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BOSTON PUBLIC LIBRARY 



NATIONAL RECOVERY ADMINISTRATION 



3 9999 06542 005 9 



DIVISION OF REVIEW 



WORK MATERIALS NO. 17 



TENTATIVE OUTLINES AND SUMMARIES OF STUDIES IN PROCESS 



PART B: LABOR STUDIES 



PART C: TRADE PRACTICE STUDIES 



Work Materials No. 17 falls into the following parts: 




Part A 


Industry Studies 




Part B 


Labor Studies 




Part C 


Trade Practice Studies 




Part D 


Administrative Studies 




Part E. 


Legal Studies 




Part F: 


Contributory Materials 


', , ' ' ,' \ 1 ' ' ji. ' > 

J 3 y\> 1 > 1 ' > > 1 ' > 

. J J V •* " ' ' ' i 
J 1 1 'i 1 1 i J 1 > > ^ } 

, J J > . J J , J ' 



December, 1935 



« • • • 






• • • • V « 

• • • • • 



C N F I D E IT T I A L 

ICEMORjUTLUM TO: SECTION HEADS DecemlDer 30 

19 3 5 
SUBJECT: WOM MTEPJALS NO. 17 

TENTATIVE OUTLINES AJ^ID SUmARIES GE STUDIES 111 PIcOCESS 



In order that those v/orking on one study may secaire access to 
allied materials in other studies, these TENTATIVE OUTLINES AND SUM- 
MARIES are rna,de available for confidential use within the Division 
of Review. 

Since these documents were prepared from work that is now in 
process, they are highly tentative. The outlines are the present 
operative tables of contents of the studies, out they are of course 
subject to change as the vrark progresses. The sui.iaaries are, in 
some cases, forecasts rather than, actual summaries of developed manu- 
scripts. Notwithstanding their tentative character, tne documents 
will serve to indicate in some detail the subject matter of the studies 
now in process in the division. No one will think of these materials 
as "findings" or "reports" in the usual sense of those terms. 

It is expected tho,t these TENTATIVE OUTLINES AND SUlvIMARlES 
will result in many conferences, both formal and informal, among 
those working on the studies — to the ends that effective coordina- 
tion of the studies may occur and duplication of effort will be 
reduced to a minimum. 

L. C. Marshall 
Director, Division of Review 



1 3 My 35 S 



9347 -i- 



STUDY SECTIONS OF THE DIVISION OF REVIEW 



Administrative Studies 

N.R.A. organization William W. Bardsley, Coordinator 

Code Administration Harry Weiss, Coordinator 



Foreign Trade Studies Section H. D. G-resham, Coordinator 

Industry Studies Section M. D. Vincent, Coordinator 

Labor Studies Section A. Ho v/ard Myers, Coordinator 



Legal Studies Section Angus Roy Shannon, Coordinator 

Enforcement Studies R. S. Denvir, Coordinator 

Research Studies G. W. Kretzinger, Jr., Coordinator 



Special Studies Section. G-. C. G-amble, Coordinator 

Statistics Study Section W. J. l.iaeuire. Coordinator 

Trade practice Studies Section CorY7in Ed^Tards, Coordinator 



Deceinter, 1935, 



9347 ~ii- 



-263- . 

LABOR SITJJIES (*) 

Page 

INTROIUCTION 

Tatle of Contents 265 

Summary 268 

CONTROL OF HOUHS AND EEEMPLOTivIEITT 

Table of Contents 269 

• ' ' Summary » ^ r 277 

CONTROL OF WAGES 

Table of Contents : 282 

Summary ". 288 

CONTROL OF OTHER CONDITIONS OF ElIPLOYivlENT 

Table of Contents '. ' 293 

Summaiy 296 

SECTION 7(a) OF THE ■RECOVERY ACT - (Lollie Carroll) 

Table of Contents 301 

Summary 302 

LABOR ADVISORY BOARD - (A. Houard Myers) 

Table of Contents 303 

Summary 304 

LEGAL ASPECTS OF CERTAIN LABOR PROVISIONS 

MINIl'IUl^'I TfAGSS - (Durham E. Allen mid Larion Jennings) 

Table of Contents 305 

S"ammary 306 

IvIAXIlvlUl.I HOURS - (C. G. Raphael) 

Table of Contents 308 

Summary 309 

INDUSTRIAL H0ME?JCRE: - (Beverly Coleman) 

Table of Contents 313 

Summary 314 

CHILD LABOR - (Beverly Coleman) 

Table of Contents 516 

Summary 317 

RIGHT OF INDIVIDUAL ElIPLOYEES TO ENFORCE COLLECTIVE 

BARGAINING AGREEl^NTS - (R. C. Marshall) 

Table of Contents 319 

Summary 320 

(*) See also the follov/ing reports prepa,red in the Code Administration 
Studies Section: 

A. R. Cleary: Labor Compliance Activities of Code Authorities. 
R. M. Wilmotte: Administration of Labor Provisions by Code 

Authorities. 
9412 



-264- 

Page 
STATISTICAL AlIALYSIS OS' LABOR PHOVISIOlIS - (Ruth Reticker) 

Tabic of Contents 321 

Siunmarj'" 324 

SUJ-aiARY AND' EVALUATION OF TKS RESULTS OF 17. R. A. LABOR 

EXPERIENCE -. (Solomon Sarkin) 

Table of Contents 329 

Suamary 330 

SURVEY OF LABOR CONDITIONS' IN THE TERRITORY OF HAWAII - 

(Har.'aiian Territorial Staff) 
Table of Contents 331 



9412 



-265- 
LA.30R STUDIES - IITTEODUCTION 
Taljle of Contents 



I. SITUATION OF Al.iERiCAlJ LiLBOR PRIOH TO THE RECO\^ERY ACT. 

A. Unemplo;n:ient in America ■■ ' 

B. Errolo^.^nent ai':ion,:5 Workers ''''- 

1. Part Time ' . , ' , 

2. Volimie, "b^- Industry'- and Class of Employee 

3. Technological Displacenent 

^ C. Ho-QTs of Enploynent of Wage-Earners • 

1. Average Ho-urs, "by Industry 
■ '- 2. DistrilDuti^on of Hom-s, "by Industry and Locality 
3. Prodn.ctiVity of Laoor 

D, AlDuses In Industry 

1. Child Lal)or 

2. HomevTork 

3. Wage Payment 

4. Other Developments: Female Displacement; l^i^ht Work; 

Cor. -or acting, Decentralization; 
Older Worker Discrimination 

E. La"bor Income 

1. La"bor Income in Relation to national Income 
(a) Amount 

("b) Proportionate Share 

2. Earnings of the Emplo2'"ed Worker 

3. Real Income and Earnings of the Employee 

E. Standard of Living and Savings of the Industrial Population 
G. Status of the Unemployed 

1. Relief and Ilon-Relief Classes 

2. Standards of Relief ■■ ; 

II. OBLIGATIONS IlIPOSED UPON THE PPJESIDEIIT BY THE RECOVERY ACT 

A. Title I. Of The Recoverjr j\_ct 

1. Purposes (Preamhle) 

2. Methods (Sections 3,4, and 7) 

3. Administration (Section 2) 

B. Title II Of The Recovery Act. 

III. OBLIGATIONS II.IPOSED OR II.iPLIED IN DISCUSSIONS PRIOR TO THE RECOVERY ACT 

A. Lahor Measures 

1. Thirt3^ Hour Bill 

2." Relief Bill 

3. Puhlic Works 

4. Chetmher of Comyiierce Proposal 

5. Lahor Bargaining Bills 

6. Puhlic Hearings and Congressional DelDates 

B. Industrial Planning Measures 

1. La Pollette Ileasiires 

2. War Industries Board 

3. Puhlic Hearings and Congressional Dehates 



9412 



-266- 

C. I:idustrial Control Measures 

1. Licensing Bills 

2. Volimtar;;'' Agroenents 

3. Aiiti-Trust Ldxt Ercer.Tptions 

4. Public Hearings and Congressional Detates 

IV. EAIiLY FOEMUIATIOIT OF OBJECTIVES BY THE PRESIDENT 
AND THE ADMINISTRA.TOR 
A. To Reduce and Relieve UnennlojTient "by the Control of Hours 
L. To Increase Purchasing Porrer "b:' the Control of Wages 

C. To Improve Standards of Labor "b" the Control of Other Conditions 
of Employment 

D. To Induce and Maintain United Action of LalDor and Management 

V. THE SIGNIEICAl^ICE OP THE mA SET-UP AND THE CHOICE OF METHODS AND 
POTTERS WITH RESPECT TO THE NATURE OF THE LABOR PROGRAl^i 
A. Sections 3, 4, and 7 of The Recover;^'- Act; Alternative Methods 
of Procedure 

1. The Meaning of Each Method 

2. The Use of the Methods Vj N.R.A. 
(a) Choice of Section 4: P.R.A. 

("b) Choice of Section 3 for All Codes 

(c) Restriction of Section 7 ("b) to Geographical 
Subdivisions 

(d) Absence of Use of Section 7 (c) 

3. Employer Proposed Codes and Code Authority Adi.iinistration 

1, Employer Proposed Codes and Their Negotiation 

(a) Submission iDy Industry 

(l) Place of Union Contract 

{2) Collective Bargaining Before Submission 

(b) Pre-Hearing Discussions and Negotiations 

(c) Pxiblic Hearings 

(d) Post-Hearing Conferences 

(e) Approvals and Disapprovals 

2. Labor Policy in Code Making 

(a) Relation of Objectives to Policy 

(b) Extent of Eormu].ated or Unformulated Policy 

(c) Contents of Policy'' 

(d) Influences of Policy on Code Making 

(e) The Place of Exceptions to Policy 

(f ) Administration of Policy 
5. Code Authority Administration 

(a) Functions of Code Authorities 

(b) Labor Representation on Code Authority 

(c) Activities of Code Authorities with Respect to 
Labor Regulations 

(d) Code Administration and N.R.A. Administrative 
Organization 

C. Labor Advisor;/ Board: Representative Bargaining and 
Participation in Administration 

1. Labor Participation in Code Mailing 

2. Designation of Labor Representatives 

5. Development of N.R^. Labor Policy and Administration 
4. Administration of Codes 

9412 



-267- 

D. Interpretation and Adi.iinistration of Section 7 (a) 

1. Inteirpretation of Section 7 (a) 

2. Administration of Section 7 (f"-) 

E. The Relation of N.E.A. to Other Federal and State Government 
Agencies 

1. In Code Mailing 

2. In Code Content 

3. In Adr.iinistration 
... 4. In ConTOliance 



9412 



-26S- 

LA.BOR STUDIES - INTRODUCTION 
Prelimin ai 7/ Sirnnar:/ of irincLin(g:s 



Tlie National xlecover2'' Act v;as passed durin;'^ a period of wide- 
spread ■oiiemplo^TTient, depressed rrages, and a "breairdovm of many of the 
normal afjencies for industrial stability. The N.R.A. was set tip, in 

the words of the Act, to "red^ice 0.116. relieve -aneinploynent, increase 

piirchasing power iraprove the standards of lator (and) induce 

and ina,intain united action of lalDor rjid raanagenent." Though these 
objectives were explicitl;.- stated in the PreaiilDle, the Act itself in- 
dicated onl;- vaguely the goals to "be attained or the specific means of 
realizing them. These were more clearly and definitively outlined 
lay the President and the Administrator. 

Just as significant as oojectives and policy was the actual 
administration. N.R.A. could choose among various methods. It relied 
chiefly upon Section 3(a) of the Act. Tliis choice conditioned the re- 
sults in so far as standards and collective "bargaining were concerned. 
Similarly, the segregation of the administration of Section 7(a) 
vitally affected the development of that provision of the Act, Tliese 
conditioning administrative factors played a considerable part in de- 
termining the results of N.R.A. 



9412 



-269- 

COIITROL OF KOUliS MD HESI^'tPLOHvIENT 
Table of Contents 



I. PROBLEMS TO TOUCH THE COIITEOL OF HOURS GAVE RISE 
A. Establishment of a Ba.sic Weekly Schedule 

1. Reasons for Problem in N.R.A. 

2. Situation in Pre-1I,R.A. 

0. Who Raised problem in N.R.A. 
4. Nature of the Problem 

3. Seasonal and Peak Period Adjustment 

1. Situation in pre-N.R.A. 

2. Basic Hours and Seasonal and peak period Adjustment 

3. Hov; Was problem Raised 

4. Nature of the Problem 

C. Limitations on Daily Hours and Days per Week 

1. 7/ork Day and Week as Norms in pre-N.R.A. 

2. Days Per Week as Definitive Regulation 

3. Relation of Liuitations to Basic Week 

4. Compliance Requirements of Codes 

5. Nature of the problem 

D. Occupationa-1 Differentials 

1, Occupational Hour Patterns pre-N.R.A* 

2, Ho'Y Was Problem Raised in N.R.A. 

3, Basic Hour Negotiations and Occupational Exemptions 

4, Nature of the problem 

E. Control of Hours of O'^Tner-Operator 

1. Reasons for problem: Free Competition and Control 

2. provisions of the Act 

3. Nature of the Problem 

F. Defining of Working Time 

1. Reason for ApP^-arance 

2. Nature of the problem 

C-. The Interrelation of the problems of Reemployment, 

Regularization, Seasonal Adjustment and Adequate Compensation 

II. PROBLEMS OF ESTABLISHING POLICY AND FORIuTJLATING PROVISIONS AND 
THE NATURE OF POLICY 

A. Introduction 

B. Basic Full Time Work Week 

1. The Act 

2. Early position 

3. Cotton Textile Code and P.R.A. 

4. The Establishment of the patterns 

5. Basic Hours and Exemptions 

6. Efforts to Reduce Hours 

(a) Diversity of Patterns 

(b) Administra.tive and Labor Dissatisfaction with 
Reemployment Effects 

(c) Individual Code Approach 

(d) General Movement - March 1934 

(e) Efforts in Individual Groups of Industries 

(1) Apparel 

(2) Mining 
9412 



-270- 

(3) Toxtilos 

(4) Other Industries 

(f) The Hovival of Goncral Movoment - January 1935 
?• Efforts to Increase Hours 
C, Occupational Differenti;jls 

1, General Policy 

2, ^lecific Classes 

(a) Partial Exenptions 

(1) Repair and Maintenance 

(2) Continuous Process 

(3) Outside Installation 

(4) Delivery 

(5) Shipping ??jid Stock 

(6 ) Sup e rvi s r y 

(7) Professional ajid Technical Enplojees 

(8) Key Workers 

(9) Other Classes 
Ch). .Complete Exemptions 

(1) Managers 

(2) Executives 

(3) Traveling Salesmen 

(4) Emergency Maintenance rnJ. Repair 

D» Scar.onal and Peak Period Adjustments 

1, IIIIA - An Instrument for "Elexibility" 

2, Acceptance of Need for Specific Tolerance 
(a^ Circumstances Hien AiXoroved 

Co) Circumstances "^lien Disapproved 
3# Methods of Tolerance 
(a) Averaging 
(h) Overtime 

(1) Base for Overtime 

(2) Hate for Overtime 

(3) Maximum Limits 

(c) Peak 

(d) Emergency 

(e^ Peak - Special Groups 

4, Criteria for Determining Selection of Method for Tolerance 
E. Daily Hours 

1» Need for Sriecific Regulation 

2. Desire for Tolerance 

3» Norm Per Day 

4, Maximum Per Day 

5« Overtime Pay As a Control 
Im Days Per YJeek 

1, Legislative Control 

2, Desire for Tolerance 

3, Norms 

4« Compliance 
^t Uniformity of Policy 
G-« Control of Ov/ner-Operator 

.1 • Emergency and Economic Necessity vs Basic Legal and Social 
Concepts 



9412 



-271- 

a) Right of the Individual to En^^age in Commerce and Trrde 
.b) Interpretiiig the rational Industrial Recovery Act in 

Relation to the Problem 
(c) Constitutional Limitations Involved in Attempted Regu- 
lation of Certain Trades and Industries in which the 
Ov/ner-Operators Abound 
2, The OwnerrfOperator-Proprietor or Worker 

(a) A Proble.xi for Trade Associations .ajad Trade Unions 

(b) Effect of Re/^ulation upon Development of Cooperatives 

(c) Subtcrfijges to Avoid Jurisdiction of the Recovery Act 
3» The Owner-Operator and the Problem of Unemployment 

(a) The Small Unit and Working Employer as Answers to 
Technological Unemployment 

(b) Factor^ Involving Public Relief 
'■ * '4# P.R.A, SuDstitutions and Early Codes as G-L^ldes to Develop- 
ment of Policy 

5, Codification and N.R^A, Objectives as Affected by G-rouo In~ 
terests 

(a) Trade Associations and Small Units 

(b) Labor 5 Organized and Unorganized 
H. Working Time 

1» Deadheading 

(a) Condxtions Under Which Issue Arises 

(b) Conflict of Interests in Issues , 

(c) Conflicts of Precedents for Decision 

(d) Efforts at Policy,'" Determinant ion 

2, Waiting Time 

(a) Condition Under '.Thich Issues Arise 

(b) Policy Under iuR.A. 

3, Split Shift 

(a) Conditions Under Which Issues Arise 

(b) Policy Under N.R.A* 

4, Beginning Time 

(a) Conditions Under TJhich Issue Arises 

(b) Policy Under N.R.A, 
5* Guaranteed Work Time 

(a) Conditions Under Tilhich Issue Arises 

(b) Policy Under 1I.R«A. 

6. Lunch Interval 
,a) Conditions Under Which Issue Arises 
•b) Policy Under N.R«A, 

7 • Summary 
I, Regiilarization of Employment 

1. Objectives of W.R.A. 

2. W.R«A. Interest in Regularization 

3. IT.R.A, Policy 

J, l£ibor Policy on Control of Hours 

III. PROBLEMS OF ADIIINI STRATI ON OF HOURS PROVISIONS 
A» Nature of the Problem of Administration 
B. Weekly Hours 

1« Provisions Regulating Weekly Ho"uj:s 
(a) Basic Full Tine Week 
(l) P.R.A. 

a. Original Agreement 
9412 



-272- 

(2) Substitutions 

(3) Reduction in Full Time Hours Effected by Substi- 
tutions 

2. 1T.H.A, 

(a) Code Provisions 

(b) Comparison of Full tine Hours Under P.R.A. and N«r.«A. 
C. ',7eekl;r Hours and Tolerances 

1. P.R.A. 

(a) The Original Agreement 

(b) The Substitutions 

(c) The Hours Pattern for Basic and Clerical Employees 

2. IT.R.A. 

(a) Weekly Hour Patterns in H*R«A. Code oy Types of Toler^ 
ances 

(b) Comparison of Hours in II.R.A. Codes and P.RJl. 

(c) Contrast 'in Patterns Among Industries 

o« Comparison of Tolerances and Seasonal Behavior of the In- 
dustry 
4. Significance of Tolerances 
D» Adj-iinistrative Experiences with Var^ring Tyoes of Tolerancen 

1, Averaging without Overtime 

(a) Industrial Experience 

(1) Exemption, Stc.ys, Exceptions 

(2) Technique for Handling Exemptions 

(3) Code Revisions 

(4) Plant Experience 

(b) Personnel Experience 

(1) Lay-Off' 

(2) Unions 

(c) Administrative Experience 

(1) Interpretations 
(^). Code Conflicts 

( 3) Compliance 

(4) Enforcement 

(d) Statistical Evaluation of Experience 

2, Averaging YJith Overtime 
(aO Industrial Experience 

d) Exemptions, Stays, Exceptions 

(2) Technique for Handling Exemptions 

(3) Code Revisions 

(4) Plant Experience 

(5) Personnell Experience 
• a. Lay-off 

b. Unions 

(b) Administrative Experience 

(1) Interpretations 

(2) Code Conflicts 

(3) Compliance 

(4) Enforcement 

(c) Statistical Evaluation of Ejcperience 

3, General Overtime 'Jith Max: nun Hours 
(a) Industrial Exioerience 

(1) Exem-ptions, Stays, Exceptions 

(2) Technique of Handling Exemptions 
9412 



-273- 

(3) Code Revisions 

(4) Plant Experience 

(5) Personnel E:qjerience 

a. La,y-Off 

b. Unions 

(b) Administrative Experience 

(1) Interpretations 

(2) Code Conflicts 

(3) CoTnpliance 

(4) Enforcement 

(c) Statistical Evaluation of Eroerience 

4. General Overtime Vlith Unlimited Hoiirs 

(a) Industrial Experience 

(1) Exeiiiptions, Stays, Exceptions 

(2) Technique of Handling Exemptions 

(3) Code Revisions 
(4^) Plant Experience 

(5) Personnel Experience 

a, La^^'^Off 

b. Unions 

(b) Administrative E:roerience 

(1) Interpretations 

(2) Code Conflicts 

(3) Compliance 

(4) Enforcement 

(c) Statistical Evaluation of S:^•perience 

5, Overtime Provision for Excepted Period 

(a) Industrial Experience : 

(1) Exem.pt ions, Sta^s, Exceptions 

(2) Teclmique of Hai-dling Exemptions 

(3) Code Revisions 

(4) Plant Ei^qoerience 

(5) Personnel E^iperience 
a, La^-Off 

b» Unions 

(b) Administrative Experience 

(1) Interpretations 

(2) Code Conflicts 

(3) Compliance 

(4) Enforcement 

(c) Statistical Evaluation of Experience 
6» Flat Maximum Hours 

(a) Adeqijiacy of the Methods to Meet Seasonal and Peal: 
Periods 

(b) Need for Exemptions 

(1) Exemptions Granted 

a. Criteria for Granting 
b.« Conditions for Granting 

(2) "Characteristics of Exemptions Granted 
a, Emergencv 

bo Industry Seasonality 
c« Plant Seasonality 
d» Others 

(c) Adequacy of Exemption Teclinioue for Industrial Heeds 



9412 



-274- 

(l) Organization 

(•2) Methods and Procedure 

(3) Promptness 
E« ";7-.luation 

IV. 0CC"JPA::]I01]aL DIFJ^hREIITIALS 

-!• CoJ.e Provisions Governing;: Occimational Differentials 

1, P.R«A. and Its Sutstitutions 
2» Code Provisions 

0. pattern of Occupations Exempted "b;'' Codes 

4. Sigificance of Occupational Hour Differentials 
(a statistica.1 Stud;?-) 

5. Occuoational Differentials Before U.Ii.A. and Under Codes 
(a Statistical Study) 

B» Adi-iini strati on of Occupational Differentials 

!• Industi*y*s Use of Occur)ational Differentials 

2. Interpretations of Occuioation Exenption and the Contro- 
versy of Extension of Class 

Cm Stays, Exemptions and Exceptions 

(a) Causes 

(b) Extent 

(c) Effect 

4. Code Ivlaladjustments 

C, Li:.i: tation of Daily Hours 

1. Code Provisions Governing Hours Per Da;/- 
(a) Arranged by Degree of Fleidbility 
|"b) delation of Daily Hours to '.'eekly Hours 
.c) OccuTDational Differentials 

2« Administrative Eiaoerience With Dail^' Hours Provisions 
(a) Methods of Liraitation 

(1) Flat Maximum 
a« Adequacy of Such Limitations 
"b, L'eed for Sxerrotions 

(2) Overtime Payment 
a» Hours Worked in Excess of Basic Hours 
"b. Administrative Problems 
c» Conpliance Problems 

(2) Unlimited Hours 
a« Hears Vforked 
b« Ad:iinistrative Problems 
c, Com'oliance Problems 

(4) Flexible Hour Arrangement 

(5) Limitrtion Per Day vs T\7enty-Four Hour Period 

D, Limitation of Days Per 7eek 

1, Code Provisions Governing Dr.ys Per Week 

(a) Arranged by Degree of Flexibility 

(b) Rela-tion of llumber of Days to "Teekly Hours 

(c) Occupational Differentials 

2. Administrative Ex;oerience 

(a) Exemptions 

(b) Com;oliance 

(c) Operative Information 

E, Defining Working Time 
1, Extent of Code Definition and Regulation 

9412 



-275- 

(a) Dead]ie£,ding 

(b) Waiting Tine 

(c) S^lit Shift G 
(d.) Beginning Time 

(e) Guaranteed Work Time 

(f) Lunch Interval 
2, Administrative E:qperience 

(a) Exem-otions 
^"b) Enforcement 
,c) Issues in Administration 
E« Control of Ho'ors of Or,ner Operator 
!• Controls Developed in the Codes 

(a) Opening cjid Closing Hours 

(b) Other Labor Provisions 
(l) Employer's Hours 

(c) Special Trade Practice Provisions 

2. Administration of Code Provisions 

(a) How II.R.A. Policies Functioned 

(1) Local variations based on majority rule 

(2) Exemptions and, Exceptions 

(3) The Problem of Precedents 

(b) Compliance and Enforcement 

(1) Some practical considerations 

(2) Legal Restrictions 

(3) Enforcement Machinery 

(4) State Recover-^ Acts and I.Iunicipal Ordinances a.s 
h'.R.A. Au:dli8ries 

(c) Effectiveness of Regulation 
&• Regularization of Emplo^nnent 

1. H.R.Aa Code Provisions 

2» Hie Administration of Code Provisions 

3. The Automobile Industr2- 

4. Production Control and Regular! zat ion of Employment 
H» Other General Adj.iinistrcative Problems 

l*'.Xodo Conflict 

2, Compliance And Roenf orcement 

V. Summary and Evaluation of the Result of iI,R»A» Experience 

A, Reemployment 

It Unemployment 193.^-35 
(a) Total by months 
2» Employment 1933-35 

(a) Total by Months 

(b) Total by N.R«A. Industries, Other Industries, 
Agriculture 

(c) Totals by Specific N.R.A. Industries 
(.1) Manufacturing 

a. Class of Employee: Sa,laried and Wage-Earner 

b. Specific Codes 
(2) Other Groups 

(d) Totals ''oy Codified and Uncodified Industries 

(e) A Study of Production, Man Hears and Employment Trends 

B, Hours Worked 

1. Average Weekly Hours of Employers 

9412 



(a) Er Indus trj- 

(1) Heduction in Average Hoiirs 

(2) -\clation of ."^eduction to Production and Han Ko-jt 
Trend 

(3) Helation of Hed-'J-ction to 3rvolo;n-ient Trends 

(4) Helation of Average Weekly Hours to Code Pro- 
visions 

(b) By Class of I]rroloyee 

(1) Clerical 

(2) Other S^jecial Groups 
2. Distribution of Hours T7orked 

(a) Average of Hours Worked 
(1) By Industry 

a» Proportion atta-ining full tine 
b» Proportion e:;ceedinA: basic hours 
i. By t^roe of class 
ii. By t^^pe of provision 

(b) Helation of Hange to P.H.A, 

Pre 1T»H»A, 
(1) By Glass of Enploj^er 

a. Clerical 

b. Other Special Groups 
C« Elasticity and Heenployaent 

D« Occupational Exeraotions and Heemploj/nent 

E. Control of Hours and He:<;ularization of Ilriploynent 

P. Control of Hours and Owner-Operator 



941 



n 



-277- 

COIIT ROL O F HOUT^S AlID REEMPLOYME NT 
preliminary Summary of Findinf;s 



This study has dea,lt primaril^r v/ith the efforts of N.R.A. to liave per^ 
sons reemployed in private industry through the shortening of hours, of em— 
plojT-ient, The araount of reeLiplo;^'Tnent is a function of the volume of i)usi'- 
ness as well as of the restriction of working hours. The variety of the.' " 
exer.rptions incorporated in and of the evasions made possible "by-the codes, 
must all he interrelated in appreciating the final results. Managerial 
proDlems were raised, of consequence to the proper conduct of the plants. 

The N.R.A. supplemented the Black Thirty -Hour Bill and the Perkins 
amendment for a flexihle hour regalation under a licensing system. The 
code system was to provide a flexible instrument "by which the regulation 
of hours might he adapted to individual industries, even though no defi- 
nition of standards to guide the determination were included in the Act, 
The result of the P,R,A, substitutions was to convert the "basic thirty- 
five hour v/eek for productive employees into a general forty hour week. 

The original P,R,A. provided for a forty hour maximum week for non- 
productive employees ar d a thirty- five hour week for productive workers. 
Employers were given the right to v;ork their employees for forty hours, 
however, during an^'- six weeks "before Decem'ber 31, 1933, the initial ter- 
mination date of the Agreement, This tolerance was removed by Executive 
Order from all agreements signed on and after October 1, 1933, 

A total of 382 substitutions to the original P.R,A, were apiproved. 
Among these were 353 substitutions v/hich modified the hours of labor of 
productive or factory emplo^'^ees, and 234 which modified the hours of 
non-productive labor. Substitutions modifying the wage provisions of 
the Agreement were significantly fev/er. There were only 56 modifica- 
tions of non-productive emploj^-ees ' wages, and 239 modifications of pro- 
ductive wage rates. Industry's greater concern" with hour regulations 
is th.i.s evidenced. 

An examination of the revised hours reveals that less than 10 per- 
cent of the employees in industries operating under P.R.A, substitu- 
tions vrere subject to a flat maximum of forty hours per week. Another 
seven per cent were subject to flat maximums ranging from thirty-five to 
fifty per v/eek. The remaining 83 per cent v/ere subject to more flex- 
ible types of hour limitations. 

The great bulk of clerical v;orkers were allowed, under the P,R,A, 
substitutions, a forty hour v/eek. About 250 substitutions established 
flat m3::iimum v/eekly hours. Most of these were for forty hours, but thejr 
ranged from forty-four to fifty-four. 

The code set-up yielded similar results. While a small number of 
codes had basic weeks of less than forty hours, there v/as a much larger 
number v/ith more than that number. Furthermore, the codes were so 
written that most of those providing for forty-hour weeks permitted, in 
actus,l practice, much longer ^'^orlcing v/eeks, 

9412 



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ReemiDloyinent v/as most rapid during the early days of the codes, Tdb- 
fore industry vjas adjusted to the plan of surmounting the regulation of 
hours by efficiency methods and by exemptions, Mr, Whiteside *s statement 
of Iloveraher, 1933, marks the high point of this phase. To assure its a^D- 
plicction the hearings of March, 1934 v/ere held* The President made a 
plea for a 10 per cent reduction in hours and only tv/o industries realljr 
responded. Officially N,H,A, did not again definitely espouse shorter 
hours. Labor continued the effort and succeeded in several cases *- par- 
ticularly in the coal, the cotton garment, and the milliner^'- industries. 
In the cotton textile industry a national strike for a thirty-hour noek 
failed of its objectives, I-h the slate industry the effort rzas begun too 
latQ, In the boot and shoe industry the project \7as sent for studj'" to a 
special research commission, 

A study has been made of the exemptions from the basic work ueek es" 
tablished in the codes. The occupational differentials, though less 
striking at first blush than the seasonal and peak exemptions, vrere more 
permenent, and continued through the entire period and the year. The ±n- 
dustries a,sked for these exemptions on the ground that the persons af- 
fected T7ere necessary to develop opportunities for the reemployment of 
others, frequently, normal basic hours v/ere accepted by an industry onlj?" 
because such exemptions v/ere granted. However, it often happened not 
only that the exempt classes vrere vaguely defined, but also that they em- 
braced large and significant numbers of v^orkers. From the statistical 
studies completed to date it may be estimated that 12 per cent of the em- 
ployees covered were excluded by limited occupational exemptions, while 
another 12 per cent w.ere given total exemptions from the hour provisions. 
The Administration's policy on the subject v/as practically unformulated, 
even though precedents firmly established the exemptions as justified. 
In individual industries the exemptions affected more th^an 50 per cent 
of the employees. In part the situation was due to the loose drafting of 
the codes, as well as the need for compromise in negotiations. In other 
cases it v/as due to sheer ignorance of the significance of these exeiiip— 
tions, cjid to the Deputies* impatience to have codes approved. 

The situation with respect to the seasonal and pealc allowances is 
even more confused. Policy was present, but the enforcement of it was 
lax. Standards of enforceability were absent. All types of tolermce 
in the basic' hours were permitted in most codes, 115 codes did ha.ve flat 
mai^dmun hours, but otherv;ise the exemptions tended to nullify the basic 
hour provisions. 

The experience with the flat maximum hour codes indicates that most 
of the exemptions were not due to the seasonal character of the demand. 
Accidental factors' which are not directly associated with the seasonal 
peaJc, however, v/ere rightfully handled by exemptions. The exemption 
procedure in these cases, though faulty in some particulars, was routin— 
ized sufficiently to answer the real needs. 

