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BOSTON PUBLIC_LIBRARV^^^^^^^^^^^ 



3 9999 06317 388 2 "^ o^\%\.\ ^^i 

OFFICE OF NATIONAL RECOVERY ADMINISTRATION 



DIVISION OF REVIEW 



MINIMUM PRICE REGULATION UNDER CODES OF FAIR COMPETITION 

By 

Saul Nelson 



WORK MATERIALS NO. 56 

6^ 



TRADE PRACTICE STUDIES SECTION 
March, 1936. 



OTICE OF NATIONAL T^^i'COVEHY ADFINISTRATIOIJ 
DIVISION OF ^.SVISW 



MINIIUM PRICE REG-TJLATION UNDER CODES OF FAIR COMPETITION 



Saul Nelson 



TR^E PRA'^TICE STFDIES SECTIbN 
i ^rch, 1956 
9763 



F0RE7;0RD 

This study of ^ii^.im^lm Price Regulation under Codes of Fair Com-Deti- 
tion wa.s planned and ■be,°:an Dy Mr, M, D, Kossoris of the Trade Practice 
Studies Section, Lr. Kossoris resigned from the Division of Review in 
January, 1936, The study was completed a,nd this report preoared by 
Mr, Saul Nelson of the Tride Practice Studies Section, Mr. Corwin D. 
Edv/ards in char-";e. In the comoilation of the material for the report, 
assistance was received from Mr. Constant Southworth, Miss Genevieve 
Gehres, Mr. J. K. Terrick, L.r. T. J, N^gle, and ivir, 0, A, Simraes. 

The widespread desire of code proponents to raise or stabilize the 
price structures of their respective industries resulted in the inclusion 
in the majority of approved codes of provisions designed to limit price 
competition directly. In general, these devices fall into three cate- 
gories: 

(1) In a fe'" cases direct grants of power to the code 
authorities, usually subject to NRA approval , to 
prescribe minimum price schedules. 

(c) Provisions permitting the estnblishment of minimum 
price schedules for specified products and for 
limited periods during emergencies decla.red. by WIA. 

(3) Provisions prohibiting sales below cost. These 
were usually based on individual cost, but in a 
few cases some such concept as average, reasonable, 
or representative cost wps the criterion. 

Provisions of this nature, although included in the majority of 
codes, actually became effective in a relatively small proportion of 
these cases because WRA did not approve the price schedules or cost 
systems necessary to effectuate them. Nevertheless, minimum price 
controls were applied to codes covering a subst-^ntial and representative 
section of American Industry, 

This study is concerned with an aopr?isal of the extent to which 
these devices succeeded in solving the immediate problems at which they 
were directed. Although the wide social ^d economic implications of 
any such interference with the price mechanism are of extreme importance, 
such considerations have been excluded as being beyond the scope of this 
study. 

Because of the limitations of time and personnel, the investigation 
was confined to twenty-eight industries in which minim-om. price regulation 
was attempted - industries selected as representative of various parts 
of the industrial structure, of the economic problems encountered, and 
of the types of minimum price devices. 

For each industry it was s ourht to c.eternin^, first, the basic 
difficulties which contributed to fee dislocation of tne price structure; 
second, the considerations underlyiag tne fcrnulation of the provision 
designed to attack these problems tiirous'h the es^-- olishnent of minimum 
prices; and, third, the actual effect of the applic-^tion of these controls, 

976S ^i- 



In some of these cases the attempts to limit price competition 
resulted in complete failure; in others they had a greater or lesser 
effect upon the industry concerned. The character and extent of this 
effect was not entirely fortuitous, but was definitely related to the 
character of the industries involved and the nature of the underlying 
problems. 

The validity of the conclusions reached is, of course, conditioned 
both by the limitations of the sample of industries covered and by the 
impossibility of completing comprehensive surveys even in these cases. 
None the less, it is believed that they are indicative of the general 
character of experience with minimum price provisions. 

At the tack of this report will be found a brief statement of 
the studies undertaken by the Division of Review. 

L. C. Marshall 
March 9, 1936 Director, Division of Review 



9763 



TABLE OF CONTENTS 

PAGES 
Summrry of Findings ::-::iii 

CHAPTER I . 

THE PROBLEM 1 

I . STATEi;iENT OF THE PROBLEM 1 

II. REASOiTS FOR THE STUDY 1 

III. LIETHOD OF APPROACH 2 

A. Natural Resource Industries .••• 2 

B. Mrnuf acturing Industries ••• 2 

1. Producers goods and services 2 

2. Consumers goods manufacturing industries 3 

C. Consumers Service Trades 3 

D. Distribution Trades 3 

1, Retail Distribution Trades 3 

2. Wholesale Distribution Trades 3 

IV. PLAN OF THE REPORT 4 

CHAPTER II . 
The Economic Ba.ckground ; 

I. IMMEDIATE CAUSES OF DISCONTENT 6 

II , THEORETICAL BACKGROUND 8 

A. Existence of Fundamental Economic Dislocations 8 

B. The Theory of Free Competition 9 

1» Determination of Market Price 9 

2, The Concept of a "Normal" Price 

Relation between Price and Cost 10 

3, The Principle of Automatic Adjustments «. 10 

4, The Function of the Free Price Mechanism 10 

C. The Problem of Imperfect Competition ..• 11 

1, Failure of Automatic Mechanism to Function Properly,...,, 11 

2» Monopolistic Prices 11 

3, Effect of Size 11 

4, Necessity of Planning Production ,,,,T.l 

5, Inequality of Producers - 

Consumer Preference, ••• 12 

9763 ~iii- 



6f Unequal Price Decline During Depression 12 

7, Intrusion of Other Rigid Elements 12 

8, Failure of Prices to Adjust Themselves to Cost of 

Production 13 

9, Failure of Laissez Faire Policy 13 

1^. Similarity of Conditions in Canada 14 

CHAPTER III . 

THE DEL'IAND FOR PRICE REGULATION AND ITS PART IN THE FORMULATION 
OF TEE NATIOl'TAL INDUSTRIAL RECOVERY ACT 

1, BUSINESS SEEKS A WAY OUT 16 

CHAPTER IV . 

PRICE CONTROL DEVICES - 
DEVELOPMENT OF NRA POLICY 

I . NRA ACCEDES TO THE PRINCIPLE OF PRICE CONTROL 22 

II. PRICE CONTROL DEVICES USED - DEVELOPMENT OP POLICY 24 

A. Classification of Devices 24 

B. Cost Protection • • 24 

1. Popularity and nature of the device .» 24 

2. Cost protection implemented "by cost accounting 

systems ..> 25 

C. Direct Minimum Price Fixing 26 

D. Emergency Price Regulation 27 

III. OTHER PRICE CONTROL DEVICES 29 

CHAPTER V . 
FR0BLE1.IS QONFRONTING INBIVIDUAL INDUSTRIES ; 

I . PROBLEMS AS RELATED TO INDUSTRY GROUPS 32 

II. PROBLEMS CONFRONTING INDUSTRY GROUPS 32 

A. Natural Resource Industries 33 

B. Consiomers Service Trades 33 

C. Manufacturing Industries 34 

1, Industries mainif acturing producers goods or 

performing services for producers 34 



9763 



"Page 
a. Industries -Droducin^ goods for wliicn tlie-r-e 

is no inderiendent remand 34 

Id. Industries nerf ormin/? services for ■'Dror'ucers 34 

c. Other loroducers .^oorls indu'^ tries 35 

Industries n-niuf; cturini^ consumers ^-oods 35 

Distributing Trades 3G 

Ret-'il distributing trrres 36 

''niolesffle Distributing Tr-' des 37 

III. PATTERN OF PRO^LIMS ElTC0U:iTER7D 37 

Chr.rt - pf ttern of Industry Problems 3B 

A. Excess C nacit"' r>n6 ""if a Overaef '^ 39 

'P:. Difficulty of Increasing Sales Through ^rice Concessions... 39 

C. Loss of Mrrxet to Suostitute Products 40 

D. Fluctuations of Rai" jfeterial I'rices 41 

IV. PROBLEM'S ARISI'^- FRQ'" Ticnr C'-A^AGTT^"" OF i:'TOU3'i'^.Y LiEtSERSHIP. . . 41 

A. Ease of Entry 41 

T?. Lack of Cost Consciousness 45 

C. Factional Problems 43 

D. Price 'Tars , 44 

V. PR03L-p-.,;3 ARISIK'G FROM DIS"Ri::*UTIV7 UBLAIIOriS 44 



A. ComT)eti"g Chen.iels of Distribution 
l.'Iail Order 'Tou^es.... 



44 



3. Otaer Distributive Problems 45 

VI. PR0:5LFMS ARISIMCt FRO''' CONSlF.rF^. PRESSURE 45 

A. ?!id ■°ed''ling 45 

3. Price Diet" tion 45 

VII . ATTEMPTS AT CONTROL T^'ROTVC"' CO 3T:IATI0:^ Q-^. CQFR.'HOlvT 46 

VIII. PRICE T^F CO'r'Or DEl^XD'TilATO"^ 46 



9763 



Page 

C'TAPT^- ''1. 

PRICE R^'^UL/^-TIO; TH^.OUr-^J DIHrCT 'T.'J ""': F^ICF VT"^ ~'^: 47 

I . KATIRE OE THE DEVICE 47 

1 1 . E7TE 'T OE ITS A?t^L rCATI j ' 47 

ITT. LUMBER A-'D TU'T^^ P~D13'"CTC TliUSTRY 48 

IV. THE COFSl"'"^"^-? ' SE"'"ICE T"'AD:^S 57 

V. -OOL CASnj LE.t'} -E:"CIL I 1)US''"^Y 60 

VI. CO-^CLUSn-S 63 

A. J- nlie;>.tlc--; of the Device 63 

'^. Adminis tr^ oility 64 

C. SucceFS of t'je Eevice ap. ■Relate^ to the 

Probleinp Eyisting 64 

1. LioinTDer and Timber Products Industry 64 

5,. The Cleanin.? and Dj-eing Trade 65 

3. "'ood Cased Lead Pencil Industry 65 

D . SvaTraf ry .' 66 

G^^APTTR VI T. 

p^iGE p^raL-.TiT:^ TT.y.n:' e.me^?t"::cy declara.tio:t ; 

I. l-ATUP^ OE Y-y J^E'' ICT- 67 

II . E:-'TErT OE AP^LICATI"^' ■ , 67 

III. A^.IICULTUPAL I7SECTICTEE A T) EUiErlCIDE J D 68 

IV. C.4ST r-.Q-'- SOIL :!=IPE I-"D 73 

V. EU^ D^.SSI ^nr :. LYEir'^ T^JvEE 76 

V: . ""A3TE ''APE" T- A^'E 78 

VII. JOE i.e:.us':^y 84 

VII I . RETAIL ■E'TXv'^P TI^'^ A-D riA^^-;'— T'A~^^ 87 

IX. "TOL^SALE A-E) -^-TAIL TOEACCO T-CT'^ 92 

7. I :.TLI CATION^ Q-? "•■--- P' •t^-^.JJ-OV IFTr-rr;!- g^ 

9763 - vi - 



Page 

XI. e"F}?ctiv:^?:ess t. d^'^^icf 99 

C^IA'PTT^T^. VIII. 
PRICE CONTROL T'T^.Ory-^ COST T^OTF.C'^iy': 

I. TT'E 3}?VICE - F^TETP A"T' H/yLI CATIONS 101 

A. "■^ature p.nr' I:;inlicr< tion^^ of the Device 101 

3. Frequency of Cost Protection Provisions in Codes lO:? 

C. Cost Accoimting Systems 103 

II. T"3v I 'DUST-'IES STUDIED 108 

III. CODES IN '■•T--ICT- COS? PT^OTECTIO" WAS NEVE" SE^:nUSLY FT DICED. 109 

A. Asnhalt Shinsle r-nd Roofing Industry 109 

3. -^'urni ture Manufacturing Industry * 110 

C. Rubber Tire Mfg. Industry 113 

D. Causes for non-a-oriiica tion of Cost Provision 114 

IV. CODES I\' I'^^-'IC^-^^ COST PT^OTECTIO;! FAILED C0f,5=LETELY 114 

A. Kardwood Distillation Industry 115 

3. Canvas Goods Industry 115 

C. Throwing Industry 117 

D. Plumbing Fixtures Indus t^y 120 

E. Causes of Failure 123 

V. CODES TLT miCH COST P'^.OTt^CTIOIT WAS EFEECTI""p '^0 A 

GREAT-PR OR LESSE^ DEGRE^ 126 

A. Limestone Industry 126 

3. ■'alleable Iron Industry 131 

C. Screw "Machine Products 'tfg. Industry 136 

D. Paint, Varnish a.nd Lacouer Mfg. Industry 140 

E. Fertilizer Industry 145 

F. Fire Extinguisher Atrnliances Iiif'ustry, 147 

G. Gra-ohic Arts Industry - Co.'anerciai Relief Printing. ... 153 
9763 - vii - 



Page 

^\ Coffee Industry 167) 

I. L-uggpge snri Fancy Leptner f^-ooos Industry 170 

J. pp-oer distributing Tra'^p 174 

VI . SU^T JV^Y 181 

COl'ICLUSIOyS 

I . PURPOSE 0? :.!iNi::u'; p^.icE ■^y:CATLKT;iy': 184 

II. EF/'ECTIV7,I^'^S OF Mn:?::.'! PRICE ^F.aULATIO- 184 

A. Ff ctors Mal'inf: for Failurp 184 

3. Cases of RelRtive Success 185 

III. C0!'^A~IS07 OF DEVICES 

A. Basic Sinilarities 1B9 

3. Differences 190 

IV. su: : ahy i9i 

a^-pe:.T)i:- i. 

^'lETEOrS OF IL^rESTiaATIO'^ 193 

A-oy-i^Wjl" it. 

P~03LFKS FAC"^D 3Y SPECIFIC I^TDUST^-IFS 194 

I. PUPPOSE 194 

II . LUIG'^P A:,D TI"'BF- PRODUCTS TKDTJSTt^Y 194 

III. CLFA""!'^'; J~.:m DYE JW- TRADE 196 

IV. Cast "^PO"' SOIL ^IPE 197 

V. LI?n^STOiIE niDUSTRY 199 

VI . MALLEABLE IRON tiouS'TPY 199 

VII. WASTE PAPE- TRADE 302 

VIII. THE SCREW J/ACHINE P^.OD'XTS I'-DUST^'T 303 

IX. FJR DRT^SSI 'a A:;]D DYEIMn- I:T)US'^.''-Y 204 

X. THRO^'ri^TG n®USTRY 206 

9763 - viii - 



Page 

XI. AGRICULTIRAL INSECTICIDE kW) ETJJGICIDE IITDUSTt^Y 208 

XII. FERTILIZE-R lisTDUSTSY 209 

XIII. ASPl-yiLT SKIir-LE AND HOOP fG tiqust-^Y 210 

XIV. FIIE EXTI"GUISF'^;:Cr AP'oLIA:'C~S laiNUFACTURIITG JIOUSTPY 212 

XV. FARDV'OOD PISTILLATIO" TTDUSTRY 213 

XVI. fLjLbi::g fixtitr-^s hidustry 214 

XVII . couf i:rcial relief ^RI'-TI'^TH 514 

XVIII. ^'OOD cased L7J-J) PEITCIL r.IDUS^RY 217 

XI7. COUPEE nffiUSTP.Y 21^ 

XX. CA.IVAS GOODS II'TlUSTRY 220 

:'''XI . FUR!\''ITUR_E I.-AiaiPACTURIlTG 221 

XXII . LUGGAGE AlTD PA^XY LE.4TT"^-^ GOODS I^IDUST'^'Y 22^ 

XXIII . PAIFT, VA^T>TIS" A-D LACOUER n^3)UST^Y 225 

XXIV. ICE r.DTJSTRY 223 

XXV. RETAIL RU3J^""R TIRE AIID BATT-^-RY TRADE 225 

XXVI. RTrsn-pTf TIRE MM.JFACTUHI1IG PIDUSTRY 227 

XXVII. PIITAIL TOBACCO TRADE 228 

XXVIII . WPOLESALE TOBACCO T^ADE 229 

XXIX. PAPER DISTRIBUTII'TG TRjJDE 229 

AP^Y.mi:: iii. 

CODES ir ^^■:IC■■ IvIANDATORY cost ACCOUMTIx'G SYSTE"'iS 

OR COST ACCOUNTIITG RULES 17ERE AP'PROi/ED 232 



9763 



SUMMARY 



The aim of this study was to examine the actual operation of the 
devices used for the regulation of minimum prices under NRA. and to deter- 
mine the extent to which these devices effectively coped with the problems 
they were designed to solve. 

Prior to NBA there had been no extensive experience in the United 
States with the regulation of industrial prices. Investigation and 
appraisal of KRA experience in this field may provide a basis for a 
sounder understanding of the questions involved in any future action in 
this direction than existed during the period of code formulation and 
administration. 

Minimum price regu.lation under the codes was undertaken upon the 
plea of business men as an attempted solution of the difficulties which 
confronted them during the period immediately preceding NRA.. Production 
and prices had decreased with extreme severity between 1929 and 1932. 
In practically every industry there was a tremendous excess of producing 
facilities over effective demand. Overhead charges had to be met, and 
the temptation to increase spies by cutting prices was great. As a re- 
sult there was apparently no end in sight to the decline in prices. 

To some extent these conditions may be traced to a fundamental 
change in the character of the market. The continuous increase in the 
size of producing units and the consequent shift from free competition 
and free prices to imperfect competition and managed prices had intro- 
duced rigid elements which impeded the proper functioning of the price 
mechanism. 

Minimum price regulation represented an attempt to strike, not at 
these underlying problems, but ratner at their superficial manifestation. 
Business men contended that the elimination of selling below cost was a 
necessary step in the rehabilitation of industry. The cooperation of 
industry with NHA was in large part predicated on the belief that under 
its aegis, this aim could be achieved. 

The National Industrial P-ecovery Act as passed contained no pro- 
vision specifically authorizing the establishment of minimum prices. 
Prom the debates in Congress preceding its enactment, however, it 
appears that this power was considered imiplicit in txie rignt to approve 
codes of fair competition. luimediately after the approval of the Act 
it became apparent that there was a conflict between its major purpose, 
to increase national purchasing pov/er, and the desire of industry to 
raise prices. The latter, if achieved, might in large part cancel the 
benefits anticipated from the former. The success of the efforts of the 
Administration to raise the prices of farm, products relatively to indus- 
trial products might also be im.perilled. The President specifically 
cautioned agftinst raising prices as fost and as far as wages. 



Nevertheless, under the pressure of industry NRA acceded to the 
plea for the right to establish minimum prices. The proposals submitted 
to NRA frequently went much further and aimed not only at limiting hut 
at eliminating price competition. Tnese ambit io-as schemes were greatly 
modified prior to arp^oval, but the principle of price control was re- 
tained, and the vast majority of approved codes contained provisions 
permitting the establishment of minimum prices. 

These provisions may be divided into three major groups: 

1. Permitting direct minimum price fixing by the Code Authority, 

usually subject to approval by NRA 

2. Permitting fixing of minim.um prices during emergencies only. 

3. Prohibiting sales below cost. 

Of these the last was far the most commonly used. During the major 
part of the period of code formulation it was sanctioned by policy, and 
was usually suggested by BRA officials as a substitute for more drastic 
proposals of industry. Direct minimum price fixing was approved only in 
Csses considered exceptional, and its use was in large part confined to 
three groups of industries: transportation, natural resources and service. 

Ihiring the first half of 1934 NRA policy gradually veered away 
from devices of txiis nature, and on June 7, 1934, Office Memorandum No. 
?28 definitely ruled against minimum price control except in emergencies. 
However, the prohibition of loss leaders through provisions forbidding 
sales below invoice cost plus markups continued to be approved policy. 

Provisions for price or bid filing, restrictions on terms of sale, 
customer classification, etc., played an important part in supplementing 
or facilitating enforcement of these direct controls. 

The extent to which prices were affected in specific industries 
by the depression was determined largely by tne following factors: 

1. The nature of the industry's m.arkets or raw material sources. 

2. The character of its membership. 

3. The channels used for distributing its products. 

4. The pressure consumers were able to exercise on its 

price structure. 

Code experience with minimum price reg^alation has been analyzed 
for 2S codes. In three of these the device used was direct minim^um 
price fixing, in eight declaration of emer_^ency, and in 17 cost protection. 

In certain of these 28 industries the experiment completely failed 
to solve the problems at which it T/as directed; in others a greater or 
less degree of success w^js acnieved. The criterion of success used here 



is merely effectiveness in achieving the aims sought by industry and 
implies no judgment as to general social or economic desirability. 

On the b?isis of this limited sr.mple the follov'ing conclusions appear 
to be vplid: 

1. Where substitutes for an industry's products were readily avail- 
able, -and where as a result consumption of these products was 
closely related to their price, failure usually followed. 

2. Where minimum price control v/as directed by one faction of 

an industry against another in an effort to limit the activi- 
ties of the latter and met with active resistance from the 
group it WPS designed to restrain, the attempt was usually 
unsuccessful. 

3. Where an industry comprised a multiplicity of units producing 
a wide variety of unstandardized products, price control 
usually failed at the point of administration. 

4. Where the purpose was to enable an industry better to resist 
the pressure of powerfxil consumers the result depended to a 
large degree upon the willingness of consioming interests to 
submit to restriction and upon the cohesiveness of the industry. 



5. Minimum price regulation appears to have been reasonably 
successful in arresting two price wars which were, according 
to the available evidence, deliberately started by one or 
two industry members. 

6. Minimum price control was apparently successful in coping 
with the -problem of loss leader selling in the Retail Tobacco 
Trade. 

7. In one case it is probable that the operation of the cost 
provision somsv/hat improved the position of small units in 
an industry, though the evidence is largely inferential. 

8. In one area of one industry the breathing spell accorded 
by price regulation permitted indiistry members to introduce 

a scheme for the regulation of production which seems to have 
improved their status materially. 

9. In two industries, confronted by no very serious problems 
other than the general effect of the depression, price 
regulation resulted in a substantial increase in prices. 
In both of these cases prices declined appreciably after 
the removr-il of these restrictions. 



9763 



So far 3S the three forms of price regulation are concerned, their 
relative results may be summarized as follows: 

( 1) Direct minimum price fixiiif^ appears to have been the most un- 
satisfactory from an administrative point of view. The grant 
of power to the code authorities was in most cases too broad 
to permit NRA to exercise an adequate degree of supervision. 

(2) Cost protection, although in mos* cases theoretically based 
on individual cost, in actual practice established price 
floors no less surely than direct or emergency price fixing. 
The administration of these provisions resulted in constant 
conflict between N3A and the Code Authorities. On the whole, 
this device had little to recommend it as an administrative 

.' instrument. 

(3) The most satisfactory in actual operation was the declaration 
of emergency. One important advantage w,^s that it enabled 

NRA. to exercise a maximum degree of control both the establish- 
ment of prices and their administration. 

The time limitation with requirement of automatic review prior 
to extension was a safeguard against abuse. 

This report is confined to an appraisal of the efficacy.- 
of the various minimum price devices in remedying the specific situations 
they were designed to meet. No attempt has been made to weigh m.inimum 
price regulation in relation to general social and economic policy. 



9763 



-1- 

ciiaptur I ■ ■ ■■ 

THZ FiiGi:L::Li 

I . ST^TLi.iElIT OF TH::i PROBLl]!.! 

Tlie ;rarpose of the pi-"esent study is to analyze s.nC eva-luate the 
miniirruni price controls attempted -under the coc.es as solutions of the 
problems to which they v/ere acLc'iressed, 

II. aSASClIS POJl Tlil STUDY 

Ead N.R.A. been able to base its lolicy and practice with 
reference to miniiaum price re^.-ulation on an adeq^uate bac'v^rovuid of 
previous esLperience of a 'siinila-r nature, it is probable that i &ixy 
serious difficulties and controversies would have been avoided, and 
.many steps, later retraced, would never have been talren. 

The re,:^ulation of industrial 'orices under II. R. A. vvas TJaidertalren 
upon the plea of business, in an attempt to solve some of the problems 
created or made a,cute by the de-^ression. ?ranl:ly e::perimental in 
nature, the various codal devices to limit price competition were in 
practically all car;es and at all times the siibject of -violent contro- 
vers7. iiany of; the bitterest attac]:s l£tunched a;,ainst II, 3,. A, foruid a 
speciiiic tai-^-et in "orice re:,-ulation. The difficulties encountered in 
the opera-tion of these controls v/ere manifold; in fact the problem was 
perhaos the most contentious \/ith v/hich U.S.A. md to cope. 

The only experience in the United States at all similar in nature 
y/as a brief ex:oeri:.ient. " du.rin ; the ''(Vorld T/ar. V/ith a few minor ex- 
ceptions, such as the attempt of the Federal Farm 3oard to peg the 
prices of certain farm products (the re':ulation of natural monopolies 
obviousl^/ belongs in a different cate;;;ory), the efforts of the Federal 
Government had been directed tov;ard maintainin;, rather than toward 
limiting price competition. The law had s <ecif ically forbidden industry 
to combine for the purpose of fixin;; -prices, :::rperiments recorded in 
history :Lpresented no parallel to dorrent conditions. Modern forei;:;n 
experience with such devices as the cartel, although extensive, v;as 
ina J .lica,ble because predicated tipon an alien politico! and economic 
philoso-T/-.(*) 

Eut if price control under II. H. A. represented a ventvure into 
almost coLwletely uncliarted seas, the lo, of that venture is now, at 
least in part, ava,ilable. Approximately BOfp of all ap'oroved codes con- 
tained some n-ovision desi^-ned to set a floor for prices. V/hile the 
majority/ of these rema,ined inoipercative, for reasons which will be dis- 
cussec':. later, actual, experience covered an extensive and representative 
section of American industry. Various means of re-jalation were atter/TDt- 
ed, difforin;,: joth in principle and in cetail; and the results of their 
arpplication to inv^.ividual Industries varied widely. 

All these devices lapsed with the Schechter decision. At iresent 
the risi:i^ industrial ter.po hg.s siibdued, thou^pi j-" no ..leaiis entirely 
(*) For a diacuaaion of all thesg offdrts at price control, see 
ippendix III, ' 

9753 



eliiiiinated, the cry of iatUistry for price re/;,'alation. It is pro'ba'ble 
that anothei- Cuowr.trf nd in tut- OLisinesc .cycle v/ovlIc. a,^:Ein stimulate the 
plea that prices he "staoilized." 

A critical analysis of the record now availaole rnay serve to 
provide a soimder oasis for future action than vyas availaljle in 1933, 
if and when the possibility of rovernmental control of industrial 
prices >xTe again seriously considered. Such an analysis may reveal the 
extent to which the devices used imder the codes ajneliorated the 
specific dislocations they were desi;;ned to remedy. 

III. iJH^IOD or APPHOACH 

It v:as tov.'ard ^orovidin'- such aui analysis anf. aT;raisal that this 
study v/as directed. The method pursued in its actual conduct is ex- 
plained in dettdl in Appendix I, and will he stated here only briefly. 

It became apparent at an e&a-ly stajre that limitations as to time, 
personnel and none^ precixuiaia an analysis of all the codes (approxima-tely 
80) under which minimum price provisions v/ere opQrative. The inireati- 
^^ation was therefore concentrated on a representative sanple comprising 
28 codes. Lvery effort was ma,de to insure that this selection v/ould 
co...!orise a variety of industries, problems, devices and results. 

A list of classification of these codes follov'S-: 

A. ITat-gre.! Resource Industries 

Lumber and Timber Froo-ucts 

B. Man-igf ac t vcc i n:?; Indiis tries 

1. Producers ;,oods and services: 

(a.) those industries producin;:^ rjoods or performin,'^ 

cervices for which there is no' indej^endent demand 
and which are consequently unaible to increase 
their volume by lo'«.'erin,, prices: 

(i) those :>rod'acin;'_ ,"oods: 

Cast I real Soil Pipe Industry 
Liiiiestone Industry 
lialleable Iron Industry 
Screw iiachine Products Industry 

(ii) those performin"; services: 

J!\Lr Ijressinfi' ejid pur Dyein/.; Trade 
Throwin. Industry/ 
Waste Paper IndListry 

(b) those industries v/hich are able to increase dema,nd 
for their "iroducts to i;:rea-ter or lesser extent 
by lov/erin;^' prices: 

Ar.;ri cultural Insecticide and iXmjlcide In- 
dtLstry . ' '. 

9763 



-3- 

Fertilizer In^;a^sury 
Asplialt Gliiii.jle Industry 
Pr.int, Vrirnit'h raid Lacquer Industry 
Fire Extin, uiKl-j.uf; jlopliajices tif;-,;. Industry 
Plujnliin.j Fi:'-^v.r=js Industry 
Hardv/ood Disti llat:".o::i Indijstry 
. Paiober ?ire Mt-nviac curin-- Industry 

Grcohic Arts Ind-ast-y 

(Coiiinercial Sols.ef Printing Division) 

2. Cons-cffiiers Goods I'.iamii'actxiring- Industries; 

(a) those imi'u'-jtri es v/liere the product demand is 
relatively inalp.sticj 

Coffee Industry 

?/ood Gc-ZiiC. Ij03,d Pencil Industry 

(■"o) those industries demand for v/hose products is 
more elP^stiOc 

PcLrniture Industry 

Luf-gage and Pcrncy Leather Goods Industry 

Canvas Goods Industry 

Ice Indubtry 

C . Consuinei'S Service grede s 

Cleaning and E/ein.T Trade 

(illustrations \7ill also "be drawn from the Laujidry Trade, 
Shoe Eehuildin/;; Trade, Berber Shop Trade and Hotel Industry.) 

D . Distribution Trades 

1. Retail Distribution Tra.des: 

Retail Tire Trade 
P.etail Tobacco Trade 

2. Wliolesale Distribiition Trades: 

Paper Distributing Trade 
ViTiOlesale Tobacco Ti'ade 

There v;e re three n ia.ior_ codal devices for minimum price control, 
■1 of Y^i ich are represented in the selected sample . These are; 

(1) Direct mininram price fizing by Code Authority or similar 
agency, ?/ith or without ap-u-oval of N.R.A.; 

(2) Price control during declared emergencies only; 

(3) Prohibition of selling below cost, including 

(a) Individual cost 

(b) Some form of "average" or "re-^resentative" cost ap^DlicabJe 
to an entire industry. 



9753 



-4- 
Pertinent iniornation v.'as .-■lea'ifcd I'l-ora the follor.'in"c sources: 

(1) IT.R.A. files rncl st^icdos. 

(2) Other G-.^vernmjnt ce;^j£ r-cneats. 

(3) ?-ablic^oi.io:as ^aicl sii.ii] _ir n^n- 'overnnental sources. 

(4) rielcL investi ;r.tiGns.(j.n a few cases). 

For each co,.ified InLVistry ctu.Vle:'., it '.vas sou, ht to deteruiine • 

(1) The nature of the laiiderlyin , iMff icxilties motivatin^^' the plea 
for price ccncrol. 

(2) The Lianner in v/hich a s^iecific -orice control device was for- 
-xiulated in the atteri:t to Lolve these difficulties. 

(3) The actiia.1 ex;^erience in ac.nrinis-cerin;; the device. 

(4) Tlie effectiveness of the device in ueetin/;- these difficulties. 

(5) The broader effects cf ita ap: )lication. 

IV. FLAh Of TK: lilPOST 

In presentin the results of the studo/", the prohlen resolves itself 
into the follo\.'in,v, chases, rhich have oecn ctreatec. in this report in' the 
order named; 

A. All analysis of the cjnt'.itions leadin-; to industry's plea for 

the liuitation of price cermet ition -ujider the codes, including: 

(1) A brief snrve-^ of c-.e :;:enero,l n-ice problems confronting 
injistrp ir Vr e <^^->ri--. and snmaer of 1933. 

(2) i^n anal"sis of t...... '..a^ic economic dislocations operating 

tc ""rivent t'.ic S£/Lii:factory operation of the free price 
iiechanis.a. 

E. A srami.iary of the rixvnner in v/hich the dissatisfaction of 

industry cr"-stallized into a plea for the lioitation of price 
coiTietition, ant. of the consideration given this plea in the 
forraulatior. of the IT. 1. 2. A. 

C. A brief ('-iscussion of the devices actually used under U.S.A. 
to lii.ht price ccupetiticn, anc. of the developiuent of IT.R.A. 
policy in connection thcrev;?. th. 

D. A:i e;:s,niination of the s-/i;:pto::i3 by v/hich these basic economic 
dirlocations ./icnifested the;..s-^lves in specific industries, 
constituting the ii.t,;ec.iatc .robloi.is "jrice control war. designed 
to rei.ied,-. As far a^; possible sinilarity of groui: pattern lias 
been stressed. 

S. A:i analysis of tb.e actual eicperience of each industry v'ith 

coc'-al mininuini price ;;iiovisions f.nc. of the effect of the lapse 
of such provisions, Tiiis analysis v/ill be grouped according to 
the devices iised: 

(1) Direct ;:i.ini,,ivju price fixing. 
( 3) Eiaer, :enc:- prices. 
(3) Cost protection. 

9763 



F. Conclusions l;aEec. on the f oi-e;_cin;; Cirectec". toward the 
proljlen oi the stxidy as set forth iii the first para;jraph 
of this cliapter. 

Ct. There are alco include:, as appen^^ices: 

(1) hetho^-olo.-y. 

(.3) Detailed studies of the proulens ccnfronting' the 

industries selected. 
(5) Creneral survey of other attempts at ;-irice re,:,-ulation. 



-6" 

CHAPTEZl II 

TIIE ECOrO IC BACrGaOUlD ■ 

I. liilSDIATE CATJSES Or DISCOiJTEilT 

Tlie eagerness rrith v;hichthe representr.tives of industry sou'^ht 
the aid of illA. to raise and naintain tlie price levels of their products 
or services uas one of the inost stril-ring phenonena of the earlv period 
of intensive code formulation. It nay he said vitli a reasonahle degree 
of assurance that the ho-oe 6f assistance towa.rd the stahilisation of the 
price level iras the prinaiy induceiient for the suhnission of a code in 
the great majority of instances, certa-inl3'- after the first fave of en- 
thusiasm had ■'."'aned. Code fornulati'm vas frequently on a trading "basis; 
that is, so much in the vrnj of concessions to lahor was offered in re- 
turn for so much in the vay of price stahilization. 

Ohviously the great majority of industries were dissatisfied with 
the price levels prevailing; as a result of that degree of free -nlay of 
economic forces '^hich then existec. This dissatisfaction ws.s e^Doressed 
in a well-ni"h unanimous effort to secure the ar^-oroval of provisions 
which it vras ho-oed would raise prices to e. higher and more uniform level. 
In part, of course, the?e efforts 'irj he e:cpls,ined hry the old ohservation: 

"People of the sane trade seldom, meet together even 
forlmerriraent. and divaysion, hut the- convfjrsation. ends 
in a conspiracy against the puhlic or in some con- 
trivance to raise prices." (*) 

Ta'-en alone, however, this ex-planation would he too facile. It was 
helieved hy a,n increasing nunoer of people thst the length and severity 
of the de-pression revealed sjiiptons of fiindanental economic maladjustment, 
and tlia.t interve?ition of the federal power in the field of price was an 
immediate and pressing necessity, if widespread bankruptcies ?nd a con- 
tinuation of the "downward spiral" of prices, emDlo^,n-'!ent and wages were 
to he averted. Business was incurring mounting deficits, directly caused 
hy the failure of goods to covim.and adequate prices or to move in suffi- 
cient volume, and such deficits could not he. sustained much longer. 

Some fi:gures which give a crude o^uantitative measure of the e::tent 
to vrhich these conditions m.anifested themsel^'^es will he cited. During 
iiarch, 123u, the average level of wholesale -orices had fallen 37 per cent 
helow the "level prevailing in 1£29 (**), a?"d industrial activity had de- 
clined to less than one-half of its 1929 rate. (***) Purthermore, these 
average declines concealed far wicer fluctuations in individual industries 

(*) Smith, Adam, "Uealth of hations, The"; Pool: I, Ch. X. 

(**) Uholesple Prices - 3LS. (Bure;^u of Lahor Statistics) 

(***) Index of Industrial Pror'ucts - Federal Fieserve Board. 



9753 



Percent 


Pel 


:'cent 


droi? in 


drop in 


Prices 


Production 


6 




■ 80 


16 




80 


18 




65 


20 




83 


33 




70 


45 




30 


49 ■ • 




14 


50 




20 


55 




20 



and indur^trial groiroG. The extent of, tliese disparities is revealed in 
the fpllo'/'iiuT table: 



Decline of Prices and Production for Ten 

Bp.sic Inc'ustries During 1953 as Corn'oared v'ith 1929 



Agricultural inple-ients 

ilotor vehicles 

Cement 

Iron and steel 

Auto tires 

Textile products 

Food products 

Leather 

Petr^leuj.i 

Agr i cul t ur al c oit-io d i t i e s 53 6 ( * ) 



•But v/aat ras perhaps raost destmctive of the racrale of the in- 
dividua-1 "busi-^.ess "lan \7as thp.t no natter hav far orices dropped the 
presrure for further reductions did n^t ahate. If anything, it r,'as 
intensified. Fixed cha.rges oh idle equiunent had to be met, and the 
excess of productive facilities over effective; denand ras tremendous. 
Some neasure of the extent of this over-capacity may be derived from 
the following conriutation: 

During 1929 the Federal Preserve g.oard' index of total, industrial 
production reached a peah of 125 (**) (bared on 1923-5 =: ioo). The 
average for tjie -"ear 1923 ^as 119, According to a studj^ conducted bjr 
the Broo^':in::;s Institution, even this high figxire represented slightly 
less than an 80 -ler cent ep-olo.T^ent of the nation's produciftg ; facil- 
ities. (***) On the basis of this esti-iate capacit;;" operation nould 
correspond to an index of aioproxinatel^- 150. 

(*) I'eaiis, Gardiner C, IndustriaJ prices and Their Relative 

Inflexibility, Senate Document T'o. 13, p, 8; 74th Congress, 
1st session. 

(**) These indices reoreseVit ph'/sical voluie of production, P.nd 
are a,djusted for seasonal variation. 

(***) 3roo^:ings Institiition " A'-ierica's Ca-pacitv to Produce" 
p. 146. 



97S3 



In contrast to this hi^h potentic.l- rate, ave;rage production during 
1935 vras 76, ?nd during 1334, 79; representing a decre-^se of over one- 
third fron the 1929 average. (At the troiigh of the depression, in the 
summer of 1932, and again durin- the earl j"- spring of 1933, the index had 
fallen 'belOTT'SO.) Sven ?fter allo^in,- for sone degree of retirement of 
excess fa.cilities, it nay 'oe estimated that industry/- re p rrhole utilized 
not much more than 50 oer cent of its avail'i.hle ca-oacit^ during 1933 and 
1934. 

Under these conditions, then, sharply reduced volume at loner prices 
was forced to carry a practically ■'jnchanged turden of overhepd charges. 
Instead of retiring excess capacity, every efr'ort '-'as strained to utilize 
it "because, for reasons r.'hich 'dll be discussed Inter, any sale uight "be 
considered orofita'ble if it returned more than the actual added cost of 
making it. 

In many cases orices r^ere maintained at a level noninally high; no 
concern cared to initiate open price cutting "because of the certaint3r 
tha.t such cuts uould "be met. Instead, price inducements usually took the 
form of secret re"!optes, excessive discounts ojid trade-in allowances, ojid 
the like, so that the realized price frequently "bore little relation to. 
the nominal. livery variety of practice T/as indulged in to secure a 
sligrhtly greater share of the voluiae of ""ousiness available. 

TJhere a concern could not meet the demands of its creditors, and 
\7as forced into banliruptcy - and it ^-as frequently not the inefficient 
"but the efficient plpnt '-^ith inadea^uate cash reserves to '.-hich this 
happened - the result \7as not a '-athdrav/al from, the field "but siriply a 
change in ovmership, ITith fixed charges reduced js a result of the re- 
organization, loner costs permitted r reduction in 'Drice nhich hitherto 
solvent units were una"ble to meet, leading in time to further "bank- 
riaptcies and intensified dislocation. I>jLring 1932, 31,822 concerns had 
"been forced into "banl'ruptcy, re-)resenting total lia"bilities, of 
$928,313,000. (*) 

II. TIC::033CTICAL BACKG-KOITin) 

A. Existence of I\mdamental Ilconor.ic Dislocations 

To many economists these conditions, "hile sufficiently serious ' ■ 
taken alone, were "but the external manifestations of a frr more deep- 
seated disorder. Hver since the daj^s of Adam, Smith it had oeen preached 
that free corametition throug:h the mechfuiism. of mricc nouild automatically 
insure the satisfactory operation of the economic structure. Basic 
American Toolicy yiPS predicated on this doctrine. The maintenance of free 
comnDetition was one of the cardinal aims of the Federal Governaent. 



(*) Source: Dun and :3rads treat. 



9763 



But sonehOTT the picture did not fit the facts. The promised 
autonr.tic adjustnents either failed to appear or rere at least delayed 
beyond tolerance. Ojiestions oei-^'an to he raised as to '.'hether the funda- 
mental -aostxilates on r-hich tho laissez fairs theory hp.d heen predicated 
were any longer tenahlo. 

. In the Opinion of these critics the conDetitive system failed to 
V70rk p:recisel3r hecause cOhT)etition •■:; s no lon^^'-r predojiinantly free, hut 
was heing increasingly replaced 'oy 'That \7r s terned imerfect or nono- 
polistic corffpetition. I'he detex-nination of pxices throiigh the so-called 
"law" of supply and demand failed to yield satisfactory results "because 
price was no longer oernitted to adjust freely to narkot conditions. 

The manner in which prices are deternined on the laarket is ohviously 
at the heart of any discussion of price control, An appraisal of the 
possibility of limiting price competition must proceed from an analysis 
of the manner i-n which price competition takes place. Consequently a 
brief examination of the nature and function of the price mechanism, both 
under free 'and imder im;-3erfect conpetitioii, oppears essential. 

B. The Theory of ]?ree Corroetition 

1. Determination of Ilarket Price. 

Granting the existence of a system of free competition, -:)rice in the 
first instance is the result of 'bargaining between potential buyers and 
sellers of a commodity in a free market. It is assumed that the number 
of potential sellers is indefinitely large, that these sellers are all 
independently comoeting to disioose of their wares, and tha^t no individual 
seller is so important in size that by 'jithholding his supply he can 
affect appreciably the total amoiont offered for sale. It Is further 
assumed that the number of buyers is likewise indefinitely large; that 
they have no preference for the wrres of pny .individual seller; that these 
bujrers compete with each other inde-oendently said that no single buyer buys 
in such quantities that his wi thdrp'-fal from the market can a-oToreciably 
reduce the total demand. Further pSsnam"5tions rre thr.t individual buyers 
and individua,l sellers are, by r^nd large, oossessed of relativel"/ equal 
shrewdness ajid that the3'- are equally informed of existing conditions of 
demand, supply and price. 

Uhere these conditions exist, ma.rket -orice is determined not bj'- the 
fiat of an overshadowing producer or group of producers, nor by the dictate 
of one important consumer or consuming group, but rather by a process of 
bargaining, with buyers njnd sellers having an eoual voice in the pro- 
ceeding and an equal influence on the result. Furthermore, the price of 
any commodity will be uniform on any market at any given time. This 
briefly, is the "lav/ or supply and demand" of classical economists. 



9763 



i. The Concept of a "llornal" Price, Relr.tion "be- 
tneen Price and Cost. •; ■ ^ ^ 

This analysis, horrever, a"Tplies only to the lixin- of an inraediate , 
or market price, and assTomes not only an existing demand schedule but 
also "a preexisting- supply of goods. It is at this point that production 
cost enters the equation. If the inari:et price is fixed at a level so low 
tha.t certain productive facili-ties - or certain ijroducers - cnn not pro- 
fitahly continue to operate, such productive facilities* or 2'3^oducers nust 
eventual'ly leave the field, rjith a. consequen.t reduction in sup;oly. TTith 
supply reduced, if deiarmd is unchanged, price on the market trill rise to 
a level stLfficient to coiTrnensate the producers to ercpand their output to 
a level coinmensurate with damand. Hence there arises an indirect dynamic 
adjustment- of price to oroduction cost, iDut such adjustnent is not 
immediate and presup-ooses ready mobility of capital. 

"♦♦♦""tiie demand for any g09ds being tal:en for granted, cost of 
production fixes the limit upon the su^Tioly of that good - if it be 
a reproducible good - and determines the xice of the good, solely 
- - through modifying the volume of the supply; * * * *,ii (*) 

3, The Principle of Automatic Adjustments. 

¥here these conditions, characteristic of the "free competition" 
-poatoilated by classical economists,, exist , the operation of the price 
mechanism is automatic and rapid* The prices not onl;?" of commodities 
and services, but also of. labor, and of the hire of land or capital are 
flexible and respond to the free interplay of economic forces. The 
equilibritm is, it is -true, dynamic rather than static, but any prolonged 
maladjustment should not occjt. If demand for any specific commodity 
changes, the' market price nill also change and productive facilities -trill, 
then be added or eliminated. Where a more widespread change affects 
general demand, all prices Tna.y drop; but costs of production, which are 
themselves composed of prices, will also drop and equilibrium between 
.prices and costs will raoidly return. 

4:, The Function of the Free Price IIech§nisra. 

Carrying the argument further, under these conditions the deter- 
■ftination of price throtigh free competition performs an extremely valuable- 
function. Decision by an entrepreneur as to alternative ernoloyments of . 
capital' must be based on a comparison of relative -prices. (**) Con- 
sequently a free price- system« under con- 



(*) Davenport, .H. J., " The Economics of Bnterurise " ; Ch. 'VI. 

(**)■ "At every stage of the economic ^Trocess under free enteriDrises,. 
- from production throtigh exchange to consuxiption, the continuous 
comparison of relative price provides the main criterion by 
which decisions can be taken." - League of Nation Survey, 1935« 



9763 



411- 

ditions of perfect conr^etition r/ill, direct the productive effort of a 
society into those channels, and to that extent in each channel, rjhich . 
that society expressing itself through the -^rice nechanisn finds most 
desirable; in short, the aggrej,-?te production of '.veslth rail tend to be 
a raaximun. . ' '. . 

C. The Froblcn of Iiigerfect Coiaoetition . 

1. Pail\"ire of Automatic iiechanisra. to I?imction Properly/, 

However, the actual econonic ojiq.. industrial struct^ire of the United 
States is no longer accuratel;'- reflected by these' postulates of the 
laissez faire school, li\uidaraental changes in our business structure have 
apparently prevented the price rnechaiiisn from functioning loroperly. The 
general ffll in orices \Thich started in. 1929 did not ai^pear to create its 
own corrective for a period so long that sone had begun to despa,ir of the 
possibility of "natural" recovery.. And if the competitive system of 
checks and balances hnd not in fact completely broken down, certainly it 
could safely be contended that its • operation was- being impeded to an in- 
creasing extent "bj the o-oerption of factors alien to its assumption. 

2. Honopolistic Prices. ' • 

Looking first at the theor'^ of the free ' mar]:et, to what extent and 
for what commodities does it portray existing conditions accurately? It 
is obvious, of course, that where an actual' monoijoly exists price is a 
result, not -of market action, but of the imilateral determination of the 
monopolist. Virtually the srme effect may ensue. from agreements by 
powerful groups to act ift 'coneert, • : 

' ' ' '3. Effect- of Size -'■ 

There is, further, an increasingly important twilight zone that is 
neither monopoly nor free competition, but in which the postulate of re- 
lative equality between btiyers and sellers, and betweenbuyer . and buyer, 
and seller and seller, has been destroyed by the increasing concentration 
and integration of business. .ITliere a fe-.ir' large units dominate the pro- 
duction of a cormaodity, even though they may be in active competition, 
and where eatronce into the industry is difficult because of .large 
capital requirements, -any one of these units, bj"- withholding its ■:3roduct, 
can so diminish stip;oly as to force a. readjustment of price to a level 
more to its liking. Conversely, .a ' similar sit-'J.ation may exist on the 
buying side; where a corporation acco-onts for a large fraction of the 
total demand for a product it can force a substrntial decline in the 
market price by the simple erqredient of staying out of the market tem- 
porarily. Prices so determined may be termed "managed" or "administered," 
but it sho-uld be noted that the "managing" can be done b;;- either seller 
or buyer. In the former case prices v.rould tend to be higher, in the 
latter lower, than would be the case in a free market. 

4. Hecessit?/ of- -^lanninr Production 

Ail a.dditional factor -oroventing any ready adjustment of price to 
demand and suj^Ply, rnd of supply in turn to price, is the necessity in 



9763 



-1£^ 
many industries of plgnning production schedules for long periods in 
advpnce. Such schedules cannot be teadily adjusted to market fluctua- 
tions, introducing an added element of inflexioilit.y* 

5, Inequality of Producers-Consumer Preference, 

The assumiDtion of eouality betveen sellers, . and of the in- 
difference of bxiyers as betv'een the products of different sellers, is 
further impaired by the value attached to such considerations as 
brands and trade marks by the buying public, freouently as a result 
of intensive advertising campaigns. here preference is attached by 
the potential consumer to a trade marked loroduct, equivalent unbranded 
articles can be sold only on the oasis of a price concession. 

6, Uneaual Price Decline During Depression. 

The result, then, is an econoioy i-n v'hich free competition is no 
longer the predominant price determinant except in the field of 
agriculture but in v^hich free prices, monopolistic prices, and managed 
prices co-exist. This condition carries with it the important im- 
plication that the old automatic adjustment of price to demand no 
longer prevpils. During a period of .general business depression, in- 
stead of a relatively equal decline of all prices, '"e find that free 
prices drop much more sharply than monopolistic or administered prices. (*) 
In those industries in which price levels ai'e deliberately maintained 
in the face of falling demand, one of the effects may be a sharper 
curtailment of production than "'ould otherwise be necessary. Ho'j'ever, 
in many cases at least, sales fall off even more sharply i?'here prices 
are flexible than vhere they are rigid. Vnen the prices of a 
commodity are falling, potential tjuyers may avoid purchasing in the 
belief that further declines are inevitable, '..here, on the other hand, 
prices are relatively stable, there is no such psychological incentive 
to defer purchase, 

7, Intrusion of Other Kit^id Elements, 

(a) Inflexibility o: wage structure. 

Administered prices for many industrial products do not, moreover, 
constitute the sole important element of rigidity. The wage structure 
has become increasingly inflexible, due in part to the force of custom, 
in part to the efforts of labor unions, and in lesger part to social 
legislation, 

(b) Increasing importance of fixed charges. 

Perhaps the most important intrusion of rigidity is the accelera- 
ting replacement of variable bv fixed charges as elements of the cost 
of production. • Vnith increasing substitution of machines for' man 
po'"er, an ever more important role is played by depreciation charges 
on equipment and interest on borro'^^ed capital. It is probablv true 



(*) See - Means, Gardiner C, , "Industrial Prices and Their Relative 

Inflexibility." Senate Document #13, 74th Congress, 1st session. 
Also - "Prices and Price Provisions in Codes" - Heport by 
Division of Research and Planning; NFvA files, 

9763 



that depreciation cliarjes need not l)c re-girded as strictly fixed, and 
that underallowauce durin,^ slac].; periods can be coninensated by over- 
allowance during ;'?eaJ's. Interest, however, is p, charge tliat must be 
raet if bankru-'Ttcy is to oe averted; a:id lovi,,' tern funded debt, opti- 
mistically contracteo durin,... Looms, is difficult to coirmute durini^^ 
depressions. 

8. Failure of Prices to Adjust Themselves to Cost of 
Production. 

This condition, in tui'-n, tos further serious innlications, For 
those comiiiodities with flexible prices, price declines during a de- 
pression do not tend to adjust to a "normal" value, eouivalent to 
total production cost, throuj^-h the contraction or expansion of supply, 
as was postulated under the theory of free competition. Instead 
prices tend to ajspa-ofe.a'h closely the direct costs of production. For 
er.ch plant, instead of retiring excess equipment, strains every effort 
to maintain and even increase -oroductior.. With the heavy prossurs 
of fixed charges any side is profitable that returns a littlo more than 
its direct cost, or, to be more rccurate, thrt returns more than the 
actua.1 increase in costs which results from neking it. 

If bankruptcy ensues as a result of this intensified competition, 
the plant of the bankrupt is rarely withdrawn from production. In- 
stead, with fixed chari^es reduced through reorganization, a fresh 
supply mey be thrown on the market o.nd a new im:Tetus given to the de- 
cline of prices. 

True, a neriod will eventually ensue when obsolete and worn out 
equipment requires replacement. Then, and only then, may the advise 
ability of investing new funds in the industry become the controlling 
factor in limiting productive facilities, with a consequent tendency 
toward adjustment of price upv;ard toward total cost of production as 
supply is curtailed. Promise of such automatic readjustment within 
fivu years or a decade, however, can scarcely be considered a satis- 
factory solution of a jiosent :oroblem; certainly it brings little 
cheer to an entre]-irenciir seeizing immediate relief from a situation 
which he finds intolerable. 

9. Failure of Laissez Faire Policy 

These factors, then, the shift from free to monopolistic and 
administered prices, the relative inflexibility of wages, the in- 
creasing inriortance cf fixed charges and the failure of excess 
facilities to be withdrawn with reasonable promptness appear to 
constitute fundamental devietions from the essential postulates of 
the laisses faire school. The autohxtic adjustment of producing 
capacity to demand is revealed to be, not a natural and immutable law, 
but rather a description of consequences which might be expected to 
flow from a specific pattern of economic organization; this pattern, 
while possibl^r fairly universal a century ago, is today honored more 
in the breach than in the observance. The coexistence of relatively 
free and rigid elements, moreover, subject the economic organism to 
unequal strains under the stress of the depression, and occasion such 
friction in the economic machine that automatic adjustments are 

9763 



delayed beyond tolerance^ 

Some economists go so far as to say th?t this differential action 
of prices caused tlie entire laissoz faire -lolicy to fail. 

"The shift of market to administered prices *** 
is the— <ievelo;oment which has destroyed the effective 
fruaetioninsi' of the American economy and produced the- 
pressure which culminated in the new economic agencies 
of government. *** 

"The basic cause for the failure of a laissez faire 
policy is to be found in the ver;- same forces which 
ha.ve made possible a high s},tandard of living for all, 
najnely, the gradual, century-long shift from m.arket 
to administrative coordination of economic activity 
which has resulted in modern industrial organization 
and modern technology. This shift to rdmirii strati on 
has broU;_,ht a new t^/pe of competition and inflexible 
prices vhich disrupt the workings of the ma.rket. "(*) 

10. Similarity of Conditions in Canada,. 

It is pertinent to note that fundamentally similar conclusions 
were arrived at by a Cang^dian parliaraentary commission, the Pioyal 
Commission on Price Spreads, which conducted a comprehensive investiga- 
tion into the causes of the dislocation of the Canadian economy. 

"In the past, governrnent, through anti-trust and 
combj.nes legislation, has been concerned to maintain, 
ra,ther than to control competition, which has been 
accepted as generally beneficial; congenial to the 
pioneer attitudes^ and Justified by economic argument. 
Competition seemed 'to promise a flexibility of prices 
which ?;as most valuable and indeed necessary in an 
economy as variable a,s Cana.da's. ' It also seemed to 
promise a satisfactory stimulus- to efficiency, and a 
reasonable guarantee of l6\7 prices to the consumer. 
The a.rgument wa.s carried further to show that com- 
petitio'n tended to direct productive" activity in 
such a, vray as to maximize the national income. But 
this argument was b-sed on the assumption that com-- 
petition was what was called free, or "simple." In 
earlier stages of co,pitalist developm.ent the actual 
economic world sufficiently approximated this con- 
dition to justify some optimism as to the beneficial 
effects of competitive freedom from control or inter- 
ference. But now conditions have cliangcd. Con- 
centration in production and distribution, resulting 
from the development of the corporation and the large 
scale business unit, has made the actual competitive 
scene iir ogres si vely less like the simple competition 
of the laissoz faire economists. In 'some cases 

(*) Heans, Gardiner C. , "Industrial trices and Their Relative In- 
flexibility"; Senate Dpcur.icnt #13, ■ 74th' Congress, 1st session; 
p-o. 8-9. 

9763 



the change has been comislete and the result has been 
monopoly. Bvit more oi'te^i the development has not pro- 
ceeded quite so far,' and thera has arisen a condition 
which has long been discussed by economists under the 
name of 'monopolistic or im^iperfect competition'. Here 
it is recognized that the results of unregulated 
competition are frequently far from beneficial. 



"It is, furthermore, a tragic delusion that the solution 
for these economic problems can be left to automatic 
forces, because the conditions which once permitted the 
easy and equitable operation of such forces have .ceased 
to exist. * * * Tor can we assuiae an.y longer that this 
faonopclistictcndency is a merely incidental intrusion 
into a system predominantly and naturally coratpetitive. 



" - All these circumstances unbalance modern economic 
society in the sense that not all of its parts adjust 
themselves at the same speed or in the same degree to 
any influence that malres itself felt at any one point, 
necessary readjustments arc therefore concentrated on 
the flejriblo sections of our economy, v/herc their 
effect is intensified by the rigidity in other sectlonis. 
When different parts of a glass tumbler expand or con- 
tract at different rates, the whole glass may,b_e cracjced. 
If the economic structure is in part flexible, and in 
part rigid, ar^ strain, may lead to" complete'_ collapse. "(*) 



(*) RCTort of aoyal Commission on "rice Spreads ; 1935, (Ottowa, 

Canada,) Ch. II, pp. 5-1"?. (in Bepartment of Commerce Library.) 



9763 



-16- 



C^-T AFTER III 

THE DEMAND FOR PEICE RIlGULATILN AND ITS PART IN 
THE FGRKULATION OF THE NATI OH i\L INDUSTRIAL RECOVERY ACT 

I. BUSINESS SEEKS A WAY OUT 

The preceding paragraph has "bepn designed to examine the extent 
of market disruption during the period immediately preceding NRA, 
and the basic economic difficulties underlying the failure of the 
price mechanism to function properly. In view of the conditions 
descrihed there is little wonder that during the early months of 
1935 busines's men in general, faced with the urgent necessity of 
immediately restoring profitable operations, were eagerly seeking 
a way out. , 

Their quest for a solution was not, however, directed toward the 
underlying maladjustments which had inevitably disrupted the market. 
It was not the theoretical problem but the immediate and visible 
symptoms with which they were concerned. The experience of the in- 
dividual business man, by and large, was confined to the actual state 
of the market rather than to %he forces which made the market what it 
was. Consequently, the remedies he proposed were designed to provide a 
means of correcting the visible problem. Oije thing'was obvious - 
in some way income must be made to exceed expenses. And the only way 
to do this with reasonable expedition seemed to be to increase prices. 

Controllable expensies 'had already beentcut' to the bone - or at 
least as far as the rigid elements of the economic structure permitted. 
Income, then, had to be increased. To do this sales had to be expanded 
or prices raised, or both. But sales ercpansion could be accomplished 
only in two ways, either through still further price reductions or 
through increased purchasing po'-er. Of these the first hardly con- 
stituted a solution. The possible increase in the number of units 
sold was unlikely in the extreme to compensate for the decreased return 
per unit. And while the expansion of national purchasing power seemed ■ •• 
a desirable goal, it was too general and too indefinite in nature to 
appeal to specific industries as the solution of their particular problems. 
The conclusion seamed inescapable. The only road to immediate relief 
was through some form of co-operative action to increase prices. 

Envious eyes were cast on those favored industries in which prices 
had been maintained throughout the depression, frequently by concerted 
action through powerful trade associations. Where there were but a 
few large units and the capital requirements for entry into the field 
were substantial, such a course had been found feasible. For example, 
the Steel and Cement Industries had been able to maintain a fairly 
high degree of stability in the prices of their products. As an extreme, 
but not unique example, the wholesale price of sulphuric acid had not 
changed at all between 1926 and 1S?4, Such f-f:'^orts were not always 
successful, and in a few cases had resulted in a complete debacle. 
For example, the maintenance of the price of copoer at 22(t and later 
at 18;^ a pound early in the depression had -prob/ioly served to aggravate 
the later drop to approximately 5(>J. 

9763 



The anti-trust Ip^vs anci the Pedpral Tr.ade Commission, further-nore, 
exercised a restrainii.? in-f"lu(Hice ovf r the extent to '^hich price 
fixing by concerted action could ciO. 'fcile it is rjossible that the 
enforcement of these laws hf.d been rel.'ixfd somewhat in stringency, 
too obvious collusion was difficult. 

An interesting sidelight on the opinion of trade asso- 
ciation, executives with reference to this relaxation of the anti- 
trust la^s is cast by a statement 'cf-Chprles p. Stevenson, senior partner 
of Stevenson, Jordan and Harrison, industrial ena:inerrs and trade 
association manaf:ers. Mr. SteA'enson, who under W.k was responsible 
for the adninistration of nineteen' code authorities, in an address 
delivered before' the Annual Coi;vention of the National Association 
of Cost Accountants, stated: 

"As a matter of fact, we did not actually operate 
■under the system of unrestricted corrp'^tition in 
the period from 192^ to lf'i9, notwithstanding the 
fact that the Sherman nnd Clayton Acts were on 
our statute books and that, theoretically, we 
were supposed to do so. Practically, under the 
Harding, Coolidge and Hoover Administrations in- 
dustry enjoyed., to all in-i-ents and Durposes, a 
moratoriiom from the Sherman Act,, ,qnd through the 
more or lees effective trade associations '^hich 
were developed in our industries, competition was, 
to a very considerable e-tent, controlled. The 
Department of Justice acted with great restraint 
and intelligence and only enforced the Sherman 
Act against those industries who violated the laws 
in a flagrant and unreasonable manner. " 

Furthermore, in many industries, there were minorities who would 
refuse to participate in any form of concerted action, and who insisted 
on charting their own courses independently of the consensus of the 
majority. It was, therefore, believed by many that if the restraints 
contained in the anti-trust laws were removed, and some means provided 
for forcing recalcitrants into line, prices could be fixed at levels 
that would insure profitable operation to all and that production, 
employment ajid wages could be maintained at an even and satisfactory 
level. 

Among the premises that made this line of reasoning tempting was 
the widespread feeling that unsatisfactory price levels were generally 
the direct result of price cutting deliberately initiated by the re- 
calcitrant minority in each industry (i.e.,' the "chiselers" who refused 
to "play ball"), and that any concern which quoted prices lower than 
those prevailing 'was committing an act of highly questionable character. 

Such conduct was considered especially reprehensible ^"hen a 
concern cut prices to a level below its .own cost of production. It 
was argued that profitable operation was essential in order to permit 
industry to continue to produce and that, consequently, nrices must 

9763 



•18- 



be sufficient to cover actup.l cost and leave a certain margin of 
necessary profit. It was further ashamed that a definite cost of 
production could in all cases "be determined "by the use of sound 
cost finding methods and that thp individual business maji ras free to 
base prices on his costs so computed and to maintain them at that 
level; that the only imoediment in the way of such a procedure was 
the necessity of meeting the competition of a selfish minority. 
Selling belovj cost except, possibly, to meet competition, was con- 
ceived to be' usually the result either of ifnor-^nce or of predacious 
intent. It was, therefore, contended that the elimination of such 
practices was essential to business recovery. 

In connection with the attitude of business tovard selling below 
cost the f ollo^i-fin;^ further extract from Mr. Stevenson's speech is 
interesting: 

"For the benefit of those of you ^vho did not attend 
that session, let me say that through the Research 
Department of our a'^pociation we sent ■ out a Question- 
naire to several thousand comp-?nies engaged in various 
lines of business in an endeavor tc ascertain whether 
or not they sold below cost, why they sold below cost 
if they did so, and whether or not they thought it 
was good business policy. 

"The returns from, oua- questionnaire showed , conclusive- 
ly that about SOjb of the companies replying, and we 
had several thousand replies, admitted regretfully 
that they were from time to time forced to sell below 
cost to meet the tactics of competitors who resorted 
to selling below cost in an effort to secure an ex- 
cessive percentage of the .available business. About 
205^ of the replies indicated that the companies mak- 
ing the replies believed in selling below cost as a 
deliberate policy, believing it advisable to make 
whatever sacrifices were necessary to keep their 



capacit;r rate as 
panies who did not 



plants operating at as near 

possible. The 80^^ of the com; 

like to sell below cost tool: the stand that it was 

an indefensible business practice and that the 

adoption of the selling below cost policy generally 

resulted in losses rather than profits, 

"After thoroughly discussing the facts brought out by 
our questionnaire and after a good deal of discussion 
from the floor, I think our session went on record to 
the effect that it was contrary to sound business 
policy to sell below cost e^xept to meet prices which 
had been initiated by a, competitor. In other i-'ords, 
seven years ago we were discussing the basic elements 
of price control which have bern and still are the 
main basis of controversy in connection with the 

9763 



-19- 

operation of the National Industrial Rpcovery Act." (*) 

II. ENACTMENT OF THE NATHivAL I>'LlJStRIAL RECOVERY ACT 

It was with these ends in view, then, that business men in .ejeneral 
backed the passage of the National Industri^^l Recovery Act. The 
possibility of limiting price corat)etition, at least to the extent of 
banning the practice of selling below cost, was the principal benefit 
many anticipated from its passage. 

At the Congressional hearings and debates preceding the enactment 
of the NIRA the aim to eliminate destructive price comoetition was 
frequently expressed. Thus, Mr, He.nry 1= Harriman, then President 
of the Chamber of Commerce of the United States, at a hearing before 
the Ways and Means Committee on May 19, 1935, stated in part: 

"Now, whatever the exact figures may be, it is per- 
fectly- evident that we cannot have a return to pros- 
perity until the price level on general commodities 
ha.s n!?v8d cr.b^tanti.iily' upward and until many millions 
of these men who are now unemployed are put back to 
work. And the object of this bill which is before you 
is to accomplish these two results. 

"Whenever there is a great surplus of labor, whenever 
we are passing through a period of great depression, we • 
always have cut-throat coraiDetition. It is inevitable. 
One man talces an order at a slightly less "price than his 
com.petitor. In order to have a chance to break even on 
that low price he must not only use all the skill that 
he has but he must cut the pay of his working people. 
Then the other man, not to be outdone, cuts his price 
still further; and so the endless chain continues, of 
lower prices and lower w^-es, and lower wages and lower 
prices. . 

"I believe the time has come when we must take out of 
competition the brutality of competition. We must take 
out of competition the right to cut wages to a point 
which will not give an American standard of living, and 
we must recognize that capital is entitled to a. fair 
and reasonable return, and that therefore goods must 
be soldau a price v*iich will enable the manufacturer 
to pay a fair price for his raw material, to pay fair 
wages to his men, and to pay a fair dividend on his 
investment, ■"■ 



(*) St/venson, Charles E. , Price Coritrol and Allotment of Business ; 
address delivered before Annual Convention of the National 
Association of Cost Accountants^ Cleveland, Ohio, Jtme 25, 1934, 

9763 



-20- 

"Uliatever is necessary to maintain Aiaericail T7as';^es and Anerican 
prices, based , on tiiose. wages and on fair dividends shoiold, in 
iviy opinion, "oe included in the "bill." (*) 

Under questioning "by Hepresentative luiutson as to whether the 
"bill Tjoiild assist industries to ^et tack on their feet, Lir. Harrirnan 
replied: 

"Yes, sir, oecause ra thi^ till the?/ can fi:: a fair price for 
their -oroducts, with the consent of the President." 

Senator Robert IT, Uegner, on June 8, 1953, in debate in the 
Senate, made the following statement: 

"A suggestion was made that the price at which a particular 
commodity majr he sold in the market would be fixed. The 
Senator was present during our discussions in the Committee. 
iTo such thing is contemplated as the fixation of prices. 
All that will be provided is that there shall not be anj'- 
sale at a price below the cost of production and that may 
differ in different ind-astries in different sections of the 
coiuitrjr, 

"That, everyone adraits, is an unhealthy/ sittiation, when 
industries are permitted to indulge in rebates, discrimina- 
tions, and FiellineT below the cost of production in order to 
destroy some little business man in the comraunit;^ and when 
he is wiped ov±, to restore the old price. It is that tj'pe 
of practice v/e are seeking to eliminate. 

"The ruthless and prodatorjr loraxtices of large business to 
destroy small business are the things we wpnt to guard 
against now. Sooner or later it will be understood by 
Senators th&t -this is a bill to -orotect the small business 
racai against the predatory -oractices of large business." (**) 

Senator Uagner, however, differentiated very sharply between 
such limitations on destructive price ctitting and price fixing. Qxiotin; 
further from the debate in the Senate: 

Ur. Uac^xier ; •" I nave reiterated on the floor two 

or three times, and it v/as stated any ntunber of times in the 
Cor-mittee, that it was not contemplated that prices sloa.ll be 
fixed, because the fixation of -orices is not in conformity 
T;ith the preservation of fair competition. I made that as 
c?.ear as I could' '&.nd still there is constant reiteration — I 
do not think we ought to set up a straw man hero and Imock him 
down. " 

(*) Hearings before Committee on '/ays and keans - House of £epre- 
sentatives. Seventy-third Congresr., first session, on H.R, 
5664, prj 134 and 158. 

(**) Congres-,ional Record, 75rd Congrer.s, 1st Session, p. 5238. 

S763 



llr. Hastings ; "I \7ant to find out if there is a.nything 
in tlie 1)111 vrhich 'Touj.d ■)revent the fixing of -or ices." 

I.'r. WaftTier ; "Yef;; ■bec8ii;je \re are proving' a code of fair 
conpetition and providing for practice of fair competition, 
and against practices which bring about -unfair competition. 
That is also v/ell Itnown, in the laiv. The Senator from Idaho 
T7as anxious to have that spocificallj^ defined. ¥e do not 
define it in the anti-trust la\;s. Tie do not define it in 
tlie Tariff Commission Act. " ^ 



"I do T.'ant the codes to provide, nhich every fair compe- 
tition code should provide, that there shall oe no selling 
at prices "below the cost of production." (*) 

Curiously enoygh, the Act as a^i^ roved included no provision 
specifically permitting price control; the only reference to de- 
structive price cutting was included in Section 4 (■b),,the licensing 
provision, and not in Section 3, the code'-making power. From the 
debates a_uoted, however, there is no dotih-c that the right to limit 
price comijetition, at least to the extent of outlawing sales "below 
cost, was considered implicit in the general power to ban -unfair 
competition, 

(*) Congressional Record, 73d Congress, 1st session, pp. 5244-5, 



9763 



-22- 

■ CHAPTER I'V." - ■ 
PRICE COITICL JEVICES 

■ • de velopi.lSitt or i'm policy ' ■ ■■ •■ 

I,, imA accedes to T-IE' PIII^GI-LE of p-'ICEGOUT-^DL 

Although the cupport of "business men for the rotional Industrial 
Hecovery Act v/as in lar>'^-e part "oredicated on their ■■ nell-ni;^h -un^animous 
desire to use it as an instr-unent for limiting -orice co'niietitior.', -sight 
must not be lost of the fret that this r.'as not its f^undajnental purooqe. 
The Act was primaril"'- desis-neci to stimulate the flo".".' of ~oods, thr-ou^ih 
increasin;5 the national ■Tarcha'^ir-g po\/er. But this i^a? an aim directly 
antithetical to any im'ieiiate increrse in individurl orices, e;:pecially _■ 
in vie'.7 of the fact that tlie level prevailing in Juiye, 1933, htid already' 
risen apnreciabl^r above the l6'.7s of the year, ■'•rcre ^c -ourchrisinr^; :' : 
pov;er and increased industrirl prices v'oal d :^erel.- oje Tjte to cancel 
each other. . ■.■■;■■/ 

Furthermore the ^^vonec, object of another major f.-ceb of. the ivTe\7 
Deal emert:jencv program ,t;rould be seriousl;" iraperilec , b'.'- ony f-reneral rise' 
in industrial prices. The Agricultural Adjustment Act. had as its s.;oeci- 
fic aim an increase. in the: orice of n,;ri cultural commodities relatively 
to industrial com.!Tiodities. It \es cosigned to raise the prices of the 
things the farmer sold as compared vlth the :)rices of the things he 
bought, an aim scarcel'^ compatible ^vith the desire o-f' business for 
price control. . . 

Consequently President P.oosevelt, in his statement issued on Jime 
15, 1933, outlining the p: licies of the Act stated: 

"***lf v,'e now infl.rte orices as frst and as far as -..'e in- 
crease wages, the whole project '-ill be set at ■:;;',ught. le 
cannot hope for the full su.ccess of this plan U'ilo^r***-7e 
defer price increr ses- as long f s- jooribl.e.' " 

In line with this policv, General Jo.r.:son on J .me 19, 19?: , invited 
the submission of codes covering /ages a^-.d hours and "sTi.ch means as 
each industry,' may find necessrr'.^ to orotcct its constructive and co-op- 
erating mrjorit^' from tne "nstei^ul pnd unfrir com-aetlti "^n of minorities 
and recalcitrants." Additions rnd refinements '■'ere to come later; the 
consumer's buying newer was to be protected rnd the i. terest of the 
public in tne matter of prices we,-~ to be recognizee., (*) 

Industri'-, ho^-'ever, hrd loo':ed ''or -ard to II3A "oreci-el^.^ bscruse it 
would permit concerted e/'.^'forts directed ;t cilLiin; tirr: trade -oractices 
considered "onfair; foremost r-nor, 5 waicn ',-s tae .-,ot ^.o': r ccu-o tel^.^ de- 
fined practice of "selli.n^' belo'.-- cost." It '"as co. to^'.-n' o"' the repre- 
sentatives of ind'd'-t--^' th:'t iicre-sed ercpendi turer ''or Ir.uor v/oald '^e 
cut of the QXiestior '.li-ile's orices could be rrised (or-, loro eui-jhemisti- 
callv, "stabilized"). As a result of these re-ore-oirh- ■■,ions, General 
Johnson announced on Jvtne 33 ttiat b-sic codes might co-itrin agreements 

(*) IJEA Bulletin r2, Jtuie 19, 1533, 
9763 



not to sell for les? thnr cct of jroo.action. ( *) 

T'ith ov.t fer' e::cr; -jMor. f:, i.) las-riif? ^ee-Ar'- code^, encouraged by 
this sliift of -.'Olic-r, i:.cVac.e.. i:-: t\eir -oi-o-eoprl?! some device d.esi.^ed 
to regulLte -orices. In p-'.r.-- cf-ep, er, jecirlV- in bhe earlier coc3?, the 
purnose, e-dilicit or irnolicit, "; ? ot nsrel- to control nut to eliminate 
"orice com"08tition. In scne crfs? bAcre v.',-^'. -.r, a-o'cd intent to le,:;is- 
late r miniriun profit to oXl Indus, ti^y members. 

As an ex-^ re ^'2 ion o"' this aim a further auotation frora ^-r. Steven- 
son' p addres? is of interest, because of his ir^fluence on the polic;;- of 
so raan^'- Code Authorities: 

"If "e -^I'e c;oins to f i.^: ^rice'', < nd I sincerol^^ believe 
that it,i5 ncce^'.sar^'- that -e s"'-oald '•'o so, it is just as 
necessar;'' that '"'e linit bhein o:. the u-o side as it is that ve 
limit them on the co^rn sire. ,7 en belief is that there is in 
all c?ses r certain fair price at "hich coiTioditic^s should 
move Jet -een tie producer c^nC tlve cor r imer, certain fair 
tolls rhich pho^rld be ex-cteo 'r/ tho"u -ho ^landle these cora- 
modities on their y8?r from the -irocucer tc the consumer. 

"If I -.Tare in a positior to rrite the tic/cet for in- 
dustr/ ir. this comtr'^, I s:-ioulc .'<ivG ea.ch inciistry the ri,r;ht 
to ra,;ae bhe ■orices at vhich itc oroclucts shoiilo be sold, and 
I s'.oulc rnrrirce t'le^.e ■.^^'ic^ LOte-'T.iin;:.tior s through the due 
proce-^ r- of lax'. In 1113' opijiion', tliese prices suoulc be basec! 
on certair factors ^'hich v-ould instire aosolite frlrness and, 
eoualit'^ of treatment to ca.pit::!, manr^'enent, la.oor, and 
consmners - four frctors involved in everv- transaction. I 
should determine tlie-^e .irices on the o.vera-'s incustr;;'- cost, 
using re d1..- cement costs :^or ra:"" ma.terial, adequate r'a.r:e rates 
for Ir'bor, and ove'rhejos ov- d on a. rer.sonable use of the 
facilities of the ird;.'^t\-. I -• lould not 3-:pect this cost to 
include carr^/ina chrr;es on idle, nnuseo, or erce-sive capa.- 
cit'''. S::ecutive salaries s^io ale" oe cheched and shoiild uear a. 
reo.sonable relationship to t..ie siKt of tne conoan'- involved. 

"After ceterrainin;T bhe'^e cost factors, tns selling 
price should incluv"e a. reascrable return, let us say lO/o, on 
the true capital value of the active .-facilities in the ind^is- 
tr-/, calculated on replacement values. i"o return should be 
fi.jurer for excessive valLirtic;!^- or ■'/aterec ca.pital." (**) 

The attitude expressed cy j.r. Stevensoi: and others v.'ho thoa;;ht 
along sinil^r lines ''as precicrtec" in prrt on the follovfing line of 
reasoning. It assumed that in an--- industr'^^ regr'.r61es<=' of the orice 
level previ'lling, each concern vroulc tend to Iirve a fairlv ivell refined 

(*) G-allo^T-r, C-eor?;e, "G-enesis of 17-A Price Polic"- ano Practice." 

Plan Age -(July-Au,;aist 1935), .3. 10. 
(**) Stevenson, Chrrles 7., "jprice Cont"'-ol ajic" Allotment of "lusiness , " 

op. cit. 

