U. S. A., amounted to only about the 20 per cent it had been allotted in the original alleged cartel agreement. Hitler needed more for planes and insisted upon unlimited production in Germany. However, he still was honoring the international commitments of German companies at that time and permitted a new agreement whereby the Reich would export only a fixed quantity so as to avoid disturbing world markets. By 1938-again quoting government experts in the anti-trust trial-the international armament race was so well started that there was a world shortage of aluminum and curtailment of production was no longer necessary to maintain prices. The law of supply and demand had supplanted the law of the international cartel. In Germany production was stepped up rapidly and new methods of extracting aluminum from bauxite were employed. But other producing countries, still anxious to keep production down to immediate demand and thus maintain prices, fell far behind. U. S. production, according to experts, is less than half what will be required when the armament program achieves its ultimate momentum. Thurman Arnold, assistant attorney general in charge of the Anti-Trust División, contends in his book, Bottlenecks of Business, that practices of certain big industries have weakened the country's defensive position. THREE ARGUMENTS He argues, first, that by freezing out domestic competition these large companies have held down the number of plants capable of quick expansion in an emergency; second, that by entering into international agreements limiting this country's export markets they have deliberately failed to achieve their full potential; third, that by curtailing production to keep prices up they have forced the government, now that it needs large quantities of defense supplies immediately, to pay exorbitant prices. There is also the contention on the part of some critics of monopoly that it discourages improvement of production methods. This criticism is aimed at ALCOA, particularly, by independents anxious to compete in the aluminum production business. They insist that Germany and France are now capable of producing better aluminum more cheaply than is the Aluminum Co. of America, the pioneer of the world industry. On the other side is the argument, apparently subscribed to by members of the Defense Commission, that monopoly in certain fields is preferable to competition because it increases efficiency of distribution, builds strong companies capable of rapid expansion in time of crisis and simplifies the government's procurement problem. DUKE BOUGHT OUT You pay your money and you take your choice but-there can be little doubt that the highly competitive automobile industry, for example, will take a relatively smaller cut out of the taxpayers' pocketbooks in national defense taxes for finished machines than will the Aluminum Co. of America for an essential ingredient of these machines. The aluminum trial record contains evidence that ALCOA eliminated foreign competition not only by negotiation with companies operating outside the U. S. A., but also by buying out Americans threatening to set up as independent competitors in other countries. In the middle 1920s, for example, James Buchanan Duke, president of the American Tobacco Co., acquired a water power site on the Saguenay River in Canada as a preparation for entering the aluminum business. He paid $1,000,000 to assure a supply of power and another $180,000 for research, but sold out to the Aluminum Co. of America for more than $25,000,000. At about the same time the Uihlein brothers, Milwaukee brewers, acquired some beauxite deposits in British Guinia and were able to sell these deposits, which cost $11,000, and a plant worth about $750,000, for $3,097,986. Again it was representatives of ALCOA who made the purchase. George D. Haskell, president of the Bausch Machine Co., another potential competitor, subsequently tried to buy the Norsk Aluminum Co., a small independent concern operating in Norway. He was stopped when ALCOA suddenly bought a controlling interest in the Norwegian company. Walter L. Rice, special assistant to the Attorney General, undertook throughout the anti-trust trial to weave these and other instalments into a pattern of monopoly-particularly detrimental now that this counry needs a large and certain supply of aluminum. He contended that these practices had left this country solely reliant on one concern which has persistently refused to share its mass production profits with consumers by progressive price reductions. The nation is less adequately equipped to prepare itself for defense today, he told the court, than it would have been had ALCOA permitted its industry to become reasonably competitive at home and abroad. This is the second article on the part aluminum plays in national defense. Another will appear soon. [PM, Friday, November 15, 1940] U. S. PAYS NOW FOR MELLON MONOPOLY-LACK OF INDEPENDENTS CUTS ALUMINUM SUPPLY AND HAMPERS DEFENSE PRODUCTION-ALUMINUM TRUST KILLED INDE PENDENTS ... AMERICAN DEFENSE PAYS BILL NOW By GEORGE E. REEDY, Staff Correspondent WASHINGTON, Nov. 15.