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"• ■ Readeri are asked to re- ' . ■ port all cases of books "yV'X"'- marked or mutilated. . Do aot deface books by ^arks and writing. Cornell University Library HF105.A45 P94 1915 To prevent discrimination in Prices an^ olin 3 1924 030 148 377 || Cornell University y 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/cu31924030148377 TO PREVENT DISCRIMINATION IN PRICES AND TO PROVIDE FOR PUBLICITY OF PRICES TO DEALERS AND THE PUBLIC HEARINGS BEFORE THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE HOUSE OF REPRESENTATIVES SIXTY-THIED CONGRESS Second and Third Sessions ON H. R. 13305 TO PREVENT DISCRIMINATION IN PRICES AND TO PROVIDE FOR PDBLICITY OF PRICES TO DEALERS AND THE PUBLIC FEBRUARY 27, 1914, to JANUARY 9, 1915 \4I# ,^ imf WASHINGTON Q & R (\' I- W- GOVEBNMENT POINTING OrPfOB ^j ^ | y g;|, (v-[ 'j y 1915 ' . - , fir COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE. House of Representatives. WILLIAM C. ADAMSON, Georgia, Chairman. THETUS W. SIMS, Tennessee. SAM EAYBUKN, Texas. J. HARRY COVINGTON, Maryland. A. J. MONTAGUE, Virginia. WILLIAM A. CULLOP, Indiana. PEEL D. DECKER, Missouri. FRANK E. DOEEMUS, Michigan. F. C. STEVENS, Minnesota. 3. H. GOEKE, Ohio. JOHN J. ESCH, Wisconsin. GEORGE F. O'SHAUNESSY, Rhode Island. JOSEPH R. KNOWLAND, Calllomia. CHARLES A. TALCOTT, New York. E. L. HAMILTON, Michigan. DAN V. STEPHENS, Nebraslta. EBEN W. MARTIN, South Dakota. R. B. STEVENS, New Hampshire. FRANK B. WILLIS, Ohio. A. W. BAEKLEY, Kentucky. A. W. LAFFERTY, Oregon. Willis J. Davis, Cleric. .J.J3l4H0i> Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C, Saturday, January 9, 1916. The committee met at 10 o'clock a. m., Hon. William C. Adamson (chairman) presiding. The Chairman. You may proceed, Mr. Brandeis. STATEMENT OF ME. LOUIS D. BEAITDEIS, ATTORNEY AT LAW, BOSTON, MASS. Mr. Brandeis. Mr. Chairman and gentlemen, I desire to speak in support of the Stevens bill, which reads as follows: A BILL To prevent discrimination in prices and to provide for publicity of prices to dealers and to the public. Be, it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That in any contract for the sale of articles of commerce to any dealer, wholesale or retail, by any producer, grower, manufacturer, or owner thereof, under trade-mark or special brand, hereinafter referred to as the "vendor," it shall be lawful for such vendor, whenever the contract constitutes a transaction of commerce among the several States, or with foreign nations, or in any Territory of the United States, or in the District of Columbia, or between any such Territory and another, or between any such Territory or Territories and any State or the Dis- trict of Columbia, or with a foreign nation or nations, or between the District of Colum- bia and any State or States or a foreign nation or nations, to prescribe the sole, uniform price at which each article covered by such contract may be resold: Provided, That the following conditions are complied with: (A) Such vendor shall not have any monopoly or control of the market for articles belonging to the same general class of merchandise as such article or articles of com- merce as shall be covered by such contract of sale ; nor shall such vendor be a party to any agreement, combination, or understanding with any competitor in the production, manufacture, or sale of any merchandise in the same general class in regard to the price at which the same shall be sold either to dealers at wholesale or retail or to the public. (B) Such vendor shall affix a notice to each article of commerce or to each carton, package, or other receptacle inclosing an article or articles of commerce covered by such contract of sale' stating the price prescribed by the vendor at the time of the delivery of said article as the uniform price of sale of such article to the public, and the name and address of such vendor, and bearing the ?.iid trade-mark or special brand of such vendor. Such article or articles of commerce covered thereby shall not be resold except with such notice affixed thereto or to the cartons, packages, or other receptacles inclosing the same. (C) Such vendor shall file in the Bureau of Corporations a statement setting forth the trade-mark or special brand owned or claimed by such vendor in respect of such article or articles of commerce to be covered by such contract of sale, and also, from time to time, as the same may be adopted or modified, a schedule setting forth the uniform price of sale thereof to dealers at wholesale, and the uniform price of sale thereof to dealers at retail from whatever source acquired and (he uniform price of sale thereof to the public, and upon filing such statement such vendor shall pay to the Commissioner of Corporations a registration fee of $10. The price to the vendee under any such contract shall be one of such uniform prices to wholesale and to retail dealers according as such vendee shall be a dealer at wholesale or a dealer at retail, and there shall be no discrimination in favor of any vendee by the allowance of a discount for any cause, by the grant of any special concession or allowance, or by the payment of any rebate or commission, or by any other device whatsoever. 4 REGULATION OF PEICES. (D) Any article of commerce or any carton, package, or other receptacle inclosing an article or articles of commerce covered by such contract and in possession of a dealer may be sold for a price other than the uniform price for resale by such dealer as set forth in the schedule provided in the next preceding paragraph (C): First, if such dealer shall cease to do business and the sale is made in the course of winding up the business of such dealer, or if such dealer shall have become bankrupt, or a receiver of the business of such dealer shall have been appointed, provided that such article or articles of commerce shall have first been offered to the vendor thereof by such dealer or the legal representative of such dealer by written offer at the price paid for the same by such dealer, and that such vendor, after reasonable opportunity to inspect su^h article or articles, shall have refused or neglected to accept such offer, or, second, if such article of comttierce or contents of such carton, package, or other receptacle shall have become damaged, deteriorated, or soiled: Provided, That such damaged, deteriorated, or soiled article shall have first been offered to the vendor by such dealer by written offer, at the price paid for the same by such dealer, and that such vendor, after reasonable opportunity to inspect such article or articles, shall have efused or neglected to accept such offer, and that such damaged, deteriorated, or soiled article shall thereafter only be offered for sale by such dealer with prominent notice to the purchaser that such article is damaged, deteriorated, or soiled, and that the price thereof is reduced because of such damage. Following the decisions of the Standard Oil and Tobacco cases by the Supreme Court in the spring of 1911 there was widespread con- sideration of the trust problem. The discussion resulted m the gen- eral conviction that there existed trust evUs which called for a remedy. There was, however, a wide difference of opinion as to what tfie nature of that remedy should be. Some people believed that trusts and monopolies in private business were inevitable and perhaps de- sirable and that the remedy to be applied should be a "regulation of monopoly." A far larger number of Americans became convinced that trusts and monopolies in private business were neither inev- itable nor desirable, and that they were in fact largely a result of unrestricted, unfair, and oppressive competition. They therefore proposed as a remedy the "regulation of competition." That policy was adopted by the Democratic Party and by a large part of the Republican and by some Progressives. The adoption of that poUcy led to the enactment of the Clayton biU and the Federal Trade Coni- mission bill. The Stevens bill, if enacted, wiU further supplement the Sherman antitrust law. Unrestricted competition, with its abuses and excesses, leads to monopoly, because these abuses and excesses prevent competition from functioning properly as a regulator of business. Competition proper is beneficent, because it acts as an incentive to the securing of better quality or lower cost. It operates also as a repressive of greed, keeping within bounds the natural inclination to exact the largest profit obtainable. Unfair and oppressive competition defeats those purposes. It prevents that natural development which should attend rivalry and which gives success to those who contribute most to the community by their development of their own business and the exercise of moderation in the exaction of profits. It substitutes devious and corrupt methods for honest rivalry and seeks to win not by superior methods, but by force. Its purpose is not to excel, but to destroy. The Clayton Act and the Federal Trade Commission act are designed to aid in preventing monopoly by preventing unfair or destructive competition, and the worst form of illegitimate com- petition has been found to be price cutting. AU the investigations in Congress and elsewhere have confirmed this conclusion. Monop- oly is the natural outcome of cutthroat competition. With the KEGtILATION OF PRICES. 5 exception of the railroad rebate, cutthroat competition was the most powerful of aU the weapons which the Standard Oil Co. employed. It was the most powerful of all weapons employed by the Tobacco Trust. The Standard Oil Trust would cut the price in the districts where a competitor established himself, and thus destroy him, mean- while rfeimbursing itself for the cut in that region by charging high prices elsewhere. The Tobacco Trust through its "fightiug brands" and "fighting subsidiaries" entered deliberately upon the policy of destroying a competitor. When the Tobacco Trust entered upon the competition in England, it set apart a $5,000,000 fund to be sunk in overcoming their British competitors. You know the result of that contest. The Tobacco Trust confirmed its monopoly of America, aided in estabhshing a powerful British companj^, and jointly with it acquired control of a large part of the rest of the world. There you have examples showing how cutthroat competition creates monopoly. Consequently in all recent inteUigent consideration of the subject by Congress and the State legislatures the prevention of cutthroat competition has occupied much attention. The Stevens bill is framed on these lines. It also is a biU to prevent monopoly; to prevent it by preventing cutthi'oat competi- tion. It carries forward in another respect the policy adopted by the Democratic Party and approved by a large part of the Republican Party and by some of the Progressives, of "regulating competition." Let us examine specifically what the Stevens bill undertakes to do. It declares that when a manufacturer, producer, or grower places , upon the market any article under a trade-mark -or special brand he may by contract establish the price at which that product shall be sold to the public. Now, if you were to ask any body of men who had not made a special study of law — either business men or farmers or workmen — whether this should be allowed, the answer of every- one would be "Of course. Why should there be any question about it?" They would say that the only question on which men might differ was how the contract to maintain standard prices should be enforced — whether only by suit for damages, for breach of con- tract, or by making the violation of the contract punishable. Mr. Talcott. ReaUy the Supreme Court has held that an agree- ment of that kind is in restramt of trade under the Sherman Act and at common law, too, has it not ? Mr. Brandeis. I am going to come to that in just a moment. I am saying now how this question must strike the ordinary man. You come before a jury that knows nothing about the law, which has not been instructed in what is called the law of restraint of trade, and what will those men say if you propose this: "I have undertaken to manufacture these goods, or am growing them; I am putting up my pears in a particular way, or my apples, or my peaches or mv grapes in a particular way, and I am going to sell these at a defmite price to the consumer, guaranteed, as they are, by my selection and my packing, to be as represented. Now, gentlemen, I am going to put that on the market and anybody who buys this package for 10 cents knows exactly what he is buying. Shall I be allowed to say at what price the purchaser shall buy, if he buys at all?" b EEGULATION OF PRICES. The Chairman. You do not propose to compel anybody to buy the package ? Mr. Beandeis. I do not propose to compel anybody to buy it, but I say, taking that as the original proposition The Chaikman. You do not propose to prohibit anybody else from producing something on the same line and putting his name on it? Mr. BaANDEis. Precisely; buthereis a case simply of an article I have selected and I have to put it out. Now, I ask you — divorcing yourself from any Imowledge that you may have of law or decisions — I ask you whether there is one human being with the ordinary sense of business fairness and decency about him, whether he be business man or a farmer or a laborer, who would not say, "Of course; why should there be any difficulty about that?" Nobody, I submit, who had not had some practical training or direction in the law, or what is supposed to be the law, would question that the maker or pro- ducer of the article might fix the selling price. The Chairman. So long as the manufacturer or vendor retains any property interest in it he can control his rights by contracts anyhow, can he not ? Mr. Brandeis. So far as he has it in his physical control. The (question of whether he retains an interest is really the question that is involved in this bill. But I say that is the way m whicn the matter must present itself to everybody not versed in the law. The Chairman. I do not mean his pretended interest; I mean his real interest. Mr. Brandeis. It is a question as to what is a real property interest. Now, Mr. Chairman, you are touching again upon the field of the law when you talk about a real interest. But I say when you look at it simply as a question of fairness between man and man, as a question of ordinary business practice, nobody could question for a moment that it was an unfair thing to do, if you have agreed to take goods and sell them for 10 cents a package to go out and sell them for less. That, I say, is the natural attitude of man toward the subject of standard prices. How does it come that there is any question now about the right to so establish a standard price ? How does it coine that Mr. Stevens is now to introduce a bill on this subject ? It is, Mr. Talcott, as you have said, because the Supreme Court of the United States has said something in regard to the subject. It has said that such a contract is in restraint of trade both at common law j,and under the Sherman law. It has said so, but not unanimously. ^|It said so recently by a vote of 5 to 4 in the Sanatogen case. And the fact that it has so declared does not prove that such a business prac- tice actually does restrain trade. It proves only that such is the law of the Federal courts until that court reverses its decision or Congress, which has the supreme power of declaring the law in this respect, says otherwise. In other words, the mere fact that the Supreme Court has rendered its decision does not foreclose the matter. Why ? Because it is Congress which must ultimately determine questions of economic policy in matters of interstate commerce. Other courts have considered this subject and considered it very fully and repeatedly, both in this country and in other countries; and these otner courts have reached a conclusion directly opposite [that declared by the majority of the Supreme Court of the United States. The Massachusetts Supreme Court had occasion to consider REGULATION OF PEIOES. 7 this subject very fully; and the Massachusetts court declared such contracts vahd. The Court of Appeals of New York has found the same way. So has the Court of Appeals of Kentucky and the Supreme Court of California. And very recently and since the decisions of the Supreme Court of the United States, the Supreme Court of Washington, in an excellent opinion, held such contracts valid. The law of restraint of trade was developed in England; but the English courts have repeatedly declared that such contracts were valid and in harmony with the pubhc poUcy of the nation. This is what the highest English court said recently when a con- tract fixing the resale price came before it: Why should not Messrs. Elliman be at liberty to fix the price in that way? No- body has argued, and it could not possibly be argued, that they are not at hberty to fix the pnce on the first sale to Carrington & Son. Why should they not be at hberty to mii-3 tli3 further bargain with Oarrington & Son that they shall not sell below a cjrtain pric3? It is said that it is in restraint of trade. In one sense it is; but it ia yist ai much and no mors in rsstraint of trade for ElUman & Son to say that they will not J 3II at all. It seems to me that what is restraiut of trade as regards Carrington & Son is really th3 liberty of trade as regards Elliman. Then referring to some of the restraint of trades cases, he added : But t'lis ca-.e seems to me not to fall within any principle or exception. I do not think it ia touchad by the authoritie j at all. It is merely a question whether a man is entiti .d wiien he is selUng his own goods to make a bargain as to the use to be made of th-jm by tie purchaser. It i^ said that the contract is against pubhc poUcy; but that phase msrjly embodies, for the present purpose, the great principle of restraint of trade, and to say that it is to prevent Messrs. Elliman from exercising their own discretion seems to me to be applying a well-ssttled principle of law to facts to which it can not have any possible application. This it seems to ma is not a ca-13 that falls in any proper principle of restraint of trade. Not only is that the English law, but in other leading countries of Europe, for instance, Germany and France, the same rule is recog- nized. And in Denmark, a country of small population, of small traders, and particularly of agricultural producers, where there is no question about the legaUty of the practice of establishing standard prices, the legislature enacted a law providing penalties to enforce the observance of such standard prices. Mr. EscH. In that connection I saw a newspaper item giving a decision of the Supreme Court at Leipzig, Germany, affirming a decision of the inferior court, holding, briefly, this: Agreements among industrial agencies are permitted if entered into for the purpose of preventing unrestricted competition and the undesirable results of price cutting. A combination is legal until it can be shown that it has besTi made for the purpose of obtaining exorbitant prices, or that it has been planned in order to mislead the parties placing the order, or to stifle the healthy and natural development of an industry. Mr. Bkandeis. That, I think, Mr. Esch, goes beyond anything that we have under consideration here. It draws exactly the dis- tinction which I think our Supreme Court of the United States failed to have clearly in mind when it rendered these fixed-price decisions. The Chairman. What authority was that ? Mr. Esch. The decision of the Appellate Court in Leipzig, Germany, affirming a decision of the court in Berlin. * Mr. Brandeis. That goes further and raises a question distinct from that under consideration here. We have a question not of combination in any sense of the word. -Our question is, What may the individual do where there is no combination? Now, see the proposition. As this English court says, I, the producer of this article, 8 EEGULATION OF PEICES. the packer of these peaches, I may say perfectly definitely I will not sell these to anybody. Or take the case of the baker of bread, the baker of "Tip-Top" bread, who says: "I undertake not only to bake bread property but to pack it properly; to pack it in oiled paper; to sell in loaves not only a known weight and quality, but in a known condition; in a package which is both sanitary and attractive; and I establish my price at 10 cents, and that price shall be uniform to all. I determine to make the price and the quahty of the bread stable regardless of the fluctuations in the price of wheat. Whether wheat goes down to 80 cents or goes up to $1.40, I propose to sell my bread at 10 cents a loaf. I sell it from my bakery, and my business grows. Nobody questions my right to fix 10 cents as the price and to say that 1 will always stick by 10 cents no matter what the change in the market is, whether wheat goes up or down; no matter whether labor foes up or down. My business prospers because people want my read and like the way I present it to the pubUc. The guarantee of my name on it is worth something to them. Although dealers offer other bread for 8 cents a loaf, they buy mine. My business grows and there are people in other parts of the city who want, my bread. After undertaking to deliver it for a while in other parts of the city with my own wagon, I conclude that it will be better to estabUsh branches. I establish five such branches and I adhere to the 10-cent price. No human being questions my right to fix 10 cents as the price at those five branches just as it is my right to fix that price for goods sold at my bakery. It takes considerable capital to estabhsh those branches, but I have saved money enough for that purpose. Then there comes a wider demand for my bread from neighboriug cities. I am not able to establish more branches, so I undertake to secure so-called agencies — dealers who wUl seU my bread on com- mission. I estabhsh five such agencies, and still I adhere to 10 cents as the price at which my bread must be sold. Everybody admits my right to do this under the law. That is, my rights are the same in respect to fixing 10 cents as the selling price, whether I sell from my bakery, from a branch, or from an agency. But, if I lack the capital or organizing ability to establish branches or agencies, or prefer to retau my bread generally through dealers, the right then to insist upon the standard selling price is questioned. If I should say, "No, IwiU sell not only to a restricted number of people but to anybody in this whole part of the country who chooses to deal in my bread and I wUl let anybody sell my bread who wants to do so. But anybody who wishes to sell it, who wiU pay me my price of 7J cents a loaf, and wiU agree to retail it at 10 cents a loaf can have my bread on equal terms." ■ Then, the law comes in and says, according to the majority decision of the Supreme Court, it can not be done. And the /court in saying it can not be done does not apply any underlying ; principle of law, but expresses merely its opinion that such agree- ' ments are against public policy and that it believes Congress intended to prohibit them when it enacted the Sherman law. I submit most respectfully that this is a most erroneous supposition, that there is nothing against the public interest in allowing me to make such an agreement with retail dealers, since if I had money enough I could accomplish the same result by establishing any number of agencies all over the country. The denial of the right to establish standard KEGUrATION OF PRICES. 9 prices results in granting a privilege to the big concerns; a discrimi- nation in favor of the rich and powerful as against the smaU man; for: the concern with large capital, as the powerful trusts, can secure adherence to the standard price .while the small manufacturer or pro- ducer can not. The small man needs the protection of the law; but the law becomes the instrument by which he is destroyed. The rule laid down by the Supreme Court is inconsistent with the business policy adopted by this country and recently confirmed by the Clayton ■Act and in the Federal trade act — the pohcy of regulating compe- tition. The. decision must be explained by the fact that the court did not fuUy understand the practical application of these rules to the trade facts. The pubhc interest clearly demands that price standardization be permitted; and it demands it in the first place in the interest of the small man. Mr. O'Shaunessy. The small manufacturer? Mr. Beandeis. The small manufacturer, the small producer, and the small retailer. Ultimately also of the consumer, as I will under- take to show; but primarily in the competition of the small man as against the big one. The big man needs no protection. The rule, as it is laid down by the Supreme Court, is a sword in his hands. Just see the situation. Mr. Martin. If the small man and the big man can vote to fix the price, how is the pubhc interested, whether the manufacturer be large or small, if you advocate the abUity to fix the price in either event below which consumers wiU not buy 1 Mr. Brandeis. Yes, sir. Mr.sMAETiN. How is the pubhc interested whether the manufac- turer is big or small, if you are advocating as to both the ability to fix a price below which the consumer can not buy ? Mr. Brandeis. When you get the real big man he can always help himself. Mr. Martin. But here is the question Mr. Brandeis. I understand; I am coming to that. I want to answer the question in fuU and I am merely answering a part of it when I make the statement that I did. We need not take any trouble about the great big man except to do justice to him; and that is not so much on his account as on our account; because if we do injustice to anybody we are injuring ourselves and not only him. We must see to it that the big man is accorded justice; but we need not trouble ourselves much about protecting him. The big man can fully protect himself. The Standard Oil Co. had no difficulty from cut prices. The Standard Oil Co. can estabhsh its agencies through- out the world. It did, as a matter of fact, sell through its agencies and from its wagons all over the world. You could find them in Egypt and in Pdestine as well as in Massachusetts and other parts of this country. There is no diflaculty in that respect. They can maintain prices, if they see fit, through their agents. Mr. Martin. Do you favor their ability to fix prices below which no one can buy ? Mr. Brandeis. No; their abihty to fix prices is an ability which adheres in the power, not in any law. It inheres in the rich man, for he has the power to estabhsh agencies. This is done by a large and powerful concern, the Ford Motor Co., which is not a trust. After 10 REGULATIOTSr OF PRICES. the Supreme Court rendered its decision the Ford Motor Co. was advised that its contracts with dealers all over the country were invali- dated. That did not seriously disturb the Ford Co. It merely changed its business methods. That great concern, earning $25,- 000,000 a year, was in a position to create agencies. It had ample capital to carry all the stock in trade required; it could create all the agencies it pleased; it could therefore carry on the policy of standard prices in spite of the Supreme Court decision. Mr. DoREMUs. Are you able to expkin, Mr. Brandeis, the method by which the Ford Co. changed its business after the decision of the Supreme Court ? - Mr. Brandeis. Yes; I think, in a general way, I can. I am not famihar with the details, but what they did was presumably this: Before the decision any dealer anywhere could buy the Ford car under an agreement for resale at estabUshed prices. The dealer became the owner of the car and was bound, as other people are bound, to observe the terms of the agreement under which he pur- chased. The agreement required that the car be sold at the stand- ard price. The car was sold to dealers, I think, at 85 per cent of the price at which the dealers were bound to sell it. Mr. DoREMUS. The title passed to the dealer? Mr. Brandeis. The title passed to the dealer. Mr. DoREMUs. And the dealer was obMged, under the terms of the contract, to seU the car at a certain list price? Mr. Brandeis. He was compelled to sell at the list price. Mr. DoREMUS. That was the situation? Mr. Brandeis. That was the situation, and in respect to hundreds of others in this country. Mr. DoREMUS. You say that is the situation now ? Mr. Brandeis. No ; now, the Ford people, in order to bring them- selves within the rule laid down by the Supreme Court, do not sell necessarily to every dealer, but make certain dealers their agents in a particular territory. Consequently, instead of having a business reasonably free, where they could' fairly deal with anybody who was reasonably trustworthy and entering into a contract of sale with them, the Ford Co. were forced to adopt the policy of establish- ing agencies, and that involved the Ford Co. retaining title to the machmcs in stock. A rich concern could do that. It is merely a question as to whether the change of method might involve incon- venience or expense. Mr. MvRTiN. Of course, the question as to whether or not it is good policy for the price to be fixed below which the consumer could not buy, and if you are advocating a policy that the price ought to be fixed rigidly and kept there, we are not much interested as to whether it is a large or a small dealer. Mr. Brandeis. I think that fails to take into consideration what pubhc interest means. Mr. Martin-. I think that is the ultimate question. Mr. Brandeis. That is one question. The public interest is made up of a number of things. It is made up, in the first place, or in the last, whichever you put it, of the consumer, that he should get a good article at the lowest price that he reasonably can, con- sistently with the good quality and good business. That is his interest as a consumer, that he should get a good article at a low EEGULATION OF PRICES. H price, and, conveniently. There should be no doubt that- he gets value and there should be no doubt that he will be able to get it without putting himseK to extraordinary trouble in getting it. That IS the consumers' interest. But there is another interest that the pubhc has, and that we should look out for, namely, the interest of the rest of the pubhc, the dealer and his clerks and the producer and his employees. We are all a part of the pubhc and we must find a rule of law that permits a-tusiness practice which is consistent with the welfare of all the people. Mr O'Shaunesst. Selling under the price that the manufacturer estabhshes, how does that interfere with the manufacturer, the employee ? Mr. Brandeis. It is a Uttle difficult to answer several questions at one time, but I will undertake to show how it injures each of these pirsons, first the manufacturer, as you have asked it, then the retailer and then the consumer. First, take the manufacturer or the producer, because the result is exactly the same whether it be a grower or a manufacturer who is putting the article on the market. He undertakes to create a value and that value consists in three things; indeed, of five: First, in the making of a good article I mean not only in the sense of it being food in quality, but an article which meets a need which meets the esire of the people. That is one thing. The next thing is that that article should be known, because it may be ever so good, but if it is not widely known it wiU not do him or the world any good. And the third is that the article shall not only be known, but shall be knoAvn as being worth the price at which it can be had in the community. There is a fourth requirement. The article to become very valuable should not only be known and Imown to be worth the price, but that it should be easily accessible to possible purchasers, for the public will not make a sacrifice of time and effort in order to get it. And I might add a fifth requirement, that a man in buying it may buy it lighuy; that is, without having to go through an agony in making iip his mind whether when he takes the article he,'at the price at which it is offered, is going to get his money's worth. Mr. Decker. What is that fifth one ? Mr. Brandeis. That the man when he sees, the article, when he considers buying it, does not have to go through a mental agony as to whether the price he is paying is too much or not too much. Those things are desired from the manufacturer's standpoint. When he undertakes to make an article, the first consideration is quality. That, as everyone knows, is something which is not easily arrived at. In very many businesses and very many products it is an extremely difficult thing to make a product which is not only good, but uniformly good, and in very many branches of manufacture it requires years before they can get a standard article. In some busi- nesses, for instance, the seconds wiU form 80 per cent of the total quantity manufactured. In other instances the manufacturers find it impossible to secure uniformity, and often success or failure de- pends upon securing uniformity. So any man who undertakes to produce an article which is to be sold to the community naturally desires to create an article which will be uniformly good as well as of the character which he thinks the pubhc wants. 12 REGULATION OF PEICES. Mr. O'Shaunessy. You spoke about the agency of many of the , , Mr. Brandeis. I am coming to that later. • o t v Mr O'Shaunessy. Will you just permit this question^ is it because the price was varying through these trade cuts that had been going on through an agency ? Ms. Brandeis. There are various reasons. Mr. Martin. The price is so fixed that he could not have any com- petitive difficulty in the situation with it ? Mr. Brandeis. I am coming to it. Mr. Decker. Take those five points, one at a time. Mr. Brandeis. I will do it. I shall take this first point. He is trying to get quahty. We will assume he ultimately gets quality and he adopts that quahty as a thing that he proposes to give to the pubhc. Now, one of the great elements of Ford's success is that he strove, unlike other people who are making many different varia- tions of machines — Ford strove for his particular three machines, and put all the mind he possessed to the perfection in those lines, and making the uniform product. The second requirement is of making the product known. Making it loiown means advertising it. In a small community the baker makes his bread known to his im- mediate neighbors. Then he begins to advertise and his wagon goes out, and the reference "Tip-Top" bread is seen and other ad- vertising make it more widely known. It is essential that iu some way the article and its merits become generally known. The next requirement is that the article be known to be worth the price. He fixes a price, and that is an act which is wholly the act of the manufacturer, just as the selection of the ingredients are the act of the manufacturer, and the determination of the quality to be presented to the pubhc. It would be perfectly conceivable for a manufacturer to make his goods of several different qualities. Nearly all kinds of goods could be made of a great number of gradations cf quality, ten or even a hundred; but some manufacturer says, "I undertake to make this quality," and he says Ukewise, "I undertake to make this quality to sell at this price — 10 cents. Somebody else could make a similar article for 8 cents, for 9 cents, or for 10 cents, 11 or 12 cents, but I choose 10 cents." That is an act of judgment; he makes the decision believing that in the long run the article of this quality and price will meet the public demand. If he makes a mistake in judgment either as to quality or as to price, he runs the risk of not being able to sell his article. He may find his price too high, or he may find that the price is right but that he must give more for the money. Take the Kellogg corn flakes. They fixed the price, and later they came to the conclu- sion that they ought to give 50 per cent more for the money. That was an exercise of judgment, and ordinarily nobody can exercise such a judgment as well as the maker or grower. At aU events, it is he who must bear the penalty of any error of judgment. And there is just as much reason for allowing the maker to estabhsh the selling price as there is for letting him decide the quality of the article to put upon the market. ' ^ Now, having determined price and quality and having made the article known, the next thing to do is to make the world understand that that article is worth that price. See what that means. Everv EEGtrLATION OP PRICES. 13 transaction by which you sell an article involves a trade. The old idea of bargaining was that one man got the better of another. A good bargain meant a transaction by which one had gotten something for less than it was worth. And all the hagghng you find in orient^ countries, and which you find to a certain extent in every country, means merely that one feUow is trying to get the better of another. Under those conditions a bargain is an equation and two unknown quantities. . The extreme of such bargaining was found in the era of barter, when men did not have any fijced medium of exchange, where they traded one article for another. Then there was the delight of haggling. Each side had his article, neither knew what the other's was worth, and they swapped. A great advance was made in the trade when money became the medium of exchange. Then you cut in half the uncertainties in bargaining. You knew what the money was worth; but you were still uncertain as to the value of the article purchased. We have become so accustomed to the fixed standard in money that trade is disrupted by any depreciation of the currency, or when as with irre- deemable paper currency the value varies from day to day. Now, the tendency of development in trade is to eliminate uncertainties in value. Many of you can remember when the one-price store was intro- duced. A. T. Stewart introduced this great advance. Then for the first time a man could go into any store with the reasonable assurance that he was not obliged to depend upon his own bargaining capacities; he would know that the hoodwinking would at least not be indi- vidual; for he could confidently say: "At aU events, if I do not get value I at least get as much for my money as anybody else who buys a like article; and there is a good chance of my getting value, because the dealer who puts the price on this article Imows that he probably couldn't fool all the people; and perhaps won't try to fool any." ■ Stni there remained, in the one-price store, the doubt whether the article offered was of good quality, because a paper of pins of different makes might be worth very different amounts. They may be good pins; they may be medium pins, or they may be poor pins; and 10 cents may be cheap or dear for a paper of pins. But if I pay 10 cents for a paper of pins of a known make I may know the quality I am getting whether the price is right or not. So the branded article came to be adopted, and the elements of uncertainty in trade were further reduced. The step fixing a standard price was the next step. The maker of a trade-marked article of recognized value concludes to establish his market by standardizing the price. The uncertainties are shifted from the consumer to the maker who assumes the chances of rise and fall in the cost of production. Thus the rise in the cost of wheat does not to-day affect the consumer of shredded wheat, and this is true likewise of many other branded food products, although the raw material has increased greatly in cost. Why was no change whatever made in the retaU price of those articles ? Not from humanitarian motive, but for the very simple reason that it was so important to the manufacturer to have his known article remain of a known value that he was willing to bear the loss incident to the rise in the cost of the raw materials. 14 REGULATION OF PHICES. And the next essential of success is that the article should "be sold everywhere." It must be made convenient for the purchaser to buy; and for two reasons: In the first place we do not remember the article or know that we want it unless we see it, for the mind does not carry much in the memory, and in the next place few will go to great exertion to procure one article in preference to another of like character. If we can buy Tip-Top bread conveniently we will do so, but if we have got to walk a quarter of a mile to get it we are apt to put up with some other make. And finally comes the fifth requirement. In order that the public may be fi'ee buyers there must be removed from the mind of the potential purchaser the thought that probably at some other store he could get that same article for less money. Every time a doubt arises in the mind of the potential purchaser the chance of selling him is lessened; each such doubt reduces the percentage of possible sales and the value of the reputation buUt up by effort and expensive The thought that perhaps if one went to some other store or waited untU the next day he could get an article one cent or ten cents cheaper ■defeats many a sale. Mr. O'Shaunessy. Do the manufacturers claim that that limits the sales ? Mr. Brandeis. I was just going to show you why they claim it, and I think the evidence is very clear. Let me show what happens. The manufacturer creates by his efforts and expenditure of money a reputation; for instance, the pubKc knowledge that an IngersoU watch and a dollar are convertible terms, or Uneeda Biscuit and 5 cents are convertible terms. What happens ? A great department store opens with 80 departments, selling 5,000 or 10,000 different articles. It wants to brmg people into their store. That is of prime importance. They know if people are brought into the store and if shredded wheat, which can be had at 2 cents below standard price, is up in the fourth floor they AviU sell besides many other things. On the route through the store until the shredded wheat is reached are spread a series of baits of just the kind of things the woman who wants shredded wheat will probably be tempted to buy; and as she proceeds through this highway of temptations to or from the shredded wheat counter she is pretty sure to buy many different things which she had not intended to purchase. Mr. Hamilton. Suppose she takes the elevator? Mr. Brandeis. She can not get to the elevator without passing a aeries of temptations. No proper manager will permit that. Mr. O'Shaunessy. It provokes trade on the other floors? Mr. Brandeis. It not only provokes trade on the other floors, but the display is so arranged that that person likely to be in search of this particular package will be shown many other articles she is likely to want. Some of the very best minds in the business are •devoted to study of such situations. Nothing is left to accident. These businesses are run with the certainty of engineering. The sales are planned most carefully weeks and sometimes months in advance. As I said, it is of first importance to get people into the store. Once get them there through the advertised bait and the •displaj will do the rest. But there is another thing besides getting them mto the store which is important. You must create in the mind KEGULATION OF PBICES. 15 of the possible purchaser the feeling that she will get more than her monej's worth. How can you do it? Here are a pair of socks, and here is some black silk, and here are different artides of underwear, and here are combs, and a hundred different articles, any one of which you think that person may want to get. Offer them at any price you likci You may fail to convey any impression that they are cheap. You can get a comb for anjrwrhere from 10 cents up to $5. Your underwear may cost 25 cents or 13.50. The fact that you are offering this underwear, this comb, these gloves, or this silk ordinarily at a small price does not prove it is a low price. You mark it reduced, and the possible purchaser still doubts; for he lacks ability to com- pare it with known standard. The effective way to create in the purchaser's mind the impression desired is to provide for comparison with a known standard. "Here is, something of a known value. This Kellogg Corn Flake is worth 10 cents; for I have bought it for years at that price." If a woman finds she can buy it at 8 cents, that tends to create in her mind the impression that everythiag along the path of temptation may be had at hke bargain prices. That is the reason why a department store wiU use Kellogg's Corn Flake at 8 cents or the IngersoU. watch at 67 cents as a "leader" — or, rather, "misleader." And what is the result to the manufacturer? It ruins his reputation. Why ? Because soon there is created in the mind not only of those who purchased at such bargains but of hundreds and thousands of others who never go to that store at all but who read the advertisement a doubt whether the Kellogg toasted com flake is reaUy worth 10 cents a package. The thrifty housewife says to herself at once: "If this department store can sell it for 8 cents, then I have been paying for years 2 cents more than it is worth, and she is led to stop using it. Thus the reputation of an article is injured; the reputation of the man for deaUng fairly with the public. By cutting the price it is made to appear that the article could be sold at less than the standard price; but, as a matter of fact, the dealer is selling it at a great loss, because that KeUogg toasted corn flake which is sold at retail for 10 cents is sold to the dealer at, say, 7^ cents, and by no human possibility could the article be sold at retail at 8 cents without involving the dealer in a loss on the par- ticular transaction. Mr. Talcott. That is an oppressive and unfair method of com- petition, is it not ? Mr. Beandeis. It is not only unfair, but it is in effect a slander of the reputation of the article. Mr. Talcott. Then why can that matter not be treated by the F'ederal Trade Commission ? Mr. Beandeis. I wiH take that matter up later, Mr. Talcott. I will take it up later as to why it can not. I want to consider now the answer to the question that was put to me, why price cutting damages the manufacturer. I say in the first place it affects his reputation, and if persisted in will ruin the reputa- tion of the article with the consumer by creating the impression that the price fixed was an exorbitant price, and that the article was not worm what was paid for it. But price cutting does more than that to the manufacturer. See what the effect is. This department store, which is selling that article, is only one of manv customers. Large as the department stores are, they do a very small part of the 16 EEGULATION' OJ" PEICES. total business of the country in many of the articles which they sell. This is true, not only of the country, taken as a whole, but also ot the total business of any community. For instance, only a small part of the sale of shredded wheat, or Kellogg's Toasted Corn Flakes, either in the city or the country as a whole, are made through de- partment stores. What happens is this: 30,000 or 50,000, and sometimes even 100,000 people, go into a department store in a single day, but many more read the advertisements. Of those who go in or who see that advertisement very few will buy the Kellogg Toasted Corn Flake at 8 cents, but many will say to themselves: "I always pay 10 cents. My grocer over there must be overcharging me." And they begin to say, "Well, 1 am not going to buy corn flakes from him." And they stop buying corn flakes. This neighborhood grocer is then put in a position that if he wants to sell corn flakes he must reduce the price down to 8 cents; and every time he makes a sale at the reduced price he loses money. I mean the expense to him, added to the invoice cost of the goods, exceeds 8 cents. Consequently, he is put to this alternative: "Either I have got to stop .selling Corn Flakes or I must seU it at 8 cents at a loss," and he concludes to stop selling it. The manufacturer loses a part of his trade. The^i the manufacturer is in this situation. Corn Flakes was used as a leader, as the mere bait by the department store. It sold an insignificant percentage of the KeUogg product. The department store discontinues semng the article soon, for it ceased to be an effective leader, and in the meanwhile the manufacturer has lost the small retail dealers as well as customers. But that is not all the harm done by the price cutting. Price cutting blackens the reputation of the manufacturer by making the consuiner believe that the article was not worth the price ordinarily charged, but it also blackens the reputation of the retail dealer. When this department store sells the Corn Flakes at 8 cents, which the neighborhood grocer has always sold at 10 cents, his customer thinks he has found the grocer overcharging him on one thing and assumes that he has been over- charged in the other things. The result is that not only the trade in Corn Flakes, but the other trade of this small grocer is damaged. People lose faith in him, although in fact he has been absolutely fair. He has been fair in living up to his agreement with the manufacturer and fair with his customer, because these standard prices are usually fixed at amounts reasonably near their actual value. As a -rule, standard prices are not exhorbitant. The reason is simple. Nearly every standard-priced article is a competitive article. Competition is the automatic price regulator. Take Kellogg Corn Flakes. There have been 107 cereals either now or formerly competing with the Kellogg Corn Flakes. There is ordinarily no possibility of charging more for a standard article than it is "worth" in the commercial sense. Tf there is, the whole law of competition upon which American busi- ness rests is unsound. Standard prices tend to create competition. Mr. Decker. That is a pretty broad statement there, and I should like to ask you what you mean. Let us take your corn flakes — and suppose there are 107 brands of cereals. If I had the capital to do the advertising properly in the Saturday Evening Post and in Col- lier's and in all the miportant weeklies, could I not go out and seU- a EEGULAHON OF PBICES. 17 brand worth one-third less than the other brands and sell it just about as readily as the others ? Mr. Brandeis. Not for long. You would be a loser in any long period. You could do it for a little whUe, but you would not get your money back. That is the universal experience in business. This idea that advertising enables a man to put out an unworthy article through public advertising Mr. Decker. It would not mean to be unworthy; it would make people fat and nourish them and aU that, and stiU would not cost as much as one of these other articles. What I am getting at is this. Is not this publicity that you have spoken about, the ability to fix the price all along the line, does it not give a man an awful power who nas the capital ? In other words, does he compete on the merits of his article ? Mr. Brandeis. I think he does compete on the merits of his article. Mr. Decker. To a certain extent Mr. Brandeis. As long as there is no monopoly. Of course if there is a monopoly we have to deal with another problem. Mr. Decker. Does it not depend more on his organization and his pubUcity than on the merit of the article ? Mr. Brandeis. His absolute success, the success of any man in business, depends ultimately upon his ability and upon his having capital enough to utiHze it, whether you have a standard-priced article or an article that is not. And of course there is plenty of money made aU the world over on articles that are not standard- priced articles at all. AbiUty makes success and the very able man is going to make a success under any conditions conceivable. It does not make any difference what your law is. The able man will succeed by taking advantage of the defects of your law, if he is able enough and has capital enough. There is no question about that. The Kel- logg corn-flake people did not have a tremendous capital at the start. The KeUogg corn-flake people made capital largely in their business. Ford did not have a tremendous capital. He had prac- tically nothing when he started. Mr. Decker. Does not that leave the suspicion in the mind of the consumer that somewhere along the line these things have been sold for more than they are reaUy worth ? Mr. Brandeis. It may leave a suspicion in some minds, but the suspicion is usually unfounded. There are times, undoubtedly, when you may say that a thing is sold for more than it is worth. But it is very difi&cult to say what a thing is worth. Now I, for instance, know mighty little about the intrinsic value of gloves. A brand of gloves is offered to me. I want quaUty, and I am willing to pay for it. I want also to know that I am getting my money's worth, without spending much time iu trying to find out whether I am or not. I am wilUng to pay also for that assurance, and the standard price gives me, on the whole, such assurance. Reputation is some- thing a man is willing to pay for. You say that this thing A is actually as good as this thing B, which sells for a little more, but A is not as good for me, because I know the value of B and can't ascer- tain the value of A without a trial, which I may be unwilling or imable to make. 81295—15 2 Jg KEGULATION OF PEICES. The Chairman. I do not wish to disparage any of these cheap cereal foods behave you ever carried a package of corn or wheat to the S and had some real pure genuine grits or cracked wheat made S^t were fit to eat? If you have ever done that you will cease to get lost in the comparison with these cheap substitutes Mr Brandeis. They may be cheap, but we who live far from the. mills must perforce accept them in lieu of something better. . The Chaibman. What I want to ask you is, Is there anything in your law to curtail our liberty to resort to those good, old-fashioned products of the mUl ? ■ rr,, i . t Mr. Brandeis. Nothing whatever, ihe thing 1 am contending for, Mr. Chairman, is the liberty which you love so much, and I want to preserve it to you and to the rest of us, the liberty to deal as we please. Mr. Hamilton. It occurs to me that another element enters in there. There are certain people who buy a Kjiox hat or a Dunlap hat, or a safety razor, as my friend suggests — they buy a certain brand because that has been advertised and it is stamped as being of a certain quality in their minds. A man says this is a good hat. My friends know it is a good hat, and I am wearing a good hat, and I know it. There may be just as good hats on the market for $3 as the hat you are paying $5' for, but there is that inclination, and we are all of us more or less affected by it, which leads us to insist on buying the well-advertised $5 hat. Mr. Brandeis. I think that is absolutely true. I am getting value and getting a little reputation myself through wearing a $5 hat. Mr. Hamilton. You are getting all the value there perhaps be- cause of the difference in the price between the $3 and the $5 hat ? Mr. Brandeis. I am. I feel that way because I have a Knox hat right here. The Chairman. That differential in excess price is hot unearned increment, is it ? Mr. Brandeis. No; it is earned. The Chairman. That is the good will of your business ? Mr. Brandeis. Yes, sir; precisely. The Chairman. Which you have built up and which you seek further to build up by this legislation ? Mr. Brandeis. Precisely. Mr. Hamilton. That is the result of diligent advertising largely, is it not ? Mr. Brandeis. No; not altogether. It is partly so, but the. fun- damental proposition is you have got to have sometliing of value. If you have something that is not of value the more you are known to the world the worse for you. The man who has not a good thing IS the man who ought to sell his goods unbranded; and, as a matter of tact, he does sell them unbranded, and this is largely true of the stores tha^t sell at ' ' special sales " or " bankrupt sales. " Look at the goods sold by auction on Pennsylvania Avenue and in similar places m other cities, and you will be sure to find that most of the goods sold are unbranded. ^ Mr. Hamilton. A while ago an incident occurred before the Seve^had^TL^'''^'^'"!f ' ^'^' ^^^^^^'^ «f ^^^ committee, I beUeve, had a $5 hat and a dealer or a manufacturer of hats was on the witness stand and this hat was shown to him and he stateTthat REGULATION OF PRICES. ' 19 the hat could be bought for less than $1.^5. The hat was weU advertised, however. You speak of value. We have often the advertised and the actual values ? Mi. Beandeis. The question of the intrinsic value and of the actual value. Ihe actual value of two articles may be just the same. The actual value of two pieces of land may be just the same, but if you prefer to hve on Broadway rather than on Market Street in some city or other, the land on Broadway is the land that is worth more to you, and the value, take it in a Knox hat, is in part the distinction that comes with the Knox hat. Mr. Decker. There is not much in distinction, but take a shoe or a Knox hat; for instance, I have had reputable shoemen tell me they can have just as good shoes as Hammond's made Mr. Brandeis. Suppose they can ? Mr. Decker. Here is the danger. You are passing a law that gives me a right to advertise my article and fix Uie price clear down the fine. His power of capital makes it impossible, almost, it seems to me, the danger of it, at least, of a merchant going and having a shoe made just as good as Hammond's and selling it to the consumer without the consumer having to pay for all that advertisement. Mr. Brandeis. Just see that situation. I will reserve an answer to that, if you will repeat it later. The Chairman. The trouble with our colleague," Mr. Decker, is he does not seem to know that what a man does not know does not hurt him. Mr. EscH. This Stevens bill protects branded and trade-marked articles ? Mr. Brandeis. Yes. Mr. EsGH. Have dealt almost exclusively with the manufacturer? Mr. Brandeis. Yes. Mr. EsoH. I want to present another phase. The- jobbers in in- creasing degree are purchasing now the entire outputs of factories— of canning factories — and they put their own brand — trade-mark — on the products. The individual manufacturer can not even place his name upon that label, nor the place of its manufacture. The effect, there- fore:, is that the individual canners and manufacturers of the articles purchased by the jobber have no incentive to increase the quality — no incentive to develop a trade of their own outside of going to the jobber, and hence the effect would be depressive upon the individual canners of the whole country. Mr. Brandeis. I think that is absolutely true. Mr. EscH. Is that a tendency we ought to encourage ? Mr. Brandeis. I think what we ought to encourage by every means is to give value to what the individual puts into his product, and whether it be the canner or the expert selection by the jobber, it makes no difference which. For instance, take the tobacco business; the ability to select good tobacco is almost as great or greater an art than that of growing good tobacco. The man who has the capacity to pick out good cigars and good tobacco is a man who is performing a very important function for the comrnunity. That man, if he undertook to sell under his own name cigars Havana cigars or American cigars or whatever they may be ought to have a right to put out that cigar and to say: "This is the cigar that John Smith selected." I, who know nothing about tobacco and who want to buy 20 KEGULATION OF PBICES. a good article, can go and buy John Smith's article because of his reputation. Mr. EsoH. Yes; but here is the jobber buying the output ol a dozen canners located in four or five States, but they are all one brand and all sell at one price. There must, of necessity, be differences in the quaUty of the output of those several canneries. Mr. Beandeis. I think there ought to be the perfect possibility, as there is under the trade-mark law — there ought to be. the perfect pos- sibility in regard to each one of those things that are sold, if they are sold to him, for him to say, " These are being sold at not more than a certain price, or at a certain price," but if I am the canner and I undertake to say that I, who make this article and undertake to put it out, I do not want to be confined to selling it over my counter or my little shop here; I want to be able to sell this aU over this city, all over this country. I ought to be able to say that I choose to sell it in this way. I am not hiwiering anybody else from making similar goods or selling a similar article under such conditions as he chooses. Mr. Hamilton. Have you ever known of some dealers who adver- tise a cigar and get it well under way, then the quahty deteriorates ? Mr. Beandeis. I have. Mr. Hamilton. And then the dealer makes a little more out of the cigar than he did in the beginning ? Mr. Beandeis. Yes; and then he loses his trade. Mr. Hamilton. After a while ? Mr. Beandeis. Yes. But the point is here. When a man under- takes to establish a reputation, as the IngersoU watch established it or the Uneeda biscuit, or a great many other of these articles, they get something of such value, if the law does not interfere with them, that they are bound as a matter of self-protection to guard it as a man would guard his reputation and fife. By taking away that incentive we injure not only the manufacturer, not omy the small dealer but we are injuring the consumer also. Mr. Hamilton. But the difficulty is Mr. Beandeis. That men do not always live up to it ? Mr. Hamilton. That is it. Mr. Beandeis. Of course not. If we were all wise we woiild not need any law. We would not need any criminal law, surely, because we would know that the wages of sin is death. We, however, need law as an aid to ^wisdom. The Chaieman. That is good in theory, but in our courts the smart fellows get out. Mr. Beandeis. Well, in some States they do. We come to the case of the consumer. The consumer is interested in precisely the same way. The Chaieman. I want to ask you a question. Suppose these fellows who buy your breakfast food or any other goods Mr. Beandeis. Let us go on to something else now. We will take watches. The Chaieman. I suppose the reason they cut the price is because they want to sell it and think they make enough at the lower price ? Mr. Beandeis. They can not aflPord to sell it cheaper anv more than the Standard Oil Co. could afford The Chaieman. As I understand it you sell a retailer stuff at so much a gross, the retail price sale being 15 cents a package; they pay EEGXJLATION OF PRICES. 21 you possibly 10 cents a package by the gross, or whatever it is. ihen you catch them cutting that price and selling it at 12 cents a package. If you allow them to make too much profit, why not iust raise your wholesale price to them ? . Mr. Brandeis. That would be a very simple proposition if those were the facts, the real motives that actuated them. The Chairman. They make a leader of them, do they, in order to sell something else ? Mr. Brandeis. Yes. Consequently they can afford to sell not only at the actual invoice cost, but in many instances they sell below the mvoice cost. It is one form of advertising and they think it is cheaper advertising than any other. It is merely a question of advertising. The Chairman. Is it usual for dealers to make a leader out of such articles as that ? I thought they usually took some staple article and made a leader out of it ? Mr. Brandeis. You can not make properly a leader out of any article unless the price of that article is so associated in the public mind with the article itseK, that the man can see that the article is sold at less than he is accustomed to buyiag it at. The Chairman. I have known them to take something the people are compelled to have, like sugar or white cloth, or somefliiiig of that sort, and sell one dollar's worth for fifty cents in order to draw them to the store and then gouge them on everything else. I never heard of thein taking these minor articles and making leaders out of them. Mr. Brandeis. Sugar has been an article which dealers have used as a leader, because the price of sugar has been more or less well known and more or less steady, and therefore they have said: "Here, this being the usual price for sugar, my neighbor and all the people around selling it at 6 cents, I am going to sell it at 5 cents." But in order to have a really good and effective leader you have got to have some- thing which has been well advertised and that strikes the mind as being cheap. You have got to have something, whether it be an IngersoU watch or a Gillette safety razor, or Uneeda biscuit or Kel- logg Com Flakes; it must, to be very effective, be something of that kind; although of course men change their leaders from day to day. But it must be in the public mind, so that when the reader sees either an advertisement in the paper or an exhibit in the show window he is impressed with the fact oi the reduced price. Now, let us see how this affects the consumer. _ Mr. O'Shaunessy. Before you proceed 1 had one question in mind. The price is cut in different places but I can not understand as yet how it affects the manufacturer, except as you say in his reputation. And in that particular I want to find out from whom the demand for this legislation comes, from the retailer or from the wholesaler? Mr. Brandeis. That I am going into in just a moment. In the first place as to how it affects the manufacturer. It does so in black- ening his reputation; and in blackening his reputation it reduces the ultimate number of consumers. That is clear, is it not? In the second place your ultimate number of consumers will be greatly reduced by reducing the number of opportunities to buy, would it not ? Mr. O'Shaunessy. That I do not know. That is what I am look- ing for information on. Mr. Brandeis. Take it as a matter of fact here. Suppose there comes a question of shredded wheat biscuit. 22 REGULATION OF PRICES. Mr. O'Shaunessy. Is there any specific proof of the loss by any manufacturer ? Mr. Brandeis. Oh, yes; I may say that the evidence on this, the testimony of manufacturers going into this point at great length will be found in the proceedings before the Judiciary Committee, on trust legislation, and I will furnish to the committee a copy. The Chairman. They sell it cheaper in a particular community — it varies in proportion to the population ? Mr. Brandeis. It destroys the trade. It also shuts up your sources of getting it. If in a city where there are 500 grocery stores, 400 of-them cease to keep shredded wheat, there wiU be reduced not by four-fifths but by two- thirds pehaps the total amount sold. Some people will go to the few stores that seU it, but the great mass of peo- ple will not take the trouble to search elsewhere for the article. They will go into the store and buy Kellogg' s Corn Flakes, if obtainable; if it IS not and they are told that there is something "just as good," or grapenuts, or the like, the customer is apt to take it and avoid the trouble of going down town. Mr. Sims. Suppose in the city of Washington 200 places retail ivory soap for 5 cents a cake, while some one of these, in order to make a leader, reduces that soap to SJ cents or 4 cents a cake, a great many people who are used to that soap, who know it, will go to that store and get it because the others have ceased to keep it. Then, after a while all these others of the 200 stores, the 199, begin'to use or keep some other soap, and although this one store may sell a vast deal more soap than it would have sold, the actual volume of soap in the entire city is vastly reduced, although the wholesale price is the same ? Mr. Brandeis. That is absolutely true. You could follow that up Avith this statement, that one store will not keep on selling that soap at 3 J cents. This store will quit it soon. Mr. Barkley. Do you know of instances where that has happened ? Mr. Brandeis. These records show many instances. Mr. Barkley. Can you mention some of them 1 Mr. Brandeis. One was a soap, the Buttermilk soap. But you wiU find a very large number of such instances, and they are inevitable. Mr. Decker. If that soap sale depended on the merit of the soap do you not think the people would demand the soap ? Is it not the psychological situation there that has been making that business, that Buttermilk soap, and maybe that Buttermilk soap has not been any better than some other white soaps ? Mr. Brandeis. You have got to bear this in mind: In the first place, when you talk about the necessities of life, the necessity of soap, if there are 100 different soaps there may be grades of differ- ence; 10 may be just as good one as another; 10 may be better than the other one, or one may be better than the other 10; but there are gradations. There is not anybody who absolutely needs Buttermilk soap any more than he needs Sapolio, or any more than he needs Ivory soap. There are different degrees; but men, because a thing IS good, do not have to have it. Mr. Decker. They wiU ask for it if there is enough difference between its value and the value of others? REGULATION OF PRICES. 23 Mr. Bkandeis. If there is enough and they know it. Mr. Decker. Is not this the fact, that there is not much difference in the value of it? Mr. Brandeis. No; there may be quite a little difference, but when you use the term "much" you are using something which is Mr. Decker. Of course, there could not be much difference ? Mr. Brandeis. I say there can not be 5 cents difference; there may be one-half cent difference, or maybe one-fourth cent difference, or a difference that you can not express in money. I may like the g articular odor of the Ivory soap better than I do of any soap, of uttermUk soap, or of Fels Naptha, or something else, but I am not going to take an awful amount of trouble for it. There are other things I have got to consider besides the sense of smell, and consequently I am not going to go another block or two blocks to get it. And in this particular case which Judge Sims put, you take that case of this one concern, men who undertook to sell the soap at 3^ cents; they lose money at 3^ cents. They are perhaps paying 3f cents for that soap themselves, or, if not, they are paying 3^ cents or paying 3 cents; the cost of doing that business is such that every cake of that soap they sell involves a loss of money, treated separately. The result is they will stop 'selling it as soon as it has not value for advertising purposes, and after a very little while the manufacturer will find his sales reduced through a contraction of the number of avenues of getting to the public. Finally, the market will be lost altogether, because the particular outlet remain- ing finds it no longer profitable to continue to sell at a cut rate. So a manufacturer may lose one market after another. Mr. Sims. The larger volume a manufacturer can market the smaller price he can sell that product at, is not that true ? Mr. Brandeis. Undoubtedly, as a rule. Mr. Barkley. What you are advocating is that Congress pass a law permitting a manufacturer of every trade-marked and specially branded article, which may be made to include everything that is made, if it does not already, to fix one price at which the ultimate consumer must buy that article, it makes no difference how many hands it goes through ? Mr. Brandeis. Not "must buy," but "may buy." Mr. Barkley. Would not that inevitably lead to the proposition that if the Government is to guarantee to the manufacturer his right to fix the price the Government must stand over him with a club to see that he does not fix the price too high, and would that not inievitably lead to the Government fixing the price of everything, because it had to stand over the manufacturer to see that he did not fix too high a price, and would that not make the Government go into the business of investigating the cost of manufacture and of labor and every other thing which went into the manufacturer's price? Mr. Brandeis. Emphatically no, and I will tell you why I think so. In the first place I do not want the Government to guarantee any- thing in the sense that you speak of guaranteeing his right. I think you were not here when I called attention early in the argument to what seemed to me to be the situation. There would not have been any occasion to introduce the Stevens bill but for misapprehension by the Supreme Court of the trade condition and facts necessary to 24 EEGTTLATION OF PRICES. determine what the pubhc interest demands. What is being asked for here is not any privilege at all; it is a measure to restore a right commonly enjoyed in the leading commercial States of this comitry, and the leading commercial countries of the world enjoy as a matter of course, and which was abridged in respect to interstate commerce by certain decisions of the Supreme Court. If a manufacturer or producer puts an article on sale in any of those States or Territories he can say, "I am going to market it on these terms," and provided he has not a monopoly he may legally say, "If you want it on these terms, you can take it; if you do not want it, buy some other article in competition with it," for the Stevens bill applies only to articles in which there is competition. In no proper sense can that right be spoken of as a privilege, unless the right tolive and to be free be called a privilege. The Stevens bill seeks to restore, in interstate com- ' merce, the right which a man has by virtue of being a free business man in the community. Mr. Baeklet. Are there any present restrictions upon his freedom ? Mr. Brandeis. Yes; there is this present restriction upon his freedom that the Supreme Court of the United States by a majority decision, has imposed, in the behef that it was a restraint of trade for a man to establish this standard price at which his article shall be sold in competition with others. Mr. Baekley. He abeady has the freedom to manufacture what he pleases and sell it at what he pleases ? Mr. Beandbis. No; he has not; because a man is not selling an article in any proper sense until it reaches the consumer. Mr. Barkley. He is parting with his title to it, is he not ? Mr. Brandeis. I know; but you are suggesting what is a purely technical matter of law and not a matter of business. When you talk about parting with the title, you are talking something tech- nical and using lawyers' language and not the language of the busi- ness man or the consumer. If I give you som-ething and say, "I win sell you this article upon condition that when, you sell it you will sell it at a certain price," I have not transferred the title uncon- ditionally; only given you a qualified right to deal with it. If I sell you the article without any condition, then, of course, you have the right to deal with it as you choose. Why should not the manufacturer or producer in a competitive business, having no power over his customer except the power of persuasion, be allowed to say, "Here is the article I am producing. In fairness to myself, in fairness to other people who are buying this article, I am not willing to have you buy it unless you are wUling to take it on con- dition that you wiU sell it at the same price at which others bind themselves to seU it. If you will not accede to those terms, all right; there is no trade." Now, if the customer takes the goods on those conditions, does not the -law, fairness, and pubhc interest demand that the customer should live up to your contract ? That is really the question involved in the Stevens bill. Mr. Barkley. Let us take two merchants, one hving in a city of 100,000 mhabitants and another in a city of 2,000 inhabitants The man who is m business in the city of 100,000 inhabitants pays $100 a month, we wdl say, for his rent and pays $75 a month for his clerks. Ihe man m the city of 2,000 inhabitants pays $50 a month for his rent and $50 a month for his clerks. Your position is that if the man KEGULATION OF PRICES. 