you have
called special attention, freight cars per train, does have that ele-
ment in it. In other words, if your freight -traffic demands drop
off very suddenly and very precipitously as they did in 1932 and
1933, what it means is that you have to run a certain number of
trains in any event, but if there isn't the freight there to handle you
reduce the number of cars on the train and to that extent the result
is not affected by technology, but by what is called depression.

The Chairman. Lack of business?

Dr. Parmelee. It is only, however, in'times of very steep and very
precipitous decline in traffic that that factor does play a very large
part, and that is very well exhibited in this chart to which you have
called attention,^- "Exhibit No. 2520." Now you will notice, if you
continue along that same line on that same chart for 1938, we had a
rather sharp decline in traffic demand in 1938, and yet your average
number of freight cars per train continued to go up. There ap-
parently your operating methods, improved operations, and con-
tinually increasing technology, was able to overcome the effect of
the decline in traffic and your average kept on going up. I wouldn't
draw that analogy too close, but that is what actually happened in
that year.

Now the last two columns of the supporting figures,- if I may re-
turn to them for a moment, are rather important from the operating
man's point of view, although not perhaps so much from the public
point of view. A gross ton-miles-per-freight-train-hour is the move-
ment of a gross ton — the tonnage of freight in the train plus the
tonnage of the train itself, excluding the locomotive and tender, a
distance of 1 mile, and the net ton-miles per freight-train hour,
which is the next and last column, is the movement of the total
amount of freight in the train a distance of 1 mile, divided by the
number of freight-train hours.

Now those two columns, one of which is gross and one is net, are,
generally speaking, the product of increased speed of movement, plus
increased weight of the train, in one case the total train including
the freight, and in the other case the freight in the train.

The Chairman. That would indicate that the capacity, as reflected
gross ton- and net ton-miles, has practically doubled between 1921
and 1940?

Dr. Parmelfj:. That is true.

The Chairman. And that, of course,-is strictly technology?

1 See "Exliibit No. 2"?20." supra, p. 16587.

» See "Exhibit No. 2r)21-A," appendix, p. 17.^62.

t.
16590 CONCENTRATION OF ECONOMIC POWER

Dr. Parmelee. That is technology almost entirely, I would say,
Mr. Chairman, and I call your attention to the fact that every one of
these five factors shown here shows a higher or a better figure in
1939 than in any preceding year in railway history.

Mr. HiNRicHS. Now the crews and the number of man-hours per
train-hour change comparatively from year to year, do they not?

Dr. Parmelee. I don't know whether that would be true per train-
hour ; it would be true per trip, of course, but your train-hours may
vary per trip from year to year.

Mr. HiNRicHS. But you would expect to find if these things had
been plotted in terms of man-hours instead of train-hours very
similar curves as far as continuity is concerned ?

Dr. Parmelee. That would depend a little, I suppose, on whether
you took it in terms of number of men per train-hour, which I think
would follow a comparatively even line, or number of man-hours
per train-hour, where there might be some change.

Mr. HiNRiCHS. Well, if the number of men per train-hour is about
the same, the hour is the same whether it is for the train or the man,
isn't it?

Dr. Parmelee. Yes ; I think you are right, as a mathematical prop-
osition.

MECHANIZATION AND WAGE CHANGES

Mr. HiNRiCHS. Then I would like to go back to a question which I
asked you earlier about the relationship between these technological
changes which have been quite marked, and the changes in wages.
I shan't attempt to quote you exactly, but in general, if I remember,
you said that when there was an increase in wages there was a
marked stimulation of efforts to economize jn the use of labor. Now
I would like you to look at the freight-train speed-miles per hour
between terminals or the gross ton-miles per freight-train hour
and just reading from the chart, at those places where there was a
sudden improvement in technology, tell' me where you think some
wage changes occurred.

Dr. Parmelee. Well, I don't think that you can figure it out quite
so closely as that. Your changes in employment, of course, apply
not only to your transportation men but to your maintenance men as
well, maintenance of way and maintenance of equipment. You have
three large groups, large general groups of railroad employees who
might be affected.

Mr. HiNRiciis. That is, with respect to transportation men as one
of the three large groups you would be willing to say that the prog-
ress from year to year has been remarkably steady and almost inde-
pendent of any change in wage rates, either up or down. That you
ought to be able to read from the chart, shouldn't you, Dr. Parmelee?

Dr. Parmelee. Yes: it is a fairly steady increase, if that is what
you mean ; yes. The trouble with most of these lines or trends is that
there are so many factors involved in all of them that it is pretty
hard to isolate any one. I think you agree with me on that.

CONCENTRATION OF ECONOMIC POWER 16591

Mr. HiNRicHS. But there is no evidence in the chart as a super-
ficial exhibit at least of the relationship between wage changes and
technical changes that we spoke of earlier?

Dr. Parmelee. Yes; I think that is true, so far as this particular
chart is concerned, which deals with one phase alone of railroad
activity and performance.

Now passing on rather hastily

Dr. Anderson (interposing). Just one interruption, Dr. Parmelee.
You have been over the Brookings study ? ^

Dr. Parmelee. You mean the book ; yes.

Dr. Anderson. I would like your comment on the attempt to
measure what is called man-hour productivity in the railroad in-
dustry last month. Indices of active wages paid divided by index
of physical volume, divided by traffic, multiplied by 100 was the
method used. Cooperating wages have been used for this computa-
tion. The index of wage cost per traffic unit in '38 would have been
38.6 instead of 82.6, so the assumption of the author is that operating
wages could have been used as a method of computation.

Now the other method was used, with 1923-25' used as 100. In
'30 the index stood at 115; in '35 at 133; in '37, 143; in '38, the
end of the series, 144. At no time during the successive years in-
dicated did productivity indices drop. They moved steadily through
the depression ; they carried out precisely the point you made earlier
with respect to these charts. Now, would that be a reasonable ob-
servation to make with respect to man-hour productivity in the in-
dustry?

Dr. Parmelee. If I understand your question it is as to whether
the productivity per man-hour has been rather steadily increasing?

Dr. Anderson. That is right.

Dr. Parmelee. My answer would be "Yes," but I would like to put
in a demurrer, as the lawyer say, on the use of the words "pro-
ductivity per man-hour." I think probably Dr. Bell uses that phrase
in the ordinary accepted meaning, which is not so much productivity
per man-hour but output per man-hour, recognizing, of course, that
the output is the joint product of several factors working together,
not only the efficiency of the individual man but also the efficiency of
management, that is, organization, and also the investment in the
plant as a whole. I would like to make it clear that that is what I
understand by the phrase productivity per man-hour.

"Exhibit No. 2522" appears on page 44, Mr. Chairman.

(The chart referred to was marked "Exhibit 2522" and appears on
p. 16592. The statistical data on which this chart is based are included
in the appendix on p. 17363.

Dr. Parmelee. This shows a very marked increase in full conserva-
tion per unit of movement in both freight and passenger service.
What interests me in this exhibit is that the gross ton mileage in 1939
per ton of fuel was 17,779. That figure doesn't mean very much, at
least to me, until I break it down and divide that figure by 2,000,

^ Spurgeon Bell, Productivity, Wages, and National Income, Brookings Institute, 1940.

16592

CONCBNTRATTON OF ECONOMIC POWEU

which is the number of pounds in a ton of fuel, from which I dis-
cover that on the average in the freight service the railroads moved
8.9 tons of weight 1 mile for the expenditure of 1 pound of coal, or
its equivalent, or, carrying it down still further they moved 1 ton of
weight 1 mile for the expenditure of 1.8 ounces of coal, a compara-
tively small piece of coal.

Now since there was considerable increase in that factor from 1921
and the factor again was higher in 1939 than in any other year in
history, I think that can be ascribed only to an increase in technology,

Exhibit No. 2522

[Subjpitted by the Association of American RaiJroads]

FUEL CONSERVATION

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14,000
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better locomotives, better methods of fuel handling and selection,
and better actual consumption of the, fuel in the locomotive.

I think I can perhaps go over the next four exhibits rather quickly.

(The charts referred to were marked "Exhibits Nos. 2523 to 2526"
and appear on pp. 16593-16595. The statistical data on which these
charts are based are included in the appendix on pp. 1736^17365. )

Dr. Par:melee. They relate mostly to what may be called the various
elements of waste, loss, and damage expenses. "Exhibit No. 2523"
shows various types of expenditures to make good either a complete

CONCENTRATION OF ECONOMIC POWER

16593

loss of freight or damage to freight, or damage to property, baggage,
or what not. You will notice a very marked reduction per dollar of
revenue in that factor down to 1939, which is very low. "Exhibits
Nos. 2524 and 2525" show a very marked decline in casualty rate of
accidents on the railroads. Accidents to employees are shown in
"Exhibit No. 2524" and to passengers in "Exhibit No. 2525." In
connection with this latter chart, I find in the National Safety Coun-
cil Bulletin for 1938 this comparison of the casualty rates for fatali-
ties as between railroads, automobiles, and busses, and scheduled air
lines. Automobiles and busses refer only to the passengers in the

Exhibit No. 2523

[Submitted by the Association of American Railroads]

LOSS AND DAMAGE EXPCNSCS
PER DOLLAR OF FREIGHT REVENUE

a Partially estimated.

* Not yet available.

automobile or the bus, and, of course, the same is true of your air
lines.

Now the death rate per 100,000,000 passenger-miles in 1938 on your
scheduled air lines was 4.5.

The Chairman. From what table are you reading now ?

Dr. Parmelee. I am giving you some figures in the record, Mr.
Chairman, from this National Safety Council bulletin. For auto-
mobiles and busses combined it was 3.9 deaths per 100,000,000 pas-
senger-miles. For the steam railroads it was 0.36, or less than one-
third of 1 for 100,000,000 passenger-miles.

The Chairman. For what "period is this?

16594

CONCENTRATION OP ECONOMIC POWER

Dr. Pakmelee. That was the year 1938, the latest year for which
they have published distances.

The Chairman. The commercial aviation companies have just fin-
ished a year without any loss of life at all.

Dr. Parmeslee. That is true, Mr. Chairman ; we hope they will keep
it up.

"Exhibit No. 2526" is a general bringing together of these loss and
damage and injuries to persons expense growing out of handling of
freight and baggage and out of casualties to employees and passengers,
with a showing of the extent to which that cost per dollar of revenue
has been reduced to a comparatively low figure in 1938. Unfortu-
nately, we do not have 1939 figures on that score.

That completes, Mr. Chairman, a very brief analysis of some of the
exhibits shown in this statement.

Exhibit No. 2524
[Submitted by the Association of American Railroads] ,

CASUALTIES TO EMPLOYEES IN TRAIN.
TRAIN-SERVICE AND NONTRAIN ACCIDENTS

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The committee may be interested, however, in considering some of
the actual or detailed steps taken by the railways in theii' mainte-
nance work, in their operations, in their communications field, and
others of their, aictivities looking toward this increased technological
progress, the results of which are shown quite clearly in this statement.

Din'AILS OF LABOR DISPLACEMENT BY MECHANIZATION

Dr. Anderson. Mr. Chairman, I wish to introduce at this time, as a
file exhibit only, because of its size and character of the exhibit, a very

CONCENTRATION OF ECONOMIC POWER

16595

Exhibit No. 2f52o
[Submitted by the Association of American Itailroads]

CASUALTIES TO RC^SSENGERS ON TRAINS IN
TRAIN AND TRAIN-SERVICE ACCIDENTS

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1.20
1.10
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.90

Exhibit No. 2526

[Submitted by the Brotherhood of Railway Clerks]

TOTAL LOSS AND DAMAGE AND INJURIES TO PERSONS
EXPENSES PER DOLLAR OF TOTAL OPERATING REVENUES

16596 CONCENTRATION OF ECONOMIC POWER

important document which has been used by the railroad carriers.
It is a brief presented before the Kaih-oad Carrier Industry Commit-
tee, under provision of the Fair Labor Standards Act. I want to
introduce it here because it is the most graphic portrayal I have seen,
a detailed analysis of technological advance in the railroad industry
with respect to maintenance of way. Just to illustrate, if you will
turn to page 8, you will see portrayed the effects of a portable power
track nutter, displayed in the picture on page 9.

(The document referred to was marked "Exhibit No. 2527" and is
on file with the committee.)

Dr. Anderson. Do you want to continue the discussion, Mr.
Parmelee ?

Dr. Parmelee. Yes. May I say, Mr. Chairman, that this exhibit
was filed by a trained railroad engineer, the assistant chief engineer
of the Pennsylvania Railroad, Mr. Robert Faries, in the recent hear-
ings before the Wage-Hour Industry Committee, which has now
under consideration the matter of a minimum wage in the railroad
industry. I would like to make it clear first that its presentation
here is in no sense an effort to bring that controversy into this com-
mittee, and, second, that I am not a technical expert and can discuss
these in only the most general way.

Mr. Faries produced in this exhibit before the committee a series
of rather illustrative pictures and statistics with respect to certain
types of maintenance-of-way machinery, all of which have been in-
troduced on his railroad, the Pennsylvania Railroad, in the last few
years, and all the statistics regarding which have been carefully com-
piled by him from actual tests on the railroad over a period, in some
cases, of months, and in some cases, years.

Now, the picture, as Mr, Anderson has said, of the portable power
track nutter is shown on page 9 and the statistics at the bottom of
that page show how the introduction and use* of that machine has
saved or curtailed emplbyment.

The Chairman. Now, of course, a track nutter, for the uninitiated
who may read the record, is a machine which screws on the nuts?

Dr. Parmelee. That is right, Mr. Chairman ; you got it right the
first time.

Those statistics at the bottom of page 9 are then transferred to
page 8 and shown in graphic form. So for the purpose of this very
brief statement, perhaps if you will look at the chart on p?ge 8, the
picture will be shown there.^

There are six upright columns on that page, you will notice, three
sets of two each. Let us look at the first two of these tall red col-
umns ; the heading over the two is "With labor at 30 cents per hour,"
the minimum wage now statutorily effective in the. railroad industry.
The first one states that the amount of work done by two of these
portable power track nutters in a season's work of 160 days could be
done by a ioreman and 20 laborers.

The Chairman. That gang would be working without' the
machine ?

1 See "Exhibit No. 2528." infra, p. 16599.

CONCENTRATION 0*F ECONOMIC POWEK 16597

Dr. Parmelee. By hand labor. The red part of the column repre-
sents the labor cost of that work by hand, The little barred figures
at the top are the other things which go into the figure, the pension
cost for these men, any amount of repairs on tools, and things of
that sort. You will notice at the bottom, at the left, the various
items which go into that upper part. Now, if, however, you put two
machines to work, you then have the expenditures which are shown
in the second column under the general head of "Machine work."
Your labor cost, you will notice, Oie red part of the column, drops
very materially. Instead of having a foreman and 20 laborers, you
have a foreman, 2 operators, and 12 laborers, a total of 15 men as
against 21.

The total wage cost decreases according to the reduction in that red
column.

There are certain additional costs which come in because of the use
of the machine, and those are shown above the red column in the
second column. Some of these are interest on the moneys used to
purchase the machines, some of them are repairs on the machines, and
some are depreciation of the machines. But the total length of the
two columns represents the relative cost of doing this work by hand
or by machine.

That there are six men displaced by the two machines is indicated
here, and there are $628 in curtailment of total expenditures.

Now, the machines cost, as shown at the top, $1,658. They will
save $628 at 30 cents an hour during the working season of 160 days,
or they will pay about two-fifths of themselves in the course of a
season.

Now if the labor happened to be at a rate of 35 cents an hour
instead of 30, the saving on these two machines, instead of $628, would
be $1,170, whereas with labor at 40 cents an hour, the last two columns
on the sheet, the saving w^ould be $1,713 for the season.

In other words, if wages were 40 cents an hour, those two machines
would pay for themselves in the course of a single season.

Now, Mr. Faries showed this same type of information for a large
number of machines which I don't need to go into, but the general
plan followed throughout was to set up the figures in this form,
showing how many men would be displaced and what would be the
saving on a given machine, or a set of machines, to do a certain piece
of work over a season.

The Chairman. Mr. Hinrichs suggests we might at least put this
single chart in the record.

Dr. Anderson. I have been informed, Mr. Chairman, that we can
have anywhere up to 10, if you choose, duplicated in the record.
There is a variety of them.

The Chairman. The discussion of this particular chart would be
made much more clear if this particular exhibit were in the record.
I think it would be well to have it in.

Dr. Anderson. That will be "Exhibit No. 2528."

(The chart referred to was marked "Exhibit No. 2528" and appears
on p. 16599.)

16598 CONCENTRATION OF ECONOMIC POWER

Dr. Parmelee. The conimittee will notice there are a considerable
number of machines as to which the same general showing is made,
and those are by no means all the machines that might nave been
shown.

Dr. Anderson. Dr. Parmelee

Dr. Parmelee (interposing) . They are selected as representative.

The Chairman. How many of them are there?

Dr. Parmelee. I think Mr. Faries showed here about 20, but I
don't know that anyone can answer how many there are in the field.

The Chairman. But in this booklet from which you were testify-
ing there are about 20 charts illustrating labor displacement by
machines of one kind or another.

Dr. Parmelee. In maintenance-of-way work, only. He was testi-
fying only as to the maintenance-of-way work; that is, work on
the track.

Mr. Hjnrichs. I don't question for a moment that the chart indi-
cates quite conclusively the reasons for mechanization of this par-
ticular operation, but coming back to this question of this relation-
ship between wage rates and the introduction of machinery, this
exhibit that you nave put here is a fair illustration, I suppose, of
that sort of a situation?

Dr. Parmelee. Yes.

Mr. HiNRiCHs. Now, as you portrayed it, as I see it, starting with
that picture of labor at 30 cents an hour, there is already the possi-
bility of a 33 percent return on an investment in these two machines.
An increase in labor cost under those conditions does nothing more-
than increase the rate of return.

Next you assume a rate of 35 cents, and get essentially a 66 percent
return on capital investment. But wouldn't you expect from this
record to see the introduction of this machinery, even in the face of
a return no greater than 33 percent a year on new capital investment ?

resistance to technological change

Dr. Parmelee. What you have to consider there, Dr. Hinrichs, is
always the element of human inertia working. If you have labor
receiving a certain rate, and it has been receiving it for a certain
time, and you have a certain number of men on vour force, even
though you might figure theoretically, as you could from a showing ■
of that kind, that you could get a return of 30 or 40 percent on an
investment in machines, you might hesitate to make a change.

However, if you had an increase rather suddenly, and perhaps an
enforced increase in your wage up to 35 or 40 cents (I am trying
to keep away from this controversy) and that stimulated you to sit
down with your pencil and refigure the whole thing, and you found
the return was going to be 50 or 60 or 70 percent, instead of 30 or
40, you might then overcome the inertia in your mind and the
psychologically strong objection you have in your mind to replacing
or displacing your men. There is always that that you have to
consider.

Mr. Hinrichs. You don't mean that in order to overcome the in-
eirtia of railroad engineers who are advocating a saving of 8 percent

Exhibit No. 252S

124491— 41— pt. 30 (Face p. 16599)

CONCENTRATION OF ECONOMIC POWER 16599

in the total cost, it is necessary to introduce a 20-percent wage
increase, do you ?

Dr. Parmelee. I don't want to use that word "inertia" in a critical
sense. I hope I won't be misunderstood on that. 1 meant the inertia
in the minds of all of us when any question of change comes up. We
have to be pretty definitely shown that the change will be an economic
one, and that it should be made. And when you join with that the
very natural and very proper disinclination of a railroad manager to
displace men, he will wait a long time before he makes a change. He
will try to avoid it if possible.

But if the relative saving from a given introduction of machinery
goes up and continues to go up, he finally gets to the point where both
inertia and psychological disinclination are overcome, and he makes
the change, and the point at which the change comes depends on the
circumstance that it is generally believed if you can get a 20- percent
return or a little less from a given change, it is a good change. But
that does not mean it will always be made at the 20-percent level.

Mr. Pike. Isn't it true, as near as you can remember it, that an
engineer will say, "You get your money back m 4 years," and the man-
ager will say, "Yes, but before I have had it 2 years, you will be in
with another gadget that I have got to buy."

Dr. Parmelee. That may be part of the inertia.

Mr. Pike. I have seen it in operation. The engineer will come in
with a carefully figured saving of substantial size, and if the money
is availajble, which is another Lhing in railroad management, the thing
would without question be introduced. Well, through long and bitter
experience, you find that these savings on paper do not always carry
through to the actual operation, and the manager is for that reason
reluctant to put it in. An additional bit of evidence like this will,
however, finally push him over the hill.

Dr. Parmelee. That is true. All these factors enter into it.

Dr. Anderson. Referring to the morning's testimony by Mr. Pelley
in which he indicated a marked difference between the problems which
the railroad industry is facing today, and those which it faced during
the period of over-all great expansion, he painted out — and I probed
him a bit on it — that the problems had changed from one of rapid ex-
pansion to one of intensive struggle against the depression and against
growing competition.^

Now, is it your feeling that as a result of this change in the problem
confronting the railroads, teclinology like that mentioned here over-
comes more quickly the inertia or the doubt in the minds of railroad
managers, and that the engineer now has his way more frequently and
more readily than he had in the past?

Dr. Parmelee. I don't know that I can answer that question in
definite terms, because I don't know enough about it. I do know this,
hat engineers today and railway operators and managers are ex-
tremely alert to possibilities, to all the possibilities of increasing and
improving the condition cf their plant and their operations.

Undoubtedly, there has been some stimulus to them from the de-
pression conditions of the absolute need for economy which has been
forced upon them, and there has been some stimulation because they.'

1 Supra, pp. 10537, ff.

16600 CONCRNTRATION OF ECONOMIC POWER

had to meet this competition in some way, and improve their service
and reduce its cost.

The Chairman. Dr. Anderson, I wonder if you would turn to page
14 and ask the Avitness to make a little description of this chart also.
'It seems to be a rather striking one.

Dr. Anderson. I asked him a moment ago; this is much more
striking than page 12.

The Chairman. Would you discuss the burro crane ?
(The cliart and photograph of the burro crane were marked
"Exhibits Nos. 2529 and 2529-A" and facing p. 16600. The statistical
data on which the chart is based were marked "Exhibit No. 2529-B"
and are included in the appendix on p. 17366.)

Dr. Parmblee. Yes. The picture of that is on page 15, so I do
not think^any particular description is needed. You will notice that
it does a number of things. It loads and unloads material, it does
ditching, and helps out in rail laying, moving rails from place to
place, and does a good many things during the working period aver-
aging 180 days a year. The machine costs $8,023. With labor at 30
cents per hour, the first two columns on the table show that without
the crane the amount of work that would be done by a crane and its
crew could be done by a foreman and 12 laborers. There would be
very little cost of supplies, although there is a small item at the top of
that column which represents supplies of various kinds. With the
crane and with this investment of $8,023, the total cost is about cut
in half. However, the labor cost is cut by three- fourths, because only
1 man is required on the crane as an engineer and 1 laborer to help
him, 2 men instead of 13. You do have an increase in certain other
costs, of course, the cost of operating the crane itself, fuel, deprecia-
tion, supplies for the machine, and so forth, but even after adding in
all of that additional cost you still save about one-half of the coslt.
There are 11 men displaced, a curtailment of force at the 30-cent
rate, and of ex-penditures of $3,133, or about 40 percent of the capital
cost of the crane ; at 35 cents an hour, you would save about 50 percent
of the cost of the crane, and at 40 cents an hour about 60 percent.
Mr. Pike. Any device like this which runs into substantial capital
you must put where there would be a good deal of work for it during
the year in order to justify it. Here you estimate it is going to be busy
half the time.

Dr. Parmelee. About 9 months of the year.

Some of these are sets of machines which cost a considerable amount
of money, and some are single machines.

The Chairman. Would you make any general summary of what all
of these exhibits show?

Dr. Parmelee. Mr. Robert Faries made a summary on page 49 which
is perhaps the best place to refer you to. He brought a number of these
machines together on a typical railroad with 1,200 miles of main
track, and he reached a general summary and average conclusion that
an investment of approximately $600, or $603 invested in maintenance
of way machinery would be equivalent to displacing one man, or, to
put it differently, each $600 invested would dispense with the service
of one average track laborer. I was not going through all the details
of the table by which he arrived at that, but this is a combination of
various exliibits sliown earlier in the statement.

•JIHOA »3N 5D H3SS3 S T3dJn3»

D
CD

CONCENTRATION OF ECONOMIC POWER 16601

Dr. Anderson. A total of 267 men would be displaced by that
mechanization.

Dr. l^ARMELEE. Yes; by this list of 12 or 13 which he has.

The Chairman. The second column from the end adds up to more
than 267 men.

Dr. Anderson. Are those net displacements in the second column?

The Chairman. The second column from the end.

Dr. Parmelee. I think you are right, Mr. Chairman. I think he
reduces that to the equivalent men in terms of one man working a
full year. You will notice he says 255 working days per year on a
5-day week basis, but in some cases these men would be working only
60 days in the year, or 52 days in the year, or what not.

The Chairman. Perhaps it might be well to insert this table in the
record.

(The table referred to was marked "Exhibit No. 2530" and is in-
cluded in the appendix on p. 17367.)

Dr. Anderson. Tying our thinking now with respect to these specific
examples of displacement to your taole 2517, "Employees, Hours, and
Compensation," ^ I wonder if you could give us a break-down of em-
ployees, hours, and compensation with the headings that you have in
that table, based upon some vertical arrangement of workers or some
classification of workers in the railroad industry which woulfl indi-
cate to us workers in the various parts of the industry and their
proximity to technological changes. I take it that workers in
maintenance of way are particularly close to technological changes
indicated by this booklet.

Dr. Parmelee. Yes; that is true.

Dr. Anderson. Is that so true of trainmen, for example ?

Dr. Parmelee. Maintenance-ol'-equipment men are also fairly close,
and transportation men to some extent, but probably not so close.

Mr. Pike. Station agents and so forth hardiy so.

Dr. Parmelee. Crossing watchmen are affected, and men of that
kind. They are in train operation.

Dr. Anderson. Is it possible to get a break-down in such classifi-
cations as you have been indicating for "Exhibit No. 2517"?

Dr. Parmelee. I would rather do that by taking the transporta-
tion groups and showing it separately for them.

Dr. Anderson. Would it be possible to indicate in any specific
manner the technological occurences, with respect to these workers?

summary of technological changes

Dr. Parmelee. I think it would be rather difficult to do that. I
would like to do this, Mr. Chairman, if I may: read into the rec-
ord very briefly some of the things that have been done in these
various departments of the railroads as elements" of their tech-
nological program. This is very much a layman's unteohnical sum-
mary.

Take the maintenance of equipment — we have talked about that
in connection with "Exhibit No. 2528". A few illustrations of the
sorts of things that have been done and are being dorio in technology

1 Spf "Exhil)it No. 2."17," npppnrtix. p. IT.'ilil.
12445)1 — 41 — pf. .'U) 27

16602 CONCENTRATION OF ECONOMIC POWER

in the maintenance of equipment are: Chemical treatment ^yi water
supply foi" locomotives, which has reduced the number of leaking
flues and has also reduced the need for washing out of boilers.
Both of those, of course, have reduced the number of men employed
on those jobs. More recent welding processes are being used for
stripping the equipment, for repair and replacement of parts, and
for salvaging parts of obsolete and worn-out equipment.

There is a greater and greater use of the oxy-acetylene and electric
welding method far specific repair use.

Washing and painting of equipment has been reduced by substi-
tuting spraying machines for the hand brush.

The new air brakes which have been recently developed and put
into effect, the so-Called A. B. brakes, require attention at only 36-
month intervals, whereas air brakes of the older types required serv-
icing every 18 months. This reduces the number of times over a
given period that the brakes have to go to the shop, and of course
the repair work in the maintenance department is reduced.

Scheduling and routing methods are used in handling locomotives
and -Cai^s through the shops, reducing the time spent on such jobs
and very much stimulating and increasing the use of labor-saving
devices. Some of the larger* shops have adopted the so-called assem-
bly line by which the cars, when being either built or repaired, go
through on a track, as in the case of the automobile plants, and are
moved through from job to job instead of moved from one shop to
another.

In the field of communications and control of trains, there have
been very marked technological improvements. I might mention only
the installation and development of automatic block-signal systems,
automatic train control, development of interlocking plants and re-
mote control, centralized traffic control (a system for manipulating bj^
central control board all main-line-track switches and signals in a
given district or even an entire division). The obvious reduction in
force required to handle that kind of a system is very clear.

I have presented to the committee some figures wliich show a very
marked increase in fuel economy. A number of factors have contrib-
uted to that, such as longer boiler tubes in the locomotives to transfer
the heat more efficiently; improvements in the fireboxes which per-
mit better draft and better combustion ; the use of superheaters which
raise the temperature of the steam and give it greater expansive force ;
the use of steam separators or so-called desaturators which reduce
tlie moisture in the steam and permit easier superheating; the installa-
tion of special heaters which preheat the feed water into the locomo-
tive boiler ; and the reduction in the dead weight of locomotives and
of cars, which, of course, means that you can handle more weight in
the train at quicker spec Is with roller bearings at the expenditure of
less fuel.

Mr. O'CoNNELL. May I interrupt? I? that last improvement you
mentioned a prospective improvement?

Dr. Par:mpxee. A considerable amount of that is prospective. There
has been a considerable increase in the use of aluminum and alloy steel
in locomotives, particularly passenger locomotives, and to some extent
in passon<j;pr cars. It is being experimented with now in connection
with rhe freight cars.

CONCENTRATION OF ECONOMIC POWER 16603

Mr. O'CoNNELL, But it is not in very extensive use in either?

Dr. Parmelee. Not very. There are some experimental freight cars
now in service which are being watclied and studied with care to
decide whether the use of one type of alloy or another type, or one
method or another method, is the better. The question of getting the
cost down, of course, is an important question at the same time.

In train operation, just to mention a very few, I have spoken of the
automatic block signals, interlockers. and so forth. Installation of
track scales has been quite general, tor the automatic weighing and
recording of weights while freight cars are in motion. Devices are
in service which use gas, oil, and electricity for melting snow and ice
at switches.

A very important improvement in the yards is the so-called hump
yard where the cars are classified onto the tracks by being taken to a
hump and then sent down an incline by means of gravity. At the
same time, in a good many of these yards they have installed so-
called car retarders, by which men in the signal tower at a distance
can control the movement of these cars from the hump down onto
the various classification tracks. A car retarder is nothing more
than a brake applied to the wheel of a car from the side, the
brake mechanism being installed along the track. The brake is
applied to the side of the car wheel as it moves, being controlled
from a distance. The introduction of all-steel boxcars and the more
general use of all-steel open-top cars; the practical elimination of
wood from all of our j^assenger cars and a large portion of the
freight cars has led to greater lightness and fewer repairs.

I have spoken of the introduction of the modern A. B. automatic
brake; wrought steel wheels in passenger service; rolled steel; the
use of roller bearings which are being put into effect on many of the
passenger trains. On the track the drainage methods have been
very much improved. There is more and better ballast* heavier
rail is being used. The average weight of the rail per yard, is going
up every year, it is now 94 pounds per yard as against about 87 10
years ago. Larger and better tie plates are being used. There is
a great improvement in track fastening, and there has been a gradual
replacement of a great many of the wooden bridges and trestles by
either creosoting wooden structures or making permanent structures.

Changes in organization, especially in maintenance of way; the
tendency is to use large mechanized gangs for maintenance-of-way
work; instead of having a small gang scattered at different points
over the system, or rather over the divi^on, they have larger gangs
and more them more rapidly from one point to another. One thing
that has heljied in that respect is, of course, being able to move them
rapidly by motorcars — power motorcars.

Materials are being conserved to a greater extent than they were.
Application of the ga.-. torch and electric arc in the building up of
battered rail ends givi^s longer life of rail and, incidentally, better
safety. The application of welding processes in the repair of man-
ganese trackworl'.; great increase in salvage work by which steel,
wood, and other types of materials are brought into central .points,
are there salvaged, in many cases parts being taken out and reused
for other equipment, or in other cases saved and sold as scrap, and
reclaimed in that way.

16604 CONCENTRATION OF ECONOMIC POWER

In the accounting department there has been a very marked in-
crease in technology. We do not hear about that, but there is a
large reduction in the number of clerks.

Dr. Anderson. Do you have the number that has been reduced?
Would it be possible to give us a table for our file that would show
the effect of technology on clerical workers by grade of workers,
type of work done, and displacement?

Dr. Parmelee. Clerks are classified in three groups. A, B, and C,
and I think chief clerks and then stenographers and typists ; we can
give you those classes, we will be glad to do that.

Th^CHAiRMAN. The whole story resolves itself into this conclu-
sion: that by reason of the technological advance a great deal more
work can be performed with fewer persons.

Dr. Parmelee. That is exactly what is being done in the railroad
service today, Mr. Chairman.

The Chairman. And of course as the amount of work is increased,
if it is increased, then more people relatively will be employed, but
the displacement factor is always evident, and that may be overcome
only to the degree that new or additional work of some kind or another
is created to absorb those who are displaced

Dr. Parmelee. You are 'right, I think, Mr. Chairman. I think
there are two things we have to take into account; first, that within
limits you can increase your traffic without the necessity of increasing
your force, because you are increasing your technological advance all
the time. Then there comes a point where even with the improved
technology you have to take on more people, you need them. Mr.
Peiley spoke of that this morning. Now there is the other feature,
and I think we should not omit it from our consideration, and that is
that in installing these various machi^.j and power devices, and so on,
you are indirectly giving employment to men in other industries.
Now that does not help the railway man very much, it is true. It
doesn't help him to throw him out of a job if some man who is engaged
in building this macliinery gets a job, but to look at the picture as a
whole that feature is involved.

The Chairman. The unemployment ])roblem to the man who is dis-
placed is just as acute find just as keen as is- the competitive problem
to the railroad which finds itself losing business to the waterways or
to the highways.

Dr. Parmei.ee. Absolutely, and I don't want to give any impression
that we don't consider that his position is a very serious one from his
point of view, and properly so.

Mr. HiNRicris. Turning to "Exhibit No. 2530"', which sliows $603
invested in miichiuery per man dispLieed. at least so far as these ex
liibits of capital invested are concerned, the labor created in the ma-
chinery is almost incidental. Tliere is some labor that has been created
there, but it certainly is not a very important factor insofar as these
exhibits are concerned, it is? ;

Dr. Parmelee. Wouldn't you say, ISfr. Hinrichs, that the process
of producing a machine is made up of labor in the last analysis?
Everything i^roducod, in the last analysis, is the product of labor
somewhere in some process.

Mr. HiNRiciis. I wouldn t grant you that this is entii*ely labt:)r,
but just for the sake of argunient, let's assume that this $603 has

CONCENTRATION OF ECONOMIC POWER 16605

been spent entirely for machine labor. They were makini; the ma-
chines. Labor of that sort would have averaged, would you like to
say, 70 cents an hour, or a little more?. It divides more easily if we
say 60 cents an hour, it makes more labor for you. That is 1,000
hours of labor in these machines (under exaggerated conditions)
per man-year of displaced labor. These machines have a useful life,
I presume, of anywhere from 4 to 20 years

Dr. Pahmfxee (interposing). You can get that out of the depre-
ciation rate there.

]Mr. HiNincHS. The depreciation rate seemed to be relatively low,
and to indicate a relatively long life, so that this labor is created
in the first year and then does not recur as a matter of course.

The Chairman. Of course, I think both of you are right,- if I may
interrupt. There isn't any doubt that the manufacture of this burro
crane, of which we had some testimony, is a new^ industry because 20
years ago there was no such thing as a burro crane, but it is very
likely from the picture that that burro crane was not made by hand
labor. It was undoubtedly made by machinery, and by hand labor,
too.

In modern technology, we have tremendous machines that are
needed to make machines, is that not correct ?

Dr. Parmelee. That is correct, Mr. Chairman. I didn't mean to
give the impression, if I did, that your labor increase in the ma-
chinery-producing industry was exactly equal to the labor displaced
on the railway. I don't mean to argue that at all ; I simply pointed
out there is that factor to be taken into account.

The Chairman. The problem presented to Government in provid-
ing appropriations to takfi care of the unemployed sort of demon-
strates that there is a sum total of labor displacement, though un-
doubtedly new industries are created and new jobs are made. By
and large, when the whole, thing is summed up, there is the total
unemployment which the Government has to take carp of under our
present inadequate approach to the subject.

PROSPECTS FOR EMPLOYMENT

Dr. Anderson. Mr. Parmelee, might I ask then "the question I
asked Mr. Pelley this morning? It ppears from your own figures
that on the upswing of business in the railroad industry, labor, the
number of workers, did not increase at the same rate or in propor-
tion to the increased volume of business, and that. on the down swing
labor displacement was also substantial, indicating that either in
good or bad times, the railroad industry seems to have come to the
place in its technological (leveloj)ment where the number of workers
engaged in the industry does not follow in any way with the increas-
ing volume of business.

Now, would it follow from tliat sort of reasoning that here is a
fairly well-established industry with rather rapid technological
changes, which cannot, or will not, absorb an adequate number of
workers ?

Dr. Parmelee. I don't know thai I (luite agree with your first prem-
ise, Dr. Anderson. Let me put it this way and Fee if we are on common
ground: We have been going through so ^•iolollt a series of changes in

16606 CONCENTRATION OF ECONOMIC POWER

the last 10 years that it is very hard to generalize and assume that the
same thing will go on in the future; it is true, nevertheless, that be-
tween 1929 and 1937, if you follow the trend of railroad revenues
down — I would rather use revenues than traffic because, after all, the
revenues are what you pay your wages out of — if you follow your
railway revenues down and then follow your total number of em-
ployees down, you find that in every year after 1929 there was a smaller
decline in number of employees from 1929 than in revenues.

Or, putting it differently, the decline in revenues was greater than
the decline in the number of employees. Now, there was one exception,
I believe, to that general rule from 1929 to 1937. From 1937 to 1938
to '39 the reverse was true. Your revenues went up to some extent,
up and down both, and your employees in each case went up and down,
up less than the revenues and came down a little more. Now that
opens up this same controversial question which I prefer not to raise
now as to whether this wage increase in 1937 had anything to do with
that or not. I would rather leave that question out, but over the last
10 years I think you. can say rather generally that the immber of em-
ployees hasn't gone down in the railroad industry as much as the reve-
nues have declined, and the revenues after all mark the outer limits or
boundaries of your pay roll ; they are bound to, they must do so. Now,
whether that trend will continue as we get back onto a more normal
and better economic level it is very difficult to say, but it is true that
the minute you get an increase in railroad revenues you will find that
there is an increase in the number of employees and an increase in the
total pay roll — although not necessarily at the same rate of increase.

Mr. HiNRicHS. We take two bites at that question. Exhibit
No. 2517 ^ showed 1,660,000 employees or more back in 1929. At the
present time you are just under 1,000,000. Can you visualize any set
of circumstances which wdthin the next, shall we say, decade would
produce as much employment on the railroads as you had back in the
decade ending in 1929 ?

Dr. Parmelee. I hope you are not going to drive me to answer
that question, are you ?

Mr. HiNRicHs. Well, I am not asking you to crystal-gaze, but is
there any precedent that you know of in railroad history for an ex-
pansion that would give you that level of employment ?

Dr. Parmelee. I would refer you to Mr. Pelley's answer this morn-
ing, to a question somewhat similar where he spoke of the possible in-
crease to 1,250,000 or 1,300,000; something of that sort.

Mr. HiNRiOHS. That is, the limits of employment that you have been
talking about are limits a little above a million or a little below a mil-
lion, depending upon the combination of changes in traffic, revenue,
and technology, but the railroad industry appears now to be on a dif-
ferent employment level than it was on a decade ago.

Dr. Parmelee. It seems to me, Mr. Chairman, that all of these
facts that you have been trying to bring out about technology in the
past 10 or 15 years in a sense bear on Dr. Hinrich's question. If we
went back to 1,600,000 or 1,700,000 in the near future, it would mean
that either you would have such a tremendous increase in traffic
which would overwhelm the effect of technology and go way beyond

• Appendix, p. IT'ifll.

CONCENTRATION OF ECONOMIC POWER 16607

now what seem to be tlie reasonable boundaries, or else that you were
■just throwing, away tlie effect of the improvements that you have
made.

The Chairman. Or else that you had overcome the competition
from the waterways and motortrucks?

Dr. Parmelee. That is what I mean when I speak of an over-
whelming increase in traflBc. It seems to me that question almost
answers itself.

Dr. Anderson. Mr. Chairman, I wonder if we could ask Mr.
Parmelee to state his conclusion on the lahor question in terms not
only of his own data on revenues and number of employees but in
terms of the Brookings Institution data which seem to come to a
different conclusion? We would like to have a reconciliation of
the two.

The Chairman. Mr. Hinrichs a moment ago wanted to take two
bites. Your testimony is, of course, very interesting and most stimu-
lating, Dr. Parmelee, and I think we really could stay here all
night. Do you want him to prepare a statement. Dr. Anderson?

Dr. Anderson. I can see him afterward and make arrangements
with respect to the data and see that they include Mr. Hinrich's
two bites.

The Chairman. Suppose we compromise on that.

Dr. Anderson. The first witness tomorrow, Mr. Chairman, is Mr.
George Harrison, president of the Brotherhood of Kailway Clerks,
to be followed by Mr. A. F. Whitney, president of the Brotherhood
of Railroad Trainmen.

The Chairman. Thank you very much.

Dr. Parmelee. May I thank you, Mr. Chairman, for your patience
and consideration.

The Chairman. We all enjoyed this. The committee will stand in
recess until 10 : 30.

(Whereupon at 5:50 p. m. a recess was taken until 10:30 a, m. on
Tuesday, April 16.)

INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER

TUESDAY, APRIL 16, 1940

United States Senate,
Temporary National Economic Committee,

Wa^liington^ D. C.

The committee met at 10:45 u. m., pursuant to adjournment on
Monday, April 15, 1940, in the Caucus Room, Senate Office Buiklin«5,
Senator Joseph C. O'Mahoney, Wyoming, presiding.

Present: Senators O'Malioney {chairman) and King; Representa-
tive Williams; Messrs. Lubin, Pike, O'Connell, and Brackett.

Present also: William T. Chantland, Federal Trade Commission,
and Dewey Anderson, Economic Con?!ultant to the connnittee.

The Chairman. The committee will come to order.

(Representative Williams assumed the chair.)

Acting Chairman Williams. Do you solemnly swear that the testi-
mony you shall give in this proceeding shall be the truth, the Whole
truth, and nothing but the truth, so help you God ?

Mr. Harrison. I do.

TESTIMONY OF GEORGE HAERISON, PRESIDENT, BROTHERHOOD
OF RAILWAY CLERKS, CINCINNATI, OHIO

Dr. Anderson. Mr. Chairman, today's witness represents railway
labor. Mr. George Harrison is president of the Brotherhood of Rail-
way Clerks and he speaks for the Brf)therhoods and the Railway
Labor Executives Association, some 20 organizations representing
considerably in excess of 1,000,000 persons. There will be two labor
representatives, Mr. Harrison today, and Mr. Whitney, if time
permits.

Mr. Harrison. Mr. Chairman and honorable members of the com-
mittee, at the outset I should like to express my appreciation on be-
half of railway labor for the opportimity of appearing before tliis
honorable committee in connection with the technical advance that'
has been made in railroad transportation and tlie various results
created b}' that progress. I don't have a prepared statement. I
thought perhaps the committee might get more value out of what
I want to say if I made a general explanation of the progress that
lias been made in the industry with particular reference to ])io(luc-
ing transportation, and for that purpose I have divided the iudustiy
into four branches. The first branch that I wish to discuss is that
known as the train and engine service, the actual o])era(ion of the
trains.

16609

16610 CONCENTRATION OF ECONOMIC POWER

TECHNOLOGICAL CHANGE IN RAILROAD OPERATION

Mr. Harrison. Ifi that portion of railroading, there has been a
tremendous improvement since 1920 which has made it possible to
reduce the cost of operation, and to improve the service to railroad
patrons. It is the opinion of the workers that the tremendous increase
in the power and the design of the locomotive was responsible for that
improvement. The new type locomotive, constructed of more durable
and lasting materials, together with the increased power, has made
it possible to haul longer trains and a greater amount of freight in a
train.

The reduction of grades affecting the track level and the elimina-
tion of curves have been contributing factors in that direction. The
efficiency of the locomotive has been greatly increased by the new
devices that have recently been applied, such as stokers, oil burners,
power reverse gears, superheating of the water, and feed water heaters.
The movement of the trains between the terminals has been expedited
by the installation of the electric interlocking plants, improved sig-
naling devices, and improved dispatching in issuing of orders because
of improvement in telephone coinmunication, repeating telegraph ma-
chines and automatic printers.

Th^re has also been an increase in the steam pressure of the loco-
motive, permitting the exertion of greater power — from about 180
pouiids 20 years ago, to 325 pounds at the present time.

The water and coal-carrying facilities of the locomotive, otherwise
referred to as the tender, have been greatly enlarged, eliminating
operating stops heretofore necessary to take on water and coal.

. The locomotives have been equipped with Gangers for the purpose
of removing snow and ice in the wintertime and bad weather; and the
tracks have been cleared recently by the introduction and utilization of
rotary snow plows.

Twenty years ago most of our freight trains operated over divisions
of approximately 100 miles in length. The locomotive was separated
from the train at these division, points, taken into the roundhouse
and given what we call running repairs, and then returned to take
out another train later on. Because of the great improvement in the
design and the materials in locomotives, it is now possible to operate
a locomotive as much as 1,000 miles without taking it in for ordinary
service and running repairs. The theory of automobile lubrication
has been applied to the locomotive and that has eliminated much of
the necessity theretofore existing for servicing the locomotive every
100 miles.

That gives you a general idea of the improvement in mechanical
power. Of course, various new types of power have been introduced
in the last 20 years, notably the electric locomotive and the Diesel-
electric switching engines, road freight engines as well as road pas-
senger engines. That has had a tremendous effect on the efficiency
of the plant by making possible greater speed, shorter schedules, and
the elimination of much of the auxiliary or supporting organization
ordinarily required to service that character of operation.

In the telegraph and dispatching group, the nerve center that con-
trols the movement or the flow of railroad operatiojis, the most sub-
stantial and far-reaching advance has been the installation of cen-
tralized train control. It is a device located at a central office which

CONCENTRATION OF ECONOMIC POWER 16611

flashes signals up and down a large area of railroad track, indicating
by electric lights when the trains can move and when they shall stop,
and generally controlling the movement of the trains. Before the
introduction of that tremendously efficient device we had telegraph
operators located at stations 5 or 10 miles apart on the railroad line,
and a dispatcher in the central office issuing orders to the operators
located at those stations who in turn gave the orders to the members
of the train crew.

In that connection, the telephone has been utilized for the purpose
of increasing the efficiency of operation. Oftentimes members of the
train crew will stop at a telephone that is provided out in the country
along the right of way, call up the dispatcher and get their orders, and
then Avill set ahead for quite a distance devices known as manual block
signaling devices. That, too, has had its effect upon the efficiency of
the movement of trains over the railroad.

In the yards wheiv cars are switched, there has been introduced what
we call the hump yard. The hump is what the name would seem to
imply; it is a hill. They utilize a large mallet type locomotive to
push the cars to the top of the hill and then by gravity they run down
onto the various branch tracks where they are controlled by what we
call a car-retarding device. It is a mechanical contrivance that puts
pressure on the inside flange of the car wheels by expansion between
tracks and is operated electrically by telegraphers in a tower on top
of the hump. That device has greatly improved the breaking up of
the trains, classifying the cars into several units of trains, and has
resulted in the displacement of a large number of workers.

In addition there have been many consolidations of terminal oper-
ations, where two or more railroads agree to combine their terminal
operations. That has expedited the movement of freight through the
consolidated unit and has displaced a large number of men. Likewise,
in passenger-train operation between given points, two or more rail-
roads have pooled their operations, thereby permitting reduction in the
number of trains operating between those particular points, with the
release of a large amount of equipment and personnel.

Of course, there have been quite a few changes in the office work
ordinarily handled by the dispatching and telegraphing forces, but
there has been no great mechanical improvement in that direction out
on the line of railroad. There has been in another branch of service
to which I shall call attention just a little later in my testimony.

MECHANIZATION IN SHOP SERVICE

Mr. Harrison. Leaving that branch of the industry and going to
what we would call the garage or the shop service, where the mechanics
maintain and build the rolling stock, both locomotives and cars, we
think the greatest advance in that direction has been the new type of
machinery that has been installed in the shops.

In that connection I would call attention to the multiple planer
where they can now dress 15 or 20 locomotive side rods at one oper-
ation while 20 years ago, they could only machine one locomotive side
rod. and they have applied the principle underlying the huge planer
to the drill presses, tapping machines, and threading machines. They
have introduced mechanical forging machines where locomotives and
car parts made out of steel and wrought iron can be heated and put

16612 CONCENTRATION OF ECONOMIC POWER

into a machine equipped with dies. They were all forged by hand 20
years ago with little exception.

The introduction of the steel car and the combination steel-wood
car, has resulted, of course, in the elimination of much maintenance
and ha,s increased the life of the vehicle or the unit tremendously.

Many of the steel cars are made of rust-resisting steel, and this has
eliminated much of the servicing and painting and also prolonged the
life of the car.

The new-type locomotive, as I have indicated, requires less servicing
and lasts longer, and consequently it needs less servicing in the shops.

Our mechanical craft representatives say that the most substantial
change in that direction has been the advance in the treating of the
water used in the locomotive boiler, eliminating much of the scale
and corrosion formerly occurring on the tubes and the lining of
tlie boiler, and the introduction of roller bearings, together with the
new tj'pe of lubrication, as 1 mentioned a moment ago.

That represents in a general way the progress made in the shops.

Now, along the line of railroad, what we call the right-of-way or
the maintenance-of-way department, we are of the opinion that the
greatest advance in that direction has been the introduction of the
130-pound, 39-foot rail in substitution for lighter weights and
shorter lengths, assisted with* rock ballast in place of cinder and other
types of ballast, and treated railroad ties.

There, are no exact figures available on the life of a treated tie ; we
liave not had enough experience to learn what that is. From the best
information we think it is about 21 years as compared to a period
of 7 or 8 years for an untreated wood tie.

In the last 20 y.ears there has been a tremendous shift from the
untreated wood tie m the treated wood, tie. When we reflect there
are about 3,000 ties to every mile of track, we get some idea of the
tremendous elTect of the treated tie upon the maintenance of the right-
of-way, and all that that implies in the way of expense and labor.

Likewise, the introduction of electric crossing signaling devices has
had the effect on the movement of trains as well as employment of
labor.

The elimination of grade crossings has displaced crossing watch-
men. Then at operating points along the road, automatic water fa-
cilities have been introduced, operating on the same theory as our
automatic refrigeration. It is controlled by the level of the water
in the tank. In the old days, we had the pumper, operating a steam
engine, pum])ing water out of the wells into the tank.' The coal chute
facilities and cinder pits have also been greatly improved.

In the old days, the coal was elevated on a trestle. Now it is.
conveyed mechanically to tlie coal chute. The cinders were formerly
taken out of the pit by hand, and now are taken out by hopper con-
veyors and loaded inio the car at the same operation.

The tool introduced in the maintenance-of-way work, or the
servicing of the track, that represents the greatest progress might
be said to be the ballast cleaning machine, which eliminates cinders
and dirt and other substances that get into the ballast and make it
mushy.

