HD9416.S97a" """"'"''■"""'' "liKiMifm?' ^"'" * company to the stat 3 1924 014 539 807 AT Cornell University Rejoinder OF Swift & Company TO THE Statement of the Fed^BiBil Tride' Commission IN REPLY TO I. Statement of Swift & Company on the Summary of the Report of the Federal Trade Commission II. Answer of Swift & Company to the Federal Trade Commission's Report on Profiteering jVo. 4 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924014539807 Swift and Company UNION STOCK YARDS Chicago, October 23,1918. L.r. Swift Hon. Josepli E. Haasdell, Chairman, Sub-Committee, Senate Committee, Agriculture and Forestry, Washington, D. C. Dear Sir: I have read the statement of the Federal Trade Commission filed by Commlesloner William B. Colver with your Sub-Committee at the conolueion of his testimony September 28th, 1918, The Trade Commission's statement contains many Inaocuraoles about the packing business, and I enclose herewith a rejoinder prepared by Swift & Company which attempts to present the points under diecusslon in their true light. I would request that this statement of Swift & Company's be included in and made a part of the record of the hearings before your Sub-Committee. The whole complaint of the Trade Commieaion ie baeed upon the unproved assumption of a monopoly, and I desire to take this opportunity to again deny that Swift & Company is in sny combination or conspiracy in restraint of trade or Is indulging In any unfair tr-ade practices. Yours truly. EM SUMMARY OF Swift & Company's Rejoinder The Federal Trade Commission tries to belittle Swift & Com- pany's statement that its profit of one-fourth of a cent per pound on beef is so small as to have practically no effect on prices, by saying that this amounts to $5 per ton of beef, whereas anthra- cite coal operators are content with only 25 cents a ton. The absurdity of this comparison is obvious. A ton of beef is worth at present about $400 at wholesale, whereas a ton of coal is worth only about $7 at tidewater. Swift & Company's beef profit is only IJ per cent, of the selling price ; the coal profit is over 3^ per cent! There is no comparison between the extent and cost of service involved in producing and marketing coal and beef. Coal is easily handled in ton lots and car lots ; beef is a perishable com- modity sold direct to retailers all over the country in small lots. Swift & Company filled over 30,000,000 orders for its various products last year with a total of about 200,000,000 items, a large part of which had to be weighed and wrapped separately. This coal and beef comparison is the most glaring weakness of the Trade Commission's statement answering Swift & Company's published replies to the Trade Commission's reports on Profiteer- ing and The Meat Packing Industry. The Trade Commission's statement was introduced by Mr. W. B. Colver, Chairman of the Commission, as part of his testimony in the hearings before a sub-committee of the Senate Committee on Agriculture, when an attempt was being made to discredit the Chamber of Commerce of the United States for its admirable and conclusive report criticising the Trade Commission. To this statement of the Trade Commission, Swift & Company now issues a rejoinder. The Federal Trade Commission states that the packers must have divided the receipts of live stock among themselves accord- ing to agreed percentages, because these percentages remain sub- stantially uniform from week to week, irrespective of live-stock receipts and because when there is a surplus of live stock each packer insists that the others must take their shares. This assertion involves an absolute misstatement of fact. The percentage of total purchases made by Swift & Company in all markets varies substantially from week to week, and even more strikingly in individual markets. (Data presented on pages 12 to 14 in this rejoinder absolutely substantiate this state- ment.) Swift & Company has always striven to increase its pro- portion of the total business, and figures given by the Trade Commission in its report on the packing industry show that Swift & Company slaughtered about 90,000 more cattle in 1917 than if it had not increased its proportion over 1913. Swift & Company absolutely denies that it has agreements of any sort with other packers affecting the prices of live stock or meats. The Trade Commission has not only failed to prove that there is a combination, but omits from its original report, and now from its answer, scores of salient facts which definitely prove that there is keen competition among the packers. The Trade Commission now claims that it has not been preju- diced in its investigation and that it has not made unfair state- ments about packers' profits. Swift & Company proves in its rejoinder that the investigation was one-sided, and that the pack- ers were never given a hearing ; that the Trade Commission took from Swift & Company's files bits of correspondence, which, by themselves, seemed to bear out the Trade Commission's conten- tions, but which, when read in conjunction with accompanying correspondence, have a totally different meaning from that implied by the Trade Commission; and that the only reason the Trade Commission could have had for comparing the packers' three-year war profit with a one-year pre-war profit was to give the public an exaggerated notion of the packers' profits. In its rejoinder Swift & Company also explains that the pack- ers have become interested in stock yards, because they have been practically forced to do so in order to provide proper facili- ties for the care of animals; it. proves that the Trade Commis- sion's statement that "during 1917 prices of hides * * * were advanced very rapidly" was a misstatement of fact; it also explains that its profits have not only been so small as to have practically no effect on prices, but that they have been no more than adequate to pay reasonable returns to stockholders and to finance the business during war times. Rejoinder of Swift & Company (issued Oct. 29, 1918) TO THE Statement of the Federal Trade Commission (of Oct. 5, 1918) IN REPLY TO I. Statement of Swift & Company on the Summary of the Report of the Federal Trade Commission on the Meat Packing Industry. II. Answer of Swift & Company to the Federal Trade Commission's Report on Profiteering. The Federal Trade Commission has issued an answer to state- ments issued by Swift & Company which criticized the Commis- sion's reports on the packing industry and on profiteering. These statements issued by Swift & Company had shown that the Fed- eral Trade Commission had made sensational, unfair, and preju- diced charges against the packers, and that the Federal Trade Commission had utterly failed to establish its conclusion that the packers have a monopoly in restraint of trade. This answer issued by the Trade Commission to Swifty & Com- pany 's statements was introduced by Mr. "W. B. Colver, Chairman of the Commission, during a hearing held before the Sub-commit- tee of the Senate Committee on Agriculture, in which an attempt was being made to discredit the Chamber of Commerce of the United States, because of its convincing argument to the effect that the Federal Trade Commission had exercised functions be- yond its jurisdiction, that it had followed the vacillating policy of starting important projects and leaving its work incomplete, that it had unfairly changed its procedure without public notice, that it had abused its powers of publicity, that it had not observed the rules of common justice, and that it had been heedless of standards of accuracy and frankness. In one way this answer of the Federal Trade Commission de- serves praise. It is couched in more moderate language than either the report on the meat-packing industry or the one on profiteering. It gives some indication of a desire to treat the mat- receipts