25 who pays $50 a montli rent and $50 for his clerks is not willing to sell the manufactured article at the same price it is sold by the man who pays $100 a month for rent and $75 a month for his clerks— that he ought not to be permitted to have the privilege of selling that thing unless he is willmg to make an agreement with the manufactxu-er in advance ? Mr. Beandeis. Yes, sir. Mr. Barkley. Notwithstanding he might sell it at less and make all the profit he would be entitled to, and the consumer would get the benefit of the reduction in price ? Mr. Brandeis. As a matter of fact you have involved two or three elements which I shall have to trouble you to treat separately. In the first place the dealer has no right to buy my article at all if I do not want to let him have it. I have the full right to say that I do not care to sell it to him because his hair is white and I choose to sell only to men whose hair is black. Or I have the right to say to him, ' ' I will not sell it to you because you Uve in the city of Kalamazoo." That may be a very poor reason, but I have the right to refuse even for a poor reason. Mr. Barkley. I do not want to create a wrong impression, but I am not from the town of Kalamazoo. Mr. Brandeis. It is a great honor, I think, because the town of Kalamazoo is a town which has shown very great business abUity and enlightenment. I say the manufacturer may refuse to sell for any reason, however absurd that reason may be. But here, the reason for imposing the condition is not absurd or arbitrary. He must con- sider his whole trade. Now, gentlemen, it may be or may not be that the dealer referred to by Mr. Barkley might, owing to pecuHar con- dition, be able to sell my article at a lower price and yet make a profit on it, but with the best of intent on his part and with the best of motive in every way ui his whole transaction, I might be unable to afford to let him do it. It might not be fair to my customers in Detroit or Grand Rapids and would not be fair to customers in other parts of the country. They would say such price cutting would interfere with their trade as it would with my trade. Now, should I not be allowed to say in the exercise of my business judgment and in order to deal fairly with other customers that I must require ob- servance of the standard price or withhold my goods ? If the dealer Mr. Barkley refers to is a philanthropist and wants to give his cus- tomers a present of somethmg let him make the price lower on some other article which is not standard-priced and satisfy his own con- science. But the manufacturer can not permit this standard price to be cut without injuring not only his own business but the business of many other men who are closely associated with his, as retailers of his article. When you come to the other proposition and say you are denying this consumer an opportunity to make a good trade, I say you are not denying him that opportunity in fact; for in the long rim consumers, taken as a whole, will be injured also by price cutting. The price is cut on one article in the hope of making more money out of him in many others. Mr. Barkley. And the merchant selling at 10 cents immediately becomes a philanthropist because he does not want the other to sell at 8 cents ? 26 KEGULATION OF PEICES. Mr. Brandeis. He does not become a philanthropist. The pur pose of business is not philanthropy; the purpose of business is ti give value. Business and philanthropy may go hand in hand ; but as a rule, we have to look to business first. It is not philanthropy but fair play ; it is manhood and honesty that demand for the Americai business man the right to establish for himself a standard price. Tb( law should not interfere in matters of trades unless there is a com manding necessity for such interference. If the Kellogg Corn Flakes Co. or the shredded wheat concern should undertake to make ar agreement with some other concern to suppress competition, ther under the Stevens bill the right to contract for a standard selling price would not exist. Mr. Decker. What difference is there between that and taking the Shoe Machinery Manufacturing Co., for instance? They were able- bodied men and freemen, and they got some patents for the manu- facture of shoes. By what authority do we stop them from making any kind of a contract that they see fit with the shoe manufacturers? Mr. Brandeis. In the first place, we do not stop them from fixing the prices; but, in the second place, they are a monopoly. The Stevens bill draws with the greatest clearness this distinction. Where there is a inonopoly or combination to suppress competition, the right which it secures of establishing a standard selling price is taken from the manufacturer or producer automatically. The Shoe Ma- chinery Co. became a substantial monopoly not merely by virtue of its patents, but by virtue of the particular control of the machinery situation so that no competitor could break in. But when you come to cereals Mr. Decker. How did it get to be a monopoly ? Mr. Brandeis. It got to be a shoe-machinery monopoly by com- bining some 120 different concerns together. Mr. Decker. How was that done ? Mr. Brandeis. By buying up one after another until the final com- bination was effected. Mr. Decker. They bought aU the shoe patents ? Mr. Brandeis. They not only bought shoe-machinery patents, but bought the various companies that made different kinds of shoe machinery, so they practically controlled the situation. Mr. Baekley. That leads to a very interesting question which I desire to open. If that is true that this is a combination ■ Mr. Brandeis. What is a combination ? Mr. Barkley. This shoe-machinery company of which you speak and that 100 or 1,000 other different concerns that manufacture the necessities of hfe are combinations; if it is already admitted they are combinations and therefore control the output of product which they make, would this bill, if it passed, lead to a situation where they would control not only the output but the price ? Mr. Brandeis. I do not think it would have any application to Mr. Baekley. And the pubhc's hands be absolutely tied ? Mr. Brandeis. I thmk decidedly no, because with them the situa- tion is exactly th§ opposite. Mr. Barkley. Let us take a brand of stoves. Mr. Brandeis. Yes; that is a very good illustration. EEGULATION OF PRICES. 2T Mr. Barklet. A merchant wants to buy a carload of stoves and lie goes to the manufacturer or to the jobber and buys these stoves and the jobber says, or the manufacturer, "I will let you have these stoves for |10 apiece wholesale, but I will not let you have them unless you sell them at $20 apiece retail. Mr. Brandeis. Whose stoves ? Mr. Barkley. Anybody's stoves. Mr. Brandeis. It has got to be Mr. Barklet. It has got to be a stove of a special brand, and they have aU that, because you call them various names. It may not be- a trademarked article, but a special brand. The merchant says,, " I can seU this stove at $15 and make all the profit I need in my town," but the wholesaler says, "You can not have it unless you will sell it for $20." Mj. Brandeis. Yes, absolutely. Mr. Barkley. Why is there any justice in that sort of law ? Mr. Brandeis. There is absolute justice, because this man has- fixed at his peril this price because of general conditions. Mr. Barkley. But he sells it to the merchant at a sufficiently lower price to let him make all the profit that he wants out of it at $1 S.- Mr. Brandeis. Not necessarily all he wants, but all he can get.. If he were a monopoly he would be in danger of taking more profit than that was worth, but in all probability you would find there were 1,547, or twice, or three times, that many stove manufacturers in the United States. Mr. Barkley. I think very easily, all combined. Then the courts, or somebody, must go into court to determine whether or not they are a combination, to determine whether or not this law wiU apply ? Mr. Brandeis. Why should they not? The Chairman. The-breakfast foods would get musty while you were waiting for a decision. Mr. Brandeis. The moment you sue on your contract you have got a complete defense to that contract by saying you are a combina- tion; you are a monopoly; it does not apply to you. Now, the man goes into court and they may say: "Gentlemen, you may be one of that 107 different manufacturers who are actively competing with one another, but you can not have this right to protect your business." And the A, B department store shall have the right to destroy, your business. Why ? Because they want to. Mr. Barkley. That is one of the objects of this law, is it not, to keep them from buying from department stores and from mail-order houses ? Mr. Brandeis. No; not to keep them from buying, because you can not do that. Mr. Barkley. To bring about a situation where they can not sell it to the people ? Mr. Brandeis. No; not at all. The Chairman. Who is to be the chief beneficiary in this legisla- tion, the manufacturer or the ultimate consumer ? Mr. Brandeis. Three classes of people. The Chairman, AU of them ? 28 REGULATION OF PRICES. Mr. Brandeis. The manufacturer, or the producer, the retailer, and the ultimate consumer. I want to answer your question as to department stores. The Chairman. You are not here solely in behalf of the ultimate consumers, are you ? Mr. Brandeis. I am here in behalf of the public, and I conceiTe that the pubhc uicludes all of these classes of people, including Members of Congress. The Chairman. Well, they need protection. Mr. Barkley. I am not certain that the public looks upon it in that hght. Mr. Brandeis. I think they do. Mr. Barkley. I mean in reference to Members of Congress. Mr. Decker. I have no desire to be personal, but we have asked ' the same questions of everybody here so we can get at the facts. I do not care whom you represent. If you are right I am for you, but sometimes it gives us an idea what is back of these things. I have been getting these circular letters about this Stevens bill. Who is back of this ? Whom do you represent ? Mr. Brandeis. I represent myself— nobody else. Mr. Decker. Nobody else? The Chairman. I was not more polite than Mr. Decker, but I knew you better than he did, therefore I put my question more adroitly; I did not ask you whom you represented, but who would be the beneficiary of this legislation. Mr. Brandeis. Let me put it in another way. Mr. Decker. It is aU right with me if you represent Morgan or not, or anybody else. Mr. Brandeis. Unfortunately I represent only myself. I will teU Jou how I happen to be interested in this question. I will show you ow I came to appear here. In 19 12 Mr. Oldfield, then chairman of the Patent Committee of the House told me that questions were com- ing up in the Patent Committee as to which he would like me to aid him in drafting some legislation bearing upon this subject. I had never given the subject of standard prices any consideration before, but I had given much attention to the trust problem generally; had testified before the Senate Committee on Interstate Commerce and the Stanley Investigating Committee, and Mr. Oldfield knew I was then working with Chairman Stanley. I told Mr. Oldfield I should be glad to aid if I could. I came down here one day just as they were haviQg hearings on this subject of resale prices before the Oldfield committee, the Patent Committee. Mr. W. H. Ingersoll, who repre- sented the IngersoU Watch Co., and quite a number of others were there, and those men were violently attacking the Sherman law and legislation proposed to supplement it, insisting that the law hampered business. I listened to these men for some time, and I turned to them saying: "You gentlemen are entirely in error. You have a good cause, but you are ruining your chances by joining with the people who are really your opponents. You are trying to destroy the Sherman law, wmle it is the law which is really your protection. What you are seeking is not monopoly, but the right of free competition. Your businesses are competitive. Now, disassociate yourselves from the monopoUst and join us who have a common interest with you in maintaining competitive conditions, and to this end perfecting the EEGULATION OF PBICES. 29 Sherman law." We discussed tliat matter mainly after the hearing had closed. I discussed the matter with them quite informally and tried to prove to them that what I was urging elsewhere as my effort to perfect the Sherman law was not inconsistent with their interests. Later they invited me to attend a meeting to be held in New York, saying: "Come and speak to our associates as you have talked to us." I did so, and later I came before the Oldfield committee on May, 15, 1912, and showed how in my opinion price standardization helps competi- tive business; how it develops the individual man; how it preserves the small retailer as against the great chain stores and the great de- . Eartment stores — and to these manufacturers I insisted: Draw a clear ne between monopoly and the right of men engaged in competitive business; to control the distribution of their own goods and work for legislation on these lines. They answered: "We can not get any such legislation through." And I rephed: "The only way you can get this thing through Congress is to educate the American people on this subject. Make them understand the difference, which wiU become Eerfectly clear to any man who studies the business aspect of this; ring your facts before Congress and the people and you must suc- ceed; but the task of education must be persisted in." That was the advice I gave them, and partly as a result of the advice doubtless, this Fair Trade League was started. In the effort to aid in this work of education I wrote the article published in Harper's Weekly in November, 1913, entitled "Cutthroat competition — the Competi- tion that KiUs," which was put in evidence before the Judiciary Committee. You have asked me and others have asked me who is going to benefit by this legislation, and who wants it. I say the people who are most interested of all — ^whom it vitally .affects directly — are the small retailers the country over, and particularly the retailers in the small towns; but indirectly consumers and the general pubHc are vitally interested in securing such legislation. The Chairman. The manufacturing jewelers and wholesalers can very easily educate their retailers by persuading them it would be better for them than by inducing them to write letters to their Con- gressmen; but how long will it take you to persuade the consumers, the bulk of the American people, that it is to their interest to go to a store and not buy things as cheaply as they can get them ? Mr. Beandeis. I think the consumers are being educated. I do not Imow whether you have heard Mrs. Fredericks. I do not know whether any of you are on the Judiciary Committee. The Chairman. This committee does not have time to fool with any other committee hearings. Mr. Brandeis. I should not think they would have; but Mrs. Fredericks appeared before the Judiciary Committee The Chairman. She had an invitation to come before this com- mittee. Mr. Brandeis. I hope you will hear her, because what she has to say is particularly illuminating. , _ The Chairman. I did not suppose she would discrunmate against this committee. ^ , . , . . , ^, , Mr. Brandeis. I do not think she wiU. I think it is perfectly clear that people can be made to imderstand that the consumer will be 50 BEGTJLATIOlir OF PEICES. benefited. Mrs. Fredericks makes it perfectly clear in her excellent book on Efficiency in the Home. Mr. O'Shaunessy. Where is the consumer troubled the most now; iDy the bait and getting the worst of the bargains on the way up ? Mr. Brandeis. She is injured to a very large e?;tent without know- iag it. The consumer is frequently troubled by not being able to get an article because price cutting has induced the retailer to dis- continue selling it. Mr. O'Shaunessy. I mean in a money way. I have heard it said they might get this proprietary article a few cents cheaper, but at the same time they would lose perhaps ten times the amount by the purchase of other goods. Mr. Bkandeis. They are misled by these cut-price leaders to buy other goods for more than they are worth, and they lose time in their search for cut-throat bargains. Mr. Decker. Would it not be as easy, or easier, to educate the people to imderstand that by getting these standard articles at reduced prices that they are not making anything when they go to a store — will they not learn that as quickly as they will learn this other ? Do we not have to rely somewhat on the intelhgence of the consumer in the end ? Mr. Brandeis. If you could rely whoUy on education, as I said a xaoment ago, there would be little need of laws, because much legis- lating is designed merely to make people do that which is for their best interests. A law which is, not making the people do that for their best interests is rarely enforced. Mr. Barkley. You spoke a moment ago about the small retailers being benefited, and mentioned in that connection the operations of these chain stores. Mr. Brandeis. Yes. Mr. Barkley. And it has been claimed, I do not know whether by you but by others, that these chain stores that are located around over the country take a certain standard article and reduce the price of it below what the article ordinarily sells at in order to get the gul- lible public to come in and buy something else in which they wiU be skinned before they get out of the store. Mr. Brandeis. Yes. Mr. Barkley. Now, the manufacturers of these standard articles have the power and the liberty, as you might say, to refuse to sell their articles to these chain stores, have they not ? Mr. Brandeis. Yes, sir. Mr. Barkley. If they are so interested, why do they not refuse to sell these standard articles to the chain stores that are dragging the public in for the purpose of cheating them on some artide after getting them in ? Mr. Brandeis. They do; but the stores get the articles in a round- about way. Mr. Barkley. How is that ? Mr. Brandeis. The manufacturers sell their goods in ordinary course, and that purchaser sells them to the chain stores. The Chairman. That is the old poetic method of hooking the devil around the stump ? Mr. Barkley. That is a very serious indictment of business integ- rity? KBGULATION OF PRICES. 31 Mr. Brandeis. It is a verjr common indictment. I think it is a great departure from business integrity for any man to sell goods at a price other than that at which he agrees to sell them. I think the man ought to say, "I have made an agreement, and whether the law sustains that agreement or does not, I will keep it." Mr. Barkley. Does this biU undertake to punish a man who vio- lates that agreement? Mr. Brandeis. No; I say it does not undertake to punish him; but undertakes to give the maker or producer the right to make a contract establishing a standard price, and if such u contract is valid the ordinary means of enforcing it will exist. It seeks to change the rule laid down in the majority decision of the Supreme Court. Mr. Barkley. It has been sometime since I read that decision. What did they decide in reference tO| public policy as to permitting;, this thing to go on? Mr. Brandeis. They said this was a restraint of trade and that it was against public policy, Mr. Barkley. You are urging us to pass the bOl to enact a law which the Supreme Court of the United States has already said is against pubUc policy and in restraint of trade? Mr. Brandeis. That is precisely it. Mr. Barkley. Would they not decide the same thing again if we undertook it ? Mr. Brandeis. They would not have any right to. Mr. Barkley. They have the right to pass on questions of public policy, have they not? 'Mr. Brandeis. Only in the absence of a declaration of the subject by Congress. Congress has the ultimate power to decide the matter of public policy for the Nation. Mr. Barkley. Subject to the supervision of the Supreme Court. Mr. Brandeis. "I beg pardon, 'the Supreme Court has the right to determine what is public policy in a limited number of cases as long as Congress has not declared what it is. The Supreme Court has, in passing upon this quasi legislative question, made what I respectfully submit is an error; and if so, it is the duty of Congress to correct the error. Mr. Decker. In what case was that decision made ? Mr. Brandeis. In the case of Dr. Miles remedy case, and the Sanatogen case. Mr. Talcott. You do not claim there is anything in either of those opinions that would warrant us in the assumption that an act of this kind would be unconstitutional, do you ? Mr. Brandeis. Certainly not. There is no constitutional question "involved. The only question is: What does the general interest of the community demand ? • Mr. Decker. Would you think it right to have a law like this apply to land? Suppose, for instance, a man were laying off an addition in a town and he wanted to keep the price of lots in that addition up to a good high value. Why would it not be all right for him to put in a clause there that when he sold those lots to a man that man was not to sell them for less than a certain price ? Mr. Brandeis. I should' think that probably m some instances that might be entirely unobjectionable. He does certain things of that nature now with the approval of the courts. He can provide 32 REGULATION OF PRICES. that no man may build on the land ^old unless he builds a house worth say $10,000; -he can provide that he can not buUd a stable on it; that the house may not be built nearer the street line than 40 feet. He can put all those restrictions upon the land when he sells it and the restriction binds every owner thereafter. That is what land owners are doing all the time. We are recognizing that a man laying out a tract has, within certain hmits, the right to prescribe the con- ditions of future use. Mr. Decker. But they have never gone so far as to let him fix the price ? Mr. Brandeis. No; because it was not important that we should; but it is important for the pubHc interests that in dealing with branded goods it should be done. This is not a c[uestion for theoriz- ing; this is a perfectly practical business proposition. Mr. Decker. Take the Ingersoll watch, for instance, and I under- stand he is one of the main men back of this. Mr. Brandeis. He is one of the most active and most intelligent of the men. Mr. Decker. Mr. Ingersoll makes a watch for a dollar, does he not ? Mr. Brandeis. He sells it for a dollar. The retailer sells it for a doUar. Mr. Decker. If that watch is worth $1 to the pubhc I can not see how it hurts his business if the selling of that watch depends, as you say, upon its value; it seems to me that the more of those watches that are sold, no difference if they are sold for 10 cents apiece, the more of those that are sold the more people will find out that he has got a good doUar watch in his pocket. Mr. Brandeis. Let us go back a moment and see. It may mean a httle repetition. You have stated one of the elements. It is not merely a question as to whether that watch is worth $1, but it is whether people recognize that it is worth $1, is it not? The Chairman. Reputation ? Mr. Brandeis. Eeputation. Mr. Decker. If it is worth $1, though, the more people who get them and use them the more people will know about them. Mr. Brandeis. You can not tell me how much this watch is worth. Mr. Decker. If you let me carry it for 20 years I will teU you. Mr. Brandeis. I do not believe you can. Mr. Decker. You do not expect to carry a doUar watch for very long, but the man carries it a year and says: "This watch has kept food time all the time, just as good as my father's $50 watch," and e is glad to get it. I am afraid you are going to make more possible his monopoly that grows by thfs pubUcity business. For instance, you talked about that case being founded on the proprietary remedy. 1 ou have got to admit that some of the best sellers in the proprietary remedy business, the best advertised, are not worth anythmg, and you would not advocate anybody using them; but still they have got their standardization and they have hammered it into people that it is good for colds and cholera and consumption and rheumatism, and people buy it because it has been pushed onto them and ham- mered into them and advertised to them, and it has been possible to do that because this law has been in effect that gives them the right to do that and to fix the price of it. KBGULATION OP PEICBS. 33 Mr. Beandeis. We might theorize for a very long time, but the only way to settle it is by facts, is by experience, is it not? Mr. Decker. Yes. Mr. Brandeis. That is about the only way we can do it. We have a great deal to do with monopoly in this country, and we have heard a great deal about it. The Chairman. It has had a good deal to do with us. Mr. Brandeis. And it has had a great deal to do with us, as the Chairman wisely remarks. I should Tike to have you point to a single monopoly in this country which has been built up, or which was aided in being built up by the establishment of a standard price. Mr. Decker. I think you told us before this committee once that the tobacco trust was largely buUt up Mr. Brandeis. It was built up largely by the very opposites, by the cutting of prices — the destruction of competitors through cut- . throat competition. Mr. EscH. I think you said that the trade-mark "BuU Durham," was worth to them $10,000,000. Mr. Decker. Right there I remember your statement that the BuU Durham trade-mark was worth a great deal to them. Mr. Brandeis. Yes. Mr. Decker. What good comes to the public by selhng that trade- mark ? Mr. Brandeis. I will teU you about the Bull Durham, and I think I stated it at the time, wherein its particular value lay. Having that trade-mark "BuU Durham" as one Of hundreds of trade-marks, they declared to the retailer: "You can not get our 'BuU Durham,' which you need, unless you agree to buy from us substantially every other article you deal in." _ The dealer had to have BuU Durham, and that fact gave to the trust the whip hand over the whole trade. Having, by combination, brought that and the many other differ- ent brands, and having, by large capital and cut prices, obtained great power, the "BuU Durham" became an effective instrument of monopoly. It operated like the "tying clauses" in the Shoe Machinery Co. leases. The retaUer<;ould not get the things he needed without submitting to the requirement of buying also the other brands of the trust. Mr. Hamilton. WUl you just repeat that briefly ? Mr. Brandeis. I say this: The value of BuU Durham depended upon the fact that it was an article so much needed by the retaUer. Mr. Hamilton. We wUl assume so. Mr. Brandeis. The retaUer practically, could not do a tobacco business unless he was able to ml orders for an article so weU known and so commonly demanded as Bull Durham. The trust, therefore, said to him: "You can not have our BuU Durham unless you wUl buy from us alt these other articles in which there would otherwise have been competition." That was using the Bull Durham, not for the pui^ose of selling BuU Durham, to which there was no objection at all, but for the purpose of suppressing competition in other arti- cles of trade. Mr. Hamilton. The BuU Durham Co. negotiated this deal ? Mr. Brandeis. No; the American Tobacco Co., having, say, 150 different articles to seU, of which 149 were competitive and one, the 81295—15 3 S4 EEGULATION OP PKICES. Bull Durham, is not, the Bull Durham standing in a class by itself, declared: "You can not have Bull Durham unless you will buy the other 149 from us." In that way the competitors in the 149 other articles were excluded from the trade. In other words, they got 'the whole trade of the dealer, not on the merits of the 150 articles, but because Bull Durham was the key to the trade. As used, it traded to give the tobacco company the monopoly. Having one article practically indispensable, you use your position not to push the sale of that article, which you would have a perfect right to do, but to prevent your competitors selling other articles which you have no right to do. Mr. Hamilton. A monopoly may be created in a perfectly honest way, I suppose ? Mr. Beandeis. Yes; although most, I believe, have not been. Mr. Hamilton. The idea has occurred to me since I have been listening to you whether a monopoly which has been created in that way by the quahty of its goods and is held, what you propose, and , , your position is hi the interest of the people as a whol^, by saying that this particular thing that you have to sell, Mr. Monopoly, shafl not be sold at a less price than you fix for it. If you please, I should like to have you enlarge on that. Mr. Beandeis. Your question is, assuming a monopoly to have been developed, whether the ability to fix a standard price would aid it. Mr. Hamilton. Whether that would not still further enhance the monopoly. Mr. Beandeis. My answer is twofold. First, the ownership of a branded article, however popular, does not give one a monopoly. Secondly, a monopoly might conceivably be injured, but ordinarily is powerful enough to protect itself. Mr. Hamilton. You say the monopoly would be injured if some dealer, or some large dealer, should persist in seUing at a cut price; therefore, it would injure it ? Mr. Beandeis. I say it might conceivably be injm-ed, and, as I want to curtail the power of a monopoly, I approve of that provision in the Stevens biU, which denies this common right to a monopoly. Mr, Hamilton. No. Mr. Beandeis. Yes. Mr. Hamilton. I do not deny that. Mr. Beandeis. I say the biU denies the right to monopolies. Mr. Hamilton. Then, in that case, what do you consider a mo- nopoly to be ? Mr. Beandeis. I consider a monopoly that which has substantial control of any branch of trade! Mr. Hamilton. But substantial control may result from the very quality of the article. Mr. Beandeis. Not control of the trade, but the enjoyment of a large part of that branch of trade. Mr. Hamilton. We are reasoning in a circle. Mr. Beandeis. I do not think we are. Mr. Hamilton. Here is a monopoly, a trade grown to be very large because of the quality of this particular thing, and the corpora- tioii or the dealer has become a monopolist by reason of the quality of this particular thing. Therefore the question then arose m my BEGULATION OF PRICES. 35 mind, and this is a perfectly fair question and not antagonistic at all — — Mr. Brandeis. I understand. It is very illuminating. Mr. Hamilton (continuing). Whether we are not protecting that monopoly ? Mr. Brandeis. No; and there are two reasons why not. In the the first place this bill declares that if a business is a monopoly it shall not have protection. Consequently the monopoly is automatically put at a disadvantage, because the bill denies to a monopoly the right to establish standard prices. Mr. Hamilton. Let me interject something there. You frequently have referred to the Ingersoll watch. Is the IngersoU watch concern a monopoly 1 Mr. Brandeis. No. Mr. Barklbt. It is a monopoly of the Ingersoll watch, is it not? Mr. Brandeis. The company controls the Ingersoll watch, but it does not control the trade in watches. Mr. Barkley. There is not any other IngersoU watch which sella for a dollar, except this one? Mr. Brandeis. Other watches seU for $1. Mr. Barexet. It is not an IngersoU watch ? Mr. Brandeis. No; you can not properly say that I have a monopoly of my own law practice. Mr. IIamilton. You referred to shredded wheat once or twice. By the very quality of the thing is there not a monopoly of the handling of it ? Mr. Brandeis. Of course, the article, the thing I manufacture, is mine. It is not anybody else's; but that doesn't make it, properly speaking, a monopoly. Mr. IIamilton. But you are a monopoUst ? Mr. Brandeis. You may say I have a monopoly of the Brandeis law practice, because nobody else may use that name. Mr. Hamilton. Because it is high grade ? Mr. Brandeis. It may be. Mr. Hamilton. Well, you are a monopoHst ? Mr. Brandeis. Every human being is a monopolist in that sense, but it isn't the proper use of the word. Certainly not when we are speaking of the Sherman law. _ , r • Mr. Hamilton. Sometimes the grocer on the north side of Mam Street in a small town, who has bought all the other grocers on the north side, is a monopoUst? Mr. Brandeis. Then, every human being you speak of m that sense is subject to the Sherman law. Mr. Hamilton. No; leave out the Sherman law. Mr. Brandeis. I say that you are misusing the term " monopoly." Mr. Hamilton. Precisely. I want to get your definition of the word " monopoly." ^ ■, . ■ j Mr. Brandeis. Monopoly is a unified control ot some recogmzed branch of trade, or some recognized service. Mr Hamilton. That is controUed by one ? Mr. Brandeis. I do not care whether by one or more m combi- nation. 1 . , Mr. Hamilton. Unified control is by one i 36 REGULATION OF PEICES. Mr. Bkandeis. One or three or a number of people working to- gether. I say it is unified control, although there may be 10,000 people interested; it is unified control if it comes imder one control. But it takes two things; you have not only one control but also one control of a particular branch of trade or service. Now, take the question of breakfast cereals, as to which the chairman has consider- able doubts. The Chairman. Not at all. I am willing for anybody to eat them who pleases, just so as I am allowed to eat grits. Mr. Beandeis. That is a very generous attitude and one highly commendable. But take that question. There are 107 different competitors for the Kellogg Toasted Corn Flakes — one Kellogg's, anotner Post's, another Jotoson's, another somebody else's, and so we go on. No one of those 107 concerns have a monopoly of cereals, but each man is making his individual article. I may make my arti- cle so popular that a man may buy my shredded in preference to the other 106 people, and I may have more sales alone than the other 106 people. Mr. Hamilton. Exactly. Mr. Beandeis.- I should not be a monopolist, however, for I am competing with the other 106 people. I have simply increased my business. Mr. Hamilton. You may drive them out of trade largely, may you not, by the quahty of your goods ? Mr. Beandeis. If I do drive them out of trade, if I get to the point that I am the only person in it, then I have become a monop- oHst. Mr. Hamilton. Yes; but if you have one-half the trade Mr. Beandeis. If I have one-half I do not think I am a monop- ohst, provided I don't control the other half. Mr. Hamilton. To what extent ? Mr. Beandeis. No; I am not a monopolist. Nobody can prop- erly Bay if I have one-haK of the trade — I mean under those circum- stances where I have simply made my article a more attractive article. The real test of monopoly is whether the field remains open to competition. When there are 106 other people in that trade, actively competing and hving, and some dealers are buying those other things in preference to mine, where they have a choice Mr. Hamilton. There would be no competition in your particular article, though? Mr. Beandeis. There can not be properly. I can not compete with myself. Mr. Hamilton. You have sole possession of the field ? Mr. Beandeis. But I do not have a monopoly. Mr. Hamilton. As to that particular article ? Mr. Beandeis. That is true of everybody. Suppose I am a little baker here on X Street and I make a certain bread, which I call Sagamore bread. Nobody in the world can make Brandeis's Saga- more bread except myself. Suppose I have sales that amount to $3,000 a year, how can you properly apply the term monopolist to me? Mr. Hamilton. I can when you have increased your sales of Sagamore bread so as to include about one-half the States of the Union. I started out with a certain proposition on which I thought REGULATION OF PRICES. 37 we agreed, that a monopoly might be created by the very quality of the thing dealt in ? Mr. Brandeis. Conceivably it may be. Mr. Talcott. But there is no reason why Mr. Hamilton should not start out and manufacture the Hamilton Mohegan bread, is there ? Mr. Brandeis. Absolutely not, and as a matter of fact he will. He not only will, but it is to the interest of the country that any man who makes an article that is so attractive that he can compete successfully with 106 others, the sale of his article growing constantly, and he making constantly more profit, that is a condition we should encourage as bringing a positive benefit to the country. His success will notT)ecome a danger unless it results in suppressing competition. Mr. Hamilton. And with my Mohegan bread I might stipulate that my cheapest bread should not be sold for less than a certain price, and at a less price than yours, and say that a dealer might handle both ? Mr. Brandeis. That is perfectly proper. Mr. Barkley. According to your test of monopoly there is not really a monopoly in the United States, is there ? Mr, Brandeis. I do not laiow how many there are now, for the Department of Justice is being administered effectively. But take the case of the Standard OU Co., the test the Supreme Court applies was: Do they practically control the business in oil? The Chairman. I think I can cite you an illustration which will apply to gentlemen hke Mr. Stevens and Mr. Talcott. . A young lady is so beautiful and charming that in competition with aU other young ladies she out-shines all and monopolizes the admiration of aU men. You would not run her out of town on account of such a monopoly, would you ? Mr. Brandeis. No, but I should like to be in that town. Mr. Barkley. While you would not be wiUing to run her out of town, the other ladies not so fortunate in the affections of these men might wish to do so ? Mr. Brandeis. I hope not. I should expect such generosity from them and appreciation of beauty that they would not do it. Mr. Barkley. The point is tms, and that is a very apt illustration, the reason certain businesses are sought to be run out of business practically by legislation of this kind is because they are competing and because those who want to run them out do not want their com- petition. Mr. Brandeis. I think that is a statement of exactly what is not so. This bin does not undertake to run anybody out of business. I should like to have anybody show me a single concern that would be run out of business by this law. Mr. Barkley. If a condition is brought about where they can not do business, then they inevitably go out ? Mr. Brandeis. If you can show me where this biU is going to pre- vent people doing business, I should like to have you. Mr. Decker. Take it the other way. Are they not all on the same footing if none of these manufacturers have the right to fix the price on down to the consumer, will they not aU be on equal footing and each and all have to depend for the sale of their article upon the superior merit of the article and not on the fixed price ? 38 ' EEGXJLATION OF PKICES. Mr. Bkandeis. There may be many conditions in which men will be on the same footing. You may stop the doing of business at all and we shall all be on the same footing then. You may stop adver- tising and we wiU aU be on the same footing in that respect. You may stop men from employing anybody else as employees and we shall all be on the same footing in that respect. But you will be de- stroying the prosperity of the country. And in taking away from the manufacturer and the small dealer an incentive to improve the quahty of his article and his trade you would take a long step in that direction. Mr. Decker. What small dealer ? The Ingersoll Watch Co. is not a small dealer; Kellogg is not a small dealer. None of these people who are advocating this are small dealers. Mr. Bkandeis. Every one of the concerns that have been heard before the committees of the House were once small dealers and Mr. Decker. And got to be very large dealers by virtue of this price fixing ? Mr. Bkandeis. They got to be large dealers by virtue of their merits, and partly by exercise of the right to fix a standard price which was formerly recognized. Price fixing does not make any- body big, but the absence of the right to estabhsh a standard price may keep them small. Nobody got big by price fixing alone. It is merely an incident in the distribution of goods. The Chairman. The insignificant character of the article manu- factured does not fix the size of the business at aU, For instance, a few days ago I introduced a very wise and sanitary measure to pro- hibit and punish all fraud in interstate commerce, expecting to restore the miUenium, and the most enthuiastic response I received was from a man who makes white-pine toothpicks, and he was afraid some other fellow might find a cheaper material to make toothpicks of than white pine. Mr. Brandeis. And advertise them as white-pine toothpicks? The Chairman. Yes. Mr. Bkandeis. He wanted to be protected against misrepresenta- tions. Mr. Sims. I want to submit this to you.- Let us suppose for the purpose of illustration that the Ingersoll watch is controlled by a monopoly. In other words, we wiU suppose the manufacturer of the Ingersoll watch has bought up patents of other cheap watches and their competitors have ceasea to make them. Then let us suppose that some other man, with large capital, is making a $2 watch, and we will suppose — because I think it is true that a watch is a utihtarian instrument and everybody in this day and age ought to have a watch — and that at $1 many people could get a watch who could not get one at $2. But let us suppose this man with vast capital is mak- ing a $2 watch, and without any power in the Ingersoll Co. to fix the resale prices, this man of large means can go to buying up and put somebody to selling Ingersoll watches in every city of the Union at 50 cents apiece, and then Mr. Ingersoll, or whoever owns it, gets tired of that sort of business and this man with the $2 watch pro- poses to him to buy his brand or buy his patent and buy his monopoly out, and they trade. Then the poor people, the pubUc have to pay $2 for a watch that does not do anything more for them than the SI watch did. Now, in a way does that not take away the power of reasonable restrictions, and may that not create the conditions EEGULAHON OS" PBICES. 39 favorable to a large monopoly and for grinding down, driving the manufacturer of the_$l watch out of business? Mr. Brandeis. I would say yes to that, but I want to add some- thing. In the first place, by the Stevens bill, which is very care- fully drawn, this common right to estabUsh standard prices which a manufacturer ought to have, unless there is good some reason to the contrary, this common right of fixing a resale price is taken away from a concern which has a monopoly. The result, there- fore, is if anybody does become a monopolist Mr. Sims. Then it does not apply? Mr. Brandeis. Then it does not apply and we need not bother about it. But the second point you present is absolutely true. The moment you allow the cuttrug of prices you are inviting the great, powerful men to get control of the business. That brings us to another point that Iwanted to develop and point out what the real dangers are in trade and where the real danger is to this country. Mr. Barkley. Take this Ingersoll watch as an illustration. Sup- pose it is true that Ingersoll gets his own price for his watch? Mr. Brandeis. You mean by that he gets a price satisfactory to him? Mr. Barkley. He gets a price he asks from those to whom he sells. • Mr. Brandeis. He must ask a price that he can get and he must get the price he asks Mr. Barkley. And he fixes that price ? Mr. Brandeis. Yes, sir. Mr. Barkley. According to what a reasonable profit would be upon his investment ? Mr. Brandeis. A price which in his judgment would be a proper profit. Mr. Barkley. He sells that watch, and always has sold it to the person to whom he does sell it at 50 cents ? Mr. Brandeis. Yes; the price perhaps varies from time to time. It may or it may not. Mr. Barkley. Now, if he does — being the sole manufacturer of the IngersoU watch, sells his product for what he asks for it, and the Erice of it has not been reduced so far as he is concerned — ^what right as he in morals or in business to follow that watch up until its ultimate purchase by the man who wears it on the chain, to determine whether or not it shall be sold at $1 or 75 cents ? Mr. Brandeis. Let me try to answer that question. You say what right has he to do it ? By that you mean, of course, what moral right, what justification has he ? Well, his only justification from his own standpoint is this, that it is injurious, directly or indirectly, to him if the man Mr. Barkley. He is afraid it may be injurious sometime in the future, but admitting it has not been injurious yet. Mr. Brandeis. How do you know he admits it ? Mr. Barkley. Because he has sold his watch for what he asks for it and the trade has not been diminished. Mr. Brandeis. How do you know his trade is not smaller than it otherwise woidd have been ? The amount of profit I make depends upon three things: In the first place, how much it costs me to do 40 KEGULATION OP PEICES. business; in the second place, how much profit I make on each article I seU; and, in the third place, how many articles I sell. The cutting of price increases my expense and reduces the number of articles which I sell; then I lose money by the price cutting, do I not? I mean lose profit in the sense that I do not make as much as I other- wise would. Mr. Baekley. In the aggregate? Mr. Beandeis. In the aggregate, and of course the aggregate is the only thing the business man cares for. Mr. Ingersoll has ex- plained to the Judiciary Committee how the cutting of price has mjured him in both these respects. In the first place, price cutting has added tremendously to the cost of doing their busmess; in the second place, it has reduced the number of possible purchasers of his watch. Let me show you how that happens. He must, so far as possible, protect his trade; I mean he must try to keep the 23,000 jewelers and thousands of booksellers and stationers and druggists who are selling the Ingersoll watch — he must keep on selling Ingersoll watches and exhibiting them in their show windows, because unless those avenues of sale remain open he wiU not be able to market his watches. So every time he loses a dealer he loses profit, because he reduces the number of watches that he sells. It is the number of times he realizes a profit on a watch which makes up his aggregate profits. Now, in the way I pointed out before the cutting of the price of any IngersoU watch by any prominent concern will induce ultimately other dealers to give up the Ingersoll watch, because if they sell it at this low price they do not make any money on it and, furthermore, there is created in the minds of the public the idea that they have not been giving value, for they have been charging $1 for what somebody else sells for 67 cents. The short way out of that difficulty seems to the dealer to be much like this: The Ingersoll watch is only one of many articles we sell, and we had better give up that article thari run the risk of both ruining our reputation and doing business without making money. So Mr. Ingersoll loses these customers. Mr. Baekley. But the public still goes on buying Ingersoll watches ? Mr. Beandeis. Not to the extent they otherwise would. You do not have to buy an Ingersoll watch — I do buy them occasionally in, the summer when I am going camping or boating. If it is conven- ient for me, I buy an Ingersoll watch and leave my gold watch at home, but if it is not convenient I do not buy one. I take a chance with my gold watch. There is not any given number of Ingersoll watches that must be bought; and many men will not go a haU mile or three-quarters of a mile to get one. In the first place, it may not occur to them to buy one, unless they see it in the showcase. Fur- thermore, expense is also great of trying to keep retailers in line. We try to make them understand how mistaken the policy of price cut- ting is. Mr. Ingersoll says: "This thing is hurting me; but I am not the only person hurt; I am only one of a thousand manufacturers and producers, and I am one of a million or two business men, because more than a milhon retailers are vitally interested in preventing cutthroat competition." It is injuring the public also, because it is denymg the public the opportunity of getting many a good article conveniently. Retailers the country over have been finding out that price cutting is one of the causes of dwindhng success; and one REGULATION OF PRICES. 41 retail association after another, national, State, and local associa- tions, have gone on record, demanding that this illegitimate compe- tition be put an end to. Many small retailers say we are willing to lose our business if the pubHc interest demands it, but pubhc interest makes no such demand. Big business is not more efficient than little business. It is a mistake to suppose that the-department stores can do business cheaper than the little dealer. (Thereupon the committee took a recess until 2 o'clock p. m.) AFTER RECESS. STATEMENT OF lOUIS D. BRANDEIS, ESQ.— Continued. The Chairman. You may proceed, Mr. Brandeis. Mr. Brandeis. The question that I was about to discuss before the noon adjournment is one that must interest us aU very deeply, namely: If we are to aUow the small retailer to be protected from an improper attack, should we do so at the expense of efficiency? Or, to put it in other words: Is it economically desirable, in the interest of the community, whatever may be the effect socially, to eliminate the smaller retailer and to substitute for him the department store or the chain stores or the mail-order houses ? An impression has gained currency that the department store could afford to seU for less than the other because the expense of doing business was less. Mr. Barkley. In proportion? Mr. Brandeis. In proportion, yes, than the smaller store. That I conceive to be clearly a misapprehension. It may perhaps have been true to a certain extent once, but it clearly is not true to-day. Nearly every department store in the country finds its percentage cost of doing business. — ^that is, its percentage of expense — constantly increas- ing. And not only is the expense increasing, but it is increasing very largely as compared with the expenses of the small retailer. In the large department stores the expense rate rarely goes below 25 per cent and frequently rises to 30 per cent of the selling price of the article. Within certain limits you may get by size a relatively smaller unit cost; but the size of greatest efficiency is reached at a comparatively early stage. With the growth in size come an increasing cost of organization and administration which is so much greater than the increase in the volume of business that the law of diminishing returns applies. This results from a number of facts. One is that nobody can look after a business as well as the owner. He understands it; he gives his whole heart and soul to the business; he brings all factors into their proper relation, often by unconscious cerebration; he is enabled thereby to exercise a wise judgment in the adjustment of the pur- chases and sales and expenses of that business. But this is not pos- sible ordinarily if the business is very large. . Another element is this: The department store seeks to find sub- stitutes for "personality," which is always so large a factor in selling. It seeks by one device or another to create attractions; but each new device tends to increase expenses. The great fertilizer, advertising, is 42 EEGULATION OF PEICES. liberally resorted to, as for Monday sales; but those sales are often purchased at a tremendous cost. Mr. Hamilton. Did I understand you correctly, Mr. Brandeis, when I understood you to say that the cost of making a sale is about 25 per cent ? Mr. Brandeis. On the average, in a department store, and often 30 per cent. The department store that has an average cost of only 25 per cent of the seUing price ordinarily makes large profit. At 25 per cent expense the profit is good. Mr. Hamilton. That is, no matter how fast the sales are made, the cost of making them still is the same ? Mr. Brandeis. On the average. Of course, some things cost more to sell than the whole seUing price, and other things cost less. A department store which keeps its expense down to 25 per cent of the selling prices wiU make a lot of money, if its merchandising is done with reasonable ability. Mr. Hamilton. 1, suppose the theory on which they proceed is that small profits on frequent sales are better than the large profit on small sales ? Mr. Brandeis. That has been the contention and the general assumption; but the point is that it does not sell and can not sell at lower prices than the smaller retailer. In practice they actually do not make their profit by distributing at smaller expenses. They make it in spite of the expense being larger. The profits of the department store and of the chain stores, as compared with ordinary retail stores, comes in a different way. It comes from the ability to get an inside price on the goods which they buy. That is where the profit comes from. The ordinary retailer who competes with the department or chain store shows an average expense of 20 to 22 per cent; but the small retailer labors under the disadvantage, as compared with these great wholesalers, that he can not get his goods as cheap. One of the highest officers of one of the great trusts said to me a little while ago, speaking of the chain stores with which he had himself been connected: "My experience in those stores has entirely changed the idea that I had in regard to them. When I connected myself with those stores, I thought by aggregating a large number of stores I could do the business at much less pro rata expense, but I find my expense account is running away from me. The cost of supervision is constantly growing. I put one check upon another to bring to me the knowledge of what is going on and to prevent abuses. I find myself at a disadvantage in expense as compared with the corner druggist^or grocer." Mr. Hamilton. May I interrupt you there as far as the drug store supplies an illustration? I have an acquaintance who runs a drug store and it is 'doing well. I think the way he located that particular store was to ascertain the number of people passing by on the side- walk at that particular corner at certain hours in the daytime, for perhaps two weeks. That store prospered, and he has, at another place m the same town, which is a considerable city, where there were a great many people, located another store in the same way. He was getting very good returns out of both of them. Why should not he be able to get good returns out of more stores located on the same theory ? REGULATION OF PRICES. 43 _ Mr. Bkandeis. For the very simple reason, Mr. Hamilton, that there is a limit on human capacity. As the Germans say, "Care is taken that the trees do not scrape the skies." If it were not so, one man could control most branches of trade. There is a point of saturation for every man's ability. Until he reaches that poiat of saturation, he can gain constantly, by increas- mg the field of his operations. But it does not foUow that because I am making more money on a large volume that I am doing busioess at less cost. I may do business at more cost; but if I may have capital enough to earn more in the ^ggfegate. But there comes a point where the expense of the larger business per imit grows so great that the large business brings smafler profit, umess indeed there is something to counterbalance that added expense of doing the business; and that is what I want to consider now. What makes it possible for many of the department stores and many of the chain stores to prosper is the fact that they get an inside price on their goods. Mr. Hamilton. Is not that the result of buying large quantities of any one particular thing ? Mr. Beandeis. Partly mat and partly their influence otherwise. But dealers purchasing in larger quantities are sometimes denied advantages over others. Take the famous decision in Ohio, where the receiver of a railroad gave the Standard Oil Co. not only a rebate of 15 cents on a 25-cent rate, but actually paid the company 15 cents in cash on what it hauled for the Standard's competitors. - This was done because the Standard declared it would put in a pipe line and take away all of its oil business if the receiver refused. Irie receiver was entirely honest, but the court insisted aU shippers must be treated alike. So the Standard Oil Co. endeavored to get a lower rate than smaller shippers, by agreeing to ship every day a train- load from one point to another. They pointed out that such service cost the railroad much less than hauling 30 or 40 or 50 single cars for different shippers; but the. law stepped in and said, "No; that wiU inevitably result in building a big concern which can control the market." The railroad could haul a trainload cheaper than it could haul an individual car; but the public interests would not permit a lower rate to be made per trainload, recognizing only carload rates and less-than-carload rates. You have to depart from the old business of buying at wholesale. If we wish to preserve the small dealer from destruction we may be compelled to require that all retailers, large or small, be enabled to purchase the same article at the same price applying the one-price policy throughout. Many enlightened manufacturers have already abandoned the practice of giving quantity discounts, coming to this conclusion, that if they wish to preserve the small retailer, they must do so. For instance, this course has been taken by the Kellogg Com Flakes Cp. and the Hamilton Watch concern. When the Stevens biU was drawn we found manufacturers and producers willing to have such limitations placed upon the right to establish standard prices, as were deemed desirable in the interests of the public and we accordingly inserted this provision: First, 44 EEGULATIOK OF PRICES. denying the right to those who were a monopoly or a part of a com- bination; second, denying it to those persons who undertake to discriminate between different prices charged; and third, requiring that the prices to be charged jobbers, retailers, and the consumer be made public by filing in the appropriate office of the GoveruT ment, so that everyone should know the prices at which he and his conipetitors could buy. Mr. Hamilton. The manufacturer might want to displace the business which has a standing or to defeat the designs of that indi- vidual or corporation; but probably they want to retain, until at least they have a standing, the position of haAong the right to cut rates, I suppose. Mr. Brandeis. He ought not to want to. Everybody is perfectly free to do it, of course. The only point is if you want a protection for Jour fixed selling prices you must be willing to take it with these mitations. Mr. Hamilton. After he gets the standing he may say, "I can well afford to do that now." Mr. Brandeis. Let him say he wUl not ask for any protection until he does want it. Mr. Hamilton. That is the idea; yes. Mr. Brandeis. He is perfectly right. There is no obligation. He can say, "I am going to sell now, ahd I will get along the best I can without any protection from any contract, and at such time as it suits me I will come in under these terms." Mr. Hamilton. I suppose it is true that business is being more and more reduced to a few large units — ^run bv a few large units— is it not? Mr. Brandeis. That is true, and that is very regrettable; but it is not inevitable. Mr. HLiMiLTON. Not calling them monopolies. Mr. Brandeis. I mean whether you call them monopolies or not monopoUes. Mr. Hamilton. I am calling them units. Mr. Brandeis. Call them "units" and eliminate aU that gives rise to opprobrious* epithets; the very large unit will remain socially objectionable. Mr. Barkley. Does this bUl prevent any large concern from ob- taining an -inside price from a monopohst ? ' Mr. Brandeis. No; except this, that it would deny to a monopoly the legal protection afforded to standard prices, and would prevent those who come under the law from giving quantitv discoimts to the large customer. Mr. Barkley. As a matter of fact, does not the recent antitrust law, that we passed through both Houses of the Congress and which IS now a law, give even the monopolv the right to make discrimi- natmg prices, based upon quantitv, etc. ? Mr. Brandeis. Yes, it does. But this law does not undertake to limit the purchaser. Mj. Barkley. So that the manufacturer, under that law, still °^^r ^ ^ discrimination as to the price based upon quantity Mr. Brandeis (interposing). No. Mr. Barkley (continuing). That he might sell to any department 9tore or mail-order house, or any other concern ? KEGULATION OF PRICES. 45 Mr. Brandeis. He could not avail himself of the privileges of this law: that is, this law does not undertake to prevent manufacturers generally frona making discrimination, but no manufacturer who makes discrimination can get the protection which this law gives; consequently the man who Mr. Barklet (interposing). In order to enable a man to get the benefit of this law, he must violate a well-established business prin- ciple that is recognized by the antitrust law. Mr. Brandeis. It is not prescribed by the antitrust law. Mr. Barkley. That principle is of selling large quantities cheaper in proportion than small quantities. Mr. Brandeis. No man violates any law by refusing to give quan- tity discounts. He does not avail himself of the privilege which the law still leaves open, but which I think in comparativdy few years the law will not leave open, because I think it is fraught with very great evil. The practice of giving quantity discounts menaces the small retail business. The community is not yet at the point where it is ready to apply generally the principle by which it has protected the shipper in respect to the raUroads, which the United States appUes in the sale of stamps and the Parcels Post Service. But we may say to those men who come here and ask for protection in estabhshing standard prices, but which the Supreme Court has inadvertently denied them, that we are willing now Mr. Barkley (interposing). We are not authorized now, I think, to assume the Supreme Court inadvertently does anything. Mr. Brandeis. Why not ? Mr. Barkley. Because it is the supreme judicial body of this land, and we are supposed to recognize it as the highest legal authority, and we have no right to presume the Supreme Court, in passing upon this question, acted inadvertently; because if we have that right, we might presume they acted that way in handing down other of then- decisions. Mr. Brandeis. I am very glad of the opportunity of pointing out to Mr. Barkley more clearly what I mean. The Supreme Court is a court which, when' it is construing the Constitution of the United States, is supposed to lay down the final law. But we amended the Constitution m respect to the income tax because we believed that the rule laid down by the Supreme Court was not consistent with the pubhc interest. Mr. Barkley. It was not erroneous with respect to its interpreta- tion of the Constitution, as it turned out later, because we had to amend the Constitution. Mr. Brandeis. The rule laid down was not in harmony with pubhc policy; so the people, who are the supreme authority Mr. Barkley (interposing). In that matter the question of public policy was not involved. Mr. Brandeis. Precisely. Mr. Barkley. It was whether or not the income tax levy was a violation of the Constitution. Mr. Brandeis. Precisely; and in a very large number of cases where questions of strict law are before the court we have to accept the decision of the court as the highest authority. But on a question of public policy it is no disrespect to the Supreme Court to say that 46 EEGULATION OF PEICBS. the minority of the court were mistaken. There is no reason why five gentlemen of the Supreme Court should know better what pub- lic poUcy demands than five gentlemen of Congress. In the absence of legislation by Congress, the Supreme Court expresses its idea of pubhc policy, but in the last analysis it is the function of the legis- lative branch of the Government to declare it the public poHcy of the United States. There are a great many rules which the Supreme Court lays down which may afterwards be changed, and are after- wards changed, by legislation. It is not disrespect to the Supreme Court to do it. Their interpretation of the law may be set aside by a new law. Mr. Hamilton. That may, and sometimes does, finally result in expansion of the Constitution ? Mr. Beandeis. Whether expansion of the Constitution or change of law. Mr. Hamilton. It may be a change of Constitution. That is expansion, or it may be interpretation of the Constitution which results in expansion of the Constitution. In both ways the pubhc wish may be expressed. Mr. Brandeis. It may be expressed either way, by constitutional amendment or by act of Congress. In one case one is necessary, and in another case the other is necessary. The point is — and this is a very important point — that the thing the Supreme Court was passing upon here was not a thing involviag legal erudition. If the court had followed what other courts had said on this subject, it would have decided the other way. It merely exercised its judgment as to what the interests of the country demand and made its interpretation as to what Congress had intended by ,the Sherman Act; and if Congress does not agree with the Supreme Court in this respect, it should so declare by enacting the Stevens biU. Mr. O'Shaunesst. Do you claim, Mr. Brandeis, this law will stop the diverting of business from the small retail store to the department store t Mr. Beandeis. Not aU. And it ought not to be stopped. Mr. O'Shaunesst. I mean largely. Mr. Beandeis. No; I think the department store performs a valu- able service. I think these chain stores and mail-order stores are useful. I think we should be poorer if we lost any one of them. Mr. O'Shaunessy. But there is a diverting of some amount of business now ? Mr. Beandeis. Yes; there is a certain diversion which is illegiti- mate. Mr. O'Shaunesst. -And which you want to stop? Mr. Beandeis. The illegitimate part I want to stop, and the rest of it I want to leave, because, so far as these businesses are honest and efficient factors in merchandising, we need them. The small stores are better off for honest competition of that kind, just as they are better off for honest competition of other kinds. It is a question of the kind of competition. We stop unfair competition, and it is because this competition is unfair and has injurious effect that it ought to be stopped, and for that reason alone. Mr. Barkley. I asked a question this morning, going back to the question of public policy, if the passage of this law would not pre- REGULATION OF PRICES. 47 suppose that the Government, having in advance sanctioned the power of the manufacturer to fix his own price, not only the price at which he would sell to the purchaser from him, but the power to follow that thing on down the line to the most ultimate consumer, perhaps through a hundred middlemen, and say what the consumer shall pay for it — if the Government is in advance sanctioning the manufacturer in saying what that price shall be when it gets doAvn to the tail end of the horn, will not that presuppose the necessity of the Government standing by to see that the manufacturer does not put too high a price on the thing ? Mr. Bkandeis. Absolutely no. Mr. Barkley. Then, in other words, your position is that the Gov- ernment sanctions in advance the fixing of a retail price by the manu- facturers, but takes no step to protect the retailer against an exor- bitant price that might be fixed by the manufacturer? Mr. Bkandeis. There is no occasion for it. Mr. Baekxet. Suppose he fixes a price that is not justified by the cost of production ? Mr. Brandeis. Then few will buy his article. Mr. Barkley. How do you know it ? Mr. Bkandeis. As long as you have ample competition people will not buy ordinarily that which is offered at exorbitant prices. Mr. Baekxby. Suppose the customer has used a certain article and likes it better than any other, and the price is advanced by reason of the passage of this biU 25 per cent; of course, he has the power and the privflege not to buy it. Mr. Bkandeis. Yes. The law of competition of desires operates. The man likes his dollar more than he would the package of these goods, so he buys something else. Mr. Barkley. That is, the law of competition of desires applies as well to the business man at the same time ? Mr. Brandeis. Yes; I want that applied to the business man. Mr. Barkley. And it is not wholly impossible that the law of competition of desires has something to do with the activity of the organizations that are behind this legislation? Mr. Brandeis. I have no doubt. I should hope the organizations are looking after their interests. I do not know who else will look after them if they do not. Mr. Barkley. I wish you would answer my question now; I would like to have you give your reasons. Mr. Brandeis. I want to answer your question. Let me answer it and. I will give you my reasons. Let us suppose I .am selling Tip-Top bread from my own bakery down here on Pennsylvania Avenue. I fix the price at 10 cents per loaf. That may be an exorbitant price, according to your views. If it is an exorbitant price and many people agree with you they will not buy Tip-Top bread, because there is other bread they can get, and the pleasure of buying Tip-Top bread, with its beautiful oiled-paper covering, will not be sufficient to induce them to pay that money. There is ordinarily no law in the world that would prevent me from fixing a price on bread which I sell over my own counters. Nobody suggests interfering with that right. If, instead of confining my business to a business of $3,000 or the selling of Tip-Top bread over my own counter, I undertake to extend it and have five agents 48 REGULATION OF PRICES. scattered over the city, and at each agency of mine which I am able to estabhsh I sell that Tip-Top bread at 10 cents, which may be an exorbitant price again, and no one suggests interfering with that right, why should you interfere with the right to fix the selling price, when the bread is marketed through independent retailers mstead of agents? If people who have a choice of bujdng one of several articles buy my make at 10 cents while others are offered at less, that shows that my price is not exorbitant. The Chairman. Mr. Brandeis, you are a great student of human nature. If this bill should become a law, knowing as much as you do about the rebellious tendencies of ordinary mankind, do you not think it would breed a disinclination on the part of dealers to trade with a man who would exact these contracts, and they would buUd up other lines of business ? Mr. Brandeis. No, I think not; but it is to be remembered that the number of people who fix prices is not by any means aU. There are always a great many more articles on which the prices will not be standardized. The Chairman. But would not people hunt them for trade because they did not fix prices ? Mr. Brandeis. No; they wiU hunt the trade which gives them the most for their money. Sometimes it wiU be the thing on which the price is fixed and sometimes the thing on which the price is not fixed; and every retail merchant ought to have the right and privilege of choos- ing from any one of these competitors. He wiU choose from these 107 breakfast foods. He does not have more than five or seven in his store, and has all the rest of 100 to choose from, and to make his changes as he sees fit. Coming back to this question, however, there is no occasion to protect the community against the price of an article in which there IS no monopoly. If you have fair competition and an open field, that which is best and cheapest wiU win. Of course, what is the best and cheapest will depend upon a lot of considerations. There may be 10, each of which is best — according to the views of different people. The Government certainly ought not object to a man making large profits if he makes them honestly. He may make the large profits by manufacturing an article very cheaply or because he has oetter organization ability, or because he adopts a better system of distri- bution. We should encourage great gains, and not look with jealousy upon them. But we should allow great gains to be made only under con- ditions which are in accordance with honest business principles; we should prevent their being made through oppressive practices. There can not be such a thing as an oppressive price in a competitive article. Mr. Barkley. I can see that if this bill should become a law, and it came to pass that every retail merchant in the country were able to do business on the same basis of overhead charges and things of that kind, it might not work any hardship for all of them to sell a given article at the same price. But under this law, no manufacturer would have a right to require one merchant to sell his article at one price and another merchant at another price. He has got to require them to all sell at the same price, whether that merchant be in New KEGXJLATION OF PBICES. 49 ■ York or in California, and regardless of the expense of doing business by that merchant. Mr. Beandeis. Yes. Mr. Barkley. I am not so much interested in toasted corn flakes or shredded wheat as 1 am in wagons, and plows, and harvesters, and stoves, and shoes, and hats, and things that the ordinary man uses. If this becomes a law, nearly every plow which is manufactured and every wagon which is manufactured could come in under the special brand features of this bill. For instance, the OHver Chilled Plow is a special brand of plow. The manufacturers of this plow or any farm implement or anything that goes to make the necessaries and com- forts of Ufe, may come under this special brand featiu-e. It makes no difference what is the expense of doing business, although he may be able to do business in California or in Kentucky at the haM the expense required in New York, and therefore can receive a smaller proportion of price for the thing which he sells and still niake a reasonable profit, or a profit that he would reasonably be entitled to- yet if this bill passes he is required to sell the thing, which he could sell cheaper, at thei price named by somebody in New York, although he could sell at a less price and still make a reasonable profit, merely because that imiform price is fixed for the man in Cahfornia and New York. That is the thing which bothers me. Mr. Beandeis. Let me answer that question with reference to the expression that you used. This man at this particular place is "to be required to sell this article." He is not required to sell it. Mr. Baekley. He is required to sell it, if he sells at aU, at that price or he may be denied the right to sell it. Mr. Beandeis. He may be denied it for any number of other rea- sons. Your plowman has a choice of 98 different plows. He can sell any one of the 98 plows, provided the owner of each one of those 98 different plows will sell it to him. Mr. Baekley. Right there. In the antitrust bill passed recently it was shown that manufacturers of plows would go to a country merchant and say, "You must either seU my plow and nobody else's plow or you can not sell mine." An effort was made in that bill to prevent that very thing, to prevent men from going to a merchant and saying, "If you sell anybody else's plow, you shaS not sell mine." This bin undertakes to say to him, "If you do not sell at my price, you shall not sell it." Mr. Beandeis. And it produces exactly the opposite effect. Mr. Baekley. That is a metaphysical or scientific proposition that I would like to have a Uttle light on. Mr. Beandeis. Not metaphysical; it is highly practical. When I say, "if you sell my plow, you can not sell anybody else's," I have excluded aU other persons from the market. So far as that individual is concerned, he is prevented from dealing in other goods. Whether that is desirable or not is a question on which men have different opinions. But the effect of it is to exclude every article that com- petes. When I say to a man, "If you sell my plow, you shall sell it for $84 and not less and not more," I invite competition of every one of the other 97 plows, either that they may be Mr. Baekley (interposing)., They may not be as good plows ? 81295—15 i 50 REGULATION OF PRICES. Mr. Beandeis. And if they are not, what right have you to my plow i I make the plow and I have a right toilet you have it or I have the right to not let you have it; and I say to you, "What right have you to buy my plow at a price that is not mine ?" Mr. Baekxey. You have the right on the transaction that occurs between you and me; but when an innocent third person comes in I can not see that right extends to him. Mr. Beandeis. But nobody who is innocent would be affected by this law; if you mean by "innocent" an ignorant person, who does not know Mr. Baeklet (interrupting). No, I do not mean that. Mr. Beandeis. Nobody is innocent who makes a contract with me to sell at a certain price and then breaks that contract. Mr. Baekley. I will admit that. Mr. Beandeis. That is the only case we have to consider here. Mr. Baekley. But you are leaving it in the power of the manufac- turer to prevent him from entering into a contract unless he agrees to certain things. Mr. Beandeis. That is true of every contract you enter into. Mr. Baekley. But the other contract requires Government sanc- tion by special act. Mr. Beandeis. Prima facie, a man has a right to enter into any contract he wants to ; the limitation is, it must not be against public poHcy. The only question we have to consider is whether this is the kind of a transaction that injures the community. The Chairman. I want to go a little further on that. Mr. Beandeis. May I follow Mr. Barkley up on this question, because he put it to me before ? The Chaieman. Go ahead. Mr. Beandeis. I say I have a right absolutely to say to you that I do not care to seU you that plow. You have not any right to demand my plow. I am not a common carrier, where you can come to me and say, "I want your service and I am equally entitled to it with anybody in the world." No, I am in private business, and I say I am going to sell this plow only to men with red hair or men with gray hair, or men with black hair, as the case may be. That may be an idiosyncrasy of mine, or it may be because I have some good reason; but I am at liberty to sell or not at my election, even if I decide on such crazy ground as the color of a man's hair. But ordinarily men make the conditions which they, in their judgment, think their own business interests demands These growers and packers of fruits say, "Our business interests demand that we should market our goods under such conditions that everyone who buys them will buy them on the same terms. The retailers will throw up our goods if they can not get a reasonable profit on them or if people lose confidence in them, and they will lose confidence if some one else cuts the standard price. Therefore the manufacturer, for his own protection, determines to maintain that price, and refuses to sanction any dealer breaking that price because it injures his own business. Why should anyone have a right to complain of this business policy, since no one has the right to have my goods at all except on the terms the manufacturer chooses to make? Mr. Baekley. Under . existing circumstances, under the general law, anybody has a right to make a contract with anybody else that REGULATION OF PBICES. 