Every so often, ballast has to be cleaned, and that material re-
moved in order to have a proper foundation under your track.

CONCENTRATION OF ECONOMIC POWER 16013

In the old days, when there was a low joint in a track where the
track comes together, the pounding of the drivers of tlie locomotive
on that joint would cause the end of it to wear down, and we would
be required to remove that piece of track, cut it off with a hand hack
saw, drill several holes in it, and replace it.

Now we have several types of welding machines, and we just
dress it up and weld a piece on it, and the joint is as good as it ever
was. This has eliminated a huge amount of labor and has meant
a saving of a large amount of material.

We have weed burning machines that clear tne right of way. We
have ditching machines that dig the ditches alongside the railroad
tracks so the water will run off and create proper drainage. We
have air-tamping machines that tamp the ballast between the ties.
That was done by hand 20 j^ears ago. We now have air-operated
drills and mechanical equipment to load arid unload ties and rails.
That has represented a tremendous increase in efficiency, together
with elimination of a large amount of personnel.

Turning now to my own branch of the service, which is the clerical
bianch, there has been tremendous progress made in that field by
the introduction of almost every type of office equipment device : the
typewriter, the calculating machine, the key punching machine, the
bookkeeping machine, all of which have brought about the unifica-
tion of the work at a central point.

The machine could not be utilized under the old method. When
tlie machine was introduced it was necessary to centralize the work,
and so the work has been removed from many offices along the
railroad line and consolidated and centralized in, ordinarily, the
headquarters or general office building of the railroad.

The consolidation of railroads has represented a tremendous ad-
vance in the elimination of personnel, and made possible the intro-
duction of machinery. We cannot give you any precise figures that
could be relied upon as to the cost of that machinery or the displace-
ment of the labor, because there are so many contributing elements
and influ-^nces; but the displacement has been tremendous. I shall
give you some exact figures on the number of employment oppor-
tunities that have been eliminated as a result of the great progress
that has been made in the industry.

Along with the utilization of all of these now mechanical devices
to which I have referred, there has been a tremendous increase in the
efficiency of the average worker. Our employment is pretty much
stabilized because of the rules and regulations in the union con-
tracts, and as our men grow older in the service, of course, they
become more efficient in the performance of their several tasks.
With the machine and the man I would say that tUere has been
a tremendous advance in the railroad industry in the way of uti-
lizing the new devices, that have developed over that period of 20
years. So tliat you may have some general information on tlie industry
in addition to what Dr. Parmelee presented yesterday — he put in the
lecord a large number of exhibits and I don't wish to duplicate them
because I can agree with most of them and the few that I find I
am in conflict with him about I shall take up individually if the
connnittee will permit — there are some matters on which ho did
not give statistical information that I tliouglit miglit jx'iliaps be of
^•ahle to the committee. So if I may be pcrmittiMLiit tliis time I

16614- CONCENTRATION OF ECONOMIC POWER

would like to introduce Exhibit 2531, showing the outstanding par
value of the stocks and bonds of the industry, so that you might
have an idea of the general interest of the public, their stake, as one
would put it, in this great railroad transportation industry.

Acting Chairman Williams. It may be admitted.

(The table referred to was marked "Exhibit No. 2531" and is
included in the appendix on p. 17367.)

Mr. Harrison. There are outstanding at par value $8,148,602,000
of stocks and $9,934,066,000 of bonds, or a total outstanding capital
in the hands of the public of $18,000,000,000.

Mr. Pike. This eliminates intercompany ownership?

Mr. Harrison. Yes; it eliminates intercompany holdings. This
is the stock and bonds in the hands of the general public.

Mr. Pike. And includes receivership roads?

Mr. Harrison. Yes; it does. The 1938 figure reflects a slight re-
duction in the bonds. You will notice there is probably some ad-
justment there as a result of that, but very slight.

I would like to introduce Exhibit No. 2532, Investrnent In Road
and Equipment, Class I Railways and their Lessor Companies.

Acting Chairman Williams. Let me inquire as to all of these ex-
hibits that you offer. The source of the figures presented b3'' the
exhibit is given on the exhibit?

Mr. Harrison. Yes; on the exhibit.
' Acting Chairman Williams. As to all of them ? .

Mr. Harrison. The source is an accepted authority, the Interstate
Commerce Commission, in the instance shown on the exhibit.

Acting Chairman Williams. It may be received.

(The table referred to was marked "Exhibit No. 2532" and is
included in the appendix on p. 17368.)

railway expenditures for new lines and extensions

Mr. Harrison, The exhibit now before us indicates the expendi-
tures of all class I railways and their lessor companies for new lines
and extensions, by years from 1921 to 1938. In the second column
is shown the expenditures for additions and betterments by years,
1921 to 1938, totaling $9,649,385,414. That might be said to repre-
sent the gross investment that was made by the railroads through
that period of 19 years for technological improvements. There is
credited against that approximately $4,500,000 for property retired,
but the fact remains that about $9,500,000,000 was expended for the
purchase of l?etter facilities to carry on transportation, and under the
accounting rules of the. Commission they are lumped under the gen-
eral heading of expenditures for additions and bettermei^^ts, •

Mr. O'CoNNELL. May I ask "a question there ? Comparing the two
charts, the second one indicates a total net investment of over
$5,000,000,000 during this period, and the other indicates ah increase
in total capital outstanding of only about a -billion dollars over this
period. Would that indicate that most of that $5,000,000,000 was
financed out of earnings, depreciation reserves, and that sort of thing
rather than new capital ?

Mr. Harrison. That is true. It is the view of railroad labor^ with
which our railroad management friends don't agree, that prior to
1921 there was a large volume of water in that capital and some of

CONCENTRATION OF ECONOMIC POWER 16615

it has been squeezed out by this process, by putting in and plowing
back the earnings.

Mr. Pike. It might be interesting there, if you have any idea, Mr.
Harrison, what the market vahie of that $18,000 ,000 ,000ms. I don't
think it is in the exhibit.

Mr. Harrison. No.

Mr. Pike. I wonder what the present estimate is.

Mr. Harrison. I don't know what today's figure would be, but my
recollection is that it is just about one-half of that total — you could
buy it on the market for that.

Mr. Pike. A round amount of $10,000,000,000, probably.

Mr. Harrison. Yes.

Acting Chairman Williams. That would represent in round num-
bers the value of the bonds outstanding.

Mr. Harrison. And the stock.

Acting Chairman Williams. Half would represent just about the
value of the bonds.

Mr. Harrison. I beg your pardon. I didn't understand your
question.

Acting Chairman Williams. The market value today would just
about represent " the value, I assume, that is, the par value of the
bonds outstanding.

Mr. Harrison. Tliat is right. I didn't understand the question;
I am sorry.

I should like to introduce an exhibit showing the nurhber and
tractive effort of steam locomotives by years, '21 to '38.

Acting Chairman Williams. It may be received.

(The table referred to waS marked "Exhibit No, 2533" and is in-
cluded in the appendix on p. 17368.)

Dr. LuBiN. For the purpose of the record will you explain just
what is meant by tractive effort ?

Mr. Harrison. That is a very involved matter. I looked it up
last night because I didn't know myself.

According to the method used by the I. C. C, the tractive effort of
a locomotive is determined b}^ taking the diameter of the cylinder
squared, multiply it by the length m inches of the stroke of the
piston, multiply it by 85 percent of the boiler pressure per square
inch and divide by the number of inches in the diameter of a driv-
ing wheel, and that gives you the tractive effort exerted at the rim
of the driving wheel.

Acting Chairman Williams. In plain words does that mean the
engine power?

Mr. Harrison. It means the pulling power of the locomotive; yes.

Acting Chairman Williams. It simply means the power of the
engine,

Mr. Harrison. That is right, the pulling power of the locomotive.

Mr. O'CoNNKLL. I note by this exhibit tliat the number of loco-
motives during the period decreased from 64,000 to 42,000, and the
average tractive effort increased from 36,000-plus to 49,000-plus.
Does that increase necessarily represent technological improvement
in the locomotive or is it in part explained . by a retirement of
locomotives with a lower-than-average tractive effort?

Mr. Harrison. There is a combination of elements in these figures,'
Senator.

16616 CONCENTRATION OF ECONOMIC POWER

Mr. O'CoNNEii.. Thank you.

Mr. Harrison. Many of the smaller types of locomotives have been
retired, and of course a number of new and powerful locomotives have
been introduced. What the exact figure would show in segregating
(he two elements I don't know, but there are today 42,000, as you point
out, against 64,000 locomotives, with a much larger tractive effort,
13,000 pounds.

Mr. Pike. Mr, Harrison, Mr. Parmelee yesterday had a few figures
on about tlie same thing only he carried it forward 1 more year, and
it shows that the tractive power in 1939 was slightly larger than the
total tractive power in 1916.^ As I remember it, in '16 it was 2,030,-
614,416, and in 1939 it was 2,153,000,000. There was a slight increase
in total tractive power or tractive effort, whichever is the proper term.

Dr. Anderson. The total tractive power does not appear in the
exhibit.

Mr. Pike. But you can get it by multiplying the twd^and it slightly
increased for the period.

Mr. Harrison. Yes; Dr. Parmelee used 1916. That is a very
favorite

Mr. Pike (interposing). It would show a slight decrease from '21,
which was 2,398,891,315.

Mr. Harrison. That is true. Since the coming of the depression at
tlie end of '29, you see, there has been an increase from 44,000 average
to 49,000, recognizing, of course, the influence of the two elements of
obsolescence and improved type of machinery.

Mr. Pike. A combination of the two.

Mr. Harrison. Yes.

I should like to introduce "Exhibit No. 2534," which is very much
the-same as "Exhibit No. 2533," but dividing the types of locomotives
as between passenger and freight. It shows relatively the same change
as indicated by the previous exhibit.

Acting Chairman Williams. Tliis may be received, and I may say
without repeating, that all these exhibits offered may be received for
the record.

(The table referred to was marked "Exhibit No. 2534" and is
included in the appendix on p. 17369.)

increased efficiency of engines

Mr. Harrison. The next exhibit discloses the amount of fuel con-
sumed in freight and passenger service, commencing with the year
1921, calculated on 1,000 gross ton-miles freight service, and the pas-
senger-train car-mile.

The table referred to was marked "Exhibit No. 2535" and is included
m the appendix on p. 17369.)

Mr. Harrison. In 1921, the exhibit discloses, it required 162 pounds
of coal to move 1,000 gross tons of freight 1 mile — that is, freight and
equipment — and it required 17.7 pounds of coal per passenger car-
mile. In 1939, in the freight service, it had declined to 112 pounds, or
exactly 50 pounds per 1,000 ton-miles, and for every passenger car
moving 1 mile it had declined about 3 pounds. I haven't calculated
the gross effect of that saving on tonnage of coal and coal miners, but

' Sco "Exliil)it No. 240:*.," appendix, p. 17'!r>l.

CONCENTRATION OF ECONOMIC POWER 16617

it is tremendous. It results from better utilization of fuel, better
fireboxes, better combustion, better utilization of the equipment and
fuel by the firemen and the engineer to a greater degree of efficiency in
operation.

The next exhibit indicates the number of passenger and freight cars
installed and retired, and it shows pretty much the same story as the
locomotive exhibit discloses, retirement of light, small-capacity equip-
ment and the substitution of large, heavier-capacity cars.

(The table referred to was marked "Exhibit No. 2536" and is in-
cluded in the appendix on p. 17370.)

Mr. Harrison. The average of these cars in freight service is dis-
closed by the following exhibit.

(The table referred to is marked "Exhibit No. 2537" and is in-
cluded in the appendix on p. 17370.)

Mr. Harrison. In 1921 the average tonnage of the freight car was
42.5, and in 1938 it had increased to 49.4 tons. That has ha,d a tre-
mendous effect, of course, in releasing equipment and personnel and
improving the efficiency of operation.

Mr. Pike. On that I would like to ask you a question which may be
way off your beat, but I notice in recent years the freight-car capacity
was, say, 100,000 pounds, load limit, 121,000 pounds. I don't know
when that came in, but it seems to be fairly recent. What is the prac-
tical capacity of tliat 100,000-pound car? What do they load it to?

JNlr. Harrison. Oh, taking the general type of freight, it is in-
frequent that we get the capacitj' of the car.

jNIr. Pike. It is usually the bulk?

Mr. Harrison. Generally we get about half the car capacity. Now
there are figures available ; I suppose Dr. Parmelee could tell you the
average load.

Dr. J. H. Parmel.ee (Bureau of Eailway Economics, Association of
American Railroads, Washington, D. C). The average carload last
year was 36.5 tons, the average carload of carload traffic, which is
about three-fourths of the average capacity of the car, and that is
the highest average, by the way, that has ever been attained in the
railroad industry.

Mr. Harrison. Talcing all traffic, less than carload as well as car-
load, what does it run ?

Dr. Parmelee. That we hjne no figures on. The average load
of 1. c. 1. cars is around five.

Mr. Pike. Isn't it almost always true except in liandling products
of mines that the bulk of the freight rather than the weight will limit
what a car can carry?

Dr. Parmei.ee. Oh. I think so; in bulk movement or in bulk loading
you practically load to capacity at all times.

Mr. Pike. So if you gave the car capacity in cubic feet rather than
pounds it would perhaps be a more accurate index for general freight?

Dr. Parmelee. Really, I don't know what the answer is to that
subject.

Mr. Pike. Well, I shouldn't have brought it up.

Mr. Harrison. I don't think so, because a railroad car is like any
other structure ; if you overload it, it will break down. The capacity
of the car is generally rated from the diameter of the axle on which
the load rests. A 5i/4 by 9 by 8 journal is an 80,00()-capacity car, and

124491 — 41— pt. 30 28

16618 CONCENTRATION OF ECONOMIC POWER

a 51/2 by 10 journal is a 100,000-capacity car. This is a little side line.
I used to work in the shops myself, but it has been so long ago.

Dr. Anderson. With respect to "Exhibit No. 2537," is there any
noticeable acceleration in rate of increase of average capacity from '21
on? Is there anything to indicate that that movement is increasing
as technological change increases?

Mr. Harrison. Yes ; the general policy being followed by the rail-
road is to retJJ^e^-' «mall-capacity car, because most of those cars are
^f the old wooden type, you see. The newer-type cars are of larger
capacity and of steel construction. I would say there has been a
very rapid abandonment of the lightweight wooden, low-capacity car
and the substitution of the combination steel-wood and all-steel car
of larger capacity. That is one place where we and our railroad
management friends disagree. Railroad labor believes that we are
headed in the wrong direction, that we ought to put small, lightweight,
more frequent units of operation in service to meet this new trans-
portation problem. The railroads for the last 20 years have gone to
the slow, large, heavy equipment, and it is just not flexible enough to
meet present-day transportation needs, and therefore we are losing
in the race of competition. We don't wish to substitute our judgment
for theirs. I don't know who is right ; but as men who do the work,
that is our opinion about it.

Dr. Anderson. Well, they are motivated by meeting competition, ac-
cording to the testimony yesterday. Why wouldn't they see this as
preferable ?

SPEED OF RAILROAD TRANSPORTATION

Mr. Harrison. Well, I don't want to be critical, I don't know that
I have the answer to it, but if you take it for what it might be worth,
we still have today managing and directing the operations of the
railroads officials who came in 20 years ago, and they were scliooled
in this heavy power age and they just can't be convinced that, this
new idea about it is the solution. As I say, we who do the work be-
lieve it is, and on that question it perhaps is of some importance here
to say that through the period of the depression when the volume of
traffic declined, it was very clear you couldn't operate these heavier
types of equipment economically, consequently you held the Treight
until enough accumulated to make the tonnage that would permit the
operation of this heavy, expensive equipment. Therefore we have
a tremendous delay in servicing the public, all in order to get the
proper tonnage to start the train on its destination.

Mr. Pike. You can't generalize too thoroughly on that, can you?

Mr. Harrison. No; you can't generalize too thoroughly on it, but
if you will look at Dr. Parmelee's exhibit of yesterday showing the
increased speed of trains between terminals, you will see how hopeless
we are in that race.

Mr. Pike. About eleven-something to sixteen-something.

Mr. Harrison. On the average, 16 miles between terminals. Of
course, that doesn't mean from the time we got the shipment until
we delivered it. My recollection of that figure is that it is about
5 or 6 miles an hour from the time we get it until the time we turn it
over at destination. Now, that is caused by many of these elements,
not entirely so.

CONCENTRATION OF ECONOMIC POWER 16619

Mr. Pike. Of course, in that you liave to take products of mines
that make up so much of the bulk of the raih'oads, and usually there
isn't any terrific hurry to get it to destination,

Mr. Harrison. Yes; but the products of mines generally move
pretty rapidly. Take the ore trains up in the iron range; an engine
will take 135 of those ore cars at the mine, and they are down that
hill before you can say "Jack Robinson." It moves in a hurry be-
cause it is high grade, very remunerative traffic. Generally there
is a boat in that needs a particular type of ore for the mill or needs
a particular type of ore to mix with other types of ore that the
mill needs, and it moves pretty much on schedule.

I don't want to be misunderstood in trying to substitute my judg-
ment for the operating management of the roads, but that is our
view as workers, and this is our day to tell our story, and it goes for
what it is worth, I guess.

I should like to submit "Exhibit No. 2538."

(Tiic table referred to was marked "Exhibit No. 2538" and is in-
cluded in the appendix on p. 17371.)

Mr. Harrison. The next table gives expenditures for small tools
and supplies and machines by Class I railroads from 1910 to 1938.

(The table referred to was marked "Exhibit No. 2539" and is in-
cluded in the appendix on p. 17371.)

Mr. Harrison. You will note prior to 1919 the expenditures aver-
aged about $4,000,000 a year and then jumped up about 2i/^ times,
to around $11,000,000. During that period, 1920 to 1929, $110,000,-
000 was spent for small tools and supplies and $63,000,000 for road-
way machines. That represents the equipment around the shops
and on sections, servicing the tracks and the rolling stock.

I want to call your attention to "Exhibit No. 2540."

Dr. Anderson. One moment first; with respect to "Exhibit No.
2539," you have pi-esented here just money figures. I presume ai
adjustment for price changes would accentuate this increase for ma-
chinery, would it not?

Mr. Harrison. "Well, I presume if prices declined there would be
a larger number of units purchased. On the other hand, if prices
increased I presume a lesser number of units would be purchased.

Dr. Anderson. Have you made the adjustment for price changes?

Mr. Harrison. No; this represents actual dollars spent. I don't
know anything about what the influence might be if w^e considered
changes in price levels, but the real influence in these figures is the
ability of the railroad to buy. Just like the average individual, if
you have lots of money it doesn't matter if you spend more. If you
are poverty-stricken you pull up a notch and spend less.

Mr. O'CoNNELL. I notice, in the exhibit to which Dr. Anderson
just referred, the relative decline in the thirties in the purchase of
small units and supplies is substantially greater than for road\yay
machines. Are roadway machines, generally speaking, labor-saving
machines?

Mr. Harrison. Yes ; they save a tremendous amount of labor.

Mr. O'CoNNELL. That would explain to an extent at least the fact
that in that area the decline was not great.

Mr. Harrison. I think perhaps that is true. The machinery in-
troduced along the right-of-way for maintaining the section has had
a tremendous effect in displacing labor.

16620 CONCENTRATION OF ECONOMIC PO^VER

On that point, I have an exhibit used in the wage-and-hour hear-
ing which gives the effect of mechanizing a typical raih'oad.

Mr, Pike. We had that yesterday afternoon and that is in the
record.

Senator King. There seems to be a relation, if I properly interpret
"Exhibit No. 2539," between the expenditure for small tools and
supplies and for roadway machines, if you run down those two col-
umns; indeed, there seems to be a larger expenditure for roadway
machines in 1935 or 1934.

Mr. Harrison. Yes ; that is true. Senator, although the relationship
did. disappear to a large extent in some of the latter years. Of course,
there are a number of elements that influence that. The maintenance
engineer submits his recommendations for the purchase of machinery;
maybe he can talk a little faster than the mechanical engineer in
charge of the shops; maybe he will get the authority and the other
fellow won't. There are a hundred and one influences there; maybe
one man is a little better salesman than the other and he can sell his.
machine.

Dr. Anderson. It would appear, Mr. Harrison, following Senator
King's remark, and Mr. Pelley's statement yesterday, that the problems
of the railroad are now problems of meeting severe competition, that
since 1931 the relationship between small tools and supplies and ^I'oad
machines has changed as compared with the earlier years to a point
where now about the same amount, with one or two exceptions, is
spent for road machines as for small tools and supplies.

Mr. Harrison. That is right.

Dr. Anderson. Would tliat indicate a relatively greater dependence
upon road machines, which are labor-displacing, than upon small tools
and supplies, w^hich are labor-saving?

Mr. Harrison. Well, I think perhaps the greatest opportunity for
economies does lie in the utilization of maintenance-of-way ma-
chinery rather than in the small tools and supplies.

Senator King. I presmne that the cost of maintaining the road
in good shape varies from year to year, does it not ?

Mr. H^arrison. Well, there are a nimiber of factors there, Senator;
the volume of traffic, the financial ability of the particular railroad
company, and the type of roadway and the territory. You take the
low mountain country and the damp country — there are a lot of in-
fluences there.

I have some figures indicating in a general way the variations in
that connection, and I shall come to them in a later exhibit.

Senator King. My observation is that the situation is much like
that of a man with an automobile ; he uses the machine as long as he
possibly can, as long as the automobile renders rather effective serv-
ice, and then he all at once buys a new machine. So the expenditures
for railroad track and improvements will not have a uniform curve.

Mr. Harrison. No. You take some of the railroads that are in
good financial shape, and if you took a look at their right-of-way,
they have heavy 130-pound steel, good rock ballast, their bridges
ancl buildings are all painted, and they look in good shape.

On some other railroads that are one jump ahead of the sheriff,
if they are about to go bankrupt, their track is very rough, the
ballast is bad, the buildings look as if they had been abandoned.

CONCENTRATION OF ECONOMIC POWER 16621

But, generally speaking, they do keep the track in very good shape
and in very safe condition.

Mr. Pike. You will note, though, Mr. Harrison, that once they
get safely into the arms of the sheriff, they begin to build up.

Senator King. They do?

Mr. Pike. Almost always.

Mr. Harrison. Well, what happens generally, as we have observed
it, is this: when they cease paying the interest on their bonds, during
the period of trusteeship or receivership, they spend their money to
improve their physical property. "

Mr. Pike. That is exactly what I had in mind.

Mr. Harrison. If you look at a road that is in receivership or
trusteeship, a road that is making money above operating expenses,
you will see a railroad in good shape physically. That, of course,
increases the e(iuity of the security holder generally. I'hat repre-
sented the new stock which in the old days was floated in place of
th6 stock that had been washed out in receivership, but the Com-
mission has changed that.

"Exhibit No. 2540" covers the total number of employees, total
number of hours worked, and total compensation for class I carriers.

(The table referred to was marked "Exhibit No. 2540" and is
included in the appendix on p. 17372. )

decline in job opportunities

Mr. Harrison. This table discloses that in 192p we had 2,220,832
full opportunity jobs, while today, or in 1939, last year, we only
had 987,943.

Acting Chairman Williams. Will you explain what you mean by
full opportunity jobs?

Mr. Harrison. Under the regulations of the Interstate Commerce
Commission, in reporting tlie number of employees to (lie Commis-
sion you are required to report the number of jobs that are consid-
ered regular jobs that are in existence at the middle of the month,
excluding part-time or seasonal workers. •

These are ])resumed to i;e regular, steady jobs, eliminating all
part-time or seasonal workers. At the middle of the month the num-
ber of jobs are counted on every railroad in the country, and the''
regular jobs are segrecfated, and that number is reported as full-
opportunity jobs at the middle of the month.

Now, we take those reports for the 12 months, add them together,
and divide them by 12, and that gives us the average number through
the year which is the number used in ^his exhibit.

Senator King. It is sort of n weighted average?

Mr. Harrison. It is a weighted averaj^e of full opportunity jobs.
It excludes the seasonal and part-time jobs.

Senator King. The sum total woidd bring your total — if you
included vour seasonal and part-time jobs — slightly above I he 2,220,-
832, would it not ?

Mr. Hai;riS()N. Yes. In 1930 full-opportunity jobs in the service
of class I railroads nujubered 987.;)43, while there were actually
employed during <hat year 1,325,073 diffeiont persons. The differ-
ence is accounted for V)y seasonal and part-time workers, replace-

16622 CONCENTRATION OF ECONOMIC POWER

ments for deaths, retirements, resignations, and dismissals, which
run about 5 percent a year.

Acting Chairman Wilijams. You have an exclusion at the heading
of that exhibit. Does that mean that those who are engaged in
terminal facilities such as switching, and so forth, are not included?

Mr. Harrison. No; they are not included because the figures for
those companies for the earlier years are not comparable. In some
years the Commission included switching and terminal companies
in their condensed reports, and in other years included only class I
railroads, excluding the switching and terminal companies. Thus
in order to have a comparable basis clear back to 1920 it was necessary
to exclude the switching and terminal companies.

Now, the switching — I can give you the figures, if you wish it

Senator King (interposing). That is, the number of employees
in the switching and terminal companies. That number should be
added, of course?

Mr. Harrison. In 1938, Senator, for class I switching and termi-
nal companies — that is, companies having operating revenue of a
million dollars, or niore — 37,457 persons received compensation dur-
ing the year, of wh^ch number 25,025 worked 12 months, or at some
time during each of the 12 months, so you might add 25,000 more to
the full opportunity figure, and that would include switching and
terminal companies of class I railroads.

Acting Chairman Williams. As a matter of keeping the record
straight, do you have it for 1939?

Mr. Harrison. No; the figures for '39 for switching and termi-
nal companies I do not have available right xiow, but I can get the
figures for you.

Senator King. They are substantially the same as you gave, I
suppose ?

Mr. Harrison. I think it would be within 4 or 5 percent at the
outside; for this purpose, I imagine you could take the same figure.

Dr. Anderson. Now, Mr. Harrison, reverting for a moment to the
full-opportunity definition just given, would yoii regard that defini-
tion of the number of employees engaged in the railroad industry for
any one ^ these years as a suitable bi>se to use in calculating average
wages o ^turn for employees?

Mr. H rsoN. No ; that would be in our judgment a very mislead-
ing basis, very improper basis. INlr. Parmelee and I have quarreled
about thiU for a long time. I notice in one of Mr. Parmelee's ex-
hibits ^ he uses the same employment figures as I have, which are,
as I say, tl\o full-opportunity jobs, and they total about 400,000 less
than the number of persons actually employed in the industry at one
time or another throughout the year.

Now, he divides the full-opportunity jobs into the total amount of
money paid the 1,300,000 persons, every dollar paid in compensation,
so you have a distorted average annual wage of $1,886, as he shows, for
the year 1939.

Now, if YOU will take the total money paid in wages, which he
shows as being $1,863,503,000, and divide it by the 1,325,000 persons
who actually got part of it at one time or another throughout the year,
you will get a much different figure than $1,886.

1 See "Exliil)if No. 2517,"' :iiiiioiuli\, p. ]7:!(>1.

CONCENTRATION OF ECONOMIC POWER 16623

I can give you some very illuminating information on that from the
official report of the Railroad Retirement Board for 1939, and I refer
to page 152.

In 1938 there were 1,325,973 persons who received compensation from
class I railroads.

Dr. Anderson. Different persons?

Mr. Harrison. Different individuals. There were 132,770 who re-
ceived $50 or less throughout the year. In the wage group of $1,500 or
more, there were ajiproximately 600,000 persons.

Dr. Anderson. What was its range?

Mr. Harrison. From $1,500 to $3,000 would be the range— 600,000
persons.

Dr. Anderson. Wliat would be the average compensation?

Mr. Harrison. Somewhere between $1,300 and $1,400.

Senator King. You mean, of that 600,000?

Mr. Harrison. No; of the 1,300,000. Between $1,3.00 and $1,400.

Dr. Anderson. Well, if I understood Dr. Parmelee correctly yes-
terday, ho said that as he recalled, from the same source, the average
pay for 12-month men in 1937 was about $1,650.

Mr. Harrison. Yes; that is true.

Now, I have the figure for 1938 from the same source — Railroad
Retirement Board. There were 803,884 persons who worked some
'time during each of the 12 months of that year. They represented
60.6 percent of the total persons receiving compensation during the
year. The average earnings of this group was $1,824.

Dr. Anderson. Would that average indicate the average earnings
of railroad workers generally ?

Mr. Harrison. No ; far from it.

Dr. Anderson. That is, could we assume that $1,800 was available
to the average railroad worker as the annual earnings?

Mr. Harrison. Far from it ; far from it.

Senator King. Would not the average earnings of those employees
who worked full time reach those figures or perhaps exceed them?

Mr. Harrison. No, Senator King.

Mr. Pike. How would this calculation go, Mr. Harrison ? I figure
that the average earnings for full-time employees (I will explain the
basis, if you wish) would run about $1,550.

Mr. Harrison. I don't know ; I don't think it will rim that high.

Mr. Pike. These figures show 2,520 hours a year, full time. At
40 hours, that is 2,0G0 hours a year, which is 62.5 percent of the
average year shown. Now, take that percentage of the average earn-
ing shown gives you about $1,550.

Mr. Harrison. That may represent a rough approach to it. I
don't think it is that high. We have a tremendously large number of
men in the low-wage bracket; as you perhaps recall there were ap-
proximately 85,000 getting less than 40 cents an hour, regular workers.

Mr. Pike. A good many of those are part-time, on maintenance,
seasonally, are they not?

Mr. Harrison. No; I have distributed it here by months. If you
wish, I will give it to the committee. Of the total of 1,325,973 per-
.sons, 74 percent worked moie than G months during the year 1938.
Perhaps righi here I miglit s;iy tliis: the average hourly wage, ob-

16624 CONCENTRATION OF ECONOMIC POWER

tained by taking the total number of hours and dividing it into total
compensation, is 73.1 cents per hour.

If you will refer to "P^xliibit No. 2540," ^ you will notice that between
1920 and '29, employment declined 12 points, approximately 400,000
jobs.

Since tha' time there has been a loss oi about 700,000 jobs. Tak-
ing the year 1933, which represented the depth of the depression,
there were about 971,000 jobs. In 1938 employment fell to 929,000
iobs, the lowest level in the history of the industry, or a period of 50
years.

Of course, that was caused by two elements: the general decline
in the level of traffic and the technological advances.

Senator King. When you speak of technological advance, you re-
fer, I suppose, to the competition by water and other means of trans-
portation ?

Mr. Harrison. No, I was referring particularly in that connection
to the substitution of machinery, and consolidation within our own
industry. Of course we have lost a tremendous percentage of our
traffic to other modes of transportation, and that is a technological
development in the field of transportation. I think it accounts for
about 180,000 of our jobs.

CLASSIFICATION OF EMPLOYEES

Mr. Harrison. The next exhibit shows a distribution of employ-
ment by major divisions as classified by the Commission, showing
the decline over a period of years; the 1921 figure, 1,695,000, is taken
as the base of this table. In 1939 there were 987,000 jobs.

(The table referred to was marked "Exhibit No. 2541" and is in-
cluded in the appendix on p. 17373-17374.)

Dr. Anderson. I would like to ask a question with respect to
"Exhibit No. 2541." Is this distribution into six classes, or five
classes with two subgroups, the way in which occupational data are
available in the railroad industry?

Mr. Harrison. That is the way the Commission has instructed the
railroads to divide the information on compensation and wages.

Dr. Anderson. Now, does this represent a vertical division of
skill or compensation ?

Mr. Harrison. No, this shows the employment opportunities at
the middle of the month for each .of the major groups, and the pur-
pose of the exhibit is to show how the various groups of employees
took the impact of the recession in business, and the technological
advance.

Dr. Anderson. But would there be a rough correspondence be-
tween the divisions I to VI, and levels of labor in the industry as
indicated by earnings?

Mr. Harbison. No; there has been a very much smaller displace-
ment of executives, officials, and staff assistants on a percentage
basis. That is the most regularized group so far as employment and
wages are concerned. They took the least impact.

^Appendix, p. 17372.

CONCENTRATION OF ECONOMIC POWER 16625

There is always a place to put the executive to work. When you
liave to retrench, he generally gets one of the jobs of the classified
service, and the classified service takes the impact.

Now, there was a dual effect in maintenance of way and structures.
Your ability to keep house, as one would put it, is based on the railroad
earnings. In times of financial stringency the maintenance-of-way
workers have to take the impact of retrenchment, and the same with
maintenance of equipment and stores. When the railroad has to
meet bond interest and the amount in the till is rather low, they will
shut the shops and lay off the shop men, so they take the impact of
the financial difficulty.

On the other hand, if you have business and have to move trains,
the engineers, firemen, conductors, and switchmen have to work, be-
cause they are moving the traffic. Wlien the traffic is not there, of
course they do not work. There is elasticity in the maintenance of
equipment and way forces which permits a more violent squeezing,
as one would put it, of employment.

Senator King. The element of safety runs through these lists, does
it not, so that it is vital that you shall maintain a high degree of
safety ?

Mr. Harrison. Always, Senator King. The railroads try to main-
tain an absolutely safe operation, even though they have to borrow
the money to do it when they cannot afford it.

Senator King. And the record for safety, it seems to me, from the
figures brought to my attention, are most excellent. The accidents
to passengers in the operation of railroads have been very few.

Mr. Harrison. We think we are operating the finest kind of trans-
portation and the safest in the world. That is what we think about it.

Dr. Anderson. One more question with respect to that table, Mr.
Harrison. Do you have any figures on wages and salaries paid to
the various groups here represented? Take, for example, the first
group of officials, executives, and staff assistants. There were 15,000
of them in '21, and 11,745 in 1939. Is it possible to know the total
salaries paid that group that year as compared with the total wages
paid the maintenance men, for example?

Mr. Harrison. Well, may I file that? I have the information.

Dr. Anderson, If it is possible, Mr. Harrison, to file for available
years the information on earnings corresponding to these levels, we
could then compare the ability of these various groups to bear the
impact in vflri6us years, as determined by available income.

Mr. Harrison. All right, sir; I will be glad to give it to you. You
want it on the basis shown in "Exhibit No. 2541" ?

Dr. Anderson. Yes. We will reserve the next exhibit number
for that information.

(The document referred to was subsequently submitted, marked
"Exhibit No. 2542," and is included in the appendix on pp. 17374—
17375.)

Mr. Harrison. The next exhibit discloses the average hourly earn-
ings over a period from 1920 to 1938, indicating the average rate was
71.1 cents per hour,

(The chart referred to was marked "Exhibit No. 2543," and is in-
cluded in the appendix on p. 17376.)

16626 CONCENTRATION OF ECONOMIC POWER

DISTRIBUTION OF RAILROAD REVENUE

Mr. Harrison. The next exhibit shows the operating revenues; that
is, the amount of money that the railroads took in for furnishing
transportation to the public. The revenue declined from $6,178,000,000
in 1920 to $3,995,000,000 in 1939, or 35.3 percent, while the compensa-
tion of the workers declined 49.4 percent, indicating a more rapid
elimination of labor than the decline in business, based on dollars of
revenue, would have required.

(The table referred to was marked "Exhibit No. 2544" and is in-
cluded in the appendix on p. 17376.)

Mr. Harrison. That is the result of technological improvements in
the industry and the utilization of less labor to earn the dollar of
revenue.

The next exhibit shows the distribution of the revenue taken in by
the class I railroads from 1920 to 1939. I should call to your atten-
tion the fact that in 1920 labor received 55.4 cents out of each dollar
taken in, while in 1939 it received only 44.4 cents. Fuel cost 10.9
cents of every dollar in 1920, and that had declined to 6.3 cents in 1938.
Net railway operating income, which is the amount left after the
expenses of running the railroad are paid, and before interest and
dividends are taken out, represented 0.3 percent in 1920, and in 1939
it represented 14.7 percent, indicating the shift in the share of produc-
tion, to which I called your attention earlier, from labor to capital.

(The table referred to was marked "Exhibit No. 2545" and is in-
cluded in the appendix on p. 17377.)

Dr. Anderson. In most of the testimony thus far you have used a
base of 1920. Now, in "Exhibit No. 2545," the sharpest increase you
have is from 0.3 percent in 1920 to 11 percent in 1921. Is 1920 a
reasonable basis for indices ?

Mr. Harrison. Well, I think it has some complications that you
might ,very well question. We use it because that is the first year of
private operation. The railroads were returned to their private
owners on March 1, 1920. There was a period of 6 months that fol-
lowed under Government guarantee. For th^ purposes of net railroad
operating income, perhaps it is not a fair basis.

I would take 1921 for that basis, which might be questioned con-
sidered too conservative, because there was a wage cut in effect during
that year. They got 10.9 cents out of every dollar in 1921, as com-
pared to 14.7 cents out of every dollar in 1939 in net railway operat-
ing income.

That picture is there. It is questionable as to using

Dr. Anderson (interposing). Should we consider the whole table
with that same thought in mind, that the change-over from Gov-
ernment guarantees in 1920-21, when the railroads took possession
of their properties again, set factors to work which made 1920 and
1921 unsuitable for comparison purposes?

Mr. Harrison. No; I would not want to make that general ad-
mission. There are some elements that in 1920 would be unfair,
and other elements where it would be fair. I would not want to
make that general admission, not because of what is happening here,
but because of the fellow I might have to meet a year from now on
that issue. [Laughter.]

CONCENTRATION OP ECONOMIC POWER 16627

"Exhibit No. 2546" shows operating revenue per employee in our
service, and hours of compensation, indicating the efficiency of the
wage dollar.

(The table referred to is marked "Exhibit No. 2546" and is included
in the appendix on p. 17378.)

Mr. Harrison. Let us take 1921, now, in "Exhibit No. 2646." It
shows the efficiency of the wage dollar, and we can take 1921 to
avoid the 1920 condition. For every dollar paid the workers in
1921 they produced gross revenue for the railroad company of $1.99.
That is shown in the second last column opposite the year 1921. In
1939 for every dollar paid in wages to the workers they produced
revenue for the corporation of -$2.14, an increase of 15 cents; in
other words, it became more profitable to employ labor over that
period of time, to the extent of 15 cents for every dollar expended
for wages. Expressed differently, the output per worker increased
tremendously and the number of workers declined. The result of
their labor became more profitable to the owners of the industry
by 15 percent over the period.

Exhibit No. 2547 discloses freight revenues per revenue ton-mile.
That indicates the amount that we collected on the average from the
public.

Dr. LuniN. May I interrupt at tlmt point? Would you state the
figures on operating revenue per employee per hour of service for
1920 and 1939. Average hourly earnings were very close in these
2 years, so that in terms of what the worker was getting for the
service rendered, I think the comparison between 1920 and 1939
would be fairer than between 1921 and '39, since wages. were cut
in 1921.

Mr. Harrison. I think you are right about it.

"Exhibit No. 2546" discloses that in 1920, for every dollar expended
for wages the worker produced $1.68 in revenue for the corporation,
or a profit of 68 cents on every dollar he received. In 1939, for every
dollar paid the worker, he produced $2.14 for his employer, a profit
of $1.14.

Senator King. Is that in the net earnings of the railroad?

Mr. Harrison. No; the amount taken in, Senator.

Senator King. But the net earnings of the railroad did not show
that disparity?

Mr. Harrison. The net profit?

Senator King. Yes.

Mr. Harrison. No; generally speaking the net profit of the rail-
roads has been in bad shape. However, it has become increasingly
profitable to employ the" worker ; he gets a constantly lesser share of
the joint effort of management and capital and the worker as I
showed in "Exhibit No. 2545." In 1920 labor got 55.4 cents out of
every dollar, while in 1939 it received only 44.4 cents. Capital got
0.3 percent of every dollar in the year 1920, while in '39 it got 14.7
cents, but I agree with you, Senator, in dollars, as a whole, the in-
dustry of course has been suffering very badly.

16628

CONCENTRATION OP ECONOMIC POWER

"Exhibit No. 2547" shows freight revenues per ton-mile, represent-
ing the amount we collected from the public for the transportation
of freight. You will note a decline from 1.052 cents in 1920 to .974
cents in 1939 for moving 1 ton of freight 1 mile, indicating the
general improvement in the efficiency of the plant and the ability
of the plant to pass on to the public part of the savings.

(The chart referred to was marked "Exhibit No. 2547" and ap-
pears below. The statistical • data on which this chart is based are
included in the appendix on p. 17378.)

Exhibit No. 2547
[Submitted by the Brotherhood of Railway Clerks]

REVENUE/ WAGES PER TON-MILE

INDEX

INDEX
|lilA

140

120

lao

100

-='

*=J

«=■

L_^

100

■^

RE'

/ENU

*=■

c:*

k ^

•^

-s

irA6E

-N

tii%

aac

)

192!

I93(

)

03!

Olfl

Mr. Harrison. The wages to move a ton of freight 1 mile in 1920
were 0.897 cent, while in 1939 that had declined to 0.559 cent, indi-
cating labor's proportion of what was taken in. Out of 0.974 cent
for every ton of freight moved 1 mile, labor got 0.559, or a little bit
more than half. That is graphically displayed in the accompanying
chart.

Senator King. Of course the improvement of the trackage and so on
would diminish the cost of moving the freight.

Mr. Harrison. There is a joint element there, Senator — personnel,
increased efficiency of the average man, better plant, better supervision,
.consolidations, and elimination of waste, and a number of other ele-
ments. Capital had its part, management had its part, and labor had
its part.

Dr. Anderson. Mr. Harrison, is there any trend noticeable in this
connection that might indicate either acceleration or the reverse?

Mr. Harrison. No; I think that that is the general avenue we are
traveling.

I think the unit price to the public is going down constantly, and the
share that labor gets out of the industry is constantly declining. I

CONCENTRATION OF ECONOMIC POWER 16629

don't see any hope for a reversal of that so long as present conditions
I)revail. But on the .other hand, I see a very serious condition for our
country, for our people, if we don't find some way to check it, and I
take it that is the purpose of this hearing. I want to say something
about it before I quit, if the committee will permit.

INCREASE OF LABOR PRODUCTIVITY

Mr. Harrison. Exhibits Nos. 2548 to 2565 represent a series of ex-
hibits disclosing the productivity of the workers measured by the miles
of track operated and the compensation paid. I offer the first 12 of
the series for the record,

(The tables and charts referred to were marked "Exhibits Nos. 2548
to 2559'' and are included in the api)endix on pp. 17379-17387.)

Mr. Harrison. Briefly, in 1920 an average of 5.4 workers was re-
quired for every mile of track operated, while in 1938 only an aver-
age of 2.4 workers was required. In 1920, wages per mile of track
operated were $9,756; in 1938 they were only about one-half, or $4,437.
The changes are graphically disclosed on Exhibit No, 2549.

Exhibit No, 2550 shows the change in the revenue freight ton-
miles bv thousands, I would simply point out that in 1920 there were
410,306',210,000 revenue freight ton-miles as against 333,000,000,000-odd
in 1939, a decline of 19 points, wdiile the number of revenue ton-miles
handled by each employee went up from 202,000 to 337,000, or an in-
crease of 66 percent. For every dollar of compensation paid in 1920,
111.4 revenue tons were handled 1 mile.

In 1939 that had increased to 138.9 tons for every dollar paid in
wages, or an increase of 60 percent in efficiency.

"Exhibits Nos, 2551 to 2558" show pretty much the same general
story, and 1 will not consume the time of the committee to comment
unless some member of the committee may wish it.

"Exhibit No, 2560" now comes to the crux of my problem before
this committee,

(The table referred to was marked "Exhibit No, 2560" and is
included in the appendix on p, 17388,)

Mr. Harrison, This exhibit discloses the loss in employment op-
portunities caused by the great increase in the productive efficiency
of the plant and personnel. We have coined a measure called a
traffic unit, which is described at the bottom of exhibit 2560. In
the first column is average receipts per passenger-mile. In 1921 that
was 3.086 cents. The average receipts for each freight ton-mile were
1,275 cents. The ratio of passenger revenue to freight revenue was
2:4. Adjusting the passenger miles and increasing the freight miles
to get the proper equation, you will find that we have a new balance
of traffic units for each of the years shown, in the far right-hand
column. In 1921 it was 396,390,000, Bearing in mind the traffic unjt
as the base of determining the productive efficiency of the plant and
the personnel, we go to the next exhibit and we disclose the number
of employment opportunities destroyed by this tremendous increase
in efficiency,

(The t.ible referred to was marked "Exhibit No. 2561" and is
included in the appendix on p. 17388.)

Mr. Harrison. In 1922 we had lost 218,000 employment opportu-
nities because of increased efficiency. In other words, if we had

16630 CONCENTKATION OF ECONOMIC POWER

remained stationary and handled the same amount of traffic units in
1922 that we handled in 1921 we would have had 218,846 more jobs
than we did have, so following that down to the year 1939 as com-
pared with the year 1921, we are short because of technological ad-
vance in our industry— and I say that in a broad sense — 626,426 jobs.
Expressed differently, if the efficiency of the plant and the personnel
had remained constant over that period of 19 years we would have
63 percent more employment opportunities today in the railroad
industry than we do have. That tells you the story as to what has
happened to employment — 622,426 jobs have been destroyed in this
industry over that period of time. [

Mr. Pike. I don't quite get all of it, Mr. Harrison. This includes
as near as I get it both increase in efficiency and decrease in traffic.

Mr. Harrison. No. This only covers the increase in efficiency. I
have taken the actual traffic for each year and I have translated that
into traffic units, which is the productive unit, and if the efficiency
had remained constant we would have 622,426 more jobs today.

Mr. Pike. Oh, that second column says the 1921 rate of efficiency
rather than the 1921 rate of traffic.

Mr. Harrison. That is right.

Senator King. When you speak of efficiency as you have used it,
do you refer solely and exclusively to the efficiency of the individual,
or the efficiency as it may be translated to and incorporated in better
machinery, better trackage, improved facilities? Would you call that
]Dart of the efficiency which has produced the figures which you have
just given?

Mr. Harrison. That is true. Senator. We have a more efficient
liuman individual, a more efficient tool, and more efficient supervision.
All of the elements combined have produced the destruction of 622,000

Senator King. A person who is technically more efficient manifests
better results in the work he does, the track is better, the engine is
better, so that the efficiency of the individual is manifested in the
increased efficiency of the tools.

Mr. Harrison. That is right. You see, the individual is working
under supervision with the machinery and the tools that management
furnishes, and all of those elements, Senator, enter into it.

Senator King. They are all integrated.

Mr. Harrison. I want to make it clear that railroad labor is willing
to recognize that capital has made it possible to use the new type of
tool and has furnished the opportunity for employment directly to that
extent. Management has improved supervision, and labor individ-
ually has increased its ability, and has utilized these new implements
for greater production.

Senator King. As far as my observation is concerned, I think there
has been greater cooperation by and large in the railroad operations
from the head down to the humblest man working than in many of the
industries.

Mr. Harrison. Thank you. We feel that we have made a heroic
effort, all of us, all elements.

Senator King. I think the railroad employee deserves the gratitude
of the American people for cooperation in making the railroad system
serviceable to the public.

(Senator Kinir resumed the chair.)

CONCENTRATION OF ECONOMIC POWER 16631

UNEMPLOYMENT IN VARIOUS LABOR GROUPS

Mr. Harrison. The following tables, "Exhibits Nos. 2562 to 2568,"
distribute the impact of that unemployment to the various major
occupational groups.

(The tables referred to were marked "Exhibits Nos. 2562 to 2568"
and are included in the appendix on p. 17389-17395.)

Mr. Harrison. "Exhibit No. 2568" has to do with an analysis of
that same element of job destruction through increased efficiency in
the train and engine service, the men that actually move the trains.
You will note over there in the next to last column on the right we are
short 73,502 jobs, engineers, firemen, switchmen, brakemen, con-
ductors, all because of the ability of the force to move a greater
amount of freight than they did in the year 1921.

The traffic units per locomotive mile in 1921 were 269, which in-
creased to 297 in 1939, .The average number of locomotive miles for
each employee engaged went up from 4,941 in 1921 to 5,322 in 1939.
It would have required an increase of 35 percent in existing personnel
to bring us back to the same employment level for engineers, fire-
men, conductors, trainmen, and switchmen, that existed in 1921.

That concludes my statistical information and I want to make a
few observations on the general problem, if I may be permitted.

Acting Chairman King. Proceed. The committee will be glad to
hear you.

Mr. Harrison. Our industry has, of course, been beset by all the
elements of the depression, together with the development of other
modes of transportation and discriminatory Federal policy in that
direction. Our competitors have been aided directly and indirectly
by the Government, and it has been a terrific struggle for men and
management. We are trying to correct that. The Government not
only has handicapped us and given our opponent an advantage, but
lias gone into business directly in opposition to us through the parcel
I)ost, the waterways and barge lines, and of course private enterprise
cannot meet that situation very successfully. The railroad workers
have paid the penalty through the loss of their opportunity to live.
That, together with the effect of the depression and the financial dif-
ficulties of corporations, has made it a very sorry, hopeless picture for
railroad labor. As you can see by the statistical information I have
put in, we have only about half the full employment opportunities
today that we had 20 years ago. I hope that trend can be reversed,
but to the extent that unemployment exists it is our general national
I)roblem, and the people of this country, if I might interpret their
views, are looking to the Members of Congress and to the administra-
tion to do something about it. We have not had since 1933, so far as
employment is concerned, much improvement. We are spending
huge Federal sums, the public debt is $45,000,000,000, and thinking
persons are beginning to worry about that. Just where are we going ^
If we reflect on what has taken place in other countries throughout
the world, we see that the desire for liberty and freedom is not
sufficiently strong to resist the human urge to stay alive. In many
instances the people have traded that valuable asset and heritage
because of the need to keep alive. We can talk all we want to, my
good friends, about our democratic political and social institutions,
but we have got to solve this problem of unemployment. If we don't,

16632 CONCENTRATION OP ECONOMIC POWER

it is going to wreck us, and with us, democracy. I am not an alarmist
and I don't wave a red flag very frequently ; I try to be realistic about
it. I think there has been a constant shifting of too large a per-
centage of the results of industry to the people who own industry ;
not enough has been put into the pockets of the people of the country
to sustain our great industrial machine. That has to be halted.
Capital can't dry up the sources that create it. Labor was prior to
capital, which represents nothing but the surplus of someone's labor
of the day before. As Abraham Lincoln said years ago, it has nothing
in it of living substance, it is only handy to do some things that we
have to do. Unless we can profitably employ labor, the whole struc-
ture is going to fall.

Our remedy for the situation is a constant shifting, to a reason-
able point, of the proceeds of industry to those who sustain it, with
a progressive shortening of the hours — always admitting, of course,
that we must pass on to the public a share of the improved efficiency.
We in the railroad industry think the time has long since passed
when we ought to work as much as 56 hours a week in a good many
instances and 48 hours generally for regukir employment oppor-
tunities. Nationally, under the wages-and-hours law, we have re-
ducer the hours to 42 and ultimately to 40. Our industry is still
working 48. We have been trying to get through Congress a 6-hour
law, but so far the Senators and Congressmen have indicated that
they don't think the time has arrived to enact that kind of legisla-
tion. I have been before the committees of Congress repeatedly,
urging some solution of this problem. When we realize that we are
confronted with consolidations that will undoubtedly diminish em-
ployment, it is a pretty hopeless looking picture for the man who
has spent his lifetime in the railroad industry. For a large share
of these people it means the destruction of their entire investment,
because they are in specialized service ; they cannot find employment
elsewhere, even if there were jobs available. The locomotive engi-
neer can't run a locomotive any place except on a railroad. There
are a few around some sawmills and a few of the mines, but if you
put them all together they wouldn't mean very much.