and because when there is a surplus of live stock each packer insists that the others must take their shares. This assertion involves an absolute misstatement of fact. The percentage of total purchases made by Swift & Company in all markets varies substantially from week to week, and even more strikingly in individual markets. (Data presented on pages 12 to 14 in this rejoinder absolutely substantiate this state- ment.) Swift & Company has always striven to increase its pro- portion of the total business, and figures given by the Trade Commission in its report on the packing industry show that Swift & Company slaughtered about 90,000 more cattle in 1917 than if it had not increased its proportion over 1913. Swift & Company absolutely denies that it has agreements of any sort with other packers affecting the prices of live stock or meats. The Trade Commission has not only failed to prove that there is a combination, but omits from its original report, and now from its answer, scored of salient facts which definitely prove that there is keen competition among the packers. The Trade Commission now claims that it has not been preju- diced in its investigation and that it has not made unfair state- ments about packers* profits. Swift & Company proves in its rejoinder that the investigation was one-sided, and that the pack- ers were never given a hearing ; that the Trade Commission took from Swift & Company's files bits of correspondence, which, by themselves, seemed to bear out the Trade Commission's conten- tions, but which, when read in conjunction with accompanying correspondence, have a totally different meaning from that implied by the Trade Commission; and that the only reason the Trade Commission could have had for comparing the packers' three-year war profit with a one-year pre-war profit was to give the public an exaggerated notion of the packers' profits. In its rejoinder Swift & Company also explains that the pack- ers have become interested in stock yards, because they have been practically forced to do so in order to provide proper facili- ties for the care of animals; it, proves that the Trade Commis- sion 's statement that ' ' during 1917 prices of hides * * * were advanced very rapidly" was a misstatement of fact; it also explains that its profits have not only been so small as to have practically no effect on prices, but that they have been no more than adequate to pay reasonable returns to stockholders and to finance the business during war times. Rejoinder of Swift & Company (Issued Oct. 29, 1918) TO THE Statement of the Federal Trade Commission (of Oct. 5, 1918) IN REPLY TO I. Statement of Swift & Company on the Summary of the Report of the Federal Trade Commission on the Meat Packing Industry. II. Answer of Swift & Company to the Federal Trade Commission's Report on Profiteering. The Federal Trade Commission has issued an answer to state- ments issued by Swift & Company which criticized the Commis- sion's reports on the packing industry and on profiteering. These statements issued by Swift & Company had shown that the Fed- eral Trade Commission had made sensational, unfair, and preju- diced charges against the packers, and that the Federal Trade Commission had utterly failed to establish its conclusion that the packers have a monopoly in restraint of trade. This answer issued by the Trade Commission to Swifty & Com- pany's statements was introduced by Mr. "W. B. Colver, Chairman of the Commission, during a hearing held before the Sub-commit- tee of the Senate Committee on Agriculture, in which an attempt was being made to discredit the Chamber of Commerce of the United States, because of its convincing argument to the effect that the Federal Trade Commission had exercised functions be- yond its jurisdiction, that it had followed the vacillating policy of starting important projects and leaving its work incomplete, that it had unfairly changed its procedure without public notice, that it had abused its powers of publicity, that it had not observed the rules of common justice, and that it had been heedless of standards of accuracy and frankness. In one way this answer of the Federal Trade Commission de- serves praise. It is couched in more moderate language than either the report on the meat-packing industry or the one on profiteering. It gives some indication of a desire to treat the mat- ters under discussion from a scientific standpoint, and the hand of the yellow journalist is less in evidence. On the other hand, this lattempt of the Federal Trade Commis- sion to defend itself is not only inconclusive, but betrays the same prejudice against the packing industry, the same failure to consider all the facts involved, and the same failure to under- stand business fundamentals, as are evident in the reports under consideration. In one or tvsro cases, at least, the Commission has been guilty of utterances that are little short of absurd, such as the attempt to criticize Sv^ift & Company's figures on beef profits by comparing them with the profits on coal. Concerning Sivift & Company's Statement of August 19, 1918, on Summary of the Report of the Fed- eral Trade Commission on the Meat Packing Industry of July 3, 1918. In its answer to Swift & Company's criticism of the Meat Pack- ing Industry Report, the Trade Commission contents itself with a review of only the abstract of Swift & Company's statement and pays no attention to the main argument. It groups its answers under nine headings, which will be discussed in turn. 1. To Svsrift & Company's proclamation that it is in active competition with all other packers, the Trade Commission an- swers that it has proof that a combination exists, and bases its case primarily on the claim that receipts of live stock are divided among the packers by agreement. The Commission presents no proof of combination in this answer; it will be shown below that there is no agreed division of receipts, and that the approximately constant percentages are an evidence of competition rather than the reverse. The attempt of the Commission to explain away the obvious competition in existence, by stating that there had been "jealousy among the packers and attempts to step over these collusive gen- tlemen's agreements," is an extremely lame and quibbling at- tempt to bolster up its own case. Swift & Company knows that the Trade Commission cannot furnish evidence of a combination to control prices because it is impossible to prove the existence of something that does not exist. 2. Swift & Company had said la its abstract that it does not believe that now is the time for the "Trade Commission to sug- gest drastic Government experiments and throw discredit on an essential industry." The Trade Commission replies that it has suggested no drastic experiments and that it has not discredited the packers. Although Swift & Company has no serious objection to the Grovernment 's taking over ear lines and stockyards, it believes that such action would constitute a drastic experiment, especially at this time when the packers are performing, and must con- tinue to perform, to 100 per cent, efficiency in. the filling of war orders. The suggestion that branch houses be taken over and operated as public markets would certainly be a drastic move. Swift & Company believes that unprejudiced persons will agree that the packers have been discredited by the Trade Commission in the eyes of the public, because of the impression given by the Commission that the packers have an illegal monopoly, that they make extortionate profits, and that they stoop to all sorts of illegal devices. No one of these charges has a foundation of fact. 3. To Swift & Company's charge that the investigation was one-sided and that the packers were given no chance to present their side of the case, the Trade Commission retorts that the packers were