The e^qoerience with daily hour regulation and its relation to total 
weekly hour control stands out as of importance. The most significant 
project unoertoken has been a -study by the Bureau of Public Roads on the 
effect of ,the length of the day on productivity, N,R,A, files contain 
little. These findings may be summarized as follows: 

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"In deadheading the conditions conducive to the problem are 
rather well defined. An a"bund?nce of material is availahle v/hich 
e:rposes the practice from all angles. The industries v;here this 
pro"blera malces its axjpearance are Trucking, Railroads, Motor Vehicle 
Retailing, sjid others v;here transportation is a mp.jor labor opera- 
tion. The material on iT,H,A, policy regarding this pro"blera is 
scarce, "being confined to compliance action. The report of the 
off-duty and deadiieading committee undoulDtedly would have led to 
some formal action, proloaTDly in the nature of an amendment to 
codes, hrd not the action of the Supreme Court ended all moves in 
that direction* 

"The legal regulations pertaining to this pro^blem are chiefly 
state laws, iDut the recent rmendment to the Interstate Commerce Act 
will uiidoulDtedly do much to make for uniform handling and enforce- 
ment. The issues merge into the question of what constitutes off- 
duty hours, and m.?jiY different agencies have rendered opinions on 
the ouestioii. Courts, labor unions, the Department of Labor, in- 
dustries and others have gone on record with definite statement of 
their opinions. The results h^.ve been found to include (l) the ef- 
fect -of regulation on reemployment, which is very minor, but tends 
to stabilize employment for those already employed; (2) the ^'ffect 
of regTLlation on tmioloyees' health; and (5) safety for other motor- 
ists on the road, 

"The absence of a.dequa.te code regulation under the 1nI»R,A, v/ould 
seem to indicate that either (l) the problem presented too many 
angles to be dealt v.dth hurriedly' under the short life of the codes, 
or (2) opposing influences were strong enough to prevent nny adequate 
coverage of the problem on a nation-wide basis, 

"In the problem of waiting time or interruptions of work the mat- 
ter assumes varying forms, depending on the type of industry or the 
occupations affected, For instance, in line t^rpes of operation we 
note the occurrence of waiting time when the line breaks dovm, \:hen 
materials run short, or for other reasons peculiar to the type. 
There is the problem for service men who are on call, even though work 
to keep them fully occupied may not be available. Mechanics in garages 
and other typ^es of repair shops do not always have an even flo\/ of 
work, yet must bo constantly on hand if they expect to share in a.vail- 
able jobs. Truckers must 'wait for loading and unloading; construction 
workers a,re victims of weather, lack of materials, etc,; longshoremen 
must wait for ships to dock or sail; and many other tjrpes of labor 
find waiting time a constant threat to their pay envelopes, 

"The lJ,Rt,A« .was very definite in its policy on this point. There 
were 16 or more codes which specifically made the 'availa,bility of the 
employee a sufficient reason for pajnnent for all hours on duty, whether 
actively engaged or not. Administrative Orders X-124, 154-7, 118-38, 
44-6, 399-lC, and 82-12 all dealt specifically with this problem. In- 
terpretations and decisions of the Advisory Council, the Compliance 
Council and the Code Advice Committee all expressed definitely the 
H,R,A, policy. The unions in many of their agreements have provisions 
covering this practice, 

9412 



-230- 



"ffaiting time is a uuch ersier pro"bleT.i to re^ilate tlip.n dead- 
heading, . since violations CLn uore easily "be uncovered rjid repoi'ted. 
Then too this natter ccn "bo directly legislated a-£ainst, -.vhereas the 
deadheading problem must "be regulated "by regulating consecutive hours 
on duty and "by the stipulation of mininrum hours iron and off. the 
vehicle," 

The findings with regard to the ov-ner-operator proTDlem nay "be sun- 
marine :1 as follo'js: 

"The difficulties involved in the attempted regulation under 
the codes of many trades and industries'TPor; trrceahle to the e::ist- 
ence of a. large number of small entrepreneurs, lcnc\7n as one-mcji 
operators or cnner-Gperr.tcrs, as well as by other titles. The task 
of classifying those individuals, and of establishing their status 
as employers or workers, was specially perplexing, and caused a 
great deal of concern to industry and to organized labor in a number 
of fields. These entrepreneurs nominally worked for themselves, but 
frequently employed one or several workers on a limited or relative- 
ly permanent basis. In the latter ca.se the common practice wa,s for 
such prcprietor-workers to a.ssume a dual capacity - i,e,, as owner 
and as worker or operator, 

"Competitive problems affecting both industry and labor arose. 
Under approximately 120 codes it was found necessary'- to attempt regu- 
lation of the sta.rting end. finishing hours of these employer-workers 
and o\:ner-operators, in order to protect \/orkers' standards pud., pre- 
vent unfair competition. In addition, a number of other la.bor and 
fair trade practice provisions were inserted into the codes for the 
purpose of attempting some mea^sure of control ever owner-opera.tors, 
and sometimes over members of their families who v;orked in their es- 
tablishments. Practical and legal difficulties in administration and 
enforcement arose from time to time, and efforts were made to esta-b— 
lish policies to deal with them, 

'"Owner-operator competition, v;hile found in a number of fields, 
became a ma^ior problem in the service trades in the trucking, print- 
ing and food industries, in the retail groups, in the construction 
trades and in small specialty manufacturing enterprises. The extent 
of ovmer-ope-rator activities, and their effect upon proprietors and 
workers, is revealed by a statistical analysis, covering a number of 
trades and industries, 

"It bccaine increasinly evident that enforcement of o'..ner-opera.- 
tor code provisions was difficult and unsatisfactory, especially in 
those fields xihere Labor was not organized. Also, in cases such a.s 
the service trades where, because of the intrastate nature of their 
operations, it/.vas doubted if regulation and enforcement could pro- 
ceed on a legal basis, attempts were made to decentralize actual 
acjninistration and enforcement by encouraging the formulation of 
State Recovery Acts and municipal ordinances based on the police 
pov/er, 

"Some vitally importa.nt issues are involved in this problem, 
which touch deeply on the historical, legal and social tra.dj-tions 



-281- 

of the coimtry. Attempted regalation of these persons and groups 
v;as decried "by many as an invasion of rights which the Constitution 
and the Recover^/ Act protected. On the uhole organized lahor as 
uell as industry pleaded for regulation as a matter of economic 
necessity. It was contended that regulation of owner-operators 
would increase employment, eliminate unfair competition and thus 
promote the purposes of the Recovery Act, On the other hand, vocal 
and powerful opposition developed, "based on the fear that_ these 
very small units would "be crushed, 

"Several months prior to the original expiration date of the 
Recovery Act the situation V7as still characterized "by uncertainty 
and confusion; and the invalidation of the codes pro'bahly prevented 
this ojiestion from receiving really serious consideration as a 
"basis for future policy," 

The pro"blem of the regulo.rization of employment is of special 
interest, K,R,A, was impressed v;ith the need for reemplojinent^ "but 
within the organization the annual income of workers also "becajne a mat-' 
ter of serious interest. In the early code hearings this pro"blem was 
discussed^ especially in the construction and automo"bile industries, 
Hov/ever, little was done "by the code authorities. It was the reopening 
of the codes in Novem"ber, 1934, that led to the study of the matter hy 
industries, and the promise of definite action. Many codes contain pro- 
visions on the suhject, "but N,R,A, failed to help "by setting up an 
agency to assist in the development of plans. Production control does 
not necessarily lead to regularization of . employment. It frequently 
merely places the "burden of irregularity on the workers, and results in 
a mere sha,re— the-work program, • . 



9412 



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CONTROL OF WAGES 

« 

Table of Contents 

I. PROBLEMS TO WHICH THE CONTROL OF WAGES GAVE RISE 

A. Setting the Minim-um Wage 

1. Means of Stopping Deflation of Wages 

2. Effect of Method of Establishing Rate on Actual Mininrum 

3. Setting Minimum Wage, "by Other Legislative Bodies 

4. Nature of the Problem in N.R.A. 

B. Wages Below the Minimum 

1. Position of the Inexperienced Worker Before N.R.A. 

(a) Types of Training Required 

(b) Problem of Supply 

(c) Problem of Remuneration 

(d) Relation of the Inexperienced and the Experienced Worker 

2. The Inexperienced Worker in State Minimum Wage Legislation 

3. Negotiation Aspects of the Problem 

4. Need for Inexperienced Workers versus Increases in Minimum 
Wage 

5. Sex Differentials: Their Bases and Problem in N.R.A. 

C. Geographical and Population Differentials 

1. Area Differentials Before N.R.A. 

2. Objectives of N.R.A. and Rate of Increase of Minimum Wage 

3. Industry Assent and the Reconciliation of Areas 

4. Other Aspects of Problem in N.R.A. 

5. Color Differential: Their Basis and Problems 

D. Wages Above the Minimum 

1. Control of Such Wages Under Minimum Wage Laws 

2. Appearance of the Problem in N.R.A. 

3. Purposes of N.R.A: Conflicts" of Interests 

4. Relation to Purchasing Povzer Concept 

II. PROBLEI>;I OF ESTABLISHING POLICY AND FORMULATING PROVISIONS AND THE 
NATURE OF POLICY 
A. Introduction 

1. Definition: the Nature of Policy 

2. Sources of Policy 

3. The Determination of Policy 

(a) Formative Period to April 9, 1934 

(b) Pormulative Period, April 9, 1934 - May 27, 1935 
3. Minimum Wage 

1. Policy 

(a) The Law 

(b) General Statement of Policy and Objectives 

(1) By the President 

(2) By the Administrator 

(c) The First Code 

(d) Policy as Indicated by the P.E.A. 

(e) Subsequent N.R.A. Policy 

(1) Amount of the Rate 

(2) Form and Scope of the Minimum Wage Rate 

a. Definiteness 

b. Hourly and Weekly Rates Pother Than Piece Rates 

c. Piece Rate Coverage 

d. Coverage 
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2. Standards 

(a) Criteria 

(b) Conflict of Criteria 

3. Code Provisions 

4. Theoretical Issues Underlyins Policy 
C. Wages BelovT the Minimum 

1, Learners and Apprentices - Inexperienced Workers 

(a) Policy 

(1) The Act 

(2) The First Code 

(3) The President's Reemployment Agreement 

(4) Subsequent K.R.A. Policy 
a. First Model Code 

Id. . Second and Third Model Codes 

c. Executive Order 

d. Findings of Review Division 
6. The Basic Code 

f. Confidential, Tentative Formulation of Labor 
Policy 

g. Advisory Council Decisions 

h. Significant Changes in Learner Policy 
i. Federal Apprenticeship Committee Letter 
j. Attitudes of the Boards 

i. Industrial Advisorj- Board 
ii. Research and Planning Division 
iii. Labor Advisory Board 
iv. Consumers' Advisory Board 
k,. Administrative Order No. X-137 
1. The Code Planning Committee 

(b) Code Provisions in Relation to Policy Changes 

(1) Apprentices 

a. Before and After Executive Order #6750-C of 
June 27, 1934 

b. TjrTfical Provisions in Line with Policy Changes 

c. Increasingly Careful Use of Term 

(2) Learners 

a. No Marked General Change in Provisions 

b. Typical Provisions in Line i;7ith Policy Changes 

(3) Bargaining Determinants 

a. The Inexperienced Work«r Problem in Collective 
Bargaining Codes 

b. In Codes with Representative Bargaining and 
Union Support 

(c) Theoretical Issues Underlying Policy 

2, Aged, Handicapped, and SIot^ Workers 

(a) Policy 

(1) Prior to Executive Order 

(2) Regulation by Executive Order 

(b) Theoretical Issues Underlying Policy 

3, Special Classes (Office Boys, Office Girls, Juniors, Special 
Occupations) 

(a) Policy 

(b) Standards 

(c) Theoretical Issues Underlying Policy 

4, Female and-Light and Repetitive Occupations 
(a) Policy 



9412 



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(1) Rates for Females 

(2) Rates for Light Occupations 

(3) Equal Pay for Equal T^ork 

(b) Standards 

(c) Theoretical Issues Underlying Policy 

D. Geographical and Population Differentials 

1, Policy 

(a) Policy in Code Writing Period 

(1 ) The National Industrial Recovery Act and Interpre- 
tations 

(2) The First Code and the P.R.A.: 

(3) Other Important Codes; the Administrator's Letter 

(4) Statements on Administration Policy in the Code 
Making Period 

a. The President, April 22, 1934 
"b. The Administrator: Retail Code Exemption 
c. Dr. Gustav Peck, Administrative Assistant to 
Executive Officer, April, 1935 

(5) Conclusions on Policy in the Code Writing Period 
a. Population Differential 

"b. Geographic Differential 
("b) Development of Policy in the Code Administration Period 

(1) The Problem Before the Advisory Council 

a. The McLaren Rubber Company 

b. Proposed Code for the Pacific Coast Dried Fruit 
Industry 

(2) Attempt to Formulate a Definite Policy 

a. L. C. Marshall, -Assistant Deputy Administrator 
for Policy, June 6, 1934 

b. L. C. Marshall, Assistant Deputy Administrator 
for Policy, August 26, 1934 

c. Committee on Labor Policy, October 25, 1934 

d. Revised Model Code, January 7, 1935 

(3) Conclusions on Attempt to Formulate Policy 

2, Standards 

3, Theoretical Issues Underlying Policy 

E. Wages Above the Minimum 

1, Introduction 

(a) The Meaning of the -Term 

2. Policy 

(a) The Normative Period 

(1) Statement by the President 

(2) Provisions and Interpretations of the President's 
Reemployment Agreement 

(3) The First Code 

(4) The Policy Memorandum of October 25, 1933 

(5) Model Codes, October 25th and November 6th, 1933 

(b) The Formulative Period 

(1) Policy GrbuiD Period 

a. Labor Policy Group 

b. Basic or General Code 

c. Tentative ForrnvJation of Labor Policy 

d. The Electric and ITeon Sign Industry Case 

(2) Advisory Council Period 

a. The Steel Casting Industry Case 

b. Questionnaire to N.R.A. Field Offices 



-285- 

# c. The Electric and Neon Sign Industry Case 
d. The Bedding Manufacturing Industry Case 

(c) The N.R.A. Advisory Boards 

(1) The Lator Advisory Board 

(2) The Legal Div?.sion 

(3) The Consumers' Advisory Board 

(4) The Division of Research and Planning 

(5) The Industrial Advisory Board 

(d) The Code Planning Committee 

3, Standards 

4, Analysis of Factors in Determining the Code Provisions 
(a) The Code Bargaining Scene 

(h) Cost of Lahor 

(c) Wages Established by Other Regulations 

(d) Compromise for Market Practice Provisions 

(e) Superiorities of Industrial Groups 

(1) Unionization of Employees 

a. American Federation of Labor 

b. Independent Unions 

c. Company Unions 

d. No Union 

(2) Organization of Management 

a. Chambers of Commerce 

b. Associations of Allied Industries and Trades 

c. Trade Associations 

d. Financial Controls of Individual Enterprises 

(3) Domination by Large Units of Enterprise 

(4) Domination by Centralized Groups 

(f) The N.R.A. Advisory Boards 

5, Collective Bargaining Alternative 

(a) Sub-Sections 4 (a), 4 (b), 7 (a) and 7 (b) of the Act 

(b) Area Agreements 

6, Theoretical Issues Underlying Policy 

III. PROBLEMS OF ADMINISTRATION OF WAGE PROVISIONS 

A. Nature of the Problem of Administration 

B. Minimum Wage 

1. Code Provisions 

2. Problems of Administration 

(a) Amendments 

(b) Stays, Exceptions, Exemptions 

(c) Interpretations 

(d) Compliance 

(e) Enforcement ■■ • ;■ ■ , 

(f) Code Conflict .'.. ^ 

C. Wages Below the Minimum 

1, Inexperienced Workers (Learners and Apprentices) 

(a) Code Provisions 

(b) Problems of Administration 

(1) Amendments 

(2) Stays, Exceptions, Exemptions 

(3) Interpretations 

(4) Compliance 

(5) Enforcement 

(6) Code Conflict 

(7) Executive Orders 

(8) Special Administrative Machinery 
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2. Aged, Kandicapped and Slow Workers 
(a) Code Provisions 

(Id) Problems of Administration 

(1) Amendments :_ 

(2) Stays, Exceptions, Exemptions 

(3) Interpretations 

(4) Compliance 

(5) Enforcement 

(6) Code Conflict 

(7) Executive Orders 

3. Special Classes 

(a) Code Provisions 

(b) Problems of Administration 

(1) Amendments 

(2) Stays, Exceptions, Exemptions 

(3) Interpretations 

(4) Compliance 

(5) Enforcement 

(6) Code Conflict 

(7) Executive Orders 

4. Female and Light Occupations 

(a) Code Provisions 

(b) Problems of Administration 

(1) Amendments 

(2) Stays, Exceptions, Exemptions 

(3) Interpretations 

(4) Compliance 

(5) Enforcement 

(6) Code Conflict 

(7) Executive Orders 

D. Population and Geographical Differentials _ •_ 

1. Problem of Adaptation and Interpretation 

(a) Amendments 

(b) Stays 

(c) Exemptions 

(d) Interpretations 

2. Code Conflict and Code Harmonization 

3. Compliance and Enforcement Problems 

E. Wages Above the Minimum 

1, Problems of Application and Interpretation 

(a) Amendments 

(b) Stays 

(c) Exemptions 

(d) Interpretations 

2, Code Conflict 

3, Reporting 

4, Compliance and Enforcement Problems 

P. General Compliance and Enforcement Problems . 

IV. SIB/MARY AND EVALUATION OF RESULTS OE N.R.A. EXPERIENCE 
A. Experience Under N.R.A. 

1, Wage Movements and Trends 

(a) In Relation to Specific Aspects of Wage Provisions 

(1) Minimum Wages 

(2) Wages Above the Minimum 

(3) Wages Belo\7 the Minimum 

(4) Geographical Differentials 
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w 


In Relation 


to 


the P.R.A. 


(o) 


In Relation 


to 


Specific Industry Codes 


(d) 


In Relation 


to 


Cost of Living 


(e) 


In Relation 


to 


General Industry Recovery 



(1) Hourly Earnings 

(2) Weekly Earnings 

(3) Annual Earnings 

2. Payroll Experience and Trends 

3. Labor Income During the N.R.A. Period 

4. Relation of Wage Movements to Industry's Ability to Pay 

(a) Labor Cost 

(1) Relation to Total Cost 

(2) Relation to Selling Price of Product 

(3) Relation to Other Cost Items 

(b) Significance of Code Wage Increases in Increasing Labor 
Costs 

(c) Industry' s Ability to Pay as Evidenced By 

(1) Profits 

(2) Interest and Capital Payments 

(3) Possibilities of Shifting Costs to Consumers or to 
Other Producers 

(d) Relation of Labor Cost to Industry's Abilitjr to Pay 
Increased Wages 

B. Evaluation of Results of N.R.A. Experience 



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CONTROL' CF TyAGBS 
Preliminary Summary of Findings 
Minimum \^at'^es . 

The problem of increasing the purchasing power of labor by setting 
minimum rates fcr workers in industry through codes of fair competition 
raised a series of questions: (1) Wliat was administration policy in regard 
to setting the minimum rate? (2) What were the standards followed in draft- 
ing the minimum wage provisions of codes? (3) What were the actual code 
provisions? (4) What were the theoretical implications and issues involved 
in the whole problem of setting minimum rates for all industry? (5) Were 
the minimum rates as adopted in codes actually effective, or was administra- 
tion so weak as to render them in many cases inoperative? (6) What were 
the actual effects of the code provisions in raising wages? 

The objective of the minimum wage legislation was to increase 
purchasing power. The method was that of minimum rates incorporated in 
codes for specific industries. The rates were determined by a process of 
negotiation and bargaining between industry on the one hand and labor and 
the Administration on the other, where labor was strong and well-organized, 
and between industry and the Adr:iini,stration, where labor was weak. The 
Deputy Administrators were aided by Labor Advisers, who were themselves 
under general insisructions to increase purchasing power. 

Tliis general plan was in advance of all precedent so far as minimum 
wage legislation in this country was concerned. Though it was in line with 
the development and practice of the Wage Boards in Great Britain, it was 
much more sv.-oeping in scope and more varied in its plan of operation. It 
was, however, much less well worked out in detail and in effective policy 
than the British Wage Boards. 

Policy with respect to the fixing of minimum wages in codes of 
fair competition tended to insist (l) that they should represent a substan- 
tial increase in minimum rates of pay over those prevailing in June, 1933, 
(2) that they should not unduly burden industry, and (3) that they should 
allow the maintenance of a decent standard of living. The P.R. A. indicated 
that 40 cents for 40 hours was the basic idea of a satisfactory wage. In 
practice the above standard was exceeded in relatively few codes, and was 
departed from in many cases where industries pleaded that they could not 
afford such high rates. Rates as low as 15 cents an hour were approved, 
provided it was shown that they represented a substantial improvement, and 
that industry could not afford to pay more. Other important principles 
which were more or less systematically applied included (1) refusal to re- 
duce rates below the P.R. A. substitution, (2) the maintenance of weekly 
wages, and (3) the setting of comparable rates in similar and competing 
industries. 

In general, the minimum wages in the codes were negotiated rates, in 
which industry bargained with Labor and the Administration in cases where 
Labor was organized and relatively strong, or with the Administration (in 
which case the interests of labor were represented only indirectly by the 
Labor Advisory Board) in instances where Labor was unorganized or relatively 

9412 



-289- 

weak. In pursuance of the objective of securing fair trade practice 
provisions in codes to eliminate the evils of unregulated competition, 
industries were willing to concede higher minimum rates for lahor than 
would otherwise have been the case. Deputies were under general instruc- 
tions to secure rates that would mean substantial increases in wages, in 
order to carry out the purposes of the Act. The minima in the codes were, 
then, essentially bargaining rates of wages. 

Wages Below the Minimum 

The problem involved in wage rates below the minimum was one of how 
to take care of workers who were unable to earn the minimum, when the 
latter was set at such a level as to mean a considerable increase in wages. 
The questions were at what rates these subminimums should be set, what 
limits should be placed on their application, and whether they could be 
administered in such a way as to afford a reasonable relaxation of the 
standards to take care of substandard workers, without leading to a general 
brealcdown of the minimum rate structure. 

The policy with respect to apprentices working under arrangements for 
over 2,000 hours training allowed them to continue, under the general 
supervision of the Secretary of Labor, in accordance with an Executive 
Order dated June 27, 1934. No limitation as to the rate of pay or the 
number of such apprentices were set in the codes. 

'The policy with respect to learners, who were defined as persons who 
had had no previous experiences in an industry, tended, in general, to 
limit them to five per cent of the total number of employees, to require 
wages equal to at least eighty per cent of the basic minimum, and to pro- 
vide a learning period of six weeks or less. The learner was a person who 
was learning the operation of a particular machine or a single process. 

Actual provisions for learners and apprentices varied from these 
general standards where longer periods were deemed necessary for learning 
a number of operations. Of the 578 codes 213 contained learner provisions, 
and 70 contained apprentice provisions. 

In the administration of these provisions . special exemptions were 
sometimes granted to allow the number limitation to be exceeded in the case 
of new establishments, or to talce care of emergency or peak period demands. 

Policy with respect to aged and handicapped workers was embodied 
in an Executive Order which permitted wages below the minimum for those 
certified by State Departments of Labor designated to administer this ex- 
ception. Four-fifths of the codes had such a provision. 

A few codes had a special clause allowing the employment of slow 
workers at less than minimum rates. 

Special occupations were often listed in codes at specified rates be- 
low the minimum, or in some cases at a percentage of the basic rate. In 
273 codes there were special provisions for office boys, subject to definite 
wage minimums and to limits on the numbers or proportions of employees who 
could be so classified. A number of codes included office girls in this 
class without special definition. Watchmen who worked long hours often had 

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-290- 

special rates "beiow the minimum. Helpers for route salesmen or drivers - 
these bein^' /groups which operated in most cases without limit of hours - 
were often except ed from .a minimum wa^e provision with, a subminiiiiira in 
terms of a percentafje of the "basic rate e. j^r , eighty per cent. Other 
similar classes were cleaners, janitors, outside workers, etc. Special 
minima were i;)rovided in some codes for persons wlio received tips, for minors, 
juniors, newspaper delivery "boys, and similar occupations. 

In general, policy pennitted concessions to industry with respect to 
these occupations, when accompanied "by safe^^ards prescribing the actual wage 
or percentage of the minimuin, and limiting the nUi:iber of persons who might be 
employed under ony such concession. Tnere such provisions were written into 
the codes, an opportunity developed for bargaining between industry, labor 
and the Adi:iinistration as to the actual rates, as well as to the form of the 
safeguard. 

Area Differentials 

The Administration set minimum wages in codes of fair competition 
as a means of increasing purchasing power. The Administrator interpreted 
Section 7(c) of the Act as permitting differentiation in such minimum rates 
according to the locality of. employments In the exercise of this power the 
South was recognized, as a low wage area. In general the differentials al- 
ready existing between the high and. low wage areas were decreased by the 
greater increases in wage rates in the latter; while in the case of codes 
having many wage districts they were, reduced by narrowing- the spread in the 
district minimum rates. This greater increase in wage rates in the low wage 
districts was considered by the Administration to be necessary to place 
workers in these districts on a. decent standard of living. 

In particular industries the, extent to which existing differentials 
were nari'owed was influenced (1) by the ability of the members of the indus- 
try in the low wage, districts to pay the higher rates; (2) by the need of 
avoiding undue disturbance of comi:)etitive conditions among the various pro- 
ducing areas of an industry; (3) .by the necessity of preserving the competi- 
tive balance between industries; (4) by the preservation of the purchasing 
power of the farmer, which limited the rise in wage rates in industries 
directly affected agriculture; and (5) by the cost of living in the low wage 
area. Special circumstances, as in the Bituminous Coal and Textile Indus- 
tries, justified a differential rate structure. In general, the extent to 
which- differentials were narrowed depended also on the relative bargaining 
power of the members of an industry in- its various sections, since the power 
to differentiate in minimum wages according to locality was one of the most 
effective m.eans available to the Administration to secure voluntary accept- 
ance of a code. 

Any si-piificant study of area differentials, which includes population 
and geographic differentials, must be primarily concerned with the adoption 
of the codes for the major industries in the first few months of the 
National Recovery Administration, . as this set the mold for the differential 
rate structure. The development of Administration policy on area differen- 
tials in the code administration period is of minor importance. 



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-291- 

Wa fi-es Above the Minimum 

The Administration did not formally or completely explain the meaning 
of the term "wages above the minimum". It was commonly applied to the 
workers other than those in the lowest pre-code wage class. The issue was 
far-reaching and concerned a majority of the workers under codes and a 
considerable share of the wage bill. 

The two major elements of industry, management and labor, had opposing 
views on the subject. Labor sought an industrial law to protect the wage 
structure, particularly one which would reinforce the workers' freedon of 
action and the processes of collective bargaining. It opposed legislation 
that tended to encroach on or to lessen the force of collective bargaining. 
Management, on the other hand, opposed legislation that interfered with 
the self-regulation of business. 

The Recovery Act appears to have provided sufficient basic law for 
the enactment of a complementary law to protect the entire wage structure. 

A policy that consideration should be given to the inclusion in codes 
of some positive provision for wages above the minimum appears to have 
been established by the Presidential Order accompanying the approval of the 
first code, that for the Cotton Textile Industry, on July 9, 1933. No pro- 
vision had been included in the code as proposed. The Presidential Order 
modified the code to provide for the maintenance of certain existing 
differentials. 

The policy that consideration should be given to this matter appears 
to have been reaffirmed on July 19, 1933, by the President's Reemployment 
Agreement, though the clauses on the subject were vague. There was no 
official announcement that such a provision was required, nor was a pattern 
to be followed prescribed. 

The model code issued for the guidance of industry continued to 
indicate that provisions with regard to wages above the minimum were desir- 
able, though not mandatory. The patterns offered were indefinite and 
conflicting. 

Notwithstanding the definite affirmation of the President with 
respect to the first code approved and, later, the President's Reemployment 
Agreement, no official announcement on policy followed. This may be account- 
ed for by the apparent lack of a well-organized administrative machine in 
the early days of codification. Neither was there any subsequent announce- 
ment, however, which stated that such a provision was mandatory, nor did 
the Administration offer any definite pattern. 

A large number of the executives charged with the responsibility 
of developing codes appeared to consider that the inclusion of some 
provision, inoperative though it might be, was necessary to conform to 
the unwritten policy. Eighty-seven codes, however, were approved without 
any positive provision for wages above the minimum; and of these thirteen 
contained no provision on the subject whatever. 

The Administration formally announced only one statement of general 
policy on this matter. This declaration was negative, incomplete and 

9412 



-292- 

indefinite. It was the decision of the original Policy Board, contained 
in Par. No. 8 of the confidential Policy Memorandum issued on October 25, 
1933, as follows: 

"No union agreements are to "be written into codes 
nor are schedules of wa^'es to be included in codes. 
The latter does not forbid two or three basing 
rates." 

The terms "wage schedules" or "basing rates" were not defined. This 
decision did not prescribe what, if anything, should be incorporated in 
a code. 

Labor's Income Daiing the NRA Period 

The year 1934, the culmination of the N.R.A. code period, witnessed 
an increase in National and Labor income for the first time since 1020; 
and in addition a larger per cent of the national income went to Labor 
than ever before. National income increased 11.3 per cent over the pre- 
ceding year, while Labor's income gained 13.7 per cent. 

This latter gain was more than sufficient to offset a 2.5 per 
cent rise in the cost of living from December, 1933, to November, 1034, 
with the result that Labor's real income or purchasing power increased, 
in 1013 dollars, 11.1 per cent. 



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-293- 

CONTROL OF OTHER CONDITIONS OF EMPLCYMEFT 

Tn."ble of Contents 

I, The PrclDlem of Other Conditions of Employnent Arose in the Effort 
to Control La"bor Standards 

A. Relation of Control of Other Conditions of Employment to 
Regulation of Wa-ges and Hours 

B, Problems of the Regulation or Prohibition of these Conditions 

II. Child Labor 

A* Origin of Problem, 

1, Child La.bor Amendment 

2, Revolt of the. Child V;'orker 

3, Minim-urn Wages and the Child Worker 

4, Child Labor in the Debates on the NIRA 

5, State Legislation on Child Labor 

B. N.R.A, Policy on Child Labor 

1, Cotton Textile Code Provision 

2, The President's Reemployment Agreement 

3, Formulation of Policy in Model Code Provisions 

4, Movement for Elimination of Exemptions from 16 Year 
Minimum 

C. Code Provisions on Child Labor 

1, General Minimum 

2, Exemptions from Minimum 

3, Minima for Hazardous Occupations. 

(a) Specifically Enumerated in Codes 

(b) Code Provisions Requiring Listing . ■ 

D. N.R.A* Lists of Hazardous Occupations ,. 

E. N.R.A, Administration of Provisions , , 

1, Exemptions 

2, Compliance and Enforcement 

P, Administration of Certificate System by States 

G-, Effect of Child Labor Provisions on. Employment of Child Workers 

H, Eva-luation of N.R.A, Experience 

III, Safety and Health Programs Under N.R.A, 

A, Origin 

B, Accident and Disease in Modern Industry 

C, Nature of State and Trade Union Regulation 

D, N.R.A, Policy 

E, The Committee on Safety and Health: Organization and Progr?iu 
P. Safety and Health Provisions in the Codes 

G. Crystallization of N.R.A, Policy 

H, Progress in the Adoption of Safety and Health Standards 

I, Evalua-tion of N,R,A, Activities 

IV, Contracting 

A, Raison d'Etre of Contracting 

B, Conditions Favoring Contracting 

C, Types of Contracting 

D, Abuses of Contracting 

E, Regulation of Contracting Prior to N,R,A# 



-294- 

1, Industrial 

2, Trade Union 

P. Abolition of Contracting 

1, Economic Conditions Bearing upon Abolition 

2, Legislative Means 

G-. N.P-.A. Policy on Contracting 

H. IT.E.A, Regulation of Contracting 

1,. Mechanisms 

2, Organizations 

:3. Sffect 
I, Piece Workers and Contracting Systems 
J. Methods of Dealing with Problem 

V, Industrial Homework 

A, Introduction 

1, The Problem of Industrial Homework 

2, Homework and the No.tional Industrial Recovery Act 

3, Development of IT.R.A, Homework Policy 

B, Code Experience 

1, Summary and Analysis of Code Homework Provisions 
2» Industry Studies 

(a) Introduction 

(b) The Method of Regulation 

(1) Lace Industry 

(2) Furniture Industry 

(3) Ncedlevrork Industry in Puerto Rico 

(4) Fresh Water Pearl Button Industry 

(5) Candlewick Bedspread Industry 

(c) The Method of Partial Prohibition 

(1) Cotton Garment Industry 

(2) HandJier chief Industry 

(3) Hosiery Industry 

(4) Infants* and Children's Wear Industrj?-. 

(5) Knitted Outerwear Industry 

(d) The Method of Prohibition 

(1) Men^s Clothing Industry^ 

(2) Artificial Flower and Feather Industry 

(3) Pleating, Stitching, Bonnaz and Hand Embroider^^ 
Industry 

(e) Miscellaneous Methods 

(1) Fabricated Metal Industry 

3, Compliance: Problems and Technique 

4, Summary of Code Experience 

C, II, R, A, Efforts at Standardizing the Control of Homework 
1* The N,R,A. Homework Commit-tee 

2» The Executive Order on Homework 

3, Administration of the Executive Order 

4, Conclusions 

D, Conclusions and Recommendations 
1« Critique of the Code System 

Other Attempts to Control Homework 

(a) State Legislation 

(b) Union Agreements 

(c) Social Agencies 






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-295- 

3, Final Summary and Suggestions 

(a) Jactors Making for Persistence of Homework 
("o) Factors Tending to Eliminate Hono-'ork 

(c) A Heu Method of Control - Interstate Compacts 

(d) Conclusions 



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-295- 

CONTROL OF OTITR COITDITIOUS OF ElvIPLOYI.lENT 
Prelirainc-ry Siiinmary of Findinr^jS 

A host of conditions affecting standards of labor nere regulated 
Tdj'" code provisions. When the question of the method to be used in deal- 
inj^- '..'ith these arose, it hecajie necessary to c'ecide '.^'hether an ahuse 'jas 
to he re.'-'ulated or abolished. The decision ^70uld, of course, be govern- 
ed in each instance by the circumstances. Houever, even in c?ses \7here 
prohibition was possible, jolitical and tactical reasons frequently 
dictated re.^ulation as the wiser course. Prohibition rras delayed imtil 
a later period r'hen regulation had -o roved Manifestly inadequate. 

Child Labor 



The child labor question came u:o at the cotton te::tile hearings. 
Hovever, the policy on the subject \7as dictated by the P.R.A. , which 
prescribed a 16 year age minimum, but permitted exen"i:)tions in retail 
tra.de and in the newspaper industry, Tlie problems under N.R.A. were, 
first, that of v/orking out a formula to protect emr)loyers from undue 
liability, while at the sane time safeguarding the aciininistration of the 
clause; and second, that of developing protection for young '■'orkers from 
ha.zardous occupations. Consequently, the technique of subraittini^, and 
revisin.;;; liGts of hazardous occupations was developed. On the whole, the 
available material indicates that child labor was materially reduced 
under the IT.R.A, 

Safet" and Health 

Most 01 the codes had provisions to regulate conditions affecting 
safety and health. A Committee on Standards of Safet3'- and Health was 
established to assure compliance v/ith these provisions, and to arrange 
for tie development of an adequate administrative setup within each in- 
dustry. 

Com-Qcny Towns, Houses and Stores 

Tlie company toT^m presented two different problems. The first was 
that of the company house. It had exhibited various abuses. '±^,11, A, 
tried thjree different methods of handling this issue. In the firsl: place, 
it set o. higher income minimum, which would permit the worker to trJ:e 
care of the rent. Furthermore, it required that the company house shoiild 
not becoiie a method of industrial slavery. Workers would not be corroell- 
ed to live in these places. In some codes the regulations governed the 
svans to be charged for housing. 

The comocijiy store was controlled ''oy means of tvro core features. In 
the first place, the scrip method of ^-age pa;^Tnent was prohibited; and 
when this orohibition --as stayed, it i/as kept under consideration 'and 
study. In tlie second place, many codes prohibited bu;tring at the comiDany 
store from becoming a condition of employment. 

Contracting 

■Tl.e contracting problem is interwoven with oui' industrial structure, 

941 2 



-297- 

It related to the issue of risk. Employers wish to shift as large a pro- 
portion of this risk as possible to their employees. Their success de- 
pends upon the type of piece work or the contracting system developed. 
In the codes several tyijes of control, were established, to eliminate 
contracting in some cases and it's abuses in others. 

The following is a summary of tlie findings on this problem: 

"This study deals with the labor aspects of certain types of con- 
tracting: (1) Contracting of the sort generally meant when the term is 
used in the women's clothing industry - the contractor receiving raw 
materials or partly manufactured goods from the principal, assuming 
general business responsibility for the manufacture of the garments, and 
returning them to the principal; (2) contracting or subr-contracting 
among employees on the employer's premises; (3) contracting with a non- 
employee for the labor of .others to be used on the principal's premises, 
and (4) contracting as it appears in the construction industry, 

"Manj'- causes both labor and non-labor in origin, have operated in 
the rise a;iad.persistence of contracting. There are consequences for la- 
bor in the influences which bring about contracting, even though the lat- 
ter are non-labor in origin. Contracting is not so much a special prob- 
lem as it is an angle of approach to problems which somehow need treat- 
ment, 

"The Labor Advisory Board, in its efforts to deal with contracting, 
started somewhat behind the first attempt on the part of the N.R.A, to 
frame model code provisions. When it did begin, it stressed the prohibi- 
tion of "inside" contracting and sub-contracting, and the application of 
code provisions to contractors' operations. Later, while continuing to 
em-ohasize the prohibition of inside contracting or sub-contracting, it 
attempted to apply to the contractor either the provisions of the code 
in question, or those of. the "code adopted for the industry covering such 
work", or re.galations no less stringent, Finally, while continuing the 
above iDrinciples, it developed two others — a prohibition of contract- 
ing labor service to any one, and a stipulation that a member of an in- 
dustry must pay the contractor enough to enable him "to comply with the 
code as to wages, hours and conditions of employment, and in addition a 
reasonable overhead. " 

"Contracting provisions a";")peared chiefly in the codes of the follow- 
ing industry groups: clothing, cons.truction, metal equipment, and stone 
and cla^y- materials. The contracting provisions of the clothing codes 
differ greatly from those of others and involved a more detailed treat- 
ment of the problem, with provision for further investigation. Uon- 
clothing codes conte.ined as a rule a provision requiring compliance on 
the part of contractors with standards no less stringent, or with another 
applicable code; and a provision to prohibit or restrict contracting or 
sub-contracting among employees, and contracting with non-employees for 
the labor service of others. Clothing codes usually had provisions re- 
quiring sufficient payment by principal to contractor to cover code 
wages and "reasonable overhead", registration of contractors, and uni- 
form contracts. 