I hope that this Congress will make a genuine attack on this prob-
lem and reduce the hours in the railroad industry and give these
people who have been squeezed out of the industry by these several
elements an opportunity to come back in. A genuine attack, I hope,
will be made on the whole- thing 'in the way of shortening hours.
By the utilization of these new methods and machines, we have out-
stripped our ability to provide work.

I imagine if there weren't enough bread to go around in this
country, we would pass a law taking control of the bread, and dis-
tribute it so everybody would have bread. Well, when you talk
about people having bread and no jobs, you are talking about giving
and taking away, because under our system in order to have bread
you must have a job. There isn't any other way to get bread except
to go out and steal it, borrow it, or inherit it, but most of us poor
devils, who have to work for a living, have only that means of sus-
taining ourselves, and our families, and if you don't furnish us that
opportunity we get very little substance out of our whole social
philosophy and our structure of government. I am trying to view

CONCENTRATION OF ECONOMIC POWER 16633

the problem realistically. I doi.'t want to be an alarmist, because 1
think I am more or less one of these individuals who tries to keep
his feet on the ground if he knows the facts, and be very conservative
about it, but there is a real problem in this country and we have got
to find a solution for it. What it is I don't know in total, but some
things could be done in the direction I have indicated.

Acting Chairman Kjng. Do you think the Federal Government
should subsidize the railroads, as it is subsidizing waterways , and
subsidizing truckage, by spending hundreds of millions of dollars
annually for roads to facilitate transportation of commodities by
trucks?

Mr. Harrison. No, I don't think we »wght to pick the pockets of
the public in that fashion. I think the railroads and every other
form of transportation ought to operate as private enterprises with-
out subsidy. If the railroads can't do that, let the Government take
them over and go in the business of transportation and pay the losses as
part of the general social function. No subsidy. That is a process
that I am violently opposed to, whether it be for the shipowner,
truck operator by utilizing the highway, or the inland water carrier
by using the inland waterway. That is just a polite way of picking
the pocket of Mr. John Average Citizen, as I view the matter.

Acting Chairman King. Would there be any impropriety in the
Federal Government's attempting' to secure revenue from the opera-
tion of the trucks — building the highways and waterways and having
those who avail themselves of those instrumentalities at the cost
of the Government make some contribution ?

Mr. Harrison. I think there ought to be a fair tax levied for the
private use of public property. If I went out here and used one
of your post office buildings you would certainly expect to collect
rent from me, but I can go into the trucking business and utilize
your highway and give you nothing for it. 1 ou improve the inland
stream and I can go into the business of operating barges; you
spend the money to maintain the right of way for me. Now that is
unfair. The railroads pay part of those taxes, I pay part of them
as a railroad worker, and I certainly don't like it and I hope it will
be corrected.

Acting Chairman King. Have you finished your statement?

Mr. Harrison. Yes, sir.

RATE OF technological CHANGE

Mr. O'CoNNELL. May I ask a question? The subject of the hear-
ing is supposed to relate generally to the effect of technological
advance, and I wondered w^hether you had any judgment as to
whether the rate of technological change in the railroad industry
had been accelerated in the past 20 years, say, as opposed to the
first 20 years of the century.

Mr. Harrison. I wouldn't say that the rate of changing methods
has been accelerated, but the effect has been accelerated. They were
also introducing new types of machines back in the old days, and
new methods, to the extent that they were available. I suppose the
rate of change has been somewhat along the same line, but the
effect of the change has been more substantial.

Mr. Pike. It is greater when business is declining.

124491 — 41 — pt. 30 29

16634 CONCENTRATION OP ECONOMIC POWER

Mr. Harbison. The pressure under low profits accentuates tech-
nological advance.

Mr. O'CoNNELL. As far as the railroad industry is concerned,
might not the emergence of competitive facilities, such as the trucks,
have had its effect in accelerating the effects of technological
change ?

Mr. Harrison. I wish I could say that; I don't think we have met
that probleiri yet.

Mr. O'CoNNELL. Haven't met it yet, but to the extent that tech-
nological changes have been made it has been in an effort to meet
the problem.

Mr. Harrison, Well, I wouldn't say that either. There have been
some changes, but in this whole picture they are nil.

Mr. O'CoNNELL. I didn't understand you.

Mr. Harrison. I sav there have been some changes to meet truck
competition, but in tnis whole picture their effect has been nil.

Mr. O'CoNNELL. You mean they have not been able to meet the
truck?

Mr. Harrison. No; they just haven't met that problem yet, and
we don't think they can meet it with the present plan. You have
got to have more flexible, lighter, more frequent service.

Mr. O'CoNNELL. But you are arguing for more rapid technologi-
cal change in the railroad industry.

Mr. Harrison. That is right, but with it will come increased em-
ployment because you will have more units and you will need more
men.

Mr. O'CoNNELL. So the railroad industry in your view has not
been suflBciently alert in making technological changes to meet the
conditions.

Mr. Harrison. That is true. They still hang on to the old equip-
ment. There are two or three reasons for that. First is the dif-
ferent thought among management officers about it, and secondly
their financial inability to make the change. Tremendous sums have
been invested in this heavy power, heavy equipment, and they can't
charge it off because most of it is plastered with a mortgage, unless
they substitute or pay the mortgage. Well, they don't have the
wherewithal to substitute or pay the mortgage.

Mr. O'CoNNELL. Their financial inability to make a change at
this time might in itself be a result of failure! to keep pace with
technological changes over the previous decades.

Mr. Harrison. I think there is a lot to that, but on the other hand,
as I said earlier, a lot of management officers believe they are on the
right track with the heavy power. We think* they are on the wrong,
track, that they are just going to wind up on the siding, and the
other fellow is going to get our business.

Acting Chairman King. There isn't much encouragement to in-
vest in railroad stocks and bonds, to make capital investments, in
view of the mortality that we witness in the railroads?

Mr. Harrison. Well, Senator, I am a member of my organization's
finance committee, which has large sums of money to invest, and we
don't invest one dime in the railroads.

Dr. LuBiN. Mr. Harrison, I would like to ask you a question which
has some bearing upon your testimony, and also I think upon the

CONCENTRATION OF ECONOMIC POWER 16635

broader field of economic progress. I was very much interested in
a statement you made relative to the new devices and new methods
that have been adopted by the railroads that make is unnecessary for
them not only to use as much labor but, as I take it, as much capital.
If by creosoting a wooden tie you increase the average life from 7
years to 21 years — triple it, in other words — and your investment
in that tie of course is nowhere near as much as the original invest-
ment, you have automatically created a situation where the railroads
need less money to maintain a given level of output, as time goes
on. Now is it your impression that the same holds true of other
types of equipment? For example, a modern locomotive costing
X dollars would give you in terms of its total life many times more
ton-miles of service than a locomotive that cost X dollars 25 year?
ago. Would that be true?

Mr. Harrison. That is true, yes.

Dr. LuBiN. So that we can expect, once the railroads reach the
point of known possible efficiency, that their need to invest more and
more money will gradually decline.

Mr. Harrison. I think that is true if they continue with the pres-
ent equipment and don't undertake to junk it and replace it, but the
investment of either more or less money, Mr. Lubin, doesn't seem to
affect our railroad tinancial operating result, because we have out-
standing a huge amount of bonds, and even though we do reduce
the amount of actual operating expense we don't retire the debt.
If you look over the history of the railroad situation you will see
they generally pay a maturing bond issue by issuing a new one, they
generally get a little extra money for the till, corporate purposes,
as they call it; if you will look at that exhibit I introduced, the
bonds outstanding have gone up right along. The problem you are
talking about is the matter of operating expenses, so far as the
ties are concerned. Ordinary maintenance of the track would be
operating expenses, but of course a locomotive would go into capital
account as additions and betterments. If I get the theory that you
are pursuing with your question, I would say that the technological
advances make it unnecessary, of course, to employ as much capital
over the long run as before. Now, of course, they are making the
investment, and the capital required is much larger than it would
be under the old system. A man buys a suit of clothes for $50 which
will last him 3 years, and a man buying a suit of clothes for $20
has to have two every year. He haS to have more capital outlay
for the $50 suit, but in the long run it takes less.

EFFECT OF INCREASED TRAFFIC ON EMPLOYMENT

Dr. Anderson. I have just one or two final questions, Mr. Harrison.
In your approach here you discuss and arrive at a measure of decreas-
ing job opportunities. As a concluding statement I wonder if you
would help us by putting individuals back into this picture and telling
us what has occurred to the normal labor force that called themselves
railroad men. For example, Mr. Pelley yesterday, in answer to a
question of mine, said there was an excess of available labor over labor
being employed of about 100,000, and also went on to say that should
the traffic of your railroads increase somewhat beyond the 1937 level,
new workers would be needed in the railroad industry, that as a matter

16636 CONCENTRATION OF ECONOMIC POWER

of fact in '37 some new workers were r.dded to railroad labor who had
never been employed before. His point was that the problem solves
itself with an increase in railroad traffic somewhat beyond 1937 levels.
You indicated that in '39 1,325,000 different persons were listed as
railroad workers. Would you care to hazard a guess as to the size of
tlu' railroad labor force not employed, and whether the prospect that
Mr. Pelley laid out before us is realistic from your point of view ?

Mr. Harrison. Mathematically he is probably right, but in actual
practice, no. That varies by territories. You see, there is a normal
attrition in the personnel of a railroad of about 5 percent a year, and
since 1920, a period of 20 years, there should have been a 100-percent
turn-over in force, but that has not been true. Considering the attri-
tion and the increase in traffic, I think if we go back to the 1937 level
we will mathematically absorb the people ordinarily attached to the
industry who are called railroad workers, but that won't absorb them
throughout the country. Conditions vary on the railroad properties.
At some places we are hiring new men of a particular class right now,
and we still have men out of work" on that particular railroad of a
different class of service. Down in Florida we hire men to handle the
winter traffic while we are laying them off in the Middle West because
traffic has fallen off; on the west coast when we move the food crop
we will be hiring men, and laying them off in Florida. In the winter-
time we are moving coal, and so on. We have tried to regularize that,
by pointing out to the railroads that they ought to recruit workers
from different sections who are already attached to the industry in-
stead of taking on new men, and. to that extent minimize the effect of
these fluctuations. But getting back to your question, I think perhaps
Mr. Pelley is right. If we could get back to the '37 level of business
we could give a job to every unemployed person who has been attached
to our industry. That is made possible by increase in business to the
'37 level and by the actual attrition that has occurred among the work-
ers over a period of time.

Dr. Anderson. Do you care to make a prophecy as to whether or
not it is possible to get back to '37 levels m railroading and to stay
at such levels?

Mr. Harrison. I would just be shooting in the dark. I have
guessed so many times, along with a lot of these other economists,
about what is going to happen to business that I am almost afraid
to make a guess. But I think the railroads will get back to the '37
level of business, if the Government will adopt a fair policy in regard
to transportation and give us a fair chance to compete for the avail-
able business.

Dr. Anderson. Would a return to 1937 levels solve your problem
with respect to unemployment in the future?

Mr. Harrison. No; because I am interested in employment oppor-
tunities i-ather than individuals thut are attached to the industry. If
our industry doesn't produce its share of employment opportunities,
it doesn't make its contribution to tlie whole scheme of things. We
can- take Taack in our industry all tl.e individuals that have at one
i ime or anotlier bt-en associated with us, but when we make an allow-
ance for the attrition and say th it that squares up everything and we
are satisfied, I say no. We want a volume of employment compar-
able to the volume of employment we had in- 1929, at least 1,600,000

CONCENTRATION OF ECONOMIC POWER 16637

jobs. If the country is going to get back to the level it was then,
with everybody employed except about 2,000,000 temporary em-
ployees who were shifting and didn't want to work, we have got to
4^et our share back.

Acting Chairman King. You believe the railroads ought to be
dynamic, that you ought to have a dynamic industry instead of a
static one.

Mr. Harrison. That is right, a growing, up-and-at-'em industry
providing opportunities for men, management, and money. ^

Acting Chairman King. We are very much obliged to you, Mr.
Harrison.

(The witness, Mr. Harrison, was excused.)

Acting Chairman King. The committee will recess until 10 : 30
tomorrow morning.

(Whereupon, at 12 : 55 p. m. the committee recessed until 10 : 30
a. m. Wednesday, April 17, 1940.)

1 See infra, pp. 16899^16919, for further testimony on the railroad industry.

INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER

WEDNESDAY, APRIL 17, 1940

United States Senate,
Tempoil\ry Nationajl Economic Committee,

Washington^ D. C.

The committee met at 10 : 50 a. m., pursuant to adjournment on
Tuesday. April 16, 1940, in the Caucus Room, Senate Office Building,
Senator Joseph C. O'Mahoney, Wyoming, presiding.

Present: Senators O'Mahoney (chairman), and King; Representa-
tive Williams; Messrs. O'Connell, Pike, Lubin, Kreps, and Brackett.

Present also: William T. Chantland, Federal Trade Commission;
S. Abbot Maginnis, Department of Justice; Corrington Gill, Works
Progress Administration; Boris Stern, Department of Labor; and
Dewey Anderson, economic consultant to the commitee.

The Chairman. The committee will please come to order.

Dr. Anderson. Today's hearings and tomorrow's will be devoted
to the communications industry and technology in that industry.
As has been customary we have both management and labor repre-
sented in the hearings, and the first witness today, Mr. William H.
Harrison, is the representative of management. He is the vice presi-
dent of the American Telephone & Telegraph Co., of New York, New
York City.

Mr. Harrison.

The Chairman. It is customary for us to swear the witnesses.

Do you solemnly swear that the testimony you shall give in this
proceeding shall be the truth, the whole truth, and nothing but the
truth, so help you God ?

Mr. Harrison, I do.

TESTIMONY OF WILLIAM H. JIARRISON, VICE PRESIDENT, AMERI-
CAN TELEPHONE & TELEGRAPH CO., NEW YORK, N. Y.

Mr, Harrison, Mr, Chairman and gentlemen of the committee, my
statement deals with the American Telephone & Telegraph Co,, and
its principal telephone subsidiaries, which comprise upward of 90
percent of the entire Bell System organization. In the country as a
whole, including the independent companies, there are now about
21,000,000 telephones, nearly 17,000,000 of which are operated by the
Bell companies.

Some of the more significant aspects of the growth of the Bell System
business are illustrated in "Exhibit No. 2569," which is the first ex-
hibit attached to that brief statement, and I shall be glad to discuss
the details of that in just a moment.

16639

16640

CONCENTRATION OF ECONOMIC POWER

(The chart referred to was marked "Exhibit No. 2569" and appears
below.

Exhibit No. 2569
[Submitted by the American Telephone and Telegraph Co.]

BELL SYSTEM

AT. a. T. CO. AND ITS PRINCIPAL TELEPHONE SUBSIDIARIES

TELEPHONES

ENO

OF 1

EAR

1900 1910 1920 1930 1940

CONVERSATIONS

YEA

RLV

/-^

1900 1910 1920 1930 1940

REVENUES

PLANT INVESTMENT

■

YEA

RLY

1200

900 <

600 o

END

OF Y

lAR

^-^

2 2

1900 1910 1920 1930 1940

EMPLOYEES

PAYROLL

ENO

OF Y

EAR

300 3

0.
bJ

200 o
<0

1900 1910

1920 1930

300 o

200 5

100 5

1920 1930

CONCENTRATION OF ECONOMIC POWER

16641

The Chairman. What about that other 10 percent?
Mr. Harrison. They represent the Western Electric Co., the Bell
Laboratories, Electrical Kesearch Products — not engaged

Exhibit No. 2570
[Submitted by the American Telephone and Telegraph Co.]

BELL SYSTEM

A.T. 4T. CO. AND ITS PRINCIPAL TELEPHONE SUBSIDIARIES

EMPLOYEES AND PAYROLL

600

500

400

300

200

100

ANNUAL
N MILLIONS

PAYROLL
OF OOLLAP

HOUSANOS

MPLOYEE

ENO OF Yt

OF
5

^—

■^

600

500

400

300

200

100

1900 1905 1910 1915 1920 1925 1930 1935 1940

EMPLOYEES WEEKLY EARNINGS

AVERAGE -ALL EMPLOYEES

$40

$30

$20

$10

$40

$30

$20

$10

1900 1905 1910 1915 1920 1925 1930 1935 1940

The Chairman (interpo.=ing). In communications?

Mr. Harrison. In day-to-day telephone ^ork. I am dealing here
with the day-to-day operations as contrasted witn llip manufacturing
and the research organizations.

16642 CONCENTRATION OF ECONOMIC POWER

The Chairman. There is some telephone system outside of the Bell
System?

Mr. Harrison. Yes ; there are roughly 6,000 companies, as I remem-
ber the figure, and they serve about 4,000,000 telephones. I think they
have an investment of somewhere around $600,000,000 or $700,000,000.

The. Chairman. Thank you.

Mr. Harrison. The telephone business is a business based upon
scientific discovery and scientific invention.

Without the continuous chain of technological developments which
have taken place in the telephone field since the original Bell invention,
growth of this magnitude indicated on the charts would not have
occurred — telephone service of the present-day scope and character
would not have been possible. As I use the term technological develop-
ment, I mean changes in the art broadly, and not merely those changes
affecting the labor content of the individual operations.

Because of the very nature of the business, technology' is present in
all phases of telephone operations. It is fundamental to the quality
and low cost of service. However, I do not plan to discuss its relation
to these factors, but I want to come directly to the matter of employment.

Tlie basic facts as to employment are given in "Exhibit No. 2570,"
which shows the growth in total wages, total employment, and earn-
ings per employee per week from 1900 up to the present. Although
not so indicated on the exhibit, it is significant that over the years
indicated there, labor has received a practically constant proportion
of the revenue dollar.

(The chart referred to was marked "Exhibit No. 2570" and appears
on p. 16641.)

Mr. Harrison. By overcoming, one after another, physical limita-
tions upon the possibilities of telephone expansion, technology has
increased the aggregate opportunities for employment. Similarly,
it has created new investment opportunities and has expanded the
demand for capital goods. By making possible more ecoilomical
operations, technology has made for higher wages, shorter hours,
more skilled jobs, and many other betterments in working condi-
tions in the telephone industry.

The Chairman. Now, may I refer to your chart on employees
and pay roU.^ That would seem to indicate that the number of
employees has steadily increased from 1900 to about 1929 when the
peak was reached.

Mr. Harrison. Yes, sir. .

The Chairman. That thereafter there was a substantial falling
off in the number of employees apparently until about 1932, when
it sort of leveled off, and in 1935 there was a slight increase and
then another little falling off, and it is now leveling off again, but
the number of employees has never come back to anything like the
peak of 1929.

Mr. Harrison. Yes, sir.

The Chairman. And in fact it is now below what it apparently
was in 1924. Ts that right?

Mr. Harrison. Well, I don't think" it gets back to the 1924 figure
but

> "Exhibit No. 2570, •' supra, p. 1(;641.

CONCENTRATION OF ECONOMIC POWER 16643

The Chairman (interposing). Well, I say that because your line
crosses the 1925 line

Mr. Harrison (interposing). It is right in there somewhere. I
plan to discuss, Senator, in a moment or two the reasons for that
change.

The Chairman. You may discuss them; I was just pointing out
the chart to see if I understood it.

Mr. Harrison. That is correct, sir.

The Chairman. The annual pay roll likewise reached a peak
in 1929, fell off precipitously thereafter until 1932, and that pay
roll has been going up since, and the rate of increase in the pay roll
is much greater than the increase in the number of employees.

Mr. Harrison. Yes, sir; and the rate of pay to the individual
employee has similarly increased each year.

The Chairman. In other words, the employees are now getting
more in their envelopes.

Mr. Harrison. But there are fewer of them.

The Chairman. But there are fewer of them.

Mr. Harrison. Yes, sir.

I would like to say that since the beginning it has been our aim
and policy to introduce improved practices and improved appara-
tus in ^ such a way as to avoid or minimize adverse effects in the
nature of economic waste or human hardship. Broadly speaking,
employees affected by improvements in apparatus or operating meth-
ods have not been laid off, but have been retrained and reassigned.
An exception to this is where manual offices are converted to dial
operation ; here it is impossible to reassign all of the operators dis-
placed, and I plan to discuss this specifically in a moment or two,
if I may.

Looking ahead, as we see the situation, there is a large potential
market for more and more telephone service and we are exerting
our energies to develop this market.

We are counting on continued advances in technology to help in
this, and I am confident that employment opportunities, as well as
the need for new capital goods for plant additions, will be increased.
As a matter of fact, our current gains point specifically to that.

introduction or dial switchboard

Mr. Harrison. In the committee's advance statement specific ref-
erence is made to the failure of substantial recovery since 1933 to
eliminate unemployment, and I want to discuss this from the over-all
standpoint of our business. That is the point the Senator spoke of
a moment ago. Before doiftg tnat, I would like to revert to the dial
switchboard, since now and then reference is made to the effect of
these switchboards on employment.

As the business expanded it early became evident that the future
demand for service would be such that switching systems and oper-
ating methods would continue to be more and more complex and it
was clear that manual operation, even with such automatic features
as could reasonably be introduced, would be less and less suitable
for handling the anticipated volumes of traffic, to say nothing of
permitting improvements in quality of service.

As an indication of this problem, one has but to consider the situa-
tion in one of the large cities where hundreds of thousands of tele-

16644 CONCENTRATION OF ECONOMIC POWER

phones are served from many central offices. Each- subscriber in this
network — and it must be borne in mind that there are many types of
service: business, residence, coin box, measured,^ flat rate, etc. — must
be able to reach promptly every other subscriber and every other
class of service. Furthermore, the necessity for reaching the exten-
sive suburban areas as well as the vast number of cities, towns, and
rural communities throughout the country requires the handling of
enormous volumes of suburban and long-distance messages daily, each
of which must be recorded, supervised, and timed.

There are some 90,000,000 calls per day, and one can readily appre-
ciate the growing complexity of the operating work to meet this
situation and the difficulty of maintaining an accurate and efficient
service through the medium of manual operating methods alone.
From such practical realities as these, it was certain that manual
switchboards, even with such automatic features as could be pro-
vided to assist the operator, could not continue indefinitely to meet
adequately the local operating problems of the larger cities.

It inevitably followed that machine switching equipment to com-
plete certain types of connections entirely by mechanical means
would ultimately be required. After exhaustive investigations and
experiments, an automatic switchboard which met the exacting serv-
ice conditions was developed and introduced for general use in the
early 1920's.

Of course, in cities where the dial switchboard is used, many oper-
ators are required.. Dial substitutes electromechanical processes for
some, but not all, of the manual operations. Operators are needed
for many services associated with the dial — among them the handling
of charges, information services, and numerous other services of that
character. Also a great many operators continue to be required for
handling toll and long-distance calls. Then, too, with dial, addi-
tional men of greater skill are required for day-to-day operation
and maintenance as compared with manual.

There have been lay-offs of operators as individual central offices
have been converted from manual to dial. These have been scat-
tered and have not been large in relation to the operating force as
a whole. Also, for the most part those released had been engaged
for the specific period preceding the conversions. Everything pos-
sible, including long-term planning and, generally, separation allow-
ances, is done to minimize the consequences of the change-over.

Conjecture as to the number of operators that would be required
today, whether they be more or whether they be less, had the dial
switchboard not been introduced, is futile. As I have indicated,
present-day scope, quality, and price of telephone service would be
impossible under all-manual operation.

Coming now to the broader question, which is employment oppor-
tunities since 1933, referring again to "Exhibit No. 2569;" I think it
will be clear from that that recovery of revenues, of numbers of tele-
phones and numbers of conversations, and of total wages have been
about the same. As a matter of fact, recovery of the service to the cus-
tomers, that is, telephones and conversations, and wages to employees
have increased more rapidly than have the revenues of the business.
I think that will be evident.

The Chairman. The pay roll apparently fell off to a greater extent
than the revenues did.

CONCENTRATION OF ECONOMIC POWER 16645

Mr. Harrisox. Yes, sir.

The Chairman. And the gain has been about on a parallel, I would
say from the graphs.

Mr. Harrison. I haven't figured it out precisely. I am rather under
the impression that pay rolls increased a little faster. We may be
talking in terms of a few percent, but whatever it is it is on the high
side rather than the low side.

The Chairman. The revenues or the pay roll ?

Mr. Harrison. No; the pay roll is on the high side in relation to
the revenues; that is, if anything.

Mr. Pike. It doesn't look it from this chart, Mr. Harrison. Pay
roll has not recovered up to the 1930 figure. It looks as if revenues
had gone slightly beyond that.

Mr. Harrison. I am sorry I did not make the point clear. I was
thinking in terms of rate of recovery rather than in terms of absolute
comparison. I am sorry I did not make that clear.

The Chairman. Now, there are six charts on this exhibit.

Mr. Harrison, Yes, sir.

The Chairman. All of these, with the exception of the chart repre-
senting plant investment, shows a decline after 1929. That invest-
ment did not drop off, and later began to increase. All of them,
including plant investment, and with the exception now only of the
chart representing employees, have shown a striking gain after 1932
or 1933. In the charts representing the number of employees, do you
find that there has not been the recovery which is evidenced in each
of the other factors represented on these charts ?

Mr. Harrison. Yes, sir.

The Chairman. That is correct?

Mr. Harrison. That is correct, sir, and I would like to go right to
that point.

Dr. Anderson. Before doing so, I wonder if we could have the
tabular material on which these charts are based ?

Mr. Harrison. I am sorry that I haven't it with me. I have tried
to treat this in rather broad terms, but I will be very glad to have the
data filed. I was afraid of getting myself messed up in too many
detailed figures.

The Chairman. It can be done.

Mr. Harrison. It has been done, too.

analysis of labor force

Mr. Harrison. First, some background is necessary, I think, to
comprehend the reason why the rate of pick-up of employees has
lagged behind the other items, and I would like to make the observa-
tion to begin with that there cannot be any backlog of unfilled orders
in the telephone business; the telephone connections between cus-
tomers must be established promptly, facilities have got to be pro-
vided in advance, and personnel has got to be engaged and trained
in advance.

Under that obligation of preparedness, and with the heavy demands
for service in the 1920 decade, a large construction program had to
be carried on to insure adequate physical facilities. In this period,
annual gross additions rose from a level of $200,000,000 at the begin-
ning of the 1920 decade to $600,000,000 per yeur at the end of the
1920 decade; in all, some $3,500,000,000 of construction was com-

16646

CONCENTRATION OF ECONOMIC POWER

pleted as compared with $1,000,000,000 a decade earlier. The invest-
ment in plant rose from $1,200,000,000 at the beginning of 1920 to
$3,700,000,000 at the end of 1929.

EXHIBIT No. 2571
[Submitted by the American Telephone and Telegraph Co.]

BELL SYSTEM

A.T.fcT. CO. AND ITS PRINCIPAL TELEPHONE SUBSIDIARIES

83%

FORCE LOSSES

RESIGNED

O
(T
O

tr 30
<

-J
r>
o

Z 20

ct
u

DISMISSED.

LAID OFF. RETIRED

AND DECEASED

1920

1926

1930

1935

1939

That was the problem of the twenties, getting ready and preparing
for that heavy construction program. Then there had to be large
numbers of people, particularly new people, engaged and trained.

CONCENTRATION OF ECONOMIC POWER 16647

Dr. Anderson. Let me ask a question there. Did this large con-
struction program of the industry in the period of the twenties
result in correspondingly large construction crew employment?

Mr. Harrison. Yes; very specifically, and I have some figures.

Dr. Anderson. You will give figures later?

Mr. Harrison. Yes; I have some figures. I will go on with my
prepared statement, if I may, and then discuss it more in detail.

Senator King. Did you embrace in the word "crew" the manu-
facturing activities, the number of persons required to construct new
appliances, new dials, and what-not?

Dr. Anderson. Yes.

Senator King. So the construction crew includes those engaged in
the manufacture of additional mechanical devices?

Dr. Anderson. Yes.

Mr. Harrison. During the 1920's, thousands of new people had to
be engaged simply to maintain the existing force. For example,
resignations and other normal losses amounted on the average each
year to more than 40 percent of the force. The losses are shown
in the next exhibit.

(The chart referred to was marked "Exhibit No. 2571" and appears
on p. 16646.)

Mr. Harrison. By the end of 1929 there were 90,000 people — 25 per-
cent of the force — with less than 1 year of service, and there were
40,000 people or more during that year who were engaged on construc-
tion work, solely for new plant, to provide for the growth that was
then coming to us.

Now, the result of all these factors — that is, the large construction
program, the training of roughly the 90,000 people with 1 year of
experience or less — led to the figure of 364,000 people on the pay roll
at the peak of the period. That was clearly an abnormal situation
and not an appropriate yardstick with which to appraise subsequent
results.

Senator King. That would be in the year 1920?

Mr. Harrison. In '29. In 1920 the force turn-over, as I remember
it, was 83 percent of the total force ; that is, the entire force, males
and females.

displacement AFTER 19 3 0

Mr. Harrison. Now, then, if we can picture the situation as of 1930,
when we had just about arrived at the peak of employment, there came
a sudden and a sharp drop in demand for new facilities, and there
was a slowing up in telephone usage, and to make the force situation
more difficult, normal force losses decreased almost overnight, and that
is indicated by "Exhibit No. 2571." These changes at once produced
a surplus of people, and this situation became progressively more
acute.

As the volume of work dropped, adjustments had to be made to bring
the forces in line. This was done in an orderly way and with the most
careful regard for the welfare of the, men and women. Construction
during that period was carried on at existing levels, but it soon had to
be curtailed as more and more telephones were discontinued and usage
was reduced. Intensive sales and other promotional activities were
accelerated. Thousands of employees were retained by spreading
the available work and other thousands by introducing productive

16648 CONCENTRATION OF ECONOMIC POWER

"made" work. The introduction of new dial offices was reduced to a
minimum.

But despite all efforts, work requirements dropped steadily. There
was simply not enough work to go around. Had the System released
all employees not actually needed, instead of spreading work and pro-
viding "made" work, there would have been more than 60,000 fewer
employees at the bottom of the depression ; this condition prevailed in
varying degrees throughout the depression.

I would like to say, too, that throughout all this difficult period
of adjustment and of part-timing — and incidentally the entire organi-
zation participated in the part-timing — there was the finest kind of
cooperation all around.

Representative Williams. Would you mind explaining what is
meant by the term "made" work in this connection ?

Mr. Harrison. That is doing sound, worth-while work that of neces-
sity need not be done at the time, but it is the kind that pretty much
we would characterize as advance upkeep work. I don't like to use
painting, as there isn't very much of that in the telephone business,
but we did things like painting your house a year ahead of time.
There are things that an institution might ordinarily defer in bad
times; in our case that work was actually brought forward during
the bad times, in order to provide work for the people that were on
the pay roll.

This readjustment of the force took place gradually, and was spread
over a period of years. I think the most significant thing is that the
readjustments occurred, not by lay-offs but by not replacing natural
losses, that is, resignations, deaths, pensions. As a matter of fact, lay-
offs because of lack of work or for other reasons represented a very
small percentage of the total force, and were far lower than was the
situation during the normal years. That is very apparent in "Exhibit
No. 2571." ^ I think the important thing is that the downward adjust-
ment occurred through the medium of not making normal replace-
ments, rather than through the medium of lay-offs.

Incidentally, too, the lay-offs that did occur were regrettable, but
they were confined to the short-service people ; and for the most part,
with the possible exception of some people engaged in construction
and engineering work, there were relatively few of the older service
employees — and by that I mean service of 5 years and up. We think
in terms of an older employee as an employee of 5 years and up, rather
than 20 years and up

Representative Williams (interposing). In the case of these lay-
offs, what, if any, separation allowance was provided?

Mr. Harrison. Usually — and you will understand when I use the
word "usually" rather than be specific, because these operations ex-
tended all over the United States — there were separation allowances.
They were figured roughly about like this : If by any stretch of the
imagination it could be assumed that the individual was entitled to a
vacation, even though the year were not up, we started vacation pay-
ments. The separation allowance was usually a week's pay for each
year of service. If the employee involved had 6 or 7 or 8 years' serv-
ice, then it became 2 weeks at the sixth or seventh year. In the few

1 Supra, p. 1664a

CONCENTRATION OF ECONOMIC POWER 16649

situations where they had 10 years and up there was specific consid-
eration, which was more generous than the application of a formula.

Representative Williams. Was there ever any material number of
those laid off returned to the service, or was that permanent?

Mr. Harrison. There were quite a few. I don't have the precise
figure on that, but it was the practice as new people were needed in
the localities that ex-employees were given the first preference, even
though they had been paid separation allowances. As a matter of fact,
I know of specific separation cases where they were rehired before
theoretically separation payment had run out, but those were in-
cidental.

Senator King. What proportion of your employees are female?

Mr. Harrison. At the moment, around 60 percent, and it has been
around 60 percent, I think, for the last, oh, 8 or 10 years. It never
rose, I believe, much above 63 or 65 percent.

Senator King. Would they be found in the category of telephone
operators ?

Mr. Harrison. A little more than two-thirds, I would say, are
telephone operators. The balance are in the accounting and billing
departments and commercial departments. Roughly I think at the
moment about two-thirds would be in traffic-operating work. Those
are round figures. I have the precise figures.

Senator King. Does it require much of an educational program to
qualifj^ them to act as telephone operators?

Mr. Harrison. Well, sir, the experts disagree somewhat on that,
but on the average we think that an employee of 6 months' to a year's
service has attained a fair degree of skill in handling the more or less
day-to-day run-of-the-mine calls, but they must take on more years of
service before they are competent and able to be on their own. I would
say that is upward of 3 to 5 years. There is something about the
business that one takes on a little breadth of experience more or less
each year as you go on, but taking the technical day-to-day opera-
tions of handling calls as a routine, I would say 6 months' to a year.

Representative Williams. I assume you have there somewhere the
figures showing the number employed in your construction division
and in your operating division?

Mr. Harrison. Yes, sir.

Representative Williams. How does that run?

Mr. Harrison. During the late twenties, when the force was
around 340,000 to 350,000, I would say there were 40,000 or 50,000
of those who were involved in the kind of construction related to new
business. Now, there is quite a bit of construction that is related to
the day-to-day operations of the business — the moving of pole lines,
the rearrangements of telephones, changes in that type of thing, but
generally a good figure to carry in mind was 40,000 to 50,000.

Representative Williams. I just wanted a general outline. I be-
lieve you have given that, partly, as to what you consider under the
construction category in the telephone business.

Mr. Harrison. I would put it at that figure, sir.

Representative Williams. I mean, what is the character of the
work done ?

Mr. Harmson. It runs, sir, all the way from digging holes to the
highest grade of electrical work. It is the labor that is involved in
building new plants. There are line crews, the men who install the

124491— 41— pt. 30 30

16650 CONCENTRATION OF ECONOMIC POWER

telephones, the men who install the cables, the men who install — in a
new building we have building terminals and that typ-i of equip-
ment— all of the operations incident to new plant. It is a wide variety
of construction work.

Representative Williams. It doesn't include the construction of the
telephone box itself?

Mr. Harrison, No; we characterize that as manufacturing, and
I have not included those figures in my discussion here today.

Representative Williams. Does it include repair or keeping up of
the telephone box ?

Mr. Harrison. Oh, yes ; but we don't usually associate that with con-
struction work. The repair, the rearrangements, we talk of in terms
of day-to-day operation, just about the same as the telephone operator
who puts up and takes down connections.

qualifications for employment in AMERICAN TELEPHONE & TELEGRAPH

COMPANY

The Chairman. Mr. Harrison, what qualifications do you look for in
a new employee ?

Mr. Harrison. Good character first, the characteristics we hope will
make them adaptable to meet the particular conditions of work in
which they are to be engaged. Of course, the background qualifica-
tion of technical training depends in large measure on what particular
jobs they are going into. I don't know, sir, that I

The Chairman (interposing). Well, let's begin with the male em-
ployees. What do you require of an applicant for employment? I
suppose you would have some persons who ought to be selected for
managerial, executive positions, or engineering positions, in which
there would be particular prerequisites demanded. Is that right?

Mr. Harbison. That is right.

The Chairman. What kind of prerequisites ?

Mr. Harrison. If the work is primarily of the so-called vocational
or craft work, for example, the installation or repairs of the telephone,
a high-school graduate who has indicated some aptitude for electrical
and mechanical work would be considered. Many of the men are
graduates of the vocational high schools. If we are looking for a
person who must start in more specialized work, for example in the
engineering department, he might be an electrical engineering gradu-
ate. Frankly, it^ets back pretty much to the individual himself, his
character, what someone thinks of his promise rather than his particu-
lar background training.

The Chairman. To what extent do you lay down educational pre-
requisites ?

Mr. Harrison. I wouldn't think, sir, that there are any hard-and-
fast rules. In my own case, perhaps, I am glad there were not ; I had
to go to work before I was able to finish high school. Had there been
any requirements laid down, I am afraid I shouldn't have been able
to have gotten a job. To get back to my first premise, it is pretty much
the individual himself rather than the specific training the individual
has had that is considered.

The Chairman. Do you discuss the attitude of the company toward
the older employees in your statement?

CONCENTRATION OP ECONOMIC POWEH 16651

Mr. Harrison. Not specifically, sir, except to say that at the pres-
ent time the average length of service is now pretty close to 13i^ or
14 years. I think that is made up of men 16 to 17 years in service
and women around 13 years in service.

Does that answer the question?

The Chairman. That is merely describing the actual facts. What
is the maximum age? Do you have a maximum age?

Mr. Harrison. I am sorry I misunderstood the question, sir.
Yes; we do have a maximum age. We have a so-called pension and
benefit plan, and under that plan the maximum age is 65 years. At
the age 65 those who qualify — and the qualifications arp very gen-
erous and broad — the individual is entitled to a service pension.

The Chairman. On attaining the age of 65, must an employee
retire ?

Mr. Harrison, He must ; that is a requirement. There has been
no exception to that rule as far as I know.

I should like to go back just a moment and then discuss the situa-
tion as of 1933 at the low point when the turn came, and I shall try
to explain specifically, then, why employees have not increased in
relation to the increase of revenues and of pay rolls. .

In the first place, we had excess plant. There were 2,600,000 tele-
phones that were discontinued. Obviously, then, there was no occa-
sion for construction. The construction situation was particularly
aggravated because construction had been continued through the
depression in order to offset as much as possible the down trend.

Then there was the excess force of over 60,000 that grew out of
short -timing and made work. That force had an experience factor of
about 101/^ years; that is, the average length of service in 1933 was
IOV2 years. In 1929 it was 5I/2 years' service. There were those three
things, the excess in the force, the excess in the plant, and more expe-
rienced force. The first problem was to absorb that force ; that is, as
the business increased. People had to be restored to full tirae, and
by full time I mean 40 hours a week. Then the organization be-
came progressively more effective because it w^as getting more expe-
rienced each year.

I should like to say that during that period there were no new
technological changes introduced that might have tended to aggra-
vate that difficult situation.

The Chairman. That is a very interesting statement, Mr. Harri-
son. I wish you would amplify it. You say it with such emphasis
that apparently you want to call the attention of the committee

Mr. Harrison (interposing). Yes, sir

The Chairman. In no indecisive terms to the fact that the com-
pany pursued a deliberate policy of not introducing technological
improvement at a rate that would excessively displace labor.

Mr. Harrison. During that period.

The Chairman. During that period.

Mr. Harrison. Yes, sir.

The Chairman. How did you come to that decision and why?

Mr. Harrison. Well, I think the record indicates in the main the
consideration the telephone company has always held with regard
to its employees. That is evidenced by the relatively few lay-offs.
We recognize that we have an obligation and a responsibility to the
people we take on the pay roll.

16652 CONCENTRATION OF ECONOMIC POWER

The Chairman. In other words, you give a great deal of weight
to the human factor.

Mr. Harrison. We do everything we know of to take care of the
human equation in the business because we recognize it as important
a fundamental in the business as any other element in it.

The Chairman. How do you carry that policy out'^ Can you give
us an example of holding back the introduction of technolog^.cal
advance ?

Mr. Harrison. Perhaps one that gets more generally into the pic-
ture is the dial switchboard. During those low years — I am quoting
now rough figures — my recollection is that the dial shipments were
reduced to a figure of between 15 and 20 percent of the shipments
made in '29 and '30.

The Chairman. Yet, unquestionably, had you continued to intro-
duce the dials at the same rate you would have reduced your expenses,
would you not?

Mr. Harrison. Yes; we would.

The Chairman. And from the profit side, from the financial s^de
of your operation, it would have been an advantage to the company.

Mr. Harrison. Yes, sir.

The Chairjvian. But you preferred not to pursue that policy at
the price of excessive displacement.

Mr. Harrison. That is correct, sir. I would like to say, too, that
we are on two horns of the dilemma there. There was the choice of
continuing the manufacturing phase of the operation and providing
work for the manufacturing people as against the proposition of
continuing more operating people, and we elected the path. that we
thought was the soundest at that time. As w^e now look back on it
we think, considered in the light of conditions of those davs, it was
the sound thing to have done.

The Chairman. And you were attempting to balance the human
factor against the mechanical factor

Mr. Harrison (interposing). Senator, there were human factors
on both sides. There were human factors on the construction side;
we tried to strike the best balance as we saw it.

The Chairman. That is what I say, you were trying to strike a
balance between the human factor and the mechanical factor so that
you could obtain the best out of each.

Mr. Harrison. That is correct, sir.

The Chairman. Were you holding back progress by doing this?

Mr. Harrison. During that period we think not, sir. Had that
period continued indefinitely I don't know.

The Chairman. Another story.

How about other devices beside the dial ?

Mr. Harrison. Again, if I might be permitted to take your time,
sir, just with a little background, it so happens that, generally speak-
ing, in the telephone business new technological advances are made
in the interest of service rather .than in the direct interest of re-
ducing the labor content of specific operations. The introduction
of those new instrumentalities to make for improved service usually
is related to the need of facilities for growth ; that is, it has' been
so in our business. We have not reached the stagnant stage of
growth; we have not reached the point where our plant is leveling
out; so we have never yet, broadly speaking, had to meet that par-

CONCENTRATION OF ECONOMIC POWER 16653

ticular problem except in the case of specific dial offices. I might say
that, generally speaking, the manual office is not displaced until the
time has come when some major move is necessary, when some exten-
sive rearrangement or extensive additions have to be made. That is
again a generalization ; I shouldn't like to have someone hold me to
that and say, "Here is example 1, 2, or 3, which is the opposite."

PROGRESS OF DIALIZATION AFTER 193 3

The Chairman. I can understand, for example, a dial system could
not operate successfully in a small community with a few telephone
connections. There you would necessarily have to retain the manual
board. Is that correct?

Mr. Harrison. Generally, although even there, sir, in the interest
of the service advantage w^e think the dial holds, there generally has
been introduced in small communities the so-called dial switchboard,
and, incidentally, they are very well received from the standpoint
of the service.

The Chairman. To what extent, if the dial system were completely
used, would that system result in displacing manual operators?

Mr. Harrison. Well, we now have some 60 percent of our tele-
phones that are dial; roughly, I think the precise figure is 58 or 59.
We have with our present experience factor roughly one-hundred-
thousand-odd operators. We have never attempted to say theoreti-
cally if we had been all dial how many fewer or how many less;
my notion is — and again I suggest how difficult it is to forecast
what the years ahead hold, and doubly so these days — that if and
when we reach the time that we have all dials, we will have more
operators, because our services that require operators would have
expanded, and, as I look ahead, I will be surprised if the number of
operators shows any great downward trend, even as the dial increases.

The Chairman. The actual number. Would it be correct to say
that expanding service demands, and will continue to demand, both
more dials and more operators, but that the proportion of operators
to the outlets or the connections might be expected gradually to
reduce ?

Mr. Harrison. Yes, sir. Thinking the committee might be inter-
ested, I attempted to find out just what did happen in the last 5
years in connection with the dial displacements; that is, how many
people were involved and what happened to them.

The Chairman. Very interesting; that tells the story.

Mr. Harrison. I don't know of any other way to go about this thing.

In the period from December of 1934 to December of 1939, just taking
a period, there were about 1,250,000 stations that were converted from
manual to dial. In those particular places where they were converted
there were 20,000 people.

The Chairman. Does a station in your terminology mean the outlet,
the telephone connection?

Mr. Harrison. Yes; telephones, just talking in terms of the tele-
phone. There were 20,000 operators at work at thac time. After the
conversion there were 9,200 operators; in other words, there were
roughly 11,000 displaced. Now there were 5,000 of those 11,000 who
were reassigned to other work, either in the same locality or at distant

16654 CONCENTRATION OF ECONOMIC POWER

places. There were 6,000 whom we have classified as resigned or laid
oflP. I don't know the break-down between' these two, but the bulk
of the lay-offs were those people who were engaged specifically for
this conversion work. For the most part they were ex-employees.
As a matter of fact, there were specifically 2,500 who did not want a
further job, and most of them were given separation allowances. That
is the case in that particular situation.

Representative Williams. In that connection, I notice that you
distinguish between those who retired and those who resigned.^ What
do you mean ? Do we understand by resign what we ordinarily mean
by that, just quit?

Mr. Harbison. Oh, yes. Preparatory to a dial conversion, plans
are generally known 2 or 3 years in advance. There is always a
normal turn-over, people are leaving, their families move away or
they want to take up household duties or they get tired of their work,
or a number of reasons. During this introductory 2- or 3-year
period, people are hired, many of whom simply want work for a
specific length of time, and those people, I put it, are ready to
resign at the completion of that particular job. Many of them are
ex-employees who either don't have need to or don't desire to
work. It is surprising the number of people who even today resign.

Representative Williams. I wondered whether you used that in the
sense we ordinarily understand by the word "resign," whether they
just don't want to work and quit, or whether there is some notice
given by the company or some reason on the part of the company,
for their quitting.

Mr. Harrison. Well, I dislike to suggest that they all fall in the
strict class of what you and I think of as resignations. I think there
is some part of them — I think it is a small part rather than a large
part — who kind of automatically think in terms of resigning, knowing
that that particular job is completed. We characterize them as resig-
nations.

Mr. Pike. Some of those do get married ?

Mr. Harrison. Oh, yes, and take up home duties.

Dr. LuBiN. Mr. Harrison, you said that between '34 and '39 you
installed a million stations on dial.

CHANGE in character OF LABOR FORCE

Mr. Harrison. No, I think we installed more than that. We dis-
placed roughly 1,250,000 manuals. The actual increase in the dial
telephones during that period was greater.

Dr. LuBiN. What was the maximum number of operators the com-
pany has ever employed at any one time?

Mr. Harrison. Before I leave that particular case of dial con-
version, if I may, Dr. Lubin, I would like to say that in those same
places where there were operators displaced there was about a 20
percent increase in the force of the men to take care of the dial office.

Mr. Pike. Is that a fair proportion, Mr. Harrison, about half as
many operators for dial as for manual exchange ?

Mr. Harrison. Yes; I think it is probably on the low side of the
half rather than on the high side, although it varies quite a bit, I

I "Exhibit No. 2571," supra, p. 16646.

CONCENTRATION OF ECONOMIC POWER 16655

would say 45 percent that are retained is nearer the figure than 50
percent.

Dr. Anderson. You said a 20 percent increase in the force of men
was required in the average change-over. Let us have the actual
numbers of men, then, corresponding to that percentage. Twenty
percent might be a large number or a small number.

Mr. Harrison. The number at the time was 3,700 and after the
conversion was 4,700. Now as to the question of maximum operators,
we now have in our traffic force roughly 125,000 people. The bulk
of those are operators, I would say about 90 percent, and the balance
clerks. At the peak there were 180,000. There are now 125,000.

Dr. LuBiN. A decline of over one-third, or of about one-third.

Mr. Harrison, Of course, the characteristics as to length of service
have changed very sharply in that period. During the period when
we had 180,000, a, great substantial number of them were employees
of less than 1 year^ service. Now, as I term it, the average is about
11 or 12 years.

Dr. LuBiN. "Exhibit No. 2570" shows that your decline in total
employees has been from approximately 350,000 to about 275,000 or
260,000.

Mr. Harrison. Did you say 360,000?

Dr. LuBiN. 350,000.

Mr. Harrison. Yes; roughlv that.

Dr. LuBiN. To about 260,000?

Mr. Harrison. Yes.

Dr. LuBiN. A decline of 90,000. In other words, of the decline
of 90,000, 55,000 were manual operators.

Mr. Harrison. I can give you the break-down of that difference,
if you wish, sir. Trying to analyze that for ourselves, as to what
brought about that change, we made roughly these figures. Growing
out of direct reduction in volume of traffic that we handle (these are
all forces now, not just the operators) 26,000 or 27,000 fewer have been
employed, about 25,000 fewer, due to the fact that the construction
has been reduced and there was no need to build plant. We needed
roughly 20,000 fewer learners and instiaictors, kind of growing out of
the function of increasing experience of the force. We characterize
one item as easier operating conditions, that is we l^d never operated
where we had the margin in plant that we had, and we put down
a figure of 6,000 or 7,000 for that. Incidental ly:r people seemed to
take less time off, less casual time off during that period. We found
that equated to 4,000 people. And then the balance is made up of
fewer clerks and engineers, people who, for instance, did construction
activities, and I put down as the things we could directly relate to
technological advances during that period less than 20,000 of the
total. About half of that is dial and the other half miscellaneous.

Dr. LuBiN. Has your volume gone down markedly since that peak
period?

Mr. Harrison. Oh, no; our volume, sir, has increased.

Dr. LuBiN. I thought you made an allowance for the- fact that you
needed fewer people because there was smaller volume.

Mr. Harrison. I was trying to give the reason for the change from
the peak to the bottom.

Dr. LuBiN. I am thinking now from your present figure. Your
chart runs up to the end of 1939, 1 take it, and there has been a decline

16656 CONCENTRATION OF ECONOMIC POWER

in employment of about 80,000 people, and if your volume was greater
than it was at the peak you certainly can't attribute any of that loss
of employment to loss of volume.

Mr. Harrison. I am sorry, Dr. Lubin, I thought I had covered that ;
perhaps you weren't here. Briefly, during that depression period we
carried more than 60,000 people in excess of the requirements. That
60,000 was made up of part-timing and "made" work, and the first
operation was that that group had to be absorbed. That is the prin-
cipal reason, plus the fact that the experience factor of the force, the
efficiency, grows greater as the experience becomes greater, and the
added work has been handled with that slack, so to speak, that was
in the force, plus the fact that there have been practically no require-
ments for construction. Roughly, that explains it.

Dr. Lubin. What does the Bell System claim is the advantage to
the consumer or to the user of the services in tlie dial phone? I
raise that question because we had a dial system installed in this very
building several years ago and it didnt last very long, the dials stayed
but the operators came back.