9763 



-24-- 



"proDortion of the total inCusbr^r voliunc. Price reductions 'c'' any one 
memoer '-Quid be sure to "be met, vitntae result thr.t tas srnri of oossibly 
a sligiitl-"- increa-sed a.^frroj^ate industry volime '-OLild coiTtinue to be split 
in much the same ^"'a}'". As a .'esult eve-r-^'ono in the iiidurtj-^r touIc lose 
through loner ririces, ar.d none could v^'i'^ throu"h securing a larger 
share of the total. Hence, -orico coim^tition being Forse than ^utile, 
V7hy not fix prices? .and since i'llA. ' as designed to rehabilitate indu?tr'^, 
was not the fixing of price at a level profitable to all the surest 'vay 
of ace enrol ishing this aim? 

This line of reasoning; failed to find adeo"aa.te suToort -Ithin I'lA. 
and the more drastic proposals of inc'ustry rere greatl^^ ;riodified prior 
to approval, at the insistence of ITRA officials. The -Trinci-ole of limit- 
ing price compeition, hov/ever, T?a.s retciined and 441 (*), or ap-oro-rirnate- 
I3- 80 per cent of a total of 557 basic codes cont"iaer" soi-ie form of mini- 
mum price provisions. Similar provisions ^ ere include;' in 209 su'ople- 
mentar;,'- codes. 

II. p^jcz co;t?.ol devices used - develo?i,:evt git polig"- 

A. Classification of Devices 

These provisions fall into three major categories: 

1. Provisions "^ermittin.'j the Code Authorit"' or similar 
agenc"^ usually subject to Acmir istrative approval, 
to establish the pcaecule of rninimum prices. 

2. Provisions permitting the fi:;:ing of ninimum prices 
during declared emeryencies. 

3. Provisions prohibiting sales belo" co!,t. 

B. Cost Protection 

1. Popularit'^ and i,ature of tae device. 

Of these devices, b-'- far tae '-aost ponular utilizer under the codes 
:vas the prohibition agains^t sales oelon coeb. Inhere?itl-r pla.usible, 
this type of control recommender it':el^ Doth to biisine'-";' men and to h.?..A. 
officials. In fact, it a'ac Trenuentl-'r suj-restec' o-r tne latter as an al- 
ternative to more s'"'es"oina; -oro^osalr; -"Jvancoc' o"' ii''u;:.t ^' •' . 7ron Ji^ne 
23, 193C!, until June 7, 1034, durin- -wiiou r>erhoh ih :: --^i- najorit"- of 
codes M'ere fcrMulated, iDrovisions of '",;•.! n ,1 ■'■ur-' ■:::;:> '■.■nctioned by IT.R.A. 
policy, received aojidnistrative approval as natter-^ of course, and '"'ere 
questioned in principle in veiy fev' instances. As a result, 399 basic 
a.nd supplementary codes contained •)rice control clauses predicated on 
cost, although, for reasons ' hich \rill be consideref' l? ter, these aevices 
v^ere actually operative in only o3 codes. 
(*) These aond subsequent figures as to frecuenc^'- of v: rious controls are 

taken from Report To. 40-D, Post Code Anal.-sis Unit, T.osea,'^ch & Planning 
Division, FHA, " liinimum Price p-^ovisions in A-n'oro-'-ec" Jod.-r ." The classifi- 
cations in this bulletin are necefsaril- sonievM-t ■,'\'o\.tv-T/ , but, except 
v/here indicated otherv/ise, v;ere acce-oted as correct. . urtae^'Tnore, the tabu- 
lation is based on code "orovisions as of ; a-;^ 29, 1935, & fa!:es "no account 
of earlier -orovisions -^hich ha.d been eliminated or modified bv amendment. 
9763 



-25- 



In e.ll but a fe'-" cadres, these provi vionr, -orohiliited soles below 
individual cost. In geneiv-.l it -as deemed necessc^ry to temper this ref- 
lation hy permittir.g a member to sell belor/ his own cost in order to 
meet com-oetition. The inclusion of this provision rrpr- -orescrihed in 
the first definite policy pronoimceraent iss^xed by }?.'^..A. (*) 

In a few instrxices, instead of individua.1 cost, sales belon "rer son- 
able cost," "representative Cost," or "average cost" T-^ere banned. Such 
provisions, however, were contained onl-y in the earlier codes. 

2. Cost protection implomer.tec'i b-y cost nccour.ting systems. 

Prohibitions against selling below cost could become effective only 
'-hen geared to some stajidard raerns of determining cost. In the great 
majority of cases the code provided that the Code Authority prepare a 
^iniform cost accoiuiting S3''stem which would become ef "t;ctive upon ap- 
proval by the Aconinistrat or. Polic-^ rs first rjjnoijnced nerel^^ recom- 
mended that: 

"In a price provisio"-. b sed on cost, cost should be de- 
fined to the extent of indicvtinr its -^rinci-oel elements in a 
general way. Cost of -oroduction ma-- irclLida a reasonable 
a.llowance for depreci-atioi;, uut rot for return on ca.pital . "( **) 

The same polic3'- prono-uncement also inolu.ded the follov/ing statement : 

"Provisions in codes referring to new cost accounting 
systems should provide for reco!imendation.s to the Administra- 
tor and the -adoption of the rccoraiting s-^ctem shoulo never be 
raad.e mandator'^, ;at least without adequr te period for E.djust- 
ment, and 'Ibhout allo^Ting the utmost latitude consistent 
■■ith obtaining information on a conparable brsis." 

At this stage in "oolicy formulrtion, therefore, it was apparently 
believed feasible to base the nc-sales-belo'. -cost provision on a mere 
Tjrescri-otion of cost elements rather tuaj". on a complete accounting 
system. 

The so-called "Model Code," (***) issued on the same date as the 
above polic"- memorandum, similarly drew a distinction between cost 
accounting sj'"stem3, whose purpose was primai'il;^ ecucr.tional, and "princi- 
ples of costing" to which provisions against selling below cost were to 
be tied. It did, however, provide that the "pri::ciples of costing" be 
formulated by the Code Authority and a-oproved b-r the Administrator. 

(*) E.R.A.; Confidential Policy i.emoraJic.'.im, October 25, 1933. 
(**) r.R.A. Conficential Policy i emorandum, Oct. 25, 1533. 
(***) ia.H.A. Conficential Polic- LiemorrndLLm, Oct. 25, 1933. 



9763 



.. -S6- 

Civil or crimir;2.1 actior., hoy.'cve]', reordrec -omstaiiT.^ more definite 
than "principles of costing" as a yarCetick for determining ^7}lethe^ 
sales trere belo'T cost. Consegnentl;'- selling: Delo" cost prohibitions 
were generall",^ precicated on provisions estrblishin^ n-rndator^'- s^'-stems 
of cost finding. This t:.'end '■as recop-nized b;7 the following declaration 
of polic^' issuec on January 29, 19o4. 

"The follo'ving has been vdrot^o. as a strndarc cla,use > 
providing for iniiform cost acco^iXiting rnd rwx'- be used also 
as a 'substitute for siuilar clauses in ap'oroved codes if the 
industries desire to Ciiange; 

'The Code Authorit^^ siirll cai'Se to be foi-mulated 
an acco-.inting s-^stem and 'ethocs of cost finding pnd/ 
or estimrting c^.prbl^' o"" .i-e ir-r .-11 nenbers of the in- 
dustr^r. Afte:'- -ac i ■ :'?"ern ^■r.~ m-'ithods have been formu- 
lated, full detoils ^o;r.c3r.:ing then sh;:>.ll be made 
avrilabi e to all nemoer;s. Thereafter all members shs.ll 
determine and/or estir-;ate costs in accordance uith the 
"orinci"Dles of sucn lethods. ' 

"The rdvrntages of t>,is form of clause are ft'.^o: (l) it 
is. cora'oletel^' divorced from the selling-belo'.'-cost clause, 
rnd (2) it introduces the idea of cost estiuetir; '-'hich is 
^.'hat some indu.stries need rather than or in conjunction vith, 
cost accounting." (*) 

C. Direct i.animum Price ?i::in,g 

Although the majorit'/ of niinira-'im orice orovisions rporoved curing 
this early period \^e~?e predicrteo on cost rnd c'efi'iec b-- some standard 
svstem of cost finding, indiviclual irdu=t.ries r^ere consistentl)'- striving 
to secure more drastic and morr rigid ccnt-'ols. 'j^xie- freouentl;'- urged 
that Code Authorities be permitted to establish a floor price that 
would appl3^ to al] members. 

These requests -'ere rejected in the :.iajorit-r of c-^'ses, although 
there wa,s no definite isolic}- ruling rg.unst f^eir c'^;vorovel. The policy 
memorandum of October 25, 193.5, to -.vhich reference has been previously 
made, merel-^ specified that "no real or incur^ct fi:;in,: of sales prices 
(as opposed to miniiaum prices) "Till be accepted." Ho'-'ever, both the Re- 
search ar.d Planning Division rno the Consumers' Advisorj-' J3oarc" strenuously 
ouposed any broao delegation of )orer to the Code Aut.ipit-r to establish 
fixec minimun prices. Such druses vere consecuentlv rporoved only in 
circumstances deemed exce'itional bv Y.3..k. 

The difficulties inhe-^ent in these attempts to cont-^ol prices, 
whether through cost protection devices or thro-ogh the esta-blishment of 
fi::ed minima; bee me apparent to tae iT.H.A. late in the fall of 19?3. 
Probably the outstancing c; se occu-^red in the Cleaiiing and D;!;-eing Trade, 
in v/hich a mi^.itant minority categorical 1^^ refused to abide bj' the 
prices set and iDroceeded to violate tnem openl-r. Protests also apoeared 

T*) N.H.A. Office i.-emorand\im, January'- 29, 197^4. 



^27- 

in increasing ntunbers from individual raemtiers of various industries, from 
important consumers, such as lar^e department stores and public purchasing . 
agents, arid from the public. Objection was also voiced on the floor of 
Congress, notably by Scna-tors Borah and Kye. On the other hand Code 
A.T.jthorttxas continued to press for the cyntinurtion of the^ attempts' 
at price control. 

D. Emergency Price Bei^ulation 

The first result of the attem'^t to reconcile these divergent views 
was the issuance on Pebrujiry 3, 1934, of an office memo randujn w hi ch ad- 
vanced the concept of emergency price regulation. This memorandum is 
quoted below; 

"SELLIHG 53L0W E3AS0i TA,P.L3 COST 

"When the Code Authority determines that an emergency exists in tills 
industry and that ths cause thereof is destn^ctive price-cutting such as 
to render ineffective or seriously endanger the maintonance of the pro- 
visions of this Code, the Code Authority may ca^ise to be determined the 
lowest reasonable cost of the products of this industry, su.ch deter- 
mination to be subject to such nouice and hearingas the Administrator 
may require. The administrs tor may approve, disapprove, or modify the 
determination. Thereafter, during the period, of the emergency, it shall 
be an unfair trade practice for any member of the industry to sell or 
offer to sell any products of the indu.stry fcr which the lowest reasonable 
cost has been determined at such prices or upon such terms or conditions 
of sale that the buyer vdll pay less therefor tiian the lov,-est reasonable 
'Cost of such products. 

"When it appears that conditions have changed, the Code Authority, 
upon its own initiative or upon the request cf s.ny interested party, shall 
cause the determination to be reviewed. 

"This provision should be recommended to industries as desirable in 
new codes, and of course may be ixsed as a substitution in any approved 
code if the industry desires, 

"Under this provision no exception to meet lower cost competition 
within the industry is necessary. 

"Other exceptions, as to distress stocks fcr e:cport purposes, and 
to compete with lower cost imports, may remain as at ^^resent. "(*) 

Behind this declaration of policy lay the conviction that any attempt 
at price regulation was unwiss, in the majority of cases, but that the 
establishment of a fixed price floor, mifht be v/arranted in unusual slt- 
ua.tions in which price demoralization created an acute problem. Despite the 
issuance of this memorandum, however, devices cf other tyjes, such as cost 
protection and fixed minima, continued to be sanctioned. 



(*) Office Memorand-jon dated Febri-'ary 3, 1934. (In-1I.3.A. Files.T 



9763 



-28- 

On March 5, 1934, General Johnscn suggested at a conference ;oi Code 
Authorities the need of a "more uniform and cquitahle rule of prrce 
s.tahlization in those cases', v;here it is necessary to maintain wages 
at a decent standaru against certain results' of predatory and cut-rthroat 
competition, and further insurance against increase of price faster 
and further than increase of purcha^sirig power. "(*) 

Shortly thereafter the Admiristration a-^pointed Dr. Leverett S. 
Lyon as Deputy Administrator for Trade Practice Policy. As a result of 
the consideration given to the prohlem by Dr. Lyon and his advisory 
Committee, Office Memorandum No. 238 was issued en J\ine 7th. This memo- 
randum, described hclcw, definitely preclu.ded any further approval by 
K.R.A. of price control devices based on cost protection or on fixed 
minimum prices. 

Office Memorandum Nq. 238 in effect extended and modified the previous 
memorandum of February 3, 1934, The essential changes were that the Admin- 
isttrator rather than the Code Authority was given poY;er to determine whether 
an emergency existed, and tljat any declauaticn of minimum prices londer the 
terms of the emergency Yiras to be liirlted to specific products for a fetated 
period. 

Tills memorandum further declared "willfully destructive price cutting" 
to be an unfair method of competition. It provided that any interested 
party could complain to the Code Authority tha.t "any filed price con- 
stitutes unfair compc:ltion as destructive price cutting, imperiling 
small enterprise or tending tovjard mLn^jcly or the impairment cf code 
?;ages and working conuiticns." 

The Code Au.thority was to investigate and afford the member whose con- 
duct was complained cf an oppcrtmity to maJco appropriate adjustment. 
Any differences of opinion between any parties t^. the complaint were to be 
referred to the Research and Planning Division for adjudication. 

As far as information is available there is no rocofd of any cases 
in which this provision against destructive price cn.t ting was actually 
invoked. 

Office Memorandum No. 2,38 also ruled against any further inclusion of 
mandatcrj'- cost accounting provisions in codes. The adcpticn of cost accoun- 
ting systems by individual members was to be volimiary , and their purpose 
primarily educational. The rocoumended clause specified that" sound cost 
estimating methods should be iised and consideration shouJ-d be given to 
costs in the determination of "oolicies." 

A series of memoranda (**) were issued in the spring of 19.35- which were 
designed as a guide to administrative policy for the period of code, revision 
anticipated subsequent to June 16, 1335. These essentially reaffirmed the 
policy originally promujgated on June 7, 1934 in Office Lemorandum. No. 228. 

(*) See Galloway, . Geo i B.,ftGcnesis cf ITiR.A. Price Policy and Practice",. 
Plan Age, p. 13;-(Ju.ly-August, 1935) 

(**) N.I.H.B , Administrative Policy, Hew Series Hos. 1, 2 and 3 
9763 



«29- 

At the time of the Schechtor decision, therefore, II.H.A. policy on 
direct price regulation ms.y "be Ginm-ied u'o as follov/p: 

(1) Cost accoimtin£ systems were to Le purely o-^tional, not man- 
datory. 

(2) Cost might he considered a gviide to pricing policies, hut there 
was to he no general prohihition against sales helow cost. 

(3) Mininrum prices vieve to he ostahlished only for limited periods 

to cope with conditions so excc--)tional as to constitute ohviovis emergencies-. 

(4) One exception to these general rules v;as provided. The curhing 
of the use of loss leaders hy such devices as no-selling-helow-invoice- 
plus-a-imrt-of-lahor-cost v/as specifically s^'^^'.tioned on Ifey 2, 1935. (*) • 

III. 0TH3R PRICE CCxJTP.OL D3VICZS, 

The devices so far considered prescrihe u-ice miniffia directly. The 
trade pi-?ctice Trovisions of a--:-o roved codes, however, dontained many other 
clauses designed to raise or stahilir.e the price level, or to secure a 
greater degree of "n-ice \iniformicy anon^; raerahcis. In some cases such pro- 
visions were adopted in place of direct r-ice controls, hut in most in-J 
stances they v;ere designed to he \iaed concurrently. 

Host universal, perhaps, wore restrictions on t erms of sale, discounts, 
rebates, guarantees, trrxl^-in a.llowances and the lihe. These were, in most 
cases, essential to lend r.ieaning to direct price restrictions. Price is, 
obviously, hut one part of the sales bargain. Hven ;-irior to the codes 
nominally Ihigh' 'or rmiforra prices ha.d been raa.intained because of the prob- 
ability that a.ivj reduction in the list price vrould imi.iedi? tely be met or 
bettered by comioetiturs, and price competition lis-d centered on the allowance 
of more attractive m.odificain.ons.. 

Code sponsors, consequently, bent every effort to include restrictions 
Sufficiently drastic to forestall ready evasion of minim'Ujn price provisions. 

Some idea of the extent to which it v/as deemed necessai-y to restrict 
granting of indirect concessions to influence a sale is revealed by an 
ana.lysis conducted by il.H.A. of trade practice provisions in approved ■ 
codes in which such restrictions are listed under the following major 
heads :(**),. 

(*) N.I.3.B., Administrative Policy, II3W Series ilo. 2, I'^J 2, 1935 

(**) Swnmary of Analysis of Tr^de Practice, Provisions in I>I.?,.A.- Codes, 
Division of Review, p. ii; (in II.R.A, files.) 



9763 



-30- 

1. Concessions v^rimaril: relc.ted to t_:ae of buyer's -payment, 

2. Concessic.is ■prim-'^.rily relatccl to risl:s of biiyer. 

3. Concessions -^i-i..i^-.i'il.y related to s-a- ■>lyi:i,_^ r.^oitional ^ooc's. 

4. Concessions rendered buyer tlirco^/n use of seller's eni'loynes or nroperty. 

5. Concessions rendered buyer tliro'Otd: finarcir.l acsistr.nce or Jfavor. 
S. Concessions -rel-.ted to manner axid/or oime of sliipiuont. 

7. Concessions throu:^h -'ayment or diversion of comnissions or fees to 
customer. 

8. Concessions thron^-h allo\rances or "oayments for value rendered by buyer, 

9. Concessions thro'-Tjii acce-itanco of cci^;'etitor ' s materials from buyers. 

10. Concessions thronrrh. sale of substan'tard cr obsolete goods, 

11. Concessions granted during perforLiance co-itrary to provisions of 
agreement, 

12. Acceptance of forms of payment in i-.-liicli concessinis ma.y be concealed. 

13. Tjqpes of agreements, offers, invoicing, etc., by means of which con- 
cessions may be concealed. 

14. 1-j-pcs of agreements, offers, invoicing, etc., ;5rimarily designed to 
prevent the concealing of concesrdons. 

A second Eaj.ov group of codal "orovisions designed to influence prices 
were those prescribing open r^rice syste.is and bid filing schemes. 
Provisions of this nature hjid a n-omber of ^ourposoc: 

1. The publicity attendant raon filed prices ms'de it far 
easier to. dotcct viol-tors of direct minimiim price res- 
trictions; especially i.-ns tnis trae '"here minimum prices 
v;ere based on individual cost,. In most cases, in fact, 
cost protection devices v/ould ha.ve been utterly unen- 
forceable without ancillaiy price filing -provisions, 

2, Open -Trice systems often tenaed toward a fairly high 
degree of ■'j^niformity of quoted -nrices. Price cuts were 
thought to be les3 lil:ely in cases wiiere they were certain 
to be. met in short order. FiJ-rtncrmcre, the Code Authority 
and other in-fustry nonbers rero in a position to exercies a 
substa,ntial degree of pross-o-re to secure a rescission of 
such cuts. 

3. In the case of bid filing schemes, 'buyers were deprived 
of the possibility of securing cojicessions by misrci^- 
rcsonting terms offered by coiinetitiors. feny bid filing 
schemes went further and :irohibitod any change in the 
filed bid of any member v/ithout a corroloto reopening' of ' 
the auction. 

4, In some cases the publicity attendant iroon open prices 
ptCTided a sufficiently strong lever to insiire the 
maintena.nce of prevailing price levels --ithout the 
necessity of invoicing the direct minimum -,u-ice res- 
trictions. In these cases the open price system was the 
primary price control device ?/ith direct price restric- 
tion of secondary or little imoortance. 



-31- 

Also directly relatod to -pricint^- :Tro''oleras were 'n-ovisions primarily 
designed to preserve or modify clxannels of distri"bution. 'These provisions 
uere {generally included to prevent di£tm''bances in distrioiitive relations 
from dislocating the ;->rice levels Provisions v/ith this end in view may te 
listed under the following 7 major heads: (*) 

1. Provisions regiilating customer classification, 

2. Restrictions on granting of trade differentials. 

3. Restrictions on granting of o.xix'.ntity discounts, 

4. Provisions for the maintenance of rcsn.le ;^rices and adjaerence to codal 
provisions by cv'.stomers, 

5. Prohibition-of discriminatory practices. 

6. Provisions relating to controlled sales representatives. 

7. Miscellaneous provisions designed to preserve or modify cliannels of 
distribution 

Basing point provisions were designed to secujre a greater degree of 
uniformity in price and to lessen adv-'-'ntages due to geographical location 

Another g-^^oup of trade oractice provisions was designed to control the 
price levol indirectly throiigh limiting supply. Devices of this nature . 
included restrictions on nevr productive capacity or on the use of existing 
facilities. 

All of these provisij"is are the sv-Ljoct of studies being conducted in- 
dependently at the -orcsent time. Consaquently, they will be considered in 
this report only as they i:;^:iediately be?r on the subject of direct minimum 
price restrictions. 

(*) Summary of Analysis of Tr?de Pr-ctice P^ovisons in U.S.A. Codes, 
Division of pLeView, p. ii. (in '^US.A^ Files.) 



9763 



-32- 



PROBLEMS C01T?H0FTIITG irJIYIDUAL I1TLITSTHIE3 



I . PaOELEMS AS RELATED .TO liD'ISTRY GROUPS 

This report has been concerned thus far with a survey of the 
prohlems confrontin;^ inaustry as a whole and of the crystalization of 
the general dissatisfaction into a 7ro:,r;v.-i for the limitation of price 
conpetition. It is no'v I'.-xecsary to consider more concretely the 
specific difficulties v/hich led indxvidual industries to seel: such aid. 

In each of the industries selected for stucl^' hy the I.Iinimuin Price 
Unit, with possioiy one exception, there existed a more or loss 
serious disruption of the price structure, Due to various specific 
causes, usually traceable in uitijuate analysis to the basic maladjust- 
ments discussed in Chanter III, tbe free operation of market forces 
failed, at least tcTjoorarilyj to insure a .-rice level at v.'hich the 
majority of the industi-y could operate without incurring mounting 
deficits. 

These specific causes of. dislocation revealed a very definite 
general patternc In p.-^.rt this pattern is related to the functional 
groups into which the various industries fall. As indicated in 
Chapter I, the industries studied can be divided into the follov/ing 
categories: 

I. Natural Resource Industries 
II. Consumers Service Trades 
III. Manufacturing Industries 

A. Producers Goods Industries 

1. Industries oroducing goods for v/hich 
there is no independent demand 

2. Industries porformin,, services for 
producers 

3. Other --iroducers goods industries 

B. Consumers Goods Ind^istries 
IV. Distributing Trades 

A. Retail Distributing Trades 

B. Wholesale Distributing Trades 

II. PROBLEMS COIIEROHTIKG lEDUSTRY GROUPS 

Prior to an analysis by problems, a brief description will be 
presented of the characteristics of each of these functional groups. 
A more detailed study of individual industries is included in 
AiToendix II. 



9763 



A. natural Resource Industrie s 

The only natural resource iniustry it v/as possiule to survey was 
the Lumber and Tinjber Products Industry. Price control under the 
codes was also a:Tr)lied to ths Jitirninous Coal Industry, but limitations 
of time have prevented its inclusion. 

Probably the out standing, cause of price unsettlement in the 
Lumber and Timber Products Industry, (and also in the Bituminous Coal 
Industry) is the pressure of heavy overhead cliarr:es. 

Furthermore the consumption of luniber is to a great extent de- 
pendent on the rate of activity preve,iling in the general construction 
indiistry, which liad declined steadJZy from 1926 to 1933. The dollar 
value of Imaber sold in 1933 had declined 73 per cent from the 1929 
level, which was itself lower than the 1926 level. 

An important factor contributini^ to the decline in lumber con- 
sumption was its replaeornent by substitutes in many fields. This will 
be considered in more detail later. 

B . Con smiers Service Trades 

The only Consumers Service Trade in which minimum prices were set 
was the Cleanins and Dyoin- Trade. 

Low capital requirements for entry are probably the most out- 
standings gensral characteristic of the Service Trades. Dur-ing boom 
■oeriods expansion is at an extremely rapid rate. Dollar sales in the 
Cleaning and Dyeing Trade quadrupled between 1919 and 1929. 

Pacing the depression with a "oroducing capacity substantially in 
excess of demand, and with e high overhead percentage, the pressure to 
cut prices to gain or retain volume was great. (*) The price cutting 
which would in any event Iiave resulted was seriously aggravated through 
the entry of a new and aggressive element into the field - the so-called 
"cash and carry" cleaners. The price of cleaning and pressing standard 
garments (man's three "oiece suit or woman's -plain dress) declined from 
an average of well over $1.00 prior to the depression to a prevailing 
rate as low as 29 cents, with specials frequently offered at 19 cents 
or even, in extreme cases, two for 19 cents. Prices currently pre- 
vailing in New York City are still at this low level. 

This drop in prices not only thjrew many plants into baiikruptcy 
but also reduced the income of tens of thousands of retail tailors to 
well below the subsistence level, constituting an important sociological 
problem. 



(*) According to a study conducted by MA in Baltimore, cost of pro- 
duction increased from 28 cents to $2.30 per garment when volume 
dropped from 100 per cent to 10 'oer cent of capacity, (in 
Deputy's Piles, I^A.) 



9763 



-S4- 
C. Manufacturing Industrios 

Of the industries studied, t]i.e great majority fall into the 
category of raanufacturin;^ inau.stries. This g-romi is too inclusive to 
permit the drav/ing of close "oaraliels, and conscqueiitly a further 
breakdown is necessary. 

The most obvious distinction ^s betveen industries manufacturing 
producers goods and those mai:ufactv_ring consumers goods. This differ- 
ence is of considerable imporcance a.s related to the problems involved 
in this study. 

1. Industries manufactLi,rin£ producers goods or 
performing services for producers. 

There are certain broad similarities between producers goods 
industries in' general, as contracted with consumers goods industries* 
Within the producers goods group three distinct sub-groups may be 
discerned: 

a. Industries producin, goods for which 
there is no indcoendent demand 

Four of the producers goodr; industries studied are characterized 
by the fact that no inde^iendent demand exists for their product. These 
four industries are: 

(1) Cast Iron Soil Pipe Industry 

(2) Limestone Industry 

(3) Malleable Iron Industry 

(4) Screvr Machine Products Industry 

In each case, the entire output is utilized oy other industries. 

In the Cast Iron Soil Pipe Industry £,nd the Limestone Industry, 
the Construction Industry constitutes the only -product outlet. In the 
Malleable IroA and Screw Machine Products Inaustries, the major outlet 
is the AutomdtiVe Industry, with similar industries accounting for the 
balance of the demand. 

In each of these industries the underlying difficulty resulted 
from the fact that there was no possibility of expanding sales through 
price reductions. 

In three cases, furthermore, the industries were subjected to 
severe pressure from consuming interests. In' the Screw Machine Prod- 
ucts Industry, o^.sq of entry into the field aggravated the situation 
in a manner which v/ill be described later; and in one case, the Cast 
Iron Soil Pipe Industry, the immediate difficulty arose from a price 
war started by one industry member. 

b . Industries ^performing services for -producers 

Of the industries studied, three fall into this category: 



9763 



-35- 

(1) Pur Dressing and Fur Dyein^ Trade 

(2) Throwing Industry 

(3) Waste Paoer Trade 

While in tliese industries, as in the last group, a..-,^re£ate demand 
may b" considered as independent of price, this did not constitute the 
fundamental difficulty. Ease of entry into the field with a consequent 
large number of relatively small units made each of these trades pe- 
culiarly susceptible to pressure for price reductions exerted by 
powerful buyers. 

c . Other producers goods indu stries 

ITine other producers goods industries liave been studied: 

(1) Agricultural Insecticide and Fungicide Industry 

(2) Fertiliser Industry 

(3) As:-)halt Shingle Industry 

(4) Fire Extinguishing Appliances Manufacturing Industry 

(5) Fard.wood Distillation Industry 

(6) Pl'or.iblng Fixtures Industry 

(7) Paint, Varnish and Lacquer Industry 

(8) Eubber Tire fe'nufactiai^ing Industry 

(9) Commercial Belief Printing Industry. 

As may be ex]3ectcd in so broad a cateisory, the problems encountered 
show considerable diversity. However, in each of the nine cases studied, 
a relatively sharp contraction in volume occui'red during the depress- 
ion. Furthermore, agt,rei;^ate demand could be increased but slightly 
■through the offering of price concessions. These two conditions appear 
to have constituted the underlying difficulty, in each case. 

Taking the group as a whole, however, conditions appear to have 
been appreciably less severe tlian was the case ?/ith the producers 
goods industries considered previously. l^Teither production nor prices 
were, in general, affected as severely by the depression. This may 
be traceable to the benefits conferred by even the limited degree 
of independent denia,nd available. 

In one case at least, that of the Asplis-lt Shinj^le Industry, 
whatever price problem existed appears to have concerned the buyer 
rather than the seller. The price level remained quite stable during 
the depression, probably due to the fact that the bulk of the product 
was manufactured under a licensing arrangement,.' 

Other difficulties, however, not encountered in connection with 
the last two groups, made their appearance. These will be briefly 
mentioned at this point, and accorded fuller consideration later in 
this Chapter. In five of the industries (Agricultural Insecticide and 
Fungicide, Fertilizer, Fire Extinguishing Appliances, Plumbing Fixtures, 
and Rubber Tire), problems connected with the methods of distributing 
the product were a contributing factor; and in two of these, plumbing 
Fixtures and Rubber Tire, the practices of mail order houses con- 
stituted a fundamental difficulty. 



9763 



~o6- 

Other i nod vicinal •orouler.is. sv.ch as the effect of teclinological 
chaxxges on t'le Hard''..'ooc. Distillation Industry'- and conflicts of interest 
■bet'"'een competintq; factions in the Pire Sxtinguislaing Appliance Manufactur- 
ing Indxistr^'- rnd Con'jnercial Heli ef Printing Industr^r^ '"ere also" factors. 

2: Industries n;'mif Fc':'\ring couF-:^;iers goods 

This category' coir o./i'^er' the following six indur.triest, 

(1) Coffee I uc! us cry 

(2) TTood Cased Lee.d Pencil Industry 

(3) furniture Lianufacturing Industry 

(4) Luggfi.'^'G a.:d f -ncy Leathci" G-oods Industry'- 
: (5) Canv-c's Goous IndusLr-r 

(5; Lce Indu;;try 

The fundaraentaJ. distinctions het- een consuraers goods and producers 
goods industries, from the st- ndpoint of this stud--, lie in the no.ture of 
the mo.rket. These include: 

(a) In prodLicers goods industries, the "bu^^ers 
of the -products are generally skilldd and 
are s-are'/der in ap;nraising the value of a 
-product and in c riving a bargain. 

(b) Tiie purchase-s of consujTiers goods rre in- 
dividno.ls, not corn'oanies. Consequentljr, they 
are f.ir move li'-elj'- to be influenced hy 
advertising, to attach great value to brand 
names, and to be less critical of ouality. 

(c) In producers goods incustries, since demand 
•is d.ependent on tho sale of other products, 
-price conces-^ions . -e.^cr-Llly have little ef- 
fect in i-rcrrr :;ing ;i-r regate industr",- sales. 
In most of g: e consvan.-^",- goods 'industries, 
on the other h.-.nd, a^-gregate industr*/ demand 
is more '"ef inite-l-' refected b-^ price. 

Of the six ind-dstries studied, erse of entr,- constituted the basic 
difficulty in all bn.t the Coffee and '.''ood Caned Lead Pencil Industries. 
Even in these tr-o there v.'os a \iell c ef ined conflict of interest bet'^een 
members of different size grou^is. 

Problems connected ^/ith methods of distribution were encountered in 
the Coffee, '.'ood Cr.sed Lead Pencil, and Furniture Industries. The com- 
petition of sLibstitu.te products '7a,s an important factor in the TTood Cased 
Le9,d Pencil and Ice Ind-astries. 

D. Distributing Trcdes 

1. Hetail distibuting trades 

-^TjTo trades were incluc^ed in this group ■- the 5.eta,il Hubber 
Tire and Bei.ttery Trrde ancl the Retail Tobacco Trade. Tlae problem 
in both of these trades arose from the pressure e.xerted on indepen- 

9763 



-37- 

dent retailer?, "by ].rrge mrdl order houses, chain stores, direct com- 
panj'' outlets, department stores, and the like. In each case, favored 
outlets \7ere able to secure price concessions from manufacturers 
r'hich permitted them to set selling prices at a level lo^7er than the 
actual cost to the independent retailer. Insofar as tires were con- 
cerned, conditions veve especially chaotic, and it wr.s extremely diffi- 
cult for the independent retailer to compete profi tahly. In the Re- 
tail Tohacco Trade, vmile the lor/er costs of the fa.vored outlets were 
important, the nroblem v/ns still further complicated tiy the fact that 
cigarettes and other tohacco products v/ere commonly sold as loss lead- 
ers. In Iiew York City, for exam:Qle, R. II. Macy (^ith its slogan of 
underscllinT any competitior) and C-irahel's (deteriained not to he under- 
sold) succeeded hetreen them in battering their prices for cigarettes 
down to about one-felf of the invoice cost per carton. 

2. Wholesale distributing trades 

T\7o trades were included in this group - the T/holesale Tobacco 
Trade and the Paper Distributing Trade. Insofar as the Wholesale 
Tobacco Trade was concerned, the problem was in part a reflection of 
the difficulties jiist described at the retail end. In both trades, 
however, a more important consideration was the resentment of the so- 
called "legitim£>te":v/^holesalers against encroachments on the field 
thejr considered rightfully theirs. The position of the whlesaler 
necessarily depends on the maintenance of an adequa.te differential 
between the price at which he can obtain merchandise and the price at 
which a retailer can purchase it. This retailer's price, in turn, 
must be appreciably lower than the minimum price to the consumer. 
When this stx-acture of differentials is impaired, volume tends to be 
siphoned toward the cheaper channel, a,nd the position of the orthodox 
wholesaler becomes precarious. Sales direct through manufacturers to 
retailer or even consumer, sales through mail order houses and chain 
stores, and unorthodox methods of wholesaling, such as super-jobbing 
or sub-jobbing or desk wholesaling, all diver trade from the "legiti- 
mate" wholesaler 

II. PATTEHJ)! OF P3D3LEMS SKCOUTTERED 

In order to facilitate analysis and to render more graphic the fol- 
lowing discussion, a table has been prepai^ed in which these individual 
maladjustments have been listed under thirteen broad heads. Where, for 
any industr:/, one of these heads ap-oears to represent a primary or major 
source of disruption, this has been indicated by the letter "p". Where 
t".e influence was of definite, but secondary importance the letter "s" has 
boen used. Where tne proolem was distinctly minor or non-existent, no 
notation hap ueen made. 

Obviously, these valuations are essentially subjective. They repre- 
sent the appraisal by the writer of the part -jla^-^ed by each of these fac- 
tors in crystalizing the sentiment in each indust?.--'- into a plea for price 
stabilization. 

Since the drop in volume and "orice duri.ig t'.e de-oression are in each 
case major criteria, the extent of there decjinec Jiave been quantitatively 
indicated wherever data are available. Dollar volume in 1933 has been ex- 
pressed as a relative of the corresnouding 191)9 figure. The index of price 
during March, 1933 is listed, based on 1939 ~ 100. 



38 





EXTENT 

OF 
DECLINE 


MARKETS 
OR RAW 
liATBRIAL 
SOURCES 


CHARAC- 
TER OF 
ISIIBER- 
SHIP 


DISTRI- 
BUTIVE 
RELA- 
TIONS 


JNFAIR 
CON- 
SUMER 
PRAC- 
TICES 


RACKET- 
EER I35G 

OR 
Al'ITI- 
TRUST 


PATTERN 

OF 
I 11 D U S T R Y 
PROBLEMS 

LEG-EOT: 


CQ 
0^ 
iH 

O 

% 

•H 

c6 
en 

rH 

O 
> 

■««■ 


cv 

rH 
O 

•H 

% 
r-i 
<D 

U 

1 
<0 

o 

'j-l 


J 

W 
0) 

o 


8 

s 

O 

■P 

a 

0) 


CO 

1 

O 

+5 

CO 
4-5 

O 

Cfl 

3 


o 

1 

1 

S 

•H 

3 

<u 

1 
1 


CO 

s 

o 
o 

8 


(0 

8 

PL. 

II 

h 

O rH 

r^5i 


w 

1 

1 


CO 

3 


§ 

Pi 

•H 

u 

1 

o 


1 

O 

•H 
1-1 

id 

ti 

■A 


o 

-P 
U 

(1) 

o 

•H 

o 
p 


u 

0) 

1 


a> 

•H 

+5 

<H 
•C) 
■P 

1 


Problems of primary or 


iBaJor importance - p 

Proolems of definite b-at 


secondary importance...- s 
Difficulties with 


racketeering or 
anti-trust laws - d 




ilATL. RESOURCES: Lumber & Timber 


27 


62 


P 


s 


P 




















d , 


COilS. SERVICE: Cln^ & D^^eing 


46 




p 








p 


P P 












u 




PROIXJCERS GOODS: C.I. Soil Pipe 


29 


78 


P 


P 








P 
















Limestone 


14 


_ _ 


P 


V 








s 








p 








Malleable Iron\36 


71 


v> 


F 
















S 






d 


Screw Mach Pro4?0 


— 


p 


p 






_E.i!] 










P 








PRODUCERS Fur Dresf; & X^en^s; 


/62 





s 


s 






p 














u. 


d 


SSltVICE Throwing 
















P s 










P 








IIOUSTRIES Waste Paper 
















p 












p 


d 




A^ric Insecticide 


56 


76 


p 










P 






s 










OTHER Fertilizer 


41 


64 


p 
















B 










PRODUCER Asphalt Shingle 


43 


87 


p 
























d 


GOODS Fire Extin/^ish. 


44 




p 


s 








p 














d 


IiroUSTRIES Hardwood Distill. 





— 


p 




P 






















Plumbg Fixtures 


23 


59 


p 


s 










P 














Paint 


59 


72 


p 


s 
























Rubber Tire 


39 





p 


s 




p 






P 














Com'l Printing 


51 





p 


s 






JO_S 


_e 






S 










Coffee 


__ 







s 




s 




J2 




3 


8 










C01ISU:-.IERS Wood C.Lead Pencil 


69 





s 




p 






_e 






8 










GOODS Furniture 


31 


76 


p 








£_ 




8 












d 


IiIDUSTRIESLu2:..-aA-e 


36 


69 


p 








_B_ s 


















Canvas Goods 


74 












:e_ 


JO 
















Ice 


66 





p 




P 




:e_ 














i 




RETAIL Retail Tire 


38 





p 












P 














DISTrLlLUTIOlI Retail Tobacco 






















P 












?/H0LE3.'J.E milsle Tobacco 


64 


— 


s 










s 




P 


P 










Paper Distg 







s 










jg. 






P 








d 



































-.39- 

TThere the efforts of industry racrabcrs to improve their position has 
resulted in racketeering or in conflict rith antitrust laws, these facts 
have been noted as pertinent sidelights. 

In examining these specific ca^ises of dislocation, a very definite 
general ^oattern is revealed. The problems encountered in each case 
"bear a relation to the following factors: 

(1) The natare of the ind;isti-y's markets or raw material 
sources. 

(2) The character of the membership of the industry as af- 
fected ^oy such considerations as ease of entry and as 
affecting its internal organization, including such items 
as size of members, their cohesiveness, their identity 

of interest, euc, 

(3) The distributive relations of the industry (e.g. vrhether 
goods are distribute:", through wholesalers or direct, 
whether competiting channels of distribtition exist, etc.). 

(4) The degree of pressure consumers are able to exert on 
prices. 

These groups will now be considered in the order named. 

A. Excess Capacity and High Overhead 

First in importance s,nd most nearly universal was a tremendous ex- 
cess of producing capacity over effective demand. TiYliere, as frequent- 
ly .was the case, this was coupled with high overhead charges the pres- 
sure on individual business men to seek to expand their sales through 
reducing prices was extreme. 

In the majority of industries, of course, this excess capacity re- 
presented primarily the difference between the rate of activity prevail- 
ing in 1929 and that in 1932 and 1933. In those industries dependent 
upon construction (Lumber, Cast Iron Soil Pipe, Limestone, As;3halt 
Shingle, plumbing Pixtiires), the decline had antedated the depression, 
commencing around 1926, and in most of these the contraction was excep- 
tionally severe. A few industries had been geared to a war peal^ that 
had never since been equalled (Lumber, lialleable Iron, Screw Machine 
Products). In a few more, the decline was due to more fundamental cau- 
ses, the competition of substitute prodacts, but this problem will be 
considered under another head. 

The effect on price of desperate efforts to reduce overhead burden 
by utilizing excess facilities has already been described, and need 
not be here repeated. 

B. Difficulty of Increasing Sales Through price Concessions 

In many industries, of course, drastic cuts in price, while they may 
entail heavy financial losses to the members, Eift,/ have the important effect 

9763 



-40- 

of increar.inf^" denmnd nud- ret; rdin-'; t' le decline in j^roduction and employment. 
In certain cr.seg, Iiov/over, ;nar';et3 could not be expanded a-oprecia.'bly through 
price reductions. 

Tlae most extreme exarrple o:^ this condition is noted in the four pro- 
d.ucers' goods industries rrhich h?yo l^een classed as laching; an^"- indepen- 
dent demand for their produ.ct (i.e., Crst Ivrxi Foil Pipe, Limestone, IJall- 
eable Iron, Sere',- liachine Prodj.f:;t3)o The ei-coijtionallj'' severe drop in 
sales volume experienced by those foar industries (the least dror) vms 70 
per cent and the i,7orst 8G per cent), is directly :oertinent. 

In industries of this character agi^-er^ate sales volume at aiiv time 
KEiY be considerec as coii':'tfint, 't3i^,]dsnC. is entirely deT-'eurlent on the rate 
of activity in othor industries, e.g., on tue Ccnstructicn Industr^r for 
the Limestone aad Gpst Jr:n Soil Pipe Industry, and on the Automotive 
Industr;,'- and similar industries for the Malleable Iron o,nd Screw machine 
Products Industry-. 

Purthernore, the price of the oroducts of each of these four ind.us- 
tries forms but a small fraction of the total cost of the finished article. 
Consequently,^ in these and in similrr cases aggregnte industri;- demand can 
not be stimulrtec through price reductions. Anjr one concern ma?y, it is 
true, b;'^ Ic'ering its price, secure for the moment a larger share of the 
total volume avrilrible, but such pji increase must necessarily be at the 
expense of some other me-"l<er or membisrs. These, in tu.rn, are unlikely to 
vier: their loss with eouaninity. The price cut will be met or even bet- 
tered and volume again redistributed. The net result will be a lower price 
for the industrjr as a v/hole with no increase in volume that might in part 
compensate. 

It might, of course, be contended that if the price level of not 
onl^- one of these incaistries but of all the industries mr.nufacturing the 
ingredients of the finished article .'ere simultajieously lowered, the de- 
mand for the final product might be apprecirbl,-- stimulated. The possibili- 
ty of co-operative action of this sort, however, apioecars too remote in 
application to be of any value as a solution to .an immediate problem. 

¥liile it is in the four industries mentioned that this problem mani- 
fests itself in the most extreme form, it is also present to a substantial 
degree in all tne other oroducers' goods industries covered, .and in the 
Coffee Industr;^ in the consumers goods group. 

C. Loss of Market to Substitute Products 

In. a f ev. cases the low rate of ca.pacity utilization reflected not 
merely the temporal?' effect of the -^jeneral business d-epression biit revealed 
also a loss of a portion of the market to substitutes. Here the severity 
of price decline reflected not onl-- the temporary'- difficulties resulting 
from the general business depression but also the action of forces more 
specific and more inexorable. 

In the Lumber and Timber Products Industr;,'- the substitution of other 

building materials for wood ir general construction; of meta.l for wood in 

furniture; and of fiber board for wood in boxes and crates, were important 

factors contributing to the decline in lujnber consumption. In the Hard- 
wood Distillation Industry/ conditions were even more serious; coke was 

increasingly repla,cing cha.rGoal in the manufacture of pig iron; synthetic 
9763 



-41- 

means Iiad "been developed for manui'acturing methoJiol and calcium acetate; 
and even .the domestic market for chcrcoal had 'been invrded "by the compe- 
tition of softv/ood charcoal rxA such items as. grs appliances. 

In the Wood Cased Lead pencil Industry the increasing popularit^^ of 
fountain pens, mechanical pencils, t:rpe\7riters, 'booklceeoing machines and 
the like had resiilted in a substantial contraction of demand. 

In the Ice Indii.stry sales had narro'"fed due to the increasing uge of 
mechanical refrigerators. The introduction of Ary ice was also a contri- 
buting factor, 

D» ■ , fluctuations of Raw ''ateri al P rices 

•' : In t\70 cases violent f lii-ctuations in ravf materia.1 prices represented 
im.portant prc-olems end ccntributed to price unc-ettlement. In both of 
these ca.ses ra.w materials v/ere entir'^A.y imported. 

In the Ilubbe:/' Tire ::an-:jf roturing Industr/ it is necessary for manu- 
facturers to mail? lC in substantial invenborj-es of crude rubber. TJhen, .as 
occurred du-ring the deprei-sicn, the ^orj ce of crud3 rubber underwent a 
shaip and long de^linej losser, on invi^i.tor;; were extremjl-?- serious. 
Purthermore, durir'g a rising price c'cle for crude, ma,r.-af acturers who have 
bought large stocks at or about the lows can, for a, considerable period, 
enjoy lower oper-ting costs txian competitors who were not so fortunate. 
Thejr are, consecuoritr,-, able to lorice their product at a level the. others 
can not meet, with resiTltant price unrsttlement. 

In the Coffee Industry a. similar problem existed but it v;as apparent- 
Iv not ouite so acute. In this induotr^', in fact, some units claimed that 
their profit was obtained primarily throi.igh speculation in green coffee, 
with the roasting business secondary, ilone the less, the costs of indivi- 
dual concerns shoi.'ed conbiueroble differences, depending upon the levels a.t 
T/hich they had purchased green coffee, with corresponding perturbations 
reflected in the price of roasted coffee. 

In neither of these cases does it appear to be possible to hedge in- 
ventor;;,^ purchases t;.Lrough sales of futures because of the la,ck of an ade- 
quately developed speculative market for the commodity. 

IV. PR03LK;S iiPJSIiTa prom TIS CmPilCTSR'OP Il^TDUSTRY ;31I3PRSHIP 

A second major group of i^roblems may be classed as those arising 
within an industry, related primarily to the chara.cter of its membership. 
The facotr^;SO far considered a,re external, and to a great extent inevitable. 
But, as may be inferred from the theoretical discussion contained in Chatj- 
ter II, market conditions are not the sole determinants of price. Price 
may be maintained at a level higher or driven dovm substantially lower thrxx 
would result from the operation of market forces alone. 

A. Base of Entry 

TThere capital recuirement for entrj^ is relatively high, and where as 
a consequence the number of competing units is limited, their opportunity 
for exerting some degree of control over the price level is frequently 
favorable. This may, but does not necessarily, im-olj^ co-operative, or even 

9763 



-42- 

collusive, action. Price leadership is not an -uncommon phenomenon. The 
majority of corcerns may be content to follow the price -oolicy of some 
dominant unit or units, kno^dng that nere thsy to st^rt cutting prices 
the;/ would shortly be bested at their own game. In some cases, it is true, 
secret concessions are granted in the hope of securing added business and 
yet avoiding reprisals, but even then the actual as \7ell as the nominal 
price level may remain r.-ell above \7h?.t market conditions might otherrise 
dictate. 

ITliere, on the other hand, capital requirements are relatively'- Ion 
and entry is easy, a large number of small units is the usual corollary. 
"Co-operative" action to maintain prices is difficult to achieve. Price 
leadership- isless frequent and less effective, since one of the many small 
units is a.lways likely to upset the apple cart. Compstition, through being 
more widespread, is usually more intense. Management is freauentlv less 
competent, financial stability poorer, bankru-otcios an' resultant changes 
in ormership more freqaent in proportion to the number of units. In cases 
of this sort prices a;re rarely if ever higher, and c're commonly driven far 
lower, than the demand situation taJcen alone wo-uld warrant. 

Among the industries studied, in which this latter situation is apparent, 
were the Cleaning and Dyeing Trade, the three producers service industries 
(Jur Dressing and F'ar Dyeing, Throwing and ^aste Paper), the Screw Machine 
Products Industrjr, the Commercial Belief Printing Industr^/, £md four of 
the six consumers goods industries (Furniture, Luggage and Pancy Leather 
Goods, Canvas Goods, and Ice). In the Canvas Goods Industry'-, as an extreme 
example, it was alleged that all the capital needed v/as "$50. for a seviing 
machine and $2. for a marriage license to get a wife to do all the T'ork. " (*) 

B. Lack of Cost Consciousness 

Code proponents frequently laid a large portion of the pricing pro- 
blems of their respective industries at the door of lack of cost loiowledge 
on the part of members. In the Screw Machine Products Industry, for exam- 
ple, evidence was introduced at the Public Hearing that bids submitted in 
accordance with Government Purchase Office s'oecifications by seven concerns 
showed a range from 35 cents to $8.50 for the same article. It was alleged 
that so wide a discrepancy could only res'alt from utter lack of cost know- 
ledge on the part of some concerns. 

The desirrbility of pricing products on the basis of accuragely deter- 
mined costs has long been a favorite thesis of cost accoTontants and trade 
association executives. It ves implicit in the statements made by Mr. 
Harriman and Mr. Stevenson from v/hich quotations have been cited. At al- 
most ever/ public hearing held on pro-oosed codes some reference v,',--.s ra.ade to 
the evils attendant on lack of cost knovrledge. A critical appraisal of 
this thesis will be included in a later chapter. It may, however, be stated 
at this point that where industr*'- merab-ers are cost conscious, and endeavor 
to relate the selling -i^rices of their products to their costs of production 
as computed by orthodox methods, the general price level -orevailing may be 
maintained somewhat higher than v/ould othenTice be the case. 



(*) Transcript, Public Hearing on the Sanvas Goods Industry, Dec. 12, 
1934, pp. 75-96 

9763 



C . Fa-^tional Problems 

The second class of difficulties resulting from the internal struc- 
ture of an industr^r are those in which it i;: divided into distinct factions, 
each struggling to increase its sharo of the toto,l market. 

In mzv\r oasep factional distincMons are hased primaril.]'- on size. In 
the Coffee Inlastr^,-, for example, three large coi'porati ons account for over 
35 per cent of tlie volume of the indij.? irj'-. Txiese companies all operate at 
relatively ^ of coot. The largest of these three companies is fully inte- 
grated, co%'-.:ring all fuaictions from rov sting to retailing, and possesses 
exceptional cost advantages. These three, furthermore, all have created 
a distinct consumer "oreference for their i^roducts through extensive adver- 
tising campaigns. 

The small compa^-iies, at a disadvantage either on a price or on a 
prestige hat,is, foand their markets incrcasinglj'- restricted. 

The problem ir this inc^ustr:^^ is furtner ac'-;entuatod hy the fact thc^t 
for each of these large comprjr.ies coffot. consl,i!:ubes a relati^^ely unimpor- 
tant sideline. They are conseouentl;;' in a position to price their product 
almost independently of its cost, ahsorbing any loss tlirpugh profits on 
other operations. 

Ti^e condi-cion in the Agricultural Insecticide and Fungicide Industry 
presents a certain parallel, in that here tigain the largest unit in the 
industry, the Genera!' Cheirp ca,l Company^ derives hut d small fraction of 
its income from the rale of calcium and lerd arsenate. It was -nrice cutt- 
ing 'hy this company that created the immediate problem in this industrj^. 

T/here, thore are three distinct size groups in an industr^^, verj'- 
large, intermediate, and very samll, the intermediate mey labor under a 
severe di sadvfntag-"!. Thus, in the Canvas Goods In?.ustr^', there are a few 
major companies ■or."h-.cing for a national market, and :)Ossessing distinct 
cost advantages in ti.e purchase of raw ma.terirls and in their mamofacturing 
operations. At the other extreme are seme 2500 family, handcraft shops 
having no direct out of loocket outlays except for raw materials; the]?- are 
able, conseouently. to sell for a.n.y prJce that will yield a small return 
for their labor. 'Hhe companies of moderate size find it extremely/ diffi- 
cult to compete profitably with eithei- grou-Q since, unlike the handcraft 
shops, they have overnead and labor charges to meet, while on the other 
hand they can not mrtch the costs of the very .large concerns. 

Similar conditions exist .in the x^^r Dressing and Fur Dyeing Trade, 
which comprises one dominant unit handling hetwee.n 30 and 30 "oer cent of 
the total industry volume, a number of concerns of moderate size, 0,nd a 
considerable group of very snail oaits f recuentl"'- operating on a co- 
operative basis. 'The intermediate roup can not match either the prestige 
or the efficiencjr of the one large company, while its members must, on the 
other hand, pay their labor at "union rates \?hich the co-operative shops 
are under no necesf^it^^ to observe. 

In the Commercial Relief Printing Industr"- a few large companies 
have moved tlieir plrnts to rural districts to r^void the necessit:"- of pay- 
ing.,union wages and high rentals, and" also to escanoe other la.bor "oroblems. 



9753 



-44- 

At the other extreme are a great manjr so-called "hall-bedroom" shops, one 
man concerns, or the eq-uivalent. The remainder of the industry/ is again 
caught betneen- the iipper and the nether millstone. 

A somewhat different problem arises xjhere a group long dominant 
in an industry finds its position threatened by inroads from new and agg- 
ressive entrants. In the Cleaning amd Dyeing Trade the old line cleaners 
pere suffering very severely from the competition of the ne'.v cash and 
carry operators. 

In the Fire Extingxiishing Appliances Manuf -•icturing Industr-^^ manufac- 
turers who maintained extensive research and development departments and 
incurred heavj'- expenses for advertising resented the competition of units 
whose overhead charges ""ere much loner. 

The ^.^ood Cased Lead Pencil Industry had long been dominated by four 
big companies. Starting about 1928 a group of relatively small companies 
began to compete aggressively, through price reductions and alleged shad- 
ing of quality, and succeeded in winning a substantial share of the markets 
previously enjoyed by the "Big Four." 

D. Price Wars 

Allegations of price wars were, of course, t'he rule rather than the 
exception. In onl;'- tv;o manuf rcturing industries, however, did there 
appear to be clear-cut evidence that a deliberate attempt by one or two 
companies to profit at the expense of the rest of the industry was the 
immediate cause of price decline to a level lower than market conditions 
would otherviise warrant. In both these cases, the Agricultural Insecti- 
cide and Fungicide and the Crst Iron Soil Pipe Industries, the condition 
complained of became critical shortly after the code 'vb approved. 

V. PROBLEliS AHISIUG FROli DISTRI3TJTIVZ ?ELATIOiTS 

The next major group of difficulties to be considered arise from 
the manner in which the i^roduct is distributed. 

A. Com-oeting Channels of Distribution - 
Mail Order Houses 



Taen the products of different manuf rcturers are sold on the same 
market, retail prices to the consuiner must necessarily form the ultimate 
basis of competition. The manufa,cturing cost of one concern may be lower 
than that of another, but if its cost of distribution is greater it me.y be 
placed at serious disadvantage. Price pressure is transmitted from the 
retailer back through the wholesaler to the manuf ,;cturer. Conseqtiently 
competing methods of distribution mcy be major disturbing factors in the 
price structure. 

Probably the most outstanding unsettlements trs,ceeble to distributive 
problems arise when mail order houses and chain stores are an important 
factor. In the Plumbing Fixtures Industr:?- for exaiTiplc, a few manufacturers 
distribute through mail order houses while the majorit-- utilize the ortho- 
dox wholesaler to retailer arrangement. The mail order houses have been 
consistently cutting their retail prices. These cuts must be met b3'- re- 



ductions in the -prices charged to rholesalers "by other concerns. In this 
case intermittent price vrrs ptr rtin-^ in 192S hove not --et ended. Prices 
have dropped contin lousl?" "^ro:n thrt ocbe thro-i^^h ig'^S. 

A similrr coiic'ition e:;istr; ir crnr^^ction ^itli the Rubber Tire Hanu- 
facturinj^ Indiictrj*- '"'hei-e mail order ij.ou:.es,. caain stores, clirect manu- 
facturers outlets, oil coiTOEiW stores, and independent retailers are com- 
petiii;'^. The rpsi:'lting chaotic retail price structure is reflected back 
to tne mpnuf rctuT'srs. 

In the cnse of the Furrit-L^re Industry the uracticcs of mail order 
houses also constituted a major source of coraolaint. 

In the TTood Cased Lead Pencil Indust:"-'-, chain store distribution of 
pencils was resented by manuf, outres ^iho utilized more orthodox channels. 

B. Other Dis tr ibLTtive Pr cblems. 

Other diff ici-lties complained of by indi.istrjr members s.rising from 
the methods of distributing products i.-.icludei the follo^/ing: 

(1) In the Agricn.ltura.1 Insecticide md Puaigicide In- 
C'Ustrp the pi'rcti3e of selling on consignment and of 
guaranbeeing against price declines ■"'ere considered ob- 
jectionable ''oy i:;inv.str3r members. 

(2) In the PertiLi2;9r Ind.ustr].'- membe---s rere dissatis- 
fied T^ith the pricing policies of their distributors - 
apparently a failure to maintain resale prices - and 
changed over to the agency system of distribution dur- 
,ing the code period. This charge has aersisted since 
the lapse of the code. 

(3) In the Coffee I-idustrp- certain retailers utilized 
coffee as a loss leader, a -iractice considered object- 
ionable by the industr;^. 

VI. PROBLEMS AHISIIvG PROLi COi'SUi.'d]H p:'p:SSUH3 

A. Bid Peddli ng 

Tlie last groun of prcblems to be considered are those which arise 
\7here consumers, bv meeins of allegec? iinfair tactics, are able to exert 
sti'ong pressu.re on the pri-^e structu-.-e. The producers service industries 
and the industries manuf '^cturing producers goods tha,t have no indeoendeiit 
outlets r/ere extremely vulnerable in this regard. Especially was this true 
\.'her8 the industr;'- comprised many small ^mits. Por example, in the Screw 
Lachine Products Industry bu;j^ers were accused of pitting Eonderns which 
had no accurate knowledge of their cost of production agaanst concerns with 
known costs, forcing all prices down. In this industry and also in the 

Limestone, halleable Iron and Throrring Industries bid peddling was appar- 
ently the rule rather thein the exception. 

The following vi/as the gist of a description of th(^ bid pecidling pro- 



cess as given the v/riter by a member of the Limestone Indiistrj'-: 

"When a project is advertised, general contractors ask for bids 
from the limestpne sub-contractors. In submitting their general 
bids, they usually shave about 20"7o off the lowest bid submitted by 
any limestone fabricator. Then, if they get the job, they shop around, 
plaj'-ing one sub-contractor off against another, until they get the 
price do\7n irhere the^'- want it. Of course the fabricator has only one 
recourse, he goes to his workmen and says 'See here, I can get this 
job if you play along and kick back some of your u-ges.' And since 
thejr'd rather hgve work at lower vay than none at all, ' the-'^ aanally 
consent, fabricators who won't resort to such tactics are left out in 
the cold." 

B. Price Dictation ^ 

In one case, the ITaste Ppper Trade, an important paper board mill pur- 
chased a controlling interest in a Irrge wp.ste paper concern and installed 
its own purchasing agent as manager. The price set in this captive mill 
became the ruling price for w-ste paper. In this case consuming interests 
v;ere virtually able to fix prices at any level desired. 

VII. ATTEMPTS AT COHTHOL TH]^OUGH CO: SliTATION OP. COERCIOF 

Efforts by industr-y menbers to exercioe a greater degree of control 
over their price structiire are, of course, extremely common. In seven of 
the industries studied such efforts brought them into conflict with the 
anti-trust laws. In one of these seven, and in three additional cases, 
racketeering was resorted to in a desperate effort to reraed;'' conditions. 

VIII. PRICE THE C0I.M01I DENOiilNATOE. 

All these diverse problems, had. one thing in conmon. Thej'- all in one 
way or another, separately or jointly, affected the rice stnacture. Low 
price levels v;ere the immediate expressions of each of these maladjustments 
,#iich were themselves traceable, as h^s been indicated, to more fund3,raental 
economic edlments. 

In each ca.se, however, at least one of the remedies attempted was ' 
directed at this immediate s3"mptom. Concurrent controls, it is true, 
were also sought or attempted, but in every one of tliese industries some 
effort was made to ameliorate conditions by directl3'- controlling price 
competition. 

The devices used in these efforts included, as has been indicated, 
direct minimum price fixing, price control through the declaration of 
emergency, and cost protection. Act^oal ex-oerience with each of these 
devices will now be considered.. 



9763 



-47- 

CUAFKr. VI 

PRICE RECrUIATIOil TEHOUC-H DIRECT MIJIMUli PRICE FIXIIIG 



I. I'ATWr. 0? T"-i:-. DEVICE 

The most dirccb anc. uncom- ^romisin:; means of limiting price com- 
petition att:-iiT-toc ondcr tlie codes uas an ejrplicit /-rant of power to 
the Code Authority or a similar a; ency to prescxihe minimtun nrice 
schediiles. In m.^^t c^sos s\-'ch sched-a].es were to become effective only 
after j,R„A. 'c:p-pro^n.l, Dnxt this requirement vras not "universal. Hor was 
there any ,-,cnoral requirancnt that price schedules "be predicated on an 
'.nalysis of costs. 

II. EXTEIIT or ITS APPLICaTIOI! 

Because of their drastic nature such provisions were restricted 
to ccses deemed catrcmely exceptional. Only twelve basic and no supple- 
mentary codes proviC.ed such grants of power. These codes fall almost 
entirely into three indtisi;ry .^' roups » 

(a) Transport ?.ti on Indu^- tries: 

"fom-cstic r::ei|;:;ht Forwarding 
Inland T/ator Carrier Trade 
Lot or Lu.s Ind-ustry 

(B) "Natural Roso-orces lacustries: 

Petrol:- urn 

Iit~ii"iinouE' Coal 

Lumber -"u Timber Products Industry 

(C) ConGUJi^.ers Service Tr-ios: 

Cleanin.-^; and Dycin.7 Trade 
Launary Trade 
larber Shop Trade 
Shoe Rebuilding Tro.dc 

(D) Others: 

VJood Cased Lead Pencil (*) 



(*) See Re-oort ho. 40-D, p. S, Post Cede Analysis Unit, Research and 
Planning Division; l.'.R.A. files. The tabulation there given has 
been extended by the inclusion of the. Lumber and Timber Products 
Industry, in v/liich the natrxe of t.ic -provision vas later altered, 
and tiiC Service Trades, in which the piovisions were suspended by 
Executive Order of hay L6 , 1954. ThelTholesale Coal Code, in- 
cluded in the tabulation in 40-D, lias been omitted since its prices 
were directly based on those in the producers code. The Graphic 
Arts Code, also included in the tabulation, has been omitted be- 
cause direct price fixing v.'as only one of several al,ternt\tives 
devices it incl-ades, with cost protection, ap: arently constituting 
■ its ; roper Ci.tegory. 



9763 



-48- 

Even tliis rather limited roster v/as reduced ty the fact that 
minim-am prices vrere never -|iermittcd to ;":c into effect in the Petroleimi 
and Wood Cased Lead Pencil Industries or in the Lau:idry, Barber Shop 
and Shoe Eehuildinc Trades. 

Furthermore tne price provisions were stayed in the Cleaning and 
Dyeing Trade on May 26, 1934 and in the Motor Bus Industry on January 
10, 1935, The Lumber and Timber Products Code was amended on luly 16, 
1934, to place price control on an enterrency oasis, "but this merely 
involved a nominal revision Tifithout o-ny real uodif ication of principle. 
But lumber price control \?as abandoned on Lecembcr 22, 1934, 

At the time of the Schechter decision, therefore, fixed minimum 
prices remained in effect in only three codes; Bituminous Coal, Domes- 
tic Freight Forwarding and Inland Ylater Carrier. It is therefore appar- 
ent that the use of this device "by ■iT.'^..A. was e::tremely limited from 
the start and that its application was proj^ressively restricted to the 
point of virtu\l a"bandonment . 

Actua.l il.R.A. experience wit'n direct minimum price fixing lias been 
studied for one natural resource industry, t"nc Lum"ber and Tim"ber Products 
Industry, and one consumers' service trade, the Cleanin,.';': n.nd Dyeing 
Trade, The conditions leading first to the approval and then to the 
nullification of this t;,'pe of control in t"ae l;7:.od Cased Lead Pencil Code 
'nave also "been reviewed. 

It would iir.ve "been highly desira"blc to have also covered eroerience 
in the Bitujaino\is Coal Industry, hut inf oriaation concerning this code 
was not available in ti!i;ic to permit its use. In the Transportation 
Industries, price control partal~s essentir'.lly of the cliaractcr of 
public utility regulation, w'nich has long been considered a -proper 
fui'iction of government a.nd agoears to fall outside the scope of this 
study. 

III. LUMBER Ain3 TIMBER PRODUCTS I'/IUSTRY 

Code experience in the Lumber and Timber Products Industry will 
first be considered. 

The code for this industry v;as the ninth ap Toved by IT.R.A, It 
T/as signed by President Roosevelt on August 19, 1933. 

The industry aslced and received probably the broadest grants of 
power over the price of its products included in any a-^iproved code. 
Article IX of the code provided th,-,t the Code Authority should "estab- 
lish and from time to time revise minim-jm prices F.o.b, mill to protect 
the cost of production of items in the several' classifications of lumber 
and timber products," Such determination v/as to be made with due regard 
to the ma.inteno,nce of. free conrpetition ajiiong species, divisions, rJid 
sub-divisions of tiie industry :and with products of other industries and 
other countries. The criterion of price was to be the current weighted 
average cost of xoroduction. The items to be considered in computing 
cost v;ere broad and inclusive. Even interest on indebtedness and de- 
preciation on odle as v/ell as on operating facilities were to be tahen 
into account. 



Tlic code -orovided for s--'ecial trcatiient of small mills thro-u£;h the 
allowance of a diff^reutial for their products, r.nd lor the establish- 
ment of lover minim-um prices for items of inferior quality. 

It fijxther included an elaborate system of customer classification, 
specifying m ;:xim-imi discounts to be llnicd ta v;i.rious ty-pes of customers. 
Uniform terms of payment vero stipulated .-uid /j-^xarantees a^onnst price 
decline were b.'\rined. 

Price control yas to be sui:)plemented by production control. The 
Code Ai.ithority, after a study of possible future dcmo,nd, was to set o. 
q\iota for the liatire couiitiy, fie quota to be divided "mon;--; the various 
divisions o,nc sub-divisions, on th:-. bauSis of past output. The divisions 
and sub-divisxons were :. J aa^x allotaents ro the various mills under 
their rcsacctive jiu-isdictions , according to a formula set up in the code. 

These tv/o controls the clcsianation of raininim prices and the re- 
striction and allotment of oroclaction v/ere the principal devices by 
which it v/as sought to rer-tore profit ^.blo oper -.tion to the industrjj-. 

As indicated by the pxiblic hccarings, many of the code administra- 
tive agencies were well established associations prior to the code, 
and for raany years had been working ra t'ac ;-iroblem of price control. 
Consequently, as soon as they were or'.anized as official agencies of 
the Code Autnority, minim-om prices v^^cre ado'-'ted by 27 cut of a total 
of 36 divisions and sub-divisions. These prices took effect at various 
dates betw-_en ITovember 7 aaid December 12, 1933, Later a.dditional 
divisiDns, sub-divisions o.nd or anized Groups, added to the code by 
amendment, issued iricc bulletins. In some of the divisions the mini- 
mum prices v/ers on a basis other th/n the f.o.b. mill liasis specified 
in the code. The Southern Pine Division liad cort \in basing points which 
resulted in the addition of charges to the f.o.b. mill prices. The 
Southern and A':"'p£ilachiojr> Hcrdwood Sah-Division prices were on o. de- 
livered basis. The Oak and Haplc flooring Divisions also used basing 
points in co,lculating drlivered -rices, (*) 

The minimun prices oromulgated uader the Lumber Code ha.d no close 
relation to cost, particularly at first, nor does it appear that they 
succeeded in meeting the code stipiilation thrt they be established with 
due regard to the inaintcnance of free competition v/ith the products of 
other industries ano other countries and to the encouragement of the 
use of said prodiicts. Th''' prices on all major items v/ere originally 
annonnced in bulletins of tac L-amber Code Authority dated October 28th 
to llovomber IGth, 1933, before data in response to the Code Authority's 
cost caiestionnr.ire were available. (**) The Code Authority was forced 
to eke out the ^leager cost data available to it in the eo.rly diys of 
code operation with as intelligent guesses as it could ra^dce, \fnat 
actually seems to have mppened is th^.t the ; eneral level of prices 
prevailing in the fall of 1933, which was ajout 50 per cent higher t:^-.n 
the lows of the eo.rly po.rt of tnrt ; ear (sec Cliart l), viras tcJ:en over 

(*) History of the Luiaber and Timber Prodacts Code, page 325. 

(**) Orally from W. T.. Yost. (Economic Advisor on tae Code) 



?763 



-49- 

riiore or less intact as the level \^".iicli should bo. continicd and cnlorcvd. 
These fi-'ixires Avcrc revised in minor -^artic-mlar ^ in -cricc 'bulletins 
issued in Janura-y, 19.34 i "but t-ie tiulletins vircrc still "based oil fracinentary 
d. t.a. The .'livisions with rairiimurn prices contained a---'proJ:im" tely 14,000 
operators. Of those some 860, or -.tout 6 per cent, fvjnished usable 
cost data. In seme of these ta-:- c 'V va; :o vn.s very spotty. For inst- 
ance, from tiae Southern and .v/'V^alaciii-n Hardv/ood Sub-division, Tdth 
2,309 operators, no cist rc-o.-^rts va .'c received. The Southern Pine 
Division, with 4,500 o;a-;ratDrs, furrhshed 76 reports. In some divisions, 
the cover,\;',e in terms of pr^driction \aaF fair, due to the fact that .the 
larae oper.-tors reported more adcqiiatcly than did the small ones, (*) 
The periods cwered were not uniform as betrreen divisions. Some divi- 
sions cov; red July -and Axi^aist, some Auf;ust and September, and so.ie 
September and October, (**) 

Early in 1934, on accouiit of vigorous protests aaainst lumber 
prices at r l-umocr price hearin;;r on January 9, 1934, the Research and 
Plannini:, Division set otit' fo check the d-ita on v.'hic}: the Luim or Code 
Authority -.'as seeking to sxibst.antii'.te its mininui;: prices. The code asve 
the Division no power to modify tiie prices in iny way or even to mahc 
recommendations, 'but it felt that unless it made some attempt to find 
out v/hether the promulgated minimum prices had a direct and substantial 
relation to t-. reasonable computation of costs and to try ti iiiflusnee 
the Lumber Code Atithority to keep tae prices thus related t; costs there 
could be no hope of defending the orices r,,^ linst hostile cotirt action, 
"nVith this in mind the Division began to try to check up on the Liimber 
Code Authority's computation of costs. The Lumber Code Authority upon 
request suhmitted to the Divison cert-'.in dr.ta on costs in the -"estern 
Pine Division, These dat.a, as well as do.ta Inter submitted for other 
divisions following the •: mergcncy declaration in July, indicated that 
with minimum, p^rices sot at an obviously high level in advance of ob- 
taining cost u"ta on waich to base them, the !:ir-,.rs.h''.lling of cost dato, , 
from the inc'-astry's • oint of view, had become a, process of demon sti-ating 
that costs vierc as Mali as the ;orices. In thus substantiating the 
minimuin prices the L"amber Code Authority was aided considero.bly by the 
inclusive iiati-'xe of the cost formulp. Y/ritten into the code, as quoted 
above, ThLi.s it v/as possible, \dth code s.anction, to include certain 
items which i-I,E,A, aid not regard as proper comnonents of a minimum 
]orice, such ,\s cost of carrying owned stiirp.o.ge in excess of reasonable 
amotmt,. deitreeiation on excess capacity to -iroduce, interest on ok- 
ccssive capitalization, on borrowings resulting from uneconomic organ- 
izations, and on co.pit.xl used for mills "capable of operation" as well 
as for those act'oX'.lly in operation,, losses on trade .occounts carried 
over from pre-deprc ssion l-iys, and full .administration costs, including 
such items -s salaries basea on pre-depressions conditions* • 

In the spring of 1934 the Administrator a,nnoxmced the fonouiit which 
might be charged for carrying stucipage, which eliminated losses on 
t imb er speculation as an element of cost. Also the industry agreed to 
compute depreciation for min,imum-price purposes on the basis of only 
65 per cent of totol capo.city. Moreover, as indicated .obove, the ad- 

(*) History of the Lumber .and Timber Products C ode, page 326 
(**) Heport on cos-t production prices by ". il. Burnliam, May 5, 1935, 
main memorandum, p-age 2. 

9763 



-49-A- 

justment of prices among species snd divisions to maintain "free 
competition" among them meant that part of the element':, of deprecia- ' 
tion and standing-timber charfres v^^ere omitted in computing costs of 
some of the sp.ecies. Most of the reported costs vere so-calle'd 
"ceiling" costs, including the two cost elements named. Sixty-five 
per cent of capacity for _f iguring depreciation was' 'Dro'ba'bly high, con- 
sidering that oh tiie average not more than 25 per cent of capacity 
(as computed by comparing the 193? lumber cut with the highest cut in 
any reoent year) was being used or was lively to be used in the near 
future. The Research and Flannin.? Division stated that in some in- 
stances the use of the straight line basis of computing depreciation 
provided for in the code resulted in operators reporting depreciation 
per thousand board feet as hi^h as 200 per cent in excess of their 
depreciation per unit as figured by their customary methods.* 

In May 1934 the Executive Officer of N.3.A. made a report to the 
Administrator to the effect that the cost-protection formula in the 
code contained elements of profit, that the existing delivered' prices 
and basing-point prices were in violation of the code, that certain re- 
cent price increases ought to be set aside, and that all the prices 
ought to be reduced by 20 per cent pending: a recomputation of costs on 
the basis of a revised formula. Apparently, in some unexplained manner 
tfiis report got into the hands of the Lumber Code Authority. The Ad- 
ministrator took no action on it.** 

By the early summ.er of 1934 price violations had begun to take 
place in considerable volume. It was evident that neither the courts 
nor the N.H.A. would back up the code authority agencies to the ex- 
tent of actually punishing the violators. The doubtful legal status 
and questionable reasonableness- of the basis for computing the prices 
were primarily responsible for this. The Lumber Code- Authority and 
N.^..A. held a series of conferenc-es, tryin,^^ to find some means of 
saving the code price structure. At one of these conferences the ^.e- 
search and Planning Division stated that in its opinion the minimum 
prices were illegal because they had not been approved by the Govern- 
ment and because the code did not provide for governmental review of 
them. Shortly after that a deputation from the lumber industry oame 
to the N.^.A. offices. They requested an immediate statement by N.R.A. 
validating the minimum prices.. Tl-ie Division Administrator orally re- 
quested the Research and Planning Division to approve the issuing of 
such a statement. The latter refused, on the ground that it had had no 
opportunity to study the computation of uHeiiosts behind the prices. 
The Division Administrator then obtained the approval of the Adminis- 
trator and the requested statement was issued on June 21, 1934. It 
was not submitted to any other advisory board.''** But this validating 



(*) D. _N. Burnham's memo of August's, 1934 to Peter Stone, last 
paragraph, contained in his cost protection rej'Ort of- May 6, 
1935. 

(**) Lumber study report' (Peter Stone) , and Code History, pp. 329-330, 

(***) Orally from Peter Stone. 

9763 



"50- 

of the prices by decree did not substantially stem the risin;?- tide of 
price violations. The Lvjnber Code Antnority souff^ht other means of fur- 
thering the enforcement of minimum prices. 

It happened that in the latter part of the spring orders and 
shipments had begun to drop at a rapid rate as com.pared with the corres- 
ponding weeks of 1933. The Federal Reserve Board index on lumber pro- 
duction stood at 31 in June, 1934 as against 38 in June, 1933. Some 
5,000 new saw malls had berrun operation under the code. Stocks of the 
common grades of lumber were piling up at a rate that alarmed many mem- 
bers of the industry. The Lumber Code Authority suggested that this 
situation might v;ell indicate the existence of an ''emeri^ency" under 
the terms of Office Memorand-uin No. 2^8, and the U.R.A. acceded to the 
suggestion. The emergency was declared on July 15th*, practically coin- 
cident with an amendment to the code authorising the declaration of an 
emergency and the fixing of "reasonable" minimum prices by the Adminis- 
trator. As in the price provisions first adopted, provision was made 
for granting: certain exceptions to operators whose products were sub- 
stantially below standard grade. 

The declaration of emergency in this instance and the promulgation 
of m.inimum prices amounted to nothing more than a device to endow the 
already existing minimum prices with a presumably superior legal val- 
idity. Since no adequate cost data were available and since there was 
no tim.e in any case to make a careful study of costs, the old price 
schedules were continued by N.H.A. practically intact, except that out 
of deference to the Administration's recently announced housing cam- 
paign all housing items, by agreement with the industry, v.'ere reduced 
about 8 per cent. The new schedules took effect July 21st. Thereafter 
no changes and no new prices on unlisted items were to take effect with- 
out the approval of the Division Administrator and the Legal and Re- 
search and Planning Divisions.** 

The emergency order directed the Research and Planning Division to 
make a study of the costs on which the prices were based. The Lumber 
Code Authority immediately turned over to the Research and Planning 
Division all its individual cost reports covering; the months of January 
to March inclusive, 1934. The Division prom.ptly reached the conclusion 
that the prices were not properly related to the data and that the data 
needed a great deal of amplification.*** From then until the end of 
minimum prices in December the Division was in constant correspondence 
and contact with the Lumber Code jtuthority in an effort to elicit ad- 
equate comparable information on cost of production. The Division does 
not appear to have been satisfied that the data submitted were adequate. 