given an opportunity at the beginning of the in- quiry, when they were requested to file briefs giving their views on the principal complaints that had been made, and the Conu mission further says that the hearings "were not in the nature of an adversary proceeding, but were in the nature of an inquiry in which the Commission avoided giving immunity to the packers." As for the opportunity to file briefs. Swift & Company .was asked four very general questions in July, 1917, before the in- quiry really got under way. None of these questions made or implied any charges against or criticisms of Swift ft Company. Swift & Company replied to these questions in August, 1917. This all happened before the hearings held before Mr. Francis J. Heney, and before the searchings of Swift & Company's files began. Since that time there has been no opportunity to explain evidence and data collected by the Commission, to present wit- nesses, or to cross-examine witnesses called by the Trade Com- mission. It was only after these hearings began that the packers were charged with offences and unfair practices, and neither Swift & Company nor any other packer was ever given an oppor- tunity to offer any defence against such charges. This opportunity which the Federal Trade Commission gave the packers to present their side of the case is analogous to the situation which would arise should a court before a trial notify theMefendant that he might file a statement with the court, and that such statement would constitute his hearing, his proof, and his day in court, and that after the trial commenced he would not be permitted to offer evidence in his own behalf, cross- examine the plaintiff's witnesses, or present any proqf or argu- ment at the conclusion of the trial. This describes exactly the "opportunity" given the packers by the Trade Commission to prSfeent their side of the case. The excuse offered by the Commission that it "avoided giving immunity to the packers" suggests insincerity. The Trade Com- mission knows perfectly well that it could have adequately guarded against extending immunity to the packers and could have still allowed them to present their side of the case, and to give proper explanations of the correspondence and data gleaned from their private files. According to the law creating the Trade Commission, the question of immunity is involved only when subpoenas are issued. It is perfectly obvious that other than legal or scientific motives actuated the Commission in making the investigation an ex parte one; the prejudice and bias ex- hibited all through the report, and the careful avoidance of pre- senting facts which controvert the preconceived conclusions of the Commission indicate the animus which prompted the carry- ing out of a one-sided investigation. The Trade Commission's remarks on this matter practically constitute a complete admission of the truth of Swift & Com- pany's contention that the investigation was an ex parte one, and that the packers were given no chance to present their side of the case. 4. To Swift & Company's charge that the Commission had pre- sented only such facts as could be used, by adroit construction, to apparently substantiate its preconceived thesis, and that it omitted scores of salient facts which prove that the packers are in competition, the Commission answers that it had no precon- ceived notions, and that the competition is "gham instead of real." If the Commission had not been intent on substantiating cer- tain preconceived conclusions, why should it have gone through whole files of correspondence, selecting perhaps a single letter from a file, which, alone, would seem to answer the purpose of the Commission, and at the same time leave behind accompany- ing correspondence which would have entirely changed the mean- ing of the scrap of correspondence taken ? Swift & Company can easily show that the Trade Commission has omitted "scores of salient facts which prove that the packers are in competition with each other." In fact, the Commission took many bits of correspondence which, alone, when correctly interpreted, indicate active competition. A good example of this is to be found in the Armour letter on hides quoted at length by the Commission in its answer, and discussed below. Swift & Company's advertised statement that its profits are so small as to have practically no effect on prices will be substanti- ated and discussed below. 5. In answer to Swift & Company's statement that the Com- mission failed to mention that the packers are operating: under Government supervision and profit limitation, the Commission replies that Government supervision does not touch "directly the sources of monopoly," that the profits on only part of the pack- ers' business is limited, and that the Commission is now prepar- ing a uniform system pf accounting for the packers. Swift & Company fails to see how these are adequate reasons for failure to speak of such an important point. Government supervision may not touch the "sources of monopoly" especially as there is no monopoly ; but it certainly touches the question, of profits with which the Trade Commission dealt. It is perfectly true that the profit on only part of the packers' business is limited, but this limitation governs about 80 per cent, of the total business of Swift & Company and includes the production of aU meats and by-products in the United States. Furthermore, pack- ers' profits are limited on certain products, whereas many con- cerns outside of the packing business which make the same products, either have fewer restrictions or no restrictions at all. 6. Swift & Company had stated that the packers had become interested in stockyards to provide proper and adequate facili- ties for the care of live stock and that this gives no control over prices. The Trade Commission replies that packer ownership 10 of the yards has been oppressive to producers, to competing slaughterers, and to the public welfare. No evidence is presented by the Commission to prove its state- ment. By furnishing facilities that had not existed, or that ex- isted in imperfect form, packer ownership of stockyards has been a boon to producers of live stock and by improving marketing conditions has benefited the public at large. Swift & Company has resorted to no "ingenious devices" to conceal ownership in stockyards and has no interest whatever, direct or indirect, in the Chicago yards. If the Commission has evidence that unsatisfactory services have been rendered in stockyards, such evidence must have to do with only occasional and unusual instances where the service has fallen down in some particular, or where a shipper has been dissatisfied. Swift & Company does not necessarily claim abso- lute perfection in the operation of stockyards in which it is in- terested ; it knows that the service has been better than it would have been if the packers had not taken a hand, and it doubts whether Government ownership and operation will raise the pres- ent high standard of efficiency, although Swift & Company has no serious objection to the Government's trying the experiment. The Commission does not attack Swift & Company's statement that ownership of stockyards gives no control over prices. 