Mr. Harrison. I would like to say, Dr. Lubin, not answering the
particular question as to what we claim, but rather trying to state the
facts, we know of no way to handle the telephone business without
the aid of machines. We don't know how we could have given today's
service, leaving out price. We don't know how it could be given with
manual operation. I have a more complete statement which I would
like to offer for the record which attempts to explain the technical
background as to why all manual operation would be just impossible.
Now really, I don't belong to the school that is willing to make fan-
tastic figures as to what it might have been had we had none of those
changes. I am confident that what we have would not have been,
leaving out the question of price. Now there may be some disagree-
ment as to the extent. I wouldn't dare say that you can draw a pre-
cise line and suggest that beyond you are doing the right thing and
this side of it you are doing the wrong thing. If somebody were to
say, "You have gone too fast or you have gone too slow," I wouldn't
undertake to dispute it. It is of interest, although perhaps not even
worthy of bringing to the attention of the committee, that apparently
many other countries in the world have found it necessary to go into
the dial, and our rate of introduction has been at a more orderly
rate.

The Chairman. Your rate of introduction of what?

Mr. Harrison. Of the dial. Really, summing up my statement,
sir, the number of employees has increased over the past few years,
and as the growth continues, and as telephone markets are further
developed, we expect this upward trend will continue. We hope and
are confident that more and more people will be needed not only to
meet the day-to-day need but also to care for construction.

Dr. Anderson. Mr. Chairman, this carefully prepared exhibit that
Mr. Harrison has asked to be introduced has been provided in a num-
ber of copies, and we ask that the committee accept it as an exhibit.

The Chairman. It may be admitted.

(The document referred to was marked "Exhibit No. 2572" and is
includede in the appendix on pp. 17396-17406.)

The Chairman. Of course, it is clear, Mr. Harrison, that the entire
telephone system is a triumph of technology. The telephone itself

CONCENTRATION OF ECONOMIC POWER 16657

was a technological invention which created this great new industry.
There can be no doubt about that at all. The only question seems to
be the degree to which the expansion of this industry can be fitted into
the employment of individuals, and it is quite evident from what you
have said as I understand your testimony, that the telephone company
has recognized that there is a certain amount of displacement, and
bearing m mind the importance of the human factor, the telephone
company has endeavored to balance the introduction of new devices
against the displacement of individual workers.

Mr, Harrison. Yes, sir.

The Chairman. And in doing that you have borne m mind not only
the specific employment of the workers for the telephone company but
also the necessity for maintaining employment among the subsidiaries
of the company which manufacture some of your devices and among
other manufacturers from whom perhaps you may buy them.

Mr. Harrison. Yes, sir.

The Chairman. But the figures and charts which you have intro-
duced here seem to indicate that sometime after the crash, so to speak,
in 1929, there came a period when although investment increased and
total pay rolls increased and the total number of telephones increased,
or the number of stations, and the service itself iYicreased, the increase
among the number of employees was no longer apparent. Isn't that
correct ?

Mr. Harrison. That is true.

The Chairman. In other words, there apparently is a point at which
the technological advance proceeds at a pace which makes it impos-
sible for employment in terms of individuals to keep up with it. Is
that correct ?

Mr. Harrison. Senator, I don't think that is so with respect to our
business.

The Chairman. I am just judging from the material that you have
presented.

Mr. Harrison. I don't believe, sir, that the advance of what we
might call technological advances is the factor that is responsible for
this precipitous drop.

The Chairman. I am not attempting to say that any particular
factor is responsible. I am merely trying to develop what the fact is.

Mr. Harrison. Well, the fact is really in our situation that the
telephone business can have no held orders, no unfilled business. It
has to complete telephone connections as they are ordered. You
remember now we had had pretty nearly 50 years of more or less con-
tinuous growth, that is in the telephone business. These graphs indi-
cate that, and the growth kept getting faster toward the latter part
of the twenties. We had to accelerate the construction program to
keep ahead of the needs ; we had to accelerate the training program
to make available the people 6 months to a year ahead of the time
they were actually needed; we had all those goods on the shelf when
this drop came. Now, in making the comparison from the recovery,
I do think, in looking at the situation broadly, that one has to take
into account the situation as of the '29 and '30 period. If you look at
that graph,^ particularly, and look at it in the long-term perspective,
it is very clear there that the long-term trend — and the trend has been

1 See "Exhibit No. 2570," supra, p. 16641.

16658 CONCENTRATION OF ECONOMIC POWER

resumed — is an upward trend and certainly the wages similarly indi-
cate that. I think, Senator, that is best illustrated on the lower graph
of this exhibit.

The Chairman. I think that is quite true, and I don't disagree
with that at all. As a matter of fact, I thought I brought that out
in some of the first questions

Mr. Harrison (interposing). I think you did, gir.

INCREASE OF BUSINESS IN RELATION TO EMPLOYMENT

The Chairman. That I directed to you. I see that clearly. But
this is what I am pointing out. Your revenues are now above the
revenues for the peak period in 1929.

Mr. Harrison. Yes, sir.

The Chairman. The previous peak period. Your plant invest-
ment— that is to say the new capital which you have put to work — is
now above the peak of 1929. The number of telephones is above
the peak of 1929. The number of conversations is far above the peak
of 1929. But only in the case of pay rolls do you find — pay rolls and
employees — that you have not yet reached the peak of '29. Your
pay roll has increased remarkably, but it has not yet reached 1929,
The number of employees has increased very slightly.

Mr. Harrison. Those facts as you state them are precisely correct,
sir; but may I just, at the risk of seeming to be too persistent on
this point

The Chairman (interposing). You can't be too persistent; let's
get the facts out.

Mr. Harrison. Suggest that this pay roll and these numbers of
employees include the day-to-day operation and construction activi-
ties.

The Chairman. Yeg.

Mr. Harrison. Now, day-to-day operations — that is a story by
itself. Were construction needs for new business now, thinking in
terms of expansion, anywhere near the figures of the '28-'29 period,
the figure for employees and pay roll would be quite different from
what it is there. They pay roll would be quite a bit up, and the
employees, in turn, would be up.

The Chairman. That is, if you were engaged in the construction?

Mr. Harrison. Yes; and ag you look ahead, we have reason to
believe we are going to need more plant.

The Chairman. That may be. We are dealing now with the facts
as they exist.

Mr. Harrison. That is right.

The Chairman. And those facts seem to be clear, that in every ele^
ment of this business, as represented upon the charts which you have
producexl, the record of the Telephone Co. is far above the peak of
1929 save only in the element of pay roll and number of employees.
That is correct, isn't it?

Mr. Harrison. That is correct. There is no que-stion about it.

The Chairman. Now, then, you foresee that there may be further
expansion.

Mr. Harrison. Yes, sir.

The Chairman. There will be necessity for additional construction.

Mr. Harrison. Yes, sir.

CONCENTRATION OF ECONOMIC POWER 16659

The Chairman. And when that expansion and that construction
takes place, you will necessarily have to employ more people.

Mr. Harrison. Yes, sir.

The Chairman. But a moment ago I asked you if it would not be
the fact that in relation to the number of outlets, in relation to the
number of conversations, in relation to the service that you perform,
in other words, the number of employees would be proportionately
less than they were in 1929.

Mr. Harrison. That is correct, sir.

The Chairman. So that we have reached that point in the develop-
ment of the telephone system where technological advance and effi-
ciency have improved to such an extent that you get more service
-and more work out of a fewer number of employees. Is that right?

Mr. Harrison. Yes, sir; but please again may I go back; a fewer
number of employees as contrasted with a very artificial peak. I
can't, sir, ignore that, because during that period of '39, sir, there was
25 percent of the force with less than 1 year's service.

The Chairman. You mean by an artificial peak that you had

Mr. Harrison (interposing). I mean that was clearly an abnormal
situation.

The Chairman. Let's see just exactly what you mean by an ab-
normal situation. Looking at the exhibit with the six diflferent
charts, the first chart shows the number of telephones.^ Now, there
was a steady increase in the number of telephones from 1900 right
through to 1929.

Mr. Harrison. Yes, sir.

The Chairman. By "artificial peak" you mean that to handle those
telephones in the decade from 1920 to '29 it was necessary to put on
more employees than you had previously ?

Mr. Harrison. To get in training, sir, and for construction, to get
ready for the business of 1930 that never came.

The Chairman. Yes; so you put on a lot of new people, is that
right?

Mr. Harrison. Yes, sir; 90,000 of them with less than 1 year's
service.

The Chairman. Well now, that business has since come on, has
it not?

Mr. Harrison. Yes; that business plus a little more, I think.

The Chairman. So that during these 10 years, the so-called de-
pression years, you have had that business which you had in 1929
plus a little more.

Mr. Harrison. That is right.

The Chairman. There was nothing, then, which has operated to
prevent you from exceeding the peak of 1929.

Mr. Harrison. In employees?

The Chairman. In business.

Mr. Harrison. No; as a matter of fact, the contrary — we have
a little more.

The Chairman. So that although your business has equaled the
peak and then a little more, to use your phrase, the number of em-
ployees has not.

1 See "Exhibit No. 2569," supra, p. 16640.

16660 CONCENTRATION OF ECONOMIC POWER

Mr. KUrrison. Yes, sir; but that difference cannot be charged to
technological

The Chairman (interposing). I am not charging it to anything.

Mr. Harrison. I thought, in order to be most helpful, I could
give the background of our business. I don't think, sir, that the
•difference relates wholly to technological advances. A substantial
part of it relates to the greater experience of the force. With a
more experienced force, you get greater productivity.

The Chairman. Oh, yes; surely. But bear in mind, Mr. Har-
rison, that because of your solicitude for your employees you kept
60,000 on the pay rolls during this very 20 years when you might,
had you been cold-blooded about it, have dropped them off your pay
rolls and obtained the same results.

Mr. Harrison. That is right, and then we would have shown an
increase.

The Chairman. So that that only emphasizes the conclusion I
am drawing from these charts.

Mr. Harrison. That is true; yes, sir.

Dr. LuBiN. Mr. Harrison, if I may, I hope you will permit me to
forget that '29 artificial peak and let's go back to '1923-24.

Mr. Harrison. Yes, sir.

Dr. LuBiN. "Exhibit No. 2569" shows that the number of tele-
phones in existence increased by about 60 percent between '23 and
'39. The number of conversations doubled.

Mr. Harrison. Yes, sir.

Dr. LuBiN. The plant investment more than doubled.

Mr. Harrison. Yes, sir.

Dr. LuBiN. Revenues jumped — almost doubled.

Mr. Harrison. Yes, sir.

Dr. LuBiN. The number of employees remained exactly the same,
so that if we eliminate the artificial peak, and go back to a more regular
period, that of '23, the fact still remains that with the same number of
people you had in '23, you are turning out almost twice the amount of
service.

Mr. Harrison. Of course that is a reasonable conclusion to come to
if you assume that the growth and the expansion of the business would
have continued had there been no technological advances during that
period.

Dr. LuBiN. Of course, I sa^ that assumption plays no part in the
picture. The facts are that with the same labor force you had in '23
you ^re doing twice the business, you are rendering twice the service.

Mr. Harrison. Roughly, as a matter of fact, I have the thing
figured out here. In 1926 we had 40 stations per employee, and
now we have about 60, which checks.

The Chairman. That is the story.

Dr. LuBiN. I would like to ask for my own information, if I
might, Mr. Harrison, what is the limitation to the expansion of the
mechanical methods of conducting the industry? Does the limita-
tion lie in the market, or does it he in the investment requirements?
Is it a financial problem or a market problem ?

Mr. Harrison. A limitation. Dr. Lubin, in what respect ?

Dr. Lubin. What determines how fast you do move, as it were? Is
it the financial investment that is required or is it the market that
determines that ?

CONCENTRATION OF ECONOMIC POWER 16661

OPPORTUNITY FOR INVESTMENT

Mr. Harrison. I don't know. You see, we have no background of
stagnation. We consider this an abnormal period because it occurs
once in a lifetime and we are back on our way. From the standpoint
of getting money, new investment to care for the gi'owth and to care
for the technological improvements, we have been going along, as I
see it, at a fairly uniform rate. What would happen when we stopped,
whether or not we would go out to get money simply to displace exist-
ing plant, I don't know. Trying to answer your question directly, I
don't know what is the dividing line.

Dr. Ltjbin. After all, this is expensive stuff. It runs into billions
of dollars, and I take it you people have to make a decision. Is it
worth while going out trymg to raise additional hundreds of millions
now, or shall we wait until the market makes it necessary in the sense
that we can't furnish service unless we do do it ?

Mr. Harrison. Thinking in terms of the operating man who has to
do with the rendering of the day-to-day service, and who is not re-
sponsible in the question involved in raising new capital, I don't recall
any single instance that capital expenditures thought proper by the
operating people were deferred because of investment questions. I
am not suggesting that that day may not come but the operating
group is, and has been, free to make recommendations to the sound
and over-all interest of, first, the service, making the service better;
second, things that will make ready the plant, facilities and personnel
for tomorrow's service; and third, the things that have to do with
the interest and the welfare of the human equation in the business.
Those are things in which the operating man has as yet had no limita-
tion of finances. I don't know when that day may come, so I can't
answer your question.

Representative Williams. As I understand, you have had no trou-
ble about your plant investment policy, securing the funds with which
to improve your plant.

Mr. Harrison. That is true.

Representative Williams. Has it been new capital or has it been
internal financing?

Mr. Harrison. Broadly, I would say that it has been new capital.
I don't know the precise make-up, but I would say that for the most
part it is new capital.

Representative Williams. You know, there has been some talk
about its being very difficult for some companies to obtain capital for
plant investment, plant improvement. That hasn't been your ex-
perience ?

Mr. Harrison. No; it has not, sir. As I tried to explain to Dr.
Lubin, I am unable to answer the question he has properly projected,
because I haven't reached that place in the business.

Representative Williams. And it has been largely new capital,
rather than the capital that has been accumulated through deprecia-
tion and obsolescence?

Mr. Harrison. Yes, sir.

Dr. Lubin. What does that portend in terms of something I hope
won't ever happen again, namely, another serious depression? It is
quite evident from these figures that after you have kept this labor
force at a peak for a period of time there was a gradual decline in

16662 CONCENTRATION OF ECONOMIC POWER

employment and you didn't replace these people. The result was that
your costs of operation fell, in the sense that you didn't have these
people on your pay roll. Now, as you displace more and more people,
put in more and more machines with borrowed money, which means
that you have fixed obligations, does that mean that it becomes more
and more difficult for the consumer to get service at a lower price
because a greater proportion of your costs become fixed?

Mr. Harrison. Yes; I think that is a broad characterization. I
would like, though, to make this one qualification. The labor content
of the revenue dollar has changed very little even during the depres-
sion years. I think it is very important, that through these years,
roughly now, the content, the price that has been paid to labor for
day-to-day operations, neglecting construction, now is about 40 per-
cent of the revenue dollar. I think it got down to 39 percent, maybe,
1 year, and got up to 42 or 43. I think right now it is 41. So that
I think, looking at it from the standpoint of numbers of employees,
looking at it from the standpoint of pay rolls in relation to the rev-
enue dollar, the earnings of individual employees, which is so well
illustrated here, it is clear that labor has benefited broadly through
the advances of the business.

The Chairman. That is, the particular persons who were fortunate
enough to stay on the pay roll.

Mr. Harrison. Trying to characterize labor in the broad sense.

Dr. LuBiN. Has there been any change in the hours worked by these
people ?

Mr. Harrison. The hours seem to be getting progressively shorter.

Dr. LuBiN. Has there been any shortening of hours in recent
years ?

Mr. Harrison. Right now, generally it is about 40 hours. No one
works over 40 hours, I think, except perhaps a handful of people
who might work in some of the districts where it is still permitted
to work 42 hours.

Dr. LuBiN. Bearing upon your last remark to the chairman,
wouldn't this shift in average weekly earnings upward in recent
jrears be accounted for in some measure by the fact that as you dis-
place operators the people you retain are in the higher category ?
In other words, the higher-priced people are kept. The lower-
priced people are taken off the pay roll, so that automatically, with
no change in wage rates, you might Have got an automatic increase
in the average weekly earnings of those people who were left.

Mr. Harrison. Yes, sir ; but I think the influence of that on the
rise is very small, and I should like to go back and say that over the
past several years, now, the proportion of male and female has re-
mained practically constant. Each group becomes more skillful as
we get more mechanical devices. The operators who remain have
to be more skillful because they are on toll work. They are on the
assistant services in connection with the machine switching board,
and their skill, and naturally their rate of pay, progressively goes
up, and similarly that of the plant craftsmen goes up. Thinking
in terms of the supervisory administrative people, the day-to-day
administrative people, the foremen, the groups two or three steps
above the foremen — they have remained practically constant in num-
ber. In relation to the pay roll, they and the administrative forces
are sliding down just a little, whereas the vocational forces are go-

CONCENTRATION OF ECONOMIC POWER 16663

ing up. If I were again trying to make some broad characteriza-
tions, I would say that tlirough this period the vocational forces
have advanced far more rapidly than have either the supervisory or
administrative forces. With the exception, sir

CONSTRUCTION IN RELATION TO GENERAL OPERATION

Dr. Anderson (interposing). Mr. Harrison, I wish to mention this
artificial peak in '29 again from a different angle because I know
it is basic to the discussion that will follow. You gave two reasons
for that unusual rise in 1929, amounting finally to some 364,000
employees in the A. T. & T. First, the construction during the
twenties moved at an accelerated pace, and therefore made for an
artificiality in the number of workers employed in 1929; second, you
were accumulating employees in training, ready to take on more
business each successive year. You were training them. They were
therefore not productive in the sense your regular employees were,
but they were being paid while learning.

Now, Dr. Lubin's Department published an article in the Monthly
Labor Review for February 1932, in which a breakdown appears, divid-
ing workers into five classes— operators, central office installation and
maintenance men, line and construction and installation maintenance,
cable and conduit construction maintenance men, and others — and the
comparison was made for the period you had reference to, namely
1921-39. I find by running out a computation here on the percentage
composition of the 2 years, that there is no alteration. In other words,
in construction, proportionately the same number of workers were
engaged in 1930 as in 1921, that even when you run up percentages of
increase, they are not substantially greatly out of line, and it would
indicate that construction work was not unduly stressed in comparison
to all other kinds of operations during that time. Would you com-
ment on that ?

Mr. Harrison. Well, I must say that I have difficulty getting away
from the facts. The facts were that during 1928 and 1929 our construc-
tion program was $600,000,000 each year. Right now our construq-
tion program is $350,000,000 or $360,000,000. Back in 1921 or 1922,
whatever that period is that you have in mind, I daresay our con-
struction program was quite a bit less than it is today. I may have
those figures. So quite apart from the relationships, the facts are quite
clear there that in 1 year when you have a construction program of that
magnitude, it has some bearing on the force.

Dr. Anderson. But thinking of this period of time not only as
regards construction increase but operation increase as well, there
didn't seem to be a distortion in the direction of construction increase
as compared with general operation.

Mr. Harrison. Might I cite just at that point that in 1920 and 1921
the construction program was less than $200,000,000. In 1920 it was
somewhat under, and in 1921 just a shade over, and I would say that
an average of the 2 years was $200,000,000, and in 1929 and 1930 it
was $600,000,000.

16664 CONCENTRATION OF ECONOMIC POWER

DIVISION OF REVENUES IN A. T. & T.

Dr. Anderson. The next point I wanted to ask about veas with refer-
ence to the point you made of the portion of the revenue dollar that
goes to labor. I should like to approach it from a little bit different
angle, and refer to some data that I offered you this morning, some
that Dr. Kreps has assembled. The sources are given at the base of the
table. While I wasn't going to introduce this as an exhibit, Mr. Chair-
man, I think it bears on the discussion and should go in the record, and
I should like to submit it at this time.

The Chairman. This is submitted as an exhibit prepared by Dr.
Kreps and the exhibit shows on its face the sources from which the
various figures have been obtained ?

Dr. Anderson. That is right.

The Chairman. Without objection it may be admitted as an exhibit.

(The chart referred to was marked "Exhibit No. 2573" and appears
on p. 16665. The statistical data on which this chart is based appear
in the appendix on p. 17407.)

Dr. Anderson. I just want to call attention of the witness to several
of the columns. They are worked out on indexes with a basis of 1923-
25 as 100. Pay roll, you will note, moved to 148 in 1930. Dividends
and interest paid moved, however, considerably above that, to 179.

Mr. Harrison. From what period?

Dr. Anderson. The period 1923-25 equals 100.

Mr. Harrison. Might I just say in that connection that the invest-
ment per telephone at that time was about $170, and the investment
per telephone today is about $275, and when thinking in terms of
dividends

Dr. Anderson (interposing) . What would that imply, if you would
run that difference out?

Mr. Harrison. The implication is that of course you must have
more of what we call net earnings in order to^upport an investment
of $275 a station as against an investment of $175, we will say.

Dr. Anderson. If you will take the last three columns, you will see
both weighted and unweighted productions, and explanations are
given. You will note that production increased substantially. As a
matter of fact, production shows, in comparison in 1938 with pay
rolls, in the weighted averages, slightly less. Employment, however,
shows a very decided drop, bearing out in part but accentuating the
thing you indicated in your series of charts.

During the period under review, it is your contention that labor
benefited proportionately with other claimants on the revenue dollar
produced ?

Mr. Harrison. Those are the facts, not my contentions, sir.

Dr. Anderson. That labor did benefit proportionately with the
other claimants?

Mr. Harrison. Yes, sir.

Dr. Anderson. That dividends and interest did not hold up un-
usually in comparison to pay rolls paid ?

Mr. Harrison. No, I would rather put it that the earnings avail-
able for the investor had taken a downward trend.

Dr. Anderson. Investors' earnings in comparison with pay rolls
have gone down?

CONCENTRATION OF ECONOMIC POWER
Exhibit No. 2573

16665

PRODUCTION EMPLOYMENT AND INCOME
DISTRIBUTED

BELL SYSTEM
1919-1938

1 1 1
DIVIDENDS & 1

NTE

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OPERATING REVENUES

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PAT

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1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 IO"

<:(jy

175

ADJUS

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150

125

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1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938

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OIVIOCWS onO UNiDJUSTCD OPCRtTIHC KVfKJtS I'om FxMfOl CommgnicoliiMH Csmmitsron. REPORT ON AMERICAN
TELEPHONE ANO TELEGRAPH COMPANY. CORPORATE ANO FINANCIAL HISTORY
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tOJUSrtO OP€l>ATIHC Kf venues bjdiYid.nfl Unodiulltd ln<»« by SNYOER'S INOtx Of Tt GENERAL PRICE LEVEL.
atlCMTED PnOOUCTlOM fron> Noiionol B<f mo ol Economic Rnta'ch. Bulltlin No 99

124491 — 41— pt. 30 31

16666 CONCENTRATION OF ECONOMIC POWER

Mr, Harrison. No; investors' earnings in comparison with reve-
nues— the relationship of investors' earnings to revenues.

Dr. Anderson. That, of course, wouldn't take into account any
thing that might have been paid out by way af investors' dividends
from reserves?

Mr. Harrison. That is taken into account in all of the earnings.

I think that it might be of interest, Mr. Chairman, to say, now
that Dr. Anderson has raised that point, I happen to have here the
facts that indicate the earnings in percent of total revenues just keep
sliding off a little.

The Chairman. What is your program now ?

Dr. Anderson. This afternoon we have Miss Rose Sullivan of the
American Federation of Labor, speaking on the same subject from
the standpoint of labor involved.

The Chairman. Do any members of the committee desire to ask
a question?

Mr. Pike. I have one simple question, sir, if you don't mind. I
would like to know if you see anything coming on in the technology
of the telephone business that might have any widespread effect com-
parable to the dial phone. Is there anything in the shop that you
see? That was a big thing.

Mr. Harrison. Over a period of years, as you try to look ahead
to the day-to-day operations and as you visualize the increasing com-
plexity of the handling of the short-haul toll calls in and around
metropolitan areas, for example now there are pretty close to 3,000,000
of those calls a day handled manually, they have to be timed and
recorded.

Mr. Pike. I don't mean more dial installations, but do you see any
new invention or device that is on the way that might have a compara-
ble effect on the whole telephone business that the dial did ?

Mr. Harrison. Broadly, no. .

Mr. Pike. The things that may be expected to come alon^ insofar
as you can see, then, are the various small devices and changes and
improvements, but no great broad basic change.

• Mr. Harrison. All of which progressively will add to the produc-
tiveness, if you wish, of labor.

Mr. Pike. You are used to that in all businesses, of trying to do
better and better each year, but every now and then comes a big one
like this, or like the continuous strip mill in the steel industry, which
has quite an upsetting effect. I just wondered if you saw another one
coming aldng.

Mr. Harrison. We do not ; no, sir.

The Chairman, What is this opportunity for new construction to
which you referred? How extensive is that?

Mr. Harrison. Well, last year we added what we called net addi-
tions; that is, really the net increment of added plant to something
over $100,000,000. This year I would expect that it would be more
than that. We have used up reasonably well what we call excess
margins.

Tlie Chairman. Excess margins of what ?

Mr. Harrison. Of plant.

The Chairman. Of plant?

Mr. Harrison. Yes; and as the business Expands we will be back
into our more or less normal construction programs.

CONCENTRATION OF ECONOMIC POWER 16667

The Chairman, In what fields do you see the opportunity for ex-
pansion ?

POSSIBILITIES OF EXPANSION

Mr. Harrison. Scattered throughout all the operations, I mean all
parts of construction.

The Chairman. Of course, it all depends, in the last analysis, upon
the installation of new stations.

Mr. Harrison. That is it ; it gets back to increased usage either by
telephones or calls.

The Chairman. What opportunity is there for increased usage ?

Mr, Harrison. We think there is good opportunity ; that is, our
current gains, for example.

The Chairman. All right; what are your current gains? How do
they compare with former years ?

Mr. Harrison. Well, last year, and leaving out a few years that we
were recapturing our lost telephones, just leaving those out, last year,
as I remember the figures, was our second or third best year from the
standpoint of gain in telephones.

The Chairman. In other words, you have recaptured all of the tele-
phones that you lost in the depression and you have established the
second or third best year in the history of the telephone company.

Mr. Harrison, In gains.

The Chairman, And that was last year, in terms of gains.

Mr. Harrison. Now, this year at the start of the year it is just as
encouraging as it was last year. What the balance of the year holds is
only a forecast.

The Chairman. In other words, more people are constantly using
telephones than ever before. Is that correct?

Mr. Harrison. That is true ; yes, sir.

The Chairman. To what extent can that continue?

Mr. Harrison. We in the business, in trying to analyze our mar-
kets ahead, are confident, assuming always that business generally
is in reasonably good shape, that our gains will continue and we
hope at about the current rates. Of course, predictions as to the
future are pretty precarious, but we hope, and we have reason to
believe, that because of our current gains. I would like to say that
we have, contrasted with our peak, about 1,400,000 more telephones.

The Chairman. You have

Mr. Harrison, Now 1,400,000 more telephones than we had at our
peak.

The Chairman. In 1929.

Mr. Harrison, I think it was the spring of '30.

The Chairman. That is a very good increase, isn't it?

Mr. Harrison. Very much so, and our usage is increasing and our
prices are going down a little.

The Chairman. I think the telephone business is distinguished
from almost any other kind of business except porliaps the postal
service, in the fact that it completes a contact between the institution
which offers the service and individual citizens and residents of the
country. That is your business.

Mr. Harrison. Yes, sir

The Chairman. You make more contacts with the individual than
any other business. It is a straight, direct-to-you business that you
are enga<i:ed in.

16668 CONCENTRATION OF ECONOMIC POWER

Mr. Harrison. Ninety million of them a day.

The Chairman. Just exactly like the postal services. Now it is a
striking thing to me that the record which you have testified to here
is similar to that of the Post Office Department. You are now de-
scribing more telephones in use than ever in history, greater business,
greater revenues, and all of that. The postal service testifies to the
same thing. Last year in the Post Office Department the revenues
exceeded any in the history of the postal department, and the record
to date in 1940 points out a still further increase. But while you have
this tremendous advance in the telephone system and in the postal
system, we still are confronted with unemployment. So that leads
me to say that perhaps the telephone company is showing the way
to all industry m takmg care of the human factor. You have evi-
dently, by the testimony which you have given here this morning,
shown that your company has followed a very enlightened policy
toward preserving and maintaining employment.

It occurred to me as I was going over your written testimony that
it might not be inappropriate if I were to give a little emphasis to
two or three points which seem to me to be particularly significant.
For example, you said, "I would like to say that since the beginning
it has been our aim and policy to introduce improved practices and
improved apparatus in such a way as to avoid or minimize adverse
effects in the nature of economic waste or human hardship.^

Later you said, "There have been lay-offs of operators as individual
central offices have been converted from manual to dial. These have
been scattered," and I am leaving out some. "Everything possible,
including long-term planning and generally separation allowances, is
done to minimize the consequences of the change-over." ^

And also "The introduction of new dial offices was reduced to a
minimum.

"But despite all efforts, work requirements dropped steadily.
There was simply not enough work to go around. Had the system
released all employees not actually needed, instead of spreading work
and providing 'made' work, there would have been more than 60,000
fewer employees at the bottom of the depression. This condition pre-
vailed in varying degree throughout the depression." ^

In other words, summarizing what you have said, the telephone
company has followed the policy of gradual or delayed introduction
of technological improvement, of making work, and of long-term
planning in order to provide for the absorption in the company of
those workers who were bemg displaced because of the conditions.

Mr. Harrison. We have done our best, sir.

The Chairman. Don't you think that that might be a pretty good
policy for all industry to follow? Perhaps you don't want to give
that advice.

Dr. LuBiN. One question, Mr. Harrison, before we adjourn. What
is the relationship between new housing construction and increase in
your business? Do you have a definite formula which you use in
forecasting?

Mr. Harrison. No, Dr. Lubin; we don't; but it is very clear that
during the depression families had to double up and naturally that

1 See p. 10643.
' See p. 16044.
» See p. 16648.

CONCENTRATION OF ECONOMIC TOWER 16669

brought about some reduction in the number of telephones, and as
people go into their own homes the market for telephones opens up
and specifically I think there would be a direct relationship.

Dr. Ltjbin. So if we could find some way of still further stimu-
lating housing construction you would feel the effects directly by
still greater increases?

Mr. Harrison. Yes, sir; I am sure we would.

The Chairman. May I thank you, Mr. Harrison, for your presen-
tation? It was most interesting, and we particularly appre<jiate the
frankness as well as the clearness with which you have discussed
these problems.

(The witness, Mr. Harrison, was excused.)

The Chairman. The committee will stand in recess until 2 : 30.

(Whereupon, at 12 : 35 p. m., the committee recessed until 2 : 30
p. m. of the same day.)

AFTERNOON SESSION

The committee hearing was resumed at 2 : 40 p. m., the chairman,
Senator O'Mahoney, presiding.

The Chairman. The committee will come to order.

Dr. Anderson. Mr. Chairman, the first witness for the afternoon
is Miss Rose Sullivan, organizer for the American Federation of
Labor, and a person who has had a very long, somewhat exciting
career in the field of the organization of telephone operators, ex-
tremely well informed, and is ready to present testimony at this time.

The Chairman. Miss Sullivan, 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 ?

Miss SuLLTVAN. I do.

TESTIMONY or MISS ROSE SULLIVi^N, AMERICAN FEDERATION OF
LABOR, NEW YORK CITY

The Chairman. Will you give your name?

Miss Sullivan. ISfy name is Rose S. Sullivan.

The Chairman. What are you engaged in?

Miss Sullr'In. I am general organizer for the American Federa-
tion of Labor.

The Chairman. How long have you held that position ?

Miss Sullivan. I worked in the labor movement as an organizer
for about 20 years, A. F. of L., I. B. E. W., telephone operators.

The Chairman. Telephone operators and what other^

Miss SuLUVAN. International Brotherhood of Electrical Workers,
Needle Trades, in fact pretty nearly every type of industry.

The Chairman. Before you were an organizer what did you do?

Miss Sullivan. I worked for the telephone company.

The Chairman. In what capacity?

Miss Sullivan. As a telephone operator.

The Chairman. How long were you engaged in that?

Miss Sullivan. About 5 years.

The Chairman. You began when you were young.

You may proceed.

Miss Sullivan. I want to preface this by saying that I claim no
direct technical experience. This is prepared from the point of view

16670 CONCENTRATION OF ECONOMIC POWER

of the telephone operator and from the union angle concerned with
the effects of technological unemployment on telephone operators.

Since early in the 1920's, the operating companies of the Bell Sys-
tem have been making rapid change-overs from manual to machine-
switching operation for the handling of telephone calls.

The job opportunity loss has been very great as a result. The
statistics supporting this statement are so readily available to this
committee I shall not take the time to recite them. They appear
in special studies made by the United States Bureau of Labor Sta-
tistics (1932) and the Women's Bureau (Dial Cut-Over in a New
England City). Although the city is not named, it is the city of
Worcester, Mass.

ANALYSIS OF EFFECT OF DISPLACEMENT

Miss Sullivan. Unfortunately, this study does not give a true
picture of the situation, as the Bureau apparently did not go behind
the company's statements, and did not interview representatives of
unions or did not run down the validity of the so-called voluntary
resignations or the financial fate of the transferred operators.

This Worcester study of the Women's Bureau represents exactly
what the company would like to have the public believe happens
when a big cut-over from manual to dial takes place. All the em-
ployees hired for about 3 years before a cut-over are hired on a "tem-
porary" basis, and so are automatically out when no^ longer needed.
They are supposed to take this very gracefully, and as far as the
company is concerned it is just as though they had never been em-
ployed at all. As a matter of fact, their employment relationship
to the telephone company is exactly identical with every other em-
ployee's in their class. They were hired when and because they were
needed and are fired when no longer needed. If mechanization had
not proceeded, they would continue to be needed and would still
have jobs.

They are complete and total victims of technology. Yet, by some
strange alchemy of delusion, the telephone company has managed to
translate this simple expedient for grinding its own axe into an
"enlightened policy" toward technological unemployment and has
fooled many persons, including high Government officials, into writing
encomiums about it.

Permanent employees who are no longer needed after mechaniza-
tion also have the most obliging habits of disposing of themselves so
that the company may enjoy an enlightened reputation. They all
suddenly find husbands or other jobs or win sweepstakes. Anyway,
they all "resign," according to the company, at the most appropriate
moment, not a day too soon, while they are still needed for the opera-
tion of the manual boards, and not a day too late when after the
cut-over their presence on the pay roll would be an expense and an
embarrassment.

Then there is the group to whom the company gracefully refers as
"transferred to other cities." That is not quite as pleasant as it
sounds. Worcester is a city running about $24 a week top salary
for Qperators. A transferred operater would not be getting the top,
naturally. Say she is getting $21 a week, living at home, making
her contribution count in the family economy. She is offered a trans-

CONCENTRATION OF ECONOMIC POWER 16671

fer to, say, Bennington, Vt., a city with about an $18 top. Her service
rating under the scale would entitle her to about $15 a week, a loss
of $9. Maybe she takes it, and maybe she doesn't, hut in any case,
she shows up in the telephone company as a smiling statistic^-"trans-
ferred," if she takes it, "resigned" if she doesn't. And don't overlook
the fact that if she goes to Bennington, it simply bars a Bennington
girl from a job. The overflow from dial offices chokes off employment
in the remaming manual offices.

The American Telephone & Telegraph Go., the Bell System, is the
largest single employer of women in the United States. In the pre-
dial days it took into the system at least 25,000 and possibly closer
to 50,000 girls every year. These girls came fresh from school. The
company did its own training. This avenue of employment for girls,
one of the largest, the requirements simple, good average education,
good health, faculties normal, with absolutely no preemployment
required, has been completely closed off by dial development.

No young people are being hired for telephone work, and haven't
been for over a dozen years, and this is emphatically not a depression
phenomenon. It is due to mechanization.

The situation grows worse daily. The operators at present holding
jobs in the telephone company used to say, "Well, it will last my
time." Nov,' they are beginning to wonder. As more and more manual
offices are dial converted the question keeps recurring, "Where are they
going to put them ?" Only a small proportion are now trained for dial
when an office is changed over — eloquent testimony that they are not
going to be needed, and not having been instructed in dial, they must
resign themselves to being bounced around from one manual office to
another as each in turn succumbs to mechanization.

There was a time, even under dial operation, when an operator
could feel that she had a breathing spell of job security when she got
into a dial office. Understand that mechanization is practically com-
plete. No ordinary calls require any operator service or interven-
tion. Practically the only requirement for operator services in a dial
office is (1) to run the cordless B board on which terminal calls from
manual offices come in, and (2) ticket calls — that is, calls outside the
contiguous or free area. These calls all had to be put up by the
operator. You couldn't dial them. The operator had to make the con-
nection and make out the ticket. But not any more. We now have
zone dialing and the customer now can dial practically anywhere
within his metropolitan area. We used to figure the old rates of dis-
placement as about 1 operator to 6 : that is, in the dial we could leave
1 operator where 6 operators had been needed in manual or straight
local operating. Now with the zone dialing it is, impossible to see how
there will be any lobs left at all in dial ofm?es.

The cordless B Doard, on which calls from manual offices come in to
dial offices, is obviously a transition and temporary device which be-
comes gradually obsolete as more and more exchanges become dial,
and need no human factor at all for trunking and switching. The
cordless B lx)ard is of course semimechanized as compared with the
manual B board, and it has a 50 percent increased load performance;
but at least for as long as it lasts it affords some small chance for
employment in multitrunking dial offices. This is only in metropoli-
tan areas which have some dial and some manual exchanges. A single

16672 CONCENTRATION OF ECONOMIC POWER

exchange area or a multiarea with all units dial, does not need the
cordless B board.

A word on the cordless B board. An item of expense in the dial
conversion is the call indicator board. This board registers calls from
a dial to a manual office. For example, when an office is cut over to
dial, the existing B or terminating boards from that office to all
manual offices becomes useless, they must be ripped out and a call
indicator board installed. These call indicator boards in turn be-
come obsolete when the exchange in which they are located becomes
a dial office. In an area of, say 50 exchanges, 1 exchange is made dial
and 49 call indicator boards must be put in to allow the manual
completion of calls from a dial office into a manual office. There is
no alternative. The customer dialing cannot complete the call, the
existing manual board won't do so because it is based on manual trans-
mission of a call from one exchange to another by an operator, and
no operator is involved in the dial office, so a device must be found
which will let the operator in the manual office know what numbers
the dial station is calling. That, of course, is a ^reat additional ex-
pense because these are all installed and all ripped out again as
useless after dial conversion.

DISPLACEMENT IN THE BOSTON AREA

Miss Sullivan. The Boston metropolitan area now employs between
3,500 and 4,000 operators. When I worked for the Bell Co. operating
in that city 20 years ago, 6,600 operators were employed, but that
does not tell the whole story of job loss. There has been an enormous
gain in telephone stations and in messages during that period. It is
one of the heaviest regions in the country for density of telephone
development and use.

Based on the number of stations and messages handled by an oper-
ator in, say, 1925, at least 12,000 operators would now be required to
man this system. This is a job opportunity loss of 8,000 in that one
city. This makes allowances for other factors which increase operator
value aside from dial operation, such as machine and selective ringing,
straightforward trunkmg, nonrepetition of customer's order, and so
forth. Making an allowance for ul of that progress, we still have a
figure of 8,000 job losses.

The Chairman. You make a distinction between an opportunity
lost and a job lost by displacement?

Miss Sullivan. Surely.

Dr. Anderson. But you indicate, do you not, in this illustration
from one city, that both have occurred in that city ?

Miss Sullivan. Both job loss and opportunity for job loss; yes,
indeed.

Dr. Anderson. Would you generalize concerning the whole system
on that one example?

Miss Sullivan. Well, I should say that it runs perhaps about the
same throughout the country. I am more familiar with the New
England area, because I know everybody there, and we have had
organization there, ai\fl have had a better chance to keep track of
figures. I should say it Was pretty much the same in every large
metropolitan area. Where business is great, the density of telephone
service is great. Of course, jn a town like Butte, Mont., where there

CONCENTRATION OF ECONOMIC POWER 16673

aren't as many telephones, and usage and density aren't as great
in telephone service, there might be a difference.

However, I think the question of displacement by dial even in
the small town might be illustrated by the city of Terre Haute, Ind.
Terre Haute, Ind., was an independent company, and had no toll
service. The toll service was done by Bell. When they were manual,
they had 180 operators; after the conversion to dial they had 12.
That is an example of the greatest reduction that I know of.

The Chairman. Do you object to the introduction of the dial
system?

Miss SuLUVAN. Well, my point is that we will not object to the
introduction of any mechanical adjunct that is a social service. Nat-
urally, especially in times of depression with so many unemployed,
we feel that introduction of machinery should be at least delayed
so as not to place an added burden on these people, but we do feel
that if we can see some social value to the public, there may be some
reason for accepting this great displacement by the machine.

The Chairman. The statement, of course, is made that the intro-
duction of the dial has been at least somewhat delayed.

Miss Stjluvan. The point I hope to make here is that the dial
has no social value to the public.

The Chairman. Well, that, of course, is another matter. Have
you any opinion or any knowledge as to whether or not there has
been some delay on the part of the company in introducing the dial
system ?

Miss Sullivan. Well, I have something on that a little bit fur-
ther on here that I want to bring out, and I also want to bring out
something in connection with that in answer to a statement made
this morning by Mr. Harrison, if I may, that "some 60 percent of
our telephones * * * are dial ; roughly, I think the precise figure
is 58 or 59."

I understand the annual report of the A. T. & T. states that out of
about 17,000,000 telephones in the United States, 9,000,000 are dial
converted, so that would be even greater. That would probably be
nearer 65 percent. The city of Newton is being cut over this sum-
mer. Three exchanges now employ 250 girls; 60 of these girls are
to be trained for dial, according to reports. The remaining 190
will be crowded into manual offices. Somerset-Prospect exchanges,
serving the city of Somerville, employing 150 girls, will shortly be
cut over. The city of Quincy is the only sizable manually operated
office south of Boston in the suburban area. This city will be cut
over in the summer of 1941, and over 100 girls now have jobs there.
Jamaica exchange, cut over a short time ago, about 80 girls. They
needed 12 after the cut-over. South Boston, cut over a few years
ago, gave jobs to almost 100 girls before dial. It became simply
a few positions on another exchange switchboard. Charleston, 80
or 800 girls met the same fate a little earlier. Within the next
year or so, no less than 600 jobs will go, to carry in substitution not
more than 100 to 125. All of the city proper is dial-operated, except
Quincy, slated to go in 1941, as is all of the south suburban area
except a fringe of small exchanges on the border of the metropoli-
tan area. North of Boston within the metropolitan area there are
a few manually operated exchanges left, although the city of Cam-
bridge has been dial for several years and Somerville goes out soon.

16674 CONCENTRATION OF ECONOMIC POWER

Outside Boston, all the larger cities are dial operated. Worces-
ter, which gave the telephone company so much pleasant fame for
its enlightened policy, used to have almost 300 girls, and now has
100. Cities handimg their own toll and long distance, as Worcester
does, do not suffer the same job loss, as long-distance work is still
handled manually. Worcester handles its own long-distance work.
However, the company is taking care of thai. Short-haul toll calls
are being transferred to local offices and doubtless extensions of
the zone dialing principle will soon enable the customer to dial his
own long-distance calls.

PBX work is the only job outlet for telephone operators outside
the company service. On a board manually operated, if it were at
all busy, it was necessary for the PBX operator to have been trained
in the telephone company. Such training is less important now.
Furthermore, a strong campaign is being made to further mechanize
the PBX b^ installing an internal dial system in large business institu-
tions, hospitals, and so forth.

DIAL SERVICE V. MANUAL SERVICE

Miss Sullivan. It is very expensive to install and gives infinitely
less satisfactory service than an operator gives, but that doesn't
seem to matter. They are going in just the same. The telephone
company has competition on this (PAX) but the company is out
hard after business. This eliminates about one operator in three on
the private branch exchange iA this kind of service. It is a nuisance
and an abomination, and the customers usually hate it after it gets
in, but they have put out so much money on it, they have to stick
to their bargain.

An operator still handles out and in calls manually, but internal
calls are dialed on another instrument. Imagine in a hospital trying
to locate a d[b-2tor without the human aid and interest of the operator.
Hospitals which have installed the PAX or the telephone company
system have to put in a public address system to supplement it, and
then it isn't a two-way telephone communication system at all.

The telephone company is therefore abolishing jobs for operators
within the service, and at the same time is busy outside, trying to
eliminate PBX jobs which company-trained girls might have a
chance to get.

Telephone service at its best is personal service. This is true of
the PBX as well as of the central office service. To attempt to
mechanize PBX service is to render it an inferior sei-vice. Yet the
telephone company is doing exactly that, just so that it may load
up gullible customers with expensive equipment, with the bait that
"in time" operator-wage saving will pay for it. Some "businessmen"
superintendents of hospitals have been falling for this, but if you
want to find out how it is working, don't interview the superintend-
ents— interview the doctors and nurses.

I have shown here in a small way, by casual illustrations, what
the machine-switching method has done to operator jobs. The full
story is, of course, available in F. C. C. reports since 1934 and I. C. C.
reports before that; in special studies by the Labor Department, in
the Census of Telephone and Telegraphs of the Bureau of the Census,
in the Report on Teclmological Changes of the National Resources

CONCENTRATION OF ECONOMIC POWER 16675

Commission, and in the extended investigation by F. C. C. into the
American Telephone & Telegraph Co.

I suppose I can add my own estimate, and say 150,000 women's
jobs have been lost during the last 15 years to the dial. At a $24
weekly wage, that is about $10,000,000 pay roll a year, removed as
a potential purchasing power and following the downward spiral
affecting the silk-stocking trade, the groceries trade, and all the
spots where 150,000 girls would spend their wages if they had jobs.

The most appalling picture of all, however, to my mind, is that this
job-source is bein^ closed off for all time — not because of the depres-
sion— the depression hardly caused a ripple in the telephone busi-
ness. They only had about a yeur of really poor business with net
station losses. The unemployment casualties which were truly
depression -bom would have been minor and temporary.

1931 was the biggest telephone year up to then ; 1932 was bad a,nd
part of 1933, but by 1937 they had reached a new high, largest num-
ber of telephones in history, greatest number of messages, best long-
distance business, highest profits. Thus the richest, biggest, most
powerful corporation in the world is deliberately liquidating its job
responsibility to 25,000 American girls every year.

And this brings us to the dial telephone itself. Has it been worth
this sacrifice? Has society gained more than it has lost? The dial
telephone furnishes a poorer, slower, less accurate, far more expen-
sive service to the public than the manually operated telephone.

It is practically useless in an emergency. It makes more mistakes
than the operator does, and she, being possessed or human intelli-
gence, immediately sees her mistake and corrects it.

The service of the telephone operator in every type of emergency,
disaster, and catastrophe needs no tribute from me here. It is written
on every newspaper page in the history of the last 60 years. That
precious element of human quick-wittedness, human devotion, human
bravery will go from the telephone system with the last operator,
and you will have substituted for it a chill thing of steel, without
nerves, emotions, responses, or intelligence. On a manual telephone
you have but to lift the receiver, knock it off if necessary, groan if
you cannot speak, and on the instant the operator, with all that mag-
nificent mechanism at her fingertips, will act with the speed of light-
ning to bring aid to safety to you.

The dial? Are you able to dial the operator? If so, you can get
her to be sure, but then can you talk to her and tell her exactl}^ where
you are? On the manual she can locate you, whether you can tell
her where you are or not. On the dial she can't. If you should
hang up or have the telephone removed from you and cradled, her
chance to help you is gone completely. She doesn't know where you
are. You are just an accidental signal on the sender monitor or the
unused cord board. If the line had been held open, she might have
been able to find out where you were by notifying the wire chief,
who might have been able to trace the call> But that chance is lost,
and that is hardly emergency service.

I have known operators to implore victims of an accident or assault
to remain on the line, to hold the connection open so that, assuming
their inability to describe where they were, she could set in motion
the cumbersome process of tracing the call through the plant depart-
ment. But persons distracted by fright or injury or desperation can-

16676 CONCENTRATION OF EOONOBIIC POWER

not reason and act coherently. They can't or don't tell the operator
where they are, they can't or don't hold the line open, and she is
helpless to aid them.

Not so were emergencies handled in the old manual days. A re-
ceiver off brought the operator in on the line instantly. She had a
sixth sense for human trouble and need. Not a word need be said,
a faint groan perhaps, or labored breathing or the shuffle of a body
struggling to rise, fehe knew where it was. There was her familiar
little lamp cap with panel and jack plainly marked.

Even if the receiver went back on again, if no coherent word were
spoken, she knew she was needed and where and she went into action.
The police arrived in 5 minutes and apprehended the assailant. The
firemen arrived in 3 minutes and saved the children. A little dog got
his picture in the paper in Boston the other day. His master lives
in one of the few manual areas left. He knocked the receiver off
the hook, the operator went in on the line and heard his ominous
barks, preceded by low, prolonged growls.

Realizing that it might just be the postman who inspired the
growls, she nevertheless took no chances and dispatched both the
police and fire departments to the house. It was a fire ; two children
were asleep upstairs. The newspaper made the comment: "A good
thing it wasn't a dial telephone." This is very unusual, for the news-
papers are usually beguiled by company propaganda that the dial is
progress.

To substantiate the argument that the dial telephone has robbed
the service of one of its most romantic and valiant characteristics,
there need only be an examination of the Vail medal awards of the
recent years of preponderant dial operation. One year there were
no awards at all. No episode worthy of the Vail medal tradition
could be found in the entire system.

The Journal of the International Brotherhood of Electrical
Workers, the labor organization of jurisdiction in the telephone field,
commented on this happening, editorially under the caption "Tele-
phone service at its best is personal service." The Bell System has
not since failed to make a Vail award each year, but the awards have
increasingly gone for deeds outside the service. A lineman makes a
rescue from drowning for instance, a commendable and humane thing,
but the act of a passerby rather than that of a telephone man, and
only incidentally associated with the telephone service. Needless to
say, the Vail medal was designed to memorialize deeds growing out
of the operation of the telephone service itself.

Some of the most glorious of these experiences were those of op-
erators in small and remote communities. Under the dial system, the
policy is to mechanize these small offices completely, then lock them
up and leave them and the community to the strange devices of
machinery, with no human eye, ear, voice, or brain on duty for safe-
guard against any enemy of life or property.

Those are remote-control exchanges, connected to the outside world
only through the exchange to which the smaller office is tributary,
and that office where flesh-and-blood operators are on duty may be
20, 30, or more miles away.

The telephone-company advertising is very interesting to examine.
They never show a dial telephone in their advertising. They stress
women, children, and babies in their advertising and, being master

CONCENTRATION OF ECONOMIC POWER , 16677

psychologists, know better than to intrude the dial on that picture.
A woman with a baby and two or three small children depending on
her protection would get very little aid through a dial telephone, if
a danger threatened them. The company also, quite unblushingly
advertises an operator seated at a switchboard, operating a fully
manual board, although they are busy scrapping these boards and
these -operators as quickly as they can.

At the Telephone Code hearing, under the N. K. A., a telephone-
company official was asked when and why and under what circum-
stances the company determined on dial installation. He replied, after
some evasion, that it was usually at the request of the subscribers. I
doubt this very much. In fact, I know it isn't true. Despite the
terrific build-up which dial has received, customer resistance to it is
strong. Every operator knows this.

The calling rate goes down under dial in the beginning; the ratio
of abandoned calls goes up. You can't use a dial telephone except
in a lighted room. If you wear glasses, you have to find them and put
them on. Many old persons, especially if living alone, find the tele-
phone a comfort in keeping in touch with relatives and friends. The
dial telephone destroys this, being too complicated.