51 he pleases, so long as that contract does not violate what we call public policy. Mr. Brandbis. Yes. Mr. Barkley. Now, under the present law, as interpreted or as made by the Supreme Court, he can not make that contract. Mr. Brandeis. He can not make that contract in interstate com- merce, but he can make that contract in individual States. Mr. Bakkley. That is one of the contracts that he can not make. Mr. Brandeis. Not in interstate commerce. That is the reason we want to enable him to make it. It is unwise to prevent his making such a contract in interstate commerce. He can make it in Massa- chusetts, because that is intrastate commerce. Let me give you an illustration: Suppose I am a manufacturer dealing in Massachusetts with a Massachusetts jobber, and the Massachusetts jobber is dealing with a Massachusetts retailer; I can make such a contract. In that case it does not involve interstate commerce. I can do the same if I am a dealer in New York, Kentucky, Cahfornia, or the State of Washington. I can do exactly the same thing in England, Germany, Belgium, and France. In each one of those countries such a contract can be entered into legally. But in interstate commerce, owing to the decision to which I called your attention, such a contract is not legal. Now, what I say is this : Such a restriction upon individual liberty, instead of being beneficial it is harmful, and therefore I say that Congress in its wisdom ought to correct the error. Mi. Decker. As I understand it, yom- theory and your object is to restore the individual right to make a legitimate contract ? Mr. Brandeis. Yes. Mr. Decker. Then in the same bill it seems to me that you take the other tack and limit an inherent and legitimate right of men to . give discounts ? Mr. Brandeis. I do; and do you want to know why ? Mr. Decker. WeU, I want to realize the fuU force of your theory. Mr. Brandeis. Yes. Mr. Decker. For instance, here are two men, say you and I, and here is a manufacturer. You want his goods and I want his goods. According to the theory of this bUl, if you buy $10 worth of a certain kind of goods you wiU pay for it at the same price that I would pay for $1,000 worth of the same kind of goods. You say that the man has a right to sell his goods to all men alike, whether they are white haired or black haired. A dealer might be a friend of mine; he might think that I might be able to develop his goods for him in the future and he might want to give me a slight reduction in price. It seems to me that instead of giving more freedom of trade, this bill contains more slavery than freedom. . Mr. Brandeis. Mr. Decker, my contention is this: A man must start out in business some way. He has certain liberties guaranteed to him by the Constitution which should be protected by the laws of the land, and one of them is liberty of contract. The liberty of con- tract guaranteed by the Constitution is not, however, absolute; it is subject to the police power of the Federal Government, either as applied by legislation or by limitations in other ways. The law has a right to step in and should step in so far, and only so far, as liberty of contract is used to the injury of the public. I say that the right 52 REGULATION OF PBICES. of the individual to fix a resale price for his goods is consonant with the public interest. That, of course, is an inference from facts — the facts being our past business experience. The other question, whether a dealer shall be allowed to give quan- tity discounts presents another and distinct question. Experience teaches us that the quantity discount is harmful, just as it teaches us that the establishment of standard prices is beneficent. When we undertook to ascertain why it is that the small man is crushed out and the large man grows bigger under certain circumstances, we found as a matter of business experience that the quantity discount is one of the main causes. We limit a man in freedom of contract in many respects. We Mmit a man in the number of hours he can em- ploy a woman to work for him; we limit the hours of labor of women to eight, nine and ten hours a day in different States. These are certain liberties which we have found by experience it is wise to cur- tail. But wherever you do not have to curtail liberty, wherever the exercise of full hberty by a business man is consistent with the public welfare, pubMc policy d.emands that we should allow him that lib- erty, because freedom is the fundamental basis of our Government and of our prosperity. Mr. Decker. I understand that, but the point I want to bring out is that there is such a restriction. Mr. Brandeis. There is restriction, but experience teaches us that certain restrictions are wise, and these men who seek the privilege of fixing resale prices ought to be willing to subject themselves to this restriction in the public interest. Mr. Decker. If this bill was passed, what do you think would be the result ? Would there not be a great increase in the manufacture of standardized goods and would not business increase more and more along that Ime ? Mr. Brandeis. I think there wiU be an increase, but I think there will be always a large number of articles that will not have a standard price. Mr. Decker. Now, another point. You say that we must not get theoretical, but I want to follow out your line of argument. Suppose that this system of doing business by standardizing the price of all manufactured articles were to grow until it was practically universal. Then suppose you and I each started a store on opposite sides of the street. We will suppose it was a hardware store on each side of the street, or a farm-implement store. Suppose everything we sold to our consumers was a standardized article, trade-marked, and required to be sold at a certain price? Where would the consumer get the benefit of any coinpetition between us ? Mr. Brandeis. Well, I will tell you. There would be 107 breakfast foods, and neither you nor I could keep all of the 107. Then there would probably be 50 different makes of hatchets, and neither of us could keep all the hatchets. My neighbor across the street might take hatchets No. 1, No. 8, and No. 15. I might think that I might make a better move by handling other ones. The result would be that you would find these 50 hatchet makers competing with one another for all the trade all over the country, each man trying to make the best hatchet at the same price. We are selectors and dis- tributors. In a competitive business you wiU find as an actual fact that no one dealer takes all makes of goods. He could not. REGULATION OP PEICES. 53 Mr. Decker. But take the case of something Hke an Ingersoll watch. Mr. Ingersoll testified before the Patents Committee that he only had four competitors in the United States. Mr. Brandeis. Well, then, take four. Mr. Decker. Well, the truth of the matter is that we know from actual knowledge that he does not have much competition from those four. Mr. Brandeis. Well, yes. Mr. Decker. Now, the nearest one of those competitors that compares with him is the Big Ben Clock Co. That is a ]oke, because you can not put a Big Ben clock in your pocket. The Chairman. It may not take as long to wind it up. Mr. Decker. Well, there may be some competition in that. Mr. Brandeis. Yes. Mr. Decker. Suppose there are only four or five competitors. For instance, take the harvesting business. Take the States of Missouri or Arkansas, for example. I think that you will find from E Tactical experience that there are not more than eight or nine rands of plows ever heard of. I have had some experience with farms, being raised on a farm. Mr. Brandeis. Eight or nine ? Mr. Decker. There are not eight or nine brands ever heard of. Mr. Brandeis. Not by any one dealer tu Kentucky. Mr. Decker. Well, I will venture to say that there are not 10 brands known by any ordinary farmer. You take a township of farmers and write to each one of them and ask them how many brands of plows they have ever heard of in the last five years, and you will not get more than 10 or 20 different names. Mr. Brandeis. That is entirely probable. Mr. Decker. Now, let us go on stiU further. They might aU want the Harvester Trust products. Mr. Brandeis. Yes. Mr. Decker. Why should not the people in that town get the benefit of a little competition among hardware merchants 1 Mr. Brandeis. Because of the fact that by doing that you are ruining the plow busioess of those concerns. If it did not do any harm to cut the price, there would not be anybody complaining. Mr. Decker. What harm does it do to cut the prices ? Mr. Brandeis. That is what I have been trying to explain a dozen times in various ways, all bearing on the same general proposition, which is this: The practice of cutting prices on articles of a known price tends to create the impression among the consumers that they nave been getting something that has not been worth what they have been paying for it. Mr. Decker. That is presuming that the people have not much sense. Mr. Brandeis. WeU, everybody has not as much sense as some people. Mr. Decker. Some people have more sense than other people think they have. Mr. Brandeis. Cutting standard prices induces a retailer to give up a brand the price of which has been cut by his competitors, for the reason that it takes away from the retailer the incentive to sell it. Furthermore, it leads the retailer's customers to believe that he 54 BEGULATION OP PEIOES. has been overcharging them. That is the experience of a very large number of retailers and manufacturers. Now, this is not a matter on which to theorize. The men in favor of this law would not have been here insisting upon its passage and trying for several years to put it through if they had not been injured by a lack of ability to maintain prices. It is because they are injtired that they demand relief. It is because of the inability to maintain standard prices that they have been injured. The retailer and the manufacturer want to have this' thing stopped. Of course, if you were right in your assumption that the plow manufacturer is not in- jured by that price cutting, there would be no occasion for legisla- ' tion. My point is that if the practice did not hurt them they would not be here complaining and they would not have endeavored else- where to secure this right; they would not have been spending large sums of money throughout the country endeavoring to protect their rights. They are not dreaming or imagining, but they have learned from experience. Unless the thing that they want in the exercise of their liberty is injurious to the public they ought to be protected. A man ought to be allowed to conduct his business as he sees fit as long as his method of proceeding is not injurious to the public. The Chaikman. As I understand your discussion with Mr. Bark- ley, you say that a manufacturer sells to a retailer a thousand plows at $50 apiece. The retailer, I believe you say, sells them at $85 apiece. Now, there are a thousand farmers in the community that want those plows. You say to them that they can get them cheaper but not as good. The retailer says that he can m&e enough profit on them if he sells them at $75. Mr. Beandeis. Yes. The Chairman. You propose to make it illegal for the middleman who has cut his price to $75 on each plow to deprive the farmer of the best plow he can get ? Mr. Beandeis. Yes; I will tell you why. I do not intend to pre- vent the dealer from selling the plow at a fixed price, because if he has a plow under an agreement, I want him to keep that agreement. The Chaieman. But you are proposing for us to make it illegal for the middleman who happens to be getting a bigger profit than he thinks he needs to split it up and let the other fellows share it. Mr. Beandeis. I do not think that fully explains it. Mr. Baekxey. The two plows that I am acquainted with are the Oliver chilled plow and the Vulcan plow, which are used all over the United States. Mr. Beandeis. I hope you have not forgotten the Avery plow made in Louisville, Ky., where I come from. Mr. Baekley. Yes, I know that too. Now, these two plows are sold at different places at different prices, because of the ability of the dealers to make more money than others under different circum- stances. Now, instead of your proposition being true that the public has been injured by the sale of these plows at different prices, is it not true that the quality of the plows has improved all the time and the pubhc is getting the benefit of it? Mr. Beandeis. Now, they may not fix the price Mr. Baekley (interposing). Well, I am not talking about that. In order to protect a man who makes Cornflakes, Uneeda bicuits, or BBGULATION OF PBICES. 55 something of that kind, you would have us legislate to bring about the condition we have been discussing? Mr. Brandeis. That is entirely aside from what we have been saying. I am not undertaking to say that every man who makes plows shall fix and maintain a standard price. Your people evidently did not fix their price. Mr. Barkley. No. Mr. Brandeis. Your plow business can go on to the end of time as it is being conducted now. Mr. Barkley. Provided the manufacturer does not see fit to change his custom after this law went into effect, if it should be passed. Mr. Brandies. Oh, yes, but your manufacturer apparently did not. It was the law three years or so ago that the estabhshment of standard prices was legal. Mr. Barkley. He may not have known it. Mr. Brandeis. I guess the plow manufacturers knew it pretty well. They had good lawyers to tell them. They certainly knew their rights. You can be perfectly certain that there was not a large ruanufacturer in this country who did not have the question before him as to whether or not he should fix a resale price. Some men might think they ought to fix a resale price and others might think it would not be wise to do so. A might think he ought to fix the resale price and B might not think so, and both A and B might be right, because in some businesses it is desirable to fix the price and in other businesses it is not desirable to do so. But you and I can not deter- mine what those particular businesses are in which it is desirable to fix a resale price. We must leave that to the men engaged in various businesses to decide for themselves. If they can make a success of it they wiU make a profit, but if they do not make a success they become bankrupt by reason of insufficient profits. Now, take your case and the case suggested by the chairman in regard to the plows. I would not require any plow manufacturer to fix a price. But if a plow manufacturer undertakes to say, "I am making this plow. It will do me and my business more harm to have Mr. Barkley cut the price on these 100 plows than I can make up in profits by selling 100 plows." Therefore I say I will not sell Mr. Barldey unless he is willing to sell on a basis that wiU not injure me any more than the sale benefits him. Mr. Barkley will know better than I whether it is to his advantage to furchase plows on the terms I offer him. If I find in my business that have injured myself by making this sale to him, although he gives me a profit in the first instance, the consequences of selling to him will be worse to me than if I had never sold to him. With all due respect and affection to Mr. Barkley I would say, "I can not let you have these plows, Barkley, because it will hurt my trade. If you are wilhng to sell on the same basis as the other fellows, you can have them, but if not, I will not let you have them." The Chairman. Ever since commerce began it has been a struggle to see how the producer and consumer can manage to live without letting the middleman get a profit. It seems to me that your biU is for thepurpose of compelling the middleman to make a profit. Mr. Brandeis. No; it is not for the purpose of compelling any- body to make a profit, but simply to insist upon fair play as far as it is consistent with good business. 56 EEGULATION OF PKICES. Mr. Barklet. Let us take a Manhattan shirt, which is a special brand of shirt and would come within the provisions of this bill. The only two cases in which a man is permitted, imder this biU, to cut prices is where he has gone into bankruptcy or where there has been a fire. Mr. Bkandeis. Or where he has been otherwise damaged. Mr. Barkley. Now, it is customary among merchants aU over the country, in the spring and fall, to seU at cut prices the stock of of goods they have left over. In other words, they would rather get the money immediately than pack those goods up until the next season. They will take a shirt made to sell at $2.50 and sell it at a reduced price of $1.85. If this biU should become a law and the manufacturer of the Manhattan shirt should require the retailers to sell it at $2.50, although the price cutting would be perfectly legiti- mate iu order for the dealer to get in a new stock of goods, he could not do it. Mr. Brandeis. Well, he would have a right to make or to refuse to make such a contract. Mr. Barklet. WeU, suppose the sale of the Manhattan shirt has been built up by its name and then the manufacturer will take advan- tage of the name which has been acquired by this shirt to compel the local merchants to sell it at the price he fixes. Mr. Brandeis. He does not take any more advantage of the name than any lawyer does of his name. If a lawyer gets a reputation as a good lawyer by trying numerous cases successfully, he is very apt to raise the price of ids services as his practice grows, though he may not be any better lawyer in 1915 than he was in 1905. Mr. Barklet. But you would not prohibit a lawyer from reducing a fee for the benefit of a poor fellow who happened to be his client. Mr. Brandeis. That would be a different case from anything we are considering here. Mr. Barklet. But you would not say that we should prohibit his cutting prices ? Mr. Bkandeis. Of course not; the case is wholly unlike that we are considering here. The law of Massachusetts, of New York, of Ken- tucky, for instance, premit contracts to establish standard prices. It is only in their interstate business that they are prohibited by reason of the Supreme Court decisions. The Chairman. If their attention was called to the inadvertence, maybe they would correct it ? Mr. Brandeis. The Supreme Court of Washington has recently refused to foUow the decision of the Supreme Court of the United States. The Chairman. Why was it not enforced ? Mr. Brandeis. By whom? The Chairman. The Supreme Coiirt. Mr. Brandeis. There is no power to do it. The Chairman. I do not think the Supreme Court would allow a decision rendered through inadvertence to stand very long. Mr. Brandeis. They may have their opinion as to what the public policy requires, but the body that should finally determine the public policy of the country is the National Congress. Mr. Talcott. The Sanatogen case was decided only last year. REGULAOtOir OF PRICES. 57 Mr. Bkandeis. In May, 1912. I think Dr. Miles's case was decided earlier, and in that case the court laid down the principle which was afterwards applied in the Sanatogen case to patented articles. Mr. Talcott. You were speaking this morning about unfair com- petition. You do not think this matter could be taken care of by the Federal Trade Commission 1 Mr. Brandeis. I think not, in the ordinary case. I think that in view of the decision of the Supreme Court that the Federal Trade Commissioners would say that it was not the intention to change any existing rule. The Chairman. The only two classes of people among my constitu- ents who seem to have seen the literature of your league and referred it to me Mr. Brandeis (interposing) . Oh, it is not my league any more than it is yours. The Chairman. Your hterature has been referred to me Mr. Brandeis (interposing). Not my literature. I have a very high regard for the members of that league — as much as you should have. The Chairman. The only people who have seen the literature of your league and referred it to me are the jewelers and druggists. Mr. Brandeis. Yes. The Chairman. I suppose the druggists are interested in this mat- ter on account of the patent medicines ? Mr. Brandeis. Oh, no; they are interested in it on account of a large number of articles which are not drug articles, but which they sell. The Chairman. Have you discussed this matter with the patentees of any patent medicines ? Mr. Brandeis. I have not, sir; but I think they are as much inter- ested as the others are. The Chairman. A good many of those old nostrums have a warm place in my heart. I was wondering whether any of them were sup- porting this bill. Do the patent-medicine people want this bill ? Mr. Brandeis. Some do and some do not, I suppose. The number of people who are undertaking to establish standard prices is fairly small. Mr. Sims. Is it not a fact that a number of newspapers have a price printed on them, and in addition to that they say that if the papers are sold on trains they shall be sold at a higher price ? Mr. Brandeis. Yes. Mr. Sims. That would be in violation of the decision of the Supreme Court if it was applied. Mr. Brandeis. I do not know about that. Mr. Sims. But the newspapers and magazines have fixed a definite price at which they shall be sold on trains. Mr. Brandeis. I understand. Mr. Barkxey. I am constitutionally and inherently opposed to class legislation and legislation in behalf of special interests. Mr. Brandeis. I think that is a very good predisposition. Mr. Barexey. From the standpoint of fairness and justice and from a governmental standpoint, keeping in view the functions of the Government, is there any more justice in authorizing the manufac- turer of specially branded articles to follow his products down to the 58 REGULATION OF PEICES. consumer, whether the eater or the user, than there would be if you did the same thing with regard to the grower of wheat? Mr. Beandeis. Yes; I tmnk there is no difference ia principle, but there is a great difference in the facts. Wheat is not sold to the con- sumer in original packages, and it is practically only to such articles that the Stevens bill applies. If you should ask me whether I think the grower of oranges should have a right to say that the oranges from the time they are packed by him until they reach the consumer shall be sold only at a given price, he having created a trade-mark on Jones's Delights, I will tell you that I think Jones ought to have a right to sell his oranges with the condition attached, "This is the price of this particular orange — this is the price at which it shall he sold." Mr. DoEEMTJS. But you know as a matter of fact that the fanner can not fix the price of his products ? Mr. Beandeis. Not on wheat, but he may fix it on products packed so as to be sold as original packages to the consumer. He may pack grapes, apples, or pears, or a lot of other things, not peaches, perhaps, they beiag very perishable, but oranges or lemons. The Chairman. In other words, you think it is impracticable and impossible to keep down competition with growers' products, whereas it is practicable and possible to do it with these other things. Mr. Beandeis. No, sir; I think the contrary. The Chaieman. Well, if it works one way it ought to work the other. You are talking against theories, and. yet you are the strong- est theorist I have ever seen. Mr. Beandeis. When a packer creates a definite mark by which his oranges are known, he should be protected. The Chaieman. Well, that is putting bits, bridle lines, and cruppers on business, and the people are not going to stand for it. Mr. Beandeis. Oh, but farmers may create trade-marks just as well as the manufacturer creates his trade-marks. There is no reason why they should not be protected, but when you have an article which is not branded and which can not be branded, you have a situation that takes care of itself. The>CHAiEMAN. Because that gives them an advantage that the others can not enjoy. Mr. Beandeis. Everybody, according to his occupation, is subject to natural advantages or disadvantages. You are not asked to give anybody an advantage. The Cha.ieman. They have already got it. Mr. Beandeis. I ask you not to take away any so-called advantage which a man has. You are not asked to give any privilege; you are asked not to impose on interstate commerce a restriction which is inconsistent with the pubHc welfare. Mr. EscH. What effect would this bill have on the cost -of living? Mr. Beandeis. No very immediate effect of any kind. Mr. EscH. Either way ? Mr. Beandeis. Not much. In the long run it would tend to reduce the cost of living, because it encourages free competition. Mr. Deckee. I can see why the retailer would be in favor of taking off this restriction. Mr. Beandeis. Yes. REGULATIOK OF PRICES. 59 Mr. Decker. Now, in regard to taking off the restriction as to the quantity of goods which may be sold at a given price, suppose one man has to buy on time from a wholesaler ? Mr. Brandeis. Well, the question of time would involve a different price. As a matter of fact, they do fix a different price with a dis- covmt for cash. They do hot mean to say that a man who buys on six months' time is going to pay as much as the man who pays cash. Mr. Decker. Well, suppose you and I both buy from the same man on six months' time. Mr. Brandeis. Yes. Mr. Decker. If we were both of equally good standing we would be supposed to get the same price at the same time ? Mr. Brandeis. Oh, yes. Mr. Decker.- Now, I might be one of those fellows who, if I get my hands on the goods, will not pay for them right away and the man might want to charge me a little more to make up for it. Mr. Brandeis. There ought not to be any limitation unless the exercise of that right of liberty of contract is doing more harm than good. The case which you cite is a perfectly proper case for con- sideration. The man who makes up his mind whether he is going to take advantage of this price making wiU have to make up his mind at the same time whether he will also accept the restriction of quantity which goes with it. Mr. Decker. Suppose we are convinced that the first part of your bill is pretty good, and I am inclined to think it is, but 1 am against the restriction on trade unless it is absolutely necessary. I think you can go a long ways on the second restriction. Mr. Brandeis. Now, if the majority of the committee and Con- gress should think that that provision concerning quantity discounts was not wise, it could still pass the other provisions of the bill. But the provision concerning quantity discounts seems to me very desirable. However, these two provisions are separable. Mr. Decker. I want to ask you another question. There- is no question but what some retailers throughout the country, perhaps the majority of them, are not making any more than they are entitled to, but it is a fact, nevertheless, that some retailers make an enormous profit. For instance, take the people who sell the Ford automobiles in this town. I expect they have made two or three hundred thou- sand dollars just selling them, and they have sold them at the same price that Ford has had them sold everywhere else in the United States. Mr. Brandeis. Yes. Mr. Decker. Now, while these gentlemen would have been very glad to get a larger amoimt, they have been very well content to push their business by selling machines at half the amount. Mr. Brandeis. Perhaps. Mr. Decker. Well, I know they would, because anybody would. Mr. Brandeis. If they could have had it guaranteed to them. Mr. Decker. WeU, guaranty or no guaranty. At any rate, it brings out this point, that Mr. Barkley has been pressing here: That you can take an article in Washington where there is plenty of sale for it, and, on a $500 price, I think the retailer will get $30 profit. That is a good profit when you are going to sell 10,000 of them in a year. Out in my little town they have not so much of a profit. 60 REGULATION OP PRICES. However, the machine sells for itself. Now, why should not the consumer in Washington get the benefit of it ? Mr. Brandeis. The answer to that, Mr. Decker, is simply this: Mr. Ford insists on telling us aU the time that he is not a philanthropist, but that he has given $10,000,000 to his people not because of charity but because he expects to get business results out of it. Exactly the same thing is true of his agents. Mr. Ford has succeeded in making for his firm $25,000,000 a year because of his business judgment, and in the exercise of his judgment he has fixed the price of his machine and has fixed the terms upon which that machine can be sold. He is a business man. There is another business man next to him. Mr. Joy, who also has an interest in the automobile business and the Packard Motor Co., does a similar thing. You can go to motor manu- facturers in Detroit and elsewhere and find that each has a different idea and exercises his judgment in his own way. We must not unnec- essarily curb the free exercise of judgment by business men. The Chairman. I am not familiar with the others, Mr. Brandeis, but Mr. Ford has filed a copy of his contract with this committee and he is entirely within his r^hts. He does just exactly as a farmer would in selling a horse. He retains title to the property until it is finally sold and paid for. Mr. Brandeis. Yes. Because he is so big a man that he can afford to do it. The Chairman. And if any man wants to control the price of his product aU he has to do it to retain title to it until it is all paid for? Mr. Brandeis. But the rich man can do it. He has the necessary capital and is not very seriously affected by the existing rule; but the small manufacturer or dealer is. The Chairman. Well, I have seen that done ever since I was 10 years old, on trades from $10 up. Mr. Brandeis. But it takes a great deal of fnoney to do that. The Chairman. Well, if a man has only a small boat he can only stay near the shore. Mr. Brandeis. But the question is whether j^ou should make laws which will let him sail farther to sea or continue to help only the big man, who does not need help. The Chairman. I think business itself ought to estabhsh most of its laws. Mr. Brandeis. That is exactly what business wants to do. It wants you to permit it to establish its own laws. The Chairman. I think I told you once before that it is a stand- ing wonder to me what the world did for 6,000 years before Con- gress was established to fix these laws and regulations. ' Mr. Brandeis. I think that is a very wise suggestion. Mr. Sms. Now, what difference does it make to the man who has to buy a Ford automobile, so far as the price is concerned, whether he is forced to accept it or not ? Mr. Ford retains title and places these automobiles for sale at large, anywhere and everywhere, with a restriction of the sale price. How is the ultimate consumer to be benefited by forcing anybody to retain title ? Mr. Brandeis. Not in the least. The result is exactly the same now so far as the ultimate consumer is concerned. Mr. Decker. But if, when Mr. Ford started out to organize that business, this law had been as it is now, can you not see the possi- EEGULATION OF PEICES. 61 bility that Ford automobiles would have been cheaper than they are now ? Mr. Beandeis. I see the possibility that you would never have reached a Ford automobile. If this had been the law, and if Mr. Ford — as was the fact — had very little money and was not able to carry a large amoimt of goods, as he is to-day able to carry any amount of goods that he wants to, he would have been in a positiion where he could not have estabhshed his business because he did not have an immense amount of capital, which would have been neces- sary. The law, as declared by the majority of the Supreme Court, is a law that is playing into the hands of the big men, because they can go ahead in spite of it. You certainly do not wish to crush the little men. Mr. Decker. Why do you say that he could not extend his busi- ness ? You said this morning that the secret of his great success was that he got on to the right tmng at the right time — a thing that most everybody needed. Do you not suppose that if he had got up that good little machine and sold it to retailers and let them compete among themselves, that he would have still reasonably prospered and the retailers would have gradually put down the price of the machine ? Now, everybody admits that there is only one thing that will reduce the price of the Ford automobile, and that is Mr. Ford's own sweet will. Mr. Beandeis. Well, the Ford automobile would never have existed except for the extraordinary abihty of Mr. Ford to give an extraordinary machine for the money — a great deal better, it is said, than anybody else had been able to give for the same amount of money. Now, the same abiUty which he exercised with respect to the organization of his factory he exercised in the organization of his selling force and his selling methods. He concluded that a fixed standard price was an essential of his being able to run the business in this large way and give the best results to himself and to his customers. Mr. Deckee. And to make that enormous profit I admit it is essential. I think it is a good thing for the country. Mr. Beandeis. Yes; I think it is a remarkably good thing that he can give us such a machine for that amount of money. The Chaieman. At least he demonstrated his ability to do it without this law that you now suggest. • Mr. Beandeis. On the contrary, while his business was being built up the law was, or was supposed to be, what we are now contending Congress should make it. But you are not following my point. Mr. Ford having become a great capitalist does not need a large number of retailers. He can create agencies; he can provide the necessary capital; but the smaller manufacturers are not able to do so. By denying the right to establish standard prices the law injures the small manufacturers, the producers, and small retailers. This list of organizations all over the country, composed of hundreds of thousands of people, who are petitioning Congress to make this change shows that. What I urge you to do is to remove the restrictions which the Supreme Court with the best of motives imposed, but which results in playing right into the hands of the monopolists. It is the small man who needs this legislation. Mr. Sims. Did not Mr. Ford become a large capitalist prior to this decision of the Supreme Court ? 62 EEGULATION OF PRICES. Mr. Brandeis. Certainly, and under the old law. Mr. Sims. Now, I have tried very hard to buy a Stacey-Adams shoe in the city of Washington, but I could not find one. I was told that it did not allow enough profit for a retailer to sell that shoe here, and finally I had to go to Nashville, Tenn., a town one-third the size of this town, in order to get a Stacey-Adams shoe. I can not get them in the city of Washington, a city of over 300,000 inhab- itants, because they are not wUling to sell at the price at which the manufacturer forces them to sell. Mr. Barkley. Do you not think that is a very rare exception ? Mr. Sms. I do not Know. Mr. Barkley. They are still selling the Stacey-Adams shoe and they have not declared dividends yet. Mr. Sims. And, fm-thermore, is it not a common practice for man- ufacturers, Hke Stacey-Adams & Co., to sell only to one retailer in a town so as to prevent the demoralization of prices ? Mr. Brandeis. That is what the Walkover, Douglas, and Regal shoe people do. Some of the concerns, like the Regal Shoe Co., have their own stores — a chain of some 100 or 150 stores. Mr. Sims. I was interested in the retail business at one time to the extent of being a part owner, and I know it was a common practice not to sell a certain line of goods to anybody except one dealer in a town, in order to prevent a demoralization and cutthroat prices. Mr. Brandeis. I will show you how this cutthroat business has worked. Here is an instance I heard of the other day in New York. Some of the manufacturers of ladies' dress suits were telling of their experiences, and one manufacturer had sold suits to Marshall .Field & Co. Marshall Field wrote a letter of great indignation, claiming they had sold these goods to another dealer in Michigan Avenue at a considerably lovver price. They vowed they had not done it, but here were the goods themselves right in the window of the Michigan Avenue place offered for sale. It created a great deal of excitement and interest at the time. The manufacturer went there himself, found his goods, and then undertook to find out how it was that such a thing had happened. It proved that an order had been filled for a concern in Peoria, and the Peoria concern instead of keeping the goods had sold them to the Michigan Avenue firm. And the manu- facturer came very near losing Marshall Field & Co.'s trade. He had spent weeks in following up this matter, going to Peoria and doing a sort of detective work, trying to find out how his trade was going to ruin under this price cutting. Now, that is the kind of a thing that the new manufacturer who is building up a trade is subjected to, and nobody gets any ultimate benefit from it. It is merely to satisfy the temporary demand of the price cutter for some illegitimate purpose. If you want to consider whose interests and whose rights are affected by this bill, just look at the people who want it and the people who do not want it. Mr. Decker. But where shall we look ? The Chairman. Look at the letters that they send back to you. Mr. Brandeis. I wiU file with you a list of the national associations, State and local associations, representing hundreds of thousands of dealers, retailers, wholesalers, and mamacturers, and stiU others, who do not represent any special business, but all business, and which have considered this matter and expressed themselves on it. These REGULATION OF PRICES. 63 men know, as business men, what their interest demands. On the other hand, who is opposing the Stevens bill? The men who have urged it in Congress are a few department store men. I have not amrthing to say against the motives of those men, but they say;' "This suits us; we like to cut; it helps us to cut." It may help theifl to cut prices, but it hurts the majority of the people. There is not anything that you are called upon to pass laws about, on which there will not be some difference of opinion. When you passed the Sherman law and the Clayton biU you prevented some people from continuing to do certain things, because it injured the great majority of the peo- ple. That is the situation here. The people who are objecting to this legislation are a comparatively few large concerns, urging you to allow them to continue a practice which is certainly dishonorable according to the standpoint of most men. If I sell goods to a man on the understanding that they should not be sold at less than a certain price, and mark the goods accordingly, he would not part with them unless he sells them at that price. The Chairman. In connection with what you said about depart- ment stores, I want it to go in the record that this committee has not heard from any department stores. Mr. Brandeis. The Judiciary Committee has heard from them. The Chairman. This committee is considering the interest of a hundred million people who want competition. Mr. Bkandeis. The way to preserve competition is to regulate it.\ And there are no people who are so desirous of fair competition as these hundreds of thousand people who are represented by these ] various organizations in various States of the Union whose names I have here. The Chairman. If you know any way to curtail the latitude of the department stores I think I would be in sympathy with you on thatj Mr. Brandbis. I do not want to curtail them in any respect except as to those practices that are unfair. I think we get the best results by leaving men ordinarily to do as they think best, by letting 'the department stores compete with the chain stores, the mail-ordeir houses, and the small retail stores. But when you come across a practice which is unfair and which is injurious to a large number of people you should put a stop to that practice. Mr. Barexet. Do you construe it to be an unfair practice where a man who has purchased something from somebody else and has the title to that article, whether it be a bar of soap or a wheat thrasher, to sell it to somebody else as long as he makes a fair profiti Is that fair or unfair ? Mr. Brandeis. It is very unfair if it is sold on a condition or agree- ment which the dealer then violated Mr. Barkxey (interposing). Well, I am not asking you about that. The American principle is that a man can sell a thing for what he can get for it so long as he makes a fair profit. Mr, Brandeis. I beg your pardon; that is not the American principle. Mr. Barkxey. Then what is it ? Mr. Brandeis. The American principle is that a man has a right to do anything he pleases with the article he buys unless he has an agreement with the man from whom he bought it that he shall do something else. 64 BBGULATION OF PKICES. Mr. Babklet. Well, we might dififer very radically as to whether the other man has the right to require that agreement of him, and it may be a question of honor — and it would be— as to the agreement which he made. I know if I had such an agreement with a man I would live up to it. But regardless of that agreement is it an unfair practice ? Mr. Brandeis. If there is no agreement, either expressed or im- plied, then I would say that it would not be unfair. Mr. Barkley. It would be unfair, however, if he did it for the purpose of driving somebody else out of business. Mr. Brandeis. If what you are doing is of a nature which I think injures me and you know that I think it injures me and you know that I would not let this article get out of my hands except with the understanding that nothing shall be done which I think wiU injure me, then I thmk it is unfair, between man and man, to disregard my expressed condition or wishes. I do not see how anybody could justify such action. The dealer may refuse to enter into the agree- ment with me. He may say, "I do not want your goods on mose terms," but if my goods go out and I say that these goods are put out upon the market with the understanding that they shall not be sold at less than 10 cents a package, be will do a dishonorable thing to sell them for less than 10 cents a package, in the ordinary dealing between man and man. Mr. EscH. Mr. Brandeis, this bill if passed would stabilize prices? Mr. Brandeis. Certain prices. Mr. EscH. Now, even without it there have been a great many articles that have been put upon the market at stated prices, and those prices have been maintained for a great many years. There has bfeen no elasticity in those prices; they do not fluctuate at all. Under the interstate-commerce law, as you well know, the orders of the commission upon all matters except for the payment of money shall last for a penod not exceeding two years, the purpose of Congress being to permit a readjustment to meet the requirements of the order. There would be no such opportunity of readjustment under a sta- bilized price under this biU. Mr. Brandeis. There would not be. Mr. EscH. The principle is "once fixed, always fixed." Mr. Brandeis. Well, of course, that can not be true. Take the Kellogg Toasted Corn Flakes. They have kept their price but they have increased the c[uantity 50 per cent. Why did they do it? For the purpose of meeting competition. It was of value to them to have not only the name Kellogg but to have the same price, and they kept the price but gave the people more for their money. As long as you have a competitive business you will have this adjustment as a result of competition. If that is not done we are mistaken altogether in trying to preserve competition. I believe thoroughly in the efficacy of competition as a price regulator, provided you can regulate con- ditions so that competition will operate freely. Competition will not operate between an individual employee and a great corporation without the intervention of something like a labor union to equalize conditions between the two. There must therefore be some medium to equalize conditions before there can be competition. But when you have conditions favorable to competition we believe that com- REGULATION OF PBICES. 65 petition is a safe regulator against excessive prices. Where there is a monopoly on one side you have different conditions, and the Stevens bill provides that monopolies should have no right to establish standard prices. But in view of the legislation that Congress has, adopted, without regard to party, in the Clayton bill, it is safe to, assume that competition is a good regulator, properly protected.! I say that the Stevens biU is nothing- more than an ampliQcation and a special adaptation to a particular case of the general-principles I of competition and of preserving the liberty of contracts subject to I those limitations which competition imposes. I, am afraid, Mr. Chairman, that I nave imposed too long on the patience of this committee. The Chairman. We have enjoyed very much your exceedingly interesting and learned discourse, and before it is priated we hope you will revise, extend, and enlarge upon it. Mr. Brandeis. I shall be very glad to do so. (List submitted by Mr. Brandeis.) - The following professional, commercial, and business mens' organizations are among those which have indorsed the objects and aims of the Stevens bill: American Iron, Steel and Heavy Hardware Association. American National Retail Jewelers' Association. American Optical Association. American Supply and Machinery Manufacturers' Association. National Association Furniture Manufacturers. National Association of Retail Druggists. National Association of Retail Grocers. National Association of Stationers and Manufacturers. National Cigar Leaf Tobacco Association. National Drug Trade Conference. National Home Furnishers' Association. National Leather and Shoe Finders' Association. National Lumber Manufacturers' Association. National Retail Hardware Association. National Wholesale Druggists' Association. National Wholesale Dry Goods' Association. Patent and Enameled Leather Manufacturers' Association. Photographic Dealers' Association of America. Proprietary Association of America. Southern Supply and Machinery Dealers' Association. Travelers' Protective Association of America (Maryland division). United Commercial Travelers' Convention. Alabama State Retail Hardware Association. Alabama State Board of Pharmacy. California State Retail Grocers' and Merchants' Association. California State Retail Hardware Association. OaUfomia State Pharmaceutical Association. Colorado State Jewelers' Association. Colorado State Retail Grocers' and Merchants' Association. Connecticut State Pharmaceutical Association. Delaware State Pharmaceutical Association. Florida State Pharmaceutical Association. Florida State Retail Hardware Association. Georgia State Pharmaceutical Association. Illinois State Pharmaceutical Association. Illinois State Retail Merchants' Association. Indiana State Pharmaceutical Association. Indiana State Retail Jewelers' Association. Iowa State Pharmaceutical Association. Iowa State Retail Merchants' Association. Kansas State Pharmaceutical Association. Kentucky State Pharmaceutical Association. 81295—15 5 66 REGULATION OF PRICES. Louisiana State Pharmaceutical Association. Maryland, Delaware and Virginia Peninsular Retail Jewelers' Association. Maryland State Pharmaceutical Association. _ Massachusetts State Pharmaceutical Association. Michigan State Retail Jewelers' Association. Michigan State Pharmaceutical Association. Michigan State Wliolesale Grocers'" Association. Michigan State Retail Hardware Association. Minnesota State Dealers' Association. Minnesota State RetaH Grocers' and General Merchants' Association. Minnesota State Retail Hardware Association. Minnesota State Retail Implement Association. Minnesota State Retail Jewelers' Association. Minnesota State Optometrists' Association. Minnesota State Pharmaceutical Association. Mississippi State Retail Hardware Association. Missouri State Pharmaceutical Association. Missouri State Retail Merchants' Association. Montana State Pharmaceutical Association. Nebraska State Pharmaceutical Association. New Jersey State Retail Jewelers' Association. New Jersey State Pharmaceutical Association. New York State Hardware and Supply Dealers' Association. New York State Pharmaceutical Association. New York State Retail Grocers' Association. New York State Jewelers' Association. New York State Pharmaceutical Conference. New York State Wholesale Grocers' Association . Grand Porlra (North Dakota) Association of Credit Men. Business Men's (Hyde Park, Massachusetts) Association. •Jackson (Michigan) Chamber of Commerce. Jacksonville (Illinois) Retail Merchants' Association. Junction City (Kansas) Commercial Club. Lake View (Chicago, Illinois) Buymg Club. Larimore (North Dakota) Commercial Club. Manitowoc (Wisconsin) Retailers' Association. Memphis (Tennessee) Drug Club. Minot (North Dakota) Associafion of Commerce. Montgomery (Alabama) Business Men's League. Nashua Board of Trade (New Hampshire). Metropolitan (New York City) Association of Retail Druggists. New Orleans (Louisiana) Association of Commerce. Orleans (New Orleans, Louisiana) Parish Pharmaceutical Association. Palatka Board of Trade (Florida). Philadelphia United Business Men's Association. Pueblo (Colorado) Retail Butchers' and Grocers' Association. Newark Hardware and Supply Association (New Jersey). Retailers' Mass Meeting (New York City). Photographic (New York City) Dealers' Association. New York Stationers' Association. Salem (Massachusetts) Board of Trade. San Antonio (Texas) Chamber of Commerce. San Diego (CaUfomia) Merchants' Association. Seattle (Washington) Retail Grocers' Association. St. Paul ^Minnesota) Retail Druggists' Association. St. Paul (Minnesota) Retail Grocers' Association. Spokane (Washington^ Local Druggists' Association. Spokane (Washington) Grocers' Association. Tacoma (Washington) Association of Credit Men. Mercer County (New Jersey) Retail Druggists. Waterloo ^lowa) Commercial Club. Waterloo (Wisconsin) Commercial Club and Board of Trade. West Side (Chicago, Illinois) Buying Club. North Carolina State Pharmaceutical Association. North Dakota State Pharmaceutical Association. North Dakota State Retail Jewelers' Association. Ohio State Convention and Style Show. BEGULATION OF PRICES. 67 Ohio State Hardware ABsociation. . Ohio State Pharamaceutical Association. Ohio State Retail Jewelers' Association. Ohio State Retail Grocers' Association. Ohio Valley Retail Di-uggists' Association. Oklahoma State Retail Jewelers' Association. Oregon State Retail Jewelers' Association. Pennsylvania State Retail Jewelers' Association Pennsylvania State Pharmaceutical Association Pennsylvania State Retail Merchants' Association. South Dakota State Pharmaceutical Association. South Dakota State Retail Merchants' Association. Texas State Retail Jewelers' Association. Utah State Retail Merchants' Association. Virginia State Merchants' Association. Virginia State Retail Jewelers' Association. Washington State Retail Jewelers' Association. Washington State Retail Merchants' Association. Washington State Retailers' Association. Westerij (Seattle, Washington) Association of Retail Cigar Dealers West Virginia Stat« Retail Jewelers' Optical Association . Wisconsin State Retail Jewelers' Association. Wisconsin State Retail Grocers' and General Merchants' Association. Wisconsin State Pharmaceutical Association. Abilene (Kansas) Business Men's Association. Ballard (Seattle, Washington) Retail Grocers' Association. Brooklyn Retail Grocers ' Association . Delhi (New York) Commercial Club. Denver (Colorado) Retail Grocers' Association. Iowa ^Des Moines) Jewelers' Association. Iowa (Des Moinesj Association of Optometrists. Elmira (New York) Druggists' Association. Family Wine Liquor Dealers' Protective Association (New York City). Fond du Lac (Wisconsin) Retail Grocers' Association. [Harper's Weekly for Nov. 15, 1913.) Cutthroat Prices — The Competition that Kills. By Loots D. Bkandeis. "I can not believe," said Mr. Justice Holmes, "that ia the long ran the public will profit by this course, permitting knaves to cut reasonable prices for mere ulterior purposes of their own, and thus to impair, if not destroy, the production and the sale of articles which it is assumed to be desirable the people should be able to get.'' Such was the dissent registered by this forward-looking judge when, two years ago, the Supreme Court of the United States declared invalid contracts by which a manu- facturer of trade-marked goods sought to prevent retailers from cutting the price he had established.' Shortly before, the court had held that mere possession of a copy- right did not give the maker of an article power to fix by notice the price at which it should be sold to the consumer.^ And now the court, by a 5 to 4 decision, has applied the same rule to patented articles, thus dealing a third blow at the practice of retailing nationally advertised goods at a uniform price throughout the country.' Primitive barter was a contest of wits instead of an exchange of ascertained values. It was, indeed, an equation of two unknown quantities. Trading took its fiist great advance when money was adopted as the medium of exchange. That removed one-half of the uncertainty incident to a trade, but only oiie-half . The transaction of buying and selling remained still a contest of wits. Th e seller still gave as little in value and got as much in money as he could. And the law looked on at the contest, declaring solemnly and ommously: "Let the buyer beware." Withinamplelimits the seller might legally lie with impunity; and, almost without limits, he might legally deceive by silence. The law gave no redress because it deemed reliance upon sellers' talk unreasonable, and not to discover for one self the defects in an article purchased was ordinarily proof of negligence. A good bar- 1 Dr. Miles Medical Co. v. Park & Sons Co., 220 U. S., 409. 2 Bobbs Merrill Co. v. Straus, 210 U. S., 339. 8 Bauer w. O'Donnell, 229 U. S., 1. 68 REGULATION OF PEICES. gain meant a transaction in wliicli one person got the better of another. Trading in the "good old days" imposed upon the seller no obligation either to tell ^e truth, or to give value, or to treat all customers alike. But in the last generation trade morals have made great strides. New methods essential to doing business on a large scale were iatroduced. They are time-saviug and labor-saving, and have proved also conscience-saving devices. , , , j ■ .x. ^ -i *. j j *i, £ The greatest progress in this respect has been made m the retail trade; and the first important step was the introduction of the one-price store. That eliminated the constant haggling about prices, and the unjust discrimination among customers. But it did far more. It tended to secure fair prices; for it compelled the dealer to make, deliberately, prices by which he was prepared to stand or fall. It involved a publicity of prices which invited a comparison in detail with those of competitors; and it subjected all his prices to the criticiam of all his customers. But while the one-price store marked a great advance, it did not bring the full assurance that the seller was giving value. The day's price of the article offered was fixed and every customer was treated alike; but there was still no adequate guaranty of value; both because there was ordioarily no recognized standard of quality for the particular article, and because there was no standard price even for the article of standard quality, Under such conditions the purchaser had still to rely for protection on hia own acumen, or on the character and judgment of the retailer; and the individual producer had little encouragement to establish or to maintain a reputation. The unscrupulous or unskillful dealer might be led to abandon his goods for cheaper and inferior substi- tutes. This ever-present danger led to an ever-widening use of trade-marks. Thereby the producer secured the reward for well doing and the consumer the desired guaranty of quality. Later the sale of trade-marked goods at retail in original packages supplied a further assurance of quality, and also the assurance that the proper quantity was delivered. The enactment of the Federal pure-food law and similar state legislation strengthened these guaranties. But the standard of value in retail trade was not fully secured until a method was devised by which a uniform retail selling price was established for trade-marked articles sold in the original package. In fliat way, widely extended use of a trade- marked article fostered by national advertising could create both a reputation for the article and a common knowledge of its established selling price or value. With the introduction of that device the evolution of the modern purchase became complete. The ordinary retail sale — the transaction which had once been an equation of two unknown quantities — ^became an equation of two known quantities. Uncertainty in trade is eliminated by "A dollar and the Ingersoll watch," or "Five cents and the Uneeda Biscuits . " THE court's prohibition. Such is the one-price system to which the United States Supreme Court denied its . sanction. The courts of Great Britain had recognized this method of marketing goods as legal. The Supreme Court of Massachusetts had approved it. The Supreme Court of California has whoUy approved it. The system was introduced into America many years ago, and has become widely extended. To abandon it now would disturb many lines of business and seriously impair the prosperity of many concerns. When the United States Supreme Court denied to makers of copyrighted or patented goods the power to fix by notice the prices at which the goods should be retailed, the court merely interpreted the patent and copyright acts and declared that they do not confer any such special privilege. But when the court denied the validity of con- tracts tor price-maintenance of trade-marked goods, it decided a very different matter. It did not rest its decision upon the interpretation of a statute; for there is no statute which in terms prohibits price maintenance, or, indeed, deals directly with the sub- ject. It did not refuse to grant a special privilege to certain manufacturers; it denied a common right to all producers. Nor does the decision of the court proceed upon-any fundamental or technical ride of law. The decision rests upon general reasoning as to public policy; and that reasoning is largely from analogy. THE DEMANDS OP PUBLIC POLICY. When a court decides a case upon grounds of public policy, the judges become, in effect, legjislators. The question then involved is no longer one for lawyers only. It seems fitting, therefore, to inquire whether this judicial legislation is sound — whether the common trade practice of maintaining the price of trade-marked articles has been justly condemned. And when making that inquiry we may well bear in^mind this admonition of Sir George Jessel, a very wise English judge: KEGULAnON OF PRICES. 69 ".If there is one thing which more than any other public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of con- tracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred, and shall be enforced by courts of justice. Therefore you have this paj-amount public policy to consider, that you are not lightly to interfere with this freedom of contract." THE court's objection. The Supreme Court says that a contract by which a producer binds a retailer to maintain the established selling price of his trade-marked product is void; because It prevents competition between retailers of the article and restrains trade. Such a contract does, in a way, limit competition; but no man is bound to compete with himself. And when the same trade-marked article is sold in the same market by one dealer at a less price than by another, the producer, in effect, competes with himself. To avoid such competition, the producer of a trade-marked article often sells it to but a single dealer m a'city or town; or he establishes an exclusive sales agency. No one has questioned the legal right of an independent producer to create such exclusive outlets for his product. But if exclusive selUng agencies are legal, why should the individual manufacturer of a trade-marked article be prevented from establishing a marketing system under which his several agencies for distribution will : sell at the same price? There is no difference in substance between an agent who retails the article and a dealer who retails it. For inany business concerns the policy of maintaining a standard price for a stand- ard article is simple. The village baker readily maintained the quality and price of his product by sale and delivery over his own counter. The great Standard Oil monopoly maintains quality and price (when it desires so to do) by selling through- out the world to the individual customer from its own tank wagons; but for most producers the jobber and the retailer are the necessary means of distribution — as necessary as the railroad, the express, or the parcel post. The Standard Oil Co. can without entering into contracts with dealers maintain the price through its domi- nant power. Shall the law discriminate against the lesser concerns, wfiich have not that power, and deny them the legal right to contract with dealers to accomplish a like result? For in order to insure to the small producer the ability to maintain the price of his product, the law must afford him contract protection when he deals through the middleman. But the Supreme Court says that a contract which prevents a dealer of trade-marked articles from cutting the established selling price restrains trade. In a sense every contract restrains trade; for after one has entered into a contract he is not as free in trading as he was before he bound himself; but the right to bind oneself is essential to trade development. And it is not every contract in restraint of trade, but only contracts unreasonably in restraint of trade, which are invalid. Whether a contract does unreasonably restrain trade is not to be determined by abstract reasoning. Facts only can be safely relied upon to teach us whether a trade practice is consist- ent with the general welfare. And abundant experience establishes that the one- price system which marks so important an advance in the ethics of trade has also greatly increased the efficiency of merchandising not only for the producer, but for the dealer and the consumer as well. THE PBODDCERS' PLEA. If a dealer is selling unknown goods or goods under his own name, he alone should set the price; but when a dealer has to use somebody else's name or brand in order to sell goods, then the owner of that name or brand has an interest which should be respected. The transaction is essentially one between the two principals — the maker and the user. All others are middlemen or agents; for the product is not really sold until it has been bought by the consumer. Why should one middleman have the power to depreciate in the public mind the value of the maker's brand and render it unprofitable not only for the maker but for other middlemen? Why should one toiddleman be allowed to indulge in a practice of price cutting, which tends to drive {he maker's goods out of the market and in the end interferes with people getting the goods at all? CUT PKICBS — THE "mIS-LEADEK." When a trade-marked article is advertised to be sold at less than the standard price, it is generally done to attract persons to the particular store by the offer of an obviously extraordinary bargain. It is a bait — called by the dealers a "leader." But the cut- price article would more appropriately be termed a "mis-leader;" because ordinarily the very purpose of the cut price is to create a false impression. 70 BEGULATION OF PBIOES. The dealer who sells the dollar IngersoU watch for 67 cents necessarily loses money in that particular transaction. He has no desire to sell any article on which he must lose money. He advertises the sale partly to attract customers to his store ; but mainly to create in the minds of those customers the false impression that other articles in which he deals and which are not of a standard or known value will be sold upon like favorable terms. The customer is expected to believe that if an Ingersoll watch is sold at 33J per cent less than others charge for it, a ready-to-wear suit or a gold ring will be sold as cheap. The more successful the individual producer of a trade-marked article has been in creating for it a recognized value as well as a wide sale, the greater is the temptation to the unscrupulous to cut the price. Indeed a cut-price article can ordinarily be effective as a " mis-l eader ' ' only when both the merits and the established selling price are widely known. HOW CUT PKICES HURT. The evil results of price cutting are far-reaching. It is sometimes urged that price cutting of a trade-marked article injures no one; that the producer is not injured, since he received his full price in the original sale to jobber or retailer; and indeed may be benefited by increased sales, since lower prices ordinarily stimulate trade; that the retailer can not be harmed, since he has cut the price voluntarily to advance his own interests; that the consumer is surely benefited because he gets the article cheaper. But this reasoning is most superficial and misleading. To sell a dollar Ingersoll watch for 67 cents injures both the manufacturer and the regular dealer; because it tends to make the public believe that either the manufac- txirer's or the dealer's profits are ordinarily exorbitant; or, in other words, that the watch is not worth a dollar. Such a cut necessarily impairs the reputation of the article and, by impairing reputation, lessens the demand. It may even destroy the manufacturer's market. A few conspicuous "cut-price sales" in any market will demoralize the trade of the regular dealers in that article. They can not sell it at cut prices without losing money. They might be able to sell a few of the articles at the established price; but they would do so at the risk to their own reputations. The cut by others, if known, would create the impression on their own customers of having been overcharged . It is better policy for the regular dealer to drop the line altogether. On the other hand, the demand for the article from the irregular dealer who cuts the price isshort lived. The cut price article can not long remain his "leader." His use for it is sporadic and temporary. One "leader" is soon discarded for another. Then the cut-price outlet is closed to the producer, and, meanwhile, the regular trade has been lost. Thus a single prominent price cutter can ruin a market for both the producer and the regular retailer. And the loss to the retailer is serious. On the other hand, the consumer's gain from price cutting is only sporadic and tem- porary. The few who buy a standard article for less than its value do benefit — unless they have, at the same time, been misled into buying some other article at more than its value. But the public generally is the loser; and the losses are often permanent. If the price cutting is not stayed, and the manufacturer reduces the price to his regular customers in order to enable them to retain their market, he is tempted to deteriorate the article in order to preserve his own profits. If the manufacturer can not or will not reduce his price to the dealer, and the regular retailers abandon the line, the con- sumer suffers at least the inconvenience of not being able to buy the article. PRICE MAINTENANCE IS NOT PRICE FIXING. The independent producer of an article which bears his name or trade-mark — be he manufacturer or grower — seeks no special privilege when he makes contracts to prevent retailers from cutting his established selling price. The producer says in effect: "That which I create, in which I embody my experience, to which I give my reputation, is my property. By my own effort I have created a product valuable not only to myself, but to the consumer; for I have endowed this specific article with qualities which the consumer desires, and which the consumer should be able to rely confidently upon receiving when he purchases my article in the original package. To be able to buy my article with the assurance that it possesses the desired qualities, is quite as much of value to the consumer who purchases it,, as it is of value to the maker who is seeking to find customers for it. It is essential that the consumer should have confidence not only in the quality of my product, but in the fairness of the price he pays. And to accomplish a proper and adequate distribution of product guat^nr teed both as to quality and price, I must provide by contract against the retail price being cut." REGULATION OF PEIGES. 71 The position of the independent producer who establishes the price at which his own trade-marked article shall be sold to the consumer must not be confused with that of a combination or trust which, controlling the market, fixes the price of a staple ^ticle. The independent producer is engaged in a business open to competition. He establishes his price at his peril— the peril that if he sets it too high, either the consumer will not buy or, if the article is, nevertheless, popular, the high profits will invite even more competition. The consumer who pays the price established by an independent producer in a competitive line of business does so voluntarily; he pays the price asked, because he deems the article worth that price as compared with the cost of other competing articles. But when a trust fixes, through its monopoly power, the price of a staple article in common use, the consumer does not pay the price volun- tarily. He pays under compulsion. There being no competitor he must pay the price fixed by the trust, or be deprived of the use of the article. Price cutting has, naturally, played a prominent part in the history of nearly every American industrial monopoly. Commissioner Herbert Knox Smith found, after the elaborate investigation under- taken by the Federal Bureau of Corporations, that — "One of the most effective means employed by the Standard Oil Co. to secure and maintain the large degree of monopoly wMch it possesses is the cut in prices to the particular customers or in the particular markets of its competitors while maintain- ing them at a higher level elsewhere." And Chief Justice White, in delivering the opinion of the United States Supreme Court in the Tobacco Trust case, said: "* * * the intention existed to use the power of the combination as a vantage ground to further monopolize the trade in tobacco by means of trade conflicts designed to injure others, either by driving competitors out of the business or compelling them to become parties to a combination — a purpose whose execution was illustrated by the plug war which ensued and its results, by the snuff war which followed and its results, and by the conflict which immediately followed the entry of the combina- tion in England and the division of the world's business by the two foreign contracts ' which ensued." Therefore recent legislative attempts to stay monopoly commonly include in some form prohibition against the making of cutthroat prices with a view to suppressing competition. Such provisions will be found in the bills proposed by Senator La FoUette, Congressman Stanley, and Senator Cummins to supplement the Sherman antitrust law; and statutes dealing with the subject have been enacted in several States. President Wilson urged most wisely that instead of sanctioning and regulating private monopoly, we should regulate competition. Undoubtedly statutes must be enacted to secure adequate and effective regulation; but shall our courts prohibit ' voluntary regulation of competition by those engaged in business? And is not the one-price system for trade-marked articles a most desirable form of regulation? PRICE CUTTING — THE ROAD TO MONOPOLY. The competition attained by prohibiting the producer of a trade-marked article : from maintaining his established price offers nothing substantial. Such competition is superficial merely. It is sporadic, temporary, delusi'\?e. It fails to protect the public where protection is needed. It is powerless to prevent the trust from fixing extortionate prices for its product. The great corporation with araple capital, a per- fected organization and a large volume of business, can establish its own agencies or sell direct to the consumer, and is in no danger of having its business destroyed by price cutting among retailers. But the prohibition of price maintenance imposes upon the small and independent producers a serious handicap. Some avenue of escape must be sought by them; and it may be found in combination. Independent manu- facturers without the capital or the volume of business requisite for engaging alone in the retail trade, will be apt to combine with existing chains of stores, or to join with other manufacturers similarly situated in establishing new chains of retail stores through whieh to market their products direct to the consumer. The process of exter- minating the small independent retailer already hard presesd by capitalistic combina- ticms— the mail-order houses, existing chains of stores, and the large department stores— would be greatly accelerated by such a movement. Already the displacement of the small independent business man by the huge corporation with its myriad of Aicloyeee its absentee ownership, and its financier control, presents a grave danger to our democracy. The social loss is great; and there is no economic gam. But the process of capitalizing free Americans is not an inevitable one. It is not even m ac- cord with the natural law of business. It is largely the result of unwise, man-made, 72 REGULATION OF PRICES. privilege-creating law, which has stimulated existing tendencies to inequality instead of discouraging them. Shall we, under the guise of protecting competition, further foster monopoly by creating immunity for the price cutters? monopoly's easiest way. Americans should be under no illusions as to the value or effect of price cutting. It has been the most potent weapon of monopoly — a means of killing the small rival to which the great trusts have resorted most frequently. It is so simple, so effective. Farseeing organized capital secures by this means the cooperation of the shortsighted unorganized consumer to his own undoing. Thoughtless or weak, he yields to the temptation of trifling immediate gain; and, selling his birthright for a mess of pottage, becomes himself an instrument of monopoly. STATEMENT OF DE. LEE GAIIOWAY, PEOFESSOE OF ECO- NOMICS, NEW YOEK TTNIVEESITY, NEW YOEK, N. Y. The Chairman. Whom will you present next, Mr. Stevens? Mr. Stevens of New Hampshire. I will ask Dr. Galloway to address the committee, now, Mr, Chairman. The Chairman. Will you please give your full name, your address, and your present occupation? Dr. Galloway. My name is Lee Galloway; my address is New York University, Washington Square, East, New York City; my occupation, teacher. I will not take very much of your time, Mr. Chairman and gen- tlemen, because I realize that you have listened to one of the most masterly presentations of the economic side of this question. I have been especially interested in listening to the discussion here to-day, between Mx. Brandeis and the members of the com- mittee, because every question which has come up here during the discussion presented itself to me when I first began to look into the subject. I had to answer for myseK every question put here to-day to Mr. Brandeis, without the aid of the masterly presentation of the subject which he has made. I take it that you would like to know from me why I, as a pro-" fessor, am interested in this subject. It might seem to you, gentle- men, if I am to judge from your questions regarding monopoly and its confusion with price maintenance, as if I belongeato one of those so-calledc subsidized institutions, and probably to be working in behalf of some special interest of manufacturers, retailers, or a com- bination of consumers. A few years ago I was working on a book upon the subject of advertising for the Alexander Hamilton Institute of New York City. I found very soon that I was up against this question of price cutting versus price maintenance. I was in a position Of absolute impar- tiality. I studied the subject as thoroughly as my opportunities, which brought me into contact with every class of busmess, would permit. This book, ia its circulation, happened to faU into the hands of certain manufacturers seeking for information in regard to advertising. Struck by. the arguments which I presented there, they asked me to go further into the study of the subject with them. Accordingly, I made an extended trip over the United States, visit- ing retailers, wholesalers, manufacturers, and consumers and investi- gating the effect of price cutting upon each. That was all the interest I have had in it, all I have in it now — purely one of trying to see clearly and throw some light upon a very complicated subject, a sub- ject bearmg equally upon the irreducible factors m business— the manufacturer, the distributor, and the consumer. ' 1 could not have understood this question if I had not been willing to put months mto the study of it. So, long before the present national discussion of price maintenance had taken place, I had tomed definite notions regarding its economic justification. • ■'■^?