-The Aluminum Co. of America hasn't had any real competitor in the U. S. A. since 1903. That is why no independent concern has the experience, financial position or trained personnel necessary to supply the strong, light metal now so urgently needed for airplanes and other defensive weapons. And it is no accident that ALCOA stands alone in its field. The story of the Mellon concern is unique in the history of American industry. Growing up at the close of the empire-building era, when most monopolies were feeling the force of Theodore Roosevelt's big stick or adjusting themselves to the pressure of competition, ALCOA contrived to keep aluminum to itself. How it accomplished this is told in elaborate detail in the record of the anti-trust trial recently concluded in New York. LONG LITIGATION Back in 1893, there were two competing aluminum manufacturing concerns. Each had its own patents and each was fighting hard for survival in a pioneering industry. One was ALCOA, the other the Cowles Electric Smelting and Aluminum Co. of Lockport, N. Y. First blood was drawn when ALCOA sued Cowles for infringement of its so-called Hall patent. Cowles retaliated with a suit against ALCOA for infringement of its so-called Bradley patent. After nine years of litigation, Cowles called quits, selling its patent to ALCOA for $1,429,907 and the right to purchase a limited quantity of virgin aluminum from its former competitor at a preferential price. During the period of competition leading up to that settlement, the price of aluminum was forced down from $1.75 to 75 cents a pound. Once the agreement was signed, sealed and delivered, the price bounced back. Over the period of years since then, the price has come down gradually even though the industry itself remains practically non-competitive. The current price of aluminum is 18 cents a pound. At the start of the World War it was 18 cents too, but promptly went up to 37 cents. There has been, of course, some competition between aluminum and other materials. But right now there is nothing to take aluminum's place for the wings and fuselages of airplanes. And there is no place to get it except from ALCOA and no price to be paid except ALCOA's price. POWER AND BAUXITE Once the Cowles company had been disposed of, ALCOA's domination was not threatened until 1912, when French interests started construction of a plant at Badin, N. C., and prepared to compete as the Southern Aluminum Co. At the outbreak of the World War, Southern's properties were purchased by ALCOA for $6,990,627. Later, in a brief filed with the Internal Revenue Bureau, ALCOA attorneys claimed that the purchase price was $1,243,992 too high. This brief was produced by the government in the anti-trust trial as proof that ALCOA was willing, when necessary, to pay dearly for the privileges of monopoly. This contention was backed up with testimony concerning ALCOA's acquisition in 1925 and 1926 of the Duke and Uihlein properties for almost $30,000,000. These purchases were made through the Carborundum Corp. and the Acheson Graphite Co., both, like ALCOA itself, Mellon concerns. Testifying at the anti-trust trial, Joseph E. Uihlein told of his difficulties in obtaining the waterpower resources and bauxite necessary to compete with ALCOA. He finally managed it, he said, by finding a source of bauxite in South America and negotiating with James Buchanan Duke for waterpower. After the Duke and Uihlein interests had joined forces, Mr. Uihlein said, he went to Pittsburgh and conferred with Arthur V. Davis, president of ALCOA. The sale followed and Mr. Uihlein made no secret of his beliefs that he and Mr. Duke were bought out to protect ALCOA's monopolistic position. But Mr. Davis told the court he did not know of Mr. Duke's intentions until after the purchase was consummated. So it has gone with other companies trying to get a foothold in the profitable business of producing virgin aluminum. None has ever made the grade until the Reynolds Metals Co., manufacturers of foil for wrappers, recently got a loan from the RFC and a promise of power from the TVA. It will produce metal for its own needs-about 30,000 pounds a year as compared with ALCOA's 327,000,000 pounds. The new Reynolds plant at Sheffield, Ala., will employ a different chemical process from that used by ALCOA and draw upon different ore supplies. But it will not be a factor in national defense for years to come, if ever. MONOPOLY DENIED Although they admitted at the trial that no other concern produces virgin aluminum in the U. S. A., ALCOA attorneys denied monopoly charges on the grounds: ¶That the company has no control over reclaimed aluminum scrap, which constitutes about 30 per cent of the fabricators' supply. ¶ That virgin metal could be imported over the tariff wall (it has not been since the outbreak of the present war, however). That aluminum competes with steel, copper, wood, glass and any number of other materials. Pressing further, the government showed that ALCOA is the only producer of aluminum wire and cable in this country and contended that it has also contrived, by price manipulation, to dominate the sheet aluminum industry. There are now several so-called independent sheet rolling mills in operation but, according to government experts, these survive by sufferance of ALCOA. Moreover, ALCOA itself sells more than 80 per cent of the