Dial codes vary from city to city. It is no longer sufficient to know
merely the number. You must know and remember the prefixes,
sometimes two letters and one digit and sometimes three letters, some-
times letters and one digit, and so on to accomplish the complicated
labor of making the time impulse work.

In addition to remembering all the prefixes, you must remember,
if the number itself is less than four digits, to dial the number of zeros
necessary to make the mechanism work. This is all too much for the
aged, the infirm, the partially literate, the foreign, the poor-visioned,
leaving this group, to whom the telephone is of special importance,
practically shut out from its services.

A phase of the dial question which has received very little public
attention is the quality of service it gives. In the Chicago rate case
it was put forth and supported by good engineering opinion that the
dial is incapable of handling an equal number of calls per hour as
the manual board. All operators know that the dial is highly suscepti-
ble to error. The dial "false busy" is a byword in telephone offices.
The importance of timing is such that dialing slowly or more rapidly
than normal will result in a wrong number. Dial cut-offs are a night-
mare to PBX operators. If your dial falls into a wrong groove, as
it not infrequently does, you not only get a wrong number, you can't
get a correct number. If you dial 20 times, you still get the wrong
number. You can get your call through only by leaving the dial to
its own resources and getting an operator to put the call through for
you.

I have no qualifications whatever in any technical sense, and my
knowledge of telephony is confined to that possessed by an experi-
enced and competent operator. But I have studied and observed the
dial in many manifestations, and I believe there are many things
which require more authentic explanation than has ever been given
by the telephone company.

For example, the New England flood of 1934 affected equally two
Massachusetts cities, Lowell and Lawrence. The only obvious dif-
ference between the two cities is that Lowell is farther up the river,

16678 CONCENTRATION OF ECONOMIC POWER

and might, therefore, if anything, be more affected by the flood than
Lawrence. Lowell had a manual telephone office at that time, Law-
rence had a dial.

In Lawrence, the telephone system collapsed completely, and the
Army had to set up field telephone service to carry on emergency and
relief work. Lowell's manual telephone service stood up to the test
in a comparatively 'high measure of efficiency. The Boston operators
could at least get Lowell all through the emergency, but they could
not get calls in or out of Lawrence.

The obvious explanation is that the mechanized system, since it
could not handle all the load put on it, sagged, buckled, and failed alto-
gether, while the manual system with the factor of human intelligence
in control, handled all that was physically possible, which was a sub-
stantial portion of the total.

This same phenomenon, which I maintain is characteristic of the
dial, occurred when Cambridge, Mass., was cut over. That was the
largest single cut-over to that date in the New England area. After
the cut-over, there was no service in the city for 2 or 3 days. It just
cracked under a load too big to handle. The Boston papers \vere full
of the story. The company said the collapse was caused by curiosity
calls, and as usual everybody accepted that.

Now, that could have been true, and if so, proves my point that when
loaded with an abnormal demand, whether inspired by fear of death
in rushing flood water or curiosity about a new toy, the dial can handle
no business at all. On a manual board the operator cannot, of course,
handle any more than she is able to, but, as we all know, the capacity
of human strength, endurance, and accomplishment, when need re-
quires, is practically limitless.

At any event, in such emergency, the operators can hahdle loads to
the physical possibilities of their switchboards and can apply the in-
dispensable element of discrimination and intelligence. That is, they
can give preference to the authorities, hospitals, doctors, and the
most affected sections. In short, the situation is within human and
rational control. The machine, you see, doesn't know one call from
another and can't handle them all. So, in characteristic robot fash-
ion, can handle none and passes out of the picture as a communica-
tions medium, usually when most needed.

The cost of the dial reaches, of course, practically astronomical fig-
ures. In the Chicago and the Massachusetts rate ca^es, this was
clearly demonstrated. The New England company sought higher
rates m the late twenties, because the cost of the dial installations had
disorganized its rate of return. I shall introduce exhibits on these
points.

Dr. Anderson. Do you want the exhibits introduced here ?

Miss Sullivan. Yes.

Dr. Anderson. These exhibits are extensive documents, and rather
than have them printed in the record, we will file them as exhibits.

The Chairman. You might indicate what you are filing, so that
the record will show where they may be obtained.

Dr. Anderson. "Exhibit No. 2574" a file exhibit, "Tl^e Dial Tele-
phone and Unemployrftent," from the Monthly Lal3or Review, Feb-
ruary 1932, Bureau of Labor Statistics.

"Exhibit No. 2575", file exhibit, from the Journal of Electrical
Workers and Operators, June 1934, "Full Text of Epochal Telephone
Decision."

CONCENTRATION OF ECONOMIC POWER 16679

"Exhibit No. 2576", file exhibit, the same journal, March 1935,
"Costly Dials Make Subscribers Work."

"Exhibit No. 2577", file exhibit, the same journal, April 1936, "Gif-
ford's Chickens Come Home to Roost."

The same journal for December 1939, "More Glimpses Into Private
Life of A. T. & T.", "Exhibit No. 2578."

(The documents referred to were marked "Exhibits Nos. 2574 to
2578" and are on file with the committee. )

Miss Sullivan. I have just one more page.

Nobody likes the dial; nobody wants it. It gives inferior service
at a very greatly higher price. It is an inconvenient abomination.
It is useless in a personal emergency. It cracks up completely in a
community emergency. It is nothing that a telephone ought to be
and everything that it shouldn't be. It is inanimate, unresponsive,
stupid, when telephone service ought to be vital, animated, and in
telligent. It does none of the things which machinery is supposed
to do in industry. It does not reduce human labor; it merely trans-
fers labor from the operator, who gets wages, to the subscriber who
doesn't. It does not cheapen the product, it costs more. It is not
more efficient, it is far less useful than the manually operated service.
It destroys jobs and closes off an entire employment field, with no
compensations to society.

It has been pushed onto the public regardless of merit. When
first installed, it :ould not test consecutive lines. If you had 10 tele-
phone trunk lines and the first line was busy, the party calling you
got the busy signal, although 9, 8, 7, or 6 lines might be free. "\^Tien
first installed, it could not measure overtime so that the cost of tele-
phone service could not be equitably distributed among users. These
defects have now been corrected.

Wliile the dial was being pushed like mad in Boston, important
Massachusetts cities still using the manual were left way behind the
times on developments which had long been part of the advancement
of the telephone art, such as selective and divided machine-ringing
and straightforward trunking. Old ring-down circuits and even old
drop systems were still in use in some places, years behind the tele-
phone art, while in other places fine modern common battery boards"
with straightforward trunking, tandem circuits, automatic ringing,
boards capable of many years of useful life, in no way approaching
obsolescence and worth millions of dollars, were srrapped for diah
while the other exchanges with the outmoded equipment of the
eighties and nineties were left without modernization.

J. J. Carty, A. T. & T.'s great engineer, always opposed the dial
telephone and it was not until late in his life when his judgment was
overruled, that the Bell System went in for rapid dial conversion.

The dial telephone history has never been adequately studied. No
State regulatory body has done anything. The information which
has been adduced in State cases has come from litigants and inter-
veners against rate increases or for rate decreases. The Federal Com-
munications Commission in its investigation of the A. T. & T. ap-
parently did not consider the service angle of dial unless it did so in
some staff report with which I am not familiar, although it did con-
sider the cost angle.

The dial telephone is the perfect example of a wasteful, expensive,
inefficient, clumsy, antisocial device, being substituted for satisfactory

16680 CONCENTRATION OF ECONOMIC POWER

competent, human labor which received wages for work now per-
formed at exactly the same expenditure of human effort without the
compensation of wages.

The Chaieman, If it costs more, Miss Sullivan, to install the dial
system, what is the explanation of its adoption ?

LABOR DISPLACEIMCENT AS A PURPOSE OF DIALIZATION

Miss SuLLPVAN. Well, that is the question I expected to be asked, and
I think the answer is this: The personnel problem in the American
Telephone & Telegraph Co, was becoming a very vital one. There was
unionization in New England. It was small, but very competent and
very militant. The keeping up of the company union is an expensive
project for any corporation, and the telephone company undoubtedly
saw that this personnel problem would one day be a factor in regulating
working conditions, hours, and wages, and therefore went nog-wild
on this dial installation, which unquestionably is expensive but which
they felt in the long pull — no one Imowing how long the pull may be —
would reduce their personnel. It has already, b^'^ their own charts,
reduced the wages oi their personnel. It will reduce them by an incal-
culable amount in the days to come and has also reduced their personnel
problem, which is a very real factor in a corporation with a decided
antiunion policy.

The Chairman. Will you pardon me? I have just had a call on a
manual board.

^Dr. Lubin now presiding.)

Acting Chairman Lubin. The testimony given here this morning
points to the question I asked, namely, why the dial was installed.
This was not of course answered the way you presented it, but the
statement was made. I am wondering whether you have any infor-
mation on the subject, whether it would have been physically impossi-
ble to meet the growing demands for telephone service without
mechanization. Do you know anything about that aspect of the
problem ?

Miss Sullivan. I would disagree with that completely. A manual
switchboard can be installed having up to 10,000 lines, and there is no
limitation on the duplication of manual switchboard units. I would
say that was definitely not so.

Acting Chairman Lubin. Do you know whether it takes longer to
complete a call on a dial as compared to the njanual ?

Miss Sullivan. All things being equal, I think it probably might be
a little faster. I think there would be an advantage in the personal
service.

Acting Chairman Lubin. I know one of the manufacturers of the
manual switchboards claims they can prove that it takes less time.

Miss Sullivan. Our position is that it takes less time, but I haven't
the number of seconds.

I should like to put something in the record in answer to a* state-
ment made this morning by Mr. Harrison, of the telephone companyj
about keeping on 60,0W) employees during this long depression. 1
think that figure of 60,000 is probably true, but I do think mention
should have been mjlde that the operators themselves bore part of
the! burden of that 60,000; that in New England, for instance, work
was staggered and many operatoi-s — in fact almost all — lost 1 day's

CONCENTRATION OF ECONOMIC POWER 16681

pay a week in order to give additional work to those 60,000 employees.
So the cost was not wholly borne by the telephone company, but was
borne by the operators themselves — the cost of carrying those 60,000
people.

And I don't believe the telephone company dared to suddenly
throw 60,000 people on the streets and say, "This is a result of the
dial." It would have been bad for a corporation which spends
so many millions and buys up so many pages of magazines with pic-
tures of nice old ladies — I understand there is a nice old lady on the
back of the Saturday Evening Post, but no dial telephone beside her.
So I would like to leave the thought in the minds of the committee when
they think of the 60,000, that the telephone operator^ themselves
also carried part of the financial burden of the 60,000, and in my
opinion, I do not believe the company dared to throw that great num-
ber of people on the market as an open indication of dial displacement.
They would prefer to do that more gradually.

Acting Chairman Lubin. It might interest you to know that the
experience in the United States Senate was to the effect that when
the dial 'phones were installed the Senators and employees said they
refused to take over the duties of operators, and the result is that
although the phones are dial phones, they are manually operated.

Miss STJLX.IVAN. I think all of you on the committee who dial your
numbers are doing the telephone operator's work without wages and
without a corresponding lowering of your telephone bill.

Dr. Anderson. Viewing the industry as you know it today, could
the telephone system of the United States be handled efficiently on a
manual operation basis?

Miss Sullivan. I absolutely believe that it could be.

Dr. Anderson. What is your estimate of the number of operators
who would be required in excess of those now employed, were it so
handled ?

Miss Sullivan. At the present time?

Dr. Anderson. Yes.

Miss Sullivan. I would rather let you make your averages from
the figures I absolutely know, and those are the New England figures,
which show a loss of 8,000 jobs for the Boston area alone.

Dr. Anderson. You indicated a moment ago that labor also bore
part of that great burden during the period of the depression.

Miss SuLLrv'AN. I was speaking there of the New England dis-
trict, where I know it was done, and I am pretty sure it was the
policy throughout the country. In fact it was done here in Wash-
ington, too.

Dr. Anderson. Do you know whether, during the period of cur-
tailed earnings of the company, the dividend receivers also bore any
of the cost there involved?

Miss Sullivan. The Bell Telephone stock stayed at 9 percent dur-
ing all of the depression years, and

Dr. Anderson (interposing). That was regardless of earnings?

earnings of employees

Miss Sullivan. The A. T. & T. stock dividend was $9, and has
been all through the depression, regardless of earnings. Before we
had a depression in the telephone company at all, in the year 1930

124491 — 41— pt. 30 32

16682 <X)NCENTRATiON OF ECONOMIC POWER

and '31, when the company was doing well, all increases in the
telephone industry were stopped. . A moratorium was declared on
increases, and this was in thp very best year of the company, 1930-31,
and all increments, all raises, were frozen, and no further increases
were given for a period of 3 or 4 years.

(Senator O'Mahoney assumed the chair.)

Dr. Anderson. This morning, Mr. Harrison submitted "Exhibit
No. 2570" which showed the average weekly earnings of all employees.
I take it you have seen that exhibit ?

Miss StJL,Lr\^AN. Oh, yes; that was a point that I heard Mr. Har-
rison make this morning. I think he said that the wage scale, if
anything, was a little higher than it had been some years ago. I
would like to point out that naturally when no new people have
been hired over a period of 15 years, you reach your top salaried
people, and in the event of the cut-over all those who are hired and
let go as not needed would be the low-wage persons, and of course
those who have had 10, 15, or 20 years' service would be the higher-
paid people, and comparing that scale, it would look as though the
wage scale were a little higher.

Dr. Anderson. There is one other comment I should like to ask
for on this matter of employees' weekly earnings. You will note he
has a single line on the chart indicating the average for all em-
ployees. You have devoted most of your paper to the effect of dial
upon operators. If you put in a line here indicating operators' earn-
ings, do you have any data that would indicate to the committee
what operators have earned in weekly earnings during the period
under review?

Miss Sullivan. I have many wage scales in my office and I should
be very glad to submit them to you for your report.

Dr. Anderson. This would indicate that the average weekly earn-
ings for telephone employees — and I take it this being all employees,
it includes Mr. Gifford's salary as well as the lowest-paid operator
in the system — all averaged, amounted to something like $37 a week.
In the district you know best, what are the average earnings of
operators ?

Miss Sullivan. The telephone scale for telephone operators is $26
at the end of 15 years in the big cities. In cities like Chicago and New
York it goes up to $28, occasionally to $30. There are graduated
scales. They have class A, B, and C, and down to an $18 or $21 top.
There is no scale in vogue for every telephone operator. It begins
with the metropolitan areas and goes down to the smaller areas, and
tiiere are six or seven or eight schedules.

Dr. Anderson. What would be the lowest schedule?

Miss Sullivan. The lowest might be around $16 or less — that is,
comparable to whatever the minimum is in a very, very small town or
village, a small exchange, but top would be, in New York City, $30.

Colonel Chantland. Is that beginners?

Miss Sullivan. No; that is after 15 years. There has been no be-
ginning rate, because the company has closed the schools for the last
15 years. There have probably been no telephone operators hired,
excepting when a cut-over comes, and they hire an enormous amount
of temporary people, and give them around $14 or $16 beginning rate.

Colonel Chantland. Even in the large cities?

Miss Sullivan. Yes; as a beginning rate.

CONCENTRATION OF ECONOMIC POWER 16683

Mr. Pike. Those are a good deal higher than they used to be. I used
to work for a telephone comp9,nx; at $15 a month as an operator.

Miss Sullivan. I was a' member of the first telephone operators'
union in New England, and we do take credit, in the International
Brotherhood of Electrical Workers and the Telephone Operators'
Union, for all of the good wages and good working conditions now
enjoyed throughout the telephone system. We fought for these con-
ditions and struggled and bargained for them, and the telephone com-
pany then automatically put them into effect throughout the -;ystem.
So beyond any question, Ave can demonstrate the fact that what is con-
sidered by the company today a fairly good policy in hours and wages
is the result of the telephone operators' union. In fact, we had to
threaten strike in New England at the time of the N. R. A. to get 46
liours' pay, or to get 48 hours' pay for a 46-liour week, then 44 and 42,
and finally a 40-hour week with the 48 hours' pay, but that was no
generous gift from a concern that didn't know quite where to put its
undivided surplus lest the Government take it. It was something we
had to frighten out of them in order to get it.

The telephone company buys ail its equipment, from a pencil to a
switchboard, from the Western Electric Co., which is a subsidiary of
the American Telephone & Telegraph Co., and it is therefore buying
from itself and selling to itself, and if it makes a nice little profit
that can go over to Western Electric Co. as a melon. That is a very
nice way of doing business. You have no competitors in your equip-
ment, and the price is whatever you wish to make it.

Colonel Chantland. Miss Sullivan, you make this statement, that
it doesn't reduce human labor, it merely makes the subscriber do the
work, who doesn't get wages.

Does your memory run back to the time when the Bell Telephone
Co. itself used the argument against the independents who had dial
telephones ?

Miss Sullivan. I believe it does.

Colonel Chantland. It was one of the hardest arguments the inde-
pendents had to go against.

Miss Sullivan. At that time the Bell Telephone Co. didn't have
the patents, and the dial was ail wrong. Now they have the patents,
and the dial is all right.

Colonel Chantland. In other words, the Bell Telephone Co. at
that time said it was a nuisance and "you don't want those telephones
with that nuisance on them."

unionization in the a. t. t.

Dr. Anderson. You spoke a moment ago of the effect of unioniza-
tion and the collective bargaining upon the wage rate of telephone
operators, taking credit for the increase as a result of unionization.
What is the practice in the A. T. & T. with respect to unionization
and collective bargaining?

Miss Sullivan. The telephone company at great expense has set
up a company union. They were one of the first industries in the
company-union field. They have this organization superimposed
upon the operators, and now with the imminence of dial and the
threat of loss of jobs, it is pretty hard to get people, out from under
the domination of the company and the company union.

16684 CONCENTRATION OP ECONOMIC POWER

Dr. Anderson. So the company union operates within the A. T. &
T. as the dominant bargaining group ?

Miss Sullivan. I have never known of them to bargain. If they
do any bargaining, it is news to me.

Dr. Anderson. In other words, the effect a union of that kind
might have upon technological advances in the industry would not
correspond to the effect your union as an outside bargaining agency
has?

Miss SuLtrvAN. Congress has decided that a company union is not
a legitimate union and is therefore out-moded and made illegal, so
we hold there is no union in the Bell Telephone System, and I feel
the threat of a real union. that would have some say as to hours,
wages, and working conditions is one of the deciding factors in the
promotion of the dial.

Dr. Anderson. Is your attitude with respect to the dials being un-
social and all the other things you characterized it as being, your
personal view or that of your union and its representatives?

Miss Sullivan. That is the view held by all telephone operators
whom I know, and I know many thousands of them. It is also the
view held by people who have made a study of the dial itself, and have
not been beguiled by the telephone company's advertising.

Dr. Anderson. Have you ever opposed any other technological
change the Bell Telephone System has installed ?

Miss Sullivan. No; we were in favor of their straightforward
trunking and certain earlier things such as tandem switching and
machine-ringing, and so forth, which improved the service.

Dr. Kreps. I should like to ask the witness a question which is
prohably somewhat academic, but it is alleged that machines are in-
troduced because of high wages, and whenever wages are raised you
increase the pace of mechanization. On that point I should like to
ask you two questions out of your experience. In the first place, did
machine technology coming into the telephone industry, particularly
the dial telephone, displace low-paid or high-paid workers? And
in the second place, if there were differences in pay of the operators
displaced, did it tend to displace workers who got higher pay as op-
posed to those who probably, in outlying districts or in other dis-
tricts of the country, got lower pay? In other words, was there a
tendency for the dial system not to be put in, say, in the South or
West, where wages were lower, and to be put in specifically where
wages were higher ?

Miss Sullivan. The expansion of the dial was greater in the North,
and wages in the North — telephone wages — are generally higher. So
I think that it might be that the drive came in the North, where
wages were higher, and it is my convinced opinion that the telephone
company has rushed the dial at great expense and inconvenience to
the public because they foresaw a problem where organization in the
field of the telephone industry would mean a higher wage for their
employees.

Dr. Kreps. Among the employees of the telephone company itself in
an ordinary telephone exchange was it the relatively high-paid em-
ployees that were supplanted or the low paid ?

Miss Sullivan. We had established a policy, with 10 years of union-
ism in New England, that has been pretty generally followed by the
company, and that is that in lay-offs or transfers, length of service

CONCENTRATION OF ECONOMIC POWER 16685

shall count in holding your job. The newer employees, those with
the shorter length of service, and therefore with the lowest pay,
will be the first to go. That is a union principle.

Mr. Pike. Of course, the displacement wouldn't hit the supervisors
and chief operators as much as people who had been doing regular
work on the board, would it?

Miss Sullivan. When it eliminates an operator it eliminates a
supervisor and a chief operator. Take, for example, the small ex-
change that has become completely automatic. When that is closed
and turned over to the devices of the machine, there will be no plant
chief, wire man, telephone operator, information operator, supervisor,
or chief operators.

Mr. Pike. That wouldn't be true in the larger city.

Miss Sullivan. It will eliminate the higher-paid people, if you are
thinking of supervisors, chief operators, and people of that sort, in
proportion to the number of operators eliminated. If there is 1 super-
visor to 10 operators and. you eliminate 100 operators, you eliminate
10 supervisors and 1 chief operator.

Dr. Kreps. Could you have delayed the installation of the dial
system by lowering the wages of the operators ?

Miss Sullivan. I do not believe that it was the high wages, because
the wages are comparatively not high. I believe it was the personnel
problem that the company foresaw in the future, especially with the
National Labor Relations Act. They realized they could not forever
hold their people in a company-dominated union, and when they
would get into a real labor union, they would have to face the problem
of better wages and better conditions. I think that was the situation
they wanted to sidestep, and not any high wages they now have.

Dr. Anderson. You now have a situation in which well over one-
half of the industry has been mechanized with dials — some 60 percent,
as I remember your remarks.

Miss Sullivan. Yes.

EMPLOYEE attitude TOWARD THE DIAL

Dr. Anderson. Obviously, it is impossible to turn the clock back.
Is it your opinion that the union will continue to resist further instal-
lations of the dial on the grounds you have stated in this paper?

Miss Sullivan. We see no reason, since there is no social value to
the public, to the employees themselves, for this tremendous job loss
that exists and that will continue to exist as dialization is extended.

Dr. Anderson. And you therefore urge a return to the manual
operation of the telephone service?

Miss Sullivan. We urge at least the cessation of the dial
installation.

The Chairman. You mean the

Miss Sullivan (interposing). The cut-over; and I still feel that
the public was better served by the operator.

The Chairman. You were speaking a little while ago about the
temporary employees of the company, the operators. Can you
amplify that a little bit?

Miss Sullivan. About 3 months before the cut-over takes place, it
is necessary to have an additional force of operators, and the telephone

16686 CONCENTRATION OF ECONOMIC POWER

company will point out this fact to the subscribers and say, "Why, we
not only don't let our people go, we hire more."

The Chairman. Why is that necessary ?

Miss Sullivan. There are many factors. The operators must be
taken froin the board for periods of time and taught the dial opera-
tion, and therefore it will be necessary, on the manual, to have others
take their places. So for a period of 6 weeks, we will say, the num-
ber of operators who are to be retained in dial must be taken from the
board and trained in dial operation, and someone must handle the
boards while they are not there.

Then the general excitement and change due to any cut-over would
require additional operators, but that is for a very short period, and
the company, of course because they write "temporary" beside their
names when they give tnem jobs, does not enter them in the statistics
at all.

The Chairman. We have been told that those who are displaced
by the dial system are, for the most part, temporary employee of
that character. What is your view about that ?

Miss Sullivan. That would not be so, if we will assume that an
exchange has 100 people and that after the cut-over they are going
to need 20, or less.

The Chairman. Is that a proper proportion?

Miss Sullivan. That is about the proportion. Sometimes it is 6
operators displaced to 1 girl on the dial. It might run down to 14
percent, but we will assume the most advantageous, one-fifth, 20 people
to remain out of 100.

The Chairman. Would you say that on the average the installation
of the dial system reduces employment?

Miss Sullivan. It takes four-fifths, at least.

The Chairman. Of the operators?

Miss Sullivan. The operating force — I am including information
operators, supervisors, chief operators.

The Chairman. I understand.

Miss Sullivan. Shortly before the cut-over, in this 6 weeks to 3
months period, an additional 10 percent is taken on. That would be
10 operators are hired, making the force 110 to carry them over this
training period, so that when the girls are laid off, finally, after
conversion, 90 go. That is 80 of the old girls, plus the 10.

The Chairman. That must include many more than these tem-
porary employees.

Miss Sullivan. Eighty percent of the force, plus the 10 percent
taken in during the conversion.

The Chairman. We heard testimony to the effect that the company
has adopted as a policy the delay of installation of dials, has adopted
a policy of making work and long-range planning in order to absorb
those who are displaced by the introduction of devices like the dial.
Have you anything to say about that?

Miss Sullivan. The company is being as careful as possible not to
get an unpleasant odor abroad among the people by sudden, spec-
tacular displacement of telephone operators.

The Chairman. I take it that there is some effort to do this upon
the part of the company, but your feeling is that it doesn't go far
enough.

Miss Sullivan. That is true.

CONCENTRATION OF ECONOMIC POWER 16687

The Chaieman. In other words, that the policy isn't sufficiently
enlightened, that it may be partially enlightened.

Miss Sullivan. Where there is a great deal of toll service, the dis-
placement of telephone operators is not so great. A two-thirds dis-
placement instead of three-fourths, four-fifths, or five-sixths.

On the machine in the telegraph industry, may I introduce the
president of the Commercial Telegraphers' Union, who is a testing
and regulating plant man here in Washington, D. C, for Western
Union, I should like to have him give some testimony about the ma-
chines in Western Union.

The Chairman. That is part of our story.

Colonel Chantland. Did you read or hear Mr. Harrison's testi-
mony?

Miss Sullivan. I heard the last 10 or 15 minutes of Mr. Harrison's
ialk.

Colonel Chantland. He spoke ©C a separation wage based on a
vacation plus, I believe, a week Der year of service for the first 6 or
7 years, and 2 weeks for each year of service above that, as a separa-
tion wage that they paid these displaced people. Is that substantially
correct ?

Miss Sullivan. Well, I think the separation wage is for some of
the older employees, those, for instance, who have 15 or 20 years of
service. I have not heard of it as far as telephone operators are
concerned, for what the company terms the temporary 10 percent
group, nor is it, in my opinion, a general practice for the younger
group.

Colonel CHANTLi\ND. He didn't claim it for the temporary, but any-
body that was on the regular roll — whatever vacation they were
entitled to, plus 1 week more for every year of service up to 6 or 7,
and 2 weeks' pay for every year of service above 6 or 7 ; that that
was paid as a general practice, I believe he led us to believe.

Miss Sullivan. I do not believe that that is a general practice. I
am not aware of it.

Dr. LuBiN. Do you know whether that is the practice in the Boston
area?

Miss Sullivan. In the Boston area the union is strong, and we
have been able to keep our people moving around the manual offices
so that no one has been separated from the job.

Dr. LuBiN. What is the attitude of the union in those instances
where a new exchange is erected? Would the union feel that new
exchanges should be manually equipped?

Miss SuLiJVAN. In the face of 9,000,000 dial telephones out of a
possible 16,000,000 or 17,000,000, and the company's policy — it seems
to me that it wouldn't be very important what we thought. The
public is going to get the dial whether they like it or not.

Dr. LuBiN. You did say that what the union really wants is that
they should stop making conversions.

Miss Sullivan. We bejieve that if they started tomorrow on their
new equipment to reestablish manual operation, it would be better
for the public and for employment.

The Chairman. Have you discussed that with the company?

Miss SiLuvAN. No, I haven't, personally. But I believe that where
our representatives are bargaining collectively, the company is well
are engaged in.

16688 CONCENTRATION OP ECONOMIC POWER

Dr. Andfkson. This morning we were given testimony to the effect
that last year's operations were the highest in the history of the
telephone coinpany, that there is every prospect, with the movement
of business forward to higher levels, that the telephone company will
also reach" higher levels of production and operation ; and incidental
to that higher achievement will come substantial increase in employ-
ment; that the prospect is, therefore, one in which, while teclino-
logical advance will be noted, it will be not detrimental, and will
increase the number of workers engaged in the telephone industry.
Would you care to make any observation on that point?

Miss Sullivan. I should say that until we are 100-percent
mechanized, at the rate of existing expansion and telephone use,
there will be some additional operators taken on, but even then I
would question whether the company would be able to take care of
all of the remaining operators who will be displaced and who are
now operating manual boards. I doubt if it will take care of this
group.

Dr. Anderson. Do you see any prospect, then, of the telephone
industry's becoming, as it once was, a place of new entrance to the
labor market, to the extent, as you indicated, of some 25,000 girls a
year during the twenties, who will find employment in the immediate
future ?

Miss Sullivan. I see no possibility of that. I think that oppor-
tunity has gone forever, and that at the present rate of progress of
the dial, it will reach the stage in a few years where the service will
be thoroughly and completely mechanized, that there will be a mini-
mum of employees, not only operators but plant and installation.

The Chairman. Are there any other questions to be addressed to
Miss Sullivan? We are very much indebted to you, Miss Sullivan,
for a very clear presentation.

Miss Sullivan. I should like to present Mr. John W. Reynolds,
of the Washington, D. C, Commercial Telegraphers' Union.

(The witness. Miss Sullivan, was excused.)

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

Mr. Reynolds. I do.

TESTIMONY OF JOHN W. REYNOLDS, COMMERCIAL TELEGRAPHERS'
UNION, WASHINGTON, D. C.

Mr. Reynolds. I only have one copy of this. You may have it
after I read it.

The Chairman. Let's get you identified.

Mr. Reynolds. John W. Reynolds, Commercial Telegraphers'
Union.

The Chairman. What is your position with the Western Union?

Mr. Reynolds. I am the assistant automatic chief of the Western
Union Telegraph Co.

The Chairman. And your position with the union?

Mr. Reynolds, I am president of the local in Washington.

The Chairman. Thank you.

Dr. Anderson. And the local is an A. F. of L. local?

Mr. Reynolds. Yes, sir.

CONCENTRATION OF ECONOMIC POWER 16689

Since the time Samuel Morse sent liis historic message of "What
hath God wrought?" until the present time, Western Union has been
the dominating figure in the written word communications. At first
it was made up of numerous small telegraph companies which finally
banded together and formed what has been for the last 50 years
known as the Western Union Telegraph Co.

TECHNOLOGIOAL CHANGE IN TELEGRAPHY

Up to 1912, about 95 percent of all telegraph sending and receiving
was done by Morse, operating in the term of "pounding brass." With
the exception of crude machines which fed out a tape wheri the distant
Morse operator was sending and made ink lines on the tape in the
form of the Morse code which w^as later deciphered by a Morse operator
and written down, automatic telegraphy was little known in this
country. It had been experimented with in the laboratories of Europe
and developed to a semipractical stage.

In the years of 1912 and 1913 automatic telegraphy began to show
itself in the Western Union in the form of Barclay machines and per-
forated tapes which sent and received the written word, laboriously to
be sure, but nevertheless it was automatic, and the operation did not
require the skill of the old-time Morse men.

At the beginning of the World War in 1914, the Multiplex appeared,
and is the basis of all automatic telegraphy that is used today. By
means of distributors, relays, and the duplex theory, multiple send-
in^s and receivings could be produced on a single wire simultaneously.
With the increased volume of business due to the war, a faster means
of transmission and reception was imperative to the telegraph com-
pany, and the Multiplex was the answer. Little by little the Morse op-
erator was pushed aside by experienced typists who could learn the
routine and system used by the telegraph company and extra lists of
Morse operators began to appear.

When the United States became involved in the war, the volume of
telegraphic file was enormous, and even the Morse operators found em-
ployment in their chosen field. Employment in the communications
field remained at its height until the post-war period, when improve-
ments in the automatic system again began to show on the horizon. To
give the devil his due, the Western Union willingly trained all Morse
operators who were willing and able to learn the new system, but
naturally there were some old dogs who could not learn the new tricks,
and thev were shunted to the extra list to make whatever time they
could when excess help was needed in their line of work.

In 1924 the telegraph business was still in a state, but more and
more the automatics were eating up the Morse facilities and in that
year the teletype or Simplex reared its head and by 1926 Western
Union had concentrator units of this new machine. This pushed the
Morse telegraphist farther in the background and Morse telegraph
jobs became a problem. The teletype or Simplex was used on branch
office lines and short-way lines in concentrators which had fixed posi-
tions for each line wire, and later a plan was devolved whereby the
individual office was placed on a turret comparable to a telephone
switchboard. Any operator in the concentrator unit could plug in any
office whose light happened to flash on the board as a call. This con-
centrator unit had lights and signals which would po^nt out to the

16690 CONCENTRATION OF ECONOMIC POWER

supervisor the location of any i^le operator, the operator next to take
a call, the number of unanswered calls, the number of busy operators
and the exact location in the unit of all idle operators. All during
this progress in the automatic field, the Morse telegraphers were
dwindling, until 1929 when about 90 percent of the Morse telegraphers
were working outside of the telegraph companies. They had, of
necessity, to nnd jobs in the brokerage offices, newspaper offices, base-
ball parks, and bucket shops. There was little need of Morse tele-
graphers in the biggest corporation in the telegraph field. Those who
could learn the new system, either the Multiplex or the Simplex,
were retained, and some are still able to earn a living as combination
automatic and Morse operators. There are at the present time, ac-
cording to reports, 20,000 telegraph employees unemployed, working
part-time, or employed in other work in almost every city in the
countrj7.

Durmg the depression and up until the present time Western
Union has been experimenting with various technological devices,
most of which are not a benefit to the service or the public but a
direct effort to eliminate manual labor in the telegraph field. The
service itself has suffered, until Western Union is losing revenue be-
cause of some of its supposed improvements. Western Unioil has
what is known as the Multiplex-Simplex repeater, a device which
comprises a portable table on wheels which can be connected with
adapters on any trunk circuit, and give direct service to any branch
having a teletype machine. At first glance this would seem to be
expediting business, but when it is found that Western Union en-
courages false routing of business to eliminate using the . natural
relay for business, then it is a detriment to good service. Suppose, for
example, that the Western Union branch in this building has 10
messages for Chicago. The Multiplex-Simplex repeater is placed on
the Chicago trunk wire in the main offices, and those 10 messages are
transmitted to Chicago. That is good service; but in the meantime
the clerk at the counter has taken over about 30 more messages. Those
30 messages are sent to Chicago, regardless of where they are going,
and in that unnatural routing, it is eliminating jobs in the main office
at Washington.

Dr. LuBiN. May I interrupt there? What do you mean? If this
telegram is addressed to New York, would it go to Chicago and
back to New York ?

Mr. Reynolds. Absolutely. They have direct service to Chicago,
and the operator is working on that line. I have an example show-
ing that business for Jacksonville, Fla., has been sent to Chicago,
then back to Atlanta, which has a direct line to Jacksonville, so that
in the round-robin of service you have lost time, an element import-
ant in good telegraph service, just to use the relay.

The delay entailed in such operations is the cause for losses of file
by Western Union. These adapters have been placed on most trunk
circuits in the Washington office, so that it can be seen that most of
the branch office file could be routed away from the Washington main
office, thereby creating a false impression as to the density of the
business in the Washington area.

In 1937 a reperforator was installed in Richmond, Va,, and, despite
the reports of the company to the contrary, 70 percent of the entire
personnel lost their jobs. It was claimed that they were transferred

CONCENTRATION OF ECONOMIC POWER 16691

to other jobs at other points in the system, but 70 percent of the entire
personnel either lost their jobs entirely or were transferred out of the
city to be put on the unemployment list of other towns or part time
in another city in Western Union. There have been reports that most
of the personnel of the Richmond office was taken care of, but of the
five who were supposed to be transferred to Washington to take care
of their loss of jobs, we found only one who Was finally reported to
Washington, and he was a service clerk and was put on the bottom
of the list subject to part time or to be fired at the first time there was
a drop in business in Washington.

The reperforator consists of banks of relays, transmitters, and auto-
matic equipment designed to eliminate jobs. Instead of the message
being printed on a tape and gummed by an operator as before, it is
received in the form of a perforated tape with the printed message
above the perforated tape, and is switched to its destination at the
switching center and placed in a transmitter by the receiving or
switching operator. One operator in a switching center can take care
of the same number of wires that four operators formerly worked,
thereby eliminating three operators. The switching center operator
must now also be a route clerk. She must note the destination of each
message she receives and what wire to plug it into, thereby eliminating
the route clerk's job. This procedure eliminates jobs even down to the
timekeepers. Where it formerly took two timekeepers to keep the
time in the Richmond office, there is now only one because of the un-
employment caused by the installation of the reperforating system. It
would seem that with this wholesale eliminating of jobs, the company
could aflford to pay the remaining employees fabulous salaries. They
have reduced their pay roll way down, and those who are left should,
if you come down to a common-sense principle, get more money if
they are handling more business, but tne pay roll for the Richmond
office hasn't increased.

The Chairman. You say the company is getting more business ?

Mr. Ri^YNOLDS. No. I have some figures on the business.

The Chairman. I understood you to say that just then. Did you
mean that?

Mr. Reynolds. No.

The Chairman. I misunderstood.

Mr. Reynolds. No; I said that the employees with the same
amount of business with less help should get more money for the'
work performed.

The Chairman. You are speaking of the amount of work done
by the employee?

Mr. Reynolds. That is it. In other words, formerly an operator
handled 75 messages on one side or the other of the wire; now she
handles 375. Surely the operator should get part of the revenue
from these 375 messages.

Dr. Anderson. Wlien do you fix the time of change? When did
she handle 75?

Mr. Reynolds. Before the perforator, which went into Richmond
in 1937.

Dr. Anderson. So it is a very recent change?

Mr. Reynolds. Yes. The money spent on such mechanical de-
vices was earned by those who were eventually let out, so it would

16692 CONCENTRATION OF ECONOMIC POWER

seem that the hard work perfofmed by the Richmond personnel, for
instance, would finally lead to the loss of their jobs.

The next installation of this robot which eliminates jobs is
Atlanta, Ga. Western Union workers in that town are becoming
panicky because of the results in Richmond. Atlanta is the biggest
Western Union office in the South, and is the division headquarters
for the company. Is there any wonder why these people are be-
coming hysterical and wondering when the axe is going to fall and
cut off 75 percent of their personnel ?

Next came the dial system. This is also very recent. It was
originally intended to be fast and direct service between railroad
terminals to distant main offices, thereby eliminating relays which
are bad on short-haul business. For instance, if you go to the Union
Station and file a message to a person at Baltimore saying you are
going to arrive in Baltimore 45 minutes later, if that message was
sent through the regular channels, going through the Washington
main office, to the Baltimore main office, to the addressee in Baltimore,
it would take considerable time, and with the fast train service you
get now you would reach there before the message. This dial was
primarily set up so that you could dial Baltimore and send a mes-
sage without any relays, but Western Union also has taken advan-
tage of this to defeat the employment problem by routing over the
dial business which has to be relayed after it has been sent to the
railroad terminal.

For example. Union Station, Washington, has a message for Phila-
delphia, and the operator at the Union Station dials Philadelphia and
gets them ; she sends the Philadelphia message and has several more
on hand, not for Philadelphia, but she sends them anyway because
her chart or instructions tell her that if she is in connection with
Philadelphia, also to send Pittsburgh, Cleveland, and Detroit business.
This eliminates the main office procedure in Washington, which has
direct trunk lines to all three of those cities.

The company is now experimenting with a facsimile machine
whereby you write out your message, put it in a slot, pay the fee, and
it comes out in the handwritten copy at the other end. The actual serv-
ice now is worse than it has ever been because of the deficiency of help.
If less than adequate force is maintained, the Western Union will
continue to lose business because of its so-called technological im-
provements which are a detriment to the public service and the em-
ployees as a whole.

Mr. Chantland. Why is this Washington operator told to put these
Pittsburgh and Detroit messages at the tail end of a Philadelphia
message to Philadelphia ? I don't understand that.

Mi*. Reynolds. It eliminates a relay through Washington, and in
that way if the Washington force is kept at a minimum,^ making it
impossible to cover those channels without outside help.

Dr. LuBiN. Does it mean, on the other hand, at the same time that
you have to have more people in Philadelphia to relay that on to
Detroit?

Mr. Reynolds. It is possible, yes; but the natural relay for that
business is Washington, D. C, and if the company has a force at
Washington^ D. C, to take care of that, why send it to Philadelphia?
Eventually if you send enough business, you are going to eliminate
your Washington operator.

CONCENTRATION OF ECONOMIC POWER 16693

Mr. CiiANTLAND. Do jou gain any time by that? If you had the
force at Washington wouldn't it be quicker to send it out of the
Washington office?

Mr. Reynolds. My contention is yes, sir ; but it is a saving in money
and salaries to the telegraph company.

Mr. Chantland. The telegraph company is supposed to mean
speed, isn't it?

Mr. Reynolds. Absolutely.

Mr. Chantland. Which is the speedier if they ran it right?

Mr. Reynolds. Naturally the routing to Washington and sending
it on a direct trunk line. The facilities are here to meet those condi-
tions. Why shouldn't they be used?

(Dr. Lubin took the Chair.^

Acting Chairman Lubin. Are there any questions the committee
members wish to ask ?

labor displacement in the telegraph industry

Mr. Reynolds. The chairman asked for these data, which I have
here :

The Fifth Annual Report of the Federal Communications Commis-
sion gives a partial picture of the unemployment in the telegraphic
communications industry, which indicates that the loss of employ-
ment and employment opportunity in this field has been terrific
during the so-called depression period, 1930 through 1938. Briefly,
the picture presented is this: At the close of June 1930 there were
92,658 employees in the industry, while in June 1938 there were only
63,411 employees, which is a job loss of 29,247.

It cannot be argued that this actual loss of jobs is attributable to
loss of business by the companies, for the same report shows that during
this same period the number of revenue messages transmitted has
shown a decided increase from 188,776,653 in 1930 to 196,551,582 in
1938.

Acting Chairman Lubin. Are there questions of the witness?

(The witness, Mr. Reynolds, was excused.)

Dr. Anderson. This morning we introduced a chart which I ascribed
to Dr. Kreps' authorship, and it has such bearing on the problem we
have been discussing today and will still be discussing tomorrow we
have asked Dr. Kreps to explain it to the committee.

Dr. Kreps. This is "Exhibit No. 2573".^ It might well be called
the pattern of idle funds and unemployment due to distortion of the
stream of purchasing power. The chart is in two portions.

Acting Chairman Lubin. Dr. Kreps, will you refer to the exhibit
number?

Dr. Anderson. 2573.

Dr. Kjieps. The top portion of three lines represents dollar figures.
The heavy line shows the operating revenues collected from the public,
collected, of course, in this case from millions of households in small
monthly amounts. The bottom line indicates what happened to the
stream of funds put back in the form of mass disbursements to labor,
namely, pay rolls. Notice that the trend iS coaitinuous throughout
the period. During the entire period from 1919 to 1938 receip.ts f J»om

1 Supra, p. 16665.

16694 CONCENTRATION OF ECONOMIC POWER

the public have tended to outdistance what was disbursed back in
the form of mass purchasing power to labor. Both, incidentally, are
expressed in terms of indexes. In the accompanying table ^ I give
the actual figures upon which these indexes are based and the sources
of the data.

Notice also that disbursements to stockholders in the form of divi-
dends and interest, shown by the broken line at the top, reached a peak
in 1930 and have remained high throughout. There was a question
asked earlier today why technological improvements are introduced if
they don't mean appreciable reduction in cost. The answer in part
is that businessmen are always on the lookout for a place to earn high
returns on surplus funds. Technological improvements even when
they fail to reduce costs are highly desirable if they provide a profita-
ble outlet for funds. They take this dollar that comes in and get
more of it into the hands of the owners. Machines are put on the
pay rolls instead of labor, for about the same reason a manager often
puts his son or other relative on the pay roll.

CONCENTRATION OF OWNERSHIP IN AMERICAN TELEPHONE & TELEGRAPH CO.

Dr. Kreps. The net picture, then, is one of increasing disbursements
in the hands of those who receive dividends and interest. If those
were mass disbursements, no particular distortion to the flow in the
income stream would be caused, but when it is remembered that even
in this company, which excels in the distribution of stockholdings and
public favor which it enjoys, less than 5 percent of the stockholders
own more than one-half of the company, it is quite clear that the top
line does not represent mass purchasing power.

Mr. Pike. Is that true ? I thought they said that no stockholder
owned as much as 1 percent.

Dr. Kreps. That is correct. To own 1 percent of a corporation
which has an asset value of $2,500,000,000 is tantamount to saying
nobody has as much as $25,000,000 invested in this one stock.

Mr. Pike. Senator O'Mahoney just before he left gave some of the
figures here that just came out. As I remember, there are about
18,000,000 shares of stoc*k — what I mean to say is that you gave me the
impression when you said 5 percent

Dr. Kreps (interposing). Of the stcckholders own more than 50
percent of the total stock.

Mr. Pike. Yes; that is right. My misunderstanding.

Dr. Kreps. The exact figures are contained in a report of the Fed-
eral Communications Commission. Five percent is about 34,000 to
35,000 stockholders, I believe.

Mr. Pike. I shouldn't haye spoken at all.

Dr. Kreps. The picture is one of steadily accumulating idle funds
at the same time that you have an instrument at work constantly
subtracting funds in small monthly amounts from millions ol house-
holders, funds which are not distributed back to as large a number
or in such small amounts as collected. That distortion of the stream
of purchasing power, of the income stream, is one of the most funda-
mental facts deserving the consideration of this committee.

Acting Chairman Lubin. Isn't it true, however, that since 1932 the
tendency has been reversing, that is, the index numbers representing

^Appendix, p. 17407.

CONCENTRATION OF ECONOMIC POWER 16695

revenues going down and the index of pay rolls going up? In other
words, you are getting them close together, closer than they formerly
were at the bottom of the depression?

Dr. Kreps. There has been some cliange, not so much since 1932, but
since 1937. As you remember, there have been some rate reductions.
Acting Chairman Lubin. But in 1933 your index of pay rolls was
100 and now it is 130, and in 1933 your index for interest and divi-
dends was about 190 and now it is about 176, so they are coming closer
together again, aren't they?

Dr. Kreps. They are beginning to, that is right, although the spread

is still substantial.

Mr. Pike. Well, they stayed pretty well together until the end of '29.

Dr. Kreps. That is due in part to the fact that '23 to '25 has been

used as a base. The tendency to diverge existed throughout the

period but was accelerated after '29.

Mr. Pike. The divergence is there, but the trend is fairly well the
same, and wouldn't you think that those last 2 years of interest and
dividends going up in even a sharper trend represented what Mr.
Harrison spoke of this morning as being the momentum in planning
for business that never did show up ? They did increase their plant,
as I remember it ; they raised a lot of money in '29 for plant and put
it in the plant, and with the unchanged dividend rate the dividend
and interest would go up. Wouldn't you think, to a great extent,
that represented expectation that operating revenues would go up and
they just didn't? As he also said this morning, they pretty well used
up their surplus plant, and the using up of that surplus plant, it
seemed to me, to some extent is shown by what Dr. Lubin just spoke
of, the operating revenue and the pay rolls, botli going up again.
It isn't at all sure that they will meet, but I think there may be a
great deal of that in that 2-year lag. They used to plan pretty far
ahead. They planned wrong in this case.

Dr. Kreps. The bottom portion of the chart shows not dollar figures
but what might be aiUed real values. The heavy line depicts what
the community had to surrender in the way of goods and services in
order to get the dollars it used to pay telephone bills. Technically,
it is the index of operating revenues adjusted for the value of the
dollar in all its uses, including the payment of pay rolls. It is the
index of the general price level devised by Dr. Carl Snyder of the
Federal Reserve Bank of New York. The middle line shows service
rendered. This is what the community got in the way of telephone
service ; it gave up what is represented in the heavy line, showing that
the exchange value of telephone service went steadily upward. It
commanded a larger share of community goods and services than it
did before. More had to be surrendered. The community had to
work harder for the same unit of .service. All the technological
change that took place did not enable the community to command
telephone service with less effort. None of the great increase in tech-
nological efficiency of the company was transmitted to the public in
terms of lower prices to a sufficient extent to make telephone services
cheaper relative to other things.

Acting Chairman Lubin. Just what do you include in production?

Dr. Kreps. There are two measures. In the table both the

weighted and unweighted figures are given. One is the weighted

average of exchange and toll messages of thr Bell System as com-

16696 CONCENTRATION OF ECONOMIC POWER

puted by the National Bureau of Economic Eesearch and published
in its Bulletin No. 59. The other is based on average daily conver-
sations as reported in the Federal Communications Commission spe-
cial investigation.

Acting Chairman Lubin. I don't see how you conclude that we
had to give up more goods and services. All you are saying is that
the revenues went up faster than the service created.

Dr. Kreps. Adjusted revenues went up faster than the service
created.

Mr. Pike. It would be really adjusted cost to the consumer.

Dr. Kreps. That is right. This represents what the consumer
had to surrender in the way of real effort.

Mr. Pike. Purchasing power.

Dr. Kreps. Purchasing power; how hard he had to work. It is
similar to the familiar example of the farmer who has a mortgage
to pay. Wheat at $1 a bushel and a $1,000 mortgage means he has
to raise a thousand bushels of wheat. If wheat goes down to 50
cents a bushel he has to raise 2,000 bushels of wheat. That is exactly
the idea underlying this comparison. You have in the middle line
a physical measurement of the service which the telephone system
rendered the community. The top line gives a physical measure-
ment of the sacrifice which the community had to go through in order
to command the funds necessary to pay the bill. At the bottom is
represented the employment created, the amount of work, the amount
of outlet for the energies of the community which was afforded by
the telephone system. Notice that employment, as has been testified
by Miss Sullivan, went down steadily.

Acting Chairman Lubin. Is that actual number of persons em-
ployed or man-hours?

Dr. Kreps. That is actual number of persons employed.

Dr. Anderson. Thereby it would be a crude measure only. If you
had man-hours you would get even a sharper picture, would you not?

Dr. Kreps. Yes; that is correct.

Mr. Pike. Those are figures Mr. Harrison gave this morning.

Dr. Kreps. These data, incidentally, are all taken from the reports
of the company.

The significance of this chart is that it pictures in a nutshell the
fact of technological advances not passed on to the public.

Mr. Pike. It is reaped by the shareholders.

Dr. Kreps. The benefit of technology is clearly one that the share-
holders reaped.

Mr. Pike. I think the bondholders would tell you they didn't get
much.

Acting Chairman Lubin. Are there other questions?

Do you have any other witnesses?

Dr. Anderson. Not this afternoon.

Acting Chairman Lubin. The committee will stand in recess until
10 : 30 tomorrow morning,

(Whereupon, at 4 : 20 p. m., the committee recessed until 10 : 30
a. m., Thursday, April 18, 1940.)

INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER

THURSDAY, APRIL 18, 1940

United States Sexate,
Temporary National Economic Committee,

Washington^ D. C.

The conmiittee met at 10:50 a. m., pursuant to adjournment on
Wednesday, April 17, 1940, in the Caucus Koom, Senate Office Build,
ing. Representative Clyde Williams, Missouri, presiding.

Present: Representative Williams (acting chairman), Senator
CMahoney (chairman) ; Messrs. Pike, Lubin, Hinrichs, O'Connell,
and Brackett.