9412 



-298-, 
Indus tr ial Homewo rk 

Horae\7ork is a challe'n{;e to those interested in improving the condi- 
tions under vrhich goods are made, '^he system is invariably character- 
ized "by lo\7 v/ages, long hours, child labor, and unsanitary working condi- 
tions. Homev/ork is particularly difficult to reg\ilate. Some question 
whether re],ulation is possible at all. Competition among horaeworkers 
tends to lov/er their earnings. Many such ^7orkers are on relief rolls. 
Actual or otential com-oet: tion between homeworkers and factory 'workers 
tends to lower the standards of the latter. Manufacturers using home- 
work labor liave competitive advantages over manufacturers who do not, 
and in \7hose plants higher standards are required by law and by union 
agreement. By using homeworkers manuf acti;Lrers pass on to them certain 
overhead costs. There is a question whether the homework system is 
efficient from the point of view of management. Homework is decentral- 
ized .production; no supervision is possible. Most people agree that 
the evils of the homework system should be controlled. The choice lies 
betv/een regulation, which some think impossible, and complete prohibi- 
tion, v;hich others think would be too drastic and unfair to the home- 
workers. 

There was no s-oecific reference in the Recovery Act to homework. 
The general objectives of the Act depend^d on code standards. Fair com- 
petition was impossible to achieve unless such standards a"oplied to all 
workers in f-m industry. Competitive factors made it inevitable that 
Administrr.tion officials should deal with the homework problem, on the 
insistence both of labor and of the members of industry. The homevork 
problem is a T^art of the larger problem of the regulation of hours and 
wages. One clause in the Act was claimed to have relation to homework. 
This was the provision safeguarding the right of the individual to pur- 
sue "ths vocation of manual labor and selling the products thereof," 

The legislative history and intent of the Act sho'- that the clause in 
question was not aimed at industrial homework. 

Development of N.R.A. Homework Policy 

The roots of the N.R.A. homevrork policy lay in times before the 
N.R,A, and in organizations outside it. The Labor Advisory Board carried 
forwaid the A, P. of L. attitude that home-work should be eliminated. The 
same ^^'osition was held by other labor and social organizations. The Con- 
sumers* and Industrial Advisory Boards came around to the point of view 
that homework should be abolished. Early codes prohibiting homework 
served as precedents. The Homework Committee established by N.R.A, 
sponsored an Executive Order allowing homework in cases o'f hardship. 
This crystallized the N.R,A, policy as follows: Homework should be for- 
bidden except in those instances allowed by the terms of the Executive 
Order, This policy remained unclianged until the day of the Schechter 
Decision, 

The lack of current information about homework, and the administra^ 
tive difficulties .generated by the lack of uniformitj'- among, code provi- 
sions on the subject, led to the establishment of an N.R.A. Homev/ork 
Corapittee, Its chief purpose was to study the situation and to ma]:e re-c— 
omriondations to the Administrator as to sound home\7ork policy. The 
Comriitteets attempt to gather information through the medium of question- 
naires addressed to industries bore no fruit. It must be recorded as a 
failure. 



-299- 

Upon the Coranittee's recommendation the Administrator requested the 
Department of Labor to conduct a field study, the findings of which- might 
be used by the Committee as a basis for recomnendations. With its fact- 
finding fimction turned over to the Department of Labor, the Committee 
was transformed by office order into an advisory body. During this 
phase of its life it gave assistance to Deputies whenever homework prob- 
lems arose that required technical analysis or advice. Throughout its 
existence the Committee was handicapped by the lack of basic informa- 
tion, and the difficulty of getting it when needed. Voluntary aspects 
of the code system served to defeat the Homework Committee's incipient 
recomiiendations for the elimination of disharmonies among code provi- 
sions on the subject. 

The general policy of N,H.A, tovrard homework was that wherever 
possible it should be prohibited in the codes. About 80 codes had 
abolished homework by May, 1934. Some evidence was brought forward to 
show that the prohibition of homework brought hardship on a few of the 
older, crippled and generally most helpless workers. As a result, the 
N.R.A. Committee s'oonsored an Executive Order, ^rhich ha,d the effect of 
modifying code . prohibitions to the extent of permitting handicapped 
persons, and those confined to their homes to care for them, to continue 
doing homework. As the general policy was to prohibit homework, while 
the purpose of the Executive Order was to relax the prohibition slightly, 
it was necessary to set up careful regulations to eliminate the possi- 
bility of abuse. Thus the Executive Order may be looked upon as the 
first nation-wide attempt to re'^ulate homework, with uniform standards 
for control established in all states. 

The administration of the Executive Order on homework is largely 
the story of the efforts of a propaganda organization to break do\7n the 
code prohibitions thro-ugh publicity and litiga.tion. The first point of 
attack was the exclusion of women with dependent children from the exempt- 
ed classes listed in the Order. Administrative diff icu3.ties led to liti- 
gation. In New York a Supreme Court Justice issued a writ of mandamus, 
compelling the State Industrial Commissioner to issue a special homework 
certificate to a homeworker who did not qualify under the Executive Or- 
der. This decision was reversed by a higher court, A number of smaller 
administrative problems caused no serious trouble. 

On September 26, 1934, a conference of state officers authorized to 
issue homework certificates under the Executive Order met in Boston to 
discuss problems that had arisen. This conference adopted a resolution 
which urged "that the National Recovery Administration prohibit in- 
dustrial homework under all codes, subject to the provisions of the Ex- 
ecutive Order," The Department of Labor records show that a total of 
2,608 homevv'ork certificates v/ere issued to May 27, 1935, and that 
2,457 applications were denied, 45 revoked, and 81 cancelled. In the 
list of industries that used the largest number of certificates the Men^s 
Neckwear Industry came first with 807. 

A report entitled "Pennsylvania's Experience with Certificated Home- 
workers", prepared by the Bureau of Women & Children, Pennsylvania De- 
partment of Labor and Industry, concludes - "Homework can never be regu- 
lated No matter how stringent the re.gulations, how great the enforce- 
ment, how honest the investigators, the sweat-sho;os will continue to 
exist unless homework is abolished. The conditions which exist are an 
9412 



-300- 

integi'al part of industrial homework and only when processing of articles 
in employees' homes is abolished can the conditions growing out of this 
system of production disappear," 



9412 



-301- 

SECTION 7(a) OF THE RECOVERY ACT 
Taljle of Contents 

I. SECTION 7(a) OF THE RECOVERY ACT 

A. The Place of Section 7(a) in the Act 

3, The Relation of Labor O'cjectives to Other Objectives of the 
Act, 

II. H0I7 SECTIOH 7(a) BECAI/E PART OF THE ACT 

A, Early Expressions of Lusiness' Desire for Self-Regulation 

B, Developments Under the Roosevelt Aclmini strati on 

C, The Protection of Labor's Interest 

III. Al^ITECEDENTS OF SECTION 7(a) 

A. Findings of Public Commissions 

B. Legislative Enactments 

C. Effect of Previous Experience on Section 7(a) - An Evaluation 

IV. LEGISLATIVE FASHIONING- OF SECTION 7(a) 
A. Presidential Message 
• B. Hearings before the House and Senate Cornmittees 

C. Debate in the House and Senate 

D. Conference Agreement 

E. Analysis of Final Draft 

V. interppj:tin(> the law 

A. Early Interpretations 

■ B. Resistence from Industry 

C. Gro\7th of Policy in N.R.A. 

D. Pressure Groups 

VI. ENFORCING THE LAW 

A. Adjudication vs. Enforcement 

B. Confusion of Authority 

C. Complexities of Enforcement Machinery 

D. Limitations of Judicial Process 

E. Lessons for the Future 

VII. IMPLElyENTATION OF SECTION 7(a) - GENERAL BOARDS 

A. National Labor Board 

B. National Labor Relations Board 

C. Second National Labor Relations Board 

VIII, IlyDPLEliENTATION OF SECTION 7(a) - SPECIAL BOARDS 

A. Steel Boards 

B. Automobile Board 

C. Petroleum Board 

D, Textile Board 

E, Longshoremen's Board 

F, N,R,A, Code Boards 

IX. THE technique: of SECTION 7(a): AN EVALUATION 

A. Labor and Capital 

B. Settlement of Labor Disputes 

C. Collective Bargaining in a Competitive Economy 
9412 



-302- 

SECTION 7(a) OF THE BECOVSIY ACT 

Preliminary Simi.iar:/ of Findirif^s 

The cause, as distinct froK the occasion, of Section 7(a) of the 
National Recovery Act \7as lahor's "belief in collective bargaining, ojid 
its efforts to secure legislative safeguards for the practice, ■ Section 
7(a) uas consequently in the line of succession of the Norris-LaGua.rc'-ia 
Act, of the railv;ay lahor legislation, and of the war labor policy. 

Section 7(a) undertook to give legal protection and status to col- 
lective bargaining. The first device for its implementation r;d,s the 
mandatory inclusion of Section 7(a) in the codes. Both in code drafting 
and in code adninistration, in a majority of cases, horiever, the princi- 
ple \7as not maintained. Labor boards of many t^rpes were created to ad- 
vise, administer or decide on issues v/ith respect to Section 7(a), liul- 
tiplicit^'' of machinery, however, did not compensate for the absence of 
authority, to make the Section worl^ Still, though these Boards were un- 
able to protect the Section, and to develop detailed policy to further 
its objectives, they brought to the public attention the content and im- 
portance of the union program. 

Resort to a.dministrative and executive assistance to safeguard Sec- 
tion 7(a) brought out structural weaJaiesses in our governmental macliiner^'* 
for the differentiation of function and the delegation of power. The 
obstructionist attempt of a minority of industries showed that our fail- 
ure to delimit legislative, executive and judicial function, sjid to cre- 
ate a system of administrative agencies equipped for the task delegated 
to them, and our process of court reviev; with its attendant uncertainty 
as to the status of legislation pending decision, could nullify Congres- 
sional policy. The attempts of labor to meet the responsibilities of 
Section 7(a) showed the force of its argument and the power of the labor 
movement. 



9412 



-S03- 

ORIGIN, ORGANIZATION AIu) OPErATIOIT 0? THE LABOR ADVISORY BOARD 

10-1316 of Contents 

I, Origin of the Lator Advisory Board 

A. The Recovery Act: its Provisions with Regard to a Ls.bor Program 
and the Re.sulting Implication as to the Part La-tor 'Jould Tclce in 
Materializing It. 

1, The Intent with Regard to La"bor Participation Indicated in 
the Preliminary stages of Legislation 
(a) Senate Finance Committee Hearings 
("b) House Ways and Means Committee Hearings 
(c) Conference called "by Secretary of Labor Perkins, March 
31, 1933 

B, President Roosevelt* s Statement of June 16, 1933, Announcing the 
Machinery for Administration of the Act 

II. Organization of the Labor Advisory Board 

A. Appointment of the Labor Advisory Board 
1« Membership - Representativeness 

' 2« The Board* s Conception of its Functions 
3, Its Place in Early Development of Procedure 

B, The Staff of the Labor Advisory Board and its. Functions 

C« The Relation of ,the Board to Labor in the Field - Trade Unions 
and Labor Organizations 

III* Operation of the Labor Advisory Board 
A» In Relation to Code Negotiation 

1, Types of Negotiation 

B« In Rela-tion to Policy Formulation 
G« In relation to Administration 
1« Administrative Organization 

2, Code Administration - Labor Representation, Amendments, 
Exemptions 

3, Code Compliance 

4, Investigations 



9412 



-304- 

ORIGIN. ORGAI^'IZATION AND OPERATION! 0? THE 

LABOR AJYISORY BOARD 

Preliminary Snimnary of 7indin>g:s 

The Labor Advisorv Board \7as set u-o iviediately after the passage of 
the Recovery Act, as part of the machinery for tripartite cooperation -ith 
the government in its efforts tor/ard recovery. Like the Industrial and 
the Consumer's Advisory Boards, the Labor Advisory Board membership com- 
prised outstanding representatives from the groups for 'Those point of vieT? 
it vjas the spokesman. The majority were officials of the American Federa- 
tion of Labor, with one from the Woman's Trade Union League, Two members 
were persons of recognized standing as interpreters of labor. 

The labor members of the Board were in general fully occupied as 
officers of national or international unions, which were trying to meet 
the nexi responsibilities placed upon them by Section 7 (a). The Board, 
consequently, had but limited com land over their time and. attention, in 
spite of their interest and the pressing nature of the issues that arose 
in connection with the N.R.A, It came, therefore, to rely increasingly 
upon a staff collected to carry on details. This was true even as regards 
the formulation of policy with respect to Section 7 (a). 

The Labor Advisory Board had no specific duty or power save that of 
advice, With the development of N.R.A, experience and policy the Board 
increasingly visualized its own f^Jnction as embracing the recomnendation, 
review, criticism and refusal to approve proposals affecting labor. It 
made suggestions intended to further the machinery of labor participation 
in the N.R.A., including administrative and legislative improvements in 
code labor provisions, the appointment of labor members on a.dvisory rjid 
administrative committees and coimcils, and labor research. 

The Board's limitations lay in the absence of well defined functions, 
and of authority or established method for carrying out its recoranenda^ 
tions.' Disagreements with the administrative divisions of the N.R.A., 
other demands upon its members' time, and differing and ill-clarified concei^ts 
of the Board's functions further restricted its usefulness. Neverthe- 
less, it was an important factor in increasing public understanding of 
labor's g-cals and methods, and in formulating labor policy. 



9412 



-505- 
LSGAL ASP EC TS OF CSnT AIN L ABOR PP-0BL5 MS 
I. MRHMW WAG-SS 
Table of Co n t ents 

I. Minim-am Wages on Puolic V/orks 

A. Analysis of State and Federal Le^^islation 

1. Extent of the Occ-ixoations and Industries 

2. Specific. Statutory ;?.eference to Sex 

3. Special Provisions 

B. Analysis of Court Decisions to Determine the Extent to TiTnich 
Such Legislation has "been Sustained or Hejected, and their Con- 
stututional Bases 

II, Minimum Wages in Private Industry •■ . 

A. Analysis of State and Federal Legislation 

1. The Extent of the Occupations and Industries Covered 

2. Specific Statutory Reference to Sex 

3, Minimum Kates of Wages Established 

4, Special Provisions 

B. Analysis of Court Decisions to Determine the Extent to Which 
such Legislation has "been Sustained or Rejected, and their Con- 
stitutional Bases 

III, Comparative Discussion of State and Federal Decisions, ?irith Special 
Reference to the Police P0'7er of the States to Enact Legislation on 
Minimum Wages, when Considered v/ith the 14th Anendiaent of the Con- 
stitution, 



9412 



-306- 

LEGAL ASPECTS OF CE.RTAIN L^IBOR PllOBLEIAS 
I. IvIINnvIirivI ^AGS LAWS 
Preliminary S-ammary of Findin>^s 

I. Federal Heffulations of Minimum War:es 

A. Public Works 

Powers ; - Congress has the power to fix rainin-um wages for all labor- 
ers, mechanics, and workmen employed by the United States, the territories 
or the District of Colinnbia, and actually en^iraged in the construction or 
repair of any of their public works, whether the '.^ork is to be performed 
by-'reasons directly employed by the United States, the territories or the 
District of Columbia, or by contractors or sub-contractors. 

Congress has the power to require that all contiacts to which the 
United States ia a party, and v/hich relate to the construction of any 
public v-orks, shall contain the stipulation that the work shall be per- 
formed on the basis of minimum wages fixed by Conf;ress. 

Constitutional Basis ; - The Constitutional br-.sis of the above powers 
rests uroon the right of the Government to "orescribe the conditions upon 
which it vdll permit work of a public character to be done for it, 

5. Private Industries 

1 • Minimum Wages for Women 

Powers : - Congress does not have the power to fix a minimum wage for 
women in private industries 

Constitutional Basis r - - - - The Supreme Court has held that the 
Fifth Anendment of the Unitea States Constitution gui'.rantees to the people 
that the Federal Government shall not prohibit them from entering into 
agreements \'ith respect to wages, 

2. Minimum Wa?;es for Minors 

Powers : - Congress has the power to fix a minimum wage for all 
minors employed in the United States, territories or in the District of 
Columbia, 

Constitutional Basis : - The constitutional basis of the above men- 
tioned pov;ers rests on the grant of power to the United States of ex- 
clusive control over its property and over the territorial and insular 
possessions and the District of Columbia, The legislative discretion 
over such property and the inhabitants of such territories is necessarily 
vested in Congress, subject to limitations as to reasonableness of the 
particular enactment. In connection ^^ith the regulation of minimum wages 
for minors reasonableness may be judged by giving due consideration to 
the health, morals or safety of those involved, 

II. State Re.-ailation of Minimum Wages 
A. Public Works 

9412 



-307- 

Foners : - Unless prohibited by the State constitution, a State 
legislature has the povver to fix a minimum wage for all laborers, mechan- 
ics, 01' v/orkmen eraDloyed by the State or by any of its 2oolitical sub- 
divisions, and actually engaged in the construction or improvement of any 
of its "oublic -rorks, \^hether the work is to be performed by the State or 
a political subdivision, or by contractors or sub-contractors. 

A State legislature has the power to require that all contracts to 
v/hich the State or any of its political subdivisions is a party and which 
relates to the construction of any of its public ^-orks shall contain a 
stiiDulation that the work shall be performed on the basis of a minimum v;age 
fixed 'o^r the legislature. 

Constitutional Basis ; - The constitutional basis of the above powers 
found to exist in the States rests uioon the right of the Government to 
prescribe the conditions upon which it will permit work of a public 
character to be done for it* 

B, Private Industries 

Powers : - A State does not have the power to fix a minimum wage for 
women in industries located ^dthin its bounda.ries. 

Constitutional Basis ; - The Supreme Court has held that the Four- 
teenth Anendinent of the United States Constitution guarantees to the 
citizens of erch State that the States will not prohibit them from mailing 
agreements - ith respect to wages. 

3, I.;inimum Wages for Minors 

Power ; - A State has power to fix minimum wages for minors for all 
industries v/ithin its boundaries. 

Constitutional Basis ; - The constitutional basis of the above men- 
tioned powers is the legitimate exercise of the State police power. 



9412 



-308- 

I^GAI . ASP~.CTS OF Cl^rj.-JI' L^30R ?R03I^::S 
II.- i.I. A.XIiruI;I EOIIRS 
.T aljle of Contents 

I# I.Iaxir.rui-.i Hours on PuIdIIc ^orks 

A, Analysis of all State cue. FedereJ Legislation 

1» Extent of the Occirpations and Industries Covered 

2# Specific Statutory' Reference to Ses 

3« . Weekly and Dally Linita.tions of I.Iaxinun Hours 

4. Provision for Additional Corroensation for' S-ployees 

Working in Sr.cess of the Liaximuni Eo'i.irs 
5» Special Provisions 

B. Analysis of Court Decisions to Deternine the Extent to Which 
to which Such Legislation hc:s "been Sustained or Sejected, and 
their Constitutional !3ases 

II. I.Iaxinun Hours in Private Industry 

A« Malysis of all Stat.e and Federal Legislation 

1. The Extent of the Occupations and Industries Covered 
2» Specific Statutory Reference to Sex 

3. Weekly and Daily Limitations of i.iaxiniun Hours 

4. Provision for Additional Coiipensation for .Employees 
Working in Excess of the Mr.xinum Hours 

5* Special Provisions 
3« joJialysis of Court Decisions to Deternine the Extent to '.Thich 

Such Legislation has 'oeen Sustained or Rejected, and their 

Constitutional Bases 
III. Comparative discussion of State and Federal Decisions, with S'oecial 
Reference to the Police Power of the States to Enact Legislation 
on- Maximum Hours, when Considered with the 14th. Amendment to the 
Constitution. 



9412 



-309- 
LEG AL ASPECTS 0? CERTAIN LABOR PROBLEMS 
II. lIAXIIvIUIJ HOURS 
Prel iminary Siimmary of Findin;2:s 



I. federal Regalation of Honrs of- Lal)or 

A. Fu."blic Works 

Powers .- Congress has the power, to fix the mazim'um n'um'ber of 
hoiirs of lahor of all laborers, mechanics, and workmen, irrespective of 
sex or age, employed "by the United States, the territories or the 
District of Columhia, and actually engaged in the construction or repair 
of any of their puhlic works, whether the work Is to he performed "by 
persons directly employed hy the United States, the territories or the 
District of Columbia, or "by contractors or suhcontractors. 

Congress has the power to require that all contracts to which 
the United States, a territory or the District of Columhia is a partj?-, 
and v/hich relate to the construction of any federal public works, shall 
contain a stipulation that the work shall "be performed on the "basis of 
a maximum number of hours fixed by Congress, 

Irrespective of any power that it may have in limiting the hours 
of labor in certain occupations, Congress has the power to declare that 
a certain number of hours shall constitute a day's work for all laborers, 
mechanics, and workmen employed by or on behalf of the United States, 
the territories or the District of Columbia, on any of their public 
works. 

In the exercise of any or all of the above powers. Congress has 
the power to provide for exceptions to or exemptions, from any of the 
provisions of a particular statute, to fix penalties for violations, and 
to make special provisions or appropriate classifications within o.ccu- 
pational or industrial groups: provided, however, that such special 
treatment or classifications are not arbitrary or discrimina^tory, but 
are reasonable and of uniform operation, - • .. . 

Constitutional Basis :- The constitutional basis of the above 
powers found to exist in Congress rests uiobn the right of the government 
to prescribe the conditions upon which it will permit work of a public 
character to be done for it, 

B, Private Industry 

1. Interstate Commerce 

Powers :- Congress has the power to fix a maximum number of 
hours of labor of all em-oloyees of common carriers engaged in the' 
transportation or movement of persons or property in interstate or 
foreign commerce, even though such regulation may, in somie' measure, af- 
fect intrastate commerce: provided, however, that the limitation is 

9412 



-510- 

reasonable and has a direct relation to the dangers to passengers or 
pro-perty incident to the strain of excessive hours of duty on the part 
of such employees. 

In the exercise of any or all of these pov/ers, Congress has the 
power to provide for exceptions to or exem-otions from any of the pro- 
visions of the particular statute, to fix penalties for violations and 
to make siDecial provisions or appropriate classifications within the 
occup<?tional or industrial groups: provided, however, that such 
special treatment or classifications are not arbitrary or discriminatory, 
"but are rea-sonable and of uniform operation. 

Constitutional Basis ;- The constitutional basis of these pouers 
rests on the power of Congress to regulate interstate and foreign 
commerce*. 

2. Territorial Jurisdiction 

Powers r>- Congress has the power to fix a maximum number of hours 
of labor for women employees in particular occupations located in the 
Territories or the District of Columbia, provided that v/ork of long 
continued duration in such occupations is detrimental to the health and 
morals of such women employees, or of the general public. 

Congress has the power to fix a maximum number of hours of 
labor for all child employees in any gainful occupation in the terri- 
tories or the District of Columbia: provided that such regulation is 
reasonable and tends to promote their health, morals and general well 
being. 

In the exercise of any or all of these powers, Congress has the 
power to provide exceptions to or exem-otions from any of the provisions 
of the particular statute, such as exempting domestic or agricultural 
occupations, to provide penalties for violations, to make special pro- 
visions, such as for cases of emergencies, or to make appropriate 
classifications within the occupational or industrial groups: provided, 
however, that such special treatment or classifications are not arbi~ 
trary or discriminatory, but are reasonable and of uniform operation. 

Constitutional Basis ;- The constitutional basis of the above 
iDOwers rests on the grant of power to the United States of exclusive 
control over its property, its territorial and insular possessions, and 
the District of Columbia. The legislative discretion over such property 
and over the inhabitants of such territories is necessarily vested in 
Congress, subject to limitations as to the reasonableness of the -oar- 
ticular enactment. In connection with regulation of hours of labor 
reasonableness may be Judged by giving due consideration to the health, 
or mcrals, or safety of the emioloyees involved, or of the people at 
large. 

II. State Regulation of Hours of Labor 

A» Public Works 



9412 



-311- 

Poners :- Unle^ss prohibited by the state constitution, a state 
legislature has the power to fix a maximum number of hours of labor for 
all laborers, mechanics and workmen, irrespective of sex or age, employed 
by the ^tate or by o,ny of its political subdivisions, and actually en- 
gaged in the construction or improvement of any of its public works, 
whether the wdrk is to be performed by the state or any of its political 
subdivisions, or by contractors or subcontractors. 

A state legislature has the pover to require that all contracts 
to which the state or any of its political subdivisions is a party, and 
which relate to the construction of any of its public vorks, shall con- 
tain a stipulation that the v;ork shall be performed on the basis of a 
maximum number of hours fixed by the legislature. 

Irrespective of any power that it may have for the limitation of 
hours in certain occupations, the legislature has the power to declare 
that a certain number of hours shall constitute a day's work for all 
laborers, mechanics and workmen employed by or on behalf of the state or 
any of its political subdivisions on its public works. 

In the exercise of any or all of these pov^ers, the legislature 
has the power to provide for exceptions to or exemptions from any of the 
provisions of a particular statute, to fix penalties for violations, to 
make special provisions, such as for emergencies, and to make classifica- 
tions' within the occupational or industrial groups: provided, however, 
that such special treatment or classifications are not. arbitrary or dis- 
criminate rj?-, but are reasonable and of uniform operation. 

Constitutional Basis :-- The constitutional basis of the above 
powers found to exist in the states rests in some cases on the proprie- 
tary right of the state to condition the terms of its contracts, and in 
others upon the right of the government to prescribe the conditions upon 
which it will permit work of a public chara.cter to be done for it. 

The constitutional basis of the above powers found to exist in 
the political subdivisions of the states rests on the power of direction 
of the principal (the state) to its agent (its political subdivision). 

B. Private Industry 

Powers ;- A state legislature has the power to fix a maximum num- 
ber of hours of labor for women employees in particular occupations, by 
reason of their sex and physical structure, provided that labor for long 
consecutive hours in such occupations impairs the health, morals, or 
safety of such women employees, and that the regulation protects the 
future of the race. 

A state legislature has the power to fix a maximum number of hours 
of labor in any gainful occupation for all child employees by reason of 
their tender years, provided that such regulation is reasonable and tends 
to conserve the health and morals of such children employees. 

In the exercise of anY or all of these powers, a state legisla- 
ture has the power to provide for exceptions to or exemptions from any of 

9412 



-312- 

the provisions of the particular statute, such as exempting children on 
farm or domestic work, to fix penalties for violations, to make special 
provisions, such as for cases of emergencies and to make classifications 
within the occupational or industrial groups: provided, however, that 
such special treatment or classifications are not arbitrary or discrimi- 
natory, "but are reasonable and of uniform operation. 

A state legislature has the power to fix a maximum number of 
hours of labor for all employees, irrespective of sex or age, while em- 
ployed in occupations which in their nature are hazardous (such as work 
in underground mines), or which are nroven to be peculiarly detrimental 
to the life or limb or health of the employees (such as work in mills, 
factories, or manufacturing establishments). 

A state legislature has the power to fix a maximum number of 
hours of labor for all employees, irrespective of sex or age, engaged in 
the transportation of persons or property (as in connection with street 
railvAaj'"5, elevators or motor vehicles), provided that such regulation is 
reasonable and has a direct relation to the safety of the public. 

The probabilities are that a state legislature has the power to 
fix a maximum number of hours for all employees engaged in occupations 
charged with public interest for a limited or temporary period, if it is 
to prevent a state-wide paralysis of commerce or to protect the safety of 
the public from an impending catastrophe, such as a strike. 

In the exercise of any or all of these powers, a state legisla- 
ture has the power to provide for exceptions to or exemptions from ejiy 
of the provisions of the particular statute, such as excepting repairmen, 
to fix penalties for violations, to malce special provisions, such as for 
cases of emergency, and to make appropriate classifications within the 
occupational or industrial groups: provided, however, that the special 
treatment or classifications are not arbitrary or discriminatory, but are 
reasonable and of uniform operation. 

Constitutional Basis ;- The constitutional basis of any or all of 
the above powers rests in the inherent power of the state to guard and 
promote the health, morals, safety, or general welfare of the people 
within the jurisdiction, commonly referred to as the police power. 



9412 



L30AL ASPECTS OF C ER TAIN LA30R PROBLB^S 

III. IIIDUSTRIAL HOMEWORK 

Table of Contents 



I. The Homework Problem 

A. Definition of Homework 

B. Causes and Growth 

C. Harrnfal Social and Economic Effects 

D. Evaluation of the Effectiveness of Extra- Legislative Remedies 

II. State Legislation and Court Decisions 

A. Power of the States to Enact Homework Laws 

B. Historical Development of State Legislation and Court Decisions 
Thereunder 

C. Summary of Existing State Legislation 

III. Federal Legislation and Court Decisions 

A. Power of the Federal G-ovemment to Enact Homework Laws, and 
Limitations Thereon 

IV. Conclusions and Recommendations 



9412 



-314- 

LEOAL ASPECTS OF CERTAIN LABOR PROBLEMS 

III. INDUSTRIAL HOt/IEWORK 

Preliminary Summary of gindin,q:s 

I. federal Povrer to Regulate 

A. Pablic Contracts 

Powers ;- Congress has the po'^er to require, in the performance 
of all contracts to which the United States, any of its territories or the 
District of Columbia is a party, that no material to "be furnished there- 
under shall he manufactured in whole or in part in any home, but that such- 
material sh^ll be produced in regularly organized factories or plants 
meeting sanitary and other requirements which Congress may specify. 
Congress may also establish exceptions to the above, provided such s;oecial 
requirements are reasonable and of uniform application, and are not arbi- 
trary or discriminatory. 

Constitutional Basis :- The constitutional basis for the fore- 
going is the power of Congress to authorize government contracts upon its 
own terms. 

B. - Private Industry . ' ' 

Po;,^i*s:- Congress has the power to require, within the District 
of Columbia, and any of the territories, that no foodstuffs, preparations 
of tobacco, wearing apparel, bedding, or other products designed for inti- 
mate personal consumption or use and produced for sale, shall be manufac- 
tured in whole or in part in a home, and that such home manufacture for 
sale of all other articles shall be conducted only in conformance with 
regulations which Congress may prescribe. Congress may also establish 
exceT)tions to the above, provided such special requirements are reasonable 
and of uniform application and are not arbitrary or discriminatory. 

Congress may prohibit the transportation from all states, terri- 
tories or districts of the United States, into another state, territory, 
or district, of products manufactured under conditions which violate laws 
of the place of destination designed to protect the public health. 

Constitutional Basis ;- The constitutional basis for the powers 
enumerated in the last paragraph but one is the right of Congress to enact, 
for those areas under its exclusive jurisdiction, reasonable legislation 
affecting the public health and general welfare. The basis for the powers 
set forth in the last paragraph a.bove is the right of Congress to regulate 
interstate commerce. 

II. State Power to Regulate 

A, Public Contracts 

Powers.*" -A. State legislature has the power to require, in the 
performance of all contracts to which the State or anir of its political 
subdivisions is a party, that no material to be furnished thereunder shall 
be manufactured in whole or in part in any home, but that such material 
shall be produced in regularly organized factories or plants meeting 
sanitar^^ ai^.d other requirements which the legislature may specify. A State 
legislature may also establish exceptions to the above, provided such 

9412 



-515- 

special requirements are reasonable and of imiform application, and are 
not arbitrary or discriminatory. 

Constitutional Basis :- The constitutional basis for the fore- 
going is the power of the State to contract upon its own terms. 

B. Private Industry 

Powers:- A State legislature has the power to require, within 
the State, that no foodstuffs, preparations of tobacco, wearing apparel, 
bedding, or other -oroducts designed for intimate personal consumption or 
use and produced for sale, shall be manufactured in whole or in part in 
a home, and that such home manufacture for sale of all other articles 
shall be conducted only in conformance with regulations which the State 
may prescribe. The legislature ma;^'' also establish exceptions to the 
above, provided they are reasonable and of uniform application, and are 
not arbitrary or discriminatory. 

C onstitutional Basis ;- The constitutional basis for the 
foregoing is the policy power of the State to regulate within its juris- 
diction matters affecting the public health and general welfare. 



9412 



-316- 



LEGAL ASPECTS OF CERTAIN LABOR PROBLEMS 



IV. CHILD LABOR 



Table of Contents 



I. The Child Lator Problem 

A» Definition of Child Lnhor 

B. Its Causes and Growth 

C. Harmful Social and Economic Effects of Child La.hor 

D. Evaluation of the Effectiveness of Extra-Legislative 
Remedies "• 

II» Sta.te Legislation and Court Decisions 

A. Power of the States to Ena,ct Child Labor Laws 

B. Historical Development of State Legislation and Court 
Decisions Thereunder 

C. Summary of Existing State Legislation 

III. Federal Legislation and Court Decisions 

A» Power of the Federal Government to Enact Child Labor 
Laws, and Limitations Thereon 

IV, Conclusions and Recommendations 



9412 



L EGAL ASPECTS OF CERTAIII LA BOR PROBLB IS 
IV. CHILD LABOR 
Prel iminary Smmiary of Eindin>q:s 

I . Federal Power to RefeTilate 

A. P ublic Contracts 

Powers . Congress has the power to require, in the performance 
of all contracts to which the United States, any of its territories or the 
District of ColTJinbia is a party, that no minor "below a specified age shall 
be employed at any work whatsoever, that occupations which are hazardous 
in character or dangerous to health shall be restricted to minors above a 
specified age, and that the hours of employraent of all minors shall not ex- 
ceed a specified dail^'" and weekly maximum number. Congress may also 
establish exceptions to the above, provided such special requirements are 
reasonable and of uniform a,pplication, and are not arbiti-ary or 
di s.criminato ry , 

Constitutional Basis . The constitutional basis for tne fore- 
going is the power of Congress to authorize government contracts upon its 
own terms. 

B. Private Industry 

Powers . Congress has the power to require, within the District 
of Columbia or any of the territories of the United States, that no minor 
below B. specified age shall be employed at any work whatsoever, that 
occupations which are hazardous in character or dangerous to health shall 
be restricted to minors above a specified age, and that the hours of employ- 
ment of all minors shall not exceed specified daily and weekly maxima. 
Congress may also establish exceptions to the above, provided such special 
requirements are reasonable and of uniform application, and are not arbitrary 
or discriminatory. 