(*) Administrative Order No. 9-46. 

(**) History of the Lumber and Timber Products Code, pp. 335-336. 

(***) History of the Lumber and Timber Products Code, pp. 335-336, 



-51- 

Price control turned out to be unmanngeable . David T. f/iason, 
Executive Officer .of the Lumber Code Authority at the lumber price 
hearing in December, 1934-, poir.-ced out the t 97 of the 128 divisions, 
sub-divisions, and organized groups vhich vere under the lumber code 
in the latter part of 19 34* had pri'-;e control, applied through en 
aggregate of £13 p"ges of price bulletins containing prices on about 
81,000 different items produced. E,~cn item had various prices on it, 
due to the systeni of discouici. differrntials ■ with the result that 
there were scne hundreds of thousands of eerra-ote and distinct prices. 
It turned oui, to ''le hiircanly iTi^'Ossibie to fi>j,ure out all these prices 
in a manner chat wov.ld. preserve anyth^.ng like a lo?:ical or equitable 
interrelationship among regions, among sp?cies, and among types and 
amor.nts of service rendered by different distributing channels, as well 
as to take cognisance of variations in cost between individual operators 
due, to variations in quality and refinement of product, seasoning, size 
of establishment veiling facilities, good will, amount and t^/pe of dis- 
tributors' fanctic performed ,. and other matters. Some of the difficulty 
of achieving equitable price raiationships in shown by the fact that 
34 aduiinistrative orders pertaining to exemptions and stays from the 
cost-protection provisions of the code were issued. Thirty-one, of 
these were approvals and 3 denials. 

Specific difficulties in administration included: 

(l) Difficulties with differentials between different types 
of mills. 

. In the latter part of 1933 the large mills were so dissatisfied 
with what thej'- considered the overgenerous differential to small mills 
that the differential, was decreased in January, 1934, This brought 
forth a howl of protest from the small mills, which in the South part- 
icularly, greatly exceeded the large mills in nuinber. Hearing were 
held in April in the South wi'.h the lesult that the old differentials 
wer.e re-established. ■ The. large mills now were dissatisfied again. 
Later some of them were placated by the granting of permission to sell 
a large accumulation of. lower grades at the same price permitted to the 
small mills. Independent of this problem of, a differential for small 
mills selling finished luvaber was the problem of a differential for 
mills, primarily small Southern mills, which did not complete the man- 
ufacture but sold their whole output regularly. to so-called concentra- 
tion yards. These concentration yards carried out certain finishing 
processes, such as planing and. sortinfC, and marketed the finished lum- 
ber in much the same way as- large inij vidua! mills. In Karch 1934, for 
the first time mills selling to concentration yards were permitted to 
sell at a discount off scheduled minimum prices. This discount amount- 
ed to 15 to 50 per cent. Until that time chey were discriminated against 
in the minimtun price structure, as was stated by the Federal Trade Comm- 
ission in a report it rendered May 7, 1934, after a field investigation 
in the South. Also there was a feeling among certain plants which pur- 
chased lumber and fabricated it further that they were discriminated 
against compared with fabricating plants owning their own sawmills, 



(*) Various divisions and sub-divisions were added to the lumber Code 
after it first went into effect and many of these split up into 
smaller groups. 

9763 



-52- 

iecause the latter could produce their lumber at considerably less thah 
the price at which the plants without sawmills' must purchase theirs. 
Tliis, of course, to a certain extent, was evidence that the minimum price 
of lumber was in excess of cost. Haere was dissatisfaction with the 
failure of export prices, to be lined up properly with domestic prices. 
Frozen stocks tended to develop in certain items of lumber. Stocks 
showed a tendency to pile up in the hands of the manufacturer, although 
previously the distributor had borne much of the burden of carrying them. 
Some manufacturers stated that since the adoption of fixed prices it 
had become harder for them to negotiate bank loans. (*) 

(2) Protests against freight equalization. 

Numerous protests were received by the Lunber Code Auth- 
ority and N.R.A. as the result of freight equalization applied in con- 
nection with the establishment of delivered prices. These protests came 
especially from the Southern Pine Territory. In establishing basing 
points the Southern Pine divisional agency had attempted to equalize 
delivery costs at the principal market centers. Those operators who 
for many years had enjoyed a preferential rate into such markets and 
who found that through equalization they were placed in direct competi- 
tion with all producers in the region, wherev-ex located, immediately 
protested the equalization plan. The Southern Rotary Cut Lumber Divi- 
sion' s prices included deliveries to all points. There were large and 
apparently unrelated jumps in prices oetween states. Substantiation 
by the Lumber Code Authority of these large differentials was never re- 
ceived by N.R.A. althougii they were the -subject of many convplaints. ( **) 
The Southern Pine Sash and Door Manufacturers Association objected to a 
delivered- price system wnereby their own doors sold higlier at Atlanta, 
Georgia, than did Douglas fir doors from the Pacific Northwest. Cer- 
tain oak flooring producers protested against establishing a price of 
oak -flooring at their own place of business .p9.50 per thousand feet 
higlier than the price at Memphis, tlie principal market. 

The industry later increased tlie number of basing points, 
but complaints continued against interference with established markets 
througli basing points. N.R.A. never received sufficient information 
nor had it the time or personnel to make a thorough study of the in- 
cidence and effects of basing points under the code. 

(3) Many problems arose which were reflections of difficulties 
in the wholesaling and retailing of lumber products. Fixed maximum 
discounts to wholesalers off the f.c.b. mill prices were prescribed 
under the code; in most divisions of tiie industry they amounted to 8 
percent. The limitation of the discount to a fixed maxiimim vras neces- 
sary for the enforcement of the whole minimum price system, particular- 



(*) Code History, pages 330-331; Luj-nber study report; data from 
Peter Stone; transcript of lumber price hearing, December 11, 
13, 1934. 

(**) Code history, page 332. 



9763 



-53- 

ly in view of the fact that tlie perfonuance of the w'lolesaler' s fimction 
in the l-umber industry is divided het'^een raanuf acturers with wholesaling 
departments and independent wholesalers. In order to maint.ain this 
structure it was necessary to cnntrol "both wjioI esalerr, and retailers, 
i'ifholesalers refused to assent to "being includec' under the Luinljer Code 
because of the lack of a drastically restrictive definition of the 
wholeisale trade. T^I.R.A. declined tc apprcvi- any of the proposals ad- 
vanced for such li.aitation, or for the rii,id fixing of discou-nts for 
estch level.. As a result, uniformity of manudfacturers prices did not 
mean uniformity of price to the consuiuer. Since price competition is 
"based upon prices to the consumer, any ine-aalities were reflected 
"back to the mcaiuf acturers and. reacted against the whole price stracture. 
It was contended "by persons familiar wifa the cede f^at, without juris- 
diction-over .the wholesale distri"butor, compliance with minira'am prices 
was ■impossi"ble of attainment. 

(4), There viras, a consideja"ble amount of sweetening of grades, 
or shipping a high.ar, oualijty of i^aia'uer. tha,n v;as previcasly shipped under 
the same grade classifies'. tion,. t.hus circum/enting price control, llfiere 
miniftrom prices are net on a relatively uns Lanlardized product like 
l^nber' the producer aas a considerp''ole latitude in varying his product 
without violation of the, mini iT-jm prices. Uniform prices binding on a,ll 
members of p. given indu.^try eliminate one principal basis of competi- 
tion in that industry. To maize an effective sales appeal and yet, 
nominally at any rate, comply rith mini-iium prices, a given concern must 
now offer its customers better quality for the same money than its com- 
petitors. So price com-)etition becomes quality competition. This 
"sweetening" of grades took both the form of improving the quality with- 
in the customary range of quality for a given comiViei-cial grade and the 
form of shipping Ixmroer of a ccmiaercial gra,de definitely higlier than 
tJie one invoiced. 'Hue latter form v/a,s, of course, in outrigi.it viola- 
tion of the code. 

(5) Secret rebates were given in the form of presents and 
of lowering transportation cnt^rges, particularly ocean freiglit and truck- 
ing charges. 

"Under such conditions of "chiseling" and of incomplete 
code jurisdiction as are described above, it is not surprising that 
there was trouble and dissatisfaction ove.ryv,here. jealousy existed 
between different regions and different s_;aecies. ■ There was a feeling 
that small-mill differentials were in3q\iita,"tle and t'lat certedn types 
of mill cutting a low grade of lumber T/ere discriminated against. It 
became evident that the established minimum prices had' little connec- 
tion with cost of production and tha-t in their very natur& it was im- 
possible for them to do so. 

Cong-ujners protested violently during the whole era "of 
fixed lumber prices. Tlieir complaints, along with the complaints of 
certain dissatisfied members of the industry, brought about the first 
price hearing of January S, 1934. Would-he home builders were most 
vocal at first. In the summer of 1P34 the furniture industry as a 
unit joined the protestants. Compliance witii miniiraim prices had been 
fairly good up to about June 1934, but from then on violation assumed 



9763 



-54- 



serious proportions, in spite of N.R.A. 's announced intention to enforce 
minim-um prices rigidly after the emergency declaration in mid July. In 
the latter part of the summer revolt against miniraxun prices "broke out 
within the industry itself. D^aring the fall N.R.A. received telegrams 
and petitions from over a hundred hardwood mills protesting against 
minimum prices. Many hardwood mills had "been put on record as being 
willing to sell to the Fisher Body Company at less than minimum prices. 
In the softwood field the principal protest came from the Northwest 
where on Octo"ber 30th the fest Coast Lumbermen' s Association, one of the 
leading associations of the lumber industry, voted against continuance 
of minimum prices. In a poll of all lumber manufacturers in the North- 
west undertaken in August by Crow's Pacific Coast Lumber Digest, 81 
percent of the fir man-ufacturers admitted that they were selling at less 
than code minimum prices, 58 percent of the fir manufacturers expressed 
a desire that minimum prices be abandoned, 69 percent of the pine manu- 
facturers admitted that they were selling at less than minimum prices, 
and 54 percent of the pine manufacturers wanted to see minimam prices 
abandoned. On October 30th the Small Mill Pine Association, composed 
of operators in Mississippi, Alabama, and portions of Florida and 
Georgia, voted to abandon minimum prices. "Various federal judges in 
tlie South, appealed to take injunctive action either against or in favor 
of enforcing minimum prices on lumber, took stajids in contradictory 
ways.(*) Generally speaking the setting of minimum prices on emergency 
basis did not have the intended effect, — the legal validity of the 
minimum prices was not appreciably enlaanced thereby. Finally the major- 
ity of "lYest Coast operators formed themselves into the "Fixed Price 
Repeal Association" and applied for a price hearing. The hearing took 
place December 11 to 13, 1934. It developed that a substantial major- 
ity of those subject to the code were in favor of repeal, althougia the 
lumber fabricating groups were still predominantly in favor of retain- 
ing price control. On December 22nd, 1934, N.R.A. suspended minimum 
prices indefinitely. For some time thereafter luanber fabricating 
groups protested this action of N.R.A. (**) 

The production control features of the code appear to 
have had no appreciable effect, pres\imably because quotas were set at 
too high a level. 

Qiart No. 1 has been included in order to permit a de- 
gree of objective appraisal of the actual effects of price control 
under the Lumber Code. This chart records tlie fluctuations of three 
indexes, the wholesale price of lumber, the wholesale price of building 
materials including lumber and the production of lumber. 

It is essential at this point to interject certain 
cautioning comments with reference to the extent to v/hich indexes of 
this character may be expected to actually portray the effect of code 
provisions. The following factors should be borne in mind not only in 
connection with this specific group of indexes but in connection with 
all price indexes used in this report in connection with other indus- 
tries. 



(*) History of the Lumber and Timber Products Code, page 337. 

(**) History of the Lumber and Timber Products Code, page 339. 
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-56- 

(1) Tlie Bureau of Labor Statistics wholesale indexes espec- 
ially in connection with such broad commodity groups as lumber or build- 
ing materials represent merely weiglited averages. The fluctuations of 
lumber prices as a whole may, for example, conceal quite different 
fluctuations in tlie prices of individual woods. 

(2) Tlicse indexes are all based on reported prices and repre- 
sent tlierefore the nominal price level. Fluctuations in terms of sale, 
for example, or in disccunts will not be recorded. Neither will sales 
in violation of code provisions, since such transactions were generally 
sub rosa and would not be reported. 

(3) Jliere attempts were made to evade code provisions 
througli such devices as sweetening of quality these again would not be 
reflected. 

(4) Despite all these considerations it is nevertheless 
probable that the indexes are on the whole fairly representative. How- 
ever, it is impossible to assume that the movements during the code 
period reflected merely the effects of the code provisions in general, 
or of code price provisions in particular. The effect of other economic 
forces operating during the same period can not bo eliminated from con- 
sideration. 

ViTith these reservations in mind the chart still presents 
and interesting picture. It depicts a decline in lumber prices since 
1929 at a rate substantially greater than the fall in the price level of 
all building materials. Between i/iay and December, 1933, hovrever, a 
sharp rise is recorded in the Ixunber index, which brought it above that 
for building materials as a whole. This rise was presumably anticipa- 
tory of the effect of N.E.A. and of code restrictions, since the code 
price provisions did not go into effect until .Kovember and December, 
1933. 

V/ith the proimlgation of code prices the price level was 
apparently stabilized except for a slight declining tendency, somewhat 
accentuated between July and August, 1934, or just about the time the 
8% cut in the price of building woods was ordered. During this period 
the price level of lumber followed rather closely that of building 
materials in general. 

Tne effect of the termination of code prices appears to 
have been slight, if any. It may be inferred that during the latter 
half of 1934, due to the increasing number of violations, the price of 
lumber reached much the saiTie level that would have ensued under free 
market conditions, so that the removal of restrictions led to few up- 
setting effects. Probably by this time violations had become so wide- 
spread that tae reported prices on which the index was based had become 
reasonably representative. 

It may be a valid inference, viewing the sitioation as 
a whole, to assume that price fixing under the code had a temporary 
stabilizing effect on the market, but that at the end of a year its 
effect was no longer appreciable. 

9763 



• -57- 

It is pertinent to note the declining tendency in l-umter pro- 
duction between tiie middle of 19"3 and the hcginning of 1935. To what 
extent this trend .ra:/ be traced to the price level set under the code is, 
of course, problenx^ticpl. 

IV. KEE C0NSU!ffiH3' SERVICE TE.4DSS 

,7ith the exception of the Vrests;irant Iridastry, the representatives 
of which requested a laandatoi-y marlcup a^iounting to lOOfo of the cost of 
food, direct price fixing was the goal of the code- sponsors in all the 
service trade. 

The Code for the Cleaning and D:'-eing Trade was presented by the 
National Assoc'iaticn of Cleaners and Tyers,, representing plant o\'mers, 
and by the ixV.tionel Assoc.;.ation of Ret=:al Tailors, Cleaners and Dyers, 
representin:^ the tailorso Power was sought for tL^e Code Authority to 
fix prices for all sei-^ices of the T-rade. 

The Code spon^:t)rs were bitterly op:"&3ed to the tactics of the 
"Cash and Carry" element wnich had recF.-itly entered the Ti'ade and which 
had toi-ten the lead in the' price wars v^.uic_i hau, resulted in the reduction 
of the price for cleslling a st^jidard' garment (woman' s, pl\ in dress or 
man's three piece suit) from the average pre-d. epression level of $1.50 
to as low a,s'29(!J, and even, by -.7ay of specials, 19^. This latter group 
voiced strong cbjeclions tv, the propc sa.l es presented, aiAestioned the 
general principle of price fixi.ig, ard maintained that, if minii.ium 
prices were to be establ-'.ehed, a differential should be provided per- 
mitting the charging': of :.o\7er prices for "ca^h and. carry" than for "call 
and delivery" service. T.iey contended that such a differential was 
justified by the fact that their mode of operation was inherently 
cheaper, a contention not adequately sr-pported by data. Tliey further 
claimed that a differential was essential to in'.uce the customer to 
carry his garment to the store, call for it and pay cash in preference 
to having it called for and delivered, frequently on a credit basis. 

Upon recommendation of Division Administrator iilhiteside, the 
Code was approved in November 1933, carrying a provision permitting 
local administrative boards, responsible t-o the Code Authority, to 
establish minim:am price schedules subject to Administration approval. 
No provision for a differential betv/eexi the different types of services 



was 



specified. (*) 



(*) Other Service Trades had similiar goals: 

The Laundry Trade in presenting a Code. also requested authority 
to establish minimiam price schedules. Tlie. cash and carry problem 
also existed in this Trade, though less acute than in the Clean- 
ing and Dyeing Trade, Negotiations on this Code were protracted 
due to problems involving the labor provisions. By the time 
these difficul'oies had been settled, rj.H.j\., rendered wary by 
unsatisfactory experience with the Code for the Cleaning and 



(Contd on next page) 



9763 



-58- 

As has 'been stated, minirtum prices becaine effective in only one 
Service Code, the Cleaning and Dyeing Code. Tiie reason for this was 
entirely fortuitous. The Cleaning and Dyeing Code was the first approv- 
ed, and experience with the enforceuEnt of ininirauj-n prices was so unsat- 
isfactory that, oy the time Codes for the other Cons'uiners Service 
Trades had heen approved, the Administration considered it unwise to 
extend the experiment. 



(*) (Footnote continued) 

Dyeing Trade, declined to aoprove the provision without many 
changes, primarily directed toward assuring a greater degree 
of voluntary compliance. Under the provisions of the Code and 
the Execative Order approving it, price schedules could be sub- 
mitted to N.H.A. in any area only after a public hearing and 
after signatures had been obtained from not less than 70"^ of. 
the members of the trade in that area signifying their con- 
currence. It was hoped that this procedure wo\xld insure the 
submission of price schedules representing, not tie arbitrary 
position of a dominant group, but the result of a reasonable 
compromise between all factions. It is pertinent to note that 
the dependence of labor provisions upon price control was im- 
plied in the provision that the Code was not to be effective 
in any area until hearings had been held and prices approved. 

The approved Code for the Barber Shop Trade, and the Code for 
the Beauty Parlor Trade in its final revised form, followed the 
general lines of the Laundry Code in requiring local hearings 
and petitions signed by the biilk of the trade, and went even 
further by specifically providing for a differential in favor of 
shops catering to a poorer clientele. 

The Code sponsors for the Shoe Rebuilding Trade claimed that 
price fixing was essential to curb the competition of the chain 
operators. As a result of a curious compromise, designed appar- 
ently to secure the cooperation of trade members with reference 
to labor provisions while avoiding the problems inherent in 
attempts to fix minimum price schedules, the Code v/as approved 
with the minimum price provision intact, but the Executive Order 
of approval stayed the effectiveness of the provisions indefinitely. 

The Code for the hotel Industry contained no price fixing provi- 
sion but did provide for local codes of fair practice. Subse- 
quent to the approval of the Code, hearings were held in several 
local areas with a view to the establisliment of such local codes. 
In every case direct price fixing was demanded, the statement 
freouently being made that compliance with labor provisions was 
otherwise impossible. Attempts were made by II. H, A. to evolve a 
compromise not inconsistent with policy. One such scheme provided 
for price filing on the basis of local option, further permitting 
complaints against filed prices which appeared to be so low as 
to constitute destructive price cutting. Should such complaints 
be found valid by N.H.A. , the schedule in question would have to 
be revised upward. This proposal, however, was abandoned after 
the Review Division objected. 

9763 (Contd on next 



-59- 

Price schedules at a level considerable above those previously- 
prevailing were approved by the Administrator on November 22, 1933, only 
two days after the Code had become erfective. These prices were 
approved for a trial period, subject to more tliorough consideration at 
a Public Hearing schedu.led for December 18, 1933. 

The cash and carry cleaners, who were apparently totally without 
representation on the Code Authority ajid its local agencies, and who 
therefore had had no voice in the preparation of these schedules, 
protested vigorouslv-, clr.'mi^g that -cne prices were far too high and 
that in any case a differential was essential. Led by Lir. Isidore Paul 
of New York, they refused in a body to comply with the price schedules 
establislaed. 

As a result of these protests and refusal to comply, the date 
of the scheduled hearing was advanced. On. the basis of evidence sub- 
mitted, the N.H.A. still declined to authorize a differential, but 
did order a horizontal cut of approximately SO^o in all price schedules. 

The revised basis appears to have boon satisfactory to neither 
group, the Code Authority claiming tlivl p..'loes were too low and the 
cash and carry operators iasiS'/'-ng on i -liif erential. NoMiS-.Gompliance 
continued to an. increasing ext'^nt, and when legal action was taJcen by 
N.H.A. , the Courts generdlly lefused to grant; injunctions or to sus- 
tain criminal prosei'u.tiop. e^. I-^ was contended by the violators that 
compliance wouJd msan inevitable bankruptcy through the reduction of 
the voliime upon which their mode of operation was predicated. 

Efforts by 11, H. A. to compromise the issue proved unsuccessful 
and the situation became increasingly unsatisfactory during. the, spring 
of 1934. On May 26, 1954, primarily as a result of this condition, an 
Executive Order -was issued, suspended enf orcehient of the Trade 'Prac- 
tice provisions of the Service Codes. Tiie experiment was thereupon 
terminated. 

Conditions in the Cleaning and Dyeing Trade subsequent to this 
termination, at least in the New York Lietrcpolitan area and in the 
State of New Jersey, have apparently gone from bad to Tiforse. During 
December, 1935, the writer had the opportunity of interviewing vari- 
ous officials of the Cleaning and Dyeing Soard of Trade of New York 
City. These individuals, all of whom were owners of wholesale plants, 
gave evidence of an almost complete demoralization of the trade in 



(*) (Footnote continued) 

In accordance witli the original proposal of the Restaurant 
Industry, the Code as approved contained a provision in effect 
specifying a mark-up of IQOJ^ over cost of food. This provi- 
sion, however, was stayed in fee Executive Order approving the 
Code, and despite requests by the Code Authority to remove the 
stay, never became effective. 



9763 



-60- 



that city. According to their statements, 22 of a total of 65 wholesale 
plants were forced out of husiness during 1934, while the plight of the 
retail tailors is becoming increasingly deplorable. Prices have shown 
no increase, wholesale prices avera^-e between 10 and 15 cents, prices 
charged by the cash -and carry chains are 3.s low as 15 to 19 cents. 

In New Jersey, legislation has recently been enacted providing 
for miniraum price fixing in that State. 

Under the terms of this legislation and after many hearings which 
revealed deplorable conditions especially among retail tailors, mini- 
mum price schedules were promulge^ted effective December 20, 1935. The 
base price established was 59^;? with a ten cent extra charge for de- 
livery. Court tests are at present being conducted to test the 
validity of this legislation, and experience to date has been too 
short to "oermit any inferences as to the effect of the experiment. 

It is noteworthy that minimam standards of quality as well as 
minimum prices have been included in tlie Kew Jersey regulations. 

V. vTOCD CAS3D LEAD PENCIL I1JDU3THY 

The initial proposal of the industry contained several interest- 
ing features designed to eliminate competition between manufacturers 
for production volume, to re-establish fionctional distinctions in the 
distribution field, and to fix mininiun prices on standard lines. 

Competition for volume was to be eliminated by strict allocation 
of production together with a prohibition against the installation of 
new machinery, i^mctional distribution v/as to be re-established and 
maintained by an elaborate set of marketing regulations, including a 
prohibition of direct consumer sales by manufacturers. Minimum prices 
were to be established on standard lines, such prices being "the 
prices at which the retailer will sell one gross of pencils to the 
consumer." Compliance was to be effected through a boycott by the 
manufacturers of any distributor who sold to a violator of these previ- 
sions. 

The proposals were sponsored primarily by the four largest com- 
panies in the Industry, who resented the inroads into their markets 
. of several aggressive new entrants. In addition to these, the provi- 
sions had the endorsement of several of the largest wholesale and re- 
tail distributors of the product. 

Opposition was voiced to these provisions by the smaller companies 
at whom they were aimed. (*) These establishments presented counter- 
proposals in which nearly all of the so-called marketing roles were 
eliminated and direct price fixing was replaced by a prohibition 
against sales below the "average" cost of production, to be determined 



(*) Letters in Volumes B-I, B-II , .addressed by various companies 
to Adrninistrg.tion prior to public hearing, November 6, 1933, 
Also Transcript of Hearing, pages 260-266. 



9763 



-61- 

on the basis of a mandatory uniform sj.'stem of cost accounting. 

Considera"ble controversy-took place during tlie discussions both be- 
fore and after the public hearing, with the result that the approved 
code carried the ina.rketing rules proposed by the Big Four, but the 
cost provisions were a modification of those advocated by the, other 
members of the ir.dustry. 

Botli the Consumers and the Industrial Advisory Boards voiced ob- 
jections to the provisions. The Consumers' Advisory Board contended 
in part: 

"Marketing terms should be deleted in entirety. It is 
frcinkly a price firing agreement involving virtually 
every device for the elimination of competitive distri- 
bution. CQie Code Av-thori ty is given poT/or, on the 
grades constituting the bulk of the buainess, to as- 
certain fair minimum prices v/ith no stated relation- 
ship to cost or anjr other factor. Customers are classi- 
fied and tiie scale of trade and quanti-'j'' discounts ari 
rigidly fixed for each class, with the further provision 
for maintenance of retail price schedules, all of which 
is in direct opposition to national policy as expressed 
ia legislation and court decisions over many years and 
is in opposition to the policy of this Administration 
as expressed in Policy Memorand-om of October 25, 1933, 
signed by Alvin Brown, which specifically stated that 
no such provisions shall be admitted in codes. 

"The effect of such a plan would be to freeze the present 
system of distribution, eliminating competition in 
marketing, dictating policies and actions of dealers out- ' 
side the scope of the code, and denying buyers of any 
opportunity to share in possible economics of manufacture 
and distribution. "(*) 

The Industrial Advisory Board stated: 

"The Wood Cased Lead Pencil Code has been in process well 
over four mcnths, and has been troublosome from the 
start. The ind.ustry - rather the four members who them- 
selves produce 75 percent of the volume of the business - 
have endeavored to dominate the code beyond ordinary 
reason, as first against the minority and next in insist- 
ing upon advantages and rights under the code patently 
against reason and the common weal."(**) 



(*) Code Summary, J. I. Hedges to F. A. Staten, Consumers 
Advisory Board, 3/26/35. ■ ,. 

(**) Industrial Advisory- Board Report, B. A. Brennan to Ind, 
Adv. Bd. Vol. I, 1933. 



Tlie code did not. provide tiie mechanics for the declaration of 
an emergency, the industry holding tlie view that tlie preamble of. 
Article X, and Section 4 of the same Article made it possihle for 
the Administration to approve a schedule- of minirnani prices as a 
necessary corollary to the fixed obligation cf the memhers of the indus- 
try to maintain the scheduled price range for pencils. Acting on this 
assumption, the Code Com.-.iittee presented to the Administration a 
schedule of so-called fair minimoiii prices for approval. Tlie Deputy 
approved this schedule February 28, 1934, and advised the Code Committee 
to promulgate it, stating that foraal approval v/ould follow shortly. (*) 
A number of industry members refused to abide by the schedule on the 
gound that the Deputy had exceeded authority. Tlae few that did conform 
found that their competitors were talcing their business away from them 
and resorted to rebates in an endeavor to save their business. The 
Code Authority consequently, on April 26, 1934, fonnally petitioned for 
approval of the schedule. , A public hearing was held on June 5th. 

The Code Authority, in its brief supporting the proposal, main- 
tained that costs of production bore no necessary relation to the mini- 
mum prices requested, contending that cost methods of determining 
prices were inapplicable to products which Lad to be sold with reference 
to units of currency. 

Cost data supporting the petition v/er>5 so meager that the Research 
and Planning Division requested further information. Further data 
were accordingly furnished. The Research and Planning Division then 
recommended denial on tie following grounds: 

(1) Cost digures did not substantiate the prices requested. 

(2) The composite operating statement of the Industry 
showed a 2.05 percent profit on invested capital 
during 1933. 

(3) Tlie facts did not justify a finding of emergency. (**) 

The Cons"amers' Advisory Board, joined in this recommendation . (***) 

The entire matter was referred to the Adv'i-sorjr Council which also 
rejected the .petition* An excerpt from tliis rhling follows: 

"Arbitrary classification of products and distation of price 
at which each mast sell are always dangerous to small pro- , 
ducers, and in this particular' instance can easily dai'nage ' 
the interest of those compE,nies and products which are pre- 
vented thereby from finding their most advantageous market 
level. There is obviously potential, if not immedia,te, 



(*) Statements made at public hearing, June 5, 1934, pages 50-63. 

(**) Memorandum of Research and Planning Division to Deputy, 

June 13, 1934. ' ' ' 

(***) Memorandum of Consumers' Advisory Board to Deputy, June 14 , 19 34. 

9763 



dfnger for "both tlie penny pencil p nd the small manufacturer 
in this clause. "(*) 

In view of these adverse cpinjons,; the ALonini strator denied the 
petition of tiie inaustrj' on the ground that ':lie submitted s chedule s w ere 
inadequately sulistantiated. (**) 

FollowiiTg this action on the part of the Administration, the Code 
Authority petitioned for the suspension of the marketin,o; rale? on the 
ground that wiUaout. a schei^-Ule ci minimum ijr-'.ces t.'ieir operation would 
be impossihle. Th;uS reouest was approved a^id the marketing rules were 
stayed for a period of 90 days from N oveml^er 34, 1934 and then again 
for another 50 day "oeriod, (***) 

Immediately follow-ni: the der.ird of the industry's petition for 
a schedvle c.-' -viini: iv^ti pi-;.c;;s a P""i.ce v\i.r cci^^i-JiOG-j . Prices started 
receding in St'.pteT";;;r , ir,"-"., vh.-i it ?,ppe:\red that the schedule would 
not 'oe approved ar-d have been fluctuating more or less do^'mwa^d ever 
since. 

VI. CGIICLU SIGNS 

It is, of course, difficult to deduce ary generalizations with . 
reference to direc-^ minira"'.!:: pii".e fijcing on the "b-isis of so limited a 
sample. Nevertheless the following | inferences seem justified. 

A. Impli catJQixS of ^le PcAi ce. 

In principle the establishment of minimum prices miglit be ex- 
pected to set merely a price floor, a level below which sales could not 
be made, hut above vhich price competi U.on roald prevail freely. Appar- 
ently, however, thi3 was not the actuc.l off-.ct of the device as applied. 

In both the Lumber Code and the Cleenihg and Dyeing Code the 
price schedules established seam to have fimcticned not only as minima 
but also as maxima. In the ca^e of the Clonjiing and Dyeing Code, where 
no differentials were provided, it was virtually impossible to sell 
services for -more than the code ^rice. Consumers more or less naturally 
assumed that the price set by the Government 'was an adequate price, and 
that, consequently, any higlier price was unwarranted. 

In the Lumber aiid Timber Code conditions ">;¥ere Somewhat more 
complex, in that diff ereutials were provided between soecin's c?nd be- 
between mills of various •'':;ces. Neveraiele^'s, on the basis of the 
limiLol data available, il seems a warranted inference that each price 
schedule, within its limited field of application, operated to establish 
fixed rather than minimum prices. 



(*) Advisory Council Decision 39, page 35, dated September 25, 1934. 

(**) Administrative Order Ho. 201-11, dated November 5, 1934. 

(***) Administrative Order No. 231-14, dated November 24, 1934. 
Administrative Order No. 291-16, dated Uarch 6, 1935. 

9763 



-64- ■ 

3. Adininistra"bility . 

It was protably just this tendency of minimam prices to become 
fixed prices that made the proper administration and enforcement of the 
device impossible. 

In the Cleaning and Dyeing Trade certain lonits had for some 
time utilized a price differential as an inducement to the public to 
purchase a lesser degree and possibly a poor quality of service. 

A uniform price level would necessarily operate to remove this 
inducement and thus eliminate a primary basis of sales appeal. Conse- 
quently these cut rate concerns were faced with only two alternatives, 
either to close up slicp or else to violate the code. It is only 
natural that the latter course should have appeared far less distasteful, 

In the Lumber and Timber Code, administration was confronted 
with similar difficulties. In the first place, although the code pro- 
vided for the establishment of differentials, it was difficult in the 
extreme so to determine these as to yield a reasonable degree of sat- 
isfaction to most parties concerned. In the second place, within each 
group in which prices were uniform, members --Jnable to compete on a 
price basis resorted to .indirect means to accomplish the same result, 
such as rebates, sweetening of quality, etc. Prom such evasions it 
was but a short step to open violations, with a resultant general break- 
down of the code price structure. 

A further major difficulty was the questionable legality of 
the entire proceeding and the consequent reluctance of the courts to 
cooperate in tl'ie job of enforcement. But even had these legal diffi- 
culties not existed it is probable that at least in the Cleaning and 
Dyeing Trade and the Lvimber and Timber Industry compliance would have 
been extremely difficult to secure. The great number of competing 
units in each case and the impossibility of standardizing products or 
services could not but malce adequate policing virtually impossible. 

C. Success of the Device a s Related to_ the Problems Exis ting . 

1. Tlie Luraber and Timber Products Industry. 

Prior to an appraisal of the extent to which direct mini- 
nium price fixing succeeded in meeting the specific causes of price 
dislocation in the Lumber and Timber Products Industry, it appears ad- 
visable to recapitulate these difficulties briefly. Cn the basis of 
the analysis contained in the previous chapter, these comprised primar- 
ily: 

(a) The gradual displacement of vrood by competing 
materials. 

(b) The great drop in the demand for wood due 
primarily to the reduced rate of' activity 
in such industries as the construction in- 
dustry. 

976S 



-65- 

(c) The relatively sli>^ht elasticity of demand. 

(d) The pressure of he-ivy fixed charges. 

As has "been seen; in so far as tie price level itself is concern- 
ed, the ajiticipalicn of the effect of the code senms to have resulted 
in raising ihc price le^'ol durir^.^ the latter pa.rt of 19:33 at a rate 
substantially more rapid thaii mifjht ofchftrwise, i^.ave pre^Tailed. The 
code price provisioxis ihcniGelvfJS prohabij- praventad ai~y reaction from 
this rise dxtring the firnt half of l^o-'i. P/'um that point on, however, 
it is likely that- the p'f-.ce pruvisioiu^ v/ere cf I'-ttle effect and that 
the price of l\Tr.iber grav: tatoa t^ iir.:.ch tTis level which ordinaj'y market 
forces might in uiiy case have determiijed. 

On ti'.e other hand, during 1030 ajad V'm e-.rlior part of 1933 
the demand for Ivu'nber a.: courOc,:-2d v^Ilh ovh:;r br.i]j"ling materials had 
appreciably Incre-jRed, T^iis ^vr .-., prcb-,o'_y 'J:ret;ciy t:'a-ea.ble to the 
widening differential 'beiween uie prlcd-of li'Sibor and the price of 
other buildings ma '-erials. . Txien this; price advantage decreased immed- 
iately prior to the cod,? and ch'-rin^;- the c-de period, the incentive for 
the use of lumber correopondinf:iy a.'.miuish.ed, said, there was an appar- 
ent do vm ward trend in its con£i;jT.ption. 

To this extont., then, priie legula^ticn in the Lumber Industry 
may have served to aggra-r- te rather Iv^-pn to ameliorate the basic diffi- 
culty, whicji v/a^ l-'k of dsMiaiil, occasioned, in part, by the com.peti- 
tion of suDdtituie proivcos. 

2. Tiie Cleaning and Dyeing Trade 

In the Cleaning and. Dyeing Code the genesis of the 
problem was quite different. \'ere price rar? were the outgrov/th of a 
severe factional struggle between ti.c groipr-! ,.v7]iich for convenience will 
be termed the old-line group and the cash and ca.rry grou.p. Tlie old- 
line group, which contr'^lled the Code Oovnm.itte3 and the Code Authority, 
avowedly aimed to win back from the caJii and carry group markets which 
had been lost as the result of "chiseling" tp.ctics. 

It does not seem pertinent here to enter into any de- 
tails as to the merits of the ccntrcv-u- sy. Had it been possible rigid- 
ly to enforce the price schedules esl c.blished , it is quite probable 
that the aim souglit migtit have been in a large part achieved. 'ilTxiat it 
does appear necessa,ry to emphasize is that; 

(a) Such a result could not in any case have been 
achieved without an extremely bitter stl•^-^ggle and co^Jld in no event 

be based on the hope of obtaining a fair degree of voluntary compliance. 

(b) Price control under these conditions must be predi- 
cated on a decision by government to take sides as between two compet- 
ing groups within a trade. 

In New Jersey, at the pret^ent time, the otate government has 
apparently decided that the plight of the retail dealers constitutes 
so acute a sociological problem as to warrant taking sides in an 

9763 



-66- 

intra-trade controversy. The results of tliat experiment lie in the 
future. Certainly the field seems more appropriate for State than for 
Federal intervention. 

3. .?ood Cased Lead Pencil Industry. 

In the iVood Cased herd Pencil Industry the demand for 
price control again had its genesis in a struggle hetween factions. A 
dominant group desired to maintain its position against the inroads of 
new and aggressive entrants into the field. Approval of the price 
schedules proposed would have implied a definite decision by the govern- 
ment to hack the dominant group in its position. In this case N.S.A. 
decided that to talcs such action would "be manifestly improper and, con- 
sequently, refused to do so. 

D. Summary . 

In summary, experience with direct minimum price fixing as a 
means of price regulation appears to justify the following conclusions: 

(1) The device tends to establish not a true price floor but 
rather a fixed price level. 

(2) Tlie device is extremely difficult to administer, es- 
pecially where units are many and usually small and where standardiza- 
tion is extremely difficult. 

(o) j'/here the beisic problem lies in lack of demand resulting 
at least partially from loss of markets to substitutes, minimum price 
fixing, even if successful! in its immediate purpose, tends to defeat 
its own aim.s. 

(4) '.Tnere minimum price fixin,.i is desired by one group in 
an industry as an instrument to restrict competition of another group, 
its approval must be predicited upon a decision by government that it 
is v;arranted in taking sides in the controversy. 



976: 



-67- 

CIUPT-DI-L VII 
PRICE EETJLATIOr THROUGH YuE'RGVA'CY DZCIuiRATIO" . 

I. IIATUZE or THE EEVIGS 

ITliereas direct minr.nrr. price JTixing eBtalDlished a unifom price 
floor for all products for all nemb'-rs of "--lie industry, emergency price 
control vras restricted to specific prooaiccs for liuited periods of 
tine. , The genesis of this device has heen discussed -ireviously in 
Chapter IV. Code provisions incorporatir™ this device follo^jed tno 
general patterns. The first '-as the one set foruh in the Office i.iemo- 
randum of rehrtiarj- 3, irCV'r vx.C 3T unich the Code A'O-thority detemined 
the existence of an eraergoncy and set floor prices "based upon lonest 
reasonaole cost, subject to adiiinistrative aiDproval. The second nas 
the one reconnended in Oixice hfrnorarodvu-i lie 228, nhich was issued on 
June 7, 1934, under trhich the declaration of en enei-gency and the es- 
ta"blislx.:ent of -irices v/as to "be "b]^ the Adiinistrator, for periods not 
to exceed SO days, on the "basis of a report "by the Research and Plan- 
ning Division. 

In actual application these t'-'o :n-ovisions differed in forn rather 
than in principle, since the proced'cre followed "by I'.R.A. in the decla- 
ration of emergencies and est> hlishrent of prices was substantially the 
same in each case. 

II. EXTEIIT or APPLICATIOIT 

110 ba.sic and 111 supplementary^ codes incliided provisions permit- 
ting the declaration of ^jvice emergencies. In about one-half of these 
the provision TTa,s based on the Office hejaorandum of Febrcarj^ 3, 1934, 
end in the remainder on Office hemorandom IJo. 223. (*) 

Despite the large number of codes cont-.ining clauses of this 
nature, the actual number of emergencies declared ras very small. This 
was not 6.ue to any hesi'ccncy shomi by Code Authorities in applying for 
them. Llany such requests trere made, although there is no record avail- 
able as to the exr.ct nuuiier. Hcnever, II. R. A. sho^^ed extreme reluctance 
in complying with these pleas, and emergency orders approving minimum 
prices were issued only in connection with the following 11 codes: 

Agricultural Insecticide v.n6. Pimgicide Industrj'- 

Cast Iron Soil pipe Industrj'- 

Dress hanufactviring Industrj^ 

Ear Dressing and P-ar Dj^eing Trade 

Ice Indus tr;r 

Lumber and Tir.be r products Indxistry 

ipLetail RabberTire and 'Battery Trade 

Retail Solid Puel Industry 

Retail Tobacco Trade' 

TJaste Paper Trade ... ... .. - . . ■ • ■ 

ITliolesale Tobacco Trade 

(*) Research and Planning Division, Post Code Analj'ses, Serial 40-D. 
9763 



— 6S- 

Of these, prica control in th'i L-uioer and Tin^ber Products code has 
alread" been considered as r 3pres€.i^i_i; • direct niniiron price fi::inr; 
rather than price fi::in,.-" of ai^, er-e..-"enrj/ nature. In the Tur Dressing 
and ^ur T-^ein-; lr:.de, altnoUi;;h the .:cc".al code provision did not 
specixiceJLly nti-orJ-ate th.at ■'iricu fx.:ii_j:- '--as to he res6rted to only 
in e':erjencie'', , the irayjlications of Vie provicioi;. and the character 
of its apolication appear to indicate that, it properly helon^s in the 
euert^-ency category. 

Studies of IT.R.A. e:cpcrience of the enerj^ency device have been 
conpleted for the follo\rini:j codes; 

Agricultural Insecticide and ruji^^icide Industry 

Cast Iron Soil Pipe Industi-^^ 

Ice Industry 

Fur Dressing, and I\ir IV.'-uini:;; Trade 

Waste Paper Trade 

Retail lluboer Tire Trade 

r.etail Tobacco Ir-de 

TTiiolecale Tcbacco Trrde 

These vill novr be considered individual!;^ in the order nai.ied. 

III. AG-RICU1TUI-1.5.L II:S::CTICIDS a:"D in-J!IGICIDE DIDUSTHY 

The code for this indr.str;- ps ori-inall'/ propor.ed included a pro- 
vision ;oroiiihitin:_; sales belo-; cov t, as dete-^.iined by a uniforri system 
of cost acccimtin;^;. At tho first -A.blic hearing' on February 7, 1934, 
the ?.egal adviser invited the v)rop'ii.ents to consider the nodel emer- 
gency -orovision (that sut:;iested in tne Ofxice herorandrxi of Tebruary 3, 
1934). The industry accepted this sii^- :;e3cion anc at the second public 
hearin:;; a raonth later the code had been revised accordingly. 

It is pertinent to note that the larjest producer of arsenates 
(The Cfeneral Chenical Comnany) took no part in the proceed-ings. (*) 

There "as no objection to the -orovision -as revised'.. At its first 
meeting on hay 14, 1934, the Code Auth'-Tity declared that an emergency 
due to destractivc price cutting had arison, prA on July 5, 1934, 
petitioned the Administrator to fix p.inir.run prices. Reference to 
Chart II vr^ll reveal that the prices ox both lead and calcium arsenate 
had risen ver;^ sharplj- betv/een hay ai'^d July 1933,, apparently in anti- 
cipation of the effect of h.R.A. Hor/ever, a fresh decline had started 
in Janua::^,^ 1934, which had boen accelerated around April, 1934, with 
the result that by June the lorice had fallen to a level below its 
earlier depression lou.- 

The petition which the Code Authorit-"^ submitted with its 
declaration of emergency stated that orociiction of the two arsenates 
was confined to 15 firms; that prices filed with the Code Authority 



(*) Linutes of i.Ieeting of heiibers of Association, August 22, 1933 
at Atlantic City. 



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rere as low as 5 cents a pound for calciun ai-sena,te, and 7 cents for 
lead arsenate, whereas the costs of eii^ht naiuifacturers of calcium 
arsenate ran^jed from 5.348 cents to 9.466 cents, and costs of eleven 
manufacturers of lead arsenate raii'.'jed from 9.01 cents to 10.99 cents; 
that some nenliers, anticipating the code and intendin'- to defeat it, 
had, prior to its approval, entered into contracts to jjrant discounts, 
even below filed prices. Attrched to the ijetition were letters from 
every memher of the industry except General Chemical Compan;'-, Com- 
mercial Conpanj', Dow Chemical Company. S-^^'- Standard Chemical Company 
(Commercial joined in the request later). All of these letters sup- 
ported the Code Authority's petition. (*) 

These letters all alleged that it would he imMOsaible to continue 
production at the prices prevailing e::Gept at heav^.' lor.ses. 

A public hearing was held on Augu.st 10, 1954, It \ms alleged 
that the drop in ;jrice we.g entirely predatory in nature and represented 
a deliberate intent Ity one company to drive others ou.t of business. 
Pertinent qxiotations are noted here: 

"I IrnOT- there are certain companies * * * willing to 
continue at these figui-es for tuiother year or two in 
order to wipe the rest of us out of bxisiness. I have 
been told that by these companies directlj^." (**) 

"It appears to be the tendency on the part of certain of 
the industry to drive others o-at . I knov.' from a personal 
statement * * *. i talked with a represent3,tive of that 
company (General) * * *. He said 'we no doubt will talce 
a 0200,000 loss this yeur' * * *." (***) 

In a letter dated July 19, 1934, the Code Authority asked that 
minimui.i prices be fixed at 6:j cents a. pound for calcram arsenate 
and 10.3 cents for lead arsenate. Detailed cost fig-ures covering 11 
manufacturers of lead arsenate and 9 manufacturers of calci'om arsenate 
were submitted, llo members of the industj'y actively opposed the 
declaration of emergency and the fixing of raininum prices, but the Dow 
Chemical Co., the Standa,rd Chemical Co., and the General Chemical 
Company did not participate in the proceedings. 



(*) I3ricf submitted by Code Axithority, July 5, 1934. 
(**) jranscript of Hearing, August 10, 1934, page 90. 
(***) Transcript of Hearing, August 10, 1934, page 200. 



9763 



-71- 

On Novemlier 9, 19?4, Order Mo. 27b~A-ll was signed by the Admins 
istrative Officer to become effoctiv^ 46 hours thereafter. This order 
fixed the following prices for a period of 90 days. 

Lead Calcium 

Multi-car lots 8 cents 5 cents 

Car lots 8t cents 5^ cents 

10 case lots 8^7 cents 5-4- cents 

Less thpn 10 case lots 9 cents 6 cents 

Prices are per pound delivered. 

After the declaration of Lhe emerf,ency and fixin^^,' of minimum pri«. 
ces there vore no complaints '.nnt the prices fixed were improper, nor 
were there any complaints that sales vv-ere being made at lower prices. 

The prices accordingly established were 1 cent lower than the 
lowest reported cost for lead arsenate, and .3 of a cent lower than the 
lowest reported cost of calciuin arsenate. 

Insofar as published pricR data were representative of actual con- 
ditions, the declar.'iticn of emergency both in anticipation and in 
operation very materially raised and stabilized the price level. Re- 
ferring again to Chart II, the wholesale price of Calcium arsenate in- 
creased from 5 cer.ls per vound in September 1934 to 6 cents per pound 
in November, remaining at the lattor price through November, 1935, the 
last date- for which data had boen obtained. The price of lead arsenate ■ 
increased from a low of 7 cenks per povid in September, 1934 to 9.25 
cents in November, 1934, remaining,' at that level through December, 1935. 

Further information with reference to the effect of the emergency 
declaration was secured through a fiel':^ survey conducted by this unit 
during December, 1935. The reactions of Ivlr. L.3 - • Hitchner, Secretary 
of the Agricultural Insecticide and Pun^icide Association, and of sev- 
eral industry members, ' including Mr. ^ichej, Jr., of the Bowker Chemical 
Company and Mr. D. E. Connolly of the .Ansbacher-Seigle Co. may be s'um- 
marized as follows: 

Mimimum prices were set at figures lower than the average costs 
stated by such members of the industry as supplied cost data, bu* 
they appear to have covered the direct costs of most of the members 
of the industry plus enou^',h of the overhead and selling cost to make 
_ the prices generally profitable to the industry.- Although minimum 
prices were suspended on April 7, 1935, prices during the remainder 
of the year remained firm at about the level of the minimum prices. 
This was the first year in a long period that downward revision did 
not take place in the latter part of the season. One person fam- 
iliar with the industry estimated that the code had saved the in- 
dustry half a million to a million dollars. Every person connected 
with the industry who was' intei'-viewed wais 'enthusiastic about the 
code's results. Even the G-eneral Chemical Co. is alleged to have 

9763 



-72-. 

expres'ser'' satisfaction with the results O'f the code, in- spite of 
having orieinally opposed it. A n-'oinber of the smaller concerns 
engaged ercliisivelv in the mfjinif anture of agricultural insecticide- 
as corripared with some lar^e ccviCv-^^ns producing insecticide as only- 
one of nnny products - vere- st.ited to have been preserved from ex- 
tinction "sy the code. Wr- Con..oliy jf the Aashach'^r-Seigle Co. 
stated that his concern 'had teer. saved Dy the code. Mr. Hitchner 
said that he considex'ed this prcofirvation of the existin,e members 
of the industry to be econo'^ic'^My desirable. The industry, he con- 
tinued, does not possess ovur-cnonci fcy to meet the demand at the 
peak season e::cept in certain itbius. All of the present members of 
the indup.t'.-y are iu his eii.imi i, I'-n 1 e>;:1 rJrnately engai'Zed in produc- 
tion. So~.o of the lowest-cOot producers are the r;i6dium-seize or 
smaller concerns. 

The unanlmor„s testi.-.'ony cf the industry was that the year 1935 had 
been a far '-etter one t'-.n 1934. Yet the average quoted price for lead 
arsenate for 19-35 was 15 per cent l.wer r.nc-n for 1934 rnd the average 
quoted price for calcium arsenate ::-'r 193^ -./as crly 5 rar cent higher 
than for, 13-'4. This was attribv-ted to the fact that in 1935 quoted pri- 
ces actually meant realized prices; tnat rebates had been- substantially 
eliminated. 

IV.. . CAST IROi! SOIL PIPE IhDTJSTHY 

The ori,?:inal minimnm price proposal prohibited selling pipe or 
^specialties below cost for tne purpose of injuring a competitor or less- 
ening the effect of comvetition. When the code was approved on September 
.7, 1933, a proposal had been advance:! to prohibit selling below reason- 
. able, cost. Tlie Cede also lin^ited cne use of productive facilities to 
27 hours per week, attempting,: in this manner to insure som.e distribution 
of the greatly reduced volume available amon,: all industry members. 

After the code had been in effect for som,e m.onths the price of cast 
iron soil pipe started to drop. According to Administration officials, 
the Clay and Bailey Maniif acturin^ Company in Kansas City maintained that 
by using. 80 per cent scrap iron and EO per cent pig iron it could sell 
at a profit below tne quoted f.o.b. price Bl^-miii.aiam (^46 per ton).* 
The Hedge s-V'alsh-T'eidner Company bf Chattanooga- (controlled by Mr-. Hedges, 
who was independently wealthy) met such s^accessive price drop initiated 
by Clay and Bailey ■'ontil a low of ^1'2.dC per ton was reached. This price 
(i522.50) compared with representative costs in 1929, according to the 
Code Authority, of 339.06 per ton in the south and p44,46.' per ton in the 
north.** The other members of the indtistry, iiot so strong financially, 
found it increasir=:-ly difficult to operate, and there was danger that 
the labor provisions of the code would be violated in an attempt to 
salvage something. 



(*) Verbal information given by Neil Anderson, Aide on Code. 

(**) Memo from Mr. Houzer, Secretary, Cast Iron Soil Pipe Association 
.to H.H. Halstead, Asst. Deputy, dated Decem.ber 5, 1933. 



9753 



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-74- 
Chart III reveal.s a sharp break in prices during the first half of 



1934. 



In order to cope with this situation the Code Authority petitioned 
the Administration for an amendment to the code embodying the emergency 
provision recommended in Office Memorimduin No. 228. The am.endment was 
approved on July 10, 1934, 

Immediately after the amendment had been approved the Code Authority 
petitioned the Administration to declare an emergency and to promulgate 
a schedule of minimum prices. The cost data submitted by the Code Auth- 
ority and the Administration member were so inadequate and the need for 
prompt consideration was so imperative that the Division of Research and 
Planning recommended that the minimum price be based on direct costs ex- 
clusively v;ith labor charges computed on the basis of the Southern rate.* 
Accepting this recommendation, N.H.A. declared the existence of an emer- 
gency in the industry and established a minimum price for heavy cast 
iron soil pipe of $27.50 per ton f.o.b. Birmingham, Alabama, to which the 
published frei-:;ht rate to destination was to be added. (Cost of pig 
iron was SM.J^O per ton and labor cost in the South pl3.00 per ton) . 
This order was issued on July 16, 1934, for a period of 90 days.** 

The Order as originally issued was twice amended, once on August 17, 
1934, by Administrative Griper Ko . 18-10, and again on September 7, 1934, 
by Administrative Order No. 13-11. These changes were concerned with the 
allowance for freight rates and differences between carload and L. C. L. 
shipments. Considerable objection had apparently been raised originally 
to certain inequalities in this connection, but the modifications includ- 
ed in these orders appeared to have been, on the whole, satisfactory to 
the indiisiry. 

As the t:'rae for the expiration of the emergency neared, the Code 
Authority reqr.ested a further 90 day extension with an increase of p5.00 
in the mini.xifrn price. This plea for extension was considered by the Ad- 
visory Couiicil ox il.R.A. which concluded by a divided decision that such 
extension v;as inadvisable. In its decision the Advisory Council stated 
in part: 

Arisument ag ai nst Cont i nuation 

"This is really not an emergency, but a chronic condition. 
The market for cast iron soil pipe is dependent upon new buildings. 
Price fixing is wrong in principle, even though some of the price 
cutting has admittedly been predatory. It was predatory in the 
first instance because the cast iron soil pipe people, without 
benefit of either code or provocation, raised prices to an extreme- 
ly high level, approximately $45.00 per ton, immediately after the 
code was passed. Production naturally soared in both old and new 
foundries, and the result was a general price cutting orgy. 



(*) Research and Planning Memorandu'n to G-ent-ral Johnson, dated 
July 13, 1934. 

(**) Administrative Order No. 18-8, N.R.A. files. 



-75- 

"Opponents of contiiniation ;nnintain thr.t it is not what we do 
so rmich as what people think wr do thi^h is irrrortant. The issue 
here is not cne oi' r. ser^'.'is e.-rotiomic menace. Continuation of a 
raininnim price of ^![;7.50 i'or another 00 days is not likely to ser- 
iousJ.y Jnterjf'i'e w^ i h b-a^iie?': Evri if the rri.>e were consider- 
ahly loTor, tr.ere :l.: no rc:,'\ion to expect any ""lai^-' icalar increase 
in con-vji-.Dtinn. 3i't tha lact r.j.niinj chat .he piinllc does not 
differs: tiat;? hetY/r^en re u.o^nao"- -■ ;'na nr.reasonahle liocicions- All 
that it knoif'fs is that anctxier Yi'ice has teen fixed and maintained. 

"A collateral feat-'ije is tnat t}\ere is a 27-hour limitation on 
the operation of productive eq".: ' vTient . Tlie Council did not have 
occa^iLn nor opportunity to iuvjuire into the worl-in^T of this pro- 
vision." 

Case fov Con tiruation 

"Tliere is concvlderable reason to fear that if the rainimiim pri- 
ces are not f:onti:vj-d, pai'iclo.' police ci:ttin='; will e^^sue. The In- 
d\istry claims that due to i.Jie wsalz iir,^::3ial condition of many of 
its mscbcrs, further Y/ari'aro of tnis t^n^e ?,cald be disastrous and 
would result in plants hfaing closed dcTOi and employees released. 

"i'To one r-ontends that the ririce fixed is not well below cost. 
There is no reason to anT;-.cipat3 a stiuiulation of business from ■ 
still lower rrices. It >o trije toat a continiiation of this offi- 
cial emevrency for even GO days would mean a depart-ai'e from prin- 
ciples that the Covaicil i-ecjsini zed to Le sound; that principle is 
sound, only, however, because and when interference with the free 
iflow of commerce and curtailments of Droduction and consumption 
follow its violation, 'ilvji^n circumstances in a particular industry 
are such that these uneconomic results are not likely to occur, the 
principle does not apply. 

"^"hen an issue is evenly balanced as in the present case, there 
is nothir.g to be gained by arou^in.?: ant-i;onism in ah industry against 
K.H.A. for trie salce of theoreticr.l co"! ;istenc:e . li is true that a 
precedent ii;'. established of vhich othor ixidu -T.ries might try to take 
advantage. This parMcul^r instance, however, occuring in a rela- 
tively ^jmall in'.^'ustcy as :t cioes, is net lik;' ly to receive much pub- 
licity. Danger from this quarter is further reduced by the fact 
that the price allowed f aj Is to recover even cost of materials and 
labor. There is not mucn in such a co icassion to excite envy. If 
the appeal for continuation should be granted, its limited nature 
should be clearly brought out."* 

Apparently the declaration of the emergency did have the effect of 
stopping price wars. Tiiree weeks after the e^'rpj ration of the emergency 
price order the Administration Member repoited t.hat prices had dropped 
although no n^w prices had been filed. Evidence as to the existence of 
this drop is unavailable, and it is probable tinht even if it existed it 



(*) Advisory Couiicil Decisions, Vol. I, pp. 1934-44-45. 



9763 



-76- 

was not serious. A check of the filed prices showed that a p5.00 rise 
in price was qiioted and filed May 1, l'i;35.* 

Unfortunately, the statistical source upon which Chart III is 
based has oeea discontinued and no accurate information is available 
as to current conditions. Nevertheless, it does appear that the dec- 
laration of an emer^enc;- had the effect of arresting the price war in 
this instance, and that it has not since been resumed. 

V. FU^ D^SSDIG ■MD FUR DYEIHC- TPJffiE 

As originally presented, the code for the Fur Dressing and Fur 
Dveing Industry provided for direct sstablisiiment of minimum prices by 
the Code Authority. The .industry was oy no meatus unanimous in present- 
ing the proposal. The legal counsel for the Fur Dyers Trade Council, 
Mr. Louis H. Solomon, contended that a ndnimiom price schedule would 
tend to throw business from the small man to the large concerns be- 
cause the sf-perior quality and reliability of the latter would be pre- 
ferred by dealei-s when price \-as unlfo..-m. He also contended that sub- 
terfuge in the form; of secret allov-v-aices or the like easily could be 
used to circumvent any such provision.** 

Mr. Creorge J. Beldocic, representing the rabbit dyeing industry 
contended that the fixin>^ of prices would put a premium on inefficien- 
cy.*** 

/^ 

The representatives of the fur dealers, the principal customers of 
the fur dressers end fur dyers, objected on the ground that a minimiam 
price, if established, would probaoly be violated and the fur dealer 
utilizing the services of the coinplyinr;' members would be placed at a 
disadvantage as compared with those dealing vath violators.**** 

Despite these objections, .and desrdte the adverse recommendations 
of the Research and Planning Division and the Cons"'jmers' Advisory Board, 
the code as approved permitted the establishment of minimum prices based 
upon lowest reasonable cost of production. 

The code was approved on December 18, 1933, and almost immediately 
thereafter four divisions of the industry appliec to the Administrator 
for minimum service charges. The Rabbit Dyers Division alone did not 
apply, as it was apparently free of the economic pressure bearing upon 
the others. 

In addition tp the difficulties to wnich reference has already been 
made, labor problems corinected with the imminent expiration of certain 
union contracts were advanced to justify tne request. 



(v*) Verbal report from Neil Anderson, former Aide on Code. 

(**) Transcript of Hearing November 1, 1933, page 194. 

(***) Transcript of Hearine, February 9, 1934, page 201. 

(****) Transcript of Hearing, February 8, 1934, page 135. 



9763 



A hearing was lielrl on February 9, 19.-34, to consider these appli- 
cations. The prices proposed appeared to have been supported by no 
adequate cost data. 

None the less, rainim-um service charges were approved by the Ad- 
ministrator on .February 9. 1934 for the babbit Dressers Division, on 
February. 16, for the Fancy Fu.r Dyers Division an i for the- Fancy Fur 
Dressers Division, and on May 2ist for the Dog Skin and Lon:^ Haired 
Dyers Division. ■ 

In view of the disorganized conditicn of the industry it is not 
surprising that non-conpliance should have become evident from the 
very beginning. lIumeroi>s complaints of chiseling, s-ecret rebating, 
excessive allowances for damages, etc., vrere received by the' Code Au- 
thority and by the Administration. Most of the small plants were eith- 
er openly ignoring- or evjL^ing the schedules, and those who tried ser- 
iously to comply were losing business. Prima facie cases of violation, 
however, were extremely difficult to obtain. In view of the legal 
difficulties prcmy't cour";; action was jirpossible. 

As a result of these conditions, dissatisfaction with the price 
experiment grew rftpidly. 

After attending a meeting of the Fancy Fur Dressers Division in 
New York, the code economic adviser reported: 

"ihis meeting -as la.-gely concerned with the suspension of 
the minimum service charger. In all the divisions of this in- 
dustry there is a growing belief tnat the setting up of a mini- 
mum service charges v as prc:maturt; and that major attention should 
be centered on obtaining compliance with labor provisions of the 
cede."* 

The Division Administrator expressed the opinion that: 

"The minim-jm service charge as in the fur dressing and fur 
dyeing industry has been harmful rathei than helpful, and the 
sooner they are suci: ended or otu'ervnso disposed of; the quicker 
N.H.A. can bring order out of cnaos iji tnis industry."** 

3ut probably the best commentary umon these service charges -is 
the following statemient of the effective dates of the schedules and 
the dates upon which such sche^'ules ^-'ere suspended, in all but one 
case at the request of the industry: 



(*) Memorand^jm from C. Y-. Hamill to M. Xossoris, May 9, 1934. 

(**) Memorandum from Division Administrator G-. L. Berry to 'R. S. 
Conkling, June 7, 1934. 



Approved 


Suspended 


Feb. 9, 1934 


April 9, 1934 


Feb. 16, 1934 


Mfl.v S9, 1934 


Feb. 16, 1934 


July 6, 1934 


hny ?1, 1934 


July 31, 1934 



■78- 



Habbit Dressers 
Fancy Fur Dressers 
Fancy Far Dyers 
Dog and Lone; Haired 

There is evidence that conditions in the fur dressing and fur 
dyeine: industry since the lapse of the code have been decidedly un- 
satisfactory. In an intervie'.v on October C3, 1935, Louis Solomon, 
attorney for the Fur Dyers' Trade Council, statea: 

"Tize che.os of the code has continued. There has been no re- 
covery since the code. Cut-tnroat competition is worse than before 
the code. Prices have declined. They are nov; lovjer than ever. Not 
10 per cent of tne dressers and dyers are making a profit this year." 

Interviewed on the same day, Michael Hollander, President of A. 
Hollander and Son, and Henry Schlesir -^:er , both of whom were at differ- 
ent times Chairman of the Code Authority, commented to a member of this 
unit that the situation was worse tht.n before the minimum service char- 
ges were put into effect and that current prices were the lowest they 
had ever known. 

VI. WASTE FAPE?. TRADE 

The Waste Paper Trade was included with several other divisions 
of the secondary vaste materials industry in a master code, approved 
March 12, 1934, but the ^roup represented by the American Paper Mills 
Supplies Institute refused to assent to the master code without the 
simultaneous approval of a supplemental code "-hich should contain some 
form of price protection enabling; its members to pay the wages required 
by the master code. 

Aside from intense selling' competition, there is alleged to exist 
in this trade an even more destructive competition - "burying coiOjietiiibiQn'i 
Wholesalers invade each others customers, attemptins;; to alienate^them 
by offering them f'lore money than their competitors. A vicious circle 
develops as each dealer retaliates, at the sam.e time, protecting his 
own source of supply by matching his competitor's offer. W,ith little 
exception the same situation develops between the mixed dealers in re- 
gard to their suppliers. In this manner, though they ^are in the min- 
ority, they compel the balance of the industry to meet their competition, 
reducing the differential vhich should exist between the purchase price 
and the resale price to a vanishing point .* 

The first proposal was a buying provision which would limit the 
price which dealers could i^ay for waste paper to an amount not more 
than the mill would pay for the paper, less the conversion cost.** 



(*) Stater:ient by Code Authority in support of Supplementary Code. In 
N.l.A. General Files (Folder /f456) 

(**) Memorandum, dated August 22, 1935, from the Administration Member 

to Deputy Director F. H. Crockard , contained in Vol. A., in N.H.A. 
General Files. 

9763 



The lack of feasibilitv of this provieior. as a remedy was readily- 
apparent . 

The Trade was finally itiduced to assent to a supplemental code ap- 
proved July IS, 1934, ivhich contained the e^ier^ercy provisions from Office 
Memorandum ]\"o . 22'6. The Code Authority imfrediateiy sou,';'ht the invoca- 
tion of that pro'v-ision, v/hich, how'^jver, was not actually approved until 
August 21, 1954. 

The emer^rency declaration was apparently favored by the entire 
trade with the exception of the Benedetto Company (which was controlled 
by the Gair Company, a largg- paper box ma;iui.^ctur er and naper board 
mill operator) and all cf the dealers and peddlers who relied upon it 
and the Gair Company for business.* 

The Gair Company secured control of prices by havin^^: the Benedetto 
Company send out letters TJaricd'.cally to all Eastern mills, quoting pri- 
ces at a level as low as desirao by the Gair Company. 'The Benedetto 
Company did not supply all of these mills nor could it have furnished, 
even a small percentage of the stock needed by the Gair Company alone. 
Nevertheless the mills receiving these letters used these quoted prices 
in obtaining "-aste paper from their reioilar sources, and while the price 
set by the Benedetto Company may not have been the only price at which 
sales were made, it was irtjnai'ally the base market price. In those cases 
where the mills did not control the j-arge packers by actual ownership, 
the consumin,^- mills usually had "unders tr.ndings" or "agreements" with 
one or more large packers. In turn the lar.='^e packers or wholesalers 
had a great deal, of influence, if net actual control, over the smaller 
dealers who supplied them vdth vjaste paper. This condition was dvie to 
the fact that the small dealers usually make a bare living and often 
find it necessary to receive financial aid f rom t he largerdealers to 
tide them over periods of stress in order to keep them in business.** 

In the settiniT of minimum prices by II.^.A. the Gair Company saw a 
distinct curtailmient of the degree of control it nad been able to exer- 
cise over its raw ""material prices. Consequently, thro\-!=':h the Benedetto 
Company it m.ade violent protests to the Administration against the im- 
position of rainim^un: prices.*** 

The Trade's principal justification of its reauest for emergency 
prices was the fact that on the one hand it was helpless to control its 
own buying compe^,ition, and on the other hand equally helpless to re- 
sist successfully the degree of control of its selling prices exercised 
by the mills.**** 



(*) Transcript of hearings, "November 2, 5, 1934; 11. 1. A. files. 

(**) Transcript of hearings, November 2, 8, 1934; N.l.A, files.- 

(***) Transcript of hearings, November 2, S, 1934; N.R.A. files. 

(****) Volumes of transmittal of Emergency Orders, in N.R.A. General 
Files. 

9763 



-80- 

Emergency prices were applied to Fo. 1 mixed paper and folded 
newspaper, the two items on v;hich the Inr^est tonnage is handled. De- 
spite lack of standardization tnese items are definable beyond the point 
of easy evasion. 

Responsibility for setting the minim-um prices rested largely with 
the '^.esearch and Planning Division, anc since little accurate cost in- 
formation was available, the prices set were arbitrary and experimental. 

The first order (llo. 330-A-2) was issued on August 31, 1934. After 
a period of 90 days another order (Nc. 33'j-a-3) was issued on September 
25, 1934, clarlfyinri' and extending thj ori=„inal declaration. Clarifica- 
tion was deemed necessa3\y to define ]/roperiy "mixed paper" and "folded 
newspaper". Also, this order permit t-d resile among members of the trade 
at a reduced differential of 50^ on mixed paper and 51.00 on folded 
newspaper.* 

On November 16, 1954, a third order (Fo. 330-A-6) was issued, ex- 
tending the emergency indefinitely and introducing further minor modifi- 
cations. 

Average prices per ton of waste paper were stated as: 

1922 - 1929 • :p8.00 to ?10.00 

1930 - 1932 ?4.50 to ^ 5.00 

1933 - Hose from around p4.00 in January to a high of pl5.00 

in August and September; fell to below ?5.00 in Decem- 
ber 

1934 - . ^5.00 to ^3.50** 

The following figures were submitted by the Code Authority: 

Mixed Paper Newspaper 

Price paid by Waste Paper Dealer 
for raw material $3.00 per ton ^^5.00 per ton 

Cost of conversion by Waste Paper 
Dealer p4.50 per ton ?6.00 per ton 

Total cost to Waste Paper Dealer $7.50 per ton ^11. 00 per ton 



(*) Administrative Order Ho. 330-A-3, dated September 25, 1934. 

(**) I'emo . of W. H. Dillingham, Division of Research and Planning to 
John J. Connolly, Asst, Deputy, dated July 31, 1934. Volume of 
Transmittal of Administrative Orders. 



9763 



-81- 

Frice secured by Waste Paper 
Dealers for product pZ.OO to $5.00 p5.00 to $8.00* 

The Emergency Orders set minimum prices for "mixed paper" at 
56.50 per ton and "folder news" at ?S.50 psr ton, loth f.o.t. packer's 
plant, excBTst that members of the Trade could sell the above to other 
members for -b6.00 and -nV.fO per ton respectively. The prices set were 
approximately $3.00 less on each item than those proposed by the Trade. 

After the Emergency Order and its first revision had becom.e effec- 
tive, conferences were held on IJovember 2 and 8 and December 3, 1934 to 
determine the advi stability of extendlr^^ thi Order. The first conference 
was held to hear the testimony of a x.ew ter.j'orary association formed in 
New York on October 29th by a sniall eroup within the industry for the 
purpose of opposing the extension of the Emergency Order. The second 
conference was held to hear the members of the Code Authority and sel- 
ected members of the Industry who fa'/ored extension of the Order. The 
third conference was held by tne Natinnal Industrial I-^ecovery loard up- 
on petition from the opposition. This meeting v-as attended by members 
of the Code Authority and industry mei.ibers favoriiig ext«nsion. 

The opposition made severrtl controversial claims. They contended 
that despite che fact thau dealers were movJng little if any of their 
tonnage to the m'lls, the milj.& were managing to increase their inven- 
tories in the face of regular consumption. They offered in substan- 
tiation of these claims figurer of the National Paper Board Association, 
copies of which ware submitted confidentially to the Research and Plann- 
ing Division accepted these figures and read some of them, into the re- 
cord of the November 2 conference. Code proponents pointed out that 
the totals of the various inventory columns did net, in fact, make the 
total figure given on the report. For ins+-r,nce, in one case the total 
recent inventory was determined by adding throe mills which did not 
appear on the earlier report, and proponents claimed that if the tonn- 
age of these three additional mills were deducted, a shrinkage of about 
4,000 tons would result, which was at that time the estimated surplus 
which had backed up on the dealers in the New York area. Proponents 
also stated that the Crair Company had five mills drawing out of the 
New York markets, and that there was no way of knowing that the tonnage 
on hand at any individual mill was used at that mill, intimating that 
the company may have shifted its inventories from one mill to another 
to curb purchases. It is significant, as bearing on the prices estab- 
lished, that IV^r. Orr, buj'-er for the Container Corporation of America, 
stated that in his opinion theae prices we"e fair; lut that he was with- 
holding purchases on account of the possibility of a wide open market 
break following discontinuance of the Emergency Order.** 



(*) Figures given by the Code Authority, which Kr . Dillingham states 
"are pretty well borne out by all evidence in the case." 
Memo of \'! . H. Dillingham, Division of Research and Ilannina:, to 
John J. Connolly, Asst. Deputy, dated July 31, 1934. 

(**) Transcript of Hearing, November 2nd and eth, 1934, December 3, 1934. 
In N.R.A. Files. 



-82- 

■ During this period the Code Authority vas contimially seeking the 
help of the Administration in obtaininf^ the assistnnce of consuming 
mills. Many of the larser mills h^ic' alry3'':'y .*^iven the assurance that 
they would gladly be bound by the .emer..:ency prices in their buying if 
they were asa^irerl that the "chiselers" amon-^ their 0"'n number v/ould not 
be given an ac^vantage through lack of enforcement. 

The emergency was rescinded by Adm.ini strative Order 330-A-7 on 
December 28, 1934, approximately four months after the original dec- 
laration had been issuea. The stated reason for this cancellation was 
that emergercy prices had failevl to correct tne conditions they had 
been designed to remedy. The main factor v/hich broupiht this annulmient 
about ?;as undoubtedly the lack of enforcement, due to the inability to 
secure united coorieration from the consuming mills. Some of the imm- 
ediate results of this lack of enforc:-ment were actual and suspected 
violations and evasions, abnormal accumulations of stock in the hands 
of dealers, jarticularlj^ in Kev York and Soston, and further chaos with- 
in the trade vhich now sensed the Code Authority's inability to secure 
decisive action f i cm the Adm.inlstration in the face of the Gair Com- 
pany's opposition.* 

The 3?esearch and Planning Division conducted a special investiga- 
tion of the effects of the emcxj^ency,. and in its re-port of December 21, 
1934, concluded that it "has mt brought that relief to the trade and 
•that aid to its employees which it was designed to give" and further 
that "the order aripears unenforceable as long as access to the books 
and records of the consuming m.ills is not possible." The report states 
further in part, "other evil effects which have been attributed to the 
order have not been found to be, in most cases, directly attributable 
thereto."** 

As soon as the emergency was voided, the price of mixed paper 
went down to as low as. '51,.50 per ton. Dealers who had accumulated 
large stocks in the hope that the m.ills would eventually have to buy 
at emergency prices, were forced to sell their stocks at prices even 
lower than those pre/ailixig before the emergency. One large packing 
plant was purchased by the Gair Company, ana undoubtedly other smaller 
dealers were virtually bpnkruiot. Generally the old alignments in the 
trade resumed their former relationships e>:cept for anim.osities en- 
gendered by the conflict of interests during the emergency. The 
American Paper Mills Supplies Institute was virtually dissolved and 
the attempted formation of a new National Packer's Association was 
abandoned, since cooperacJon from the westei'n dealers was no longer 
available. Industry morale reached a. new low.*** 



(*) Transcript of Conference held in Washington, November 6, 1934, 
page 131. f'emorandum in files of Deputy Administrator dated 
December 28, 1934, from Harry C. Carr to National Industrial 
■Recovery Board. 

(**) Administrative Order 330-A-7, dated December 28, 1934. 

(***) Information secured by Kr . J. J. Connolly through field investi- 
gation conducted during December, 1935 » 

9763 



-u3- 

The Administration was delu'^ed with requests for a stay of the 
labor provisions of the co'i.e,* and this was finally recommended hy the 
Division Administrator but was not -;ra;ited. 



( *) Deputy's files; memorandum May 10, 19. i5, from Deputy Director 
?. 3. Crockard to Division Administrator K.' ,C. Cai-r . 



9763 



-84r- 

VII. ICS INDUSTRY 

The original minimum price proposal submitted ty this industry was 
adopted practically intact. The code, approved October 3, 1933, forbade 
the selling of ice. or service below a reasonable cost, cost being defined 
to include raw materials, transportation thereof, manufacturing, harvest- 
ing, storage, shrinkage, delivery, depreciation, merchandising, admini- 
strative expense, insurance and taxes, as determined by standard account- 
ing practice recognized in the industry and approved by both the Code 
Authority and the Administration. 'Shis provision operated in conjunction 
with a price filing system and with a provision forbidding the sale of 
ice outside the basic or normal market area at less than the lowest filed 
price for such outside market, regardless of the price in the usual or 
normal market area. A further limitation was included to prevent the 
sale of ice in such outside area at a price that was below the manufactu- 
rer's average cost, including transDortation. 

A further aid adopted to prevent price decrease was the inclusion 
in the code of a provision forbidding the installation of additional ice- 
making equipment unless a certificate of necessity was secured from the 
Administration. 

The industry never submitted any cost formula for administrative 
approval, primarily because of the difficulty experienced in trying to 
reach an agreement between the integrated and non-integrated concerns, 
as t what should properly be included in such a formula. ¥he industrj' 
consequently requested, foior months after approval, amendment of the 
codS; to provide for the declaring of price emergencies. Prices were to 
be based on "the lowest reasonable cost of a representative operation." 
Declarations of emergencies were not to apply to the industry as a whole 
but only to those definitely specified areas in which such action was 
deemed necessary to protect the interests of manufacturers, labor and 
consumer and only after public hearing in such areas. These energency 
declarations were to be limited to a stated period. This amendment was 
approved on April 24, 1934. 

During the life of the code, six such emergencies were declared, in 
Macon, G-a., New Orleans, La., San Antonio, Texas; Dallas, Texas; Fort 
Worth, Texas, and New York, N. Y. Administrative Orders were issued in 
connection with each of the declared emergencies as follows: 



Macon 


- Order No. 


43-8, 


May 




1934 


New Orleans 


- Order No. 


43-6 , 


May 




1934; 


San Antonio 


- Order No. 


43-5, 


May 




1934 ; 


Dallas 


- Order No. 


43-9, 


May 




1934; 


Fort Worth 


- Order No. 


43-7, 


May 




1934; 


New York 


- Order No. 


43-19 


Jul: 


r 19 


, 1934 



In all of the above cases the emergency was granted for a period 
of 90 days with the provision that if it wps found that sales were being 
made below the reasonable cost thereof, as determined by cost data sub- 
mitted, a schedule of minimum prices would be established by the Adminis- 
t ration. 