7. The Trade Commission defends its recommendation that the Government take over the refrigerator cars of the packers on the ground that the channels of distribution will in that way be made free and open to large and small concerns alike and that competition will thereby be increased. Although Swift & Company has no serious objection to the Government's taking over its refrigerator cars, attention is called to the fact that the Interstate Commerce Commission in a decision handed down on July 31, 1918, said, on page 673 : ' ' The system of the use and supply of private cars that now exists can not be at once and radically changed, without serious con- sequences to shippers, carriers and the public." On page 683 it said that ' ' The requirement has been that there shall be the most efficient use of tank and refrigerator cars, which has been one of the results of private ownership." In other places in this de- cision, which was the result of a very thorough investigation, the Interstate Commerce Commission finds that refrigerator cars of 11 the packers have been operated for years at a financial loss and that they have been used with the highest possible degree of effi- ciency and with unquestionable benefit to all concerned. It should also be borne in mind that with the present heavy demand for refrigerator cars and with the need for the highest degree of efficiency in car movement, a change in ownership and control might result in conditions which would seriously affect the flow of meats. This might in turn clog the live-stock mar- kets and hence depress live-stoCk prices. 8. It is upon an alleged division of live-stock receipts among the packers that the Federal Trade Conuuission really bases its monopoly charge^ and it says that Swift & Company's argument that the fairly constant proportions taken by the different pack- ers is the result of competition, rather than of agreement, "can not stand." The Commission says that Swift & Company's ex- planation does not explain why each packer insists that the other packers shall take their proportions when the market is "soft>" and that it does not explain why the same proportions "hold substantially true week after week when the number of animals coming to market one week is only one^f ourth the number coming three or four weeks later." Swift & Company again proclaims that it has no agreement with other packers with respect to live-stock receipts and that the reason why the percentage taken by each packer remains ap- proximately constant for all markets over considerable periods, is that each packer is in such keen competition with the others, and watches the others so closely, that no single packer can in- crease his business inordinately at the expense of the others without paying so much for live stock that his operations would result in a loss. No packer is going to allow his competitor to get a larger proportion of the sale of meat products or the re- ceipts of live stock, if he can possibly help it^ because each packer is out for all the business he can get, just as every other business concern is. One fundamental reason why no single packer is going to lose business to the others, if he can help it, is that the expense of operating plants and distributive machinery is more or less fixed; hence a decrease in volume would tend to raise his own expenses, and help to lower the expenses of his rivals. Although, for the reasons just cited, the percentages bought by the different packers remain surprisingly constant from year 12 to, year,, they yary greatly for different weeks within the year. In. other words, the Trade Commission's contentions that uniform proportions continue when the market is "soft," and that these same proportions hold substantially true week after week irre- spective of variations in live-stock receipts, are absolute misstate- ments of fact. , Pl-oof that percentages taken by the different packers vary substantially from week to week, and that this variation exists just as much when the market is "soft" as at other times, is found in the following figures : Between September 1, 1917, and September 1, 1918, Swift & Company's proportion of the total purchases of hogs made by five large packers in Chicago and western markets varied from 32.5 per cent, of the total in one week up to 41 per cent, in an- other week. In other words, Swift & Company's maximum pro- portion for any one week was over 25 per cent, greater than when its proportion was at a minimum. Such a variation in proportion would mean an increase or decrease of more than 25,000 hogs during a week of average receipts. The proportion also fre- quently varies substantially from one week to the next. The proportions bought by the smaller packers vary even more violently from week to week. Morris & Company's per- centage varied all the way from 9 per cent, to 15.4 per cent. In other words, its proportion was two-thirds greater during its maximum week than during the minimum week. Cudahy & Com- pany's purchases varied all the way from 7.8 per cent, in one week to 16.1 per cent, in, another. In other words, its proportion was twice, as great at one time.'as at another. ■ The same thing is true with regard to cattle purchases. Swift & 'Company's proportion varied all the way from 32 per cent, to 39.8 per cent., or nearly 8 per cent., which amounts to as many as 12,000 cattle in a single average week. Likewise, Cudahy & Company's percentage varied, from 6.9 per cent, to 12.8 per cent. These weekly variations for all markets taken together are sufficiently striking to prove that the Federal Trade Commission's statement that the proportions remain practically constant from week to week is untrue. But the variations become even more marked when the percentages bought by the different packers in, individual markets are considered, and indicate that the Trade Commission had not studied the situation with sufficient care. 13 As indicative of the extfent to which the proportions of hog purchases vary from week to week in individual markets, the following table shows the maximum and minimum percentages bought by Swift & Company in seven principal markets during the year September 1, 1917, to September 1, 1918 : MAXIMUM AND MINIMUM WEEKLY PERCENTAGES OP HOG PURCHASES MADE BY SWIFT & COMPANY. Difference between Maximum Minimum maximum percentage percentage and minimum Chicago : 28.4 12.9 15.5 Kansas City ; 26.8 15.9 10.9 Omaha 29.2 21.2 8.0 East St. Louis 63.5 8.1 55.4 South St. Joseph 60.7 40.2 20.5 St. Paul 89.1 54.1 35.0 Fort Worth 75.6 42.8 32.8 Not only is the range between weeks of maximum and fliini- mum proportions very striking, but the change in proportion from one week to the following is often substantial. For example, the proportion of hog purchases made by Swift & Company in East St. Louis jumped from 37.9 per cent, in one week to 63.5 per cent, the following week. Changes of 10 per cent, in Swift & Company's percentage of total purchases from one week to the next have been fairly frequent during the past year. Similar variations in percentages of cattle purchases also occur in individual markets from week to week. The following table shows the maximum and minimum percentages bought by Swift & Company in seven leading markets during the year September 1, 1917, to September 1, 1918 : * MAXIMUM AND MINIMUM WEEKLY PERCENTAGES OF CATTLE PURCHASES MADE BY SWIFT & COMPANY. Difference between Maximum Minimum maximum percentage percentage land minimum Chicago 43.1 Kansas City 31.4 Omaha 37.6 East St. Louis 47.6 ^outh St. Joseph 60.0 South St. Paul., 97.0 Fort Worth 52.2 32.7 13.2 18.5 12.9 25.0 12.6 31.0 16.6 35.9 24.1 62.9 34.1 33.5 18.7 14 As one might expect, the percentages of sheep purchased by- Swift & Company vary more markedly than the percentages for hogs and cattle. The following table shows the maximum and minimum weekly purchase of sheep made by Swift & Company in the leading markets during the year from September 1, 1917, to September 1, 1918 : MAXIMUM AND MINIMUM WEEKLY PERCENTAGES OF SHEEP PURCHASES MADE BY SWIFT & COMPANY. Difference between Maximum Minimum maximum percentage percentage and minimum Chicago 49.1 Kansas City 45.0 Omaha 40.9 East St. Louis 59.5 South St. Joseph 91.2 Fort Worth 97.8 23.7 25.4 12.5 32.5 17.9 23.0 19.3 40.2 62.4 28.8 18.5 79.3 So far, this analysis shows that the percentages of live stock purchased by Swift & Company vary substantially from week to week in all markets together, and