Constitutional Basis . The constitutional basis for the foregoing 
is the power of Congress to enact, for those areas Tinder its exclusive 
jurisdiction, reasonable legislation affecting the public health and general 
welfare. 

I I . S.tat e Power To Regulate 



A. Public Contracts 

Powers. A State legislature has the power to require, in the 
performance of all contracts to which the State or any of its political 
subdivisions is a party, that no minor below a specified age shall be employ- 
ed at any work whatsoever, that occupations which are hazardous in character 
or dangerous to health shall be restricted to minors above a specified age, 
and that the hours of employment of all minors shall not exceed a specified 
daily and weekly maximum number. The legislature may also establish excep- 
tions to the above, provided such special requirements are reasonable and of 
uniform application, and are not arbitrary or discriminatory, 

9412 



-318- 



Constitutiona l Basis * The constitutional "basis for the fore- 
goin^^^ is the power of the State to contract upon its own terms. 

B. Private Industry 



Powers . A State legislature has the power to require, within the 
State, that no minor below a specified age shall "be employed at any work 
whatsoever, that occupations which are hazardous in character or danger- 
ous to health shall "be restricted to minors a"bove a specified age, and 
that the hours of employment of all minors shall not exceed a specified 
daily and weekly raaxiiraim number. The legislature may also make special 
provisions which provide exceptions to the above, provided such special 
provisions are reasonable and of uniform application, and are not 
arbitrary or discriminatory. 

Constitutional Basis . The constitutional basis for the fore- 
going is the police power of the State to regulate, within its 
jurisdiction, matters affecting the public hea.lth and general welfare. 



9412 



-319- 

LEGAL ASPECTS OF CERTAIN LASOR PROBLEMS 

V^ RI GHT OF INDIVIRJAL EMPLOYEES TO ElIFORCE 

COLLECTIVE BARGAINING AGREEIvIBIITS 

Table of Contents 

I. The Trend of State Decisions To\7ard the Sustaining of 
Employees' Rights to Enforce provisions of Collective 

< 

Sargaining Agreements 

II. The Theories Underlying the Employee's Right to 
Enforce Such Agreements 

III. Sw-iiLary of the present State of the Law 



9412 



-320- 

LEGAL ASPS GTS OF CBRTAIIT LABOR PROBLEMS 

V. RI&HT OF INDIVIDUAL EI'.iPLOYEES TO ENFORCE COLLECTIVE BARGAIFIHG 

preliminary Sur.iiaary of Findings 

I. General 

The question of the right of an individual employee to enforce the 
provisions of a union agreement with an employer has "been before only tuo 
Federrl and fourteen state courts, 

II. St ates TJhere Not Adjudicated 

No case upon this question has "been adjudicated in any of the fol- 
lovang states: Alabama, Arizona, California, Colorado, Connecticut, 
Delanaxe, ITlorida, Georgia, Idaho, Illinois, Iowa, Kansas, Louisiana, 
Maine, li^jrylsnd, Michigan, Minnesota, Montana, Nevada, New HaJiipshire, 
New Jersey, New Mexico, North: Carolina, North Dakota, Oklahoma, Penn~ 
sylvsiiia, l^iode Island, South Dakota, Utah, Vermont, Virginia, Wash-' 
ington, Wisconsin, and Wyoming. 

III. Courts Holding Against Enforcement by Emrployee 

That the individual employee cannot, under any theory of the law, 
enforce the provisions of such collective bargaining agreements has been 
held by the two Federal courts and the courts of the following states: 
Indiana, Texas, and West Virginia, 



;om 



IV. Recovery on "Custom and Usage" Theory 

The e:;Tployee has been permitted to recover on the theory of "custt 
and us£^^e" -> i.e., that the parties impliedly contracted in accordance uith 
the terms of the collective bargaining agreement - in the courts of the 
following states: Arkansas, Kentuclcy, Massachusetts, Oregon and Tennessee, 

V. Recovery on "Agency" Theory 

Recovery by the employee has been allowed on the "agency" theory, - 
i.e., that the labor union was the agent for each one of its members, and 
that the collective bargaining agreement was binding upon the employer Just 
as though a separate contract had been signed with each employee - in the 
follov/ing state court: New York. 

VI. Recovery on "Third Party Beneficiary" Theory 

The courts of the following states have penaitted recovery on the 
"third party beneficiary" theory; - i.e., that the employer and. the union 
entered into a contract which vested in the employee, as a beneficiary 
under the contract, certa.in rights upon which he was entitled to recover: 
Mississippi, Missouri, Nebraska, Ohio, South Carolina, 



9412 



-321- 

STATISTICAL .U'ALYSIS OF LilBOR PRQVISIQl'S OF TIiS CODES 

Ta"ble of Contents 

PART I. IITTRODUCTION 

I, i.Iethod and scope of the Study 

A. The r.R.A. Codes and the Employees Covered 
3. The Co4©s as Statistical Units 
C# Chai%"es in Code Provisions 

D, Classific.'tion of Codes "by Industry G-roups 
E» Srau-iary , 

PART II. HOICS OP LABOR 

II. Basic Plour Provisions 

A. Ti-e Length of the Basic 7eek 
3, Hours per Day ajid Days per Week 
C» l.Iethods Used to Provide Elasticity 
D» Hour Provisions in the Ilajor Codes 
E» Sumr.iary .... ■ 

1. The Problems of Code Hour Provisions 

III. Elasticity in Hours Through Averaging ?rovisio:as 
A. Definition of an Averaging provision 
B» The origin and Distribution of Averaging Provisions 
C» The Amount of Elasticity Involved 
D» Averaging Provisions in the Major Codes - 

E, The Decline of the Averaging Provision 

IV, General Overtime Provisions 

A« The Nature of General Overtime Provisions 

B» Origin and Distribution of Overtime Provisions 

C. Extent of Elasticity Through General Overtime 

D, General Overtime in the Hajor Codes 
E» The Problem of Future Regulation 

V. Special Period Provisions 

A. Origin of the Peal^ period Provision 

3» Distribution of Pea]<: Period by Iiidustry Groups 

C. Extent of Elasticity in Peak Periods 

D. pealc Period Provisions in the Codes 

E. Emergency Periods 

F. The Problem of Future Regulation 

VI. Hours for Clerical and Office TTorkers 

A» Difficulties in Statistics on Office TTorlcers' Hours 

3« Precedents on Office Hours 

C« Special Hour Provisions for Office and Clerical Workers 

D, I.Iethods of Providing Elasticity for Office and Clerical Workers 

E» Hours of Office Workers Compared with Basic Hours 

F. Hours of Clerical Workers in I'.iajor Codes 

G# Concentration of Office Workers' Hours Around 40 per Week 

H, The Problem of Fature Regulation 



9412 



-3^2- 

VII. Slrsticity for Soecial Gro^.ips of Er.i23lp--ee3 
A, Precedents for S.:xe;:)ted Occujations 
3. Illasticity for I.iaintenance and Hepa,ir 

C. Other Excepted Occupations 

D, TiiC Problen of Futiiro llogulation . 

VIII. liiscellancous Hour Provisions 

A» Confornity with Other Lans or Agreor.ients 

L. PiOorts on Hours 

C, Definitions of Working Time 

L, Stahilization, Sharing of TJorh, and Production Control 

S, Lliscellaneous Hour Provisions in liajor Codes 

F. Appraisal of Miscellaneous Hour Provisions 

IX. Surinarj'' bj^ Groups of Industries 

PART IIIo TTAG-ES 

X, Basic Uage Provisions 

A. Purchasing Power: Tiie Purpose of IT.Pt.A. 7age Provisions 

2. laninun Wage for Basic Eriployoos 

C, l.iethods Used to Provide Elasticity in Wa^es 

D. Wage Provisions in the i.Iajor Codes 

■"■'■".•'■ 
XI. 'Tage Differentials: Basic Employees 
A» I^pes of Differentials 
B^ iunounts of Differentials 

C. Differentials in the Major Codes 

D. rne Problen of Differentials 

XI I . Sub; .J n i nurn Ra t e s 

A. '..orien Workers 

B. Learners and Apprentices 

C. Office Boys and Girls 

D» Old and Handle a"oioed Workers 

IJ. Other Subninimun Groups 

P. The Problen of Subnininun Rates 

XIII. Wa<:;e Provisions for Special Groups 

A. Office and Clerical Workers 

B. Outside and Connission Sa.lesnen 

C. Watchnen 

XIV. Wa.ges Above the Hinimun 

A. Tiie Purpose of the Provisions 

B. rne Classification of the Provisions 

C. Tlie Use of Each T^rpe of Provision 

D. Wages Above the ivlininu.i in i.Iajor Codes 

E. The Problen of Wares Above the Liininwa 

XV» Miscellaneous Wage Provisions 
A. Method of Wage Paynent 

3. Safeguards on Wage Payments 

C. iliscellaneous Provisions 

D. Miscellaneous Wage Provisions in Major Codes 



941^ 



-323- 
XVI, S"Lir.'.:iai'y of V'age Provisions by Industry Groiros 

PART IV. SUIvn-jlHY AlJD CONCLUSIONS 

XVII, An Aj"oraisal of the Code Labor Provisions 



9412 



-324- 

STATISTICAL ANALYSIS OF LABOR 
PIiOVISIOlv'S OF TI{E COIffiS 



Preljpiinory Sun.'nary of Findin;.^s 

Pui" '0S8. Sco'oe, and Method of the Study 

The -ourpose of this study is to su:inarize the labor provisions of 
the 573 codes, so that the reader may cora-:)rohend the enormous body of 
administrative labor le.jislation that constituted the Federal law on 
hoiirs and uages under the N.R.A. in 1933-1935, 

The complete report is a statistical study, with frequency tables 
of the occurrence of certain code provisions, the code being the imit 
of coujitinj. To offset variations in the number of' employees covered 
by single codes - from 70 to 2,400,000 - the more important parts of 
the various tables are v/eighted by the number of employees concerned. 
The provisions of the codes covering 50,000 employees or more are pre- 
sented in greater detail, since these major codes cover 82.6 percent of 
the 22,554,000 employees under industrial groups. The study is an over- 
simplification of a very complex variety of codes and of code provisions, 

Houi^ Provisions - The Hours Ceiling 

Tl^.e codes are classified according to the hours ceiling set for 
"basic em;olo3'-ees". The basic employees under each code are those 
corresponding to the P.R.A. "factory or mechanical workers or artisans" 
or, in non-manufacturing industries, the group conprising the largest 
number of emploj^'ees. The resulting distribution is: 

Employees 







Number 


covered 


Pe 


r cent age of 


Weehl:^ hours 




of Codes 


(thousands) 




Em'')loyees 


Less than 40 


hours 


43 


2,179 




9.7 


40 hours 




487 


12,898 




57.2 


More than 40 


hours 
Total 


48 


7,477 




33.1 




578 


22,554 




100.0 



In this classification the 40-hour codes include not only the 115 
which established a flat maximum of 40 hours, but also codes providing 
(1) an average of 40 hours over a specified period; (2) a basic 40- 
hour vreel: with additional hours (limited or unlinited) whenever the 
employer wished, provided that specified penalty rates were paid; (3) 
a basic 40-hour week with longer hours (with or without limits and Ith 
or without overtime payments) at certain times - peak ■'^e^iods, emer;^ncy 
repair periods, and other amergencies; or (4) sor.e combination of these 
elasticities. For some purposes many of the codes classified in the 
40-hour group are more-than-40-hour codes, and some classified in the 
less- than- 40- hour group are 40-hour codes 

A special analysis has been made of the codes having a maximum 
week of less than 40 hours, since these are the nearest to the P.R.A. 
standard of 35 hours for factory workers, and of those with a maximum 
of uore than 40 hours. The latter apply chiefly to the groups which 

were allowed 40 hours under the P.R.A. — Sales, Service, Banking and 
9412 



-325- 



Transoortation, 



Consideration has "been ^iven also to code standards -"ith respect to 
hours per day and days per v/eek. 

Means of Providing: Elasticity in Hours 

The provisions to which the codes resorted to provide s^officient 
fleiiihility in the hours are next considered. In the case of "basic 
eraolo3'-ees the princroal devices for securing such elasticity occur as 
folloTTs: 



lluj liber 


Employees 


Percentage 


of Codes 


(thousands) 


of 


erar)loyees 


139 


6,283 




27.9 


114 


4,243 




18.8 


29C 


10,773 




47.8 


103 


8,487 




37,6 



Provision 

Avera.'.in?; of hours 
General overtime 
Peak Tjeriod 
Emergency period 

In 115 codes, covering 4,394,000 employees, or 19.5 per cent of 
the total under codes, none of these four devices appears. 

I7ith respect to each device for securing elasticity, certain provi- 
sions came to be considered as representing the proper N.H.A. standard, 
to which a substantial number of codes conformed. The figures sho-j, how- 
ever, that as a rule a majority of the employees concerned were covered 
by provisions less strict th-an the N.R.A. standard, because of the loose 
provisions in sone of the major codes, mainly the early ones, 

Eot:ts of Office Workers 



Though the study has concentrated on basic employees, attention has 
been paid to tr^e code provisions for other groups. The hour provisions 
for office ^,'orkers have been examined oarticalsrly, because the P,R,A». 
set longer hours for such employees than for factory -r/orkers (thcu':h not 
more than 40 in any week) and because there is an impression that tl-ie 
codes adhered to this precedent. Tlie following.; tables su'inarize the 
code provisions: 



Ho-ijs of Office Workers 
C or-':"^..red with Those of Basic Employees 

Hours longer or looser 
Hours shorter 
Hours the sa,me 

No special provision for office workers, and 
basic hou2 s assumed to apply 

Total 



Ni'jnber of 
Codes 

178 
39 
53 

3G8 
578 



S412 



—526— 



Woekly Hoiirs of Office Workers 



Leso than 40 hours 

40 hours* 

More than 40 hours 



Number of 
Codes 

16 

497 
65 



Total 



578 



* Including codes which provided 40 hoiirs with en a^vera-jing period or a 
Ijealz period. 

Wa.:2:e Provisions - The ^JTage Floor 

The codes have been first classified by the minimum wage prescrib- 
ed for male productive employees, who are considered the basic group. 
This is more difficult than the classification of maximum hours, both 
because of the greater range of minimum "'a.^es from code to code, and 
because of the differentials that result in many cases, in two or more 
minimum rates for basic employees. The fi-gures belo-.7 summarize a count 
made, by industry groups, of the numbers of codes having minimum rr.tes 
v/ithin each of the ranges specified; 

Hwaber of Codes Providing a Minim\im 7ag:e ; 



Hourly 


■f rate 


for 


male 


At 


a Flat 


Rate 


^ith di 


.fi 


"erentials 


productive 


workers 








Hi-hes 


it 


Lowest 


Ovei- ' 


iO^ 








23 




28 




3 


40^ 










151 




133 




8 


S5 to 


odd 








67 




80 




67 


oO to 


34d 








31 




51 




139 


25 to 


29 d 








4 




5 




51 


20 to 


24(7 








1 




.. 




14 


Under 


20.? 








3 




1 




5 


No loi 


76 r limit 


Total 




— 




— 




11 




280 


298 




298 



This table shows th^t the wage floor in the codes turned out to be 
a wage staircase, v,'ith two staircases in the codes -rith differentials, 

Tlie weighting of the table oy the percentage of emr)loyees covered 
by each rate changes the picutre to the following: 

Percentage of total employees covered 
by codes providing a minira'om wf^ge; 

Hourly rate for male 
•Qi-oductive workers 

Over 40rf 

40^ 

35 to 39^ 

30 to 34{iJ 

25 to 29^^ 

20 to 24f,^ 

Under 20 ^:- 

No lower limit 

Total 19.2 
a/ Less than one tenth of one percent. 



At a flat 




With di 


fferentials 


rate 


Hi 


^chest ra 
11.6 


.te 


Lowest rate 


1.4 


1.3 


14.3 




26.9 




4,7 


1.7 




19,3 




6.6 


1.2 




13.2 




21.2 


a/ 




4.7 




23.8 


.1 




M« 




7,0 


.5 




.1 




3,9 


— 




— 




12.3 



80.8 



80,8 



-327- 

This shows that althoii^^h nearly half the codes had one flat mimiminn 
rate for male productive workers, more than four fifths of the employees 
were under codes with differentials. Of the latter, furthermore, seven 
tenths were covered "by codes in which the top rate was 35 cents or more 
per hour. ?ive-sixths, however, were covered hy codes in which the 
"bottom rate was less than 35 cents per hour, and almost three- tenths "by 
codes with a bottom rate of less than 25 cents. 

Means of Frovidin;? Elasticity in 'iJa^es 



A detailed analysis has been made of the two main devices for se- 
curing- elasticity in '-'ages - differentials in the minim"am rates for 
male -^^roductive workers, and subminimiim rates for certain other groups. 
The differentials are expressed in terms of the location of the nlant - 
North or South, in a metropolitan center or a hinterland, in a big city 
or in a small town: of the 1929 rate? of the division of the industrv* 
or of soiie combination of these variables. An analysis shoves the geogra,"ohic 
differential to have been by f ar the most common. An analysis of the 
amount of the differentials shows great diversity in the code provisions, 
as indicated by the following figures: 



Amount of differential 
(cents per hour) 



Number of Codes 



Under 5^ 

5(^ 

e' to 9^ 

10^ 

11 to 14^ 

Over 156 

Hot specified 



73 
66 
58 
40 
16 
19 
14 
12 



Tiie analysis which has been made of the subminimmn wage provisions 
is summarized below, in terms of codes: 



Subminimum 
group 



Number of Codes Which Provided for the 
Specified Subminimi.im. groups: 



Female v-orkers 

Les,rners 

Apprentices 

Office boys and girls 

Old and handica/oped persons 



Exemption 


A 


subrain- 


A limita- 


A limi- 


from basic 


imum wage 


tion of 


tation 


minimum 


rate 


the number 


of the 


wage 






exempted 


period 
of exem^o— 
tion 


158 




158 




213 




209 


197 


201 


70 




27 


49 


68 


274 




274 


239 


^—r— . 


.s 376 




103 


94 


,, ,^, ^ 



It is impossible to tell how many employees are covered by these 
various provisions. Since the total number of employees under the codes 
having each provision is of some s ignif icance , the tables have been weighted 
by these figures, with the results shown below: 



9412 



^(528- 





Number of 


Submininnjn -^roup 


Codes 


?enale v/orkers 


158 


Office "boys and 




,,irls 


•274 


Old and handicapped 




persons 


376 


Learners and appren- 




tices 


264 



Employees covered 
Thousands Percent of total 



3,658 

6 , 917 

8,786 

11,696 



16.2 
30.7 
59.0 
51.9 



Waf;e Provisions Coverin.? Office ITorkers and Other Special G-roups 

A total of 383 codes, covering 60 percent of the employees under 
codes, provided a special minimum wage for office and c lerical workers, 
as compared with 270 codes providing special hours. The weekly wa.'?;e 
rates were found to he distributed as follows; 

Number of codes providing- a minimum wage; 













With differentials 


Weekly rate 


At 


a flat 


rate 


Hi. 


-^hest rate Lowest rate 


Less than $14,00 




5 






5 54 


$14,00 te $14.99 




33 






11 103 


$15.00 




130 






103 8 


More than $15,00 




48 






48 2 



Total 



216 



167 



167 



Thus core codes provided for flat minimum rates than for differen- 
tials; but, as in the case of the minimum \7ages for basic emploj'-ees, when 
those in each group are weighted by the employees affected the codes ^rith 
differentials are found to cover over four fifths of the total. 

An analysis has Ijeen made of the kind and amount of differentials in 
167 codes. The most frequent jjype was a population differential, follow?- 
ing the precedent of the P.R.A. The raost frequent amount was $1,00 (in 
85 codes), with $2,00 in 46, $3,00 in 21, and more than $3,00 in 15, 



9412 



-329- 

SUIvlIlAJlY AITD 3VALUATI0!:T 0? TH3 HESULTG 
OF II. a. A. LA3CR SXPERIBITCE 

To^ole of Contents 



I. iUi S valuation 

A. Conception of Problem 

3, Objectives 

C, Policy 

D, Standards and Their Development 

E, Administration 
F« Enforcement 

•G. Conflicts 

II, Sium-aary of Re suits 

A, , Statistical' 

B, lion—Statistical 

III, Labor Conditions Since the Invalidation of iOA Codes 

A« Status of Labor in Society 
3, Wages, . ' 

C, . Hours ' 

D, Conditions of Eraplo^nnent 



9412 



-330- 

SU:.n.IA.HY MP SVALUATIOII OF THZ HS SUITS 
OF II.R.A. LA3CR EXPSRIEFC S 

Preliminary Smnraai?/ of Findings 

The labor provisions of the Na.tional Industrial Recovery Act uere 
based upon three theories: the relation of shorter hours to reeiiTploy— 
ment, the relation of increased wages to the e:cpansion of purchasing 
power, and the relation of collective bargaining to the labor partner* s 
cooperation in the productive effort necessary for industrial recovery, 

G-overninent policy with respect to these theories, embodied in* the 
National Industrial Recovery Act, stimulated a volume of initial co- 
operative effort toward recovery, that helped to give impetus toward 
lifting industry out of the slough of depression. Once recovery seemed 
under way, however, these theories were challenged to the point, in some 
instances, of violent opposition. Evaluation of their soundness requires 
analysis of the methods for implementation and the degree of compliance, 
a.s well as an estimate of their specific effects as distinct from those 
of the other forces malting for recovery. The history of the improvement 
following the enactment of the National Industrial Recovery Act and of 
the recession following the Schechter decision support the principles 
enunciated, and lay the onus of proof upon their critics. 



9412 



« « ■ 



-331- 

SUHVEY O F LABOn COHDITIONS III TIC TZPJIITOIIY OF EA.WAII 

Tal)le. o f Contents 
CHA.PT2R I. IKTP.ODUCTION 

I, General Piarposes of the Siirvey 

A. To Ascertain the Effect on Wages and Hours of the Termination 
of II.S.A. Codes 

!!• To Determine the Wages cud Hours to l^e Recomnended in Po'ssilDle 
Fdtiu-e Industrial Legislation 

C, To Paint for the First Time an Accurate Picture of the Condi- 
tion of Indus tris.l Labor in Hav/aii 

II. Limitation of the Survey to Workers Earnin;^ Less than $30 a We el: » 

III. Tiie Racial Problem: 

A. As It Affected i",R,A. Codification 

B# Its Influence on the Unionization of Labor 

C, Its Effect on the Emplo^nnent at Manual LE'.bor of Educated 
Citizens of Oriental Ancestry 

IV. Tlie Stress Laid by the Survey on Education 

CHAPTER II. FACTS OBTAIIIED FROIu WORIERS' REPORTS 

I. ITui.iber end. Percentage of Replies 

II. Drifter Employment 

A. Consistency of Labor in Following the Same Trade 

D, Periods of Unemployment 

III. Education of Workers, by School Years 

IV. Idle Period Bet\.'een Leaving School and Finding Employment 

V. Sa.rnings in Relation to Education 

VI. Wage Decreases Following the Schechter Decision 
A. hourly Wage, Currrent and under IT.R.A. 
D, Daily VJage, Current a,nd under N.R.A. 

C. ^Jeclzly Wage, Current and under il.R.A. 

D. Overtime Wage, Current and under II.R.A* 

VII. Hour Increase Since the Schechter Decision 

A, Hours of Work per Day, Current and imder K.R.A. 

B, Hours of Work per Week, Current and under IT.R.A, 

C, Hours of Overtime Each Week, Current and under N.R.A. 

VIII. Average Age of Workers 

IX. Rela.tion of Temporary to Permanent Work 

X. ".rcrkGrs* Family Income 

XI. Per Capita Income of Workers' Families 
9412 



-332- 

XII« Stiiciv of Establishj.icnts iReverting to pre-lT«."...:i, ^-orking Conditior.: 
n.s a Result of the Schechter Decision 

CHAPTER III. CClTCLoSIO:^-S 

I, Drifter Ernplo^Tient and Unccplo^/nent 

II. Tlie ZZdTicated Uneirolo.-'-ed 

III. Effects of the Schechter Decision 

IV. Tlie l.-e of TJorkers — Probahle Effect on Em-olojTient of Old-A^e 
Pension and Hetireinent Schenes 

V« Pai'.ily Incomes 

VI, The r.-'je of Sstablislrinent '.Thich Reverted to Pre-H.H.A. Conditions 
Follcv;ing the Schechter Decision 

CHAPTER. IV. Pi^OSLEIiS 

I. ?ro;per Wages and Hoiurs for the Retail Trade 

II. Proper Uages c?iid HO'Jts for the Restaurajit Trade , 

III. Pro'Der '/ages and Hours for the Graphic Arts Industry 

• r 

IV, Proper Wages and Hours for the .Autonohile Industrjr 
V. Pro-^er Wages raid Hours for i.Ianufacturing Industries 
VI, Proper Wages and Hours for the Crnning Industry 



9412# 



SECTIOII "C" 



TMDE PMCTICS S^fUDIES 



THAJa PIIA.CTI C3 SIUpiES. SICTIOH 

Page 

BASING POIIITS IN THE LIIvS INDUSTRY - (T. K. Urdahl) 

Table of Contents 336 

Sujmnar;^ 338 

CHAlItlELS OF DISTRIBUTION - (l. S. Moise) 

Table of Contents 378 

Siuninaiy 381 

DESIGN PIRACY - (A. C. Johnston) 

Sumnarj,'" 333 

DEVELOPl'EENT AND CONTROL OF C012.I0DITY INFOSIJATIOi: - 

(H. D. Llulford) 

Table of Contents. 402 

Sumraaiy 405 

GEOGRAPHIC PRICE STRUCTURE - (Gustav Seidler) 

Table of Contents 384 

Soiminarj^ 389 

LOSS LIMITATION - (Mark Llerrell) 

Table of Contents 367 

S-unmary 374 

MINIMlB/i PRICE DEVICES - (Max Kossoris) 

Table of Contents 393 

Summary 398 

PRICE PILING - (E. Baird and H. R. Mohat) 

Table of Contents 359 

Summai^'' 364 

PRICE STUDY OF THE FERTILIZER INDUSTRY - (S. Wiiitney) 

Table of Contents 351 

Summary ' 356 

PRODUCTION AND CAPACITY CONTROL - (H. B. Drury) 

Table of Contents. '341 

STommary • 348 



9412 



-1- 



DESIGN PIRACY 



Table of Contents 



CHAPTER I. C-EITEHAL BACKGROUrlT 

I. Historical Development 

(including statement of significant steps of develOxoment of the 
problem' and efforts to deal with it) 

II. Definitions and Delineation of the Scope of tne Study 

A. Definitions of "Design", "Design piracy" , "Style" and 
"Fashion" , "Novelty" and "Originality" 

B. Sources Investigated and J,iethods of Investigation 

III. Design piracy as, a Trade practice . ^ , • 

A. Industries Concerned ' . 

1. Those in TTliich the Value of the products- is. Affected by 
Design. (As shbV/n by sub.je.cts of design, patents, etc) 

2. Those Concerning IJhich There Is Evide-nce That Design piracy 
Is an Important problem. ( Shovm by trade -practice conference 
miles, appearances at congressional hearings, NEA code pro- 
visions and privately conducted controls) 

B. The ImpcrtaxLce of Fashion 

1. Relation between Fashion Industries and Those in ^ich 
Design Piracy Is an Important Problem 

2. Industrial Aspects of Fashion 

C. Design piracy in Representative Industries 

1. Nature of Designs and Methods of Embodying Them in Products 

2. Types of Distribution 

3. Copyists, and Methods of tne Copyists 

4. SignificaJice of Copying to Designers, Manufacturers of 
'Original Products, Distributors, Copyists,, etc. 

CPL4PTSR II. PROBLELiS INCIDENT TO T?3 COITTRCX OF PIRACY 

I. Conflicting Opinions of Opposing Factions 
A. Ex-pressed Vie\7s of proponents of Control 
3. ExDressed Viers of Opponents 

II. Major Issues Raised 

A. Econoi-iic Issues 

1. Effect on Voluiae of Business 

2. Effect on Designers 

3, Effect on Copyists and Distributors of Copied Goods 

4, Effect on Consumers 

(a) prices 

(b) Availability of Current Fashions 

(c) Uniformity vs. Individuality 

B. Legal Issues 

1. Constitutionality of Legislation 

2. Legality of private Contrbls 



-ii" 



C. Idininistrative Issues 

1. Operability of a Comprehensive Plan 

2. Enforcealiility 

D, Issues Relating to the Scope of Legal Control 

1. problems Concerning the Contribution to be Required 
as a Condition to the Grant of protection 

2, problems Relating to the Mature of the protection 

(a) As to the Type of Operations Which iiay be Controlled 

(1) Exclusive Right to Make, Use and Vend 

(2) Copyright 

(3) Exclusive Right to Select Qp.ality of Articles 
in Which the Design May be Embodied 

(4) others 

(b) As to the Elements of Design to be Protected 

(1) The Design as a Whole 

(2) Any Feature of a Design 

(3) The Ideas Enbodied in a Design 

( c) As to the Scope of implication of protection 

(1) All Designs for Articles of Manufacture 

(2) Designs for products of Selected Industries 

(d) As to the Term of protection .-. 
.(.1) Length of the Terra 

(2) Beginning of the Term ' 

a. Upon Formal Grant of Right 

b. Upon Application of the Work 

c. Upon the Date of Origination of the Work 

CHAPTER III. DESIG.y PROTECTION BY EXISTIIlG LAW 

I, Law Enforced in the United States 

A. I'Ton-Statutory Rights and Remedies 

B. Federal Trade Commission 

C. Copyright Laws 

D. Design patent Laws 

II, Foreign Laws (France, Germany, Japan, Great Britain) 
III. Coniparison of Methods 
IV. Adequacy of Existing U. S. Law as Means ^for Protecting Designs 
CHAPTER IV. PRE- CODE ACTIVITIES TOWARD FURTHER PROGRESS 

I. proposed Legislation 

A. Vestal Bills 

B. Sirovich Bills 

II. Trade Association Activities 

A. Systems Controlled Entirely by private Means 

1. Design Registration Bureau of the American Federation of 
Textiles 

(a) Designs Protected 

(b) Nature of the Bureau 

(c) procedure 



-rill- 



(d) iviethods of Secaring Coiiipliajice !7itii the Rales of 
the Bureau 

(e) Expansion of Functions of the Bureau 

(f ) Results of Operation 

(1) Volume of Designs Registered 

(2) Compliance 

(3) Effects 

2, privately Conducted Systems in Other Industries 

(a) Boot and Shoe Industry: The Shoe Fashion Guild 
("b) The Bress Manufacturing Industry 

(1) The Dress Creators' League of America 

(2) The Fashion Originators' Guild 

(3) The National .Association of Style Creators, Inc. 

(c) Lace Manufacturing Industry 

(d) Ladies' Handbag Industry 

(e) Millinery Industry 

(f) Medium and Low priced Jewelry Industry 

B. Trade practice Conferences (industries participating and 
nature of action taken) 

III. Coinparison and Analysis of Features of All these plans in the Light 
of Major Issues, (including appraisal of constitutionality of pro- 
posed legislation and legality of privately conducted systems) 

CHAPTER V. THE REGULATION OF DESIGN PIRACY L^TDSR NRA CODES 

I. Scope of the File Survey 

II. Inception of the Code provisions 

A. Comment on Disclosures of Files 

B. Dress Industry 

C. Fur Industry 

D. Furniture Industry 

E. Lace Industry 

F. Ladies' Handhag Industry 

G. Medium and Low priced Jewelry Industry 
H. Millinery Industry 

I. Rayon and Silk Dyeing and printing Industry 

J. Silk Textile Industry 

IC. Toy and playthings Industry 

III. Steps Leading to the Approval or Disapproval of Code provisions 

A. Sponsoring Groups 

B. Recorded Sentiments of persons or Classes Liatle to be 
Affected by the proposed provisions 

1, In support of the Provisions 

2. In Opposition to the provisions 

C. Attitudes and Action of NRA Officials 

IV. Analysis of Code provisions on Design piracy and plans for the 
Administration of Same 

A. Substantive Enactments of Operative provisions 

B. Administration of Operative provisions 
1, General Plan 



"IV- 



2, Particular plans 
. (a) Leather 
("b) Furniture 

(c) Ivledium and Low priced Jewolry 

(d) Comment 

V. Operation of Code plans 

A. ilijjii'ber of Designs Registered 

B. Conrplaints of Violations, and Disposition Thereof 

C. affects of PlsiiG on Designers, Manufacturers, Distributors,- 
and Consumers 

D. Post-Code Attitudes Concerning the pl.-ins 

VI. Legal Problems Incident to Code Re^gulation of Piracy 

VII. Summarization and Comparison of Code Regulation with Other 
Efforts, in the Light of Major Issues 

CHAPTER VI. OTHER ACTIVITIES DURING ALID SUBSEQUENT TO THE CODS PERIOD 

I, Further proposed Legislation 

A. liye Bill 

B. O'Malley Bill 

C. Duffy Bill 

II. E::pansicn of Trade Association Activities 

III. Voluntary Agreements Under the National Industrial Recovery Act, 
as aJiiended, 

IV. Comparison and Analysis of Features of These Devices 

A. Scope and Effectiveness 

B. Effects (Actual or anticipated) 

C. Legal Issues 

1, Constitutionality of Legislation 

2, Legality of private Controls 

3, Legal Effect of Voluntary Agreements 

V. A Review of the Design Situation Today 

CHAPTER VII. AITALYSIG OF ISSUES 

I. Critical Treatment of Major Issues (presentation to follov/ 

substantially the statement of issues included in Chapter II ) 

II. General Findings (To "be outlined in detail upon conclusion of 
study) 

III. Issues Requiring Further Investigation, and Suggested Methods 
(To "be outlined in detail upon conclusion of study) 



-V- 



APPEITDICES 

Su.nm£,ries of Available Information With Respect to Design piracy 
in the Tollowing Industries; - 

j^pendix 

A. Kress 

B. Fur 

C . rurni ture 

D. Lace 

E. Ladies' Handtag 

E. liedium and Lov/ priced J.e^jTelry 

G, Millinery 

H. Sill: Textile 

I, Toy and playthings 

J, Similar Summary Treating Collectively the Information Relating 

to Other Industries Studied 
(other aropendices will "be used to present detailed data on subjects 
trea.ted generally in the text) 



-VI- 



-333- 

TRADE PRA.CTICE STUDISS 
DESIGII PI5ACY 
Prelimin.iry Simmary of Eindirijg^s 

I. BaCKGHOUIID 

The practice of copying ornainental designs for articles of manu- 
facture — design piracy — is a very old one, which has been dealt with in 
some manner "by every leading nation. In the United States it has "be- 
come important within the last 25 years, due to the increasing importance 
of fashion and the growth of large-scale production and of competition. 
Its effects are felt principally in the fashion industries, such as those 
producing women's apparel, v/hich are characterized "by rapid style shifts 
and constantly changing designs. 