Present also : Boris Stern, Department of Labor ; William T. Chant-
land, Federal Trade Commission ; S. Abbot Maginnis, Department of
Justice; and Dewey Anderson, economic consultant to the committee.

Acting Chairman Williams. The committee will please be in order.

Dr. Anderson. Mr. Chairman and members of the committee, we
propose with this morning's witness to finish the testimony on the
communications industry, and this afternoon we have a witness who
will speak more general!}' on the problems of technology as they ai'e
affected by electric power. The witness this morning is Mr. Paul E.
Griffith, president of the National Federation of Telephone Workers,
Chicago, 111.

Acting Chairman Wiloams. Do you solemnly swear that the testi-
mony 5'OU are about to give in this matter now pending shall be the
truth, the whole truth, and nothing but the truth, so help you God ?

Mr. Griffith. Yes, sir.

TESTIMONY OF PAUL E. GRIFFITH, PRESIDENT, NATIONAL FED-
ERATION ^F TELEPHONE WORKERS, CHICAGO, ILL.

Acting Chairman Williams. State your name.

Mr. GKiFFrrH. My name is Paul E. Griffith.

Acting Chairman Williams. Your residence?

Mr. Griffith. I live in a suburb of Chicago, 111.

Acting Chairman Wilijams. What is your business and back-
ground, Mr. Griffith ?

Mr. Griffith. I began with the Bell System in 1922, and since then
have been employed in various departments of the Bell System; the
Western Electric inspection department; Western Electric engineer-
ing department, tlie group that is now the Bell Telephone Labora-
tories; Western Electric factory at Hawthorne in Chicago, as a dial
switcli man for the Illinois Bell Telephone Co., and an engineer for
the Illinois Bell Telephone Co.

Acting Chairman Williams. AVliat is your present position?
12-14SU— n— pt. :!0 a.i 16697

16698 CONCENTRATION OF ECONOMIC POWER

Mr. Griffith. I am an engineer for the Illinois Bell Telephone Co.
and president of the National Federation of Telephone Workers.

Acting Chairman Williams. What is this federation ?

Mr. GRiFriTH. Thei federation is an organization of telephone
unions in the telephone industry throughout the country, including
the operating, manufacturing, and research departments of the in-
dustry. You will note I said "industry," not just the Bell System.

Acting Chairman Williams. I notice you did not include construc-
tion. Is that included, also?

Mr. Greftith. That is included also; yes, sir. You use the term
"construction" in a little different sense, of course, than we do. The
federation includes all phases of the telephone work in the industry.

Acting Chairman Williams. You represent your federation, com-
posed of workers in every branch?

Mr. Griffith. That is correct.

Acting Chairman Williams. Of the telephone industry?

Mr. Griffith. That is correct, including, as I said, manufacturing
and research.

Acting Chairman Williams. What is the number of the member-
ship in that federation?

Mr. Griffith. We have 110,000 dues-paying members at the pres-
. ent moment.

Acting Chairman Williams. And you have been selected as the
president of that organization?

Mr. Griffith. That is correct.

Acting Chairman Williams. 'You may proceed.

Mr. Griffith. I would like to congratulate you gentlemen on your
fortitude in listening to all of this maze of testimony and figures
that you have in past days. I think it is remarkable, and speaks well
for your sincerity.

As spokesman for the National Federation of Telephone Workers.
I wish to express to the members of this committee our appreciation
for this opportunity to present our views on the impact of tech-
nology on employment in the telephone industry.

Our general view is that we are not opposed to technological ad-
vance to the extent that it contributes to the improved and increased
use of telephone service. In the approval of technological changes,
however, the^ National Federation of Telephone Workers is of the
firm conviction that the telephone worker and the telephone sub-
scriber should share equitably in the economic benefits of such
changes, and the job security of the worker should bp a vital and im-
portant factor of every step. r

Technological advance in the past has created unemployment of a
considerable magnitude in the telephone industry. It is anticipated
that the extension of improved methods and equipment already in
\ise, and to be introduced in the future, will progressively reduce the
number of labor units required to build and man the telephone plants.

Such curtailment of employment opportunities by this economy in
labor necessarily results in social hardships to the telephone worker,
his family, and community. We are reminded here of Edwin Mark-
ham's words, "Why build we these cities great, when the builder we
forget?"

CONCKNTKATION OF KCX)NOMlC POWER 16699

We submit for the consideration of the committee a number of
facts and opinions pertaining to this problem in the telephone in-
dustry. We appreciate that they are in some respects incomplete and
of provisional character. The very nature of the problems arising
out of the failure of employment to keep pace with technological
advances upon labor is such as to make quantitative analysis and
evaluation difficult in the absence of intensive research far beyond
our present resources. We believe, however, that this fact should
not be permitted to interfere with an accurate survey of this prob-
lem as it applies to the telephone industry. We therefore, pledge
our cooperation as a labor organization to this committee in this
work. We appreciate, as we know the committee does, the need of
fairly considering all factors and all of the various interests involved.
Wliile some of the points w^e appear to rely upon are opinions
instead of facts, we urge their serious consideration, first, because they
represent the opinions of thousands of intelligent and educated tele-
phone workers, with a background of experience which embraces the
years during which the telephone industry developed from a minor
to a major position in the United States; and second, because we
are certain that subsequent study will, in virtually every case, bear
out these opinions.

The subject should be viewed with a keen interest, as most tele-
phone companies are of themselves utilities supplying interstate and
local telephone service to the public in practically every community
of the United States. We recognize that the telephone companies
comprising this industry are subject to various local, State, and
National regulatory bodies, whose specific purpose is to establish and
prescribe fair and comparable rate regulations. These commissions,
liowever, do not concern themselves with good or bad policies on
labor economics.

I will repeat the sentence, These commissions do not concern them-
selves with good or bad policies on labor economics.

In outlining the fact, and our views, on the impact of technological
advances on employment in the telephone industry, we have confined
oui-selves to what we believe to be reliable statistics on the operation
of, certain telephone carriers of the United States, assembled from
time to time by separate bureaus or commissions of Government. We
believe these exhibits will show the merit of our opinions on this
subject.

REDUCTION OF EMPLOYMENT

Mr. Grefftth. There has unquestionably been a decline in the total
number of employees in the telephone industry with relation to the
total number of stations and investment, as shown in the three
exhibits.

Incidentally we have a total of eight exhibits we should like to
introduce as a part of this record.

Acting Chairman Williams. The first three exhibits may be
received.

(The table.'' referred to were marked "Exhibits Nos. 2579 to 2581"
and are included in the appendix on pp. 17408-17410.)

16700 (•(JN0E>nilj\T10N OF ECONOMIC POWER

Acting Chairman Williams. Do they all indicate the source of the
data given ?

Mr. Griffith. They do. It will be seen from these tables that the
number of telephone carriers have decreased from 140 in 1926 to 73
in 1938. This has been the result of corporate merger or consolida-
tions.

Acting Chairman Williams. What do you mean by carriers? 1
don't happen to know what the number of carriers means. T\Tiat is
that?

Mr. Griffith. A telephone company is a telephone carrier. They
are designated so in the statistics. A class A carrier is a company with
an annual income of $100,000 or more.

Acting Chairman Williams. That simply means a telephone com-
pany then.

Mr. Griffith. That is right.

They decreased from 140 in 1926 to 73 in 1938. The depreciation
reserve for the industry has been continuously bettered, as its ratio
to investment in telephone plant has steadily advanced from 20.23
percent in 1926 to 27.52 percent in 1938. This is a 7.29 increase in 1938
over 1926. Under capitalization the tabulated columns reveal a de-
crease in debt ratio to totn.1 c ipitalization, from 27.67 percent in 1926
to 19.4 percent in 1938.

Mr. Pike. There is a point there, Mr. Griffith, I would like to ask
you about. That funded debt right through, I take it, is almost all
owned by the public. Is that not generally true ? There is very little
funded (iebt owned across between companies?

Mr. Griffith. It is my opinion that you are correct.

Mr. Pike. Whereas in the capital stock a great deal of it includes
capital stock of the operating companies, which is owned by Ameri-
can Tel. As near as I can make out from the totals, there must be
substantial duplication.

Mr. Griffith. The American Telephone & Telegraph figures are
included in these figures. These are figures for the entire industry.

Mr. Pike. Yes; but they don't represent merely the capital stock
that is held by the public, but they represent, let us say, a subsidiary
company having $10,000,000 of stock issued all owned by the Ameri-
can Telephone, that is in as $10,000,000, and then the $10,000,000 that
the American Telephone Co. had to issue to buy that stock is also
issued. Wlien you get up to $4,000,000,000 you get to a total which is
something twice the total of the American Telephone stock outstand-
ing, so I think there must be a Avhole lot of duplication here, inter-
company ownership.

Mr. Griffith. It may be so, I couldn't say.

Mr. Pike. Maybe Dr. Anderson could answer that.

Mr. Magixnis. May I ask the witness where he obtains his figures
that are used in this?

Mr. Griffith. We show on the footnotes that we secured them
from the Fifth Annual Report of the Federal Communications Com-
mission, for the fiscal year ending June 30, 1939.

Acting Chairman Williams. Proceed.

Mr. Griffith. While the total surplus has decreased considerably
from the high figure of 1931, it still remains a substantial figure,
well above that snown for 1926. Your attention is directed to the

CONCENTRATION OF ECONOMIC POWER

16701

fact that declared dividends have always been constant even during
the depression years.

The ratio of operating expense to operating revenues has been
very consistent, tne extreme variation oeing ii-om a low of 66.95

Eercent in 1928 to a high of 71.44 percent in 1933. Net income has
een good although somewhat variable. A consistent annual gain is
shown in the totals for wire mileage.

It will be seen that the total number of telephones in service in-
creased steadily until 1930, when a sharp decline is noted. This
decline in total telephones in service continued until the depression
low point was reached in 1933. The 1930 peak of telephones in serv-
ice was approximately regained by 1937, and definitely surpassed in
1938.

These tables further indicate that the volume of business, shown
as the average number of calls originating per month, quite closely
followed the total number of telephones in use. There was a steady
increase until 1930 and a decline until 1933 as before. By contrast,
however, it should be noted that the 1930 peak in business volume
was surpassed in 1937 and a new all-time high established in 1938.

We would like to note here the following comparison taken from
"Exhibits Nos. 2579, 2580, and 2581."

Year

Total tel-
ephones

Number of

employees

at close of

year

Normal year .

1926
1933

14,371,922
14, 293. 251

322, 526

267, 129

Diflferenco . ..

-78. 671

-55,397

1929
1938

16, 978. 590
17, 431, 353

387, 023

Sorvice recovery over past high point - -

285,550

nifference.. . -.

+452, 763

-101,473

From the foregoing it is evident that the number of telephone em-
ployees at the close of each year shows an economy in labor entirely
out of relation to the telephones in service and the volume of business
handled by the industry previous to 1929.

Mr. HiNRiCHS. You refer to 1929 as a normal year and for many
lines of business 1929 was regarded as an exceptionally high year.
Would your tables indicate that as far as the telephone business is
concerned it moves rather evenly from 1 year to the next so that 1929
was not a year of exceptional activity ?

Mr. Griffith. During 1929, 1929 was not considered exceptional.
It was only considered exceptional when later events showed it to
have been a peak.

Mr. HiNRicHS. The growth, in other words, from year to year had
been more or less consistent through that period.

Mr. Griffith. That is right.

The telepliop" industry as a whole in 1938 operated more telephones
and supplied more service than it did in 1929, with 101,473 less em-
ployees. This docs not include employmen^t dislocations in telephone

16702 CONCENTRATION OF ECONOMIC POWER

manufacturing plants or researci; laboratories within the industry.
This is referred to elsewhere.

(Senator O'Mahoney assumed the Chair.)

Kepresentative Williams. Did you hear Mr. Harrison's testimony?

Mr. GRirriTH. Yes, sir.

Kepresentative Williams. Do you agree with him as to the reason
for that decline in employment during that period ?

Mr. GrRimTH. I heard Mr. Harrison's testimony and his explana-
tions that the decline was on account of advance planning, and the se-
curing and training of employees in advance in anticipation of business
which did not come, and I am in accord with him in that.

Representative Williams. Also, didn't he make the point, as I un-
derstood it, that 1929 was an abnormal year in the construction field,
after that there was a letting down, necessarily, of the construction
business for the reason that the demand didn't exist, and in other
words, as I understood him, they were rather overbuilt and they were
in tiiose 10 years following taking up the unutilized facilities of plant.

Mr. Gmffith. They didn't foresee that in 1929. I was employed
in 1929 by that company and it was considered a normal year until the
events that followed showed it to have been a peak year.

Mr. Pike. That was a fairly characteristic mistake of business,
wasn't it ?

Mr. Griffith. That is correct.

Mr. Pike. It wasn't only the telephone company.

Mr. GRrFFiTH. That , is correct, they were very enthusiastic and
planned for the future, evidently feeling that the business for 1930
to 1939 was going to continue right on the way it had during that
10-year period.

Representative Williams. I ^ot the impression from his testimony,
although I may be wrong about it, that that was largely due to ai> over-
built condition, and the falling off in employment during that time
simplv was lack of demand for increased construction improvement,
and that it was not due materially to technological improvements in
the telephone business.

Mr. Griffith. The point I was trying to bring out is that it
wouldn't have been an abnormal time and construction wouldn't
have been too high if it hadn't been for the depression ; if they could
have foreseen the depression I have no doubt that they wouldn't
have built up the plant as they did.

Representative Williams. I am not talking about their failure to
get business, but whe'ther or not that was the fact.

Mr. Griffith. They did have too much plant after the depression
struck them, that is a fact, decidf;dly too much.

Representative Williams. And then do you agree that the falling
off of employment following that period was due to that fact, we "^^p
say failure to foresee the c'apression that was coming?

Mr. Griffith. To a large extent that is correct. The people inthe
construction department of the telephone companies were a prob-
lem, to get them located in other departments to prevent a general
lay-off.

Representative Williams. Well, have yQU any figures to show
while we are on that particular question — then I wonx ask anything

(X)NCENTKATION OF ECONOMIC POWEK 16703

more — to what extent the real improvements, technological improve-
ments, have displaced labor?

Mr. Gkutith. The chief displacement of labor on which you have
available figures, of course, would be the traffic department — opera-
tors. I have some figures on operators. Those figures are available,
but many of the other displacements in addition. to operators are more
or les's an opinion.

Representative Williams. Well, have you those figures? If you
have, later on I will call for them.

Mr. Griffith. I don't have the figures on construction people, al-
though there were vast numbers of them. We were trying to reas-
sign them in other departments to keep them from being laid off.
The principal reason why we adopted the spread-the-work plan was
to reassign the construction workers, more than any other one group,
because during the 1920's they were a large department, as you
doubtless realize.

Take the city of Chicago, for example. In '29, my recollection is
they had approximately 1,400 nonsupervisory construction em-
ployees. That is my own recollection; I have no supporting data.
At the present time, it is my opinion that they have between 400 and
500 in that same department.

Dr. Anderson. In the Monthly Labor Review study, to which I
referred yesterday, operators as such in your traffic department in
1930 were 54.2 percent of the total labor force employed. Construc-
tion workers in central office installations were 5 percent — 5.3 to be
exact — and line construction workers were 10 percent — or 10.3, to be
exact. Cable and conduit construction men were only 3 percent.

According to this tabulation, in 1930 a preponderance of workers
were engaged in the traffic department as operators, not in construc-
tion.

Mr. GRimTH. That is correct.

Dr. Anderson. So that the construction workers to be affected are
the minor portion of the total employment.

Mr. GRimTH. That is correct. Wlien we say "construction," we
might not mean exactly the same thing that your committee means
by "construction." Construction people generally have to do with
the underground facilities or aerial wire, cables, and such as that.
That is what we mean by construction.

Another comparison and correlation can be shown by using the
telephones-per-employee figure. This may be obtained by dividing the
total number of employees for any given year into the total telephones
in. service. By using such figures secured from Exhibit No. 2581
we obtain the following examples:

Telephones
iSar: per employee

1926^ 44.5

1929 - 43.8

1938 , , ^ 61.0

The figure 44.5 telephones per employee in 1926 to the 43.8 in 1929
is fairly related, and representi^ normal growth in those predepfes-
sion years, when the peak of employment of 387.023 was reached in
1929. The same relation, however does not hold true for 43.8 in
1929 when compared with 61.0 telephones per employee in 1938.

We would like to show for this same period the increase in tele-

16704

IX)NCENTIIAT10N OF ECONOMIC POWER

phone plant investment and the number of telephones per employee
for the corresponding period.

Year

Telephones
per em-
ployee

Investment

telephone

plant

\mn

44.6
•43.8

$2,973,932,711
3, 862, 241, 317

1929.

Minus efficiency..

- •

1 888, 308, 606

1 Increase.

Note.— This Is only a

3-year period before depression.

Year

Telephones
per em-
ployee

Investment

telephone

plant

19?9

43.8
61.0

$3, 862, 241, 317
4 783 082 079

19.18

Plus efficiency

17.2

> 920, 840, 762

> Increase.

NOTS.— This is a 9'-year period including the depression.

It will be noted from these figures that the plant-expansion pro-
gram was curtailed somewhat for the period after 1929, which would
cause some increase in the number of telephones per employee. On
the basis of these figures for the 3-year period before 1929, however,
it is evident that this accounts for only a very slight part of the
marked increase shown for the period following 1929. It is ob-
vious, therefore, that there must be some other reason for the reduced
work requirements. We believe that an adequate explanation will
be found in the improved methods and equipment employed by the
telephone industry. We will introduce further tables to substan-
tiate our contentions.

One general explanation, of course, is that the period of service
of the average employee increased considerably during the depres-
sion years, when expansion was greatly curtailed, resulting in in-
creased employee efficiency and experience. It is. difficult to accu-
rately evaluate the effect of this change, but it has been cited, along
with other reasons, and certainly finds support with the telephone
employee body.

In a report to the stockholders of the Bell System in 1939, Mr.
Walter S. Gifford, president of the American Telephone & Tele-
^aph Co., in outlining factors responsible for employment differences
m the 1920's as compared to the 1930's, stated :

A much more experienced and eflBcient personnel which this difference in the
relative proportion of learners [at the end of the boom period in 1929 the
number of learners was 90,000 while at the end of 1939 it is only 18,000—1939
annual report of the A. T. & T. Co.] reflects, together with the continuing im-
provement in methods and apparatus and substantially reduced construction
activity, are the major causes of the differences in employment in 1939 in
comparison with 1929.

Mr. Grifford's statement would appear to substantiate our analysis
of this situation.

CONCENTRATION OF ECONOMIC POWER 16705

Separating the telephone station, financial, and employment situa-
tion statistics of the Bell System from the entire industry figures
is very revealing. In this connection we direct your attention to
the following quotation from A. T. & T., a book by Mr. N. R.
Danielian, published in 1939 :

By December 1937, the volume of traflBc and ihe number of telephones in
service surpassed the peak figure of 1930. Bell-owned telephone stations in
service had reached 15,645,000, exceeding the corresponding figure for 1930 by
62,000 stations. The average number of daily telephone conversations in 1937
was over 69,000,000, as compared with little more than 65,000,000 in 1930.
The gross revenues of the System reached $1,069,000,000. The net income of
A. T. & T. was at an all-time peak of $179,834,815, and total dividend payments
of $168,180,906 were the largest in the telephone company's history. But em-
ployment did not pick up commensurately. At December 31, 1937, the number
of Bell Telephone Co. employees was 272,172, not including Western Electric
and Bell Laboratories, which had 47,171 employees at that time. At these
levels, there were nearly 92,000 fewer telephone company employees, and about
42,000 fewer people employed by Western Electric and the laboratories together,
than in December 1929. In fact, at the very time that telephone traflBIc was
scaling the peak of 1930, employment was back only to 1917 levels.

In brief retrospect, what does "the tragedy of a depression" reveal? Mr.
Gifford's organization curtailed the number of workers by 60,000 people in 1930,
Just at the time Bell System business, in all its phases, was at the peak. After
that, through 1933, the various indices of telephone service declined and em-
ployment in the Bell Telephone System was reduced by 120,000, or one-third
of the total at work four years earlier. Western Electric reduced its force
by 66,000 people,. or over 80 percent. Afte?r 1933, business picked up, so that
by the ,end of 1935, telephone service was only about 10 percent below 1929,
but enfployment was reduced still further, to the lowest levels of the depres-
sion period. Since then, telephone business has reached and surpassed the high
levels of 1930, but employment in the Bell Telephone Companies still remained,
at the end of 1937 25 percent less than in 1929, and Western Electric's labor
force was still half of what it was in that year. These conditions cannot be
explained by reference to the business slump.

Your attention is directed to this c^uotation, which brings out the
fact that up to the present time considerable dislocation of employ-
ment still exists in the plants of the Western Electric Co.. which manu-
factures telephone equipment and is a subsidiary of the Bell System.
We are submitting an exhibit which shows the direct labor hours
worked in these plants.

(The table referred to was marked "Exhibit No. 2582" and is in-
cluded in the appendix on p. 17410.)

Mr. HiNRicHS. You want that exhibit to be headed "Relative Ac-
tivity of Western Electric Co.'s Plants," do you not?

Mr. Griffith. Yes.

At this point we introduce "Exhibits Nos. 2583, 2584, 2585, and
2586." These tables were taken from a survey made by the National
Research Project of the Works Progress Administration.

(The tables referred to were marked "Exhibits Nos. 2583 \o 2586"
and are included in the appendix on pp. 37411-17412.)

Mr. Griffith. You will note in "Exhibii No. 2583" that the indexes
of output per employee and output per employee-man-hour both in-
crease during the 6-year period from 1932 to 1937.

(Mr. O'Connell assumed the chair.)

Mr. Griffith. "Exhibit No. 2584" shows the progress of dialization
of telephone equipment in the Bell System. In 1920 practically all
telephones owned by this system were manual, whereas by 1935 almost
half of them had been converted to the dial method of operation, and

16706 CONCENTRATION OP ECONOMIC PC WEB

aqcording to testimony at these hearings it is now around 60 percent,
instead of the figures shown for 1935.

We believe that "Exhibits Nos. 2585 and 2586" explain more clearly
than we can the consistently increased productivity of the telephone
employee. It will be noted, however, that this increase was greater
in the case of the operators than for all employees in general.

No attempt will be made here to catalog the many broad and de-
tailed developments in methods and equipment used in the telephone
industry, many of which tangible and intangible improvements have
been so outstanding that they are generally known. We can state
withiut possibility of contradiction that more and better telephone
service is being furnished generally to an ever-increasing number of
users, at a lower cost and with the employment of fewer workers per
unit of equipment and service.

Determination of the exact character and extent of the technological
advances in the industry and their effects on employment past, present,
and future will require the cooperation of the telephone industry. A
survey of this nature would appear to justify the time and effort
required. An additional reason for such a survey is that valuable data
might be secured regarding the increased productivity per worker,
including the manufacturing branch of the Bell System.

EFFECT OF RATE REDUCTIONS ON VOLUME OF BUSINESS

Dr. Anderson. Going back for a moment, you say that this "service
is being furnished generally to "an ever-increasing number of users, at
a lower. cost and with the employment of fewer workers per unit of
equipment and service."

Do you have any specific figures on changes in rates charged and
costs to users of telephones?

Mr. Griffith. I don't have any figures, Doctor, but it is common
knowledge among all telephone Workers, and also a worry, I might
add, that the ever-increasing demand for lower rates might in time
affect the welfare of the workers. That is one of the major problems
that they keep watching.

Dr. Anderson. The demand for lower rates has been met by
actually lowering rates the country over?

Mr. Griffith. They have, particularly in the long-distance field, but
there have been also other rate reductions that affect certain sub-
scribers, such as suburban areas adjoining large metropolitan centers,
and so forth.

Dr. Anderson. In view of the data you submitted elsewhere and
discussed previously with respect to the net earnings of the telephone
corporation, do you care to hazard a judgment as to whether or not
rates now charged are as low as they could reasonably be?

Mr. Griffith. Well, you are touching on a delicate point there.
Doctor. That would depend on the amount of business that the
companies could secure. If the amount of business they could secure
would justify a decrease it would be satisfactory; but how would
you know, if you instituted a Nation-wide rate cut of drastic pro-
portions, that they would come out with a profit, at least for a long
time in the future?

Dr. Anderson. I assumed that there wag some discussion, current
discussion, about lowering prices and thereby increasing volume and
increasing oinploynient. Do you have any judgment on that?

CONCENTKATION Ob" ECONOMIC I'OWEK 16707

Mr. Grhtith. It is our impression, of course, that the cheaper
you make a product and the better the product is, the more business
you would thereby secure.

Dr. Anderson. But large profits of telephone companies do not
indicate to you that prices of telephone service could reasonably be
lowered to increase that business?

Mr. Griffith. The public in general, in my opinion, is not clamor-
ing for any great reduction. That is usually the political bodies.

Mr. HiNRicHS. Mr. Griffith, in connection with the question of
studies of employment and output, is it your feeling that studies
of that sort should be continuously made by some agency of the
Federal Government?

Mr. Griffith. I would think that the manufacturing ends of the
industry should be included in any studies made by the agencies
of the Government. I think you will find that even more interest-,
ing and revealing than the statistics you have secured on the oper-
ating companies.

Mr. HiNRicHS. Well, would you limit studies of the relationship,
between output and employment to the manufacturing end? In
general our interest in the Bureau of Labor Statistics is in all work-
ers and not necessarily confined to manufacturing workers.

Mr. Griffith. All workers, of course, but it is just my impression
that you have more statistics available on the other branches of
industry than you have on manufacturing. There have been more
studies made in the past — at least there have been more called to
our attention.

Mr. Hinrichs. Those studies, if they are going to be significant
to you, need to be kept up to date. It is not just a question of a
study one time and then putting it away on shelves to gather dust,
is it?

Mr. Griffith. That is correct.

Mr. Hinrichs. These changes are going on, sometimes largo and
sometimes small, but changes are going on every year.

Mr. Griffith. That is correct.

Mr. Hinrichs, And therefore studies of that sort, if they are
going to be really significant in serving the purposes of management
and labor in discussions of technological change, need to be con-
tinuously made.

Mr. Griffith. But as a labor union we represent the people in
the factories as well as the industry. Looking at this thing sanely,
the cheaper the telephone companies can buy their material from the
Western Electric Co., naturally the cheaper they can install it and
the less increase will there be in their investment. On the other
hand, a large part of every dollar they spend with every factory
goes to wages, so as a labor union we are keeping that phase under
close attention.

(Senator O'Mahoney assumed the chair.)

Mr. Griffith. Tlie Western Electric section of the telephone in-
dustry is competitive, regardless of what you might have heard to
the contrnry. I worked out there for a number of years, and I know
it is highly competitive with other companies in the electrical field.
Studies and comparisons are made at all times, and of course if

16708 CONCENTRATION OF ECONOMIC POWER

there is too much for cheapening their product, that would reflect
itself in the opportunities for our people who are now employed, or
have been employed in the manufacturmg end of this industry. Too
many people forget one phase of any situation while they are con-
centrating on another.

Mr. O'CoNNELL. What do you mean by saying that the Western
Electric is competitive? Do vou inean it is competitive in securing
the business of the A. T. & T.'

Mr. Grutith. There are many other companies manufacturing
telephone equipment in addition to the Western Electric Co., and the
prices that the Western Electric charge must compare with the prices
charged by other companies. I myself took part in securing data
whicn were finally used in a rate case to prove that the products
manufactured by Western Electric could not be manufactured any
more cheaply by any other manufacturing concern, in similar quality
and of similarly close limits and methods of manufacture.

Mr. O'CoNNELL. I don't think I made my question entirely clear.
Does Western Electric supply the A. T. & T. system with these
telephones ?

Mr. GuiFFrrH. They supply much of it. The Automatic Electric
Co. of Chicago also fumisnes much of it, particularly the dial equip-
ment that is used in the smaller areas. That is secured from the
Automatic Electric Co. of Chicago, and not manufactured by the
Western Electric Co.
Mr. O'CoNNELL. Do they manufacture that type of equipment?
Mr. GmFFiTH. During the times when the Automatic Electric Co.
was unable to provide enough, the Western Electric Co. also went
into the manufacture of this equipment. They set up a department
in Hawthorne, in Chicago, for that purpose. That department has
now been done away with.

Dr. Anderson. What was the reason for doing away with the de-
partment if they were successful as a subsidiary of the corporation
in supplying it with that equipment at one period of time ? Why did
they cease doing it later ?

Mr. GRirriTH. That brings up a point where many people are not
exactly in accord with the policies followed by the Bell System.
They use the Automatic Electric Co. as their mam source of supply,
and only use the Western Electric Co. for the excess over and beyond
what the Automatic Electric Co. can furnish. When the demand
slacked off they discontinued manufacturing their own products.

Dr. Anderson. I should like to ask why, if most of the electrical
equipment used by the Bell System is manufactured by its own sub-
sidiary, and I presume at a profit, as you have indicated the profit
structure of the subsidiary, they discontinued such profitable business
within their own subsidiary and farmed it out, paying the profit to
a competing firm ?

Mr. GRiFrrrH. It has been my impression all the years I have been
with the firm that they want these other companies to remain in
business.

Dr. Anderson. I understood this was a business structure for profit.
What is the basis of the want ? Why do they want it to remain in
business ?

CONCENTRATION OF ECONOMIC POWER 16709

Mr. Griffith. It is our impression, and just my own personal opin-
ion in the matter, that tliey do not wish to be regarded as strictly
monopolistic in all phases of their work.

Dr. Anderson. You mean, wish to be regarded as monopolistic in
the public eye?

Mr. Griffith. That is correct. They buy material from many,
many suppliers.

Dr. Anderson. And in order to satisfy that wish, is it considered
profitable in this business structure to pay profits out of company
funds to other competing firms?

Mr. Griffith. I couldn't tell you, of course, as to thfe financial
arrangements they have with the Automatic Electric Co. It may be
that they are under contract so that they have to give them a certain
amount of business. That is strictly a hazarded guess, you might say.
I don't know. With their own company, the Western Electric Co.,
they may break contracts at will.

Mr. Pike. The patent group involving the dial, telephones cer-
tainly involved the Automatic Electric Co., which, if my memory is
correct, controlled some of those patents.

Mr. Griffith. I believe you are correct, and it would seem, offhand,
that it would be natural to assume that they did have negotiations
and enter into some sort of agreement which they probably had to live
up to all through the depression.

Mr. Pike. Normally it was a result of contractual relationship with
the selling company that it would get the first crack at the selling of
those things.

Mr. Griffith. I don't know ; I am not a member of the management
of the corporation, and I do not know what the^y have done in man-
agement contracts with other corporations. I ]ust know, as an ob-
server and representative of all our people, what happens, and that
particular angle is not regarded with high favor by our members.
We would prefer that the Western Electric Co. get the business and
then that the excess go to outside companies, but that is just the
reverse of what they did.

We are not aware of any comprehensive studies being conducted
at the present time, although it is. our opinion that research depart-
ments of several universities have at various times investigated work-
ing conditions in the Bell System. The results of one such study made
at the Hawthorne plant of the Western Electric Co., have been pub-
lished by the Harvard University Press, under the title "Management
and the Worker"; F. J. Roethlisberger and W. J. Dickson are co-
authors.

effect of IMECHANIZATION

Another study that has come to our attention showing results of
ihe change from manual to dial operation in the telephone industry
was conducted by the Women's Bureau of the United States Depart-
ment of Labor, Bulletin 110, printed in 1933, covering a period in 1930
and 1931.

This study indicates that the industry attempts to cushion these dial
conversions by giving only temporary or occasional work to operators
before these cut-overs. However, on i)age G o! the above study, the

16710 CONCENTRATION OF ECONOMIC POWER

following disposition of the 534 operators on the pay roll just before
the cut-over was as follows:

Repular em-
ployees

Temporary and
occasional

Total before cut-over . ... . .

312

222

Retained

253
37
18

Transferred

Resigned

Laid off . . ■

112

This study was conducted in a manufacturing community with a
population of nearly 200,000.

Mr. HiNRicHS. What is the distinction between regular and the
temporary workers as you used the terms here ?

Mr. Griffith. A temporary employee in the traffic department is
one who is specifically hired for a certain period. They tell aer when
they employ her that her period of employment is to a certain date —
June 6, 1942, or some particular date, after which it is uncertain. So
when she takes that job she understands thoroughly that it is a tem-
porary job. However, if they do have need, and they usually do, of
at least a few of those temporary girls, they take the best of them —
naturally they would — and assign them permanently, after which they
are subject to the rules and regulations of a permanent employee and
not a temporary-employee.

Mr. HiNRicHS. For how Ion?- a period are temporary appointments
made?

Mr. Griffith. Up to 2 years or so.

Mr. O'CoNNELL. According to these figures, about 40 percent of
the total working force before the cut-over were classified as tem-
porary and occasional.

Mr. Griffith. When they decide when a c^tain area is to be con
verted — of course the factors involved in their decision are the changes
in the neighborhood, degree of obsolescence of equipment, and ail
that sort or thing — beginning then all the girls that they hire are liired
on this temporary basis.

Dr. Anderson. Well, speaking to that point, you undoubtedly heard
the testimony given by Miss Rose Sullivan yesterday afternoon

Mr. Griffith (interposing). Yes.

Dr. Anderson. And to refresh your memory with respect to the
particular study you are now reviewing, I will read you a portion of
it:

All tlie employees for about 3 years before the cut-over were hired on a tem-
porary basis, and so were automatically out when no longer needed.

Does your knowledge of this particular study come to the same con-
clusion as the table you have inserted in the record, that temporary
employees were hired for about 3 years prior to the cut-over?

Mr. Griffith. Well, perhaps it would be 3 years in some cases. I
said 2 years; 2 or 3 years.. They are hired, however, with that under-
standing that they are temporary employees. There is no doubt about
that whatsoever.

Mr. HiNRiCHS. Now, is that practice of hiring temporary employees
used after the station has been converted? Is it usual today in a dial
station to hire workers on a temoorarv basis ?

(X)N«JENTKAT10N OF K(^ONOM1C POWKK 16711

Mr. Griffith. Oh, no ; a temporary basis is concluded when the area
is converted, when the conversion is complete, on a certain specific
date. We know that as long as 18 months or 2 years in advance. I
worked on dial conversion projects myself. The exact day and hour of
the conversion is known 18 months or 2 years in advance.

Mr. HiNRiCHS. So that the temporary hiring is, as far as you know,
used only in connection with the conversion of stations?

Mr. GRiFFrrH. That is correct, and I am quite positive that they
have not deviated from that. If they had, it would have been called
to my attention by our operator union employees.

Dr. Anderson. So as to have it very clear in the record, it is not a
general policy of the A. T. & T. Co., to hire new employees on a
temporary basis ?

Mr. GREFFrrH. Only when there is a conversion in the picture. That
is the only time.

Dr. Anderson. Otherwise all new employees are hired as regular
employees.

Mr. GrtiFFiTH. That is right, subject to the regulations going with
regular employment. I might add that this method is meeting with
favor among our operators. They prefer that the steady older employee
who desires to remain in that employment as long as she is of working
age, do so; they prefer that any changes in employment be among
these newer people who have been hired on a temporary basis. Many
of these people hired on a temporary basis are former employees who
have gotten married and for one reason or another want a job, the
husband is out of work, or ill, and they desire temporary or part-time
work ; often they wouldn't accept steady employment. What they want
in many cases is temporary w^ork only.

Mr. HiNRicHS. But it isn't your contention that the system of hir-
ing temporaries is undesirable ; you are merely introducing the picture
in order to show the change in total employment; isn't that right?

Mr. GRiFFrTH. That is ri^ht; I am just trying to tell you what is
done and what our people think about it.

Mr. HiNRiCHS. From the point of view of the individual or indi-
viduals, some of whom in any event are going to be laid off, it is better
to have an advance notir^ of that fact than to go in ignorance of it
until the last minute.

Mr. Griffith. That is right. Our telephone people are not ex-
perts in economics and all that sort of thing ; they think it is fine they
can secure part-time employment, and those regularly employed think
it is equally fine that if there is due to be a decrease in the force
it should be handled in that way. We don't say that it is the right
over-all economic picture. We are not talking about that. Our
people don't know anything about economics except as jt affects them-
selves.

POLICIES OF UNIONS IN A. T. & T.

Dr. Anderson. With respect to the negotiations that you and your
unions carry on, do you make a distinction between regular and
temporary employees ?

Mr. Griffith. Regular and occasional employees?

Dr. Anderson. Temporary and occasional.

Mr. Griffith. Absolutely.

16712 CONCEN'LUATION OF ECONOMIC POWEK

Dr. Anderson. In other words, you carry two types of employees
in your record.

Mr. GRTFTrrH. Yes, sir.

Dr. Anderson. Are other distinctions made in union practices with
respect to these two groups? In negotiating, what do you do? Do
you lump them all together as a single group or carry them as dis-
tinct groups?

Mr. Griffith. In negotiating for wage increases they are treated
as regular employees. For example, ii they have 2 years' service
with the company, they receive progression schedules that go with
that employment. They would get perhaps 3 increases during that
period, the same as if they were scheduled to become regular
employees.

Dr. Anderson. As regular employees in your negotiations, do they
then begin to regard tneir temporary status as something that no
longer holds, and do they make demands upon the union to see to it
that they are carried on the employment rolls ?

Mr. GRirFiTH. Those who are hired for a definite period have no
comeback if they are not retained, and we have received no genera]
complaints. If they are retained, however, we insist that they be
treated as regular employees.

Dr. Anderson. You mean they are given a terminal date for em-
ployment when they are hired?

Mr. Griffith. Oh, yes, yes.

Dr. Anderson. When they are hired an indication is made that
within 3 years they will be severed, for instance, from employment?

Mr. Griffith. At least in some cases the employer mentions a
certain date, the day of the month.

Dr. Anderson. In all cases?

Mr. Griffith. I can't say what they do all over the United States,
of course, but I don't believe there has been very much deviation
from that, at least in serious proportions, or it probably would have
been called to our attention.

Mr, Pike. When they are transferred from temporary status to
])ermanent status, you see that they get their seniority back?

Mr. Griffith. They get it. That has all been taken care of a long
time ago, and it is carried right on through automatically.

Mr. Pike. This isn't like a company I watched work for a while
that gave a 50-year medal to an employee, and found he was still
carried on the rolls as a temporary mill clerk?

Mr. GRiFFrrH. Things like that do occur even in the best-regulated
families. I recall that we had a janitress in Chicago — at that time 1
represented those people also — and this lady became sick for the first
time in her 15 years of employment with the company. Wlien she
failed to receive her check for sick benefits we looked into it and
found she was carried as a temporary employee.

Mr. Pike. That was just an oversight.

Mr. Griffith. That is right; and their faces were rather red. It
was taken care of very speedily, as soon as we called it to their
attention.

Mr. M.\ginnis. Mr. Griffith, is vour union an A. F. of L. or a
C. I. O. \mion?

C.ONCENTKATION (JF ECONOMIC I'OWKK 16713

Mr. Griffith. It is neither. I might add that we insist on inde-
pendent status and we are patterning our organizations after the
well-known railroad brotherhoods, attempting to function as they
have functioned so well.

Mr. Maginnis, How long has your union been in existence?

Mr. Griffith. Our national federation, as a federation, has been
in existence since June 1939. Of course, many of the component
parts of it have been in existence for longer periods.

Dr. Anderson. Mr. GriflBth, on that point, you may want to com-
ment on the rumor or statement which many of us have heard to the
effect that your federation amounts to a federation of company unions
of the Bell System.

Mr. Griffith. I have heard that a few times, you might imagine,
myself, and I know exactly the feelings of your committee in that
regard. Some of our organizations were company unions. They
have been entirely reorganized and the other organizations done away
with completely. Our present organizations live up to all provisions
of the regulations, cross every "t" and dot every "i."

I will 'challenge any other labor organization to show halfway as
clean a record as ours since 1935. To understand the labor situa-
tion in the telephone industry, you have to know something about
the industry, you have to know something about the people in the
industry. Other organizations have done wonderful work in their
lines of work. They have no understanding of the people in the
telephone industry or other utilities where there is a service element
attached to it, that spirit of service. It might be amazing to this com-
mittee to know that in the old days before service was at the present
high standard, if there was a storm during the night the telephone
man would get up and go to work and get there at 3 or 4 o'clock in
the morning. Nobody called him, nobody asked him to do that; he
didn't get any extra pay for it. After the practice of overtime
payment was instituted, the company had difficulty getting some of
the men to accept. They figured it was just part of the job to do the
work. It is an astonishing thing; you people should have an under-
standing of that. If any of you have ever been a salesman you know
that you cannot use the same selling methods to all people. If you
go to sell a life-insurance policy to a teamster you don't use the
same tactics that you do to sell to a college professor. The same
way with our people, that is why our federation is successful. We
know our people. Other organizations have been unsuccessful insofar
as the telephone industry is concerned. It is my opinion that our
organization will continue to increase in prestige and effectiveness,
as we have alreadj^ done to a certain extent. In the future it will
increase and we will be able to work side by side w'ith these other
labor organizations for the common good of all people at work.
That is our aim. Some unions already work with us in that light
in some locations in some parts of the country, and others do not.
It hurts our pride a little bit, of course, to have people refer to us
as company unions all the time, and to hear witnesses in these hear-
ings state that our industry is not organized, but take it from me,
it is. We have got the members ; they haven't.

I hate to chide the committee in any way, it is presumptuous, of
course, but it is noteworthy that nobody asked the other witness
how many members they had in the industry.

124491 — 41 — pt. so 34

16714 CONCKNTRATION OF ECJONOMIC POWEK

Mr. Pike. How many have they?

Mr. GRimxH. If you can get them to tell you, you will be very
good. It is my guess that it is something less than 3,000.

Mr. Pike. You have 115,000?

Mr. Grotith. We have 110,000.

Mr. O'CoNNELL. How many people are there in the industry?

Mr. GRTFriTH. Organized into independent unions at the present
time, we estimate there are 225,000. We have another 100,000 yet
to go.

Mr. O'CoNNELL. Do you mean all workers in the industry?

Mr. Griffith. That is right ; nonsupervisory. That is another dis-
tinction we draw that other labor organizations do not; we want
only the people that work, not the supervisors, foremen, general fore-
men, chief operators, and what not that the other organizations want.
We believe that a labor organization cannot function properly -if
the members of the management are a part of that organization.
We insist, therefore, that they not be members ^f any one of our
member organizations.

Mr. O'CoNNELL,. Does your union operate under what is known gen-
erally as the industrial basis?

Mr. Griffith. Industrial. We represent everybody in all depart-
ments, all branches of the industry, and our member organizations
likewise.

EMPLOYEE POLICIES IN THE BELL SYSTEM

Mr. Griffith. Practically no unskilled labor is utilized by the tele-
phone industry. Many of the phases of telephone work are highly
specialized, with no comparable work being performed elsewhere in
industry. It is common knowledge among telephone people that
unemployed telephone workers, particularly male employees, usually
find it necessary to begin anew in a different and often semiskilled
line of work at a sharply reduced income.

The A. T. & T. and associated companies have made some use
of the separation allowance to reduce the adverse effect of lay-off
on the displaced employee. It is not believed that any standard
practice has been agreed upon in this regard. In general, however,
the worker dismissed due to lack of work is given his regular vaca-.
tion allowance plus 1 week's wages for each year of service up to
10 years, and 2 weeks' wages for each year of service in excess of
10 years.

In the operating companies the separation allowance is, at times,
offered to operators on a voluntary basis as an incentive to resig-
nation. In contrast to this, however, the Western Electric manu-
facturing and installation branches have in the past used the separiition
allowance as a means of keeping a supply of skilled workers avail-
able in case an increase in business justified their reemployment.

In Mr. Gifford's 1939 report to the stockholders, he states that
the Western Electric Co. has made an initial appropriation of $1,-
045,000 for an employment stabilization reserve, "which the comparty
hopes will become a real help in dealing with its employment condi-
tions, which are fundamentally less stable than those of telephone
operating companies. The method of utilizing this fund is not
known.

CONCENTRATION OF ECONOMIC POWER 16715

This review of the effect of technological advance on employment
in the telephone industry would be incomplete if we failed to men-
tion the feeling on the part of the great majority of the rank and file
of the telephone workers, especially of the Bell System employees, a
maiority of whom we represent, tTiat they are not receiving an equi-
table share of the profits from the business. We direct your atten-
tion to the loss of many thousands of telephone jobs during the last
depression without reduction of the $9 dividend paid to the stock-
holder by the A. T. & T. Co.

As an immediate and temporary expedient in order to spread em-
ployment, we advocate the adoption of a shorter workday and work-
^veek without reduction in wages paid for the telephone industry.

Employment conditions in the Bell System, which include vaca-
tions with pay up to 3 weeks forj.5 years of service, a sickness benefit
and pension plan, generally safe and pleasant working conditions,
vocational general training programs, pay-roll deduction to provide
for payment of life insurance, hospitalization premiums, and pur-
chase of U. S. savings bonds, are highly regarded by the workers.

The average telephone worker, while affiliating, or retaining his
independent right to affiliate, with a union of his own choosing, never-
theless exhibits a well-known and profound interest in rendering
service of the highest type to the public at all times.

For many years in practically every section of the Nation, tele-
phone workers have been welding themselves by democratic process
into independent labor organizations of ever-increasing strength and
effectiveness. This movement was greatly accelerated by the passage
of the National Labor Relations Act by Congress on June 19, 1934,
and the subsequent amendment of this law on July 5,. 1935, to bar
assistance of any kind by an employer to a labor organization of his
employees. It is estimated that today there is a total of 225,000
members of independent labor unions in the Bell System alone.

As the organized telephone worker began to appraise his situation
he became aware of the existence of problems — national problems —
which transcended State lines and eluded any attempt at solution by
his individual organization. In addition, there developed an ap-
preciation and desire for the inspiration and guidance that is to be
gained from a close contact with the many thousands of other tele-
phone people throughout the country.

On June 5, 1939, the National Federation of Telephone Workers,
with a membersliip of approximately 110,000 of Bell System workers,
was organized at New York City.

Virtually all of the National Federation of Telephone Workers
affiliates have collective bargaining contracts with the operating com-
panies by whom their members are employed. The njembership of
the National Federation is not confined to Bell System workers. A
copy of the official proceedings of the constitutional convention and
fourth national assembly of National Federation of Telephone Work
ers held in New York City, June 5-9, 1939, has been turned over to the
counsel of your committee. From this may be obtained a general
knowledge of the aims and objectives of the organization and its
constitutional structure.

The National Federation of Telephone Workers is the only labor,
organization, national in scope, which represents any appreciable

16716 CONCENTRATION OF ECONOMIC POWER

number of Bell System workers, and is either authorized or qualified
to speak for them.

Incidentally, Mr. Chairman, every telephone man in your great
State is a member of our organization.

The Chaikman. We have got a lot of fine telephone men out there.

Mr. Griffith. That is rights Do you think the cowboys you know
out there could be coerced in any way by the management or anybody
eLa?

The Chairman. I doubt it.

Mr. Griffith. The Senator says he doubts it. We would like to
have you, along with' Senator King and Senator Thomas, attend
part of our meeting at Salt Lake City in June if it is convenient to
you, Senator.

The Chairman. Well, I appreciate the invitation. We may not be
out there by then.

Mr. Griffith. We believe we have furnished you with the main
outlines of the problems associated with technological advances and
employment in the principal section of the telephone industry. It is
our hope that in so doing we have been of service to the committee.

That concludes my regular report, and I have a few remarks that,
if it is agreeable with the committee, I would like to add.

Mr. Chantland. May I ask a question before you go to your gen-
eral remarks? You say there are 225,000 members of independent
labor unions in the Bell System, and that your federation represents
110,000.

Mr. Griffith. That is correct.

Mr. Chantland. And it is the only one of size. What is the situa-
tion as to the other 115,000?

Mr. Griffith. The others belong to independent organizations
now, similar in their organization to those that comprise our
National.

Mr. CHANTLANb. You mean they are what might be called locals?

Mr. Griffith. That is right, organizations in their own territory.
Incidentally, we have only been officially organized since last June,
and from that period to now we feel we have done quite well to get
110,000. We think we will have that other 115,000 shortly.

Mr. Chantland. Are any of the 115,000 outside your Federation,
besides the ones that Miss Sullivan represented, so far as you know
affiliated with the two older, larger labor organizations?

Mr. Griffith. They are.

Mr. Chantland. How many in number?

Mr. Griffith. Those A. F. of L. contracts are of long, long stand-
ing, nothing recent. In the city of Chicago we have 400 installers
who install equipment in Cook County. That contract has been in
effect since 1910 — 400 American Federation of Labor installers.
They are employees of the Illinois Bell Telephone Co., the same as
anyone else, and subject to all benefits, but tliey carry cards in the
American Federation of Labor.

Mr. Chantland. Can you give a judgment of the total number of
people out of this 115,000 that are so affiliated?

Mr. Griffith. Four hundred in the city of Chicago and the plant
workers in the State of Montana. I am sorry I can't tell you how
many plant workers there are in the St^te of Montana, but that is a
rather sparsely populated State and there wonkln't be so very many.

OOMJENTttATlON UF ECONUMIC I'OWER 16717

That also is a condition of long, long standing. Our people work
with these people in complete harmony.

Mr. Chantland. You left out the number Miss Sullivan had.

Mr. Griffith. You are right. In addition to the 400 installers
in Chicago and the plant men in the State of Montana, the Amer-
ican Federation will have some members in some exchanges in the
New England territory. There are two organizations in that terri-
tory— the Telephone Operators' Federation and this American Fed-
eration of Labor affiliate that Miss Sullivan represents.

Mr. Chantland. From what you say, then, would it be correct to
say that less than 5,000 all tol^ are thus affiliated?

Mr. GRiimH. It is my impression that 5,000 would be quite a safe
figure on the high side.

Mr. Chantland. Thank you.

Mr. O'CoNNELL. You say 225,000 workers. Do you mean that is
the total of the workers in the industry, or the number of workers in
the industry who are affiliated with some labor organization?

Mr. Griffith. That is correct, affiliated with some labor organi-
zation.

Mr. O'CoNNELL. How many workers are there in the industry,
organized or unorganized?

Mr. Griffith. There must be pretty close to 300,000 in the Bell
System who are not supervisors, 275,000 or 280,000 anyway. It is
very difficult, of course, to pick out just exactly how many.

Mr. O'CoNNELL. When you speak of the industry you mean a
broader classification than the A. T. & T. system?

Mr. Griffith. That is correct, because there are numerous inde-
pendent companies, some of which are of quite large size.

Mr. O'CoNNELL. There are no more than 300,000 workers in the
total industry?

Mr. Griffith. Counting the independent workers, it would run de-
cidedly more than 300,000.

Mr. Pike. There are about 4,000,000 non-Bell telephone stations?

Mr. Griffith. That is correct. Almost 17,000,000 are operated by
the telephone company, and the balance, up to almost 21,000,000 are
operated by the independent systems.

Mr. O'CoNNELL. "What I was trying to get at was the extent to
which the industry is organized one way or another.