^,F®^* economic question of monopoly, the great social question ol public rights, and other great questions involving contractual and other relations connected with this subject have aU been involved in the discussion preceding mine here to-day at the hands of Mr. Bran- deis. So far as the practical working out of the principles of price mamtenance is concerned, there is httle to understand, but untU its relation to every one of the big social questions is answered, the in- vestigator naturally feels skeptical. To grasp its full significance at once is a very difficult feat, and one, no doubt, which you have appre- ciated; but the intelligence with which this committee have asked questions shows that you are vitally interested in the subject, and that this interest wiU gain for price manitenance a thorough investi- gation. I wish to give you this assurance, that these same questions which you have put to-day have arisen in the mind of everv man who has approached the subject. When I first approached it I was vitally opposed to the whole proposition. At once I associated the question of price fixing with the question of monopoly. It took me at least a year to see this subject in its true light when looked at from every angle. Then I found that the question of price fixing from the price maintenance point of view was not one of price fixing from the monopoly point of view at all. It is simply one of price setting, or price quoting. The question of price fixing under monopoEstic conditions is an entirely different proposition. Price maintenance, as Mr. Brandeis has said, is the quoting of a ^rice by an individual manufacturer, who in competition with many others, and after a thorough study of marketing and production con- ditions, has come to the conclusion that this quotation is the price which will effect the greatest number of sales of his goods. Monopoly, on the other hand, fixes its price, without having to consider competition — that is. competition as it is usually understood. The monopolist has control of the supply, or control of the market, or some other necessary factor which enters into the production and distribution of the goods. One price is fixed by a monopoly having control over the economic conditions, which are not free therefore to give us competitive business relations ; the other is simply a state- ment of a price after the man who is in competition with many other manufacturers of like goods decides what is the best price at which he may dispose of the bulk of his goods. The monopoly does not need or want a price maintenance law. He already controls his price because he controls the conditions which make prices. The inde- pendent manufacturer asks that he be permitted to quote a price which others may not change when offering his goods for sale. That this great question of monopoly is a confusing one, I can see by the questions which you have asked here to-day. Many of the questions asked show there is a misconception, or rather a, doubt, as^ to whether we are discussing monopoly or the great physical law of 74 BEGXJLATION OF PBICES. the impenetrability of matter. If I stand in a certain position, as I am standing before you now, I monopolize the space in which I am standing, because two bodies can not occupy the same space at the same time. If I have a certain individuality which you do not have, I monopolize that individuality. No one objects to these kinds of monopoly : we even believe in developing individuahty. Yet if one should follow the logic suggested by some gentlemen you would say that because I believe in individuality, and individuality means monopoly of a kind, therefore I must believe in monopoly, in general. Monopoly in business is a relative condition. You can not define monopoly in business with any more definiteness than you can define truth in the realm of ethics. Both are relative. So the economists have attempted to define monopoly, but the definition is a long one because of the numerous qualifications necessary. In economics, as in ethics, categories shade off into one another, and at the boundaries discrimination is difl&cult, and therefore to clear up some ideas sug- gested by a question as to whether monopoly existed where 60 per cent of the output of a commodity were controlled by a concern, I would say that there are perfect and imperfect types of monopoly. The latter may have some characteristics of monopoly and yet be only incomplete monopolies. We have a partial monopoly where there is a unified control over a considerable portion of the field of business, but not over a large enough portion to give the monopoUst the power to dictate absolutely for the whole field. If a given busi- ness controlled 80 per cent of the trade and this gave it power to dic- tate terms to the whole trade, it would seek to obtain the 80 per cent, if possible, yet 60 per cent control, although not giving fuU domina- tion, might give sufl&cient domination to force a profit in excess of normal competitive returns. A business often passes through sev- eral stages of incomplete monopoly before it can exercise unified con- trol over the whole trade. In short, monopoly is a question of the degree of control; in fact, aU economic distinctions are matters of de^ee. But further than this, another confusion arises. In the attempt to define monopoly men have said that the chief element in monopoly is the power to fix prices. Now, the abihty to fibc prices is the surest sign that monopoly exists, but because of the nustaken use of the term "price fixing" in connection with price maintenance, about 90 per cent of the confusion in regard to this whole question has come about. Price is essential and must be regarded as the fundamental test of monopoly, but the import of monopoly is not exhausted by this reference alone. Monopoly imphes a single seller or purchaser and signifies unity ia management of a business in some essential particular. This control may be in production, sales, or purchases, or it may be in any two or three of these particulars. With these facts in mind, it is possible to get a clear scientific concept of the term "monopoly," which may be formed into a practicable, workable definition and by which we may test the statement so often made that "price maintenance is a form of monopolistic control." Monopoly is that substantial unity of action on the part of thos^ engaged in business which gives ex- , elusive control, more particidarly, although not solely, with reference : to price. KEGULAHON OF PBICES. ^ 75 Tested by this definition it must be conceded that price mainte- nance as understood by the business man has not the shghtest con- nection. The essential thing about monopoly is "that unity of ac- tion" -which gives control of the price. If a concern or combination of business units estabhshes that substantial unity of action which enables it to control the price of its product, it will not care for such a law as the retail organizations and independent manufactmrers are seeking in the Stevens bm. A monopoly either because of its size or its power could refuse its goods to jobber or retaUer who persisted in cutting its established prices or if necessary it could market its prod- uct through the more expensive method of branch stores or agents. Now the Stevens bUl is not supporting monopoly because it cham- pions price maintenance. Price fixing in this sense is robbed of all monopolistic features because the price is fixed by competition and not by that substantial unity of action which means monopoly price. It IS only the comparatively small manufacturer working under competitive conditions or the smaller retailer and jobber who feel the necessity "of having that right which was removed by the Supreme Court returned to them and so enable them to protect themselves by contract against the price cutter. They are not asking for a monop- oly privilege, nor for any kind of privilege except the common right of every man to protect his property. If you will take the troulble to think through that one proposition, I am certain, without my going into any further or more elaborate discussion, you will get the point of view which distinguishes monop- oly price from price maintenance and in proportion as you maintain that clear distinction wjU your progress toward a clear understanding of this bill be hastened. I can only state one or two things in the time which you have placed at my disposal. Among other things, I want to bring out one essential point which has not been touched upoh ot brought out to-day, and that is, the question of advertising from the economic and social point of view. In the last analysis, price maintenance, standardization, trade-mark, and advertising are aU bound up together. If I had the time to give you the history of that industrial development, which called forth the necessity of advertising, I think it would give you a pretty clear insight into an important legal as well as the economic point ot view invmved in the bill before us to-day. In the century just past our chief economic question was one of pro- duction. To-day the great problem is not can we produce more, but how we can distribute more economically the things which men already want and how can we create broader markets for the things which men should want ? You know that one of the postulates of economics is that the wants of men are unlimited, and tend towards an indefinite expansion. Therefore where wants are expanding economic energy is put forth to satisfy them and hence civilization depends upon increasing the wants of humanity. Looked at in this light advertising has justified itseM as a great and vital social force. Mr. Talcott. You do not think anything could be added to this bill in that direction, do you ? Dr. Galloway. I would hardly like to express an opinion upon the bill from that point of view. I am inclined to think that some 76 REGULATION OF PRICES. time you will have to consider the question of dishonest advertising from a national point of view. Mr. Talcott. You think that is unfair trade competition, unfair trade practice ? Dr. Galloway. You are referring to unfair advertising ? Mr. Talcott. Dishonest advertismg. Dr. Galloway. Absolutely, and it is one of those things we shall have to consider some time. The movement in that direction is already indicated by the passage in many states of laws regulating advertising. Mr. Hamilton. It is analogous to lying, is it not? Dr. Galloway. Yes, sir; with the special privilege back of it, in the case of pirating standard trade-marks of there being no one responsible to the makers of those goods whose reputations have been exploited. Mr. Hamilton. I think lying is a difficult thing to control. Dr. Galloway. Yes; but the size of the job does not minimize our responsibility in attempting to protect consumers against false statements, or otherwise there would have been little need for the OTeat body of laws on the violation of contracts, and when the Supreme Court removed the right of the manufacturer to protect the good name of his wares it helped lying. Mr. Hamilton. There are dififerent kinds of lying. Dr. Galloway. Yes, there are at least three kinds: Lies, politi- cians' promises, and price-cutting advertising. Francis Bacon did not use this particular terminology, but I am sure if he were living to-day that his classification would have followed this sequence. "Leader advertising" in its ethical aspects- at one time lay below the consciousness of the public. That is, the public did not think about it except as a pretty cute scheme devised by big department stores to get free advertising at the expense of the advertiser of a nationally distributed product. Later, however, people began to realize that the message brought to them, through the advertisement, led them astray; they followed a "leader," but a false guide. At last the true aspect of leader advertising showed itself above the ' horizon of the public's consciousness, and a closer analysis is pronounc- ing such methods as misleading and hence lying. And now if such misrepresentation hurts the public — the consumer, the retailer, the jobber, and the manufacturer — ^why should we hesitate to protect society against it? It is necessary for us as legislators and teachers to formulate the problem and in a practical way help the interested parties to solve it. This we can do by removing the handicap under • which the manufacturer now rests by not being able to make a con- tract with the jobber or retailer not to cut the price which the manu- facturer has fixed to his product as indicatiag to the public his esti- mation of its value to them. Mr. Hamilton. AU those things tend toward the millennium. Dr. Galloway. I should like to give you another point of view, one which stops a few stations this side of the millennium. Mr. Hamilton. We are all in favor of the mUlenium. Dr. Galloway. Yes; I am in favor of the miUenium, too, but the discussion of any subject from a professorial point of view is likely to be accused of being impractical, because the professor generally includes the miUenium in his perspective. BEGULATION OF PRICES. .11 However, my association with business men, a position which I highly appreciate, tends to keep me in close touch with matters earthy. Any academic visions that one may have, including a millen- nium, wiU thus have most aberrations corrected by their safe, sane, and practical opinions. Mr. Talcott. Professor, a large element of this unfair price cutting is really unfair and dishonest advertising, is it not ? Dr. Galloway. I can answer that question in this way. Any advertising which takes a reputable article with a standardized price of $1 and says, "Come to my store and I wiU sell you this article for 50 cents," is intended to give the impression to the community that everything in that" store is of hke cheapness and this store holds a like advantage over every other store in the conamunity, such ad- vertising is meant to deceive, and has a tendency to breed other unethical developments further along in the same business. So I would say that in a way, it is dishonest advertising. Mr. Talcott. I have heard it said that in a great many cases that is really the object. Dr. Galloway. Yes; I think that is the object and it is for this reason that some of the big department stores and some of the other large scale distributing agencies wish to keep that thing up. How- ever, I should like to speak a few moments on the general subject of advertising, for I find there is a general agreement as to its force but little appreciation of its beneficial effects. The great social problem of a few generations ago was how to main- tain the human race. Not being able to produce in sufficient quan- tities, society tried to create a surplus by discouraging consumption, and it raised parsimony to a position among the social virtues. The doctrine of abstisence became the basis of an economic theory per- taining to the creation of wealth. The inventions of the eighteenth and nineteenth centuries were synonymous with new production con- trivances. The inventors of the spinning jenny, the steam engine, the cotton gin, became national and international heroes because they helped to solve the pressing economic problems of society at that time. The revolution which those inventions wrought in the field of pro- duction is realized by comparing our own factories and machines with the little workshops and the hand tools of the generation passed. We see an illustration of that if we compare the great machine-driven clothing estabHshments of New York^ Chicago, Rochester, and Phila- delphia with the small tailor shops and the needlework of our grand- fathers' time, or the great shoe factories of Brockton, St. Louis, and Newark, covering acres of ground and turning out shoes by thousands, with the cobbler's bench and custom-made boots of our boyhood days. We have another example of that condition if we compare the packing houses of St. Paul, Omaha, Chicago, and Kansas City, all capable of turning out product enough for a nation, with the small local village butcher. These great changes give us the industrial basis of our needs for advertising to-day; i. e., an enormous product with unhmited capacity to produce more. , , , , . , , With all of our highly developed methods of making goods the next question that presented itself was, how can the producer get rid of his goods. There were two means by which he could do that; first, by getting more people to know of his product, and, second, by getting more people to want his product. In short, to create a 78 REGULATION OP PEICBS. bigger market. This led to the distinctive problem of the last quarter of the last century and the beginning of the present century, i. e., the problem of distribution. It was a question of how we were to make the demand overtake the supply. In contrast with the economic ideals of the past generation the present is laid _ upon increased consumption rather than upon restricted consumption. The solution of the present problem is being met by the creation of new activities; first, the creation of a rapid means of transporta- tion, and, second, by extending the scope and amount of advertising. That is, the center of gravity of the economic world has moved from the field of production to the field of distribution. We have changed from a philosophy of parsimony to a philosophy of spending for the satisfaction of progressing wants. Therefore economics teaches to- day that a nation is advancing in civilization when its members are cultivating new and higher wants. The standard of living of a eountry is no higher than the wants of the people raise it. In that connection, three things are to be noted of the people of America: First, their standard of living is higher than that of the people of other nations. Second, they consume more goods in quantity, quality, and variety than the people of any oflier nation. Luxuries have become staples. Beds, chairs, shoes, sugar, and gas were originally obtainable only by the rich. The inability to manufacture in large quantities formerly kept the market narrow. The poor people had little and wanted very little more. They got used to that situation. Contentment was preached as an antitoxin for the poor man's htmger. Then the machines came and turned out millions of articles before the people learned to want them. Therefore, the problem of the century was to create in the people new needs. To-day we have supplies for all the people— not only a limited supply for a few of the people, who may thereby reach a high stand- ard of living, but to-day's supphes will more than meet present demands. To-morrow there wul be a surplus. In order to get rid of the surplus product to-morrow, more people must be taught to want new things and a higher standard of Uving — high enough to consume our increasing supplies. As soon, therefore, as a manufacturer is prepared to turn out new and improved articles cheaply he must plan a campaign whereby he can include those goods in a s4p,ndard of living which will embrace enough people to consume them all. This is done by advertising. Furthermore, having lifted the many into this standard of living, he must plan to keep them there. This is done by more advertising through the means of a trade-mark and a standard price. Let us take a few examples to illustrate this point. First, let us take up the use of toothbrushes. A few years ago a humorist divided American society into two classes or strata — -those who used toothr brushes and those who did not. To-day only the lowest classes con- sider the toothbrush as something smacking of affectation. The word "Prophylactic" spells cleanliness, health, and attractiveness. Then, as another example, let us take soap. When soap was first manufactured, it was a luxury; few people used it. Not even the makers of soap considered it as belonging to or appertaining to their REGULATION OF PRICES. 79 class. But now, as we all very well know, soap is very widely adver- tised, and, of course, universally used. To illustrate how advertising spreads the use of these things, it is only necessary to cite the case of Sapolio advertising, which went directly to the great mass of the people who did not know the need of soap. The result was that thousands upon thousands of kitchens became more cleanly and more hygienic by the use of this widely advertised product. Then, next came hand SapoUo, which means that another class of users must be brought one step higher in its standard. Personal cleanliness must be made a goal. "Be clean," said the advertise- ment. '"Tis the first principle, the best of good manners,, good policy, and healthful." It may be noticed here, in passing, that efficient advertising means the continuous and progressive change of habits of great bodies of people, making them wish for more products, newer products, and better products. If advertising of a standard article only adver- tised that article, it would have little interest for us from a social point of view, but this advertising has done more for aU the articles within its class than it has done for itself. All the unadvertised soaps benefited by the advertising of the standard article, Sapolio. Therefore, society owes much to the big advertiser of a staple article which raised the standard of hving of its people. Such an advertiser takes a big business risk in establishing his product in popular favor, while building up competition in the nonadvertised objects of a similar line which gets tne benefits of his broad and expensive advertising. To protect himself the advertiser identifies his goods, and also for the consumers' benefit, by a brand or trade- marK. Now, gentlemen, I would like to touch briefly upon the economics of the trade-mark. When the supply of manufactured articles began to far exceed the proper demand for those commodities, the manufacturers began advertising in order to stimulate a hfgher standard of hving, and hence increase sales through a wider consumer demand. This had the broad, economic effect of raising the consumers' standard, and hence promoting economic progress: But this effect of advertising is only one-half the social result obtained. This advertising created the necessity of a brand or trade-mark, and under its dicta the manufacturer likewise began to elevate the standards of his business policies. He attained, therefore, not only a greater output, but he is now continually forced to better his product and effect, a purer output as well. It was necessary to have the trade-mark in order to correct a growing evil closely dependent upon large-scale production and the separation of the manufacturer from the direct contact with the ultimate consumer, a condition of affairs which naturally diminished the manufacturer's interest in the individual units of his product and likewise in his customers. Before- the passage of the national pure- food laws there was a considerable amount of food adulteration. This was perhaps a natural development, since the manufacturer felt very Uttle responsibility. Who knew who made the goods ? Impure foods followed, closely upon the greatest improvements in the pro- 80 REGULATION OF PKICES. duction of preserved foods. Perfected packing, preparing, and proper preserving enabled big quantities to be turned out very cheaply. But this great gain was counterbalanced by any protecting law which curbed the cupidity of the unscrupulous. As an illustration of that we may take the case of a so-called canned beef. Formerly, in the old days, the town butcher killed and pre- pared his beef, knowing exactly who his customers were and what they wanted. But this method was very inefficient and very wasteful. It was supplanted by the packing-house method, which is well illus- trated by the Chicago packing industries. When the packing- house organization was substituted for the individual town butcher, the meat producer was then separated from the consumer, both physically and morally. As another illustration, we may cite the case of ready-made cloth- ing. There was no stamp upon it to identify the maker of the goods, and the manufacturer was not concerned for the character of the clothes. He was not responsible to the wearer of his clothes. More than that, the jobber and dealer were the people to whom the manu- facturer sold. These jobbers and dealers, therefore, not being the direct consumers of the ready-made clothing product but only buyers and sellers, were interested simply in the price they received and the profits they made. Therefore under those conditions competition at once took the form of price competition, rather than quality competition. It was profit competition and not use competition. As a more or less natural result of the charcter of competition, those conditions lead to adulteration and deterioration of the product by the manufacturer and a desire on the part of both jobbers and manufacturers to hide their identity and keep the consumers in ignorance of their identity. You must bear iu mind that I am talking about the conditions as they previously existed before the general use of trade-marks or brands. This competition of manufacturers for the favor of the jobber or dealer left the consumer entirely out of account, and the consumer suffered in proportion to his ignorance of the quality of the foods and the methods pursued by the various business houses who andled the products. The only argument a salesman had in those days was based on price. The keen competition for cheap and shoddy goods in order to meet low prices reduced not only the quality, of those goods and increased the adulteration, but it also meant the cutting of the grades of the goods as well, so that a foot did not always mean 12 inches. Following this condition came the cut-throat price cutting by the manufacturers and the consequent reduction of the manufacturers' profits. As a natural consequence of this situation, the moral effects upon the manufacturers were doubled, such as isolation from responsibility always brings. He displayed little conscience in his methods of adulteration. He became absolutely unscrupulous in his competi- tive methods, setting prices to the jobber which left him very small profits unless he took them out of the wages of his employees or the grade and quality of his wares. Having sacrificed himself to the middle man, he finally found him- self in a position of such abject dependence that it became necessary for him to surrender altogether or to change his method of merchan- KBGUIATION OF PBICES. 81 dising. Thus, in order to obviate the necessity of being displaced from the patronage of the jobber, who might substitute the goods of one manufacturer hj those of another who was willing to go a little further in the' degradation of his goods, the manufacturer began goiag direct to the consumer. In order for the manufacturer to go thus direct to the consumer the first thing necessary for him to do was to identify himself directly with his product. This meant a brand or trade-mark, and with the adoption of this trade-mark there began the ethical regeneration of the ma,nuf acturer. Naturally, when his goods were directly identified with himself by means of a trade-mark, he became at once desirous of establishing and maintaining the best possible reputation for those goods among the consumers of them. When Hemz, Mr. Kellogg, Mr. Ingersoll, and other pioneers in the advertising field went into the branded or trade-marked goods method of merchandising, they found the advertising field preempted by imposters. These men found it, therefore, necessary to take the discredited instrument of advertising and convert it into a reputable trade factor. They have developed a great business instrumentality, which not only brings the manufacturer further back toward his original direct con- tact with his customers, but with the trade-mark has come the restora- tion of his moral identity and responsibihty to the community which he serves. The qualities which had been lost because of the removal of the productive processes from the inspection of the consumer were restored by the trade-mark and the direct appeal to the consuiners' judgment again. Now, Mr. Chairman, I would like to deal briefly with the trade- mark as a property right. The origin of the trade-mark shows it to have been estabhshed in the minds of the consumers at a great cost of money, energy, and time on the part of the manufacturer. Provided, therefore, that the effort on the part of the manufacturer was justified, socially, what objection is there to supporting that property right in the same way as we protect other property rights of like nature ? The confidence which the manufacturers' trade-mark has created in the minds of the public is known as good will. In most cases this is as valuable an asset to him as his patents or his physical plant; and, like his property in his patents and his plant, he does not neces- sarily sell his good-mU rights when he passes his goods into the hands of other persons even though, as in the case of merchandise, it passed to the wholesaler or the retailer who expects to resell them. The jobber or retailer who injures or impairs the good wiU of the manufacturer by destroying the confidence of the buying public in this particular product should be held responsible for it to the manu- facturer. Therefore, I say, if price cutting hurts the good-will {)roperty rights of the manufacturer, then, in justice to the manu- acturer and in protection of the public, some means should be adopted to prevent the pirating of the good name of those goods whitih have proved themselves worthy of the confidence of the consumers. If price cutting drives the superior goods from the market, either by compelling the manufacturer to stop making them or through a lowering of the quality of the goods, or m putting out a stlb^titute of 81295 — 15 6 82 REGULATION OP PBIOES. lower grade, and so compelling Mm to compete with himself, then in justice and protection of the consumer, such protection as is necessary for the encouragement of the manufacturer in maintaining his quality- goods should be given to him by law. Thus, in that way we trace the movement toward higher planes of social, economic, and business life through the field of advertising, which in turn is dependent for its great pubHc good and efficiency upon the trade-mark of the manufacturer. Society has passed from the low practices of irresponsible manufacturers and distributers through the aid of the trade-mark. If price cutting is permitted, we will lose the trade-marked goods and the protection to the consumer which goes with it. In the trade-mark the manufacturer trusts his reputation; upon this he invests the enormous capital outlays necessary to inform and enlighten the consumer and the public. Experience has shown that the consumers learn to trust those trade-marked goods that prove worthy. They use them as standards in their buying. They have found this method most economical and satisfactory, for they know what they are getting, and so they save their time and energies in making extensive investigations with every purchase; and, jSJaally, the manufacturer, knowing that his responsibility is at stake,, strives to maintain his reputation even more energetically than he strives to increase his profits. Thus, between the manufacturer and the consumer lies the trade- mark. It typifies responsibility on the one side, and confidence on the other. The price cutter knows the advantage of these two great factors in advertising, and wherever possible he exploits them on his special bargain counter. He cares little for the ultimate gains of the consumer, so long as he is able to exploit the consumer's ultimate good for his own immediate gain. Now, Mr. Chairman, I have tried to develop this subject thus briefly, and show you the relation of advertising to the distribution of goods. I am a hearty behever in advertising, and I am a hearty believer in purifying advertising just as far as it is possible to do so. I feel sure that all the big advertising men in this country have the finest consciences in regard to business ethics; that -they have finer ' consciences in regard to that than any class of men in the world. Like doctors, constant contact with disease and suffering has devel- oped the keenest sympathies. Mr. Talcott. You believe that advertising is an effective means of distribution 1 Dr. Galloway. Yes. Mr. Talcott. And it can only be effective when honest and fair'* Dr. Galloway. Yes, sir; and it should be fair always, and be gov- j erned by the highest code of ethics. Rotten advertising, Mke decayed fities on a raHroad, hinders distribution. It slows down that confi- 1 dence which is the greatest accelerator of trade intercourse. Mr. Sims. It ought not to be done in such a way as to create a certain false impression, whether it speaks that fales impression or not? Take the case of the dollar article which you referred to a while ago as being sold for 50 cents. The advertisement of those articles /being sold at 50 cents, you say, creates the impression that all other goods in that store are equally cheap, but that impression EEGULATION OP PKICES. 83 is a false impression; that is, that the other things in that store are going to be sold at the same rate ? Dr. Galloway. Yes. The price cutter uses a "leader" with a reputable name. This continued association of the trade-mark with the idea of cheapness destroys its value. Between the consumer and the producer comes the medium of advertising, which is tending to distribute the goods more cheaply and more intelligently. It is creating an enormous uplift of society as a whole, because it is con- tinually bringing the ordinary consumers in the different strata of society to the use of higher and better grades of goods. Now, a trade-mark stands for quahty (or should). If it does not represent quality, it wiU do the owner harm, for it only enables the consumer to recognize the unsatisfactory article when he sees it. As I say, that is only half the story. Advertising has also tended to lift the manufacturer himseK. It is a strange but a perfectly nat- ural outcome of the methods which have developed a great output of goods during the last 100 years, that the manufacturer tended to depreciate and cheapen the quality and grades of his goods until he found what a trade-mark could do for him. Mr. DoREMUS. Are they not doing that yet? Dr. Galloway. There is that tendency among some of them yet. Mr. DoKEMUs. Do not a good many of them do it ? Dr. Galloway. Yes; but most of the manufacturers who are doing it are makers of the lines which have no brands which they must stand back of and be responsible for. That is one of the reasons for my support of this price maintenance proposition, because it gives support to the trade-mark, which has done so much for the consumer and also for the manufacturer. Just as the steam engine made possible greater production, advertising made possible greater distribution. Before the safety valve was discovered, many explo- sions occurred. The trade-mark is the governor of advertising. It keeps the manufacturer's reputation within range of his goods and services. We lost, or did not have, during the last century that close contact between the manufacturer and the consumer. The manufacturer had the middle man to whom he sold. He, like every other manu- facturer, sold to the jobber, and the only thing the jobber was inter- ested in was the profits he could make. He did not care about the consumer; what he was interested in was his margin of profit. But the consumer ought to be considered, and the' manufacturer found, after he had reduced the quality of his goods and sacrificed his business principles, that he was also losing his trade. That is the reason the consumer has been brought in direct contact with the man- ufactiirer; that is the reason why to-day we have such a great quan- tity of goods going from the manufacturer around the middle man directly to the consumer. The manufacturer found that he could do that by means of direct advertising. ; That necessitated, however, both from the consumers' and manu- facturers' point of view, that the manufacturer should have a brand upon his goods. So the manufacturer proceeded to adopt a trade- mark and because he now felt more responsibiUty for the character of his product he improved the quahty of hia goods. He came to have the feeUng that he himself must stand back of his trade-mark for the sake of his reputation.- 84 EBGXJLATION OF PEICES. j Now, the trade-mark necessrily brings up at once the question lof price maintenance, and," as Mr. Brandeis has pointed out, the 'manufacturer with the trade-marked goods wishes to maiatain a i certain price, for by maintaining his price he establishes confidence m the trade-mark for naturally a continually fluctuating standard of prices suggests varying standards of quality. Hence if there is a constant price cutting it reflects upon the quality of the goods and tends to drive those goods out of circulation in that particular community. I wish before closing to emphasize one more thing, Mr. Chairman, ia regard to the proj)erty right in the trade-mark. This was not emphasized, I think, by Mr. Brandeis. When a manufacturer hands over his goods to the retailer or consumer he does pass the physical part of the goods to the man, but when the manufacturer hands over his goods to the middle man, he does not necessarily have to pass the title to those goods. He passes over the physical goods and says, "That belongs to you, and along with those goods goes my name, and along with those goods goes also my brand, and I have a right to protect that name and that brand from anything which might tend to hurt the good name of the brand." So when he asks for a certain contract he is asking for a contract to be made with the middle man, so that he, the manufacturer, shall still be allowed to protect his good name in his product by means of the terms of the contract, and so that the middle man shall not set a price contrary to the reputation of the good name of that product. Mr. Bakklet. The best way to protect his good name in that product is to satisfy the pubhc, is it not ? Dr. Gallo\^ay. Absolutely. Mr. Bakklet. The only good which that name does on the product is to imply, at least, that the product is what it is represented to be and what the public beheves it to be ? Dr. Galloway. Absolutely. Mr. Baeklet. If the product turns out not to be what it is repre- sented to be, the public will not buy it an3rway, regardless of the name? Dr. Galloway. That is one of the elements. I may live a per- fectly upright life in New York, but there may be some person who will make insinuations against my name around the corner from where I live. I may live absolutely according to the highest standards of society, but let there be another person around the comer from where I live who will make insinuations against me, and it would not be long before I would lose my position. Nevertheless, the quality would be there. You see these standard articles advertised in newspapers to be sold at a certain store for 59 cents, say — that is, they advertise to sell a dollar article for 59 cents — and you do not walk into that store with the same confidemie that you are going to get a good article as you had when that article- was not advertised to oe reduced to 59 cents, when jrou would have been perfectly willing to have paid a dollar for the article. Mr. Stevens of New Hampshire. Is not this true, that the repu- tation of a man's goods depends not only upon uniform quality, but also upon uniform price ? BEGULATION OP PEIOES. 85 Dr. Galloway. Yes; that is what I was trying to indicate — that the uniformity of price indicates that the dealer has confidence that the products will be taken at that price. Afi-. Stevens of New Hampshire. Even if the quality of the goods be uniform, if the price varies in the same or different communities does that not destroy, very largely, the reputation of the goods, even if they have the same quality? Dr. Galloway. It does, because it makes you think that the man does not live up to the standards he has set if he does not keep up the standard of price. I wish I had time to show you, Mr. Chairman and gentlemen, the effect of price on everything in life. Our price standards are the standards which we go by in forming our valuations. You know it is a very common thing to put a price upon reputation and say that a man is worth $10,000 or he is only worth 30 cents. We measure everything by" the price standard, because money is the standard of value — it reflects the value. And so we find that price has a psycho- logical effect upon us in the matter of the purchase of these products, and if a lower price is set- upon them, we get the idea that the quality of the goods is not what it has been represented to be and that it has become lower. As I said, the manufacturer trusts his reputation to his trade- mark. Upon this he invests the enormous capital outlays necessary to inform and enlighten the consumer and the public. Experience has shown that the consumer learns to trust those trade-marked goods that prove worthy. They use them as standards in their buy- mg. They have found this method both economical and satisfac- tory, for they know what they are getting and so save their time and energies in making extensive investigations with every purchase. And fixiaUy the manufacturer, knowing that his responsibility is tied up in every package, strives to maintain his reputation even more energeticaJly than he strives to increase his profits. I have talked with hundreds of business men around the country, and I have never found one who was not more sensitive about the quality of his goods than he was about his own personal profits, and that sensitiveness seems to increase as the community becomes better acquainted with the standardized goods which he carries. Thus between the manufacturer and the consumer lies the trade- mark. It typifies responsibility on the one side and confidence on the other. The price cutter knows the advantage of these two great factors in advertising, and wherever possible he exploits them on his special bargain counter. He cares little for the ultimate gains of the consumer, so long as he is able to exploit goods for his own immediate gain. That is afl I have to say on this subject, Mr. Chairman, and I thank you very much for the attention which you have given me. The Chairman. We are indebted to you, Dr. Galloway, for your very interesting and instructive presentation of the subject. Who is your next speaker, Mr. Stevens? Mr. Stevens of New Hampshire. Mr. Chairman, I would now like tlie committee to hear from Miss Cauble, 86 REGULATION OF PEICES. STATEMENT OF MISS lATJRA A. CATJBIE, SPECIAL INVESTI- GATOE, BFREAU OF FOOD SUPPLY, DEPARTMENT OF SO- CIAL WELFARE, NEW YORK, N. Y. The Chairman. Will you please give the reporter your name, your occupation, and your address. Miss Cauble. My name is Miss Laura A. Cauble; my address is 610 West One Hundred and Fifteenth Street, New York City. I am a social worker and a special investigator of foods. I am working on the Anderson Foundation, a foundation brought into being by Elizabeth Milbank Anderson to establish a series of bureaus for research in social welfare. Under this fund there is a bureau of child hygiene, a bureau of public health and hygiene, and a bureau of food supply. The concrete problem presented to the association which directs the activities of the Anderson Foundation was : How can the $60,000 per annum which we have been forced to spend for the relief of the . 8,000 famihes in our care be made to produce more adequate results and to supply the full value of the money expended ? A careful study of the conditions in the families forced us to realize that there was an insufficient amount of nourishment in the food as purchased. The physiological need was not supplied, although the budgets pre- pared had made careful allowance for that. Then the question had to be determined: Does a dollar buy a dollar's worth of food? The investigation covered an intensive study of 526 food shops in New York from the economic and sanitary standpoint. Tests of the character, quality, purity, and physiological value of staple foods were made on 1,829 samples purchased in 146 stores. These stores included department stores, chain stores, large and small retail shops. Numbered samples of these foods were submitted to three of the most reliable wholesalers in New York with requests for prices at which the foods could be furnished for sale by a business house with laj^e buying capacity. I. Short weights and measures : (a) There was 1.4 per cent of short weight and measure in the small retail shops. (6) There was a greater variation in the other shops, and a 10.8 per cent short weight in the chain stores. n. Quality of foods sold: The investigation showed conclusively that 16 per cent of the foods sold by the chain stores were deteriorated or of a low grade. It would take an expert in standard food values to know what that deterioration was. Was it because poor methods of storage and operation allowed the foods to waste (this was not true), or because inferior or deteriorated foods were piu'chased for sale, or because of business methods used to deceive customers? Samples of tea were bought from several chain stores at 40 cents, 60 cents, and 70 cents and were submitted to wholesalers for quotas tions. The quotations received on these teas were 24 cents and 25 cents per pound for a chest. The tea sold at these prices in the ; chain stores was all from the same chest. At 25 cents per poimd the tea sold at 40 cents brought 60 per cent profit; that sold at 70 , cents brought 180 per cent profit. That is the difference between i honesty and dishonesty in business. It is not fair play to the con- BEGULATION OF PBICES. 87 sumer. A pound of tea will make 400 cups. One family pays 40 cents for 400 cups of tea; the other pays 70 cents for 400 cups. The poor do not get full value on the purchase, and dishonest adver- tising of quality of tea makes it possible to catch the unsuspecting buyer. It was just the same with coffee, dried fruits, and other foods. There is no standardization nor grading of any foods in New York (except mUk, which is graded A, B, and C, and which guarantees a measm-e of certainty to the housekeeper). If there were a fair sys- tem of prices and standardization of foods, this situation would be avoided. In these stores the standard package goods were sold at cut prices, which compelled the small dealer on the same block to suffer the cut also. In the chain store inferior goods at high prices sold readily at the same time, because the housekeeper was there to buy. The small dealer is working from 12 to 18 hours, and even 20 hours, per day in an effort to make a living. In four months' personal obser- vation in 526 shops there were 116 changes in business. Change in business means a failure to meet the conditions of the situation. Mr. Stevens of New Hampshire. What do you mean by change of business ? Miss Catjble. I mean that the dealers either went out of business or that a succession of owners attempted to carry on the business. When a man found the situation impossible he sold his stock and tried something else. The buyer found the cut-price competition ruinous and he became a willing seller. The cut-rate shops put up package goods of fine appearance, but of unknown quality, and sell standard goods below price to get the trade and sell their deteriorated goods. The small dealer can't meet this. I speak for the Stevens bOl, not because I know that it is the best bUl which could be framed, but because I believe it is the best one which has been offered; because it is one step forward in standard- ization of foods. The chain stores are fooling the people, cutting prices upon known goods^ and charging exorbitant prices upon ones about which one knows nothing. What the housekeeper wants is that she may have a way of knowing what she is buying. She is willing to pay for the guaranty of a reliable producer. No food should be wasted, but it should never be possible to sell a quality of food for anything else than what it is. The standard price must be followed by a true, plain label, which wiU tell the quality or grade and the caloric value of food therein. To work out this idea a group of manufactm-ers of food products is now cooperating with our bureau of food supply; but under the present conditions the housekeeper is helpless. It takes an expert m foods with a well equipped chemical and bacteriological laboratory imder her control to keep abreast of the changes. The present effort is to show the manufacturer how he may improve his product, advertise honestly, label plainly, and stiU not greatly add to his cost of production. Science is yielding such a store of physiological and chemical knowledge of foods and processes of change in nandling that it must be used to economical advantage in the preparation, storage, and distribution of foods. The tendency of education for women is to give them a knowledge of these facts so they may not have to live by faith alone. 88 REGULATION OF PRICES. Let US have the abundant production of foods which our coimtry offers so economically and scientifically managed, so well standard- ized for use by honest dealing at honest prices through honest com- petition of manufacturers and producers that the hazards of compe- tition and advertising may be lifted from the retail distributor and the burden of ignorance and cost may be lifted from the under- nourished and poor who are powerless to plead for this bUl. The Chairman. Who is your next speaker, Mr. Stevens ? Mr. Stevens of New Hampshire. I will ask the committee next to listen to Mr. Zimmerman. STATEMENT OF MR. M. ZIMMERMAN, 376 MANHATTAN AVE- NTJE, NEW YORK, N. Y. The Chairman. Will you please give the reporter your name and address ? Mr. Zimmerman. My name is M. Zimmerman; my address is 375 Manhattan Avenue, New York, N. Y. Mr. Chairman and gentlemen of the committee, I wish to say that my purpose in coming before you this afternoon is to speak in behaK of the Stevens bill from the standpoint of the small retailer. While we have been informed through the newspapers and through the magazines in past years that the great menace which was confront- ing the American Nation were monopohes such as the Standard Oil Co. and the American Tobacco Co. and other concerns of that kind, I desire to say to you, Mr. Chairman, that as a student who has given this subject a great deal of thought and study, it has been my good fortune during the past three years to have been constantly in touch with the retail dealer, and I was able to study his problems from every angle possible. In my judgment I beheve that one of the greatest dangers that confronts this great Nation is the growth of the chain store which, to my mind, has a greater monopohstic influence over this country to-day than the two great monopolistic systems I have just mentioned. Take the most striking of them all, the United Cigar Stores Co. In the late nineties the Whalen Bros, had eight stores in Syracuse, N. Y. To-day the corporation has over 1,000 stores, and with their new places they will soon have that many more agencies, which they are busy opening up throughout the United States. It did business of some $32,000,000 last year, an increase over 1912 of nearly $3,000,- 000 or a trifle less than 10 per cent of its $35,000,000 capitalization. Consider the Riker-Hegeman Corporation of New York, a $15,000,000 drug chain, which has within the past year come under the influence of the Whalens. It has over 105 stores and is growing at the rate of more than three per month. The sales for 1912 were approximately $12,000,000, in 1913, $15,000,000, and are estimated for $20,000,000 for 1914. The earnings on the common stock were 10 per cent for 1913, and are expected to reach 15 per cent this last year. That the rapid development of chain stores is a menace is coming to be pretty well recognized, but just what is going to be done about it is not so clear. Judged by etlucal and moral standards, there ap- pears to be nothing the matter with their origin. In fact, they are the product of practical conditions, about wmch there seems to be little ground for question as to legitimacy, but as factors in competi- REGULATION OF PRICES. 89 tioQ and as examples of "trusts" and monopolies in the making, they are dangerous to the existence of the independent retail mer- chant and probably the jobber and manufacturer ultimately. The growth of chain stores has frequently been referred to in the newspaper columns, and not long since the Kellogg Toasted Corn Flake Co. startled the grocery trade by a broadside challenge to the grocery jobbers of the country to wake up to what was going on in Philadelphia in extending the chain systems and squeezing the jobber and independent retailer out of a living chance. Such articles as this have greatly stirred trade circles, and there is a dis- position among the leaders to pay some attention to analyzing the situation and perhaps seeing what can be done to prevent the ulti- mate absorption of the whole retail mercantile field into the hands of a few gigantic monopohstic systems. Before 1 go into a detailed discussion of chain and department stores, showing what influence they have in price cutting and how through their powerful manipulating of stores they are driving the small retailer out of business, I am going to quote you a few inter- views I had with retailers during my investigation of chain stores which I conducted for Printers' Ink, when I was connected with them as a member of their staff: " Before the chain store came into the field I had several stands in the city. I was doing a thriving business and making money. At that time if a man was at all sharp and knew his business he had no difficulty in doing a large and paying business. When the chain store entered the field my troubles began. I had to give up one store after another until at the present time I have this one stand left. It is a hard propo- sition to-day. You can not make any money on the merchandise you sell. Almost 90 per cent of my trade was on imported cigars. The great fight between the two large chains killed my trade in imported cigars. "Then, again, the coupon has been another means of taking my trade away. For example, I had a customer, a very large banker, who used to send over for a box of Perfectos every day. Some time ago I noticed that I did not get his usual order. I found out that the office boy was going to the chain store for the Perfectos and keeping the coupons himself. The reason why the chains have cut on the Perfecto is to get the higher class trade into their store. Up to that time they had been catering to and getting only the cheapest class, so they began to cut on all the high-grade cigars with that view in mind. I believe if the chains had not used these methods of competition I would be worth to-day over $100,000. ' ' I used to be able to take any run-down store and make it pay. The last time I tried it I lost over $2,000. This was due to the fact that a different kind of competition had entered the field. ' ' When I had the four stores they sent around to me an offer to buy me out. They ofiered me $1,000 each for the good will of my stores and dollar for dollar for the mer- chandise in each of my stores. In this offer they threatened that unless I accepted this offer they would open up a store in my neighborhood. They also offered me a job in case I sold out to them at their price. I told them I would take $15,000 for my entire business and I would not accept a job, which they reftised. A short period after they opened up a store next to me. ' ' ' Some years ago I bought out the good will of a man in the cigar business. I invested a few thousand dollars in the business. I have tried all the time with all my efforts and abilities to take proper care of my business, to please every customer, big or small. I neglected my health, my pleasures, with the one hope to develop my busi- ness; to build up some future for my family. At the same time when I invested all my capital, all my energy, and all my liberty, with the only hope to be rewarded in the future with a sure existence for the coming old age, one chain-store company surrounded my place with three stores; another with half a dozen stores. They cut the prices so low that it is impossible tq follow and meet their prices. ' ' For example, the 10-cent cigarette of which the wholesale price is a little less than $8 a thousand, retails at 8 cents a package; the chain retails them at 10 cents a package and gives with each package two certificates which have a purchasing value of 4 cents. 90 EEGULATION OP PKICES. "Another example: Pall Mall cigarettes cost at wholesale $16.90 a thousand. The chain retails them at 20 cents a package, also with two certificates which have a pur- chase value of 4 cents. That shows plainly that the chain sells a package at retail for 6 cents, where I have to pay 8 cents at wholesale for the same, or the chain sells a package of Pall Mall for 16 cents and the retailer has to pay 17 cents at wholesale. " Now, the question arises, how do they do it? If the chain store can sell foods below cost, how is it possible that they accumulate millions, paying dividends on watered stock and making a big show in the business world? The answer is plain. I believe they undersell popular brands and always make up the loss by misrepre- senting the quality of brands specially made for them or by them, using the word "imported," which so pleases the American people, on cheap Porto Rico cigars or by using the Porto Rico wrappers with a Pennsylvania-mixed filler and calling it "clear Havana," or by selling a common wood pipe and naming it "imported French bria/," or by selling Virginia mixed tobacco for the high-priced imported Turkish, or by iising molasses and maple sugar in tobacco to make the tobacco sellable. Here is the point: The public in general that patronize these chain stores pay over millions of dollars every year for the brands of cigars, cigarettes, tobacco, and pipes which are 80 handsomely and beautifully packed and wrapped, but surely have not the value of even 50 per cent of the price they are sold for." "The chain stores have killed the retail trade for the small dealer. They have Cut the prices so low that it is impossible to make a profit on a cigarette or imported cigar. "When they first started to operate in the city, they picked out the best locations and offered to buy the man out, and if he refused, other means were used to get him out. One of my friends, who died recently, had such a fate. He was situated at One hundred and sixteenth Street corner. They offered to buy him out and he refused, so they bought out the lease, and he was forced to get out. He moved a few doors from his old place, but only lasted about two months, when he had to close up entirely." ' ' Another place, at Ninth Avenue, the dealer refused to sell out, so they bought the building and put him out. There is no question that the chain stores have hurt me, not because they are cheaper, but because people believe they can buy cheaper in their stores. Since the chain stores have opened up around my neighborhood, I have discouraged the sale of many meritorious preparations, most of them nationally advertised brands. This was due to the fact that they have cut the life out of them and it made it impossible for me to meet their prices. You know what I did with Kolynos? I used to be an en- thusiast for Kolynos, and had quite a good sale on it. To-day I don't believe I sell a tube a week. When I found out that the chains were selling it for 15 cents, and it cost me 16f cents, I refused to keep it on my shelf any longer. When a customer comes in for Kolynos I go over to the chain store and buy it for him, and this is not only true of Kolynos, but true of many others which I could mention. You ask me how I stand this. Well, if it were not for the fact that I am established here for the past eight years I could not exist. I don't think I could pay the rent from my neighborhood trade. V/hen I first came here I was the only one around for many blocks. I built up a nice trade, which was due mostly to my square dealings and the special efforts which I laid on giving the people what they asked for. I am not a believer in substitution, and I will not try to give a person something just as good, but conditions are such now that even though my conscience hurts me to do it, I am compelled to, because after all, self-preservation is the first law of nature, and it is due to these facts that I am still able to maintain my customers. They have a system. They are cheap enough on patents, but when it comes to prescriptions, drugs, and sundries, many times they are higher than I am. To cite you an instance, one of my customers came in for a nasal douche, which costs me $1.50 a dozen. I sold it for 25 cents apiece, and made a fair profit. One of my customers came in one day and asked me for one of these nasal douches, and being out of them, I sent my boy down to the chain store to buy it. They charge him 35 cents. It was a good thing the boy got a check with it so I could show my customer that I had to pay 35 cents for it, otherwise I would have lost her if I had tried to charge her that price because she would have thought I was trying to rob her. The only solution is price maintenance. With that in existence we would force the unscrupulous chain store to sell at a fixed price and you would have no difficulty in meeting the competition of the chain store, because after all, the one great element which is lacking in their system is personality, which we have, and I believe that is one of the essential factors that has enabled me to remain so long in business even though cut- throat competition is still in force." REGULATION OF PEICES. 91 " I have to give trading stamps around here in order to meet competition, and let me tell you the competition here is mighty fierce. I have four of the chain stores right around me. Each one of them is giving trading stamps. It is a hard game here and they do cut into the profits of your business. My stamps cost me $12.50 a book, or 12.50 per thousand. To cite an advertisement of one chain: One pound of tea 60 cents, one pound of coffee 35 cents. With this order you will receive 100 trading stamps. Now these stamps cost them 25 cents alone, no matter how many thousand they buy. Can you imagine what grade of tea and coffee the customer receives with these 100 trading stamps? It is the cheapest possible. To give you an idea of what the prices around here are and what competition I have to meet, I will give you the selling list of my nearest chain store, which sends out the following circular: NEW yoke's cheapest CASH STOKE. ■ For the balance of this week we will give double "S. & H." trading stamps with everythii^. We are also doing some tremendous price cutting, such as: Cents. Large can Baker's breakfast cocoa 17 Large can Huyler's breakfast cocoa ' 17 Coleman's English mustard, i-pound can 10 , Crisco, best of cooking, 1-pound can 9 Chirtice Bros, blue label catsup, large bottle 17 Curtice Bros, blue label catsup, large bottle 11 Campbell's soup, all flavors, a can 8 Campbell's baked beans, large can 8 Shredded wheat, new crop, package 10 •Force, famous breakfast food, package 10 Hartley's imported marmalade, jar " 14 Lea & Perrin's imported sauce, bottle 21 Toilet paper, 3 rolls for 10 Derby brand imported condensed milk, large can 8 Kirkman's borax, Babbit's Best, or P. & G. gold soap, 3 cakes for. 10 Uneeda Biscuit, per package 4 Some big stamp specials for the balance of this week. 5 S. & H. stamps free with 1 package Bird's Eye or Safe Home matches 5 5 S. & H. stamps free with one can Armour's or Babbit's cleanser 5 5 S. & H. stamps free with 1 cake Ivory soap 5 5 S. & H. stamps free with 1 cake Fairy soap 5 5 S. & H. stamps free with 1 bottle salad oil. 5 5 S. & H. stamps free with 1 bottle Domestic sauce 5 5 S. & H. stamps free with 1 can Borden's cocoa (large can) 15 5 S. & H. stamps free with 1 package Schumacher's farina ^ - - 6 5 S. & H. stamps free with 1 bottle 2-in-l shoe polish 10 10 S. & H. stamps free with 1 package Best hominy 10 10 S . & H. stamps free with 1 package cornmeal, white or yellow 10 10 S. & H. stamps free with 1 package macaroni '■ 10 10 S. & H. stamps free with 1 package spaghetti 10 10 S. & H. stamps free with 1 large bottle peroxide : 10 10 S. & H. stamps free with 1 large bottle witch hazel 10 10 S . & H. stamps free with 1 bottle French Virgin olive oil 20 100 S. & H. 8ta,mps free with 1 pound best tea, 60 cents; 1 pound best coffee, 35 cents; all for 95 AH this testimony which I have read comes from the dealers whom I personally interviewed. I desire to read to you part of an interview I had with one of the largest grocery jobbers in the country: The manufacturer himself is responsible for the chain-store growth. The growth of the chain store is due only to the inside prices and quantity discount and price cutting. Eliminate these two evils and the cham store will crumble. Many a manufacturer has seen the chaotic results which follow by dealing with the chain stores direct. Only a short while ago one of the largest manufacturers as well as national advertisers, told me his experience with the chain store. One of the large chain stores came to him and demanded an inside price on his goods, threatening to use all sorts of means to destroy that product if he did not accede with his demands. The manufacturer, fearing the strerigth of the chain store, conceded this demand. As a result the chain store bought between seven and eight thousand dollars worth of goods for that year. Shortly 92 BBGULATION OP PBICBS. after the chain store put out a brand of its own and featured that brand very strongly. The following year the chain store's order to this manufacturer amounted to less than $200, the reason being that they had merely used that brand as bait and had sub- stituted their own. Another case where the chain store is the cause of killing legitimate demands for goods is through the poor quality which they are offering to the consumer. A large manufacturer came to me recently with an offer to sell me 1,000 cases of asparagus. Upon inspection they were found to be sour, so I rejected the offer. He went to another jobber, who also turned them down on the same account. The manufac- turer offered this lot of asparagus to a large chain store in New Jersey and it was accepted by them. Shortly after they came out with a large advertisement on the asparagus, which was sold at a very cheap price. The people who bought the aspar- agus could not use it and as a result they obtained the impression that all asparagus was of that nature, and therefore the legitimate demand for asparagus dropped off considerably in that territory. To get at the real meaning of the chain-store situation, we must split it up into its natural elements and study them first as individual factors and then in relation to each other and to the whole. By a chain store I mean retailer chains under one owership and direction and have in mind chiefly those which cut prices on trade- marked brands. There are also retailers' chains which do not cut prices, and there are manufacturers' chains. These chains are the specialty chains who as a rule merchandise on commodity such as hats or shoes. Your attention in this presentation wiU be called to those chains which cut prices and are the menace to the retailer's weKare. These are particularly in the drug, grocery, and tobacco fields, which are the storm centers of such competitive merchandising. Our investigations showed us the relation of the chain stores to independent stores in those lines in the most congested centers of populations, as foUows: Total. Cbains. Stores. Chain. Ind»- pend- ent. GROCEBIEa. Greater New York Chicago Philadelphia. Boston TOBACCO. Greater New York Chicago Philadelphia , Boston , DRUGS. Greater New York Chicago Philadelphia Boston 13,613 7,510 5,200 2,829 2,394 2,350 1,100 308 2,281 1,106 921 314 10 130 1,262 546 439 45 172 16 34 12,831 7,380 3,938 2,371 1,955 2,306 928 292 2,199 1,089 868 280 HOW CHAIN STORES GROW. In the grocery trade the compilation finds that the number Of retail grocery stores in Greater New York has added a half in 10 years, while the number of chain stores has nearly quadrupled and grown seven times as fast. REGULATION OF PRICES. 93 . By "chains" it is perhaps necessary to repeat that we mean groups of retail stores under one ownership and direction. We have esti- mated there are more than 2,000 such chains of all kinds in the United States with a total of more than 25,000 stores, exclusive of retailers' cooperative, jobbing, or manufacturing combines, of which latter there are hundreds, incorporated and unincorporated, and exclusive of more agencies. We have noted some of the more important of these combines, but we have not counted them in the figures. For the same reason we have excluded from our list syndicate ownerships which are not centrally managed. It is often hard to make a dis- tinction, but the principle will be recognized as sound and, the evi- dences of its operation as significant. As all of the chains are growing, the larger ones at the rate of one or two stores a week, the figures were absolute only on the day they were reported; they are, however, as accurate as it is possible to get them. Conditions in the drug field, where the next largest number of chains obtain (probably about 200, with a total of approximately 1,400 stores), are very different. In most communities the drug store is a more or less general store. In the large cities it seems on the way to become a department store. In the retail tobacco field there are probably 250 or 300 chains, with a total of 2,500 stores. It will be interesting to notice that the chain store is growing toward "big business." Many have already gone to Wall Street for their financial backing. The following are a few of the large corporations with the amount of their capitaMzation set against them. GKOCEBT CHAINS. James Butler Grocery Co. (238 stores), $10,000,000. Great Atlantic & Pacific Tea Co. (807 stores), $2,100,000. Acme Tea Co. (315 stores), $2,000,000. Kroger Grocery & Baking Co. (182 stores), $2,000,000. Mohican Co. (50 stores), $2,000,000. DRUG CHAINS. Riker & Hegeman Co. (105 stores), $16,000,000. Owl Drug Co. (20 stores), $6,500,000. Louis K. Liggett Co. (52 stores), $4,535,460. TOBACCO CHAINS. United Qgar Stores Co. (1,000 stores), $35,000,000. DEEABTMENT-STORE GROUPS. United Dry Goods Cos. (5 stores), $35,000,000. Associated Merchants Co. (4 stores), $25,000,000. May Department Stores Co. (5 stores), $23,260,000 H. B. Oaflin Co. (28 stores), $9,000,000. 94 REGULATION OF PRICES. There are many more whicH could be mentioned with the capitali- zation in the six-figure mark. It will be interesting to note that large Wall Street financiers and promoters have taken an active interest in the financing of the chain stores and many of them are on the directorate boards. The chain stores in Philadelphia dO not allow their managers to participate in the profits of the concern. They work on a straight salary. They generally start a man at about $7 a week, and if he gets $15 a week he is getting a very good salary. It is only in exceptional cases he will get as high as $20. They prefer men from England, Ireland, Scotland, or Wales, those who have served an apprenticeship in one of the shops there, believ- ing that type makes a far better clerk than the average American, who is too independent. My belief is that standard prices on standard goods will give the small retailer a chance to compete with chain stores and department stores which systematically use well-known articles as decoy. In the various hearings before the Judiciary Committee, the only opposition against price maintenance were from the chain and department stores. It seems evident that they realize their weakness. They know that the very hfe of their business depends on predatory price cutting. With the one-price system on standard articles, it will put competi- tion on a basis of quahty between manufacturers and of service between dealers. Then it will come down to the survival of the fittest. The man who can serve the public best will be the man who will reap the reward for his labors. I want to say, Mr. Chairman, that I have been a salesman for several large manufacturers, covering some territory in the east. I have been an investigator for a publication, and I have also written special articles on these subjects, and I made a special study of the chain stores, and especially with reference to cut prices, showing how the chain stores thrive on the cut prices and uncler their methods of trade competition, which is their great weapon. Mr. Talcott. With what periodicals were you employed ? Mr. Zimmerman. I was on the editorial staff of Printers Ink; I was in the capacity of a trade investigator for that periodical, investigat- ing mostly the retail merchandising conditions, with the view to helping the manufacturer, looking into the problems of the retailer and the manufacturer. In my work in the retail trade I not only touched on the retailer himself, but the cheaper manufacturer also, and learned their prob- lems from their own mdividual standpoint. During this investigation which I have conducted, I was in con- stant touch with these various chain-store systems, and every time I would call one of them up I would ask them, "How many stores have you to-day?" They would tell me how many they had on that day, and then when I would call them up a httle bit later there would be a nuraber of new stores added to the list. I remember calling up, at one time, the Great Atlantic & Pacific Tea Co., and when 1 called them up that day they had 792 stores. Then when I called them up a Httle later than that, they told me they had then 823 stores. REGTJLATIOlir OF PEICES. 95 I remember when I was in Philadelphia I was talking to the ma,nager of one of the biggest chains in that locality, known as the Childs Grocery Co., of Camden, N. J. They had 226 chain stores at that tune. When I was down there that was some time in August. From the 1st of January to the 1st of August they had opened 62 new stores. So you can readily see from the examples whidb I have given how fast they are growing. In the investigation which I conducted, I found that there were approximately 2,788 such stores. Mr. Talcott. Are their methods all about the same, in reference to price cutting? Mr. Zimmerman. I would say this, that as in everything else in the world there are, you know, good things and bad things, and so there are good chains and bad chains. You will find that the good ,, cha,ins are some of the specialty stores, such as the shoe and hat store, which are conducted by a manufacturer who has been compelled to take this method of merchandising in order to protect his product. Examples of that sort of thing would be the case of the Knox Hat Co. and the Regal Shoe Co. There are a good many others. They have to do that in order to protect their own interests. When I was talking not long agO with the manager of one of the big specialty chain stores, he said it is a big undertaking, it means an expenditure of hundreds of thousands of dollars; a tremendous invest- ment of money, and they do it because it is necessary to do it in order to protect their brand. They have to establish agencies in various cities. They do not want to do those things, but they are compelled to do them. The great question of price cutting comes down to about three or four fields. There is the grocery field, the tobacco field, and the drug field. This is where the great harm Mr. Talcott (interposing). Tea and coffee? Mr. Zimmerman. Those are included in the grocery field. This is where the great harm is done. I have already given you a good many interviews which I have had with different retailers during the in- vestigations which I made. I remember in Philadelphia about 10 years ago there was something Hke 12,000 retailers. The Chairman. Was not the jewelry field the one which you did not mention ? Mr. Zimmerman. Yes, I think you are right, Mr. Chairman. I went at this work in Philadelphia about 10 years ago and at that time there were in the neighborhood of 12,000 retailers in that city. Now, there are about 6,000 or 7,000 retailers and there are about 1,260 chain stores in the city of Philadelphia alone. That shows how fast the chain stores grow, and how well they thrive, and how deadly the competition is. Mr. Barkxey. Did they continue their business even if they did not cut the prices ? Mr. Zimmerman. Yes. If I had the time to go into a detailed discussion with you in regard to their methods of competition I could clearly demonstrate to jou that it is not only dangerous to the con- sumer and to the retailer, but dangerous to the countrjr at large. I think the chain store is just as harmful a factor in this country to-day, for the welfare of the country as the Standard Oil Co. and the American Tobacco Co. 96 KEGULATION OF PBICBS. Mr. Baeklet. You are against the chain stores and you want to put them out of busmess ? Mr. Zimmerman. I do not want to put them out of business; I want to see them regulated, so that they will not be so harmful to the retailers. Mr. Barkley. If it is such a harmful institution as you have said — and you have said it is just as harmful a factor as the Standard Oil and the American Tobacco Cos. — you would regulate the chain store by compelling it to sell its articles at the same price you sell yoiu"s, or at the same price the ordinary retailer sells his. Mr. Zimmerman. I do not quite understand that. Mr. Barkley. I say, if the chaia store is such a harmful institution as you have clailned it to be, as harmful a factor in American business to-day as the Standard Oil and the American Tobacco Co., you do not want to apply a more radical remedy, but you want to make them sell at just as high a price as the retailer gets for his goods. Mr. Zimmerman. The point I want to make is that the chain store is a manipulator of things. We will say the chain-store concein has a hundred stores. They can manipulate those stores in the same man- ner in which the Standard Oil Co. could manipulate its various branch companies, by manipulatiug its various territories. In one section it may do that by cutting down the price of every standard brand of article it carries, and in another section, where they do not have the competition, they can raise the price or keep the price at the same high point as that charged by the other retail stores. And they will do that. They will take standard brands and cut the prices on them down in some.places, and when you come into that store — and you must remember that the chain store of to-day is one of the most impressive you can walk into. A person is absorbed by the sight of so many clerks and all the modern equipment which the chain stores have, and so the purchaser, almost overcome by all this modem equipment and all these modem arrangements, vnH not have the nerve to question the price which the chain store puts on an article, but he wiU have the nerve to question the price charged by the smaller retailer, and he wiU frequently put it up to the small retailer where the great advantage of the cham store hes. The Chairman. It h3rpnoti2;es the fellow? Mr. Zimmerman. You are right, Mr. Chairman. Mr. Talcott. They will put it up in one place, and they wiU put it down in another, so that in the end it comes out about even ? Mr. Zimmerman. That is right, in a good many cases. I foxmd that on rubber goods, for example, they were from 30 to 100 per cent higher than the ordinary individual retailer. Mr. Barkley. Do you mean to say that the consumer would go to one of those chain stores and buy that stuff, rubber goods, for example, at that higher price just because he hkes to go into a dean- looking store ? Mr. Zimmerman. No. The Chairman. You are really trying to protect the consumer? Mr. Zimmerman. Yes, Mr. Chairman. The Chairman. I have been looking for that sort of a witness all Mr. Zimmerman. It is not because the consumer likes to go into the place because it is a clean-looking place, and because it loo^ im- EEGTJLATION OF PEICES. 97 pressive, but it is because of the impression created by the adver- tisiug done by the chain stores. On some of these well-known articles the consumer receives the impression that Tsecause that is sold at a reduced price, that everything else he is going to buy at that store is going to be sold at a cheaper price than he could get it elsewhere. As a matter of fact, tlie only things you wiU buy there are much dearer. The consumer wiU not ask the chain-store man why it is that he can get that article cheaper in some other store; on the contrary, he will take it and walk out and think he has gotten a bargain. I have here an advertisement of one of those chain stores in New England. It gives the prices on a great many well-known prepara- tions. It will be a noticeable fact in these advertisements that the chain stores put in their own private brands. . And out of seven private brands or private remedies advertised in this advertisement there are only two of them on which they have cut the price; that is, there are only two of their own preparations which they advertise to sell at a reduced price; they ask the fuU price for every one of their other brands; and tney do not ask the full price for any one of the nationally-advertised brands. Mr. Bakkxey. They cut the price on their own preparations ? Mr. ZiMMEKMAN. They do not cut the price on their oavq prepara- tions. Mr. Bakklet. That is what I thought you said. Mr. Zimmerman. I-say they cut the price on but two of their-own preparations. They inserted in the advertisement seven of their own brands. Mr. Barkley. And they cut the price on two of them ? Mr. Zimmerman. Yes; they cut the price on two of them, so that the other five of their own brands were advertised at the fuU price, and they have also 37 nationally advertised brands. Mr. Barkley. They make these seven articles themselves ? Mr. Zimmerman. Yes; those are their own preparations. Mr. Barkley. And they fixed the price on two of them so that it was lower than on the other five ?- Mr. Zimmerman. Yes. I will try to make that point clear. Here; is an advertisement of these well-known brands. Mr. Barkley. How many of them are advertised there ? Mr. Zimmerman. There are 37 well-known nationally advertised brands advertised there, and they are aU cut. They have inserted in that advertisement 7 brands of their own make. And out of those 7 they have only cut the price on 2 of them. You will observe, when- ever you go into a chain store, that they never cut the prices on their own brands. . . Mr. Barkley. They fixed the prices on two of those articles they make themselves, and then they cut their own prices and make it appear as if they are selhng them at less than they are worth ? Mr. Zimmerman. No.. Mr. Barkley. But how can a man cut the price on his article unless he has originally fixed a price which was higher than the price which he is asking at the time he advertises the article? I do not understand how a man can cut his own price unless h&t-jpreviously fixed a higher price and then reduced that higher price. SI 295 — 15 7 98 REGULATION OF PEIOES. Mr. STfeVENs of New Hampshire. I think I can iUustrate it in this. wm:. A local drilggist in my town makes a cough syruR ana cnarges a dollar a bottie For it. Then some day he reduces the price and sells it for 75 cents. Mr. Barkley. That is what I said. . • ^u i o The Chairman. I suppose, then, there is nothing wrong m that? As long as he reduces his own price there is nothing wrong m tnat. Mr. Stevens of New Hampshire. While they l^?;^^ *^?^^ , ,*?^ brands, they very seldom cut the price on their own brands, but they usually cut the prices on other people's brands. j . , The Chairman. I understand that part of it, but I also understand that the other point is that he reserves the right to cut the price on his own brand, but that he says the other fellow must not be allowed to cut the price on other people's brands. Mr. Zimmerman. I want to cite two examples. I was talking to a dealer not long ago in regard to this question of cutting prices, and he told me — he gave me his usual hard-luck story, which I had been listening to for some time. He said, "there is a nasaL douche which I sell for 25 cents, and I make a decent profit on that. One of my customers came in the other day and asked me for that kind of a douche, and she wanted it in a hurry. I did not have it in stock, and I sent my boy down to one of the big chain stores to get one of those nasal douches. He paid 35 cents for it. It was a good thing that my boy brought back the bill for that. If he had not brought back the bill, and if I had charged that customer of mine 35 or 40 cents for that douche she would have thought that I was robbing her, and I wouid have lost a customer right there." That is what they are doing right along. . I was talking' the other day with a manufacturer of a vacuum cleaner. He said, "is there any chance of this price-cutting biU getting through Congress?" I said, "I hope so." He said, "1 am up against it hard, and unless we have legislation immediately in regard to this subject I am going to go out of business." He said, "I am putting out a fine vacuum cleaner, for which I receive, at retail, $38.50.' He said, "there is a certSLin company in New York which also manufactures a vacuum cleaner of their own. This manufacturer, who is cutting the price, advertises about half a dozen different makes of vacuum cleaners, which he gets from other manu- facturers. "He takes my vacuum cleaner which I sell for 138.50 — that is, the retailers who handle my vacuum cleaner get $38.50 for it — and he cuts the price on that to $29.50." He said, "I would not mind it so much if he sold the very same machine, the very same model I have," but, he said, "he does not do that; he takes an old model of my machine, a model that I have dis- carded for several years, and he puts that machine on sale. +!.• 1 ]"' ^ customer comes in, who has seen his advertisement, and tnis old machine is demonstrated to that customer, and they do not n^ZTr^. ■^ - 00 .^ CO ■V CM 00 • ■«< t>- CM -W (N CMO r-r- oi"^ m M ecc>- ec«s m »o 5SSI ii5 lO in lO O C3» O wo^aioioooooc^osr-iooiOiOit^TPiooiMOOGOioc^r-ooiotNcoioaiooioooo t^-HOicDf-tHmeocit^i-ieooi-Heoi— iNt^eoi-ii-iMt'-wm'— leoI-^o^^*I-^MlO■^eo 'S9I0JS f\ 10} ;^goid 93BJ3AV eooD -i-ioo -moo • N NooocoomooefecDOOO wocMO H (M MtH J9d '?gojd ssojS iBoiSiJO H CO t- T»i CO CO -: rcoio^a'ioeoNiocousiococOT • '93ijd Sm OlooooiooomoinootoowsiraoooinooooiQOicogujoifsoo oo5ioo»owinu3eoocsl«30M*ocqpaoiowcaioo"0"nc^»o>-ieooMioi>-»oio 'md}i lad uiso'sioor- coeoi>eoo>5oeo«3rHt^ ■«T'iOioi>-coeDinu3eo»n-i-«0'X>r^T-(COC005l>rHCOa3CMCO»-HWt-COi-Hi-(COt^COCO<-lCOi-lCMC^r-(eOmCOCO •U9Z0p Jdd 'jai^p (4 spooS JO ?soo 8Oir>iCOOOOOOOOOOOi0OOOt«Oi0QOi0OOOO OMPSco^OiOOOiOOOO(Dlor-OOlOCOOMOOC30iO"^-«' OOOOOOOOOU "OOOlO■*TI^MTJ•T-^MO^C<^^