Our Design Patent Laws were first enacted in 1842, at a time when 
design piracj'- was not an important problem, and they have continued in 
force without substantial changes since the amendments of 1902, They do 
not fully meet the needs of manufacturers in the highly seasonal indus- 
tries, who develop and introduce novel items, 

(1) They are inadequate administratively, because designs must be 
developed, processed and marketed rapidly and in great numbers to meet 
fashion trends. Expense prevents the patenting of all at the point of 
development, while delay in obtaining patents for those designs that 
have proven commercially successful makes it likely that the protection 
obtained will be useless. The copyist already will have had an opportun- 
ity to process and market copies, 

(2) They are inadequate substantively, because protection is limited 
to designs which differ from all designs previously published in such 
manner as to be termed inventions. Fashion trends tend to recur, neces- 
sitating the re- introduction of old designs or adaptations thereof. 

Common law and the equitable principles enforced by courts, the 
Copj-right Laws, and the Federal Trade Commission, as constituted today, 
are of no practical value to those who would prevent the copying of designs. 

II, 1T.R.A. CODES 

Through the medium of the N,S.Ao Codes manufacturers ajid processers 
in a large variety of industries endeavored to curb design piracy. Only 
a few code files, relating to fashion or novelty products, however, re- 
vealed important activity in connection with design piracy provisions. 

The present evidence on the need for protection in codified indus- 
tries and on the economic structure of those industries as it affects the 
design problem is meagre. Aside from the fact that code-sponsoring groups 
were truly representative, there is little data concerning the sentiment 
of members of the industries with respect to design protection. The files 
of at least three industries, however, disclosed a decided clash 'of opin- 
ions. Arguments in favor of design protection, as an aid to manufacturers, 

9412 



distri"butors, consumers, laljor and design creation were met "by equally 
cogent ones intended to shoTj that the same interests uould "be adversely 
affected. There was a noticeatle lack of reference to the possibility 
of a reward for designers, 

'The policy of the N.R.A, '^ith respect to design piracy provisions 
was a changing one. At first, "broad provisions were approved readily 
in some codes, disapioroved in others. Later, there "^as an effort to 
limit ap'oroval to provisions intended to prevent consumer deception^ The 
Consumers' Advisory Board was the most consistent opponent to all de- 
sign piracy clauses. 

Operative provisions in approved codes varied widely. There w?,s no 
consistency in connection with requirements for protection, or with the 
kind, scope or duration of protection afforded. The administration of 
these provisions, likewise, followed the ideas and needs of the parti- 
cular industries concerned, was lacking in uniforrr.ity. Differing in- 
terpretations of similar words were followed. Plans of administration 
embodied substantive rules not prescribed. by the code provisions them- 
selves. The general tendency was to provide trade protection for all 
newly-introduced designs. 

The file surveys disclose no reliable data on the operation and 
effects of code provisions. Interested parties have claimed that de- 
sign protection under the codes was highly beneficial to a few indus- 
tries, With respect to others, isolated statements indicate that the 
provisions did not meet expectations, 

III. 0TE5R SYSTEL.:S FOR COKTRQL OF PIHACY . 

A. PRIVATELY CCiOUCTED SYSTSIIS 

In the fashion industries there is a growing movement toward pro- 
tecting designs through private agencies. _ The Silk -Textile industry 
has operated a comprehensive system, with apparent success, since 1928, 
There is evidence of a recent movement toward the establishment of 
guilds, in the Boot and Show, Dress, and Millinery industries, to en- 
list retailer cooperation against the marketing of articles embodying 
designs copied from originals produced hy guild members. 

Sources investigated disclosed no data on the details of opera,tlons . 
and the economic effects of these privately-conducted systems, 

B. FORSIGiJ LAWS 

The design laws of all leading foreign countries, with the possible 
exception of Japan, provide on their face more complete protection for 
designs than is given by the statutes of the United States. The opera- 
tion and effects of those laws have not been investigated; hence their 
significance for a consideration of the design prcblem cannot be stated. 

IV, COHSTITl'TIOiTAL ISSUE5 

There appears to be ample authority, under the Patent and Copyright 
Clause of the Constitution of the United States, for Congress to enact 

9412 



-335- 

general legislation that would provide increased protection for indus- 
trial designs. The principal limita,tion is that the legislation must 
tend to advance the useful arts ly predicating the grant of rights on 
the existence of a creating of the mind. Originality is necessary. Under 
the Constitution, therefore, Congress may not prohibit the copying of 
all designs which have merely "been adopted or copied by the first user 
- with one exception. Legislation based upon the Coranerce Clause of the 
Constitution might protect such designs vi^hen used in interstate commerce, 

V. GENERAL . ' 

There is a strong tendenc3/' ajaong producers of highljr-styled goods 
embodying newly-introduced designs to employ private controls in the 
effort to prevent copying. These controls, like similar ones set up 
under i:T,R«A, codes, afford wide op;oortunities for abuse-, although there 
is no evidence that abuses have occurred. 

Varying tyipes of proposed legislation heretofore considered by Con- 
gress raise many issues requiring further investigation. Would the 
economic effects of complete design protection be desirable? Is there 
any system for securing comprehensive protection, which is capable of 
reasonably effective administration and enforcement? Assuming the pos-' 
sibility of arriving at such a system, there remain undetermined many ' 
additional questions concerning the scope of control and the possible 
imTDact of such control upon our economic structure. 



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TRAJE PR A CTICE STUDIES 

BASING POINT SYSTSi.: IN THE Lli.E INDUSTRY' 

Ta"ble of Contents 

!• Tlie Evolution of the Multiple Basing Point S'^sten in the Line In- 
dustry 

A. Price Basing -iethods in jii-iericoji Industry 

B. Industrial Background of Basing Point Systens 

C. The Liultiple Basing Point Systen in the Line Industry 

The systen nas not in general, use prior to the Code in the 
Li:.ie Industry 

1, Evidence fron Trade Conferences from the federal Tr.ado 
Commission's Price Bases Inquir;/ and from Research ond 
Planning Questionnaire. 
D« The Importance of the Rate Book in Qu.oting Prices 

1, Alleged need for a rate feook to assist snail producers 

II. Tlie Line Industry under Its Code of Fair Competition 
A« General Survey of the Lime Industry Code 
B# Ilethods of Selecting the Code Authority and its. i^mctions 
in the Line Industry 

C. Tiie Pov;ers Exercised ^oy the District Control Connittees 

D. Group Control and Limitations on Independent Producers in 
(piloting Mill Base Prices 

E. Apparent Lack of Confidence in the "Confidential Agencies" 
of the Code Authority to whom Industry is Required to send 
Reports 

III. Tlie Effects of the Basing Point System on the Lime Industry 

A. Trend of Production and Ca-'oacitj" in Large and Small Plants 
1« The trend is reflected "by a sharp decline in the nun"ber 
of the small volants and an increase of 49 per cent in the 
ca,pacity of the group of superplants. 

2. The excessive e:rpansion of plant capacity is due to the 
economies of large-scale highly mechanized units coupled with 
high lime prices 

3. Tlie Extent of Crosshauling Prior to and under the Code 
1.. The nature and significance of crosshauling 
2. Crosshauling is uneconomical in many industries 
am The causes of crosshauling 
4» Extent of crosshauling in the Lime Industry 

5. Crosshauls in cement con;->arer' V7ith crossliauls in lime 
products 

6. Cross-shipments of lime prior to the Code 
?• Crosshauling under the Code 

8. Production and consur;v^tion areas 

9. Crossha.uls reflected Dy the per ton freight revenue fron 
lime shipments on American railroads 

10. The effect of crosshauD.s and other basing point practices 
on consui.iers 
C« Varying Mill-Net Prices as a Result of Freight Absorption 

and other Basing Point Practices 
D. Opposition of Producers in District 5-B to the Br.sing Point 
System 
9412 



-337- 

33. The Attitude of Line Producers to the Basing Point System, 
Prior to ajid IXiring the Code Period 

!• licsing Point Prices; Tiie social point of view vs. the 
business nian*s point of vievr. 

IV, HiG Effects of the Basing Point Systen on Prices 

A. Taq IJat^ire of Coiapetitive and llonopoly Prices 

B. Conpetition under the Line Code Basing Point System 

C. Analysis of Prices of Liiae Products 

1. Lime prices as reflected "by riill-net returns 1907-1935 
2» Plant net values and methods of oroduction of lime compar- 
ed with cement 

3. "Tiheat production and line- production compared 

Dm Effect of the Marketing Provisions of the Lime Code on Prices 

1. Increased uniformity and rigidity of prices 
E. Code vs. Pre-code Prices 

!• The report of the Lime Code Authority 

2. Have lime prices increased under the Code 

3» The effect of the Code on the average plant net per ton 
value and on shi"onents 

4, Price statistics on lime products do not reflect consum- 
er* s prices 

5* Tl-xe effect of the Code on plant-net-lime values and on 
• gross receipts of line producers reflected by the replies 
to the 1j,Pl.A. Questionnaire 

'V. The Effect of the Basing Point System on the Consumer 

A. Price Discrimination Against the Consumer 
1# Agriculture as a consumer of lime 

2. Discrimination against consumers of agricultural lime 
3« Hydrated Lime as a means of increasing prices and its use 
under the basing "ooint system 

B. Freight-rail and Truck - as a 1 leans of Increasing Delivered 
Lime Prices 

1. The effect on consumers of the all-rail-freight element 
in delivered j^rices 

2. Arbitrarjr charge s for truck and L.C.L. shipments 

C. Discrimination in the Price Structure 

VI. Findings, Conclusions and Pecommendations 

A. Findings 

B. Conclusions 

C. PlG commendations 

1. Further inve'stigations are recommended 

D. Additional l.Iaterials Needed to Continue the Investigation: 
S-aggested Sources and Methods of Seciiring the Necessary Data 



9412 



-338- 

TRAJE PIIACTICE STUDIES 
BASING POIi'T SYSTEi; III TIE LIliE liDUSTRY 
Preliminary Suiir.iary of Findiiy^s 



ilr.stry Pri ojl 



1 • ?lio Basing Point S:^'stern nas n ot in General Use in the Line I nC. 
to the Cod.e . 

The evidence ;3resented shows conclusivel-r that some of the l^xger lime 
producors made use of what nay "be regarded as the precusor of the ■b^sin/^ ■:)oi 
system i, e., the quoting of "delivery prices to meet comoetition" cJiL the 
absorbin-^i of freight in so doing. ^Tnil^e some of these prices v^ere :noted f, 
certain group rate rail centers, there were no established basing points rr.di 
regular' s^-stem of open price filing. The Lime Code attempted to force these 
practices upon all line producers in the coimtrv. 

2 . .% ie Code of Fair Corn-petition for the Lime Indiis tr?^ ^ a-Q-pears to have been 
drawn wi in such a v/ay that the large -producers oxercise a 'ore-3or.c".crriit 
influence in its adiinistration 

Sixteen of the 20 members of the Code Authorit^^ were selected >- the 
national Lime Association which in 1933 represented onl^ 23 per cent -.^i the 
number of plcjits and 55 per cent of the total lime tonnage. The -porers e::er 
cised by the Code Authority directly, and indirectly thro-ijgh the District 
Cor.mitteos, appear to have d-£inged profoundly the marketing practices of the 
Lime Ir.dustr--, by providing uniform identical prices in each district, -nc. Ij, 
promotin;'" -uniform terms and c onditions of sale. The latter usuaJl;' Te-rsesenr 
the first step in the effective control of the price structiire of rn industry 

3. .Ttie Code. Ayoears to have Intensified the Forces vfhich in the Past lir.ve 
BroLVJi t about the Grrduo-l Disa-Q-i^earance of the Small Lime Producer c\iC. a 
^a'oid Increase in the- Size and I'umber of Lar,r;:e Plants Cover 40^000 tons 
:oe r anniir:) . 



IHie chief factors in the process of elimination of small plants ap-^ear 
have been the use of delivered prices with freight absoriotion by the large 
producers, rjid of high oressure salesmanshi'p in diverting to thom.selvos the 
natural merkcts of nearly one thousand lime producers, v;ho have been displac 
since 1908 by less than 500 plants in 1934. 



1 



4» Tlie Basing Point System in the Lime Code Legalized and Perfected a ".."ethod 
of Price Discrimination laiown as "Quoting Delivered Prices to ^ic-at Co::"- 
-petition" 

This practice appeaxs to be the chief cause of the excessive e:7-<a-ision o 
lim.e plai-t capacity, to a point where less thpn. one-third of the potential 
capaxjity v/ill suffice for the normal demand for lime products at the -jrevaili 
high prices. 



9412 



-339- ■ 

5. The Easing point System in the Code with its Comrplement - Open price 
lalinjS: witli a Waiting period - A,opoars to "be Responsi"ble for the 
Extraordinary Stability and Rigidity of the price Structure of Lime 
products . 

The :aarketing practices under the Code "brought a"bout a complete 
freezing of the prices of certain types of lime. According to Bureau of 
Labor Statistics reports the price changes which had "been registered prior 
to the Code continued for nearly two months, after which price changes 
disappeared altogether, 

6. Lime prices to Consumers Appear to have "been Increased Excessively 
under the Code , 

Some of these increases were registered immediately prior to the adoption 
'Of the Code, Basing point prices, which generally were lower than the prices 
to final consxiraers, were also excessively high, as indicated "by the wide di- 
vergence "between mill net and basing point prices. The markup between mill 
net returns and the basing point prices for several large producers Taried 
from 15 to 87 per cent, 

7. The Basing point System and its precursor, "QiAoting Delivered prices to 
Keet Corjpetition" has Resulted in an Enormous Amount of Uneconomical 
Crosshauling . 

Unnecessary crosshauls represent a huge burden on lime consumers. Forty- 
three and fifty-five per cent of the plant net value of lime represents the 
average freight paid in 1934 and in 1932, respectivelyo 

8. The Marketing Practices of the Lime Industry Appear to have Resulted in 
price Discrimination against Consumers of Agricultural and Building Lime . 

Relatively higher prices on agricultural lime, and what appear to be 
excessively high prices for hydrated lime, represent a very real burden on 
the farmer, the Construction Industry and ultimately the home owner. Further- 
more, the single basing point for finishing lime ( G-ibsonburg) appears to be 
unjustifiable when used by producers outside of the Ohio districts. 

9. There Aooears to be Evidence of Concerted Action in Fixing prices at 

Basing Points in some Districts . 

The marketing practices under the Code tend to eliminate price competi- 
tion at most of the basing points, resulting in excessively high base prices 
in nearly all the lime districts, 

10. The Economies of Production Resulting from Highly Mechanized Labor 
Sa.ving plants have not been Passed on to the Consumer . 

With the marketing practices in operation under the Code and used prior 
to the Code "by some large companies, the economies of large scale production 
appear to have been wasted in the absorption of freight, heavy selling ex- 
penses and other useless expenditures. The Lime Industry stands first among 
the durable goods industries ,of the country in its maintenance of high prices 
- nearly twice as high as thay wera "before the war and before the modern . 
labor saving inventions had oeen installed. 



941 



o 



-340- 

11. Under the Operation of the Code the Large prodacerg have Increased 
their G-ro!:r> profitc Far Lore tnan the Smaller Plant s. 

T/hereas the small plants (less than 10,000 tons per year) increased the 
value of their shipments less than 25 per cent, the larger (over 15,000 tons 
per anniim) increased the value of their shipments from 40 to 68 per cent. 
This trend, if continued, would hasten the extermination of the small li.ae 
producer, 

12, These Findings and Tentative Conclusions do not Represent Any Indictment 
of the Individual liemhers of the Lime Industry, "but Rather en Attenrpt 

to De.jict the Actual Operations and the Effects of Marketing Practices 
on the Industry and on Society . 

The lime producers who inaugurated the practices were engaged primarily 
in an effort to make their "business pay, and many of them may have "been com- 
pletely ignorant of the long range indirect effects of their efforts. Hotv^ 
ever, the evidence point's strongly to a considera'ble amcont of concerted 
action eind discrimination, which seems to constitute restraint of trade and 
to be contrary to tiie spirit of the law. 



9412 



-341- 
TRADE PBACTICE STUDIES 
PHODUCTION AlID CAPACITY CONTROL UNDER THE NRA 

Table of Contents 



SUMMARY 

PART I 

IIITRODUCTICN 

CHAPTER I. EVEITTS ICEADIIJG TO INCLUSION OF PRODUCTION AND CAPACITY 
CONTROL PROVISIONS IN NRA CODES 

I. Pools and Trusts of the Latter Nineteenth Century 

A. Significance of the Pool aiid Trust Movement from the Standpoint 
of Production Control 

II. The Trade Association Movement 

A. Trade Associations Prior to 1890 

B. The Period 1890 - 1911 

C. Efforts at Indirect Control Through Open-Price Associations- 
The War Growth 

D. The Legality of Statistical Activities of Trade Associations 
1. Hardwood Lumber Decision 

2» Ambiguity in'*th6 Government's Attitude Towards 

Statistical Activities of Trade Associations 
3. Maple Flooring and Cement Decisions 

E. Cost Systems as a Means of Controlling Production 

III. Other Forms of Production Control in the Period Immediately 
Preceding the NRA , . .. ■ 

A. Group Action, Other than along Statistical and Accounting Lines. 

B. The I.Iovement toward Industrial Integration 

C. Cartel! zation Versus Integration as an Instrument of Control 

IV. The Concept of Industrial Planning ■.-.■. 

V. Authorization of Production aiid Capacity Control under the 
National Industrial Recovery Act 

VI. Inclusion of Production and Capacity Control in the Codes 

VII. To what Extent may \7e E:qoect that the Problems which caused Industry 
to seek Production Control will continue, or recur, in the future? 



9412 



-342- 

PART II 

CASE STUDIES OE THE PRINCIPAL EEEORTS AT 
PRODUCTION OR CAPACITY CONTROL 

CHAPTER II. PRODUCTION AND CAPACITY CONTROL AS A CURE FOR SICK INDUSTRIES 

I. The Conception of a Sick Industry 

II. Lumber 

A. Economic Condition of the Industry 

B. Pre-Code Efforts at Control 

C. Results of Code Operation 

1. The Administrative Set- Up 

2. Functioning of Administrative Machinery 

3. Effects of Production Control and Miniraiira Price Provisions on 
Quantity of Lumber Produced 

4. Effects of Allocation on Internal Structure and 
Functioning of the Industry 

5. Conservation Aspects of Production Control 

6. Importation of Red Cedar Shingles 

7. Importation of Mahogany 

8. Failure of Price Control 

Do Outlook for the Future 

(Each of the remaining sections of this chapter, dealing with 
the industries listed "below, will take up 

(a) Special features of each industry which let to 

its classification as a "sick industry"; 
("b ) Pre-code attempts at control; 

(c) The character, operation and results of code 
efforts at control; and perhaps 

(d) An analysis of the present situation. 

III. Other Industries Treated Are: 

1. Cotton Textiles 

2. Si He Textiles 

3. Copper 

4. Furniture 

5. Atlantic Mackerel 

6. Paper 

7. Pyrotechnic Manufacturing 

8. Machines Waste Manufacturing 

CHAPTER III. INVENTORY CONTROL 

I. The Inventory Problem 

A. General Theory 

B. Restriction of Production 

II. Carpet and Rug Industry 

A. Economic Organization of Industry 

B. Institute of Carpet and Rug Manufacturers of America 

C. Pre Code Conditions 

D. Effect of Code 

9412 



-343- 

III. Carbon Black Industry 

A, Production and Inventory Control 
'3, Fu.nctionint: of Code Authority 

IV. Wool Textile Sales Yarn 

V« Other Industries Having Inventory Control 
VI. Inventory Problems in Industries Having no Inventory Control 

VII, Inventory Control as a Production Control Device 

Cha^Dter IV. PRODUCTION CONTROLS AIIvffiD AT ^'AINTAININQ PRICE AT 
LEVELS HIGHER THAN THEY WOULD EE UNDER FREE COMPETITION 

I. Glass Container Industry 

A, Pre-Code Control Within Industry 

B, Conflict Between Code Authority and Administration • 
1* Effect on Public Interest 

II, Corrugated and Solid Fibre Shipping Container Industry 

III. Paper Board ■ ■ , 

A. Price Stabilization by Stevenson Plan 

IV. Unsuccessful Attempts to Establish Allocation of Production 

V. Other Industries in which the Maintenance of Profit Levels was 
an Outstanding Issue 

Chapter V. REGULATION OF SERVICE IN INDUSTRIES HAVING PUBLIC 

UTILITY CHARACTERISTICS 

I. What Constitute Public Utility Characteristics? 

A, Effect of Large Fixed Localized Investment 

B. Type of Industry Affected 

II, Ice Industry 

A, NRA Certification of Capacity 

B, Oklahoma Ice Law: Port Worth Plan 

C, Production Limitation - Price Fixing 

III, Motion Picture Exhibition 

A. Previous Work by Federal Trade Commission 

B. Production and Capacity Control 

1. Zoning and Clearance 

2, Block System of Film Distribution 

3. New Theater Construction 

4, Restrictions on Exhibitions 

IV, Motor Vehicle Parking and Storage 

V, Motor Bus, and Transit 

A, Effect of NRA Certification on Federal and State Governments 



9412 



-344- 

Chapter VI. EFFORTS TO PREVENT EXTElTSIOi: OF PLAIIT CAPACITY IN 
I INDUSTRIES NOT HAVING PUBLIC UTILITY CKARACTSRISTICS 

I. Rayon and Silk Dyeing and Printing Industry 
A. Effect of Inter-company Relationships 

II, Lace Industry 

A. Reasons for Code Authority Attitude Toward Capacity Increase 

III. Throvang Industry • 

A. Code Aiithority Attitude on Introduction of New Machinery 
1, Effects 

IV, Other Textile Industries 

V, Structural Clay Products Industry 

A, Justification of Policy of Code Authority 

VI, Clay Drain Tile 
VII, Floor and Wall Clay Tile Industry 

VIII, Clay and Shale Roofing Tile Industry 

IX, Cement Industry 

A, Conditions Within Industry 

I), Efforts to Secure Production Control Before and During NRA 
1, Administrative Problems Involved 

X, American G-lassware 

A, Problem Presented by the Code Authority Trying to Prevent the 
ouners of a burned plant from putting it back into operation 

XI, Steel Industry ' . 

A, Degree of Control, Past and Present 

B, Plant Expansion vs Public Interest 

XII. Other Industries ' ■ 

Chapter VII. PRODUCTION CONTROL AS AN AID IN SPREADING El^LOYlvENT 

I, General Purpose of Plant Hour Limitations in the Garment Trades 

A, Effect on Labor-hour Limitations 

B, Relationship to Curtailed Production 

C, Relationship to Migration of Industry, Efficiency of Operar- 
tion. Introduction of Machinery 

II, Dress Manufacturing 

III. Coat and Suit Industry 

IV. Men^s Clothing 

V, Cotton Garment Industry 



9412 



i 



-345- 
VI. Millinery 

* 

VII, Hat Industry 

A» Metropolitan New York vs other Mamifacturers regarding 
Multiple Shifts 

VIII, Other Garment Industries 

IX, Wallpaper Manufacturing 

X, Effects on Employment of Machine-Hour and Lator-Hour Limitations 
in Other Industries 

XI, Reduction of Seasonality in the Automobile Industry 

.A. Effect of NRA on, Annual Show, Seasonal Production, etc. 

Chapter VIII, EFEOETS TO PROTECT ONE SECTION 01^ AN INDUSTRY 
AGAINST COMPETITION BY ANOTHER SECTION 

I, Cast Iron Soil Pipe 

A, Alabama Manufacturers vs Northern Manufacturers regarding 
27-hour Plan Day 

II. Crushed Stone, Sand and Gravel and Slag 
A, Portable Plants 

III, Dental Laboratory 

A, Effect of Hour Limitations on small Laboratories 

IV, Other Industries in which Production Control was a Eactor in 
Internal Conflict 

Chapter IX. PRODUCTION OR CAPACITY CONTROL AS AN INSTRUMENT OE 

CONSERVATION 

I, Fisheries 

A, Reasons for Ineffectiveness of Production Control Provisions 

II* Other Industries 

III. General Findings Regarding Attitude in Code Administration with 
Reference to Conservation 

A, Immediate considerations. Favored Over long run conserva^- 
tion interests 

Chapter X. CONTROLS FOR TFJ: PURPOSE OF REGULATING CONSUl.lPTION OR 
RESTRICTING CERTAIN TYPES OF PRODUCTIVE ACTIVITY 

I. Distilled Spirits, and Brewing 

A, Regulation of production for the purpose of diminishing con- 
sumption - or conserving materials, labor power, or avail- 
ability of equipment - might, in the case of war or other 
emergency, become one of the most important fields for the 
exercise of production control. 

9412 



-346- 

II. Abolition of Home Work 

III. ITight Work for Women 

A, Sociological and Economic Effects of Provision Found in Some 
Converted Paper Products Codes 
1. Future Control is Possible 

IV* Reduction of Number of Contractors in Coat and Suit Industry 
A, Effect of Code in Enforcing Safety Provisions 

Chapter XI. PRODUCTION CONTROLS INTRODUCED LARGELY IN IMITATION OF 

PROVISIONS WORKED OUT IN OTHER CODES 

I. Such Provisions Appear in Wool TeztiLe, Upholstery and Drapery 
Textile, Paper Products, etc. 

PART III V ^- 

' , «... 

GENERAL FINDINGS 
Chapter XII c ECONOMIC EFFECTS .OF PRODUCTION AND CAPACITY CONTROL/ 
I. General Feeling of Security 
II. Distribution of Business among Firms • 
III. Curtailment of Total Production 
IV. Limitations on Increased CapS-city 
V. Inventory Control 
VI. Prices 
VII. Profits 

VIII. Wages 

IX. Spreading of Employment 

X. Efficiency of Operation and the Construction and Use of 
Machinery . . 

Chapter XIII. PROBLEMS IN THE ADMINISTRATION OF PRODUCTION 

AND CAPACITY' CONTROLS 

I. Confusion as to Objectives 

II. Lack of Information 

III. Diffusion of Responsibility 

IV. Lack of Adaptation to Established Business Relations 



9412 



>-547- ■ 

Vw Production Control as an Instriiraent of Discrimination 

VI, Getting an Industry to Agree on a. Program 

VIX» Compliance 

nil. Terminal Facilities 

IXe Relation of Production Control to the Efficient Conduct of 
Industry 

X. Detailed Evaluation of Production Control Provisions 

Chapter XIV. POST-rCODS DEVELOPMENTS V:iTH RESPECT TO 

PRODUCTION CONTROL. 

CHAPTER XV. PROBLSl'IS POR EURT^iER RESEARCH 

APPEICDICES.- 

Appendix A, Efforts of the LtiralDer Industry at production control 
prior to IIRA, 

Appendix B. Report on Meeting of Executive Committee of the Joint 
Conference Committee (ap-pointed under Article X of the 
Lumher Code) held in Washington, D. C, Octoher 24-25, 
1935, for the ..Purpose of Considering Future Government 
, Policies with Reference to Luinher, 



(Decision as to r/hat other ADpendices will 
a.r)pear in the Pinal Report cannot as yet "be 
made • ) 



9412 



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TBADE PRACTICE STUDIES 
PRODUCTION AKD CAPACITY CONTROL UNDER THE NRA 
Siimmary of Preliminary EindiniPrs 



Restrictions on production or ^a-oacity ar.peared in NRA codes in a 
n-umlDer of forms, the chief of which vrere the following: 

(1) Assignment to each memher of an industry of a definite 
production cjj.ota - as in Lumber and Petroleum. 

(2) Limitation on the hours for which equipment could "be worked 
(and sometimes on the number of units that could "be 
operated) - as in most of the Textile Codes 

(3) P.estrictions on the installation of capacity, as in Ice, 
Steel and numerous other Industries varying widely in 
character 

(4) Inventory control, as in the Carpet and Rug and the Carton 
Black industries. 

Altogether, the codes of more than one hundred industries contained 
production control provisions of some type ~ ranging all the way from 
absolute limitations and prohibitions to provisions 'which merely sug- 
gested that the Code Authority make a study of conditions in an indus- 
try, and submit recommendations to the Administrator with respect to 
menas for coordinating production and consumption. The industries in 
which production controls were actually set up included many of the 
most important in the country. However, there were a number of out- 
standing codes - such as those for Bituminous Coal and for Machinery 
Manufacturing - in which production controls were conspicuously ab- 
sent. 

An. important objective of the study of production and capacity 
control under the N.R.A. has been to determine the effect of these pro- 
visions. This task has been complicated by the fact that, in the case 
of most of the more ambitious programs, there had been prior efforts to 
do much the same thing by industry action. The anti-trust laws had 
constituted a threat to such industry action. Moreover, controls which 
were practiced by the majority in an industry were sometimes rendered 
only partially effective because of independent action taken by minori- 
ties. HoT/ever, examination of the pre-code period shows that in many 
cases a considerable degree of effectiveness had been attained by inr- 
dustry production control measures. Those exercising such controls 
were usually eager to obtain, through the N.R.A. , the sanction of 
Government approval; but in some instances it is doubtful as to whether 
such approval changed the existing situation in any material way. 

Another difficulty in determining the result of production control 
arises from the fact that in many industries production would not in any 



9412 



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case have exceeded the limitations prescrited. Indeed, it is safe to 
say, generally speaking, that production controls did not appreciably 
curtail total output - except as production may have "been reduced 
somev/hat voluntarily, "because of a slackening of demand following price 
increases. Some of the latter were protahly stimulated "by the fact that 
the industry had production control. It is douhtful, however, whether 
the raising of prices because of production control did in fact check 
production to any extent. For in several of the industries in which 
production control was a very imTDortant factor in the total situation, 
there were considerable increases in production. In Lumber and Cotton 
Textiles, for instance, substantial increases in production were re- 
sponsible for troublesome expansion of inventories. Eventually this 
led to more rigorous restrictions on production, and to consequent 
curtailment of output. Nevertheless, for a rather protracted period, 
the net effect of these codes ap-oears to have been a stimulation of 
production. 

Another reason for the failure of production control to cause much 
restriction of production lay in the attitude of the N.R.A., which was. 
in general one of reluctance to apply restrictions. Many proposals to 
put production controls, in codes were rejected or radically modified. 
Where the code gave the Administration discretion, the policy came, to 
an increasing extent, to be one of permitting additions to capacity; and 
of allowing exemptions to restrictions on production in the case of firms 
whose business activities would otherwise have been seriously hampered. 

This policy was not, however, applied uniformly — partly because 
Code Authorities sometimes took a strong contrary position. One of the 
principal lessons which may be drawn from the code experience is the 
danger that is inherent in an attempt to apply broad restrictive measures 
to industrial conditions which are far from uniform. Reduction of ma+i 
chine hours to 40 means one thing to a plant v;hich has been operating 
50 hours; and something very different and much more disturbing to a 
company whose business and equipment have long been organised on the 
basis of 16- or 24-hour operation. A prohibition of the introduction of 
new machinery may be welcomed by a. large concern which has equipment in 
excess; but may impose a real handicap on a comDotitor who has never ac- 
quired equipment beyond that necessary to meet his orders — perhaps on 
a basis of double or triple shifts. 

Notwithstanding the often negative and sometimes harmful results of 
production controls under the codes, it is doubtful whether those in- 
dustries that had to bear the heaviest burden in the way of increasing 
wages and spreading employment could have been won to cooperation with 
the Administration's labor program without the promise of the measure 
of security that production control appeared to offer. Production con- 
trol also placed limitations on the ability of the more aggressive con- 
cerns in an industry - whether through wage-cutting, or through superior 
efficiency in operation or in securing business - to overwhelm their 
competitors. Such limitations on competition may well have made it 
easier for some of the weaker concerns in an industry to come up to 
common minimum standards on hours and wages. 



9412 



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The question of future attitude toward production control presents 
a difficult problem. It has not "been possible in this brief saanmary to 
describe the underlying conditions in industry which have led indus- 
trialists for many years past to seek some measure of iDroduction con- 
trol, or to consider the effects of production control on these more 
permanent problems. Without attempting to pass Judgment as to whether 
the precise measures of control sought were warranted, the conditions 
that gave rise to them were frequently such as to warrant group efforts 
to remedj'- them in the interest of the public, as well as in that of the 
industries concerned - provided, of course, that this could be done 
without serious harm in other directions. 

The efforts in connection with the codes to change some of these 
conditions through production or capacity controls revealed many weak- 
nesses and dangers. In addition to the hardships that tened to fall en 
particular members of industries, the N.R.A, never developed a suffi- 
ciently fundamental and comprehensive policy as to what it was attempt- 
ing to accomplish. There was a tendency to protect existing interests 
without giving sufficient consideration to whether the long-run national 
interest might not warrant changes. Usually, also, the Administration 
did not have sufficient information as to conditions in the industries 
whose production and capacity were being regulated. 

On the other hand, it is important to recognize that a refusal of 
the Government to interest itself in production control would not have 
meant that activities along that line, with the dangers inevitably ac- 
companying their possible advantages, would cease. Efforts at such con- 
trol were widespread before IJ.Jl.A. One reason why most of the well- 
organized industries do not now wnt a continuation of II.R.A, is be- 
cause many members feel they have progressed far enough in the technique 
of production contirol to get along by themselves. 

This raises two questions. First, how long will these industries 
be able to do something really effective with respect to control of pro- 
duction? Second, to the extent that they do succeed will the public 
interest be sufficiently protected? 

With reference to the first of these questions, many of those most 
familiar with the management of trade associations believe that industry 
controls will at most function only intermittently. Periods of control 
will probably alternate v;ith -oeriods of confusion. With reference to 
the second issue, IT.R.A, experience has shown that the unchecked admin- 
istration of controls by bodies solely representative of industries are 
likely to give rise to actions that discriminate against some members, 
besides being prejudicial to the public interest. 