Mr. Griffith. The figures are very fragmentary with regard to the
independent employees because there is such a vast number of com-
panies and some of them are more or less on a part-time basis. Some
of the central-office exchanges of the small independent concerns might
be in the bedroom of a man's residence. His wife might be the oper-
ator, and this man mig;ht be a farmer, for example, who would do
the repair work on Sunday afternoon or in the evenings. It is very
difficult to secure figures on all that, and, needless to say, when there
is a two-man telephone company like that they do not belong to any
labor organization of any character whatsoever. They own the com-
pany, or most of them do.

There are, of course, a number of larger independent companies
with thousands of employees and lots of companies of varying size
in between, and it is my impression that the A. F. of L. has had some
of the operators in some of those companies. I heard of one such

16718 OONOENTKATIOX OK ECONOMIC POWEK

company where they had 20 operators that belonged to the A. F. of L,
Those figures are fragmentary and concise, exact figures put out by
the statistics department of the A. F. of L. have never been called to
my attention.

SEPARATION PAY

Dr. Anderson. Mr. Griffith, may I refer again to the separation
allowance which you discussed, because it has been a point of contro-
versy in these hearings with Mr. Harrison's statement of the morning
and a contradictory statement in the afternoon by Miss Sullivan. You
have taken a somewhat in-between position when you say the
A. T. & T. associated companies have made some use of the separation
allowance. When effecting or negotiating a contract with the A. T.
& T. is that one of the specific points in your contract ?

Mr. Griffith. No, sir ; we have never been able to pin them down
to any guaranty as to separation allowance.

Dr. Anderson. Do you have a copy of the kind of contract that
you attempt to get with the A. T. & T. with you ?

Mr. Griffith. I do not. I didn't bring any contracts.

Dr. Anderson. Would it be possible to supply the committee with
negotiation contracts? Are they public documents?

Mr. Griffith. I could probably secure them for you. I don't have
them here. I can have them sent to our Washington representative
and he in turn would give them to you.

Dr. Anderson. When you said they have made some use of the
separation allowance, you have no specific figures as to the propor-
tion of workers covered by a separation allowance?

Mr. Griffith. That is correct. In general I think they use it even
in the case of very small lay-offs or perhaps a discharge for cause.
I have even heard or their giving a separation allowance of a few
weeks' pay, plus a vacation, if they are eligible for any vacation in
the service that they have. I have heard no complaint in that regard.
They are liberal in their interpretation as to the vacation allowances
to which a discharged person is entitled.

Dr. Anderson. You also discussed briefly the Western Electric Co.
employment stabilization reserve fund of a million dollars. Is that
only in the Western Electric Co.?

Mr. Griffith. That is correct; only in the Western Electric Co.
That is where the worst shock of the depression was felt by the
employees of the Bell System. It was a very, very disheartening
spectacle to walk through the great Hawthorne manufacturing plant
of late years and recall how it was when I was employed there myself.

Dr. Anderson. You go on to say that the method of utilizing this
fund is not known.

Mr. Griffith. That is correct.

Dr. Anderson. Have you sought to find out the specific method
that the company uses in applying the fund?

Mr. Griffith. No ; we have not. We did not know of its existence
until we saw it in the bulletins issued by the system.

Dr. Anderson. You had no part in the negotiation of such a fund?

Mr. Griffith. None whatsoever. Of course, there has been a lot
of discussion in regard to the general phases of this unemployment
condition throughout, and it is just a recognition on the part of the

CONCENTRATION OF ECONOMIC POWER 16719

company that they are taking some steps to quiet this feeling of
unrest.

Dr. Anderson. But there is no such fund to cover A. T. & T.
operators ?

Mr. Griftith. That is correct. Any separation allowance that is
given by the operating company, so far as I know, they merely take
out of their own funds. How they account for it in the bookkeeping
end I couldn't say.

Mr. HiXRicHS. Pardon me; Mr. Anderson used two phrases — one
the terms that you had tried to secure or wished to secure in con-
tracts and the other the copies of contracts now in existence. Are
those two synonymous, or would you wish to distinguish between
the contracts that you are going to submit and the terms that you
would like to see?

Mr. Griffith. The features that we hope to secure in some of our
contracts we do not now have. After all, the contracts that we do
have, the agreements that we do have, are something that some other
organizations were unable to get in many, many more years than we
have had months.

Mr. HiNRicHS. Is it your feeling, Mr. Griffith, that this problem of
technological displacement is one which should primarily be handled
by negotiations between a union representing the workers and the em-
ployers in the industry, or is it a field in which legislation is needed ?

Mr. Griffith. Our people are very independent in their thinking,
and they would not ask for aid from the legislative bodies unless they
felt that bargaining was breaking down. It may be the answer in the
ultimate. As I say, our people are not economic experts. They don't
look at these things the way you people do, of course. They are looking
at how these things and these changes affect them. I might add they
do not take the view that of course this committee would, that each
industry has a certain duty to keep a certain number of people em-
ployed. Our people by and large do not go for that view. We take
the viewpoint — when I say "we I mean all our people — that as the
stagecoach departed and as the pony express departed, and a lot of
things like that, our industry will likewise change, and we as employees
can't keep it from doing that. However, as representatives of these
people we feel that they should be given important consideration
in bringing these changes into effect. That is our view. We are not
fighting the change, if such a change is beneficial to the public. Our
company maintains that they have three factors to consider : the pub-
lic, the owner, the employee. We would just change that Jiround a
little bit: The public, the employee and the owner.

That is the view of our people in regard to the consideration that
is given. It has been brought out many times here in previous testi-
mony, and the companies have put it out'in their publicity. Mr. Harri-
son himself here repeated also that a higher degree oi skill now is
needed on the part of the telephone workers — that the need for skill is
over increasing. Well, if you tell our people that, they naturally are
going to believe it, and want wages and salary commensurate with that
increase in skill. That is what we are going to have.

Dr. Anderson. Mr. Griffith, as the federation representative, do you
seek at some future date to negotiate on a national basis with a single
ent itv called the A . T. & T. ?

16720 CONCENTRATION OF ECONOMIC POWER

Mr. Gkdtith. We expect in the future to deal with the American
Telephone & Telegraph Co. and also the heads of independent com-
panies on two bases, we might say : first, we see no reason why we
couldn't act as an appeal agent to them or to a subsidiary company
head in the event one of our member organizations feels that they
are not getting anywhere with their local people. That would be the
first basis that we would seek to contact the A. T. & T. Co. on, and the
second would be on general problems, on which the master minding
comes from the American Telephone & Telegraph Co. in the first place.
In fact if we wanted to negotiate for changes in the pension or benefit
plans, as all the companies have the same plans, the representatives of
all the subsidiary companies would have to agree to any change. Those
changes, and a lot of other changes, are coordinated, I will say that,
at least, coordinated at 195 Broadway, the headquarters of the Ameri-
can Telephone & Telegraph Co. Obviously, we would save a lot of
time if we dealt there in the first place, and that is what we plan to do.

The Chairman. That is what you plan to do ?

Mr. GRirriTH. Yes, sir.

The Chairman. I suppose the fact that the telephone company has
one central office for the entire country is one of the reasons why you
deem it necessary to have one central office for all of the workers in
your union?

Mr. Griffith. That is correct, Senator. We think that the
A. T. & T. Co. seems to have been a fairly success+'ul corporation, and
if it is profitable to them and of benefit to the public to coordinate
their affairs in one central location, by a similar line of reasoning we
should also do the same thing.

The Chairman. In other words, the telephone business is evidently
a national business?

Mr. Griffith. That is correct.

The Chairman. Operated from a national headquarters ?

Mr. Griffith. That is, the major portion of it is.

The Chairman. The final authority rests in the national headquar-
ters, doesn't it?

Mr. Griffith. They own the business, and naturally they have the
final authority, no matter how they soft-pedal it.

The Chairman. There are regions all through the United States
and subsidiary companies, are there not?

Mr. Griffith. Yes, sir.

The Chairman. Those regions and subsidiary companies are estab-
lished without regard to the geographical boundaries of States, are
they not?

Mr. Griffith. Many of the companies do follow State boundaries.
The Illinois Bell Telephone Co. follows the boundaries.

The Chairman. Many of them do ; they don't all.

Mr. Griffith. They often follow natural boundaries, such as a
river. In 3'our neighborhood, the boundary between the Pacific Co.
and Mountain States Co. follows the Snake River up there in Idaho.

The Chairman. That is a mighty fine river to travel on, too. I
will put in a plug for the summer attractiveness.

Mr. Griffith. That is great country out there, Senator ; I agree with
vou.

CU.NCKNTKATIOX Ob' ECONOMIC POWER 16721

The Chairman. And then, of course, there is the North Platte
River in Wyoming, of which it is said that it is a mile wide and an
inch deep, and flows uphill.

Mr. Griffith, Sometimes it is different, though. In 1921 I saw
it a little different than that.

The Chairman. Seriously speaking, these regions of operation are
not identified with the States?

Mr. Griffith. They are not.

The Chairman. As a rule. And I suppose that in your operation
you pay very little attention to State lines?

Mr. Griffith. That is correct. We follow whatever method ap-
pears to be tlie most efficient and the best. We may change them
from time to time.

The Chairman. So here you have a big national business upon the
one hand, and a big national union upon the other?

Mr. Griffith. That is correct.

Mr. Maginnis. May I ask, Mr. Griffith, your impression of Dr.
Anderson's question along the line as to whether your federation
doesn't look forward, perhaps in the not very distant future, to the
time when the A. T. & T. will have taken in all of tlie independents ?

Mr. Griffith. Well, it doesn't look to me as though they are going
to take in all the independents.

Mr. Maginnis. You don't think that is inevitable?

Mr. Griffith. I gather that the Federal Communications Commis-
sion— it is also my impression from statements issued by President
Roosevelt that he would be more or less in favor of that, but here is
the hitch to that. I can tell you as an engineer. It would cost an
awful lot of money because much of the equipment that the inde-
pendent companies have is not Bell standard by any manner of
means, and it would certainly be a huge undertaking to bring all the
telephone service of the United States up to Bell standards.

Dr. Anderson. But, Mr. Griffith, referring to your table on the
number of carriers,^ there has been a constant trend of mergers, as
you indicated in your testimony, so that in 1928 we had 140 different
companies operating, and in 1938, only 73.

Mr. Griffith. That is correct. It is my impression, however — it
might be interesting to check into it further — that the General Tele-
])hone Corporation and others are themselves getting larger. It is
my recollection that there are 6 major telephone systems in this
country, out of the six-thousand-odd companies, in addition to the
Bell Telephone Co. ; a total of 7 that are of any size at aU.

UNION attitude TOWARD MECHANIZATION

Dr. Anderson. You didn't mention specifically whether your union
would oppose the cut-over from manual to dial telepliones, as Miss
Sullivan indicated yesterday that her organization did.

Mr. Griffith. I could comment on that, doctor, from two view-
points: first, the unions; and second, my own private opinion as an
engineer, and a man who has worked in dial equipment the major part
of my term of employment. Regardless of our other views, I will

1 See "Exhibit No. 257;i.'" appendix, p. 17408.

16722 CONCENTRATION OF KCONOiVJlC TOWEK

agree with Miss Sullivan to the extent that the dial system is inevit-
able. Independent companies installed dial equipment a long time
before the Bell System did.

Some of the types of dial equipment that they used were a rather
queer looking piece of apparatus, obviously entirely unsuited to any
except very small neighborhoods, and it seems, therefore, that the Bell
System didn't choose to begin dial until they had some equipment
that would be usuable and proper anywhere. I saw one installation
of dial equipment in a small town in Indiana one time where every
single solitary number that could be reached was on the dial. The
only way they could get more telephones would be to have a bigger
dial, and you had to use a needle to do your dialing. That equipment
was installed and in use 35 or 40 years ago.

It seems to me it would have been foolish for the Bell System to go
to dial on such a proposition as that. Our people, as I said before,
are resigned to the inevitable so far as dial is concerned, and they are
concerned that the change shall be on a very gradual basis in order
that employment may not be disturbed and that the change-over will
not have any detrimental effect on them as a whole. After all, there
are a lot of people retiring every year, and people die every year.

The Chairman. There isn't any dispute about the central fact in
all this testimony; namely, that by reason of the technological ad-
vance, the telephone company can and does give greater and better
service with fewer employees.

Mr. Grlftith. That is absolutely correct.

The Chairman. It is also true that you and Miss Sullivan, speaking
for the unions, declare that you do not wish to be understood as
opposing technological advances, though Miss Sullivan believes that
the dial system does not have values of sufficient degree to justify its
full use. Now, what suggestion, what positive suggestion, do you
make as a solution of this situation, as a curative agent of the fact
which nobody denies, that employment is falling off ?

Mr. Griffith. Well, we have a couple of suggestions, one of which
I included in my observations here that I had permission to read.

The Chairman. I just wanted you to summarize it. Just mention
it briefly and any others that you may have.

Mr. Griffith. This matter of separation allowance and other things
of similar character would figure in our opinions in that regard. I
think that any labor organization would be foolish, indeed, to fight
anything that was a benefit to the large mass of people, and you
might say a blessing to humanity.

The Chairman. But a separation allowance, obviously, proTddes
only temporary relief and gives the displaced worker a certain period,
according to the length of time to which it is made to apply, to look
for another job.

Mr. Griffith. That is correct.

The Chairjvian. But the story that is told to us is that this
phenomenon appears in every industry, at least in those industries
which are operating on a large scale. We had Mr. Hook here speak-
ing for one part of the steel industry, and he acknowledged that there
is such a thmg as technological displacement. We have had spokes-
men for the railroads here — Mr. Parmelee, head of the Bureau of
Railway Economics, gave us at length descriptions of machines which
take the place of men, and the production on the railroads, just like

CONCENTRATION OF ECONOMIC POWER 16723

the production on the telephone system, has been increased with fewer
employees.

And so one could go from one industry to another, particularly to
those industries which are alfected by technological advance, and
while it must be acknowledged that new industries are constantly
being created by invention, nevertheless the unemployment problem
remains because the workers who are displaced in the most instances
are those who have been trained in the particular line, like your tele-
phone operator, like the rolling-mill worker, like the track layer on
the railroads who, when they reach a given age of 40 or 45, are
iniabie to adapt themselves to any other employment.

Now those are the persons, from the human point of view, that
society and industry must take care of. They are not taken care of
except temporarily by your displacement allowance. Do you have
any other suggestions?

Mr. Griffith. The answer, in my opinion. Senator, is we have to
have more business. Although the telephone companies are aggres-
sively promoting sales, I don't think that they have anywhere near
reached the point of increasing the sales that are possible. I think
that would be their contribution to the matter, to try to get more
business. There are many people who don't have telephones. Many
people who do have them don't have enough. The business could
be increased enormously. I see no saturation point in years and years.

The Chairman. But new business cannot be secured, can it, unless
the masses of the people are able to pay for it?

Mr. Griffith. That is correct.

The Chairman. Mr. Ford, of the Ford Motor Co., testified to us
with respect to the growth of the motorcar industry. He was an
ideal witness because he represented the company which was the
pioneer in the field of mass production, and he showed that the mar-
ket for the Ford car was opened when the Ford price was reduced
to such a level that it became possible for persons who had been
unable to buy high-priced cars to buy the cars that the Ford Co. was
making. So it becomes necessary, does it not, to open up a new
market by increasing the capacity of the people to buy ?

Mr. Griffith. That is correct; but here's where the rub comes,
Senator, in the case of a utility. Once the price is set it is very
difficult to increase it. Therefore it might be most interesting

The Chairman (interposing). You mean to decrease

Mr. Griffith. An experiment might be made, say in a certain
community, of making a drastic cut in their rates just to see what
would happen, providing, of course, that it was strictly understood
that it was merely an experiment. It might be advisable to reduce
rates to see if they could make more money, as much money as they
did before, and at the same time have more equipment in use and
more people employed. That would be following the tactics of the
Ford Motor Co. As I understand it, they have more people em-
ployed than they did before, even though they use these technological
methods.

The Chairman. Perhaps if it is a good thing for business to reduce
price in order to promote distribution, it might also be a good thing
for Government to reduce taxes as a stimulus to business in reducing
prices.

16724 CONCENTRATION OF ECONOMIC POWER

Mr. Griffith. I expect that would be received with considerable
favor by most telephone utilities. They make much of their tax bill
in their annual reports, figuring out how much they are per em-
ployee, and it reaches an enormous figure per employee that they pay
out in taxes for various governments.

The Chairman. If a reduction of taxes could be accomplished by
some effective method of preventing the acknowledged abuses in busi-
ness which have resulted in the past in holding up prices, and in
concentrating control, perhaps everybody, including the Government,
would benefit from that method.

Mr. Griffith, You might have something there. Senator.

The Chairman. I think I have.

Mr. Griffith. I have a few observations that won't take very long.

As I mentioned before, my training has been from the engineering
standpoint, and therefore we have to throw figures around a little
bit, and it is interesting to make contrasts of figures occasionally.
Let's see what happens. You heard testimony yesterday as to the
effect of the enlightened policy of the Bell System in retaining cer-
tain people in employment. They employed 387,023 people in 1929
and 285,550 in 1938 — a decrease of 26 percent. People who are inter-
ested in plaving around with figures might apply that same figure
of 26 percent to the total employment in 1929, which was 36,000,000.
You will find that if you do that you will get a considerably larger
figure than the total unemployed that you now have.

I thought that was rather interesting.

SUGGESTIONS FOR CUSHIONING DISPLACEMENT

Mr. Grifftth. The National Labor Relations Act and the Fair
Labor Standards Act contain specific guaranties designed to protect
certain rights of labor. Through normal collective-bargaining pro-
cedures with industry some progress on this problem can inevitably
be made. Nevertheless, industry, especially such as the telephone in-
dustry, which is affected with a "public interest," should assume a
degree of public and social responsibility so that its employees should
not have to pay for the introduction of techxiological methods and
devices by the outright loss of their jobs.

A study of the telephone industry will reveal that it is a self-
contained industry. Workers displaced by technological improve -
inents do not have the opportunity at present, but they should be
absorbed in the regular labor turn-over.

(Mr. O'Connell assumed the chair.)

Planning on the part of telephone management in advance of intro-
<lucing technological improvements should include notice to displaced
workers far enough ahead to permit this worker to attempt employ-
ment rehabilitation. The employer should go so far as to assume a
social responsibility of vocational guidance and training.

We know that the^e observations are not necessarily new or offer a
solution, but we know they are at least an advance over present con-
ditions in our industry.

The railway brotherhoods have had agreements with certain rail-
way carriers which, incidentally, are public utilities. These agree-
ments provide for compensation to employees whenever they lose their
Jobs through consolidations or mergers of two or more carriers.

CUNCIONTKATIUX OF KCO^'OMIC POWER 16725

111 brief, such displaced railway workers receive the equivalent of
their last monthly pay for the period indicated, which was: 1 to 2
years, 6 months' pay; 2 and less than 3, 12 months'; 3 and less than 5,
18 months'; 5 and les3 than 10, 36 months'; 10 and less than 15, 48
months'; and 15 years and over, they receive 60 months' pay, or 5
years.

Mr. Pike. Where is this, Mr. Griffith?

Mr. Griffith. In certain railway brotherhoods — agreements with
yome of the railroad carriers.

Provided such displaced employee did secure reemployment else-
where at less than the above equivalent before the time expired, then
he received the difference from the railroad carrier.

In a United States Supreme Court decision. No. 343, October term,
1939, the United States and the Interstate Commerce Commusion^
appellants, v. Frank O. Lowden, James E. Gorman, and Joseph B.
Fleming, as trustees of the Chicago, Rock Island <& Pacifc Railway
Co., and so forth, decided December 4, 1939, there is a further point
of interest which could also be made a partial solution to the techno-
logical displacement problem.

The question in this case concerned a railroad reorganization in
which the trustees applied to the Interstate Commerce Commission
for authority to lease another railroad and properties thereof to them-
selves (the trustees). The Commission found the rates, routes, and
so forth, would result in no change to the public. They also found
that the accounting office of the leased railroad could be eliminatea,
which would result in annual savings of $100,000, which was to be
effected through the ultimate dismissal of 49 accounting employees
and the transfer of 20 others to the lessees' main offices. The Commis-
sion also found that the welfare of the employees affected by tlie elimi
nation of the accounting office is one of the matters of "public in-
terest" which the Commission must consider in the proceedings under
section 5 (4) (B) of the I. C. C. Act as amendec^ •

It accordingly authorized the lense upon th' condition.4 wnich it found to be
just and reasonable: that for a period not exceeding live years oach retainc.i
employee should be compensated for any reduction in salary so loisj,' as he i.s
unable, in the exercise of his seniority rights under existing rules and practices
to obtain a position with compensation equal to his compensation at the date
of the lease ; that dismissed employees unable to obtain equivalent employment
be paid partial compensation for the loss of their employment in specified amounts
and for specified periods depending on the length of th*?ir service, and rhf...
the transferred employees be paid their traveling and moving expenses including
losses incurred through being forced to sell their homes. The maximum cost of
compliance with the conditions, it was found, would be $290,000 spread over a
period of five years, during which the savings effected by tlie lease would be
not less than $500,000. The Commission found that the proposed lease, with
the specified conditions "will be in harmony with and in furtherance of our
plan for the consolidation of railroad properties and will promote the public
interest."

A district court enjoined the Commission from enforcing its order,
whereupon the case was appealed to the Supreme Court, which re-
versed the lower court and sustained the Commission, and said in
part:

The fact that a bill has recently been Introduced In Congress and approved
by botli its Houses, requiring as a matter of national railway tiansportatioo
policy the protection of employees such as the Commission has given here, does
not militate against this coacuisiop Doubts which the Commissioi; at one time
entertatnftd but later resolved in favor of its authority to impose the- condl-

16726 COXCKISTKATION OF ECONOMIC I'OWEK

tions, were followed by the recommendation of the Committee of Six that
fair and equitable arrangements for the protection of employees be "required."
It was this recommendation which was embodied in the new legislation (S. Rept
No. 433, 7Gth Cong., 1st sess., p. 29). We think the only effect of this action
was ta grve legislative emphasis to a policy and a practice already recognized
by-sectloB 5 (4) (b) by making the practice mandatory instead of discretionary,
as it had been under the earlier act.

This decision establishes a precedent and shows by judicial de-
termination what congressional intent appears to mean in protecting
displaced railroad workers under such conditions.

Possibly, if collective bargaining cannot secure fairer results, then
corrective legislation may be the answer. We solicit your studies and
action upon this great problem. We would actively participate in any
movement to cooperate with industry to find an honest solution.

That concludes my remarks.

(Senator O'Mahoney, the chairman, now presiding.)

The Chairman. Thank you very much.

Do you have any concluding questions?

INTRODUCTION OF LETTERS RELATING TO INSURANCE HEARINGS

Mr. PiKE. Possibly, Mr. Chairman, I had better put in this mate-
rial the first thing this afternoon, on a matter of the insurance.

The Chairman. If you care to put thera in now it will be perfectly
all right.

Mr. Pike. If you remember, the committee authorized you to ap-
point a commi'.tee to examine certain letters which had been received
from insurance agents, following which you appointed Mr. O'Connell,
from the Treasury, and myself from Commerce, to look over these
letters, of which there were about 2,000.

The Chairman. These 2,000 letters had been received by the S. E. C.
in response to their inquiry, and then the committee delegated to this
subcommittee, consisting of the two of you, the task of making
a selection from that group, and you now have completed that
selection.

Mr. Pike. Yes, sir.

We went over the 2,000 letters and have selected — I might say the
selection was done to a great extent independently. We didn't get
together until after the selection was done, Mr. O'Connell and my-
self, and we selected 17 which we cdlisider typical, and which we
wish to present for the record, together with a copy of the Commis-
sion's circular letter to which these were replies. They have been
selected without consulting representatives of the S. E. C., since it
was our understanding that you wished it to be done entirely inde-
pendently.

These letters are of very high average quality and show a good
deal of thought on the part of the agent. There is also considerable
uniformity among the replies in answering the questions which the
Commission put. Most of them felt that agents should be better
trained and more carefully selected. Most of them felt that part-
time agents should be eliminated and that changes in method of
compensation would be desirable, although there was disagreement.
Most of them though they ought to get more. Most of the agents
who expressed an opinion thought that there were many opportuni-
tiesc left for further sales, but there was some lack of balance between
the mmiber of agents >^elling and the size of the market.

CONCENTRATION OF ECONOMIC POWER 16727

It was frequently expressed that this lack of balance might be
adjusted through the elimination of the unfit and unqualified agent.
Most of these letters were certainly not from disgruntled older
agents or agents who have some personal ax to grind. In general,
they are constructive, reasoned replies from men who have un-
questionably had some success in their field and who are proud of
their position in the life-insurance business.

Now here is a point which I would like to have consideration for .
Many of these agents requested that their replies be kept confidential,
and on that basis there has been some editing of the letters in order
that the name of the sender cannot be determined from the context.
There has been, however, no chance in the substance. In looking
those over I find that, in my opinion, further editing of names and
places is desirable, and I would request that before they be made
public, certain other eliminations of places and names be made.

The Chairman. You mean merely to strike out any indication that
might identify the authors of the letters, since they have requested
that their names not be made public.

jNlr. Pike. Yes, sir ; so that there should be no possibility of the
identification of the writer ot the company for whom he works or
where he is located.

The Chairman. The letters will be received for the record with
that understanding.

(The documents referred to were marked "Exhibits Nos. 2587 to
2604" and are included in the appendix to Hearings, part 28, pp.
15634-15641.)

The Chairman. The committee will stand in recess until 2:30 this
afternoon,

(Whereupon, at 12 : 50 p. m., a recess was taken until 2 : 30 p, m.
of the same day.)

AFTERNOON SESSION

The hearing resumed at 2 : 40, at the expiration of the recess. Sen-
ator O'Mahoney, the chairman, presiding.

The Chairman. The committee will please come to order.

Dr. Anderson. Mr. Chairman, this afternoon's witness, winding up
the testimony with respect to the electrical field, will be Mr. James
B. Carey, general president of the United Electrical, Radio, and Ma-
chine Workers of America, and national secretary of the Congress of
Industrial Organizations.

The Chairman. Do you solemnly sMear that the testimony you
shall give in this proceeding shall be the truth, the \vhole truth,
and nothing but the truth,,so help you God ?

Mr. Caret. I do.

TESTIMONY OF JAMES B. CAREY, GENERAL PRESIDENT OF THE
UNITED ELECTRICAL, RADIO, AND MACHINE WORKERS OF
AMERICA, AND NATIONAL SECRETARY OF THE CONGRESS OF
INDUSTRIAL ORGANIZATIONS, WASHINGTON, D. C.

Mr. Carey. I ask the committee's permission to enter in the record
a statistical brief which I mention and discuss during my testimony.
The Chairman. Thnt will be prcsiMitt'd :is nn exhibit?

16728 CONCENTRATION OF ECONOMIC POWER

Dr. Anderson. It will be exhibit No. 2605.

The Chairman. Without objection, it is so ordered.

(The document referred to was marked "Exhibit No. 2605'' and
is included in the appendix on pp. 17412-17424.)

The Chairman. These figures all apply to your industry, the elec-
trical and machine manufacturing industry?

Mr. Caret. That is right.

The Chairman. And what is the source of the figures which you
are pi'esenting here as conclusions ?

Mr. Carey. The sources of the figures are all outlined in the sta-
tistical brief. This is just a summary of what is shown in that
brief. We go into greater detail there, easily secured from the brief
itself.

The Chairman. Wiiat is your full name?

Mr. Carey. James B. Care}'.

The Chairman. And what position do you occupy?

Mr. Carey. The position of general president of the United Elec-
trical, Radio, and Machine Workers of America.

The Chairman. How long have you held that position ?

Mr. Carey. I have held that position since the inception of the
organization in 1936.

The Chairman. What is your own personal business?

Mr. Carey. My own personal business, my trade, is in the radio
manufacturing field.

The Chairman. How long have you been so engaged ?

Mr. Carey. I worked for 6 years at the Philco Co. in Philadelphia.

The Chairman. What was your training for that business?

Mr. Carey. I attended Drexel Institute studying electrical engineer-
ing, and also attended the Wharton School of Finance in Pennsylvania.

The Chairman. Did you receive a degree from an}' of these in-
stitutions?

Mr. Carey. Xo. I attended night school.

The Chairman, When did you complete your educational training?

Mr. Carey. I completed the educational training while I was work-
ing in the plant, and engaged in labor-union activities about 1935.

The Chairman. How long have you been engaged in this trade?

Mr. Carey. In the trade 6 years.

The Chairman.* Six years all told?

Mr. Carey. More than 6 years ; 6 j^ears for one company. I worked
in radio previous to that for a short time.

Dr. Anderson. Mr. Carey, by wa}' of an introduction, would you
tell us just what your industry comprises? When you speak of these
over-all figures, to wliat particular branches of the electrical industry
do you refer ?

Mr. Carey. 1 ^:uppose the best and simplest way is to name the
companies and the products they manufacture. Our organization
covers such companies as General Electric, Westinghouse, Allis-Chal-
mers, R. C. A., Philco, and all the other, electrical manufacturing
companies. They manufacture such products as generators, motors,
some business-machine equipment. In the machine field it is the
manufacture, of course, of consumer products such as refrigerators
and radios, and all other electrical equipment of that type.

Dr. Anderson. I raised the question, Mr. Carey, to bring out the
nature of the industries \\ ith which vour organization deals.

CONCENTRATION OF ECONOMIC POWER 16729

Mr. Carey. I am submitting to the committee a rather detailed
statistical brief covering the important facts of technological change
as it occurs in the electrical and machine manufacturing inuustry,
an industry in which approximately two-thirds of all employees are
working under the union contracts and collective-bargaining status
of the United Electrical, Radio, and Machine Workers of America.

Because it is difficult to grasp complicated statistical pictures when
presented verbally, and because the students who will make the best
use of this material necessarily prefer to work from the documents
themselves, I shall not attempt to handle this Avealth of factual mate-
rial at this time. Instead, I want to attempt to simplify tl\e prob-
lem, to show the gist of the situation as I see it.

Let me first sum up, however, the factual points made in the sta
tis'tical brief I am filing. We show the following things about our
industry — and I will simply run over them rapidly so that you can
get the general outline of the picture, which tlie brief will fill in in
much greater detail.

EFFECT OF TECHNOLOGY IN THE ELECTRICAL IXPUSntY

Mr. Carey. We show :

That technological improvement in our industry has been mucii
more rapid than in industry generally.

That our. industry has a special bearing on the question of tech-
nology, in that our industry is actually supplying an increasing
amount of the very machinery by which other industries make theii-
technological advances.

That the actual nature of this special type of machinery which
aids technological advance in other industries is changing, so that
cuntrol instruments make up an increasing percentage of the product,
in contrast to mere recording instruments, which do not function as
controls.

That because our industry is highly concentrated, both as to the
geographical location of plants and as to ownership of principal
plants, any technological improvement spreads throughout our indus-
try very rapidly.

That in our industry, operations Vvhich formerly required a rela-
tively large number of skilled workers are being broken down into
smaller operations whicli achieve the same or better production re-
sults, but which require fewer skilled workers.

That as a result of the above, the ratio of skilled workers to all
workers in our industry is ra])idly falling.

That in our industry the increase in productivity per man-hour
worked has been very great — so niueli so that mo nre confronted by
the following facts:

1. Hours worked ])er week today ;ire aboul i?o percent under 1920.

'2. Employment is about IG percent under 1929.

'^. Productivity per man-hour in the heavy goods section of our
industrj' is 32 percent above 1929, and "29 percent above so recent a
year as 1937.

4. In radio, productivity is more than 100 percent higher than in
1929.

.5. Defining productivity j)er miin-hour in 192'.i ns 100 percont, we
find tliat by 1939 it has risen to VXl ijercont.

16730 CONCENTRATION OF ECONOMIC POWER

6. The labor cost for each $100 of value produced in 1939 was
about 14 percent less than in 1937. In the radio section of the in-
dustry, the drop in labor cost since 1937 has been about 23 percent.

These are a few of the outstanding facts with which we arc faced
in the electrical and machine manufacturing industry, and which are
generally characteristic (in different percentages, to be sure) of
all industry.

All our studies, the studies of other workers in the field, and most
important of all, the day-to-day practical experience of hundreds of
thousands of employees and ex-employees in our industry, con-
tribute to the emphasizing of this central fact :

That the benefits of the extraordinary technological improvement
that has taken place in this country are unfairly divided, as among
the men and women who do the work, the men and women who buy
the goods, and the men and women who own the industry.

So great has been the technological change in our industry that it
has beeii possible for the companies to agree in many cases to i7i-
creased wages for fewer employees, to reduce the sales price of the
product, and still have enough left over for substantial increases in
profits.

In other words, the savings resulting from improvement in method
and in machines are so large that a small fragment of the savings
can be (and sometimes is) given in the form of slight increases in pay
to those employees who survive technological displacement and an-
other small fragment can be (and sometimes is) given to those con-
sumers who survive the disaster of technological displacement; and
after both these fragments have been dealt out, there is still enough
left for maintained and, today, increased rates of profit.

The increases in wages, when there are increases — and this is by
no means characteristic of all industry — do not begin to make up for
the total decreases in wage money paid out.

Now, in the years preceding 1929, it could not be said that in-
dustry was doing an adequate job in matching product with purchas-
ing power. Even in 1959, industry was turning out so much less in
purchasing power than in product, that our economic machine clogged
up and has remained clogged up ever since then. That was the case
in 1929 and previous years, when product was substantially in excess
of purchasing power.

So we can imagine how much more acute the crisis in the field of
technological change has become today, when it is possible to turn
out still more product while turning out still less, much less, pur-
chasing power.

Let me refer again to onr statistical study, to emphasize these points
in another way.

Our industry can today produce the same amount of electrical
machinery as was j)roduced in 1929, with about 24- percent fewer-
woikers.

Th radio division of our industry can today produce the same
amount of radios as in 1929, with onli/ half the number of employees.

And in the interval between 1929 and 1939, thanks largely to the
activity of organized labor, liours of work per week were reduced in
the industry. Indeed, if employees wfic. today working the same
number of hours they workcfl in 1929, tlipu the crisis wouM he still
more acute — for under mw]) circnnistaiicos two thirds of the numbor

CONCENTKATION OK ]':(OiNOMlC POWEK 16731

of employees needed in 1929 could now produce the same amount of.
produce as was produced in that year.

When the situation is approached from another point of view, the
same basic facts are italicized. Wlien we relate our facts to the
value of the product, we see that the labor cost for each $100 value
produced has declined, for the entire industry, about 15 percent from
1929 to 1939.

In our industry, and industry generally, it is today possible to tnru
out still more product while turning out still less in purchasing
power.

This is the very issue, of course, on which the two main schools of
economic thought are divided today.

Wliat we call, and can call quite calmly, the "reactionary" school,
says : "In order to match purchasing power and production, let us cut
purchasing power still further and cut the amount of product accord-
ingly." The other school, my school and, I believe, the obviously
correct school, says : "In order to match purchasing power with prod-
uct, let us increase the amount of product still further and increase
the amount of purchasing power accordingly."

These two schools go by all sorts of names. A very descriptive
phrase for the reactionary school is the "economy of scarcity''* phrase ;
it emphasizes the fact that partisans of this >;chool believe that the
way to balance the total economic and productive budget is by slash-
ing at the product in order to teep it within reasonable range of the
purchasing power.

But the two schools of thought have sharply different effects on
our Nation.

A school which bases itself on the need to pull product down to
purchasing-power levels, rather than lifting purchasing power levels
uv to the amount of product wo can produce, yields what a philoso-
pher might call "incidental" results of a disastrous nature.

I will not call these side results "incidental" because they are the
results that have put this Nation in a predicament where some 12,000,-
000 living human beings are out of work, and where at least half of
those who do work get along on substandard scales of living
conditions.

What it comes to is that by some perversity of thought and think-
ing, we have reached the point where the brilliaiit results of the finest
managerial and scientific minds in the Nation are being used for the
ra'pid impoverishment of the people.

That this impoverishment is a fact, no one of whatever school can
deny. It is all around us, and there are not. I suppose, more than
300.000 persons in the United States who do not have direct, personal
knowledge of this shocking impoverishment.

Let us not be deceived by the false notion that "machines are doing
the work that men used to do." That is close to the truth, but not
(^lite close enough, for machines without men cannot do any work.

So va<^t has been the output of metliod. procedure, and mechanics
in this field, and so astounding are the results that it is easy to lose
sight of the fact that machuiL'- are but iv.'itmim.ents for the multipU-
cafion of manpower.

This point is obvious, when we consider ♦ihe simpler machines. A
hammer, for example, does not do any work. A hammer merely mul-
tiplies the effectiveness of the human being who uses ii \. wheel-

16732 CONCENTRATION OF ECONOMIC POWKK

barrow does not carry any bricks; it enables a living human being
to carry more bricks than he could do otherwise ; a wheelbarrow thus
does not do the work, but multiplies the work-power of the man who
uses it.

This situation is easy, as I say, to grasp in the cases of the hammer,
the wheelbarrow, and perhaps in the cases of the simpler modern
machines. So let us not lose sight of the fact that the same situation
applies even in the most advanced instances. A giant machine, per
forming, as they say, "automatically" very complicated operations
is not doing the work itself, but is enormously increasing the output
of workers.

The brainpower that once had to stand at a machine and control
it is now embodied, in some operations, in a punched card or roll which
controls the operations. Gear ratios and cams, set once and for all by
a human brain, vastly extend the power of such a human being. Thus,
in the most advanced cases of technological change, as in the more
primitive ones, we are confronted not by machines which do the work
themselves, but by instruments which enormously multifly the work
of living men and women.

I have just stressed the role of control, through human brainpower,
in advanced technological operations, and I did so, first, because in
our industry (as our brief will indicate) ther^has taken place a great
rise in the importance of control instruments, and secondly, because
it is far too common to forget the fact that oil human labor is valuable
because of its brainpower.

In keeping with traditional cdncepts, we are, of course, fully familiar
with what is meant by "skilled" as against "semiskilled" and "un-
skilled" labor= But this must not blind us to the fact that the humblest
unskilled worker is liired primarily for his brain, not his brawn. The
ditch digger, ordinarily considered a strictly manual laborer, needs
plenty of muscle to dig his ditches, but it is his brain, which tells him
how to dig ditches, which makes his work valuable, and it will be
noted that the very simplest task of so-called "brute labor" requires a
human brain for its performance.

The very simplest task requires a technique, however simple both the
task and the technique may be, and both task and technique are beyond
the range of even the strongest creatures if they have not human brains.

Very complicated operations require highly coordinated brain power,
lughly developed planning, highly developed thinking. The new tend-
ency in technological change is to do this thinking, this planning, once —
and then to embody it in routines, punched cards and rolls, ratios and
gears and cams. Once this has taken place, it is then possible for •'semi-
skilled'' workers to carry out operations which, otherwise, would require
skilled workers.

So. as these control and planning operations gain in prevalence, tije
Jiriis between these classes of labor grow vaguer and vaguer, and the
piacticnl effect is to reduce all labor to a common level; the skilled
workers are pushed down toward jobs which require of them less
than their full capacity, and the entirely unskilled workers starting out
in industry are forced to hum, and "learn quickly, tasks of a semi-
skilled nature. The old tiiterin i>f -Idll disintegrate ; they cease to have
the practical meaning they once liad— -and along with the disintegra-
tion of criteria of skill goos, as we all Imow, a disintegration of the wage
structure.

CONCENTRATION OF ECONOMIC POWER 16733

VVe know that the old inequality of product and mass purchasing
power produced with disastrous regularity cycles of depressions. Pe-
riodically, the accumulation of product in relation to purchasing power
would grow too great, and this accumulation would discharge itself
over a period called a depression.

So vast has been the technological change since 1929, that the cycles
have enormously speeded up. Nowadays, we cannot get out or one
depression before another starts up ; one comes on the heels of another
so fast that, as far as the ordinary people of this country know, there
has been one continuous and steadily worsening depression since 1929
itself, regardless of what ups and downs may have been the experience
of those closer to the top of the structure.

When the question of a remedy comes up, as it is coming up in these
committee sessions and throughout the Nation with increasing em-
phasis, we have, it seems to me, no more than a few directions in which
to look.

REMEDIES FOR UNEMPLOYMENT

Mr. Caret. First, the leaders of industry can themselves, if they
will, take the necessary steps to equalize the inequalities. The. first
answer, then, is private industry.

Second, labor can and perhaps must, though its normal processes
of collective bargaining, press and achieve its demands for equaliza-
tion.

Third, if labor by reason of obstacles placed in its path cannot,
and if industry will not, then the Government must step in.

And the fourth answer, one that labor rejects with all the power
at its command, is the far too prevalent answer that there is no
answer.

Excluding this fourth answer, the "no" answer of the cynical or
defeatist, labor would have good reason to expect that all three of
(he other answers might yield good results. Private industry can do
something, labor can do something, and Government can do some-
thing. That, of course, is exactly the reason why we of organized
labor have never let up in our demand that a genuinely representati\e
conference be called on the subject, where leaders of government,
labor, farmers, professional groups, industry, finance, all, can get
down to the practical problem.

""V^Tiat can industry do?"

If the leaders of industry were voluntarily to a^'ee that whenever
productivity is increased through technological change,, tlie beneflts^
Mould be passed on to labor in the forin of increased wages, decreased
hours, and increased number of jobs, and passed on to the public in
the form of decreased prices, or if industry would even go part way
in this direction, then a beginning would have been made.

"What can government do?"

Government can first do what it is not doing today, and that is to
attack the problem directly. It is all but incredible that when the
country is faced by this paramount problem, the problem which over-
.shadows and embraces every other national problem, the Govern-
ment should still remain silent and motionless in regard to the solu-
tion of the problem.

Government can take steps to see to it that when industrial leaders
do take steps in the right direction, they are encouraged and re-

167S4 CONCENTRATION OP ECONOMIC POWER

warded; and that the employers who decline to take such steps are
not encouraged or rewarded. Government can keep the channels of
collective bargaining clear for labor. Government can and must
bridge the gap between what must be done and the percentage that
private industry is able or willing to do.

We of organized labor can and are doing what we see as the jobs
for us — and I do not believe it can be said that any substantial group
has more actively taken the lead than labor.

In our own industry we are introducing as rapidly as possible the
contract provision on certain phases of technological change. In an
increasing number of our contracts, as in our General Motors elec-
trical division contract, the question of speed-up is declared by con-
tract to be a subject of collective bargaining.

Speed-up is, to be sure, only one primitive kind of technological
change and is never a decisive matter when dealing with the full
impact of technology. We anticipate the need for making all mat-
ters of technological change subject to collective bargaining.

We are pressing for a reduction in the work week, without any
reduction in weekly pay.

Our own studies show that if as many employees were working in
our industry as in 1929, but were working on a 35-hour week, then
total production would be approximately the same as in 1929.

Just as important, all of organized labor is repeatedly calling the
attention of working people to the problem itself. "Technology" is
no longer a strange word for working men and women, for they have
seen this thing called technology force more and more of their num-
ber out of jobs.

The normal, proper operation of technological change is to in-
crease the amount of product without increasing prices or decreasing
purchasing power.

Instead, technology is today operating to reduce the number of
jobs, to result in wage payments which, despite certain individual
areas of increase, slowly decrease in total amount. Technology cuts
the prices to the consumer of certain classes of consumer goods, but
along with that it destroys the purchasing power to a still greater
extent. What good is a 10-percent price cut if whole areas of pur-
chasing power are wiped out? A 10-percent or a 20-percent or even
a 50-percent reduction in price means nothing to the family that has
lost its income. The 12,000,000 jobless cannot buy the goods at either
the full price or the cut price. An average family which gets along,
as do nearly half the families in the United States, on $16 per week
or less is not effected by great price cuts in autos, refrigerators,
radios, or other products in fields where technological change
operates.

The new approach to the problem, the approach which involves
the substantial increase of purchasing power, does not involve, as
many believe, the abolition of profits.

To be sure, it may call for lower rates of profit, but the profit
system is by no means destroyed; indeed, it is preserved far more
securely than by this contemporary process of more and more profits
for fewer and fewer people.

Our interest is not in how much goes to profit but in how little
goes to the people. Today the penalties inflicted on the unemployed
apd on^the substandard- wage groups amount to economic death. If

CONCKNT-KATION OF ECONOMIC I'OWEK 16735

a worker gets caught in the expanding desert of unemployment, his
income disappears.

You will find that the overwhehning majority of our American
people will not object to large and even very large incomes on the
part of owners and managers as long as the income of the average
American family is high enough to support a decent American stand-
ard of living.

We do not care, and the people do not care, if there be a certain
group which pays itself $25,000 or $25,000,000 per person in salaries
and dividends and profits. What we do care about is the improve-
ment of conditions of those who get from zero to $2,500 and $5,000
per year, especially the group below $2,000 annual income.

We say, and we know, that the Nation can produce enough to give
all American families an American income, and that doing this does
not preclude the payment of much higher incomes to employers and
owners.

A reasonable income for all does not preclude but in fact guaran-
tees, higher incomes for owners and managers.

I say "guarantees," because no one can look at the picture today
without realizing, as many of the well-to-do do realize, that there is
nothing stable or guaranteed in eternity about higher incomes now.
Todaj' the high incomes rest on a base that is dissolving before our
very eyes — dissolving into misery, unemployment, substandard wages,
poverty. Jobs for all, reasonable incomes for all, can stabilize this
base, can make it solid and permanent and healthy. That is what
we ask industry and government to do.

Mr. Maginnis. Mr. Carey, I didn't want to interrupt, but I was
rather interested in one paragraph on page 5. You say :

What we call and can call quite calmly the reactionary school, says, "In order
to match purchasing power and production, let us cut purchasing power still
further and cut the amount of product accordingly." The other school, my school,
and I believe the obviously correct school, says, "In order to match purchasing
power with product, let us increase the amount of product still further and
increase the amount of purchasing power accordingly."

You don't mean that is just your view? What school of thought
has the first view?

Mr. Carey. The first view is held by the people who state we are
overproducing in this country. There are a great many who believe
that, that we are now producing more than we can use. I don't say
that this thought is original with me about the other school which
believes we should raise the standard of living of the people and give
them an opportunity to use all we . produce today, and more, by
increasing the amount of money that they have at their disposal to
purchase those products. One school of thought, the reactionary, or
scarcity, school of thought, believes in. reducing the amount of pro-
duction to meet our present consuming power. The other school
says, increase the amount of production and increase the amount of
purchasing power in order to match that.

Mr. Maginnis. Do you believe that any large industry that is at-
tempting to make a success of its business deliberately attempts to
cut the purchasing power still further, and cut the amount of the
product accordingly?

Mr. Carey. They do that for their own immediate advantage. I
do believe that there are a great number of industries, even far more

16736 CONCEJSTKATION OF ECONOMIC TOWER

companies, that are a drain on our whole economy, because they pro-
duce a great deal in product and little in purchasing power.

Mr. Maginnis. That is more or less of a general theoretical thought.
You don't know of any industry that deliberately does that, do you?

Mr. Cauey. Some of them look at it not in tlie sense that they are
part of the over-all production plant, but from the standpoint of their
own immediate profit. In my own industry I know of companies
that I could name that actually are a drain on not only our industry
but our whole economy because they pay so little wages that the people
can't afford to buy the products they make, as well as any other prod-
ucts of the same standard. The whole radio-parts industry is a drain
on our economy because of the low wages that they pay.

Mr. Maginnis. What you mean is that the effect of their operation
is that, not that their intention is that ? The effect of their operations
is to cut the purchasing power still further, but you don't mean to
say that that is their plan and their school of thought ?

Mr. Carey. It is just the way it works out. The school of thought
is a group of people who believe in limiting the amount of production.

(Mr. Pike assumed the chair.)

Dr. LuBiN. Isn't it true, Mr. Carey, that there are many industries
in this country, who, when the price level falls, immediately curtail
their production and thereby cut down employment, thereby cut down
pay rolls and purchasing power, but theoretically, at least, if they had
continued to produce, they at least might have limited the extent to
which employment would have fallen in the economy as a whole ?

Mr. Carey. Yes, sir ; we have some companies in the radio industry
that went out of business because the profit per unit was not sufficient
for them. They just closed their plants and said, "When the time
comes when our profit per unit is sufficient we will go back into the
manufacture of radios," and they are not small companies by any
means.

Dr. Anderson. Do you mean they would forego even small profits
rather than to break the price structure ?

Mr. Carey. Yes, sir.

Dr. LuBiN. You might even get the reverse situation, where you
operate only a certain level of capacity and keep prices up, whereas
if you lowered your prices it might be posisble that you would in-
crease your level of capacity and increase employment and purchasing
power too.

jNIr. Carey. Except in an industry where there is a saturation
point rapidly being reached. As I say, in radio you arrive at the
point where you feel that the market is not enlarging, in fact the
market is contracting. In the radio field toda}' all we can do is re-
place the old radios that are being worn out, and the only other
market is for people to have two radios in their homes instead of one.
In other words, there are not enough new markets.

Dr. LuBiN. But you might stimulate replacement by lowering the
prices.

Mr. Carey. Up to the point where the people have at least some
money to buy some radios. I would say there is not a large market
for radios today because all the people who can afford to buy a radio
have a radio.

Dr. Andei:son. And is it your jud^ent, Mr. Carey, that, generally
speaking, in the industries with which you have contact, the policy
of maintaining the price is pursued Regardless of its effect?

CONCENTRATION OF ECONOMIC POWER 16737

Mr. Carey. No, sir; I don'i believe that is general.

Acting Chairman Pike. There has been a great drop in the gen-
eral retail price of radios in the last 8 or 10 years.

Mr. Caret. A tremendous drop, and much better radios ; there are
more work imits per radio.

le\tl'ling of skills

Dr. Anderson. I would like to move over to a discussion of a
problem that interests all of us, one upon which you touched in your
paper. You mention a problem that has been of great concern to the
students of this matter of technology and its effect upon workers,
saying—

As these control and planning operations gain in prevalence, the lines be-
tween these classes of labor grow vaguer and vaguer, and the practical effect
is to reduce all labor to 'Common level.

Do you believe, as a result of your experience, that a general and
progressive degrading of labor is occurring?

Mr. Caret. Yes, sir ; it is ; there is not as great need for skill today
in what we term the "skilled trades" as in the past. For instance,
machine operators today who were formerly classed as machinists
are today classed as semiskilled rather than skilled workers because
they operate one type of automatic machine.

Acting Ciiairman Pike. Following that point a little further, Mr.
Carey, these machines as installed do require a certain type of skill
in repair and adjustment; that is, most of these things are set up so
ti^ht for hair-line measurements or better that they do require some-
thing of a pool in almost every factory of a few very highly skilled
mechanics.

Mr. Caret. Yes, sir ; but once they are set it doesn't require a man
as skilled as the one who made the setting to stay with that machine.

Acting Chairman Pike. That is true; he comes abound only once
a week, or when the operator complains or when the spoils are get-
ting too big, but there is always that pool of very highly skilled
mechanics in a highly mechanized factory, not very large.

Mr. Caret. Yes, sir; and becoming smaller and smaller.

Dr. LuBiN. Mr. Carey, I was very much interested in your brief,
particularly that part of it which deals v ith the low cost of each
unit of productive capacity. You mentioned television as a case in
point. Is it your experience in ^he industry that that process is going
ont In other words, put it this way: whereas, formerly it cost you
$10,000 to buy a machine that produced a thousand units, now for
$100,000 you can get a machine that will produce, say, 1,500 units.
Is that trend going on actively in the electrical industry?