«• . 1- ' Edgar Lumber Co. v. Cormie, 130 S. W. Rep. 462 (Ark. 1910); Hubbard ». Miller, 27 Mich. 15 (1873); Roberts v. Lament, 102 N. W. Rep. 770 (Neb. 1905); Merriman v. Cover, 51 S. E. Rep. 817 (Va. 1905); Horner V. Graves, 7 Bing. 73.5 (Eng. 1831); Mandeville v. Harman, 7 Atl. Rep. 37 (N. J. E(|. 1886). • Nordonfelt v. Maxim Nordenfelt & Co. [1904] A. C. 565; Standard OU Co. v. United States, 221 U. S. 1 {19111; Diamond Match Co. v. TJoeber, 13 N. E. Rep. 419 (N. Y. 1887). ' Gi ' s i). Cnnsolidited Gas Co., 130 U. S. 396 (1889). ' Elliman Sons & Co. v. Carrington & Sons [1901] 2 Ch. Div. 275; National Phonograph Co. v. Edison- Bell Co. [1908] 1 Ch. Div. 33.S. In Ford Motor Co. v. Armstrong, before Mr. Justice Atkin in the King's Bench Div. at Manchester, not yet reported, the right of the plaintiff to maintain its resale price was fuUy sustained; but only nominal damages-were awarded, as the court held that the stipulated damages were m the nature of a penalty rather than liquidated damages. In asimilar case, Dunlap Tire Co. v. New Garage Co., not yet reported, decided July 1, 1914, the House of Lords fully sustained the liquidated damage clause. ' Jandorf v. Incorporated Assn. of Manufacturers of Branded Articles, Berlin Geschaftsummer 73.0, 179 05, 48 vi. 489.06. BEGITLATION OF PEIOES. 143 the courts. In Denmark ' a section of the statute deaUng with unfair trade expressly forbids pnce cutting; and m this country the highest courts of two States * have refused to follow the Supreme Court decisions; while in at least one other State the Legislature has dealt with unfair competition in terms broad enough to cover price cutting.' And the Trade Commission Act, recently passed by Congress, gives the ComnuBsion power to deal with this business evil.* It would seem, therefore, to be entirely proper to examine the reasons and the principles of trade expediency on which the decisions are based, to see if they agree with our ideas of commercial justice and' fair dealing. , The principal argument of those opposed to price maintenance among retailers, in legislative committees, and on the bench, is that after one has parted with title to an article, he should nofbe allowed further to control it. That idea seems to underlie the recent enunciations of the Supreme Court, and has several times been expressed by Chairman Clayton and Ex-Judge Floyd of the Judiciary Committee of the Federal House of Representatives. The fallacy in this argument is that the manufacturer's interest in his product does not end with, the transfer of title to the dealer, but follows the article into the hands of the ultimate consumer or user. His business life is dependent upon the public's being able to buy his article everywhere at a uniform price, and always of the same quality. Cut price sales will speedily and surely decrease the sale of his product; and if he is able to survive the loss of business, the manufacturer will be forced to reduce the quality of his article. One dealer advertising a so-called "cut price" sale invariably causes other dealers to cut below him in retaliation, with the result that all dealers in the community are forced to sell the particular article at a price which yields no profit. It hardly need be said they will not long continue to handle an article at a loss; so the market for the article is killed in that community, not because the people want the "just-as- good " substitute, nor because the quality of the article has been lowered, nor because the standard price is exorbitant, but because a business parasite used the good name of a popular article to deceive the public into believing he sold everything below cost. It is to protect themselves against the disastrous consequences of such pred- atory price-cutting, which is little short of unfair trade,* that the producers, whole- salers, and retailers of trade-marked articles seek legislative or judicial condemnation of such practices and the legalization of resale price maintenance. A later result of general price cutting is deterioration in the quality of the slaugh- tered article. To get dealers to handle his product, the manufacturer must lower the price to the trade. Actual or potential competition prevents the uniform price from being excessive, so a lower price to the jobber forces the maker to lower Uie quality. Furthermore a reduction in the volume of business, resulting from the loss of sales in localities where cut price wars have been waged, increases the unit cost of ' Section 13 of an Act (No. 137) approved by King Christian X, June 8, 1912, provides: "It shall also be unlawful to sell or offer for sale at lower prices goods in original packages * * * upon which goods their fixed prices for retail sale are stated, uiiless the sale fails under the provisions of section 6." Section 6 refers to clearance sales of damaged goods, removal sales, and the like; the condition being similar to the provisions of paragraph I) of the Stevens BUI now before Congress; -See-note 4, supra; clause (4); - ' Ghirardelh Co. v. Hunsicker, 128 Pac. Eep. 1041 (Cal. 1912;) Fisher Flour Milling Co. v. Swanson, 137 Pac. Bep. 144 (Wash. 1913). 2 A New Jersey statute approved Apr. 1, 1913 (Chapter No. 210, Laws of 1913), makes it unlawful "for any merchant, firm or corporation, for the purpose of attracting trade for other goods, to appropriate for his or their own ends a name, brand, tradeTmark, reputation, or good will of atiy maket * * * or to discriminate against the same, by depreciating the' value of such products in the public mind, or by misrepresentation as to value 'or quality, or by price inducement, or by unfair discrimination between buyers, or in any other maimer whatsoever; except in cases where said goods do not carry any notice prohibiting such practice, an.l excepting in case of a receiver's sale, or a sale by a concern going out of business." < Section 5 of the Federal Trade Commission Act provides; "That unfair methods of competition in commerce are hereby declared unlawful." The Commission is given power to prevent unfair competition, and no attempt is made to define the term; so the Act is broad enough to make illegal price cuttmg that amounts to unfair trade. 5 In an interesting article in a recent issue of the Harvard Law Review (Vol. 27, p. 139, December, 1913) Mr. Edward S. Rogers suggests that in the extension of the law of unfair competition to include the su p- pression of all deceptive artifices by which one trader's customers are transferred to another, predatory price cutting ought to be included in that class of oases in which the courts have begun to eiyoin acts of unfair trade not involving the element of deception. Mr. Rogers shows that the essence of the injury in unfair trade cases is not the deception of the public, but the damage to the business of the producer, and the diversion of the fruits of his good will from the creator of it to one who seeks to utilize it for his own benefit. . . . , . 'he injury to the fair name of an article and to the good will of the business of its producer, resultmg irom price cutting, being clear, it is submitted that the courts should grant relief agamst the dealer who , slaughters a standard pricelarticle for an Ulti*i6r purpose— to foist upon an over-credulous public the ' unknown substitute, or to fool the public into believing that he undersells his competitors on all lines [ because he advertises a dollar watch for sixty-nine cents. "Advertises" is used advisedl.y, for the c,ut- prioe parasite usually has only a few, of the standard articles used as a decoy. Nevertheless the injury to the manufacturer and other dealers is complete, for the value of the sacrificed article is lowered in the mind of the purchasing public to the cut price, and legitimate dealers can no longer sell it at its regular price. X44: BEGTJLATION OF PBIOES. production. So the public suffers: either from not beiag able to buy this standard article which it has tried and found satisfactory; or if the article is still on the mar- ket the quality is not there. In the final analysis, therefore, price cutting of branded articles and price maintenance vitally concern each one of us as a customer. Another answer to this argument of the opponents of standard prices is that the first real sale is to the consumer. A manufacturer has not really sold his product when he has only transferred it to wholesalers, who have delivered it to retailers. If the article goes no further, the manufacturer's business will be short lived. The product of the maker's genius and enterprise is soU for the first time when it is pur- chased by the consumer and stays sold. The jobber and retailer, whether they work on commissions or price differentials, are really agents of the manufacturer— the chan- nels of distribution from the work shop to the user. The manufacturer's mark on the article is evidence that he stands back of his product:' it is the purchaser's guarantee of quality and service.^ This surely is not sold to the middle man. Back of the recent decisions forbidding price maintenance contracts is the assump- tion that to allow producers to control resale prices would mean high prices, and the further assumption that the public is benefited by price cutting. But, as suggested above, when an individual manufacturer in a competitive market establishes the price of his product, he does it sShis peril— "the peril that if he sets it too high, either the consumer will not buy or, if the article is, nevertheless, popular, the high profijs wUl invite even more competition ".^ This assumption seems to arise from the con- fusion of price fixing by a monopoly, and price maintenance by an individual producer in a competitive field, discussed above. The assumption that the public gains by price cutting is overwhelmingly nega-" tived by our commercial experience. It is a matter of common knowledge that the Oil and Tobacco Trusts were intrenched by price cutting, used to kill off competitors;* just as the mail order houses and chain stores are killing the small merchants today. The result is clearly stated in the annual report of Secretary of Commerce Eedfield thus: "Others say that the refusal to permit the fixing of retail prices tends to monopoly, because in the cut-throat competition certain to follow, obviously the stronger com- petitor will survive and may eventually have the business in his own hands, for the law forbids the making of agreements to maintain prices, and imder these circum- stances the weakest must go to the wall." But do not purchasers gain by the operations of a single cut price dealer? In the language of the Supreme Court of Washington, "it is a fallacy to assume that the price cutter assumes and pockets the loss. The public makes it up on other pur- his strong dissent in the Dr. Miles Case, "that in the long run the public will profit by this coirrt permitting knaves to cut reasonable prices for some ulterior purpose of 1 "It will not do to say that the manufacturer has not interests to protect by contract in the goods after he has sold them. They are personally identified and morally guaranteed by his mark and his adwrtise- ment." Ellis, J., in Fisher Houring Mills Co. v. Swanson, 137 Pac. Eep. 144 (Wash. 1913). 2 To insure his customers getting what is commonly known as "service" — which, on account of the impracticability of returning an article to the factory to have a small defect corrected, must be furnished by the local dealer, and for which the retailer is compensated by part of his profit, — manufacturers should be allowed to conlxol the resale price; for if a dealer has not made a living profit on an article, he cannot afiord to, and hence will not,, give this service which the maker guarantees. s See an interesting article from the pen of Mr. Louis D. Brandeis entitled "Cut-throat Prices— The Competition That Kills" in Harper's weekly for November 15, 1913. * " One of the most effective means employed by the Standard Oil Company to secure and maintain the large degree of monopoly which it possesses, is the cut in prices to the particular Customers, or in the partictuar markets of its competitors, while maintaining them at a higher level elsewhere." From the Report of Commissioner Herbert Knox Smith of the Federal Bureau of Corporations. In the article referred to in the last note Mr. Brandeis lays bare the pit-falls of general price cutting in these words; "It {price cutting] has been the most potent weapon of monopoly — a means of killinj; the small rival to which the great trusts have resorted most frequently. It is so simple, so efl'ective. Far- seeing organized capital secures by this means the co-operation of the short-sighted unorganized consumer to his own undoing. 'I houghtless or weak, he yieMs to the temptation of trifling immediate gain; and selling his birthright for a mess of pottage, becomes himself an instrument of monopoly." ' Fisher Flouring Mills Co. v. Swanson, 137 Pac. Eep. 144 (Wash. 1913), at page 151. See also the statement of Mr. John Wanamaker before the Industrial Commission: "I ^nt to keep awa;^ from the store that tries to catch me wltii that kind of a fish-hook. If they lose on one thing, they will put it on something else you don't know of. There are tilings purchasers don't know anything about." Keport of Industrial Commission, Vol. 7, p. 465. 'The evils of price cutting and the advantages of price standardization to the consumer werti forcefully stated before a Congressional Committee last February by Mrs. Christine Frederick, consulting household editor of the Ladies' Home Journal, Philadelphia Public Ledger, and New York Sun, and representative of the Housewives ' League. See Report of Hearings before the Committee on the Judiciary of the House of Kepresentatives, 62d Congress, 2d Session, on Trust Legislation, Serial 7, Part 18, p. 725, for Mrs. Frederick's statement. REGULATION OF PBICES. 145 their own, and thus to impair, if not destroy, the production and sale of articles which It IS assumed to be desirable that the public shouM be able to get " ' It is soinetimes contended that to allow manufacturers to control the resale prices of their brands would mean less competition. But the competition ■*■& need in this country is competition among manufacturers in the quality and price of their products- not the cut-throat competition atopng retailers, which the prohibition of price main- tenance has stimulated. A standard price and national advertising tend to raise the quality of an article, and to encourage competition. This fact seems to ha-^e been Overlooked by the Supreme Court, but it was emphasizfed by the Washiiigtoi Stkte Court in a well considered case ^ upholding piiice niaintenahce agreements on a special brand of flour. In its recent decisions the Supreine Court has shown a desire to foster retail competition. If this is the purpose of the Court, it is submitted tliat pri'ce cutting will have just the opposite effect. In the past few years the mail order houses and chain stores have eliminated many thousands of retailers. ^ And when they have completed their work of killing off the srdall independent dealers, ex- perience has taught us that the prices ^erf by these gigantic combinations of capital will be high, for they will have no competitors. It would seem, therefore, that the public has little to hope for from the present developments of retaiil colhpetition. Aiid It is a healthy sign to see the large manufacturers of standard brands fighting the battle of the small retailers for their very existence. Charles L. Milleb. Lancaster, Pa. APPENDIX E.— WHITTIER. [Speeoh by Alfred D. Woodrafl, food supply expert of the New York Association for Mproving tile CoE- dition of the Poor, at a mass meeting of independent retail dealers to consider the sublet of price main- tenance.] .^OLiAN Hall, New York Friday, April U, 1914. Mr. Woodruff. Mr. Chairman, ladies, and gentlemen: How many retailers pf foodstuffs are there in the audience to-night? Please raise, hands. I am fortuiiate enough to be associated with one of the largest and oldest charity organizations of this country, doing a magnificent work. However, I don't want that society to be made responsible for anything I may say here to-night. I speak as an individual. I speak as a retailer since 1890. I have put in 24 years of hard work in retailidg foodstuffs. I have made an investigation of the food supply conditions of this city such as has never been made before. I think I know somewhat about conditions. I hear a great deal said about the high cost of living. There is no such thing. It is the cost of high living; the cost of careless living. The consumer to-day, it is true, pays a great deal more for supplies than ever before. It is also true that the retailer, if he is making his purchases right, is able to buy foodstuffs I'ower than ever ih the last 20 years, and yet he is up against it good and hard. He is hardly making a fair living. It is due to the fact that the consumer is making such Unusual demanid's in the way of service that the profits of the retailer are practically nOthihg. I asked for a show of hands when I commenced to-night because I am going to say some things that you may not agree with. In case I make statements thiat do not coincide with your views, I want you to stop me. There are a number of classes of retailers in the food supply business^ — first the department store, second the large chain stores, then the smaller chain store systems, the large individual dealer, and the small individual dealer or comer grocer. ShAme on the grocer that has got to get all grades and prices of coffee out of the same bag. You remember when the time was that practically every employee of a butcher had to "take his wages off the scale." That used to be the usual thing. I remember one time I was employing a number of butchers, and the first question they asked me was "Am I expected to get my wages off the scale?" Thank Cod, I always said, "No; not in this shop." 1 Dr. Miles Med. Co. v. Park, 220 U. S. 373 (1911), at page 412. 2 Fisher Flouring Mills Co. v. Swanson, 137 Pac. Em. 144 (1913). ' In a recent speeoh in the United States Senate Senator Lippitt, of Ehode Island, quoted figures to show the astonishing growth of the business of these enteirprises, until today one Chicago mail order houSia does an annual business of close to $100,000^0; and last year the sales of a chain of flve-and^ten-ceat stores reached the amazing total of $66,000,000. " Where has that business come from? It has come from the small storekeepers and the people engaged in moderate-sized business all over the United States." Extract from Congressional Record of August 5, 1914. In Philadelphia statistics show that the grocery business is being speedily monopolized by chain stores. Notwithstanding the growth of the city, there are today less than one-half the number of grocery storeg that there were five years ago. It is befieTed that statistics in all the principal cities would snow a similar decrease in the number of retail drug, cigar, and grocery stores. 81295—15 10 146 KEGUIAHON OF PBIOES. Busiiiess is in a chaotic condition, and sooner or later the small retailer is going to be a thing of the past, unless soiDe conditions that exist now are remedied. To devise some means, or secure some enthusiasm that is going to make a great stride in the right direction is the reason this meeting has been called this evening. In this great city of ouiB about 10 per cent of the merchants of foodstuffs don't know how to be honest. We have no use for that class of merchants. And then there are the chain stores foolmg the people all the time, cutting prices on things which the consumer knows all about, and charging exorbitant prices on things which he knows little or nothing about. If you want 25-cent coffee from them you can get it. If you want 38-cent coffee from them you can get that, too— generally out of the same bag. If you want Ceylon tea at 40 cents, and if you want it at 60 cents, or 70 cents, or 80 cents, or 90 cents, they will sell it to you, generally out of the same chest. Now, these conditions have got to be remedied. Until we get down to rock-bottom facts and expose these conditions we are not going to be able to get anywhere. As it ifl now, when a consumer comes into a store and reads over her list of wants, to the merchant, and says she can not pay his price for Baker's cocoa, because she can get it a couple of cents cheaper down the street, the merchant doesn't want to see her to out, so he sells it at that price, and so on through the list, until when she has gone e discovers that on her whole order of, say, $3.60, he has only a profit of about 18 cents. Still, in many cases he thinks that is 18 cents to the good, anyway. But it is not. It costs that merchant from 20 to 28 per cent to do business, and in this losing game sooner or later you are all going to be wiped out. The chain-store system is after you. Buying so much lower than you can, getting such larger discounts, and you have not a word to say. You are simply standing behnd the counter 16 to 18 hours a day, and if you are in the green grocery busineas some time of the year you work 20 hours — even 24 — and what for? For $15, $18, or $20 a week, perhaps. Shame on these conditions. We have got to do something about it. Why should the National Biscuit Co. give the man buying $500 worth of foods 15 per cent discount, while you don't get any discount, perhaps? But you ave to sell their goods just the same, because the consumer demands that you keep them. I want to say a little about short weight and poor quality. I refer to the chain- store systems, such as the Atlantic & Pacific Tea Co., James Butler, Andrew Davey, and that class of establishments. In the investigation I found 10.8 per cent of it was not fit for use. That is what they are giving to the people on the West Side and to the people on the East Side. What are you going to do about it? Get busy with your Congressmen. I don't say that the Stevens bill is perfect or that it is going to immediately remedy all these conditions, but under it the retailer will at least have a chance to live, which now he has not. Get busy and insist that the Stevens bill or some similar bill or some revision of that bill be passed, and passed immediately. Then we will begin to see the dawn of better conditions in the retail foodstuH line. [Applause.] Let us bury beyond resurrection this price-cutting evil which does not give the retailer a chance to exist, much less to make a little money. Why, if I violated the confidence of one of the largest grocers in this city, I could tell you he said there were more than 10 per cent of the retailers in this city who would be out of business were it not for the fact that they were being practically carried by the manufacturers. You are struggling like dogs, working as no other class of people work and getting nothing for it. Get buw on this bill and do everything you possibly can to get it enacted. Again I say, bury beyond resurrection this iniquitous price-cutting evil. Applause.] APPENDIX F.— WHITTIER. St. Louis, Mc, March S6, 1914- Honorable William Igob, Washington, D. C. Dear Mr, Igoe: I beg to call your attention to House bill No. 13305, which is now before you in Congress, and will ask you to give your support in behalf of the small merchants throughout the United States to pass this bill. If this bill goes through Congress and becomes a law, it will be of the greatest help to the majority of the inhabitants of the United States. This bill will equalize trade condition^ and will be one of the greatest measures to curb the dishonest methods of the druggists and large department stores and cut-rate establishments, and to prove my statement I cite you a little instance that happened during the campaign of Mr. . Mr. dropped in my store when he was going over the — ^ district, and, as I am a druggist versed in my line, stated that his uncle was formerly owner EEGULATION OF PIneBS. 147 D *H"1 ?^^ ^°^ °* °"'' *^^*y ^^^ retained one share which amounted to $100 He asked me to guess how much of a dividend his uncle had received. I told Mm I had no idea, and he made the statement that he received $400 cash dividends that year. I bring this out to show you the enormous profit that these so-called cut-rate establish- ments receive and I will cite an instance to prove that they make these enormous profits by cutting the price below cost on staple advertised articles to get people to '^TV?^*'^®"' ^^°^^^' f^, '^^^'^ °'i'^^ ™ *^ere, they sell them something different for wluch they pay the clerk a percentage which is termed P. M.'s and during my time with — as clerk, my P. M.'s over and above my salary, amounted from $8 to $15 per week and some of the things that I was instructed to substitute, and got pay for doing 80 paid the bouse a profit of 200 and 300 per cent, on which I received my P M. 8 while the manufacturer of the staple article which was aavertisea, after spending his hundreds of thousands of dollars to get the people to buy, and after it was used by the house to bring the people to the store, was beaten out of the sale of his product Pardon me for writing a long letter and taking up your valuable time, but I cite these instances m our city of an establishment that you know well, to give you an insight into the methods of cut rates and the hardship it works upon a druggist or any other merchant, and if the Stevens bill becomes a law, the substitution of cheap inferior, long-pnced goods being palmed off on the innocent public will come to an end. Hoping you will see your way clear to support this bill and that I may have the pleasure of awaiting your answer at our next retail druggist association meeting, I am. Respectfully, 0. J. Cloughlt, President Missouri Pharmaceutical Association. APPENDIX G.— WHITTIEE. Remedies Needed poh Unfair Practices Leading to Monopoly in the Retail Market — Consumer the Loser. [Address by Wm. H. Ingersoll, of the American Fair Trade League, before the National CIvio Federation.] Mr._ President, Ladies and Gentlemen: I speak for the ordinary business man of America, the ordinary manufacturer as distinguished from the great industrial corpor- ation, the ordinary wholesaler and the ordinary retail merchant as distinguished from the establishments employing great capital, such as department stores, chain stores, and the mammoth mail-order institutions. I say that I speak for them, but I do not wish to be understood as speaking against those from whom I have distinguished them. I am not here to speak for or against msn by classes, but it is my opportunity to speak against certain practices which are to be condemned wherever found, and which are the more dangerous when employed on a large scale. The speeding yeais shift the scenery rapidly upon the stage of the public forum. Our attention has been so engrossed with the problems of preserving the public safety without doing injustice to the great industrial corporations, the trusts, the railroad and the public service companies, that we had almost forgotten that America is largely made up of the ordinary business man, and yet those who are in the thick of the business developments of the country have come to realize that new forms of the problems with which we have been contending for years are now cropping out in the retail market^ a step nearer to the consumer, and for the next few years the center of the stage is to be occupied by that smaller but vastly more numerous individual, the average business man. In this country we have about one and a quarter millions of retail merchants; with their employees they number probably four millions, and with the members of thefr families probably four millions more, so that about 10 per cent of our population evenly distributed across the land is directly dependent upon our retail stores. Bound lip in their welfare is the general rim of the manufacturing establishments whose ]3roducts are sold through these stores, and with them, of course, are the wage earners in these factories. Included among the million and a quarter stores are the crossroads country general stores which supply the rural population and take up part of the farm products. Also included are the thousands of bright little establishments that coriffi'tutie the business centers of our American towns and cities, and give us the national vigor which characterizes American merchandising. 148 REGULATION OF PRICES. These are the channels through which new inventions are carried broadcast before the masses of our people, displayed, explained and converted into use from Maine to California. Not only in the number of people concerned, but in the aggregate volume of transactions, do these stores come first in the business world, and the problems which harass them go right to the threshold of the American home and touch the every-day welfare of all who purchase every day across the counters of this country! We who are confirmed residents of New York may have allowed to pass out of our conscious- ness that great institution, the local store, and we may barely remember that any radical change that affects it in the mass will affect our national life. Now we are not afraid of changes if they spell progress, and we have no desire in America to perpetuate any antiquated or unfit system of conveying our merchandise from the makers to the users, but neither are we willing to exchange an inherently good system of distribution for an inherently inferior one by the operation of artificial factors which destroy the true test of fitness. Nor are the American people going to consent to new forms of combination and monopoly in the retail market which base their supremacy upon unsound conditions. Our people are not willing to place themselves in the power of a few men for their supplies without being assured that benefits will be derived, and probably they will under no circumstances be willing to take a chance of what might happen to them if the hands which control the market were guided by heads become drunk with power. Now, let us get before us certain happenings of the business world, that we may observe the plain trend of the times, and then examine its significance calmly and with a desire only to distinguish what is good for the Nation and what is not. There is a pronounced tendency toward combination and concentration of trade in the retail field. Newspaper readers have noted within the past few days that apparently to all intents and purposes the United Cigar Stores and the Riker-Hege- man stores have consolidated. Within the memory of all here a great change has come over the drug business and cigar business of this city. In mentioning these companies and others, it is with no thought of attacking them, for they haven't done more than to make the most of the opportunities with which the people have provided them, and probably are neither better nor worse than the general run of business men. To see how rapidly the drug business has become centralized here, we heed only think back a few years, when there were four or five Bolton drug stores in Brooklyn. They were ably and aggressively managed. The opportunity came and they purch^ed the old iiiker dhlg store at Twfenty-third Street and' Sixth Avenue. Soon all of the Bol- ton stores became Riker stores, and in the metropolitan district new Riker stores were opened rapidly. Thus spurred on, the old Hegelnan Cbrporation of 200 Broadway undertook a similar extension of a system of stores, and then these two Strong con- tenders of the market found it desirable to combine two or three years ago. Beginning only a few years earlier, the United Cigar Stores commenced their devel- opment and rapidly forged to the front through remarkably a,ble management, and some other advantages which we may properly examine in a moment. An examination of the credit standing of the independent drug stores of Brooklyn in 1903 compared with 1913 shows that the average rating has shrunk one-half, while the volume of business transacted by this one system of local retail drug stores is quoted as having grown to $15,000,000 for this year. Tobacco, a trade journal, states thstt since the advent of the United Cigar Stores the number of independent stores has shrunk to one-ninth the former number in New York. Whatever the facts may be, the casual observer knows that the drug business and cigar business has become largely congested into these two chain-store systems, and the United Cigar Stores have spread from coast to coast and number now nearly 1,000. Another type of retail concentration is exemplified in our department stores. Such stores have grown up in every important commercial center, some of these individual stores dicing a business up to $20,000,000 a year and displacing maily small stores. But still more striking is the consolidation of many of these mammoth stores into one great chain, which is being rapidly extended throughout the country, and includes locally here the O'Neill-Adams, the McCreery, the Lord & Taylor, and the Hajine store of Newark, together with some 50 others. These stores are understood to be affiliated with the great wholesale business of Claflins and Lord & Taylor wholesale. I am not acquainted very fully with the ramifications of this great business unit, but I am told that they include close association, at least, with the Weber & Heilbroner chain of haberdashery stores, and a recent personal experience showed me a sample of another sort of extension of this concern^ I made an inqiiiry about a piano, and a representative called upon me, presenting the card of the O'Neill-Adams Co., which was not the company that I wrote to. In the course of the conversation this salesman told me that he really represented the Musical Instrument Sales Co., of New York, EKGULATION OF PMCES. 149 which he said operates exclusively through the Olaflin department stores, controlling their musical departments, and went on to say that they also controlled the factories wherein eight leading pianos are manufactured, the latest one being the old-established J. & 0. Fischer instrument. How many other factories are thus controlled and in how many lines I do not know, and I cite the instance only to show how these aggregations are multiplying their activities. Boyd's City Dispatch offers to furnish lists of approximately 10,000 namesof different chain store systems throughout the United States, some of these, of course, being very small chains, but all being primed to absorb the individual local markets and then become united into greater chains. It is only a natural development under present conditions. We are all familiar of course with the Butler chain of grocery stores, and in Phila- delphia, I am reliably informed that the chain stores have so largely captured the market that they have about half the number of grocery stores liiat ttiey had five years ago. We must not confuse our Hiought by sayii^ that this is a good thing and that there are too many stores. That is an entirely separate question, and we can at least agree that it is not a good thing unless the methods by which it has been brought about are good. In Chicago they have the Buck & Bayner chain of drug stores, on Pacific coast the Owl drug stores; we have our chains of candy stores, shoe stores, and all of these demonstrate the tendency which might be accepted as inevitable ec- onomic development, if it were clear that the causes behind the movement were natural and wholesome. There is one other type of retail concentration WQrt,iy of note, and that is the mail- order house exemplified by Sears, Roebuck, of Chicago, a single retail institution doing business this year of about $100,000,000, owning or controlling, according to the statement of one of its former managers, about 127 facliories, and having iia 1,264- page catalogue in about one out of every t^ree homes in the country. There are other mail-order houses of magnitude, a branch of Montgomery Ward & Co. having been established in this city recently. This company is said to anticipate a business of about $65,000,000 for this year. Having observed the strong drift toward concentration and combination in the retail market ftom which all of our people draw their supplies, it is suitable to ask whether this is a desirable thing from the sta,ndpoint of the people at large. If these laree companies are truly economic and able to deliver, wiOi a lighter carrying charge, t£e goods which consumers must have, and provided they deal fairly, the greater they are the greater good tiiey do, and provided also that the process of monopoly dqpg, not go so far liiat their mere size makes them a menace, for it must be remembered mat their growth comes largely from business taken away from smaller stores, and the dwiadling strength and numbers of these storey as the process continues will make consumers more and more dependent upon tlie new type of distributers. It can go sq .far, and level-headed manufacturers are beginning to realize that it is not a great distance farther where fhese great new middleinen will be able to say to the consumer, o.n one side, what it is good for him to have and what he ought to pay for it, and to the manu- facturers whom they do not own, on the other side, what will be marketed and what liiey shall receive for their goods. If we are going to have any new trust problems we want to be sure that they are not thrust upon us by a mixture of causes, good and bad- Our earlier trusts were the product not only of better business ability but iniquitous practices. New ones ftiuat prove iieir supremacy with out the support of thg latter. I have not learnpd where to place any litnitation upon the size of companies whose growth is brought about by natural causes and without unfair tactics, open to big but not to little business mein, but I have come to believe that the problem of size will not be thrust upon us if the American people sefe'that fair play is assured its business men. If the development of this new middleman is accompanied by unworthy tactics, where the weight of dollars overbalances skill and ma^ies the contest for mercantile supremacy merely a matter of brute force, then, together with every other lover -oi fair play, I must resist and say that there is no demonstration of superior fitness in the success of big busi- ness based upon improper practices. But a few years ago we played football under rules that fostered mass play. They put a premium on mere avoirdupois and brute force. The game lost interest because Qie result could all but be decided by putting the men on the scales without going through the formality of playing the game. In that case the rules themselves were unfair, although fairly observed, and if the rules.under which business is conducted— that is, our laws— are similarly unfair, tjiey need amendment. i, ,,', . The smaller merchants of America are m distress arid their difficulties are increasing as their newly developed competitors increase. These merchants are made the scaper goat for the high cost of living by some; they are pointed out as the modern Shylock; 150 EEGULATION OF PEICES. they are pictured as incompetent, inadequate, and a burden upon the backs of th« people. The public prints have been filled with all manner of direct-from-the-faCtory offen and arguments; bigness has been hailed as the synonym for effectiveness and every- thing small consigned to the dusty past. It is not at this point that I will attempt to compare the efficiency of the big and the little units. The thought to be grasped here is that our confidence in the small Btore has been extensively broken down; it has become a quite generally accepted impression that the big stores can and do undersell the small ones and save their patrons money. What has brought about this feeling? Firstly, tht, success of the big companies in itself is considered the prima facie evidence of their fitness; secondly, they admit their superiority widely and unblushingly. We can not pick up a newspaper with- out seeing sensational claims of merchandise at almost unbelieveable bargains. If you will take up last night's paper and make a close examination you will see that at is literally so; that a page advertisement without 50 items offered at an average of one-third less than their supposed worth is a pretty tame one. The farm journals are full of mail-order announcements of a similar character, and the catalogues of many mail-order houses are scattered widely. When we recall that the newspapers of every city in Ameiica are disseminated day after day and have been for years with these advertisements, the portent of which is that the merchandise of the advertisers can be had for one-third less than the ordi- nary store charges, we begin to appreciate that repetition and reiteration convince. The country around every center is blanketed with these newspapers; the statements go undenied; country people have come to think that they have to save up their purchasing until they go to the cities or that they must send their money by mail m order that it may buy its most. City people have felt that they must pass by their neighborhood stores and go to the department stores; the small stores of the big cities and the stores of the smaller towns have languished. People have come to believe that they can not deliver values; hence business has tended to become concentrated in the big stores of the big cities, and where business goes there also goes opportunity, and so the young folks growing up in the smaller communities have not found thriv- ing conditions to keep them at home and they have left for the larger centers. It is not to be contended that this is the sole reason for the decadence of the smaller towns, but the problem of congestion of city population is important enough to make this contributory cause worthy of not«. How many of us realize that between the census of 1900 and 1910, 746 towns of New York State went backward in population? In Pennsylvania, the State where the mail-order habit has been most highly cultivated, 1,520 towns lost population; in Ohio the same can be said of 1,136 towns; in IlUnois, 789; Michigan, 677; Indiana, 630; Iowa, 546; Missouri, 540; Wisconsin, 346; and so on throughout the Union, • Even the railroads are beginning to suffer from lack of traffic along their lines in Bome States. We see therefore — The rapid concentration of retail business. The loss of confidence in the small merchant. The decadence of our small towns. The next question is: Is this loss of confidence in the small dealer justified by the facts? Can the big department 'Stores, chain stores, and mail-order houses deliver the supposedly superior values? Do they cheapen living costs? Are their adver- tisements true? It would be preposterous to claim that there is no such thing as a bargain, or to condemn in any sweeping generality all merchants in any given class; but to b» true the representations and the general claims of the big units one or more of thes* three considerations must obtain: 1. Their operating expenses must be lower than those of the small stores; or 2. They must be able to buy cheaper; or 3. They must be losing money. As a matter of fact they do not operate more economically; the overhead operating expease of the largest department stores of New York City averaged last year 28 per cent; in other words, out of every dollar they take in they pay out 28 cents for expenses before they have a cent to buy merchandise or pay profit to their stock- holders. This is somewhat higher than the averse small store, though ths stores in various lines differ. It is conceded by some large department store men that their estab- lishments are not an economical way of selling, and without going too much into the cause, it will be apparent to anyone who goes into one of these stores, reflecting that they exist for the purpose of selling merchandise, that those at the head of REGULATION OF PKICES. 151 the business are far removed from the customers, and between them is delegated and redelegated authority; they sell everything and specialize in no particular line; their clerks who do the selling are seldom qualified to advise customers; liiey don't understand the merchandise which they handle, and their attitude seems to be largely one of indifference as to whether store "keeps" or not. The organizations are cumbersome; elaborate safeguards against theft and incompetence must be pro- vided; nothing is ioherently weaker than a big, organization, and high efficiency is reached in small units. The specialty store, knowing its business, having the whole establishment within the view of the proprietor, is capable in the right hands of oper- ating inexpensively. We can therefore dismiss the claim of economical operation of the big establish- ment and also the consideration that they are losing money, for they can not do that perpetually and succeed. This leaves our second question: Do they buy cheaper? Yes; they do on most things. They started some years ago, as an economic reform, to displace whole- salers. They bought in larger quantities and seemed to offer an opening for less costly distribution. It is impossible here to go over in detail the anticipated sav- ings which have not materialized, and in passing we might remark that there may be more than coincidence in the fact that the rise in the cost of living has been con- temporaneous with the rise of the big middlemen. They do get lower prices, but their high cost of operation and profit absorb most of the advantages, ana investiga- tion will disclose that they did not ordinarily sell more cheaply than the small stores. But even if they did, it wouldn't prove any real economic superiority unless they earned the lower prices which they enjoy by some form of service, because we could enable almost any man to prevail over his competitor if we allowed him enough of a preferential discount to overbalance any element of skill in merchandising. Success under such conditions is winning by a fluke, and it is not an evidence of the supe- riority of the big organization that it can trample out smaller rivals when it has an extra bounty to work upon, unless it can be demonstrated that an equivalent for the lower prices enjoyed is returned. We then come to this, Is the quantity price justified? What is done to earn it? I am not prepared to say that those who buy in quantities are not entitled to a lower price in exact proportion to the savings that their quantity orders permit, but the cus- tom has grown up of allowing quantity discounts out of all proportion to the advantages they convey. Instead of the 20 per cent which probably approximates the additional discount given big buyers, it would amount to 1, 2, or 3 per cent if measured according to the real advantages, but any such advantage would be absorbed by the higher operating expenses. And to give big buyers the lower price if they do not earn it amounts to a conspiracy on the part of maniifactuiers to subsidize mere size and penalize simple ability unless accompanied by capital and create a condition which puts a premium on combination in the merchandising field. The big purchasers are not to be blamed for taking advan- tage of the conditions setTjefore them. The manufacturers are responsible for quan-' tity schedules of discounts and they have built up these centralized institutions by their artificial system of pricss. It has not been intentional ; it was originally intended to stimulate extra effort at a time when there was not the disproportionate size between merchants. With new conditions manufacturers have not realized until recently the efiect of what they were doing, and of late some who were strong enough have adopted the flat-price system. But in a land dedicated to the equal opportunity of all in pro- portion to their ability to serve the common good we must not rest content until our laws provide that we must not sell to each other on a basis of favoritism and that we must not give price concessions to one over another without receiving an equivalent. Quantity prices disproportionate to the real savings gained must go, and if after that we still find that quantity schedules disqualify smaller dealers, we must do as we have done with the railways when we ruled that they come to the absolutely flat price to all shippers regardless of other considerations. ^ ., t. j We may simply conclude that any success that has attended large retailers based on favored prices is no evidence of economic superiority, and, as a matter of fact, many manufacturers are selling their big customers at prices lower than they can really afford and then they are compelled to recoup on business secured at higher prices from smaller customers. In other words, they put a weapon m the hands of big men to undersell little men and then make the little ones pay for the weapon which wounds Next let us consider the advertising statements. Are they true? -rhelarge mer- chants emolov the printed word on a scale that is out of question for the small store. In New York it is common for appropriations to run from ?200,000 to $1,000,000 a year for advertising. If their success is in degree founded upon wholesale misrepresenta- 152 REGULATION OF PEICES. tion, we have further evidence that is no proof of their economic fitness to survive, for anything built upon deception is not wholesome. It is not only directly detrimental to customers who are imposed upon, but to permit misrepresentation in advertising is to provide those financially strong with an imprqper weapon with which to compete against their smaller rivals, who by their limited size are deprived of using the same tactics. It is simply further accelerating the process of centralization in a manner detrimental to the public interest. Further, it breaks dawn confidence unjustly in those who are deprived of the same method, and it removes from the service of con- sumers those with whom it may be advantageoijs to deal. Within the last few days we have seen suits of clothes represented to he worth $40 to $60 for the insignificant sums of $10. It is common foreoods to be offered at what is said to be one-half to two-thirds of their actual worth. Keeping in mind the operat- ing expenses of the large merchants, let us ask what these statements mean? Trade custom! By far the bigger half of the claims are without founda,tion. The Advertising Men's League of New York, through its vigilance committee, has investigated numerous advertisements of this kind and has found gross exaggeration to be the rule. Goods usually are worth about the price asked but not the price quoted, and such values can be had in most stores, big or little. The fictitious quotations are used because the advertising would appear flat without it, and when employed by our great merchandisers there is enough mystery in their size to make their claims plausible to those without trade experience, particularly to women. The advertising manager of one of the large daily papers in New York is on record as saying that there are possibly six large advertisers in New York whose advertising statetaents are reliable. The merchants admit and deplore the custom, but they say that one can not stop unless the others do. I wish to be clearly understood that I am not decryipg advertising per se. I look upon it as a great instrument in the service of distribution, but like a pistol, it is subject to misuse. As the president of the Advertising Men's League, the organization which holds the truth trophy for doing more than any other of the 200 advertising clubs of this country to promote honesty in advertising, I am glad to report great progress, and with the support of the better element among our merchants, this deplorable method of attracting trade will be stamped out. But when the v^Jues offered by the large advertisers are questioned, you may say that time and again yoa have seen goods with which you are perfectly acquainted and know ppsitively to b3 worth the prices represented, pffered at h3.1f or less. Ah, there's the joker — that is exactly the reasoning that you are expected to follow. In order to bolster up the impossible claims on the mass of unidentified merchandise which such stores handle, it has been common practice to advertise well-known standard articles and quote them as leaders to draw the crowds, and what is inore important to lend plausibility to the remainder of their statements. B,ecently we saw the Gillette razors, listing at $5i, sold at $1.95 by a department store here, and the Gillette Co. told Me that the store lost over a dollar apiece on every- one sold. Now, was there anything genuine about that offer? Was it real merchan- dising? Did ithey want to lose money? No, they had no desire .to sell these goods at a loss,; they wanted those who came, to buy other goods; but above and beyond everything, consciously or unconsciously, they wanted the million and ruore hp^^s reached by the newspapers carrying this advertisement, to be impressed with t-te tjipught that by some magic the store was ablj to undersell others. The few dollars lost on the razors sold was more than ma,de up by the impression upon the commuiliity. Here again then, we see a device of deception that the small man c^n not usej he Qfin not grumble; he hasn't the money to enter into a contest of wits with the public- losing here and making it up there. This price cutting is not a new device for oppressing small rivals. It was a favorite method of the trusts in pressing their independent competitors. How simple to sell at a loss until the weaker man is ready to quit or sell out? There is no element of real business in that. It is a perversion of business; It is destruction; its purpose is not service to the public; it is a cutthroat practice, and the pejnnies that the people may save on what they get below its worth, they pay back on other goods, which nave to be sold at prices to make up the temporary losses, and in addition they become instru- ments for the destruction of the small merchants who are useful to them and ought to be given a square chance to prove their ability to serve. _ I am not urging favors for the small dealer, but what show of fairness is there in pitting a small competent merchant against some of our big combinations in a prioe- cuttii^wari?! - ^ Again let me be sure that I am not misunderatpod, Some of the ablest business talent in this country is to be found in the department stores, the mail order houses, and chain-store systems, and it is only this fact, coupled with preferential discounts, REGULATION OP PRICES. 153 in my judgmeat, which enables these cumbersome institutions to prevail. Ability has.beep a large factor in their success. I begrudge them not one whit of what they have faily„earned, and it would have been far more were it not for the inherent weak- ness of their organization. It is only right to state also, that not all of the big retailers are guilty of oppressive practices, nor is there any desire to make cut that the smaller man would not usually ioliow the same ccui-se if he had the money. I do say that to permit such con- ditions puts an improper premium upon mere bigness regardless of efficiency or of service to the public. We are fostering combinations and reducing ourselves to a lelatively few sources of supply for our goods. But there are other and even more for-reaching consequences following this price- cutting abuse. We have identified these two twin measures of deception; fraudulent advertising and ulterior price cutting. The foiTner can be dealt with through a law such as we already have in 11 States, penalizing misrepresentation in advertising. These laws are only_ beginning to be enforced, and can only be made effective wifli the help of the legitimate merchants who suffer by the malpractice of others, and must be relied upon to supply the funds to watch for and trace down infractions of the law and bring them to the attention of the district attorney. The time is coming when it will be at his peril that any man prints a misleading statement to deceive customers, and steal an unfair march upon his competitor. Nobody has the hardihood to come out in the open against this line of thought. With price cutting, however, it is not so simple todeal. Ithas the plausibility of benefitting the public bj; immediate savings. The people do like bargains and like to think that they ?re getting them, and they can't easily come to undei-stand the inner workings of trade, and how their cupidity is played upon to their own undoing. The question is further complicated by the lack of a quickly comprehended remedy; but first let us observe the full effects of the abuse, and let us be sure to distinguish clearly as to just what we are talking about. Abusive price cutting can not be successfully applied to unknown goods. Most men know that a Dunlap hat has a market value of $5. Any store which could go to an agent of Dunlap's hats and get a quantity and put them on sale at a price of $2, regardless of what they cost, could fill the store by the simple announcement of this bargain. They could advertise Bunkom's $5 hats at $2 indefinitely and no one would pay attention, because no one knows anything about Bunkom's hats. They may be worth $5 or $1.50, but it is the magic of the name in which the public has confidence which makes price cutting attractive to merchants who have other merchandise to unload. It does not apply to the great mass of bulk merchandise which goes without a name, like nails or potatoes or lumber, or any of the things where the identity of the producer is not known. But I challenge anybody to show a single instance where such an article as the IngersoU watch, to which the last speaker referred, has ever been sold at a cut rate without exploiting the name. It never happened. The merchant sells two things, the watch and the guarantee of the maker, and he wants to treat it as though he sold only the physical ming, a watch, which the people don't want without the respon- sibility of the maker behind it. We are, therefore, dealing only with products where the maker is known and largely relied upon. It is in the nature of a transaction where the maker and the users are practically dealing together through the convenience of the local store. The reputations of such standard articles, the people's faith in them, common knowledge of their qualities, is the basis upon which price cutting is turned into an \ instrument to mislead. So viewed the practice is reprehensible, but it is so co'm-v monly acceptedas a means cf baiting business that we think it is wrong no morel than it was considered wrong a few years ago for corporations to buy political favors by campaign contributions to one or both parties at election time. It is only when we look back and see how utterly unprincipled trade was in the beginning that we get a perspective and realize what strides have been made and are about to be made m our business standards. I do not wish to overdraw the situation, and it is not necessary to attribute deliberate intention to injure either the public or their com- petitors when these large enterprises indulge in misrepresentation or ulterior price cutti^ig. They want business and adopt the measures J^hat bring it. The effect is the same, no matter what the purpose. Small merchants have their petty abuses, but the magnitude of the operations and the widespread prevalence of misdoing on the part of the large ones demands attention in the interest of social safety. We have been considering the matter of price cutting as a mode of oppression by the strong upon the weak. We have seen how it is applicable only to popular mer- chandise of known worth, and that it can not be injuriously used on nondescript commodities. How does it affect these articles themselves? We might assume that 154 REGULATION- OF PEICES. the lower the price the greater the sale, and consequently the better pleased the manufacturer. But experience does not bear out such an assumption. When well-known articles are quoted below their recognized market worth, the first effect is that there is a rush to get them in the particular establishment where they are offered. The secondary effect upon the minds of people generally is that the goods can be sold and ought to be sold at the price. It lowers their value in public estimation, and thereafter people are unwilling to pay the former price. Now, if the low quotation affords no returns to those who handle the goods,, they will not permanently continue to sell them, so that the third effect is that all of the stores, large and small, in a community where prices have been demoralized on a given article, simply discontinue handling it. There is no inducement to handle it. Thus, while a few people have been enabled to get goods for less than they were worth, the rest of the community thereafter is inconvenienced by being unable to get the goods at all, and, of course, the market of the manufacturer of the goods has been injured. Now, if we look at this thing broadly, we can see that it is not an unnatural conse- quence of underpaying. The people of the community can not expect to be served witii merchandise without paying for that service, and when prices are quoted that allow no reward the merchanta will not handle the goods. Not even those who com- mence the price cutting really desire business at the prices quoted, and as long as the opportunity exists for such price cutting we will have instances of stores securing trifling quantities of well-known articles, offering them with a great splurge at ridicu- lous prices, and then to those who respond after 10 o'clock in the morning the announce- ment is made that they have sold out the advertised goods but have something else in place of them. Unnatural price cutting we see, therefore, to be really a restraint of trade, and some sort of a corrective is needed. We can not afford to subject our merchants generally to the caprice of any individual merchant in the matter of price cutting. We can not afford to put manufacturers of reliable brands, which the public have found to be desirable, at the mercy of any individual dealer who can acquire a stock of the goods, and, as we have already seen, the very purpose of such price cutting is to mislead, and therefore of itself could not be expected to bring about wholesome results. It not only interferes with people getting their goods, but is one of the most potent measures for . diverting the trade from the small towns to big ones and from small merchants to big ones. It is a practice which money makes makes possible but not just. There are those, of course, who say that we must let the law of supply and demand , settle the prices. Everyone would be happy to have this work out if there were not some unusual condition present in the case of standard articles, but what natural func- tion of the law of supply and demand can account for goods which are seasonable and in demand being sold without profit and the market scoured to secure them for sale in this way? The law does not function in the case of goods with a high reputation. The question is. How shall we overcome this price cutting and protect the legitimate interests of all? Some say that a trade commission should have jurisdiction; others think that no remedy is needed. I submit that we have in effect a transaction between maker and user; the man who knows the goods and wants them on account of his con- fidence in them ; he knows that they are the same no matter from what store purchased. In reality these two principals should be allowed to determine the terms upon which they deal. The merchant in this instance would have difficulty in selling goods without employing the name or brand of the maker. Manufacturers generally would be quite willing, if the merchants would remove their brands of names, to allow them to sell the goods at whatever price they pleased, but they say that so long as their n^me has to be brought into the transaction as a guaranty, and so long as the customer is unwilling to buy without assurance of their responsibility for the goods, then they have rights which must be considered in the final sale of the goods. It seems to me, therefore, that we can safely intrust the manufacturer with the duty of determining the price at which his goods shall be sold. We can allow him, with safety to all, to name the price to the consumer and have it uniform to all so long as the manufacturer does not enjoy a monopoly of the market. With competitive con- ditions, he can not afford to put the price to the consumer too high or he will simply make an opening for some one else to set a lower price. Furthermore, if the nature of the circumstances are understood it is apparent that he has no inducement to fix the price higher, because the price to the consumer is not the amount that he receives for his goods and the price which dealers payhim for them is not in question. Of course, he is already able, in so far as competition permits, to say at what prices he will sell his goods to the trade. It is the amount of profit to be allowed his agents, the storekeepers, REGULATION OF PBICBS. 