For these reasons it would appear that, if group action is to be 
undertalcen in an effort to solve the major production and capacity 
problems with which industry has long been confronted, the government 
will have to take some part - in the way either of helping to carry 
through Measures that it believes are desirable, or of checking others 
that it feels would be un(iesirable. Before the Government can act ef- 
fectively in these respects, however, it will be necessary to develop a 
much clearer policy as to what ends are to be desired, and as to what 
means are practicable, than has yet been done, 

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TRAD3 FRACTICa STUDIES 
PRICE STUDY or THE FERTILIZER IlIDUSTRY 
T aible of Contents 

CHIPTER I. SUBJECT Aim SOURCES OF THE STUDY 

I, SalDject 

A, Principal Subject: the Open Price Plan of the Fertilizer 
Industry 

B. Incidental Satject: Fertilizer Trends and Practices Re- 
flected in the Price Schedules filed with the National 
Fertilizer Association 

II. Sources 

A. Principal Source: 

1« Filed Price Schedules 

B, Sah si diary Sources: 

1. Field Trips 

2. HRA Files 

3. Articles 

III. Leading Issues in the Field of Open Prices 

CHAPTER II. OPERATION OF THE OPEN PRICE PLAN- 
I. The Code Provision 

II. i.Iechanics of the Plan 

A. Division of the Country Into Zones and Siih-Zones 

B. How Price Schedules Were Exchanged and Made Effective 

III. Administration of the Plan 

A, Regulations of the Code Authority 

B. Regulations of NRA 

IV. Extent of Price Filing 

A, Numher of Schedules Filed in the Whole Country and in 
Selected Zones 

1» Total Number Filed by Months 

2« Percentage Filed to Meet Competition 

B. Number of Schedules Filed by Each Company: Frequency 
Distribution 

V, Complexity of the Plan 

A. The Rule that Slight Changes Required Filing Complete 
Schedules 

B. Effects 

1. Discouragement of Changes 

2» Cost of Filing Especially to Small Companies 

CHAPTER III. PURPOSE OF THE OPEN PRICE PLAN 

I. Publicity of Prices 

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A. Expressed Purpose of the Plan 
B« Degree of Publicity Achieved 

1. Among Sellers 

2, Among Buyers 

C, Comparison with Situation Prior to the Code 

II. Sta'Dilization of the Market 

A, I]ffect of Open Price Plan as Envisaged 5y Its Sponsors 
B# Degree of Stahilization Achieved 

CHAPTI3 IT. COI^ETITION AND COOPERATION UNDER THE OPEN PRICE PLAIC 

I. Control by the Code Authority 

A, Evidence on Whether It Suggested Prices or Terms 

B, Effect of Its Regulations on Prices and Terms 

II. Control of Zone Committees 

A. Organization of Zone Committees 

B. Evidence on ^IHiether They Suggested Prices or Terms 

C. Effect of Their Recommendations on Prices and Terms 

III. Agreement Among Producers 

A. Evidence on Whether They Discussed Prices and Terms Before 
!iril:lng Them 

B. Com-parison With Situation Prior to the Code 

IV. price Leadership 

A. Description of Price Leadership in Fertilizer and the lO-day 
Waiting Period 

B. Extent of Leadership "by Different Producers (big vs. small) 

1. In General 

2. Price Advances vs. Declines 

C. price "Following" 

; 1. Extent to Which Price Leaders '.7ere Followed 

2. Speed With Which Price Leaders Were Followed 

3. Explanation of Delays in Meeting Competition 
Where Found 

D. The Waiting Period 

1. Advantages 

(a) Convenience in Operation of the Price 
Filing System 

(b) Efficiency in Making Prices Known to All Producers 

(c) Danger of A Price Cutter Stealing the Market At the 
Peak of the Selling Season 

2. Danger 

(a) Possibility of Agreement on Uniform Prices or Terms 

(b) Actual Analysis of Schedules Withdrawn During the 
Waiting Period 

CHAPTER V. EFFECT ON PRICES 

I. Description cf the Products of the Industry 

II. Price Trends Reflected in the Schedules 

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-353- 

A, Mixed Fertilizers 
B» Materials 

1« Nitrogen 

2» Phosphoric Acid 

3« Potash 

III. Compaxi-.ons With Other Prices 

A, ^Bar.-au of Labor Statistics Price Series on Fertilizers and 

Ho,terials 
S, Other Industrial Products 
C, Classes of Products Sold to and Sold hy Farmers 

IV. Analysis of Price Movements, Prior to and Under the Code 
A» Frequency of Changes 
B# Size of Changes 

V, Analysis of Price Uniformity, Prior to and Under the Code 

VI, Effect on Differentials Between the Grades 
A» Regular Mixed Fertilizers 

B. "Tobacco Grades", "Truck Grades", and Other Special Ferti- 
lizers 

VII. Charges for Special Mixtures Not On the Regular Schedules 

CHAPTER VI. EFFECT ON PRODUCTS OFFERED 

I» ITuLfoer of Products Offered 

A. By Large and Small Companies , 

B» Prior to and Under the Code 

II, Cheiiges in the Number of Products Offered 

A. Changes Due to Competition 
R. Reductions by NRA 

1, Practical Effect of Reductions 

2. Reaction of the Industry 

III* Home Mixing by Farmers 
A* Cost 

B. Trend Under the Code 

CHAPTER VII. EFFECT ON METHODS OF DISTRIBUTION 

I« Sales Direct to Consumers 
A# In general 
B* Governmental Agencies 

C. Farm Cooperatives 

II. SsJLes Through Distributors 

A, Change from Dealer Distribution to Commission i^ency System 

B, Effects of the Change 

C, Reaction of Dealers 

III. Agent's Compensation, Before, During and Since th« Code 

\ 
tl2 



-354- 
CHAPTER VIII. EFFECT ON TERlviS OF SALE ' • 

I. Trends in Terms of Sale 

A. Crrload vs. less-Than-Carload Shipments 

B. Cuantity riscounts 

C. Mrnner of Packing .... 
!♦ Allowances for Shipment in Bulk •- " 
2« Extras for Shipment in Odd-Sized Bags - - • f 

D» Cash Discounts 

II. Degree of Uniformity in Terms of Sale 

III, Significance of Changes in Terms of Sale • 

A. Importance as Methods of Competition * ■ 

B. Effect on Purchasing Hahits 

1, Effect of Quantity Discounts on Amounts Purchased 

2, Effect of Cash Discounts on Time of Payment ■ ' 

CHAPTER IX. GEOGRAPHIC FACTORS 

I. Extent of Interstate Commerce in Fertilizers 

II, Relation Between Prices and Terms in Different Zones 
A» Degree of Correspondence in Changes 

B, Degree of Uniformity in Prices and Terms at Any One Time 

C, Effect of Variation in Crops Grown 

III. The Delivered Price System 

A. The Changes Before, During, and Since the Code 

B, Effect of the Delivered Price System 

1. 'Ihsorption of Freight 

2. Cross-Hauling 

3. Uniformity of Prices 

IV, Trucking Allowances 

A. Trends .. • . 

B. Reaction of Truckers 

CHAPTER X. GENERAL RESULTS 
I# Comi^liance 

II. Effect 

A, On Producers in General 

B, On Small Firms 

C, On Consumers 

III. General Success 

CHAPTER XI. ISSUES IN THE STUDY OF OPEN PRICES 

I. Issues on 7/hich Light is Shed By the present Study 
A. Statement of Problems T?hich are: 

!• Conclusively Answered ' , < 



9412 



-355- 

2» Partially Answered 
B. Heconciliation of These Findings Viiith Those of Other SfU-dies 
in This Field 

II. Outstanding Issues on HThich Light may be Shed 3y Further :study 
of Fertilizer Industry 

III, Suggested Lines of Further Study 



=12 



-356- 
TRADE PRACTICE STUDIES 

PRICE STITJY OF THE F E RTILIZER I irp USTRY 

Preliminary Summary of Findirii'^s 

The purpose of the fertilizer industry in adoptin^^ open prices in 
its Code was to inform all producers of all prices current in the mrx- 
ket. Since it was hoped by this means to discourage price cutting, price 
stahilization may he termed a coordinate purpose of the plan. 

It does not appear that the National Fertilizer Association, which 
served as filing agency, urged particular lines of action on the meraoers 
of the industry, or favored any company or group. 

The regulations issued "by the Code Authority were in line with the 
instructions laid down in the Code, hut they must have tended to in- 
crease ujiiforinity in prices and in terms of sale, since they increased 
uniformity in the bases of quotation. 

The recommendations of the Zone Committees looking toward standcrcV- 
izatior-. of marketing practices v/ere seldom adopted, hut they were some- 
times put into effect by general consent; and by this means as well as 
by the regulations of the Code Authority uniformity was increased through 
the coopere.tion fostered by the Code, 

There exists scattered indications that producers occasionally 
knew of each other' s plans before adopting specific price policies; but 
the m<?.ss of evidence showing independent action is so great that it must 
be presumed that such cooperation was little uore frequent under the Code 
than before. 

The system of price leadership is well developed in the fertilizer 
industry. One company issues a new price schedule and the rest fall in 
line. 

The majority of companies do not follow the price leader at onco, 
but allow a lapse of several days or longer. Usually this is because the 
price change has occurred during an inactive season in the market, but 
soi.ietines it has meant that the companies which delayed the issue of their 
schedules veve taking advantage of the interval to make sales on the old 
terms. 

There was no particular distinction between price leadership on 
price advances and on declines. The same companies led in both, and the 
delays in following were about the same in both. 

The 10"Clay waiting period does not appear to have been misused to 
bring pressure to bear on small companies. 

The price schedules were made available to buyers as well as to 
sellers. 



9412 



-357- 

The com"olexit,y of the r.rice schedules "/as very (^roat, due partly to 
the nO.in^s of the N.R.A. that competition could only te met by filing 
identical schedules, and to th-at of the Code Authority that changes could 
only "be made effective ty filing complete schedules. This complexity re- 
sulted in a good deal of expense to the producers, 

Prices on most products rose sli;^htly londer the 0T;en nrice plan, "but 
somewhat less than did prices in other industries. Many other factors 
"beside the open price plan undoubtedly cohtri"buted to "bring a"bout this re- 
sult. 

No si;^ificant change in the frequency and size of price movements 
can he o"b3erved under the open price plan, as compared to the pre-code 
period. 

Price uniformity increased distinctly under the Code, tut had ex- 
isted in considerable degree previously. The increase was mainly H.ue to 
the fact that all parties had constantly at hand reliable information on 
the state of the market. 

Competition in the offering of additional grades continued ijnder the 
open price plaji. The industry welcomed the reduction of grades. 

Tnile the available figures indicate that the differential betvreen 
the price of mixed fertilizers and that of the materials contained in 
then - the differential that constitutes the cash saving to farmers v/ho 
buy the materials and do their ovm mixing - increased under the Code, 
they are not conclusive. There is no evidence that the anoi;jtit of home 
mixing actually increased, 

Trro basic chs.nges in the methods of 'jistribution were made shortly 
after the adoption of the Code. The first was the cha-nge from the S3''stem 
of selling to independent dealers for resale to farmers to that of ship- 
ping to agents (the sane -oersons as the dealers) on consignment. This 
c"ha,nge was due to a desire to control the ultimate distribution of the 
product more closely - for example, to prevent excessive mark-ups. So 
far as kno\m few dealers objected to the change. In some districts the 
change was not uniformly made, and the result was a less stable ms-rket. 

The second c'r^ange was in the method of quotation - which ha.d pre- 
viously been on a "dealer delivered" basis, although sovne comnanies 
quoted P,0,B. plant but which became almost imiformly "delivered at tine 
farm". This increased price uniformity, but seems to have been a^ccept— 
able to dealers and farmers, 

Tlie delivered price system involved the absorT;tion of freight on 
distant shipments, a factor present before the Code among fhe com-nanies 
which sold on a "dealer, delivered" basis. Cross-hauling, however, does 
not appear to be an important evil in the industry, 

Q,u£ijatit7 discounts were almost ujniversally adopted under the Code 
as a result of an N,R.A, Administrative Order, 



9412 



-358- 

Cash discounts were increased early in the Code and made somewhat 
more uniform. Later they were decreased again, although remaining hi£;h- 
er then the original scale. 

Terms of sale were generally uniform among the producers, "but not 
completely so. 

The price schedules show that there is considerable interstate 
commerce in the fertilizer industry. 

Terns of sale were a good deo.l alike in the different zones. Prices 
changed at about the same times, but there v/ere differentials between 
zones « c'ue chiefly to the location of important plants and to the 
freight structures. 

The industry reduced the trucking allowances to consumers shortly 
after the commencement of the open price plan. This was authorized by 
the Code, but caused some complaint on the part of truckers. 

Compliance was reasonably good until the last.Treeks of the Code.- 1 
In other v;ords complaints against companies for selling at other than 
their scheduled terms usually turned out to be unfounded, or were cor- 
rected by halving the offender sign a compliance agrecmei^^. 

It appears that small companies benefited under the open price 
plan, increasing their percentage of the business. 

IJo ferti?iz3r producer or buyer contacted in the course of the 
study eiKpressed dissatisfaction with the open-price plan. It apperxs 
to have been almost universally popular. 



9412 



-359- 

TRADE PHACTICE STUDIES 
A LIMITED SUKVEY OF PRICE EILIITG UNDER N.R.A. CODES 

Table of Contents 
CHAPTER I. INTRODUCTION 
I. The Introduction of Price Filing to the N.R.A. 
II. The History of Price Filing 
III. The Definition of Price Filing 

CHAPTER II. STATElvIENT OF THE PROBLEM 

I. The Problem as a Whole 

A. The Role of Price Filing in Competition 

1. Price Filing Itself a Control 

2. The Dual Function of Price Filing 

(a) Publicity 

(b) Compliance or Further Control 

3. Publicity and Free Competition, Impe.rfect Competition and 
'Fair' Competition 

4. Price Filing Plans as lueans for Further Control 

(a) Price Filing as a Check of Compliance with other' Controls 
Established 

(b) Inc or]-) oration of Other Controls as Part of Price Filing 
Plan itself 

5. The Economic Problem - Summary Statement 

B. Publicity under N.R.A. Price Filing Plans 

C. Control under N.R.A. Price Piling Plans 

D. The Economic Consequences of Price Filing under N.R.A. Codes 

E. The Elements of Price Filing Plans in N.R.A. Codes 
P. The Administrative Aspects of Price Filing 

G-. The Q,uestion of the Legal Status of Price Filing 

II. The Present Study 

A. Prevalence of Price Filing in N.R.A. Codes 

B. Limitations of the Present Study in Scope, Materials and 
Analysis 

C. The Sample and What It Is 

D. The Methods and Procedure 

CHAPTER III. . PUBLICITY UNDER NRA PRICE FILING PLANS 
I. Purposes and Functions of Publicity as Expressed by Code Proponents 

II. Publicity Requirements under N.R.A. Price Filing Plans 

A. Code Provisions Pertaining to Publicity 

B. Expansion or Modification of Publicity Requirements by Code 
Authority Action 

C. Administrative Modifications by N.R.A. 



9412 



-Seo- 
ul. Nature and Extent of Publicity Realized under N.R.A. 

A. Data Available for Dissemination as Conditioned by Scope of 
Price Filing and Participation of Members 

B. Character of Dissemination of Data by Administrative Agency 

C. Obstacles to Fall Publicity 

CHAPTER IV. CONTROL UNDER N.R.A. PRICE FILING PLANS 

I. The Desire for Control as Revealed by Industry Proposals 

II. Control Requirements Set Up in Connection rith the Price Filing Pro- 
visions in the Codes 

A. Control Over the Price Level 

1, By Cost and Minimum Price Provisions 

2. By Adherence to Filed Prices 

B. Control Over Price Changes 

1. The Waiting Period as a Deterrent 

2. The Limitations Against Discrimination 

C. Control Over the Price Structure 

1. Uniform or Maximum Discounts and Terms 

2. Product Classifications 

3. Customer Classifications 

4. G-eogranhic Price Stinieture 

D. Controls Over Channels of Trade 

1. Recognition or Non-Recognition of Customary Channels of 
Trade 

2. Mandatory Trade Differentials 

3. Inclusion or Exclusion of Distributors from Jurisdiction of 
Price Filing 

E. The Integrated Pattern of Control Provisions in Price Filing 
Codes 

III. Expansion or Modification of the Control Requirements by Code Auth- 
ority Action 

A. Rules and Regulations to G-overn Price Filing 

B. The Immediate Objectives of Code Authority Regulations Pertain- 
ing to Control Through the Price Filing Plan 

C. Basis of Authority for Code Authority Regulations 

IV, Nature and Extent of Control Realized under N.R.A. Price Filing 
Plans 

A. Conformance to Control Requirements 
1. Evasions and Subterfuges 

B. Factors Determining the Effectiveness of Control 

1. The Product and Its Market 

2. Nature of the Industry and Degree of Organization 

3. The Price Filing Provisions and the Code as Approved by 
N.R.A. 

4. The Relative Comx^lexity of the Price Structure 

5. The Administrative Lethods Employed 

6. Enforcement Efforts 

C. Application of Controls to Distributors 

D. Need for Other Supplementary Controls to Accomplish Desired Ends 
1. Statistical Reporting and Share- the-Business Plans 

9412 



-361- 

2. Production Controls 

3. Cost Controls 

4. Resale Price Maintenance 

CHAPTER V. THE ECONOMIC EETECTS OF PRICE PILING UNDER N.R.A. CODES 

I. The Elimination of Ignorance 

A. Elimination of the Lying Buyer 

B. Elimination of Bid Shopping 

C. Elimination of Secret Rebates on Concessions 

D. Alteration of the Position of Favored Buyers 

E. Other Effects of the Elimination of Ignorance 

II. Effects on Leadership in Price Changes (*) 

(*) This topic and others follovring will be developed so far as 
practical in terms of the following questions: 

A. What changes can he traced to Price Filing 

B. Do Changes Appear in the Nominal Price or in Terms and Conditions 
of Sale? 

C. Wliat is the Explanation of any Changes Observed? 

D. Can They be Attributed to the Publicity or to Control Aspects of 
Price Filing? 

III. Effects on the Price Level 

IV. Effects on Stability or Flexibility of Prices 

V. Effects on Frequency and Magnitude of Price Changes 

VI. Effects on Uniformity of prices and of Terras and Conditions of Sale 

VII. Effects on the Price Structure, e.g. 

A. Standardization of Products 

B. Simplification of Price Structure 

VIII. Effects on Channels of Trade 

IX. Effect on Geographic Competitive Relations of Members and Customers 

X. Effects on General Competitive Position of Members 

XI. The Issues of Public Policy Raised by the Indicated Economic Effects 

CHAPTER VI. THE COMPONENT ELEMENTS OF PRICE FILING PLANS (*) 

(*) Topics under this Chapter will be developed in terms of the 
purposes and controversies expressed in connection with the various 
elements, their prevalence in N.R.A. codes, their operation and ob- 
served effects. 

I. Past Prices vs. Current or Future Prices 

II. Mandator^/ vs. Voluntary Plans, and Participation in Plans 

III. The Waiting Period Requirement 
9412 



-362- 

IV. The Identification of Sellers and/or Eioyers 

V. The (Question of Idandatory Customer Classification 

VI. The Required Filing of AH Terms and Conditions of Sale 

VII. The Adherence to the Actual Filed Price 

VIII. Manner and Extent of Dissemination 

IX. The Agency to Administer Price Filing 

X. The Use of a Standard Price Filing Form 

XI. The Scope of Price Filing, and the Area of Application of Prices 
Filed 

XII. The Products Included Within the Price Filing Requirement 

XIII. The Transactions Included Within the Price Filing Requirement 

XIV. The No-Selling Below Cost Restriction 

XV. The Provisions for Meeting Competition 

XVI. Other Significant Elements 

CHAPTER VII. N.R.A. AEIvIINI STRATI ON OF PRICE FILING 

I. Supervisory Administrative Action 

A, The Administrative Pov-ers Reserved to N.R.A. and those Delegated 

B, The Nature and Extent of Supervision Exercised 

1. Receipt of Information on Rulings and of Actual Price Filings 

2, Review of Code Authority Regulations 

3. Formal Administrative Action in Sta^'-s, Exemptions, Orders, 
Amendments, etc. 

4, Investigation and Correction of Unauthorized Activities 

II. Compliance and Enforcement Activity of the N.R.A. 

A. Compliance Experience 

B. Litigation Experience 

III, N.R.A. Policy Concerning Price Filing Provisions and Its Component 
Elements 

A. A Resume' of policy Developments 

1. The Development from No Policy to a Policy - June 16, 1933 
through June 7, 1934 

2. The Introduction of Limitations and Safeguards - Office 
Memoranda Pertaining to Price Filing 

3. Formulation of Policy for Code Revision 

B. Application of Policy 

C. Extent to Wliich N.R.A. policy Declarations v/ere Made Effective 
Through Changes in price Filing Provisions 



9412 



-563- 

CHAPTER VIII. FINDINGS AND CONCLUSIONS 

APPENDICES 

APPENDIX A E3chibits of Materials Pertaining to Price Filing Study 

EXHIBIT I Preliminary Outline for Open Price Investigation 

EXHIBIT II Distribution of N.R.A. Codes, by Industry Divisions, by 
Size and by Time of Code Operations 

EXElIB.n: III Alphabetical List of 191 Codes in Over-All Sample for Price 
Filing Study 

EXHIBIT IV Open Price Plan for the Folding Paper Box Industry 

EXHIBIT V N.R.A. Policy Statements Relating to Price Piling 

EXHIBIT VI Statistical' Program for the Price Filing Unit 

(a) Subject Matter Outline 

(b) Methodology Outline 

(c) Material Specifications Outline 

(d) Inspection Study Outline 

APPENDIX B Price Filing in the Asphalt Shingle and Roofing Industry 

APPENDIX C Price Filin>r in the Steel Castings Industry 

APPENDIX D Price Filing in the Baking Industry 

APPENDIX E Price Filing in the Gas Appliance Industry 



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TRADE PRACx IC^ S I NDIES 

A LIl.IITED SURVEY OF ?:^:ICE EILITO UiZ)ER N.R.A. CODES 

Preliminr'Tv Sui.inary of Pindin.^;s 

The price filing plans authorized by IT.R.A. codes were not truly 
government exioeriraenfs with price filin^;;, ' despite their varied and maii- 
datory character. They r^ere not a controlled sajnple rnd v/ere not sub- 
ject to informed critical observrtion or supervision. The ori;ginal pro-- 
visions were too dissinilar to fall into any well-defined- clrsses; they 
operated in every conceivable t^npe of industry and competitive situation, 
within almost every known combination of code restrictions, and under 
diverse administrative management. They were subjected to changing pol- 
icy standards, unevenly applied to open price systems that had already 
reached one or another -sta^e of confusion, congealraent or "operating 
smoothness. 

r ^ 

The most characteristic form of price filing under N.R.A. codes 
involved the mandatory filing of present or future prices below which 
sales might not take place, the inclusion of all terms of sales in the 
filing, and the dissemination of identified price lists to competitors, 
through the medium of a central office, usually that of the Code Author- 
ity. 

The major differences betv-een the N.R.A, ti^pe of price filing plaJis 
and those of the pre-code period were: (a) the change from voluntary fil- 
ing by a group of industr;^,'- members to the mandatory filing by all members 
of 3Ji industry; (b) the change from the reporting of past transactions 
to the reporting of present or of future quotations (with a waiting per^ 
iod); (c) the isolation of price re-oortinf; as a plan more or less dis- 
tinct from other statistical renorting. 

Price filing appears to serve tv^o clearly distinguishable functions 
- publicity function and the control or compliance function. These are 
frequently embodied in the same lolan, and are confused in the minds of 
both of those industry members who participate in the plans and of those 
who seek to ascertain their effects and the desirable public policy to- 
ward them. 

Price filing plans under the 1T,R.A, were designed primarily for the 
latter function. They were the "chec-:ing" rather than the "market" in- 
formation t'-pe of open price provision, in that publicity was to serve as 
a measure of individual compliance with other price or trade practice 
provisions (including no sales belo^,/ cost provisions), as well as aji aid 
to improved knowledge about price levels and price chand^es. 

As a publicity device, price filing was expected to deter price 
cutting and to prevent uneconomic discrimination among buyers. There is 
f ragmen tarj'- evidence that it did have this result in some instances; but 
the findings are not as yet substantiated by quantitative evidence. In 
some instances it seems to have deterred, in other to have promoted price 
cutting. It appears very generally to have promoted price uniformity. 
The effectiveness of the device as a deterrent to discrimination was 

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limited "by the common practice of permitting customers to have access only 
to the price filin-^^s aT)plica"ble to their ovm class. 

The effectiveness of price filing in giving publicity to prices uas 
limited "by a number of other factors: (a) Dissemination of filed prices 
was usually undertalcen only to memters and was comparatively rare in 
the case of customers, ("b) Frequent failure to file, widespread evasion 
of filed prices, and the filing of minimum rather than actual selling 
prices were common obstacles to publicity. 

Very wide discretionary powers were left to Code Authorities in con- 
nection with the operation of open price filing provisions. One use of 
these powers v;as progressively to extend requirements for the publica- 
tion and regularizing of all terms and conditions of sale. Price filing 
requirements a"opear to have served frequently as an impetus for standard- 
ization and uniform classification of products, customer groups, dis- 
counts, differentials, and other terms and conditions of sale. Exceptions 
to this trend, in the direction of increased differentiation in terms and 
conditions of sale may appear, however, from more detailed studies,. 

The rules and regulations of Code Authorities pursuant to price filing 
provisions shaded imperceptibly into regulations designed to convert the 
price' filing system into a tool for price control. Efforts to use price 
filing as an instrument of Joint action to maintain prices were general. 
These efforts were not in most cases in the form of collusive agreements 
or of overt price fixing, but in that of an organized program to restrict 
individual freedom in pricin^^ practices , and to secure conformity to a 
pre-determined price minimum and/or price structure. Thus we find rela- 
tively fev\r recorded cases of pressure or coercive activity to require the 
filing of a specified net price, but very extensive evidence of efforts 
to compel members to abide by code or extra-code regulations concerning 
certain elements of price, cost floors, methods of quotation, established 
differentials, etc, 

A very close relationship between cost provisions and price filing 
provisions appears, v/ith the cost provision frequently used to establish 
Code Authority control over filed prices, and vice versa. The effec- 
tiveness of this control was limited and weakened by the progressive re« 
luctajLce of the 1T,R,A. to approve mandatory cost accounting systems or 
to enforce cost restrictions, 

Tlie administrative problems connected with the operation of price 
filing were many and vajried. Many arose from the code provisions them- 
selves, which were characteristically too broad or too narrov; for a 
regulatory device to be administered by a combination of private and 
public authority. 

Code provisions proved relatively pliable so far as Code Authority 
innovations were concerned, because of the wide powers granted in early 
codes and of the lack of specific limitations and definition of detailed 
procedures or powers. Administrative interference or corrective action 
was largely negative in character, since amendments and modifications of 
existing provisions were made dependant on industry cooperation, N,E»A« 
policy on price filing was not formulated until June, 1934, when more 

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than 300 codes had already teen written. The General trend was to sur- 
ro"UJid price filing systems with safeguards against abuse, and to limit 
the f-u^iction of these systems more definitely to effective publicity. 
Even a.s thus limited, the last policy statement says that they should be 
applied to competitive but not to serai-monopoly industries. Application 
of policy to effect changes v/as greatly handicapped by the reluctance 
of industries to open up the plans to revision. 

There was a conspicuous absence of Administrative investigation of 
the need for proposed price filing plans at the time of their introduc- 
tion, and a corresponding lack of current supervision or observation of 
their operation and results after approval. 

One result of this spasmodic supervision is the absence in n,R,A» 
files of any body of collected price filings sufficient to perriit a 
statistical analysis of the primary economic results on price ' ;■, 
levels, price stability, uniformity, etc, ' . • 

'The effectiveness of price filing performance, and the success of 
plans in achieving the desired ends of publicity and control, were li- 
mited in many industries by difficulties arising from lack of standard- 
ization of the product by ambiguities or loopholes in the provision, 
by evr.sion of the provisions through subterfuge and otherwise, by the 
-presence of large numbers of small enterprises, and by the fact that 
distributors in competition with direct sellers were not bound by the 
price filing requirements. 

Administration of price filing provisions was apparently easier 
and more effective in industries in which the structure of prices was 
simple or fcr.Vialized, either prior to the code or by virtue of code pro- 
visions. 

The frequent demand for supplementary controls over costs, produc- 
tion, resale prices, e tc, would indicate that price filing alone is not 
deemed sufficient to secure effective price control in many industries* 
There is some evidence that control is facilitated by the use of a market 
reporting system, which includes other statistical data in addition to 
prices. 

F-Jirther and more definite findings on the economical results of 
price filing plans must await the completion of statistical case studies 
and the analysis of other work materials. 






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TRAJ33 PRACTICE STUDIES 
LOSS LIMITATION 
Table of Contents 

CHAPTER I. IlITRODUCTION 
I. Definition of Loss Leader Selling 

.•/ 

II. Definition of Loss Limitation Devices 

III. Sta.ter.ient of the Issues 
A» Industrial Issues 

B, Social Issues 

CHAPTER II. ECONOMIC BACKGROUND 

I. Conditions Out of Which Loss Leader Selling Arose 

II. The iiechanics of Loss Leader Selling 
A* As Used "by Manufacturers 

1. Manufacturers Dumping 
3« As Used "by Wholesalers 

1« Joint Sales 

C. As Used by Retailers 

III. The Groups Affected by Loss Leader Selling 
A» The Producers 

1. The Effect on Volume 

2, The Effect on Selling Policies 

B. The Wholesraers 

1« The Effect upon Volume 

2, The Effect on Buying Policies 

C. The Retailers 

1. The Effect vcoon the Volume 

2. The Effect upon Buying Policies 

G, The Effect upon the General Level of Prices 

4, The Effect upon General Level of Brand Prices used as 

' Loss Leaders 

D. On Consumers 

!• Resume of Effects on Prevailing Price Levels 

2. Effeccts on the Availability of Merchandise 

3. Effects on the Q;uality of the Product 

E. Interpretation of the Interplay of Interests in the Trade 
Before and During the Code 

1. Strategy of Invaders, to Gain Control of the Field 

(a) Manufacturers 

(b) TTholesflers 

(c) Retailers 

2. Strategy of Those in Power, to Remain in Power 

(a) Manufacturers 

(b) Wholesalers 

(c) Retailers 

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CHAPTER III. NON-LEGISLATIVE PRICE STABILIZATION DEVICES 

I» Meo.sures Employed in Trade Making for Adoption of Non-Legislative 
Price Stabilization 
A« Refusal-to-B-uy 

B» Sabotage (Sv/itching ajnd Disparagement) 
C» Trade Propaganda 
D» Intra- Indus try Politics 

II. Descri-tion and Evaluation of Methods of Non-Legislative Price 
Stabilization 
A. RGfusal-to-Se;Ll 

1» Purpose of Refusal-to-Sell Policies 

2« Basis of Legal Rights to Refuse to Sell 

3, The Principle of the Device 

4« Mechanics of Operation of Refusal-to-Sell Devices 

5« Legal Limitations on Right to Refuse to Sell 

6, Recent Use of Refusal-to-Sell' 

7, Effects of Refusal-to-Sell Policies 

B« Consignment Selling Used as a Price Stabilization Device 
1» Purpose of Consignment Selling 
2« Ba-sis of Legality of Price Stabilization by Consignment 

Selling 
5. Mechanics of Operation of Consignment Selling 

4, Effects Reported by Manufacturers Experienced in Use of th© 
Device 

C« Manufacturer-Dealer Cooperative Arraiigeraents 

D« Education of Dealers in Benefits of Price Stabilization 

CHAPTER IV. FEDERAL LEGISLATIVE PRICE CONTROL DEVICES 

I. Pre-code Proposals 

A. Stevens Bill 

B. Metz Bill 

C. Capoer-Kelly Bill 

II. Loss Limitation Provision of Retail Drug Code 
A* Historical Development of Provision 

1. Relation of "Manufacturer's Wholesale List Price per Dozen" 
to Merchandise Costs of Large and Small Retail Druggists 

2. Development of Ap"Droved "Cost Plus 10^" Provision 

3. Development of Amendment of March 1934 

4. Development of Amendment of September 1934 

B. Alignment of Opposing Forces 
1» Proponents 

(a) Small Independent Druggists, Established National 

Chains, Non-Cut-Rate Wholesalers and a few Manufacturers 
2. Opponents 

(a) Cut-Rate Independent Drug Store, Small Chains, Cosmetic 
Shops, and Department Stores 

C. Issues seen by Opposing Forces 
1. ProDonents 

(a) Importance of Small Drugv:ist to Society 

(b) Necessity of Price Stabilization to Maintenance of 
Small Druggist's Existence 

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2. Op-Donents 

(a) Danger to Public Welfare from Protecting a Particular 
Class 

(b) Curtailment of Opponents' Individual Liberties 

D, Operation of Provision 

1, Administrative Difficulties and Inherent Limitations 

2, Compliance and Litigation 

3, Attitudes of Interested Parties 

E. Effects of Provision 

!• From the Industry's. Viewpoint 
2. From the Social Viewpoint 

[II. Loss Limitation Provision of Retail Food and Grocery Code 
A« Conditions in Trade- prior to Code 

1. Statistics 

2. Classes of Members 

B« Evolution of Loss Limitation Provision 

1. Original Proposal 

2. Changes Proposed 

3» Approved Provision "Cost plus Labor Mark~Up" 

C. Issues seen by Proponents of Provision 
!• Protection to Small Retail G-rocers 

D. Issues seen by Opponents of Provision 

1, Danger to Public Welfare from Protecting a Particular Class 

2. CurtailmEnt of Proponents' Individual Liberties 
E» Establishment of Labor Mark-Up of 6^ 

E. Problem of Transportation Charges in Lqss Limitation Provision 
G. Difficulties Involved in NRA Administration of Provision 

H« Successes and Failures of Code Authority Administration 
I. Effects of Provision 

1. Effects on Trade 

2. Effects on Consumer 

3. Effects on Allied Industries 

4» Report of Conferences and Qp.estionnaires 
5, Changes Suggested 

IV, Comparison of Drug Code Loss Limitation Provision with Loss 
Limitation Provision in Grocery Code and other Codes 

V, Post-code Federal Price Stabilization Proposals 
A* Patman Bill 
B« Proposed Federal Enabling Act Relating to State Permissive 

Price Contract Statutes 
C» Proposed Amendment to Federal Trade Commission Act 

CHAPTER V. STATE LEGISLATIVE PRICE STABILIZATION DEVICES 

« 

I. California Legislative Price Stabilization Devices 
A. Legal History 

1. The Law Prior to 1931 

2« Fair Trade Law of 1931 and Amendment of 1933 

(a) The law Stated and Interpreted 

(b) A Review of Cases Arising under the Law 
3. The Unfair Practices Act of 1935 

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B» Analysis of Political Forces "behind the Legislative Devices 
C« Developments in the G-rocery Trade 

!• The Extent and Nature of the Use of the Fair Trade Law 

2« Attitudes of Members of The Trade 

3. Reasons for the Slight Use of the Fair Trade Law 

4, Present Attempts to Set Up Minimum Prices under the Unfair 
Practices Act of 1935 

D. Developments in the Drug Trade . 

1, Developments Prior to 1933 

2, Period of the Retail Drug Code • 

3, Developments under Anendment 1-^ 

4, Analysis of Conditions in the Trade Prior to the Passage of 
Anendiient 1-h, (Especially the Extent of Price-Cutting as 
Indicated by Price Studies) 

5, Attitudes of Members of Trade 

6, Procedure of Enforcement 

(a) Methods Employed 

(b) Legal Remedies 

(1) Types and Terms of Contracts 

(2) Use of Restraining Orders and Injunctions 

7, Effectiveness of Enforcement 
(a) Administrative Difficulties 
(b). Degree of Enforcement in the Trade 

8, Effects upon Retail Prices aiid Margins 

(a) Average Retail Minimum Contractual Margins by Classes 
of Products 

(b) Comparison with Margins in Great Britain 

(c) Margins on Selected Specific Items (Based upon an 
Examination of Contracts). 