9 763 



A brief surnrrar.^- of conditions in each of the areas follows: 
Macon, G-eorgia 

The Sawyer Coal ar.d Ice Company of Macon, G-a , , extended its sales to 
two towns thirty miles distant fror that city, which its Macon competitors 
had previously heen exclusively suprlyin-. The latter charged Sawyer 
with dumping, and cut prices in Macon in an attempt to drive him out of 
the market. Other manufacturers in Macon threatened to meet thesrf cuts 
and a price war was imminent. An emergency was declared. On the basis 
of facts ascertained at the hearing,' Sawyer's costs were found to he less 
than the new low prices set by his competitors. Hence no schedule of 
minimum prices was prom.ulgated and the emergency was allowed to lapse. 
Research and Planning Division announced, after study, that even Sawyer's 
costs were too high, as .an additional reason for refusing rainimiam prices. 

New Orleans, Louisiana ' ' • • ■ . ■ 

Here excess capacity, - aggravated by the opening of two new plants 
in defiance of code provisions, ana by non-adherence by other manufactu- 
rer's to their filed prices - precipitated a decline in the price level. 
An emergency was declared and a hearing held to determine minimum prices. 
The data submitted revealed no selling below cost. While the study was 
being made a further element entered into the picture, - dumping by a 
manufacturer outside New Orleans. Prices of some producers fell to as 
low as $1.00 per ton. Accordingly a schedule of minimum price was 
approved for 90 days by the Administration. (*) The costs of five con- 
cerns which submitted data considered adequate were $3.03, $3.18, $3.73, 
$3.78 and $4.00 per ton at the platform for wholesale and heavy commercial 
quantities. Cost of light commercial sales, domestic sales at the plat- 
form and domestic sales delivered was correspondingly higher. The price 
fixed for the period of the emergency was $3.60 per ton for wholesale 
and heavy commercial quantities at the platform, with a graduated scale 
upward for the other classifications, (wholesale and heavy commercial 
prices were basic in the industry, the prices of the other classifications 
showing varying differentials above the base price.) It was later amended 
to establish further classification provi'ding for differentials between 
the prices at the platform and prices delivered to the purchaser. (**) 
The Local district Attorney cooperated, issuing a restraining order 
against 33 manufacturers. These two factors stabilized the market so 
effectively that it was deemed advisable to extend the order for an 
additional 90 days. (***) Inasmuch as members of the industry themselves 
failed to cooperate by trying to iron out their differences, this last 
declaration was allowed to expire, over the industry's protest. 



(*) Administrative Order No. 43-^2, dated August 8, 1934. 
(**) Administrative Order i'lo . 43-33, dated September 17, 1934. 
(***) Administrative Order No, 43-50, dated November 14, 1934. 



9763 



Upon erroiration, the price again dropped and even as late as September, 
1935, ice was selling at 20!# per 100 po-unds at the dock or ZO(f: per 100 
pounds delivered. 

New York City 

In Hew York City the industry ^--as o-oerating at a lov fraction, of its 
potr?ntial caoacity (28 per cent). As an added unsettling factor, the dis- 
tributive s3'-stem was e^ttremely com-olex, including manufacturers, manxifac- 
turer-wholesalers, nanufo.cturer-retailers, wholesalers, wholesaler-retail- 
ers, retoilers (ixsu^aiy peddlers, cellar-men or jitney "box operators). As 
a result of these combined difficulties a price war broke oxit depressing 
prices to as low as ten cents per cwt. An emergency was declared. Of 103 
manufacturers in the a'^ea, only six submitted adequate cost figures. 

For these, costs per ton at pls.tform on wholesale quantities ranged 
as follows: $3.00, $3.10, $3.50, $3.77, $4.73 pjid $5.70. ' After studj'", 
the Division of Research and Planning recommended that minimum prices for 
the period of the emergency be fixed at $0.20 per ton wholesale at the 
platform and $4.80 per ton wholesale delivered. Corresioondingly higher 
prices ■^ere set for other classifications. These orices were promulgnted ' 
on September 17, 1934, for a 90 da'^ period. (*) 

Although at the end. of that time conditions were still more or less 
chaotic, some irarirovement was noted and the schedule '"'as modified and ap- 
proved for an additional 15 days (*.*) and then f\irther modified and aioproved 
for an additional, 90 doy period pverthe'.' protest of Research and Planning. (**^ 
ETo information as' to the actual effects of these orders, or as to subsequent 
conditions in the area is available. : 

Dallas, Texas 

In this territory the average annual load factor was also ver^'- lo\7 
(30 per cent). Efforts by manufacturers to increase, their share of this 
meagre total, aggravated by dumping of ice by firms from outside the area, 
led to a price war. An emergency was declared pjid a hearing held to estab- 
lish a schedule of minimum prices. , The ITationa,! Associction of Ice I-ndus— 
tries worked with the manufacturers during the time txie Administration had 
this question under advisement and announced that the situation had stabi- 
lized due to the adoption by the industry of an rgreement similar to the. 
"Ft. TTorth Plan." Therefore no ninimnm prices were announced and the emerg- 
ency v.'as allowed to laore. 

Brieflj'-, the Port T/orth planprovides for a system of allocation of 
oroduction a'mong 15 of the proc'ucers in the area. 



(*) Administrative Order Ivo. 43-34, September 17, 1934 

(**) Aojninistrative Order No. 43-63, dated December 24, 1934. 

(***) Administrative Order Uo. 43-65, dated Januarj- 13, 1935. 



9753 



"87- 

A new rales com-oair^, ::nov'n as the Cit^' Ice Coiiopir'-, was. formed, the 
stock being purchased b'^ 7 of tne 15 -.jroducers. These 7 producers re- 
mained in active competition vrith etic.h other and with the ner; sales com- 
pany. They contracted to "buy J', certrin oaantity of ice from the City Ice 
Company in order to mainto.in t];e taMe of rlloce.tion of production drawn 
up and agreed to all prrties to the contract. 

Four of the companies agreed to prod-.ice and deliver to the new sales 
company an agreed fimount of ice at a specified price, paid qus.ntity being 
their total production. (They vere not to engage ir active competition 
with other producers,) 

The remaining four companies of the 15 pa.rticipant s had their pro- 
ductive capacity '..'ithdrawn from competition, but in retu.rn they_ vere guar- 
anteed a fixed price for a specified amount of ice regardless of whether 
they produced ajny or not. 

San Antonio. Texas ' • 



This market \Tr?s in a fairly ?t.;'.L)ilized condition ujitil the hreak- 
dovm of 8.n sgreemert r^hich hound the deliV'-^ry comna,nies to purchase co- 
operatively the excesc- oroduction of the Sn plants in the area. When the 
breaJc-dovm occurred ;orices, which for sometime had been $5.00 per ton whole- 
sale at the dock (-olatform) broke to $1.00 -er ton. An emergency was de- 
clared. Cost data v.'ere submitted by 3 plants. Tnis information was so 
meagre as to be practically useless. However, a schedule of minimum prices 
was -oromulgated (*), effective for 90 days. This order was ineffective due 
to the breakdown of enf orcerierit and to the lack of cooperation between 
producers and distributors. To furtiior action was taken in this territory 
on the ground that if ir-dustr- v/oulcl not cooperote, c-ny efforts exerted 
b^' tiie Code Authority or the Administration would be useless. 

Fort Worth. Texas . 

Here again er:treme excess ca'os.cit'''" (pverage load fpctor 25)o) coupled 
with distributive -orobleras bro^:e the market, Drices receding from a previous 
level of $5.00 per ton \:holesale to $1.00. An emergency was declared, and 
while the Admini strati on was st.ad:'-in,; the costs, the so-called Fort Worth 
plan was -out into effect. Conseauentl''- no minim-'Jim prices were established. 
At the present time thi-^ pifcji is in its second ^'■ear of apparently successful 
operation. 

Although data as to conditions within the industr"' since the Supreme 
Court decision have been requerted 'oi' the Depiity, no information has been 
received. A trade journal (ice c'c Refrigeration) carried in its July, 1935, 
issue a statement by the former chairman of the Code Authoritj'- to the effect 
that the members of the industr,' had been drawn closer together and had 
learned how to do business with each other in the open and to substitute 
arbitration for cut-throat coLnetition. 

VIII. RETAIL RU332a TIllE AiTD 3A.TT::.1Y TRaDE 

The National Tire Dealers Association, Inc., presented and sponsored 

( *) Adminirtr. tive Order 'fo. 43-20, dated Jul" 26, 19:54. 

9763 



the Retail Tire ?jid Battery Trac.e Code. 

The Rubber Tire I'ianufeGturin;^' Industry firf?t attempted to include in 
their code both the manufrctiiring and distributing functions, but tlie Ad- 
ministration rij.led that the man\ifacturing fionction requii'ed one code and 
the distributing function another. 

Then the preparation of the Distributing code was first considered, 
the representatives of the Battery i.^anufacturing Industr','- asked that they 
be included under the code being formulated for the Retail libber Tire 
Trade. After carefvil consideration by the Acjnini strati on, and nith the 
approval of the rational Tire Dealers Association, it v/as decided that 
the interests of the tro trades \7ere sinilar and that they might r)resent a 
joint code. 

In order that all establishments selling tires might be .represented 
in the formulrtion of the Retail code, representatives of the Petroleum 
Industry'-, large mail order houses, factoiy ouned stores and chain store 
supiily houses viere called in. 

The problem facing this trade ttcs e::treraely acute. Ilanufrcturers 
have a wide spread in wholesale prices to various types of retailers. 
For several years the industr;/ had suffered from nrice "7ars brought on 
primarily by this inequality of costs and efforts of favorably fixed dis- 
tributors to get more business, using their lov cost to talce business away 
from small dealers. These price w^.rs were primrrilj'- on "commercial" busi- 
ness, fleet-owners burring trucl: tires and soiristimes passenger tires in 
considerable ouantity. Cominitments for future purchases at jTur.ranteed low 
prices were 'used.; discouilts ran to 8 or 12 "tens" off list. In the case 
of consumers or individual owners, other price cutting devices were used; 
extra.vagant trad.e-in allowa.nces on used tires - 12, 18- and 24 month guar- 
antees, etc. (*) 

A price '-'ar started early in JanuFi-y 1934, follov'ing the approval of 
the Rubber Tire Hamif. cturing Code. This outbreak w,as generallj^ charged to 
the action of a large mail-order house in offering trade-in allowances of 
from 25 to ZO per cent for used tii-es exchanged- on the ourchase of new 
tires. ComiDlaints from small and large dealfers and from raanufrcturers pour- 
ed in on the Administration by the hundreds, some accompanied by newspaper 
advertisements, end. on February 2, 1934, 17. H. A. officials convened a confei'- 
ence of manuf actxirers, private brand marketers, and re-ore senta,tives of 
dealer organizations at which an agreement "'as reached to discontinue this 
practice. 

No sooner wr s this stopped th8.n both large mail order houses began to 
advertise cut prices on tires throughout tae coxm.tr'f. /lan^jfacturers per- 
mitted and probably insisted thrt their dealers meet these prices, and re- 
bated dealers a p?rt of their loss. Tires -ere being sold below the manu- 
facturers' cost in many instances. 



(*) Code History, Retail Rubber Tire and Batter,^ Tr; de, pp. 9-10. 



-89- 

It T7c".s at this -ooint that tne i'.I^.A. broiigiat leaders of the industry'- 
to Washington for a conference and arranged a tnxce designed to stay the 
price war and put an end to destructive price cutting pending the approval 
of the l^etail Tiro Code. 

On March 30, 1954-, the representatives of tne industry;- ?,greed to a 
truce on price cutting for a -oeriod of 40 days. During the 40 days, the 
Administration promised tha.t a. code \7ould be approved for the Retail Sab- 
ber Tire Trade. This truce ti r> approved b^- the President on April 19, 
1934. 

The Code for the Trade vra.s approved on i.iay 1, 1934. It included 
provisions for the filing of prices, and for the. declaro.tion of minimum 
prices in emergencies in accordance '.-ith the form suggested in the Office 
iiemorandxun of Febniar^r 3, 1934. 

In a report to the Administrator undsr date of May 2, 1934, tne 
Deput,y stated: 

"TThile the truce 'has been rer.sonr-.bly observed, evidence has continued 
to come in that such destructive Thrice cutting persists, notuithstanding the 
truce. The concitions which precipitated the price var still exist. The 
truce-is brealcing down at the present time. It is my judgment that unless 
the emergency'- clause embodied in * * * * the Code is immediately invoked, 
there will be a renewal of price wars in: the Trade." (*) 

It was considered advisable to discontinue all negotiations for a 
Retail Code until such time rs it was determined just what provisions 
would be included in the Manufacturing Code, and c. hesring on this Code 
was not held until December 14, 1933. 

Under the Emergency provision, the Adrainistrrtor decla.red an emergen- 
cy to ®xist in the Retail tire Trade, and on May 3, 1934 Adjninistrative 
Order Ko. 410-3 was issued to become effective simultaneously'- with the 
Code itself on iia^y 14, 1934, Besides declaring aji emergency to exist in 
the Retail Tire Trade due to destructive price cutting, the Order classi- 
fied every existing brand of easing dxi6. inner tube into four groups accord- 
ing to quality, size and ply, for the establisliment of lowest reasonable 
costs. These differentials were not based entirely on the quality of the 
product, but advertising and consumer acceptance were given consideration, i 
(**) It was ordered at the same time that no member shoiild change the class- 
ification of any brand, sell axiy brand not classified, nor use the classi- 
fication for advertising purposes in any form. A minimiim price for each 
grade, size and •ol'/- of casing, cjid each grade and size of inner tube, was 
established, below which no member of the trade rould sell during the period 
of the emergencv. The order fi.irther orovided tliat during the -period of the 
emergency no member of the trade shoxild offer, "ase, or extend aay guarantee 
or warranty ?.p-oliceble to the sale of tires or tubes exce-pt against defects 
in material and worirmahship for a period of 90 days from the date of sale, 



(*) Rubber Tire Industrj'- Study, page 232. 
(**) Retail Code Ilistor;,'-, t)o^e 52, 33. 

9763 



-go- 
tut this latter provi sion- .-nas stayed.., (*) 

One consequence of the order '^as that all dealers immediately adopted 
as their "going prices" the floor level prices as established by the Ad- 
ministration. 

In connection v/itli the effect of the emergency declaration, the 
following Quotation from an adverti cement published by the Sears-Iloebuck 
Co. on May S, 1954 is in -ooint: 

"You qave one;-third on -^ll-State Crusaders at these prices - 3 days 
only, May 10, Lias^ 11, Hay 12 inclusive.. The price on All-State Crusaders 
T7ill advance about one-third on Ma3'-. 14. And remember Sears' J?amous All - 
State Tires will be drastically reduced on May 14." 

All-State C'^usaders, are Sears' third oualitj' tires r. All-State is 
their first quality. On the effective date of the Emergency. Order, they 
priced both lines__at the ninimum or floor level price. This meant an in- 
crease in the going price of their third line, but a drastic reduction in 
the going price of their first line tires. 

Montgomery'- T,'ard and Comropn^'- broadcast the follo'.7ing newspaper ad- 
vertisement throiighout the country: ■■ , ... 

"The I'.R.-^., tarough the Retail Tire Code, ef-^ective Monday, May 14, 
is requiring appro"imatcly 20,!\price increase, 0A,,V/p,rd'.s rBamble tires. I7e 
would prefer ■'■■o continue the law prices made pos-riblQ. bv our economical, 
method of selling tires. We legret that \:e cannot do ' so efter the K.R.A., 
order fixing these prices becci.-.os effective rier:t I.ionday." 

In this case, also,, ^/ard',s .llambler tires were their third line. 

Ti^ile floor prices meant, some increases. in the "orice quoted on that 
line, tliey promptl^.r reduced 'orices on, fir-st and second line tires to the 
minim-am allcwt Die luider the Emergeucy Order. 

Another chain store, the Gamble-Skogmq Company, operating several 
hundred owned and agency stores in the north-.'esb, tdvortised that the 

.Emergency Order required an a.d'-.-^nce, in the orice at which they V7ere 'selling 
tires. In this ca?,e also, investigation sho'.fed that orices on third line 

■tires only were so affected. 

JJithin two we3.ks after the effective dci.te of the Emergency Order, the 
two large mail-order and chain store houses had reduced their store prices 
to the floor level throughout the countr','-. The 3ig Pour tire manufacturers 
had met these prices wherever they had stores or controlled distribution, 
and were urging independent dealers to meet them, and the minimum prices 
had become the going price alm.ost uriversrlly. 

Bj'- July 1, the large manufa.cturers v>ere allowing their smallest deal- 
ers rebates or cut-backs on sales made at floor level prices. Prices had 



(*) Industry Study, page 235. 
9763 



-91- 

not only -fallen below the genernl level in effoct on May 14, but, in- 
sofar as sales to the individual consumer were concerned, were lower 
than they had been during the price wars prior to the Truce of March ■■ 
30th. These facts brou£,'ht out in the public hearing held on August 
3, 1934. (*) 

The minimum prices established by the Order were, of course, 
known to manufacturers and distributors as soon as printed copies of 
the Order were available, and in fact most manufacturers and large dis- 
tributors were officially or unofficially advised of the price floors 
as soon as the order was approved. 

The first effect was a rush to book. forward orders £md commitments 
from commercial users, for future delivery at less than the minimum price' ' 
set. Both manufacturers and distributors participated in this flurry, 
many dealers advertised the urgency of buying "before the prices were 
advanced by the Code", and undoubtedly some business was secured on this ' 
basis. ■ ■■ 

The most serious situation was the publishing and distribution by 
the two^ large mail order houses of m.illions of "summer flier" catalogs 
offering tires at mail order sale, at less than the floor prices. These 
pribes were good only on sales by mail, according to the catalog, but at 
least one of these concerns arranged to accept orders and make- deliver- 
ies through a special department in their retail stores at "such prices. 
These concerns claimed, they had received authorization from high offici- 
als in N.'R.A. for this action, in :view of certain out-of-pocket expense 
to the customer purchasing by the mail order method. Efforts of;, the 
Deputy Administrator and of N.H.A. field officers to secure abatement 
of this violation were fruitless. The catalogs continued to b'e issued 
throughout the sTommer, and of the thousands of complaints received by 
the Compliance Division, none became the subject of action by the Com- 
pliance Council. 

As these catalogs reached practically every section of the country, 
they brought protest both from small independent dealers and smaller 
chain store establishments. JNTo explanation the Administration could 
make served to remove the impression that these concerns were receiving 
preferential treatment as to code enforcement. Not only did 'feeling run- 
high, but the lack of enforcement served as a shield for any other re- 
tailer who chose to violate the emergency provisions. The two concerns 
mentioned then in turn reported such violations to the Administration as 
reasons for their losing business through their retail stores, where 
they claimed to be selling at the floor level price. 

A revised emergency regulation^ v/as promulgated on August 28, 1934, 
Administrative Order No. 410-15. It grouped tires and tubes into five di- 
visions according to. brand and method of distribution, establishing diff- 
erential minimum prices for each of these divisions. 

This Order revised determination of lowest reasonable cost by raising 
the former floor-level prices under Order No-. 410-3(**) 



(*) Industry Study, pages 244, 245, 246. 

(**) Retail History, page 21.- 

9763 



Following this Order non-compliiuice v/as the rule rather than the ex- 
ception. 

Dealers and distributors generally continued to sell at or about the 
floor level price as it hr?d be'en under the first Emergency Order, not attemp- 
ting to understand or to comply with the' involved differential price set- 
up established in the rievi emergency regulations. The Retail Tire business 
ordinarily has a sharp seasonal decline in volume from September Ist on, 
and there are no dtat available as to the effect of the nev; re.gulations 
on current price levels or volume of sales. (*) 

On September 28, 1534 at a conference presided over by the Deputy 
Administrator, the Chairman of ..the Set8.il Tire Code Authority presented a 
request that the Emergency provisions and minirai™ prices be kept in effect; 
that the Adm.inistratioh increase efforts" to ' enforce them, and that the or- 
ganization of District Control Boards proposed and laiuiched by the Code. 
Authority be recognized and authorized to collect funds from the trade for 
enforcement. 

The reauest r'^.s supported, by re-oresentritives of three sma,ll ma-nu- 
facturers, Dayton, 'Pennr-^O.va'nia and" Seiberling, who oredicted that if the 
Emergency provisions '".'ere' aliened to e::.pire, the tra:de would be thrown into 
a most destructive pr.ice war, resulting in' renewed losses and mortality among 
the smaller establishments. 

The. Deputy Adjninistrator and the Director of the' Pie search and Plann- 
ing Division, in the meantim.e, h- d been informally'- advised by responsible 
officials of the Big Eour Compariies, that they regarded any immediate or 
considerable disturbance of the -oreveiling price level improbable. 



Ifo adjninistrative action on the recuest of the Code Authorit.y was 
taken and the emergency provisions i":e.re permitted to eiroire on October 1, 
1934. (**) 

IX. T7H0LESALE AH) RETAIL TOBACCO TRADES 

Because of the inter-relation of the V.'holesale Tobacno Code and the 
Retail Tobacco Code, experience with price control in both these industries 
can best be discui;sed concurrently. 

The tv;o codes had their inception at two national conventions held in 
New York in June, 1933 by the jbbbers and retailers. Comraittees were ap- 
pointed for the purpose of developing a code for the entire tobacco indus- 
try. Efforts v.'ere also made to secure the cooperation of the manufacturers 
of cigarettes, smoking tobacco and snuff. However, these manufacturers, 
while in sympathy with the general objects sought, sto.ted they did not con- 
sider themselves in a position to negotiate such a code. (***) 



(*) Industry Study, pages 25-5, 26'5, 267. 

(**) Industry Study, pages 267, 253 

(***) Wholesale Tobacco Code History, page 10. 



I 



Because of a delay caused "b- C'^nsideration of the labor provisions by 
the r)roponents of the Cigar i'lanufcctiiring Induetr^r Code, the \;holesalers 
and retailers s^ibiaitted a joint code to the ^i^^ri cultural Adjiistinent Ad- 
mini stra,tion. A public herring under the joint jxirisdiction of A. A. A. and 
N.R.A. was held on December 15 and 16, 193G. Under the Ertecxitive Order of 
January 8, 1934, jurisdiction over this code ■ ps transferred to the Admin- 
istrator for Industrial Recover"''. As a result of numero\is conferences fol- 
loT'ing the hearing it vip.s found desirable to have t'^o codes, one for the 
Wholesale Trade and another for the B.etall Trrc'.e. However, the provisions 
were similar. The TJholesale Code was ap;Droved on Jijue 9, 1934 and the He- 
tail Tobacco Code on June 19, 1934. On this latter date, a code for the 
Cigar I.:anui"rcturing Industry was also approved. 

Each of these three codes had incorporated a "Ciga.r Merchandising 
Plan", which, however,' did not become operrtive \mtil Septeraber 11, 1934, 
following the approval of the by-laws of the three code authorities. This 
Plaji represented a marketing arrangement negotiated and concluded by the 
three branches of the industry'-. It provided for the retail price of cigars 
to be established by the manufacturer, and also for definite maximum dis- 
covuits to be given to the wholesaler, the jobber and the retailer. It also 
provided for the filing of prices, including discounts, etc. with the Nat- 
ional Tobacco Council, Inc., a tra^de association composed of groups from 
the three above mentioned industries. ( *) 

The Merchandising Plan was not approved v/ithout first encountering 
severe opposition from the vr;,rious Advisory Boards. The Division of Re- 
search and Planning obje'cted to the Plan and s-uggested that provisions for 
minimum prices based on mark-ups be established in emergencies. 

The Consumers Advisor;' Board advised the deletion of the entire Mer- 
chandising Plan. They contended , that the Plan was price fixing in its 
nature. {**) A copy of Consumers' objections was forwarded to the Chairman 
of the Special Cigar Manufacturers Committee, who answered the objections 
and argued strongly in favor of the Plan as a part of the code, ^inallj'', 
the Consumers' Advisor;^ Board recommended its a.-iyproval, but only for a trial 
period of 90 days, with the oroviso t^iat a re jretentative of the Consumers' 
Advison^ Bocrd be aopoir.ted as a member of the Code Authority. (***) 

Shortly before the approval of the codes, Office Memorandum Ho. 228 
was issued, and it was necessar-- to amend the drpJts of the codes to con- 
form to the new -.Tolicj''. Consequently, the codes as approved provided for 
stabilization of minimum prices onl;;^ in the event of an emergency, and then 
only for a limited period. 

Both trades accepted these chaiiges with great reluctance and express- 
ly stated that the new provisions did not meet the true situation and were 
not adapted to the correction of the existent evils which arose primarily 



(*) V7holesale Tobacco Code Jiistorv, pp. 25, 50. 

(**) Letter, Haddock to Taft, 4/10/34, In K.r.a. files. 

(***) TTholesale Tobacco Trade Code History. 

9763 



-94- 

from a price war in cigarrettes and from the use of tobacco products as loss 
leaders. (*) 

In 1928, in order to liauidate. a Irrge quantit^^ of leaf to'bacco rejDre- 
senting an inventory of some $2,000,000, it ^-^as decided to produce cigarettes 
to sell at lOi^ a package. This idea quic^cly spread through the industry, and 
the inventor?/- rras soon liqiiidated and other cheap tohg.cco purcha?ed for the 
nev7. hraiids rhich had sprung up almost over night. Before the so-called 
"Big Four" (American, Liggett ajid Me^rere, Reynolds, and Lorillard) realized 
what had happened, the 10^ cigarette had acquired 26^ of the cigarette con- 
siunption of the country. There is a very scant profit margin in the manu- 
facture of p. 10(2^ brand, and advertising had to "be virtually eliminated. (**) 

In order to meet the competition of the 10^ bra.nds', the retail price 
of the 15i^ cigarettes was reduced until fina.llj'- the3'- vere selling also ?.t 
IQij:. The greatest sufferer in this price rar was the retailer. (***) 

Approximately '85^ "of all cigarettes sold in the U.S. consist of four 
popular brands, Lucicr stri':e (American Tobacco Co.), Chesterfields (Lig- 
gett and IvI-^crs Tobfcco Company), Camels (?.e"nolds Tobacco ComiDany) , and 
Old Golds (F. Lorillard & Oomozn-j) . At the time the em-ergency ^ras declared, 
the manufccturers list price nas $5.10 per tnousand, and it "as the univer- 
sal pracitce of manufacturers to alio:-' lO'i t^cAe discovint and a 2^ cash 
discount ($5.38). All four of these brands were highly advertised at the 
expense of the manufacturer, o.nd a tremendous dema,nd had gro\7n up as a con- 
seouence. 

, Department stores, grocery'- stores and others not dependent upon the 
sale of tobacco or cigarettes for their profits rrere qr.icl: to recognize 
the fact that customers are price .conscious,, and it became a common -orac- 
tice among them to sgll cigarettes as loss leadsrs. The cost of populrr 
brand cigarettes to retailers varies from $1,075 per ca.rton to a,s high as 
$1.14 because certain retailei-s are permitted to bay direct from wholesalers. 
It is estimated, however, that not more than 15,:o by volume are a,ble to avail 
themselves of this privilege. During 1933 those retailers using cigai-'^ttes 
as a loss leader reduced the -^irice of cigarettes in some cpses to as 10^7 a.s 
59^ a carton, and there ^'ere innumerable cpses of !3ales at $1.00 a carton. 
Inasmuch as the ver^.r puirjose of these sales v/as to .atfc-'act customers to the 
store, they wore highly'- advertised and had the effect of forcing the small 
tobacco retailer either to sell his merchandise at a loss or to retire from 
the cigarette business entirely. 

It was felt that by eptablishing a minimum price for cigarettes their 
use as loss leaders would be eliminated, and the small retail tobacco dea,l- 
er would be enabled to make some return on his investment. Consequently, 
immediatel:/ following the approval of the codes, the code authorities de- 
clared an emergency to exist, and pa.ssed a resolution that Merchandising 



(*) TTnolesale Tobacco Trace Code history, page 57. 

(**) Statement Oliver J. ,Sands and Daniel T. Bertrand, Tobacco Industrv Sec. 

(***) Wholesale Tobacco Trade Code Histor;'-, page 24. 

9763 



Fn.cts, Inc. (p itatisticrl "bureau) fOid the Division of Rer,earch and Plan- 
ning be requested to ret jointly rs rn inpartial agenc;'' to investigate 
cost (including tht> cost of wholesale distribution) pnd to recornraend to 
the Administration n "bpsis for determining minimura prices for cigarettes, 
tobacco and snuff. 

Merchandising Facts, Inc. foujid (*) the position of the wholesale 
tobacco dealer T'as closel:/ interwoven with that of the Retail Tobacco 
dealer and that an energencj'' which threatened the existence of the 
retail tobacco dealer would therefore tend to create an ejjergenc3'" in the 
wholesale trade as well. They estimated that ao ^roximatel-- $60,000,000 
of retailers' credits ^-ere carried on. the books of tobacco wholesalers, 
a sura aooro-ciraatel'- t^ice as Tauch a.s the annual -oayroll of thfj.t trade, 
and that this hazard .resented an obvious threat to enilovment; that 
the establishment of minimum mark-uos would hel :> "orovide a solid basis 
UTDon which principles of liauidation of this indebtedness might be under- 
taken. 

Research and Pla,nning Division did not concui' with Merchandising Eacts,. 
Inc. in recomnendin:' declaration of aJi epergency. 

' The reoort of the inrpartiail agency relative to the costs of retail 
distribution showed that such costs were a;opro:;imately 20^ of the selling 
price, but calculations based \ipon this percenta','e indicated that it would 
be necessary to increase the price of cigr.rettes to the consumer to a 
level above that generally prevailing should such a percentage be adopted 
for the rainimun. A study of cigarette prices in those states unaffected 
by taxes indicated that the prevaili:;g \irice \7as 15.,^ a package, two pa.ck- 
ages for 25y^, a:".d $1,20 a carton o;-. "oopular brand cigarettes, and lOj^ a 
package on the so-called 10^ brands. Consequently, the emergency order 
was draw"! so as to permit sales at this figure. (**) 

The Emergency Order was aoproved July 12, 1934- and became effective 
on July 15, 19S4, to remain in effect until October IS, 1934 unless other- 
wise ordered by the Acbiinistrator; . 

It read in part as follows: 

"1» In sales oy jt)bber3- or sub- jobbers to tobacco retailers, 
the minimum i^rice shall be the net -purchase lorice to such jobber 
or sub-jobber (after deduction of all di.scount.s except cash dis- 
counts) plus one -i^er cent (I'l) thereof. 

"2. In sales by jobbers to sub-jobbers, the rainiiium price 
shall be the net lutrchase price to such jobber (r.'ter deduction 
cf all discGonts except cash diGcounts.) 

(*) Cost of Retail Distribution of Tob.acco Products - about Mar. 20, 1934. 
Present Condition of the Retail Tojacco Trade - about June 15, 1934, 

(**) Retail Tobacco Trade Code History 



9755 



"3. Notwithstanding the foregoing provisions, the ■ 
tota,l percentage added to the rrholesaler ' s purchase ijrice 
(after deductionof all discounts including cash discounts) 
need in no crse he greater than three and one-tenth per 
cent {o»lfo) in the case of sales to retailers, and tno and 
one-tenth per cent i2,lfo) in the crse of sales to sub-joh- 
hers." 

The Emergency Order estahlished miniraxm retail nark-ups on manufactur- 
ers' list i^rices of 6-]s^'o of $6»10 per thousand in the cas3 of the Big 
4 Brands, and b^fo on the msjiufs.cturers' list -orices of $4.75 in the case 
of 10^ brands. (*) This was equivalent to prices i^jer package of 20 of 
13^ for the former and 10(# for the la^tter. Quantity discounts ''ere 
allowed, of bfo for srles of 25{# and more and 8^ for sples over $1.00 
(i.e., two package and carton sales). 

Immediately upon the publication of the Emergency Order a number of 
protests were received. It wpS contended that -i^rior to the Order, job- 
bers were permitted p discount of 10^ -olus an additional lf> for cash. In 
order to conform to the Order, the jobber could not ellow more than a 
10^ discount, and due to the competition existing in the wholesaling 
of cigarettes, the sub- jobber was limited to a 1^ miniiiiim mark-up. (**) 

The Order was amended as follows: 

On September 8, 1934, Administrative OrJ.er #45G-9, providing that a 
state stamp ta:: must be odded to the miniMum price whether the seller 
were loca.ted in the state or not. 

On September 15, 1934, Administrntive Order #462-11 changing mark-up 
to l,5fo in the case of sales by jobbers to sub- jobbers, and 1.6^ by sub- 
jobbers to retrilers. 

On October 10, 1934, Administrative Order #463-14, permitting the 
Sfijne minimijjii price for the same quantity of cigarettes regardless of the 
method of packaging. 

On October 10, 1934, Administrative Orders #466-15 and ,#452-14, ex- 
tending the Order until January 11, 1935. 

On January 9, 1935, Administrative Orders #466-20 and #452-20 ex- 
tending the Order initil January 26, 1935, 

On January 24, 1935, Adiainistrat ive Orders #456-21 and #452-21 ex- 
tending the Oruer until iiarch 20, 1935, 

(*) Report on Price Regulation, Daniel Bertrand, December 18, 1934. 
(**) Uholesale Tobacco Trade Code History. 



9763 



-97- 



On f.ferch 29, ].935, Adnlnintrrtive Orders #456-23 and #452-24 con- 
tinuing the Order ■imtil April CO,' ].D35. 

On April 23, 1935, Adr.iini strati ve Order #45'3-25 continiiing the mini- 
mxua mark-ups. 

On April 29, 1935, Administrative Order #462-25 continuin;-;:; the 
Order until June 16, 1935, and cha-nsiii,;; the' mark-up to ifo in the case of 
sales by jobbers to sub- jobbers, and 2.15'j in the case of sub jobbers to 
retailers. 

In order tb -ola.ce iirice .control on e. nore permanent ba.sis, and to- 
extend price protection to ci:n;aretter:; other than the brands previously 
covered, and to other tobacco "oroducts a.s rell, an Amendment to the Re- 
tail Code i7"S oTJproved on Anril 23, 1935, This ajjendment prohibited 
sales of any cif;arettes a.t less than 9,1 oer cent off manufacturers 
list, and ox any other tobacco ;oroducts at lesy than 7.1 'oer cent off 
manufacturers list, (*) These prices corresponded to the prevailing 
invoice costs of these -oroducts to the less favored retailers. The combined 
effect of this Araendjient and of Adi:iaistrative Order 26S-25, ^Thich i.7as 
si.^ned on the sajne day, "a-S to maintain the previously established mini- 
mum retail prices for the :o-Dulr.r bra;;.dR a;id to extend protection to the 
extent of banning sales of all other tobacco :>roducts belo^? their invoice 
cost to the independent retailer. 

During the existence of the iL^nerf^ency Order little difficulty nas 
encountered in enforcing it. (**) 

In contrast to the .-ipparent effectiveness of price control in the 
cigarette field, the control of cigar -orices -as unsuccessful. No 'SOoner 
had the Cigar Herchandising Plan become effective than difficulties arose 
in connection ^Tith its enforcement. As r resu.lt the code authorities for 
the three tobacco codes finall;r appointed a committee to stiidy and recom- 
mend some method for altering the Plan. A -oro;oosal vras finally evolved 
?nd a public hearing "'as schediiled for "lay 13, 1935, but in vie^.-' of the 
fact that the Schechter case '•'as then pending in the Supreme Court, the 
date '-ras postponed, (***) 

A petition ras presented at the January, 1935 price hearings, signed 
by a proximately 400 rotrilers, ^ith em iloyees ' ranging from 1 to 573, which 
asked for a continuance of nark-up -orovisions on certaii''. tobacco -oroducts, 
to prevent immediate return to "ilfully destructive price ctitting and 
other destractive -orrctices. It "r.s claimed by the ;'Detitioners that a 
discontinuance of the -irovisions TO-'jld jeo-oardize the --'elfare of their 



(*) Amendment l!o. 1, Code for the Retail Tobacco Trade, April 23, 1935, 
(**) Retail Tobacco Trade Code History. 
(***) Retail Tobpcco Trade Code History. 

9763 



ein-?loyeGs end cp;a3 Tridespread hardshir)» (*) 

A petition ^ir s rlso -oresented "by the Secretary cf the National 
Association of Toor.cco Distrioutors, signed "by approrimr.tely 650 firms, 
located in practically every state in the Union, representin.'^ tobacco 
stores, candy and tobacco stores, dru-g companies, grocery com-nanies, 
both manufacturers and jobbers, asking that the ninimum mark-uTDG be re- 
tainad and stating that goncral -chaos nould inevitably occur in the 
absence of such provisions. (**) 

X. iiiPLiCATioi;s OF TEi: eivErg::iicy duvice 

Price control through the emergency device na.s essentially a, 
synthetic concept developed \7ithin lToR»A. as a comi^romise by N.R.A. bG~ 
tBsen the vierr tha.t price competition in general should be left untraij>- 
meled and the belief that, in certain cases, specific and highly excep- 
tional conditions had developed v^hich prevented pxij orderly or fair 
determination of -orice in the market, '7ith the consequence ths,t code 
labor standards '.7ere im;'oeriled. 

Such exceptional cases might arise rjhere r xivice panic ivas fo-"cing 
price to a level subatantially loner thrn the deraEuid situation woiild 
TTarrant, or irhere the tactics of some individual or group vere menacing 
the existence of a substantial portion of an industry. 

In casns of thir; nature it '7as ho-oed that the doclrration of an 
emergency woiild in effect constitute a truce during rrhich the industry 
might be per"iitted to evolve its own more permanent solua,tion. Parther- 
more, vrhere the -orice cutting '•'as distinctly predatory in nature, the 
■eiiiergency dfeclaration nould be equivalent to serving notice that N.R.A. 
was determined to prohibit such unfair • tn.ctics. 

It r/as believed that in cases -of this nature the temporary limita- 
tion of price competition might be the only effective rrpy of forestalling 
monopoly and protecting small enterprise. 

In practice the emergency device t.'.ms extended to at least one case 
(the Tobacco Trades) in '-hich.not a terq:)Orary but a permanent condition 
had to be dealt with. N.H.A. policy, as has been indicated in Chapter 
IV, was not opoosed to banning the use of the loss le-der, which was 
the specific problem presented in this instance, A tem-iiorary prohibi- 
tion of loss leader sales could bo expected to opero.te only during its 
life. The moment the ba© was removed loss leader selling ^'as bound to 
re-aiDpear and this actually occurred imuedirtely after the Schechter 
decision. 



(*) Transcript, Price Hearing, Vol. 1, p-). 1-24. 

(**) Transcri-ot of Public Hea.ring, Price Provisions in Code of Fair Com- 
petition. Vol.1, -n-p, 98-99, 



9763 



-99- 



The pmendment to the llotail Too.-'.cco Code, irhich r'^.s ap^oroved on 
April 23, 1935, repror.ented a decision hy IT.E.A. thr.t the conditions 
in this cn.se required o more oennpnent remedy. 

One thing appears significnjit with reference to K.H.A. Dolicj'- as 
to the prices actunily ^et in emergencies in nost of the other cases. 
Every effort w-^s made to insure that the irice floor vroxild he a true 
floor ahove which price conpetition took place. Thus, in the Cast Iron 
Soil Pipe Industry the miniutun price set covered only the direct costs 
of the l0T?ei- cost producers. In practically all other cases, N.R.A. 
set the prices at as lou a figure as vjossihle \/ithout coiai^letely des- 
troying the intended effect of the declaration. 

XI. EP?ECTIVS1TSSS 0? DEVICi: 

Considorinf; nor.' the effectiveness of the device in meeting the prohlems 
toward which it was directed, it seems possible to drpw the following 
inferences: 

1. TThere the prohlem was occasioned hy a deliberate 
price cutting canrpaign, initiated hy one or two members of 
the industry, as in the Cast Iron Soil Pipe rnd the Agri- 
cxxltural Insecticide and ii^ingicide Industries, the declara- 
tion of the emergency apparentl;^ had the desired effect. 
prices were steadied and price wa.rs ended, and the effects 
of the declo.ration persisted rf ter the period of the emer- 
gency had expired. In these two cases the industry'' appar- 
ently succeeded in viorkiag out its own solution and in re- 
storing sone degree of price stahilitj'^. 

It is possible that those interests wiiich had been instrumental 
in initiating the price wars which occasioned the emergency declarations 
decided, during the enforced truce, that their own better interests lay 
in conforming with the prevriiling -jrice level. TTliether this conviction 
arose from che ;.Tobabili ty that price cuts would be immediately met, so 
that they would be -onable to benefit from securing a greater share of 
the industry's vol"ame, or whether other con£?iderations "ere more im-oor- 
tant, ia uncertain; it is the results rather than the motives with which 
this study is concerned. 

2o TTliere the difficulty was "orimarily occasioned by the 
use of a standard -product as a loss lepder, p.s in the Whole- 
sale and Retail Toba.cco Trades, and where the compmies engag- 
ing in loss leader selling '-rere large and responsible units 
directly dependent upon the retention of the public good will, 
the decla.ration of the emergency also ha,d the desired effect 
in that price cutting cea.sed. Here, however, immediately after 
the Schechter decision, the cutting recurred. The "xoblera in 
this ca.se , then, was apparently not susce-jtible of solution by 
any terroorary device. 



9763 



-lOO 



3. In the Ice Industry the 'orice dislocation had 
a f-undamental basis in the contraction of !7iarkets through 
competition by substitutes. Due to ease of entry there 
were a large number of conipa.ratively small units. Here 
the effect of the qinergency declaration rras not uniform. 
In certain areas the declaration appears to have been suc- 
cessful- and to have permitted the industry to T/ork out 
its o\7n solution on the basis of allocation . of production. 
(Ue are not at present concerned vith the economic merits 
of this solution). In other a/reas, where the neiabers were 
unable to cooperate, the emergency failed of its intended 
effect. 

4» In two other cases where ease of entry had resu]-ted 
in a large number of small units mutually suspicious and 
extremely vulnerable to consumer pressure - the fiir dressing 
and dyeing and waste loa-jDer trades - the emergency declaration 
also failed of its purpose. ITliere there was a deliberate at- 
tempt by a large consuiuer to retain the power to dicta,te prices 
and where tnis consiijner encouraged indiistr;/ members to violate 
provisions of the declaration of emergency, as ^'&s alleged in 
connection with the wast paper trpd.e, failure was inevitable. 

5o In the retail rubber tire and battery trade, where the 
concerns at whom the declaration of emergency rras directed were 
determined to maintain their advantages, and where la,ck of stan- 
dardization facilitated evasion, the emergency declaration failed 
to accorrolish its ourioose. 



9763 



-101- 

CHAPTZil VIII 

PKICL COi!'J.--xOL vIQOUCrH COST PEOTI^CTIOII 

I. el: LLVICi: - K^l'ElIT Ata) It.!PLIC.vTIurS 

A . nature ano. Im-olicatioas of the Device 

Su2:erficiallv, the -irohibition of wales "below cost seems a very 
different thing from the enactment of a fixed jrice floor. It has "been 
shovm that the idea that sellin : belov/ cost was a ^-preventable evil was 
frequently e;q^ressec. d'urin. , the hearin;:;s am: debates precedin/j enactment 
of the N.I.R.A., and that, dnrin;,' the early sta^ies of cost formulation, 
cost protection was su^^-ected by N.R.A- officials as an acceptable 
alternative v/hen code proponents advocated more drastic restrictions. 

In its siLTplest form, cost protection would merely prohibit sales 
below individual cost of production. Imiaediately, however, the need of 
modification of this "Drinciple became apparent. If no member is allowed 
to sell below his own cost, the lo\7 cost producer is granted a potential 
monopoly and the hi.'_,h cost producer is in dan.;''_;er of bein^ frozen cut of 
the market. Consequently, it v;as necessary to permit meribers to sell 
below their own indiviaual costi; to meet tho price conpetition of lower 
cost producers. 

In 'principle, then, the device in tlii;/- form virtually establishes 
a price floor at the level of the cost of the most efficient producer in 
the industry - provided he wishes to sell dov?n to his own cost; or, if 
he does not choose to exercise this privilege, at the level of the most 
efficient proo.ucer v/ho does. Cost protection, theri, implies a minimuin 
price level no less sixrely than direct minimum price fixing. 

Nono the less, provisions of this character virould, in general, 
insure degree of flexibility in the price structure. It was believed that 
a price floor so determined wculd be srii" f iciently low to allow price con>- 
Tjetition above it and to insiu-e to the consui.iers some of the advantages 
accrudng to greater efficiency.. 

But thei^e very considerations did not appeal to code "oroponents. 
The-r were not interested in any absti's.ct conce^it of the inroropriety 
of selling below one's cost. It was price and not cost v/hich they were 
endeavoring to determine.' The goal was a price a.t vrtiich the bulk of the 
industry could opero.te profitably. Cost v,'as merely a yardstick for 
computation, and for this purpose the cost of the lowest cost -:iroducer 
was not at all satisf factory . 

To retain the plausible cost concept, and yet to gain authorization 
to set a price floor at a level satisf actor"' to the industry as a v/hole, 
a nujiiber of proposa,ls were advanced. In '.eneral these centered about 
prohibiting selling belov/ "avera^'-e" or "re-ioresentative" cost or an equi- 
valent term. To justify these )ro"oosals it was frequently contented that 
the lowest cost proc.ucers possessed certain -ieculiar advantages by reason 
of location, integration, the voi-chase of bankrupt assets, or the like; 
and it was implied or exolicitly stated tliat these special advantages were 
soiaehow unfair. 

9763 



-102-- 

But in all cases it v;as abundantly clear - and perfectly logical - that 
the ain nac not so nuch to prohibit sales "belO'T cost, "but rather to 
set uinimuj.1 prices at a level at which the b-ulk of the industry covld 
o-oerate profitablj'-. 

In the majority of cases these efforts ^rere uii successful, at 
least as fa,r as the code provision itself was concerned. With a few 
excentions, individual cost, with a provision for meeting competition, 
was the "basis a.p'oroved, But all was not yet lost. Cost could he so 
defined as to achieve "by indirection what had been impossible to secure 
directly. The conflicts restilting from these atte:.ipts will be de- 
scribed shortly. Enough had been said to reveal clearly that cost 
protection differed merel^r in form, rather tlian in substance, from 
direct minimum price fixing. 

It is necessary, here, to differentiate between prohibitions 
against sales below cost in non-distribution and in distribution codes. 
In the latter group, the object of the provision was usually quite 
specific, to secui'e the nearest thing to resale price maintenance 
i'J.R.A, would allow. It generally represented an attempt to eliminate 
or minimize either the use of the loss leader or the advantages en- 
joyed by favored distributors or channels of distribution. The pro- 
vision itself was usually based on invoice cost, either with or 
without a specified marloro, but in a few cases the manufacturer's or 
wholesale list price was the criterion. 

B, Frequency of Cost Protection Provisions in Codes 

As stated previously, cost protection was far the most frequently 
used device for price regulation. 323 basic and 98 supplemental codes, 
a total of 421, contained this provision in some form. These may be 
divided into the following groups. 

333 basic and supplementary non-distribution codes prohibited 
selling below cost. Of these: 

361 prohibited sales below individual cost, usually with a 
provision for meeting competition; 

7 prohibited sales below lowest reasonable cost; 
4 " " " reasonable cost; 
7 " " " lowest representative cost; 
4 'I " " average cost. 

38 distribution codes contained provisions against selling below 
cost. These included: 

7 based on individual cost; 

9 " " invoice cost plus transportation; 
3 " I' " " " individual aarlrup; 
13 I' " " " 'I uniform uarlaip; 
6 " " man-of acturer ' s or wholesale list price. 



9763 



-1C3- 

C, Cost Accoimting System, 

1. Problems liivolred in Formulation 

In order to implement these cost protection devices it was neces- 
sary, as indicated in Siiapter IV, to gear them to some standard means 
of determining cost. In all but a very few cases the cost S3''stera was 
to be prepared by the Code Authority and subnitted to iT.H.A, for 
approval. 

Almost as soon as the first S3''stera was subnitted, the conflict 
of interest between the representatives of indiistry e.nd i".l:,A. , to 
which reference has 'doen made, became ap-oarent. Tailing in their 
attempts to secure administrative a-oproval of a provision specifying 
some form of general industr^r cost, the Code Aiithorities turned their 
efforts to so formiolating their cost accouiating systems as to prevent 
the individual cost provision from being carried to its logical con- 
clusion - that of setting the price floor at or near the level of 
the lowest cost producer. Bie Cost Accoionting Ujiit of the Research 
and Pla-ming Division was the 17. R. A agency charged with the duty of 
passing on proposed cost sj^'stems, and bore the brimt of these attempts 
to turn cost protection into a price fi::ing- instrument. 

The nature of the conflict resulting from these efforts, as seen 
by the person probably best qi-^a-lif ied to .jiTdge it, is revealed in the 
following extracts from an article written by Mr. Orton W. Boj^d, 
Chief of the Cost Accounting Unit. 

'The reader will recall ths^t the t;Tpica.l Code forbade each of its 
members to sell his product or services at less than cost, 
except for the puTDOse of meeting the competition of another 
who is not selling below his individual cost. In other words, 
the Line of demarcation between legitimate competition and 
"destructive price cutting" was placed exactly at the lowest 
individual cost of pi-odir-:;tion and naj-l:eting» The establishment 
of the barrier agriuat ■'Dvedatory pries policies at this level 
was lij no means ac-::xdenl,al. It was deliberately intended, in 
order that aivj producer may feel free to translate all of his 
natural advantages into lower selling prices. In other words, 
no protection for managerial inefficiency was contemplated, no 
shield for e:ctravaf:,-ance was to be raised, and no obstacle in 
the path of progiess was to be erected. 

However, many of the cost accounting methods presented were so 
drawn up as to require the lov^r cost producers to set their 
cost levels at amounts in excess of the minima which would 
result from the amplication of the ordinary r\iles of accounting. 
In some instances, these proposals were based upon the desire 
to eliminate the competitive power resiilting from artificial 
advantages; in other cases, these efforts were designed for 
the protection of the smaller establislments. Again there 
was the desire to surround the average establishment with a 
protective wall against the onsla"ughts of those enjoying 
siTperior financial or geographical advantages. And finally, 

9763 



-104- 

there pas the feeling that all the memhers of an industry 
oust "be considered as one and no one should he permitted to 
malce too great inroads into the husiness of his competitor. 

The principal artificial advantage which the cost sjrstem 
sponsors sought to eliminate perts,ined to the de-oreciation 
chargBo It was recognized tha.t many firms had acquired plants 
and equipment at the ahnormally low prices of a hanlcruptcy 
sale. Again, the processes of reorganization through \7hich 
many enterprises have passed effected a devaluation of the 
capital assets. And finally, there were cases in which 
serviceaole plant and equipment hr.d "been completely written off 
in the depreciation charge of prior years. 

For the purpose of eliminating any competition arising from 
conditions s^jch as these, the a.dvocates of laaziy cost systems 
proposed to tase the depreciation charge upon present replace- 
ment values. Some s^oggestions wouJ.d have estahlished this "basis 
as the universal rule for the industry; other systems sought 
only to invoke this rule in the exceptional cases. 

However, in formulating policies, the Administration has turned 
a deaf ear to these pleas. The no-selling-helow-cost provisions 
were designed solely for one purpose j namely, the curhing of 
destructive price cutting. The limitation of price reductions 
for any other purpose would he an exercise of a power not con- 
templated hy Congr'?33 in the enactment of the Industrial Recover;^ 
Act, The A±T:Jiiiscration therefore should "tend haclcwards" in 
withholding apioroTcl of cost proposals which would set minimum 
selling prices at a level higher than anj^- individual's cost of 
prodtiction and marketing. 

In view of these and other considerations, the Adrainistration's 
policy is that the depreciation charge, for the purpose of 
detej-T'iining minimnm selling prices, shall not he higher than 
that amount which v;ould ordinarily he ascertained hy the appli- 
cation of generally accepted accounting rulese In other words, 
the hasis for the deprecia.tion charge shall not e::ceed original 
cost and the rate shall, be hased upon the prohahle life of the 
asset. Conformity to this policy is us'aally expressed hy a 
statement in the cost finding formi^la to the effect that the 
depre.iiation charge shall not exceed the amount which is 
allowable as a deduction in the H'ed.eral Income Tax Hetirrn, 

A few cost accounting systems proposed schedules of depreciation 
rates to he used hy all luemoers of an industry. Unless these 
rates are extremely lov/ such a proposal might conceivably establish 
a price level which exceeds the costs of some raemhers of the 
industrjT-, Consequently, the Administration has generally oh- 
jected to provisions of this nature; it insists that each memher 
of the industry should he -oermitted the right to employ such 
depreciation rates as are warranted hy its own e:qDerience and 
operating conditions. 



9763 



-105- 

It appears that many large or strong estatlishinents made heavy 
purchases of raw materials ditring the year 1933 in the anticipa- 
tion of expected increases in tre price levels. These concerns 
nOLild, on a rising- market, enjoy the cora^Detitive "benefits of a 
cost lower t^an those esta'olis'cuiients v/hich follow a "hand-to-aowth'' 
purchasing policy,. The fraraers of a great majority of the pro- 
posed cost acGOuriting methods felt that an advantage ohtained 
in this maimer wrs crossly -unfair and that any reductions of the 
selling prices of finished -orodiacts attri'butatle to this situation 
would constitute "desti-uctive price- catting." Consequently, 
these cost systems provided that the minimum hasis for the 
valration of raw mat,erials emhodied in the finished nroduct 
shall he their current replacement costs. 

The cuirent re-olacement value 'basis wa,s invoked also for the 
equalization of competitive conditions hetween integrated and 
specialized estahlishraents, A concern which carries on such 
activities as mining and fahricating wo-old in all pro hah Hits'- 
develop a lower cost for the raw materials of the manufacturing 
department than is pa-id hy those who confine their operations 
solely to the secohd-named function, ' The "specialty" firms 
helieved that this occurrence would confer an -anfair advantage 
upon their integrated coaTDetitors. Consequently, they sponsored 
cost accounting provisions to the effect that the output of the 
mining department should he charged into the fahrication processes 
at not less than at current replacement value. 

At first, the Administration was not averse to the use of re- 
placement values; it placed its stamp of approval upon severaJ 
cost methods which contained this provision. HoYrever, it 
hecar.e convinced that these proposals were oh.jectionahle in 
several respects. First, there must he considered the fundamental 
r-u2e that the price levels estaolished lij the approved methods 
sho\ild not e::ceed t]j.e cOf:t for any manufactvrer as estahlished 
hy the customary accounting procedu_reSc Se'cnd, it was not 
within the province or scope of authority of the Administration 
to restrict such legitimate occu.rrences as wise htiying policies 
of integration. 

Consequently, the Administration in July, 1934, issued a policy 
menorand-'am to the effect that for the purpose of determining the 
cost helow which s^les may not he made, the materials shall he 
valued at c-orrent replacenent costs or at their actual cost, 
whichever is the leer. 

One of the important chapters in the development of H.H.A. cost 
policies rel&.ted to the incliision of interest as an element in 
the cost of manufacturing and marlceting a product, A decision 
to eliminate' -chis item was made almost at the ver'y outset of the 
progrsjQ, It cannot he said that the inclusion of t]iis item as a 
cost element is a feature of generally accepted accounting prac- 
tice. Many texthook writers and practitioners recommend the use- 
of income sheets in which the cost of goods sold and the operating 
ercpenses (i.ts., items directly attrihutahle to manufacturing and 

9763 



. -105- 

selling activities) are separated fron interest and other non- 
o-perating deductions. There are other accoimtants who look at 
the • accounting -oro^blen "Drinarily from the viernpoint of 
nanagenient. To them, interest falls into the saiue category 
as dividends; it is a retvTn on the fimds vrhich had "been com- 
nitted to or invested in the enterprise. 

One ver^'- important prohlen: in the determination of the louest 
individual cost "belOT^T which sales may not he nade, relates to 
the volume of -production and its effect uoon ■■anit costs 



Thus, we have three oases for the calculation of unit costs; at 
the actu£»,l volume of productior., at the anticipated increased 
volume resulting from the price redtiction, and at the raaximvjn 
normal volume. The q-iiestion now arises as to the method wliich 
should be specified in an approved formula for the deterjiination 
of the cost helow which sales ma-r not he made. TJhat is the 
position of the Adj.iinistration in triis matter? 

I'.Z.A. policy distinctly dis?:pproved the use of actual current 
volxime as the sole hasis for the determination of minimum selling 
prices. The conditions which brought about the low volume of 
the present day cannot be overlooked. The Administration 
insists that the rates used in aroplying the indirect expenses, 
such as factory overhead, and adjiinistrative and selling costs, 
be determined on the basis of the normal or average utilization 
of productive facilities. In other words, no one may be guilty 
of "destructive price cutting" if he excludes idle or unu.sed 
facilities in the determination of that cost below which he does 
not sell. Or, according to some approved cost methods, minimui.i 
selling prices, based upon an averag;e volume of production 
thi-oughout the course of the business C)'-cle, are ■::5erraitted. (*) 

Sttpplementing Mr. 3o3''d's statement, a further argument advanced 
by Code Authorities for the use of ciirrent replacement' cost as against 
"cost or market whichever is lower" as the basis for minimum price 
determination should be noted. It was pointed out that, due to the 
impossibility of earmarking inventory, there was no way of determining 
whether raw materials act-j-ally used in current manufacturing had been 
purchased at an earlier or later date. It \Tas, therefore, contended 
that valuation at current market was essential in order to permit an;'- 
a.d.ecv3.te check on compliance. 

The policy memorandum to which Lir. Boyd refers in this connection 
was Office Hemoranduin ITo. 265, issued on July 18, 1934, which stated; 



(*) Uniform Cost Accounting S'-stems imder ';.2.A, by Orton 17. So'^'-d, 
C.P.A. , The Certified Piiblic Accountant, November, 1934. 



-107- 

"r.l.A. policy fti-vors 'cost or .larhet, vrliichever is lower' as 
the normal tasis for valuation of viaterials uherever they 
a;Toear in the cor>t forravlae which have teen provided in 
approved codes." 

2. W-umher of Cost S'/stems Approved 

Despite the large niimher of codes requiring the suhinission of 
cost s;"stens to lI.;i^.A,, actual aonroval ws-s ohlj'" granted to 39, in- 
cliiding 36 hasic and 3 supplcTnental codes. Tliis was in part 
attrioutahle to the wide difference of opinion which has heen shown 
to ha,ve ei^isted hetween Code Authorities and the Cost Accounting Unit 
of the Research and Planning Division (wliich represented the Administra- 
tion in the negotia,tiO'ns) as to the items which could he properly 
inclu-ded in the raandabor;^ cost systens. This, and the fact tha.t the 
Unit was seriously undermanned and was -an.ahle to cope effectively 
with the demands made uuon it hy the almost- simultaneous siibmission 
of an oven7helming numter of systems, preclu.ded ar,y possibility of 
rapid action. B^- June 7. 1934, only sixteen mandatory cost systems 
had heen s^ioroved. On that date Office hemorandun No, 228 was issued. 
In this memorandum MBA price ^oolicy definitely rejected any f-orther 
extension cf the cost protection device, although the Administrator 
shortlj'- thereafter in response to protests hy industry, explained 
that this change in policy was not rotroa.ctive. nevertheless, the 
Cost Accovjiting Unit and the Sesearch and Planning Division took the 
position that any further approval of mandatory cost S3''stems designed 
to effectuate no-selling-helow cost provisions m'as contrary to policj'^. 
However, this stand was not taken immediately, with the result that 
23 systems were aroproved "between June 7, 1934, the date on which 
Office I.Ienorandiim Fo. 228 wps issued, and October 25, 1934, when the 
last mandatory cost system was approved. 

The r.esearch and Planning Division, of coirrse, had no final 
power to determine policy. It did, hov/ever, eiqpress its objection in 
its memoranda reporting on loro-oosed cost s"steras. The question of 
policy arising was submitted to the Advisory Council, The Council 
expressed the opinion that approva,l was counter to current poli-cy, 
but that it was for the I'.I.E.B, to determine whether KEIA should 
consider itself bound by the commitments contained in the arpproved 
codes to the extent of acting fa.vorably on the proposed cost systens. 
The Council found that either position was tenable, but that further 
approval of cost sj^stems was contingent on a positive declaration hj 
the Board to the effect that such aio;oroval was proper. The lI.L.il.B, 
did not render such a positive declaration, with the result that no 
further mandatory cost systems were approved. 

In addition to these 39 approved systems, of which only 29 were 
still in effect by the time of the Schechter decision, cost rules were 
granted preliminary a;,3proval in six cases. These approvals were granted 
informally during the early pre-ssure of codification and were not sub— 
secu-ently ratified throug-h the issuance of an Administrative Order, 

In addition to these, insofar as icnown, cost sjj'stems were 
approved by Code Authorities in six cases in which administrative 

9763 



a-oproval was not prereq;aisite. In t\TO other codes, the Code Authority 
was permitted to establish preliminary cost r^ales on its own 
initiative, and in at least one of these cases (the Paoer and Pulp 
Industr^O such permission Viras utilized "by the Code Aiithority to 
develop ajid prescribe complete cost riiles and to avoid sutraission 
of an;^ formal system to liEA. 

In total, then, despite the wide inclusion of no-sell in^-helow-cost 
provisions in codes, these were virt\ially nixllified in all hut 53 
cases thro-ugh failure of ifflA to approve the cost systems necessary 
to effectuate them. In addition to these, loss limitation provisions 
were effective in the Retail Code and several other distribution 
codes in which approval of a cost sj'-stem was not required. 

A complete list of these codes is contained in Appendix III, 
These included a few industries of major importance, such as Graphic 
Arts and Electrical Manufacturing, and a large numher of smaller ones. 
The ability of an indtistry to secure ap-oroval of its cost systems was 
in no sense related to its importance or character, hut was essentially 
fortuitous, depending upon its success in getting "under the wire" 
prior to the reversal of -.policy by PiA. 

II. THE IiroUSTRIES STUDIED 

Sttidies of the operation of the cost protection device have 



been 



made for the following seventeen of these 53 codes: 

1. The Limestone Industry 

2. The Malleable Iron Industry 

3. The Screw Machine Products Industry 

4. The Throwing Indus trj^ 

5. The Fertilizer Industry 

6. The Asphalt Shingle Industry 

7. The Paint, Varnish and Lacquer Industry 

8. The Fire Extinguishing Apioliance Lifg. Industry 

9. The Pl-jmbing Fixtures Ind'-ostry 

10, The Hardwood Distillation Industry 

11, The Rubber Tire Manufacturing Industry 

12, The Commercial Relief Printing Industry 

(Graphic Arts Code) 

13, The Coffee Industry 

14, The Furniture Manufacturing Indxistrj?- 

15.. The Leather and Fancy Leather Goods Industry 

16, The Canvas Goods Industry 

17, The Paper Distributing Trade 

In only 10 of these 17 codes did the no-selling-below-cost pro- 
vision have any appreciable effect on the market, either for a shorter 
or a longer period. In 3 cases no serious effort was ever made to 
invoke it. In 4 more its application resulted' in complete and obvious 
failxijre. In presenting brief outlines of code experience in each of 
these cases, the following order has been adopted: 



97 6C 



-109- 

(1) A review o f the 3 cises in rrhich the provision vras 
never actually a^rplied, and of the reasons for this 
neglect; 

(2) A.s'iijnrar.ry 0:" tae 4 cases T/liicn resulted inirxiediate 
failure, and of tno reasons tnerefor; 

(3) An analysis of the 10 cases in rhich soiae degree of 
success \7as attained, 

III. CODES III WHICH COST PROTECTION iT.-.S I'EVEH SERIOUSLY IKVOKSD 

In 3 of these 17 industries, the codal prohihition against 
sales heloTT 'cost \7as nev.sr seriously invoked as a device for price 
control. These 3 industries are: . . 

(1) Tlie Asphalt Shingle and Roofinti' Industry; 

(2) Tlie Eurniture I'anufacturing Industry; 

(o) The Suhber Tire Hanufact-jring Industry. 

The reasons which operated in each case to deprive the cost pro- 
tection clause of any real imt)ortance will he reviewed hrieflj'-, 

A , The As-jhalt Shing:le and Roo f ing Industry . 

In this industry the cost protection device' never played an 
important role hecause it was entirely redundant. Tlby the industry'' 
requested its inclusion in the code is not entirely clear; it is 
pOssi'ble that the proponents hoped that F.R.A, would approve a 
definition of cost more restrictive than policy actually permitted. 
The industry had other and more effective means of maintaining price 
stahility. Average annual wholesale price indexes for prepared 
roofing oetween 1929 and 1935,, "based on 1929 = 100, were: 

1929 - 100.0 

1930 - 102.3 

1931 - 106,2 

1932 - 97,2 

1933 - ^9,6 

1934 - 107.3 

1935 - 113,0 (9 months) (*) 

Judging from these data, the industry required little aid from 
N.R.A, to maintain its 'orice structure. This stahility is in part 
ex-olained hy the fact that the hulk of the industry's products is 



(*) Statistical Materials, the Asphalt Shingle and Roofing Industry, 

Industry/ Statistics Unit, Division of Review, N.R.A., January, 1936. 



9763 



-110- 



mani'i'o.ctured urider a pe^tent licensirif^ arrangement. (*) Furthermore, 
in 1S2&, the industry initiated an open price systen vrith a 
liquidated damages agreement for enforcement, Ap"oro:r.inately 80 per 
cer.t of the industry membership, re-nresentini^ hetvieen 35 and 90 per 
cent of the volume, \7ere included in this a,^reement, (**) In 1930, 
as a result of an investigation oy the Department of Justice and the 
Federal Trade Com;aission, this scheme was dropped, and a system of 
reporting past -orices Tras suhstitnted without the liquidated da::an,'es 
feature, (***) Industry meetings to discuss prices, which had oeen 
initiated earlier, continued, and price stability does not appear 
to h-ave been appreciably impaired. 

Under the Code, which was approved on November 6, 1933, a,n open 
price system was established, Coiipled with the degree of patent 
control e::ercised by the Patent a,nd Licensing Corporation, a sub- 
sidiarjr of the Flintthite Companj'' (the dominant ijroducer), this 
appears to have resulted in raising the average price level during 
1934- a;7oro::imately 7 per cent above the 1929 figiure, (****) 

As a consequence, all the companies in the industry were pre- 
sumably selling well above cost, and there was no occasion for the 
use of the cost protection device, 

B, 37urniture Manufacturing Industry/ - 

The Code for the Furniture 'manufacturing Industry which was ap~ 
proved December 7, 1933, contained the following clause: 

"It is hereby declared to-be the policy:.tO-be' followed". by>-ally 
members of the industry to refrain from destn.ictive price cutting," 

The Code prohibited the sale, offer or exchange of ;jroducts 
of the Industry at less than their cost to the furniture manufacturer, 
except to meet existing com.petition of lower cost prod\icers on products 
of the same or equivalent design, character, qTjality or specifications, 
A manufacturer was also permitted to sell at any price discontinued 
patterns (close outs) which he would not again be permitted to manu- 
factu.re. In the case of orders for future deliveries, the term "cost" 
was to be based upon the cost at the time of acce-ntance of the order. 

The Code ei-npowered the Code Authorit:"- to establish uniform cost 
accounting methods for the Indxistr^-^, subject to the ap-oroval of the 
Actiinistration, The Code Authority vias also empowered to issue 
schedules of maximum trade discounts or allowances for volume purchases 
to govern the sales of furniture by furniture mamifacturers, subject to 
approval of the Administrator, 

(*) Transcript of Hearing, September 21, 1933, p. 50, 

(**) U.S. A, vs. Asphalt Shingle and Roofing Institute et al, U.S. So. 
Disti r.Y. in equitv 57-162 

(***) U.S.A. vs. Asphalt Shingle and Eoofing Institute et al, 

(****)lndex of T/holesale Prices, 3.'L.S. 
9763 



-Ill- 

The above pricin^, provisions differed from those -^resented ■by- 
Code ■ roponents" at the ublic hearia,., in that tne ori,.inal -n-'Q-'-'Osal 
would liave oased -orice minima on v'ei/,hted aver--^e cost of production. 
The Liail Order Association of America objected on the ^rouiid that such 
■orovision vould "orotect the inefficient producer and g-aarantee excessive 
^Drofits to the efficient producer. It further contended tliat the prac- 
tice of mail order houses of buyin- for cash and advertising, throu4;h 
catalogues at their ov7n expense relieved the manufactu.rer of any char,-es 
for credit and advertising ernense nhich v;ould be included in an 
"average" cost. The Association consequently advocated that individual 
costs be substituted for weitchted avera^^e costs. (*) 

The hearing-, 'oroc^aiced advocates of code provisions designed to 
iDrohibit the sale of furnitu.rc by manxifacturers direct to consujners and 
the consi^nin;2=' of mercha.ndise to retailers. Direct to consumer sales 
by manufacturers, with the exce-ption of certain contract equipment, was 
a continuous catise for conrolaint by the retail trade. (**) 

Cost DrotGction was advocated oy Code proponents to remedy condi- 
tions alleged to result fi-om over';irouuction, lack of cost laiowledge, 
■oiracy of designs, lack of udiiforraity in sales terms, and to a l-.rge 
extent to frequent style clia.n^es resulting in close-outs and dis- 
contintied viatter'us. 

Testimony at the -public hearing indicated ths.t Code, :^ro-ionents ad- 
vocated production control as the "orimary means of improving the price 
situation, witn cost protective px-ovisions secondary in irioortanco. Such 
prooosals resulted in the adoi^tion of a provision in the a-^^roved code 
-penalizing second and third shift o'lerations by a 50p increase in wages . 
over single shift wage rates. (•***) 

From the date of Code a^ iroval, December 7, 1935, there was 
considerable delay before a cost formula was finally ap;Troved by the 
Ac-jninistration on August 13, 1?34. The Code Authority criticized 
N.R.A. for delpying a-5^rov?l, claiming this situa.tion i:is.d had a bad 
effect on the industi-y. The Code Authority advocated that the formula 
provide for txie val\.iiition of materials at current mar]-et prices. It 
claimed tlxat there had been a marked advance in lumber prices; that any 
manufacturer who v/anted to invade a certain ma.rket or raid another manii- 
fa.ctu.rer's customer list by offering a shipment below cost, had in his 
desk di-awer an invoice for lumber bought at depression prices; azid that 
no one could tell from an ins;7ection of the furniture whether it truly 
contained low cost lumber or not. It was claimed that valuation of 
materials at current ma.rket prices was essential to malre it -possible to 
coni'ute costs definitely. 



(*) Tr3.n3cri;Tt of Public Hearing, ppi . I-^I-ISG , ^ 

(**) Transcrrot of Public Hearing pp. 331 to 24o 

" " " " ""(...Appendix) -pp. 32 to 44 

(***)Transcri-ot of Public Hearin,^, Oct. ], 1933, :^p. 3-10, 33, 34, 53. 



9763 



-112- 

The i.Lp.il Or^er Association of Anericr. objecterl to the current 
iTip.rlcet -irice oasis on the ;,roxiJid fcaxi its members CListriuuted their 
catalo,:s twice aunraa.lly; tnat the enormous arnoimt of v'orh in 'oreoaring 
and -Trijiting these catalo^i's ma.de it necessary for them to o-^-^in '.-orh 
on thetocscSkrs and to set selling prices for luerchandise listed therin 
months in ■■.dvance of the date of their release to customers; and that 
raercha.ndise had to ue contracted for and costs definitely Icnown "before 
selling; prices could oe set. 

The follovfin,:, is quoted from the letter transmitting the cost for- 
mula to the Administrator: 

"The foiTnula raibraitted here^dth had been revised in accordance 
i^ith three su,^^estions made b: the Division of Zconomic Research 
and Planning and, in this form, v:as accepted by th-t IDivision, by 
the Code Authority', and. by the Le^'al Division. 

"The Labor Advisory Board and the ConsLirners' Advisorj' Board, 
however, objected to the incliision of direct materials valued at 
current ma.rket -orices alone, and recoumended that valuation of 
direct materials at current mar'-iet Trices or at cost, whichever 
is lov.'er. 

"The Industry, bein:; soraev/hat loath to follow this recommendation 
and the Heview Division desirin^-, an e"oression of policy, this 
problem was talcen by the Assistant Administrator for Policy to 
the Aconinistrator, v.'ho ruled that the cost of direct materials 
should be computed on the basis of actual cost. 

"Only tv.o objections, and these from o'o.tside the industry, as 
against seVenty-five iniqiialif ied a-3"orovals from fii.rnitu.re manu- 
facturers lia.ve been received since the Notice of O;n-:ortunity to 
Pile Objections yras oublished on A--iril 18,, 1934. Of these tvro 
objections, one, from the I'Tational Retail Furniture Association, 
is merely a st ..teiaent of oiinion that it wo-uJ.d be a better method, 
to determine cost by siniily a^'lyin^^ a fixed average Tercentagc 
of all overhead to the direct labor cost. This method I understand 
to be contrary to II.H.A. ;oolicy. 

"The other objection, from the llril Order Association of America, 
is the sa.me as that of the Irabor Ad.visory Board and of the Consu- 
mers' Advisory ~oard, disc-assed above, the valua.tion of direct 
materials at current raai-li-et -Trice alone. As has been noted, this 
objection has been satisfied. " (*) 

The cost formula was'-iresented. for such moral effect as it raii:,ht 
have on the industry and boyon^ this Code Authority did com-iar-^.tively 
little to enforce its -irovisions. It was difficult, at least as to 
^n-icinj; -Trovisions, to ■'olicc an milustry so widespread, with so £-reat 



;,*) Letter dated August li), V/'A from Asst. De^i..ity Hiklason to 
Adin. II. R. A. files. 

S763 



-115- 

a pro-^ortio:i of siaall \-uiits and r/itli -ix-oducts so diversified as alnost 
to defy s"t^/-d'^.rdiza.tion. 

The follov.'i:i. is qiioted from a letter of the Tern-iorary Secretary 
01 the Code Aati-orit;' to the Assist-'.nt De-uty: 

"In submittin;:^ this fornmla, we are not ;-ro;oosint^' a definite 
classification of in'.ivic-aal acco'LU^ts under overhead items as 
s-ugsested in Plan II, for the reason that the f-u-rnit\\re industry 
is not jre-oared to renuire all rn3.nufacturers to ado-it xvniform 
account Classifications. Further stxidy will be necessary "before 
that cm oe done, d^ie to the T'ide variety of products and the 
varyin.^ raethods of production in this industry. However, we 
thinic it is almost essential that imiTiediate action "be taken to 
place before the industry a _^eneral definition." (*) 

A paragraph is quoted from a letter of the Code Authority Secretary, 
to the Assistant Depv.ty: 

"Lastly, may I remind yo^i of my impression, stated verbally, 
that any good cost accoujitaiit "could beat any one of the cost 
formulas yet erected, if it were ar^^ued in covi-rt. This is 
particti-larly trvie of our industry, and the cost accounting 
and field men are definitely avrare of the fact. Hence, all 
that we hope for from this cost formula is its moral effect, 
and . it sometimes seems to us that this has been denied us 
with great resultant damage to the industry, while the Recovery 
Ackiinistration has continued in the hopeless pursuit of more 
accurate cost formu.las sxiitable' for litigation pu.rooses, for 
which we do not believe they can ever be used."(**) 

On the jasis of this rather incomplete record, it is probable 
that no seriov-s effort y/as ever made to enforce the code provision 
against selling below cost in this indxistry. V/hat moi-al effect it may 
have xiad is imcertain. As has bean indicated previously, cost con- 
sciousness of industry members laay ha.ve a definite effect on prices. 
Furthermore it is ocssible that pressiire vjas e::erted to urge members 
to price their products on the basis of the cost system, though there 
is no evidence to indicate that such was in fact the case. It may be a 
reasonable presumption that, in an industry comroosed of so many units,, 
producing, such a diversity of products, such action vrould have very 
limited effectiveness, and that, consequently, cost protection as such 
played no important role. 

C. foj-hjer Tire Mann.facturing Industry 

The codP! for this industry was a;^ irovod on December 31, 1033. As 
indicated in Ciia.pter V, one of the -rimary difficulties confronting the 



(*) Letter dated karch 16, 1934, from L. T. '^^;p:i Tem^oraiy Secretary 
of the Code Axithority to Asst. Depxity G. ?.. 'Jihlason; IT.E.A. files 

(**) Letter dated July 21, 13:34, from V/aiter iuitcholl, Jr., Code 
Authority Secretary to C. H. ITil-lason, Asst. De'outy; II.E.A. files. 

9763 



-11^ 

PAiDber Tire Li?.'mfacturin^^ Industry was price -onsettlement resulting 
from the v-cle flu.c I/aations of r^v; material prices. 

During the early code -^eriod the -rice of crude ruboer was rising 
rapidly, having increased from a depression low of ;^-o/4 cents per "lOutid 
to 16 cents during tae svonjiier of 1934. The large laani^factLxrers h3.d many 
months' stock n'.rchased at lov; prices, while small raanitfactux-ers v/ere 
as a rule, iDuying at the ma.rlcet. 

The Industry "believed no benefit could possiLly be derived from 
the -orohihition agai-;ist sales "belov; cost, tmless r?j:' materials were to 
be valued at currevit rnarl:et in detejrmining minimtim ;;-'rice. 

Although H.2.A. had a-^"jroved the current market "basis in a number of 
indiistries, tno Hiibber Tire ivia.nufactiiring Industry v/as a'narently too 
late in submittin^: its fo^n^^la to avoid a flat rejection of this principle 
by the Cost Accoxoting Unit of tlie llesearch and Planning Division of 
il.R.A. 

The refusal of the lire Industry to accept this ;Dolicy as applied 
to its cost foi-mula, and the refusal of il.H.A, to deviate from, the policy 
resulted in := stalema.te. 

A biuletin from the Code Authority reqiieEting a vote of the industry 
on the revised 'cost formula was gTractically ignored, only a few decidedly 
negative rVplies being received. (*) 

With neither II. E, A. nor the Industry willin^ to yield, the cost 
protection device never became; ooerative. 

D. Caiises for non-a"o lication of Cost Provision 

Su-ii;n''ri7:ing these three cases, we find; 

(1) In the Asphalt Shingle industry cost protection was obviously 
unnecessary; 

(2) In the ^'■urniture Industry an indirect att^ici-c on the -^rice 
problem wa,s considered more effective; 

(5) In the Rubber Tire Manufactiiring Industry the failure of il.R.A, 
to oppose tne replacement cost basis for valuing raw materials caused 
the Industry to lose interest. Vei-y definitely, in this case, indi- 
vidu3.1 Q-perating cost was not considered by the indxistry a satisfactory 
criterion for minimum price. 