155 •hatis in question. Obviously he has no inducement to overpay. His whole purpose Is td get the widest market that he can and he will fix the price as low as he can, allow- ~ ing a fair return to the dealer. We must clearly distinguish this sort of price maintenance from price fixing by agreement amon^ competitors. This is a wholly different matter. There is no element of combination about it. It does not matter at what price Mr. Gillette sells hLs razors so long as we have an open market and can buy not only ordinary razors at ordinary prices, but have the choice of many brands of safety razors from 25 cents for a Mark Cross razor up to $1 and $2 for a Gem, the Ever-Ready, and others. We are-not compelled to take anything at an unreasonable price so long as we have com- petition between the makers, and the fact that the price is uniform everywhere IS a great advantage to the public, because it is a convenience to be able to buy an Arrow collar and know that it is exactly the same thing, whether we find ourselves in New York or San Francisco. Conditions have changed and the old competitive methods do not quite fit. To-day the manufacturer is responsible for his goods when they are branded. His guaranty goes through to the consumer, and he is responsible for them. As a rule, he stands ready to take them back from the merchant if they are not salable at the prices he establishes, and for these reasons I believe that while a trade commission could improve present conditions, that the most automatic and least expensive method is to leave the setting of the prices in the hands of the maker who establishes the repu- tation for his goods, who knows the market conditions and what the merchants in nia line require in the way of remuneration for selling the goods. He has a permanent interest in them and will take the best means within his knowledge to maintain and expand trade and not to restrain trade in his article. We have provided ourselves in this country with a law which is aimed to prevent monopoly. We need, likewise, to provide ourselves with a law that will prevent the extreme in the other direction; tnat is, cut- throat competition, which is the most potent instrument leading to monopoly. So long, as we leave it a matter of brute force and the big man is permitted to hit below the belt, just so long can we expect the extermination of smaller Tcaen and the absorption of the market by bigger and bigger units. What we need, therefore, is a measure that will restrain extremes on both sides. Moderation is nature's law, and I therefore urge upon thii organization that it inves- tigate these matters as throughly ad it pleases, believing that it will come to the con- clusion that it is its duty to work in favor of the abolition of the quanitity price, the elimination of the dishonest advertising statement, and the elimination of ruinous price cutting, and in its place a measure permitting the regulation of prices by those responsible for the goods sold APPENDIX H— WHITTIER. The National Association op Retail Druggists, Washington, D. C, January IS, 1915. Mr. Edmond a. Whittier, Secretary American Fair Trade League, New Yvrh City. Dear Mr. Whittier: At the beginning of the new year it seems appropriate a,nd may be helpful that the National Association of Retail Druggists, whose organization covers practically the entire country, should declare anew its deep and vital interest in the cause of price standardization as represented specifically in the Stevens bill, H. R. 13305. For years the N. A. R. D. led the fight against unfair competition through preda- tory price cutting and at times fought practically single handed. The intelligent and successful effort of the American Fair Trade League in bringing into complete affiliation all national associations of retailers, affording opportunity to present a united and harmonious front, has given tremendous impetus to the cause and has already brought us within sight of an early victory. The writer hopes to be able to keep in constant and effective touch with your office during the coming months, so that we may cooperate to the fullest extent in securing the enactment of the Stevens bill and any other necessary legislation having for its purpose the elimination of unfair competition. , , ,. ,^ i^ Very truly, yours, Samuel C. Henry, President. 156 KEGULATION OF PEIOES. American National Retail Jewelers Association, Omaha, Nebr., January 4, IS.fS. E. A. Whittier, Secretary, Fifth Avenue Building, New York City. Dear Me. Whittier: The Retail Jewelers of America are for the Stevens standard price bill, H. R. 13305, almost to a unit, and personally I am very eager to see it enacted into law, because its provisions will supply the long and much needed safe- guard to the manufacturing and buying public against unscrupulous venders and price cutters, and will supply the lever of' adjustment and guarantee of qmaUty and equaUty between the makers and sellers of meritorious merchandise. Such a measure has a high place in the needs and progress of to-day's commercialism. Assuring you of the most active interest and coopeartion of the members of our great organization and the jewelers generally, I am, Most cordially, yours, sir, T. L. Combs, President N. A. R. J. Assn. the STEVENS BILL. The National Association Retail Grocers of the United States, Cleveland, Ohio, January 7, 1915. Mr. E. A. Whittier, Secretary, Fifth Avenue Building, New York City, N. Y. Dear Mr. E. A. Whittier: At every session of the Natioxial Association of EetaU Grocers for five years a resolution has been presented and unanimously adopted favoring the "protected price plan." The meaning of -which is that the association indorses ttie plan for permitting the manufacturers to name a price below which their goods could not be sold. It is a well-known fact that as soon as a commodity becomes established or becomes what is known as a staple commodity, that some one would take the goods and sell them at cost or less in order to attract trade in other lines. The one live merchant has a job on his hands to convince his customers that the advertised price of the cutter is not the regular selling price. While we have resoluted year after ysar, nothing practical was done till the Amer- ican Fair Trade liCague was formed. This leauge has done more to bring this matter to the attention of the public and Congress than any other force or factor could possibly have doue and to them we are much indebted that there is every likelihood that some time in tlie near future the Stevens bill or some other bill ha^dng the same intent will become a law. The National Association of Retail Grocers of the United States do most emphatically indorse this movement, and is doing all in its power to bring about this legislation, which has for its object fair treatment for all and protection from those who seek to destroy their competitor as well as the trade itself. Yours, truly, John A. Green, Secretary. American Optical Association, Albert Lea, Minn., January 4, 1915. Edmond a. Whiitier, Secretary, American Fair Trade League, Fifth Avenue Building, New Yorlc. Dear Sir: I favor the Stevens standard price bill, H. R. 13305, because I favor fair play. Goods manufactured and sold under a trade-mark are sold to the consumers throiigh the medium of the jobber and retailer, it is true, but also through the medium of the public press, which acquaints said consumer with their existence and desirability. If the manufacturer may advertise liis own product, he should also be authOTized to advertise its selling price, and quite irrespective of whetlier he distributes it di- rectly or tlirough tlie medium of some one else. To assert the contrary is to deny him the fruijs of .^lis own ability and industry, for,it places liim absolutely at the mercy of those ready 'to use his product of proven value as a lure to stimulate trade. I favor fixed i)rices as a consumer, because I well know tliat standard brands of proven value which are sold on clieir merits at a price fair alike to manufacturer, re- REGULATION OF PRICES. 157 taller and consumer could not longer be made and Bold if price demoralization pre- vailed. ^ T^r'^'.^^j *&®^® sentiments are shared by the members of our association throughout the United States is evident from the fact that resolutions unanimously indorsing the Stevens bill were passed at our congress at St. Louis last summer. The American Optical Association is made up almo>!t exclusively of professional men— optometrists— who, as a class, would be affected bv the passage of the Stevens bill only as consumers. Our action, therefore, in indorsing the measure becomes all the more significant. Sincerely, yoursj Albert Mybr, President American Optical Association. The National Retail Hardware Association, Argos, tnd., January 11, 1915. Edmond a. Whittieb, Secretary, New York City, N. Y. Dear Sir: Our association, composed of 16,000 retail hardware firms in 35 States, have gone on record repeatedly as earnestly endorsing the Stevens bill, 13305, as well as the objects of the American Fair Trade League. We sincerely believe this to be a practical move in the direction of fair and honest m6rcha,ndising, and niecessary to prevent tiie further centralizing of trade in a few large cities which is working enormous damage to every country town dnd its com- munity. Wishing you success in your work, and pledging cooperation, we are. Yours, truly. National Retail Hardware Association, By M. L. CoHEY, Secretary. National Leather and Shoe Finders' Association, St. Louis, January 4, 1915. Mr. Edmond a. Whittier, Secretary American Fair Trade League, Fifth Avenue Building, New York, N. Y. Dear Sir; Your request of December 30, 1914, sent to our president, Mr. Henry Kleine, of Chicago, has been forwarded to me for attention. In reply thereto, I wish to state that the National Leather and Shoe Finders' Association fully endorse the "Stevens Standard Price Bill, H. R. 13305." The members of this association in convention at New York in July, 1914, unanimously resolved that the practice of price cutting on standardized and trade-marked articles of merchandise is threatening the existence of manufacturer, jobber, and retailer, and that the consumer will in his turn suffer from this practice because of the deception that must be resorted to by those who adopt and pursue a ijolicy of price cutting on standardized and trade-marked articles of nierchandise; and that, without a law giv- ing the manufacturer the right to establish and maintain prices on his goods, the channels of distribution will eventua,lly be monopolized and that such a condition will place a further burden on the ultimate consumer. Our members declared that the Stevens bill, now pending^in Oongress, promised the reinedies to pi'esent condi- tions and that its enactment would give equal opportunity to all business men and consumers alike. Yours, sincerely, Geo. a. Knapp, Secretary. STATEMENT OF ROBERT E. MILtER, ESQ., ADVERTISING MANAGER OF THE HAMILTON WAtCH CO., LANCASTER, PA. Mr. Chairman and gentlemen of the committee : The question which the chairman has just asked, in suggesting that manufacturers who stated that they were selling under a fixed-price principle would not receive the cooperation and support of retail dealers, prompts me to add the experience which our company has had in this line. I would 158 REGULATION OP PBICES, very much hesitate to try to add anything to the very able testimony which has been submitted by Mr. Brandeis, Dr. Galloway, and others who have appeared before you to-day, but from the natm-e of some of the questions asked I believe that you would welcome instances of specific cases where price-cutting and cutthroat competition has done an actual harm to manufactxirer, retailer, and consumer, as touching on the question of the chairman. In the spring of last year, when the Judiciary Committee was receiving evidence on this same question, the Hamilton Watch Coj sent out to a large number of the retail jewelers of this country a copy of the Stevens bill (H. R. 13305) ancf a letter carefully explain- ing the measm-es which this biU provided. With this was inclosed a postal card, on which was asked the question whether, after reading and studying the Stevens bill, the jeweler approved of this measure and whether they approved of the Hamilton sales policy of price maintenance and equal prices to aU, regardless of quantity. We received approximately 6,000 repUes, and of this number only three postal cards signified an opposition to this sales policy. Surely this is overwhelming evidence of the beUef in the minds of the retail jewelers of this country that price fixing of this kind is right. I may mention in this connection the data which several other companies have accumulated, as follows, showing that dealers in the other lines feel the same way: As pointing to 'tliis trend, it is stated that in answer to the query whether dealers favored price standardization, the Eastman Kodak Co. and the A. J. Reach Co. received answers from over 90 per cent of the retailers carrying their goods, and in each case 98 per cent voted for price maintenance. A similar census taken by the Waterman Fountain Pen Co. showed 98.5 per cent favoring that form of merchan- dising. Out of 1,403 replies received by the Kellogg Toasted Com Flake Co. to the same question only eight dealers were against the maintenance of uniform prices. Moreover, the fist of retailers' associations, both State and National, which Mr. Brandeis submitted with his evidence, is the most con- clusive proof of the indorsement which this biU has had from the many hundreds of thousands of retailers in every line all over this countrv. Mr. Brandeis dwelt but briefly on the experience which the manu- facturers, of Cosmo Buttermilk Soap had endured owing to price cutting. As that manufacturer happened to be my fatiaer, i can {)Ossibry speak with a little better authority, or, rather, a somewhat uUer knowledge of the whole matter, and, as the case is a typical one and has already been used in an article by WilUam Hard on "Better Business," m the May, 1914, number of Everybody's Maga- zine, I wiU quote this case and the conditions surrounding it. Cosmo Buttermilk Soap was a famous soap in its day. Its regular f>rice, retail, was 10 cents. That was the price at wmch the manu- acturers asked the retailers to retail it. The public bought Cosmo Buttermilk Soap at 10 cents, compared it on its own account with other 10-cent soaps, decided that it was a good soap at the price, and then came back and bought it agaiu — and again. Cosmo Buttermilk Soap became prosperous, competitively, and its name, its trade-mark, became valuable — so much so that its owners were offered more than a quarter of 'a million dollars for it and de- clined. But there was a danger. The danger was in having any name at all. The danger was in being individualized. REGULATION OF PBICES. 159 Let me shift for just a moment from soap to coffee. Here's a coffee, quite nameless, lying in a bin. Well, you can't hurt it, no matter what price you seU it at. And the ultimate con- sumer does actually buy it at 38 cents and goes her way still highly pleased with herseu. She doesn't know that it also sells at 25 cents a pound. These prices — 38 cents and 25 cents — are taken out of real life. The witness who represented the Association for the Im- provement of the Conditions of the Poor in New York City has just testified as to their inquiry into the retail prices and the way in which the public — and particularly the pubMc who can less well afford to be swindled — are buying the same unnamed article at two different prices. Here's a coffee shoveled out of a bin and taken to a certain store. There it sells at 38. It is shoveled out of that same bin and taken to a certain other store, owned by the same firm, and there it sells at 25. Anonymous coffee. Happy anonymous commodities. The ultimate consumer buys them at one price here to-day and at another price there to-morrow, and all is merry as an oriental bazaar. She can't remember any- thing against them because she can't remember them. She looks into their blank identical faces and there's nothing to remember them by. They can be sold to her at a score of different prices and she doesn't know it. But: "Universal Department Store bargain sale. Cosmo Butter- milk Soap now 3 cents." The ultimate consumer remembers that. "Cosmo Buttermilk Soap, 3 cents." The name and the price. Enter, then, lady into neighborhood grocery store. Lady. "Cosmo Buttermilk Soap." Geocer. "Ten cents." Lady (sweetly). "Robber!" And exit one lost lady customer. Grocer sits down and writes to Cosmo Buttermilk Soap manufac- turers: Gentlemen: You sell me your soap, like everybody else making standard articles, at price which gives me only narrow margin of profit. And now you let Universal Department Store, this city, sell your soap for 3 cents. If you look for any more business from me, you will be looking longer than I live. Please cancel the order I sent you yesterday. Everybody told me you was a snide firm; and now I know it. Yours, respectfully, There are millions of such letters in the files of the manufacturers of individuahzed products. . The price of an individualized product is as much a part of its individuahty as its name. Demoralize the price and you demoralize the product. , ,. ^ t. In Reading, Pa., there were 90 retailers handling Cosmo Butter- milk Soap. It wasn't a cut-price war. It was a mob massacre of a defenseless commodity. The price was trampled down to 3 cents and kept there as advertisement for the retailers who were doing it and a quick death for Cosmo Buttermilk Soap. Death— because in the end the reputation of Cosptio Buttermilk Soap was totally destroyed. AU ithe ultin^ate consumers residing in that city got it marked down in their minds as a 3-cent product. It wasn't. It couldn't be made and sold at that price. But the pubho 160 KEGULATION OF PEICES. couldn't be got to go above that price again. Whereupon, its repu- tation having gone, its value as an advertisement for the retailers went too. As for the retail profit on it, that had gone long ago. There was nothing left in it. And 80 of the 90 dealers threw it out of their stores. Eeading was imitated by city after city. It was no longer a local massacre. It was a forest fire, catching and spreading. The firm which was manufacturing Cosmo Buttermilk Soap was not old enough or strong enough to make any effective resistance. Within two years virtually the whole of its area of distribution had been burned over and left bare. A young firm, a new product, a competitive price, the public pleased. Just the kind oi thing that must be fostered forever in order that industrial and commercial progress naay never cease among us. Slaughtered — ^by the firm's own distributors, over whom it had no control. Cosmo Buttermilk Soap was revived — a bit. But it has never come back to as large a sale in a month as it used to have in a morning. How can it be said to be good for the public to be blocked off like that from a product it had proved it wanted ? It was an extreme case. It was extreme in the completeness of its finish. It was not extreme in any other way. There is not a com- munity in the United States this moment in which the sales of well- known and widely wanted products are not being contracted by price cutting. This price cutting may be done by local stores, or it may be done by distant mail-order houses. The result is the same. The same old result. Retail profit in those products diminished or destroyed. Angry retailers: Fresh drummer, who comes into retail store and says to the retailer: "Now, here's a product your customer doesn't know much about. But push it. There's a big retail profit in it for you." Substitutes. And the distributing channels through which the well- known and widely wanted products must reach the public are arti- ficially clogged and choked. You will see from this instance that with every standarc^zed arti- cle of merit goes the name and reputation of the manufacturer — ^in fact, without this name and reputation it is impossible to standardize the article — and it is not until a manufacturer has spent years of effort to perfect the article and enormous sums of money to advertise it that it is attacked by the price cutter. Let me emphasize this matter of the damage to the name and repu- tation of an article, which means an injury to the good wiU of the maker. If I was sure of the future sale of Hamilton watches, I would not care at what price the dealer sold the watches, so long as he took the name of Hamilton off of them; and I feel that we have a right to demand this. You may say, "Do you not sell the article to the re- tailer, and should he therefore not be allowed to do as he pleases with it?" It is true that legally the title has passed; but you sell more than the physical article itself — you sell the name and the reputation back of it and aU that that implies. The name Hamilton is on the article as a sign and a guaranty that we stand back of it; in other words, we have guaranteed that the name Hamilton shall be a perfect safe- guard in watch buying and we do not sell to the unscrupulous dealer EBGULATION OP PBICES. 161 the right to pillage this trade name. That is our property, and we feel that we should have a right to protect it by preventing the cut- price dealer — ^who, as I have said, is not a philanthropist, but is using the standard goods to deceive the public — ^from permanently injuring our name and our business. Again, the standardization of prices prohibits- overcharge, which is so often done on unknown articles. I am safe in saying that if the Ingersoll Co. did not set the price and advertise their watch at $1 many dealers would sell it at $1.25. They set the price at |1 because it gi"^es them and the retailer a fair and living profit. There has never been and never will be any prosperity and per- petuity in business unless it is built fundamentally upon quahty and fair and honorable treatment to all. There seems to have been a misunderstanding on the part of some of the members of the committee as to the efficacy of advertising ia modern business. The members seem to think that advertising is an unjust charge, and that the consumer pays for it. I should Hke to ask the plain and simple question: "How are you going to market a product nowadays without bringing it to the attention of the pub- lic?" Advertising, as has been often said, is only salesmanship on paper, and salesmanship aims to bring an article before the ptiblic m the most efficient way possible. Advertising positively lowers sales costs, thereby enabling the manufacturer to give more in quality to the consumer. I do not wish to use up the patience of the committee and go over the same ground which has been covered before, but I beg leave to add to the record some letters which we have received from dealers in various parts of the country, which wiU give specific instances and show beyond a question of doubt just how they regard this injurious practice of cutthroat competition. Seattle, Wash., February 6, 1914. Mr. Chas. F. Milleh, President Hamilton Watch Co., Lancaster, Pa. Dear Sir: It will no doubt be of interest to you to hear from me in reference to the troubles we have had in Portland and Seattle, full reports of which have been given you from time to time recently, all of which refer to certain dealers there cutting the established prices of Hamilton watches, thereby causing decided protest on the part of the dealers in both of these cities, who both wrote and wired us advising that unless steps were taken by your company to protect the established prices on their move- ments, thereby insuring them a legitimate profit on their sales, that they would find it necessary to discontinue handling the line. Due to this, at considerable inconvenience and expense to ourselves, we sent our Mr. Brennan there, and in the hopes of having him satisfy the customers we learned that they had all decided that unless the cutting of prices would stop that they would no longer handle Hamilton watches. The position they took is ajjout the same as that t^eni in the other cities. No firm who has the interest of its customers at heart and who means to give the service required can possibly do so and cut the priCfeS on your watches. Therefore they have decided that if Burnett Bros, continue to cut prices they simply will not handle the goods any longer, and there will be no use in my trying to sell your watches in that section, because the dealers simply will not handle them. While I am on this subject you might as well understand my experience in Los Angeles, where recently Peagans & Co. started a sale for the purpose of raising money. Immediately the jewelry trade in Los Angeles advised us of this fact and desired to know what steps you would take to protect your line from being sold at less than the establisbi-i price. We immediately had our Mr. Marshall call on Feagans & Co., tvho gave us the assurance that the price on your line would be maintained, and through this fact we were able to satisfy the balance of the trade there that they Could go 81296—16 H J 162 REGULATION OF PEICES. ahead selling the line at the established price, with the feeling that they would be protected. A short time before this a dep.artment store by the name of Hamburger & Co., secured your line for the purpose of offering it at less than the established prices' thinking that the great reputation of the watch would help them to increase the sales in their jewelry department, especially if the price was sacrificed. We had some difficulty in getting these people to understand our policy, but finally secured from the manager his agreement that they would not handle the line unless they could see their way clear to sell it at the regular price. I feel that if the price is not maintained that the trade will stop handling your watch, a business on which it has taken me 16 years to build up; and it has been our experience that through the policy of protection in the way of price we have been able to build up a trade among the dealers who value their reputation of fair and honorable dealings with the trade. These dealers claim, and show figures to prove it, that a legitimate profit must be obtained on every article they sell in order that they may get a return m keeping with the expense of doing business, including what is only considered a reasonable profit. Almost the entire legitimate jewelry trade on the Pacific coast, through their State associations, have indorsed the established price on merchandise and welcome a line where a price is established, and they wish to buy it with assurance that the price will be maintained and that the factory making the goods will see to it that they are only sold to those firms who sell at the established prices. There are in Los Angeles 52 dealers, in Portland, 20; and in Seattle, 18, and this entire trade has been affected by this price cutting above referred to on Hamilton watches. It is now 16 years since I have been earnestly at work developing the business over the entire Pacific coast. The only thing that we have is our reputation of one price to all — ^no matter what quantities are bought — and fair and honorable dealings, and we regret more than we can tell you that if something is not done to stop these few dealers from cutting the prices all of my efforts will be lost, and I might as well seek some other line upon which the dealers, as well as the consumers, can get protection. There is one thing that I did not mention, and that is this: That very often the people who cut prices on the goods have only a few of them and make a big advertise- ment out of them, and even sometimes they buy second-hand goods, in order to destroy the business of their compstitors. It is my experience that not more than 3 per cent at the most are what we would call unprincipled dealers. I would like some kind of a guaranty from you as to what you are going to do in the future. Burr W. Freer. Excerpts from Letters Received bt the Hamilton Watch Co. from Retail Jewelers, Showing the Effect of Price Ctjtting on Their Business and Indirectly on Our Business. (These are typical of hundreds of similar letters referred to by Mr. R. E. Miller.) Anamosa, Iowa, November t2, 1905. You know when these goods are cut that it is only a limited time until you are compelled to cut the quality, and that to maintain the price means to maintain quality. S. A. McCroskbt. Farmington, III., March $1, 1906. rhave not only lost sales on the Hamilton watch, but lost a good customer. It is aiso impossible to sell any article and guarantee same when it is catalogued by the mail-order houses, who only use them as leaders, and are not responsible for them after they leave their hands. Perry M. Slauteb. Belleflower, Mo., November 8, 1905. I am carrying a few Hamiltons in stock, but if I have to sell them at those figures I shall cut them out entirely. J. H. Kbadle. Randolph, N. Y., MQ.y 7, 1906. Just a few days ago a runner from a watchcase company had an argument with ms ajjout Hamiltons, and he told me he met a peddler in Corry, Pa., selling Hamiltone at greatly reduced prices, and that he was cutting the life right out of the business. This may be erroneoas, however; but the fact remains secjre that wh'at I am saying about mail-order houses I can prove to you without any quesiion of doubt. REGULATION OF PRICBS. 163 The only thing the jeweler can do in the future ia to blacklist every manufacturer of watches in America, and sell as many of the better grades of Swiss and English goods as possible, and let Sears-Roebuck, Montgomery, Ward & Co., the Cash Buyers' Union, etc., sell all of the balance. This ia the only protection the legitimate jewelers will ever have, and if it becomes possible to Idll you fellows oft in that way, I shall ■rejoice to see the time come, if I live and hold my business. That will be the only feasible way that we can expect to have our rights sustained, and I shall glory in the time when "it comes. F. Larkin, Jr. Deep River, Minn., February 4, 1914- Inclosed find cutting from John M. Smith, of Chicago, a mail-order house. I am handling your watches, but if you are going to let the mail-order house advertise cut prices on them I will discontinue to carry them in stock. L. C. Randall. Keokuk, Iowa, November 9, 1908. I have 36 Hamilton movements in atock, and believe in your watches, but what am I to do the coming year against such competition? Jules Rbnaud's Son. NiLES, Mich., January 26, 1906. I have been pushing Hamilton watches because they were not handled by mail- order concerns. Of course, I realize that as an individual dealer I am of no conse- quence to you, yet I can not help but add my protest to that of every retail jeweler in the country. For my part, I shall stick to the people who protect the retailer, and market their product through legitimate channels. Guy M. La Pierre. Princeton, Ind., September 20, 1905. We can not compete with such prices and of course under such conditions can not afford to handle your movements. J. W. Hansen. Wetees Cave, Va., November 11, 1908. Please return this inclosed page to me, as I am going to take the matter up with the Hampden Co. also. I cut out the Elgin and Waltham Cos. long ago, on account of the mail-order evil, and surely thought in the Hamilton I had a watch they would never be able to get into their catalogue. Please let me hear from you. Jno. W. Evans. Philadelphia, Pa., August 2, 1906. What advantage ia it to me to push Hamilton watches if those people can cut them like that? I would simply lose my customers, as it would look as if I was charging exorbitant prices. There is something rotten about this which I would like to have explained. ^ . _ John A. Kinsler. OZA.B.K, Ala., July 25, 1906. I have built up quite a little trade and demand for them, but am frank to confess if I can not be protected in the selling price I will cease to handle them. Will you please explain? R. E. Holm an. Durham, N. 0., October 9, 1905. As for our part, gentlemen, we wish to say that these people are not only cutting ihe life out of your watch, so far as price is concerned, but they are evidently buying the watch cheaper than we are, and we will thank you to thoroughly investigate this and let us know, if it is possible, what jobber these people are buying your gooda from, as we will ever in the ftiture regard him aa little better than a thief; and, again, we wish to know your position in the matter, and if it is out of your power to control Messrs. Montgom'ery Ward & Co., we will be compelled to cut your watch from our liat, as we have done the Elgin and Waltham. /t „ ^ ■ ' ^ Jones & Fraziee (Inc.). The following^are a few of the many resolutions passed by retail jewelers' associa- tions indorsingprice maintenance, referred to by Mr. Miller in his statement. Not a aingle retail nor wh'oleaale association has sounded a discordant note on this question: 164 REGULATION OF PRICES. Resoltjtions Advocating and iNDORsiNa the Fixed Selling-Price System Passed by Conventions of Retail Jewelers in 1913. national retail jewelers' association. We again renew our allegiance to the principle of a fitxed selling price, believing that it protects the consumer in that it insuieB to him quality, a fair living profit to the retailer, and protection to the manufacturer from unscrupulous and dishotiest competition. As the wage earner is by God and nature entitled to a fair living profit, and they should not be exposed to commercial sharks who subsist and profit by the death of others. Keenly regretting recent decisions bearing unfavorably upon the question of a fixed selling price: Be it Resolved, That this matter be, and is hereby, referred to our national officers, to be by them considered as to proper action next to be taken. north CAROLINA RETAIL JEWELERS' ASSOCIATION. Whereas the jewelers are in favor of uniform prices on watches: Therefore be it Resolved, That we heartily recommend the efforts of the "Vi'altham ANatch Co. and the TTa.Tni1t.nTi Watch Co., as per their letters of recent date, saying that they will protect retail prices as far as the law permits and to continue their efforts to put their goods only into the hands of the jeweler, and show our faith ii^ their policy by giving them our cooperation and support. COLORADO retail JEWELERS' ASSOCIATION. Resolved, That we go on record as emphatically opposed to any legislation that will eliminate a fixed selung price. Resolved, That we ask all manufacturers of our lines of merchandise to compel jobbera to maintaiu equal fixed prices and sell to legitimate jewelers only. Resolved, That we go on record as in favor of upholding and maintaining the restricted prices on all lines of our merchandise. PENNSYLVANIA RETAIL JEWELERS' ASSOCIATION. Resolved, That we go on record that.we are emphatically opposed to any legislation that will eliminate a fixed selling price. Resolved, That we ask all manufacturers of our lines of merchandise to compel jobbers to maintain equal fixed prices and sell to legitimate jewelers only. MISSOURI RETAIL JEWELERS' ASSOCIATION. Resolved, That we ask our Representatives and Senators from this State to vote against House bill No. 23417 and Senate bill No. 6273, which^ when passed, would change the United States patent laws and eliminate a fixed selbng price. Resolved, That we go on record that we are emphatically opposed to any legislation that will eliminate a fixed selling price. Febrttary 6, 1914. STATEMENT OF ME. JAMES F. FUrNEEAlf, PRESIDENT NA- TIONAL ASSOCIATION OF RETAIL DRUGGISTS, 100 TEE- MONT STREET, BOSTON, MASS. Mr. FiNNERAN. Mr. Chairman and gentlemen of the committee, I am president of the National Associatioiyjf Retail Druggists, repre- senting the majority of retail druggists in the United States, and we have a number of troubles. We believe that this proposed trade com- mission carv help the small retailer, who is a decided factor, I think, and as you have doubtless been told a number of times La our eco- nomic hfe. He is a necessity ia the first place; in the second place he must live the same as anyone else. He is troubled with a great deal of what we call unfair competition. This proposed measure, with a suggestion which we would like to offer in a tentative waj after section 3, in regard to the registering of prices, as perhaps 13 done in the Interstate noTninerce Commission in regard to carriage EEGULATION OF PEICES. 165 of freight on raiboads and the transportation of you and me between different points The Chairman. Do you want to advocate the fixing of prices in commerce other than pubhc carriers ? Mr. FiNNERAN. Not by the Government, but to allow such manu- facturers as believe it is for their best interest to do so. The Chairman. Do you mean for them to combine and do it ? Mr. FiNNERAN. Not at all. The Chairman. You mean for each man to announce his own schedule ? Mr. FiNNERAN. Each man do as he pleases. He may or he may not fijc his price. The Chairman. Anything in the way of that at aU would not be possible. Mr. FiNNERAN. I understand it is impossible, as the law is now interpreted. Judge. The Chairman. For a man to advertise what his prices are going to be ? Mr. FiNNERAN. No; not impossible to advertise, but it is impossi- ble for him to control his price to the consumer now, providing he sells it through a third party; and most all trades, especially trade handled by the little man The Chairman. You mean anybody is to control the prices through successive transactions ? Mr. FiNNERAN. Yes, sir. The Chairman. You do not expect that ever to be done, do you ? Mr. FiNNERAN. We believe it would be a good thing for the public. The Chairman. I can teU you one way to do it, without wasting time. Just hold title to your goods and appoint agents to sell them for you. That is the only way you can ever do it. Mr. FiNNERAN. That, I believe, is done now, but is impossible with the small man, as he must necessarily buy through a third party, as hispurchases do not warrant buying from the manufacturers. The Chairman. That is the only constitutional way that I believe you can ever do it. Mr. FiNNERAN. We hoped you gentlemen of wide experience might see some way it could be done, because the big man and the big monopoly is certainly crushing out the little man. The Chairman. You think if it can not be done constitutionally now that it can be done through a trade commission ? Mr. FiNNERAN. Oh, no; not if it is absolutely unconstitiitional; but whole I do not like to differ with the chairman, I have heard other gentlemen say it could be done. The Chairman. I have heard perfect gentlemen say all kinds of outrageous things. Mr. FiNNERAN. I agree with the chairman. Mr. Sims. You want it provided that the manufacturer shall be able to say that a box of goods shall not be sold below a price fixed by bim on the box ? Mr. FiNNERAN. Yes, sir. Mr. Sims. After the manufacturer has parted title with it? In other words, in selling it it is a condition that the purchaser must not sell it in retail below a price fitxed by the manufacturer ? Mr. FiNNERAN. Yes; that is our idea. Mr. Sims." That is what you want? 166 REGULATION OF PEICBS. Mr. FiNNERAN. Yes, sir; patented, proprietary, trade-marked, and copyrighted articles. We believe that this condition exists — we do not only believe it, we know that it exists — that the advertiser will spend large sums of money in order to get his article well known upon the market, and it is only on those well-known articles that there is any slashing of prices ; it is not in the unknown articles. It is in the absolutely well known. The Chairman. Admit, for the sake of saving time, that that is- going to be adopted; that it is constitutional and ought to be done. You can then just proceed and address yourself to the proposition that it can be done through a trade commission the better way — ^better than it can be done through other instrumentalities. Mr. FiNNERAN. I think it can be done through a trade commission by this trade commission obhging a manufacturer to register his price, putting it on paper so that you or I or anybody who runs may read and know what the price of the article is. Thereby the public will have fuU knowledge of it. Mr. Sims. Do you mean the jobber's, the manufacturer's price, or the retailer's price ? Mr. FiNNERAN. Everybody's price; just the same as the railroad proposition. Let hina register his price and let everybody know what it is. The great trouble to-day is that all sorts of secret rebating is going on. I myself have a good sized drug store and I know, in talk- mg with my brothers in the drug business, that I get rebates that they do not get. That is not fair. It is not because of the quantity I buy. I think it is perfectly right that a man who buys in large amounts should get his goods cheaper. The &AIRMAN. You say you do not propose to combine. There is no private, inside information as to the pharmacopoeia or in the doctors' books about the ingredients of the various drugs. Suppose you made a piU and put your price on it and your proposition here is found to be constitutional, and the trade commission agrees that you may put conditions upon all subsequent purchasers as to what price shall be charged for that article, and your neighbor gets up a kind of dynamite equally explosive with yours and he announces a schedule of prices about 30 per cent cheaper than yours; advertises that it will have the same effect on the system as yours, how are you going to provide for that? Mr. FiNNERAN. It is the survival of the fittest, and it is just there that legitimate competition would start in any business. It does not start until you fix the price and the people know where they stand. If it is known that one man is making a piU at 50 cents a box and another at 30 cents a box, and they are equally of the same formula, or equally good, there is not any question whose pill will sell. I think that is clear in your mind. The Chairman. Your only remedy, I think, is not to call it an unalterable statement, but to file a new schedule and get under his price. Mr. FiNNERAN. Of course, this proposition does not apply peculiarly to the drug business. It is only as we know the conditions that exist in the drug business. This applies also to a suit of underwear you may wear, a shoe, a particular kind of collar, a shirt, or anything else. It applies to anything advertised under a trade-mark that a man seeks to make his own and in some way put his individuality into. REGULATION OF PEICES. 167. The Chairman. Go on, and tell us how the trade commission is going to help you carry out the idea. Mr. FiNNERAN. The trade commission can control these actual f rices. The trade commission, in our opinion, can work out a plan — am not a lawyer; I am just a plain ordinary everyday retail drug- gist, so you will pardon me if I make mistakes. The Chairman. All of us make them. Mr. FiNNERAN. I am willing to admit mine. For 15 or 18 years we have had great trouble as the result of the cut-price proposition and they are growing; these troubles are growing, not omj so far as we are concerned, but unquestionably you will be troubled by listen- ing to others who have the same sort of troubles in other lines of business. This cut-^price proposition started in the retail drug business and is spreading all over the country in every line of trade, and the little man is being squeezed out of business, and there is but precious little show for the yoimg man, unless a relative dies and leaves him a lot of money, to go into a mercantile line, and if he has the money he would be mighty foolish to go into it; he would better keep it and put it into Government bonds; it would be safer. Mr. Sims. Have you your amendment prepared so vou can read that? Mr. FiNNERAN. It is really the Langley biU. Mr. Sims. I asked you whether you had that written so you can submit it to us ? Mr. FiNNERAN. Yes; we have. It is as follows: Section 1. That the owner of any patent, trade-mark, or copyright may, as a con^ dition of such patent, trade-mark, or copyright, file in the interstate trade commis- sion a statement showing the prices at which any article covered by the patent, trade- mark, or copyright is to be offered for sale. Such statement shall show the retail price of each such article, together with a list showing all prices and rebates, com- missions, or discounts of every nature whatsoever at which said articles shall be sold or offered to dealers for the sale of, or for the handling of such articles, and such list shall be registered under such rules and regulations aa the interstate trade commis- sion may prescribe. A new price list may at any time be substituted for a registered price list and reregistered and a fee of shall be paid on eactf list registered or reregistered. Sec 2. All such articles covered by the registered price list shall be plainly marked with the retail price at which the same are to be offered for sale, and the words "Price Registered" followed by the date of such registration. Such marking shall be made under such rules and regulations as the Interstate Trade Commission may prescribe, and may be on the article itself, on the label, the container, or the wrapper. Sec. 3. It shall be unlawful to sell, or to offer for sale, any article covered by such regist3red price list at a price different from that named in said list. It shall be unlawful to give or to raceive or to offer or demand any rebate, commission, or discount of any nature whatever for the sale of any article covered by such registered price list other than the rebate, discount, or commission prescribed in the price list registered in connection with such article: Provided, however. That this section shall not apply to legal public sales made in piu-suance to judicial executions: And provided further. That all articles purchased at such judicial sales shall, in case they are again offered for sale, be subject to all the provisions of this act as if no judicial sale had taken place. Sec. 4. Any person violating the provisions of this section shall upon conviction thereof be fined not less than $100 nor more than $1,000 for each and every offense. Any person falsely marking an article as having a registered price or who marks any registered article at other than a price registered shall upon conviction be fined not less than $200 nor more than $2,000 for each and every offense. That is the gist of it. The Chairman. It is said if you let a camel get his nose under the edge of a tent he will just keep fudging until he has got his whole body under the tent. The Federal Government, in order to encourage ItJb KEGULATION OF PRICES. men of genius who have invented a useful article, have arranged that the inventor shall have the exclusive sale, and nobody else may make or sell it except by his permission and upon payment of a roy- alty to him. Having secured that exemption, that exclusive use of it, now the manufacturers propose to go further and demand that the Government fix the price of that. Do you think that is exactly fair to the balance of the world ? Mr. FiNNEEAN. That is not exactly the way we propose to do it in our proposed amendment. The Chairman. That is exactly what your statement amounts to. In addition to the protection in the use of your invention you now ask to be permitted to fix the price on it through every State of its transfer of title. Mr. FiNNEEAN. We agree to that proposition. I think it is a good thing for the public. The Chairman. I do not thiak the other ninety millions will agree with you. Mr. FiNNEEAN. I do not know. I think when they wake up — i think that more than the ninety millions wiU be affected by this; I think all the citizens of the United States, the whole hundred millions, are affected by it and will agree with us. Mr. Sims. You do not propose togive the commission any power; you require the manufacturer to register with them fur pubhc use the prices at which it is to be sold ? The Chairman. But the gentleman carries with it this idea, that the man who buys it frona him shall not sell it at any lower price, than the fixed price. Mr. Sims. But you do not expect the commission to make an order of that kind ? Mr. FiNNEEAN. No; we do not; we only want to make a law of it, and expect that the trade commission shall see that such law is lived up to and secret rebating shall not continue. The Chairman. It is worse than a trust. He wants to make it a law of Congress. Mr. Sims. I am neither approving or disapproving. I want to se^ what he wants. Mr. FiNNEEAN. We want the commission to have full contTol of these prices after they are issued, so that the commission may know whether the conditions under which the goods are sold are true to the price hst, and this condition exists to-day that articles are not sold as they are advertised at all. Mr. Sims. The tentative draft of the bill, the draft of the biU intro.- duced, does not give the commission any power to do anything of thati kind. Mr. FiNNEEAN. As I say, Judge Sims, it is really tentative, and we hope to be able to suggest something perhaps a little better. Mr. Sims. You know the Supreme Court recently rendered a deci- sion with reference to patents as to whether or not the patentee could provide against the sale of his article. I mean provide against its sale below a price he himself estabHshed. My recollection is, although I never read the opinion, only saw the newspaper account, that the court held that the issuance oi a patent did not authorize or did not give authority to the patentee to pre- scribe the prices of the article after the manufacturer had sold it and parted with the title. Was that not the substance of the decision ? REGULATION OF PRICES. 169 Mr. FiNNEEAN. Judge Sims, my understanding of the decision is that the Supreme Court ruled-— and again I say I am not a lawyer — the Supreme Court ruled that the Congress of the United States had not given to the patentee that right, and the Congress not having given that right to him the patentee did not have it. But they do not say that the Congress of the United States did not have the right to give it to him. jVIr. Sims. Did not have the power ? Mr. FiNNEEAN. They do not say, as I understand it, that they did not have the power. They say they did not give it to him, and not having given it to him he did not have it. Mr. Sims. You want legislation giving this commission the power the court said the patentee did not have ? Mr. FiNNEEAN. Yes; because all those patented trade-marked and copyrighted articles are all sold under these same conditions to-day. Mr. Montague. I am a little troubled about the practical working out of your bill in one respect. You say the owner of every patent, etc., should file a statement showing the prices which any article covered by the patent shall be offered for sale; shall also show the retail price. Now, the owner may be the manufacturer. Mr. FiNNEEAN. Yes, sir. Mr. Montague. How could he fix the prices aU along down the line?- Mr. FiNNEEAN. He could not, only with the consent of Congress. Mr. Montague. Suppose Congress did consent to it, could the man- ufacturer fix the price to aU people handling his goods subsequent to his sale ? Mr. FiNNEEAN. It seems to me so. Mr. Montague. I just wanted your idea about it. Mr. FiNNEEAN. It seems to me so. Mr. Montague. If I am a manufacturer, for instance, of a patent plow, that I can fix the price to the jobber and then to the retail dealer as well ? Mr. FiNNEEAN. Yes, sir. That \s'orks out in this way Mr. Montague (interposing). Suppose in that situation I fix the price, and day after somebody else invents a plow, out-patents me, so to apeak, and makes my plow useless. How am I going to fix the price then? Mj. FiNNEEAN. You have the right, under the proposed bill, to change the price list. Mr. MojsTAGUE. To change it every week, every day, every time I wished ? Mr. FiNNEEAN. I think that matter could easily be settled. Mr; Montague. How could you settle it? Suppose you had a surplus on hand at any time; how are you going to settle it? Mr. FiNNEEAN. Leave it to the trade commission how it shall be done. Mr. Montague. Can you imagine a man of sufficient competency to deal with a question of that sort ? Mr. FiNNEEAN. In the first place I can not just conceive of the fact that there would be any necessity in a change in the price of plows everv day, week, or month. Mr. Montague. No; I just took that as an example. Mr. FiNNEEAN. I can not conceive of that, or even a change per- haps in a year. 170 EEGULATION OF PEICES. Mr. MoN^'AGUB. But we know that the rule of supply and demand fixes the price of articles. Mr. FiNNERAN. It does in some cases. Mr. Montague. It should, if it had legitimate fair plaj. Mr. FiNNEEAN. But it does not have fair play. Mr. Montague. Take the question of flour. How could the man- ufacturer fix the price of flour to the retailer ? Mr. FiNNERAN. The supreme court of the State of Washington says he can by a decision given within six weeks. Mr. Montague. Can fix what? Mr. FiNNERAN. The price of flour. Mr. Montague. How long does it last, the price which has been fixed? Mr. FiNNERAN. Indeflnitely; as long as the manufacturer states what that price is. He can change it when he pleases. Mr. Sims. Does that mean the maximum or the minimum price, or both? Mr. Finnekan. Just the one price. If you will pradon me, he con- trols prices all along the line in the State of Washington by this supreme court decision. The manufacturers of the flour there sell it to the retailers in Washington. Mr. MoNTAGXTE. And he fixes the price to the retailer? Mr. FiNNERAN. He fixes the price at which it must be sold by the retailer. Mr. Montague. Suppose the retailer finds he has on hand 1,000 barrels, we wiU assume, and he finds that that flour wiU not keep sufficiently long for him to get rid of it in the ordinary course of his business. How are you going to do about changing the price on that ? Mr. FiNNEEAN. Is that not an unfair proposition? Will such a condition as that ever exist ? Mr. Montague. Does it not frequently exist in business, that men find their goods will not keep for a length of time and they make large reductions in price to get rid of them before they spoil or deteriorate ? Mr. FiNNEEAN. Those are not patented or trade-marked articles. Mr. F. C. Stevens. They may be trade-marked articles. The Chairman. A patent gives you the exclusive right to manufac- ture and seU.the article patented. Stop right there. An ordinary manufacturer has got no patent, but after the patentee has got his patent, then, so far as the manufacturer and competition of the world IS concerned, it stands exactly on the basis of any other manufactured article; so why should not a manufacturer of flour or clothing, or any- thing else, have the same right to prescribe future prices that the patentee would have ? The only difference is you have got one pro- tection and you want another, whereas the other man has got no pro- tection, and you do not want him to have any. Mr. FiNNEEAN. Yes; we do. I think, gentlemen, if at your leisure you would get the decision of the supreme court of the State of Wash- ington, MitcheU Flour MjUs v. C. A. Swanson, that perhaps it would enlighten you on this subject. Mr. EscH. How many pages are there in that decision ? Mr. FiNNERAN. Eleven. The Chairman. These various propositions have been put for- ward as contentions of various interests; they are not new to us, not discreditable to anybody, but they have been thrashed out for years REGULATION OF PRICES. 171 and years, these different things, and we would thank you, instead of reopening them and consummg time on propositions of this sort, that you would go on and discuss the trade commission and tell us how it is going to help trade. Mr. Covington. Eliminate in your discussion any idea that there is a possibility that this Congress will enact in law any bill that wUl regulate prices. The Chairman; You can go further than that. You may accept the proposition that we are not here to discuss and thrash out fads and fancies; we are here to talk about the establishment of an im- Sartial trade commission, to see if it will help general trade methods, ow, if you can enlighten us on that, either for or aganist it, we do not care which you do. Mr. FiNNERAN. I am trying to say to you The Chairman (interposing). Your proposition has nothing to do with the trade commission. That is a question of law that could be passed by Congress, and could be passed with or without a trade com- mission. It is not connected with it at all. Mr. FiNNERAN. We were of the opinion it might be advisable to put in OTir suggestion in the proposed bUl. The Chairman. There are a thousand folks who think it advisable to sHp in something for their selfish interest, into anything, no matter what it is. Mr. FiNNERAN. We want to put it in with everybody's perfect knowledge. We do not want to shp it in quietly. The (Sairman. There has never been a project here of any great purport that somebody did not want to saddle it with some other thing. Please advise us how a trade commission would benefit the general interest of trade, or work against it. Mr. FiNNERAN. The trade commission, as I have tried to say, will benefit if it can have something to do with trade. I presume that is what it is intended for. I was trying to suggest some of the evils which exist in our business which the trade commission might be able to help correct, and for the benefit, in my opinion, of the great mass of the public of the United States, and I assume that is what Members of Congress are here to legislate for; not for any particular body of men, like the druggists, grocerymen, or anybody else, but all of the citizens. Incidentally, we are part of those citizens. We are citi- zens of the United States, and we are vitaUy interested in it, and, as I said before, this matter of cut prices having started in the drug store has gone all over the country mto every branch of trade. Now, the trade commission can, in one way we suggest, help that proposition. We say that our proposition is only tentative; we say that it can, in all probability, be corrected in such a way so that the public wiU be benefited. How are they injured, the question may naturally be asked at the present time, by the cutting of prices ? Mr. Covington. Has the business of cutting prices gone to the length as yet to create any real combinations m restraint of trade; combinations that are in violation of existing law ? Mr. FiNNERAN. I wish I could prove that. Mr. Covington. In the absence of proof of that fact how is it possible to legislate simply against price cutting in this country with- out violating the constitutional rights of the citizens ? Mr. FiNNERAN. Mr. Congressman, I wiU tell you of a condition that exists in the retail drug business and in the cigar business. 172 REGULATION OF PKICES. Mr. Covington. I want you to explain to us, if you can, how it is possible if the people who are fixing various prices on their articles and are doing it without effecting any combinations in restraint of trade or creating any monopoly, legally to prevent them from having aU sorts of prices for their articles ? Mr. FiNNERAN. I want to say there is a chain of retail cigar stores, The United States Supreme CoUrt said that so far as the United Cigar Stores were concerned they were a part of the American Tobacco Co. monopoly. That same United Cigar Stores proposition recently bought in 50 per cent or more of the shares of the Riker-Hegeman Co. in New York, Boston, and other places, and they advertise they own 91 stores. I think it is a fair proposition that we need not have positive knowledge whether they are a trust or not, but that it is probably a pretty fair proposition, knowing what their plan is, that they are cutting prices so that, for instance, articles which cost S8 a dozen wholesale are sold at retail as low as 59 cents each. Now, there is no reason in such a transaction, taking it alone. They can not be expecting to make a legitimate profit in selling that particu- lar article at 59 cents that cost them |8 a dozen, except in so far that they get a secret rebate. You can take your newspapers and, we will be glad to bring in price lists and show you what the articles cost at wholesale and what they are sold for at retail. What is the object of this sort of sale at retail if it is not to destroy competition? Mr. Covington. On the question of secret rebating, how far do you think pubhcity of prices would prevent the continuance of that practice, so that each retailer would know if he dealt with a whole- saler that he was deahng with a man who was discriminating against him? Mr. Finneran. I do not think I get your question quite plainly. Mr. Covington. I say, how far would the publicity of the fact that the wholesaler or manufacturer was giving rebates to various large consumers, department stores and concerns of that kind^ — the United Cigar Stores, for example — how far would the publicity of that fact through the agency of an interstate trade commission, authorized to ehcit facts and to collect information by reports filed, prevent the continuance of the rebating ? Mr. Finneran. I should want to go farther than just the mere act of publicity. I should want some penalty attached. The Chairman. It is not, as I understand you, so much the treat- ment your goods receive after you sell them as it is the conduct of other people; that the other people sell goods and make rebates and enable their goods to be sold at cut prices that interfere with the sale of your productions ? Mr. Finneran. No; not at all. We are simply retailers, selling the products of others. The Chairman. Is it that the people who buy your goods sell to the general public too cheap, or is it the people to whom you sell reduce prices and turn the money over fast and make lots of sales ? Which are you complaining of ? Mr. Finneran. We are just an association of retail druggists. We just sell goods to you or anybody else who comes into our store, and those goods we purchase in the open market . In very few cases do we manufacture. Mr. Covington. You have just stated that the United Cigar Stores, having absorbed Riker-Hegeman Co., buy the specific article that is REGULATION OF PRICES. 173 sold to you pebple at $8 a dozen, and they sell them at 59 cents fox the single article, and you say at the same titae it is not the class of article that brings them any other business. Mr. FiNNERAN. No; I did not say that. Mr. Covington. I misunderstood you then. What is their pur- pose in selling it at 59 cents if it costs them $8 a dozen « Mr. FiNNBRAN. To get you or me or anybody else into their store in order to sell them something else, thereby destroying the advertis- ing that the producer may have put into his article. Destroying his rights under the trade-mark or copyright law. Mr. Covington. Do you think, if I am engaged in business, and sell a hundred different articles and, for the purpose of attracting the trade I care to sell one of those articles at very much less than it costs me in order that the pubHc may come to my place of business and buy 'Other articles, that I have not the light to sell at any price I please ? Mr. FiNNERAN. That might be true ehOiigh providing you were the class of merchant you set yourself out to be; that is, that you would • sell them that article if they ask for it. But the ordinary cut-price Proposition is that they do not get what they come for at all. They ave to fight to get it. It is really a row to get the particiJar 59-cent article you want and for which you were attracted to the store to buy. Mr. Covington. If they come there for the purpose of buying the 59-cent article and do not get it, then the practice you are complain- ing of is a misrepresentation of advertising only ? Mt. FiNNERAN. They get it if they have courage enough to insist that they have it. Mr. Covington. Do you mean to say they get it only if they go into the store and have a row with the clerk? Mr. FiNNERAN. Practically sO iu many, many cases. Not only that, but they will advertise, for instance, certain articles on sale all next Xveek. You go into the store — this is not always true of a drug store— this is true of departinent stores — they advertise sonlethiiig for sale all next -Week and they absolutely have not got enough to last imtil 10 o'clock Monday morning. Mr. Covington. Would that not carry the interstate^trade com- mission to the ridiculous extent of requiring it to regulate the advertis- ing prices of evCTy establi^ment in the United States which pre- sutried to cut the price on one article out of a hundred on its shelves for sale ? Mr. FiN^fiEAif . That would not make the trade commission ridiculous at all, because those conditions would not exist if our proposed law weht into dffect. Mr. Covington. It would be in effect on all jfxroprietary a,rticles ? Mr. FiNNERAN. Yes, sir. Mr. Covington. Without regard to w^hether the article was pro- duced by a combination or a indhopoly in resti-ain't of trade under the Sherman law, you would have the article have its fixed price through a trade commission ? Mr. FiNNERAN. I do not want anyohe t6 have the right of monopoly of any business in the United States. The Chairman. You will consume the entire morning session. Mr. FiNNERAN. No; I was going to say I would like to talk as long as you wanted to ask me questions, but I think it is perhaps unfair to Prof. Nixon. 174 REGULATION OP PEIOES. The Chairman. We shall be glad to hear from any one you have here on this trade commission question. STATEMENT OF ME. C. F. NIXOIT, lEOMIlTSTER, MASS, Mr. Nixon. Mr. Chairman and gentlemen, I am a retail pharmacist. It seems to me that we are not asking for anything that is revolution- ary. It was believed, until the Supreme Court Sanatogen decision that has been referred to, that a patentee had control of his price. It was believed to be a matter of fact by at least half of the lawyers on the case. The Chairman. Is it your purpose to pursue the same argument as the other gentlemen? Mr. Nixon. I am prepared to show you the conditions, why we ask for an amendment to the bill under discussion. The Chairman. We shall be glad to hear you discuss the creation of a trade commission; how it would help trade; not the enactment of general laws, whether they are wise or whether they are practical or not. Mr. Nixon. May I tell you briefly why we beheve a great monopoly is being estabhshed ? May I teU you that in a very few words ? The Chairman. Yes, sir; if you think you can show us how a trade commission will help you to repeal the monopoly. Mr. Nixon. That is exactly what we want to do. We have the United Cigar Stores. We believe they are establishing a monopoly throughout the United States on exactly the same hnes as did the Standard Oil Co., creating a monopoly by the ruinous cutting of §rice on estabhshed goods. You know the system adopted by the tandard Oil Co., going into sections where an independent was doing business and selling oil for less than cost; driving those people out of the market. I come from Massachusetts, from near Boston. WThat is the condition of our cigar business ? Ten years ago we had -cigar stores aU through Boston. To-day there is not a cigar store, to my knowledge, except in the very outskirts of Boston, except the United Cigar Stores. Why? Because the United Stores came in there and cut the price on every recognized cigar to a price where there was absolutely no profit. These cigars are kept under the counter; kept in a dry unsalable condition by these stores. People will not buy them in that condition and then they sell them goods of their own make on which they make a good profit;. They certainly make a profit, because the returns show that they pay a dividend of 20 per cent. The Chairman. All that is familiar. TeU us how a trade commis- sion would remedy that ? People want to put a whole code of laws on the trade commission bill. Mr. Nixon. They have not that power now. We recognize that, And we propose something which we think will give them the power. This amendment, briefly, is a proposition whereby the Government, issuing a patent or trade-mark or copyright, may, as a condition of such patent, allow the patentee the right to require that his goods be sold at a uniform wholesale and retail price. The Chairman. Not only to protect him in his patent, but to pro- ,tect him in holding up his price through all generations ? Mr. Nixon. What we want is that where a man has received a special privilege from the Government in the shape of a trade-mark, BEGULATIOSr OF PRICES. 175 copjTight or patent, that he shall sell his goods at a uniform price to all consumers ahke and play no favorites, and in order that the consumers may know just what the price is for different qualities the price list should be registered and made public. We, as a body of druggists' are fighting for an existence. In Boston there are 20 great chain drug stores. The same condition is taking place in the drug trade that nas taken place in the cigar trade, and when I say Boston I ma;y also say New England and the greater part of New York State. We have 20 of these chain drug stores in Boston. Go through the business streets of Boston and you wiU find but very few drug stores in the trade district anywhere, except the chain stores. Mr. Eatmond B. Stevens. Retail stores ? Mr. Nixon. Eetail stores. They are doing a business of $17,000,000 a year. Mr. Raymond B. Stevens. Are they doing business outside of Massachusetts ? Mr. Nixon. The headquarters is in New York. It is known in New York as the Riker-Hegeman Co. ; in Massachusetts, as the Riker- Jaynes Co.; and one or two other States by other names. Mr. Covington. I am somewhat familiar with that concern. Is it ■not a fact that there is plenty of competition in both Massachusetts and New York ? Go into the city of Worcester, for example. There are at least one or two Riker-Hegeman drug stores, but are there not plenty of other stores also ? Mr. Nixon. But they are of the same kind. There are two or three of these chains of stores. i Mr. Covington. But they do not belong to the chain of Riker- Hegeman drug stores, do they ? Mr. Nixon. There ate two ot three chains getting control of the whole trade. Mr. Covington. I am getting down to particular concerns, as to whether they are creating a monopoly in the drug-store business in the United States. Mr, Nixon. We beUeve the time to stop a monopoly is before it is complete. It is being estabhshed; there is no question about that. Retail drug stores are being driven out of business by every practical means. Tliey come to my place and put a man in front of my store. If I am doing a successful business they count my customers, and if I am doing business enough they go to my landlord and say, "What is the rent of this place ? " Mr. Covington. We should like to hear whether you have any valuable amendment to this bill for an interstate tracte commission, as to what specific powers you would propose to give the commis- sion; whether similar, for example, to the powers conferred on the Interstate Commerce Commission; as to the control over manufac- turers or wholesalers, to the end that no monopoly shall be permitted to exist. Mr. Nixon. All I have got to propose is this amendment. Mr. Covington. Offered by your predecessor ? Mr. Nixon. Offered by my predecessor. Mr. Sims. As I understand it, they proposed that this commission shall have certain powers, to the end that the exercise of that power will prevent a monopoly. 176 REGULATION OP PRICES. The Chairman. But this proposition is misnamed. It is based on the proposition that you pass a Federal law empowering the pat- entee to govern prices. Mr. Nixon. Has not the Federal law already done nearly the same thing with the railroads ? The Chairman. That is a different proposition. Mr. Nixon. Because the raUroads are not drug stores ? The Chairman. We did not pass the Sherman Act in connection with proposing a trade commission, though. Mr. Nixon. I was laboring under a misapprehension, probably. We appeared before a committee yesterday and had the latitude to discuss three or four bills. The Chairman. Have you made this statement already to another committee ? Mr. Nixon. These biUs have been assigned to two committees, as we understand it. The Chairman. Have you said all this to another coimnittee of Congress ? Mr. Nixon. We have said something similar. The Chairman. What, then, is the use of repeating it ? Mr. Nixon. Simply because these biUs have been assigned to your committee, and I have an amendment to offer to this biU. 1 am talking about a proposed amendment to H. R. 12120. Mr. Hamilton. 1 understand that this particular amendment which this gentleman desires to submit has never been submitted to another committee. The Chairman. We should like to hear that. We should Hke to hear anything which has not been said to another committee. Mr. Nixon. Do you wish it read ? Mr. Hamilton. Either that, or submit the substance of it. Mr. Barklet. I suggest that the gentleman read this amendment. AMENDMENT. Section 1. That the owner of any patent, trade-mark, or copyright may, as a con- dition of such patent, trade^mark, or copyright, file in the interstate trade commission a statement showing the prices at which any article covered by the patent, trade- mark, or copyright is to be offered for sale. Such statement shall show the retail price of each such article, together with a list showing all prices and rebates, commissions, or discounts of every nature whatsoever at which said article shall be sold or offered to dealers for the sale of, or for the handling of such articles, and such list shall be registered under such rules and regulations as the interstate trade commission may prescribe. A new price list may at any time be substituted for a registered price list and reregistered, and a fee of — shall be paid on each list registered or reregistered. Sec. 2. All such articles covered by the registered price list shall be plainly marked with the retail price at which the same are to be offered for sale, and the words "Price re !;istered " followed by the date of such registration. Such marking shall be made under such rules and regulations as the interstate trade commission may prescribe, and may be on the article itself, on the label, the container, or the wrapper. Sec 3. It shall be unlawful to sell or to offer for sale any article covered by such registered price list at a price different from that named in said list. It shall be unlawful to give or to receive, or to offer or demand, any rebate. commission,or discount of any nature whatever for the sale of any article covered by such registered price list other than the rebate, discount, or commission prescribed in the price list registered in connection with such article: Provided, however, That this section shall not apply to legal public sales made in pursuance to judicial executions: And provided further , That all articles purchased at such judicial sales shall, in case they are again offered for sale, be subject to all the provisions of this act as if no judicial sale had taken place. Sec. 4. Any person violating the provisions of this section shall upon Qonviction thereof be fined not less than flOO nor more than $1,000 for each and every offense. REGULATION OF PBIOBS. 177 Any person falsely marking an article as having a registered price, or who marks any registered article at other than a price registered, sha3l, upon conviction, be fined not less than $200 nor more than $2,000 for each and every ofiense. Mr. Nixon: There is another thing we wanted to do, to stop secret rebating, just the same as secret rebating on railroads. I understand that is a somewhat different proposition, but here my friend Finneran, for instance, who does a large metropolitan business in Boston. I am in a country town. If I go to a manufacturer to buy lO' gross of a cer- tain proprietary article, I am given a certain discount; I am given a less discount than he in Boston, because he is a larger dealer, and the prospects of future sales are greater with him, just the same as in the matter of shipping, and he is given a discount which I know nothing about. This would cover aU that sort of thing. This Riker-Hegeman combination buys goods cheaper than we can, on the same grounds and for the same reason that a big shipper gets a lower rate than a little shipper. The Chairman. Is publicity all you ask? Mr. Nixon. We ask more. We ask definite discounts, for one thing. In other words, the price shall be the same for the same quan- tity to any person, whether a big dealer or small dealer. The Chairman. I mean, you do not attach any penalty or punish- ment for not complying? Mr. Nixon. Certainly. Section 4 reads: Any person violating the provisions of this section shall upon conviction thereof be fined not less than $100 nor more than $1,000 for each and every offense. We followed the suggestion of the President that violators of this class of laws should receive personal punishment. Mr. Covington. What method do you prescribe by which the inter- • state trade commission shall be able to determine whether those prac- tices absolutely exist or not ? Mr. Nixon. Section 2 covers that, it seems to me. Perhaps it is not definite enough. Mr. Covington. That is all right with regard to the retail price, but the practice you complain of is that the manufacturer or wholesaler sells to the big fellow, to the department-store man, or the chain -of stores, such as the Riker-Hegeman Co., at a less price than he sells to you. You also complain that he gives you less discount than he gives the other feUow. Now, what method do you propose that the interstate trade commission shall follow to find out the difference in the prices these people are fixing ? Mr. Nixon. The first section covers prices, rebates, and discounts. Mr. Covington. I want to find out what methods of publicity, what methods of inquiry, what methods of investigation you propose the interstate trade commission shall follow to determine whether or not the manufacturer or wholesaler, who is not violating the anti- trust laws, is giving excessive rebates or excessive discounts to your larger competitor. Mr. Nixon. As I understand, I could make complamt to this same commission that my friend Finneran was obtaining such rebates. Mr. Covington. Do you thiijik each retailer ought to have the rigkt to file with the interstate trade commission a form of complaint such as a shipper now files with the Interstate Commerce Commission ? Mr. Nixon. It amounts to the same thing. 81295 — 10 12 178 EEGULATION OF PKICES. Mr. Covington. You would provide that the manufacturer or the wholesaler of an article selling it to yoxir larger competitor at a greater discount than you are now getting, although'the retail price is plainly marked thereon, is violating the law ? Mr. Nixon. Yes, sir. The Chairman. I asked you just now if publicity was aU you were aiming at, or if you desired to incorporate legislation that would compel adherence to the prices pubHshed ? The duty that has been before us for that commission to perform is to prevent violations of the antitrust law. There is nothing included in it requiring it to look for violations of any fixed-price sale agreements. Mr. Nixon. If we get in this amendment it would, would it not? Mr. Willis. Let the gentleman read his amendment through. Mr. Nixon (reading) : Sec. 3.