Mr. Caret. Yes, sir; and the rate of acceleration is not hesitat-
ing; it is increasing.

Dr. LuBiN. That means we are in position today to increase the
productive capacity of the Nation without investing more money as
compared to what we used to have to invest.

Mr. Caret. Oh, yes, sir. In that particular reference I believe
I mentioned that it wasn't by putting in new machines, it was just
by adding to the machines already in and increasing capacity. We
.are far from reaching rapacity in our industry and I doubt if other

16738 CONCENTRATION OF ECONOMIC POWER

industries will reach it. Without increasing the capital investment
we could increase our capacity.

Dr. LuBiN, So as far as all this argument that one hears that we
will have to have more and more and more investment if this country
is to grow and the standard of living is to increase, the facts in
your industry are to the effect that with relatively small increases in
investment you get a much larger and increasingly larger volume of
production.

Mr. Caret. Correct.

Dr. Anderson. In connection with the degrading of workers, which
seems to be of such great concern, you say in your brief, "Exhibit No.
2506" :

This tendency has reached alarming projwrtious, for the ratio of skilled
workers to the total labor force is continually dropping.

Were you referring there to the labor force engaged in electrical
industries?

Mr. Carey. In the electrical industry. I am referring primarily
to the people who weX'e formerly classed as skilled labor ana are now
classed as unskilled, or partly skilled.

Dr. Anderson. That led to your table on the importance of this
problem in your industries, in which you show that skilled workers
are 21 percent of the industry, semiskilled workers 52 percent, and
unskilled workers 27 percent. The bulge apparently is in the semi-
skilled level. That is what they are degraded to ?

Mr. Caret.- From skilled ; yes, sir. For instance, a person in radio
manufacturing in 1926 had to have a pretty complete knowledge of
radio. He would make a radio. Today they don't require men of
that type. They require men who know how to use a hand wrench
-and put on one nut or a few wires. Sometimes they don't even know
what work they are doing. In some cases in our industry we have
workers who have never seen a complete job that they work on.
Today it doesn't require a great deal of skill to make a radio.

Dr. Anderson. Might it not mean also that you got a degrading of
highly skilled craftsmen at the top and an upgrading of unskilled
levels from the bottom into the semiskilled level ?

Mr. Carey. We know the number of skilled people required in a
plant, and as we bargain collectively on job classification, the
tendency on the part of the company is to reduce the classiJBcation
so that they can give lower rates of pay. The effort on the part of
the company is to put in new methods of procedure in order to
reduce the labor cost, and in order to reduce the labpr cost they
change their classification. They don't give a person a wage cut,
they just say that that classification is no longer necessary, no longer
in existence.

Dr. Anderson. In negotiating you have split up the industry into
a series of levels, each having its own job classification and its pay
returns. Has the number of those classifications increased or de-
creased with advancing technology?

Mr. Caret. The number of classifications has increased but not
because of technology, in the sense of new methods of machinery ; it
is new systems on the part of the company that have become in-
creasingly complicated. At one ;ime they had three classifications,
craftsman, lielpoi-, and apprentice; now they -have broken it up into

CONOEKTUATIU-N OF KrONOMK? I'OWEK 167319

27 different classifications. Every conipany uses a different method,
and they use different names and different criteria to determine a
classification.

Dr. Anderson. And you feel that that split-up into more and more
classifications does not mean an increase in skill, but rather degrading
to a common level that could be called simply semiskilled.

Mr. Cakey. That is correct ; yes, sir.

Acting Chairman Pike. On that matter I would like to get it clear
in my head what you call semiskilled. I wonder if you would agi-ee
with me that a man may be highly skilled in a -particular narrow
application as you said a moment ago, a fellow who adjusts a particu-
lar part rather than the man who makes the whole radio, he may be
very much skilled in that particular operation, he must be to be on
the job, but he would still be a semiskilled workman. Does he have
no breadth of adaptability, no training in, let us say, making the
whole radio, the difference between the cobbler making the whole
shoe and 200 people on the line, each doing one particular piece of
work? He is nonadaptable to a great extent?

Mr. Carey. They could be very adaptable, but there is no use for
the adaptability.

Acting Chairman Pike. No ; but the training leads him to be very
narrow in a groove. Let's say there were another factor of a some-
what different kind; let's say I am a skilled workman, and I adjust a
particular operation, and they say, "We don't have that operation
here, so, as far as you are concerned, you are not a skilled workman."
Is that somewhere in the range of what you mean by semiskilled or
is it just a shadow line or rather a no-man's land between entirely
unskilled people and a thoroughly skilled master mechanic who
nobody doubts is a master workman? I am trying to get through
my own head the definition of a semiskilled person.

Mr. Carey. The best definition would be that a skilled operation is
one that requires an apprenticeship of, say, 3 or 4 years. A semi-
skilled operation may require certain ability on the part of the
operator but not long training in learning the job.

Acting Chairman Pike. No broad base.

Mr. Carey. Correct; it may take him some time to become skilled
at that particular operation, but to learn the job itself is practically
simple ; say, 6 weeks of training would make him an operator capable
of holding up his end on a production line. We hear a great deal
about scarcity of skilled labor. We have thousands of skilled me-
chanics in the metal-trades field who are now working on production
lines. In fact, our answer to the people who say there is a scarcity
of skilled labor is to say, "Name the city and we will supply you any
number of people who are skilled in that field."

Dr. LuBiN. How long would you say it would take an entirely
green person who has never been in any of the plants to reach his
maximum earning capacity on the job that he happens lo go into,
taking the jobs by and large? In the automobile industry it is
said that within 2 or 3 months a man reaches his maximum earning
capacity on that particular job. How long would you say for the
tool and electrical industry?

Mr. Carey. Two or three months is long; I would say 6 weeks,
with few exceptions.

16740 CONCENTRATION OF ECONOMIC POWER

Dr. Anderson. Mr. Carey, what is the characteristic of a modern
industry? You spoke a moment ago about a skilled craftsman's
building a radio. What is the transformation that takes place m
the industry which brings about this enormous degrading of labor?

Mr. Caret. Of course, there is the production line. At one time,
a comparatively few years ago, because the radio industry is very
youn^, people would make a radio on a bench. That radio would be
completely wired by one person — the parts would be placed on the
chassis and he would wire it; in many cases do part of the testing.
Then it would be passed along to another person who would finish
the testi'^g and, of course, pack it. Now, a radio starts out as a piece
of metal as a base and they have a transformer put on it and it is
placed on a long conveyor. Most of the conveyors today in large
companies have about 150 employees on each side of the conveyor,
and each person does one operation. About three-fourths of the way
down the production line it says, "Turn the right side up," and they
put the tubes in it and put it in the cabinet that comes along on
another conveyor at the end of that production conveyor, and it goes
out and is put in a box and on the train ; it doesn't even stop.

Dr. Anderson. In other words, the characteristic of an industry
changing from skilled labor to semiskilled is the belt line or the con-
veyor line? And then y/3u mentioned a moment ago the increasing
use precision instruments were having in the electrical industry and
in other industries supplied by the electrical industry. Do you take
it that such devices are in tnemselves an indication of a<Jvancing
technology?

Mr. Carey. Yes, sir; in our industry we manufacture equipment
that is used to make a technological advance in other industries, so
our industry provides an opportunity to determine whether the pace
of technology will increase. We manufacture labor-saving devices
for the automobile industry, the steel industry, and all others, and
there our production of that particular line of goods is increasing.

Acting Chairman Pike. Of course, your whole industry is based
on the very latest technology. It is a technological industry from
start to finish.

Mr. Caret. It is a very advanced industry. \Ve manufacture ad-
vanced equipment for other industries.

Acting Chairman Pike. It was created by technology, and now
other things are happening to it by technology?

Mr. Caret. Our industry is highly centralized. That is, when
there is a new way of doing things it rapidly spreads because of high
concentration.

EFFECT or patent RIGHTS ON TECHNOLOGICAL CHANGE

Dr. LuBiN. How far do you feel the patent situation affects the
growth of technology in your industry?

Mr. Caret. I frankly don't think it affects it a great deal.

Dr. LuBiN. You don't think it stands in the way of it moving
■^aster ?

Mr. Caret. I don't believe anything stands in the way of its moving
laster, except that no employer that I have met yet in our industry is
willing to make anything he doesn't think he can sell.

CONCENTRATION OF ECONOMIC POWER 16741

Mr. O'CoNNELL. What about passing the benefits of technology on
to the consumers and others in the groups you mention as being in-
terested? Might not the patent control or any other device \viiich
would constitute a monopoly control tend to slow up the passing on of
the benefits?

Mr. Caret. It could either slow up or increase it.

Mr. O'CoNNELL. Increase it?

Mr. Carey. It could.

Mr. O'CoNNELL. How do you think it actually operates in practice i
I take it you don't think they are being passed along rapidly enough,
or else you wouldn't have made the point.

Mr. Carey. At some points in our industry there is what couM be
termed "an actual increase of rate" of passing it on to the people.

Mr. O'CoNNEix. How would that be?

Mr. Carey. For instance, they may try to pass on the results of a
very efficient manufacturing process if they have collective bargaining
to operate certain checks in certain fields, and we keep pressing for
reduction of number of houre and increase in pay at the same time,
the industry can move ahead and meet the requirements and at the
same time do a good job, say, for the consumer. Where they have
monopoly, or at least some form of it, they can plan their production ;
they can do a far better job than they could otherwise. You don't
have to worry much about styles; they can plan their styles and the
needs of the consumer and determine what their market will be. That
is the effect, I believe, only in certain branches of our industry. In
certain other branches, where there is less information available, say in
television and things like that, it is doubtful what could be done. A
lot of people are saying television is going to be the solution of all
our problems, that a new industry is arising which is going to meet
our needs. I believe 5C,000 employees can manufacture ail the tele-
\'ision our people can use, so I don't think that is the solution.

Mr. Maginnis. Mr. Carey, don't you thijik it would be more desir-
able for the consuming public, as well as for labor, if certain patent
rights owned by large corporations were permitted use by licenses so
as to have competition in manufacture to cover more ground in pro-
duction ?

Mr. Carey. I believe so ; yes, sir.

Acting Chairman Pike. There is one thing on my chest I would like
to get your opinion on. On the matter of reduction of hours, do you
regard further reduction of hours as mostly a straight device to spread
employment, from 40, 42, or 44, or whatever standard hours are at
the moment, that that further reduction is desirable on the point of
view of more leisure for the workman or less fatigue? I would like
your guess as to where the point comes when the lessening of fatigue
has lost its importance and where lessening of hours comes to be a
straight work-spreading campaign. Thinking back to the 12-hour
day, 7-day week, which isn't so far behind in some industries, and
certainly the 60-hour week which is quite recent, and then coming
down to 54, 48, and so forth, somewhere there is a point in there where
from a good many points of view there is no further advantage to
the person. I am speaking of a man who used to work 70 and some-
times 80 hours a week at day labor, where further leisure isn't of
great social importance. I would like to get your feeling on that.

16742 CONCENTRATION OF ECONOMIC POWER

Mr. Caeet. Well, in my brief I say that in our industry a 35-hour
week should be the workweelj. I don't come at that by saying that
is what the human body will stand. I don't think that is the way we
can go about it because I contend that people are hired not because
of their brawn but because of their brains.

Acting Chairman Pike. So the fatigue element isn't in it as much
as it used to be, certainly ?

Mr. Caret, Not in industry generally; in certain industries of
course, but that is an exception. I say we have to determine the
number of hours worked by what our whole economic set-up will
stand. There is such a thing as working too many hours — and we are
doing it at the expense of a proper balance and a proper wage
structure.

Acting Chairman Pike. So it is really work spreading you are
thinking of rather than the fatigue or leisure factor ?

Mr. Caret. Not only work spreading, but providing an opportunity
to help maintain purchasing power.

Acting Chairman Pike. I meant with all its implications to what
spreading work does.

Mr. Caret. Where you have 12,000,000 people unemployed in the
Nation, and a large number in the electrical manufacturing industry,
that concerns the industry, because the plant manager is thinking in
terms of having 10,000 people outside his plant willing to work for
10 cents an hour less than the person on the job.

Acting Chairman Pike. That is the point you handled. I wanted
to know whether the element of producing fatigue which used to be
pretty important when you were working from 7 to 6 hadn't pretty
well gone out of most industries, when you had an 8-hour day 5 days
a week.

Mr. O'Connell. On this matter of reduction of hours it could be
argued, I take it, that one might carry the period of reducing hours
of employment to such an extent that it would almost be a part of
the doctrine of scarcity to which you referred in your article ?

Mr. Caret. If the time came where you had too much purchasing
power and not enough products, you might find it necessary to in-
crease the hours. I don't look for it.

Dr. Anderson. Mr. Carey, we have frequently referred in these
hearings to the effect of technology on older workers. You have
pointed out that teclmological change in your industry has meant
the use of semiskilled workers doing comparatively light work — that
we call upon brains, not brawn. I presume that older workers could
work there about as efficiently as younger workers. Can you tell
us what is happening with respect to older workers as technology
advances in the electrical industries?

Mr. Caret. Speed is an important factor, so they would rather have
younger workers. We are able to check that somewhat through col-
lective bargaining ; on the other hand we can't check it sufficiently as
long as there is a vast pool of unused labor before us.

I think as we reduce the number of hours, we can and do reduce
the amount of skill required, and we can reduce or improve the op-
portunity for aged workers. We have in our industry the feeling that
40 years is pretty old, but actually it shouldn't be. I think a person
60 could very easily perform the operations in our industry, at a pace
where they more than pay their way.

CONOKNTKATION OF ECONOMIC I'OWEK 1(3743

Dr. Anderson. Whose is this feeling that 40 years is old in the
electrical industry?

Mr. Cabey. Well, it is a new industry, and many people feel there
is a wonderful opportunity in the new industries, that that is the
future of America, so we have an influx of youn^^ people. The com-
panies of course attempt to retain what thev think is the best, and
let out the people they feel might be a burclen to them in the near
future.

We do ha^e pension plans and things like that which will help
to keep the situation from becoming worse than it is.

Dr. Anderson. Earlier in these hearings Mr. Hook called atten-
tion to a study made by the National Association of Manufacturers
on workers above 40. f)oes your organization find any such problem
as that of retaining workers of more than 40 years of age?

Mr. CAiiEY. Yes; we have a great problem in that. Of course I
don't know the details of the study made by the National Associa-
tion of Manufacturers. But I think they could do a lot more than
give dinners for people who worked in those companies for 25 or 50
years. It is just what I would term propaganda to justify their
position. The same story is the great need for skilled labor. It is
just a lot of nonsense. They fail to meet their social obligations, and
they are trying to say they meet them very well and they like old
people because they are nice to have around. Well, it comes down
to doing an operation, and that is what determines whether or not
they are going to keep them.

Dr. Anderson. Now when you bargain with a particular company
how does the age factor enter into the negotiations ?

Mr. Carey. We put the emphasis on length of service. A company
will naturally put the emphasis on the ability to produce. We say
that the person with the longest service contributed more to the
building up of that particular company, and, therefore, has more
equity in his job. With the companies today we don't have a great
deal of difficulty in collective bargaining. Less than 7 percent of our
people have been engaged in labor disputes. Fortunately we deal
with companies that are willing to deal in collective bargaining with-
out a great deal of trouble, and we can usually find some just way
of handling the problems.

Now it is true that we have some companies which spend thou-
sands of dollars per year to find new ways of handling everything
but their labor relations policy. In other words, they want 1945
methods of production and George Washington methods of dealing
with the labor union.

UNION AGREEMENTS AS TO LABOR DISPLACEMENT

' Dr. LuBiN. Do any of your agreements make any provision for dis-
placement of labor due to changes in methods of production ?

Mr. Carey. Yes, sir; we have some understanding with some of
the companies that are written out very carefully. It is hard to find
a hard and fast rule but we say in several of our agreements that
with a new method of manufacture or new way of producing it, or
anything else that involves labor-saving devices, the cost of the en-
gi leering operation should be removed from the estimated saving
over a period of time, and that saving should be distributed either

16744 (JOxNCENTKATlON OF ECONOMIC i'OWEU

in reduced prices or increased wages; or rather the same wages and
reduced hours for the employees.

Dr. LuBiN. But the employee was displaced. Is there any provision
made for him ?

Mr. Caret. Only on a seniority basis. That is, we attempt to find
another job for that employee either within a department or within
the plant. Of course, the larger the company, the easier it is to find
a job for him, but that eventually displaces someone else, unless a
iiew operation produces a new market.

Dr. LuniN. The thing that interests me about your testimony is
the fact that, after all, you felt that your industry creates techno-
logical unemployment in the sense that you make the machine and
powder-driven mechanisms that make it possible for other industries
to do the work with less labor. Now the general feeling that the
average man has, is the more machines that you have, the more dis-
placement and unemployment you have — but you create more employ-
ment in making these machines that get rid of labor in other
industries.

Mr. Cakey. Once they are made of course the job is over.

Dr. LuBiN. I get from your testimony that in your industry, even
though you continue to produce more and more types of machinery,
technological displacement due to new devices occurs there, too.

Mr. Carey. In fact, to a greater extent there than in other in-
dustries because it is an industry that was born and lives on techno-
logical improvement, and because of its set-up they are able to spread
new methods much faster than in other less concentrated industries.

Dr. LuBiN. Do you think the age of the industry has anything
to do with the rate of technological displacement? In other words,
being new, it wasn't so long ago that the methods were relatively
simple — perhaps simple isn't the word I want to use — less well
integrated it was a new thing; you just did the best you could, and
as time goes on you know more and more about it; you subdivide
into more and more parts; you put it on a conveyer and consequently
you can take advantage of all modern methods of production. Indus-
tries that were older had already reached the stage where they were
fairly efficient before this drive on technological improvement started,
since, say, 1939.

Mr. Carey. Well, that is, of course, the reason. There are also
other things that come into these new industries. For instance, I
think every new industry is without exception a seasonal industry,
without any real need for it. Take radios. At one time radios didn't
play very well during the summer because of atmospheric condi-
tions, and they sold a lot of radios "during the winter, making them
in the summer. Today you can use a radio all year round, and still
we have those peak periods of production more or less as a carry-
over without any really good reason for it. Those things are ex-
pensive to the industry itself. In other words, if you could elimi-
nate those bumps in production you could do a better job for labor
and consumer as well as industry, because the fixed cost of that plant
has to be taken out of -3 or 4 moriths' production instead of 12.

Dr. Anderson. Mr. Carey, what is your opinion as to the rate of
maturing in a new industry as a result of technological advance?
We have an accumulated technology which speeds the maturing process
now, I believe. For instance, from the invention of the automobile

CONCJ3NTRATIOX OF ECONOMIC POWER 16745

to its commercial production a number of years intervened. The
same is true of the airplane. Almost in your own working^ life-
time, however, has come the inception and development of the radio.
Do you have any comment to make on that accumulation of technology ?

Mr. Caret. Well, I attempted to point out that a lot of people
regard new industries on the horizon, like television, as the hope of
the Nation. But all the experience we have gathered together in
other industries will certainly apply to any new industry that comes
in. We take a raw material, whether metal or wood, and we develop
new ways of handling that now, in plastics and everything else.
Well, if an industry still unheard of comes in it will be a very short
time before that industry operates efficiently. We won't have what
we had in radio, for instance. Radio took from 1927 until 1932 to
get into mass production in such a way you could turn it out to be
sold in a chain store. Any other new industry that comes into exist-
ence won't take 4 years to get on mass production. They will develop
it so as to put it in mass production to start off with.

Acting Chairman Pik:e. The technique is already available to put
it on mass production?

Mr. Caret. Correct. Radio started out on a bench ; television comes
in and goes right on the conveyor, right out of the laboratory.

Acting Chairman Pike. There is another thing I would like to
ask. We found in looking over the steel business that in certain
cases there had been whole communities that had been displaced,
practically put on the bread line by the movement of a part of the
mdustr}^ away from the community — New Castle, Pa., I think was
the outstanding instance. I don't think you have had anything that
serious, but I would like to know if you can remember in your end
of the industry if whole factories were closed up and moved away,
moved their operations away, and what they have done in general.

Mr. Caret. We haven't any cases like that. Our industry decen-
tiralized sometime ago. Although it is concentrated east of the
Mississippi and north of the Mason -Dixon Line, it is still an industry
that is growing. They rapidly displace products, but they take in
others in their place. For instance, as one consumer product went
out something else would come in, and it is going in that way.

Acting Chairman Pike. You haven't had in your industry anything
similar to what would happen if the General Electric Co. left Pitts-
field or Lynn, Mass. ? You haven't had any of that wholesale packing
up and leaving the whole town broke ?

Mr. Caret. We haven't had anything like that.

Dr. Anderson. Mr. Carey, you have noted the effect upon older
workers of the advance technology. What about this vast army of
young people who have never had permanent connections with indus-
try ? Are they being seriously affected by technology' ?

Mr. Caret. Very much so; because those people are coming out of
school with the idea that they have been trained to go into industry
and make good, using their high-school education. Yet in 6 weeks
the company can take a person without high-school training and
train him for most of the jobs in mass production. Our industry
is pretty young. We do not have many people who have been in
our industry 25 or 30 years. We have some, of course, that have
been in our industry for 25 or 50 years, but there are very few of
them, so the people in our industry are not old. There is very little

124491—41 — pt. 30 36

16746 CONCENTKATION OF ECONOMIC POWEK

hope in our industry at the present time to absorb a great number
of young people. Tnat problem can only be solved when more people
can buy more goods, in my opinion.

Dr. Anderson. Your industry is an expanding industry. Is it con-
tinuing year by year to employ more workers ?

Mr. Carey. At the present time it is not. We find that there were
more people employed in our industry, say, in 1929 than are employed
at the present time. Yet we find that some of the large companies are
making the same or more profit, and yet operating below capacity.
That is something that we fear in the over-all picture. Our industry
is producing more than Ave produced several years ago, and with less
people.

Acting Chairman Pike. Do you have any examples of those com-
panies? I was trying to think of some that would show more than
1929 earnings and I confess I can't do it^

Mr. Carey. I think I point some out in the brief, I am not certain ;
if not, I certainly could supply some.

Acting Chairman Pike. If they are in the brief that will answer my
question.

Mr. Carey. I have a list of all the companies that we have under
contract in our industry. Frankly, we are very proud of our record.
I would like to give them to the members of the committee. We have
between 225,000 and 250,000 under contract in our industry. Of every
$5 worth of electrical equipment made, $4 worth of it is made under
agreement with our union, so we have our ind-tistry pretty well organ-
ized. I have all the names of all the companies and some of the
recent conditions in wages, where they are improved, and places where
hours were reduced without reduction in wages.

Acting Chairman Pike. Might one of those be suitable to put in the
record ?

Dr. Anderson. I should think it would be a good exhibit.

Acting Chairman Pike. It may be received tor file.

(The document referred to was marked "Exhibit No. 2606" and is
on file with the committee.)

PROSPECTS FOR ABSORPTION^ OF UNEMPLOYED

Dr. Anderson. Mr. Carey, do you believe that the electrical industry
will be able to absorb its proportionate share of the new labor that
reaches the market ?

Mr. Carey. No, sir; they can't absorb the labor now available in
that industry.

Dr. Anderson. You see no immediate prospect that conditions will
change ?

Mr, Carey. No, sir ; I don't ; not at the present hours worked per
week.

Dr. LuBiN. Do you know what the situation was at the peak of
1939, November and December, in terms of employment in your in-
dustry as compared to, say, 1929 ?

Mr. Carey. I would say there were about 350,000 in 1939 as against
400,000 in 1929. I think I cover that in the brief.

Dr. LiTBTN. Do you know how that picture Avas in-1937?

CONCENTRATION OF ECONOMIC POWER 16747

Mr. Caret. No; but we recognize 1937 as an important year. We
took the years 1929, 1931, 1937, and 1939, because we recognized that
that was an unusual situation.

Dr. LuBix. In 1937 you had more employment than you had in
1939?

Mr. Carey. Yes, sir. The drop from 1937 to 1939 was not as acute
as it was in ether industries, or in industry generally. In other words,
we won't fee: the effects of the next depression in our industry as much
as industry generally will feel it.

Acting Cii lirman Pike. Is that all ?

Dr. Anderson. Yes. I think Mr. Carey had a witness whom he
wanted to bring in.

Mr. Carey. I wanted to introduce Mr. Driesen. representative of the
iVmerican Communications Association (C. I. O. union), who would
like to present a brief on some questions pertaining to the communi-
cations industry.

Acting Chairman Pike. A statement to read ?

Mr. Driesen. Yes, sir.

Acting Chairman Pike. Very well.

Do you solemnly swear that the testimony you shall give in this
proceeding shall be the truth, the whole truth, and nothing but the
truth, so help you God?

Mr. Driesen. I do.

Acting Chairman Pike. Will you ask the witness the qualifying
questions ?

TESTIMONY OF DANIEL DRIESEN, LEGISLATIVE REPRESENTA-
TIVE, AMERICAN COMMUNICATIONS ASSOCIATION (CONGRESS
or INDUSTRIAL ORGANIZATIONS)

Dr. Anderson. What is your name ?

Mr. Driesen. Daniel Driesen.

Dr. Anderson. Mr. Driesen, what is your official position?

Mr. Driesen. I am legislative representative of the American Com-
munications Association.

Dr. Anderson. And what is the American Communications Asso-
ciation ?

Mr. Driesen. That is the C. I. O. union with jurisdiction over the
communications industry.

Dr. Anderson. How many members does it have?

Mr. Driesen. At the present time it has 21,000 members. These are
divided into four main departments: telegraph division, point-to-
point radio, broadcast, and marine.

Dr. Anderson, Are there any other unions operating in the same
field covering the same type of workers ?

Mr. Driesen. There are several A. F. of L. unions. There is the
International Brotherhood of Electrical Workers and the Commercial
Telegraphers Union, but there is no other C. I. O. union.

Dr. Anderson. You haven't entered the telephone field itself?

Mr. Driesen. No; we have not.

During the past decade, mechanization has taken a terrific toll of
the jobs of communications workers. I am here particularly con-
cerned with the effects on telegraph workers of changes in the methods
of operating the domestic and international telegraph companies, and

16748 CONCENTRATION OF ECONOMIC POWER

the steps our organization has taken to protect communications work-
ers from attempts to install new methods of operation at their ex-
pense.

The number of workers employed in the telegraph industry has
declined by 31,600 during the past decade. This is almost half
the total number presently employed by the radio and wire telegraph
companies.

Replacement of the Morse key with the automatic multiplex tele-
graph and the keyboard printer, which permits the transmission of
messages by operators using a keyboard similar to that of the type-
writer, has resulted in eliminating thousands of highly skilled Morse
operators from the industry. Elimination of the Morse operator is
one of the best-known examples of so-called technological displace-
ment.

MECHANIZATION OF TELEGRAPH INDUSTRY

Mr. Driesen. At the present time the telegraph industry is again
in the process of almost complete remechanization. This process is
described by Mr. White, the president of Western Union Telegraph
Co., in a speech delivered in New York on February 16, 1939, as
follows :

This program falls into four main categories :

The first is extensive development of what now are known as carrier or super-
imposed circuits, by means of which a pair or a relatively small number of
wires or cable conductors may be made to carry a large number of separate
channels of communication.

The second is extension of automatic switching between circuits connecting
various cities and between central offices and customers, so that direct com-
munication will be effected auickly and without necessity of copying, relaying,
or retransmission as practiced generally today.

The third is a wider application of the varioplex, which made possible the
creation of a service known as telemeter. The varioplex automatically divides
the total "word capacity" of a multichannel single line among a number of
subscribers. Each pair of subscribers employs one of the subchannels and is
in direct communication simultaneously. Total circuit capacity is at all times
equally divided among those who are actually using it at any time ; in this way,
the idle channel time of each customer is automatically placed at the disposal of
other subscribers. Advant-xge is self-evident.

The fourth is widespread applieation of the much-discussed system of auto-
matic facsimile telegraphy, permitting transmission and delivery of exact d\ipli-
cates of the original "copy," be it picture, printed matter, or whatever else.

Facsimile telegraphy in various none too practical forms has been known for
many years, but until the invention of R. J. Wise of a dry recording facsimile
paper which records direct electrical action without subsequent processing,
facsimile had remained impractical. The new carbon-bearing fibrous conducting
paper is as sensitive to electricity as photographic paper is sensitive to light. As
a result, facsimile has become one of the real contributions to advancement in
telegraph history.

So great has been the progress already made in the application of this new
method, it would not be surprising if it did not some day in a not too distant
future supersede present-day telegraph printers, just as they in their turn super-
seded the simple instrument of Morse.

With a facsimile as now developed we at last have the automatic telegraph.
Thanks to the new paper, telegrams may be loaded and fed automatically into
the machines, and when received, dropped onto belt conveyors and delivered to
distribution centers. Facsimile telegrams can be relayed as many as three times
from the original facsimile copies. Facsimile telegraphy will make the telegraph
service increasingly available to the public. Equipment is housed in small,
attractive cabinets, into which telegrams may be inserted as easily as letters
are dropped into mail boxes.

Looking into the future, we easily can visualize what these basic develop-
ments portend. Carrier circuits and the varioplex will enable the telegraph

C0>iCKNl'l{AT10N OF KCONOAllO POVVEK 16749

Industry to utilize its present wire plant without addition and serve the tele-
graph needs of the Nation for many years to coiuo. Automatic switching will
provide a tool greatly accelerating business and industry. Facsimile not only,
will completely eliminate errors in transmission, hut, like automatic switching,
will provide added speed and convenience to telegraph service. Introduction
of facsimile telegraph provides abundant opportunity for exercise of one's imag-
ination. It is conceivable its use even may change our present news distribu-
tion system or even the method and ma oner of printing newspapers themselves.

Inherent in the program of Mr, White for automatic telegraph is a
program of wholesale lay-oiFs for communications employees. He
draws an analogy hetween the introduction of facsimile, which will
supersede printers, and the introduction of printers, which super-
seded Morse.

Rapid progress in mechanization in the radio and cable fields is
also under way. Radio Corporation of America Communications
has been develophig ultrahigh-frequency circuits operated by printer
or facsimile. Thus the R. C. A. Communications office in Philadel-
phia is connected witli the New York main office by radio circuit over
which messages were transtnittod b^^ printer operators at wages as
low as $12 per week until the union obtained its first agreement and
raised the minimum wage to $23 per week. Since the printer was
first brought on the scene, R. C. A. C. has not employed any new
radio operators. The great majority of R. C. A. C. offices are now
printerized and gradually the radio operators formerly Employed at
these offices are oeing replaced by printer operators at $13 a week
less than that paid to radio operators.

Facsimile operation is also being installed by both R. C. A. C. and
Press Wireless Co

It is apparent that the conniin ideations companies are undertaking
a widespread program of mech'inization without consideration for
the ^v'orkers involved, and that wherever union organization is not
present to prevent it, this mechanization results in unemployment,
reduction in wages, increase in speed-up, and Avorsening of working
conditions.

A few days ago M\. Philij) Murray, chairman of the Steel Workers
Organizing Committee, outlined in masterly fashion the effects of
technological advances on employment and job security in the steel
industry. He fiirtlier laid down a practical program for alleviating
the effects of uncontr«)lled mechanization on the workers in the steel
industry.

UNION AGKEEMENTS ON TECHNOLOGICAL CHANGE

Mr. Driesen. Our organization has boen working along the sam«
lines, and the history of our attempts to obtain protection for com-
munications workers from unrijutrolled mechanization can be seen
in various clauses of our contracts with communications companies.

In our contracts with Mackay Radio, Postal Telegraph, and French
Cables, we have insured employees of these companies an opportunity
to acquire the skill and trainin.'.^ necessary for any new type of opera-
tion which might be installed during the life of the contract. The
relevant clause in these contracts reads:

If, during the I'fo of tliis agreement, the company changes its methods of
transmitting and receiving messages, or changes its operations in any other
respect whirh will require additional knonledge or skill on the part of the
emiiloyees, no additional employees .^hall !)e hired by the company imtil the

16750 CO^CENTlfA'iiON Ol' KCUNOMIC POWEK

employees already working shall be uotified of such changes and allowed a
reasonable txainiug period to acquire the necessary knowledge or skill for
retaining his employment. There shall be no change iu salary during the
training period of any such employee and no reduction in pay upon being
reclasslfle<j in a new position.

In our contracts with R. C. A. C. the company is required to give
the union 6 months' notice in advance of proposed mechanization
changes. This section of the contract reads:

The union and the directly affected employees shall be notified at least six
months in advance of proposed mechanization changes and such employees shall
be allowed an opportunity during said period of at least six months, on their
own time, or on the Company's time at the Company's discretion, to acquire
such additional knowledge or skill as may be necessary for retaining employ-
ment in different classifications. During said six months no new employees
shall be added to the regular staff at the office or station affected in the classi-
fication or classifications for which the directly affected employees are allowed
such opportunity for training.

In the most recent contract signed by our organization with
Mackay Radio & Telegraph Co., we have achieved a real guarantee
of job security for employees during a period of mechanization.
The clause entitled "Mechanization and Technological Changes'' of
the Mackay agreement reads:

No employee of the Company shall be dismissed by the Company during the
life of this agreement because of mechanization or technological changes.

This agreement was signed March 20, 1940, and should be com-
pared with the agreement signed by our organization for the previous
year on January 25, 1939. In this agreement we were not able to
secure a guarantee against lay-offs, but merely obtained a clause re-
quiring severance pay. This clause read :

In the event any employee covered by this agreement is discharged or dis-
missed from employment because of technological improvement, he shall be
given severance pay according to the following schedule :

1^ Employees with five or less years' service shall be given one week's pay
for each completed year of service.

2. Employees with more than five years' service shall be given two weeks'
pay for each completed year of service.

An even more important consideration for the protection of em-
ployees from the threat of mass lay-offs due to mechanization is the
provision for improvement of working conditions, guarantee of a full
work week, and shorter hours, provided in the contracts of the Amer-
ican Communications Association (C. I. O.) with communications
companies.

Thus Mr. Reynolds, a Western Union employee, who testified yes-
terday before this committee concerning the effects of mechanization
in the telegraph industry indicated that in the Western Union Tele-
graph Co. employees in almost every city in the country are on part
time ; many of these employees have more than 10 years' seniority.

It is our estimate that about 40 percent of those working for West-
ern Union are on part time. It should be noted that in contrast to
this situation in Western Union, which at the present time is un-
organized, the A. C. A. ha^ eliminated part timing in companies it
has organized and with whom it has contracts.

(Senator O'Mahoney resumed the chair.)

The Chairman. How have you done that?

Mr. Driesen. First by a guaranteed workweek for all employees
covered by the contract.

CONCENTKATION OF ECONOMIC POWER 16751

The Chairman. What effect has that had on tlie number of per-
sons employed ?

Mr. Driesen. It happens that there has not been a decline in number,
because our contracts also provide for improvement of working condi-
tions and cessation of speed-up, and that has taken up the slack.
As a matter of practical experience, ]io employees have been let otf
as a result of these contracts.

The Chairman. What was the cause of the part-timing? Have
you covered that?

Mr. Driesen. Yes ; I did indicate above that a great part of it was
due to mechanization, and I indicated that in companies where we
had contracts protecting^ the employees, as far as working conditions
went, there was no part-timing.

The Chairman. Well, if it is due to part-timing, the abolition of
speed-up wouldn't affect mechanization, would it?

Mr. Driesen. It is my contention that there are several contributing
factors which could alleviate the effects of mechanization. One is
shorter hours, another is cessation of speed-up, another is bettering
the working conditions generally. I point to the fact that in our
contracts where we have achieved these things we have eliminated
part-timing.

The Chairman. And what is the workweek under these contracts?

Mr. Driesen. It varies. In Postal Telegraph it is a 44-hour week
for day workers, 42 for early night, and 41 for late night.

The Chairman. What was it prior to the signing of the contract?

Mr. Driesen. Prior to the signing of the contract it was 48 hours,
and that was before the wage-hour law. In the Western Union, which
is a parallel case — —

The* Chairman (interposing). Well, it could have been 48 hours
only for full-time employees. What for these part-time workers?

Mr. Driesen. They worked on what are called 4-hour tricks, or
5-hour tricks, or 6, 7, and 8 hours a day. Many of these employees
worked only 4 hours a day, assigned some particular time. It is
graduated.

The Chairman. Is that 24 or 28 houi-s of the week ?

Mr. Driesen. That would be 24 hours of the week, but a certain
percentage would work 4 hours, a certain percentage 5, 6, 7, 8.

The Chairman. Do we understand that these workers who before
the contract was made were getting only 28 hours of the week or 24 —
which was it?

Mr. Driesen. Some were getting 24, some 28 ; it varies.

The Chairman. Those who were getting 24 hours of the week are
now getting 44?

Mr. Driesen. That is right, sir.

The Chairman. There has been no diminution of the number?

Mr. Driesen. That is right, sir.

It follows also that the provisions of the Fair Labor Standards
Act, wliich reduced hours of work in a large section of the com-
munications industry, also tended to mitigate the effects of mech-
anization on communications employoes, since our organization was
able to prevent this reduction in hours from being accompanied by a
reduction in wages.

In our attempts to protect conmiunications workers from the effects
of uiieuulrollej UKichcinizii'iou, wo \\n\r 1»«'(mi bjinipjMf'l. railuM- (h:iii

16752 CONCENTRATION OF ECJONOMIC POWER

aided, by the Government regulatory agency involved, the Federal
Communications Commission.

The Federal Communications Commission has made no studies of
this question, although it is a major consideration for the workers in
the industry, nor has the Commission, in its report to the Interstate
(Commerce Committee on proposed merger of the telegraph com-
panies, even considered the viewpoint of labor on this question.

It is not even possible to present here in any precise manner the
effects of mechanization on the wages of workers in the industry,
nor is it possible to ascertain the extent of part-timing and other
(juestions affecting the workers, because the Federal Communica-
tions Commission only requires telegraph companies to report rates
of compensation rather than actual wages paid, despite the fact that
so large a percentage of the workers employed in the industry are
now on part time.

CONSOLIDATION AND L.XBOK DISPLACEMENT

Mr. Driesen. The Federal Communications Commission in its re-
port of December 23, 1939, to a subcommittee of the Intersttite Com-
merce Committee investigating the telegraph industry, stated :

Any substantial increase in telegraph traflBc consequent on changes and rear-
rangements of the telegraph tariffs presents uo problem from a technical stand-
point. Means and methods for handling increased volumes of traflSc are common
knowledge and it requires only the existence of that traflSc and available funds
to effect the necessary plant changes. Substitute methods of telegraph trans-
mission, for example, facsimile transmission in place of teletypewriter, printer,
or Morse transmission are being investigated. The telegraph carriers, particu-
larly the Western Union, have done substantial work looking to ^eduction of
the cost of telegraph service by major changes in operating practices. Whether
these methods are extensively utilized in the future will depend upon the
relative magnitude of the cost elements not common to the two methods of
transmission.

A consolidated telegraph carrier enterprise should be of sufficient financial
strength to permit these operating improvements being adopted rapidly in order
that the telegraph service market uiay be stimulated and expanded by rate
reductions consequent on the econoniies inherent in these new improvements.

The Federal Communicatioiiy Couimission here states that one of
the purposes of consolidation would be to enable the companies to
remechanize their plants. Consolidation itself, unless the companies
are required to specifically guarantee the protection of workers from
lay-offs, will result in the los:- of tb.cnisands of jobs.

The Federal Communication; v^ommission report indicates that
the telegraph companies, b^^ consolidation at the expense of workers'
jobs, will be financially able to introduce technological changes which
Avill enable tliem to lay off further workers and reap additional
profits.

Yet the program of the companies and the proposals of the Federal
Communications Commission provide no specific guaranty of im-
provement of service to iha public and protection of labor.

The international executive board of our union, in considering the
present status of the industry, issued the following statement on the
questions of merger and mechanization:

At the present time the communications companies are in a criiical linanciiil
position because of a long and uninterrupted history of financial mismanago-
raent and systematic mulcting of the public and the workers in the industry.
The companies are currently soaking a solntion fo their problem by two

OONCENTKATIO.N OF lOCONOMlO I'OWEK Hj7i)[i

means, mechanization and merger, both of which, under their plans, would re-
sult in loss of employment for thousands of workers.

On tlie question of merger, certain facts must be kept clearly In mind:

1. Merger is a solution being offered by the companies to extricate tbem-
selves from a dilemma which they have created;

2. All available evidence indicates that a monopoly, either through merger or
liquidation, in the communications industry is inevitable;

3. The public — as well as the worlvers in the industry — has an interest in
the conditions under which any merger niay take place.

In the light of these facts, the America n Communications Association, C. I. O..
takes the following position on the question of any merger plan offered by the
companies :

1. It must be in the public interest.

2. It must contain the following guarantees for labor :

(a) No lay-offs

(b) Shorter work week

(d) Elimination of speed-up and part-timing

(e) Increased wages.

The position of the A. C. A., CIO, may be summed up as follows: While we
have concluded that a monopoly through merger or liquidation is an economic
inevitability, the terms of any merger are subject to legislative, economic and
trade-union influences. We oppose any merger which would result in wholesale
lay-offs and other injuries to the workers, and equally obviously we would sup-
port any merger which would give all the guarantees outlined above. The
A. C. A. will conduct a national campaign to enlist the support of the public,
the Goverment, and all trade unions for the successful consummation of its
program.

On the question of mechanization, the companies are constantly developing
new machinery for the purpose of laying off highly skilled workers and replac-
ing them with semiskilled or unskilled workers at much lower wages, in order to
increase profits. The introduction of new machines can contribute to the general
social welfare if the owners of the communications industry can be restrained
from using them solely for the purpose of increasing profits for themselves.

Since mechanization is a method for increasing efficiency of operation, reduc-
ing costs, and increasing profits, we insist that the workers in our industry shall
share in the benefits possible under mechanizntion, in the form of shorter hours,
iiigher wages, and job security.

The Chairman. What would be the effect of a merger under sucli
a plan on the efficiency of operation?

Mr. Driesen, We believe at the present time that the communica-
tions companies are not giving adequate service to the public, either
in terms of coverage or in terms of speed. We think that a merger,
if it were effected in the interests of labor and the public, Avould guar-
antee the public efficient service, would also guarantee to labor good
working conditions, and would mean the retention of the jobs of all
those presently employed in the industry.

• The Chairman. Is there any relation between the speed-up of which
you spoke a little while ago and the speed of transmission of messages?

Mr. Driesen. No ; I don't think so, except that it affects the accuracy
of transmission. A person working under the speed-up will not be
able to transmit messages with the accuracy of one working under
decent working conditions.

The Chairman. I was wondering if there was any conflict between
your statement that you have tried to eliminate speed-up and the
statement that you how make that a merger would result in more
rapid transmission.

Mr. Driesen. I don't think there is anv conflict.

16754 CONCENTRATION OF ECONOMIC POVVEK

The Chairman. I thought you might want to clear; it up in the
event that understanding might be gathered from what you said.

Mr. Dkiesen. I think that the eflflciency of operation should be in-
creased, but that the pressure on the individual operator should be
decreased.

The Chairman. What reasons are given for merger '«

Mr. Driesen. The reasons are a result of the whole economic posi-
tion of the telegraph industry. During the past few years the
industry has been subject to competition by air mail, telephone, and
tilbo lL -. '(^ ;^raph service run by th ^clt^phoiie c^pany. The tele-
phone company tiv^^^ i.Lo^. -±0 percent of the telegraph business
of the United States over their private-wire service, and also the air
mail night letter has practically cut the night letter file of the tele-
graph companies to pieces.

The Chairman. From whom has the suggestion for merger come
in the first place?

Mr. Driesen. Well, in 1935 the Federal Communications Commis-
sion recommended to Congress a merger. This recommendation was
made at the request of one section of the industry. International Tele-
phone & Telegraph. Since that time all sections of the industry have
indicated the desirability of a merger.

The Chairman. What has been the attitude of the companies in-
volved ?

Mr. Driesen. The attitude of the companies has been that they
favor a merger if it does not restrict them in their allocation of the
plant and employment of workers in the processes of the merger.

The Chairman. Then the companies themselves have not been
lesponsible for the original suggestion.

Mr. Driesen. I believe they were. I think the International Tele-
graph & Telephone Co. first sponsored the suggestion, and as a result
of that the F. C. C. in 1934 held hearings, and in 1935 made its
recommendation to Congress.

The Chairman. What are the competitive factors, air mail

Mr. Driesen (interposing). Telephone, private wire service op-
erated by the telephone company, and also there is competition of the
ladio telegraph companies with the telegraph, like R. C. A. C. and
Mackay, and of course, the competition among the telegraph com-
panies.

The Chairman. In other words, technological advance is increasing
competition with this older industry.

Mr. Driesen. Yes; and decreasing the participation of the tele-
graph companies in the total communications business.

Mr. Pike. In looking over this last page, it would seem to me that
the international executive board was a little broad in its statement
there. We take it, of course, that that is the opinion of the board,
but it referred to their solution being offered to the companies "to
extricate themselves from a dilemma which they have created." It is
not really a very fair statement. They may have had a part in
creating it but you yourself brought out a point I wanted to bring
out, that competition from other rapidly improving forms of trans-
mission, of intelligence and communications, has had a great deal
to do with this mess that they are in, not wanting to take all the
lilame off the companies' shoulders.

CONCENTRATION OF ECONOMIC POWER 16755

Mr. Driesen, That is true; but I also neglected to point out that
part of this dilemma is due to the financial liistory in the communi-
cations industry; for example, the I. T. & T. system and the holding
companies, which constitute the telegraph and radio companies, is
one of the most intricate holding-company set-ups in the world, I
suppose.

Mr. Pike. Do you suppose the Postal would last 20 minutes longer
going into bankruptcy if the I. T. & T. didn't own it?

Mr. Driesen. Probably not; but I don't think the Postal would
last 10 minutes if they didn't think they would get a merger.

Mr. Pike. Or they wouldn't if I. T. & T. didn't own and support
them.

Dr. Anderson. One particular part of your testimony is unusual in
this series of hearings. In the history of industrial labor relations, is
this the first time that actual contracts have been signed which include
that matter of technological displacement?

Mr. Driesen. Well, I can't answer that question outside the com-
munications industry. I believe in the communications industry it is.

Dr. Anderson. Do you know of any other industry where we have
had specific clauses and contracts of this sort?

Mr. Driesen. I am not aware of any; I just don't know.

Dr. Anderson. Do such contracts in themselves weaken the competi-
tive position of companies which have made liberal agreements, as
compared with the others?

Mr. Driesen. Well, no; because thej'^ are not drastic enough. The
last which we obtained from Mackay Radio, providing that no em-
ployee during the life of the contract shall be dismissed by the com-
pany because of mechanization, is an iron-bound protection for the
workers during the life of the contract. The other provisions merely
give, I think, an air of decency to the company's throwing a person
out of work as a result of change in transmission by giving him a few
months' notice, or a few weeks' severance pay. I don't think that
they constitute a substantial burden on a large communications carrier,
so much so as to lower its competitive position.

Dr. Anderson. I understand that severance pay and certain other
conditions have been found in contracts of labor unions previously
negotiated, but this one in the Mackay contract is a very inclusive
obligation, is it not, on the part of the company ?

Mr. Driesen. Yes, sir. I think the answer to that is found in the
economic situation and technical situation in the industry itself as
compared with, let us say, the steel industry, as pointed out in Mr.
Murray's testimony. That is, the possibilities of improved service, of
expansion in the communications industry, are still very ^reat, and
in a very decided way the union is doing a great service, insofar as
it can by working for more employees in the industry, better service
to the public, because that does two things. It increases the efficiency
of service, it insures a wider service to the public, and it protects the
employees from mechanization, and I think in the end improves the
industry. Suppose we take that in reverse. Let's take the actual his-
tory of mechanization and lay-offs in a company like the Western
Union, where, in order to meet a falling dividend rate the company
lays off 10,000 or 15,000 people, let's say, over a period of years.
This results in a decline in efficiency of service and a diversion of

16756 CONCENTRATION Ol E<^ONOMI0 I'OWEB

business to other forms of coiiHDunicatioiu-. Mich as radio, telegraph,
or telephone, which in turn forces (lie idograph companies to in-
crease the pace of median ization,, to lay ofF more people, and so on in
a vicious circle. If you can leverte (lie circle and give better service
to the public and increase your facilities, it will put tlie telegraph
companies in a better competitive situation, in a stronger position to
bid for business and to survive.

The Chairman. Are there any furdiei questions?

You have covered all the suggestions that you care to make?

Mr. Driesen. Yes, I have, sir.

Dr. LuBiN. I would like to say for the record that the United
Textile Workers Organizing Committee jiiid the Amalgamated Cloth-
ing Workers have clauses in some of ihoir conlracts relative to dis-
placement due to technological changes, although they are not
identical.

Dr. Anderson. Are they as complele as this last one of the Mackay ?

Dr. LuBiN. They are not as complete as this.

Dr. Anderson. To my knowledge, this is the most comprehensive
single statement that has ever been written into a labor contract on
the subject of technology and displacement.

The Chairman. Was the so-called Washington agreement, which
was negotiated by the raili'oad biotherhoods with the railroads, a first
step in this general direction ?

Mr. Driesen. The Washing(on agreement provided for a system
of severance pay rather than job protection, but it, of course, did
provide

The Chairman (interposing). That Mas the first step, was it not?

Mr. Driesen. That was in Id'M); yes. That was prior to oUrs.

The Chairman. Was there anything before that?

Mr. Driesen. Not that I know of.

Dr. LuBiN. Has the question ever arisen in the interpretation of
your contract as to just what mechanization technological changes
mean? Have you ever got to the point where you had to argii? this
thing out and find out whetlier (his was a technologicai' change?

Mr. Driesen. Yes; bu(- mc have never had any disagreement witli
the companies. For example, a change in the method of transmission
which required a knowledge of code, say, either Morse or Continental,
to a printer-operator who was required to be an expert typist but
did not have to know code, would he considered a chan'i;e in the type
of transmission. What we have tried to do is hit the major things,
and the companies have never argued wi(h us on this question.

Dr. LuBiN. You have never got to the point where there vvas a dis-
agreement between you }•« <^n what a technological mechanical
change is?

Mr. Driesen, No, we haven't; but I think there are many places
in the communicati mis industiy where such a situation miglit arise.
For example, there is ii qnes(ion, in the increased capacity of equip-
ment, increase in the channels of wireless, eliminating maintenance
employees and plant ein])loyees as to whether or not the change. is
technological.

The Cha^^man. We ary \'e)y much indebted to you, Mr. Driesen.

Do you c^re to cal 1 anybody else tliis afternoon ?

Dr. Anderson. No; but I should like to refer to the testimony of
Mr. George Harrison. He has sen( in veiy promptly the table to be

CO.NCEWTKATION OP ECONOMIC POVVEK 16757

substituted for "Exhibit No. 2541." I should like to submit it instead
of the table received yesterday. There are copies here.

The Chairman. It may be so admitted.

Dr. Anderson. Tomorrow morning we are unusually favored by
the presence of Mr. Thomas J. Watson, the president of the Inter-
national Business Machines Corporation, New York City, to open the
testimony on the effect of technology on white-collar workers as a
result of business-machine changes.

The Chairman. The committee will stand in recess until 10 : 30 to-
morrow morning.

(Whereupon, at 4:45 p. m., the committee recessed until 10:30
a.m on Friday, April 19, 1940.)

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