sheet used in the U. S. A. ALCOA's method of controlling the fabricators, the government charged, is to place a high price on virgin aluminum and a relatively low price on the finished product. This so narrows the spread between raw material and finished product that competition is unprofitable for the independent fabricator. Exhibits introduced at the trial purported to show that ALCOA itself lost money at times on fabrication. Five independents lost money even during the lush years of 1927, 1928 and 1929. One of them, the Baush Machine Tool Co. of Springfield, Mass., sued ALCOA in 1935 and won a judgment for more than $3,000,000, but the decision later was reversed on technical grounds. Baush finally was paid $950,000 and its president was put on the ALCOA payroll at $20,000 a year for five years. He had the ideal job-all pay and no work. The Sheet Aluminum Co. of Jackson, Mich., also sued, but settled for $240.000. Leland S. Bisbee, attorney for Sheet Aluminum, testified that ALCOA officials had told him they would tolerate no competition. Several other rolling mills likewise succumbed to the pressure or blandishments of ALCOA. But some of their officers were not too happy about it and starred as government witnesses in the anti-trust trial. They got satisfaction but they didn't get their plants back. Some of these plants would come in handy as competitors of ALCOA now that sheet for airplanes is needed in great quantity and there is no effective yardstick for price measurement. The story of ALCOA and power development will be told later. PM says antitrust enforcement capable of saving billions to consumer [PM, Thursday, December 19, 1940] ANTI-TRUST DRIVE SAVES THE CONSUMER MILLIONS COULD SAVE HIM BILLIONS By NATHAN ROBERTSON, Staff Correspondent WASHINGTON, Dec. 19.-Probably no one would be more surprised than President Roosevelt himself if it turned out that his Administration was remembered in history primarily as the one which at last, after 50 years of governmental hide-and-seek with the anti-trust laws, began to enforce them--cutting the nation's yearly living costs by several billion dollars. Enforcement of the anti-trust laws was not an integral part of the original New Deal. The NRA was a move in the opposite direction: it permitted certain agreements on prices, between competitors. It was not until the middle of his second term that Mr. Roosevelt paid much attention to the anti-trust laws. Then he turned to them less as a fundamental reform than as a handy way to curb price increases that were affecting his spending program in housing and the like. Even today, the anti-trust division of the Justice Department is one of the smallest of the important bureaus in Washington. The division's appropriation amounts to only $1 for each $10,000 spent by the Government. Thurman Arnold, who heads it, is a Yale professor who once wrote a book ridiculing the anti-trust laws. Yet many people believe the job this little unit is doing will have a more funda⚫mental economic effect and will do more for the ordinary man and woman who is struggling for a living, than any other activity of the Government. MILLIONS SAVED ALREADY If nothing else, it has proved that the long forgotten anti-trust laws at least can be partly enforced, and that their enforcement brings down prices. Already, by a comparatively few legal actions, consumers have been saved millions of dollars. There are proven cases where anti-trust prosecutions have cut prices 17 per cent and more. Builders in some cities have estimated building costs would be cut 20 to 25 per cent if the rackets were broken up. In food and shelter, biggest items in the cost of living, prices are held up by monopoly and price fixing agreements. In fact, this goes for almost everything we buy. No one, not even Mr. Arnold, will estimate in figures how much a complete enforcement of the anti-trust laws would mean to the people of the U. S. A. It's obvious, however, that the saving could run into billions of dollars. Americans pay about $20,000,000,000 a year for food. A 10 per cent price reduction through elimination of the restraints, in this one industry, would mean $2,000,000,000 a year to consumers, including farmers and others now partly supported by the Government. A BARE START MADE So far the anti-trust division has only been able to nibble at the job. With its small force, it is concentrating on the worst spots with considerable success, but it hasn't the man power to clean up even the fields in which it has started. Mr. Arnold and his staff believe they are hitting at the heart of America's economic problem. For ten years the country has been trying to find out how to distribute the goods it can make. The New Deal's earlier approach was to raise wages, without doing anything to curb corresponding price increases. Often the benefits of higher wages were lost by increased prices. There was little effort to break down restraints of trade so that profit margins would be subject to the curbing effects of open competition. Economists began to ask what the economic system gained from an increase in steel wages, if the steel producers merely got together to fix a higher price for steel. The anti-trust program is a move back toward traditional