IV C0D3S III -JHICV CO£T FZOT^CTIOII ?aIL3D COLiPLDTDU 

In 4 of the 1? industries the attempt to -orohibit sales below cost 
resulted in iinaediate and obvious failure. There four are: 



(*) In'.' us try Study. 



2763 



-115- 

1, Eard'.-'pod Distillation Indn.stry 

2, Canvas Goods Indr.stry 

3. Thrc-rir.;2; Industry 

4. Pl-drnbint: iirctures industry 

The reasons for failure in each case v.ill 'oe revievved hriefly: 

A. Hardvjood Distillation Ind\\gtry 

The Code for the Hr..rdwoqd Distillation Industry Y/as approved on 
NovemlDer -10, 193'3, and the' Cost Accou^itin,.;: Pornrala on I/arch 21, 1934w 
There is little informrtion available as to the actua.l operation of the 
provision. As far as ca.n be deterrained it V7as never seriously invoked 
against any member and appears to Iiave failed completely of its purpose. 

Reasons for th?.s failure are fairlj'' obvious. The prices of the 
products of the l^ardwood '"'.istillation industry are to a great extent 
ovit of the lie.nds of its members. The price of luetha.nol and calcium 
acetate is deten'iiined by those industries v.-hich manufacture it synthe- 
tically, and the hard'^vood distillation industry imxct accept this price 
if it is to sell its prod\i.ct. (*) Similarly, the ;irice of charcoal ra-ast 
be related to the price of softrood charcoal and to the availability of 
subBtitutes. Any attemr-t by the Industry to control its orni price level 
was foredoomed to failr.re. 

3. Canvas G-oods Industry 

This Indtistry co.iiprises, as has been previously indicated, three 
disctinct ^rorips; a ferr (about 14 in n-cmber)' manufacturing for the 
national raarket andt distributing thro'ogh wholesalers; about 1,000 
concerns of in.termediate size nroduoinirr for more restricted markets and 
distributing generally through retailers; and an indefinitely large 
n-Lunber, presumably about 2,500 shops, of the fam,ily nandcraft type. 

At the u-blic nearing, and in negotiations preceding ap:'>roval of 
the Code, it shortly became evident tl:iat the irxterests of the v7holes3.1e 
and retail group v/ere far from identical-. As a result, the Code as 
approved included two divisions, each v:ith a provision prohibiting sales 
belov cost as deterrained by iiniform cost systems, and each including 
price I'iling provisions. 

The v/holesale divisions never elected, to utilize either of these 
price control devices. The retail group, on the other iTa.nd, attempted 
to "iut them into operation and secured approval of a standard cost 
system on Iwa.y 5, 1934. It shortly bacaiae apparent, however, tliat it ' 
was impossible to enforce there provisions bacause the wholesale estab- 
lishments were oi^tside the jurisdiction of t]ie ~.etail Code Authority, 

(*) Lemorand-um, I. C. Libin, Indufjtrial. Adviser to C. C. V/illiams, 
Depi^ty Aciin. Oct. 5, l'^33. Also, Survey .-of .I-iardLV-ooC Distillation in the 
United States, 2. Scott i.icBride, C/iOraical c: Metalor^ical Znc,ig.,0ct, 
iTov. , and Dec. , 19'32. 

9 753 



-116- 

while the handcraft shops were impossible to control. 

Failing in the attempt to make the cost protection provision 
effective, the Industry resorted to out and out price fixing agreements. 
These were "brought to the attention of N.R.A. and a Public Hearing v/as 
held on December 14-15, 1934, to investigate the situation. As a 
result of the evidence introduced, the price filing and cost protection 
provisions were stayed on January 14, 1935. 

A sTommary of the history of this attempt at price control is con- 
tained in the following: statement: 

"The so-called 'Wholesale' G-roup (about 14 in number) has not elect- 
ed to file prices; indeed, now professes to be strongly opposed to the 
practice, and, further, to all provisions in the Code that savor of 
price control. 

The so-called 'Retail' G-roup (estimated between 3,000 and 3,500 
units) has made a desperate but absolutely futile effort to make its 
Open Price System work, with disastrous results. Among those results 
the following may be mentioned; 

(a) Not exceeding 5'" of this Section of the industry have suffered 
the prescribed Cost Accounting System to be 'wished' upon them. Perhaps 
less than one- third of these make an .active and conscientious use of it. 
Nobody seriously thinks the prescribed system, or perhaps any system, 
can be made to 'stick' universfilly in the industry, or even in the case 
of a majority. 

(b) Healizing the practical impossibility of selling the idea of 

the prescribed open price system based upon the prescribed cost of account- 
ing system to members of the industry, the Retail Code Authority re- 
sorted to the use of a 'National Standard Awning Price List' (a cloth 
bound volume of 57 pages prepared by the National Tent and Awning Manu- 
facturers Association Inc., aiid sold to members at $4.00 and others at 
$5.00 per copy. Authoritative word was passed around that the good and 
proper way to com.ply with the compulsory price filing; provision was to 
invest in a copy of this elaborate piece of statistical fiction, absurdly 
claiming to represent 'true average costs', and notify the Code Author- 
ity that these prices,. less 65'^ (or thereabouts) were th6 filer's sell- 
ing prices. So far as this subterfuge for the method of price filing 
contemplateri by the code was 'sold' to the industry, the details of the 
business appear to have been taken care of chiefly by the regional rep- 
resentatives of the code authority. In the attempt to put it over, it is 
admitted by the most responsible members of the industry that threats 
and coercion were used. (See Transcript of Record, Dec. 14 and 15, 1934, 
for evidence of this and other statements in this memorandum.) 

(c) This resulted in barefaced, widespread price fixing. This 
was freely admitted at the public hearing on Dec. 14 and 15, 1934. 
About all that was said in defense of it was that price agreement had 
been "customary in the industry for 10 or 15 years, and something of 

the kind was regarded as essential by the dominant members of the industry. 



9763 



(d) It developed at the hesriir; thi-i- tlio iiractice of disre^'-^-rding 
filed prices oy those who filed '.hea v.'?.r, r; rr;-:.t '.nrou.jhout the' indxistry. 
The char^'es of violations, ijideed the arjrdru io;..i, a-ieered to leave few 

if any j^uiltless, 

(e) The o^en price system, as it has \7orhed, is an open scandal, 
and an open inducement to hrsach of la\.'. Those vho soonsor it confess they 
are pretty sich of it, ano almost reac'y to junk it, 

(f) As a result of tiie ruolic hearing the o-^en ")rice provisions 
of the code liave be^n ind.ef initely sta,yed. 

(g) The code is on the table for a major operation. 

(h) More than half of the total n-jjuher of cora;olaints filed v;ith 
the Com^oliance Division for violation of fair trade practices in the 
Textile Division are for violations of this code, and most of these are for 
failure to observe price "orovisions. "(*) 

C. Throw in,;; Industry 

As originally a ro roved on October 11, 19o3, the Code for the Tlirowing 
Industry included no cost -irovisions. However, the Code did .contain 
machine hour limitation provisions from which plants operating under the 
Cotton Textile Code, throwing yarn for their ovm v.se, were in major '-^art 
exem-p t . 

The Code Administration Coin,iiittee, shortly after ap'oroval of the 
Code, proposer, an amendment providing for price filing and "orohibiting 
sales belov; cost as cetermived 'oy a raiii'orm sj.stem of cost finding. 

In a bulletin dated Decenber 27, 1933, issued by the Throwsters 
Research Institute to its member'j, it '/as stated that "it is the belief 
of ;nany that the open prices coupled w^th the prohibition of selling below 
cost will bring about a speedy '"orrection of -o rices, " (**) 

A public Hearing was held on l-ae ;t reposed a.inendment on Jantuary 4, 
1934. Ho objections were raised either by ind'astry members or by the 
Administration. 

The -orima-ry problem at v/hich these proposals v/ere directed presumably 
arose from the fact that industry members veve extremely vxilnerable to 
pressure by cons-omers to grant orice reductions, S'.nd tliat the practices 
resorted to by consLmers were alleged to be M:'ifair. A bulletin issued by 
the Throwsters Hesearch Institute (the Trade Association) under date of 
Janoary 13, 1934, '-hile approval of the ■)roMosed amendment was pending, 
stated: 

"Vi[g have no hope fjia.t the ooen "rice clause in our amendment will 



(*) Memo. I/iercer "G-. Jolinston to Co'isuiaers Advisory Board, Jan. 4, 1935; HRA 
files. 

(**) C.A.C. Bulletin Ho, 128; Depiuty Administrator ' s files. 



-118- 

fix -n rices Tout we die Relieve tJirft tiift o^-en -'rice ^•fOl^ld sto;.' tlie 
chesting -^^nd lyii-,^. on tlie :-?art of the custoners aaa "'or.ld allov.' every 
commission throwster to laio'- the real -rice his cornetitor was quoting 
at any time. " 

The o"~en price -.tirovision and the provision prohioitin,^ sales helow 
cost were aooroved on reoruary ?, 1934. (*) 

The cost estin; ting lormiila was "based on a costing system which 
had heen used hy a memoer of the Industry for three years. This was an 
elaborate :ilan on the installation of whicli this raemoer had expended 
$15,000, (**) This formula was approved on I.iarch 2?, 1?34, hy Order iTo. 
54-5, without exce-otion. 

The formula appears to have been reasona.bly devoid of any arbitrary 
features. It apiears, hov/ever, to have been too complex for the re- 
quirements of the smaller imits in the InuListry, with the result that many 
of these small firms filed irices similar to those already filed oy other 
members withovit a.ttemrotin^ to figure their ovm costs independently under 
the fonnula. 

The Code Authority, t]iro-agh the issuanco of frequent bulletins, 
immediately set out to popularize the cost and o-ien price provisions. 
These bulletins went considerably further, however, than merely to urge 
coraoliance, as revealed by .the followin; quotation from the bulletin of 
April 3, 1C34: 

"In order that those employers in industry '-'ho throw or intend 

to throw weaving yarns on a commission ■:-asis, raa.y Imovi' when they 

approach the danges line on costs, the Code Ac'aninistration Committee 
ma3-es the folloi/ing statement: 

"A thorough ond painstakijig; investigation has "oeen made of the 
costs filed with the C.A.C. and the C.A.C. now Iciown that it is in 
a ;josition to state the lowest cost to the indvistry on certain 
standards of yarn and to fiirtherraore determine at any time the cost 
of throY/ing any 'yarn by an era-iloyer. This is all made -possible by 
the use of the standard and uniform costing olan just a:-'.-,roved by 
Administrator Johnson. 

"Realizing thc'.t there are many em/iloyers who must file their 
prices for commission throv/ing, and v;ho have not yet installed the 
standard and uaiform cost -".Ian, the C.A.C. ]:ere\vith shows the lowest 
possible cost on various standard yams as a r_u.ide. Any employer 
listing or sellin^^ at, trices below the basis of these standard yarns 
will be immediately rcq-aosted to ? ooar before the Cost Committee, 
of the C.A.C; to substantiate his cost. F-.ilure to substantiate •- 



(*) Amendment No. 1, Code for the Throwinr; Industry 

(**) Letter from C.A.C'. to H. F. Tagg .rt, Fob. 5, 1934; files of 
Division of Kesuarch i.nd Planning. 

9763 



-119- 

your cost, fiaure --ill Ij-vo ovily ona course oo&n to the .C.A.C. 
and thr.t is to re jort your c-.se. ■■.t once to tae ?ederr-.l Tr?.de Commission 
" as an unfair trade -^r.-c ice anc' ask for [prosecution. " (*) 

At first tliese "bulletins e?raded nothir.^ but oT.tiLiisu. Price filing 
-under the Code became effp-ctive April 9, 1??4 rnC xlie first filings in- 
dicated a general increase i:-- -rices. This iacre-.se, on the eve of a 
ueriod of lev; customer cejaand, :.'es..-lt.;d in :. severe di-oo in the d-;i-nrmd 
for thro¥/ing r.nd efforts \.ere -■ro.t forth by some customers to break down 
the price control. (**) 

The issur.nce of Office ifemorandun ITo. 3'^8 on Juiic 7, and the un- 
certainty surrou:idi;ig its aTilioation to existing code provisions, did 
nothing to iiT'rove morale. Shortly a note of dovibt began to cree-o into 
the Code Authority 't. announcements: 

"As .^eneral business begins to aick up out membership is ^ietting 
distinctly ngr-'Arous on the ^rice situation. There have been rumors 
that certain throvsters r re violatingthe price provisions of our 
code and efforts are being made to get specific data which would 
warrant bringing charges. 

"',7e cannot but feel that the n^^iiiber of violators is distinctly 
small. Therefore, it would seem ,,ood business :\nd sound ethics 
to maintrin "Zjricec. VJill enyone who can ^iva definite information 
please rcTort to the CAC so th^'t we could trace it. 

"■■je c^-nnot but feel that tne throwster, if th^re is any, v/ho is 
takin^: work bjlow the lowest -osted cost i& definitely committing 
suicide. "(***) 

Two outctanding ty:es of evasion seem to have been practiced during 
this period; 

(1) ^.'-ny throwsters :vad evidently thrown large quantities of 
yarn prior to the ap'n-oval of the costin^ -orovisions and were selling 
this ;/Trn below the minimiijn prices. 

(2) 'Jeavers, in some cases, attempted to voersuade throvfsters 
to evade the Code by offering to sell them raw silk and rayon with the 
sug.,estion that the throwsters bill the throv;in^ yarn to the weavers 
after comjleting the ■u'-ocessin,-,, instead of billing on the usual 
comii3.ission basis. 

The exoeri.ient ended in com-)lete failure. At a general Industry 
meeting held on July 14, 1934- it v.'as voted that the Secretary take the 
necessary st^ps to have the oaen jrice provision removed from the Code. (****) 

(*) Code AcLministration CoTimittee Bulletin, April ;!, 1G34, Deputy' s Files, UEA. 
(**) C.A.C. B-nietins 't^os. 12(4/13/34, 20(5/25/34, 2l(5/3l/34, 
(***) C.A.C. Bulletin, Jm\e 21, 1934. 
(****) C.A.C. Bulletin -;-29, July 17, 1934. 



9763 



-120- 

While this resolution inade no spar.iiic ipeference to the cost ?.cco-UJiting 
system, no further atterrrit v,-?.s raada "by the Cdde Authority to enforce 
^rice restrictions, T7lthou-;h it did bontinue the issur.nce of Bulletins 
calling on the industiy to refi*0-in from price cuttint^' practices. (*) 

M-:.ny firms objected to filin^; open prices r-.nd comr;iutinii, costs r.c- 
cording to the stc.ndo.rd methods. When business fs-iled to incre^.se 
materially., other firms evaded the Code and took orders belo'j filed 
prices. Enforcement became difficult as the Administr..tion -lolicias 
veered a^vay from the sugf^estion of price fixing. (**) 

D. The Plumbing Fixtures Indiistry 

As stated in Chapter V, the -^rim-ry price "oroblem in the Plumbing 
Fixtures Industry resulted from the com-^etition of m' il order houses v/ith 
the older channel of distribution, from the y/holesaler to the -^litraber or 
retailer. Manufacturers indentified with the 1 .tter method vere des- 
perately trying to stem the inroads of the former. The original dr\ft 
of the Plumbing Fixtures Code included ~ f " r reaching cost and price 
stabilization pi n. The cost provisions ■•)rohibited any member from 
selling industry arodxicts (e::ce-)t "close oaits") in the United States 
below the reasonable st nd' rd cost of ■:iroducing -.nd marketing such 
products. 

Reasonable st nd rd cost v s defined, to include the c\irrent market 
cost for rarr materials and sualias, f'.ir rages, f-.ir -.llov/ance for over- 
head expense, -.nd Et-,nd'.rd ^llo'vances for overhe .d e;aienses vhich-.were 
to be established ''oy th3 Association's Executive Committed, effective 
after Presidential a'-proval. 

Persu-nt to this provision a cost .ccofnting system was to be 
adopted as soon -.s possible subject to 'pirov ,1 by the President. The 
approved system v;:.s to be used by all members of the industry in alloca- 
ting the eniijnerated items of cost to s-iecific products. 

The provision entitled Hule D-2, luinimnm Prices, forbade any 
m-^.nufacturer to sell the products of the industry (except "close ov.ts") 
beloY7 the "orices established from time to time for different classes of 
customers and manufacturers and a^rproved. by the President, under the 
N.I.R.A. Such ap -roved ;;)rices ware to be the minirauin belov: which it 
would be impossible for " conroetent - nd efficient oroducer to e-rn a 
fair profit, considering the investment, skill -nd risk involved in the 
enterprise. 

Other features included in the pro:ios-.l were det-^iled restrictions on 
terms of sale, a scheme for resale "rica m^inten-.nce, detailed customer 
classifications, -nd price filing. The apparent aim w-.s not only to fix 
.prices, but -^Iso to strengthen the older wholesale method of distribution 
as against the m'^il order and direct to consijiraer ch'.nnels. 



(*) C.A.C. Bulletin, August 10, 19rj4. 
(**) Code History, page 37, In ilPA files 
9763 



-121- 

The Code for the riurjhing fixtures Industry hec .me . tu£-of-\7 r 
vith the v.-holes lers-pl-ujaberB grotns ^t one end, the rn il order nd 
"direct-to-you" t-rouis \t the other; the former tteiT^ting to nrint .in 
th.^ir -osition, the 1-tter -.ttenrptin/-; to -resent circ-iunscribing of 
their -^ctivities; ^'.'ith the n-.nuf-.cturers -.Ion:; the line from one ex- 
tre.-.e to the other denendin;; on the methods of distrihution they 
utilized. (0 " ■ ■ 

In the Code s finally -.i^^roved on J-mi-ry 13, 1934, S'les iDelon 
individvt-l cost, ;s determined hy st^.nd-rd system of cost finding, 
vere foruidden. The usu-l e-.ce-^tion vr s provided permitting the meeting 
of comiTetition. The code - Ito included .n open price system nd cus- 
tomer cl Esific tion. Terms of s le were restricted in some det.il. 

ProD .hly the most sif^nific.nt ■-rovisions of the Code, from the 
St ndpoint of the intern".l conflict of interest, v.- s the follo'-ing, 
'".imed directly "t the m il order houees: 

<'No m-.nv.f cturer r.r.y sell on the \7h0les ler -mrchse price level 
exce-!t to .n indiviuu-.l, firm or coirpor-.tion, or other person Y?ho 
buys" -.nd -SFamhles ',t 'holes"le ' nd sells plumoing supplies to 
retailers or to the retvil division of his o- n business; h.s ^. 
proier investment in liis business; m^int-ins '.n - dequ^te stock of 
sucn commodities to m.eet the norm-^.l plumbing supply requ.irements 
of nis tr-.de in his territory, .nd m-.int^.ins -nd dequ-.te book- 
]:ee-iing system, s-les office -nd delivery service. "(**) 

Restrictions -g.int.t the usu-l form of r.r.il order contr-^.ct r-.s con- 
t-.ined in ^. -:rovision fforbidding the s-.le of ra-.teri'.ls for stock, under 
-.ny form of ^u-.r-ntee to '~. purch-.ser - ; inst -dv.nce oi" decline in 
price, -.nd in -, provision specifying th.t only orders for stock for 
ship.ent v.ithin 30 d-.ys of receipt of oi-der, -.nd orders for specific 
jobs, could be -.ccepted -t -rices in effect -t receipt of order, -'.11 
orders to b^ subject lo --rices in effect -^t d".te of shi->ment ( -. b-.n 
on o"Ttion contr-.cts -nd lon^. time price „u-.r -.ntees) . 

Althoug;h the Code -.s -■-?: -roved seem.ed to re-^rosent in gener-1 ". 
victory for the gro-o.-: op-^-osed to the m-.il order nd "direct-to-you" 
scheme of distribxition, the effect of this "dv-nt-ge w.s in grert 
p-,rt mitig-.ted by ■-. st-.y of the provision requiring the est-.blisimient 
of differenti-.l discoiiJits for -■. oeriod of SO d-.ys. As -. result, -^.n 
-^.inendJiient to the Coda v,--.s dr'.fted by the Code Authority vhich modified 
-nd redr-.fted the custom'ar cl-.&sific .tion ;jrovisions. Under this 
-.mendment m-il order -.nd "direct-to-you" pxirch-sers obt-.med the right 
to be cl-.ssified "s '-.-holes-lers. This .menchment v.'-.s •■•- roved on 
J-.ym-.ry 31, 1934. (***) ■ 



(*) See st-'tements of Asst. Deputy Admr. D. G-. Pilkiiigtron, in Code 

History, p|)>. 16-17-55-37-76-77. 
(**) Plumbing 3'ixt-ures Code, Art. VIII, Section 7. 

(***) Amendment m. 1, Code; Vol V, Codes of F-.ir Competition, -p-o.69[ 
700. 



Some time '^.fter the -.p^rov^.l of the -.mondnant -- 30 --jer cent differ- 
enti^.l (determined oy 3rnst & "Irnstj Auditox-s ^nl Co;^t Account -".nts) v-.s 
proposed as the minim"um percentage -.llov/"ble oet-,;een the '.7holes':le -.nd 
other price levels, and siibmitted to II. 3. A. for -.p-)rov-.l. ./"Jihile favored 
by the Assist-nt Deputy Administrator in charge, the propos-^.l rr.ot v;ith 
op'-osition T-itnin the Administration, 6n the grorund th:\t it vas based on 
inadequate evidence, .nd it ras not p"^?roved. The most iraport-.nt objoctor 
outside of the ll.R.A. ras the Mail Order Association of Amorica. (*) 



I 



Manual of Uniform Cost Princi-oles for the Plumbing Fixtures Industry 
(prepared by Ernst & Ernst at a cost of $10,000) '-as -paroved by the 
Administrator on September 13, 1934, to become effective Sjntembor 29, 
1934. (**) 

In the coct formula as approved, materials were to be valued "t 
^.ctua.l or current repl^.ceraent cost, ?;hichever a'as lower. 

Burden v/as to be calculated on -■ b-sis of 56-3/3 ^er cent utilization 
of oper-^.ting cap-city, with an e::ce-.>tion permitting the use of higher 
percentages 'oy individual members -r^ho could justify such request. 

The cost -protection -•rovisions of the Code never became operative. 
The major difficulty vp.s occasioned by the reftis- 1 or f-.ilure of members 
to file rith the Code Authority their contracts v-ith mail order houses. 
In his report (Ho. 9), dated July 13, 1034, (***) the then Administration 
Member of the Code Authority stated th-.t the President of one concern 
(unnamed) having such a contract -.dvised the Authority to the effect 
that the filing of mail order contracts v,'o\ild a-reck the Drice structure 
of the industry. Also it was inferred th'.t at least some contracts of 
that nature contained clauses invalidating them upon disclosure of their 
terms to a third party. Cert-. inly, probhly ores-.ure of mail order houses 
on their suppliers in the industry should be talisn into condiseration. 

If it is true th.t one such srpalier is controlled financially by a 
large mail order house, as was stated, the f ilure of that concern to file 
its contract arobably v;ent beyond any mere pressare. Six complaints 
were filed -.gainst members havin_j .nail order contr-icts; tvro were recom- 
mended for litig-tion. One c.se, involving tiie comp-ny mentioned above, 
was argued before -. Federal District Judge in Wisconsin; no decision ?/as 
rendered, (****) 

(*) Code History, pp. 20-33; Vol. 3, P-.rt III, Code Record Sec; letter 
dated Aug. 28, 1933, from 2. J. Condon to il.P.A. 
(**) Administrative Order l"o. 304-14. 

^***)Deputy Administrator's files, Folder llo. 11, letter from Administra- 
tion Member Cl-^.y to Div. 2, H.E.A. 

(****)Litig .tion Division files, Docket L-S-2: "ajjidle Ma^'^^-'^'t''-'-ri^£ Co., 
Iviilwrulcee, Wise. 



9763 



-123- 

As ?. resvilt of this o-o osition "oy UT-.il ordar houses ^.nO. m-\nuf?.cturers 
T.^hose interests vera identified ivith thsm, tha -rrohiLition --^^^'-inst 
sellins^ ■'jelov: cost never ■bec.me o_.^er'"tive. 

The Code Authority, v;itii no mention of the uiiderlyini,- causes, str.ted 
thr-.t the l-.ck of coiv.nli -nee -nd enforcenunt r.nd the fr.ilure to obtain -^.ny 
-ction in co.ses v;nere com-:l-int5 h'^d ueeii filed since April, 1934, h?,d 
restated in complete industry demo l"^liz'^.t ion, costint,' the industry uo- 
v;?rds of ipSOO.OOO -. ^-eel:. (*) 

At the s-^.me time ■-. letter v-s ^.d^ressed to the Chr.ijrnian of the 
sever^.l ".stocip.tions in the industry divisions, st^.ting in p.-^-rt: 

"Prices --.re the lov:est in the history of the industry, considering 
the cost of m-".rmf'\cture, --.nd the mp.rket is in r. ch^.otic condition 
rith the resi^lt th-^t t-\70-thirds of the Scnitr^.ry Cp.st Iron Dn-'^.i.ieled 
V/are Mr.nufc'.cturers, over one-h-^.lf of the Vitrooiis Chin'^. Plurnhms 
Fixtures i.irnuf-^.cturers, :.nd •-■. I'-.r^e numher of those in other indus- 
tries (divisions) subject to the code o.re temiorr'.rily or perm-:^.nently 
oxit of o'ier:.tion. "(**) 

This condition prevailed -fter ~p oroxim^.tely one ye^^r of the Code. 

As c: consequence, the v-.rioup divisions of the Indi-'.stry requested 
the deletion on the tr-^de pr-'.ctice provisions. This vrs done by -.n 
r.mendment to the Code, effective Ajiril 1j, 193j.(***) 

?rob".bly the best commentf''ry on the results of -^ttenipted ■orice 
control in. the rlumbin.^ Fixtures Indu-stry is fumishea by the atti^ched 
chTirt sho^vin:; the ste-'.cy decline of ^ilumbing fixture trices from 1926 
through 1J35. Any tem-or'^.ry rise uixler the Code during the e-^.rly part 
of 1934 v-r.s soon lost, and orices dro'T"-ecl. fr.r belovr their e-^.rlier 
depression lovs. 

H. C-.uses of Fcilure 

Revie-7in2 these 4 c"ses, the follovinp: c'^uises of fr.ilu.re p.re 
o.ppc^.rent: 

(l) In the H-^.rdr-ood Distill-.-Gion Industry, prices ".re out 
of the h-^.nds of the Industry, -nd "".re determined by the -^.vrilr-bility 
of substitutes; 

{P,) In the C-'.nvr-'.s Goods Industry, there ^.vere three distinct 
coiTioeting groups, ilo one of these could, successfully control its 'orice 

(*) i.dnutes of Code Authority meeting, J'-.n. 15, 1935; Dap-aty Adninistr--.- 
tor's files, folder ITo. 2. 

(**) Deputy Administr-.tor's files, folder ITo. 2: letter dated Feb. 11, 
1935, from 3. K. Hanson, S.^cty. of Code Authoi'il^y, to uembers of Code 
Au.thority 

(***) Amencijnent llo. 3, Plurfiin^ Fixtures Code. 



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-125- 

level without coo::)er?.tion from the other t\"o; 

(3) In the Throv/irit, lucl-astry, the resentment of cons'umers 
p.p-oc.rently resulted in •-. buyers' strike v;ith which the Industry v/r.s not 
eciur-;^7ed to cope; 

(4) In the Pl-urahintV Fixtures Indr.stry the '.im of the ;Tro- 
visions of the Code v^.s to restrict the --.ctivity of the m-'il order 
houses, r.nd these refused to cooper^.te in the effort. 



.-126- 



V. CODES III T7HICH COST PROTECTIOil UAS EPI^ECTIVE 
TO A GREATER OR LESSER DEGREE . 

In ten of the codes studied provisions n£;n.inst selling "below cost 
Mere effective to n greater or lesser de^jree, cT.d for o, lon£;er or shor- 
ter period, as instrunents for limiting ~irice comiTetition. This implies 
no judgment as to their sxiccess in coping with the problems at which they 
were directed, nor their smoothness of operation as administrative in- 
stmiraents, nor the de/jree to which general comvilicance nas secured, in 
which respects their record vrrious widely. It does mean that, in erch 
of these cases, cost "orotection, for an aoprecir'ole -period, exercised a 
definite effect on the iDehavior of people in the market. These codes 
are: 

(1) Limeston Industry 

(2) Hallea'ble Iron Industry 

(3) Screw Hachino Products Industry 

(4) Fertilizer Industry 

(5) Fire Extinguishing Appliances Hanui'ncturing Industry 

(6) Paint, Vcarnish and Lacquer Industry 

(7) Graphic Arts Industry - Cornnercial Relief Printing Division 

(8) Coffee Industry 

(9) Luggage .-^Jid Fancy Leather Goods Industry 
(10) Paper Distributing Trade. 

A, Limstone Industry 

The code for this industry, as presented at the puolic hearing on 
September 19, 1953, prohibited the sale of products below their reason- 
able cost plus 10 oer cent. 

Price filing provisions were proposed for sellers of rough stone, 
(quarriers )» ^'^^ ^icL filing for the sale of fp.^ricated stone. 

There was some question at first as to whether independent cut 
stone fpbricators should -^ro-oerly be included ixrider the code, thus making 
it vertical in nature. On the reconmendation of the Deputy Administrator 
in charge, it was decided that a vertical code including both the quarry- 
ing and fabricating processes was desirable. 

As P result of po,st hearing conferences the code as approved on 
November 14, 1933, contained the following jrovisions: 

1» Prohibition against selling below "allowo.ble reasonable 
cost." A formula for rrriving at this figure was to be 
developed by the Code Authority, subject to the approval 
of the Administrator, 

2, Price filing orovisions for rough stone. 

3. Grant of power to the Code Authority'- to er.ta1)lish rules, 
methods ond practices for filing bids for fabricated stone, 
subject to administrative anoroval, 

9763 



-12V- 

Other tiian the o'ovxous aim of raising prices, these jrovisions 
were designed to-ei-tnirHa-te thi:#---Oi'-j'&i;ice- oi" bid peddliii:^; and also reflected 
the desire of independent ciit-rtone contractors to eliminate the cost 
'advanta.^e of the inte^r-iteo. operators. 

The Code A-'athority, upon :voproval of the code, submitted two cost 
formulre. The quarrying forma.] a vas developed hv a rauBler of concerns 
from studies extending over an ei^ht year -'•eriod. This formula est- 
ablished cost lists for classificctions of block and sav/ed limestone. 
These lists specified minimuir. prices per cubic foot for the sale of 
rou^h stone. 

The fabrication fonnula was developed by Scovell, VJellington 
and Company, Certified Public Accounta^its . It viras based on studies 
of cost figures of thirteen Indiana district operators representing 
over 50 per cent of total industry "oroduction. For purposes of compar- 
ison ,K.H.4. oDtained fi^';ures from fovjr.. additional concerns, one. in 
Alabama and three in Te;c9.s. ■' ! 

The fabrication formula listed (l) certain items of operation 
(jointing, sawing, etc.) to be chars^c' at tr-iocified amo-unts per cniic foot, 
(2) other items of operation (T-arriii£:, plsovin^, cutting, etc.^ to be 
charged at specified amovnts per hours, (li) nelling and administration at 
10 per cent of the sum of the first tvo iten.s. (4) cost of material as est- 
ablished by the qus-rryinc; fonmila, plus ■ inbcund freight, (5) a 10 per cent 
allowance for waste on rough and scabbled block - 5 per cent on sawed 
stone, and (g) outbouiid freight coiimuted at 150 pounds per cubic foot. 

Costs were based on 20 per cent operation. During 1933-34 the- in- 
dustry operated at less tlian 20 per cent of capacity. (*) 

Provision wbs made that any msmbf-.r could'.petition the Administration 
for permission to use his indivld-aal costs if lo.vfjr tlian those i ~ the form- 
ula, s-cch petition to be accoTT;;T;nicd by adO'pja.te cost data. If petitioner's 
request was approved, other r.:em:>erE could sell do:rn, to such approved indi- 
vid"uial costs to me-^t com- otiticn, Th^ oijarrying formula provided that pet- 
itioner's cost must bo lo-ner t:x-:n those established by the formula when 
computed on a 20 ;^er cent prodac'cion basis (one shift), as against the 90 
per cent used in tne cost dbterLination, ' and at wage rates prevailing in 
such petitioner's geographic loc?tion4 . 

Upon recormnendation of tho Industrial Advisory Board and the Research 
and Planning Division, and desoite the disapproval of the Consiijners Advi- 
sory Board, the Labor Advisory Board and the Legal Division, the cost form- 
ula was approved on May 12, 1934, without material cinange, for a trial period 
of 90 days.(--^*) • • • ' . 

(*) Approved cost fo-rmula for the Limestone Industry, in cost Accouiiting 
file; HPA. 

(**) Administrative Order lie. 113-8, lay 12, 1934; iJPA files. 



9763 



-128- 

The formula >-as repeatedly extended imtil it finally lapsed on Ifey 2?, 
1935. Various members oT^-oosed further- extension of the forravila from time 
to time hut the majority of the Indus try -^continuously ursed its extension. 

The Indi-n- Limestone Corporation, the 1-r-est unit in the industr;^ 
origin-lly -n enthusi-stic proponent of the formul-, consistently urged 
its extension uiitil M-y, 1935, v/hen it rev-rsed its position -nd protested 
any further --tten-nt at price stahilization. The corporation's sipohesm.-n 
voiced his conviction that the formula v-.s a fine docu-nent but -jjiv.'orkaole. 
He contended that it v?.s impossible to meet U.R.A, requirements as to 
evidence of violation with the result that the formula could not be en- 
forced. (*) 

The Bid Filing System, Working Rales and Bid Checking Systems formed 
an integral part- of the adiMnistration of the cost provisions and formula. 

Purs-aant to the code, the Administrator a-;TDi'oved a Bid Filing System 
on June 6, 1934. This provided that members should file v/ith the Code 
Authority or such agencies "s it designated, copies of their bids, to- 
gether rdth stich other information pertaining thereto as might be required 
by the Code Authority, in SLich form and uaider such circumstances as the 
Code Authority prescribed. Siich filed bids v/ere not to be opened by the 
Code Authority prior to the time -/hen they -^ere no lo:iger acceptable, or 
prior to the opening of bids by nvmers. (**) 

On the basis of this very broad delegations of authority, the Code 
Authority prescribed working mles governing the filing of bids. These 
rules, insofar as they pertained to bid filing, vrere an elaboration of the 
general language in the a/oproved Bid Filing System and set ui time limit- 
ations on filing nf bids, etc. The Wox'king Rules went beyond even the 
broad langua.gc of the System and specified a uniform Proposal Contract form 
for the. making of bids, A separate set of such Rules v.tis established for 
the "New York Metropolitan area and contained the requii-ement that all bids 
in that area must include "setting of stone." 

The Code Authority sought to enforce the cor-'t provisions through the 
adoption of a Bid Checking System for the ijuhistry. A ma-ster bid based on 
the Cost Formula, '-.Tas "prepared for a given 'project by an estimalbr employed 
by the Code Authority for 'the .pur|?OGe, All-.individ-ual bids lower than the 
master bid Y^ero considered. non-compliant. There is evidence that arch- 
itects, and general contractors informed of bids considered non-compliant, (**'' 

The Deputy Administrator quustioned certain of the Working Rules and 
the uniform proposal contract forms. As a result, the Rules wei-e' revised 
in the early, part of 1935. for submission to N.R.A. and an amendment proposed 

I*) Transcript of ^earing, iviay 2P, 1933; USA files. 

(**) Administrative Order Ho, 113-11, Jtine 6, 1934; iIRA files. 

(•**) Orally from Mr. Robert Wynn, Atty. to the Code Authority, 



9763 



to authorize rules for "bid raakiiv;« lleither n-s r,iToroved. (*) 

Two petitions \iere submitted for exen'^tion fron the cJ.lor^a'ble cost 
provision; one rraa granted, the other denied, ',7ith the Code Authority 
recommending denial in ooth cnses.(**) 

A number of corrplaints (not largo considering the si::^e of the 
industry) -fero -.ir.de relative to the Code Authorit/'s dcterminiation 
that hids v/ere non-com-oliant rnd relative to the worlting rules. 

The indication is that in the earl.7 -,-)eriod of administration of 
the Cost Formula ajid Bid filing System, co". ,^liajice generally rras good, 
indiiGtry members withdrawing bids when advised that they r-ero non-com- 
"oliant. There is indication of a breakdown of com/ili.'incG later (1935). (***) 

The Cornlifince Division, in 3, report 'covering the "Deriod October, 
1934, to Hay 27, 1935, lists four com-olalnts relative to failure to file 
bids, two relative to fa.ilirre to file ^irices and two complaints relative 
to extending special privileges, but none based on violation of the cost 
provision. 

It is imiTortDJit to note that no two identical bids '-'ere submitted 
during the existence of the Cost Formula^. 

In recomuending extension pf the Cost Formula in October, 1934, the 
De outy Administrator stated thr^t no protests had been received pursuant 
to a notice of o-iTTortunity to be heard. In Decembei^January, 1934r-35, a 
majority of those registering opinions favored extension. 

27 concerns protested the extension of the Cost Formula beyorL''l 
April, 1935, The DeiDuty Administrator recommended extension on the ground 
that failure to continue the Formula would result in undue hardship on 
the industry. (****) 

Bureau of Ilines data reveal a substantial dro-o in prices between 
1933 and 1934. Sales in 1934, however, ma.y have been ma.de on the basis 
of contracts executed during 1933 and earlier. 

A vice president of the Indiana Limestone Company stated at the 
public hearing held Liay 20, 1S35, that h is company had lost money every 
'month for years. It was stated that nost of the industry wrs operating 
at a. loss, (*****) 

*) Minutes of Meeting, Code Authority, Dec. 19, 1934, Jan. 25, 1935, 
March 23-29, 1935, IffiA files 

**) Administrative Orders l^os. 113-15 and 11:5-1S; iIRA files. 

***) Minutes of Meeting, Code Authority, iiardi 28-29, 1935; IIBA files 

****) Deputy Administrator's filns, iBA., 

*****) Transcript of Hearing, May 20, 1935; iilLA. files. 



•130- 



Sirecutive Order ilo, 6646, !L-y 14, 1934, Tjroved on effective device 
for enforcement of cora-^iance uith code pricing -orovisions, in vierr of the 
unusual proj3ortion of pul)lic "buildin : contracts, mrny of !-'liich entailed 
some ercpenditures of Governmer.t fimda under this Order Didders not con- 
;olying with IT. P.. A. codes rrere ineligible to quote on v,'ork involving the 
expenditure of Pederal ftmds. 

The information contrined, in IT.R.A. files rras sup-oleraented hy a 
field survey conducted durin;,' the Irtter part of Decenher, 1935, This 
v'as confined to the ITe':; York liotropolitan area. The follo^Tin,'? infor- 
nption '.7ps obtained as the result of intervie^TS ^-fith tro cut-stone con- 
tractors in that district: 

1» The code an 3arently had no effect on the nominal -price 
of rough stone, nhich had remained constant for the 
last ten years. Secret concessions nodifying this 
! nominal orice \7ere, ho^^ever, less --irevalent during 
the code- period. 

2. The cost -orovisions of the code relating to fahricated 
stone were ineffective in the Ilev York -area "becpusd 
minimum -prices had hecn cO!;: ,uted on the oasis of Indiana 
wage rptes. 

3. Indiana fahricators do not appear to have entered the 

V IJer- York area until recently. !Tith the increased amou:'it 
of federal constraction work, ','hich must necessarily he 
I- :awarded-to the lowest -bidder, contractors have sought 

bids from Indiaxj.r fr jricrtors v7ho have the rdvrjitrge of 
a wage rrte, -.orevailin;:; in their area., equivalent to 
.'.:'■ apiproximately GO per cent of the ITev; York rate. Hereto- 
fore, locpl subcontractors have ro-oarently been 3*110063:?- 
ful in presentin,'- Indianr irbricators from securing Hew 
York jobs but tha inflexible rules concerning federal 
construction a.vjards ]irve recentl:^ resulted in this con>- 
-jetition from Indiana firms. 

4. The code some'-'h^t restricted bid sho-;i-olng by general con- 
tractors, and the use of the kick-back by irresioonsible 
limestone sub-contr ctors. Since the code laosed, these 
■orpctices have pgr.in become very orevrlent. 

In an interview Mr. Hobert TTynn, counsel to the Code Authority, said 
that, pt least during the earlier oeriod. of adjninistration, the cost pro- 
visions coupled ^-rith the jrice nnd bid filing schemes '-ere distinctly 
Buccessful* in stabilizin;';"-)ric63, elimihatin,'- secret concessions aiid -13 re- 



venting bid paddling. 



9763 



■131- 



B. Malleable Iron Industry 

The code for this industry -'as ceo 'roved on I'lovem'ber 27, 193o, Ap;5li- 
cation for the code nas made 'oy the Halleahle Poimders Society, organized 
on July 31, 1933, for this exoress purpose, and to provide for the admin- 
istration of the code ri'ter aoproval. Re-oresentation rras claimed hy tlie 
Society as 81.9 -jer cent of t>- -buoal uiL-nocr of concet-,.> i^ ^e industry 
and 86.9 per cent of ^^^ zotrA volujie in 1932. (*) It was alleged that 
the Society --^*^ ^^^ Board of Directors had as meiihers several who were amane: 
the 48 indicted and fined hy the Government in 192S for price-fixing in 
violaticrtx of the Sherman Act. (**) 

As presented at the Puhlic Hearin;^- on October 2, 1933, the provision 
road as follows: 

"Subject to the ap :)roval of the Administrator, the Board 
of Directors shall prescribe a cost accounting system which 
conforms to the principles of and is at least as detailed 
and complete as the imiforra and standard method of cost 
finding set forth in the Manual of Accounting issued by the 
Society, with such modifications therein as may be promTil- 
gated from time to tine by the BOcard. The Board of Direc- 
tors shall in accordance with such cost-accounting system and 
with the ap'>-)roval of the Administrator determine periodically 
fair and reasonable costs of production in the industry for 
different types of malleable iron castings. 

"Each member of the industry shall install and \ise such 
cost accounting system as prescribed and, subject to the ap- 
proval of the Administrator, shall be furnished by the Board 
of Directors with the periodical tabula,tion of costs and cost 
differentials a.rrived at in accordance with such cost-account- 
ing procedure. An number of the industrj^ who shall fail to 
install and use the cost accounting system so prescribed or 
who shall sell malleable iron castings below the fair and 
reasonable costs of production as shown by the aforesaid tabu- 
lation shall be gaiilty of a violation of the code." 

The Society claimed tha,t competitive conditions in the industry 
during the several years immediately -oreceding ha.d been particularly des- 
tructive, that even preceding the depression substantial tonnages were 
sold pt less than cost of production. (***) it was stated tha,t General 

(*) Transcript of Hearing, October 2, 1933, and application for code, 
August IS, 1933. 

(**) Letter dated October 18, 1934 from Holinc Iron Works, Moline, Illinois, 
to Donal Eichberg - II. R. A. files, folder 9-A. 

(***) Letter, Se^ot. 2, 1933 from R. E. Belt, Secretr.ry to H. 0. King, 
Deputy Administrator, HILA. generrl files. 



9763 



-152- 



Motors hai "built the largest nsllen.ble ;^lant in the world and that vari- 
ous ;:)lants had oeen shut down or nere in receivership fs a resiilt of 
that one development. Por many years the Ford Hotor CoiJipany and other 
poi7erf\il 'b-ayers hpve held similar threats over the industry. (*) 

Opposition to the propos.al ^.-as_ expressed hy several industry meiiH 
liers on the groand that the irovisions- were . indefinite, that the Board 
coiild not possihle arrive at "frair p,nd reasonaJole costs" due to intri- 
cacies of production njid that costs \70uld therefore oe average end. 
ai'hitrary.. It was argued that consumers t-ould he penalised ajid some 
large users encoTiraged to "build their own lolants, entailing a permanent 
loss of certain hiarkets. It iras further contended that coTTpetition 
would be dest];'oyed "by the esta"blish ment of raninum prices and that the 
provisions would actually constitute a Drice fixing p^resment. Indivi- 
dual cost was advocated in "ilace of average cost, (**) 

The Consumers Advisor^'- Board contended that the provision would re- 
sult in the esta"blishiaent of uniform prices, elimination of incentive to 
reduce costs and loss of "benefits of reasona"ble and legitimate comnoetition. 
The Research aiid Planning Division stressed the importance of full con- 
sideration "'oeing given to the contentions of industry opponents to the 
pr 0-0 sal » 

The Consumers Advisory Bo.-ird recommended revision of the proposal to 
provide for the use of individual cost. This was" seconded hy the Research 
and Plsjining Division. This Division further suggested inclusion of a 
provision in the code to allow an individual to offer goods for sale helow 
his o\7n costs in order- to meet price;., of a competitor. (***) 

Des-)ite these o"bJections' the provision as -Dresented at the Put:ilic 
Henjring wps written into the . ,?;op roved code, without change. (****) 

Deputy Adininistrator H. 0. King, in recommending approval, stated: 

"I am satisfied, however, the.t the necessity for aiDproval 
"by the Adrainistrator is adequate protection against such 
restrictions.," (*****) 



(*) Letter, Lake City Malleable Co. , to Administrator, dr.ted March 3, 
. 1934. I-EIA general files. 

(**) Transcript of Pu"blic Hearing, Oct. 2, 1933, p:o. 94-104. 
Letters Vol. A, p. 1G4 - Code Record 
, Letters Vol, 3, -op. 1, 146 - Code 2ecord,lIRA files. 

(***) Vol. 2 - Memo. Consnxiers Advisor]^ 3oerd to H. 0. King, Deiouty, 
Hov. 3, 1933. ■. • 

Vol, 2 - Research- and Planning Re-Dort,"p; 31, liPA files 

(****) Approved Code, no. 400, Article V., Selling Below Cost. 

(*****) Deputy's letter to the Administrator, Vol. II of the Code. 

9763 



On January 17, 1934, the Code Authority submitted to ERA a shedule 
of fair and reasonable costs for certain products raid a copy of the cost 
accounting procedure proposed by the Code Authority. (*) On March 3, 
1934, a. public hearing vb.s held oh the proposed cost accounting system 
and procedure, and' on April 25, 1934, an Administrative Order rras issued 
prohibiting a member fron selling a casting belo^- fair eiid. reasonable 
cost as determined, at the nenber's option, by (l) 'competitor's filed 
quotation as obta.ined froH the Secretary, (2) cost of such casting a.s 
determined 'oy the tabulation of fair and reasonable cost list and dis- 
counts therefroi.:, as issued by the Board of Directors, and (3) cost 
to the member of such ca^sting, or of a casting of similar i7ieght and 
design, as determined by the principles of the approved cost accounting 
system; provided the member file rrith the ' Secretary/ any quotation on a 
casting that v&s less than the cost as determined under the second option, 
five days before the effective date of such quotation. Such filed quo- 
tation ^as to be in effect not- more than 105 days and could be Trithdrawn 
by the member a„t any'' time (**) In vier? of IffiA policy and other objec- 
tions, the 5 day iraiting period vb.s subsequently deleted. 



Subseqiiently this a.-j -'roval 'Ta.s extended on four occasions, as fol- 



lows; 



Administrative Ord^r lie. 132-13, July 31, 1934, 90 days 

Administrative Order Ho. 132-19,- Nov. 12, 1934, 60 days 

Administrative Order ITo. 132-21, Jan. 11, 1935, 60 days 

Administrative Order ITo. 132-24, liar. 13, 1935, indefinitely. 

The effect of these Adminis tractive Orders r^as a ra.dical change in the 
provision of Article V of the code rrhich prohibited every industry menir- 
ber from selling belorr the "fair and- reasonable c6sts" determined by the 
Code Authority. 

In comaenting on this change, the Assistant Deputy Administrator 
stated: 

"TJhen the costing system and schedule vere submitted to 
the Adjviinistratidn for approval, the industry,' vms ma.de to 
include in the costing system and schedule a "orocedure 
which, in effect, nullified some of the objectionable fea- 
tures of Article Y. The procedure permits a member of 
indu.stry to sell below the schedule either to meet prices 
of a competitor or to sell at prices based on his own cost, 
provided he file with the Code Authority the' quotation, and 
the customer's name and pattern number with respect to such 
sale." (***) 



(*) Letter, Jan. 17, 1234, from Robt. E. Belt; Secretary to National 
Recoverj;- Adi'.iinistr-'.tion. IfflA General Files, 

(**) Administrative Order ITo. 132-7, April 25, 1934. IIRA files, 

(***) J. H. L, Santos, Asst, Deputy, in recommending extension, Admin- 
istrative Order I'o, 132-19. 

9763 



•13^ 



The Assistant Deputj^ Adiiinistrator cJ-SO stated: 

"Certain me:a'bers of the industry have objected to the 
imdesirable -feature of i.ial;ing ;:)u'blic a mrchaser's name 
tind the amount rjhich he is paying for his purchase, . In 
addition to this, the trouble inyolved in estimating 
E-uad filing has tended to make the majority of orders in 
the indiistry based not on the ' individual member's cost 
but on the schedule of. fair snd reasonable costs formu- 
lated by the Code Authority," (*) 

Tlie Secretary of the Code Authority stated fhat at sectional meet- 
ings, at which more than 85 per cent of the industry in nuflbc^rajid more 
than^90 per cent in volume of business nere represented, action had been 
unanimous on the cost accoionting procedure, the cost accounting system 
and on the schedule of fair and reasonable costs, (**) 

The schedule of fair and reasonable costs presented -;as based on 
weight classification. The analysis of ty^jes of castings were based on 
approximately fifteen years experience and was accented by a ]bre^oonder- 
ance' of the industry as somid and practical. The actiial costs su.bmitted 
were compiled from cost data covering more thaai 6,000 individiial items 
accumulated over the last four years. The costs were submitted by ap- 
proximately 30 companies geographically distributed in different malleable 
-orodiicing districts and reproseut-ative, of producers of different sizes 
and trpes of operatio-n, Kiese. cancerns -ere selected on account of their 
greater efficiency througjiout -the ind^uitr-/ as a whole a;ad their mainten- 
ance of cost accoimting systeus conforming subs tajiti ally to those pre- 
scribed ^o:r the Directors. Costs submitted were adjusted to conform with 
labor rates o-id naterial trices than prevailing, with overhead adjusted 
in accordance with the approved., cost accounting system. (***) 

The Consumers Advisory Board was of the Opinion that siifficient data 
were not available for 1I.H,A. to. use as a basis for aroroval.of the schedule 
of fair and reasonable costs; the ?.esGa.rch ajid Planninr Division took the 
same view but later recommended approval of the rovisod . cost pro-oosals. 
The Consumers Advisory Board fui^ther contended that " sell ii^g and adi:iinis- 
trative ezq^ense" was not properly a part of cost and suggested that material 



(*) J,Il,L, Santos, Asst, Deputy, in recom':ending extension, Adminis- 
trative Order Ho. 132-19, 

(**) Transcript of Hearing, Ilarch 3, 1934, p, 54, 

(***) Transcript of Hearing, March 3, 1934, p. 47 (Statdment by Code 
Authority Secretary), 



9763 



-135- 

"be char.-'ec. ot cost or market, -hichever vas Ic-^er. The Industrial Ad- 
visory- Hoard reco-nnended unqualified r yoroval. (*) 

Ho ;najor chpi:ines i-rere made in the formula or in the schedule of 
fair and reasonr'hle costs. In fact, although they --ere a-roroved on five 
different occasions for short periods of time to pJ.Iot' for possihle 
chang.es, ;i.nd although the coide provided for -oeriodical determinations 
bv the Code Aiithority, no changes --ere ever made in either the systems, 
procedure, or schedule of fair pnd reascnaole costs. 

Some consumer con'olaints vera received claiming that the system ',7as 
utilised "by certain members of the industry to obtain iinreasonably high 
;.irices. (**) 

The lioline Iron 'Jorks com;olained that the code nas formulated rjid 
administered by the snine group ^.-hich hrd had diff icu.lties -Tith the FedersJ. 
Trade Commission in 13SS aiid that the system a:id schedules constituted 
price fi::ing. (***) 

The Sv-nsville Hallee.ble Castings Comppaay com-olained that the Code 
Authority required too much inforna.tion vith reference to quotations be- 
lov; the schedules. This companj^ referred to the necessity of disclosing 
customers names and addresses. (****) 

In March, 1935, the Adiainistrr tion Member re':iorted on c- meeting of 
the Code Authority p.s follor's: 

"The Secretary pdvised that 7S out of a total of 93 have 
installed the cost system or hrve made satisfpctory changes 
in their cost systems. Only 12 members ha-ve failed to make 
any attempt to instcl-l the system' or make proper changes in 
their orrn systems. A fe^ mevfoers are no-- ^-'orking on their 
systems r-ith ax: effort to fall in line." (*****) 



(*) Memo, y. C. .Meatty and M. S» Ma,ssel of Consumers Advisory Board to 

0. W, Hpscn, Asst. Deputy, Peb. IS, 1934. 

Memo. E. P. Taggart, P.esearch and Planning Division, to E. M. Ealsteac 

[ As St. Demty, Jan. 30, 1954, 

Memo. H. P. Tpggart of Reseptrch and PlpuiP-ing Division to E. 0. King, 

Deputy, Jeb. 19, 1954, 

Memo. Carroll !3urton. Industrial Advisory Board, March 3, 1934. 

(**) Letter from R, E. Belt, Code Authorit^^ Secrotp^ry, to members of the 
Societ.y, dated J-Jine IS, 1954, 
Letter from Asst. Deputjr to the Society, June 25, 1934, 

(***) Letter - Moline Iron ^orks, "inline, 111, to Gen, Eugh S, Johnson, 
dpted Aug. 22, 1934. 1II-:A General Piles. 

(****) Letter - 2va:isville Mallepble Castings Co, to Asst. Deputy, 
Dec. 10, 1934. 

(*****) Letter from Administration Member to Deputy, March 12, 1S35, 
(Polder 1, p. 2; IIEA files) 

9753 



.. ■ -136- 

The Code Authority reported to the IJ.R.A. that from December 7, 1933, 
to April 13, 1935, a total of rbout 155 conplrlnts rrere registered and 
that the most frequent corrolaint Trn.s failure to file quotations made 1361017 
the schedule of fair and reasonable costs. (*) 

In re-olj to f, letter from, the Counsel for the Code Authority re- 
questing an extension. of the cost accounting system, schediile of fair 
and rea-sonable costs and the procedure for applying the same, the Assis- 
tant Deputy Administrator stated in part: 

"In addition to this, the Code Aiithority has not to j^ 
. iQiOTrledge coniplied r'ith the procedure conto.ined in the 
cost system jy issuing revised a-ioplicpble discounts from 
the table of f'l^ir and reasonable costs at lepst quarterly. 
To be perfectly fran!: rith you, it is my personal opinion 
that the tabi^Laticr, of fair and reasonable costs in itself 
is nothing mr-re nor less than rji objectionable price fix- 
' ing feature in the Ilalleable Iron Industry. I f-arther be- 
lieve that i.-l is a bad r)rinci-ole to require any member of 
the industry to file the name of his ctistomers ^hich is nee- - 
essary trhen -'ou soil belor; the tabulation of fe.ir and rea- 
sonable COStSo'' {**) 

The O'oinion of the Code Authority (as ei^Drossed by its co-onsel) 
of the efficacy of the system is ouoted: 

"Its ado tion has -oromoted a. more intelligert and scienti- 
fic basis for the marketj.ng of the -products of the industry; 
has avoided the tendency tOTrarc. more undesirable snd ques- 
tiona,ble marketing activities; has not prevented in any de- 
gree the production and srle on the basis of individual ef- 
ficiency and Ion costs, but has ra.ther tended tor-p,rds a lorr- 
ering of the customer's market as compared to prices prevail- 
ing at the time of the a.dcotinj of the -jlan. It is undoubt- 
edly s^abject to further improvement rnd modif icatipn, but it 
is believed that is based on extensive exoerience, and study, 
and i-i a benefit to aJ.1 phases of the industr^r, iixcluding 
' labor ^, consumers, and enoloyeeso"' (+'<==♦■ )t 

Ca ' Scre^.7 Machine Products Ilanufacturin;::: Industr:,^ 

The s-\2TOlementary code for this industrj/-, as originall;'' presented 
on F'brur-." " 8, ll'-Vi^ iDT'ih^bitec selling belO'T cost rrith certain excep- 
tionL-: nhicn did not in /.lude pr^rmission to meet coim^etition. In response 
to st.jgerT .ens 'hy lJ„a,A, that sach an exception be provided, the industry 

(*) Code Authority Report (Folder 24 a, - Dra.ryer 10-3) . 

(**) Letter from J. R. L. Santos, Asst. Deouty to Arthur Fisher, 
Counsel of the Code Authority, Octo .:)er 5, •1934. I.'RA. files. 

(***) Letter from Arthur Fisher, Counsel of Code Authority, to 
Administrative Officer, U, A, Harriman, -Jan-oary 5, 1935, 

9763 



-137- 

contended that this TrovJd he inrpractic?! since 99 per cent of all proauc- 
tion ^7as on a special order ho.sis. The industr:^ further contended that 
the inclusion of such b provision T70uld encourage hid peddling and a 
primary ohject of the code sponsors tras to prevent this practice. 

Included r/ith the code, and forning an integral part of it, V3.s a 
cost formula. In this formula material ttp.s to he valued at current mar^ 
ket in accordance uith quotations in the "American i.Ietal Market," with 
stipulated allowance for waste, Laoor ajid overhead charges were to be 
computed on the hasis of various factors sjid indexes more or less arhit- 
ra,ry in nature. 

This formula was accorded careful consideration hy Dr. H, ?. Taggert 
of the Cost Accouiiting Unit, Hesearch and Planning Division. In summar- 
izing the results of a five hour conference with the industr:/ he said 
in part: 

"Especia.1 pains ^-ere taken to discover whether the numerous 
arbitrary percenta^-es and ano-'jjats were in fact reasonn.ble, 
* * * In eveiy ca-se the percentages used or the amou:nts speci- 
fied were those which would produce a minimum cost. Ho ele- 
ments of cost were included in making up the formula which 
were undesirable from our standpoint and the bases on which 
the various elements were included were swch as have been speci— , 
fied in other industries. l.Iy conclusions were tha.t the formula, 
was not likely to produce results which could be in any sense; 
considered price fixing," (*) - ,. 

Despite objections by the Consumers Advisory Board on the grounds 
that the cost formiola was arbitrary in nature, the code, including 'the 
formula, was approved on April 23, 1934, 

The Code Authority apparently took careful steps both to disseminate 
information with reference to the cost system and to check on any alleged 
viola.tions. 

Only one com-olaint was ever received with reference to the operation 
of the cost formula and this rr,as from a member whose method of operation 
was almost unique in that he still used low sipeed ncachines for his work. 
In this case, due to the special circumstances involved, some form, of 
exception was under consideration at the time of the Schechter decision. 

Unfortunately, no price series Is available which vrould permit an 
objective guage of the effect of the formula on price. However, the 
following quotation from a Code Authority bulletin issued on January 
23, 1935, appears to be pertinent: 

(*) 3?iles of Division of Research and Planning, Cost Accounting 

Section; llemo,, March 17, 1934, from H, ]?. Taggert to L. S. • 
Horner, 



9763 



*138- 



"HistoricaJ.ly ne should sta,te that' the code rras r!,pproved on 
A:pTil 28, hut that the ilinirmim Cost Sstimatins Pormula \tp.s 
not effective until June 27. This interim iDeriod t?:is hope- 
less as far as enforcement of ve^^e and hour and other pro- 
visions in the code -.Tore concerned, hecaiise many contended, 
and rightly so, that they could not pay more for lahor, more 
for material and still get the same price for the product. 
They were already reduced to the necessity of oijerr.tinf; at 
a loss and, with costs increasing from. day to day, ruin lay 
ahead for the majority." 



"The entire industry is convinced that a .formula is essen- 
tial to its Tjelfare. The present schedule may not he 100^ 
correct hut it is rrorkahle. Its main weakness is that in 
most instances it is at least lOfo too low." (*) 

Several months after approval of the formula a s'orvey of prices 
quoted hy different compenies for various sets of specifications revealed 
that generally prices were ahove the minima allowed hy the formula, and 
that there were no cases of uniformity, altho-ogh the spread "between hids 
was considerably smaller than had previously heen the i-ule. (**) 

The following appraisal of the effect of the price provisions of the 
code hy ilr. Ray Stevens, the Deputy Administrator, is included in the code 
history: 

"GEIIERAl Discussion: The code, having heen signed on April 
29, 1934, had heen in operrtion slightly over one full year 
and had a, record of achieveiaent wl^ich was notahle in corixoari— 
son with the rest of the mamifacturing codes halving unlike ' 
most, a complete and detailed method of costing written into 
the code, which provision was well enforced so far as enforce- 
ment lay in the power of the Code Authority and the result he- 
ing that the industry has prohahly gained more henefit through 
the standardization of costing methods than most other manu- 
facturing industries. 

"PRICE PROVISIOHS: The most notahle provision of this code was 
known as Schediile A and provided a coiiplete costing method for 
the menhers of the Industry, This provision represents one of 
of the few costing systems approved under the liEA and while it 
was felt oy Some to ha.ve ijindesirp.hle features i-^hich tended to- 
ward the fixing of prices, it was undouhtedly of great benefit 

(*) Btilletin, Supplementary Code Authority- for the Screw Ilachine 
Products Industry, Jan. 23, 1 935. 

(**) LT.R.A. files, Deputy's files, com^^laint #8. 
9763 



-139- 



to the industry as a 'Thole, es'pecially to some of the smaller 
nernoero irho have never developed a costing system pnd nho 
prior to this tine, had had only a vagae idea of ^hat their 
costs of raaxi-ufacturing rrere. I consider this provision is 
very valua'ole one ,and "believe that in any future codification 
it should he kept." (*) 

On a field trip conducted betr/een Decanter 16 and 20, 1955,. the 
foilo^'ing individuals vrho had "been connected vrith the Adr,iinistration 
of the Code nere interviewed: 

lir. George Briggs, Chairman of the Screu Machine Products 
Code Authority 

Mr, Luke B. Loclcrrood, Counsel for the Code A\ithority 

Mr. George Byrne, Secretary for the Code Authority 

A summary of the opinions axroressed at these intervieirs follows: 

"Perha.ps the greatest reason for the at least partial suc- 
cess of the "orice control device undoubtedly rested with 
the executive ability and leadership of the Code Author- 
itj. Because thece lea.ders of the industry gained the 
confidence of the entire industr:/, both through their own 
actions and the actions of their field representatives, and 
because they substituted education for bureaucracy and 
arbitrary enforcement, all members of the industry, large 
and small, felt that a sincere endeavor was being made to 
assist them." 



Code History, Screw Machine Products Code, Ej±ibit H. 



-140-' 

D. Paint, Varnish and Lacquer Lianuf acturing Industry 

The proposal, as originally presented, consisted of three distinct 



parts 



Thefirst part (relating only to trade sale.s) required specific 
differential^' in prices based upon the size of the conto.iners in which 
the products were packed. Under this pri vision products were divided 
into three groups. In groups 1 and 2, the gallon can was declared to 
be the "basic" package; in group 3, the half-pint can was basic. Each 
manufacturer would have determined his own price for these basic pack- 
ages, but would have been required to mal^e specified additions t'o the 
price for smaller packages, and specified deductions from the price for 
larger packages. 

The second part related only to lacquer thinners in full tank cars 
or tank wagon lots of not less than 1000 gallons, ^id simroly provided 
that such product sho-old not be sold at less than cost. Cost, in this 
instance, was not defined. 

• The third part provided that products of the industr;'- should not be 
sold at less than cost, which, in this instance, was defined as the sum 
of: 

1. Market replacement cost of raw materials, to be furnished 
monthly by the Code Authority. 

2. Containers and packages. 

3. Cost of processing, defined as includ.ing 14 general 
classes of expense. 

4. Administra,tion r<xid overhead of at least 10^ of the 
total of items 1, 2 and 3. 

5. Transportation charges on goods sold on delivered basis. 

As to the fundamentals, the industry was unanimously behind the 
proposal. The only objections were that some of the differentials in 
the first part were too high. The only reasons offered were a drop of 
$200,000,000.00 in annual volume frow 1929 to 1931 and a statement that 
sales below cost were becoming common in industrial sales, and were 
spreading in trade sales. It is probably a reasonable inference that 
producers who maintained prices on trade sales were willing to bid for 
industrial volume at a substantial pj-ice concession in order to decrease 
unit overhead burden. 

The decline in volume was ascribed to the slump in construction. 
No mention was made of other obvious factors, such as curtailed production 
of automobiles, furniture, and railroad rolling stock. No record of 
insolvencies was presented. (*) 



(*) Volume A, Lumber & Timber Products Industry files, MA, 
9763 



-141- 

3?iie 'propDso.l, as finalij' I'f^viseu, had:-:tnr-: L.nqa-i.lif ipd a;rn-ovAl of. ■■ 
the IiK'ustrial- Advicor;^ 3oard, til'-: ;; ..I'l-s' /u'lrisor- loard ^iid tlm. 
Deputy Adiiinistrator. It hlo.nei! :: ^ I'lv"-! no::, cli t;. v^iirov-^l of • the .. 
Division of Research -Mid Pl^vaiiing. . ^-.t, ::..:., al DivxPion cl'^inpd tii-^t.the 
privisioii was too" vag-.ie.. -was.tp'iddea, and proyided, inadeqvatc ■ svLpervision. (*) 

The Code was apv.vo-''^d on. October 27, 13b5. Ak fim.ll^ revised, the 
provision r°spectinf,- •.Drice diffej'e;3.t.ials was deleted, '^nd the provision 
respectin,';: cost of processing: was re-phrased to elininate the specific 
itens nan-^d in' the, pi:o.;o;ja]. , the language- being: • .. ■ 

"all direct costs, ■■'• * =*= depreciation * •* * "olus a proper proDortion 
of .?.ll inc'ir^ect. .:',^c bor:," p^rpenses *, * *, qn the basis of the average 
rate of litilizrticn of pleait fncilities of profit naking --iroducerG 
. dul-ing the years >.;2il-l-V>3.S' inclusive. " . • . .. , ,■ 

The provisions reg-irdi'i,-; adnmistration md overhe.ad was re-phrased to 
provide for inclusion' of r\ proportion- of these, (--oenses, to- be determined 
by the -Code Authoritp', sxihjpct to ap .r-oval of the Administrator.. 

Thereafter, b;- anf^ndhient to the Code, the ^jrovision rerarding p-ro- 
cesoin^ costs wis -.-e--ji itten t.-o. provii. i,- c-Mt t-ie Cede. Authority should 
classify the product of the industr;,- :::' ^ otablisn -^nJ furni-sh figures 
representing all direct md indirect ■' ..s/cr- posts, and f'-.-:-.;ipns'=s. Such . 
fi.gures were to be the "love;vL -r- i--,, i:-i-.,ble cost" p-id, .aftnr ,-ro:n-ov.'\l by the 
Adninistrator ■/ere, to he \cS-v' by a"-l leiah-^r-::, .of tt.e indistr" as ninii'TOin 
"iroces'jing costs. ■ , .. . ..,...■ ,„, '' , 

At -no t.L-rae cui^in;-; t-h-i lif-^ of t";''j= Cor'" •-,-;-.-- ,'■:':' r -M?tlo;:.s 'of tiho 
article efff^ctive oi ..ilt i:--;^oi.i.;; Iv, ^^ " ..i-; ":i:. n:" r .,,- -caeral aiid ad^ninis- 
tritive expenses" -rr-t, A-^fcr lally ■; i ..--.^rrf o.:ily - '':: t !■> ji^-riod' 'f roEi l^ovein-' 
her 11, 1923 tc Dece-iber 15, 1:^: 'o, t ic ^igLire '.ji^X-\r if) , of .ai other cbsts. 
Schedules -of T)rocessing costs -vc: : i;, <-t ; p irovpc '" a ey 11, 19S-1 -nd. \T?.ve 
effective only froLi iay "36, l^Z^^ to Janu^ir" 25, l\j'Ab. 

I'.'o cost accoiuiting for/r.ila ^faK contejiolatpo... The Code itself provided 
for the deterrrinaticn of figures repr'-^senting app ro:-4natpl3'- 7^'p of total 
costs. . ■ 

under the ."ilnended provision, tlie Code Authorit;;'-, suujpct to approval 
of thft Adjiinistration, detei-nined -uid puoli=-.ied these fj. .-ures in two 
.;:eneral classes, ra/- ;iateri-il costs -■,:-kI pro n ,-,■,.,- i a -; C'^-t!-.. 'lIi-^ Code A'uthor- 
it;- h.-ad- oiriilar po'/er to pu'olish s. f i "^ ire i.: vf r-c itin- ,rd Qiii;:trative and. 
general ercpenses., -aiic;! oo- -^r w::r not er-^.^rclsoL' of:fici-i,lly ^ft^r the Code 
"as 3;.-iended. Tran; oo , t- 'aion c iwges -"ere required tc bi^- added, ^luen goods 
sold f.o.b. destinati Ki, -nd. cost of ccnt-\in.~rs and. p,,c'':ages irere required 
to be .xdded in .ill cas^-^s. 



'') Cede, Article ^^Xli, A.if^ndnpnt d'o. I,.Volaji'^s 



-14a- 

Haw material costs were determined simply by reference to quota- 
tions published in the Oil, Paint and Drug Reporter. These quotations 
were reprinted monthly by the Code Authority and distributed to all mem- 
bers of the Industry. The Code Authority was advised that the power of 
Administrator to approve these costs would be exercised by a disapproval, 
if, upon complaint, the Administrator found any figures to be improper. (*) 
No complaint as to any of these figures was ever made. (**) 

Figures on processing costs were split into three items: 

(1) Cost of processing to the point of producing the finished 

product in bulk; 

(2) Cost of packaging the bulk product; 

(3) Losses of material before and during processing (evaporation, 

spillage, shrinkage, cleavage, filtration, over-filling.) 

The original figures approved were based upon a survey and esti- 
mates made by a committee of the Code Autnority, assisted by an account- 
ant, and accepted without objection by the 48 members of the Code Authority. 
The figures recommended were not uniformly api.roved by the Administrator, 
reductions being made in some cases. The original approval (^'ay 11, 1934) 
was for a period of 50 days, but with some further reductions, was con- 
tinued from time to time until November 26, 1934. (***) 

Immediately after the original approval, the Code Authority, upon 
suggestion of the Administration, employed a firm of accountants (Feat, 
Marwick, Mitchell & Co., Nev; York City) to conduct a survey of the In- 
dustry to determ.ine the lowest reasonable costs for these three items 
for the various classes of products of the Industry. The accountants, 
with the cooperation of the Division of Research, and Planning, prepared 
a questionnaire and a list of 164 members of the Industry to whom the 
questionnaire was sent. An effort was made to select large, medium and 
small firms, manufacturing all classes of products, in all parts of the 
country. Of these 164, 68 filled out and returned the questionnaire, 
but only 34 of these were usable; 19 members advised they could not 
furnish cost figures; 3 advised they did not manufacture the products of 
the Industry, and 74 made no response whatever. The 34 usable returns 
were from members doing a total annual business of more than 4^46,914,496, 
4 of them failing to report annual volume. Upon the bnsis of these re- 
turns, the accoiontants computed and recommended for aprroval as the 
"lowest reasonable cost" : 

1. For processing, the weighted average of costs reported by 
lowest cost producers comprising one-third of tne volxime of 
the particular product. 

2. For packaging, the average of the inter-quartile wage of costs 



(*) Code, Art. XXII, Amendment No. 1, Vol. I and II 

(**) Statement of C. E. Willis, Asst. Deputy 

(***) Code, Article XII, and Volxome on Order if71 - 54 

9763 



-143- 

3. 7or losses .tefore and diiriiig processing, the average of the 
inter-aunrtile range of costs. (*) 

Based -upon these recor^rr:endations, a new schedule of fi^iires was 
approved on December 7, 1934, effective as of November 26, 1934, for a 
period of 60 days. (**) 

The Assistant Deputy Administrator, C.S. Willis, verbally confirmed 
what was apparent from the record, namely, tnat in approving this last 
schedule, the recommendation of the accountants v/as accepted as to all 
figures which were lov'er than, or equal to, the ones previously approved, 
and was rejected as to all figures in excess of those previously approved. 

Two requests for exemption v;ere made, both from, companies selling 
primiarily to rpilroads. In only one instance the applicant complained 
that compliance with the Code was resulting in a loss of bv.siness to com- 
petitors, but inquiry by the Code Authority developed that the suspected 
competitors had not made the sales. In the other case it i.-'as urged by the 
applicant that his actual costs were lov/er than those approved, but this 
application was withdrawn and a request for permission to absorb all or 
a -portion of transportation charges was substituted. Both applications 
were refused. Several charges of violations were made but none got as 
far as the Litigation Division. (***) 

After the last scnedule was approved, numerous complaints were re- 
ceived from members of the Industry to the effect that packaging costs 
for putty were unreasonably high, particularly for small packages. That 
there was justification for these complaints is evident. It is common 
knowledge that a one-pound case of putty retails for 10^, usually with 3i/ 
to Zh<^ profit to. the retailer. The "packaging cost", (labor and overhead 
to transfer from bulk to package) , for one-pound cans was fixed at 2.4rf. 
These complaints resulted in a recommendation for a reduction to IAS at 
the time later schedules were' submitted, but no later schedules were ever 
approved. (****) 

On January 23, 1935 (two days prior to expiration of schedules) the 
Deputy Admiinistrator recommended approval of a new schedule which would 
have included additional products and effected reductions in some of the 
figures previously apiroved. The recommendation was referred to the 
Advisory Council which, in a majority report, recommended approval with 
a proviso tnat suitable adjustment be made for any member who could show 
that, because of his lower costs, the code provision was. unfair to him. 



(*) Report of Feat, Warwick, K'litchell ^ Company 
Code, Art. XXII, and "Volume on Order )f71-54 
(**) Administrative Order Mc 71-54, December 7, 1934. . 
(***) Administrative Order No. 71-40 (l0/2/34) Chas. E. Long, Jr. Co., 
Louisville, Ky. Administrative Order No. 71-48 (ll/l3/34) 
Frazier Faint Co., Detroit, Mich. 
(****) Letter dated December, 20, 1934 from Ferry & Derrick Co., Cincin- 
nati, Ohio 
" " January 24, 1935 from Mar-Kay Mfg. Co., St. Louis, Mo. 
" " January 24, 193."t from Steelcote I'^fg. Co. St. Louis, Mo. 
Deputy's files, N.R.A. 

9763 



A minority report by the representatives of the S'onsTomers' Advisory Bonrd 
took the position th?;.t the schedules sho-alcl he hssed upon facts, that the 
effort to secure information regarding costs shovred this information 
could not be obtained and that lack of data should preclude approval of 
schedules. 

The Cons\imers' Advisoty Board, in its minority opinion, referred to 
the fact that the accountants in submitting a preliminary report on 
Nove'-ber 14, 1934, had stated: 

"The results displayed, it shouli' be clearly unf'erstood, are not 
in our opinion acceptable in tneir pre'^ent form as the basis 
of proclaiming- lovest reasonable cost or loss frcfcors according 
to the provisions in the code, and ve do not submit them as 
final and repiresentative." 

Attention was further directed to tne fact that the final report 
of the accountants had been based on data from only six additional es- 
tablishments and that in this connection the rcco-uiitants had made the 
following comment: 

"It vdll be recognised from the' foregoing illustration of the 
computation of the weighted average cost of tne lo?'est-cost- 
one-third procluction, that xiad the information been more complete, 
so far as the number of members represented is concerned, the 
computed results would probably be different, although it cannot 
be estim.^ted to what degree. * * * *» (Decision if 169, Ad.visory 
Council, Feb. 8, 1935) . 

These recomTiendations were submitted to the 11. 1. ''..S. which, at its 
meeting on March 20, 1935, decided that tiie schedxiles should not be ex- 
tended. To avoid confusion and uncertainty in the industry, the entire 
article w.ns stayed on April 27, 1935. (*) 

Subterfuges are not of record but Assi'^tant Deputy Willis, from 
his conversations with members of the C-ode Authority,, advises they were 
of tvio f'eneral tj'pes, first, a simple refusal to disclose formulae on the 
gro\ind that they were valuable business secrets, thereby forestalling any 
determination and, second, a plea that bids at prices below cost were made 
unintentionally, usually because of t;<,rpograTJhical errors. 

The sales below cost provision was regarded by members of the industry 
as the heart of the code. At the time Of lice Memorandum No. 328 was pro- 
mulgated, the accompanying publicity was misunderstood by numerous members 
who formed the impression that N. R. A, , by a blanket order, had deleted 
the provision. ?his resulted in the receipt of forty-three protests 
against any such action by N. R. A. The decision of the N.I.R.B. not to 
approve or extend a schedvle of costs created bitterness in the industry. 



(*) Administrative Order No. 71-66, April 27, 193-: 



-145- 

The only meriiber of tae InCiustry who openl." tixpressed sat isi'pction at the 
ruction of F. I. H. B. was ivr. 'ffm. h . Hand of the t/jerrimac Chemical Com- 
Fciny, Boston, Mass., ifho stfited tnat the refusal to approve processing 
costs vould give him an op-'^ortunity to continue in the lacquer business 
without injury from arbitrary restrictions. (*) 

An examination of the fluctuations of the Bureau of Labor Statistics 
index of rholesnle prices of -paints and paint materials between January 
1933 and October, 1935, x'enders possible a degree of objective appraisal 
of the effect of tne Code. Tne index (1929-100) rose rapidly from 71.8 
in January, 1933, to 82.1. during July of that year, presumably , reflecting 
in part the effects of Code anticipation. During the life of N.3.A. , 
fluctuations were limited, ranf::ing from a low of 80.2 in October, 1933 
to a high of 84.6 in Iv'ay and June, 1934. The lapse of the price provis- 
ions in March,. 1935 is not reflected in any appreciable change in the 
index. During September and October, 1935, ner post-depression highs 
were recorded. It is, therefore, probable that by the spring of 1935, 
at least, the effect of the price provisions of the Code on the price 
level Was negligible. 