more particularly in individual markets, and that therefore the Federal Trade Com- mission's assertion to the contrary is incorrect. Further study of the figures reveals the fact that these variations occur just as much during weeks when the market is "soft" as when the mar- ket is normal. A statistical study of the relation between Swift & Company's purchases and the volume of total purchases by the large packers by weeks indicates that if there is any direct relation at all, Swift & Company is likely to buy a larger per- centage during weeks qf heavy receipts than during weeks of light receipts. This is undoubtedly due to the greater capacity of Swift & Company's plants, and hence the ability of this com- pany to absorb heavier market receipts than the other packers. On the other hand, there are plenty of individual instances which prove that Swift & Company's percentage of total pur- chases changes abruptly from one week'to the next, irrespective of a pronounced increase or decrease in live-stock receipts. For ' example, during the week en'ded March 2, 1918, Swift & Company bought 38.6 per cent, of the 490,000 hogs purchased by the five large packers in 11 markets; the following week Swift & Com- pany's purchases amounted to only 34.3 per cent of 385,000 hogs 15 r purchased by the five packers, a decrease of over 100,000 in the number purchased by the five packers, and a decrease of 4.3 per cent.. in Swift & Company's percentage. This means that Swift & Company bought during the second week 16,500 fewer hogs than if it had maintained the percentage that existed the previous week! Scores of similar instances could be cited to show that the percentages bought by the different packers vary from week to week in such a way as to completely destroy the Commission's assertion that substantially uniform proportions are maintained when the market is "soft." Although the figures presented above were for the year 1917-18, the same condition of affairs prevailed during earlier years. It should also be mentioned that when the receipts are very large and the market is not very active a surplus of animals often remains unsold and has to be carried over until the next day. It is under such conditions that Swift & Company often buys more than its normal percentage, and in some cases it has co- operated with live-stock shippers, at their request, by asking other packers to buy more animals, in order to support certain markets. "When this has occurred, the purpose has been to steady live-stock prices, to avoid erratic fluctuations, and to make such markets more attractive to shippers. The only possible answer that the Federal Trade Commission can now make to this statement of facts is that the packers in some way must get together and make arbitrary adjustments according to certain agreed upon percentages which shall obtain over long periods of time, and for all markets together. Swift & Company can only reply that it is constantly striving to increase its proportion of the total business, and that the figures presented by the Trade Commission itself on page 27 of its packing house report show that Swift & Company slaughtered about 90,000 more cattle in 1917 than it would have slaughtered if it had not increased its proportion over that which prevailed in 1913. The reason that the percentages do not vary more from year to year, as explained before, is that the packers keep such a close watch on each other that no single packer can increase his percentage inordinately for any length of time. 9. Swift & Company had said in its statement that the recom- mendation of the Federal Trade Commission to take over and operate branch houses as public markets was impractical and visionary and indicates bow little the Trade Commission under- 16 stands branch-house organization and operation. The Commis- sion says that Swift & Company has misinterpreted the Trade Commission's recommendation; that it does not mean that the Government take over the business of distributing meat; but that the Government take over "such of the places of receipt in which, and such of the facilities by which," the distribution of meats is now effected, so as to give independent packers and food dealers facilities for reaching the large cities with their products. Swift & Company is glad to be corrected concerning the Com- mission's recommendation. It admits that it was a little confused by the language used in the original report of the Commission, and it confesses that it is not sure that it fully comprehends the mean- ing of the Trade Commission's present explanation of its posi- tion. Swift & Company fears that the Commission will have to study this branch-house matter more fully than it has done in the past before it can formulate its recommendation with definite- ness. In connection with this branch-house recommendation, Swift & Company would suggest that any packer that has business which is sufficiently regular from week to week and from season to season to justify the establishment of a branch-house sales organization, can build or rent such houses at any time. There is no reason why branch houses belonging to the large packers should be taken over by the Government; if it is believed ad- visable to furnish accommodations to smaller packers, the Gov- ernment could establish market places and rent space to such packers and dealers as would be willing to operate selling outlets. II. Concerning Swift & Company's ansmrer to tlie Fed- eral Trade Commission's Report of June 29, 1918, on Profiteering. The Federal Trade Commission's report on profiteering con- tains, such sensational methods of presentation, such unfair sta- tistical comparisons, and such actual errors and misstatements concerning. profits of the packing industry, that Swift & Com- pany issued a formal answer calling attention to the shortcomings of the Commission's report. In its answer, Swift & Company criticized the Trade Commas- 17 sion's report on seven different points, six of which the Trade Commission attempts to answer, as discussed below: 1. Swift & Company stated that the report contains "unfair and inaccurate comparison of war with pre-war profits." This statement was supported by showing that the Trade Commission had compared an aggreg^ate profit for three war years with the average profit for one year before the war, and that the total of the increased profits, as enumerated for the three war years, did not coincide with the total given by the Commission, and that therefore there must have been an error in the figures. Swift & Company still maintains that it was unfair to compare a three-year profit with a one-year profit, in spite of the efforts of the Trade Commission to defend itself on this point, and if it were a matter of sufficient importance Swift & Company would be willing to leave the decision to any unprejudiced group of statisticians or economists that might be selected. The only purpose that the Trade Commission could have had in stating the profit in this way was to give an exaggerated idea of the war profits as compared with pre-war profits. As for the discrepancy in the Trade Commission's figures, the Commission now admits that there was a "clerical error" in stat- ing the total profits during the war, and in the present answer tabulates the profit figures in exactly the same way as they were presented by Swift & Company in its criticism. This matter is therefore closed. The Trade Commission criticizes Swift & Company for having set aside a ten million dollar reserve for taxes in its published financial statement, on the ground that such deduction does not BjCcord with Government accounting practice, and that the pur- pose of Federal taxes is to tax profits, and that this purpose is defeated if the tax itself is counted as a cost. Needless to say, Swift & Company made its taxation returns in accordance with Governmeift instructions, and did not attempt to evade taxation in any way. The ten million dollars was set aside to make the financial statement for 1917, for the information of shareholders, comparable with statements for previous years, when profits were shown as the balance left for dividends and surplus. In its whole consideration of profits the Federal Trade Com- mission fails to realize that the profits reported by the packers are not profits that have actually appeared in the form of cash. 18 but are largely book profits tied up in inventories, which will undoubtedly disappear in large measure when prices begin to go down. Swift & Company has paid only reasonable dividends to stockholders, and has had to leave the remainder of its book profits tied up in the business in order to finance huge purchases of stocks at rapidly advancing costs. 