(d) Comparison of Advertised Drug Prices in San Francisco 
Examiner during First Six Months of 1933 with Contractual 
Prices in 1934 

(e) Comparison of Advertised Drug Prices in Stocktpn during 
First Six Months of 1933 with Contractual Pricgs in 1934 

(f ) Same as (d) and (e) for Los Angeles 

(g) Same as (d), (e) and (f) for Modesto 

(h) Same as (d), (e), (f), and (g) for Rural Centers 

(i) Comparison of Pre-Contr actual and Contractual Prices on 

105 items in 20 Independent Drug Stores 
(j) Comparison of California Contractual Prices with Pricey 

on Identical Items in Portland, Oregon and Tacoma, 

Washington in Period before Oregon and Washington had 

Fair Trade Laws and in Branches of a Firm Doing Business 

in All Three States 
(k) Comparison of California Contractual Prices with Boston 

Prices, (Small sample) 
(1) Comparison of California Contractual Prices with Canadian 

Prices. (Small sample) 

9, Competitive Adjustments in the Market Traceable to Resale 
Price Maintenance 

10, Economic Effects of the Application of the Fair Trade Act 



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II. Other State Permissive Contractual Str.tutes 

A» ITev; York 

B. UevT Jersey 

C. PennsylvaJiia 

D. Maryland 

E. Illinois 

F. TJisconsin 
G-» Iowa 

H, Oregon 

I« Washington 

III. Other Types of Price Stabilization Legislation in States (other 
than California) 

A» Ner; Jersey Unfair Competition Law 
!>, Connecticut Retail Drug Law 

CHAPTER V. POST CODE STRATEGY OF INTERESTS IN THE DRUG TRADE 

I. Strategy of Invaders to Gain Control of the Field 
A« Manufacturers 

B. Wholesalers 

C. Retailers 

II, Stra.tegy of Those in Power to Remain in Power 
A» Manufacturers 

B. Wholesalers 

C. Retailers 

CHAPTER VI.* COI^IPAEIATIVE AITALYSIS OF PRICE STABILIZATION 

DEVICES DISCUSSED 

I. Adpiinistrative and Legal Difficulties 

II. Cost of Operating the Devices 

III. Evaluation of the Relative Effectiveness of Such Device 

IV. CompaTison of the Unique Advantages of Each Device 

■ CHAPTER VII. LEGAL ANALYSIS OF RESALE PRICE MAINTENANCE 

I. Statement of the Problem 

II. Development of the Law of Restraint of Trade 

A. Early Economic Background 

B. Modern Manifestation Compared with Ancient Idea 

C. Economic Barometers used "by Court to Measure Whether a &iven 
Device Harms the Public Interest 

III. Development of Law of Unfair Competition 
A. Early Economic Background 

* This Chapter probably will not appear in the January 15, 1936 report of 
this Study. 

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B. Development of Good Will Tlieorjr 

C. General Econonic Struct-jre of Resale Price I^intenance as a 
Ller chandi s in<p; Technique 

D. Reason nhj'- Resale Price ilaintenance ^as Gondenned as in 
Restraint of Grade 

IV. Analysis of Recent Supreme Court Decisions Bearing on Resale Price 
Maintenance 

A, Dr. Miles case; Col^^ate casp', and Ijceciinut case, 

1. Extent and Adequacy of Factual Inforr.iation "before Court 

2. Data Necessary to a Determination of Such Cases 

3. Value of Cases as 5\iti-ire Precedents 

B. Appalachian Coals Case 

1. Extent aind Adeqioacy of Factiaal Information iDefore Court 

2. Development of "Rule of Reason" 

V. ITecessitj'' for Economic Facts and Economic Viewpoint in Future 
Litigation 
Involving Resale Price Maintenance 

VI. Extent and Adequacy of Factual Material before IIRA Warranting, from 
a Legal Viewpoint, Code Resale Price ■ Maintenance 



CHAPTER IX. - MATERIALS l^TEDED FOR A COlylPLETE ANALYSIS 

OF THE PROBLEl'.! 

I, Factual Information on Costs, Prices, Volur.ies, Margins and Profits, 
and Merchandising Policies 

A. Of Retailers using Loss Leaders, and Their Competitors 

B. Of YJholesalers Servicing Retailers Using Loss Leaders, and 
Those Servicing Their Competitors 

C. Of Mianufacturers whose Products are used as Loss Leaders, 
or liave teen used as Loss Leaders, and Other Manufacturers 

II, Factual Information on the Shift in Distribution of Commodities 

through the Various Intermediar;'' Channels as a Result of Loss Leader 
Selling and Loss Limitation Devices. 
A. Private Brands vs. Standard Brands 

III. An Evaluation of the Techniques Available for Collection of Such Data 

A. Primary/- Source Material 

1. Througli Interviews 

2. Through Q,uestionnaires 

3. Statements made at Public Hearings 

4. Correspondence 

5. Newspaper Advertisements 

6. Price Studies 

B, Secondary Source Materials 

1. Government Surveys 

2. Academic Surveys 

3. Trade-Sponsored Surveys 

4. Trade Journal Articles 



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IV, Theories to "be examined and Evaluated 

7. Reconmended Techniaues to "be Srnployed 

VI. Samples of Questionnaires and Interview Questions Developed for the 
Use of Tliis Study 

VII. Suggested Coverage for a Study. 



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TB.AD'E PPjICjIGE STUDIES 

LOSS LL.lITATIOiNr 

Frelirainary Sii.".iMary of ?indin.^_s 

Ee-rl3'" in the period vrhen codes were bein,^ lornulated N.R.A. adopt- 
ed the policy of prohibiting loss leac.er selling, in order to assist 
small inder)endent merchants in maintaining and exi^anding era-nloyrQent .?-nd 
wages. Consequently, many of the retail codes for trade? dealing in 
over-the-coimter merchandise contained loss lir.itation Torovisions. 

I.Iany in the N.R.A. felt tii^t the loss linitation ^ro visions in the 
retail codes would lead to increased prices to consumers and to un- 
warrantedly high profits for manufacturers end. wholesalers, since the 
prices of the latter would of necessity be the base for the scheme. 

The attem-ots under the loss li'-nitation provisions of the retail 
codes merely reflect a movement which was in operation through various 
devices, prior to the K.R.A. and which has continued through the same 
devices and through state legislation since the collapse of the lorogram. 

Because of limitations of time and personnel the study has center- 
ed upon the retail grocery and retail drug trades because of the im- 
portance of loss leader selling in these lines, and because of the fact 
that different methods of control were atter.ipted in each. 

Loss limitation nrovisions in the various retail codes differed 
from one another in principle. The Retail Drug, Reta,il Booksellers and 
Retail Tobacco codes established base prices, which were the same for 
both small and large outlets throughout the country. The Retail Pood 
and Grocery and Retail Trade codes established minimum prices based on 
the individual merchant's invoice cost, which varied greatly in small 
and in la.rge outlets. 

The Drug Code loss limitation provision established, as a minimum 
price, the manufacturer's v7holesale list price per dozen, which is an in- 
tegral part of the pricing structure of the drug industry and the near- 
est practicable approach to the small dealer's cost. The Booksellers' 
Code provision established prices at the full publisher-consumer price. 
The Retail Tobacco Code set a price lying between the small dealer's 
cost and the top consumer price. 

The Retail Trade Code and the Retail Pood and Grocery Code each 
established, as a minimijm -nrice, the net delivered invoice cost or re- 
pla.cement cost, vrhichever was lower, plus a raark-u^3 for labor costs. 
The mark-up established for groceries was 6 per cent, and that under the 
Retail Trade code 10 per cent. In both of these codes there was a pro- 
vision permit tin{;, the small dealer with a high invoice cost to meet the 
prices of competitors who bought more advantageously. 

The two sections of the report dealing with the drug and grocery 
trades' experience during the N.R.A. will illustrate tlie administra^ 
tive difficulties and that inherent problems th.^^t arose from the at- 
tempt to stabilize i:)rices in these trades. 

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Experience -under the loss limitation provisions of the various 
codes v/as "brief; hence, little material appears in N.R.A. files on the 
effects. However, such data as have "been gathered from the files and 
by independent studies indicate that T)rices to the consumer decreased, 
on the average, on highly advertised dru^ products during the operation 
of the Drug Code's loss limitation provisions. At the same time the 
small raemhers of the trade, althoiigh they took on an additional lahof 
"burden, found themselves in a better financial condition. Complete ex- 
planation of the seeming paradox of decreasing consumer prices carjiot 
be given v/ithout further study, but it is the belief of some representa- 
tives of N,R,A. pnd of the retail drug trade who vrere responsible for 
the administration of iiie code that the following factors account for it; 

(a) In the pre-code period the average cut-price store using standard 
di-ug products as loss leaders found it necessary to slash prices on 
a relativelj'- small number of products in order to attract patron- 
age. Such a merchant, under the terms of the code, had to raise 
prices on these products, but found it necessary to reduce a v/ide 
list of products to the code minimum to obtain an advertising ad- 
vantage, 

(b) The small merchant who previously had not entered the price-cutting 
field or v/ho , through oitter experience, had found he could not 
survive cut-price competition, now began to cut because there was, 
for the first time, a fixed limit to the process. 

(c) During the code period, more than 100 prominent manufacturers re- 
duced the manufacturer's wholesale list "orice on their products, 
while very few raised prices. It is believed that this reduction 
occurred because the Code minimum on certain products was consider- 
ably higher than the competitive cut price, and the manufacturer 
could not afford to have the price raised by the amount of the 
difference. Another factor which caused manufacturers to reduce 
their prices was the lowering of prices on substitute private brand 
products by cut price stores. Cut price stores did this when they 
found that the bottom Code price on standard drug products did not 
bring in the trade, because the small independent merchant had ag- 
gressively entered the price competition field. 



S] 



The individual invoice cost basis of the loss limitation provision 
of the Retail Grocery Code seemed to be the only method of loss leader 
control suitable to the competitive alinmment of that trade, and adapta- 
ble to its inherent pricing structure. Since it was practically im- 
possible to obtain the invoice cost of the merchant unless he voluntar- 
ily offered it, and because in this provision merchants were permitted 
to meet competition, there is very little data bearing on its effects. 
It is believed by leaders in the trade that this loss limitation provi- 
sion aided the small merchant. From a comparative study, ho?/ever, it 
v;ould seem that the provision for the grocery trade was not as effective 
as the one in the Drug Code in accomplishing what -as intended. The 
following facts are indicative: 

(a) Whereas the drug trade has about one- sixth as many outlets as the 

grocery field, the number of compliance, litigation and court cases 
resulting from the loss limitation provision in the former case, 
was much greater. The same comparison can be made between the re- 

QA1 O 



-376- 

tail Cxvi'?; and the gene.rnl retail trades. The retail totacco provision 
prohibitin,^ sales of cigarettes at less than tv.'o for 25 cents led to a 
great many com2olianQe, litigation and court cases. It is "believed that 
the tobacco and drug provisions hpo. this effect because they acco^ipli sh- 
ed subst£',ntially the purpose for nhich they vrere desi2;ned. 

(b) At ihe hearing before the Senate Finance Cor.iraittee for the renev:al 
of I'l.n.A. the Retail drug, tobacco and booksellers' trades were 
r.ilitantly acti\^e in requesting Congress to reneu the Act, and 
■oarticularly to continue the loss limitation provisions in their 
codes. This testimony stood out in contrast to the lulcewarn sup- 
"oort of the retail grocery trade and the active o-o-nosition of the 
Chairman and Vice-Chairman of the General lletail Code Authority. 

In the section of this study dealing- ith the opera-tion of the re- 
tail grocery code it can be seen that difficulties v;ere encountered in 
administering the e::ceptions to the loss limitation -orovision, v/hich 
provided tiiat, under certain conditions, merchants could sell belov; the 
code minimum. These sane difficulties nere encountered in the drug code. 

No evidence that retail grocery prices decreased as did retail drug 
prices during the code period can be found in the 1^3lA files or in in- 
dependent studies. In the latter there are some indications to the con- 
trary. It is difficult to -'eigh this evidence because of the other con- 
ditions uhich developed at the saine time in agriculture and in the food 
industry as a whole. No evidence has been discovered to sho'7 that 
\T rices on standard drug products '-^ere higher during the code r)eriod, 

Ex'^erience under state control measures in the state of California 
should be of iiroortance to legi-slators and to members of trade, since 
this is the only "olace vvhere such laws have been in effect long enough 
to produce results. 

The California Fair Trade Act vras passed in 1931 and amended in 
1933. It -"c^s enacted primarily because of the demands of organized in- 
depende;it dealers. It permits- manufacturers to contract for resale 
prices on their trade marked products in intra-state comnerce. To date, 
the la^7 is being employed in only a minority of trades; the vddest ex- 
perience under it is in the drug trade. In the latter retail margins 
under contract average about 31 per cent; contractual prices have in- 
creased about 25 per cent over loss leader ac'vertised prices, whereas 
prices in independent drug stores appear to have decreased slightly. In 
a nuj.iber of trades attempts ai'e being made to employ the California Un- 
fair Practices Act of 1935, which prohibits sales belo^- cost of merchan- 
dise, plus operating expenses. During the past year the California Fair 
Trade la'.v was. introduced in twenty four states and passed in New York, 
New Jersey, Pennsylvania, Maryland, Wisconsin, Illinois, Iowa, Washing- 
ton and Oregon. The experience in these nine states has been so short 
that no evaluation can be made at present. The results in California, 
however, should be of assistance in indicating vhat can be expected else- 
where, Connecticut vetoed the Fair Trade law, but passed the Retail 
Price Control law instead. This is simply the fair trade practice pro- 
visions of the Retail Drug Code, 



941 



o 



-377- 

This recent adoption of state price control laws has "been caused "by 
the revival of the pressure for the Capper-Kelly Bill, r^hich was repeated- 
ly introduced in Congress from 1914, after the Miles Decision, and until 
the passa^^e of the National Industrial Recovery Act, The chara.cter of 
the sponsorship for the state Fair Trade Laws ( Junior- Capper-Kelly Bill) 
has changed and it is today primarily a retailer's movement. The various 
state retail groups are "backing Senator Tydings in a proposal to amend 
the Sherman An ti- Trust lav;s. He plans to introduce this amendment at 
the next session of Congress, This proposal is a substitute for the 
Capper-Kelly measure. This bill aims to facilitate operation ■under the 
State Fair Trade laws "by exempting such operation from the Sherman Act, 

The em.phasis of the part of the study relating to resale price 
maintenance is laid on the. failure of the courts to consider the economic 
yardstick to be used for determin.ihg whether the practice does or does 
not restrain trade unreasonably. The material now collected and digested 
indicates that past Supreme Court decisions were made upon an inadequate 
factual foundation, and hence do not necessarily stand as precedents for 
future actions, in which the court has the complete picture in the records. 



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THALE PRA.CTICE STU DIES 
PROVISIONS AFrECTIFG CHAKIELS OF DISTRIBUTION 

Tal)le of Contents 

I. THE PROBLEM 

A. General relation of distribution practices to tne difficulties 
encountered by industry durinf^ the depression period. 

1. The Nature of the problem as seen "by Industry. 

(a) Viewpoint and analysis of the reasons for depressed 
conditions. 

(1) General conditions 

(2) Conflicting distribution methods 

(3) Unfair trade practices of manufacturers and 
distributors. 

2. The Nature of the problem as seen by the Distributors, 
(a) Attitude and opinions of distributors as to reasons 

for depressed conditions, 

(1) General conditions 

(2) Conflicting distribution methods 

(3) Unfair trade practices of majiuf acturers and 
distributors. 

3. Analysis of the Nature of the Problem from an Economic 
or Social Viewpoint 

II. THE SOLUTIONS SUGGESTED 

A. programs suggested by industry as solution to problem 

1, prohibition of sales to certain distributors 

2, Reduction of distributor' s margin 

(a) The benefits contemplated by manufacturers from such 
a prograDi 

(b) The disadvantages foreseen by certain manufacturers 
( c) The position of distributors under such a program 
(d) The public interest in such a program 

(1) The probable effect of the program on small 
enterprise 

(2) potentialities for monopoly in the program 

(3) The probable effect on economic distribution 

(4) The probable effect on prices 

(5) The difficulties inherent in public administra- 
tion of such a program 

3, Resale price maintenance 

(The same analysis and discussion as is set forth under 
1 above) 

4, protection of distributor's margin 

(The same analysis and discussion as is set forth under 
1 above, 

B. Various devices appearing in each of the programs discussed in 

II-A. 

1, Customer classification. 

(a) Different types of provisions 

(b) Relation to other devices 



9412 



-379- 

2. Resale price control 

(a) Different t'fjes of provisions 
("b) Relation to other devices 

3. Trade discoimts or differentials 
(Sa^.e as 1 atove) 

4. Q,uf>,ntity disco-imts 
(Sane as 1 a"bove) 

5. Di&co\mtG or lorico differentials other than tra.de or quantity. 
(Sane as 1 above) 

6. Restrictions on "brokerage payments. 
(Sarie as 1 above) 

7. Restrictions on sales to certain types or classes of outlets, 
(Same as 1 above) 

8. , Restrictions on consi^^nnent sales 

(Sane as 1 above) 

9. Restrictions on size or manner of nakin/3 shipments 
(Same as 1 above) 

10, Price discrimination 
( Same as 1 above ) 

11. Other devices 

C. Effect of N.R.A. policy on programs and devices 

1. !T;R.A. policy'- as a force to either support or to alter any of 
the programs or devices. . . 

2. Changes made in the programs or devices to make the same 
conform to policy. 

D, Alternative Prograans. 

1. Sui-^gestions for different approach to problems and of 
substitute programs, 

(a) From members of industry'' 

(b) Prom distributors 

(c) Prom N.R.A. Advisory Boards 

2. Arguments presented in favor of such alternative. 

3. Arguments presented against such alternative, 

3. Reasons that each of the programs v.'-as suggested, 

1. The corporate structiire of the industry, 

2. The nature of the product, i.e., size, weight, value. 

3. The prior experience of the industry in other types of programs 

4. The prior adoption of a program which was in operation or 
being developed. 

5. Distributor organization and distributor pressure. 

6. Trade Association activity. 

7 . Other reasons 

P. The programs as suggested and as aroroved. 

1, Changes made in code during period of consideration. 

(a) The codes as proposed and as approved. 

(b) The eliminations from and additions to original proposals 

III. TILE CODHS lY. OPERATION 

A. Those codes coming under Program 1. 

1. Administration by Code Authority 

2. Trade Association activity 

3. N.R.A. activity. 

4. Extensions of the code beyond original intent. 

5. Compliance difficulties experienced. 

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-.380- 

B. Those codes coning under Progra:.! 2. 

(Tlie sane analysis and discission as is set forth under A a"bove) 

C. Those codes coming under Program 3. 

(The sane analysis and discussion as is set forth under A above) 

IV. RESULTS. 

A. Analysis of effects of the codes in operation. 

1. Those codes coming under Program 1. 
(a) Administrative problems involved. 

(h) Evidence of injury'- or benefits to manufacturers bj'' types 

(c) Evidence of injury or benefits to distributors by types 

(d) Evidence of injurj'' or benefits to the public 

2. Those programs under Program 2. 

(The same analysis and discussion as is set forth under 1 
above) 

3. Those programs under Program 3. 

(T-ie same analysis aiid discussion as is set forth under 
1 above) 

V. THE LAI7 

1. Status of programs under lav; immediately prior to N.R.A. 

2. Adjudications by courts and Federal Trade Commission in 
connection rrith particular industries which had attempted 
any of the progrsims and had been tried. 

VI. GOKCLUSIOIIS 

1. Relative merits of each of the programs 

(a) To accomplish immediate ends sought by Industry 

(b) To s.ccomplish beneficial results uJ.timatel;^ for industry*" 

(c) To accomplish beneficial results immediately for the 
public 

• (d) To accomplish beneficial results ultimately for the 
public 

(e) From an administrative or operative standpoint 

2.- Relative merits of the various devices and combinations of 
devices utilized to make the programs operative 

3. Possibilities present under the N.R.A. to meet the problems 
through other programs or means 



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-381- 

.iira.de peactice studies 
provisions afj'ectiiig channels of dishtlbutiolj 

Proliiainar y SiJinnary of Eindin^s 



This is c. brief simncxy of findings nith respect to trade practice 
provisions afiect-ing cliannela of distribution. They are "based on the 
materials in individual summaries prepared "by menlDers of the Unit, or in 
r/orl: sheets, or in preliminary summaries of the work on individual indus- 
tries. 

Eor pur-QOses of claritj^ these findings are divided into three general 
classes, Eirst, those concerning the industry prohlem; second, those con- 
cerning the progre-ms developed to meet the prohlen; and third, those uith 
regard to the operation and effect of the programs so developed. 

Problem to "be M et h'^ Industr^'- . 

The pro"blem results from the many methods of distri"bution in use 
within given industries, together \7ith the existence of an unstQ,"ble price 
structure, and the efforts "by industry to control then. 

It has "been foijnd, in general, that three tj'-pes of distri""Dution exist: 
Direct sales by manufacturers; direct sales combined r/ith sales through 
distributors; and sales bjr raanufactiiTers solely to distributors. 

It has lilienise been found, generally speahing, that accepted practices 
have been developed for which price quoting make possible the comparison 
between manufacturers. 

It has been found that the lacl: of uniformity in distribution channels 
acted as an obstacle in the way of any program looking toward price stabil- 
ity. Manufactnjrers selling both wholesalers and retailers found that 
wholesalers undercut their prices to retailers, and manufacturers selling 
direct to retailers felt the effects of price cutting by wholesalers selling 
the products of other manufacturers. 

Program s Develo-oed to Meet the Pro blem. 

The programs developed undertook to promote price sta.bility by eliminat- 
ing price competition between manufacturers and distributors, or by control- 
ling such competition. To accomplish this end three alternative programs 
were developed, 

(a) The first contemplated the prohibition of sales to wholesalers 
or the rediiction of the wholesaler's operating margin, either to eliminate 
wholesalers from competition or to make it impossible for them profitably'" 
to -undersell the manufact-ujrer, 

Tliis program was SPoplied by the Salt and Cement Industries 
through reducing or eliminating distributor margins. The Asbestos 
Industr^^ and the Wood Cased Lead Pencil Industry also adopted it 
in part. 

9412 



-382- 

i 

(b) Resale price maintenance contracts - that is, policies of refus- , 

ing to sell anless the resale prices of naniifacturerc were observed - or || 
other methods for the control of v/holesalers' prices V7ere contemplated by 
the second t^roe of program. 

Tliis program ?/as adopted by the Business Fixrniture, the 
Carpet and Riig, and the Valve and Fitting Industries, through an 
attempt at rigid customer classification, the establishment of 
definite differentials between classes of buyers, and requirements 
that distributors maintain prices established by the man-'jfacturers. 

(c) Tiic third tirpe of program contemplated primary'' reliance by manu- 
facturers on distributors, which meant that certain direct sales by manufac- 
turers were restricted and the operating margin of the distributors protect* 
even tho-ogh some loss of direct sales 'h'f the manufacturers resulted. 

This program was adopted by the Lumber and Plumbing Fixtures 
Industries, both of v/hich attempted to protect middlemen by re- 
stricting manufacturers' sales and by establishing differentials. 

Operat ion and E ffects of th e Programs . 

The present findings with regard to the operation and effect of the pre 
grams are tentative. Those industries which adopted the first program refei 
red :to above met with the greatest amount of success. The Salt Industry, 
the Cement Industry'-, and the Brake Lining Division of the Asbestos Ind-Astry 
succeeded i:i effecting a division between the manufactuj*er market and the 
distributor market. Each of them have a few large members who are generally 
the price leaders, and xfho dominate in the establishment of practices. 
Prior to the code these industries had succeeded in developing considerable 
degrees of price uniformity. Under different circoi.istances, consequently, 
this tj'^oe of program might not "orove equally successful. In these Indus triej 
the large maniifa.cturers seem to have an unusurl ability to sell directly,'' to 
a major portion of the market, and in these operations distributors appear t( 
be not all essential. These industries, moreover, were not entirely depend-j 
ent on the suoport of the Administration for success in their code program. 
They could accomplish much without the N.R.A; and the latter, in all probabi] 
ity, served principally to facilitate programs already'' in progress. 

The Wood Cased Lead Pencil Industry was found to have failed to operate 
satisfactorily under the first program. Here there was a conflict between 
manufacturers; and the proposals affecting distribution were complicated by 
the need of eli?ninating or reducing bitter price competition between manufac- 
turers, before the elimination of competition between manufacturers and 
distributors could be effective. To accomplish this N.R.A. support was neces^ 
sary. This being refused, the program failed. 

The industries adopting the second program B described above did not 
meet with any narked success. Of these the Business Furniture Industry came 
nearest to accomplishing its objective. Government support was necessary to 
make resale n^ice maintenance programs effective. Such suroiDort was given with 
reluctance, if at all; and even with it enforcement was difficult. 



9412 



-383- 



Of the three pro{r;rams it would appear that the last v/as the least 
successful. A part of the res"jilt, possihly, can be attrilDuted to the fail- 
ure of the II. R. A. to support the plan whole-heartedly. At least, the 
unwillini;p.iess of the N.R.A. to spprove certain proposals interfered with 
the carr^'-ing out of the prograns as planned. In the two codes studied 
which contained this program a practically complete "breakdown developed in 
its adininistration. 



9412 



-384- 
TRADE PHACTICS STUDIES 
GI10C-EJU?iilC PHICS STHJCTUBES 

m 

Taljle of Cont entG 

CHAPTER I. TRADE FRA.CTICES A'^D ECQKOT/IC ISSUES INVOLVED 

I. C-eog-i^'aijhic pricing-; pro vi clone; in KEA Codec 
" II. G-eograohic pricing practiceo Defined 

A. practicec Rer:arding Trancportation Charfres 

1. F. 0. B. pricing 

2, Delivered pricing 

3. practicec Re^-arding the price Hairing procecc within 
Certain Areac 

1. price Filing Zones 

2. Anti-Dumping Zones ("Market Areas") 

III. possilDle Criteria as to the Soundness of the Reviewed practices 
fron the point of Vie^v of Public policy 
IV. Structural Characteristics of Industries Involved 
V. Brief Analysis of Some lii^ortaiit Aspects of the Operation of 
Geographic pricing Methods 

A. Introductory Remarks Regarding Location of Industries and 
Transportation Cost 

B. Analysis of the Operation of Various G-eographic pricing Methods 

1. F. 0. B. Mill pricing 

2. Delivered pricing 

(Based Upon Other than Actual Freight Charges) 
(a) Basing Points and Freight Equalization 
("b) Uniform Delivered prices 

C. G-eneral Concluding Remarks 

CHAPTER II. THE BASING FOIITT PRACTICE Ii: TIiE IRQII AIID STEEL IITDUSTRY 

I. CoiiTpetitive Structure of the Iron and Steel Industry 

A. Products 

B. processes 

C. Costs 

D. Corporate Structure and Organization 

E. Geographical Distribution of production and Consumption 

F. Character and Channels of Distribution 

G. Price Leadership 
II. price Levels 

I. profits 

J. Causes and Advantages of the Basing point System 
II. Pre-Code Basing Point Systems Maintained "by the Industry 
A» Inception of the Pittsburgh plus System 

(Transition from Zone System) 
3. Causes of and Methods Used in Maintaining the Pittsburgh 
plus System 

C. Defections and Concessions from the Pittsburgh Plus System 

D. Effects of the Pittsburgh plus System 

E. The Abrogation of the Pittsburgh Plus System and Its Effects 

in the Pre-Depression period 

F. The Multiple Basing Point System During the Depression 1929-1933 

9412 



-385- 

III. Code of Fair Conpetition for the Iron and Steel Industry 

A. The Code and Its Origin 

1, Motives and Interests Determining the Character of the Code 

2, . Code provisions 

B. Administration of the Code 
1/ Code Authority 

2a iIRA Administration 

C. Coi.olaints and protests 

IV. Effects of tiie Iron and Steel Code 
A. General Effects 

1. Eli:-iination of Secret Price Cutting 

2. price Leadership 
5, Extras 

4, Channels of Distribution 

5. Resale Price Maintenance 

5. Restriction on ITew Capacity 

7, Costs 

8, price Levels ■ 

9, profits 

B» Effects of the Multiple Basing Point System 

1. Evaluation of the Location and Uurnher of Basing Points 
Relative to the Volume of Production at Major producing Points 

2. Evaluation of the Location and ITumter of Basing points in 
Relation to the Costs of Production at Various Points 

3. Location of Basing points in Areas of Deficit Production 

4. Effects of the Location of Basing Points on the Relative 
Competitive Positions of Integrated and Non-integrated 
Rolling and Drawing Mills 

5. Effects on Price Leadership 

6. Comparison of Amount of Freight Assorted "by sellers and 
Fictitious Freight paid "by Buyers 

7. Effects of the All Rail Freight provision on Prices 
B. Stability of Production and profits 

C. Effects of the Ahrogation of the Code 

1» Adherence to the Basing Point System 

2, Open pricing 

3, price Levels 

4, production and Capacity 

V. Alternative Courses for Dealing vath the Problems Engendered hy the 
Present Easing Point System 
A. Abrogation of the System 

1. Effects of the Establishment of a Delivered Pric^ System 
Irrespective of a Uniform Price Formula 

2. Effects of the Establishment of an F.0.3. Mill price System 
23. Devices for the Control of the Operation of the Multiple Basing 

Point System 

1. Effects of the Establishment of Hew Basing points 

2. Effects of the Establishment of Restrictions on the Privilege 
of Freight Absorption 

C. Possible Effects of the present Trends in the Industry Regardless 
of Control Attempts on the Multiple Basing Point System and the 
C-eographical price Structure 

1, The Geographical Shift and Decentralization of the Industry 

2. Trend Toward Integration 

9412 



-386- 



0. Increasing Industry position of some Relatively Smaller Cor.i- 
panies aiid Declininj^ position of the United States Steel 
Corporation 

4, Changinf: Character of products, procesnes and Costs 

5, Increase in Water Tronsportation 
VI. Conclusions 

CHA?T]:R III. BASING POINT. F?:SIC-HT 5QUALIZATICN AI'D ZOI' I NG SYSTSMS 

IN THE LUI.aSR All D TIliBliTa PRQUJCTS INDUSTRI ES 

I, The LumlDer Industry prior to the Code 

A. Description of the Industry 

B. Chief problems of the Industry 
II. Cost protection prices and Their Administration "onder the Code 

III. C-eographic pricing practices in the Li-Uiiber and Tinber products 
Industries 

A. Before the Code 

B. During the Period of Cost protection prices under the Code 
(November 7, 19o3, to December 22, 1934) 

1. P.O. 3. I.ill or Delivered Pricing with Buyers Paying Actual 
Freight Charges From Origin to Destination 

2. Basing Point Delivered pricing 

3. Uniform Delivered prices to All Destinations and to 
Destinations within Defined Zones 

4. Freight Equalization (With Coi.Tpeting Mill Nearest Destination 

5. Mill Group Prices 

6. Limitations Upon Freight Absorption 
IV. RuJ.es and Regulations for Delivered Pricing in Effect Under the 
~". Codifi by Divisions and Subdivisions 

A. Loc~ging and Lumber Division 

1, Softwoods (Eight Subdivisions) 

'2, Hardwoods 

(a) Hardwood Division (Seven Subdivisions) 
3. Flooring (Two Divisions) 

C. Fabricating Divisions (Five Divisions - Twelve Subdivisions) 

D. Imported Lumber 
1. All Divisions 

E. Since the Suspension of Cost protection prices 

CHAPTER IV. ANTI-DUMPING MEASUFiES IN THS ICE PRODUCTION INDUSTRY 

I. General Industry Background 

A. Development of Demand for Ice 

1. Types of Markets 

2, Competition with Mechanical Refrigeration 

3. Standardized Type of product 

4, Response to Price Changes 
3. Production and Distribution of Ice 

1. Natural and Artificial Ice - Production and Sales Voluraes 

2. Development of productive Capacity 

(a) New Plants 

(b) Large and Small Ownership 

3. Over-Capacity in Depression 

4. Analysis of Cost of production 

9412 



-S87- 

5. Types of Distribution 

6, Traditional Size of Markets 
C. Atteiipts at Control Before Code 

II. The Code and Its General Administration 

A. Origin of the Code 

B. provisions of the Approved Code 

C. Adr;iinistration of the Code 

III. The Ai'^ti-DuTTpin^ provision and Its Operation 

A. General Econoniic Characterization 

B. Classification of Cases of Market Determination 

CHAPTER V. THE EA5IIIG FOIITT PPJlCTICE IV. THE CEIvIEITT IITDUSTRY 

I. Historical Development of Pricing practices 
II. Structural Industry Factors Functionally Related to the Basing 
Point practice 

A. Grovrth of Capacity 

B. Seasonality and Regional Distribution of Sales 

C. Rate of Operation and production Cost 

D. Single Mill Cor.ipanies and Chain Companies 
III. The Cement Code 

IV. Effects of the Operation of the Basing point practice on Sales 
Distribution, prices and profits 

CHAPTER VI. FREIGHT EQUALIZATIOH AITD t.IARKETING ZONES IN THE SALT INDUSTRY 

I, Stnicture of the Industry 
A. production Districts 
B» Corporate Structure 

C. Distribution Channels 

D, Trade Association Activities 

II. System of Marketing Zones and Zone pricing 
III. Effects of the Zone System on Sales Distribution, prices and profits 

CHAPTER VI I>. THE BASIITG POINT SYSTEI.: IN THE LIIIE HHJUSTRY 

(This chapter will follow the treatment of the sub- 
ject as provided by the Special Studies Section) 

CHAPTIH VIII. FREIGHT EQUALIZATION. ZONES AI'D BASING POINTS IN A 

FJI.I3SR OF IlIDUSTRIES OF LIIIOR SIGITIFICAITCE 

I, The Basing point System in the Cast Iron Soil Pipe Industry 
II. Freight Equalization in the Wall^japer Industry- 
Ill. Zoning Systems 

A. Fertilizer Industry 

B. Asphalt Shingle and Roofing Industry 

C. Business Furniture Industry 

D. Cordage and Twine Industry 



bl2 



-388- 



CHAPTER IX. FURTHER LIIIZS OF AI' ALYS IS HSQUIR5J3 FOR A FINAL DETSmillTAJ 
TIQN OF TIlE CIIARACTIIR AlID EFFECTS OF GEOGRAPHIC PRICIiIG 
PRACTICES 



I. Geographic pricing practices Not Sufficiently Covered in the present 
Report and Methods for Their Treatraent 
II. Character and Availability of Statistical Data Necessary for a 

Satisfactory Conpletion of the Study of Geographic pricing I.Iethods 

APPEITDIX. GEOGRAPHIC PRICING ASPECTS OF THE- SUGAR INSTITUTE CASE 



9412 



. . -389- 
-■ TRAIffl PRACTICE STUDIES 

GEOGRAPHIC PRICE STRUCTURES 
Prelininary Summary of Findings 

I. C-eograpilic pricing provisions in N. R. A. Codes 

A survey of the first; 554 codes (including 750 amendments and 195 
supplements) shows that 155 of them had some provision relating to trans- 
portation 'costs or to other aspects -of geographic pricing. Of these 98 
were concerned with the question of f.o.b, or delivered pricing. Of the 
latter 52 provided for. f.o.t. point of origin selling, 29 provided for 
selling on a delivered basis, and 21 permitted either arrangement. 

A group of 90 jCodes' dealt with different kinds of transportation 
allo\7ances arid'- with prepayment of freight. Forty-four of them prohibited 
such prepe.yinent or any discriminatory allowances, while 43 permitted some 
form of .freight equalization or similar concessions. Only four codes 
contained explicit basing point provisions, while two or three others 
provided for freight equalization points that resemble basing points in 
certain respects, .though the functional differences are substantial. 

A number of industries - at least three of them of fair size and 
importance' - had' no basing point provisions in their codes, although it 
is knovm that basing po.int: systems established in pre-code days continued 
to be in operation. These , instances are of interest from the point of 
view of N. R* A. problems, because other code provisions, not expressly 
referring to the basing point practice, supported it in an indirect way. 