- It shall be unlawful to sell, or to offer for sale anjr article covered by such registered price list at a price different from that named in said list. It shall be unlawful to give or to receive, or to offer or demand any rebate, commission, or dis- count of any nature whatever for the sale of any article coveted by such registered price list other than the rebate, discount, or commission prescribed in the price list registered in connection with such article: Provided, however, That this section shall not apply to legal public sales made in pursuance to judicial executions: Arid pro- vided further, That all articles purchased at such judicial sales shall^ in case they are again offered for sale, be subject to all the provisions of this act as if no judicial sale had taken place. Mr. Covington. Then it is your purpose, as I understand it, to proceed in the courts to enforce the prohibition you have set out, rather than to confer on the interstate trade commission the power that the Interstate Commerce Commission now has to prescribe such regulations as shall compel adherence to its orders? Mr. Nixon. This, I assume, would refer it to the courts. You understand I am not a lawyer. Mr. Covington. I understand. I was trying to get your ideas regarding this. Mr. EscH. Would a provision something hke this meet some of your complaint? That it shall be unlawful for any manufacturing or trading corporation engaged in interstate commerce to discrimi- nate against persons or locahties by selling the same commodities at certain prices to certain persons and locahties except in so far as may be afffccted by distance and cost of transportation ? Mr. Nixon. That helps very much. Mr. EscH. You can talk to that, because that is a part of section 8 of the bill introduced by the chairman. Mr. Nixon. That would help very much. Mr. Sims. If I understand the position of those you represent, it is, that with such a law the practices that now obtain would not obtain ? Mr. Nixon. They would not obtain. Mr. Sims. And consequently the importance of how they are to be prosecuted, or whether any court has jurisdiction, or what court, or what penalty are minor in importance to preventing the practices by making it possible to make them public. Is that the idea ? Mr. Nixon. That is exactly as I understand it. Mr. Sims. That is the remedy or beneficial effect of the regulation you propose? ' ' Mr. Nixon. Yes, sir. Briefly, we favor this biU and would like to have this amendment added, because we beheve conditions exist whereby we are being driven out of business. EEGULATION OF PRICES. 179 Mr. Montague. Do you favor the same price everywhere? Mr. Nixon. Yes, sir. Mr. Montague. Of course, I imagine minus freight rates, and so forth. I will put it in different form. You spoke of the gentleman back of you [Mr. Finneran] buying drugs, so many gross at one price and you buying the same drugs and paying a different price ? Mr. Nixon. Yes, sir. Mr. Montague. You say he bought much larger quantities than you. Mr. Nixon. Yes. Mr. Montague. Did I understand you correctly ? Mr. Nixon. Yes, sir. And further than that, I say that if I buy the same quantity; say, I buy 5 gross and he buys 5 gross, he gets a rebate that I do not because he is a prospectively larger customer. I think it is perfectly proper, if a man buys a carload, that he should get a greater discount than if he buys a dozen, but I believe if I buy a carload, although I may be a small dealer, I should have the same price and rebates as he. • Mr. Covington. How would you cover this proposition ? Take a standard article, such as the Ohver chilled plow. A consumer in Indiana, within 100 miles of the place of its manufacture, buys a carload of these plows, and pays the ordinary freight rate of a ship- ment from the factory to a location 100 miles away. A consumer on the plains of Texas buys a carload of these plows and he pays the freight, approximately, we wiU say, for 1,500 miles of shipment. What method would you devise to regulate the sale of those patented articles at the same price in Texas that they are sold for in Indiana ? Mr. Nixon. I am frank to say that we have not taken up that phase of the question. Mr. Covington. Of course we understand that you gentlemen happen to be engaged in commerce where the packages are quite small. However, there would be many classes of commerce where, if we did regulate along the lines you suggest, the bulk woulb de very large. I wondered whether you had thought how it would work out if we attempted to fix an arbitrary price for the disposition of articles all over the United States, without taking into considera- tion the varying freight rates on articles of considerable bulk. Mr. Nixon. The section read "by this gentleman on my left [indi- cating], as I understand it, of a proposed measure, covers that. We have not covered it. I am frank to say we have not covered it at all. . Mr. Covington. Have you any suggestions in regard to that phase of it ? Mr. Nixon. No, sir; but the section read by the gentleman would cover it. , • ^ Mr. Sims. You limit this legislation, as I understand it, farst, to patented articles, second, to copyrighted articles, and third, to trade- mark articles ? Mr. Nixon. Yes, sir. Mr. Sims. This legislation I suppose apphes to all articles i Mr. Nixon. To all such articles. j. ' " Mr. Covington. Have you gone into the business of your asso- ciation thoroughly enough to be able to state whether or not on the class of articles with ^^'hich you are concerned — articles of small bulk shipped in small packages— the freight rates in the Umted 180 EEGITLATION OF PRICES. States would have any effect on the price of the article sold to a consumer? Mr. Nixon. I think that our articles are so small it would have no effect. Mr. Covington. The freight rate would be an element so negligi- ble that it would have practically no effect ? Mr. Nixon. No; because our articles in the drug trade are all so small. We are asking legislation solely on this line of goods, because this line of goods is used as a bait for breaking up aU of our business. Mr. Covington. Is it your theory that the Government ought to proceed upon the idea that having given the manufacturer of a patented or proprietary article a special privilege, that it ought to go further and exercise the control of tKe price of that article? Mr. Nixon. I think it should, and I think the law was so under- stood until the Sanatogen decision. Mr. Covington. That is what I was getting at. Mr. Nixon. In fact, a deci^on of the Supreme Court two or three years ago was practically along the hue that they did have that power. Mr. Covington. In your trade various prices are fixed, based upon the size of the drug store, and whether it is what we call a cut-rate drug store or not. Mr. Nixon. Yes. Mr. Covington. Does your plan embrace any scheme at ail by which the control of the prices of nonpatented or nonproprietary articles can be reached in any manner? Mr. Nixon. Not in any sense at aU. Mr. Covington. Your proposition is only to give this commission the power to control the prices of articles that the Congress has ■ already practically given the producer ,a monopoly on by the patent or copyright laws. of the United States? Mr. Nixon. Yes; we ask that because we thought it could be done in that particular. We do not ask it in any other particular. And we ask it because these goods are being used as a means to drive us out of business, and it is doing that. Mr. Covington. You simply propose an amendment to the bill to create a trade commission along the lines your immediate prede- cessor read in full, and which you believe would accomphsn that purpose. Mr. Nixon. Yes, sir. Mr. Covington. Is there anything else you desire to say? Mr. Nixon. I think I have covered practically all I wish to say except that I should have gone into detail a little more, perhaps. I should like to have shown you a little more of the effect this mo- nopoly is having on us, but if you do not care to hear it, I will not go into that. Mr. Covington. We would like to hear anything you desire to saiy. Mr. Nixon. I understood from your chairman that I was to confine myself very closely, but if given a little more latitude, I wiU not take over 10 or 15 minutes of your tiine.' • ' Mr. Sims. We understand you are here to give us information which you think is important, and the question as to its importance I think ought to be left to you. Mr. Nixon. I thank you very much. EEGULATION OF PEICES. 181 Mr. Montague. I agree with that statement. Mr. Nixon. This may not interset you a particle, but it interests us. Take the combination of the Riker-Hegeman chain of drug stores with the United Cigar Stores which was and some people think still is a part of the Tobacco Trust. This came after the bitterest kind of a cut-price war in certain trade-mark brands of cigarettes and sim- ilar articles. It was reported that the United Cigar Stores Co. had purchased the majority of stock of the Eiker-Hegeman Co. Inquiry made of the secretary of state of Delaware discloses that a holding company was organized to control stock of the Riker- Hegeman Co. Here is the letter giving all the information I could gather on this subject from Dover, Del. Office of Secretary of State, Dover, Del. Alonzo Hopkins Stewart, Esq., Washington, D. C. Dear Sir: In reply to your favor of the 9th instant, I beg to advise, according to the annual report med in this office by tlie corporation for R. & H. Stock, January 6, 1914, the following are the names of the officers and directors: President' William J. Maloney, care of Corporation Trust Co. of America, Du Pont Building, Wilmington, Del.; treasurer, Julian Wattley, Wilmington, Del.; secretary, Herbert E. Latter, Wilmington, Del., directors, William J. Maloney, John F. Meaney, M, Monae-Lesser, Charles H. Dubois, Julian Wattley, Carl Schmidlap, Herbert S. Collins, Sidney S. Whelan, Frederick L. Becton, Wilmington, Del. Very truly, yours, Thomas W. Miller, Secretary of State. I have been able to learn something of the personnel of the officers and dii^ectors. , William J. Maloney, the president, is an ofl&cer of the Corporation Trust Co. of America, which company incorporated this holdmg com- pany, and is the resident director required by the laws of Delaware. Julian Wattley, the treasurer of the company, is a young man between 22 and 25 years of age; is a bookkeeper or office man, on setlaj-y. No financial standing commercially. No knowledge of drugs. Formerly lived in St. Kitts, West Indies. Brother of Ralph Wq,t1?ley, a,uditor of United Cig^r Stores Co. Worked in secretary's oflice of United Cigar Stores Co. Probably acting as treasurer to sign checks and as dummy director. Charles H. Dubois, director, is a man about 40 jears of age, who used to live in Bogota, N. J. Bookkeeper or office man, on salary. No financial standing commercially. No knowledge of drugs. Worked in secretary's office of United Cigar Stores Co. No execu- tive abUity. Probably a dummy director. Herbert S. Collins, director, is a man about 40 years of age; is a retail chain-store specialist. Protege of George Whelan, president of United Cigar Stores Co. Was once vice president of United Cigar Stfires Co. Formerly lived in Syracuse, N. Y., where followed tobacco business for years. Has no knowledge of drugs. Sidney S. Whelan, director, is a boy about 21, son of George Whelan, president of United Cigar Stores Co. Must be his first experience m business. Frederick L. Becton, director,^ is a young man about 25 yc^ars of age. Bookkeeper or office man, on a salary. No financial standing. No knowledge of drugs. Formerly fived in State of North Carolina. He was at one time assistant auditor of United Cigar Stores Co., and 182 REGULATION OF PRICES. may be now. Has two brothers working for the United Cigar Stores Co. Is probably merely a dummy. Of the secretary, Herbert E. Latter, and of Directors John F. Meaney, M. Monae-Lesser, and Carl Schmidlap no definite informa- tion has yet reached me. But I have some reasons to believe that the first two are merely figureheads, connected with a corporation trust company located in the State of Delaware — the State of incorporation. Take this Eiker-Hegeman proposition as it is ui Massachusetts, New England, and in New York. We have in Boston 20 of these chain drug stores. As I told you in the first place, they have driven every drug store off the principal streets in Boston. They are opening stores La every town ia Massachusetts of a population of 30,000 or 40,000, and are driving other drug stores into bankruptcy or- where they simply live, and it is done by the cutting prices on goods that we are asking for the price protection on. There are 94 of these drug stores in New England and New York principally. Their intent is to cover the whole United States. They are domg.at present a business of 117,000,000 a year, which makes an average of $180,000 per store annual retail sales. Now the average business of retail drug stores is from $15,000 to $25,000 a year. Of course, there are some larger and very many smaller, but that is a fair statement. You, of course, are all famiUar with the cigar-store methods. We beheve that a monopoly is being formed, and we hope, by some legis- lation of this kind, to stop the monopoly before the whole country is involved in the way we are in Massachusetts. Mr. EscH. In starting such a monopoly the evils are the greatest, are they not ? Mr. Nixon. They certainly are. Mr. EscH. Because the price cutting comes at a time when they are trying to capture the field? Mr. Nixon. Yes; exactly. Mr. EscH. When they have captured the field, is there a complaint in regard to the prices they charge? Mr. Nixon. I want to cite one instance in a single city of the methods that were employed. In the city of Lowell, Mass., the Riker-Hegeman people went in and f ovmd a store that had been long estabhshed; father and son had probably been in business for 50 or 60 years, and the son is older, about my age. He had the largest drug business in Lowell. . The Riker-Jaynes people went to the owner of the building and leased the drug store from imder him. The owner of the buuding did not give his old customer an oppor- tunity to meet the advance in rent, and he was obliged to move out of the building on a month's notice onto a side street. His business was practically ruined. They go to another man down another street. In this particular case it was the United Cigar Co., where the rent was comparatively small, and they offered to double the rent and drive this man out of business. They did not succeed in driving this man out of business, but the man pays twice as much rent as before. If they can not get a man's position they will bankrupt him by his rents. Over in Cambridge, I might sa,y' incidentally, I know of another case where a man's rent was raised from $7,000 to $12,000 a year by these same means. BE6TJLATI0N OF PRICES. 183 Here are two more instances from Lawrence, Mass., and the gen- tlemen who wrote these letters have been suffering from the unfair competition of this retail drug trust which uses the weapon of price cuttmg on proprietary goods, together with the secret rebate, as well as the unfau- practices recited by them. Here are the letters: Lawrence, Mass., February 4, 1914. Mr. Nixon, Leominster, Mass. Dear Sir: At the request of Mr. Campbell, of Lowell, Mass., to furnish, you with some facts in regard to the mode of conducting drug business, as carried out by the chain stores, I will submit the following;: When they first opened up they sold cigars at retail for less than we could buy at wholesale, also patent mediciues and articles that the public knew the price of. Every week they inaugurated sales, and we found that on the articles such as rubber goods, where no regular stamp was on the article, that their price was a great deal higher than ours, but on rubber goods that the retail price was printed on they would sell at cost or below cost to us, and in their ads they would mention the fact that no goods would be sold to retail druggists. Many of the druggists would send their friends to purchase the articles for them, when they could buy for less than the wholesaler would charge. Now that they have established a trade and have got the people coming, we have noticed that they are getting prices on many articles better than us. You are no doubt familiar with the 1-cent sale, where they charge 25 cents for a patent medicine and for 1 cent they will sell you another bottle, or, in other words, for 26 cents you can purchase two of a 25-cent article. We can not meet their prices. We have tried to purchase from wholesale dealers the articles they advertise, but the wholesalers tell us that they can not buy articles in many cases from the manufac- turers at the prices the chain stores retail them for. I personally have arrived at the conclusion that, they being large distributors, are favored by the manufacturers by receiving larger discounts than the wholesalers are allowed. You are no doubt aware of their methods of leasing out drug stores to get rid of a competitor, as per their action in Haverhill in leasing out Mr. Norton, and subleting the store for a meat market. Trusting the few pointers I have given you may be of some help, and wishing you every success in your fight against chain stores, I remain , Very respectfully, yours, ■ jo^j, j Foeeest. ■., ,-, ^ -KT r ■ ^ Laweence, Mass., February S, 1914. Mr. F. C. Nixon, Leominster. . Deae Sir: My experience with the chain stores was this: After being in my store for over 30 years and gradually building up a nice business, my five years' lease expired, and I could not get a renewal, and finally, after receiving word from a num- ber of druggists that they heard, from what they considered a reliable source, that the chain of stores had secured a long lease over my head, knowing the experience of other druggists, and also recalling that I had been told by one of their managers in a New York branch that they considered my store the best locatioii in Lawrence, and also knowing that the trust was dissatisfied with one of their store locations in this place, and that they had made several unsuccessful attempts to get other loca- tions, I decided to try and have a talk with the store owners. I journeyed to their town and, securing an audience, said I would like to talk over the renewal of my lease, but was informed that they were not ready to con- sider renewal of any store leases in my immediate neighborhood, as they were consid- ering a proposition to develop the property, and not until I admitted that I would be willing to consider such a proposition would they talk with me. The outcome was that I had to take a long lease of the property and build a handsome brick block upon it which reverts to the owners at the expiration of my lease. This had been a great hardship to me, as I am a man of only moderate means, and not what you would call (after my 35 years in the retail drug business) a young man, but for my own interests and the interest of my family was obUged to accept the proposition, and hope to be spared and have good health long enough to put, it on a paying bams for those I know I must leave behiud[ me. Trusting that you, Mr. N^^pn, may be riven courage and strength to fight for the cause, and hoping that some good may come in the way of legislation to help the present wrong condition, I am. Yours, very respectfully, ■ ^ p ^^^^^ 184 ' BEGULATION OF PRICES. / Washington, D. C, February 6, 1914. Mr. Alonzo H. Stewart, Washington. My Dear Mb. Stewart: Somewhat in amplificatioii of tlie attached Ipttei to Mr. A. F. Ryder, I will say that the different chain-store systems of both drugs and to- baccos, now openly controlled by the same interests, each has an architectural and building department of its own. I persona,lly know that in the early days at least the United Cigar Stores Co. had, and may yet have, a dummy real estate company. With these departments and compa,ny the custom was, possibly still is, to have the real estate owner approacied by a representative of the seeming separate real estate company, and propose the making of a lease by the trust, under which the said trust would agree to at least put a new front in the building, and oftentime do much more. Having thus secured a long lease at little more than a fair ground rental, presumably for its own occupancy, the trust would reconstruct, but where there had been but one store room it would niake two or niore, occupy only a very small room itself and rent the others for more than a good interest on all rentals, reconstruction expenses, and every other calculable item. Furthermore, the owner of the real estate would oftentimes bind himself to have the supposedly independent agent, but who was really an employee of the trust, col- lect all his rents, place his insurance, and in other ways secure a commission on all things for the life of the lease. Evidently Mr. Ryder found himself "up against" some such sort of competition as the above suggests. Sincerely, yom's, J. Lbyden White. What did they do in Lowell? They cam into Lowell and adyej" tised ciit prices. The ordinary wholesale prices of proprietary good^ as they come into the dnig store are practically the same as the sam'* priced goods in other trades. They are from $8 to $9 per dozen" That is the average price in a hardware store, dry goods store, etc' It costs 25 to 30 per cent in any retail business to do business. These goods cost $8 to 19 per dozen. They advertise them at 49 cents and 59 cents all over the country, not in the city of Lowell alone, but within a radius of 40 miles to bring people to that store. Now the people are impressed with the belief that if these people are selling goods for 49 cents that they have formerly paid 90 cents or $1 for, that the old dealers have, in popular terms, been roasting them. They do not b eh eve for one moment that these stores are sefiing goods at cost or below cost. They do not know the fact. The Riker-Hegeman people and all these kind of people are simply using that as a bait. The chain drug stores match up proprietary articles that are adver- tised at cut rates with articles of their own make, on which they make ' a big profit, and for which they get the full price. Mr. Montague. They match up goods ? Explain that, please. Mr. Nixon. Suppose a person goes in for a popular hair preparation, the price is advertised at 49 cents, and they will say, "Here is some- thing a great deal better, lady; something very much superior; some- thing we can guarantee; something we make ourselves, it is an article even better, and the price is $1," and customers in a very large pro- portion of cases get that class of goods and pay the full $L Mr. Covington. That particular practice is very largely a fraud in advertising, is it not ? Mr. Nixon. Yes. We think we could cover that if we could remove this bait from them. Mr. Covington. I should hke to have you explain how you would [)revent the sale of an atricle, not a patented or proprietary one, at a ow price? ,, Mr. Nixon. There is not an article in the whole drug store, or any other business, that can accomplish the work that a patented article REGULATION OF PRICES. 185 ■with the price on it can, for the purpose of cutting prices. Let me tell you the reason why. We had a cut-rate war in my own town one time on this patent medicine proposition. A ^o.cer put in patent medicines, using them as 'a bait for drawing busmess into his grocery store. One of my druggist friends and myself said we would try to meet this, so we undertook to sell groceries at cost, or at a very sinall profit. We first advertised teas and oofifees. Teas that they solctfor 70 cents we bought at 43 cents. We advertised these all over town at 48 cents; we were making 5 cents a pound. We sold a lot of that tea, but that did not accomplish our purpose, because there are so many kinds of tea; ixobody knows the price of tea, and very few people know the quality of tea. We continued this for a while. I said to my druggist friend, "The only way to beat this man is to sell sugar." Sugar is on a par, you imght say, with patent medicine. There is pretty nearly a fixed price on sugar. People have an idea there is not very much margin of profit on sugar, but we sold sugar at cost gmd by selling sugar stopped the butting of our goods. We sold 250 tons of sugiar m two drug stores in a short time. We could not accomj^sh njjxch with the tea. I think that answers your question on pro- prietary medicine. On other things it cuts no figure at all. You coxild not do it with Epsom salts, or rhubarb, or anything of that kind, because it has no advertised price as do proprietary articles- Mr. Covington. Let me see if I get yom- idea about how the sug- gestion you have made would prevent this practice. You say that these people advertise proprietary articles at, for example, 49 cents, when that is a cut price, and then when you go to their stores they offer you another article that is not a proprietary article, and which of course the regulation of the price on the proprietary article can have nothing to do with, you think that when the retail price of the proprietary article is fixed and they are prohibited from selling, and consequently from advertising it at the cut-rate price, that they will not be in a position to offer the customer their substituted article, because there wUl be no advertising inducement for him to go thene ? Mr. Nixon. He would be no more Hable to go there then than to any other store. Mr. Covington. That is your idea? Mr. Nixon. Yes. Mr. Covington. That the cut-price advertisiiig will be destroyed by the fixing of an arbitrary fixed price ? Mr. Nixon. Yes, sir. Mr. Nixon. Here is an advertisement on this subject. I have quoted you the prices that they use when they open these drug stores. Here are some prices they are advertising at the. present time, articles on the basis of perhaps 79 cents. You see, they are f'adually going up. They started at 49 cents to appeal to the people, ow they have got them up to 79 cents on the great majority of dollar articles. Mr. Covington. That was how long after they were established? Mr. Nixon. I should say it was two years. Here is an article, "JajTies Balsa,m Fir." This is one of their substitute products. It is cough remedy, priced at 60 cents and $1, and they charge the full price. They are not doing business for philanthropy. They are using these things to kiU off us small dealers in the country and in the cities, and selling substitutes at full prices. Mr. Covington. As they kill you off, then they raise the price ? 186 REGULATION OF PRICES. Mr. Nixon. Yes; then they raise the price. You see, they have got up from 49 cents to 79 cents now. Mr. Covington. After they kill you off then they can afford to be philanthropists ? Mr. Nixon. Yes. They get better prices for other goods than we can. Go into these same stores ia Boston, look in their windows, look at their water bottles, and rubber syringes, and all that sort of thing, and you will find those bottles that we are selhng for $1.50 apiece marked $1.98. They are making a larger profit than we do on these goods, and they fool the people with the idea that because they are buying one thing for 49 cents or 69 cents, that should be SI, that everything is on the same basis. Mr. Sims. After they destroy existing competition, then they get the fruits of monopoly, and do not hesitate to look for them ? Mr. Nixon. That is it. I believe that a monopoly is being estab- hshed and we are the under dog, and we. are trying to have the inves- tigations made to benefit ourselves, if we can. If we can not, we have got to take our mediciae. I have made this appeal to you representing 40,000 druggists, the greater part of whom are in the same position that I am. Mr. EscH. Do you think it would be wise to give this trade com- mission the power to investigate unfair trade practices ? Mr. Nixon. I do; yes, sir. Whether that would appeal to a com- mission as an unfair practice I do not know, but it seems to me unless they have some specific reason for not doing it, that it ought to be done. Now referring again to the cut-price war in Boston between the Kiker-Hegeman Drug Stores and the United Cigar Stores Co. Besides creating a monopoly, that war injured the independent retailer, the manufacturers of those specially branded articles, and prices of which were cut, and also the consumer as well. The independent retailer was first injured because the price on these articles was cut so low that he could not meet the cut and at the same time make a profit, consequently he lost the trade of the cus- tomer not only in these articles but also lost the general trade of these customers, for where a man buys cigars and cigarettes he gen- erally buys other articles. Then the retailer finally has to give up handhng these goods. When the price is restored to the normal he has no trade in this line of goods whatever. The manufacturer was injured because he lost the trade of the independent retailers and then was at the mercy of the trust, because the trust was his only customer and could demand any discount it desired or could even refuse to handle the specially, branded articles. The consuming pubhc was injured because even during the cut- price war all customers were not treated alike, one consumer getting one price and another consumer a different price, depending when and where the article was purchased. After the war was over the consumer was compelled to purchase these articles at the trust stores and could be made to pay even a higher price than was charged in near-by cities where there were in- dependei^t retailers. And; Siis higbier price could be charged in spite of anythmg the manufacturer could do to prevent it, although the increased price might make the article itself unpopular. Mr. EsoH. If these conipanies Uke Riker & Hegeman's stores, and so on, knew that the Government had the power to investigate EBGULATION OF PRICES. 187 trade practices and make public unfair trade practices, it would have a good effect. Mr. Nixon. It certainly would (but we need more, as proposed by our amendment) . This is a great big game. It is worth lots of money. Suppose the Kiker & Hegeman Co. find that they are under the control of a Federal commission, what is to hinder the New York stores forming a company by itself and the Massachusetts stores by itseK, and then they have got from under that control, have they not ? It would no longer be interstate business. There is not the slightest doubt that those companies would-do that, because there are miUions of dollars invested in this proposition. Mr. Decker. Do these companies advertise extensively? Mr. Nixon. Yes. Mr. Decker. Do your people advertise, too ? Mr. Nixon. We can not. Mr. Decker. Why? Mr. Nixon. Can we pay $1,000 a page, or whatever the price is, a Boston retailer that is doing $15,000 or $20,000 business a year? Can he pay the price that is necessary in the metropolitan newspaper ? They have 12 stores, and another corporation has 8 stores— great stores. The biggest rental that is paid in Boston to-day per square foot is paid by these people. They have money for full page advertising. Mr. Decker. Getting down to it, is not the main trouble that these advertisements are misleading and untrue ? Mr. Nixon. They are misleading to the extent that the public gets the idea that aU goods are being sold at a cut rate. Mr. Decker. Would not the law in your State requiring honest advertising, like they have in some States, come nearer remedjring this than anything else ? Mr. Nixon. It is not dishonest to advertise a cut price; it is mis- leading. Mr. Decker. What right have we to stop it if it is not dishonest ? Mr. Nixon. It is not dishonest; it is misleading; it is a matter of policy. Mr. Sims. He does not ask us to pass any law affecting advertising. He wants these prices regulated by a Federal commission, as are like products now covered by the Government — patents and trade-marks. Mr. Nixon. And copyrights. Mr. Sms. And copyrights. Mr. Lafferty. They nave a State law in Massachusetts- now pro- hibiting false advertising, but here they advertise truthfully that they wUl seU a certain remedy at 49 cents, but they use that as a bait to get the customer in the store, and after he gets in there they sell him other articles at a higher price. Mr. Covington. You speak of the possibility of these concerns organizing under the State law, and thereby excluding themselves from the control of Congress. You were referring to the local com- binations of retailers who use these cut-rate stores ? Mr. Nixon. I am referring to these great corporations hke Riker & Hegeman's especially. Mr. Covington. Who is the ^final "distributor of these products ? Do you not believe that the mSiiiifacturer of these products has to have a large interstate trade if he is to exist; he does not limit his sale to Eiker &• Hegeman, does he? He sells to you. He sells to people in California; he sells to people in Texas. The control that 188 REGULATION OF PKICES. you advocate over him would be quite effective by a regulation in interstate commerce, would it not ? Mr. Nixon. It dops not appeal to me that that would cover it. Possibly it would. If I buy gpods that a,re made in California, accord' ing to statements that have peen made here, they are my goods and I can sell them at any price I wish unless they are controlled by some price regulation. It is not interstate commerce if I sell anythitjig in my own town, is it ? - Mx- Covington. I understood you to advocate that the manufac- turer should be compelled to fix a price on them. Mr. Nixon. I do not see how any other iaterstate law could affect Riker & Hegeman if they split it w into State organizations. The Chairman. If they aU file their prices with thp trade' commis- sion, in order to make them valuable, distribute it to the people, there would have to be a large additional number of bulletins printed and distributed, would there not ? Mr. Nixon. It might be so. The Chairman. It would be pretty expensive publication, would it not, to make available to all the people ? Would it not take a Igjge book to contain all the prices? Mr. Nixon. I do not thini that any such book would be necessary. The Chairman. Then how would you make it available to the peo- ple if you did not publish bulletins ? Mr. Nixon. It would be on the package. The price is on the package. The Chairman. On the package itself? Mr. Nixon. It would have a registered price on the The Chairman. Then you would not want the list filed? Mr. Nixon. I do not see any necessity for that. The Chairman. It wiU require the people to print it on the pack- age ? Mr. Nixon. Yes; print it on the package as they do now, only it would be stated as a registered price, and that price would be main- tained. I thank you very much for the attention I have received. The Chairman. The committee is very much obhged to ypu, Professor, for your appearance and testimony, and you wul be allowed to revise and extend your testimony and insert anything you think of value on the subject. Mr. Nixon. WiU we be allowed to file fiTbrief later? The Chairman. Your notes wUl be furnished to you for revision. When you revise those notes you may add anything else that will help the committee in the solution of this problem. (Thereupon, the committee adjourned until to-morrow, Saturday, February 7, 1914, at 10 o'clock a. m.) February 7^ 1914. STATEMEITT OF MR. HENRY B. JOY, DETROIT, MICH., MANUFACTURER. The Chairman. Mr. Joy, the committee is trying to find out whether it is advisable to constitute an interstate trade commission in aid of the enforcement of laws to regulate commerce. If you can EEGTJLATION OP PRICES. 189 give us any light as to whether or not such a body would be valu- able, or whether it would not be valuable, we would like to hear you. We do not care which side you take, so you talk upon the subject. Mr. Jot. Mr. Chairman, I would like to say this, for example, that that matter of trade commission, in my mind, is so closely inter- woven with the other alUed questions of price maintenance and fair competition The Chairman. In other words, you want to make a whole lot of laws in connection with the establishemnt of a trade commission ? Mr. Joy. Make what ? . " The Chairman. A whole lot of laws — Federal laws — pass new laws by Congress ? Mr. Joy. No, sir; quite the contrary. What I was going to ask you, or suggest to you, is this: That it is so difficult a subject to state the matter in a satisfactory manner that I would hke very much if I might have the plelasure to make a statement to the committee, and endeavor to cover in that manner the topic in a connected manner and then have you ask me any questions that you desire." complicated subject yet simple principles. The subject is so large and has been so very much discussed in so many complicated and intricate and insoluble ways that if I tried to trace the situation as it is it becomes an almost impossible and tangling snarl. But I believe, gentlemen, that it is entirely possible to keep these matters before us constantly in the light of simple ele- ments without tracing them on into the ultimate ramifications which render any consideration of the question almost impossible within the time of a generation, certainly not capable of bemg adequately presented within the short time of a session of the Congress. INTERSTATE TRADE AND PRICE MAINTENANCE ONE SUBJECT. I have taken fair competition and price maintenance as the topic around which I hope to present for your consideration an analysis of trade conditions whi«h to me present a situation so logical and so forceful that it carries conviction with it. DO NOT AMEND SHERMAN LAW. First and foremost, I want to state to your committee that in my opinion the Sherman Act should be allowed to stand on the books intact and unaltered and unamended. It has been on the statute books of these United States for nearly a quarter of a century, and j the litigation under this law which at first resulted in compHcatiag decisions has now generally come to be more clearly understood, and it is, I believe, a lighthouse around which can be reconstructed a con- dition of sound, stable industrial prosperity with fair competition as the guiding star. If this law is amended and again reopened for indefinite, prolonged litigation under our inefiicient methods of legal procedttre, the situation wiU continue to be vexed again for another quarter of a century or longer. Therefore, I am gbiiig to assume that the Sherman Act stands clean and clear as a lighthouse for us to be guided by. 190 EEGULATION OF PRICES. Now, then, it remains to discuss what it is we want to have laid down as the rules of the g§,me under which industry and commerce may be conducted, within the limits of the law and without encroach- ing on the rights of our fellow men. A law doesn't make right, and ri^t is not eSways according to the law. No question is settled until it is settled right. The fact that in the wisdom of Congress a law is passed with regard to certain conditions does not make the provi- sions of that law right. But if it is the law and is to be continued as the law, all our people and all our business men are bound to respect it and hve under' it as best they may; meanwhile the most disturbed and inequitable conditions may and do exist in the inde- terminate period. INDETERMINATE NATURE OF MERE LITIGATION. But we have the astonishing condition of the Sherman Act on the statute books for 22 years and to-day it is not known whether, under the provisions of that act, definitely and finally, a manufacturer of an article has the right to fix the retail price at which his product is to be sold to the consumer. Some manufacturers beheve— d think most of them — as I do that the highest form of business conduct is for the manufacturer to maintain a fixed price to aU his patrons, so that all may be treated with equality and exact fairness. EVOLUTION OF RAILROAD REGULATION. Railroads, at first free ta make money as private enterprises, have grown into corporations of such great pubhc interest, and affecting so universally the pubhc welfare, that they are practically directed by the National Government, but operated and owned privately, and as constructed wealth are to-day in the most serious jeopardy by reason of burdens put upon them by Government control. This op- pression must be reheved as guiding light is obtained or direst con- ditions are at hand. What was for upward of half a century praised as successful en- terprise in railroad buUding and management came to the point of breaking down by reason of what we now know as trnf air competition; The heads of railroad companies in past years after periods of vicious warfare, when their treasuries became depleted, and with failure and ruin staring them in the face, repeatedly got together and restored by agreements rates of transportation to mgh levels in an effort to recoup themselves for the losses of the battles which had raged. These rate agreements could not be maintained. One railroad would soon again cut rates by private concessions to special shippers. Then others would follow as the perfidy would become exposed. Then another period of ruthless rate wars would recur and the de- struction of the Nation's wealth was incalculable. ENFORCEMENT OF FAIR COMPETITION. Finally, to mitigate these evils, so fatally affecting general business as well as the railroa,ds themselves, ;the National Government, as the result of popular will, educated by the press, provided thiat rates should be the same to all, that rebates and free passes, cut rates, and special privileges should be things of the past. BEGULATION OF PRICES. 191 We eliminated the evils of private ownership of raUi'oads without adopting the equally or more objectionable plan of Government ownership. Then, the next stage of industrial evolution came. COEPOEATIONS CONSOLIDATE TO AVOID UNFAIR COMPETITION. As railroad facilities improved transportation quickened, towns, cities, States, and nations were brought marvelously closer together. The growth of the telephone service was a revolution. A condition was thus brought about in manufacturing industries as had been the case with the railroads, where the same unfair com- petition brought also the stage of mutual agreements between manufacturers to maintain prices exactly as railroads had tried to do without success. Gentlemen's agreements would be broken. Unfair competition to destroy each other would again become rampant and untold countless'Tnillions of constructed wealth would melt away. FOREIGN EXPORTS TRADE — 1890, $845,293,828; 1913, 12,465,884,149. Then, in utter seK-preservation, companies that had fought and suffered as the bitterest trade enemies only can were brought together by friendly mediation, and consolidations were accomplished in a small way. The advantages and possibiUties became recognized. So-called trusts came on the scene. Prices became more stable, and the business of many of our people could be conducted with greater safety and certainty. ERRONEOUS IMPRESSION EXTANT BY REASON OF STOCK DEALINGS. Dealings in securities were, however, carried on on a colossal scale, and the popular mind could not differentiate between the good which the so-called trusts have yielded and the harm and discredit which was reflected on them by the manipulation of their securities. The "rules of the game" have been changed — are being changed. Many of these objectionable things could not happen again. The benefits are rising to the surface and becoming apparent to all who will examine and study. We have come to know that mere bigness is no crime, that it is indeed a benefit and a necessity. We have come to know that stable prices, even though made by so-called trusts, are a vast benefit com- pared to the feverish variations and uncertainties of the cut-throat competition days. STUPID PREJUDICE PREVENTS CLEAR VISION. Now, let us look with clear, unprejudiced eyes at to-day's condi- tions. Let us keep the good. Let not prejudice blind us. Let us act wisely in modifying and mitigating existing evils that remain. These evils are not as bad as class-prejudice-fomenting publicatiohs and some politicians would have us believe. Private rebates, cut prices, special concessions, have been miich mitigated. 'The conditions to-day are better, to an almost infinite extent, than before the consolidations of the trust era. Do not let us deceive ourselves. The consolidations of businesses into bigger businesses by uniting the comparatively puny, weak. 192 BEGTJLATION OF PEIOES. almost helpless business forces (certainly helpless as to going after any international trade) have gathered together commercial forces and industrial forces into what we call trusts, which in my judg- ment have been and are of great benefit to the entire American people, when they are operated on the basis of fair competition — equal treatment to all. Prices are more stable. An enormous amount of villainous, unfair, cutthroat competition has been eliminated, and a condition of live and let live exists which is infinitely to be preferred to the black flag bearing the skull and crossbones .flying at the masthead of every manufacturing institution. In countless cases consolidations were brought about by ruthless competition, because it was only a matter of a little time when the strong company by unfair methods could break down the weaker company, and the stronger company could afford to buy on some terms and save its own losses in the warfare, and the little company could afford to sell and save what it could in its surrender to the stronger, rather than go on to ultimate destruction and total loss. tJNFAIE COMPETITION DESTROYED BY PRICE MAINTENANCE. So-called trusts are intimately connected with proper price main- tenance. It is chiefly when these big businesses do not properly maintain fair competition that objections to their great power arise. We must not take any stand against a trust as a trust — that is, inter- preting a trust simply to be big business. A large industrial institu- tion, if it grows up under the keen, acute business abiUty of some great industrial captain, and grows and grows by eliminating through processes of fair competition some or most of its competi- tors, IS, we will assume, legitimate. If that is legitimate growth, then we must^ assume it would be constructive and upbuilding for that growing efficient industrial institution, rather than to go on destroying the minor units of 'competition against it, that it should buy them or acquire them on some fair bargain terms and save the destruction of wealth of those instdiiutions, revamp them, and place them in equal power to produce economically. FAIR COMPETITION WILL LESSEN CONCENTRATION IN BUSINESS. Now, gentlemen of the committee, I want to assure you that in my own mind I absolutely believe that no man, satisfactorily con- duieting a business at a profit to himself, a free man or group of men, in independent control of his or their affairs, would desire to consoUdate his or their business or company or sell it out except to bring about conditions where they could manufacture cheaper by the consolidation, make more money by the consolidation, benefit the pubhc more by selling the goods for less because of the improved efficiencies, pay higher wages as a result, gain more internatiMal trade, and be a greater constructive factor in the Nation's growth. And under those circumstances, gentlemen, I do not think one member of this committee would say that that sort of an aggrega- tion of commercial and industrial forces is not beneficial to the whole Nation. The absolute necessity for fair competition or price manitenance is part of the reason why cooperation in business should not only be permitted but encouraged, whether two companies consolidate. REGULATION OF PEICES. 193 or whether two companies cooperate to prevent ruthless price cutting and destructive competition which is bound to destroy the one or the other, bo\md to destroy the weaker of the two, bound to destroy the one which is in conflict with the greater brain and with the greater financial resources which usually go with the greater intel- lectual forces. GOVERNMENT FORCING UNFAIR COMPETITION IN SMALL BUSINESSES. The attitude of the Government is, according to pending htigation, that the control of retail prices by the mani3acturer must cease if his goods are sold through the natural channels of trade, the whole- salers and retailers, and not through his own estabMshed agencies. SMALLER BUSINESS DOES NOT UNDERSTAND CONDITIONS PACING IT. Now, gentlemen, ignorance of the law excuses no man. However, up to the time when the Government filed a suit against the KeUogg Toasted Corn Flakes Co. for violation of the Sherman Act I had thought that I was conducting the affairs of my company along lines of absolute integrity, to the best of my ability, and in accord- ance with the laws of my country and my State. I knew of the Kellogg Toasted Corn Flakes Co.; I knew that it wasn't a trust or combmation, because it had grown up out of itself, and I chanced to have curiosity enough to send to get a copy of the bill of com- plaint against them. To my astonishment I found that the Depart- ment of Justice had filed suit against the Kellogg Toasted Corn Flakes Co. because it maintained the retail price of its product and sought to accomplish the equal treatment of its patrons. I found that the Department of Justice was seeking a decree against the Kellogg Toasted Corn Flakes Co. for doing exactly what I was try- ing my level best to accomplish in my own business. This country has just finished compelling, through the medium of ; the Interstate Commerce Commission, the railways of the United S States to treat all shippers and travelers alike, affording to all ex- : actly the same rates of freight and the same rates of fare. It is not serious to any manufacturer what rate of fare or what rate of freight may be charged him by a railway company, so long as it is any-f; where within reason, if his competitor in business is charged the \ same rates. The Interstate Commerce Commission is carrying on ; those regulations between railroads to-day. It is done to secure equal and uniform treatment to the public and to prevent rate wars and unfair competition between railroads. The Interstate Commerce Commission requires raUroads to maintain equality of rates tq all who' wish to buy transportation for freight or passei^ers. In work- ing out the orders and instructions of the Interstate Commerce Com- mission and the interstate commerce act it is necessary for the rail- road companies to hold conferences and make agreements in arriving at and maintaining schedules for rates of fare of passengers and rates of freight equitable as between competing roads and competitive points. Under the Sherman Act as interpreted, however, if busi- ness men get together, manufacturers or merchants, retailers or wholesalers, to have conferences with regard to reaching a plan by which patrons of those men or companies may all be treated alike '81295—15 13 jy^: iiJiUUl^ATiUJN UH' i-lilUJiS. and also so that cutthroat, destructive competition may be avoided, it is directly contrary to the law. Yet just opposite to that, as I say Above, is the raihoad situation, where the only possible way that they can carry out the provisions of the law, which is simply en- forcing fair competition, is by conferences and agreements under the authority and force of the Interstate Commerce Commission. RaUroads in the old days used to have those conferences and agreements and fix what they thought were equitable and fair rates ss nearly as might be between their competing hnes, but the differ- ence was that without the Interstate Commerce Commission they could not maintain those rate agreements and first one company would cut the rate and then the other would cut beyond that and so their mutual agreements as to fair rates and uniform treatment of their patrons fell apart through ruthless, cutthroat competition and it required the force and power of the Interstate Commerce "Commission behind those railroads to enable them to maintain and carry out the fair rates 'wfhich through conference they are now required to agree upon by and with the approval of the Interstate Commerce Commission. And this is of inestimable benefit both to :the railroads and their patrons also. Price maintenance by raUroads has come to be enforced by law, yet manufacturers of a patented or copyrighted article under the law as it is interpreted to-day, honest manufacturers who seek to treat all their patrons alike, are prevented from carrying on their business in this logical and high-minded manner by recent inter- pretations of the law. 'GOVERNMENT LITIGATION HITS SMALL BUSINESS HARDEST BLOW. The litigation against companies maintaining retail prices has been instituted by the Department of Justice with the determined purpose that the maintaining of retail prices must cease, be the article patented or copyrighted or not. Under the patent laws of the United States the holder of a patent is given the "sole right to vend" the patented article. Under a copyright issued by the United States the "exclusive right to sell" the article copyrighted is given. The Supreme Court of the United States has decided that -when a manufacturer of an article seUs that article to a wholesaler •or to a retailer that he has parted with the title to that article, within !the meaning of the patent and copyright laws and that, therefore, 3ie has exercised to the full hmit the right intended to be given him under those laws in the sale of the article. ■BETAIL PRICE CONTROL BY MANUFACTURER UNIVERSAL CUSTOM. Now, gentlemen, I think I can prove to your satisfaction that that is not the proper interpretation of the intent of those laws. The right of a manufacturer to fix the retaU price of his article has been the custom from the beginning of time. As things were in the early days, a maker of an article sold his own article to the pubHc. He put his own price on it, knew what his costs were, fixed his margin of profit that he thought was proper, and industry and commerce went on *under that custom in the small ways of those times. Facilities for conducting business gradually improved. Stage coach and canal boat were superseded by railroad train and KEGULATION OF PEICES. 195 steamboat. The telegraph brought instant communication and the ability of a manufacturer to conduct his business over a larger area required enlarged means for distribution of his product. Whereas, in the old days in a small way he, personally, used to directly sell to his patrons in his own restricted community, he grew then to have traveling agents, then as his business expanded he began to sell to retail stores to be resold at his stipulated price, and the retail store replaced his unsatisfactory and expensive peddlers or agents, and he could sell his goods more cheaply and give better service and more efficiently conduct his business than with the old methods. Then, as trade and commerce still further expanded, the wholesaler became" an intermediary as part of the agency of sale between the manufacturer and the retailer and the consumer. MANUTACTUEER SELLS THROUGH CHEAPEST YET MOST EFFICIENT CHANNELS. The patent and copyright laws intended to give to the holders of those patents and copyrights the exclusive right to sell those articles at the price fixed by the manufacturer to the consumer, and in the natural and legitimate development of industry and commerce the wholesaler and retaUer became the logical, most efficient, and cheapest channels of trade through the medium of which the manu- facturer could offer his goods in the great markets of the United States to the final consumer. If those products could to-day be sold by the manufacturer cheaper directly by him through his own agents, he certainly would not pay the wholesaler and retailers more for rendering him that service. It is certainly the desire of the manufacturer to have his goods reach the consumer at the lowest possible cost with as little selling expense added to his producing cost and profit as possible, in order that he may broaden and expand his trade. It is manifestly absurd to say that the manufacturer pays a greater commission for the sale of his goods through the wholesaler and reatiler than he could sell those same goods for otherwise. The wholesaler and the retailer are simply nothing whatever but the agents of the manufacturer for the sale of his products. EDISON PICTURES SITUATION. In an article in Leslie's Weekly some time ago, Mr. Thomas A. Edison wrote the following : My understanding of the patent law ii9 this: First. The Constitution gave Congress permission to pass a law to encourage the production of inventions. Second. Congress passed such a law to encourage inventions and inventors which it was thought would produce the results intended. Third. The patenting of an invention under the patent law is the making of a con- tract by which the inventor gives to the Nation a clearly stated public disclosure of his secret process of manufacture, and the consideration given by the Nation to the inventor is the exclusive right to the invention tor a specific limited time within which to secure the greatest benefits from his invention. The law as it exists is fundamentally sound. What is needed is not the making of any changes in the fimdamental principles of the law; such, for example, as lessening the consideration granted to an inventor for making his invention publicly known, thereby discouraging arid hampering the inventor, instead of giving him encourage- ment. What the public has contracted for is new and useful devices introduced commercially so they may enjoy the use thereof ; and to secure this the inventor should be given prompt and effective protection against an unworthy competitor. 196 REGULATION OF PEICES. The inventor is in position to obtain capital when the contract between the Gov- ernment and the inventor is being carried out in a practical manner; no great com- binations of capital can raid him — there are literally thousands of small shops with which he can deal. • . The next thing is the introduction and selling of the invented process or device to the public. This the inventor does by employing jobbers and dealers, which are the common merchandising instrumentalities of the country. These jobbers and dealers, to all intents and purposes, are the salesmen of the inventors; they are a part of the mechanism the inventor must use to introduce, educate, and create a demand from the public and sell the goods. These jobbers and dealers trade in goods of which the great preponderance are not patented. They are free goods and the public has been educated as to their value. The demand is large and the profits are not great, but, as a rule, sufficient. Com- petition has been fought to a finish; all know what it means to cut prices, hence the custom is to put a moderate profit on each article, the large sales bringing an adequate return. When the inventor approaches these jobbers and dealers he is told that if he wants them to sell his goods he must not only protect the price; he must set a price which will afford a profit consistent with the labor required to introduce and sell new thmgs, since they (the jobbers and dealers) must invest in something the demand for which is unknown, and which, in any event, it will take a long time to create a large demand for, because the public must be educated to its advantages; besides, the sales will be comparatively small at first. If the inventor is not allowed to maintain the price at which the public is to obtain the invention, the jobbers and dealers will not handle his goods. They prefer free goods and less risk. The inventor must be permitted to use these men as intermediaries, i. e., as his salesmen; the sale to the public by the dealer should be considered the first sale by the patentee. There is no danp;er of extortion. The inventor and his associates will not make the price to the public any higher than is necessary to afford such percentage of profit to the jobber and dealer as will prevent them from giving up the sale of the goods; just that amount of profit over free goods that will recompense the sellers for the risk and comparatively small demand. Any higher prices will diminish the inventor's sales. These price contracts should be enforceable by suit for infringement as now; otherwise, the Government is not carrying out in good faith its compact with the inventor or making the law practical. I have heard and read numerous statements that many corporations buy valuable inventions to suppress them, but no one cites specific cases. I myself do not know of a single case. There may be cases where a firm or corporation has bought up an invention, introduced it, and afterwards bought up an improvement and ceased using the first patent — suppressed it, in fact. Why should not that be done? It is for the benefit of the pubhc that it should get the latest improvement. I can not see why the public should be asked to change the patent law to enable a competitor to get hold of the disused patent so he could have a basis on which to enter into competition with the pioneer of the invention who has introduced an improved machine. Before any changes in the law are made, let the objectors cite instances where injustice has been worked on the public by the alleged suppression of patents for other reasons than those which are due to improvements. Mr. Edison has thus clearly and succinctly set forth the exact meat of the entire controversy. An article is practically not sold so far as the manufacturer is concerned until it is bought by the consumer. If a manufacturer's market ended with the wholesaler or retailer, his business would be soon over. A MANUFACTTJEBR MAKES HIS MARKET BY ADVERTISING THE RETAIL PRICE. A manufacturer not only makes an article but he makes the market for it through advertising it, through expatiating on its merits, through convincing the public of its value and utihty, and proving that,yalne and utility by foUowipguJip the article with service and instruction as to how to use it. Manufacturers through the medium of the press of the country to-day are in every household everywhere fiving mstruction on how to get the best service out of their products, 'he manufacturer makes the goods, he fixes the price which the EEGULATIOX OF PRICES. 197 Eublic must give for them, and he either sells them directly through is own agents or his own retail stores — if he is a great, big, powerful corporation — or he employs the natural channels of trade which have evoluted under the circumstances of commerce, if he can use those channels of trade cheaper and more efficiently than by etablishing his own direct contact with the consuming public, which only the big and strong have the financial means to do. Now, the great question is whether it is right for a manufacturer to have the power to fix the price that the consumer should pay for his product. If it is right, then it will be a very simple matter to provide that imder a patent the sole right to vend shall be inclusive of the right to vend to the consumer, through the medium of the wholesaler and the retailer, and in the case of a copyrighted article the same. It is not necessary to amend the Sherman Act. It is simply necessary for the Congress to make plain the phraseology as to the exclusive right to vend a patented or a copyrighted artiSe. "branded" products fxjllt entitled to price protection. Now, if it is right for the manufacturer of a patented or copy- righted article to fix the price which you or any other individual shall pay for his article, then it is equally right, by the selfsame logic and force, that he should be permitted to & the price at which he shall sell to the consumer (to you or to me) a product which bears his individual brand of character and quality, the value of which to the public he actually builds up through that character, through that quauty, though the service which he renders, which makes his article valuable to the person who may desire to pay therefor the price the manufacturer fixes. Nobody suffers under such a regulation, nobody suffers under such permission to maintain or fix the retail price; not only does nobody suffer, but the public is vastly, hugely benefited thereby. condition prohibits industrial progress. Can you imagine a condition where you gentlemen, members of this committee, would be wUling to embark m any business for the manufacture of any article branded with your brand, or protected under your patent or copyright, on which you could not fix the retail price which your real patron, the ultimate consumer, would pay for the article? You could not advertise it effectively, because you couldn't advertise the price. Price established through advertising is the guide to the buying public as to the sum of money they should pay to the retailer for the article you make. If you can fix that price, and the cost of seUing it is approximately known, you know the amount of value that you can put into that article, to make it of full value and full service and fuU quality, so that you can advertise it and stand behind it and have a margin of profit left. That profit is the very incentive which induces you to embark in the industry at all. If you could not figure you could make a profit, you would never go into business. That jprofit can not be figured without control of the retail price. It is the advertised retail price which establishes the business. Notwithstanding all the most accurate figuring and forecasting as to what you might possibly have as a profit, it is not always easy to make it materialize. Your profit must consist absolutely of the 198 REGULATION OP PEICBS. difference between the retail price that you can induce the public to pay for your goods and the cost of advertising, selling, and cost of production. UNFAIR COMPETITION DESTROYS LEGITIMATE BUSINESS. If now your price can be broken at will by a retail store, or by a department store, or by a mail-order house, or by unscrupulous, un- fair competitors, who might at some considerable loss to themselves buy up some of your product and offer it for sale at half price as a secondary article, the value of your article is depreciated in the public mind. It is not necessary for that price breaking to be done everywhere. Let it be done alone in one city or locahty and that information travels with the speed of lightning. So that it would soon become known that your product could be bought in that locality for 10 or 20 or 50 per cent less than your advertised price. Your business receives a severe check. Your competitor has been success- ful in breakking down your trade by what we have come to regard as a piratical, imscrupulous, and unfair competitive method of business. It is that kind of price fixing or price maintenance which the manu- facturer of patented or copyrighted articles or the manufacturer of an article branded with his own quahty brand, seeks to have within his own control, and very justly so. If that control of the retail price is taken away from the manufacturer, he can under no circumstances conduct any business with any assurance of safety or stability. He can not make any elaborate plans over a period of years; he can not know what moment his enemies will pounce upon him and destroy him by taking away the public's confidence in his product, the value of which he has built up through advertising, and through the merit of the article, in the hands of the consumer. THE PUBLISHING INDUSTRY AN EXACT PARALLEL. Take the condition of a publisher who manufactures a copyrighted article, either a daily newspaper, a weekly or monthly magazine, or books. Is it proper that he should be allowed to maintain the retail price of his product ? How could you possibly conduct a successful pubMcation if you could not print on the face of it ' 'One cent," ' 'Five cents," ' 'Ten cents," ' 'Twenty-five cents," or whatever price as a pub- lisher you might of necessity be obliged to fix on your pubhcation ? What price would you, as a consumer, know to be the right price to pay to a news stand or a newsboy for a daily, weekly, or monthly paper unless the price were printed on its face ? Can you tell what price you should pay for a book by looking at it on a news stand or in a book store — ^whether it should be $1.25 or $1.50, or 75 cents, except by the fact that the price is printed thereon — -fijced by the manu- facturer ? There is no simpler illustration than the copyright situation as refer- ring to pubhcations. Saturday Evening rost is 5 cents. Collier's is 5 cents. Life is 10 cents, Leshe's Weekly is 10 cents, The North American Review is 35 cents, Scribner's is 25 cents a copy, and so on— -allprinted on the cover. "V//' Is there any possible question that a pubhsher should be permitted to maintain a fixed schedule of advertising rates as sold through advertism g agencies all over this broad country ? KEGULATION OP PRICES. 199 Most assuredly he should do so and maintain equal prices to all. Is it not clear, gentlemen, that fan- competition is promoted by per- mittmg the manufacturer to fix and maintain his retail price, whether his article is patented or copyrighted or branded with his personal stamp of quahty ? That is exactly where I stand— that is exactly what I believe is right. CONSUMER SUFFERS BY PRICE CUTTING AND UNFAIR COMPETITION. When prices are cut by-unfair competitive methods who pays the bill 5 Absolutely the consumer is the victim ultimately and continuously. You will fairly concede that a retail store must make a profit. They make profits, of course, or they could not exist. When a retail store seUs an article below a proper profit or at cost, or below cost, by reason of favoritism or desire to accommodate the- customer in order to retain his trade in other fines, or to put a com- peting store out of business, or to run it as a leader for advertising: purposes in order to attract customers for other goods at high prices, what does it mean ? It means simply that by sharp business that retailer to make his necessary average profit must and does, first, sell to the trusting cus- tomer, or inexperienced purchaser, when he can, that same article at more than its real worth; or, second, the retailer must and does sell other articles at more than their real retail worth. Naturally, he probably does both. There is no other answer; he must do so or fail. No retailer or manufacturer desires to conduct his business along such fines. Those who do are forced to do so by the unfair competition of other retailers or by manufacturers who do not protect their retail prices. Business integrity and loiown fixed prices have been inseparable companions. Recent interpretations of the Sherman law now make it a criminal offense to conduct business on that one-price basis of equal treatment to all which representative business men have always been educated to believe was the highest moral plane upon which business can be conducted. The Sherman law as interpreted makes it a crime to estabUsh the price at which goods shaU be resold if sold through retailers. But the courts are agreed that it is no crime, moral or otherwise, and no offense against any existing laws to estabfish the price if the goods are sold through agents. The manufacturer can see to it that equal treatment to aU his pa- trons is accorded by selling the goods directly himself through his own chain of retail stores, if he is strong enough financially to estab- lish such facihties, but he can not use the great channels of com- merce, the wholesalers and retailers, even when it is the cheapest and most efficient method. In its moral aspect; this distinction .between gopd ^]:)u^iness and criminal business is not discernible to the lay niind. It is a distinction without a difference. Is it wise for the Government to devise and enforce iregulations that tend to make us a Nation of haggling, deceitful bargainers, and 200 REGULATION OF PEICES. force into the retail business subterfuges and misrepresentation, thus putting a premium on sharp and unscrupulous practices, to the ab- solute harm of those very consumers the law should seek to protect, namely, the average consumer, unable to detect the deceits being prac- ticed upon him ? PRESENT CONDmON OF LAW MOST HARMFUL TO " SQUARE" BUSINESS. As the law now stands, corporations of the most sincere and earnest integrity are criticized for doing what has been believed to be the right thing in controlling and fixing retail prices. A pub- lished, printed retail price is a guide to the purchaser as to what he should pay, it is a guide to the retailer as to what he should ask, it is proof to the customer that the retailer is asking the fixed and fair price for the article. We see, therefore, that no book or publica- tion or other branded article can properly be sold without the retail price marked on it, and yet the printing of the retail price is criti- cized by the Bureau of Corporations. ATTITUDE OF GOVERNMENT DEFINED. I quote from the report of the Commissioner of Corporations on his investigation of the International Harvester Co., page 34, show- ing the attitude of his department toward printing retail prices: The company at one time openly attempted, through a clause in its commission contract, to control the price paid for its machines by the farmer to the retail dealer. Since the elimination of this clause, "suggested" retail price lists have been rather generally circulated by some of its branch offices, apparently for the purpose of indi- rectly maintaining the retail price, although the company contends that these lists are for the use of its employees in furnishing information to purchasers and profesa to discourage their issuance to dealers. It is evident, however, that it could com- pletely stop this practice if it wished to. Do you, gentlemen, call that a tendency toward proper, fair business ? It is clear to me that this policy of price fixing and price main- taining by the manufacturer or pubhsher which has grown up from time immemorial should be indorsed by every thoughtful man. It is to the benefit of the publisher, the advertising agency, the manu- facturer, the wholesaler, the retailer, but above all, it is a protection to the consumer, the individual purchaser. Yet the Government in enforcing its theory of the law demands that this honorable priu- ciple of general business be abandoned. HELPLESS POSITION OF LAYMAN PURCHASER. The average layman seeking to purchase an article, in the very nature of things, can not know values. He is not an expert in the value of articles. It is not his special business. On the contrary, the dealer is expert and keen as to real values. Price fixing and price control by manufacturers, therefore, is an absolute guaranty to the consumer that he is not being overcharged for an article and it is an absolute protection to -the. retailer and to the manufacturer thatiunscrupulous methods can not be used to depreciate the value of the article in the public mind and to destroy and hamper the busir ness of the retailer and the wholesaler and manufacturer. EEGULATIOX OF PRICES. 