2. Swift & Company claims that the Federal Trade Com- mission's report contained an actual "misstatement concemiag hides." The Trade Commission in its report on Profiteering said that " During 1917 the prices of hides, particularly packer hides, were advanced very rapidly, notwithstanding that during the period of advance great supplies of hides were withheld from the public." (Underlines are Swift & Company's.) Swift & Company demonstrated the inaccuracy of this statement by quoting prices of hides as published in the Year Book of the Chicago Drovers'* Journal, which showed conclusively that during the year 1917, the general tendency of hide prices was downward. The Federal Trade Commission now attempts to defend its original statement by quoting figures from the same source which show that the av- erage price of hides for 1917 was higher than the avera,ge pric«i for the year 1916. A true statement of the situation is as foUotrs: During the year 1916 the prices of hides advanced {not "were" advanced) very rapidly from an average of about 19 cents in January to over 30 cents in December. This rapid advance was due to a threatened shortage of hides, to the unprecedented prosperity in the boot and shoe industry, and to the efforts of tanners, shoe manufacturers, and shoe dealers to stock up on account of the threatened scarcity. The high-water mark in hide prices- wds reached in December, 1916. Because of the low prices early in 1916, the average for that year was lower than for 1917, but the tendency of prices through 1917 as a whole was distinctly downward, as proved by the figures quoted in Swift & Company's statement. In view of these facts. Swift & Company still claims that the statement of the Commission that ' ' during 1917 the prices of hides were advanced very rapidly" was an absolute mis- statement. The Trade Commission goes to great trouble in proving that the stocks of hides in the hands of packers increased from the begin- ning of 1916 to the middle of 1917, and insinuates that the rising prices during 1917 (when prices were really declining) were due to these increased stocks. 13 Swift & Company knows to its own sorrow that its stocks of hides increased abnormally during 1917, and not only admitted that this was the fact, but explained the reasons therefor in a for- mal letter written to the Trade Commission on March 8, 1918, in explanation of the hide and leather situation. The reasons for the increased stocks of hides and the receding prices were the enormous increase in hide supplies (due to unprecedented cattle receipts), the British embargo on American exports of leather and shoes, and the failure of domestic demand to keep pace with the augmented supply. In the face of these conditions Swift & Company sold hides as rapidly as the trade could absorb them, and actually sold 20 per cent, more hides during 1917 than during 1916, and at con- stantly falling prices. As Mr. L. F. Swift so aptly put it, ' ' Swift & Company hoarded hides about the way Chicago hoarded snow during the winter of 1917-18." The ups and downs of the hide market can in no way be attri- buted to manipulations or trade restraints on the part of the pack- ers. The Trade Commission quotes at length a letter written by one official of Armour & Company to another official, criticising the second official for not having sold his hides out rapidly enough at the prices offered by purchasers. The implication is that this is proof that Armour & Company purposely withheld hides to boost the market. As a matter of fact, the implication is absurd, because any business man knows that a seller of commodities must neces- sarily try to realize the highest possible price, and that it would mean business suicide to follow any other policy. Furthermore, in its references to the other packers, this letter furnishes as posi- tive evidence of competition and rivalry among the packers as could possibly be found, and also shows that Armour lost money rather than made money by not selling hides. How the Trade Commission could have thought that the reproduction of this letter would bolster up its case is inconceivable to Swift & Company. 3. Swift & Company stated that the Trade Commission's report contained "Unfair treatment of profit fignires," and said that to be entirely fair the Trade Commission should have ex- plained that packers' profits amounted to such a small fraction of a cent per pound that if eliminated entirely there would have been practically no effect on the prices of meat or live stock. It was also stated that where the Trade Commission announced that the profits of the four large packers for the three war years amounted to $140,000,000, it should have been explained that this 20 profit was made on total sales of $4,570,000,000, amounting to only about three cents on each dollar of sales. The Trade Commission criticises these statements on the ground that profits and sales figures used by Swift & Company were not correct; that the total profit was earned on all commodities han- dled, and that the public is as much concerned with the prices of butter, eggs, etc., as it is with the price of meat; that a small profit per pound or per dollar does not prove that the packers are not responsible for high prices; that the cost-keeping systen^ in use by Swift & Company does not yield absolutely exact figures ; and that the public is not concerned so much in the rate of profit per pound, or the rate of profit per dollar of sales , as it is in the rate of profit on investment. The whole burden of this discussion on the part of the Trade Commission is to criticise Swift & Company's published statements that its profit on meat is so small as to have practically no effect on prices. It makes no difference whether Swift & Company's statement of profits and sales of four large packers, as derived from published sources available, tallies with the figures obtained by the Trade Commission direct from the packers' books; the point is that however figured the profit per pound or per dollar of sales is so insignificant as to have practically no effect on prices. The second contention of the Commission is that Swift & Com- pany has shifted the discussion of total profit to the price, cost, and profit of meat alone, whereas the public is also concerned as to prices, costs, and profits of the other things sold. Swift & Com- pany answers this shallow line of reasoning by stating that its profit on all products handled in 1917 was only about six-tenths of a cent per pound ; that although the profits on some products were naturally higher than on others, in no case were they out of line with competitive profits for the different commodities ; and, finally, that since meat is the most important product handled, Swift & Company feels justified in proclaiming that its profit on this com- modity is only a fraction of a cent a pound, and that therefore this profit has practically no effect on prices. The Trade Commission tries