E. Fertiliser Industry - 

The Code as originally proposed would have prohibited the sale of 
fertilizer or fertilizer materials at a price belov* the lowest reasonable 
cost plus a reasonable profit. This proposal was- unacceptable to II. R. A. 
and the Code, as approved on October 31, 1933, contained the usual pro- 
vision prohibiting sales belov cost, except to meet competition. A price 
filing provision was also included in the Code. 

This Industry has long had a well organized trade association. 
This association had d.eveloped a cost system that was in use by fi5 
industry members prior to I'l. R. A. Consequently, the-re was little delay 
in the submission of the system for approval. (**) 

The cost formula for the Fertilizer Industry had the distinction of 
being the first formally api roved by N.R.A. , on February 24, 1934. (**=♦=) 
The formula as aprroved appears to have included relatively few arbitrary 
features. (Material costs were to be computed as the combined average of 
the actual cost of materials in the plants and of commitments or contracts 
made at the time the cost computation was- made or the price schedule filed.) 

An intensive educational campaign conducted by the association re- 
sulted in the installation of tne approved system or its equivalent by 
nearly all except the smallest industry members. (****■) Probably the 
most pressing problem from the standpoint of the industry members was one 

(*) Code Volume II - Protests 

Letter from Wm. M. Hand, April 12, 1935; N.R.A. files 
(**) Transcript Public Hearing, Sept. 6, 1933. Speech, John Moran, Cost 

Acct. Fqt'l Fertilizer Assn. Uat'l Assn. Cost Accts. Year Book, 1935. 
(***) Administrative Order 67-4, February 24, 1934 
(****) Statement of I^'ir. Hitnour of National Fertilizer Association, 

February 11, 1936, to Mr. A. 0. oimmes of the Minim\im Price Unit. 



9763 



-14o-- 

of distribution. Orij'inally, the usual channel was through the inde- 
pendent wholesaler. However, it was alleg'ed that the wholesaler, during 
times of depression, would play one producer against the other -until 
there wss a marked decline in price. As this condition had been preva- 
lent for some time and no means of stopping this practice presented 
itself, the majority of producers changed over to the direct agency 
method of distributing their products and quoted on a "consumer, delivered 
to the farm" basis. Gommission salesmen were also discontinued except 
in two regions, as it T;as found that these salesmen would split their 
cbmi^issions with customers. (*) 

There is a paucity of information about the actual administration 
of the cost provision, but apparently it occasioned little controversy 
within the industry and was generally compilied with. (**) 

Mr. Hitnour of the Trade Association stated to a member of this 
Unit an February 10, 1936, that the industry considers the cost provisions 
of the Code as having been distinctly beneficial. 

An objective measure of the combined effect of_ the Code provision 
and the change in the distributive system may be to some extent traced 
in the fluctuations of the price index of mixed fertilizers and fertili- 
zer materials depicted in Chart V. 

It will be noted that about the middle of 19.32 the price of mixed 
fertilizer commenced dropping much more sharply than that of fertilizer 
materials, so that in June, 1932, the former index v/as 12 points under 
the latter. Buring the latter part of 1933, however, the mixed fertili- 
zer index possibly in anticipation of Code effects, rose more sharply 
than that for fertilizer materials and, shortly after tne approval of 
the cost system, crossed it. 

The mixed fertiliz.er index then stabilized within a relatively 
narrow range, but appreciably above the fertilizer materials index, for 
the remainder of the life of the Code. Subsequent to the Schecter 
decision it dropped sharply, and in October, 1935, was again three points 
below .the fertilizer material,s index. -To the extent to which these in- 
dexes may be considered as representative, the effect of the cost pro- 
visions of the G-ode on fertilizer prices, may be regarded as having been 
quite marked. The sharp drop subsequent to- the Schecter decision may 
be interpreted as indicating that prices under the Code had been raised 
to a higher level than market conditions alone would warrant. 

This effect was not achieved without protest from consumers of the 
product. At the price hearings held during January, 1935, Mr. A. S. 
Brower, Director of the Division of Purchase and Contract for the State 



(*) Transcript of Hearing, January 9, 1935, p. 138. 

(**) In a speech delivered before the National Association of G-ost 
Accountants in June, 1935, Mr. I^oran, Cost Accoiuitant for the 
Association, said: "I did not find a single case wnere the records 
indicated that a sale had been made below cost." Yearbook, 
National Association of Cost Acco\intants , p. 935.' 

9763 



-147- 



9763 




-148- 

of North Carolina, appearing as personal representative of the Crovernor 
of that state, submitted a "brief which included the following allegations: 

1. That one-seventh of all fertilizer manufactured in the 
United States was used in North Carolina. 

2. That one of tne principal sources of competition to the sale 
of mixed fertiliser was the use of the ingredients from which 
it was made. Under tha Code, control v/as assiuned over the 
resale of all in.jredients, prohibiting their sale in sm.aller 
amounts than the standard mix, thus largely withdrawing any 
possibility the farmer might have had of reducing his costs 
through direct mixing of ingredients. 

3. The price of some items had increased as much as 80 per cent, 
fcir out of line with increases in the wholesale market. 

4. The effect was "to have unwittingly created a horizontal 
trust that amounts to and results in a practical monopoly." 

5. That agents (distributors) were bound to maintain resale 
prices set by the manufacturers and had to make a contract to 
comply vdth the Code for the Fertilizer Industry, accepting 
personal liability for failure to comply with any provisions 
of the contract, and agreeing to forfeit all compensation 
earned or to be earned if the provisions of the contract vjere 
violated. A merchant was not qualified as an agent or compen- 
sated until he had sold as much as 100 tons. Individuals dis- 
tributing less than 100 tons were only allowed quantity discounts. 

6. That goods remaining on hand with agents from season to season 
were required to be sold in accordance with any new or changed 
price lists immediately after the effective date of such lists. (*) 

^- Fire Extinguishing Arpliances Industry - 

The Code for this Industry was presented by the Chemical Fire Ex- 
tinguisher Association, Inc., and was aprroved on November 4, 1933. Two 
schools of thought divided the Industry in its opinion on price. 3ie 
majority (consisting of members of the trade association) were in favor 
of a high price structure, whereas the minority (outside the trade asso- 
ciation) favored lower prices. Members of the trade association Y'ere all 
manufacturers of "apt)roved" devices (manufactured to specification to meet 
the requirem.ents of Undervrriters Laboratories, Inc., Chicago, 111., or the 
Associated Factory Mutual Laboratories, Boston, Mass., and the approval of 
the United States Bureau of Standards for devices used on vessels plying 
in United States waters.) '^e volume of "■■anarproved devices represented 
but a small part of the Industry's production. 

"Unapproved" devices were included under the Code at the behest of 
N.R.A. , and the former '3ode Authority Secretary stat:-;d to a member of this 
unit that the Code Authority held more or less aloof from interference 

(*) Public Hearing on Price Provisions in Codes of Fair iSompetition 
Supplement, pp. 165-193. 



-149- 

with the conduct of l)iisiness ty the manufacturers of such devices.. 

Manufacturers of "unapproved" devices had no representation on the 
Code Authority. 

The preponderant group prevailed, and was responsible for inclusion 
in the Oode of such provisions as: mandatory customer classification, 
mandatory discounts applicable thereto, and "lowest representative cost", 
which prevented sale of Code products at prices "below the cost of a 
"representative" member whose costs were lowest, pnd whose "representative" 
nature must include employment of a research organization, educational 
publicity and sales promo'tion for marketing a complete (representative) 
line of products of the Industry. 

The only elem.ent of price fixing not employed was the setting of 
individual list prices, yet such omission was counter-balanced by the 
attempted fixing of "floor" prices below which rigidly controlled dis- 
counts could not penetrate. -Shus, in effect, a complete price rigidity 
Was established, as evidenced by copies of price filings of 49 industry 
members contained in the Deputy s files. (*) 

Numerous criticisms of C-ode provisions affecting price were regis- 
tered at the public hearing and through letters. Such criticism was 
directed against; 

(1) Granting the Sode Authority power to fix arbitrary cost or 
prices. (**) 

(2) Method of establishing "lowest representative cost". 

It was charged that only 2 or 3 concerns could claim to qualify as 
"representative" under the 'Code definition, and that smaller concerns 
would be forced to take the lowest cost of that limited group. The manu- 
facturer of devices which were not so well known as those of the larger 
manufacturers (who through long establishment, advertising and wider dis- 
tribution had created a better demand for their products) could not com- 
pete with the latter v/ithout some price differential to compensate for 
lack of prestige. The general contention of objectors was that they should 
be permitted to follow their own individual costs in the establishment of 
selling prices. (***) 

(*) Code History - Price and Accounting Provisions 

(**) General Fire Truck Co., Buffalo Fire Appliance Corp., Kent Extin- 
guisher Co., 3-<-o Co. 
{*'<'*) Letter Oct. 10, 1933, General Fire Truck Co. to Secretary, Code Authority 
" Oct. 13, 1933, Buffalo Fire Appliance Co. to " " 
" Oct. 20, 1933, Kent Fire Sxtinguislier Co. to Administrator 
N.H.A. files 



9 763 



-150- 

(3) Mandatory definitions of Trade Ppctors and mandatory differen- 
tials. (*) 

(4) Inclusion of makers of "unapproved" devices under the Code.(**) 

The following are the principal criticisms and silggestions of the 
N.R.A. Advisory Boards concerning cost and price provisions: 

(1) Substitution of individual costs for "representative" oosts,(***) 

(2) Permit each member to establish his own differentials, a/ 

(3) Permit each member to use his own cost system if already 
installed.' b,/ ' 

(4) Proposed cost formula did not give any consideration to possible 
effect on costs of the utilization of different channels of distribution, c/ 

(5) Objection to definition of Trade Factors and Differentials - 
the tendency would be to fix both the cost and .selling price of the 
appliances, d/ 

(6) Suggestion that material be valued at, the lower of cost or 
market, and that selling and administrative expenses be eliminated from 
"costs" • e./ 

No siommary of post hearing conferences is available, but apparently 
the comments and cfiticisms of opponents failed to bring about any material 
changes in the proposed Code. 

Promptly after the approval of the Code, the Code Authority acted 
with great rapidity. The Assistant Deputy then in charge of the Code con- 
strued the language "approval of Administrator" to warrant issuance of 
written approvals over his own signature, unsupported by any advisory 
report or any findings of facts. On December 12, 1933, the Assistant 
•Deputy wrote the Secretary of the Code Authority as follows: 

"The differentials' included In your letter of December 4 are here- 
with approved. 

"With respect to yotir letter of December 11, enclosing memorandum 
with respect to that clause in the Gode defining representative 
costs, the interpretation set forth below should be made a pnrt 



(*) Letter Oct. 13,- 1933, Buffalo Fire Appliance Corp. to Secty. Code Autho] 
(**) Testimony of Powell Evans of the Merchant & Evans Co. at the Public 

Hearing of October 23, 1933. 
(***) Memo. Consumers' Advisory Board to J. K. An^rrierman, Deputy Admr. 

November 2, ' 1933. 
(a/ Memo. Geo. D. Haddock of Consumers' Advisory Board to J. K. Ammerman, 

Deputy, Nov. 3, 1933. 
b/ Memo. H.F.Taggart, Hesearch and Planning Division, to K .J. Ammerman, 

Deputy, May '21, 1934. 
p/ II " II II II n II II II 

d/ Memo. J. E.Hughes, Research and Planning. Div. to Dep. Adm. May 8,1934. 
e./ Memo. M.S.Massel, Consumers' Advisory Hoard, May 17, 1934. 
9763 



-151- 

of the record and is herev;ith approved, in viev of the peculiar 
circumstances surroundiniC the first reports received v/ith the 
idea that a more definitive interpretation will be submitted for 
the approval of the Administrator on, or before February 1, 1934." (*) 

It is to be noted that the approval of the "Cost Accounting System" 
had not previously been asked, and had not been given by the Administration. 
After receipt of the Assistant Deputy's letter, the Code Authority dir-. 
ected members of the Industry to desist from selling below "representa- 
tive costs" as "established as aforesaid". 

In June, 1934, the Bivision Administrator advised the Code Author- 
ity that its ruling dealing with definitions of trade factors, price 
differentials anc representative costs had been disapproved, and it was 
specifically pointed out that "representative costs" must await Admini- 
stration approval of the uniform system of cost accounting provided for 
in Article VI of the Code. 

The Code empowered the Code Authority to, establish a "Uniform 
System of Cost Accounting" in conformity with accepted standards. Such 
system when approved by N.E.A. , was to be mandatory on each industry 
member, and was to be used for the determination of each individual 
member's cost. Upon determination, such casts were not 'to be used as 
a yardstick to determine a "no-selling-below-cost" provision, but 
rather were the vehicle whereby "lowest representative cost" was to be 
determined. 

A proposed cost accounting system was submitted by the Code Author- 
ity on March 26, 1934. The system, as revised was approved on July 20, 
1934. 

The Uniform Cost i'ormula,' as proposed, provided for valuation of 
material at current market prices, with overhead to be computed on the 
basis of normal rates of operation. The only changes affecting determi- 
nation of cost made in the formula submitted at the public hearing 
before final approval were: (l) material to be priced at actual cost or 
market, vhicliever is lower; (2) cash and trade discounts (on material 
purchased) should be deducted from material cost. (**) 

Although the improper approvals of "lov/est representative costs" 
and of customer classifications and discounts applicable thereto were 
withdrawn by iT.R.A., yet these provisions were adhered to by the majori- 
ty of the industry throughout the life of the code. (***) This may be 

(*) Letter from J. P.eed Law, Asst. Deputy, to Code Authority, Dec. 12,1933. 
{**) Administrative Order No. 98-5, July 20, 1934 
(***) Code History, pp. 47-48 



9763 



"152- 

explained perhaps ty the concentration of aliriost the entire output of the 
industry in the hands of a few concerns, among v/hom informal agreements 
could easily "be effected. 

The Code Authority filed no less than 33 complaints of non-compli- 
ance with code provisions, such as failure to file reports of individual 
costs, schedules of prices, reports of wages and hours, etc. These were 
filed with the Government Contracts Division of N.R.A. against bids on 
Government proposals, in an effort to have these bids rejected. (*) 

A letter from- the Code Authority, dated May 3, 1935, addressed to 
two members of the Industry, revealed an effort to control the selling 
activities of distributive factors through their sources of supply, and 
thus to secure resale price maintenance. The Assistant Deputy in a letter 
to the Code Authority made the following statement: 

"While it is obviously im-possible to undo the effect caused by the 
above-named lettei's, you are requested to take no further action 
of any nature which would expressly or by implication be construed 
as an attempt to control any elements of the trade hot amenable 
to the Code * >k >« * " . (**) ■ ■ 

The Federal Trade Comrission filed a complaint on April 4, 1935, 
against 17 companies, the officers thereof, and the individuals consti- 
tuting the Code Authority. It stated that the respondents manufactured 
and sold practioally 85 per cent of all fire extinguishers, equipment 
and supplies manufactured and sold in the United States. It charged 
that the respondents, in February, 193P, entered into a com^iination to 
fix and maintain uniform, prices; agreed that they would not singly 
solicit customers of another or quote them prices l^vier than those 
quoted by other manufacturers; refused to continue to sell at prices less 
than those fixed by respondents; agreed upoh prices to be bid where com- 
petitive bids were called for; procured withdrawal and cancellation of 
bids in cases where bids were at prices less than those fixed, and used 
other and similar means to suppress and prevent price competition. 

A Cease and Desist Order was issued by the Federal Trade Commission 
on November 18, 1935. 

On June 8, 1934, the Assistant Deputy wrote the Code Authority re- 
questing consideration of new policy by the Code Authority, (in line with 
Office Memorandum No. 228), with a view toward Code amendment. The reply 
Was to the effect that the Code as originally prepared was better suited 
to the Industry than Office Memorand-om No. 228.. Despite further informal 
discussion of the entire price filing striicture with the Code Authority's 



(*) Code History, p. 65 ■ 

(**) Letters from A. 0. Boniface, Secty. , Code Authority, May 3, 1935, 

to Buffalo Fire Appliance Corp., Buffalo and Miller-Peerless Mfg. 

Co., Chicago. 

Letter from Alfred Hand, Asst. Depxity, to A. 0. Boniface, Secty., 

Code Authority. Folder No. 9, Deputy Files. 



9763 



-153- 

Secretary and various members of the Code Authority, it wa3 early evident 
that the Industry which had been granted a v/aiting period applicable to 
price filing, a mandatory cost accounting system, and "lowest representa- 
tive cost" v'ould not v/ill.ingly forego such apparent advantages in favor 
of nev/er N.H.A. policy. 



0763 



-154- 

G« Ql^.^JEhi.c A2lts_I_ndus^ry_- ^qnjner c i ^^ PziJl^i-M ' ■ : _ 

The first national code covering the printing industry v;as drawn 
up at a conference sponsored ty the United Typothetae of America at its 
meeting held in Chicago, July 13 and 14, 1934, which was attended by 
more than 75 representatives of the leading printing estahlishments in 
the country. This tentative code covered simply the Comnercial Relief 
Printing Industry. At that time a permanent code committee of 35 was 
set up to guide the code to final completion. On August IV and 18, 1933 
a code conference was held in Chicago of Graphic Arts Industries v/hich '. 
had contemplated filing separate codes to consider the possibilities of 
a basic code to include all. After protracted public hearings in September, 
October and November, 1933, a basic code was formulated covering 2fi in- 
dustries and 5 service trades, employing graphic arts processes. In- 
dustries ?/hich were granted separate codes were Photo-engraving, Electro- 
typing and Stereotyping, Book Publishing, Music Publishing and Metro- 
politan Daily Newspapers (not assenters to the Graphic Arts Code). The 
Graphic Arts Code, including within its scope practically all publishing, 
printing and allied processes, v/as one of the most detailed and compli- 
cated approved by the 'SRA, It is a document of compromise between strong 
and conflicting interests. It is verbose, redundant and its language 
difficult of interpretation. 



Code formulation afforded an opportunity for New York City print- 
ers to endeavor to secure protection of their relatively hitr,h printing 
costs against the inroads of competition from sections where labor costs 
and manufacturing expenses were lov/er. Considerable opposition developed 
from lower cost areas against any imposition of tne Ne,w York labor stand- 
ard on the rest of the country. The Mail Order Association of America, 
claiming annual purchases of printing aggregating o30,000,000.00 by its 
members in normal times, objected to further increases in printing costs 
on the ground that catalog printing volume would be reduced proportion- 
ately. Non-union shop representatives objected to increasing their labor 
costs to the Union scale, and to increasing the number of pressmen and 
feeders in conformity with the union standard complement. (*) 

Considering the differences in size of establishments, their 
varied mechanical equipments, the diversity of products, and the dif- 

■ferent techniques v/hich are utilized in their manufacturing, it can be 
appreciated that to devise a cost system applicable to all these varia- 
tions was to say the least, a difficult task. As a result, most of the 
Code Authorities found it necessary to use very flexible and, in many 
instances, vagu.e definitions of items entering into cost. The Code pro- 
vided that declarations of costing devices might be made subject to "re- 
view" of the Administration. The interpretation of the word "review" 
which v/as finally made after considerable confusion, Avas that a decla- 
ration became effective without prior approval of the Administration, 
subject, hov/ever, to the qualification that the Administrator reserved 
the right to disapprove the declaration, 

'"("*")" ^Tran scr fp t"o'f ~Pab 1 i c Hearings. September 18 to 21, 1933. 
97fi3 



I 



■155" 



The Code prohibited the sale of product or services "beloit cost, 
with tr.'o e:-:ceptions; one v/as to meet a hona fide competitive bid and 
the other was that any newspaper or periodical might be sold at less 
than the cost thereof,, and any advertising newspaper might be delivered 
without cost to _the reader, 

Accountin;;: and Cost "inding provisions of the Code are ouoted in 
part belcv/: 

"i^) Q-lsLJl^isS^-PJiy^.^.* After the principles and methods of ac- 
counting and. cost finding and/or the departmental economic hourly cost 
rates and production standards and/or cost determination schedules for 
an Industry have been declared and prescribed as provided in paragraphs 
(a) and (b), each establishment therein shall determine the costs of 
its products: 

1. In conformity with the principles and methods of 
accounting and cost findin,?; as provided in para.graph (a); or 

2. Upon departmental economic hourly cost rates and 
production standards as provided in paragraph (b), in- 
cluding the cost of all materials \ised, or 

3. Upon cost determinant ion schedules as provided in 
paragraph (b); it being understood that an establish- 
ment may use the method,- herein provided, resulting in 
the lowest costs of its products. Until the methods for 
determining costs as above set forth are prescribed, it 

is intended that each establishment vfill use such a method 
as has been prescribed; except that until the cost finding 
method provided in parag-raph (a) has been prescribed by 
its llationa.1 Code -Authority, an establishment having an 
adeouate cost finding system may use such system, subject, 
to the revie\7 of its National Code Authority." (*) 

The Code also provided th?,t any National Code Authority might pub- 
lish or approve for its industry, or for any defined geographical area, 
price determin.v.tion schedules, subject to the review or approval thereof 
by the National C-rai^hic Arts Coordinating Committee. Such schedules 
when approved v/ere to serve as guides of fa-ir value. 

The Cominercial Relief Printing Code -'Authority made declarations 
of the folloy.'ing: 

Standard Cost Finding S.ystem (declared Feb, 27, 1934) 
Departmental Economic Hourly Cost Rates 
Cost Determination Schedules 

Price Determination Schedule (Approved April 27, 1934, 
Administrative Order 237-h) 



(*) Code for the Graphic Arts Industries, Article III, 



97fic 



-156- 

The Standard Cost j?inding Sjrstero, which was declared the first 
day the Code 'becaiae effective, r/as the system for determination of 
individual costs adopted "by the International Cost Con.f;ress of the 
United T3rpothetae many years hefore the Code, It set certain accotmting 
standards to he used "by the memher to determine each month hourly 
costs on each manui'acturing operation to he used as a basis for his 
current pricing of printing estimates and finished, johs. The S3'"sten 
was foimd too elaborate for economical installation and operg.tion in 
the very small shops. A simplified cost system was declared by the 
Code Authority on June 21, 1934 in an attempt to overcome this ob- 
jection but many complaints were made by the small printers that the 
"sinplified" system was also too complicated. 

Economic Ho-url3'- Cost Sates were rates promulgated by the Code 
Authority to show the all inclusive costs of operation of each depart- 
ment, sv.dh as hand composition, proof-reading, linotype, monot^'pe, 
etc. To ascertain the cost of the job riiroduced, the member would 
multiply the time consujned on the job in each department by the respec- 
tive rate and add the cost of materials used. 

Cost Determination Schedules listed the specific cost for a com- 
plete ;printing job, such as 10,000 letterheads, 100,000 envelopes, etc. 
The costs' in this schedule did give effect to the variation in size and 
qu-antity for an order. From the standpoint of simplicity, cost de- 
ternination schedules made it easy for a. member to select the figure 
on which to base his selling price. He had but to refer to the 
schedule for the particru.lar product, and to the schedule .figure add 
his percentage of profit, 

/ 

The Price Determination Schedule prohibited any establishihent 
from selling or offering to sell any product at a price less than 10;t 
below the price contained in said schedule. This prohibition, however, 
did not apply to any single order exceeding $500, nor to any combined 
order exceeding $5000 nor to any order actually contracted for and 
exceeding $5000 per annum. It further provided that an establisliment 
with a total 'press equipment consisting of not more than three platen 
presses might be authorized to sell or offer to sell any "oroducts 
mantifactujred on such equ.ipraent at a price not less than 20^ below the 
prices contained in the Schedule. The same order also provided that 
an establishment v/hich used a method of cost accoimting prescribed by 
its iTational Code Authority, or if such a method has not been pre- 
scribed, an adeqijate cost finding system, and co\xld thereby determine 
its costs for such products as lower b^'- more than lOfi than those listed 
in the schediile, might sell such products at not less than the costs 
so determined upon submitting to its ITational Code Authority satis- 
factory proof of the accuracy of such costs. 

The prices quoted in this Price Determination Schedule were 
extracted in every instance from th'-j figures listed in the Franhlin 
Printing Catalogue, a book of a-oproximately 900 pages issued by the 
Porte Publishing Company of Salt Lake City, Utah. The Price Determina- 
tion Schedule is set forth in a book of 43 pages and is limited to the 
items in most frequent demand. 



976C 



-157- 

■ The 20fj provision r7as inserted for the "benefit of the smallca- 
estahlishinents. However, "J.". A. files indicate that the Code 
Authorities were reluctant to rrant this permission to applicants. 
The conpetitive diff ic-aLt7 in v/hich this provision placed other 
small printers whose equipment exceeded three platen presses may 
readily he realized. It is prohahle that this Price Determination 
Schedtae resulted in a large measure of ^'stabilization" for the 
Industry on the partic^xLar products which it covered. 

On cost devices, such as the Cost Determination Schedules and 
Economic Hotirly Cost Ptates, it was the experience of the Administration 
in practically every instance that Code Authorities were unahle to 
fiarnish the required sipporting data to shoxr that they had been com- 
piled from the cost records' of com.parable and representative establish- 
ments, 

17. I^, A, files indicate that the Code Authorities approved very few 
cost systems for industry members. Considerable delay a,lso occurred 
between the time of application for s-pproval of cost systems and the 
date on which approval was finally given. This was due in large 
mea-sure to the fa^ct that establislim^nts presenting applications did not 
submit adequate data in the first instance in support of their cost 
fir.ding systems and also to the lack of sufficient competent per- 
sonnel enplo;red by the Code Authorities to pass on the adequacy of cost 
finding systems. (*) 

Tlie provisions of Section 25 prohibiting sales below cost were 
fotmd veiy diffic-jlt to enforce. In contrast to the wage and hours 
provision they did not lend themselves to self-policing. There was no 
general conviction on the part of the general public that price cutting 
was undesirable. In the absence of a fixed price floor it was prac- 
ticall;'- impossible to find a basis on which to test compliance. In 
many specific instances of alleged non-compliance, the services of 
accotuatants were necessary to malce definite inquiry as to what consti- 
txited cost of prodiiction. Such investigations entailed considerable 
time and there were instances in which accountants disagreed as to 
whether or not the establishment was selling below cost. Compliance 
cases were therefore long drawn out. Often adequate data as to costs 
were luiavailable. Considering the number of seles transactions which 
even a snail establishment may have in any year, the magnitude of the 
task of investigating charges of ssles below cost can be appreciated. 
It should be remembered that with prices generally based on estimates 
and agreed upon in advance of production, even though proper hourl;^ 
rates for composition, presswork and other operations are adiiered to in 
the estimate, there is always a chance for a discrepancy, intentional 
or otherwise, between the time estimated for each operation and the 
time act-oally consviraed on the specific job. 



(*) Oral statement of M. D. ¥alsh, Assistant Deputy in charge of Cost 
Systems in Graphic Arts Division. 



9765 



-153- 

The Administration -nas ver3'' reluctant to issue orders disap-oroving 
the use of departmental economic hourly aost. rates and cost determina- 
tion schedi-aes as it realized the demoralizing effect that such 
disapproval nould have on the industry and on the confidence of the 
industrjr aemhers in their Code Authorities. 

The nature of the industry precludes the possibility of a definite 
price inde:i and data indicating price trends are scant and spotty. 
Reports from Code agencies in various localities indicated that cost 
recovery provisions of the Code were definitely working toward price 
"staoilization" and higher average prices andtthat a considerable rise 
in prices had heen noted since the Code hecame effective. (*) The 
impression gained from recent contacts with trade associations and 
supply house officials is that present price trend is upward due 
parti;- to increases in naterial prices, and that there is evidence .of 
more prosperous conditions in the industry. 

Perhaps the best available description of the various price control 
devices included in the Graphic Arts Code, together with a critical 
evaluation of their operation, is contained -in a decision of the 
Advisorj-- Council, dated April 23, 1935. Pertinent extracts from this 
decision follow: 

" ( 1 ) ITeaknesses of the accounting methods u sed. 

"One of the few points upon which the variegated industries 
sponsoring this code seem to agree is the desirability of 
bolstering prices. One interesting .demonstration of this attitvide 
lies in the .fact that it was originally intended to make the 
second Paragraph' of Sub-section (d) a price rather than a cost 
detGrrnining provision, and t'he sponsors of the code yielded to 
the s-ubstitution of cost for price only because of administrative 
insistence. Yet this paragraph, if by any means and at any time 
the consent of thfe 'AcUiiinistration to action under it could have 
been secured, would even now sweep aside all of the price pro- 
visions having ariY clear base in costs. It is likewise notable 
that the industry has taken pride in being able to announce from 
time to time the number of prices reported under the code's open 
price filing provision which had been disallov/ed and higher sub- 
■.missions ordered. Such actions vrere presvijnably taken because the 
prices filed showed a deviation from those pre-determined by the 
cost sections of the code; it is again only intention that is 
stressed. 

"It has already been noted that each establishment- was to' be 
given the choice of three accounting procedures and could not sell 
below the cost yielded by whichever of these three procedures pro- 
duced the lowest cost for that particular establishment. 



(*) Code Administration Study (6. H. Reed and C. J. liorth), 
April, 1935. 



9763 



"(a) Tlie first of these was the adoption '07 each csic.ol-d" 
r.ient of its o^n accounting sj'-stera in conforraitj'^ with the prin- 
ciples and as detailed and complete in* method as laid down ty 
the Code A-atJiority. For j.'-ears', the UTA. ha,s worked to develop e, 
cost acco-unting sj'stem for the printing;; industrv. Its educational 
efforts are 'entirelj'- praise-worthy. However, there is a vast 
difference between the extension of the use of cost accoimtins on 
a voluntarj^ "oasis for use as managerial statistics, and a com~ 
prlsoi^T- system for use as a price-floor. Tliere is no need for 
repeating at this time the whole argmient concerning cost floors, 
furthermore the Advisory Co-uncil has not examined in detail the 
act-j£.l acGOuntinr methods. It will he recalled that these are 
'stioject to review' "by II.R.A., hut have not as yet been actually 
suJbjected to such review. However, one special trouble here is 
that there is no real uniformity in the Industry'-. Sizes, types 
of equipment, charactsr of. market, and local, operating costs 
va.ry to an. extraordinary, extent. The orfthlem of developing uniform 
depreciation charges, regardless of the a.ge of the equipment, has 
alrea,dy received sufficient airing before the Senate Finance Com- 
mittee, Quarrels have constantly arisen over t'hether or not 
individual systems were actually in conformity with official 
principles. The large establishments have long since .adopted the 
UTA riethod of costing, but such of the smaller ones as made any 
effort to comply have often contented themselves with submitting 
some sort of bookkeeping records in the hope that they would get 
by. Less than dO^h of the members of the industry have a-rproved 
systems. The Code Aiithorities nay have been perfectlj' right in 
disapproving many of them. The difficultj'- may lie not so much 
in improper actions on this, score as in the 'essential incompati- 
bilitjr of small print shops and the mysteries of cost allocation. 
It is to be recalled in favor of the Relief Printing Code 
Authority that it put out two sj^stems, one of them in abbreviated 
form for the exipress benefit of the small ra'an. 

"■The Division Ar'jainistrator minimizes the extent of the 
complaints rising out of this Sub-section, and believes that when 
the more glaring inequities of the code and its management are 
adjusted, the cost finding problem as such will yield to treat- 
ment. He proposes to review the approved systems, so simplifying 
then as to remove much of their ob.jectional character. 

"(b) Tlie second optional determinant of cost is found in 
the Cod-e Authority's declaration of 'departmental economic hourly 
cost rates and production standards. ' The purpose is to set up 
a single hourly cost figure which, when multiplied by an hour's 
allowance for a particular job, will yield a definite cost 
estimate. 3ased upon a general indtistry figure, it is obviously 
intended to be a short-cut method of estimating cost where no 
cost acco^mting system exists, or time is short. 

"It is generally conceded that these cost rates are not per- 
fectly a-oplicable to any individual establishment. There are 
obviously too many variations in hourly rates for labor and its 
productivity, in the condition of various machines and their 

9763 



-160- 

conseqLiently differing efficiencies, and in the resiilting 
nachine-hoiir and man-hour rates, in cost of supervision, ad- 
vertising, overhead, etc., to recomraend the pra-cticahility of 
coHihinins them all into, one rate. Even if treated separately, 
the effort to estahlish forms for. them that would be representa- 
tive of anything in particular is Qf duhioiis color. Furthermore, 
these rates are not limited to direct costs, hut include over- 
head as vrell. Considered jointly, overhead e:cpenses have no 
necessarj'- relationship to hourly ra.tes of wages paid to direct 
lahor and vice versa:., they vary independentlv. Thus these 
figures crowd all overhead,, adt.iinistration, selling, and direct 
laoor into the same cost factor. Moreover the provision is 
silent as to the level, high, average or low from which this 
colloidal rate was to he struck, or whether it was to he 
arithiiietical or weighted. The real result has heen that this 
particular option has heen used 'b^r the larger establishments 
to whose fairly orthodox operations it might roughly correspond, 
and ignored by the others. It should be noted that these rates 
.have been applied ?7ith some flexibility. The rates used in 
Detroit, Chicago, and San Francisco for' example, are higher than 
those in other cities, 

"(c) The cost determination schedules, the third option, 
have been nothing more than a cloak for the Industry's pre-code 
price schedi.iles which even in those days achieved the dis- 
tinction of a Federal Trade Connission 'cease and desist' order. 
As previously noted, these were subject to the review of the 
Administration, which took an uncertain position about them 
from the beginning. Hany letters were written by i'^.R.A., most 
of them according to reoort dodging the issue by vigorous 
declarations that the Franl:lin catalog and its companion 
schedules had not been approved. The option to 'review' has 
never- been taken -up, 

"It is important also to note that both the economic hourly 
cost rates and the cost determination schedules were required by 
Sub~seotion (b) to , be compiled from 'comparable and representative 
establisliments. ' The submission of data in the form of state- 
ments from 200 odd printers can obviously prove little about 
the costs of an industry nurabering 17,000 members. * * * It is 
againgt the Franlclin Schediile that ^orotests of small members 
have chiefly been directed. The Division Administrator predicts 
that if these schedules are removed, 90 per cent of the objections 
of the industry surrounding the Graphic Arts Code will disappear, 

"(d) The 'Price Determination Schedule' of Division Ad- 
ministrator Buckley has developed into one of the most imique 
phenomena of }I. R, A, 's unique career. There is no basis what- 
soever for it in the code, and yet, in an industry fairly 
bristling with price fixing anc? cost protection, it is the 
cost-protecting formula most generally respected. Yet, obviously, 
it must go, and the present Division Administrator is prepared 
to dismis.s it with the Franklin catalog. 



9763 



-161- 
"(2) The fa-u3.ty Sconomics of Section 26 . 

"The charge here is essentially that almost all of Sectio;i 26, 
is contrary to policy and the economic reasoning lying hehind 
policy. The Council does not wish to appear to ohject to cost 
accoimting as a useful device. It does object to the employment 
as providing a floor for prices. . It is even more disturhed "by 
the ri.se of industry averages as appearing in the figares for 
departmental economic hoiurly costs. It is doubtful if any mandatorj^ 
cost protection system ca,n be devised vrhich T70uld not impose in- 
jurious restrictions on a large section of the Industry's mem- 
bership. The elements of cost vary hopelessly from plant to 
plant- and area to area. Small plants sometimes have an advantage 
in cheaper rents and the use of less costly equipment, biit the 
Ic-rger plants usually overcome this by volume. Many plants 
cajinot control their i,70r]:ing hours, for the reason th8it thej'- print 
so Lianj'- small magazines and bulletins on a time schedule. ]3y wa.y 
of exaiaple, if their labor hps to be kept on hand and their 
linotj'pes held in Yeadiness for a particular hour of the day at 
v.'hich copy is scheduled to arrive, a small job to fill in the 
time is the Icind of boon that keeps them "alive. Under such 
circumstances all formalized cost estimates go out the vindou, 
Tliis is true of many industries, but of this one particularl5'". 

"The Council is aware that the Industry;- is distressed by 
the monotonous appearance and disappearance of small hall-bedroom 
printers who run out their shoe-string through s, series of 
im'oossibly low bids and are replaced by others, but nevertheless 
feels that stratified price fixing for an indastrj'^ in which there 
are no distinguishable strata is medicine of the patent type, 
Llaintenance of high prices is hardly a sensible approach to the 
problem of exces's or irresponsible capacity, unless supported 
by the arnjr, the navy and the marines. Price floors in terns of 
individual costs are a degree less objectionable, but against them 
run all of the objections that led to their elimination from 
general policy. Just how real the option is to follow one's 
individiJXil costs, it is impossible to say. Certainly, more than 
half the plants have not as yet availed themselves of the op- 
portunity. 

" ( 3 ) C'l-BiibersoEe orga.nization and non-representative code 
authority . 

"It is alleged that this code in one way or another overlaps 
most of the other codes that have been written by li.R.A. Almost 
anj^one who does printing was originally st\bject to it, no .matter 
how private the p'orpose; this definition was later modified "by 
A&jinistrative Order because of the difficulties and impossible 
exlministrative situation it j^roduced. Even if considered in the 
narrower sense of commercial jobbers, the Industry is farflung, 
comprising 17,000 units and representing every conceivable variety 
and size of ;orinting establishment. The l&iited Tj.'pothetae of 
America, irThich is set 'up by the code as the National Code Authority 
for Com:aercial Selief Printing, is divided into 17 zones and 115 
regions. 1I.;-..A. 's contact with them has to be transmitted through 



-162- 

the National Graphic Arts Coordinating Committee, the United 
Q?3n30thetae of America in its capacity as Code Authority, and 
the n-umerous zonal Code Authorities corresponding to the 
Typothetae's regional agencies. The size of the Industry and 
the telescoping process through which action must pass has 
made iT.Il.A, 's touch on ultimate events an excessively light one, 

"The lightness of N.E.A, 's control is complemented 'by a 
correspondingly heavy concentration of authority with the UIA, 
Because of the fact that the Ifetional Directors of the UTIA 
are dependent for their positions on the good will of the 
regional groups, there is a further inevitahle release of 
central authority to less responsible agencies, so that IIEA can 
never he quite sure of what is "being done. The dangers in this 
situation are enhanced "by the fact that UTA is allegedly 
dominated hy the larger mera"berG. The net effect of this series 
of relationships has led to the charge that the power of the 
Government is exercised throughout the communities of the 
country "by large printers over the small ones. Tliis may he 
responsihle for mioch of the controversy arising out of efforts 
to administer the code. It is reported that opposition to the 
T3'pothetae has "been so definitely stimulated "by code events 
as to have provoked the organization of rival associations in 
several regions. The Council has not been a'ble to analyze all 
pertinent statistics, hut there seems to he general agreement 
that the domination of the relief printing industry hy the UTA 
is tinwhole some and that hroader representation in the Code 
Authority must he provided. The Division Administrator is 
personally determined on this move, 

"(4) Alleged ahuse of -powers hy Code Aiithority . , 

"The charge has heen persistently pressed through recent 
months that the Typothetae's use of code powers has heen high- 
handed. The following ahuses have heen cited: Collusive price 
fi::ing; coercion of non-merahers, of which there are many, es- 
pecially among small plants; use of Code Authority funds for 
Trade Association regulations; carelessness with or misuse of 
confidential data; persecution of establishments refusing to 
comply with rulings of doubtful legality or propriety; domination 
of the many by the few in regions where the United Typothetae of 
America is a distinct minority, imposing fines and penalties 
contrarj'- to the Code and the Act, (Many establishments are not 
aware of their rights of a-opeal from the Code Authority. 

"The Council does not pretend to pass judgi;ient on these 
charges. The industry is so widespread, the code so liberal, and 
the delegation of powers so great, that abuses were certain. 
There is no Icnowledge on the part of the Council that the Typothetae 
has not tried, according to its rights, to administer the code 
fairly. It might well regard the code as a mandate to go ahead 
with its program for improving the industry without check or 
hindrance by Anti-trust law or N.R.A. order. All of the circum- 
stances were against a clean slate, as .judged by present IT.R.A 
standards and it is with these circumstances rather than historical 
charges that the Council is now concerned." 
9763 



•163- 



H. Coffee Industry 



The nininu;- price proposal included in the first draft of the code 
submitted in Aug-ast, 193", jointly to the A. A. A. and the N.S.A, pro- 
hibited any mernter of the industry from Gellin,^ "below his o^-nn. actual 
cost of production as deterrained by uniforra cost findin;?- principles to 
be prescribed, b;' the Associated Coffee Industries of America", uith the 
one exception that he nif'^ht neet the lar/ful price of a competitor. 

This proposal evidently did not have the full and unqualified 
approval of the industry, nor of the propo:ients of the code. The draft 
of the code subi-^itted in September, 1933 did not contain the "selling 
belo'j cost" provision. This draft prohibited "Destructive Price Cutting" 
and, i\i the event of an alleged violation, provided for an examination 
of the records of the accused company by a firm of • accountants to b e 
selected by the Coffee Industries Connittee. The o -de carried no defini- 
tion of "destructive price cutting" and there was a short discussion in 
the Hep.ring held October 24, 1933, relative to the provision and the 
steps to be talcen in d.etermining whether or not a violation had occurred!* 

This Septer:ber draft also provided for the use of an accounting 
systen b"' every roaster which would conform "to the principles and be at 
least as detailed and complete as the sta-ndard and uniform system tha,t 
may be formulated by the Coffee Industries Committee." 

It was .claimed that the highly integratedi concerns and those with 
large capital assets were gradually acquiring an increa.sing percentage of 
the total voltune, thus tending toward monopoly. This was a,ttributed to 
their ability to purcha,se enough green coffee in a low or declining 
market to carry them well into or through a rising market, and to their 
low cost of production and distribu.tion. (**) 

There was evidently suff icientlj'- strong opposition from members 
of the industrj;- to the proposal included in the August draft of the code, 
(which was sim.ilar to the one finally adopted), to cause it to be deleted 
from the draft submitted in September. HRA files contain practicall;'- no 
data relative to the members who objected or to the nature of their objec- 
tions, although these were apparently directed against the use of a 
uniform cost formula. 

(*) Tra.nscript of Public Hearing, page 80. 

(**) Letter from T.'. li. Williamson, Ilanaging Agent of Coffee Industry 

Committee to Lester S. Dar.e, Assistant Deputy, dated Januarjr 16, 

1935 (Deputy's files). 
Letter from Hoisted Coffee Company to VJalter TJhite, Deputj'-, dated 

Hay 24, 1934. 
Letter from D. M. Nelson, Code Administration Director, to 'Senator 

Robert J. Bulkley, Ilarch 20, 1935. 
Letter from Southlejid Coffee Companjr, i.iarch 30, 1934. 
Letter from TTalter TTnite, Deputy, to William A. ICelly, ilewarl:, N.J., 

Harch 5, 1934, 
Letter of Robert U. Seattle, Administration Ilember, Julj-, 1935. 
Statement submitted hy Sussaman, Tormser and Co., San Fra.ncisco, 

with letter dated January 30, 1935. 



-164^ 

Tlie final draft of the code submitted Jpjiuary S, 1934, uas worked 
out in conferences after full jurisdiction had been transferred to ISA. 

T'le code, as finally approved on pehruar^r 6, ].9o4, prohibited "de- 
structive price cutting", and ^provic'ed that no nenher of the industry 
should "sell roasted coffee 'beloT,' his ovm individual cost'', rith the tro 
exceptions (l) -that he mi^ht neet the lawful price of a co'npetitor, and 
(2) that he could sell to government and charitable institutions at any 
price he desired. (Through an interpretation this last exception ^Tas 
ruled to nean only "government charitable" institutions and not all gov- 
ernment institutions.) (*) It also provided for "ope;^. price filing" and 
for the use of an accounting system as complete and detailed as tliat 
formulated by the Coffee Industries Conriittee, The code, further provided 
that "the Coffee Industries Committee rdth the a.pprOval of the Adminis- 
trs.tor shall from time to time set forth the elements, irhich shall enter 
into cost." 

The Cost romula. 'Thich was presented rrith the August, 1933 draft 
of the code nas evidently prepared by the Assoqiated Coffee Indiistries of 
Aiierica. ^s already indicated, there v/e.s strong opposition from, members 
of the industr;;- to this formula as it v/as not included in the minimum 
price proposal submitted to AAA in Septe-'.ber, 1933. lir. "."illiamson, 
Secretary-Treasurer of the Associated Coffee Industries of America, stated 
at the hearing, October 24, 1933; "'::e did submit, "e submitted a cost 
schedule, vrith the previous codes, vhich is not before us at this time, 
and has not the support of the industry. " 

Ap-iarentl;*," the larger units of the industr;^ originally vere not 
in favor of the cost formula, but finally agreed not to onpose it. (**) 

The minimrwi price proposal included in the August, 1933 draft of 
the code -orovided tha.t cost should be "determined b;^ uniform cost finding 
principles to be prescribed by the Associated Coffee Industries of 
America subject to the approval of the President, such cost to include 
market replacement value of green coffee as determined by a committee 
authorized by the Associated Coffee Industries of America, a minimura 
shrinkage of 16 per cent, and cost of deliver-y incurred by the seller." 

The final dr?i"t provided that "the Coffee Industries Co'viittee r.dth 
the approvol of the Administrator shall from tihie to time set forth the 
elements vhich shall enter cost." 

The salient features of the August, 1933 proposal rrere a set of 
"Principles and Procedure of Cost Finding Pursuant to the Provisions of ^ 
the Code" and a cost chart rhich set forth the various elements of the ■ 
cost of production, and selling r/ith the several factors rhich entered 
into ea.ch. These elements included; 



(*) Letter from, ".alter ^.Jhite, Deputy, to 1. P. ITilliamson, Secretary- 
Llanager, 'Coffee Industr-- Com^.ittee, dated Ila-- 4, 1934. 

(**) Re-cort pre-oared by ?.obert i:. Beattie, Administration Ilember, July 
1935 (Deputy's file). 

9763 



-165- 



Green Coffee Cost 

Id percent Shrinkage 

Roasting Cost 

Grinding Cost 

Overhead 

Selling and Delivery Expense 

Shipping Container Cost, Packing Labor and 

share of Overhead for Bulk Coffee 
Shipping Container Cost, Pack.-^ge Cost, Packing 

Labor and share of Overhead for P-ickaged 

Coffee 

Tne August Proposal provided th-^t "selling price, in the case of 
chain stores or retail distributors who operate coffee roasting depart- 
ments, sh^ll mean the i-rice at -vhich coffee is invoiced to the retailing 
department", and that "selling price in the case of a 'wholesale grocery 
company '-'hich opentes a coffee roast'ing department shall mean price 
coffee is charged to the wholesale department," These were not incor- 
porated in the draft submitted to I'TxA and in addition to shrinkage 
allovrance was changed from 16 percent to 15 percent. An additional 
element, "Advertising Expense", is found in the draft submitted to the 
iraA. This had not ajpeared in the previous draft. {*) 

After a number of conference's a cost formula was approved ?'arch 31, 
1954. (**) The formula, as approved, cont-iins a number of modifications 
from the draft submitted, the principal on'='S being: 

1. The siirinkage percentasce wa^s chnnged from an arbitary 
15 percent to actual shrinlcage. 

2. The proposed draft provided that, for those cc-ipanies 
which had no accdanting records or adequate data, for 
determining cost according tothe Formula, cost should 
include, - ?eplacemen't Cost, 16 percent shrinkage, 
plus sach additional mark-up for various operating 
functions as should be determined to be the average 
for the industry on the basis of a survey to be made 
by the trade association. This was deleted from the 
Approved Formula. 

3. Depletion was limited to that portion 0"^ the plant 

and equipment actually in operation and used in process- 
ing of coffee, 

4. The item of "Pent" was limited to rent that mpiy be re- 
ported for income tax purposes. 

5. The item of "Taxes" specifically excluded income taxes. 



(*) Deputv files - Volume A, Part I. 

(**) Administrative Order i^o. 265-4, d'^ted [''-^rch 31, 1934 

97h.'^ 



-166- 



6. An additional item was included shoeing the cost 3,nd 
weight of any material '•'hich is -".dded to coffees The 
cost figure arrived at per lOn pounds of such mixture 
was to be adjusted to reflect the presence of the cheaper 
adulterant. 

7. The items of "Dues and Contributions" and "all other 
expenses" had "been deleted under the heading of Overhead. 

NRA files do not indicate what steps were t4cen to induce those 
members of the industry who had opposed the use of the cost formula to 
withdraw their opposition. Th? files contain little evidence of opposition 
to the proposal from members of the industry. This limited oiDoosition 
came from a group whose profits were secured throiAgh speculation in the 
green coffee market; from Standard Brs^nds, Inc., .'"hose objection was that 
the replacement cost provision of the cost formula was unfair to, mi 
worked a hardship on, their -oarticular type of operation; and from one 
mail order company which insisted that certain provisions of the formula 
were detrimental to its sales pMicy,_ (*) 

The changes which were made in the prooosed formul-i, were evidently 
made upon the recommendations of the Deputy and various Idvisory Boards. 

The Consumers' Advisory Board objected to the use of "Market Replace- 
ment Value" in arriving at the cost of -green coffee, and sup-gested thai" 
"Market Replacement Cost, or actual cost, cf green coffee, whichever is 
lower" be used. This Board contended that as green coffee 'was the most 
important element of cost in the industry, "the consumer \'rould be unduly 
penalized," because the use of "Replacement Cost" as proposed would elimin- 
ate such factors as "individual purchasing efficiency, the saving resulting 
from large purchasing power, and foresight in buyin;^. " The Deputy, in 
recommending approval of the formula, answered the objections of the Consum- 
er^'Board with the statement that use of the "least actual cost" would' 
result in enabling "large buyers to t hrow large quantities of roasted 
coffee on the market at prices vhich would eliminate all co'petition 
and create monopolies for large buyers, particularly on a rising market." 

The Consumers' Board also protested against the inclusion of "Sell- 
ing and Advertising Expenses" claiming that they "are associated with 
the business policy of each individual in his. attemnt to /r^in as large a 
share of the market as nossible" and "do not seem to fit in with the 
general policy of regulating the industry as a unit." The Deouty's reply 
was that "since four or five of the largestcomTDanies maJce heavy adver- 
tising exnenditures to secure their vclome, and the small and less efficient 
competitors could not possibly approach the cost of these l^rge concerns. 



(*) TranscriiDt of Hearing Aoril 50, 1935, Vol. I, p'^ge 78. 

Transcript of Hearing June 12, 1934 before l^Totional ComDli=ince 

Council, page 2ni, 

Code Authority I'inutes of T.'eeting held fay 14, 1954 (General files), 

97o3 



-167- 



excluding advprtising expensf" he believed "Advertising and Selling 
Expense" should be included. (*) 

The Code Authority and the. Trade Association, which vifere closely 
allied, 'apprirently made every effort to keep the industry well informed 
tnrough bulletins issued to members. One bulletin issued by the trade 
association carried a complete reprint of the cost formula as adooted. 
Subsequent bulletins carried information relative to internretations 
of sections, and, points concerning Miich some question had been raised. 

The Code Authority, in addition to the bi-weekly bulletin containing 
the replacement cost of green coffee to be used in the apDlication of the 
cost formula, issued other bi-weekly bulletins fr9m July ?, 1934, to 
November 31, lt;34, setting forth a suggested cost for roasted coffee . 
This sugge.sted roasted coffee cost , was composed of thp foll6wing. 
elements: 

Replacement Cost of Green Coffee 

1/2 .cents per poa.nd for roasting cost 

15 percent of green coffee cost for shrinkage 

5 percent of green coffee cost for Overhead (this 

included rent, light, heat , billing cost 

and executive salaries) 
.A maximoracash discount ,of 2 percent. 

These bulletins explained that the roasted coffee figures were issued 
to aid roasters who did not have adequate cost data in avoiding violation 
of the code. They also stated that any price published, or s-^le made, 
which did not include these cost figures, plus other items mentioned, 
would be considered prima facie evidence of violation of the code. (**) 

There were a n^umber of objections registered against the various 
provisions of the cost formula. Standard Er^'.nds, Inc., contended that 
due to its method of distribution (direct to retailer as a perishable 
product), the amplication of the replacement cost element placed its 
coffee, when sold to tae consumer, in competition with coffee roasted 
and sold to ret-.ilert; at prices orevailing two to four months prior to 
the date of the sr^le. This was due to the fact that roasters i^ho did 
not handle their coffee^ as a perisnable product could, and did,, "load" 
the retailer wnen a rise in price '"as about to become effective. The 
contention was also made that the formula was in violation of the code 
in that, instead of a roaster's "own individual cost" being used, a 
number of arbitrary factors were introduced. It objected particularly 



(*) FemoranduT: from Geo. V. Haddock of Consumers Ac'visory Board -to 
"./alter iThite Deputy, dated I'ai-ch 15, 1934 and 
Memorr-.ndum VMlter 7/hite to Piley, d^t ed t'.arch 19, 1934. 

(**) Letter dated August 22, 1934 to Geo. £. Stanley, Deputy Administra- 
tor, signed by J, :Rosenthal for the Coffee Industry Committee 
(Deputy files) .... 

9763 ■ ' .■ • 



-168- 



to Note 4, -^hicn provided for the allocation of g'^nfir-nl costs in loro- 
portion to dollar sales of coffee to total dollar volume of sales, 
claiming that such an allocation did not even anoroxinate the actual 
facts in their oarticulai' case. The deletion of "stich i"ide variables 
as Selling E'^ense , Advertising, anc* General Expense" was su^?ested. 
The opinion was voiced that it '.''as "inoossihle to nake such in ill- 
inclusive cost system fairly applicable to the large numer of units 
in aji industry having a large number of major variations in rjrnctice," (*) 

The charge was also made that the formula was usc-d as a medium to 
fix prices. Several letters were sent to the Code Authority from the 
Deputy's office on this question. From the MA files it appears that 
the Code Authority discontinued the issuance of SLLggested "Roasted 
Coffee Costs" November 21, 1S34. (**) 

The H. P. Coffee Company, St. Louis, Ivissouri, requested that it 
be allowed a differential of If- cents belo"- the general price level of 
competition. It contended that, beca.use it sold solely by mail, such a 
differential w^s necessary to overcome the advantages of direct p'=rsonal 
contact with the customer enjoyed by firms employing traveling salesmen. 
It was conceded that the H. P. Coffee Company could reflect any actual 
savings due to its method of opf^rat ion, but it r-as ruled that no 
guarantee could be given that its -orices would not be met by a competitor. 

The trade association, in its bulletin cf October 8, 1934, stated: 
"the great majority of complaints of code violations submitted by members 
of the industry prove to be unfounded and based on erroneous information 
or understanding, " In a memorandum to the industry, June 6, 1935, the 
following statement appears, "Government enforcement \fas so lamentably 
"■eak in this field that pra,ctically all of the beneficial results obtained 
from the tv70 provisions of the code were obtained on the basis of volun- 
tary cooperat ion, " 

Of a total of 103 Trade Practice Complaints docketed by State 
Offices from September 1, 1934, to 'ipril 4, 1935, five were for alleged ■ 
violation of the Destructive Price Cutting provision and 37 for alleged ', 
violation of the Selling 3elow Cost Provision. 

There were three outstanding cases i-eferred to the ]\n^A - Standard 
Brands, Inc., John "nikins Coffee r^ompany, and the H, P. Coffee Company. 
Comoliance was secured in the two first cases, but the H. P. Coffee 
Company case had been turned over to the Litigation Division *en the 
Code expired. 



(*) Transcript of Hearings - Standard Brands Case - Aoril 30 and June 12, 
1934. 

(**) Transcript of Hearings, St^^nd^rd Brands Case, J'ay 1, 1934-pages 236-237. 
Statement of Mr, Eilers, Attorney for H, P. Coffee Co. at hearing,, 
of Complaint against that company. 

Letter from '.Valter V/hite Deputy to R, Barclay Scull j'id- Atlantic 
Regional Code Authority, Camden, N. J., dated May 4, 1934, referring 
to letter dated April 27, 1934 addressed to 13 firms by the Regional 
Code Authority. 

9763 



-169- 



The Standard Br-^jids c^se resulted in the ^r-ooointment of. i t;j.b- 
conmittee by the Coffee Industries Corainitteee, evidently uoon the 
ri^ commend nt ion of the Deouty Administr.ntor, to consider the question of 
making chanees in the forriul- to correct "p'o'^rent unf-^irness ^nd 
injustice to this comT>«jiy, {*) From the evidence in iTOA files, it 
aopears th»t thp John '.'ilkins Coffee Conrpany ipas not in viol?ft ion of 
the code. 

The orice orovisions of thp Coffee Code do not aropear to have 
resulted in any very m.ar ked increase in the spread het'^een the -orice of 
fz:reen coffee and the orice of roasted coffee. During 1929 the average 
difference bet"'een the -='holesale price of roasted coffee and the orice 
of green coffee (Rio -- 7 , ]iev York'), was 33.5 cents. During 1932 this 
spread ^-^^as 22.1 cents. During Pebruar-,^ 1S34, it had declined to a ne'-^ 
low of 15.7 cents. Ine cost fomula v-^s approved on Tarch 31, 1954. 
Suoseauent to this approval there was some increase in this spread, but 
the raaxiiaujn daring 1934 Tas only 18.7 cents, or substantially less than 
the 1932 average, ^nd also less than that prevailing- at any time prior 
to Decerober, 1953. (**) 

A fuller discussion of price control under the Coffee Code is 
included in " Price Contro l in the Coffee Industr y" by "-Tarry S. Kanta, 
Division of Review. 



(*) Report of Suo-Conmit tee to Coffee Industrj'- Committee at their 
meeting held in Chicago, Oct. 22, 25, 1954 (Deputy's Files) 



(**) Data from the Statistics Section. 
9765 



-170- 
I. L UC-C-AC-E AIT3 PMCY LEATIJS GOODS i:a}US??f 

The code as orieinall]'- presented "as .cleBi-^nef. to -orohibit sales 
beloiT cost. Pendin.-;^ approval of cort :^i.ulin'7' "letnods '.nd for a ^^eriod 
not exceedinf^; four nontlis fron the effective date, cost va,R to he de- 
fined as direct ■■laterial and labor cost, -ilnz 50 nar cent nf the co-c- 
oined tota"*. to cover overhea'~. a,nd sa"' es e:y?en?es. 

In T)rer.entinf the proposal, the usual clains rere \ade to tlie effect 
tnat lac^- of cost hnorrledge \7rs operatinr; luinousl"' on t'le inrh.iatry. To 
quote one of the statenents nade at the pi^hlic hearin;-^: 

"One Tf the nost ruinous -nethods of u:-fair ccroetition rire- 
valent in the. Irfastrv toda-r 'is tne' or-clicc of sf^llin'?; ner- • 
chg,ndise helor cost of prod^i.ction. 

"Prices in the inclustrj'-, during the last four years have 
been set ~oy nanufacturers rho used no appr.rent nethod of 
deter lining their costs v^ith a. ruinous effect on the entire 
industr3'-, "Haile these naivufacturers -111 not renresent 
nore than about 10 per cent ox the totnl in tae iifustry, 
as Presidc-.Tt Roosevelt said on t^.e i -trodiiction of the 
h'IPtA iiito Con-^-ress, this 10 per cant sets the standarc's "f nd 
coiditions for the industry." (*) 

P.. H. ''ac-;- and Comany -orotested a.-v^i .st the nrovision as pronosed, 
clainin'; thrt it constituteo. nrice fixi-.f. 

As finally atn^roved on October T^, l^.^S, the code orohibited sales 
belo'7 cost, as defineci b;"- a uniforn s-^sten of cc-.t accounting;, '-^ith no 
refere^ice to any arbitrary overhead nercenta^e. 

The Code Authority presented a cost for-m],a in ^-'hich cost ras de- 
fined as direct cost "olus 50 ;oer cent for o-'-erhead. Ilaterial was to be 
charged in cost at current narhet price. (**) 

This foi-mla ras subnitted to the Adninistr?tiin on '■'oveiber 22, 
1935. On ITove-iher 25 the De^Duty Adninistr.'.tor -oresented the cost ac- 
countins s^sten to the Pesefvrch and planning; Divirion. Oa Bece-^ber d. 
Dr. H. F. Ta'TtTt of the Piesearch and Pl; nnin" Di-isi-T-i in a '^enoranduTn 
addressed to De-^-tut-^ Ac'-iinistrator Poscoe C. Con'li-i.^ co ne-^.ted that the 
cost formla ras a -orice settin- and not a cost findl-vr fornula.; that it 
was erctrenely crude a^d rrs tot;^l^y unsuitable for the ounjose of in- 
plementi-." a cost protection clause. (***) 

(*) Transcrint of Pub? ic hen: in;;, Seotev.'er 8, 19^3 - v. 93; IIHA files 

(**) Stcindaixl Cost hethod, L-'ry'-.-^e and ranc:'- Leather Goods Indnstry, 
11/23/33, Cost Accountin- 7iles, hhA, 

(***) henoranduri, H. P. Ta-%{:a.Tt Cpnoa/ny, Jloscoe S. Con'-lin;:;, Dec. 4, 
1533, Cost Accounting Files, VruA. 



3763 



I 



As a, result of a co:-^.f erence 'betreen. "'r. Tagf;art bd.6. the Cocie Authority 
on Dece-^ber 8, 19r';3, the fnriula vr^.s so-ie'.fhat revised. The anencTecl forrn- 
ula "ith reference to overhear, oercenta-^e, provider', in ^oart: 

II Ro'Tever no ;oercenta.'~;e shall he used less than 3^^-1/3 

percent even thou-^fa the actual ourr'et fig;iires rould sug- 
gest a, loT'er percenta-^e. 3xceiotion nvj "be rv?.de to this 
rule if the rie'iher of the ino.ustrv 'T'ishini?; such e::ce"iDtion 
is prepared, on denanrl, to 5U0-:it to an a^'^ency of the Code 
Authority, subject to auc^it, s. burV'et and brsis therefore 
T7hich '"•ill TTarrant a loner overhe;.:,d fif^ure "(*) 

The Deputy Adninistrator, on Dece'iber 11, l^S-", in a letter addressed 
to i'lr, ITline, Chairian, of the Code Authorit^% stated in nart: 

" The sts/ndpa-d cost systen, copy of r'hich is enclosed 

herewith, has been a.p-iroved 'by the Hesearcn and Planning 
Division of the jTlA a,nd is hereby approved by the Adnin- 
istra.tion." (**) 

Or. the basis of tais letter, t/:e Code Authority assumed that the 
Aojninistrcation had formally ap-orovec t.-e systen. and so notified its nera- 
bers. 

Reference to Ghfrt VII "ill reveal tha.t the index of '-holesale -"irices 
for traveli-^.^ ba;::;s a-.d suit cases conmenced risin;'r about the ti-ie of the 
Dassaye of t..e 'Mj-, increased step.dil^r through 1P33, and rose very sharply 
bet'-reen Dece-foer 1935 and Jan.uar^r 1934. This last effect va.s probably at- 
tributable, at least in oart, to the ap^oroval of the formla. 

It is doubtful TThether t.here rrrs at rjij ti-i.e adequate s\ibsta.ntis-tion 
of the 33-1/5 ner cent overhe d nar'T-u^^. According to a ouestionnaire 
sent out bi- the Assistant De-out-"- Adiinistrator, about 22 nanufacturers' 
overhea-d varied between 8 anrl 84 percent of their total cost, (it should 
be n->ted here that a 33-l,'3 per cent '-ia.r]:-up is cquivaJ. ent to 25 loer cent 
of the totr.l cost). Of the 23 co-ncerns re;oorti-o.,g, three revealed over- 
head -ierce;:ta; :es belorr 20 per cent. (***) Conseq-uently, to the e.-:te-it to 
vrhich txiese firnres are reliable, the 35-], /3 -ler cent nark-up,. while sub- 
sta'itiall^r belo',7 the avera':e, '-ar= --^11 p.bove the er-oerience of certain 
co-ncer:is. 

(*) Standard Cost i?orn-ula, 12/11/33, Cost Accounting Piles, -"TIA. 

(**) --"efere-nce - letter De-o'uty Ad^'.inistrator Coif;li-ig to Chair^ian 
of Code An.thorit;-, Dece-foer 11, 1933. 

(***) riles ^.f De-out3'- Ad -inistrator; folder, "Standard Cost Pornula." 



o u-^ 




Mm AmM\i\ M\\^^mM 



9763 



O § ^ 



-173- 

DiffidiT ty also arose ^'itli reference to the valii?.tion of naterial 
a.t curre'^.t •^c,r'':et -jrice; ?.t ].e.-ist Im "o'^c case otjectio-" \in.s received 
frn-1 r". i:xTi virtual inoAi'-tr^^ lerroer. This letter of objectio-i is si,^- 
nificart: 

"The inclused hulletii refers to a resolution ^-hich r'as rxTo-otecl 
0-- the Coc.e Acl-ii'^istrative Co nittee a.t their "'arch neetin-";. 
'I'h.is resolution reats a.s follor's: 

'The -materials rhich are- -^ erx):-e'5. unc'er the C'^^oe 
other than the Lu.fj';a":e a^-d ra.nc;r Leather G-ooc s In- 
dustry' Code, sha,ll "be ii:-ji.ired in the nateriaX coct 
of the current nar'et orice of tjiose ma-teria.ls. ' 

"Tfe deep, this resolvition as unjust. Tie are en/Tsed in the -lanii- 
facture of G-la.dstone 3p,£;b. In raa.nafacturing these hacs ■'"'e pro- 
duce our o'"'n franes a-t a cost of '*'^3 loer dozen, ^viereas the ^ore- 
sent -la.r'iet -orice on such franes in $7.7'5 loer dozen. 7e also 
finish our otti leather; the cost of vhich is $9 ;oer dozen, rrhere- 
as, tiie mar^-et price on finished il.eather -per c'ozen Gladstone is 
$14. Our position vith reg3,rd to the naniifa.cture of these fra-ies 
a.nd in the finishin/; of leatnor is that both of these ite^ns are 
as -lAich a ;nart of the G-ladsto-ie ']&g a.s the straps and handles, 
n:7.d vhich should, not he co-rsicered. an],'- different r/ith respect 
to t]ie -lanufacture of these iteis e.:id. those ;iam7.facturers vrho 
■mel-.e their oTTn straps and ha.ndles hcca^use they ca.n produce these 
articles ches-iier than the^'- ca.n huj'- then. V'e a.re doin,^ li':e'''ise 
i"'itn resoect to the vianufactare of franes a,nd the finishing: of 
leat'ier, 

"At t'\e --■re'^-ent \ie. sell our fi.^ished nerchandise at f^5.50 ea-ch. 
Thi" nrice includ.es a, 3o-l/3 nor cent nininun overhead as re- 
cuired hj'- the a.i3oroved sta-.dnr.-d cost foinula of the ind.ustr]'-. 
This nininuji overhead, is in e.-cess of our actual overhead. 
Sliould ue fifjare mvr cost fit the curre-'.t na.hret nrice of na,terials 
a,s d.ena.nc ed. h7 the resoli^tion, our selling price of this naterial 
v'oulc. he $1.50 ovi the ha sis of the stand.a.rd. cost fomula.. T7e 
nanufacture 50,000 Gla.dstone Bags per •;'-ear, consequently the 
"biir-in," -ouhlic "ould be overchar£;ed $55,000 if re trere conpelled 
to adnere to the ahove resolution, 

"Hor/ever, re -.-.'ould not nr.'':e this '^55,000 as a profit; as a natter 
of fact, re rould he d.riven out of biif.i::epr.. At this increased 
price, our prodaiction rould fall enomously, a.nd a.s a result, 
our cost of -orod-uction ^'ovJx: '^rea.tly rise, for '"'e rould. not pro- 
d."i.ce franes a.t tio a dozen, "".rr.' could, re produce the lea,ther a.t 
')9 per ^.ozcn, unless ''e nai ■■tain oiir present ouantity of pro- 
daiction. In short, the reso"!.ution ad.o"oted Iv/ the Code Ad.-iin- 
istration Co-mittee roulc. drive ow efficient nanufacturer ov:.t 
of ousi-.ess for t'le benefit of the inefficient nanufa.ctii.rer, 
at t-he er.nense of the bu--iny aublic. 

"Halving thus presented, our nositio2i to "'ou in this nanner, re 

as"-: "^ou. Colonel Con':lina;. to '-rive us a. .just deal." (*) 

(*) Letter fron ?.. E. Eanpe-oort Conpany, Chicago to Ileimty Ad-iinistrator, 

:'arch 27, 19r;4; TPjI files. 
9763 



-174- 

In re-ily to this ^-irotest, Assistp.nt Demit^r AdniniEitrator Lei,!?;h Ore 
infor-ied the ::a-Toe-oort Ccroany that the Adnini strati on approved the 
stand ta'-en "io" the Code Authority. (*) 

In seehing an interoretation of certain features of the formula., 
the chaiman of the Code AutJiority vas infon.ied that the Legal Division 
did not regard the approval of the Denut^'- Ac'tninistrator as having been 
sufficient. Apparently the first inhling the Code Authority had of this 
situation uas r-hen the Chaiman trans litted thin intellige?ice at a -leet- 
ing held on August 29-30, 1934. (**) 

Prior to granting for-ial ap:oroval, ".~A. insisteci on certain clia'.ges 
in the fornula. As fina.lly a-oprovecl on Octoher 25, 1934, (the last raan- 
datorj^ S3'sten. aro-oroved "oj -HA.), the phrase "exceition "b.j he -la/e to 
this rule", (see ahove), vras changed to read "e"xe-otio"i shall "be "lade 
to this rule " (***) 

The uncertainties surrounding the sta.tus of the loriula dnri nr; this 
period apnarently resulted in a hreahdoun of conpliance a:'.d ::orf\l, if 
"orice fluctuations na3^ he tahen as a criterion. Chart VII sho'7s a s'narp 
drop in the prices of suitcases and traveling hags "between August, 19G4, 
T7hen the validity of the approval iras first hronght into ouestion, and 
Dece-iher, 1934, A further slow decline is evider.ced ihiring the ea.rl-/ 
months of 195'3, inciicating that the bela^ted. violation of the cost s^'-stem 
had little if any effect, 

J, Paner Distrihutiria: Trade 

The coder, for this trade as originally -oroi:)osed vould have covered 
all vholesrle distribution of -oa-oer and ooper -oroducts regardless of 
whether such distriTmtion constituted a major line or a side line. The 
code further ■atterroted to control channels of distribution by lorohibiting 
direct 'sales by manufacturers to retailers. 

effective control over nrice nas to be esta.blished by nrovidi'ig that 
manufacturers rrere to establish resale -orice Kchec'u'',es accei^table to the 
d-istributors, such schedules to carry a "fair and reasonable nrofit above 
the merchanc'ise and onerating costs." Tfnere resale orices 'rere not es- 
tablished b3' manufacturers it provided that merchandise should not be 
sold" g,t less than reTolace-'e-^t cost, nli'-S cost of distribn.tion - plus 
reasona,ble profit on the snle." 

(*) Letter, Asrt. Den, Ad-i. Ore to Ha.nnenort Comnan3-, Anril S, l'"34 
Dep. Adm. Tiles, Protest, V. to Z. 

(**) ^"inutes o:^ C.A. heeting, 3/ 29-30/34, Denuty's files, Code 
Authority folder. 

(***) Cost ]?o]-mla, 11/28/54, Cost Accouiting .Files, 'TA 



9763 



-175- 

Tl^'.ese provisions rere ropricaJIy changec?. nrior to arnjrova]. . Tae 
code vT.s revised to prohibit sales "below re;olacenent costs plus a narh- 
u.p for actri-al vages of la"bor to "be firced oy the Aininistrator. An e:z~ 
ce-otior was provided, to oeniit the -leetin-c of co-roetitiou. 

The replcce'-.ent cost hasis was not aporoved ^--ithout serious o"bjection 
fro^ tie Consumers' Advisory Board ano from the Hesep.rch and Planni:-ip- 
Division. The industrj?-, however, contended that this basis was "i.ec- 
essar3'- for the followins; reasons: 

(1) In view of the impnssihilit:^ of identif-'in/^ the date of 
"ourchase of inventor^,'-, replace-ient cost provided the one 
oasis on which enforce-.ent ', 'ould oe feasihle, 

(2) It was contendad tha.t the prices of pa"3er and -oa"oer --iro- 
ducts had always been subject to violent fluctuations 
and that these fluctuations had been aggravated by snec- 
ulation. It wa.? rlso contended that certain paper aer- 
chajits had- tue habit of bu^^ing paper far in excess of 
tneir own cu.stoners' require^-ients with the object of 
attenptinf; to dispose of it anong the custoners of their 
cOMpetitors. It was further clai led that this s-oec\ilation 
''a-j c'istributors tended to aggravate fluctuations in the 
activity of :iamifactu.rers, causing excessive stinulation 
of production \^hich would be followed by a complete slump 
when inventories were piled up, (*) 

The objections of the Consnjiers' Advisory Loard and of the Research 
and Planning division were overruled rid the code was a-n-oroved on 
December 25, 193G, The loss limitation provision wa,s to remain in effect 
onl;'- u:-itil July 1, 1P34, unless renewed 'oj further order. 

On February 21, 1934, the Code Authority submitted to IIRA a pro- 
■oosed schecule for allowance of actu.0,1 wages ^f labor together ^'ith data 
purporting to justify their demands. The percentages proposed were based, 
on the results of a special cost survey conducted by the Business Re- 
search Corporation coveri-^g the Au/^TUst v.nd. Se-ote-ber, 1933, business of 
a group of Toai-ier distribu.tors selected bv the Code Authority, Effort 
was made to i-"r,ure that the selection -"ould be as representative of the 
trade as -oosrible. ■ (**) 

The data, subinitted were co'isidered inadecma.te by the Resea.rch and 
Planning Division and the Cod.e Authority was requested to mriJ':e an6ther 
cost survey covering the first quarter of 1934. On the basis of this 
later s\irve;r the Resean-ch and Planning Division submitted reconnendations 
specifying a :iinim\im na,r]:-up. In sub-iitting t!iis recommendation it was 



(*) See letter of January 15, 1935 from Code Authority to Administrator 
in supnort of apolica,tion for exte'^-sion of mrovisons of Sec. 4, 
Art. VIII; files of Den .ty Ad-'^in ■ strator. 

(**) See state lent of 0. P. larqua.rdt, transcri-ot of nublic hearing 
January 15, 1935. 



9753 



-176- 

reiteratec. tl:.p.t the cost data suonitted aoneared inadeqiiate. It "as : 
reconineided that ap-orovpl be ^^ranted only for the remainder of the ji'ear 
1904 aid that further data shouJ d iDe secured prior to any extension. 

On June 7, 1?34, the sched.ules of nnrh-ups to cover v/ages as recon- 
raended h" the ?.esearch and Planning Division, r'as officially approved hy 
Aclninistrative Order l^o. 176-6, to remain in effect until Dece^ter 31, 
1934. The cost ^orovisio^. of the code, hotrever, was to terninate on July 

I, 1934, unless renewed. TJliile in favor of granting an extension to 
Octoher 1, 1934. the Assist nt Adrninistrator for Policy reconnended a 
stay of the ^age allowances, which were, thereupon, suspended, leaving 
in effect only the rerilacenent cost of ^naterials. Upon further consider- 
ation, the Assistant Adninistrator reversed his Tiosition and, on Julj'- 

II, 1934, the wage allowances were reinstated to expire Octoher 1, 1934. 

On Octooer 2, 1954, hoth tlie replacenent cost provision of the code 
and the ware allowances were extenc'ed u.ntil Januarj/- 31, 1935. 

pu-blic hearings had heen held "orior to each of the renewals, and 
a hearing was aga,in held on January 15, 1935. 

Opposition cTeveloTied at tl.ese hearings fron the wholesale grocers, 
who contended that the lahor nark-m-i , •■ as ap-olied to the paper products 
they liandled, \ips in excess of their actual costs. The Code Authority 
stressed the need of controlli-^g the competition of these side line mer- 
chants, alleging that they were prone to use their paper items as loss 
leaders, and requested continued protection for the full line -merchant. (*) 

The De-Quty .and Division Administrr tors strongl^^ urged ext ens t ion "be- 
yond January 51, 1935, but were opposed hy the Consumers' Advisor;'- loard 
and the Research and Planning Division. The hIH3 thereupon referred the 
question to the Advisory Council ^-hich renxlered an adverse report. (**) 
Extension "beyond January 31 was consequently denied and, on that date, 
the effectiveness of the provision terminsited. 

The re-oort of the Advisor"'- Council did not pass final judgment on 
the issue, in 'h.ich the wholesale grocer-paper distributor question 
■bulked lar.-^-est, - out op-oosed further extension -oending determination of 
policy hy tlie Board lUDon the general issues involved. 

The decision of the Advisory Council, is quoted is part: 

"It should he added nevertheless that the Council does not 
consider the issue of a vrholesale marl,'-up to he entirely forc- 
es ) Transcript of louhlic hearing, Jan. 1^5, 1935; also nemorandim 
in De-nut^'-'s files dated Jan. 23, 1935, from Assistant Deputy 
Administrator, re inclusion of whoD.esale grocers. 

(**) Deputy Administrator';: files; memorandum Teh. 15, 1955 from 
Advtsory Council to ;;atio-\al Industrical Recover^^ hoard. 



closed ty either tae decisive langlla^e of the above code 
paragra.ph or the reaso-:i:ic against continuation of the nark- 
up at this tine. It is reco-:;ni'red that all of the evidence 
concerniiig both the justification and danf<^ers of such mark- 
ups is not in and that the current hen.rings nay still reveal 
special situations in -^hich action along the;;e lines nay he 
found desiraole,. -At the noraent, houever, the "oresent and 
-ootentirl difficulties attending this ;oarticular effort to 
stabilise prices in t'le nrper trade, seen to the Council to 
ou-ttreigh the possible benefits. As it is li'-ely to be still 
so'ie ti'i.e before ne'"' oolicy is actually set in notion, and as 
the earlier action of the Council in declaring against rrhole- 
sale differentials raises a question of consistency^, there 
doe-s n-^t seen to be iiuch to gain bj'- giving this provision 
another tenporary and Inconclusive lease on life. 