free enterprise, in which the law of supply and demand regulates production and prices. Americans like to think they have that system now-with each producer selling as much as possible and the purchasers, like bidders at an auction, determining the price. But Justice Department investigations indicate that much production is arbitrarily limited, and much which goes into commerce moves, so to speak, over monopolistic toll bridges placed at strategic points. At each bridge a group of men is growing wealthy by levying uneconomic charges on the trade that must pass through. Some of these bridges are entirely unnecessary. At others services are rendered, but the charges are too high. Often the consumer, buying at highly competitive retail stores, has no evidence that the price he pays includes these unnecessary toll charges. Yet the Justice Department charges that restraints of trade higher up are limiting the competition between outlets. Such restraints are charged in such essential commodities as chemicals, aluminum, lumber and foods. Thurman Arnold is prosecuting in such diverse fields as the movies, gasoline, medicine, spectacles, Pullman cars, and tobacco. Action has been brought against almost every segment 304946 41 -16 of the building industry including sand and gravel, cement, glass, tile, air conditioning, electrical fixtures, heating, plumbing, plastering, insulation, hardboard and marble. MANY PRICE-FIXING DODGES Devices for price-fixing and production-control vary in almost every industry. In aluminum, the Government charges outright monopoly by a single company. But usually the controls are operated by a group of the leading companies in an industry-even, the Government has charged, where there are as many as 22 major companies, as in the oil industry. In many industries, it contends, patent rights are used as a pretext for dictating prices all the way from the manufacturer to the retail outlet. The Sometimes anti-trust action has hit labor unions as well as industry. greatest controversy over the program centers at this point. Mr. Arnold contends that labor unions are prosecuted only when they team up with industry to restrain trade and eliminate competition, He denies that any action has been aimed at labor's legitimate and lawful right to organize and bargain for better working conditions. But both wings of labor are fighting the program. They contend the anti-trust division has prosecuted labor unions for employing legal tactics, such as bargaining for the closed shop and boycotting non-union goods. In some cases, they say, Mr. Arnold has gone out of his way to prosecute labor unions when they were not tied up in employer agreements of any kind. He has, they say, failed to distinguish between labor organizing, which is legal, and industrial organizing, which is illegal. Even within labor's ranks, however, there are many supporters of Mr. Arnold's program who believe that on the whole it is necessary to make union gains effective. They would like, for labor's sake, to see racket unions eliminated, They are for Mr. Arnold's announced aims-but if he is going beyond that, they will fight him. Despite labor's opposition, the anti-trust program has expanded rapidly. From 1890, when the Sherman law was enacted, until 1937, the Justice Department handled an average of only six or seven new cases a year. During the past three years it has instituted 116 new cases. In the last fiscal year ended June 30, 92 prosecutions were filed and the division worked on 215 investigations. Thirtythree cases were settled, only two were lost. The division, meanwhile, had quadrupled in size. Here is an effort at last to get America back on a system of free competitive enterprise. Many think it can't be done, that the anti-trust laws can't be enforced. Mr. Arnold believes he is proving them wrong, every day. EXHIBIT No. 2793 DEPARTMENT OF JUSTICE, Washington, February 10, 1941. Memorandum for Assistant Attorney General, Antitrust Division.' The passage of resale price legislation has become a classic example of the use of misrepresentation by a pressure group. Since this group has boasted of its achievements, there is no longer any doubt about what happened. The socalled "fair trade" laws which legalized resale price legislation in the states were drafted and urged by lobbyists for organized retail druggists and were enacted with practically no support from any other source. Druggists were organized under captains, district by district, to bring pressure to bear upon legislators. Care was taken, however, to describe their bill as one generally supported by the entire retail trade of the state. The bill was given the ambiguous and appealing name of "fair trade" law. A systematic effort was made to prevent public hearings and to secure the enactment of the bill without public debate. This effort was successful. There was a public hearing on the bill in only three states out of the first thirty-two in which it was passed, and in one of these the hearing followed the passage. Indeed, there was so little consideration of any kind that, 1 Reply to memorandum by the National Association of Retall Druggists; also Mr. Arnold's rejoinder, appear in TNEC Hearings, Part 31-A, pp. 18125, 18162. |