further to discredit Swift & Com- pany's statements by saying that a small profit per pound, or per doUar of sales, does not necessarily mean that the packers are not responsible for high prices, because it is by no means sure that the system of large packing plants represents the most economical method of slaughtering and marketing meats. All Swift & Com- 21 pany says is that its profit is not responsible for high meat prices. The Trade Commission's idea seems to be that a system, of small packing plants, located nearer the producing sections, might do the job at lower cost than the large central establishments. Suffice it to say that Swift & Company now slaughters in over twenty-five plants, located with respect to proximity of producing sections and distance from consuming centers, and that its experts have been and are continually studying this problem in order to bring about the most economical arrangement. The Trade Commission itself says in another place in its Answer, that "No one questions the ability of the large packing houses ijx supplying the great consum- ing centers with meat products, the bulk of which could not be produced locally." Swift & Company is not worried about its ability to maintain as low producing and distributing costs as can be accomplished by smaller packers. The next effort to discredit Swift & Company's profit figures is the assertion that the present accounting system of the packers is not a sound system for costs, nor reliable for profits. Swift '& Company does not claim absolute accuracy or perfection for its accounting system, but believes it has been fairly successful in developing a system, throughout years of the most careful study, which represents substantially accurate cost and profit figures. The Trade Commission quotes testimony from hearings before a public accountant who represented the Commission, in which an official of Armour & Company stated that it was impossible to arrive at exact producing costs as between departments. Of course, no costing system' can be absolutely perfect, especially when there are a number of different products manufactured, and when there is overhead expense to be allocated more or less arbitrarily to the different departments; and this is all that the Armour official meant! But the quotation is unfairly used by the Commission to discredit Swift & Company's present cost and profit figures, by giving the impression that the Armour official's statement was a confession that present accounting methods are weak and unsatis- factory. One would think from the manner in which the Trade Commission announces that it is developing a system of uniform accounting for the packers that this new system will perform the. impossible by yielding absolutely accurate cost and profit figures ! The most obvious absurdity of the Trade Commission's answer, however, is found in its attempt to discredit Swift & Company's method of stating its profit per pound, or per dollar of sales, by 22 suggesting that if the profit were expressed as so much per ton, instead of per pound, it would not seem so small. The Commission goes on to say that anthracite coal companies regard a profit of 25 cents per ton as satisfactory, and that for this profit they mine the coal, clean and prepare it, and distribute it at wholesale. It then says that the packer's profit of one-fourth of a cent per pound on beef amounts to $5.00 per ton, as compared with only 25 cents per ton profit on coal! Swift & Company cannot understand how the Trade Commission could have been guilty of such a ridiculous statement. The ques- tion involved is the relation of profits to prices, and not to weights. Swift & Company speaks of its profits per pound because most people have an idea of what a pound of meat is worth. It would be perfectly willing to speak of its profit per ton, if people had a ready conception of the value of a ton of meat. As a matter of fact, an average-quality ton of beef is worth at wholesale at present about $400, whereas a ton of anthracite coal at* tidewater is worth only about $7 ! Compare a $5 profit on a $400 sale with a 25 cent profit on a $7 sale. The beef profit is only about 1^ per cent.; the coal profit over 3^ per cent.! In neither ease does the profit have much effect on the price, but the coal profit has nearly three times as much effect as the beef profit ! Enough has been said to show the absolute worthlessness of the Trade Commission's argument on this point, but there are other weaknesses. There is no comparison whatever as to the amount of effort, the expenses involved, and the investment necessary in preparing and selling the two commodities. For every ton of meat handled. Swift & Company has to incur expenses for slaughtering and dressing, operation of branch houses, delivery to retail- ers, etc., any item of which is in excess of the whole value of a ton of coal. Furthermore, Swift & Company delivers in small quantities, while coal is delivered in car lots or ton lots ! In 1917 Swift -& Company filled over 30,000,000 orders of all products, with an average of six or eight items to an order, a large part of which had to be weighed and wrapped separately ! And Swift & Company's products are also largely perishable products. For some reason or other, the Federal Trade Commission seems to be particularly anxious to nullify the effect of Swift & Company's public statements as to its smaM profits per pound of meat ; it will hardly accomplish its purpose by comparing coal and meat! 23 After making this vain attempt to discredit Swift & Company's profit figures as expressed per pound of product, or per dollar of sales, tlie Trade Commission says that after all the "best basis for a proper judgment of profits is the rate of return on the invest- ment of the stockholders." Swift & Company is glad that the Trade Commission has raised this point, because it is an extremely important one to clear up, and Swift & Company's reply is as fol- lows: There are two points of view from which profits may be studied : one is their effect on prices and the other is the extent to which they furnish a return to investors. Either point of view is a legitimate and important one to study. To consider the effect of profits on prices, it is necessary to compare them with sales; to measure them as a return to investors it is necessary to compare them with the investment. It is an undeniable fact that a common impression has gone forth that present prices of meat are due to large profits of the packers. The Federal Trade Commission itself has done its share in spreading this false notion, especially when it said in its profiteering report that "these packers have preyed upon the people unconscionably," and when it mentioned aggre- gate profits of large amount without referring to the volume of sales on which they were earned. Swift & Company believes it a perfectly proper policy to educate the public as much as possible away from this mistaken notion, which has been created partly by the Trade Commission itself, and therefore emphasizes the fact that its profits are only a fraction of a cent per pound on all prod- ucts handled, or from only three to four cents on each dollar of sales, — ^whioh is absolutely conclusive proof that Swift & Com- pany's profits have practically no effect on prices. No amount of far-fetched criticism such as the illuminating (?) comparison between coal profits and beef profits can swerve Swift & Company from this perfectly legitimate purpose. Swift & Company is perfectly willing to discuss its profits as a return on investment and has often done so in public statements. Only reasonable dividends have been paid to stockholders, and the owners of Swift & Company have not profited and do not intend to profit unduly from war conditions. The profits shown in the annual statement for 1917 were largely paper profits, and could be easily wiped out by a relatively slight decline in inventory values. A large decline in inventory values is eventually inevi- table. 