"Heconnendations: It is therefore reconnended that the appli- 
cation for extension of Section 4 of Article VIII not be 
granted at this tine but that jiadgiert be reserved until after 
the hearing and general determination of polic^^ b;"- the Board 
on the general issues involved," (*) 

According to a report prepared by i'iss Enid 3?.ird of the Consuners' 
Advisor^r Board for the Hearings on price Changes, held on Januarjr 9 and 
10, 19C4, thirty complaints had been received "oy l.'.R.A. fron retailers and 
converters of papers. (**) These conplo.ints nade specific- charges of ex~ 
cessive -irice increa.ses and of rionopolistic collusion anong nanufp.cturers 
a:ad distributors. Altho'iigh the . complaints v.-ere filed rjrior to the ef- 
fective date of the Paper Distributing Code (Decenber 23, 1933), it seei.as 
rea-sona-ble to presune a connection between the activities complained of 
and the expectation on the pa.rt of the lanufactiirers and distributors 
that their Codes T70uld contain_ price control provisions. (The Paper and 
Pulp Code had already been approved on ITove-iber 27 and contained me/ndatorjr 
tmifoni cost accotuiting and open price filing provisions.) 

The conplainants charged that the prices uhich the^^ vrere forced to 
pay had increased during the "oreceding three nonths form 25 per cent to 
150 per cent on individual itens. These cha,r.E:es Trere substantiated b;r 
copies of bids a,nd -nrice lists. The charges of collusion trere supnorted 
by copies of identical bids o.nd joint price lists fron various distributors 
and by excer^ots of letters fron riistributors, of "hich the following is a 
"ood exanple; 

"rovenber 2, 1933. So fa;:, as collusion is concerned, there is no 
necessity for ;oracticing it. I nar''' our -lerchandise up along lines 
suggested by the rational. Paper Trade Association on all itens on 
'jhich the nills do not naJce'' suggested reta,il prices." 

(*) Decision ^1=173, Advisor^/ Council, Feb. 15, 1935. 

(**) Transcript of Price Tiearings, Jan. 9, 10, 11, 1935. SwDolenent , 
TO. 360. 



;763 



-178- 

The complaints from niiolesale grocers consisted of protests a,.^'aiust 
the inclusion of their Ba.let-. of paper under the jurisdiction of the Paper 
Distributing Code, Specifically, they objected to "being forced to operate, 
as regarded their paper sa''.es, on the bsis of a 9 'oer cent maricup. Their 
orm Code provided a markup of 2 per cent and thejr clained abil ity to sell 
paper at a profit on a narlaip of less than 9 vev cent. They contended, 
moreover, that this nar^mp made it impossible for their retial customers 
to compete ^-'ith the chain store and cooperative organi -nations nhich 
bought direct from the mills. 

On January 15, 1935, a Public Hearing was held on the proposed ex- 
tenstion of the minimum price" provision in the Paper Distributing Code, 
Up to that tiie, about 60 complaints had been received by II. R. A, from 
wholesale grocers associations and individual concerns. To these were 
added, at the Hearing, protests from other associations and individual 
concerns and also from associations of retail grocers and of grocery 
manufacturers. 

Accordin- to the testimonj'- of wholesale grocers and their representa- 
tives at the Pu.blic Hearing on January 15, 1935, ^^pay of these concerns 
were operating in complete Disregard of the mandatory markup of 9 per cent 
on paper items. 

At the Public Hearing on Dece^^ber 37, 1934, and the post Hearing Con- 
ference on Januarj^ 4, 1935, testimony was presented 03'- representatives of 
the Paper Distributing Code Authority to the effect that violations of 
the minimum price provisions were widespread am.ong super-jobbers and sub- 
jobbers. The super-jobbers clained eizemption from the replacement cost 
plus ma-rlaip requirement under the clause exempting sales between whole- 
salers, although, according to the Code, such sales were exempted only 
upon the ap-Droval of the Code Aiithoritj^. 

On these same occasions, further testimony was presented by the Code 
Authority'- to the effect that certain paper merchants were circumventing 
the Code provisions by means of subterfuge. It was al.leged that these 
dealers claimed to be acting as mill agents in order to secure the agents* 
commission of from 3 per cent to 5 :oer cent bat, having received these 
commissions from the mills, proceeded ^to distribute their purchases in 
direct competition "ith the ordinary distributors. The agents' commissions 
enabled them to undersell all the ordinary distributors and even the mills 
themselves, since the latter were not riermitted to sell belo'r/ their filed 
prices. The inference was that certain mills, connived with these agents 
as a les.ns of circumventing the provisions of their own Codes. 

According to the testimonj'- of A. W, Leslie, Chairman of the Code 
Authorit^T-, at the Hearing on Price Provisions, January 9, 1935, at least 
500 formal complaints were Ii£\ndled by the Regional Committee during 1934, 
and a great nnny more were' adjus'ted by Trading Area Sub-Committee without 
hearings. 

Brief swimaries of the tvjo most important cases Afhich came to the 
attention of tlie Litigation Division will serve to exemplify the general 
nature of compliance problems and the procedure followed in dealing rrith 
them. 



•179- 



1. ridrrest "PP-ver Company. 



lj]e.rly in October, 1934, the i'idv.'est Paper Company of Chicago, 
Illinois, v/as charged lij the Paper DistribTiting Code Authority vith variovis 
Code violations 'including violations of the 'lininiij.i price provision. (*) 
This concern did an annual "business of bettreen $1,000,000 and $2,000,000 
and VPS inportent both locally and nationally. 

According to the Litigation Division digest of the ca.se, sales belovr 
replace-ient cost uere "suspected". The Code Authority requested perinission 
to exa~!ine the Company's books, but pemission was refused. A hearing was 
held by the Code Authorit3^, at Tfhich tine the respondent again ■r'^fused per~ 
mission to ejoanine its books. 

The case was referred 'by the Code Axithority to the State Compliance 
Director, whose agent requested' access to respondent's books. Access was 
denied. Thereupon, the State Coiroliance Director summoned respondent to 
a hearing. P.espondent' failed to appear. 

The case was referred ''oy the State Compliance Director to the Liti- 
gation Division, '--hich referred it to an Assista.nt U. S. Attorne]"-. Various 
actions and counter-actions were instituted, with, the net, result that 
the. pesTJondent was left free to continue its disregard of the Code. 

2. remrov: Brothers, Inc. 

In Jn.ne, 1934, Ilemrow Bros. Inc. of Boston, I'ass. was charged by the 
Paper Distributing Code Authority with selling below replacement cost and 
with failure to nal^e reports to the ReginnaJ Committee. (**) The annual 
sales volu;ie of this concern '-'r.s not disclosed, but it was sa.id to be 
large, and the companjr was known as an important factor in the Trade both 
locally and nationallj'^, 

numerous conferences took place betrreen the Code Authority and the 
respondent, in an a.ttempt to secure an adjustment. A formal hearing vras 
held b3;- the Code Authority at which there was considerable controversy as 
to the meaning of "replacement cost". It appea.red that all sales made 
by the responde-.-^t were at prices in excess of his invoice cost. The Code 
Authority' found respondent in vi'Qlation of the Code and "required" re- 
spondent to ma'-e "equitable contribution" of $175.00 to defra.y errpenses 
of the -lea.ring rnd investigation. Hesponde'it appealed and the ca-se was re- 
ferred to the Com.pliance Division, 

On roveraber 26, 1934, six months after the filing of the complaint, 
a consent decree wa.s entered in the federal District Court enjoining future 
violations. 

(*) Litigation Division files; DoC'":et I'o. 6-9 

(**) Litigation Division files; Docket I'^o, 1-14 

97S3 



-180- 

Tlie Cha.irm-1 of the Code Authoritj- testified at the r^earing on 
Januaiy ?, tC?5, that, in addition to the inprovenent of labor con- 
ditions i:"- tlie Trade, the follovin^^^ benefits had accrued froiji the . 
nininu.i 'price provisions of the Paper Distributing Code. (*) 

(1) Speculative stocl's decreased an esti^-^ated 20 per cent 
(dollar value) . 

(2) The liquidati'^n xip.s orderlj' and,- e::ce-ot in cases of Code 
violp.tions, did not cTisturb nanufacturers' or distributors 
-iar^-:ets. 

(3) Conservative nerchants nere encouraged to build u;o their 
stocirs, because of nore stable nar^-et conditions and less 
dani^dr from speculative buyers. ' ' ' ' 

(4) Snail o-oerating profits replaced losses. 

(5) i!s,nufacturers ' operations levelled off and inproved 
nateriallj 

(6) Average prices for paper and paper products advanced 
less than 10 ;oer cent fron the low point of the de- 
•oression, stability being the distinguishing character- 
istic of the price level. 

It is pertinent to note that the Tationa. Paioer Trade Association 
sub'.Tiitted to the Pederal Trade Counission a voluntary agreement in- 
cluding a -prohibition against selling belor- cost. 



(*) State-i.ent of A., K. Chamberlain, Transcri^Db of Price Ile-'^ring, 
January 9/35. ' ' ' 



-181- 

VI. SU.~...JIY 

It is apioarent , fron p r^vie^'' of these cp,sei=, that it was the 
constant aim of the resppctive Code Authorities to turn orovisions 
Drohi"biting sales below cost into ririd arice fi-ing instruments. But 
if the goal of inr^ustry T^as clear ^nc consirtent throu -hoat , WA iDolicy 
was slow in developing. At first broad grMnts of power were allowed, 
and codes with highly ri^strictivp price iDrovisi'^ns approved. During 
this same period administrative officials were -orone to extend un- 
aathori^ed approval to cost systems and price schedules desi.'^ned to 
effectuate these Tsrovision's, 

Gradually liP.A policy shifted, and increasing reluctance either 
to approve provisions of this character or to imiolement those already 
auproved was ra'-inif ested. The refusal to anprove all but a small propor- 
tion of mandator;/ cost systems provided for in the codes has been noted 
previously. In the Fire Extinguishing Code the schedule of lowest 
representative costs, once informally approved by the Assistant Deputy 
Administra,tor, was denied formal aporovalc In the Iv'alleable Iron Industry 
an effort was Biade to draw the teeth of the "fair and reasonable" costs 
provision by approving it subject to the proviso that any member could 
sell down to his own individual costs. 

As time went on IJRA reouirements became increasingly rigid. The 
■Rubber Tire 1 anuf icturinre Industry was CPtPf^oricallv denied approval of 
a cost system o^sed on replac ment cost of raw material. Systems and 
schedules already pt)-oroved were allowed to lapse, for one reason or 
another, in several cases on recommendation of the Advisory Council, 

In addition to the direct effect which these changes of policy 
had, their indirect effect on industry morale was substantial. In 
maay 'cases the issuance of Office I emor^ndum #228 was followed by a 
marked letdown in comTDlirnnce. Administrative reluctance to uress 
charges against violators nad a similar effect. 

Perhaps the best commentary on these shifts in Dolicy may be 
derived from the following time table for a few industries: 

Paint, Varnish and Lacouer I anafacturing Industry. 

Code apioroved - in/31/33 

Processinff costs approved - 5/11/34 

Processing costs reaoprov^d - 12/7/34 

Processing costs - approving anendment to previous anoroval - 

12/22/34 

Processing costs - further amendment to previous =ir)proval - 

12/28/34 

Processing costs allowed to lapse - 1/25/34 

Sales below cos.t stayed - 4/2?/o5 



Paper Distributing Tr^^de. 

Cede approved - 12/cS/E5 
Labor markrLi.ps ^Dproved - 6/7/34: 
Labor marlcups stayed - 6/20/o4 
Farloips reinstated - 7/11/34 
larkuDS allo-7ed to lapse - l/Zl/35 

Fire Ji^tinguishing Appliancf i.ianaf acturing Industry- 
Code approved - ll/4/3o 

Eepresentative costs "approved" byAsst. Deouty - l?/l?/3? 
Code Aathority notified repres-ntative costs must a'^^ait approval 
of cost system - Jun^ , 1934 

Federal Trade Commission files comolaint - 4/4/35 

Luggage and F^ncy Leather Goods Manaf acturing Industry 

Code a-DDroved - 1^/3/53 

rormula "aporoved" b -- De;outy - I'-'/H/cS 

Code Autriority inforned aiTorov-il iiwalid - Augast , 1934 

Formula officially ^loroved - 10/:;5/34 . 

Malleable Iron Industry 

Code acproved - 11/27/35 

Fair and reasonable costs q^proved, but ^'dth nroviso 
modifying effect - 4/25/34 

Resentment against W:j^ ^vas engendered bv the -uncertainty of its policy. 
It was alleged that code provisions represented n .mutual compact bet^reen 
industry and NKA and that unilateral abrogation by 1\!?.A "7as unwarranted. 
There is little question, however, that it 7'ould have been disastrous to 
permit some, at least, of the provij^ions contained in the earlier codfs, 
as aporoved to become effective. 

The Fire Extinguishing Appliance f/an-uf ^cturing Code with its prohibi- 
tion of sales below the lowest cost of a representative member may be cited 
as an exanole. The term representative m^rber wps defined as one "'"ho 
manufactures within his oim plant arepresentative line of the nroducts 
of the Industry, who maintains research and develooment departments for 
improvement in the arts of fire extinguishment, and who through educational 
publicity and s-^les promotion broadens the market and develops business for 
all members of the industrj'-. " •(*) Lower cost producers v/ere to be ruled 
out of their advantage by definition. They could comoete only on a "orice 
level based upon the costs of tho'se who considered themselves "renresen- 
tative." The prestige advantafre enjoyed by the dominant grouo was ignored. 
The minority were not to be oermitted to co'ipensate for their lack in this 
regard through loi^'er nrices. 



(*) Fire Extingui.shing Apisliance Cod^ , Article VI, Section 2(e). 
9763 



Had this provision "been permitted to remain in effect, and could it 
h=^ve "been enforced, the members of the dominfmt group would have been 
jrraiited ^n ovt i -JulMin^- competitive advantage. In this case the 
virtual nullif ic-ition of the code provision was the alternative to such 
an eventuality. 

But, turning from these later attempts by IvRA to reverse or modify 
the effects of its earlier grants, anj?- review of these cost protection 
clauses in operation leaves one inescapable conclusion. Gn the basis of 
this sample, at least, industry was far more successfal in turning the 
no selling below cost principle into a rel3.tivFly rigid minimum larice 
fixing instrument thnn MA was in maintaining flexibility. There was 
practically no c^se in vhich thp' cost accountinjc system was devoid of 
arbitrary elements. In practically every instance the yardstick had been so 
graduated as to establish a price floor definitely higher than the cost 
of the most efficient producer. Cr?rryine the design a step farther, 
many of the Code Authorities "reconnejided " prices to mf^.bers, usually 
with a more or I'-ss exolicit threat that sales below the suggested levels 
would be procf-eded against. 

In the scre'5 J;achine Products and Limestone Inc3ustries, prices, 
instead of being fixed for the product were fixed per operation, a 
device more suitable to th* character of th-^ industri<^-s but differing 
in no essential t)rincir)le. 

At the risk of reiteration, then, it is evident that cost -oro- 
tection, in practice, established a floor orice level no less definitely 
than direct or emergency minimum lorice fixing; and that this floor was, in 
gener-l, well above the cost levf^l of the most efficient producer. Further- 
more, when fi'-.ed or emergency m.inima were established, their level was 
clearly specified. wTiere -under cost protection, the price floor was not 
explicitly defined by indefinite, it was in-oossible for WA to obtain any 
adequate information as to its fairnf^ss or effect. 

In summary, cost protection did not turn out to be a very satisfactory 
administrative instrument. The anticipated flexibility was not achieved. 
The problem of enforcement was complicated by the necessity of examining 
the books of suspected violators, perraissicin for which was granted 
grudgingly if at all. The constant conflict of motive between INTRA and 
the Code Authorities vras not conducive to sm.ooth administration. 



9763 



-184^ 

■ , CHAPTER IX 

COi'CLUSIOlIS 

I. PURPOSE OF LIi:ii.TJu PRICE PEGULATIOU 

:. l,;iniriaua price regulG;tion -Lmder ILR.A. Codes of Pair Conpetition 
represented an effort to renedj'- actual or alleged dislocations of the • 
price strticture of individual industries or specific products. 

In i:;,enei''al these price problems v/ere nerely surface nanif estations, 
reflecting: the general effects, of the depression, aggravated in indiv- 
idual industries "by specific maladjustments, related usually to the 
condition of their -markets, the character of their membership, the 
methods through vrhich their products rrere distributed, or the extent 
to v/hich consumers rrere able' to exert control over' their price struc- 
tures. 

I\i.rthermore these maladjustments may ha,ve been intensified by 
a malady far more deep seated, a basic disorder of the marlcet arising 
frojn the substitution of rigid for flexible elements in our economy, 
of imperfect competition and adEiinistered prices for free competition 
and market prices. 

Discussion of the possibility of remedy for this basic disorder 
is outside the scope of this study. Linimum price regulation was not 
directed at this fundamental economic problem, nor. even at the more 
basic difficulties rfhicli affected specific industries and exaressed 
■themselves in a price level unsatisfactory to the bulk' of their, mem- 
berships. It T7as rather an attac:: Ol^ the obvious and most superfi- 
cial symptom of these underlying factors on the price, level itself. 

II. EFPECTIVEHESS OP. LiliniiTJi: PRICE IffiGULATIOH 

In some co.ses these efforts to ameliorate conditions by limiting 
price com.petition resulted in complete failure. In some a greater or 
lesser degree of success ^.Tas attained; success, that is, from the 
standjioint of the problem attacked, llo attempt ha,s been made to ap- 
praise siiccess or failure in a broader economic or social sense. 

A. Factors uaking for Failure . 

Considering the failures first, the folloving generalizations 
appear na^rranted: 

(l) Availability of Substitutes. 

Where the de}iand for nji industry's product is closely 
conditioned by the availability of substitutes, or of identical pro- 
ducts manufactured by other industries, minimur.! price regulation is 
unlikely to be successful. The most extreme exaiiiple of this situation 
is in the Htird'TOod Distillation Industrie nhich faces e?:tra- industrial 
competition on ever;;^ front. The rjrice of all of its products - metha- 
nol, calcium acetate pjid charcoal - are to a great extent out of its 

9763 



*185- 
lontrol. Here price regulation was foredooraed to failui-ej 

In the Limter and Timber Pi'Oducts Indastry the conpetition of sub- 
stitutes is somewhat le^s imnediate but still vitally important. Steel 
and concrete possess rany advantaf^es over vrood as const'-'nction mate- 
rials in many departments of the field. One of the principal factors 
governing the denand for l^^ber in constriction is, therefor:;, the 
saving in cost it can show over other materials. Consequently, any 
sharp decrease in the price differential betv/een luiaber and other 
building materials, such as occurred daring the parly months of the 
code, will discourage the use of wood to an appreciable e7.tent,. 

Similar considerations nay hold for such other uses of l-omber as 
furniture. It is probable that any benefit that might have been de- 
rived from the price increases under the code was canceled at least 
in part by their inliibiting effect on demand. This r.-ay have been an 
i'-rportant factor in creating the general dissatisfaction with the code 
price provisions which C'clminated in the petition for their repeal. 

(2) price Control Designed to Restrict an Industry Faction 

In many cases price control was sought by one group in an in- 
dustry primarily in an attempt to circumscribe the activities of a 
competing group. These efforts failed almost luiiforraly, either be- 
cause the faction at which they were directed refused to cooperate, 
or' because II. E, A. refused its backing. 

In the Cleaning and Dyeing Trade, price control Was intended to re- 
strain the activities of the "cash and carry" cleaners. These felt 
that their business life wcjld be imperilled by compliance with the 
high price level established, especially since no differential was 
provided for their means of operation, and simply refused to comply. 

In tv/o cases, plumbing pixt^ires ano retail Tire, mail order houses 
and interests affiliated with them were the target, and in both these 
industries they succeeded in nullifying the effect of the price pro- 
visions. To a lesser degree, the same -.!■: s trae of the Purnituxe In- 
dustry. In the Canvas G-oods Industi-y an anomalous sit^aation arose. 
The retail group were boxmd by the xJ-lce provisions but the wholesale 
group were not, and enforcem.ent against the thousands of handcraft 
shops was out of the question. As a result, prices were inapplicable 
to the very elements they were designed to control, and success was 
out of the question. 

In the Commercial Printing Industry, while the record is somewhat 
confused, the attempt to regulate the "hall-bedroom printers" probably 
met with little success. In the Paper Distributing Trade the price 
provisions represented an attempt by the orthodox wholesalers to main- 
tain their position against sub- jobbers, super- jobbers, del credere 
agents and side-line merchants such as the wholesale .grocers. The evi- 
dence indicates that these groups did not, in gener-^l, comply with 
the provisions, and that N".P.,A. finally decided that the propriety 
of exercising control of this nature was subject to question and res- 
cinded its approval. 



In t'^o codes, Fire E:;tin:7^,•aisi'.i■.^^" AnnlirncnG rnd Vood Cased Lead- 
Pencil, the j-irice provisions --.-'ere drar-n '-ith the direct vieu to re- 
storing tc .srotij^s lone doninant in t'lese industries advantages they 
felt sli:ipini; from' their grasp, "bvit :".R.A., despite its original ap- 
proval of these- codes, declined to grpnt G.p-iroval to the schedules 
necessar;- to effectv.ate these Tjrovisions. 

(S) "multiplicity of Units and Products, Internal Disorganization. 

TTnere an industrj' was composed of a lai-ge nwiter of -units, iiany 
of th.e.i s !gll, producing a nide variety .of xuistandardized items,, the ; 
chances of success are not propitious. In the Lwfoer and Tinker Pro-- 
ducts InCustrj-, the Cleaning and Dyeing Trade, the Canvas Goods Indus- 
try, aiid the Connercial Printing Industry these factors contributed 
to- ins"aring failure. In these cases success would have been inpro'ba'ble 
in an-,- ca'-e due to the difficulties previously en-oiaerated. In the 
three Produ.cers' Service Trades, however, Fur Dressing, Throwing, and 
Waste Paper, the -nrimary ca'CLse of lach of success vras iiirobably just 
this internal disorganization. Substitutes were not a problem, and 
there was no clear internal cleavage. Price control was designed to 
permit these industries better to i^'esist the pressure that consui.iing 
interests were able to exert over -orices through such practices as 
bid shoiToing, in the first two of these industries, and throuj?h the 
control of a captive plaait in the IJaste Paper Trade. In each case 
the atterapt to organize the industrj-- to resist this pressure failed. 
In the r\ir Dressing and ;?ur Dyeing Industry this failure ensued under 
little, if any, outside opposition. In the Throwing and Waste Paper 
Industries, however, consumers apparently took an active part to insure 
collapse. It i a- significant that sirailar attempts to resist buying 
pressure i.iet with better' success in three other industries in which 
industr;- morale was better or consmiers less resistant. 

(4) Suinary 

In su-.Tiari/, failure enr.-aec. '-rhen: 

(a) Product demand was very responsive . to price changes due 
to the availability of substitutes. 

(b) Price control was desi.gned to circwascribe the activi- 
ties of a faction of the industry, xoid that faction actively resisted 
such efforts. 

(c) There was an atte^ipt to resist the pressure buyers were 
able to e-:ert on the price structure, and the industry was too disor- 
ganized to maintain its position in the face of these consuming in- 
terests. 

(d) liultij-jlicit]^ of imits or products greatly lessened the 
chances of success. 

D. Cares of Relative Saccess . 

T\irning now to those cases in rrhich a greater or lesser de- 
gree of success in securing the results desired by industry was 

9763 



-187- 

aciiieved, the lolloving -ii-oupings ap'iear juctified: 

(?) Restriction of Price \is.ts, Deli"berately Initialed "by 
One or T'fO Indastr-^ lionlDers. 

In tv'O cases, tlie Cast Iron Soil Proo and the Ac^icul- 
tural Insecticide Indoistries, price control imder the euergencj.^ vras 
aimed at st0'T-,in£- a price T7<ar initis.ted 07 one or tvo menbers of these 
indastries. In ea.ch case V.R.A. established a floor price, for a 
United period, at a very Ic? level. In the Cast Iron Soil Pipe 
Iniustrj- the "orice established ^as nerely siifficient to cover the dir- 
ect costs of loroducers located in the area in '.Thich labor rates nere 
lonest.) In both of these codes price control apnears to have been 
distinctly successful. Hot only iias the price v/ar arrested during the 
life of the enerf-ency, but there vas no resmaption U;ion its termina- 
tion. 

(2) Provisions Designed to Resist Cons'omer Pressure. 

In three industries, (Limestone, I^alleable Iron, and 
Screu l.achine Products), cost protection ras desi;-:^ed to permit the 
industry to resist more su-ccessfully the pressure exerted on prices 
''oj buye^^s of its products. (All three of these industries are Pro- 
ducers' Goods Industries rithout independent demand). In each of these 
cases it is probable that a moderate degree of success vras achieved. 
In this respect these codes stand out in sharp contrast to ex]oerience 
T/ith the Producers' Service Trades, in Thich failure resulted due to 
greater resistance oj consumers, to internal disorganization and 
possibly less efficient direction. 

Unfort'onately, no objective criteria are a,vailable for 
any of these industries. The inference that price control nas success- 
ful in the Screu Lachine Products Industry is based on the ferr expres- 
sions of opinion availa.ble in IIHA files and on ver;^ limited field 
contacts. There appear to have been virtually no complaints from in- 
dustry'- :-ei!bers or from consuners, presumably because price increases 
rrere hept nithin reasono^ble bounds. It uay be that capable administra- 
tion "oy the Code Authority was an important factor. It is especially 
interesting in the case of the Screr Lachine products Industry that 
there ^-ere no ancillary devices, such as bid filing, to rrhich some of 
the efiect of the -orovision could otherwise be attributed. The in- 
stilling of cost consciousness, entirely apart from prohibition 
against sales belOT? cost, may have been an important contributing 
factor. (Yfnethor or not individual members are either \-'ise or justi- 
fied in basing ;Drice quotations on a cost formula is beside the ques- 
tion). 

In the halleable Iron and Limestone Industries the 
record is not eo^uallj^ clea,r. At first, in any case, the cost provisions 
in these industries appear to have had an srrireciable effect on prices. 
In the Limestone Industry the cost -.rovisionri. -vid bid filing norked 
together. The latter device insured publicity sjid the Code Authority 
in many cases required the rejection of bids deemed non-compliant rith 
the price provisions. The fact that the Code Authority of the Lime- 
stone Incustr;- rcouired and secured upr'ard revision of bids in a number 

9763^^ 



-188- 

of in?to:ices is a.n indication that the price provisions nere, to a 
de;jree, effective, aa impression Toolstered ty the statements made lij 
the forner co-uiirel Oi" txie Code Authority- in an intervieu. With refer- 
ence to the i alleahle Iron Ind'-.istr;'- expressions of opinion contained 
in UHA. files ^loint to the strong prohahilitv that the cost provisions 
succeeded in raising prices. 

Insofar as any lasting effect is concerned, there is no 
inforr.ation available rith reference to the halleahle Iron Industry. 
In the Linestone Industry, ho'>7ever, at lea'st so far as the Ker; York 
hetropolitaii area is concerned, conditions have become extremeljr un- 
satisfactory to the industr;^, vith bid shopping and the use of hick- 
back again the rule. 

Serious adr.iinistrative difficulties v/ere encountered in, 
both ibhese last cases, due primarily to attempts ''oy the respectiveCCrilie 
Authorities to exercise a. greater control over prices than the code 
provisions r.-arrajited. 

(3) The Losn Leader 

In the Retail Tobacco Trade the problem was occasioned 
b]/- the use of tobacco products as loss leaders. The concerns which 
indulged in this practice were apparently railing to abide by the prices 
established, presuraably because of their dependence upon public good- 
will. At anj' rate during its life minimum price regulation achieved 
the efiect intended. In this instance, however, the moment price con- 
trol ended conditions reverted to their previous status. 

(4) Provisions Designed to Aid Small Units. 

In the Coffee Industry the iDrice provisions were probably 
intended primarily to permit the smaller "onits to compete on more favor- 
able tenris ^ritii the very large. While there isno direct evidence on 
this point, the inference appears warranted on the basis of the evidence. 
It is likely that this intent 'as to some degree achieved, but this con- 
clusion is onl" advanced tentatively'. 

(5) Stii.mlus to Solxition by Industry. 

In the Ice Industrj^ tbe record varies. Here there was 
a combina.tion of excess capacity, loss of nar]:ets to substitutes, ease 
of entr;.', and problems connected with distribution. In tvro ca,ses a 
decln,ration of emergency was ineffective. In one case, however, 
(Dallas, Tjxas) industr;;'- members utilized the period of tine afforded 
to work out a soli:.tion of their difficulties based on allocation of 
production. Apparently this scheme has, to-date, worked to the satis- 
faction of industrjr members. 

(6) Industries with no Special Aggravating ilaladjustments. 

In the Pertilir^er Incustry and the Ltiggage aJid Fancy 
Leather Goods Industry, there appear to have beau no very serious 
specific difficulties contributing to price -onsettlement , other th.an 
those inherent in the falling off of demand during the de-oression. In 



"both these cases price regulation appears to have resulted in sharp 
price increases. In each industrjr, furtherr.iore, the price level declined 
apprscialjly as soon as the effectiveness of the price provisions was ter- 
minated, or their legality questioned. It is significant that in "both 
the Luggage and Fertilizer Indu.stries there \7ore conplaints that the 
price increases were unreasonahle. 

TJhether exn-ierience in the Paint, Varnish and Lacqiier Industry should 
he classed as successfu.1 is uncertain. It is not possihle to determine 
trith any degree of assurance the effect of minim-urn price regulation in 
this case, prices remained .stable, uithin a fairly narrotr range, through- 
out the code period, but whether because of, or in spite of, the price 
provisions is uncertain. Furthermore, at no time were all the codal 
price provisions effective simultaneously. 

(7) Summary. 

Price control was apparently effective in: 

(a) Arresting deliberately initiated price wars in two 
instances. (Agricultural Insecticide sziC Cast Iron Soil Pipe.) 

(b) Peri-iitting three industries better to resist con- 
sumer pressure. (Limestone, i.'alleable Iron, Screw Machine Products. ) 

(c) Curbing the use of the loss leader. (Retail Tobacco.) 

(d) Possibly improving the position of small units in 
one industry-. (Coffee.) 

■ (^) Ai.ding an industry (Ice) to devise a means of pro- 
duction control in one local area, the results of which are claimed to 
have been beneficial to its members. 

(f) Pemitting two industries v/hich were confronted 
with no special aggravating problems to raise their prices to levels 
that could only be maintained artificially. In both these cases this 
effect occasioned complaint. (Luggage, Fertilizer.) 

III. COrPAPJSOK OF DEVICES. 

A. Basic Simularities . 

The preceding discussion of effectiveness had designedly 
omitted aaiy reference to the devices in each case. Success or failure 
woG conditioned priinari?..y by the problem, not by the method. Price 
floors were set in each case, under cost protection no less surely than 
under direct or emergency price fixing. The emergency, although limit- 
ed in theorjr to a definite period of time, was capable of indefinite 
extension, with the result that in at least t-^o cases - Lumber and 
Tobacco - the time limitation was purely nominal. 



9763 



-190- 

B. Differences . 

Granting these fimdamental similarities, cert9.in differences 
narj "be discerned. 

(1) Direct nininiri Price Fixing. 

The broad grant of poijer to Code Authorities ujider this 
device led, at least in the L-oriuer and Glean. ing and Dj^eing Industries, 
to serious adjninistrative difficulties. The degree of control II. R. A. 
was in position to exercise '^as not adequate. This may not have been 
inherent in the principle of the device, but in practice, at least in 
the Luiaber ai:d Timber Products Industry, II. R. A. had no specific poner 
of revie'7, and in the Cleaning ?jid Eyeing Trade it wa,s unable to force 
price revisions. This v;as clea,rly revealed in both these industries 
when attenpts were r.iade by IT.H.A. to investigate or nodify the prices" 
established. In the Cleaning and Dyeing Trade the impasse resulting 
from the refusal of the Code Authority to concur in a general revision 
of the price schedules was an important factor in bringing about the 
termination of the experiment. In the Lur.iber Industrj^ not until II. R. A. 
substituted the emergency device for direct price fixing was there any 
possibility of adequate supervision. 

(2) Cost Protection. 

The primary'' distinction between cost protection and either 
direct or emergency price control is that, instead of definitely stat- 
ing what the minin-ujn 2^r'ice is to be, a formula is provided for its 
calculation. In some industries, such as Limestone and Screw Ilachine 
Products, it would be ijiposcible to develope a price schedule covering 
all jpossible items. Cost protection, in effect, establishes a minimum 
price per operation in these cases. The generally uns at isf act orjr nature 
of KHA expex-ience with no-sales-below-cost provisions has been des- 
cribed in the preceding chapter. 

Cost protection a.s a^.jlied to distribution codes may be 
in a somewhp,t different category. Price control in these cases gener- 
ally centered about prohibiting sales below invoice cost either with or 
without specified mark-up, and was usually designed to inhibit loss 
leader selling. In some of the wholesale codes the purpose was to sta- 
bilize distributive channels. It is probable that the devices was 
relatively well adapted for application in these cases. 

(3) The Ejjiergency. 

IT. R. A. V7as able to exercise a far greater degree of 
control over the determination of the Torice floor under the emergency 
than "UJider either direct price fixing or cost protection. Prices were 
usually set at a lower level than would result from a cost formula. 
Automatic review prior to extension helped to ."^uard against abuse of the 
device and jiade possible the temination of its use when the need for it 
could no longer be demonstrated. Enforcement vfau to some degree sir.pler, 
.There seems, therefore, little advantage in most cases in establishing 
a price floor indirectly throui./;]:! cost protection rather than clearl;'- and 
and specifically and for a limited period under the emergency. 



-191- 

On the other hand, the emergency does not appear to have "been hest 
suited to deal with sucli permeoient problems ar, loss leader selling. 
One other disadvantage was revealed hy the eiq^erience in the Waste Paper 
Trade. In this case the ver^/- fact that the emergency was temporary in 
nature furnished an incentive to the group at which it was directed to 
avoid purchases and thereoy defeat its pu:rpose. 

IV. SU"i.n.:ARY 

This study has hesn concerned to appraise the various minimum 
price devices used under LT.R.A. as solutions of the problems at which 
they were directed. 

It has been demonstrated that in certain cases they achieved a de- 
gree of effectiveness, and'in others v,'ere more or less total failures. 
Failure or success i7as, apparently, not fortuitous, but night to a 
large degree have been predicted from the nature of the difficulty 
present raid the character of the industry to which it was applied. In 
certain cases ninimum price regulations is almost foredoomed to failure, 
in others its apilication nay result in a definite improvement in the 
position of an industr;;^, or of certain industry members. 

The relative merits of the various devices used has also been 
exaiiined. 

Eo attempt has been made here to consider the wider social and 
economic inpli cat ions of minim-uin price regulation. The arguments 
against any interference by government with the price mechanism are 
many and serious, and have been frequently reiterated. TJhether, under 
conditions of grave emergency, such intervention is justified, and the 
extent to which it nay go, are questions of public policy beyond the 
scope of this report. 



-192- 

appi::dix I 

OTHODS or IxTVI^STIGAvIOr 



Tlie first iroolei confro-itir,;]; the Minimiin Price Unit vo.s the 
selectio:- of industries :iost t.-viro-oriate for this linited studj^. A 
coi'.rilete list of ell cocTes i'l ^^'hich Fiiniriu;'! price retaliations hr d heen 
ojer, tivs rs ohtpin.ed fron. i-iforraeotion conta.ined in the Post Code 
Anal3'-Gis series releases, end frcT i-^.fornation suoilied hj'' the Cost ,. 
Accor'^itiiv Unit as to e;:oroved cost accounting s?/stems. 

In selectin- the indust"'ies for st-uxly the major aim nas to in- 
sure a re'oresentative selection as to t'^'-pes of industry, t^npesof proh— 
lems, aiid t--oes of jricin.^; devices emjloyed. Consideration of the Linit- 
ed ti;:? nnd personnel allotted to the study and the availability of in- 
fornrtion T'sre also inoortant in nahin,' the final industiy selections. 

Information r el. ting to sixteen of the industries vras co-Rioiled 
alnost entirely hy nerahers of the liinirnuri :^rice Unit. Tlie aim in each 
case V8.S to disclose :- 

1. The underlviny factors leading to price runsettlement in 
erch industry, 

2. 'The mrnner in Fhich the specific pricinn device vras for- 
mulated end the considerations ^ei^i^iied during its for- 
nulation. 

3. The experience ^rrith the device in act-'oal operation. 

The primary source of information in e; ch of these cases uas 
the records of 'S^A, All mcterial available in the files pertaining to 
these infrastries ^vas carefvln- ersmined and all data relevant to the 
oroolem e:ctr acted. 

Uith respect to four industries, this ^relil?.inar■"• file srn-vey 
■i^as condvi-cted h^r other units of the Trade Practice Studies Section, 
In seven of the industries, nrimarv reliance was "olaced uoon indiistr;'- 
stiidies made hy the Industr;?- Studies Section. 

In addition to the above, the follOTring sources of information 
i?ere usod;- 

1, Statistical data v;ere obtained "oriraarily from the 
Census >5are£>,u EJid the 3ureaf. of Labor Statistics 
reioorts. In most cases the actual comilation of 
this material ■'■'as underta'cen by the Statistical 
Section, 

2, Partin.ent i''iformati'")ri r^ 1 ■" ' i ^'^ l/i these iarlustries 
VD.s secured from oth^v nv ■ :i ^.-'nt I)>j-)artments, in- 
cluding especi.-.ll"'- the JJcdt-jral Tr; de Go.'inission and 
the Trriff Commis'-.ion. 



-193- 

5, Inforraation uas extracted from -oeriodicals and other 
similar -ouMished end ^imublished sources. In a few 
crses it 'Tas lospiole to su"o 'lenent the mfonnation so 
ohtained fTOii the ahove sources by a field survey - 
thro\vsh wliich contact ^'as soiiiP-ht with iadiviane.ls i-ho 
had bean actively con-iected --ith forr-ier code adininis- 
tration, such as Code Authoritjr secretaries, and also 
with re-oresentative nenbers of the industry. 

3:cr;aination was mpxle of the records of £:eneral "orice hearings 
conducted during Janup.iy, 1935, to determine any important facts there- 
in disclosed whicn ^vere -lertinent to the stud:''. A brief survey was 
made of the records of the Congressional hearings a,nd debates precedin;;; 
the enactr.ent of the IT. I.E. A., to determine the part the idea of price 
re^-ulation played in the fornule.tion of the Act. 

Proi i: if crmat ■'. on thus sec^ired a suiT-vary report was pre~oared by 
the meribers of the Unit for each individual industry, covering the 
natrxe of the ^roblera; the considerations involved in the formulation 
of the code and of the code price provisions; the actual operation of 
these provisions; and, where possible, the effect of the le^se of these 
provisions, 

ilie "oresent report presents an evaluation of the problem as a 
whole, based nn these individual studies. 



-194- 

afpe;.;lix ii 
pno3La;s faczb .by sp^ci^ig IiTUst-^ies 

I. PiiRPOsi: 

T^^iis A'opendir is desirned to pre?ent in .?;reater detail tlirn '"f's 
•oossiole in the oodv of the reoort rn cnal^rpis of the imnec'iate diffi- 
culties conf ronfiii ■■ the i :curt^'ies covered in the stud"-. It ■''a<^ the re- 
flection of the^-jj difficulties in the "orice levels of the .Trocucts or i. 
servicer^ of ec.ch of ther-- industries "'hich occasioned their respective' 
pleas for the Idiitr tion of price comoetition. 

II. LUi,3T^ AFD Ti;;.3E-^ ?:DI)UCTS Il^USTIlY 

The Ltunber and Tinuer Product" Indust'r^- •&<? -definec in its Code of 
Fair Coinpetition cohered' the -roduction not onl"^ of rough logs, -ooles 
and oiling, hut ;:lso semi-f ooricrted oroducts sucn a? '-a'"ec lumber, 
shingles, floori:.:r.:, veneer, etc., rnd some finished -oroducts such ps 
sa'ed joxss, . crates rnd containers. 

The ertent of the industry and a statistical i^icture of its recent 
trends are revealed o^' the follo^'in.-' table: 

TA3L2 A I 

The LuTiije:' and Tiraber Products Industr^^ 

Se-lient Statistics 

Per Gr:Di- Fet in- 

Produc- ta Consuin- Dollar Price come 

tion Ex^iorts tion ft. Volume Index Zet'd 

Year '^stab.l/ ft. o.^:. ft. 3.r. 3. L. (000)2/ 1929-100 (POO) 

1925 13,958 11,000,000 2,648,000 343 $?, If2,023 106.9 3/ 

1929 18,555 36,885,000 3,354,000 275 1,952,080 100.0 $32,350 

1930 2/ 26,100,000 2,410,000 210 2/ 90.9 72,754 D 

1931 9,124 15,523,000 1,770,000 130 753,975 73.9 118,885 D 

1932 2/ 10,151,000 1,132,000 94 2/ 52.2 124,081 D 

1933 6,734 14,000,000 1,258,000 121 529,594 75.4 51,885 D 

Sources: irumber of Estrbli shoents tnd Dollar Volune from Census ilanu- 

-actures, 1929, Vol. I, "Lumber and Timber Products" (not else- 
'"liere classified) p. 28; "Planning Kill Products," p. 30; 
"jo.r:es, "ooden, Excerit Cig-^r Boxes," "o. 22. Release? for 1931 
and 1933. 

Production: 1929 :^^rom Jureau o:-" the- Census; all other -'ears 
from Forest Service. 

Exports: Foreian Commerce ;-v,6 : pvigation of the "J. S., Bureau 
of Foreign and Domestic Comicrce. 

Per Cspits, Consumptior.: U, S. Forest Service, De-ot. of Agri- 
culture. 

Footnotes continued on ne::t page. 

9763 



-195- 



Sources: "."holesale Price Index: Burep.u of Lp.&or Statistics (index con- 
(Con't.) verted from 1926 base) 

Fet Income Returner',: bureau of Internal Revenue, Stpti sties 

of Income. 

A declinin.^ trend in tiae inrustrv is appa.rent, coramencirjj i^rior to 
the depression. Betreen 192.3 and 1929 pe-- capita consiinption fell 20 
per cent. In -oart, this ras attributable to the fact that the Construc- 
tion Industry, v?hich consnjnes betueen 60 and 70 jber cent of pll lumber 
"oroduced, operated at a some-'hat lor/er rate in 1939 than in 1925. More 
permanent, ho^' ever, in its implications, is the effect of the graoual 
replacement of lumber by substitute materials. Thus in ;:7eneral construc- 
tion steel and concrete, ajnd recently even copper, have been graduallj'- 
displacing rrood. According to an estimate made bv the Division of He- 
search and Pla,nnin.:r (*), there v/as 23 -per cent less lumber tiroportionate- 
ly, to other buildin^^; materials iiS'^c in general const-'^tiction in 1927 
than "/at used in 1919. In other fields such products as metal furniture 
and carcboard end fiber boxes have materiall"- contrrcted the market 
avs liable to lumber. 

The production capacity/ of the Lumber Indust'^y ha,s mrterially ex- 
ceeded the demand for nan-;' vearr,. Estimates of present capacity- raiifte 
-'"rom 55 billion board feet by the Lumber Code Authority'- to 82 billion 
feet bv the Timber Conservation Board; the largest recent consMjnption 
•:7as 41 billion board feet in 1925. (**) 

Eoevr and increasing taxes and other co.rrj'-ing charges on timber 
st'nds and overhead on idle nill ecuipment ourden the industry severely. 
T/rsteful and uneconomic logging methods have fu-ther aggra^vater" the sit- 
uation. 

These difficiilties had been reflected in stea.dilv diminishing pro- 
fits. In 1919, 3535 o\it of 295" s: ''nnill and -olaning mill corporations 
reported net inocries, ':ith a total profit for all reporting companies of 
$136,716,000. In 1929, 1876 of 37G6 companies, or le^s than ovie-half, 
reported profits, and the total had shritnl: to $5.3,360,000, or less than 
one-quarter of the 1919 figure. (***) 

Footnotes Continued from previous page. 

1/ Figures for 1925. do not include ^Jooden Jox Frocacts, rrhich r/ere not 
reported prior to 1927. Establisliments- producing less than 200,000 
feet of lumber or a va^lue of $5,000 annually not included. 

3/ Sstablisliments producing less than 200,000 f^.et of lumber or a value 
of $5,000 ajirua.lly not included. 

^f Lata not available. 

D Indicates deficit. 

(*) ilSA Research and Planning Division, Displacement of Lumber in Build- 
ing Construction, Victor Perlo, ?eb. 20, 1934, InTRA files. 

(**) Evidence Study 'Jo. 22, p. 24, ^.esearch and Planning Division; IJPA 
files. 

(***) Burea.u of Internal Hevenue, Statistics of Income. 



9763 



•196- 



As a result of all of those fp.ctoi's, the infustrT ^os erctremelv 
■nilnerable to the impact of tlie de-ore s<:;i on. lleferring back to Table II, 
"oroduction in 1932 had cropped anoro::imrt'ely 70 per cent from the 1929 
level; oxnorts had been cut t^-o-thirc s, anc. nrices had fallen 30 per 
cent. As a result only 135, or lesr. than 7 -ler cent, of 2946 concerns 
reported net iiicones, '."'ith an o.^r'Te-jate net deficit of $124,081,000 for 
all reporting companies. 

Prior to the code, trade fssocirtions in Gae indxistr-'- v/ere gener- 
ally not ver^'- st-on-;. Concerteo e'forrts to improve condition? had been 
sp8.smodic and abortive. In a fe" cn.ses such efforts had run afoul of 
the anti-trust la' s. 

III. CLZAl"Ii'a -UG TiY^T: Cr t-^a:3E 

In the Cleanin,-; and Dyeing Trade, as in all service tra.dies, the out- 
standing charant.i ■us".ic is ep-e of ent:-:^/-. Conditions in the trade ^'ere 
relatively pro-oarotis during the decade bet^jeen 1919 and 1929 and the 
tra.ce g-e-.^ at a ver-r ra;dd oace, '/ibh dollar volume in 1929 approximately 
four times that of 1919. 

As a result of this extremely rapid grorrth, the trade faced the de- 
-:re^:-ion "'ith -nroducing capacity materiallj^ in excess of demand. As 
consuner ourchr;si;;g po^^er crorped bet' een 1929 and 1935 sales fell off 
shar-oly. The e:-.tent of resultant over-ca.oaciti'- ma;^ be inferred from the 
folloi-ving exa-irple, probably reasonaol-'- tyoical. of the countr:/ as a 
whole. In Baltimore, i.Iaryland, according to a sarvev conducted by the 
Price Stud:/ Board, of the Cleaning and Eyeing Trad.e, FHA, only 30;3 of 
available cppacit";^ wa,s being utilized. 

Overhead is an extremel^^ imv)ortnt factor in this industr;'- insofar 
a^s cost of proouction is concerned. According to the Baltimore study 
above mentioned the cost of cleaning an individ.ual ga^rment , in a represen- 
tative plant, ras 23if: at 100, o of cn-ppcit^^ and $2.30 at 10 i of capacity. 
Consequentl-y, jDre-i-^sure to increa,se srles through price concessions is 
estreme. 

The Toroblems nhich over-capacity co-nbiiTed -vith heavy overhead i^ould 
have in any case created were ag' ravated in this trade by the entrance, 
du.ring the -ceriod subseouent to 1929, of a ne^' element - the so-called 
"cash and carr;'" operators doing business on a, chain store ba.sis. These 
new entrants innediately sought to secure business by the most obvious 
method - rodjuctioa of the established price. At first these reductions 
brou^^ht the price of cleaning a standard garment down to $1.25 and $1.00 
(the earlier prevailing "orice had oeen $1.50); in fact, man-'- of the cut- 
ra.te operators in variou-s localities a.re still called "Dollar Cleaners." 
These prices ''ere, however, net b^;- the old line operctors and the resul- 
tant price '••ars resulted in a rapid dro-o of ^-.-ices to as low a.s 29rf in 
many localities, ^r.C. even 19rf or,' in e.-.:treme 'cpisos, tv.'o for 19;^, as 
"s'oecials." ■ ■ 

It '--as alleged bv the old line clft-r'-:--s tiipt the lo-' "orices of the 
cash rnd carry operators reflectoc. sli ::-s-U)d wnr:;n nshio in many cases. 



It '.7as further clirr^ed that the o.ovortisad rp.te^ '-'eve freauently decep- 
tive c\nc: of a lose leader riatrire. Oleani;;? ^'oulo oe aovertised at 29(# 
a garme-t, hut ■ customers on roachin.'; the tore 'oulc oe told that the 
g.'^rmsnt, es'oeciaH"^ if e nomm' s dve?^, reruireo. s'iDccirl hanclirijc and 
tha.t the -orice '/O'lld b _■! suhstrntiall"- hi.T;aer. Tlie old lir.e elanent in 
the trax-e sought l)?/ ever" availohle raeans to restrain the co"r?etition of 
the cash and carr^- operrtors. Ir nan'- s.reas conditiops reachec such a 
pass that the r<acl:eteer .Towrj' a fetile field for his fservices. In a num- 
ber of cases it '"as alle;~"eJ tiiat price;; hue been maint.'-'inec throw^h rr?c- 
keteerin.'^ nethoc-^. The bitter corn Detitiovi bet- een there t^'o grouor, 
sho'-fs no si-^nF? of rjrtement at the -oresent tine. Prices in j 'e''7 Yoric Gits'-, 
for e::r>ra-ole, we ^till aroujnd the de-oression lo'''r. 

Perh?-os the ..-ret test sufferers in these price '*,■.-' rp ''ere the retail 
tailors, thrownh ^ nora the old line ' holesale clerne-'s distributed their 
service^. The incone of tens of thousands of tnese retail tailors has 
fallen ■■ell -oncer the subsistence level. 

17. CAST li-.O SOIL ?IP-^ 

The Cast Iron Soil ?i-:;e Indastr"- as defined in the code "means and 
includes t'.ie bxisiness of orocucinrq, nnd -^'ellin^ erst iron coil "Dipe and 
cast iron soil "oipe fittin.'^s". The "oipe and fittiisq:'- are standardized 
orod-acts used in building con^.truction. The-e are no im-oorta.nt substi- 
tutes, conseouentl"' the rate of cctivit:<r in the industry is directl;- de- 
pendent upon that prevailiii," in the coiist-^uction incustr-'-. 

The industr-"- is smo.ll, consisting of 50 concerns, rrith on output in 
1929 valued at $18,753,000. Bj 1933 sales had shruni: almost 75 percent, 
or to $4,809,000. (*) 

Q-atput has declinec steadil' since 1925, paralleling the recession 
in building activit -. j'rom a maximum Droduction of 510,000 tons in 1925, 
there v,as a drop to 482,000 tors in 1927, 250,000 tons in 1930, and 118,000 
tons in 1932. (**) 

During this same "Derioc Uiere -rs a co-.-tinaous cecline in -orice, in- 
terrupted onl"^ by E fe" minor ral"'ies. In 1926 the p^verage -'holesale 
price of 6 inch. Glass .i. anc heavi-^r. Cast Iron Soil Pipe, delivered in 
ITen York (crrload lots) v/as $51,00. In 1929 the average ras $37,00, and 
in 1952, $30.00. (***) 

Si-:t"'--five --percent of the total vol-iune of the incu^.t^-'- is manufrc- 
t-'ire-'' i- h le vicinity of 'Birmingnam, Alabama. In "oricing it'~ ■orod..icts, 
?i:- lO ■■■-• ■■".astonarily use the eaxiivclent of a basing ^joint s^rsten, bases 
Oi. .L-'d; 'ipm. Due to the necesnifi'- of maintcinin™ la,rge in'v-entories 
for filli.i- orders v'ith cispptch, t^ie vholesaler is the logicrl distri- 
butor in arr- local area. It - ould oe ir;p-','xcticcble for the -olumber to 
keep in stock the necessnr/- sivD'dI - or ?j. '>e ;.,:<' fittings to take care of 

(*) TT. s. Cer;."as of i.anuf.-cturers, 1929, '"ol. II, nd Release for 1933. 
(**) American ' .etal i..F-::et, ^.ec-l S^- ti-tlcs 19.;3, 'o. 121. 
(***) "holesale Prices, BLS 

9763 



-198- 



Ms recuii-ements. lence the -orinci-oal line o:^ cistributior. is from 
manufecturer to '.TholesE-ler to plimoer to c0i".siij:ier. 

The inrustr''- is dominated to c ■cr'-eC regrea 'o-'- one indivic;aal - 
lir. C. A. Hamilton - rrho is allegec to or;n foiindries all over the co"an- 
tr?/ and T-prehouses in nearly all hi-; cities. 

3ver since the sliim-'j ir, constniction , competition has oeen charac- 
terized o-r'i-iternittent price v.'a-rs, follonec oy periods of relative 
str;3ilit"'. It ''as one of these "ar,-,, started by an individual industry 
raeraoer,. that "as the imnediate occasion of the plea for "orice regala.tion. 



9763 



-199- 

v. L IIZ]STg 'E I-fD JSTRY 

The Limestone Industry, ?s definec"; i:^. the code, coirr-irised. "both 
the quo.rrr'inj and fabrication of limestone for "buildii'.L:^ purposes. 

At the jrecFnt tir.e the va^t ••'ajority of limest-iv.e usee in the 
United States is n rrrie.. in In'-iaim. Fvhricatiii, , i-ii^.nts are r-uui in 
conj-Uiiction y/it:i ^.1 -.\vrieL;. In adc'itio":\ t ohe-.-e integrated unit?, 
are independent c. t-.^t ,t c:'..tractor=; loc-.ted Dhron^jhotit the couiitry, 
(there is a s-eci'i,"- i, -ortant concentr^.tion ir the '."ew York metro- 
politan ares.) » ''^ - ■x.c_: .,se roiaj-hi stone fro'i the quarries. The in- 
te.~rated XQiits ■ obsess cert i^'l narhed adv^nta es over inc.e'^endent cut- 
stone contr->ctors , i^rimary iin'.on/: v/hich are lovver frei^^'ht ch^rjes. 
These are made ocssible 'by the removal of waste material from the rough 
stone oefore ship.jent, Furtheruiore , labor costs ©.re frequently lower 
t'aan tte ee of cut-stone contr.v.ctors . The most narhed difference in 
labor charfr^es is uetv;een tm I:.. i.in.a races and those -oreva-iling in the 
Hew York i.^etropoliton district. 

In 1929 the iriflnstr^- cornprisec. 600 concerns witn a^,f:re£:ate annual 
sales of 8.;- ^rozimj-tely o-' million dollars. In 1932 Srales nad fallen 
to 15 million dollars, and in 193G to $7,500,000. (*) 

This drojp vras , ox course, -nrir^arily due to the sluip in construc- 
tion activity, tho\i£,h s li;nitea j.isplacer.ent of limestone by other 
buildin.{; materi:f.ls, (e.g., rrtifical stone), coupled with changes in 
architecti^rcil sT.3'les, \/a=: ps: sibly a minor ccntributinc factor. 

The nominal -nrice oj. rou";h stoie at txie oniarry h3s varied little 
in the last ten years. Thi; nomir.al price, hov^ever, frequently bore 
little relation to t.ie actm^l -'.rice, competition iiaving centered on 
the offe:. in,;; of discounts and concessions. 

Th-; ;-rice of finished stone, d-_u'in,_, this "eriod, vra.s subiected to 
increpsin;^; "ii^-" ^snre fro'i f-^ner. ,1 contractors. Tii-; ir.dustry is entirely 
9, s^Decial oro.er inaustry, co. tracts wein£, al:nor.:t inv^n-iably alloted 
on the basis of bids, General contractors, ea. er to obtain a job at 
any cost, v;culd e;:ert evei-y t;i'pe of j^ressure on tlie liriestone s'hD— 
contractors to reduce tneir fii:;iires. Bid peddling; v/:~s the rule rather 
than the exception, Fn'-re the liL.estone fc^bricator apreed to take vrork 
at a rediicsd f if^nre , he was us-'aalj.y forced to resort to such practices 
as the "kick-back" to pare his labor costs to the bone and avoid heavy 
losses. 

YI. kALLDAI- K] IHOY l/l^JSTR Y 

The L'allea.ble iron I.idustry is a branch of the general foundry 
industry. Until 1901 the chief outlet lor its product v;as railroad 
car b-ullding. With the advent of the steel car a substantial portion 
of this business v;as gr;.,dually Ijst. C-'^i'c n-re;. tl^ , however, the re- 
quirements of the grov/ing ai-torsoile i.v .'fti'y more t.ian compensated 
for this loss. 



(*) Estimate, Y'.cional Lii:iestone Ini.astr^;^ Associated, Code A;;oplication, 
ImEA Files 



-2C0- 

Fea.l: j-'rodiicti :■_. f-r t'/ii-y i'/.dustr,,- vas reached duri^.f the rrar, 
■Jew foioiidrier, v/pie o-e-.ed a:i'- oio or.es eX'^aiiC'ed to meet the v/ar demand. 
Accordiii'- to tr:e trr.de associ " tio.i, tiie i;.d'.trtx-y ;ir:,s never o;oerated at 
ca"oo,city f^iiice the T'ar, .-i'lIO. ty.are is s'ln,!! lij:elihGod of its doing so 
at an ea.rly date. 

The major outlets for tde ;,-roducts of this i/.diiGtry, to^^.ether v^ith 
the relative iTco-tr. ;e of tjtal ^^voduction norriall;:" v.sed o" each, are 
a.pproi:imatel:'' ■-' - foil:!",'/;?: 

^-Litomotive Ir/dustrv - 50 percent ^ 

Pailway j?ransportatio;i I:;.dustr;-- - 13 ;;'erc3nt 

■A^ricalt-HTal IiTTj^leirieut I:v'i;stry - 06 -ercent 
Ge:ier"',l 'chinery, iniscellaaeo'vr uses 

and s; eci/.lties - 26 percent (*) 

Pertinent stauisticuJ. dp.ta v/ith reference to the industry/ are in- 
cluded in the folljwin;p table: 

TAB LE ATI 

lialleaole Iron Ind/astry 

prodriction^irid 'Capacity Utilisation - 1925 to 1^53 

I'alne of 

Prodncts 'Xiantitj'- Percent co.pacity 
Year (OO'''') (li shor t tons) ut ilization 

1925 ^ilOo,:;48 723 

1927 3V,C40 

1-29 101,109 735 ■ 71.0 

19o0 — •- ■ --- 44.0 

1331 35,294 ' 299 27.0 

1932 — — 17.0 

1933 ^6,503 2So 



Source: Value of Prod-cts ad ouantity - Gt^nsi\s of H-n-'ifacturers ! 

Cj .aciby utilization - Rero .,rch ann Pla.minp :ivi';ion 
eport, 10/9/53 ; 



fhese fi, ares disclose a loss from 1939 to 12:--3 of 74 ir. value 
of [ToC-- -~ ■" ■ '-L iv- tonn-,:e "rocrction. This contraction iiic.y he 
traced, ■ ■ vi tar slim. i_. t \c- iadastries uliti^iny its ^n'odncts. 

In vie\' ■ t\a-e of it;;. :,_.r" he, ic ir. l.T^osriule :'~or t/c i-unistry^ 

to stirjiulate sales "by r^ducin^j ■ ricoL-. " .■ r;hp:,'; t^ which this decline 
in demand vifas reflected in ■■i-iccs '. l it.- i;- e^iicted in the 

followin/;; table, ■.'>dch covers a suLstv, iti: ,1 vecuijn of the inuustry. 



{\*) Transcrint of yoarin,; , Octoher .:, ll?33 
9763 



-201- 

TA3LE A III 

'^Tallea-ble Iron IncTustry 

Prices and Profits - 1925 to 1933 





lm-n"ber of 










Coi 


icerns 


Sales 


Price 


Percent net 


Year 


Pel. 


■jorting 


(Short tons') 


•36 r ton 


orofit or loss 


1926 




26 


189, &14 


1^33.77 


3.6 


1929 




27 


209,066 


138.03 


5.3 


1930 




SO 


120,713 


131.96 


-1.4 


1931 




31 


71,314 


118.20 


• -19.8 


1932 




27 


35,743 


107.00 


-22.8 


1933 




25 


44,578 


112.52 


-11.3 



Source: Malleable Iron Research Institute; figure submitted in letter 

Hay 23, 1935, from Code Authority to Asst. Deputy Adminis- 
trator - Code folder "Jo. 7, II. R. A. files. 

Price conroetition v/as ac;,2,ravated by the fact that a fei-- large 
producers had secured & £-:reat percentage of the automobile tonneige and 
were in a position to sell at low prices in other fields in order to 
maintain a hi^fn operating rate, thus forcing other producers to cwt 
■ prices in order to retain voluine. 

In 1926 the Anerican 'alleable Castings Association and forty- 
eight of its members T/ere inC.icted for violation of the Sherman Act in 
a.Jederal Coioi-t at Cleveland, Ohio. It was charged tlie.t the Association 
s,nd its members -fere engaged in price-fixing. As ex}3lained in an ex- 
cerpt from "Daily iletal ' Trade" , for August 10, 1926, the system used 
v;as as follows (a:o;3arently the -laper quoted a statement by Pederal 
Counsel) : 

"One of the Bureau (basic) rules vra,gtr;at oef ore, quoting to an 
inqiiiry the inquiry should be sent to Belt, the Association 
secretary, for v;h-at information he lirid. B".yers asked three, or 
four manufact-orers to quote prices. W.ien one got the inquiry 
he communicated with Belt . They had a Code . Belt would go to 
the record ci,nd find L'r. Jones, the customer, listed by the 
Laconia Company. Then he informed the others . Belt would send 
Da,ch information before any of them quoted ]prices,' 'jhat hcid been 
ashed and rrhat vfas listed. They prevented the customer from 
getting ctuotations and also prevented competition. But tl'iat 
v^as not all. They would, in m.any instances, get in touch ?dth 
one another and agree over the price th^it was to be charged. 
If we had gone to trial, we v/ould h..ve shown timt in 97^ of 
the purcijases by volume, the customer eventti ally traded with 
the man listed for Mm. " 

The Mr. Belt referred to above was later secretary of the Qode 
Authority, ■ ■ ■ 



- ?02 - 

Y^lietlier p.s a direct result of there re^'trictive efforts Ijy the 
Tr-de Apsoci:^ tion, or for other reasons, the G-eneral Motors Comoration 
erected its o^^n ^ilant for the m-mufactiire of malleaole castings. (This 
T)lant is the largest unit in the Uniter' States.) A suhstantial -oortion 
of the industry's potential market vi^s taus elimin ted. It was alleged 
that the "^or"^ ''otor Conn^Hny and other TO'^erful huyors, -orofiting ^by this 
examrjle, exert nressv'-re to secure -orice reductions thro-ugh threats of 
entering fie field. (*) 

VII. WAST^ PAPr- T^AO^ 

The ^'Jaste Paoer Industry gathers waste -na-oer at all noints whe^^e 
such pa.per accunulates. About 9rA of '-'aste loa-oer is sold to iDarjerhoard 
mill, in .which i.aills waste -oar)er constitutes about two-tnirds of the raw 
materials used. The cooe defines the '^aste Pa-oer Industry as "the buy- 
ing and /or handling for resale i^urijoses on commission or otherwise of 
waste -oaper. " The -oroces-f'es involved are collecting the na-rier, removing 
the dirt and foreign material, grading and sorting, rjacking or baling, 
storing and shi-o-iing. The T:)rinciT3al kinds of w.-iste r)at)er are mixed ijapers 
and newsr)ar)ers . 

PaDerboard mills are able to iHctate waste "oaBer -orices largely be- 
cause of the lack of coor)eration within the TTaste Par)er Industry. This 
control was e; ercised to a considerable extent by some of the larger mills, 
whicli acnuired a controlling interest in large wasteT^anoer handling Dlants 
at strategic •'joints and installed their -ourchasing agents as managers. 
The Torices set by these car)tive units became the ruling nrices in the 
Trade. 

The causes of i^rice dislocation in this industry are not to be found 
in the demand situation, which is fairly healthy. The increasing use of 
■oaoerboard results in an expanding market for its raw materials. Although 
kraft ■Dulr) h'\s been gaining irar)orta.nce as a raw material for boxboard in 
cornnetition v^ith w.^pte -oa-ner, the demand for wpste n^ner is more likely 
to be sustaine'^ or to- increase than to decrease. 

Prices uaid for waste loa-oer at the source r^ve freauently bid u-q far 
higher than nececsary to bring forth the araoitnt of xvaste -Da-Der needed, and 
frenuently to figures higher than the -orice at which, after the addition 
of conversion cost, dealers can sell to consuming mills. This buying com- 
r)etition arose originally without -ores'urc on the "oart of the sources of 
sun-nly. Even in the absence of a demand for waste paper, these sources 
would still prod\ice almost as much waste -oaioer as they do now and in some 
instances woiiLd pay to Imve it removed. ■ The tjrice of waste -oaner at the 
source is thus, by and large, entirely independent of cost considerations. 
The f ct thrt it is -so high is ex-olained solely by competition between 
me::.bers o"' tj^e '7^-'ste Paioer Trade in their attempts to have available waste 
paper of sufficient Quantity and varied enough quality to insure their 
being able to meet the demands of their customers. 

The evidence is that waste paner dealers made most of their -oro- 
fits on grades of paper other than the t"'Q grades sold in largest volume - 
mixed r)9per and newspapers - for prices on these soecial grades an-oear 
to be less a matter of dictation by the consiJmin/-: mills than do the 



(*) Letter, Lake City 'iialle-ble Company to H. 0. King, Deputy Adminis- 
trator, March ?, 1934, 'T^J'. ii'iles. 
9763 



•203- 



irices on mixed papers anc'. newspaiDers, 



Competition is f-jxther intensified Ly the fact that the capital 
requirements for entering; tJie '5aste Paper Industry are small. 



VIII. T-m sciuC ff ^•^.cHivs ri^oDicTS i:tjust::y 

The Screw- I.'achine Products Industry is a highly s^-ecialized one 
producing complex ^■'ieces of steel, "brass and aluminum for such consnm&y-s 
a.s the Automotive Parts Industry, the Electrical Jiiquipment Industry, 
the Jev;elry Industry, The Flumhing Industry and tne Army and llavy De- 
partment, Tjroical products a.re spa,rk plug 'bases, hose nozzles and 
aluminum airplane ora]:e hands. 

The prod-.icts of tnis inrustry are made to rcustomer specifications 
a.nd demand is entirely contingent upon the requii-ements of the indust- 
ries consianinc its products. 

This industry ores its separate existence to the following 
factors: (l) sm.all cons'-imcrs cannot afford to operate a. screv; machine 
unit for their ovm consumption, (?,) most large consmiers would find it 
extremely costly to install such a hl;.hly s-ecialized technologica,! 
UJiit, since its operation v.'ould "be generally foreign to their i.;ain 
business, and since a i?lant of "sufficient capacity to cover their needs 
in pea]: seasons vould 'be idle at other times s..id present additional 
personnel problems .and increased overhead. Since the prodiicts of this 
industry are rade to customers' s"oecif ications , business is done direct- 
ly wit'n the ccnsiimer. 

According to fidures s-^.pTolied oy the Industry, there vere, in 
1934, a total of 357 units mfjnafacturing scre\7 machine products. 
Census data show value of products in 193? as 327,579,000, a reduction 
of ap-oroximately 70^0 from the 1929 fi.•^uJ•e of $91 ,463 ,000. (*) 

T'ne average unit in this iadustrj^ is snail in size. 242 of a 
total of 536 companies hiad less t'nan 20 automatic screv? machines in 1934, 

Ma^ximim production in t^iis iiidustry occ-'jrred dui'ing the v/ar and 
the peal: then reached lias never since been Laplicated, It vas alleged 
that many of the s:n?..ller plants in this industry hr.d ;-.o ccuate Iciow- 
ledge of their production costs, and t'nat , tglring advantage of- this 
■ situation, co:-sumers , vhoar?, in general, large and powerful concerns, 
nere able to pit T/ith l:novm costs against pla.nts with unlrcovm costs, 
forcing all piices Corm to extrem.ely lev; levels. (**) Whether or not 
due to ignorance of costs, bics have freop;.ently shov/n tremendous 
ranges of varia,tion. In one case bids submitted in accordance rdth 
G-overnnent p-arc"nia.se order s ^ecifications ra,nged from a low of 35j^ to 
a high oi $8,50 for the same article, (***) 



(*) U. S. Census of .ianufactioi-ers , 1929, -/oI, I. p, 31, and Release 

for 1935. 
(**) Bulletin Si the Trade. ^association, Jan'oa.ry 23, 1934. 
(***) Transcriut of Public Hearing, rebrua.ry 9, 1934, pages 78-79 



9763 



-204- • 

Accordin.<; to representations "b^/t'^xis industry, less than lOfo of the 
industry operated at a profit during 1931, 1932, and 1933. (*) Due to the 
la.rge investment in machinery'-, overhead or fixed costs are tvo or three 
times higher -than for sxij other metal v/ork industry'-. Cost is therefore 
dependent on vol^ome to a iioxke.d 'dc£rB<E.(**) 

IX. FUIi DItESSIKg AiD P ITR DY SIKG IIvIDUSTRY 

Tlie Fur Dressing and Fur Dyeing Industry comprises the business of 
dressing or d'^eing or otherwise processing all kindg of raw skins, prepara- 
tory to their use in the ma:rrafacture of r/earing apparel. The business is 
entirely a special order indrastry, dependent for demand on the rate of ac- 
tivity prevailing in the Fur Lian^ofacturing Induotar;'-. ' 

The follov/ing table reveals the extent of tlie industr;^ and the effect 
of the depression on it: 

TABLE XIV 

Fur Dressing and Fur Dyeing 

Salient Statistics - 1929 to 1953 

1929 1931 1933 

number of establisiiments 248 

Wage Earners 5,167 

Value of Products (thousands of dollars) 40,257 
Value added by manitfacturer 

(thousands of dollars) 21,588 21,652 15,408 



Source: Census of- Manufactures, 1929; Volume II, p. 1295; 
Himeograoh-ed releases for 1931 and 1933 



It is apparent tha.t \7hile the n'omber of vage earners actually increas- 
ed bet een 1929 and 1933, the amount received for 'jork done declined approx- 
imately 40;t and the value added b^'- manufacture, approximately 30^. 

There is a division of firms in the industry'- by processes and kinds 
of ra\7 furs treated. Some shops are enga.ged exclusively in dressing fancy 
furs (^7hich means all furs except rabbit); some in dressing rabbit skins; 
some in dyeing fancy furs; others' in dyeing rabbit skins; and a few in both 
dressing and dyeing allM<:indE of skins. Organization in the trade is back- 
ward and decidedly factional. There are trade associations for each of the 
main groups of T)lants but no centralized organization for the entire ind- 
ustry. A vexatious right and left wing labor problem hinders centralized 
orga^nization, . 

T*) Bulletin of -the T -rade Asrociation, Jan-LU-xr-- 23,, 1934 

(**) Public Hearing, Volume 3,,. pages 75, 94. . ' . 

9763 



243 


181 


5,160 


5,364 


;7,873 


24, 948 



-205- 

The Fur Dressing and Fur Dy-eing Industry is dominated to a marked 
degree Isy one concern, A. Hollander and Companj of Kewarh, New Jersey/ 
This companj'' has three plants employing about ZQfJo of the labor and hand- 
ling bet'.-een 20,0 and 30^ of the total business of the industry. In Sept- 
ember, 1933 it emploj'ed 1, 315 workers, v/hereas at that time no other com- 
pany had more than 300 workers. The great najority of establishments had 
less than 40 emplo^^ees each. 

The Hollander CoraDanj/- made a prof it. in each of the 40 years preceding 
1934, except 193?. This did not, however, represent the experience of the 
general run of the industry. In the years just preceding the codes* there 
was an unknown but apparently large number of failures, especially in the 
dressing braiich. Abandoned plants in the hands of creditors were avail- 
able forq«i lov/ as 5^ of actual cost. It T;ar, said that in the five years 
preceding ¥Rk there probo-bly had been no single company \/hich-' entered the 
dog skin (foxes, squirrels, wolves^ jackals, coons and raccoons) dyeing 
business except tj the purchase of bankrupt assets. (*) It requires little 
capital to establish a dressing shop. The machinery is simple and inex- 
pensive. Workers thrown out of employment found it relatively easy to 
enter the bxisiness on their ovm account. 

Altho^^gh high hourly v-age rates vfere maintained by the unions (the 
rate in 1933 was $1.27 to $1.60 per hour for unskilled workers), a system 
of equal division of work and the prevalence of the "kick-back" reduced 
the weekl;' pay envelope. When production was sDowed up and wages cut, 
small groups of discharged or dissatisfied workers would band together and 
form so-called "cooperative" shops and go into the fur market soliciting 
business, hoping thereby to increase their earnings, although realizing 
that to do so it would be necessarj'- to increase their hours and to cut 
prices. A few hundred dollars and a vacant loft v;ere all that was required 
for a dressing sliop. A case was cited in v/hich nineteen men formed a co- 
operative with an investment of only $400. In K)rae cases these new enter- 
prises took the form of family affairs, with plant and home in the same 
quarters. 

Due to these practices the industrj'- became overmanned as to workers 
and over-supplied in units. One branch, the fancy fur dressers, had a 
volume of business of approximately $5,000,000 in 1926, but in 1933 this 
had fallen to $1,500,000, In spite of this decrease, the number of plants 
in the division increased from 25 in 1926 to about 46 in 1933, and it was 
estima,ted that its capacity had increased to about four times its necess- 
ary size. {*:*) In the Rabbit Dressers Branch, which handles about 3nfi of 
the total volume, there were, in 1934 about 28 diops which serviced about 
35 customers. 

Apparently very few' of the small units are organized on a sound busi- 
ness basis or keep any sort of records. 

Competition in the fur dressing and d^^eing industry, as in service 
trades generally, revolves mainly around price. This is particularly 
the case in the dressing branch, vrtiere low price is the only consider- 
ation of the customer. In the dyeing end of the business, the dye for- 

T*) Transcript of Public Hearing, April 4, 1934, p. 24; xffiA. files 
( **) Transcript of hearing, Araril 27, 1'j34, page 24. 



-206- 

m\ila, the secret process emplo'"'-ed, the knowledge and technioue in the art 
of dyeing, the financial responsibility and. the reputation of the dyer, as 
rail as the confidence inspired t^r him in his produ.ct, are important fac- 
tors in determining, not only his aMlity to attract business, but the 
value of. his services. 

TTith the entn,'- of the cooperatives, who so•o^5ht business on the basis 
of price redii.ctions, competition becaiiie intBnsified4 The Dlder firms, ob- 
serving union hours and '-.'age scales, could not- compete with the sub-standard 
labor conditions and resultant lo^7 prices of the cooperatives, and below 
cost service charges became prevalent. Some of the larger firms were forced 
to discontinue ;orocessing certain skins. ■ 

Attempts by trade associations to remedj^ these conditions ran afoUl 
of the anti-trust laws. On iCovember 6, 1933, two indictments were return- 
ed in New York - one naming the Fur Dressers Factors Corporation, and the 
other the Protective Fur Dressers Corporation, (both trade organizations), 
alleging violations. of the Anti-trust laws. In^ addition to the principals, 
some 80 individua.ls and' 68 corporations in the fur trade were named, in- 
cluding the left-wing International Needle Workers Union and several locals 
of the International Fur Uorkers Union of the United States and Canada. It 
was charged that, beginning about Janus,ry, 1932, the defendants had agreed 
to eliminate competition among themselves as to prices, terms and conditions 
of sale. It was also charged that, from time to time, they had fixed -uni- 
form, excessive and non-competitive prices. Racketeering, bojrcotting and 
terroristic activities were charged. These indictments are still pending, 
the cases not yet having been bro"aght to trial, 

X. TimOfflEG INDUSTRY 

The Throwing Industry is engaged in the twisting of silk and synthe- 
tic yarns used in the manufacture of woven and imitted fabrics. Work is 
done to customer specifications. There are two main divisions: 

1. Commission throwsters who^ merely perform the throv/ing 
process for the owners of the yarns. It is estimated ■ 
that 60!^ of the total volume is handled on ,a commis- 
sion basis. (*) 

2. Those y.'ho' throw material Tor sale or for their own use or 
both. Aside from the CoimTiission Throwsters, many textile 
plants operate their own throwing machines and later weave 
or knit the product into cloth or other fabrics. A. fur- 
ther group exists 'in the industry who bujr the raw silk,- 
process it and sell it to the knitters and v/eavers. 

Volume in the Throwing Industry is entirely dependent upon the rate of 
activity existing in the industries it services. 

According to the Census of Manufactures, the total volume of rayon 
and silk thrown for the years 1929 to 1934 varied very little. 



(*) NUA. Evidence Series, 7^39, p, 1 
9763 



The total clollai- voliJi-.ie ir uotli 137-? rid 13.'>v f-lioi-red a flight increase 
over tLe fi.vxe fDr 1929. This was cli^e to the incrpi.ce is the aiiiotint; 
of Ta.yQn.ya.i-n throvm, v/hich nnre tha c d; iv /.sated for the decrease in 
silk yarn. The incustry rs j.redoriin.- ntly c:k:v~ 'sei: oi snail .concerns. ' 
According to the Code Adninistration CoTnittec, there v;ere :35 members 
in 1934; of thei;e, 192 'had '.'.ess tl^n 10,000 spindles and only two had 
more than 100,000, 

The cost of ^n^odncticn re-oresents alraost ent-irelj^ labor and over- 
head. In the period bet^'ccn Jmtiary ajid J-une , 1934, labor ropresented 
59,1^ of :\et sales and -.xitc/.-ial 1.6^^; the b'- lance, or approximately 
40',o, comprised -;verhe-ad cliai'ges anc -orofit or losf. (*) 

The price problem in tnis indt;.stry vas occasi-ncc" ijri:;ia.rily "by 
the small size .'f the avcro, e -uiiit, the lacJ: of oi'f: '^nization, and tne 
mutxial sus"~>icion ■■revailing. Pixyers usioally -^ound it possible to secure 
substantial redTictions i:;,. -iricf; qiiot -.tions throu:;h playing one member 
aj^ainst ai-;:ther, freopae-ii,ly r^isre'Kiresc-ntinL tern^i offemd bj^ rom;Tetit- 
crs. In viow -i tne hip"x percrntaf.c of overhead and the fixed total 
volume availo.ble, the ressuTe for secariniP work tlirouph "orice cutting 
is severe. The high ratio of labor cost, in turn, leads operators v7ho 
have secured bu-ircss tnrough price concesriions t:' cvit costs by reduc- 
ing T;ages, Since labor re^:iresents such an important cost factor, throw- 
sters located ij'. o.reas w.iere low we.,";es are the rale operate a,t a dis- 
tinct advantage. 