In addition, geographic pricing devices, other than the transportation 
provisions mentioned above, were incorporated in. some 16 codes in the form 
of price-filing and anti-dumping zones. Finally, there is a group of codes, 
.some 12 in number, which contained provisions enabling or directing the 
Code Authority to set up some form of transportation regulations after 
approval. 

Only a small number of the codes that had provisions relating to 
transportation charges or to other geographical pricing practices could be 
given detailed treatment. Among these the Iron and Steel, the Cement and 
the Lime Industries and certain divisions of the Lumber Industry have been 
analyzed because of the significance of their basing point systems. Only 
brief reference could be made to the Cast Iron Soil pipe basing point 
practice. Freight equalization has been studied in all divisions of the 
Lumber Industry where it found application, and in the Wallpaper Industry, 
Zoning systems of various kinds have been treated in the Ice and Salt In- 
dustries and, more cursorily, in the Fertilizer, Asphalt Shingle, Business 
Furniture and Cordage and Twine Industries. 

II. Structural Industry Characteristics Functionally Related to 
Geographic Pricing practices 

The analysis of the above named industries suggests that significant 
geographic pricing practices have as a rule arisen in functional inter- 
relation with basic factors in economic structure. This suggests that 

9412 



there are limits to the possibility of modifying or eradicating such 
practices successfully by court decree or by administrative action, with- 
out tailing steps to reshape gradually the entire industry structure. 

The most essential common traits of industries that use basing points 
or uniform delivered pricing by zones, are the following: 

(a) The pattern of competition is far removed from the atomistic 
one that imderlies the theory of free competitive prices. It is typical 
of the industries examined that they have relatively small numbers of 
producers, each of whom supplies a significant portion of the total volume 
of sales. This situation frequently results in price leadership and in a 
high degree of price stability. 

(b) T;^/pically, the products of these industries are highly standard- 
ized, and are not sold upon any real or claimed difference in quality. 
They axe of a heavy and bulky nature, so that the cost of transportation 
is an important element in the ultimate cost to the consumer. This point 
gains further weight if production is concentrated in limited districts, 
while consumption is spread more widely through the country. 

Under these conditions the competitive. 'advantage of location in 
proximity to the main consuming areas or to the cheapest transportation 
facilities, such as waterways, is further accentuated and may become 
virtually decisive. These things intensify the desire of all producers 
not so fa.vorably located, and frequently of large and powerful companies 
with mills in different locations, to establish some control over this 
factor. Flirt he rmo re, a heavy overhead cost is generally prominent in the 
processes of production under consideration. This factor intensifies both 
the urge toward a steady and possibly a high rate of operation, and the 
resistance to the lowering of prices in any local market by any producer. 

(C) Another important aspect relates to the historical pattern of 
growth of the major basing point industries, and to a type of competition 
between old and new production districts which tends to follow from this 
pattern. Characteristically, during the earlier stages production was 
concentrated in a limited area, such as the Pittsburgh district for steel 
or the Lehigh Valley for cement. As a result of movements of population 
and with the industrialization of an ever growing part of the country new 
facilities v/ere set up in regions distant from the original centers. 

At first these new production points enjoyed high price levels determin 
by the prices in the industries* old centers plus freight rates from the 
latter. But as the productive capacity of the new districts grew, es- 
pecially v;here favorable conditions of raw material assembly, cheap labor 
or the like promoted their easy ejcpansion (in the Great Lakes region, the 
South, etc.), the dangers of over-capacity and of a ruthless struggle for 
markets arose. Frequently, under the leadership of large cor.rpanies with 
mills in both the old and the new production regions, the industries in 
question met this situation by developing schemes to strengthen the exist- 
ing price leadership, and thus to shift the struggle between regions from 
the field of price competition to other forms of competition for volume. 



9412 



-331- 

III. Cl a ssification of G-eographic pricing practices According to their 
G-eneral Economic Effects 

'• The econoraic effects of the various geographic pricing practices are 
divided into two cljisses. The first regards the effects on the general 
price level aside from any regional differences. The second concerns the 
variation in results as between geographic sections of the economic 
comiiiunity, 

TTith respect to the first point, the most significant distinction 
appears to "be "between practices tending to sharpen price competition, and 
thus to force price levels down, and practices tending to cur"b excessive 
price competition and to facilitate price leadership and sta"bilization. 
In the former group "belong all freight allowances (which may "be coupled 
with f,o."b, or delivered pricing) and, in particu.lar, the practice of 
sellers of a'bsorbing freight on sales to more or less distant markets. 
Under the latter category fall all schemes that "bring freight absorptions 
into some orderly system of equalization - especially all limitations on the 
amount of freight that may "be a'bsor"bed - as well as "basing point systems 
with a rigidly controlled num"ber of "basing points. 

iriexi"ble "basing point systems, with su"bstantially free choice of new 
"basing points as frequently as circumstances necessitate, have an intern- 
mediate position. Under their operation the lowest com"bination of "base 
price plus freight charge which is economically possi"ble in terms of pro- 
duction and transportation costs, seems theoretically assured for all mar- 
kets. Practically, however, there is a counteracting tendency in the fact 
that the notoriety of "basing point changes, and of changes of "basing point 
prices, imposes some degree of restraint on firms who otherwise might "be 
inclined to choose a new "basing point with a lower "basic price. 

r.o."b. and delivered pricing as such are not quite determinate in 
their effects, and may differ in their character under different accom- 
panying coiidi lions. Anti-dumping zones belong definitely in the second 
group of practices tending to curb price coi-Toetition, As to price filing 
zones, judgD.ent must be reserved until the results of the study of the 
price filing Unit are available. 

The classification of geographic pricing practices into two main 
groups, with respect to their effect on price competition, serves to reduce 
one aspect of the problem to the more general one of price cutting and 
price fixing. A treatment of this latter lies beyond the scope of the 
present study. 

■^.Tith regard to the second T^oint mentioned above - the examination of 
the relative advantages and disadvantages wrought for different localities 
and regions by the operation of the various geographic pricing practices - 
the nature of the matter prevents broad generalization. The complexity 
of the individual situation must be taken into consideration in every case. 
In general, it may be said ?;ith regard to the development of interregional 
economic relations that two basically different lines of policy are possible. 



9412 



-392- 

First, the highest degree of specialization in the field of its test 
natural equipment may "be encouraged for each region; second, a "balanced 
develO;^ment of as many different lines of economic activity as possible 
may "be regarded as preferable, 

Axiother aspect of importance relates to econonies or waste in 
transportation resulting from different systems of geographic pricing. 
Only detailed case studies coxi prove trhether any geographic pricing 
system leads in a given industry to wasteful cross hauling, which might 
"be avoided or reduced under another system, or prevents transportation 
econo;.iies which another system would tend to promote. 



9412 



-393- 

MIMirOlA PRICE DEVICES 

Talile of Contents 

CKIPTER I. SUMIvIiiBY 

CHAPTER II. STATEMENT OE THE PROBLEM 

I. The Problem 

A« Discontent of Industries with Price Levels Brought About through 
Laissez Eaire Method of Price Determination 

1, Laissez Faire Theory 

(a) Predicated on Automatic, Mechanical Adjustments 

(h) Basic Assumptions 

■ .. Economic Man will do what is best for Him 
Sum Total of best Results for Individuals 
is for Best Interests of Society 
Publicity of Pacts Necessary to Act . 
Intelligently for Self-interest 
Mobility of Capital and Labor 
Elimination of High Cost or Inefficient 
producers 

2» Price Levels in 1933 Compared with Earlier Years 

(a) Flexible Prices 

(b) Managed Prices 

3, Effects of Depressed Price Levels 

(a) Economic Effects 

Bankrup t i c i e s 

Competition by Reorganized Concerns, having 
Wiped Out Large Parts of Fixed Costs 
Undesirable Competitive Price Practices 
Effects on Distribution Channels 

(b) Social Effects 

Unemployment 

Decreasing Wage Rates and Earnings 

II» Proposed Minimum Price Devices 
A, Fixed Prices 

1« Purpose: to Fix a "Reasonable" Price below which No In- 
dustry Member could Sell 

(a) proposed Primarily by Natural Resource Industries 
and Service Trades 

(b) Presumably Predicated on Costs 

2, Extent to Which Ua^d under Codes 

3, Implications of Device 

(a) Same Price for All Types of Competitors 

(b) May Hurt Whole Industry if Too High because of Adverse 
Effect on Active Denaiids 

(c) May Deprive Efficient and Low Cost Producers of Price 
Advantages 

(d) May Result in High Prices to Public 

(e) May Penalize All but Low Cost Producers 



9412 



-394- 

and re crease Supply if Too Low 
(f) Others - i.e. Effect on Redistribution of Volume to 
Individual Concerns, etc, 
B» Emergency Prices 

1, What is an "Emergency"? 
(a) Looseness of Concept 

2, Purpose of Device 

(a) To Allow Price Panic to Quiet Down 

(b) To Permit Industry to Develop a Solution for Cause of 
Emergency 

(c) To Indicate that Government will Not Tolerate "Destruc- 
tive" Price Tactics 

3« Extent to Which Used under Codes 
4, Implication of Device 

(a) To be used for Short, Temporary Period 

(b) Same Problem as Raised above for Jized Pricer. but 
Applied to Short Period of Time 

C, Cost Protection 

1, Underlying Theory 

(a) Selling Below Cost an Unfair Competitive Practice 

(b) Cost Recovery Essential to Prevent Bankruptcy and to 
Permit Paying Code u'ages and Shortening Hours 

(c) Prices will be Low because of Effect of Low Cost 
Producers 

2« Purpose; to fix a i.iniraura Price Base Predicated on Cost (of 
Individual or Whole Industry) which shall be flexible rctl.cr 
than Fixed and Bear a Definite Relation to Cost. Predicated 
on Use of Standard Cost System for All Members of An Industry 

3, Extent to which Used Under Codes 
(a) Variation of ]?evice 

4, Implication of Device 

(a) Assumption that "Cost" Can Be Determined Accurately 

(b) Belief that there is No Need to Sell Below Cost and that 
it is Due to Unfair Practices 

(c) Failure to Realize Need for or Wisdom of Selling Below 
Cost under; Given Conditions 

(d) Failure to Realize that Device may be Harmful by Raising 
Prices 

(e) Other Implications 

5, Device Usually Coupled ?/ith Open Price Selling 

(a) Lowest Filed Price Usually Prevailed 

(b) In Absence of Effective Collusion or Pressure Low Cost 
Producers Set Price Level 

III. IIRA Policy 

A, Slow Development of Policy 

1« Absence of Policy during Early Stages 

2. Chronological Development 

B, ::Lfect of Shifting NRA Policy on Code Provisions 

C, ri;!--.! Attitude against Price Fixing and Cost Recovery Prin- 
ciples but for Emergency Prices 

1. Attitude toward Mandatory Cost Systems 

(a) Reasons Advanced for Policy 

(b) Failure to Approve Proposed Cost Systems 



9412 



I 



(c) Effect of This on Existin?^ Code Provisions 
2. Negative Attitude Toward Enforcing Provisions Contrary to 

Prevailing Policy- 
Failure to Keep Adequately Informed on Experiences with Function- 
ing of Minimum Price Devices 

1. Inadequacy of Administration MemlDer Scheme 

2. Lack of Under stariding on Part of Deputies 

3. Extra-Codal Activities on Part of Code Authorities 



CHAPTiia III. BASIC INDUSTRY PROBLEMS TO WHICH DEVICES VJESE APPLIED 

!• Natural Resource Industries 

A, Lack of Demand 

B, Pressure of Fixed Charges 

C, Competition from Substitute products 

D, Others 

II, I.icnufacturing Industries - Producer Goods 

A, Lack of Demand - Dependent on Fortunes of Other Industries 

B. Pressure of Fixed Charges 

C, Competition from Substitute Products 

D. Cost advantages of Integrated Producers or Producer - 
Distributors 

H. Excessive Guarantees or Servicing 
F, Others - i,e# New Processes etc. 

III. ■:caTufac-'.,uring Industries - Consumer Goods 
Considerations Same as for II. 

IV. Distribution Trades 

A. Distribution at Lower^Cost Than through U^aal, Established 

Channels 
B« Distribution by Manufacturers 
C« Failure of Manufacturers to Observe Usual Differentials between 

Various Steps of Distributors 
D, Others 

?♦ Service Trades 

A. Heavj'- Influx of New Competitors 

B. Free Services and Extra Accomodations 

C, Lack of Quality Standards 

D, Others 

CHAPTER IV. APPLICATION OF MINIMUIvI PRICE DEVICES TO BASIC PROBI^EMS - 

IffiTHODS USED Al^ RESULTS 

I. Natural Resource Industries 

A» Ilethod of Determining Prices or Price Floors 
1» Considerations of Costs 

(a) Elements 

(b) Method of Computation 

2« Considerations of Competitive Groups 
3# Dominance by Specific Groups 
B» Effects of Minimum price or Device 
1. On Price Levels 



-396- 

2» On volume 

3, On Competition of Substitute Products 

4, On Distribution of Volume between Industry Groups f?Jid 
Individuals 

5, On Development of Subterfuges 
6,. On Compldtmce Problems 

(a.) Extent 

(b) Difficulty of Determining "Cost" or Violation 

(c) Damage Usually Done when Violation Discovered 

II, I.l£?imfacturing Industries - Producer Goods 
Considerations same as for !• 

III. Lc'iiufacturing Industries - Consumer Goods 
Considerations same as for I, 

IV. Distribution Trades 

Considerations same as for I, 

V, Service Trades 

Considerations same as for I, 

CRAPTER V. CONCLUSIONS - EFFECTIVENESS OP MINILUM PRICE DEVICES 



)f 



I. Device Usually Directed against Symptons rather than to Causes o: 
low Price Levels 

A, To be Effective, must be Supplemented by - 
1, Production Control 
2« Curtailing Access to Industry 
3# Effective Policing 

4, Prompt and Sufficiently Heavy Punitive Devices or Preventa- 
tive Devices 

II. In Absence of Other Regulatory Features, Minimum Price Regulation 
Tends to Fail 
A, E:::periences of Industries Who Used Devices 

III. Elements Essential for Success of Minimum Price Regulation under 
Codes 

A, Small Number of Industry Members 

B, Large Capital Requirements or Difficulty of Entering Industry 

C, Strong Industry Organization 

D, I/illingness to Submit to and Abide by Regulation 

E, Unavailability of Substitute Products at Low Prices 

IV, I.iininium Price Devices as Public Policy 
A. Price Fixing 

1. Rigidity 
5, S:.iergency Prices 

1, May be Desirable uncer Certain Conditions 

C. Cost Recovery 

1. Essentially Unacceptable 

D, Absence of Well Formulated Policy 

1, Which Tenets of Laissez Faire Shall be Kept, which Modified, 
Which Abandoned? 



941 P. 



-397- 
2» TThat is Ultimate Goal 

' ' " AFFEIID IX 

I, Legal Aspects of Mininnuii Price Devices 

A» Historical Review 

B. Self Regulation "by Industry 

C. Regulation by Government 

D. Possibilities 

Im Industrial Self Regulation 
2» Governinental Regulation 
. 3, Combination of Self Governmental Regulation with Particulsjr 
Reference to >Experiencer3 under Codes 

II. Price Regulation Prior to Codes 
■ A# U.Sc Experience 

1« . 'Jar Industries Board 
B, foreign Experiences 

1, German Cartels 

2. English Trusts 



9412 



-398- 
TBADE PRACTIC B STUDIES 
MI1III.'IUII PRIGS DEVICES 
PrelJEiinar;';' Sunmary of Findinyxs 

Tlie prelininarj^ conclusions that follow are "based on the anal^^'sis of 
regulatin{^ experience under the Codes for the follov/ing industries: 
Cleaning!- ar.d I>'-eing, Fur Dressing and Di'-eing, Ice, Tfe-ste Paper, i^gricultural 
Insecticide, Cast Iron Soil Pipe, Coffee, Luggage and Fancy Leather Goods, 
Limestone, Scren Machine Products, 'TliroTring, Hardnood Distillation, Malleatle 
Iron, Fire Extinguishing Appliances, Paper DistrilDuting Trade, and Paint, 
Varnisji and Lacquer, The findings will "be exaiiined further in the light of 
additional facts to "be estaolished concerning these industries and the 
additional industries and trades to "he examined - i.e., tohacco, lun"ber, 
ruther tire, etc., and are subject to revision. The selection of industries 
was "based on the variety of price reg-olating devices used, and the industrial 
prohlens presented. 

A , G eneral Conclusions Concerning Price He.c^Tulation 

1. As a general rule price regulations were not directed toward 
the solution of "basic industry'' proolems, Tiiey were aimed at a 
syr.ipton - i.e., as low price level - rather than at the causes. 
The "casic causes in the 16 industries a.na,lyzed thus fr.r nay "be 
surinarized as follows: 

a The pressure of fixed charges due to the existence of 
capacities far in excess of current active demand, 

"b. Increasing unit production costs "because of lower volume, 
aside from the incidence of overhead. 

c. Decreasing prices of substitute products. 

d, Tlie straggle "by individual producers for the maintenance 
or the increase of -volume, v/here demand was inelastic and 
would not increase sufficiently'' or at least not proportion- 
ately, when prices fell. Price competition in this 
sit-iaation could only serve to redistri"bute the available 
volume to individual industry'' members at lower price levels, 
and could not increase it for the industr^^ as a whole, 

2. Code Authorities, as spokesmen for industries seemed generally to 
underestimate the extent to which price and demand were functions of 
each other, and to which increased prices could affect demand adverse- 
ly, Wliere demand was flexi"ble, the choice usually was made on the 
side of higlier prices without extensive analysis of the possi"bility 
that a large turnover with a small unit profit might be preferable to 
a snail turnover at a higher price, 

3. VTncre an industry'' 's products competed with substitute products 
which sold at lower prices or were more desirable at the same or 
even somewhat higher prices, a minimum price or cost floor became 
irrelevant or even damaging, 

9412 



-'o'jdr* 



4. Wliere the capital necessar"' to enter an industry was snail, attempts 
at price fixing tended to fail, "because the price was apt to attract 
additional capacity or competitors into the industr;^.^ and to thas 
further aggravate the problem. 

5. Where there was a marked variation in methods of production or 
distrihution, the fixed price or ar'bitrar;'' cost "base struck at some 
specific minority group, tending to deprive it of an inherent 
competitive advantage, sometimes even threatening to drive it or 
part of it out of "business. 

6. Fnere an industry price or price floor was set, concerns which 
prior to the code had depended on price differentials to attract 
"business tended to "be injured, "because the "business apparently went 
to concerns with esta"blished reputations who were marketing well 
advertised trademarked products, often with quality guarantees. 
Price regulator^'" schemes often failed to melze allowance for compe- 
tition "based on price differentials and at times may have heen 
directed against it. 

7. Fiiere an industry price floor was set - rather than one predicated 
on individual cost - the tendency was to set it higher than the 
prevailing price level. 

8. Price control features of codes were at times used to accomplish 
the same results as pre-code price fixing, illegal under the anti- 
trust laws. 

9. Cohesiveness among industr^.^ mem"bers and t'he vitality and degree of 
control exercised "b^'' Code Authorities were much more important for 
tiie svLccess of a ninimuji price plan than such elements as standardi- 
zation of products or knowledge of costs, Tlie most essential requi- 
site for the successful functioning of price regulation was the 
willingness of industry,'' nem"bers to have their prices regulated, 

10. Generally, IIRA. failed to keep itself well informed as to the 

actual operation of or as to experience vrith price regulatory devices. 

B, The Pixed Price 

1. In the a"bsence of quality standards, a fixed price meant little. 
Chances for resorting to su"bterfuges were a'bundant. 

2. In the a"bsence of "basic controls, such as regulation of production 
or the limitation of entry into the industry, fixed prices failed to 
stick. Attempts to induce indr.strjr mem'bers to sell for less tha.n the 

• prices fixed were generally successful, 

3. Neither 11. R. A. nor industr^^ had sufficient data on which to "base 
fixed prices. In the hurr;,' to determine prices in the ahsence of 
such data, fixed prices were often predicated on industry/' 's desire, 
shaved down "by II.R.A. for the saJce of safety. 



9412 



-400- 

C . Emergency Prices 

1. No definite standards appear to liave "been used "by N»R.A. to determine 
wlie.t constituted emergencies. 

2. Emer{^ency prices v;ere generally'- set on ver;;r fragnentarjr data, 

3. Emergency price declarations appeared as a role to have aimed at 
the accomplishment of one or nore of the following res'olts: 

.a To permit an industry'- to quiet do\7n from a price panic and 
resume normal activities, 

"b To declare a truce during which the emergency situation 
might correct itself or the industry'- might develop a 
corrective, 

c To ma]ce clear that the Government vrill not tolerate 
destructive price cutting. 

From the analyses of the indiistries studied thus far, it appears 
that these ohjectives were seldom realized. 

L . Cost Floor Protection 

1. The term "cost" lends itself to a variety of interpretations. Host 
difficult or deteniination are (l) the selection of elements to "be 
Included, and (s) the allocation of fixed cliarges or joint costs, 
IT.R.A. distinguished between cost systems as such and cost formulae 
used for the determination of price floors. Tiie latter, if approved 
"by H.H.A, were considera'bl:'" less inclusive as to cost elements, and 
provided for the allocation of fixed charges more stringently than 

, the cost systems or formulae generally proposed "by Code Authorities, 

2. Ignorance of costs, so often claimed "by Code Authorities as an 
important cause for improper pricing policies, does' not appear to 
have "been of as great significance as was claimed. Prices often had 
no relation to -oast or present costs, "but had to "be adjusted to what 
the pulDlic was willing or ahle to -pay, C-enerally, present necessity 
or future anticipations were more important factors than costs 
predicated on past experience, 

3. "Cost" s3/stems or formulae proposed "by Code Authorities contained 

so man^'- ar"bitrary features that actually they were price determining 
formula-e, and could not "be used to establish an individual concern's 
cost, 

4. 3y ar"bitrary provisions -^ such as prescribing that concerns manu- 
facturing their own raw materials nevertheless had to calculate raw 
material costs as thoiigh they had "boT3ght on the 'open market, or 
providing that overhead coi:2d not "be figured at less thaji 33 per cent 
of the total of raw material cost plus labor — Code Authorities 
attempted to deprive low cost producers of the right to reflect those 
costs in lov;er prices, 

9412 



-401- 

5. In industries containing iDOth. integrated and non-integrated 
operations, the success of price regulation depended generally on 
the good will of the integrated concerns, who were in position to 
cut prices "because of lower costs or of greater flexilDility in 
allocating them, 

6. Where individual cost was the criterion, conrpliance was difficult 
to obtain "because! (a) A violation had to he proved "by the hooks 
of the alleged violator, who could refuse access to them; and 

(h) even if access was had to the necessary records, the determina- 
tion of actual cost v/as difficult, 

7. If a violation was proved, the damage had generally "been done 
"because:., (a) Either the violator had o"btained the "business he \7as 
after at the expense of code ahiding mem'bers, or ("b) competitors, 
unv/illing to let him ta]:e the "business, had followed his price 
dovmward, with the result that the price level had "been "broken. 

8. Lack of definite MIA. policy during the first year or year and a 
half permitted Code Authorities to flounder and to incur useless 
expenses in developing cost s^T'stems which I'ffiA in most instances 
refused to approve. 

E. Additional I7ork to "be Done 

Additional work with the industries covered, as well as analysis of 
the experiences of other and important industries, is essential to verify and 
amplify the preliminary?- conclusions stated. In addition, attempts should "be 
made to determine whether price regulation, even if ultimately unsuccessful, 
did not have some effects, temporary or lasting, of a nature felt to "be "bene- 
ficial "by the industries concerned. The U.R.A. files examined permit no 
conclusions on this point. 



9412 



-402- ' ' 
Tr'ole of 3onteiil:s 

CHj;p?in I. Tj:-c~mj!K'^ 

1. The l.ieaning of Co-Tiiodity Infor. iption 

A. General Scooe of the Study; The J'roolens Involved 
in Suo'clying Accurate Inforiation, .and Dlinino.ting 
Deceptive R'^presentations, \/'ith ResT)fict to Co i:;odities 

1. Bought 

2. Sold 

3. Exchanged in Cornier ce 

B, lelp.tion Estueen the T^-'O Sections of the Study - 
I.asrepresentation and Dece-ntion, and Standards and 
La oe ling 



iupt::h ii. kispjipezszinitation md deception 



I, General' Backf^round 

A» Nature and Extent of l.:isrepresentative practices 

Dealt \7ith in the Stuc^Ly _■ 

B« Egononic Consequences of the Practices 
C. Develop'-^.cjnt of. Control of the Practices: Bri^f 

Tracing of the Principal Line of Development, through 

thd- Co . ion Law, the Pederal Trade CoEiraission Act, and 

the ;niA Codes 

II. The Conmon Law 

A« G-ro -th of the Coranon La'7 Affecting Misrepresentation; 
Its Scope and limitations 

I 

III. The Federal Trac.e Com lission 

A. Legal Basis of the Federal Trade Coraiission Control of 
i.Iisrepresentation 

1. Comparison v/ith the Common Law 

B. Types of wisrepresentative Practices Condemned "by the 
Federal Trade CoTiiissi m in Orders to Cease and Desist 

C. Administration end Procedure of the I'ederal Trade Com- 
: .ission in Dealing --ith kisreTDresentation 

D« P.e suits of the Operation of the Federal Trade Commission 
Act in this field 

IV. The mA Codes 

A. General Viev; of the Code Provisions Affecting 
Misrepresentation and Dece-otion 

1. Comparison with Psderal Trade Cori-iission Law 

B. Adi -inistration and Procedure under rlEA 

1. CoToarison ' ith Federal Trade Commission 

C. Htisults of Operation of the Code Provisions 

1. General View of tha Available Evidence 

2. Summary of Data for Specific Codes 

3. Necessity for Additional Information 



9'--12 



-403- 

V. Other iiisrepresentation Control 

A, J'ederal Legislation 

!• Nature and Scope of Control Provided "by Other Federal laus 
such as the 

(a) Food & Drug Act 

(b) Securities Act 

(c) Federal Alcohol Control Act 

(d) Postal Laws 

B, Some Tj'pes of State Statutes 
1» False Advertising 

2, MislDranding 

3, State NBA Legislation 
C« Private Agencies 

1» Trade Associations 

2, Better Business Bureaus 

VI, General Su'nmary 

A. Preliminary Findings as to Misrepresentation and Deception 

B, Suggestions for Further Study 

CHAPTER III. STANDARDS AND LABELING 

I, The Meaning of Standards 

A. General Definition of Standards as Applied to Commodities in 
Commerce 

1, Brief Analysis of the Principal Types of Standards 

2, Methods of Application 

3, Purposes Designed to "be Effected iDy Them 

II. Stands.rds and Labeling in the Codes 

A, General Survey of the Standards and Labeling Provisions 

1, Number of Codes Containing Each 

2, Breakdown by Principal Types 

3, Enabling Provisions, etc, 

;il. Operation of the Provisions 

A, Cross-Section View of the Principal Types of Standards and 
Labeling Provisions in the Codes, and their effect in opera- 
tion as Illustrated by Specific Code Experience 

1. Mandatory Minimum Standards 

2, Mandatory Maximum Standards 
3» Grade Standards and Labeling 

4, Labeling for Identity 
5« Substandard Labeling 

5, Simplification 

7, Miscellaneous Standards Provisions 

B, Results of the Enabling Provisions with Respect to Standards 
and Labeling 

C, Necessity for More Comprehensive Information Concerning Opera- 
tion of the Provisions 

IV, Other Standardizing Agencies 

A» General Survey of the Methods and Results of Other Standard- 
izing Agencies and Activities 



-404- 

1, Food and Drug Administration 

2, Bureau of Standards 

3, American Standards Association 

4, American Society for Testing Materials 

5, Consumer Groups 

6, State Legislation 

V. Legal Problems Involving Standards 

A, Consideration of Some of the More Important Legal Aspects of 
Regulations Affecting Standards and Labeling 

VI. General Summary 

A» Preliminarj'- Findings Concerning the Standards and Labeling 
Provisions 

B. Suggestions for Further Study 



9412 



-405- 

TRADB PRA-CTICE S TUDIES 

DEVELOPMENT AITO CONTROL OE COMODITY INF0RI1A.TI0N 
Fr o ?Limi nary Smnmary of Findings 

PART ONE ~ MI5PJ:PPE,SENTATI0 N AND DECEPTION 

Since Misrepresentative and deceptive practices .in commerce are al- 
ready accepted as basically -onlaT/ful, no question of general policy as 
to their control arises j The principa.1 subjects for consideration re- 
late to form of lav^ and methods of administration. 

The available data are not yet sufficient to form a "basis for judg- 
ment as to the effectiveness of the code me.thod of control of misrepre- 
sentative practices. In particular, since much of the effective compli- 
ance work in this field appears to have been done by the Code Authorities 
without recourse to NTIA, a more comprehensive record of their activities 
and ejqperience is essential to such a judgment, 

■ Nevertheless, the evidence at hand indicates that where such prac- 
tices constituted a serious industry problem, an active and capable Code 
Authority was often able to apply the provisions for their elimination 
with a considerable degree of success, and with a minimum of assistance 
from NRA enforcement agencies or from the courts. 

The support of some measure of authority was found essential, how- 
ever; sjid a chief difficulty encountered by the Code Authorities in se— • 
curing compliance with the misrepresentation provisions was the progres- 
sive loss of prestige by NEIA among their industry members, due to delaj'^s 
and uncertainties of enforcement, even in cases of flagra.nt violation. 
Especially they complained of the frequent acceptances of certificates 
of compliance in such cases, in place of the penalties provided by the 
Act, 

As compared with the principal public agency previously dealing with 
the subject, the Federal Trade Commission, the N,R,A, and its codes as 
they were meant to operate, were more comprehensive in their declaration 
of the law of unfair competition affecting misrepresentation, were under 
fewer legal restrictions, in its application, were more decentralized and 
direct in their potential machinery of enforcement, and possessed, in the 
Code Authority system, an informal mediui'n for obtaining compliance only 
distantly approached by the volimtary cooperation afforded the Commission 
by some trade associations. 

Through its machinery for code amendment and intei*pretation, also, 
the N»R,A« provided a flexible and responsible medium for adapting the 
general law of misrepresentation to the immediate problems of individual 
industries, vdth the adequate protection of the interests of industry 
members apparently afforded, in cases of non-compliance, by the rights 
of hearing, protest and appeal, with ultimate court review. 



9412 



-406- 

\7ith respect to the Federal Trade Commission itself, a r^reat deaJL 
of vr-liialDle \7ork in the field of misrepresentation has "been done l)y it, 
OoGta,cle3 to its most effective functioning; have "been found in the dual 
statutory requirement to shoT7 both public interest and actual or poten- 
tial injury to competitors; in the extent of judicial reviev;; and in 
the delays incident to the methods provided for making fully opera^tive 
the Comnission's restraining orders. 

It is believed tliat these difficulties might be materially less- 
ened by ?jnending Section 5 of the Federal Trade Commission Act in such 
a ucy as to malce misrepresentative practices unla\7ful in themselves, 
rather than as forms of unfair competition, and by certain procedural 
changes, such as ha.ve been suggested in various quarters, including 
recommendations by the Commission itself. 

PART TWO - STAMDAHDS AlID LABEL I NO 

As in the case of misrepresentation the data at present available 
concerning the operation of the code provisions affecting standards 
and labeling are insufficient for the formation of conclusive judg- 
ments. Furthermore, the problems of stands.rds are so complica.ted, ?Jid 
differ to such an extent as bet\7een different industries, that conclu- 
sions concerning them should be largely in terms of the considerations 
affecting the individual industry, or related industry groups. 

From a general vie":, hov/ever, the extent cf inclusion in the 
codes of some form of provision conerning standards or labeling, or 
both, indicates that these subjects were of interest and importance to 
industry members or consumers in more than one-third of the total nun^- 
ber codified, 

TThere standards provisions v/ere initiated or actively supported 
by industries themselves, in the process of codification or later, 
they T/ere characteristically predicated on industry interests, TThere 
such interests were not concerned, even though provisions were incor- 
porated into the codes, at the instance of consumer groups, for ex- 
aiiiple, they remained largely without effect. 

Standards provisions which were restrictive in nature and manda^ 
tory in their terras, and which had the effect of prohibiting either 
the najiufacture or the sale of certain products, practically always 
proved unenforceable, apart from their dubious legality. On the 
other hand, provisions aiming to prevent the unfair competition of 
inferior products, by means of sub-standard labeling requirements, 
met with some measure of success. 

The subject of standards is obviously nearly related to that of 
prices, since price comparisons have little meaning except in rela- 
tion to comparable commodities. In most instan.ces the industries 
seeking to incorporate standards provisions in their codes v/ere franld.y 
interested in protecting the price structure. In many cases standardi- 
zation or classification of products was made mandatory for price filing 
purposes. In one or two instances a more direct attempt was made to 
linlc standardization v/ith price uniformity. In many instances 

9412 



-407- 

standardization seems to have been looked upon as a useful, or even a 
necessary adjunct to measures aiming at price regulation. 

As in the case of misrepresentation provisions, failures of en-' 
forcement tended to v/caken compliance with those relating to standards 
and lalDeling. The extent of policing required to check up on o"bservance 
proved a handicap to the Code Authorities, Ena"bling clauses failed to 
"bring atout effective action in some cases, due to deadlocks "between in- 
dustry'- groups, consumers and WoR.A, as to the form of the standards to 
he £:dopted. In many other cases no attempt was made to take action un« 
der such clauses, due to lack of interest or of funds for the purpose. 

In the case of soma industries in ^7hich standardization is carried 
on most effectively in practice the suoject was not "brought up in con- 
nection with the codes at all. In a num'ber of others standards already 
adopted in conjunction with the Bureau of Standards or some other agency 
were incoiporated in the codes without change, indicating that that had 
been found p-jLfficient for the needs of the industries concerned. 

In general it appears that the N,R,A, code system, depending upon 
agreement between industry and the Administration for the adoption of 
provisions, v;as not adequate to promote standards activity in the public 
interest, unless industry interests were also sufficiently involved. 

The formulation of a standards program for any industry must be 
carried out in terns of its individual problems, with full consideration 
for the most suitable form, and for the interests of all elements 
of the industry itself, of competitive industries and of the consuming 
public, whether industrial or ultimate. Specific provision for the 
periodic review and revision of the standards adopted, to give scope for 
industry development and to allow for corrections based upon experience, 
should be incorporated in ever;,' prograjn at the time of adoption. Any 
attempt to make operative a mandatory standards or labeling program re- 
quires the assent and cooperation of the industry, if elaborate official 
policing is to be avoided, 

Much of the specific code experience with regard to standards has 
to do with controversies arising in the course of the adoption or the 
atoinistration of the provisions, as this is the type of material which 
would most naturally find its way into the record. It is probable that 
the story of some of the most successful code work in standards is to 
be learned only by direct contact with the industries themselves. 

In addition to its immediate effect upon standardization during 
the code period, the IT.R.A, gave a widespread impetus to interest in 
the subject, which in many instances, has tended to persist down to the 
present time. Evaluation of these results, also, must wait upon more 
corrplete davelopment of the subject by means of industry contacts. 



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