24 In discussing the question of profits, the Trade Commission says that the packers failed to emphasize the fact that on account of their rapid turn-over of capital a relatively small profit per dollar of sales may yield a large profit in the course of the year on capital invested. This is, of course, obvious to any business man. Swift & Company is perfectly willing to explain this matter at any time, and when it does so it will try to present the facts accurately, whereas the Trade Commission gives a totally false impression concerning the rapidity of Swift & Company's turn-over, by stat- ing that the capital invested in a live steer (at least in that part represented by the carcass) comes back to the packer, to be used over again, within two or three weeks. The fact is, according to reports furnished the Trade Commission and the Food Adminis- tration, that for the meat and by-product departments, which are subject to the 9 per cent, limitation of profits, the rate of turn-over is approximately three and one-third times a year. It must be remembered that part of the steer consists of by-products which move slowly, that some of the beef is cured and salted, that a large proportion of pork products consists of cured products which move very slowly, and that even in the sale of strictly fresh meats it takes some time for the money to return to the company's coffers after the actual sale is made. There is also, of course, the fibsed investment in plants and distributive machinery, which does not "turn" at all. The Trade Commission attacks the principle of reinvesting profits in a business. It has made some concession in granting that a concern is justified in reinvesting its profits during the early stages of its development and until it gets on a sound footing ; but for an established concern to continue to develop its business and increase in size by reinvesting its profit is regarded by the Com- mission as reprehensible. This mode of reasoning puts the Trade Commission in rather an impossible position. It apparently sets up a stopping place in the development of a business where it must cease to expand by reinvesting its profits, which means that it must either stop growing, or secure all additional funds by means of borrowing or issuing securities. Where would the Trade Com- mission draw such a line for any specific business? The Trade Commission's position is obviously unsound and cannot possibly be sanctioned by business men or by leaden of economic thought, who have always believed that the reinvestment of earnings is the safest and best way to expand a business. The argument on the question 25 of reinvested profits in the August (1918) issue of the Monthly- Bulletin of the National City Bank of New York furnishes a con- clusive answer to the Trade Commission's ideas on this point. In this connection, the Trade Commission shows how some of the large packers have reached their present size by reinvesting profits, and claims that these profits have been extortionate all along, and that prices have been unreasonably high. The Trade Commission cannot substantiate this statement; it would be easy to present figures to show that profits have always been so small as to have practically no effect on prices, and that for a large part of the time previous to the war thfey have been absolutely nig- . gardly as compared with profits in many other lines of business. It would seem to be the theory of the Trade Commission that the large packers should in some way be placed on starvation rations so far as profit is concerned, and that they should not be allowed to extend their facilities, increase their efficiency, or develop with the growing needs of the country. It is discouraging to think what might have been the effect on the packers' ability to take care of war demands if this policy had been carried out for the past twenty years. 4. Swift & Company said that in its discussion of packers' profits the Federal Trade Commtssion should have mentioned that profits on meat have been limited since November 1, 1917. The Trade Commission replies that it did not go into this subject be- cause it was making a special study of the maximum profit limita- tions as fixed by the Food Administration. As mentioned before in this rejoinder. Swift & Company can- not see how this furnishes any reason for neglecting to mention such an important point when the profits of the packers are under discussion. To attempt to give the public the impression that the packers were obtaining runaway profits as the result of war conditions, when as a matter of fact the profits were being limited by the Pood Administration to a perfectly reasonable basis, hardly indicates a scientific and unprejudiced frame of mind on the part of the Commission. The Trade Commission takes occasion to criticise the method of profit limitation adopted by the Food Administration on the ground that it included borrowed money as a part of "capital employed" on which the packers are allowed to earn 9 per cent, in their meat department. This again is an unfair statement on the part of the Commission. The question is as to the reasonable- 27 ing reprehensible either in having expanded the business by the reinvestment of earnings, or in increasing the amount of capital stock to correspond with the increased earning capacity. 6. Swift & Com,pany stated that the Federal Trade Commis- sion had not explained that war profits have been necessary, in order to finance heavy inventories and to build additions and improvements made necessary largely by war demands. Swift & Company also pointed out that the profits were largely book profits which cannot be taken out of the business, rather than cash profits, and that a decline in inventory values may at any time wipe out these book profits. Suffice it to say that the Trade Commission, in reply, still shows its failure to understand the legitimacy of financing a business out of earnings and combats Swift & Company's statement that it has had to issue more stock in order to raise money to properly finance the business by explaining that of the recent issue of $50,000,000 of new stock, only $25,000,000 was paid for in cash, and the remainder was a stock dividend. As a matter of fact, the stock dividend was issued in order to make possible the sale of the stock offered for cash. It still remains true that Swift & Company had to issue additional stock in order to raise more money, and the Trade Commission's reply does not contradict this statement in any way. The Commission apparently has no conception of the difficulties of war-time financing. The Trade Commission also tries to discount Swift & Company's statement that a decline in inventory values would wipe out book profits by saying that in the case of beef. Swift & Company can make its adjustment quickly by paying less for live stock, and that in the case of hogs, a serious break is not likely so long as the war continues. Swift & Company's experience has proved that it is not always possible to anticipate declines in the values of beef and by-products by its purchases in the live-stock market. Losses are frequently registered even in the sale of fresh beef, which is sold out quickly. But there are other important products, such as hides and tallow, which remain in packers ' hands several months before they are sold. It should also be noted that even if the war lasts five years longer, and the break in prices does not come until then, the loss will be just as real. In conclusion. Swift & Company feels that the attitude of the Trade Commission toward business in general, and especially ORD&R FROM Renlington Rand Inc. MAGAZINE BINDER Catalog No. 1501