(*) Federal Trade Commission lextile P.eport, part !■■, Sill; and 

P.ayon Industry 
9763 



-208- 



XI. AGRICULTIPJUL INSECTICIDE AFD FTJ^iqiCIDS IITOUSTRY 



This industry comnrises tiio "inanufn.cture of products r^'hich are 
used as raothods of protaction against agriculturp.l insect "oests and 
fungus diseases, such as chemical plant s-orays and dusts, soil disin- 
fectants, cattle dips, agricultural scalecide and taits, except cyan- 
ides". By far the most imrsortant products of the industry, (and the 
only ones with T'hich the rainimtirn nrice study is conc^jrned), are the 
arsenates of lead and cJcium. 

The industry is a small one. Generous estimates place the capital 
at $15,000,000. Only 15 firms are engaged in tho "oroduction of the two 
arsenates. Of these, t'^o or three, produce only arsenates, while the 
rest loroduce other insecticides or other chemicals or saints. The 



largest of these firms is the 
the Allied Chemical Comjpjiy. 



G-en'-ral Chemical Company, a subsidiary of 



The value and physical volume of -oroduction of the t^'O arsenates 
between 1929 and 1933 is revealed in the following table: 

T^ajLE A V 

Agricultural Insecticide & Fungicide Industry 



Year 

1929 
1951 
1933 



Calcium and Lead Arsenate 
Production and Value, 1929 - 1933. 



Calciuia Arsenate 
Pounds Value 
(000) (000) 



33,004 
26,129 
15,487 



Lead Arsenate 

Pounds Val-ue 

(OOP) (OOP) 



$1,860 

1,280 

669 



30, 


,682 


S3 


,523 


37, 


,974 


3, 


,674 


29, 


,816 


2, 


,368 



Source; 



Census of I'anufactures, 1929, "Chemicals, not elsewhere 
classified." Releases for 1931 and 1933. 



In com'-'ion -ith many other chemical x)roducts, the "orice of calcium 
arsenate did pot decrease sharply during the de-oression. From March 
1932 to koy 1933 the wholesale c ' 
at 79.1, on a 1929 base. (*) 



index for this commodity remained 



There is no I!,L, S, 
wholesale or ices 'ocr pr^- 
and 10, 4ri in 1933, evi i 
ti-ide as th, ,.t of calciun arsenat 



ries available on lead arsenate^ Average 

in New York vrere 13.5^^ in 1929, 11, 6'' in 1932, 
Ing a decline of a-Dt)ro:?:iraately the same raagni- 
(**) 



(*) Burocau of L-'bor Statistics, Index of T/holo.r le Prices 
(**) Comioilod from "Oil, Paint -'.nd Dru,-;: 'leriort 'T. " 



9763 



... -209- 

At least 75f6 of the shiiDinents of the two nroducts are made' during 
the spring and early suramcr. Demand cannot "be foreseen, and is entirely 
dependent unon the x)reva.lence of pests. \/hen thvj demand exists it 
must be met iranediately, the manufacturer vrithout a stock in the invest- 
ed area having practically no chance of making a sale." This necessity, 
together with the establishment of '/'arehouses hy some members', gave 
rise to the practice of consigning goods. 

It was charged tiiat oTussuro from piirch-^scrs had had the effect of 
hammering down prices. It h^d been customary to ship goods during the 
winter and spring, with Ha;'- first dating and a guarantee against price 
decline. Hombers of the industr"'- charge tliat, under these circumstances, 
customers simply refuse to pay their bills until they have sa,tisfied 
themselves -^s to what the lowest price actually paid during the season 
has been, and then d?cline to Pay a higher figure. By this time the 
goods have been consumed and the manufaxturer capitulates from fear that 
some other member will proselyte his distrioutors. The possibility of 
farmers' cooperative associations entering the manufacturing field has 
had a tendency to l-eep prices 'at lo" levels. It ^^'as specifically 
alleged that a price below cost of production wa„s set by the General 
Chemical Company, nemb-rs of the industry freely expressed the opinion 
that the purpose was creation of a monopoly. The G-eneral Chemica.l 
Company's price ^"d met with an even lower price by Shorwin-'l/illiams. 
Both of thesji' i l"n,3 vi/ere financially able to wage a price war indefinite- 
ly. Ten oi'j..'- :''e'aoers conplained thrt they would soon be eliminated by 
a war betwce-,;. --.he two "giants", who, after gaining control of the 
market woulu; ev could, proceed to ■-ecoup their temporary losses. 

XII. ParJILI ZLE, iirousTHY 

The t.;rm "Fertilizer Industry", as used in the Code includes the 
importation, -oroduction and/or distribution of mixed fertilizer, super 
phosphate, rnd/or other fertilizer materials. The definition is 
furtner qualified so as to exclude the production of sulphuric acid, 
potash, phosphate rock axnd/or nitrogen carriers. 

Below is given a table revealing the extent of the industry and 
its recnt trends, 

T.-VSIS A VI 

Fertilizer Industry 
Salient Statistics, 1919 to 1933, 

I'o. of u'age Cost of Value of Value 
Terr Concerns Earners Materials (COO) Product (OOP) Added (OOP) 

1919 50P 26-, 296 $185, P41 *2B1,144 $96,1P3 

1929 558 20,926 159,801 232,511 72,710 

1931 599 14,551 105,481 154,350 47,869 

1953 522 13,063 59,063 94,939 25,886 

Source: Census o-f ii'^nufactures , 1929, Vol, 11, p.* i)cO and Release for 
1931 and 1935. Does lot incluo. jstaolisanonts '^ith annual 
production valued at lei-s than ft5,0PP in 1021 and subsequent 
years. 

9763 



The 1933 snies voliine \:ps ap-oroximately 41'o of that prevailing 
durin^r 1929. The decrc-'Se is directly trs.cea'bla to the reduced purchas- 
irij]; TDO^'cr of the farners. 

Atout three-quarters of the r)la,nts in the industry raarely mix 
fertilizer materials. The rest nroducG the ingredients to a greater or 
lesser degree. This degree of integrPotion, however, is accoinr)a,nied "by 
Very little., if any, -orice advantage hecpuse of the cormDetition of im- 
ports and the fact th,-t all fertilizer materials are on the free list. 

Before the Code, fertilizer vas generally sold through independent 
dealers. Hor-evor, due to the practice of these dealers of playing one 
nroducer against another, it was alleged thnt the whole price structure 
•tiroke down. In self-defense, practically the entire industry \7ent over 
to the agency system and began to quote on a "consumer, delivered" to the 
farm" "basis. Agents were compelled to sell at the -oroducers' list 
price. 

The price trend of mixed fertilizer generally parallels that of 
fertilizer materials. Enrly in 1953, hoi^'ever, there was a tendency for 
the price of mixed fertilizer to fall more rapidly, thus narrowing the 
margin on which the industry operatus, Based on 1929, in Decem"ber, 
1932 the index for' the wholesale price of mixed fertilizer was 67.5, 
and for fertilizer materials .68.5. 3y Harch, 1933, mixed- fertilizer 
had 'fallen to 61.8, while fertilizer materials were virtually unchanged 
at 67.2. (*) 

This industry had for some time "boasted a strong trade association, 
and Tnem"bers ha,d had a fair degree of experience in cooperative action. 

Prior to the code, orico increases were, to an extent, limited "by 
the alternative availa"ble to individual consumers of purchasing f er- ' 
tilizer ingredients separately and mixing them themselves, a practice 
generally resented "by the industry, 

XIII; ASFI-ULT S HIII5LE AI'D ROOFING I lIDUSTRY 

The code defines this industry as "the i3roducing in the Unit'ed 
Sta,tes, and selling "by the producer" of tne following products: felt- 
"base (made of organic or inorganic fibres), asphrJt shingles, sidings 
and roofings, roll roofings (including cap and base sheet and house 
sheeting), starting strips, tarred felt, and asphalt felt". 

The products of tho industry are well standardized, a large por- 
ccnta^^e being -manufactured under licensing agreements I'rith a corpora- 
tion holding "basic patents and itself producing in large volume. 

A comparatively small niimber of concerns are in the industry. The 
degree of integration among the companies is fairly high. Distribu- 
tion is through joboers and through the retnil lumb>;r b\iildors supplies 



(*) "iVholesale Prices - I.L. S. 
9763 





102 






83 




74 


6, 


,027 




4, 


,123 ■ 


4 


,418 


$103, 


,506 




$58, 


,963 


$44 


,833 


1, Vol. I, 


p. 


31; 


Rele; 


ase f( 


ar 


figures si 


low 


a drop of 


57^ ; 


in 



-211- 

dealers. There is no great amotint of* direct selling to consumers and 
apparently this method of distribution has "been discouraged in the 
industry. 

G-enoral statistics for this industry, compiled "by the Bureau of 
the Census, r.ho^? the following: 

TABLE A VII 

ASPHALT ■ SHIlNfGLE AIID ROCFIIIG IffiDUSTRY 

1929 1931 1953 

Establishments 

Wage earners (-^vtrage for year) 

Value of products (thousands) 

Source: Census of Manufactures, 19r 
1931 and 1933. 

Comparing 193S with 1929, these 
value of productso 

The product is highly competitive on a, price basis. In 1929, as 
the result of two yea,rs of very disastrous price wars, the industry set 
UP an open price system with a liquidated damage agreement for enforce- 
ment. There i^as no waiting period, prices taking effect as of the time 
of receipt oy the impartial agent — usually an attorney. This plan 
had a stahilizing effect on prices in the "brief time it was in effect. 
Although not all members participated (participants nximbered 
approximately 80t by membership and betvrcen 85fo and 90^5 by volume) , 
price organization was fairly complete. (*) 

The legal validity of the plan was questioned, however, and in 
1930 the Department 'of Justice and the Federal Trade Commission began 
an investigation of the industry ?dth a view to prosecution under the 
Anti-trust laws. Suit was instituted by the Gov.^rnment against the 
principal trade organization in the industry "to prevent further re- 
straint of int.;rsta.te tra.de and commerce". The open price plan was im- 
mediately changed from one of reporting future prices to one of report- 
ing past prices and the liquidated damage plan w.-s dropped. (**) 

The influence on price of the Patent and Licensing Corporation 
whose patents, although not covering a majority of the products in 
tno industry, covrred at least 50^ of the total sales, was marked. 
The prices and terms of sale filed by this company on its products were 
in general followed by the members of the industry. 

There are two trade associations in the industrj'-; the Asphalt 



(*) U.S. vs. A'^phslt. Shingle -. ■ Rootir.ci: Institute ot al, U.S. So. 
Dist. N.Y. in equity, 57-16Z 

(**) U.S..A. vs. Asphalt Shin-vlo & F.oofinr Inst, et al. 



]12- 



Siaingle and Roofing Institute, in He^ York City, and the Pacific Coast 
Roofing l.ianiifacturers Associption in Los Angeles, California. These is 
indication of the closest coopor.-'.tion bet'Teen the ti70, so close, in 
fact, thf.t in all Drobaliility the western rassociation is en affiliate 
of the Institute. 

During the oublic liearin;:; on the Code, (Se-oteinaer SI, -1933) the 
usual clpiras of "■':irice -^'ars, cut-throat co;.roetition" , etc., vieve made. 
It was charged tart ther.e "erj caused by the use of v.irious unfair trade 
■oractices such ps rebates, secret prices, rais-classif ication of customers 
etc. However, the evidences -eveals no rrice iDroblen in the industry, 
at least insofar rs the seller is concerned. The "wholesale price index 
declined to a very slight degree during the deorcssion. Based on 1929, 
the IJ.L. S. index for -ore->ared roofing -as 97.2 in 1952, 99.5 in 1933, 
and 107.3 in 1954. 

XIV. ■ ?I'j: e:-:ti't->uishi'tg ,\pfliahces riAiruj'ACTUi^iiir ii-idustr y 

This industry is defined in the code as corrorising the ' laariuf acture 
of fire extin^aiishers and of the chEmica.1 charges for such extinguishers. 
Salient statistics for the industry are revealed in tne following table: 

T.ABLE A VIII 

■■ Fire Extinguishing Ap'oliance Manufacturing Industry 
Establishments a-nd Vshie of Product, 1927 to 1933 



Year 



Ho. of Sstablislinents 



Vrluc of P-oduots (OOP) 



1927 












■ 26 








$8,035 


1929 












28 








8,566 


1931 ' 












25 








4,453 


1933 












■ 22 








3,775 


Source: 


C 


jnsus 


^^■; 


:--na;f 


"actur 


■es. 1929, 


Vol 


.. I, 


■0. 85, 


"Eir e ■ Ext inguisher < 




CI 


;iemic' 


\i. " 


Re] 


.• :-Bo 


-or 19:^1 


and 


19'35 


. 





The lif.t of individual m. rab^rs of inL'iiRtry '^reTjared by the Code 
A^ithority in July, 1934 sho'^ed a total of '^9 nembers (28 manufacturers 
of apTDroved devices, 30 fonnufncturers of una-oiDroved devices, and 31 
manufacturers of charging tuiits). 

Ap'orovod 'devices are thoi-^e '^'hich have been found sptisfr.ctory by 
the Uni^.r-Trj ters' Laborp.tories or the Associated Factories MutupJ 
L-borr.tori',s, Such a.viTOv^l is necessary in order to permit purchasers 
to tenef it through reductions in insiirance rates. Apr)roval by the 
United States Bureau of Standards is necessary for devices to be used 
on vessels plying in United States '-^aters. 

The substntial discro-oaicv bet'TOon the member of establishments 
listed by the Census and tne nurajer sstinatec. b/- tne Code Authority 
may be explained primarily bv the fact th=-t the Census lints only 
manufacturers ,'-hose major line of business is the -oroduction of fire 
extinguishers.' It is ari-oarent thpt'the deoressiori' urou^;':'ht about a 



9763 



-213- 

fairly marked shrinkage in "business, with volume in 1933 dropping to 
aiTOroximatoly 444 of that -Drevailing in 1929. 

Demand in this industry is relp.tively unresponsive to -Drice 
changes and is to some extent dependent u"oon activity in the construc- 
tion industry. Sales costs are usually quite high because apparatus 
once sold is usually good for the life of the structure in '.vhich it is 
placed. 

"Unar)"oroved" devices account for but a small "or.rcentage of the 
industry volume* Products are mostly standardized by reason of Under- 
writers' requirements. Consequently, price is the important factor in 
competition. The larger concerns with high overhead percentages, due 
to more extensive plant facilities, and '.?ith expenditure for research 
and advertising, foxmd themselves at a competitive disadvantage when 
volume declined ivith the diminution in building construction during 
the depression, 

XV. HARP-./OOD DISTILLATION ITIDUSTRY 

^The E-rd\TOod Distillation Industry is engaged in the destructive 
distillation of hardwoodo Its most important joint products are char- 
coal, methanol, and calcium acetate, 

A breakdown of the industry membershin in 1932 shows the 
following: ■ ■ 

6 com-oanies affiliated with iron furnaces 
6 cora-DPnies affiliated with lumbering interests 
5 companies affiliated ^ith other chemical activities 
31 companies independently operated 
1 com-oany affilia-ted with the Ford Motor Company. 

Processing -olants always locate at or near the main raw material 
source. This is a naitural consequence of the bulky character of wood' 
and the high cost of tra^nsporting it an5'' considerable distance. 

This industry apnears to be fac.:d with contracting markets for 
all of its products. The primary outlet for charcoal used to be the 
manufacture of pig-iron. Recent technological improvements have made 
it possible to substitute coke for charcoal in this process, with the 
result that whereas 25 million bushels of charcoal were used in blast 
furnaces in 1925, only 7 million bushels were so used in 1932, In 

1925 there were 196,154 tons of charcoal pig-iron produced, but by 
1929 this figure had decreased to 138,195 tons, and in 1932 the 
amount produced was only 15,055 tons. (*) In addition to the dis- 
■olaceraent of charcoal by coke in the manufacture of pig-iron, the 
industry is faced with the increasing competition which synthetic 
methanol and calcium acetate offer to its chemical xjroducts. 



(*) U. S. Bureau of Census. 
9763 



-214- 

In addition to its industrial uses, charcoal is also produced for 
domestic consurarition. Even in this field softv/ood charcoal offers in- 
•crea,sing cormDetition, vhile the^ grcving use of electrical and gas ap- 
■Dliances further narro^rs the field. 

XVI. PLUirSINg i;'IXTTJ?J]S IiaUSTRY. 

The Plumbin;:^ Fixtures Industry comprised 230. concorns in 1933. 
Volume of business, ^hich- in 1928 was estiraatod at S150,000,000, had 
by 19c3 declined to $35,000,000, while the number of employees dropped 
from 38,000 to 19,500, (*) Prior to the depression the construction 
industry offered tne princ-iiDal market for plumbing fixtures. A decline 
in construction changed this situation* Replacement demand became 
more prominent and,- whereas th,e bulk of sales, had previously -been to 
construction interests, the ultimate- consuraer now became a much nore 
important fo,ctor. , 

There were two channels through which products were distributed to 
the ultimate cons-oraer. One was the orthodox nanufacturer-v/holesaler- 
plumber or retailer-consumer arrangement. The other via.s direct frdm 
plant through mail order hoiise to consumer. The latter channel was 
apparently siphoning an increasing share of the volume from the former < 
although statistics .",s- to the- extent of this trend are not available. 
It is probable that the shift from demand in new construction to re- 
placement demand hf s constituted an accelerating factor in this shift. 

One of the three largest firms in the industry is closely af- 
filiated with Sears Roebuck & Company. Other concerns, including the 
largest single unit, have their interests identified with the older 
distributive set-up, ■ • 

The problems which ii/ould in any case have resulted from sharply 
reduced volume and relatively inelastic demand were, therefore, 
seriously aggravated by these conflicting interests. As a.result of 
this embittered competition, a sharp decline in the price of plumbing 
fixtures which commenced in 1926 was not arrested as late as March, 
1935, (**) 

XVII, COMnrRCIAL EELIE? POINTING 

A group of 31 separate and,, to a large extent, competing in- 
dustries was included in the basic G-raphic ^rts Code. It cpvered all 
p -rson^ using any of the processes or partial processes used. in print- 
ijxgj.or "ho produced or sold any printed matter in competition with 
those, who produce printing, • The Code excluded publishers or printers 
of daily nev;sp-.pers who subscribed or assented to the Code of the 
Da.ily Hev/sPapor Publishing Business, book publishers , and also manu- 
facturers of photo-engraved plntes, elt^ctrotyoes, stereotypes and other 



(*) Code History, Plumbinj;; Fixtures Indur.try. 
(**) Evidence Study, Guilders' S'lroolies Trade, 



9763 



kinds of relief -orinting "olates. 

The thrde proces'ses of printing are relief printing, lithographic 
printing and intaglio Drinting. Of the total ntiin"beT of G-raiohic Arts 
establishments, about 38'o are commercial relief printers, 29> news- 
papers, and 18;3 periodicals, these three representing about 85f^ of the 
total number. Due to limitations of space, only Commercial Relief 
Printing will be considered here. Total sales of Comuerical Relief 
Printers for 1933 ^TCre estimated at $300,000,000; the number of 
employees in the industry Fas p.-^jxiroxima.tely 130,000. (*) 

In vie',7 of the fact that there is no census classification 
covering only the Commercial Relief Printing Industry, comparative data 
are difficult to secure. Hovrever, the follovdng table is based on a 
grouping sufficiently comparable to permit inferences as to behavior of 
the industry during the depression. 

TAP.LH; A IX 

Printing and Publishing Industries, 
Book, Music and Job 

Establishments and Value of Product, 1927 to 1933.- 

Year • ' liumbor'of Establishments ■ Value- of Products (OOO ) 

1927 
1929 
1931 
1933 

Census of jirnufactur-^rs, 1929, Vol. I, p. 50, and Release for 
1931 and 1953. 

Cora-Daring 1933 ^^ith 1929, there is a decrease of 28i in the number 
of establishments, and 49^o in value of products. An index of printing 
activity compiled "oy the United Typothetae of America, shcrs 1933 
volume PS 59.9 based on 1929 = lOO". 

Most of the 17,000 commercipJ printing establishments are very 
small, many being "one-man" shops, or shops T'ith but one or two employ- 
ees. However, a relatively small number of large establishments account 
for a sizeable percentage of the sales of the industry. 

The industr;^ is highly decentralized; largely due to demands of 
its customers for quick service. Its products are used in practically 
every brancn of industrial and commercial activity. Printing is essen- 
tially a custom-made product and is generally sold on the basis of 
quotations made in advance of actual -oroduction. The unit cost is 
decidedly variable, because the labor cost of certain operations on a 



(*) Code AT3plication, 1933. 



11, 585- 


$ ■ 963,133 


12,836 


1,021,879 


11,767 


804,019 


9,224 


519,990 



-216- 

S'oecific job is the same whether a few hundred or a few thousand sheets 
are printed. 

The ratio of lorofit to sales in the industry, particularly among 
.the larger printers, was setif-factory prior to the depression. Profits 
declined in 1930, and in 1931, 1932 and 1933 losses were general. 
Small printprs in particular found "business survival difficult, as re- 
vealed by the followin,;; tabic: 

ta;:jle a X 

-Coraipercial Relief Printing Industry 

Relation of Size of Plant to Profit 
(Annual Sales in Thousands of Dollrrs) 



Year 


15 
5.89 


15-35 
Patio 


35-75 75-15( 
- iTet Profit ■ 


I 150-30 
to Sales 


g_300-£ 


iOO 500- 


•750 750 
9.72 


[ posite 




- Percent 




1926 


6,20 


5.84 


4.95 


7.17 


8.62 


5.85 


6.68 


1927 


4.20 


4.48 


5,50 


4.10 


6.13 


7.40 


7.46 


9.56 


6.87 


1923 


3.07 


3.54 


3,52 


3.62 


4.24 


7,48 


8.44 


9.59 


6,44 


1929 


.32 


2.44 


3,74 


4.22 


5.00 


7.18 


7.89 


8.21 


6.34 


1930 


.52* 


,63 


1.37 


1,58 


2.10 


4.27 


5.79 


8,37 


4.15 


1931 


.4.29* 


2,52* 


1.36* 


1.29* 


.47* 


1.58 


4.20 


4.14 


1.22 


1932 


8.36* 


7.89* 


6.99* 


5.40* 


5.08* 


1,37* 


1.43* 


.69 


3.64* 


1933 


8.41* 


6.69* 


4,69* 


2.86* 


2,30* 


.13 


2.25 


3.13 


1,25* 


1934 


. 65* 


1,04 


.88 


1.85 


.52 


,56 


1,20 


2.19 


1,11 



* - Denotes Loss 

Source:^ "Ratios for Printing Management," United Tjrpothetae of America. 

The ability to purchase .printing mi-^.cnincry and equipment on 
liberal terras made it easy for a ;orinter to establish his cm shop. 
Lack of cost knowledge or a disregard of costs may have contributed to 
general price cutting which increased as av.-\il':.ble business continued 
its decline during the depression period. Lack of .price stabilization 
in the industry nay be largely attributed to the monotoraous ap'oearance 
of small "bed room" printers, who ,ran out their shoe string through a 
series of ridiculously low bids and were re-nlacod by others. 

Large units have in many cases moved out of cities into less 
"oooulated nreas to avoid high rentals and labor costs and to escape 
labor troubles. These have, in many ca,ses, been able substantially to 
ujidercut urban ijlants, 

Ped-rpl and state public printin;^ o^^fices, and -orivate printing 
plants operated by large coniortitions to do their own and other print- 
ing,, have diverted much business from the commercial printer. In small 
towns newsr>a"oer lolant^ also do commercial -orinting. Within the Graphic 
Arts Industries, lithograph^/ has to some extent supplanted relief 
printing. Office devices, such -'S the raimeo;:^r.aoh and multigraph, en- 
croach on printing volume. 

9763 , . 



-217- 

The United Tj^^othetae of America is the prGdorainant trade as- 
sociation and.^s such, nresanted a code for the indtistry. It ^ms said 
to be principally representative of the larger printers. For many 
years U. T. A. had been developing a program of cost acco\anting, 
suggested price lists, and the like, 

XVI I I . WOOD CASED LEAD PEITCIL IITOUSTRY 

Salient statistics with reference to this industry, vrhich is 
sufficiently defined by its title, are contained in the following 
table: 

TABLE A XI 



The V/ood Cased Lead Pencil Industry 
Salient Statistics 1928 to 1934 



1928 1929 1930 1931 1932 



193C 



1934 



■No. of coraxianibsS/ 11 
Shipments (11-12 Cos.)c/ 
Thousands of gross 
Thousands of dollars 
Avge, selling price 
per gross 



12 



12 



13 



13c/ 



5583 4840 4104 4281 4359 
12054 9889 7607 8579 9367 



2.16 



1.85 



!.00 2,15 



Shipments (8 cos.)d/ 












Thousands of ^'^ross 


5714 


5454 


5104 


4539 


3642 


Thousands of dolls 


14140 


14019 


12060 


9566 


7289 


Avge selling price 












per gross 


2.47 


2.57 


2.36 


2.20 


2.0( 



Exports (thousands 
of gross)e/ 

Import s ( thousands 
of gross)^/ 



481 565 496 530 181 172 255 
142 186 147 94 69 227 210 



Sources: 

a/ Application for NM Code of Fair Corauetition submitted in 1933 by 
the Lead Pencil Institute, Inc. 

£/ Lead Pencil Institute, Inc, Figures are for 11 companies prior to 
1935, and for 12 companies subsequently 

d/ Lead Pencil Institute, Inc., as published in "Schedule B", con- 
tained in the folder for this industry in the files of the Division 
of S-esearch and Planning, MA 

&_l Bureau of Foreign and Domestic Commerce, Foreign Commerce & 
Navigation of the U.S., 1926 to 1934 

NOTE: The file referred to in Note d/ also contains a table showing 
composite profit and loss statements for 8 companies, for each 
of the years 1926 to 1932, inclusive, compiled by the Lead 
Pencil Institute, Inc. 



The sharp decline in shipments atipears to be attributable to 
several factors. 



1. The general effect of the depression 

2. The decline in the export mnrket 

3. The sharp recent increase in imports, occasioned chiefly 
by the entry of Japan into the field. Imports from this 
source alone, which v/ere negligible in 1932, exceeded 
100,000 gross in 1933. Japanese pencils could be. sold 
profitably in this country at less thjin the cost of, 
domestic production for the cheapest grades,. 

4. Probably most important, th-:; rapidly increasing popularity 
of fountain x^ens, typewriters, bookkeeping machines and, 
most important of all, mechanical pencils. 

Despite the drop in both production, and price, however, the in- 
dustry maintained a profitable record through 1931, in which year eight 
of the largest companies reported an aggregate net profit of ?146,000, 
representing a return of 0.6?*^ on invested capital. In 1932 the same 
companies reported a loss of 5337,000, or 2.06i on invested capital.* 
It was estimated by the Lead Pencil Institute that less than one-half 
of total productive capacity was utilized in 1932. 

This industry has long been dominated by four large companies. 
Their aggregate percentage of the total declined, however, from SC^j in 
19P7 to f^6''/in 1933. 

Up to 1928, apparently, these "Big Four" were in a position to 
dominate the industry effectively. Beginning with that date, however, 
certain small manufacturers of comparatively recent origin began to as- 
sert their independence and poach on the preserves of the "Eig Four". 
The old concerns claimed that this was done by means of destructive 
price cutting, shading of quality, and cheap imitations of established 
lines of pencils. The or-Tani^ation of the Lead Pencil Institute, Inc., 
in 1929, vras presumably for tne purpose of dealing with this new com- 
petition. Competin^T distributive channels further complicated the nrice 
structure. Distributors include:- 

1. V/holesalers - primarily wholesale stationers 

2. Dealers in school supplies 

3. Distributors who hfindle blank pencils only, which they 
sell for advertising purposes 

4. Kail order houses and chain store organizations 

5. Direct to large consumers (educational institutions, 
large corporations, government agencies). 

A m.ajor factor in the recent collapse of the price structure and ■ 
the breakdown of functional distinction in the distributing field was 
the ability of larg-e customers of the manufacti^rers, such as chain or- 
ganizations, very large wholesalers and retailers, to secure large dis- 
counts on their orders. In some cases factories were wholly dependent 
for their existence on one lar^':e customer - for example, the Woolworth 
Company bought almiost the entire output of the Em.pire Pencil Company 



(*) Lead Pencil Institute 



-219- 

and eO'"^; of the output of the Eberhard-Faber Company. 

XIX. COFT^EE INDUSTRY 

The Code defined this industry as the "importation, purchase, 
distribution and roastint-; of green coffee, and the distribution of 
coffee at v:holesnle by persons engaged in the roasting thereof, whether 
directly, throucTh affiliates or subsidiaries, or by contract with other 
persons." It is estimated that there are approximately 1,400 estab- 
lishments in the industry, many of vhich are very small. 

In 1933 the annual net sales reached 200 million dollars, and the 
total volume of coffee roasted was sligntly in excess of 11 million 
bags. Of this totnl, the dominant unit in the industry roasted 2 mil- 
lion bags; the next two had a com.bined total of ?■ million; and the next 
seven a combined total of over 1 million bags. Thus, the ten largest 
companies produced approximately QO'^o of the total volume. Of the bal- 
ance, more than one-half roasted less than 2,500 bags of coffee per 
year.* 

Units varied iiot only in si?;e but in degree of integration. Thus, 
of the three largest units, one not only roasts the coffee but distri- 
butes it and sells it at retail. Another roasts the coffee and distri- 
butes it directly to independent retailers. The third distributes 
through wholesalers. 

Because of intensive advertising campaigns financed by these over- 
shadowingly large units, coffee is no longer sold merely as coffee, 
but rather as a pacliage witn a specific label on it. Advertising em- 
phasis varied. Thus, of these three largest companies, the appeal of 
one is based on the sale of fresh ground coffee, of another on the sale 
of dated coffee, and of the third on the sale of vacuum packed coffee. 

Competition in the industry is rendered more intensive because of 
the virtually complete inelasticity of demand. Per capita consumption 
has been almost unchanged over the past decade. Coffee may be con- 
sidered a "convejitional necessity". Price inci'eases may serve to shift 
the demand from higher to lower grades of coffee, but will probably 
eliminate only a ne,?:lifible nijunber of marginal consumers. 

The cost of production of the large units is, in general, appre- 
ciably lower than those of the smaller establishments. Furthermore, 
this large purchasing power enables them to purchase green coffee in 
lar?e quantities on a low market. The product of these large units 
commands distinct consumer preference as a result of advertising. Con- 
sequently, the coTTipetitive position of the smaller units has become in- 
creasingly difficult. 

A further problem confronting the industry was the fact that 
coffee was frequently used as a loss leader by retail grocers. Chain 
stores immediately met these loss leader prices and in many cases cut 



(*) Proposed Budget and Basis of Contribution, Code Authority Accts. 
Files, N.H.A. 

9763 



320- 



l-ielow them. This jrice rar in the retail .grocery trade was reflected 
directly tack to the coffee industry- where roasters, seeing their vol- 
■ume endanc:ered, lov,'ered prices. Certain units resorted to such prac- 
tices as (l) guaranteeing: prices for a period, "bindinie: only on the man- 
ufacturer, and abrogated in the event of a decline in price, (?) allow- 
ing a "buyer brokerarie fees, (3) relilling customers unsold stocks at 
lower prices in a falling market, (4) giving premiums of coffee or other 
merchandise with coffee rurchases. 

XX. CA.NVA3 :>0Cr3 H'T)TJ3T-:Y 

The Canvas G-oods Industry, as defined in the co.-'e, includes "the 
manufacture and, when done by the manufacturer, the selling and/or 
distribution at wholesale or retail" of such canvas articles as awn- 
ings, canopies, tarpaulins, etc. 

Salient statistics are "Revealed in the following TnbiLe : 

TA3LE A XII- 

Canvas 'S-oods Industry 
lumber of Establishments and Annual Sales, 1928-1933. 



Year 


number of Establishment 


1928 




1,002 


1929 




1,002 


1930 




950 


1931 




928 


1932 




913 


1953 




850 



Annual Sales 

?75, 856,000 
78,856,000 
65,321,000 
67,826,000 
65,321,000 
57,693,000 



Source: National Tent and Awning Ji'anufacturers Association; figure 
contained in code application, V..R.A. files. 

It is apparent that sales volxime was not severely reduced during 
the depression. liowever, due to the lar=,'e number of units, and to 
conflict of interest between units of different sizes, severe com- 
petition has been prevalent. Th.e indusur} 
followin,^ four groups :- 



at sizes 

V be divided into th< 



Large manufacturers doing business in excess of 510,000 per 
year, producing for a national market at comparatively low 
cost, distributing primarily through wholesale. 

kedium size manufacturers doing between i!20,000 and ^100,000 
business per annuin, manufacturing for a regional market, 
distributing prim.arily directly throu.%h retail. 



Small manufacturer ff doing oetwee 
business per year, manufacturing 
usually only to specifications. 



;;5,000 and ?20,000 worth of 
r"or a restricted area, and 



-2S1- - 

4. Handcraft shops doin,?: less than '^5,000 worth of business per 
annum, manufacturing'"!: in their homes, \iith family labor, for a 
strictly nei^Thborhood market. 

The amount of capital required by the handcraft operator is pract- 
ically nil. According'; to a statement made at the public hearing, 
$52.00 was all that was required: $50.00 for sewing machines and 
material, and i5?.00 for a marriage license to get a wife to do all the 
wo rk . * 

Of plants reporting to the Bureau of Census in 1929, 47.4'^> did 
lest. than p20,000 per annum, and 89.5*^ less than ?100,000. In addition, 
there were, approximately 2,500 handcraft plants scattered throughout 
the country. The competitive problem in the industry apparently re- 
duces itself to the difficulty of maintaining any sort of stable price 
structure in the face cf the competition of the handcraft unit. 

XXI, FUR1!I TUHg MAI-.ilT?ACTU?JI-T& 

The products covered by this code are those commonly known as 
"household furniture", whether used in t he home or elsevmere, wood 
office chairs, wood office desks, and wood office tables, parlor framies, 
chairs in the wiiite, furniture parts made of v/ood and other unfinished 
household furniture. Mattresses, pillows and box springs are not in- 
cluded. 

General statistics of the Bureau of the Census cover several in- 
dustries not included under this Code. However, since "household fur- 
niture" accounts for from 70"' to 80'- of the total value of the pro- 
ducts reported by the Census, the following data may be considered 
as roui'hly applicable to the industry covered b,^' this code. 

TABLE A XIII 

Furniture ^"anufacturing Industry 
Establishments and Value of Products, 1929-iy-?3 

All Furniture Manufacturing 1929 ' 1931 1933 

Humber of Establishments 3,778 3,148 2,411 

Value of Product (in thousands) ■p94B,116 |462,289 |297,730 

Household Furniture Only 

^/alue of Product (in thousands) ^659,023 p350,980 3235,509 
Percentage of Household to total 69.5 72.8 79.0 

Source: Census of 1,'^anufacturers , 1929, Vol. II; '^.eleases f or 1931 
and 1933. 



(*) Transcript of Public Hearing, December 14, 1934, pp. 75 to 96; 
H.R.A. files. 



-222- 

!F\irniture is a product vhose purchase can readily be defferred 
during tad times. As a result, sales of household furniture in 1933 
were only 36^i of those in 19P9. 

The industry includes a lar,-.e number of small concei'ns. In 1931, 
of the total of r'^,146 concerns listed "by the Census, 709, or 2'3^- , sold 
less than 320,000 in value durincT tne year; 1,416, or 4r/'5, less tnan 
d50,000; and 1,988, or dS"!', less than ?100,000.* 

Industry over-capacity and the resultant keen com.petitioa fre- 
quently enabled mail order houses and chain stores to dictate terras. 
Conflict in interest between alternate channels of distribution was a 
serious problem. Lar^e manufacturers compete with small manufacturers 
in practically all localities. While the individual production of 
these small shops is not lar^e, their aggregate production is material. 
They sell their goods in their imi-ediate vicinities and their expenses 
are small. They are, accordingly, able to undersell the more distant 
factories and are said to constitute a material factor in holding 
down price levels.** 

In 1928 the Federal Trade Commission forced the disbanding of the 
National Alliance of Furniture t anuf act-'Oi'ers, which had existed for 
40 years, for violation of the Anti-Trust lav/s. 

The decline in price during the depression was not exceptionally 
severe. Accordin.^ to BLS fi^urers, tiie average 1932 price was 78.9 
based on 1929=100. The low of the depression was hit in April, 1933, 
with a level of 75.3. The decline in furniture prices began in 1920 
•and cheap and medium priced furniture sold down during the depression 
to less than one-third of 1920 prices.*** 

XXII. LUGGA&S AJnP FaNCV LSaTHS"^ ^00D3 lySIJST^Y 

The principal products of th^ Leather and Fancy Leather Goods In- 
dustry are lug-^age (suitcases, bags, trunks, etc.,) and leather novel- 
ties (billfolds, vanity cases, etc.,) 

In 1929 the industr,^- comprised 859 establishmients, with aggregate 
annual production of ?99,920,000. 3y 1933 the number of establishments 
had fallen to 561 and production value to )55,793,000. This represent- 
ed a decline in the dollar value of production of approximately 64''. 

Some measure of the extent to which prices declined during the 
depression riiay be obtained from the index of "'hol&sale prices of trav- 
eling ba=;s and of suitcases. 3ased on 1929, the former index had 



( •' ) Evidence Study ,7=4, v. 8, HIa. files 

(**) Interstate Commerce Com'^ission ''.eport, July 2£, 1931, 

(***) Transcript of Public Hearing, October 9, 1933. 



9763 



-223- 

declined to 66.2 in I'ay 1933 and the latter to 67.6 in the same month.* 

It is apparent from the statistics quoted that the industry com- 
prised a very considerable number of small establishments. It is pro- 
bable that the competitive problems encountered were primarily trace- 
able to this condition. 

Accoroin.? to claim.s made by industry members the overhead per- 
centasJie was fairly hi^h. It was stated tnat the recorinized method of 
computing; costs in the iadustr;^ was to add 50^? of direct cost to allow 
for overhead and sellin^T expenses.** A few of the larger manufacturers 
make their own fittings, such as handles, frames, locks, etc. This was 
said to pcive them, an advanta!£,e in cost over the smaller operators who 
buy all of their fittinprs. 

The record reveals no serious aiireravatin-j; problems in the indus- 
try. The competitive diff iciilties encountered appear to be traceable 
primarily to the sharp decline in consumption, to the large number of 
competing small units, and to the high ratio of overhead to other costs. 

XXIII. PAINT. VARIIISH AIID LACQUER KIDUSTH Y 

Value of production in this industr.v was about halved during the 
depression, dropping from 5568,976,000 in 1929 to 1289,442,000 in 1933. 
It is significant that value added by manufacture dropped only 42^ dur- 
ing the same period, indicatincr that the price of paint had decreased 
less rapidly than that of its ingredients.*** 

The bulk of paint produced is used in the manufacturing and con- 
struction industries. In 1929, 41. 3*^5 of sales represented sales dir- 
ect to industrial or other la.rge consumers. The average price during 
1932 was 76, based on 1929. The average in 1933 had risen slightly 
to 77.**** 

Declinin.-;- industrial and construction activity, and relative lack 
of responsiveness of demand to price, appear to have constituted the 
primary problems with which this industry v-'as confronted. 

XXIV. I eg IHDUSTRY 

Recent trends in the Ice Industry are revealed in the following 
Table: 



(*) Tnolesale Prices, 3LS 

(**) Refer, Public Hearing 

(***) Census of N'anuf acturers , 19'"'9, Vol. I, p. 30 , and Release for 
1931 and 1933. 

(****) V/holesale Price, B.L.3. 



-52^ 

TjU-:LE A XIV • 

Ice Industry 
Humber of Estatlishrrients and 'Value of Product, 1939-1933. 

Year ITumher of Estatlishrnents Value of Froc'uc t 

1929 4110 p210,952 

1931 4111 192,027 

1933 3329 139,263 

Source: Census of f aniifacturers , 1929, Vol. II, p, 1?7-158; Releases 
for. 1931 and 1933. astablishnents vith products valued at 
less than 35,000 annually not included. 

Sales in 1933 had declined 34'i from the 1929 level. In part 
this was cjue to the drop: in consumer purchasinfC pover, but a more im- 
portant and more permanent ciuse was undoubtedly the gradual substitu- 
tion of mechanical refri«^erators for ice boxes. 

' Capital requirements foi- entry are low, vdth the result that the 
industry is composer' of many small units. In 1929, 41. y'^ of the es- 
tablishments listed by tne Census of Manufacturers oid less than 320,000 
worth of business and only 12.7 ' ciid over ?100,000. This does not in- 
clude plants doin^ less than 3-3,000 -per annum, of which there were 367 
in 1919.* " 

A considerable proportion of the country's ice output is manufact- 
ured by such concerns as breweries', creameries and refrigerated ware- 
houses. These into* rated concerns sometimes sell tneir excess y.roduc- 
tion and .thus contribut'5 to disrai/tinc-:' tne normal ice market. Compe- 
tition is, in the '-ain, limited to an area witnin a radius of a few 
m.iles from the producing center, Kowevei', the use of tracks, (especia- 
lly refrici'eratec trucks) , in ice distribution has greatlj- increased in 
recent years and has tended to enlar.?e local areas of competition, mak- 
ing individual localities less depend ent on their local producers. 

Overhead' is so laree a part of the' total cost as to stimulate 
attempts to obtain additional business, even at a low price, and thus 
utilise a greater percentae'-e of capacity. Some idea of Lhe saving ob- 
tainable through increasin='; the percenta=,'e capacity utilized it given ■ 
in a cost study, m^ade of a "representative" plant in Hew Orleans, which 
shOT-ed that a 10'^: increase in capacity utilization (from 30'' to 40^) 
restilted in only 2.3''' increase in cost. 

Triis preponderance of small units naturally precluded any effect- 
ive or^ anifiation. I'iolence and racketeering have been prevalent. No 
or^^ianized control of the market has e;.isted, other than in a few local 
areas and for very limited periods. ^g-7,ravntin<^' the problem v/as a de- 
mand relatively unresponsible to change in prices, especially over the 
short term. Over a longer pe]:'iod price may affect voliome, through stim- 
ulating or reducing" the incentive to purchase mechanical refrigerators; 
but at any definite,- time price cuts will do little to increase consumption. 



(*) Census of ii'anufacturers, 1929, "vol, II 
9763 



XXV . RETAIL HIBBER TI5S AFP BATTiJHY TRaDE 

The above trade is defineo in the code as "the sale or offering": 
for sale to the ultimate consumer and not for resale purposes" of 
rubter tires, tubes, batteries and accessories. 

The tire branch of the Trade only is of sitrnif icance to this 
study. This industry and the rubber tire manufacturing industry had 
many problems in common. 

In 1929 tire sales vere estimated to have been j 764, 160,000, 
gradually decreasin.-r urxtil in 1933 they were i5351,770 ,000. The total 
number of outlets en^^aged in rtitail distribution in 1934, as estimated 
by the Rubber Division of the Bureau of Foreign and Domestic Commerce, 
was 183,777, includinc^; the followin>i: f3:roups: 



Independents: 




Dealers 


84,000 


Sub-=^dealers 


35 , 000 


Jobbers 


1,200 


Jobbers sub-dealers 


20,000 


Warehouse dealers 


950 


Factory owned stores 


1,350 


Auto supply chains 


375 


Fail order retail stores 


90r' 


Oil company stations 


40,000 


Mail order houses 


2 




183,777 



The independent dealers, many of virhom were very small, were 
subjected to constant and increasing competition from, factory owned 
stores, chain stores, mail order houses, and oil company stations. 
The percentage of the total number of replacement units sold by in- 
dependent dealers dropped from 91. 2^^. in 1926 to 65.9-'1 in 1933. Fur- 
thermore, replacement demand in general had been reduced sharply, in 
part because of the greater durability of tires. 

A considerable spread in v/holesale prices to various types of re- 
tailers exists. The industry had for several years suffered from price- 
wars, brought about by efforts of favored distributors to utilize their 
lower costs to secure a larger share of the business, at the exp'ense of 
small dealers. These price-wars v-rere primarily on "commercial" business, 
fleet-owners bu,"inr: truck tires and sometimes passanger tires in con- 
si^ierable quantity. Commitm.ents for furture purchases at .^cuaranteed 
low prices were used and discounts ran 8 to 12 "tens" off list. 

In the case of consiomers or individual owners, other price cutting 
devices were used; extravagant trade-in allowances on used tires, long 
time guarantees, etc. Continued attempts were made by committees of 
sales executives, manufacturers, large ana small, and private brand 
marketers to reach a com.mon ground and undex-standing, but as quickly as 
prOTiises were made they were broken. 



-226- 

The price structure of the trade-, at tne time of code forrrulation, 
was in a chaotic condition, due to - 

1. subjection of independent dealers to extreme pressure from 
competition of mail order houses, chain stores, factory 
outlets, etc . ; 

2. price unset tlement at the manuf acturinp;' end; 

3. sharp reduction in sales durinc-;- depression. 



9763 



-227- 

scvi. :7J3:?sii TiEE rAi -T.:F,.cTTj?i:-c i'T^ustry 

■Hie nar^^et for the Rubber Tire iiamxfactnTing Industry rm;f 'os 
divider, into the s-ipplyi-if of ori-^-inal eq-u.i-:iiaent to autonooile majmfr.c- 
tiii'ers r.:ad the -oroaLction of re-^lace:aent imits for the vehicle r.ser. 
The forr.er market ina.y oe considered entirel^- Ltnresponsihle to price 
chaiv^e, and demand contracted during the depression together nith the 
drop in automobile jroduction. Replacemsnt derjand, v/hile more responsive 
to prices, also droy.ed shar-oly; a contrioutin.-' factor being the longer 
life of a^itonobile tires. 

The effect of the de-jression on the industry is deoicted in 
the fo.llor'ing Table:' 

TAl'LiC A J.7 

■ Rubber Tire i.Ianufactvjring Industry , 
Salient Statistics, 1929 - 1S33. 

Production 

"o, of Ihousands Thousands Production Capa-city 

Year Concerns of Units of Dollars Thousands of Dollars 

1929 • 91 "■ 69,765 754,160 ' 960,000 

1931 48 48,989 437,964 760,000 

1933 -0 45,367 351,770 613,671 



Source: Survey made b:/ Code jUithority; fi.pares in Code histor?/, p, 
'.Z A files 



The industry has long had en unsatisfactory profit record, 
Even in 1938 '-'hen industry generally showed excellent retnxns, the tire 
inoustry lost $10,896,000 or 0.97p on sales. (*) 

In 1927, 40p of all con'^mies reported profits; in 1932 the 
percentage v/as recuced to 13;o. {**) 

Tire prices steadil;"- declined from 1920 imtil 1935. The lac!: 
of "LViiform sables ■olicy, together ^ith the erccess productive capacity of 
the industry, had -oroduced a i^rice str'icture i-hich changes from da.y to 
day. The result of price nolicies of man-afact-'orers has been called a 
"race of discoiuits". Tliere \7as 'O iiniforn orice at any tine even for 
an identical tire. 

An i'l ortant problem res dted from the fret tlia.t prodLiction 
oiid price of the ^orinoroal ra\7 na.terial, crude rubber, Tras almost en- 
tireljr Linder the c-ntrol of 'foreign nations. The nide fluctuations in 
rubber prices .and the differences in buying habits of the raanufactiirers 
served to bring about a dispai'ity in raw material costs that was one of 
the chief factors in. the lack of orice stability in 'the industr-"-. Losses 



(*) Indi.\stry 3t ici;", p. 77, ¥lk files 
(**) Industry Stud-r, p. 77, IIPA files 



^28- 



on inventor-^ durinfj a decli-^inr nrx'cot for crude ru.'boer had ireqtientl^ 
been vcr;" serious. 

Tires lere distributed t'lrouffh rnrny distinct chrnnels. Inde- 
pe .dent dea-lers, mail order houses, cl'.ain stores, deoartnent stores, 
oil corpcTY oirmed stores,, and direct factor"/ outlets, all coToeted, 
Pries cu.ttinfj' by mail order houses constit'ated an es^jecislly serious 
problen. 

"Des tractive" price ctitting rras indust]-y-^ude, affecting the 
nax''':etin:; of nearl" all rubber goods. Trade vrars .were constant; prices 
nere cjriven belOT? cost and every price-ctittinrr device ^yas utilized. 
Si";i.\ll esto.blishraents clair'^ed that larf:e nConufact'LU-ers used their stijserior 
reson.rces unfairly to drive then out of business, Tlie field of the snr.ll 
manufacturer had been invaded b"" Icrge co-roctitors rrith their "bonus for 
voli-'jne" discoujit plan. The large manufacturer had also supplemented his 
distribiition scheme, in three cases, by chr.ins of comiany-ovned retail 
establisliiasnts, in direct cono-'tition -'ith retailers. 

Discord in the industry hid orevented any concerted action. 
There '-^ere in the tire field distinctly opposed factions rrhose differ- 
ences of methods and ob.jectives aygravsted their la.cl: of uniforrait;- in 
prici.ng policies. The factional disrate phich had. received the most 
publicity nas tha.t betrreen manufacturers end mail-order houses. One 
large manufacturer had uaged uairemitting and loudlj'- vocal warfare u^on 
all private brand distributors, and upon the inirnait^- of the arroiige- 
m.ents between the mail-order concoi-ns anc their sujoliers. The diversity 
of interest bet\7een the four large tire manufacturers and the small mriiu— 
factujrers was sharply defined and a sor.rce of continual conflict, 

:SVIl', 'rjIlTAIL TOB.-.CCO TPJiDE 

The definition of this trade in the code, follows: 

" any person engaged vfhollj'- or partiallj^ either 

as an enplc^rar or for his own accotuit in the selling 
of tobacco oroducts directl*- to the consujiier and not 
for pu.rposes of resale in an"" form," 

In 1929 the total retail tobe.cco sales were reported to have 
been $717,637,337. Of this amoimt chain stores sold almost 20;"^, The 
Censiis of Distribution for 1929 showed a'o n-oximately 33,000 retail es- 
tablishments whose principal line was tobacco, employing 34,238 persons. 

The Retail Tobacco Dealers of America, Inc., vras organized in 
1933 and, at that time, claiined to reiorescnt a membership of 204,539 
stox'es in vrhich tobacco prodr.cts were sold at retail. 

Approximately Sofo of all cigarettes sold in the United States 
consists of four -oopular brands - Luclcj' Strikes (Arierican Tobacco Com- 
pany), Chesterfields (Liggett & i'yers Tobacco Company), Camels (Reynolds 
Tobacco Compary), and Old Crolds (P. Lorillard r?: Comi^any). All foiu^ of 
these bro.nds were highly advertised at the eroense of the manufactiirer, 
and consequently, a tremendous demand had grow:.! : up for the product among 

9763 



-229- 

snohoi's. As a. general riile, sno'rei:: p.ir-chp.se tlieir Iji't-i-ds alnost c.. il ■, 
end tli-rofore are ■'-er^- ^rice' co^iscij- s. Any I'-aric.tion iroM a price •■liicli 
]:i;;-p.t "ba deenisd to be the ■•>revL,il:.n.~; orice is inriediat'el-/ recorded in the 
mind of the custoner. Departnent stores, t^.TOcerj' stores and others, not 
dependent upo ■• the sale of tohacoo or cigai'cttes for taeir profits, r;e:,'6 
ar.ic': to reco.?;niKj this fact, pnd it "became a coiranon practice to sell 
cif-:ai-ettes at or 0010^7 cost in order to attract h-^j'-ers to the store. 
Certain larf^e retf-ilers Trefo allo-.red to 01.17 direct fron the nanufactf.rers, 
and V'^re ahle consequent!"'' to offer tohacco oroducts at 'orices consider— 
abl"" l-O'Tor tlian \7as los-'ihle for the retriler i7ho ■boi\fi;ht less advantage- 
oi.igI".' fron the i:rholesp.ler, 

A orice 'var in ciga.rettes started in 1931 and reached na.jor 
proportions in 1935, In sorie cases retailers, usins?; cigarettes as "loss- 
leaders", redi.iced the price of cigarettes to as low a.s 59^ a carton, and 
there 'ere imuinerahle cases of sales at $1,00 a. carton. 'The cost of a 
carton to the independent retailer avera. :ed a'o Jironiraately $1.10, so th;-,t 
it ras ntterl;'^ inoossihle for liin to conpete on a price "basis, Sinilar, 
thon;.h soneTfh?.t less serious nroblens, existed in the cigar and to"bacco 
fields. 

xxYiii. ukol ::sal"^ ?o:3ACCo ti:ade 

According: to the Census of Distri"bution, the total "business 
do:'.e 'j-- the l.^holesale Tooa^oo Trrde in 1929 reached SI, 691, 000, 000. In 
1932 estiuated volvjue hat. decreased to $1,084,000,000 and the net profit 
had "loeen rediiced fron 1.4 to 0.3 percent. 

3ightv_foijj.- percent of all to'bacco products is distrilro-ted 
"by to"bacco '7holesalers, the Vail: of the renainder "'oeing handled "oy the 
fn-ocer:" and food trade. 

Tohacco wholesalers ther:selves i:'-' elude many categories, siich 
as service joVoers, nianufactiirers ' sales hrEJiches,, chain stores, ware- 
houses, cash a;id carr'^ rfholesa.lers, nanuf actu 'ers ' agents, wagon di3— 
tri"b-ntors, drco shi-Tj-.rs, etc. 

The Ge5isTis of Distri""bircion showed a total of 2,015 whole- 
salers in 1929, "but this fi.-nu-e incltided onl'- pri -cipal line esta"blish- 
rnents. 

The -orrier-r -oro"ble:;is confronting the wholesale to"bacco trade 
were reflections of the unsettled price strnctra-e at the retail end, 
which has alread" "been descri"bed. 

T]ie Wtiolesale To"bacGO Trade also resented the encroaclii:ient 
on its field occasioned ''oY direct scles to Icrge retailers and by sons 
of the activities of the suo-jobbers. 

xxi][. FiPHd i)isT::ii;"[7eii"'" thaje 

As defined in the code this trade covers "the business of 
distribution by 'wliolesalers ' or distribiitors ' of any or all lines of 
i^aper and nauer products in the United States, its territories and 

9755 



possessions, -itli the incidentrl r^rocessinj; of such products usi-XP.l t,nd 
ordiuar;- in sach trades. 

In 1934 there nsre aTDro::iT:i-j,tely 1,677 nerchents scattered 
thro\Y;ho\\t the coujitr^r vrhose jriaci-jal liae of "business \7as the dis- 
trih .tio'i of -^aper and ^aa-oer irodrcts. Tota.l sal-es anoxinted to 
^^540,000. Individual units ranf;ed ir. sise from $20,000 to over 
4^10,000,000. (*) 

A'Tororciraately 95;^ of the "business consists of the Ea,le of 
finer rcxles of "Daper to be used for 'ori-iting anr" in the sale of coarse 
Toapers for rraooin,?:: -ourposes. Toilet tissues, Daper tonels, naphir.s, 
plates and other articles sold !)■"• retailers accouiit for the other 5p 
of the total volirie. 'Tlie numher of articles carried "by paper distri^ou- 
tors is es-oecially large and varied. In naxiy instances fine -oa^oer houses 
carr^r over 4,000 si:iecial items and coarse "oaper ,ho ises over 3,00C,"hile 
many concerns carr" "Doth classes. 

In addition to the fine ano the coarse oaper houses and to the 
concerns handling "both types of paper, (so-called "diial houses"), there 
are a co:aps/ratively small num'ber of paper distri"bxitors rho are classified 
"b?/ the Trade as: 

1. "uioer-:!0"b"l;ers 

2. Su'b-.johhers 

3. Del credere agents. 

A "Su.noer-.jo"boer" ij a dealer i:i large lots :7ho purchases from 
the nills and- sells to other wholesalerr. 

"Su"b-.jo"b'bers" are, for the most part, one-man concerns 'TJich 
"bu^^ fro;: super-johhers and sell - - i s;iall qiopntities to very small mer-. 
chcaits to i.Thom they render direct delivery service. 

"Del credere agents" act in t'iieir oiTn nan.es as mill agents in 
selling direct to converters or consvmers, or asrnme and guarantee the 
credit -rish. 

In the Paper Distri'buting Trade, soles fall under three general 
classifications: viz., TTarehouse, Direct and Indirect, 

A "'7areho-\se" sale is a sale made 'oj a merchant from the mer- 
chant's omi stock; or from stock in a pu"blic mirehouse; or from the 
stoc]: of a m.111 operated warehouse; or from another merchant's 'Tarehouse 
stock. 

A '^Direct" sale is l. transaction involving a specific order 
placed rrith the manufacturer for mill shr^mcnt direct to the merchant's 
customer or to a designated ^^lace of delivery. 



(*) Letter from Code Authority to Assistant 
Administrator 5/21/35. 



-231- 

An "Indirect Sale" is t, trr,nr5,:.ction i ivolving a sTjecific 
order, ^placed with the manufacturer for nill shi^oraent, and handled 'oy 
the nerchant or his agent at sone -ooint "'oetTfeen the origin of the 
Ghi rient and ;olace of delivery. 

.■.iccordinf; to a report of a sa:cve3- conducted hy the :jusiness 
Eesearch Corporation of Chica,::;o, Illinois, the relative volumes of 
paper "iroduicts handled under these three classifications duriny 1934- 
"•ere as follows: 

Tine Paper Coarse Paper 

Division Division 

Warehouse Sales 54.55}^ 63.73jJ 

Direct Sales 30.19,5 21.55',^ 

Indirect Sales 15.26,; 14.7^ 

Certain "oapsr products such as paper towels, toilet tisst\e, 
etc., are distrilDiited. h" ^'holesale yrocers in competition '"'ith paper 
distributors. 

The riajor portion of the industry, com-orisiny the large ware- 
house owning "oa-oer distrioutors, have for a long tine maintained a power- 
ful trad-e association. The lle.tional Paper Trt.des Association, cor.ipris'scL 
23 district or territorial yroups. In 1934 the total enrollment ag^ire- 
.yated S^.Q concerns, or 41-/^ of the tradie. This raenhership, however, in- 
cluded aLiost all of the large -units and its rnemhers accounted for 85-j 
of the 1934 trade vorome. 

In 1922 the Pecieral Trade Com:iission issu.ed a cease and de- 
sist orduer against the Pacific Sto-tes Paper Trade Association for price 
fi::ing activities. The riilini- of bhe federal Trad.e Com.iission was sr.h- 
secr .entl;- iroheld o'^ the Suwrene Court of the United. States, 

The doninant grour.^. in the trade resented the competition of 
the super-johhers, the suh-johoers, and the del cred.ere agents, as well 
as the inrord.s of the -wholesale grocer-/ trade into the market for certaii 
prod.ucts. In the first three cases the high overhead costs entailed in 
o-oercting a partiall-y filled warehouse placed these o;oerators at a dds- 
advraitaye as conwared with ;?,en ,ers who carriedi. no such burden. In the 
1; 'er case it wrs com 'lainedt that the mai'k-up charged !)■=- the wholesale 
grocers was suostantiall"'' lov.'er than the cost of parser distrihutors, 
Tliis :^cy have heen due, in lart, to the fret tlia.t wholesale grocers had 
sustained a covroarativel- smrO.l contraction in thjir main line operations 
so that the joint cost involved, in handling Daper prod.ucts was relativcl3' 
low. In part it ma"' nave been dtue to the use of paper products as loss 
lead-crs o-" the wholesale -rocers. 



APPENDIX III 

Codes in v/hich Mandatory Cost Acco-unting Systems 
or Cost Accoxmtinfi- Piales Trere A'T'^roved 

1, Handatory cost systems designed to effectuate cost protectioi 

provisions v/ere aooroved "by MlA. in the following Industries: 

Fertilizer Industry 
Hardv'ood Distillation Industrj'- 
Fishing Tackle Industry 

Washing and Ironing Licchine Manufacturing Industry 
■Retail Ltijifoer Ii^dustry 
'Throwing Indu.stry • 
Macaroni Industry 
Coffee Industry'- 
Boiler Manufactiiring Industry 
Malleahle Iron Industry 

Screw Ma^.hine Produ.cts Manufacturing Industry 
Can-vas Gfois Industr;;'- 
Hosiery Industry 
Lincstone Industrj?" 
C?iiont Industry 
Tile Contracting Industry 

Gas Appliance and' A;o :i£j:atus Manufactiu-ing Industry 
Ready Made FurnitiJire Slip Cover Manufacturing Industry 
Fire Estinguisli.er Ap'oliance Manufactiu-ing Industry 
Motor Fire Ap'ocratus Manufacturin;-: Industry 
California Sfrdlne Processing Industry 
Punch EO'»,rd Manufacturing I-idustry 
Sil\enare Mar.r.racturing Industry 
• Si3'"i.iing Pipe M.-vnui'acturing Industry 
Furniture Mo.nu.factui'iug Industry 
Cis-nr Ccntainer Industry 
GrT-r-.:^ Iron Fouu'ilry Ind'r.stry 
Aiai^raatic &ori> l.ler Industry 
Dx'in For,^:ing Inr.ustrjr 
Ea^ -,heni;r,re Ma rafact^i.ring Ipj^ustry 
l'it;r.",bandise Warehouceing Trade 
Novelty Cu-rtain. Draoeries, Bedspreads and ITovelty 

Pillow Industry 
Pl-jiihin;-: ri--iti;res Industry ■ ■ 

Pe-.-r L-::'tril--n-';ing Trade 
Ru: >nr iianufai-. tv.ring Industry 
Ru.uhRr Tire I'^-nui'acturing Industry 
Wood Heel Manui^-ctx^jring InJ-iLstry 
Trucking Industry 
Luggage ajid Fa^cy Leather Goods Industry, 



9753 



-233- 

2, In the followin ■ cr.ses, Cost Acco-anting Systems ^vere aroroved 
■fay the Code Authorltj'- only, and not oy the Adrainistration: 

Compressed Air Industry 
Heat Exchange Industry 
Pump Lianufact-uTing Industrj^ 

G-raohic Ar ts I ndixs tries 

GoT' -iercii-1 f-elief Printing Ind'ostries 
Boo-: i;;-;-nifactiu-inj^' Indnstrj' 
Lituograohic Printing Industry 
Trade I^-pesetting Industry 
Advertising Tyriography Industry 

Portable "Zlectric Lt m-o Shj-de Industry'- 
I^lectrical ripnufactia-ing Industry 

3, Preliminary rules for cost finding, not requiring Adiainis- 
trative approval, vrere included in the following codes: 

Special Tool, Die and Ilachine Industry 
T'^axed Paper Indiistry 
Ladder Manufacturing Industry 
Set Ut) Paper Box Indxistry 
Shoe Last Industry 

Paoricated Metal Products and Metal Finishing and 
Metal Coating Industries 

4» In two cases preli.iinary rules for cost finding were pre- 

scrioed i_ codes: 

Vitrified Clay Sewer Piie Manufactr.ring Industrj/- 
?iarole (Quarrying and Finishing Industry, 



9763* 



OFFICE OF THE NATIONAL RECOVERY ADMINISTRATION 
THE DIVISION OF REVIEW 

THE WORK OF THE DIVISION OF REVIEW 

Executive Order No. 7075, dated June 15, 1935, established the Division of Revie*r of the 
National Recovery Administration. The pertinent part of the Executive Order reads thus : 

The Division of Review shall assemble, analyze, and report upon the statistical 
information and records of experience of the operations of the x'arious trades and 
industries heretofore subject to codes of fair competition, shall study the ef- 
fects of such codes upon trade, industrial and labor conditicns in general, and 
other related natters, shall make available for the protection and promotion of 
the public interest an adequate roviev of the effects of the Administration of 
Title I of the National Industrial Recovery Act, and the principles and policies 
put into effect thereunder, and shall othervnse aid the President in carrying out 
his functions under the said Title. I hereby appoint Leon C Marshall, Director of 
the Division of Revie*. 

The study sections set up in the Division of Review covered these areas; industry 
studies, foreign trade studies, labor studies, trade practice studies, statistical studies, 
lig:,! studies, administration studies, miscellaneous studies, and the writing of cede his- 
tories. The materials which were produced by these sections are indicated below. 

Except for the Code Histories, all items asentioned belo« are scheduled to be in mimeo- 
graphed form by April 1, 1936. 

THE CODE HISTORIES 

The Code Histories are documented ccrounts of the formation and administration of the 
codes. They contain the definition of the industry and the principal products thereof; the 
classes of members in the industry; the history of code formation including an account of the 
sponsoring organizations, the conferences, negotiations and hearings which sere held, and 
the activities in connection jvith obtaining approval of the code; the history of the ad- 
ministration of the code, covering the organization and operation of the code authority, 
the difficulties encountered in administration, the extent of compliance or non-compliance, 
and the general success or lack of success of the code; and an analysis of the operation of 
code provisions dealing with wages, hours, trade practices, and other provisions. These 
and other matters are canvassed not only in terms of the materials to be fcund in the files, 
but also in terms of the experiences of the deputies and others concerned with code formation 
and administration. 

The Code Histories, (including histories of certain NRA units or agencies) are not 
mimeographed. They are to be turned over to the Department of Cojmerce in tiisewritten form. 
All told, approximately eight hundred and fifty (850) histories will be completed. This 
number includes all of the approved codes and some of the unapproved codes. (In Work Mate- 
rials No. 18, Co ntents of Code Histo ries, will be found the outline which governed the 
preparation of Code Histories.) 

(In the case of all approved codes and also in the case of some codes not carried to 
final approval, there are in NRA files further materials on industries. Particularly worthy 
of mention are the Volumes I, II and III which constitute the material ofiicially submitted 
to the President in support of the recommendation for approval of each code. These volumes 
9768—1. 



- li - 

set forth the origination of the code, the sponsoring group, the evidence advanced to sup- 
port the proposal, the report of the Division of Research and Planning on the industry, the 
reoominendations of the various Advisory Boards, certain types of official correspondence, 
the transcript of the formal hearing, and other pertinent matter. There is also much offi- 
cial information relating to amendaients, interpretations, exemptions, and other rulings. The 
materials mentioned in this paragraph were of course not a part of the work of the Division 
of Revie*. ) 

THE WORK MATERIALS SERIES 

In the ffork of the Division of Revie.v a considerable number of studies and compilations 
of data (other than those noted below in the Evidence Studies Series and the Statistical 
Material Series) have been made. These are listed beloff, grouped according to the char- 
acter of the material. (In Work M aterials No. 17, T entative Outlines and Summari es of 
S tudies in P rocess , these materials are fully described). 

Indust ry Studies 

Automobile Industry, An Economic Survey of 

Ditu:ainous Coal Industry under Free Competition and Code Regulation, Economic Survey of 

Electrical Manufacturing Industry, The 

Fertilizer Industry, The 

Fishery Industry and the Fishery Codes 

Fishermen and Fishing Craft, Earnings of 

Foreign Trade under the National Industrial Recovery Act 

Part A - Competitive Position of the United States in International Trade 1927-29 through 

1934. 
Part B - Section 3 (e) of NIRA and its administration. 
Part C - Imports and Importing under NRA Codes. 
Part D - Exports and Exporting under NRA Codes. 

Forest Products Industries, Foreign Trade Study of the 

Iron and Steel Industry, The 

Knitting Industries, The 

Leather and Shoe Industries. The 

Lumber and Timber Products Industry, Economic Problems of the 

Men's Clothing Industry. The 

Millinery Industry, The 

Motion Picture Industry, The 

Migration of Industry, The: The Shift of Twenty-Five Needle Trades From New York State, 
1926 to 1934 

National Labor Income by Months, 1929-35 

Paper Industry, The 

Production, Prices, Employment and Payrolls in Industry, Agriculture and Railway Trans- 
portation, January 1923. to date 

Retail Trades Study, The 

Rubber Industry Study, The 

Textile Industry in the United Kingdom, France, Germany, Italy, and Japan 

Textile Yarns and Fabrics 

Tobacco Industry, The 

Wholesale Trades Study, The 

Women's Neckwear and Scarf Industry. Financial and Labor Data on 

9768—2 



- iii - 

Women's Apparel Industry, Some Aspects of the 

Trade Pract ice Studies 

Commodities, Informaticn Concerning: A Study of NRA and Related Experiences in Control 
Distribution, Manufacturers' Control of: Trade Practice Provisions in Selected NRA Codes 
Distributive Relations in the Asbestos Industry 
Design Piracy: The Problem and Its Treatment Under MRA Codes 
Electrical Mfg. Industry: Price Filing Study 
Fertilizer Industry: Price Filing Study 

Geographical Price Relations Under Codes of Fair Competition, Control of 
Minimum Price Regulation Under Codes of Fair Competition 
Multiple Basing Point System in the Lime Industry: Operation of the 
Price Control in the Coffee Industry 
Price Filing Under NRA Codes 
Production Control in the Ice Industry 
Production Control, Case Studies in 

Resale Price Maintenance Legislation in the United States 

Retail Price Cutting, Restriction of, with special Emphasis on The Drug Industry. 
Trade Practice RuJes of The Federal Trade Commission (1914-1936): A classification for 
comparison with Trade Practice Provisions of NRA Codes. 

Labor Studies 

Cap and Cloth Hat Industry, Commission Report on Wage Differentials in 

Earnings in Selected Manufacturing Industries, by States, 1933-35 

Employment, Payrolls, Hours, and Wages in 115 Selected Code Industries 1933-1935 

Fur Manufacturing, Commission Report on V;a-es and Hours in 

Hours and Wages in American Industry 

Labor Program Under the National Industrial Recovery Act, The 

Part A. Introduction 

Part B. Control of Hours and Reemployment 

Part C. Control of Wages 

Part D. Control of Other Conditions of Employment 

Part E. Section 7(a) of the Recovery Act 
Materials in the Field of Industrial Relations 
PRA Census of Employment, June, October, 1933 
Puerto Rico Needlework, Homeworkers Survey 

Administrat ive Studies 

Administrative and Legal Aspects of Stays, Exemptions and Exceptions, Code Amendments, Con- 
ditional Orders of Approval 

Administrative Interpretations of NRA Codec 

Administrative Law and Procedure under the NIRA 

Agreements Under Sections 4(a) and 7(b) of the NIRA 

Approve Codes in Industry Groups, Classification of 

Basic Code, the — (Administrative Order X-61) 

Code Authorities and Their Part in the Administration of the NIRA 
Part A. Introduction 
Part B. Nature, Composition and Organization of Code Authorities 

9768—2. 



- iv - 

Part C. Activities of the Code Authorities 

Part D. Code Authority Finances 

Part E. Summary and Evaluation 

Code Compliance Activities of the NRA 

Code Making Program of the NRA in the Territories, The 

Code Provisions and Related Subjects, Policy Statements Concerning 

Content of NIRA Administrative Legislation 

Part A. Executive and Administrative Orders 

Part B. Labor Provisions in the Codes 

Part C. Trade Practice Provisions in the Codes 

Part D. Administrative Provisions in the Codes 

Part E. Agreements under Sections 4{a) and 7(b) 

Part F. A Type Case: The Cotton Textile Code 
Labels Under NRA, A Study of 

Model Code and Model Provisions for Codes, Development of 

National Recovery Administration, The: A Review of its Organization and Activities 
NRA Insignia 

President's Reemployment Agreement, The 

President's Reemployment Agreement, Substitutions in Connection with the 
Prison Labor Problem under NRA and the Prison Compact, The 
Problems of Administration in the Overlapping of Code Definitions of Industries and Trades, 

Multiple Code Coverage, Classifying Individual Members of Industries and Trades 
Relationship of NRA to Government Contracts and Contracts Involving the Use of Government 

Funds 
Relationship of NRA with States and Municipalities 
Sheltered Workshops Under NRA 
Uncodified Industries: A Study of Factors Limiting the Code Making Program 

Legal Studies 

Anti-Trust Laws and Unfair Competition 

Collective Bargaining Agreements, the Right of Individual Employees to Enforce 

Commerce Clause, Federal Regulation of the Employer-Employee Relationship Under the 

Delegation of Power, Certain Phases of the Principle of, with Reference to Federal Industrial 
Regulatory Legislation 

Enforcement, Extra-Judicial Methods of 

Federal Regulation through the Joint Employment of the Power of Taxation and the Spending 
Power 

Government Contract Provisions as a Means of Establishing Proper Economic Standards, Legal 
Memorandum on Possibility of 

Industrial Relations in Australia, Regulation of 

Intrastate Activities Which so Affect Interstate Commerce as to Bring them Under the Com- 
merce Clause, Cases on 

Legislative Possibilities of the State Constitutions 

Post Office and Post Road Power — Can it be Used as a Means of Federal Industrial Regula- 
tion? 

State Recovery Legislation in Aid of Federal Recovery Legislation History and Analysis 

Tariff Rates to Secure Proper Standards of VJages and Hours, the Possibility of Variation in 

Trade Practices and the Anti-Trust Laws 

Treaty Making Power of the United States 

War Power, Can it be Used as a Means of Federal Regulation of Child Labor? 

9768—4. 



las EVIDENCE STUDIES SE RIES 

The Evidence Studies were originally undertaken to gather material for pending court 
cases. After the Schechter decision the project was continued in order to assemble data for 
use in connection with the studies of the Division of Review. The data are particularly 
concerned with the nature, size and operations of the industry; and #ith the relation of the 
industry to interstate commerce. The industries covered by the Evidence Studies account for 
more than one-half of the total number ot workers under codes. The list ol these studies 
folio its: 



Automobile Manufacturing Industry 
Automotive Parts and Equipment Industry 
Baking Industry 

Boot and Shoe Manufacturing Industry 
Bottled Soft Drink Industry 
Builders' Supplies Industry 
Canning Industry 
Chemical Manufacturing Industry 
Cigar Manufacturing Industry 
Coat and Suit Industry 
Construction Industry 
Cotton Garment Industry 
Dress Manufacturing Industry 
Electrical Contracting Industry 
Electrical Manufacturing Industry 
Fabricated Metal Products Mfg. and Metal Fin- 
ishing and Metal Coating Industry 
Fishery Industry 

Furniture Manufacturing Industry 
General Contractors Inc'ustry 
Graphic Arts Industry 
Gray Iron Foundry Industry 
Hosiery Industry 

Infant's and Children's Wear Industry 
Iron and Steel Industry 



Leather Industry 

Lumber and Timber Products Industry 
Mason Contractors Industry 
Men's Clothing Industry 
Motion Picture Industry 
Motor Vehicle Retailing Trade 
Needlework Industry of Puerto Rico 
Painting and Paporhanging Industry 
Photo Engraving Industry 
Plumbing Contracting Industry 
Retail Lumber Industry 
Retail Trade Industry 
Retail Tire and Battery Trade Industry 
Rubber Manufacturing Industry 
Rubber Tire Manufacturing Industry 
Shipbuilding Industry 
Silk Textile Industry 
Structural Clay Products Industry 
Throwing Industry 
Trucking Industry 
Waste Materials Industry 
Wholesale and Retail Food Industry 
Wholesale Fresh Fruit and Vegetable Indus- 
try 
Wool Textile Industry 



THE STATISTICAL MATERIALS SERIES 



This series is supplementary to the Evidence Studies Series. The reports include data 
on establishments, firms, employment, payrolls, wages, hours, production capacities, ship- 
ments, sales, consumption, stocks, prices, material costs, failures, exports and imports. 
They also include notes on the principal qualifications that should be observed in using- the 
aata, the technical methods employed, and the applicability of the material to the study of 
the industries concerned. The following numbers appear in the series: 
9768—5. 



Asphalt Shingle and Roofing Industry Fertilizer Industry 

Business Furniture Funeral Supply Industry 

Candy Manufacturing Industry Glass Container Industry 

Carpet and Rug Industry Ice Manufacturing Industry 

Cement Industry Knitted Outerwear Industry 

Cleaning and Dyeing Trade Paint, Varnish, and Lacquer, Mfg. Industry 

Coffee Industry Plumbing Fixtures Industry 

Copper and Brass Mill Products Industry Rayon and Synthetic Yarn Producing Industry 

Cotton Textile Industry Salt Producing Industry 

Electrical Manufacturing Industry 

THE COVERAGE 

The original, and approved, plan of the Division of Review contemplated resources suf- 
ficient (a) to prepare some 1200 histories of codes and NRA units or agencies, (b) to con- 
solidate and index the NRA files containing some 40,000,000 pieces, (c) to engage in ex- 
tensive field work, (d) to secure much aid from established statistical agencies of govern- 
ment, (e) to assemble a considerable number of experts in various fields, (f) to conduct 
approximately 25% more studies than are listed above, and (g) to prepare a comprehensive 
summary report. 

Because of reductions made in personnel and in use of outside experts, limitation of 
access to field work and research agencies, and lack of jurisdiction over files, the pro- 
jected plan was necessarily curtailed. The most serious curtailments were the omission of 
the comprehensive summary report; the dropping of certain studies and the reduction in the 
coverage of other studies; and the abandonment of the consolidation and indexing of the 
files. Fortunately, there is reason to hope that the files may yet be cared for under other 
auspices. 

Notwithstanding these limitations, if the files are ultimately consolidated and in- 
dexed the exploration of the NRA materials will have been sufficient to make them accesslbio 
and highly useful. They constitute the largest and richest single body of information 
concerning the problems and operations of industry ever assembled in any nation. 

L. C. Marshall, 
Director, Division of Review.