201 HENRY FORD, MUCH CRITICIZED, BUT GREAT BENEFACTOR. My friend, Henry Ford, occupies the center-stage limelight posi- tion to-day. Why? Because he is at the head of an enormously successful manufacturing industry which he has built up by his genius and the aid of those he has associated with him — his co- operators. A man can do httle alone in these days. His genius, however, for inventing and devising and for organization may en- able him to accomphsh much. Henry Ford has done so. He owns 51 per cent of the stock in what is, I beheve, the most successful indus- trial corporation in America. Its capital stock is 12,000,000. Last year it paid, I believe, $10,000,000 in dividends and added as much again and more to its surplus. Its business at present is increasing by leaps and bounds. Has Henry Ford done wrong in upbuilding such an industry? Is it wrong for him to run his business so as to make such a large amount of money? Ought he, in the enlightened present day, to sell his product so as to yield him a return of 6 per cent or 7 per cent ? Is it a crime to make money ^to construct an industry ? Is it wrong to put out an article that the public wants to such an extent that it is wilhng and anxious to pay for it such prices as the manufacturer may fix, which in a few short years makes that com- pany one of the greatest collectors of wealth in America ? Is Mr. Ford doing wrong in that respect ? He can fix the retail price at which the consumer shall buy his product because he sells through agents direct to user and is within the law absolutely. His company has large means and establishes branches for assem- bling at many central distributing points all over the country, even the world over, also used for wholesaling or distributing to his re- tail agents, to be resold to users at retail prices fixed by Mr. Ford, which, by any interpretation of the Sherman Act or any other law, he has a full legal and moral right to do, and ought to do. Is what he is doing wrong morally or ethicafly or against public policy ? Is it anything you or I shoiild object to or criticize ? Is it not indeed right, proper, laudable, and beneficial that our people and those the world over should have these wonderful Ford motor vehicles at prices which they are not only willing but desirous and anxious to pay ? Now, gentlemen, I use Mr. Ford's wonderful company as an illus- tration because it is so famiUar to all of us. I have presented this picture because I must use some illustration for comparisons which it is necessary to make to picture the truth of the price-maintenance cause pointedly before you. I believe Henry Ford is a great benefactor of mankind. The abil- ity which he possesses to make these vehicles and sell them to the pub- lic is entitled to any reward be can get the pubhc to pay him for his genius. THE FOUNDATION OF PROSPERITY. The foundations for his great success were not of his making. He was bom in the United Statesf Which, through wise laws affecting industry and commerce, has constructed a great nation of inconceiv- able national wealth, the greatest market in the world for any useful thing. Next in importance is the fact that he can fix the retail price 202 KEGTJLATION OF PRICES. and see to it that each purchaser of a Ford vehicle pays the same price, and he does it. Is this right ? I ask this pointed question, because in my opinion if he could not fix the retail price and maintain it he could not con- duct his business successfully for one moment, to say nothing of building it up to its present colossal magnitude, where it reaches out and supplies the people of the world an excellent vehicle at a cheaper price than any other manufacturer has been able to make, and is one of the great factors in our international trade. May I ask your indulgence to illustrate further, because this price- maintenance topic is a dry subject, but it is of overwhelming impor- tance and the most burning question of the day. No one thing could do more to produce industrial and commercial chaos than to have the law of the land enforced as the Government is seeking to enforce it — against the control of retail prices. Ninety-nine business men out of every hundred in this country be- lieve that they are right in controlling retail prices. They do not realize that what they are doing is contrary to the law of the land. They believe they know that what they are doing is right, sound, square, honest business, and consequently you can't interest them into considering or understanding that what they know to be right is wrong and contrary to the laws of their country, which they love.and believe in! IS IT POSSIBLE TO CONDUCT BUSINESS FAIRLT WITHOUT ADVERTISED PRICES ? What, let me ask, can the International Harvester COi expect to accomplish in the fair sale of its products to its patrons aU over the United States and all over the world if it can not print price liste for the guidance of its retail salesmen as to the prices which intend- ing purchasers should pay for the articles produced by the Interna^ tional Harvester Co ? Can you conceive a condition of things in industry and commerce whereby a manufacturer of an article should be prevented by law from printing a retail price list for the protection of his patrons and for the guidance of his retail salesmen? Mind you, that is exactly what the Bureau of Corporations, in its report on the International Harvester Co., criticized that company for doing. It was convicted in that report of acting contrary to the laws of the land, while at the same time the harvester company was being tried in the courts for violation of the Sherman Act. Yet I can not myself find any way to criticize any corporation for seeking to treat its patrons fairly. In order to attract patrons into its retail stores a corporation must advertise its products, and it must broadly advertise the retail prices of those products. That is real competition; that is fair competition; Now, I submit to you, gentlemen, with all the earnestness which it is within my power to express, that this Congress should, by the simplest possible acts, permit and make it lawful for the manufac- turer who may so desire to maintain his retail prices to advertise his goods afld protfect his patrons and gtfide them into paying the ptoper price which he may see fit to ask. If he asks too high a pricei- he will quickly be compelled by fair competition to lower it. '^ REGULATION OF PRICES. 203 UNFAIR COMPETITION RAMPANT IN SMAIX BUSINESSES. I do believe that consolidations of businesses should not be abso- lutely prevented and made unlawful. I do beUeve that consolidations of businesses along proper lines should be permitted and should be made lawful. I have pointed out that they are bound to consoUdate to some extent, either by one company driving the other out of busi- ness, and thus getting its trade away from it and sacrificing enor- mously constructed wealth, or by one buying up the other. Person- ally, I believe in regulating big business to see to it that fair compe- tition shall prevail. If big business is conducted fairly there can be no objection to it. If unfair competition is eliminated and business interests are permitted to take proper and legitimate steps mutually to conduct business fairly, the incentive to consolidate will be largely removed. I don't believe for one moment that corporations in sim- ilar lines of business should be permitted to conspire together in undue restraint of trade, so called, but it is not in restraint of trade to conspire together to maintain fair and proper and legitimate prices, to conspire together to avoid unfair, illegal, cutthroat competi- tion or to avoid utter destruction of competing businesses and the un- necessary losses attendant thereon. It is actually in promotion of proper trade conditions and it is exactly what the Interstate Com- merce Commission requires the railroads to do. That is exactly what an interstate trade commission should see that manufacturing and producing interests generally should do. There is far more evil, vicious, and unfair competition in small business than in big busi- nesses. Control the producers — the manufacturers — and you can easily control, through them, all trade through aU its ramifications. DEFEND THE SHERMAN LAW AGAINST ALL ASSAULTS. Let the Sherman Act stand untouched, but call off the dogs of war untU we can by properly constituted authority teU these business interests that it means simply that unfair competition must cease and fair competition prevail. It seems reasonable to urge the American people to consider thoughtfully the whole field of industry involved and to use sound, common sense, a sense of fairness — business sense. The fixing of retail prices on patented, copyrighted, and branded products by individual manufacturers has been the practices of in- dustry and commerce since the beginning of time, and it will con- tinue to be so imtU the last great day, but the time has come in quasi public industries for regulation and proper publicity. Please note that I say proper publicity. FAIR COMPETITION AND PERMISSIBLE PRICE MAINTENANCE ONE SUBJECT. It is up to the people and their representatives in public ofiice to provide flor the intelligent and wise regulation of our great and pmall mdustries built up ttoough ye^rs of incalculably (efforfe-jn 'ord^ that we may not deprive the Nation as a whole of the great economies and stabilities available therefrom and one of the greatest and principal means of meeting the competition of other nations in foreign markets. 204 KEGULATION OF PEICES. TREMENDOUS IGNORANT FALSE PREJUDICE BLINDING THE PUBLIC. A great prejudice is extant. A little of it is warranted, most of it not. Kemove it by regulation and proper publicity. How unfortunate it is that in addition to many other shortcomings as a Nation, almost unfitting us for the possibihties of upbuilding our foreign commerce we are trying to split up our greatest industries into smaller segmentary institutions who are to devote their energies and intelhgence to fighting and competing with each other, while the foreign nations, especially Germany and England, persistently, inteUigently, and insistently continue to go after the commerce of the world. RIGHT WILL PREVAIL AMONG GREAT AMERICAN PEOPLE. And yet we proudly write in the lining of our hats that we are a great people. And so we are, and I am totally optimistic that wis- dom will ultimately prevail, though many, very many conditions and imminent prospects are very discouraging to forward aggres- sive action on the part of business. THE BEST OF JUDGMENT MUST TAKE THE PLACE OF PREJUDICE. No greater curse could come upon us as to either the commerce between our States and dependencies or as to our international com- -merce than the success of the present effort to reestablish the cut- throat competition of bygone times. Such competition is dead. It should remain dead. The inteUigent and proper regulation of so-caUed trusts would in- evitably give their competitors an opportunity to grow under fair competition, and the conditions would ultimately, year by year, under natural laws of fair competition, determine the comparative efficiency of the competing units. It would be a warfare under fair competition of existmg trusts, with their enormous facihties and alleged watered capital versus other corporations fighting for trade based on price, quality, service, and efficiency. A sudden drastic action wiU be a complete catastrophe. Let us undertake at first to regulate the big interstate businesses, realiziug that it must ultimately apply to all, and proceed slowly as our way is lighted by experience. An unwise act is worse than none at all, though the situation is critical. Remove the cause of disease and a cure will result. By removing the chief incentive to consolidation into larger aggregations, which incentive has been and is the avoidance of unfair and cutthroat com- petition, you wiU largely modify, if not entirely remove, the ten- dency to rapid consolidation and the drawing together of smaller businesses into larger units, except where the incentive is economic production and is just and proper. The consolidation of business units not only would cease to be a menace, but should be encouraged in the hope that catual economies wUl result if a proper commission in interstate trade, with complete {>ower to give instant decision on matters, were empowered to regu- ate and control and cooperate in the development of industry and commerce. ' ,. The commerce and industry of the American people should and must be freed from destructive, procrastinating legal procedures and REGULATION OF PEICES. 205 cease to be the football of political partisanship and a free, unbridled f)ress, if we are in any degree to save the incalculable losses of need- ess business depression. I say "needless business depressions" because, in my judgment, the prevailing uncertainty and lack of advancement and lack of push which characterizes the feeling of every business man with whom I come in contact is entirely needless. It can be avoided. It is unnecessary. INTERSTATE TRADE COMMISSION INFINITELY BETTER THAN LITIGATION. With the already well-adjudicated Sherman law in the records and such a perpetual business commission to administer it, unaffected by changes of political administrations; to enforce fair competition and to prohibit unfair competition ; to recommend to the Congress and to States laws to provide for the furtherance of interstate and foreign commerce; to enforce, when necessary, their full knowledge of the business of any person or corporation engaged in interstate or foreign commerce by examination of books, records, and premises of every kind and nature; to publish proper iFacts; then will we have taken a long step in promoting efficient industrial conditions. AH necessary litigation to be carried on by the Attorney General or special counsel. From this tribunal must be appeal to the Supreme Court, with right of way for its hearings for prompt determination, on account of the vast financial importance of its decisions. I cordially favor a national incorporation act, under which the broader and larger businesses can come under a single, powerful, and intelligent regulation, which such a commission as I have suggested would afford, and thus minimize expensive, uncertain, lingering liti- gation, whicli is the poorest possible way to determine a business question. BUSINESS CONSOLIDATIONS GENERALLY GREAT ECONOMIC BENEFIT. Great business economies have been accomplished, unquestionably, in my judgment, by the capacity and right to consolidate, and that right is beneficial; it is natural. With unfair competition eliminated and with fair competition and price control in force the public would get the benefit. There is much difiictdty in deciding exactly the wisest course. New precedents must be established, as must be clear to aU of us, and our effort to separate the wheat from the chaff and clear the right of way for American business men is one of the very prime questions that is before the country to-day. There can be nothmg half so important I do not know how many thousand business men, in- vestors, capitalists, and people of all kmds are prevented from gomg ahead only by the doubts which exist as to the workmgs of new laws abeady passed and those about to be passed, which we hope wdl be few and to the point. THERE SHOULD BE NO CLASS LEGISLATION— HONESTY FOR ONE AND ALL. You can not fairly say to one manufacturer on accpunt (^^his size and great importance that he shMl be honest and maihtaiH fair com- petitive conditions and then say to 10,000 others of smaUer size th§,t they may pursue evil, cutthroat methods in competition with each other. 206 EEGULATIOJSI OF PEICES. TRADES RELATIONS BILL AND SHERMAN LAW DEFINITIONS BILL IMPOS- SIBLE AND UNNECESSARY. You can not specify in detail what is fair and unfair competition in any law which could be devised. Unfair competition can not be specifically in detail defined; it has as many shades as the rainbow. The interstate trade commission should be possessed of administra- tive, interpretative power to apply the Sherman Act to accomplish by agreement and mutual arrangement fair competition, subject, of course, to appeal to the Supreme Court only. ALL POSSIBLE LITIGATION SHOULD BE AVOIDED. Myriads of lawsuits can thus be avoided and fair competition, which, when analyzed, is almost the whole field of our controversies, be estabhshed and maintained through years of invaluable continuity of industrial and trade poMcy. I totally disagree with the character and scope of the proposed bill providing for the interstate trade commission. The mark is not placed high enough if it is to accomplish its proper functions. Such a commission should be composed of three business men and two lawyers and should be for life like the Supreme Court Justices, retiring, however, at 60 years, and should be the highest oiEcial ap- pointment within the gift of the President, except alone the Justices of the Supreme Court. And any newspaper owners or editors pub- lishing anything derogatory to the characters of the members of the commission, except the truth, should be promptly hanged. In this too strong 1 Perhaps it is. But I ask you which does the more harm, the gunman who shoots another of his kind, or that medium which, by absolutely false statement, by insinuating innuendo or defamatory cartoon, seeks to discredit and taint the character of a worthy public official in whom we, as a whole people, must and should have our confidence solidly maintained and absolutely unshaken, if we are peacefully to abide by the decisions of those public officials whom we place in authority over us. The gunman is hanged, and he ought to be, although his crime affects only the few immediately in touch with him. The slanderers of public officials and candidates for high offices are practically almost beyond the reach of the law. Yet the . slander or the defamatory cartoon in a partisan medium may reach . a million readers, who are certain to be weakened in their respect for public officials and what they represent. So long as the statements and cartoons are not false and mislead- ing, and can be proven by those responsible for them, let them con- tinue; but if they are false and can not be proven, those who start and who circulate them should beware. This country is to-day one of the few leading civilized nations in which serious attempts upon the' character of a public official, or of a candidate for high office, are not under restraint. The industry and commerce of these United States by which all our people will prosper or suffer a? its affairs are guided wisely or unwisely, is justly entitled to such study, guidance, and control as such a commission alone through years can adequately provide. REGULATION OP PRICES. " 207 VAST BENEFITS BUT GREAT DANGERS IN TRADE, COMMISSION UNLESS HIGHEST TYPE. With such a commission guided by the decisions of the Supreme Court, and applying the principles Of them in the direction of up- building American industry and commerce along the policy of fair competition, disturbing controversies will be adjusted by mutual agreement under the commission's order, subject alone to appeal to the Supreme Court. WASTEFULNESS OF PRESENT BUSINESS CONTROL BY LITIGATION. The most wasteful thing in this country to-day is useless, pro- tracted, and entirely avoidable litigation, which such a commission, clothed with proper power, would almost entirely eliminate. Broad, sound principles would become established. Petty variations in- stantly decided^ and enforced. Justice, now too tardy, would be- come restored and respected. The greatest of unbearable wrongs, interminable hopeless delays and uncertainties, would largely vanish. The prohibition of interlocking directorates would become un- necessary. It is indeed undesirable for the very simple reasons that it would immediately involve "dummy" directors, the very worst form of unfair control, because it is actually the ownership that con- trols, and would prevent these occasional valuable industrial organi- zers and geniuses from aiding, guiding, controlling, upbuilding, and assisting financially industries which might and would seriousfy suffer without them. No man great or small could or would invest or lend aid where he could not have vdice to direct and control. With fair business and fair competition once established under a proper interstate trade commission, as they will be if the right steps are now taken, interlocking directorates become of negligible importance. Detail specifications of a law which already covers everything as to. what is unfair become unnecessary and are entirely impossible of interpretation by the courts in any broad manner, and simply breed litigation and uncertainty indefinitely as each court decision is by finely-spun reasoning different and not applicabk to other cases by reason of slightly different details, even though no different in principles. We can not wisely continue to conduct the commerce and indus- try of the United States by present litigation methods. I urge, therefore, permission for the manufacturer to control the retail price of his product, be it patented, copyrighted, or branded; the creation of a proper interstate trade commission to administer the Sherman Act; and certainly, above all, that the Sherman law, so- ealled, be and remain untouched and unamended. It is the light- house guiding us to industrial peace. Mr. Chairman and gentlemen of the committee, I thank you very much. f The Chairman. Mr. Joy, have you read that statement to the Judiciary Committee ? Mr. Joy. No, sir; I have not. . TheCHAiRMAN. Doyou intend to do so?' i ' -w yi<' "f Mr. Joy. No, sir; I do not. The Chiaieman. This committee appreciates very much 'your par- tiaHty for it, but that entire statement refers to matters which the 208 REGULATION OF PEICES. House has specifically referred to the Judiciary Committee, and the Judiciary Committee ought to have it. This committee has no busi- ness with it. The only reference you have made to the subject before this committee is that you are willing to take not the proposed trade commission, but to take any, provided its creation is accompanied by the enactment of all of these laws that you propose. Every one of the propositions you have made should have been made to the Committee on the Judiciary. Mr. Joy. Mr. Chairman, I consider that this whole proposition is bound up and tied up with the proposition of a trade commission. The Chairman. I am simply advising you. You can do it or not, as you see proper. Of course, we are very glad to have you make the statement to us. Mr. Barklet. Mr. Joy, I would like to ask you one or two ques- tions. I came into the room after you had begun your statement. You are the president of the Packard Motor Car Co., are you? Mr. Joy. Yes, sir. Mr. Baekley. Located at Detroit ? Mr. Joy. Yes, sir. Mr. Barkley. Is it your contention — I ask this question to get your point of view — or is it your idea that the trade commission which is proposed to be created by this bill, or any other bill that may be introduced and reported by the committee, should have au- thority to make final orders with reference to the practices engaged in by different business corporations engaged in interstate commerce, and that those orders should only be appealed to the Supreme Coiurt of the United States directly ? Mr. Joy. Yes, sir. Mr. Barkley. I would like you to give the committee, if you can, your reasons for that statement. Mr. Joy. Well, I am a layman. I do not know anything about the law of the proposition. I am simply making that statement from the point of view of a business man. For example, take the conditions as they are to-day in litigation of petty questions — you would have to have 10,000,000 lawsuits to decide the different cases as to whether this man is improperly restraining trade or whether that man is improperly restraining trade, and each one of those cases would be different by shades. You have dozens of decisions by the Supreme Court that business men practically aE like, where certain principles are estabhshed, and yet it takes a different suit in each case to decide the petty hair-splitting differences between those cases, although the principle is general. My effort or my idea is to sug- gest to the committee some plan by which the naass of litigation, the unending, hair-splitting litigation, can be bound up and put into the hands of a commission that will have power to come to me and say; "Mr. Joy, the Packard Motor Car Co. is doing wrong in this respect. We want you to cut it out." If I do not like what the commission says, I have a right to appeal to some tribunal, under certain limita- tions and circumstances to be provided. Mr. Barkley. It is your idea, is it, that because of the fact that the commission will be located in Washington, and its orders will be made of record in Washington, that it will be more convenient to appeal directly to the Supreme Court than it would to any district courts of the United States scattered all over the country? EEGULAXION OF PRICES. 209 Mr. Joy. Decisions will be so important by such a commission involving countless millions' — hundreds of millions of dollars — in the btisiness interests of the entire trade of the United States, that it would be wicked to put that matter through the district court, and then through the court of appeals, etc. I am seeking to make this tribunal so high and so respected, and of such commanding in- fluence, that what it should do would be the actual administration of the Sherman Act, and not the hair-sphtting technical details, but operating on broad principles of fair competition. Mr. Barklet. Now, there is one other question that I desire to ask in that connection. You said a while ago something about publicity; laying great stress on the words "proper pubhcity." You would give the commission unhmited power to investigate the private affairs of corporations engaged in interstate commerce, if I under- stood it, with reference to examining its books of account, its methods of business, its cost of production, labor conditions, and all those things, and then you wound up your statement by lajdng some stress upon proper pubhcity. Now, what are we to construe by "proper pubhcity" within the meamng of your statement ? Mr. Jot. I mean by that that I consider that whatever such a com- mission would pubhsh would be proper. It would not be necessary for them to come into my office and examine as to the fact, that my company had money in the bank, or was hard up with regard to financial matters, but what I am talking about is fair competition — ■ anything which lays down the rule of generally fair competition as applied by them to the business of the United States; that is what they should pubhsh, and not to publish anything which would be specially harmful or detrimental to my business, or to the business of newspapers, or anything that did not affect the whole trade. Mr. Barklet. You have in view, then, such pubhcity as would affect the pubUc welfare ? Mr. Jot. Absolutely. Mr. Barklet. You called attention a while ago to Mr. Ford, who has set a very excellent example of permitting his employees to share in $10,000,000 of his profits during the ensuing year. Has any other company followed his example, within your knowledge, of permitting employees to share in the profits of the company ? Mr. Jot. Well, before Mr. Ford took any action, of course a great many companies for a great many years had had various ways of fivmg their employees more or less of an interest in the results of the usmess. Mr. Barklet. They do that very largely by increase of wages, do they not ? Mr. Jot. Mostly -and chiefly by increase of wages, but sometiines on a percentage basis of the results obtained, etc., but there is nothing that provides that employees shall pay back any of their wages in case the companies lose money. , i • Mr. Barklet. Let me ask you this — and I do not know that this question would bear upon the question of a trade commission except indii-ectly, and with reference to its workings: How is it that the Ford people are enabled to make such excellent machines as they do for the price at which they sell them, from $500 to S6.'50, and make a profit out of it which enables them to share $10,000,000 a year with 81295—15 14 210 EEGULATION OF PRICES. their employees, and still have enough to keep them going, and other companies that manufacture automobiles — the Packard and others that might be mentioned — sell their product at from twice to ten times the price of the Ford people, and have not adopted this method of sharing their products, or contemplated any material reduction of the price of their product to the public? Mr. Jot. You want the reason for that as it appears to me ? Mr. Baekley. Yes. Mr. Joy. The reason for that really is not at aU complicated,' be- cause Mr. Ford is a genius in mechanical designing. I have known him for 20 years — I have known him very well — and he hit upon the idea of just this type of a car for everybody to use as a hght car, just something above, you might say, a bicycle or a motorcycle, to run on four wheels, and he just hit upon that idea, to design that thing and market it, I think, at first, at $800 or .S900, and he gbt enough money to expand his factory and increase his product and drop his price, etc., constantly lowering the price and increasing his facihties, and his business grew at such a pace and there was such a profit, on account of the demand for it, that he could spend enormous sums of money in devising ways and means to make it cheaper. He could throw away fifty or a hundred thousand dollars worth of tools, or fifty thousand dollars or a hundred thousand dol^ lars worth of buUdings.^ Nothing amounted to anything if he could wipe that out all the way and stick at something that would enable him to produce the thing cheaper. Mr. Barkley. Is the difference in the cost price, or in the amount of materials or mechanical knowledge necessary to create a Ford machine, and the amount of material and mechanical knowledge nec- essary to produce a $2,000 or a $3,000 Packard, or a Pierce-Arrow, or an Oldsmobile, or any other automobile sufficient to justify the differ- ence in price ? Mr. Joy. Oh, yes. I think you get just about what you paj^ for in most motor cars. The prices of the motor cars are just about in pro- portion to the value of the material, the character and quality and workmanship and stuff that is in them. The Chairman. I would like to ask you a question about the inter- state trade commission. You say you would not appeal direct to the Supreme Court. You do not mean to make the trade commission a court, do you ? Mr. Joy. Just as far as possible to comply with the Sherman Act, subject to The Chairman. I thought you wanted to analogize it to the Inter- state Commerce Commission. Mr. Joy. Well, they would largely administer the interstate com- merce act, as I understand it, would they not ? The Chairman. They do not take appeals to the Supreme Court. Every suit — whether they bring it to enforce their action or whether it is brought by somebody else — would arrest their action, and the Supreme Court has no logical jurisdiction except in certain specified cases. So you state an impossibihty unless you make the trade com- mission a court from which appeals can be taken to the Supreme Court. Mr. Joy. I would not want to set up my opinion against anybody's. I do not know anything about that. I simply sought to draw a pic- ture of the commission to which I could go with problems of my own REGULATION OP PRICES. 211 manufactures — or a dozen great industries, if you please — and say, "Mr. Commissioner, can we do thus and so?" The Chairman. I understand that vou want to discover what the wisdom of the ages is and get invariable advice as to what to do ? Mr. Joy. I want to go ahead advisedly and not have to go ahead and do something that four or five years later may be decided to be against the law. The Chairman. And whenever this or any other committee induces Congress to pass some technical law like that you will have 10,000 more litigations than you would have had before. Mr. Sims. There is only one question that I want to ask you. I just ^ant to see if I get your idea. As to patented trade-marks and copyrighted articles, as I understand you, through this commission the price to the ultimate consumer may be fixed on those kinds of articles so as to prevent unfair or cutthroat competition in those dealings between manufacturer and the ultimate purchaser; is that your idea? Mr. Joy. Yes, sir. Mr. CiiLLOP. As I understood from what you said, you contend that the manufacturer should fix the retail price and that the law of supply and demand should have nothing to do with it. Is that what you contend for? Mr. Joy. I contend that the manufacturer should have the right to fix the retail price, but I do not contend that it is possible for any manufacturer or any laws of Congress to offset the laws of supply and demand. Mr Barkxey. If the price of the article is fixed by the manufac- turer in New York and sent to some point in Missouri, then the price is fixed regardless of supply and demand that may exist in Missouri, is it not ? Mr. Joy. That manufacturer, in fixing the retail price of his article, would fix it at a point where he thinks it would bring him the full volume of business that he had the ability to produce. Mr. Barkley. Of course, the supply may be fixed by reason of monopoly that the manufacturer has over the product, but can any person say that the demand for a given product would be the same in one State, or in one county of any State, that it would be in another ? Mr. Joy. Oh, no ; it is variable everjrwhere. Mr. Barkley. If he can regulate the supply, can he regulate the demand ? Mr. Joy. If he regulates the demand — if he restricts the demand for his article he coidd not sell it. He wants to sell just as many as he can. He wants to broaden his market. Mr. Barkley. Then he fixes the price at the beginning, and the amount of his sales wotdd be governed by the demand for the product at the prices he fixes ? Mr. Joy. Absolutely. He has no possible incentive to restrict the sale of his own article. He wants to promote the sale of his own article everywhere and in every market. Mr. Willis. Let me ask you this: I understood you to say that you are in favor of having the members of this interstate trade com- mission appointed for life, and you mentioned that in connection with your previous remark about condign punishment that you would have Ml on the heads of newspaper men. Did you mean that seri- 212 EEGULAITOlir OF PEICES. ously ? Do you think that the members of this commission should be appoiated for a life term; and if so, why? Mr. Jot. It would be difficult for me to appreciate that any man who I think would be a decoration of that court would retire from his active career, for example, for five or six or seven or nine years, and then by reason of change of circumstances be shifted back again and stay there, or shift for himself in the trade of the United States. By the time a man reaches that age he is generally in a very important position. Mr. Willis. You recognize that members of the Interstate Com- merce Commission are not appointed for life. Why should these men be ? Mr. Joy. I am not criticizing the Interstate Commerce Commission. I do not think the Interstate Commerce Commission has worked out to the maximum possible advantage which I think that commission could have produced in the United States. I hope to get a better commission than the Interstate Commerce Commission, Decause whale the railroads are important, and a great deal of money is invested in railroads in the United States, there is a great deal more invested in commerce and iadustry and mining and agriculture and trade of the United States. I think it is the most important commission of the two. Mr. Willis. You mean that seriously, then ? You think they ought to be appointed for life ? Mr. Joy. I do absolutely mean that seriously. Mr. Covington. You advocate the creation of an interstate trade commission which will have at least as broad powers as the Inter- state Commerce Commission now has over the railroads of the country, do you not ? Mr. Joy. Yes, sir; for the purpose of stopping litigation as far as possible. Mr. Covington. And you think the stopping of litigation will result from the control of the trade activities of the industrial con- cerns ? Mr. Joy. Yes, sir; and creates certainty. Mr. Covington. You referred to the fact, in your argument that you read, that the era of competition among railroads had passed, and that very wisely there had been established now a regulation of the price of the service that they render, and that that was the one method to be desired in industrial business in this country. You also advocate the maintenance of the retail price by appropriate powers vested in the interstate trade commission, do you not, of patented, trade-marked, and branded articles ? Mr. Joy. With qualifications. You see, the shades of trade in dif- ferent fines, according to trade customs, are just as varied and dif- ferent as the shades of the rainbow, for example; and what I say is that if I wanted to engage in the making of "Joy Farm Sausage," and put a stamp, "Joy Farm Sausage," on it and sell it at a doUar a box, I think I ought to have the right to control the retail price of "Joy Farm Sausage." Mr. Covington. That is precisely (What I was getting at. Mr. Joy. That is the point that iain getting at. I say I ought to be permitted to control that price. Mr. Covington. That is it, precisely; and you think you ought to be permitted to use the interstate trade commission — assuming that REGULATION OF PEICES. 213 you are engaged in interstate commerce — in the sale of the product for the maintenance of that company's price of that branded article to the consumer? Mr. Joy. I do not think you would need that commission. You would use the opinions or decisions on the fact that it was improper to interfere with me. Mr. Covington. Would not the logic of your position be that when a trade commission was established as a piece of legal machinery for maintenance of that retail price, one of the elements of unfair com- petition against which you would have the right to complain to that commission would be the avoidance of that retail price by some per- son who had got control of some of that product ? Mr. Jot. Yea, sir. Mr. Covington. And it would naturally follow, in your creation of that commission, that it would have the power to make orders to restrain the continuance of that practice, would it not ? Mr. Jot. Yes, sir. Mr. Covington. Now, take this situation. You know that rail- roads on their own initiative make rates, and that they have to file those rates with the Interstate Commerce Commission ? Mr. Jot. Yes, sir. Mr. Covington. And then, having regard for the cost of the rail- road itself, the extent of its honestly issued stock and bonds, and its operating expenses, after that rate has been filed, the Interstate Com- merce Commission determines for the American people whether the rate is rea^sonable. does it not ? Mr. Jot. Yes, sir. Mr. Covington. Now, you have just pictured to this committee the Ford Automobile Co., which, upon a capitalization of $2,000,000. in addition to declaring $10,000,000 of dividends in one year, dis- tributed .110,000.000 of its surplus as the result of the prices at which it was able to sell its cars to the American people without the main- tenance of retail prices. If there is to be given, through the Con- gress of the United States, the right to the American manufacturer, who has a patented, or copyrighted, or trade-marked, or branded article, the power through a trade commission to compel the enforce- ment of his fixed retail price, does it not follow that when he fixes his price and asks for an enforcement of the law on his behalf, as railroads have the right to do, he must come with his capitalization, his actual and honest investment, his manufacturing cost, his over- head charges, and every other element of cost of production and say: "Here is the amount that it costs; here is the total expenditure that I have had; here is the amoimt of my investment; and here is the profit at which I propose to sell it to the retaUer or manufacturer," and if that price is not a reasonable price — if the manufacturer is to have the power of the Government to be used to control the price at which he sells to the retaUer — that the American people shall have the power, through the trade commission, to say to him that, having involied this law, having created it, the price wiU be reduced to a reasonable figure. Mr. Jot. No, sir. , Mr. Covington. In other words, you think the manufacturer should be permitted to place any price he wants to upon his article ? Mr. Jot. Absolutely. 214 REGULATION OF PRICES. Mr. Covington. And the Government shall give him the power at the same time to maintaui and control prices and the consumer must stand paralyzed between the rapacity of the manufacturer on the one hand Mr. Jot. Yes, sir. Mr. Covington. Ahd the greed of the retailer on the other hand? Mr. Joy. Yes, sir. Mr. Covington. And, while the commission would have greater power than the Interstate Commerce Commission has, that it shall be absolutely impotent to do what that commission has had to do; that is, to enforce reasonable railroad rates for the people of America Mr. Hamilton. Give the witness a chance to answer. Mr. Jot. You are straying off entirely, as I look at it, to another question, utterly apart from the proposition of the permission of the manufacturer to maintain his price. There are many things, for example, where it is not necessary for the manmacturer to maintain the price of his retail article, but there are coimtless things," for example Mr. Covington. But does not this follow that if you had the right through the Government Mr. Joy. I imderstand that Mr. Covington. Just a moment. If you had the right through the trade commission to maintain as between yourselves and the retailer a fixed retail price, you kuow that the retail price would be main- tained, do you not ? Mr. Jot. I certainly do, if I am maintaining it. Mr. Covington. And you know, also, as an American busiaess man, that f the American retailer and the American manufacturer had jointly the great power of the Federal Government behind them to maintain the prices at which the ultimate consumer has to buy his product, that there would soon be a community of interest between the manufacturer and retailer by which the manufacturer wiU be permitted to fix a high price and the retailer defend that price ? Mr. Jot. Pardon me, you are drawing a wrong inference from what I said. At least, in what I said I had no intention of saying anything like that. There is a difference between a pubUc-utihty corporation, a quasi-pubhc corporation, and corporations, for ex- ample, which are the ordinary busiuesses of individuals. That is a totally different proposition. If I go into the business of making inkstands, for example, I have the right to make just as much money out of the inkstands as I can. If I can make a better inkstand than anyone else, and make it for less money and sell it for as much as I can, I have that right. I have the right to fiU my barn up with the money I make in selling inkstands, if the people will give it to me. Mr. Covington. You do not mean, when you say that, that you have the right to call on the Government of the United States to give you its tremendous power to maintain the price at which it shall be sold to the consumer? Mr. Jot. I do not want the tremendous power of the Government behind. Mr. Talcott. Why can you not do it by contract ? Mr. Joy: Wait a moment. Listen, if you please, gentlemen. Let me make that clear. BBGTJLATION OF PRICES. 215 Mr. Hamilton. 1 think we ought to give Mr. Joy that opportunitv. Mr. Covington. We want to give him all the opportunity he wants. Mr. Hamilton. He starts to answer, and then some gentleman breaks in on him. Mr. Joy. Let me see if I can make that clear to you gentlemen. It is perfectly clear to me that the conditions which exist to-day, for example, are exactly like this: That if I am a great, big, powerful corporation, and have lots of money, I can go to work and maintain my retail price within the law and according to right by establishing my own retail stores or agents, and there can not anybody touch me or bother me. And it is the right tlung to do. It is trade in its retail form, and I have a perfect right to do that if I have money enough to do it with. Now, up conies the situation, for example, of the Sherman law as it has been interpreted, that says, if you have not got enough money to do that, you are only a little fellow, and carrying on a small business, and you have not got the ability to establish retail plants of your own, in your own city, to sell this stuff to, but you nave got to rely on established commercial industries, wholesalers and retailers, to sell your product. Then you can not fix the retail price of your goods. You have given the fellow with a barrel of money a chance to run away like a greyhound from the feUow that is so small that he has got to rely on the divided responsibilities of retailers and wholesalers, which are the only ways of reaching the customer. I contend, gentlemen, that that is wrong, that you should permit that man, be he ever so httle, to say to that retailer, "Here is my Joy inkstand"; I think I have a better illustration here. I have a Waterman fountain pen, we will say. My idea is that the man who makes the Waterman fountain pen — I do not know him — and makes it valuable and establishes it as a quahty article ought to have the right to go to the retailer and say, ' ' Would you like to handle niy fountain pen ? If you do, this is the price for it, and this is what I will sell it to you for at retail. Your cornmis- sion, or differential, which is the same thing, will be so much." The fellow says, "Yes; I wiU take them." I say, "If you take them then you must not sell them at anything inside the stipulated price, be- cause if you do I wiU take them away from you." I say it is an advantage to me; I say it is an advantage to the public to be able to get, we will assume, a Waterman fountain pen of the quahty which Waterman makes for the price put on it by the manufacturer. I go into a store and buy a Waterman fountain pen. In the tray along- side of this fountain pen were other kinds of fountain pens, of all different kinds, prices, and qualities, and everything else on earth. I pick out the Waterman foimtain pen because the Waterman is, say, model No. 15, $5, and if you buy it with a silver clip that is 25 cents extra. I know the price I am to pay for that fountain pen, and that is all right. Suppose there was no price on that fountain pen — there was no catalogue price hst of it to guide me. Suppose the salesman had said |6 or $4; I would not have known that he ought not to have said 12, for example. But now when I see that in there I have the guaranty of the manufacturer of that pen that the pen is worth $5. Mr. Covington. Let me take, you along that line. Suppose that foimtain pen is the best fountain pen on the American market, and it is so much better, by the way, than any other fountain pen manufac- tured that the American consumer really wants that foimtain pen 216 BEGULATION OF PEICES. Now, then, yoiir argument leads irresistibly to this conclusion, does it not, that the American people are going to buy that foimtain pen in preference to any other at anything like a reasonable price, or un- til the price gets so high that they can not afford to take it at all ? Mr. Joy. No, sir. Mr. Covington. If they are not going to buy it in preference to another pen of what value is a fixed price in so far as widening the output to the manufacturers ? Mr. Joy. Because it enables the manufacturer, my dear sir, to main- tain the quality of his article. That is the only thing that the fixed price permits the manufacture to do, to maintain the quality of his article. If he can not fix the price on his article he can not maintain his quality, because it is clearly evident to me — I do not know whether I can make it clear to you, gentlemen Mr. Covington. Yes; I think I understand you. Mr. Joy. But it is clearly evident to me that the amount of money that I can put into an article that I am manufacturing depends upon the retail price that I can get you to pay me for it. Now, then, if I am making a given article that costs $5, $50, $500, or $5,000 it is going to cost me a certain amount to sell that article. It is going to cost me a certain amount to advertise it, and it is going to cost me a certain amount for transportation, and it is going to cost me a certain amount for manufacturing it. If I can not go to work and make a wedge in my product to enable me to make an article of that quahty, which they say we will buy — that is the way they start, Mr. Water- man, we will assume, starts in to make a fountain pe n such as he woTild want to use himself; he bases it on quality. Whether he can carry out the proposition is a question of whether or not he can get the public to say, "We will pay you for that, Mr. Waterman, $5." To say you could look at that and say it is worth $5 is absurd on the face of it. We do hot know anything about it. Mr. Covington. I will ask you a practical question. You are the head of the concern that manufactures the Packard motor cars, and they are mighty good cars, by the way. Mr. Joy. I hope so. Mr. Covington. The Packard motor car has a very wide sale in America. You maintain pretty well a fixed price at the present time without any aid of law, do you not ? Mr. Joy. Yes, sir. Mr. Covington. It is not a great deal of trouble for the Packard motor people to maintain, with the sales agents they now have from the Atlantic to the Pacific coast, the standard price at which their motor car shall be sold to the consuming pubhc? Mr. Joy. No, sir. Mr. Covington. You have not had in your experience with the Packard motor car enough trouble with retailers cutting the prices on them to impel you to reduce the quahty of the machinery, the quality of the motor itself, the quahty of the body construction, in a single car, have you ? Mr. Joy. No, sir. We do not allow them to cut the price. Mr. Covington. That is exactlyliwhat I am getting at. Mr. Joy. If we allowed them to cut the price — if we allowed those fellows to break the price on that proposition Mr. Covington. I understand. BEGtTLATION OF PRICES. 217 Mr. Joy. And sold you a Packard car for one price and this gentle- man another car at another price, and another gentleman another car at another price, and I meet a friend over here, and he says, "Joy, what can I get a Packard motor car for?" I say, "God only knows. Go and find out." I have not got any control over the price. Mr. Covington. But the trade conditions in this country to-day are such that when you establish an article which is well Imown, such as a Waterman fountain pen, or a Packard motor car, you are able to both maiutain the price fairly well, and maintain the stand- ard of the manufactured article ? Mr. Joy. My dear sir, you are wrong. We are maintaining our price to-day absolutely contrary to law, and the Depart- ment of Justice has been in my office, and has had their repre- sentative there, digging into my affairs, and I gave him a day at odd times, and I got all the facts, and all the statements, and all the views of the Department of Justice in regard to it out of him, and I know exactly what I am up against. And if you do not change the situation from what it exists to-day and give me lawfully the right to fix the retail price of my product, I have got to do one of several things: I have got to go to work and depreciate the quality, and go into cutthroat competition, and say, "Here, you go and sell them, and get what you can, tm-n in what you can get, and I will pay you so much — make a cutthroat murderous job of the proposition," or I have got to go to work — ^and I have the means to do it — ^^and establish my own agencies all over the United States, and damage my business in so doing, because a man in a locality, acting as my dealer, as my retailer, can bring me more business, can sell more cars, and he can conduct the business more efficiently — and the more cars I can sell the cheaper I can make the price, and the more I can broaden my business, and make more money — than I can through my agency put in that town. I do not want to put that dealer out of business. I want to let him remain in business, because he is a better'representative for me than I am myself. Yet if this situation is-not stopped I have got to go to work and put that fellow out of business, and make him my hired man. Mr. Covington. You mean, if the law is not changed ? Mr. Joy. Yes; if the law is not changed. Mr. CovtNGTON. You would like to have the trade commission given that power to bring about that condition by law that you have pictured ? Mr. Joy. The trade commission is another proposition. If you wiU do just one thing, and state that the "sole right to vend" in a patent means to seU to the customer, I am through. Then I am all right. Mr. Hamilton. I want to ask you a question. Mr. Esch had wanted to ask a question, but he was compelled to go. I want to get at this, Mr. Joy: Why can you not protect prices in your retailers by fixing your wholesale prices to your retailers ? If you have a regdated wholesale price, for illustration, that you mamtain for your Packard car throughout the country, why does not that fix within reasonable limits the rfiftail price of the bkr ? ■ ■'''' Mr. Joy. Because the retailer in a great many instances is not an acute business man, and he does not figure out that it requires exactly 218 EEGULATION OF PBICES. 20 per cent for him to sell those things on a general average, and have a particular profit out of his business or some reasonable profit out of his business. He has got to be a hustling business man to get a fair profit out of the 20 per cent commission. In selling a $5,Q00 article, if instead of giving that man 20 per cent commission, or $1,000, I broadly fixed the price of that article at $4,000 at wholesale, and then said to that retaUer, "Now, you go ahead and you get enough to Mve on out of this business, to make some money." That is the only thing I could do. Therefore he would be fixing his price on that article. Mr. Hamilton. Then, you do this that your retailer Mr. Joy. Just a moment, please. That retailer, therefore, having gotten this product from me at $4,000, would be engaged in fixing the price of it. In one town one retailer would sell it at $4,500, and in another town another one at $4,000, and another one giving if away; and here is a man that is a dear good friend of mine, and he will be a good booster for me in the town. I say I will just sUp him an automobile, until that fellow's trade would be utterly uprooted, his trade conditions would be so down and out in that town that he could not sell another car in that town to save his life until some- body came into that town and said: "These cars are $5,000. If you do not want it, do not take it, but if you do, come up to the captain's office and pay the money." Mr. Hamilton. That is excellent in theory; but the practice — and I have had considerable experience — ^is that, we will say, your retail dealer — your local agent — has a 20 per cent commission for doing business — for selling the car. You place the cars with him on certain conditions, and you give him 20 per cent. So far as the pubhc is concerned, in your relations to it, you are selling your car to that dealer at a specified rate, and you are selling it at the same rate throughout the country. Your agent says to his customer — I do not know whether it is so with the Packard; the commission of the agent is pretty well knowd — "I get 20 per cent, and I will just shave this a Httle with you. I wiU divide my commission with you." I do not know whether it is so or not with the Packard. It is so, I am quite sure, with some other goods. Mr. Joy. Yes. Mr. Hamilton. Then I come back to the original suggestion that your wholesale price does fix it — you can not guard against this shaving by your agents — ^your wholesale price does fix a stable price, approximately ? ^Ir. Joy. No; pardon me; in my case I have fixed that retail price. I have guarded against the cutting of that commission by sending auditors to those fellows' establishments. They say to me, "We can not sell it for 20 per cent; we have got to have 25 per cent." I will say, "My auditors will be around there to see what the matter is with you. Other fellows are selling them at 20 per cent and making money and giving better satisfaction to the customers than you are. That is enough for you. I am not going to give you any more, and you shall not. divide it or give any of it away." That is a situation which I absolutely control. All I want to do is to be in the line of business where that is desirable — to- be permitted to control it. Mr. Hamilton. Suppose your agent does not go to you and say "I want 25 per cent." Mr. Joy. There is no further complaint. EEGTJLATION OF PRICES. 219 Mr. Hamilton. Suppose he says; "Instead of making $250 on this particular deal, I will make $100," as he wants to place a Packard car in that locahty. That terminates that transaction, does it not « Mr. Joy. But when he does that he is destroying my business in that community, and I can not let him do that. Mr. Hamilton. Nobody knows it. Mr. R. B. Stevens. What is the effect on the reputation and standing of an article to have it sold at varying prices ? Mr. Jot. If it is very much shaded, it is absolutely destructive to the business; and then it shades down all the way to 90 per cent destruction, 50 per cent, or 30 per cent. Mr. R. B. Stevens. It injures the reputation of the article? Mr. Joy. Yes; it injures the reputation of the article. 'Mr. R. B. Stevens. As a standard article? Mr. Joy. Yes. In other words, if I sell a Packard motor car any- where in the United States — and I am conducting the sale of those cars myself — if I sell the Packard motor car anywhere in the United States for less than the list price, I ca:n not sell one to you at the list price. 'Mr. Hamilton. I think that is true. Mr. Talcott. It does not affect your price as a jobber, does it, Mr. Joy? The fact that the retailer cuts the price on his sale does not affect your price to him as a jobber ? Mr. Joy. ^o; but it destroys my market. In other words, if I have sold a car to that gentleman at IQ per cent less than the list price, through a dealer in Oshkosh, and this gentleman comes in and hears of it, and he wants to get one at the same price, and the dealer says, "Oh, no; I can not sell one to you at that cut price. This other man is a friend of mine, and he has promised to boost my goods in this town; and besides that, he did something for my mother's aunt four years ago, and I want to do something for him. But you, you have got to pay the list price." I do not sell him. He quits. He runs away. And the factory in Detroit, where I employ 5,000 or 6,000 men in making these cars, suffers, for I have a legitimate right to increase my business on the square, and the dealer, by his philan- thropy in giving away the car at less than the list price has kept me from employing that number of people in Detroit. Mr. Talcott. But he is hurting his business as well as yours. Mr. Joy. He is hurt; but he thinks he is improving it, from his nar- row vision; but I know he is destroying it. Are there any other questions? Mr. Hamilton. There is only one thing, Mr. Joy. As I under- stand you, you propose that corporations shall be permitted to com- bine, and that they shall be permitted to fix prices to their retailers ; and that they then shall be permitted to go to a trade commission and have permission from the trade commission to do exactly that thing. Now, suppose your corporation has been engaged, and wants to continue to be engaged, in charging so large a price for its output that it is making an undue profit ? Mr. Joy. It is a private business. The minute I go to work and make an undue profit out of a car that is coming out of the door of my factory the pubHc stops buying it. It comes into competition with something else. Mr. Hamilton. That operates within certain limits. That is, when you charge too much your sales fall off and your profits fall off, and when your profits fall off your dividends fall off, within certain limits ? Mr. Joy. Yes. Take Henry Ford. Has he not the right to make just what he Mkes. The Chairman. The commitee is very glad to have heard you, Mr. Joy. What you have said has been very interesting, whether it is true or not. Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C, Friday, February W, 1911^. ■ The committee met at 10 o'clock a. m., Hon. W. C. Adamson {chairman) presiding. STATEMENT OF MR. ALFRED LUCKING, ATTORNEY AT LAW, DETROIT, MICH. The Chairman. Mr. Lucking, the committee having heard that you were passing through town, and remembering with pleasure their past association with you, have decided to suspend other business in anticipation that you might sometime have a bill up before the committee, to give you a few minutes, and invite you to talk. You may proceed in your own way, giving the stenographer your name and occupation. Mr. Lucking. Mr. Chairman and gentlemen, I appear here rep- resenting the Ford Motor Co., of Detroit, Mich. I wish to thank you, indeed, for the courtesy you have shown in consenting to allow me to take you out of your regular order of business, to call your attention to the bill pending before "four committee known as H. E. 13306, introduced on the 12th of February, 1914, by Mr. Stevens of New Hampshire. The bill is entitled "A bill to prevent discrimination in prices and to provide for publicity of prices to dealers and the public." I shall not, of course, stop to read it. The first section provides liberty to any manufacturer, producer, or grower or owner to sell his product and agree with his dealers for a uniform price at which the article can be sold to the public upon certain conditions to be complied with by the manufacturer, producer, grower, or owner, the first being that there must be no monopoly of the article and that he must not be connected with any combination of any character. Second, the ar- ticle must be marked in some form properly as to price and bearing the trade-mark or special brand of the first person mentioned, and then that there shall be filed in the Bureau of Corporations a state- ment setting forth the trade-mark and the prices and the changes therefrom from time to time. Then a further proviso that at any time that the producer, the dealer, desires to sell at a less price he may do so on certain conditions: First, that he is going out of business ; or, second, that he has become bankrupt and a receiver has been appointed ; or, third, that the goods have become damaged ; in all of which cases under certain circumstances he is at liberty to dispose of the article contrary to IKe contract. I wish to say, Mr. Chairman, that the Ford Motor Co. agree with the principle of this bill, although there are possibly some provisions REGULATION OP PEICES. 221 of it they might question. For instance, the last part of subdivision (c), which prevents the manufacturer from allowing a bonus in cases of extraordinary sales. It is the practice of the Ford Motor Co. to give to its agents, say, 1 per cent additional. Prior to the 1st of October it was its practice to give a percentage in addition to the regular 15 per cent on its cars, if its agents sold certain quantities,' and that percentage increased with those quantities up to certain limits. However, it is the principles in which you are concerned and not the details, I suppose. Personally, and speaking for the Ford Motor Co., we think that . primarily and preferably there should simply be a declaration per- mitting any manufacturer, owner, or grower to stipulate with his dealers, wholesalers and retailers, for the fixed price to the public, provided there be no monopoly, no combination, and free and open competition, but they have not any objections to this bill if that should finally be deemed by the committee to be a wise provision, a wise enactment, with the single exception that I have mentioned. We think, Mr. Chairman, that the Ford Motor Co. may come with good grace to Congress on this subject because it is well known that for many years this company, when it was much smaller and weaker than it is to-day, fought single handed and alone at great expense against an attempted monopoly of the automobile business, rejected' all offers of combination and peaceful profit, and won a great and lasting victory for open competition in that business, and that as a result of that fight and of the company's constant and per- sistent progress toward mechanical improvement and the giving of better value to the purchaser and its annual reductions in prices the whole country has benefited in. lower prices and better values. There are special and peculiar reasons in the automobile business for the fixing and maintaining of retail prices, which we will try to explain ; and we hope to be pardoned, in discussing so broad a prin- ciple, for referring to the concrete example of the Ford Co. That company, until last October, marketed its products through inde- pendent dealers, and it is to its experience prior to that date to which reference is made. It now markets through agents, by reason of be- ing compelled to do so. I may say that preferably the company would return to the old method, because there are always certain liabilities and responsibilities connected with employing agents which do not exist in the case of independent dealers. Mr. EscH. That would be impossible, of course, for the smaller concern ? Mr. Lucking. To market through agents? Mr. EscH. Yes, sir. . Mr. Lucking. I think the smaller ones do work through inde- pendent dealers ; that is, through wholesalers and retailers. From the beginning of its business Ford cars have been sold at a uniform price to everybody alike, and the Ford Co. has done all that it could to prevent certain favored ones among the public from getting the advantage over others in the matter of reduced prices. I might say that under the strict construction of that rule, one of the early stockholders, who undertook to favor a friend, was com- pelled to pay the difference out of his own'pocket. The owners have striven to treat all of their customers alike and to give the best value for the money. It has been its policy not only to treat the pubhc 222 EEGTJLATION OF PEICES. alike, but to treat the dealers fairly and equally and not allow them to cut into each other's territory or to get advantage by selling sur- reptitiously to price cutters, who would ship into the territoiy of other dealers at somewhat reduced prices, thus injuring the business of the dealers. The Ford Co. recognized early the fact that in order to build up a successful business it would be necessary to establish a system by which each purchaser or user of a Ford automobile should receive prompt and loyal service; that is, his car should be kept in good condition, in order that he might have first-class service and unin- terrupted service. The relation between the Ford Motor Co. and its product is not completed when it has received the price paid by the dealer. This relation continues on during the entire life of the machine sold, and the success of that machine is regarded as of vital consequence to the company. The company's business has been built up to its present propor- tions by maintaining an organization consisting of dealers in every part of the country — 1 think about 6,000 — ^who were under contract obligations not only to maintain a garage and a stock of parts for quicK repairs, but also to show purchasers how to use and handle and conserve the car, instructing them how to run it, and following and watching every car, remedying defects, and making it please and satisfy the customer. None of these things is done by the cut-price cutthroat, who has no interest in the car or the business. When by his tricky practices he succeeds in taking customers away from the regular dealer the Ford Co. loses its best dealers and salesmen, and the car loses its reputation. The purchasers have troubles with the car which could be easily and simply corrected by any person having knowledge, but there is nobody in the vicinity to instruct them. Hence follow dissatisfied customers, loss of the best advertiser^ — sat- isfied customers — ^loss of reputation, loss of sales, and loss of business. It would be brutal injustice after a dealer has established a garage at a large expense, bought and paid for a demonstrating car, and worked up customers, spending weeks and months of his time and considerable sums of money, to allow some outsider who has suc- ceeded by some trickery in getting hold of some cars to step in and undersell by 5 or 10 per cent the regular dealer and take his customers away. Of course the outsider can afford to cut the price somewhat when the other man has stood all the expenses connected with working up the sale. I can illustrate that principle, gentlemen, by an actual occurrence in the State of Ohio last year. There was a concern known as the Union Motor Sales Co. at Dayton, Ohio, that was advertising that it could sell Ford cars at 10 per cent off regular prices. It was mak- ing these claims very extensively. Now, in Cleveland, Ohio, the regu- lar dealer worked with a man by the name of Judisch for many weeks, taking him and all his family out riding at different times and using all the arguments, which an automobfle dealer has'to do, in order to convince that family they ought to buy a Ford car, and just when he got to the point where he was about to succeed in mak- ing a sale this Mr. Judisch read an advertisement of this Dayton concern, and he communicated with them, and they finally did get a car by inducing another dealer at a distance to break his contract, and they chiseled the numbers off so the car could not be traced as BEGUIATION OF PRICES. 223 to its origin. The car was delivered at the railway station to Mr. Judischw Now, Mr. Judisch did not know what to do with the car- He had never run a car, and, being at an utter loss, he could not even get it from the depot. He finally wfent to the regular dealer there in Cleveland, who had become quite friendly with him from seeing him so many- times, and Mr. Judisch laid his dilemma before him, and the dealer, through his good nature, did what of course he would not do ordinarily at all — ^he helped him get his car away from the sta' tion, showed him how to run it, and all that sort of thing. The Chairman. What did you do with the other agent who vio' lated faith? Mr. Lucking. "We never discovered who it was, but we did file an injunction bill against the Union Motor Sales Co., and Judge Hol- lister, of the Cincinnati court, granted an injunction. The Chairman. Would not Mr. Judisch tell you, or did he know ? Mr. Lucking. He got it through the Union Motor Sales Co. The Chairman. I was going tb say that if he did know and would not tell you, he ought to be named Judas, straight out. Mr. Lucking. He did not Imow. The car was simply shipped to him by the orders of this advertising concern at Dayton, Ohio. We got an injunction, and Judge Harmon was on the other side of that case. That injunction was granted after considerable argu- ment a year ago in July. The Chairman. Did you discover who sold the car after you filed that bill? Mr. Lucking. We put them on the stand ; we had a hearing of the main case last November, and while Judge HoUister found the de- fendants had violated his injunction, and pronounced them un- worthy of belief; said they were thoroughly discredited, found them guilty of contempt, postponed his sentence until he should decide the main question, which was whether he ought to have granted the in- junction in the beginning. The Chairman. Did they refuse to disclose the origin of their machine ? Mr. Lucking. As I recollect Mr. Souard, the principal defendant on the witness stand, testified that he did not remember where he got the Judisch car, but said he got certain cars of two different gentlemen, naming them. Having an adjournment over Sunday, we subpoenaed those two men, and they both came in and contradicted practically everything he said. That character of testimony, with a lot of other of the same character, was what caused the judge to de- clare from the bench that the defendants had been thoroughly dis- credited, so they could not be believed. We were never able to find out just exactly where that Judisch car came from; but those, gentlemen, were the methods that were pursued. After making such sale the outsider has no further interest in the car or ,the purchaser. He does not instruct the buyer how to use it, or stand ready to remedy slight troubles or defects or keep the car in good running order, or to do any of the hundred and one things which the regular dealer is glad to do in order to sustain the reputa- tion of the car and build up hife own business. If it be told from mouth to mouth that Smith paid $550 for his Ford car while Jones bought the same car about the same time for $500, it is a serious blow 224 REGULATION OP PEIOES, to the Ford cars and to the Ford business. It instantly causes the article and the dealer and the manufacturer to fall into disrepute. There is absolutely no danger of extortion under the one-price plan, because if the price is unreasonably high competitors will take the business. The intense competition in the automobile business is well known to everybody. The Ford Co. knows that it can not attain permanent success without it treats the public all alike, meaning thereby not the jobbers but the consumers. Hence, it stipulates to retain such control of the article as wiU facilitate equal treatment of buyers and a fair return for the dealers, without whose friendly activities the company can not succeed. As a result of these efforts the company has been enabled to reduce the prices practically each year on its cars, and to improve the quality of the same. The following is a statement of the prices year by year on the different models which it is now making and selling : Model T. Model. Date. List. Touring. Town. Torpedo ronabout . October, 1908.. October, 1909.. October, 1910.. October, 1911.. October, 1912.. August, 1913.. January, 1909. October, 1909.. October, 1910.. October, 1911.. October, 1912.. August, 1913.. October, 1910.. October, 1911.. October, 1912.. August, 1913.. itSSO •950 »780 3 690 »600 '550 '1,000 > 1,200 » 1,200 igoo >800 •760 •725 •590 •625 •500 1 Unequipped. ' Fully equipped. » Equipped. The Chaiemak. There is no contention that the passage of this law would affect competition of other companies, different cars with your cars? Mr. Lucking. The passage of this law would not in any way tend to bring about a monopoly or interfere with that competition, I think, if that is what you mean. The Chaikman. Yes, that is what I mean. It would only protect youT own cars against fraudulent sales of them? Mr. Lucking. Yes, sir; exactly. In the automobile business, the thing of prime importance to the purchaser is continuous, reliable service. This, and this alone, will satisfy the customer, and therefore this service is absolutely essential to the maintenance of a successful and enlarging business. No method of providing this is known except by contract requirements jf the dealer, and in order to get it he must be protected in his ;erritory, and a reasonable return must be secured to him. Now, let me urge briefly a few thoughts of a general nature, and hen I will come to the matter you have been talking about. The Chairman. Is it contemplated to try to provide against the sale of second-hand cars? Mr. Lucking. None whatever. We never have. BBGULATION OP PKICES. 225 The Chairman. After your cars have once been sold to the users, they are free? Mr. Lucking. Yes, sir; absolutely. Freedom to build up one's business in his own way — freedom to contract with dealers that his article shall be sold at a certain price, deemed by him of vital consequence in the upbuilding of his busi- ness—is of very high importance. Freedom to contract is one of the great rights of competent persons not lightly to be set aside. If it is necessary to set it aside in order to protect the public against substantial injury, I agree it is all right. The safety of the public is the supreme law. If there is no monopoly, but full and free competition in the line of goods in question, any restrictions are superfluous and unpardon- able. There is absolutely no substantial ground for interfering with freedom of contract in such case or with the natural course of trade. We submit there is no public good to be served by compelling com- petition among dealers in the same article produced by one manu- facturer where there is unlimited competition in the same line. Any ground for condemnation of the individual manufacturer in such a case for maintaining a uniform price must be purely technical. It can not be substantial. Such rule may do inj&nite harm and injustice to manufacturers without working any important good to the public. Why do I mention that here? Because, gentlemen, the Supreme Court of the United States, winding up last June, has, by a series of decisions, and a divided court, practically divided in two, in the middle as near as may be, held that the ancient practice of allow- ing every manufacturer or owner to fix his own prices to the public, can no longer continue in this country. Mr. Montague. Have you that citation? Mr. Lucking. That is the Sanatogen decision. That was in a patent case, but it followed the Miles case, which was on unpatented articles. Where there is abundant competition too high prices are self- correcting. There is an automatic remedy. You do not need arti- ficial, legislative, or judicial restriction. There is no possible excuse for governmental rules forbidding the free play of competitive forces. What is the free play of competitive forces? It is to let every man build up his business in his own way. Our way is to establish abso- lutely one price to everybody. If another manufacturer prefers to let his dealers make all prices to all men, let him do it. If a man has labored and produced an article, it is self-evident under our social system and under our Constitution that he has the inalienable right to fix the price at which he will part with it. He also has the inalienable right to build up a business in the making and selling of these articles. This absolute right to keep the article or to fix his sale price and to sell it in his own way and part with the title at his own pleasure is secured in our constitutions and is not denied, but the right to agree with the vendee, the dealer, as to the retail price is denied by some. But the manufacturer, if strong enough and big enough, may ac- complish the very same thing by selling only to the consumer and not to or through dealers. If he retains the title until a sale to the 81295—15 15 .226 EEGULATION OP PEICES. consumer and sells only through agents, there is no way to prevent his fixing one uniform price to all persons. That, gentlemen, is exactly what the Ford Co. has been doing since the 1st day of last October. They regarded the other system as preferable for a variety of reasons. One being they do not have the same responsibility for dealers that they do have where they sell direct through agents to the consumer. Another reason is, from grounds of the highest public policy, that it is preferable in a great country that there should be as many independent dealers and busi- ness men as possible who are not directly subject to the orders of anybody above them rather than to have them mere salesmen or agents. This being so, why prevent the manufacturer from using the ordi- nary channels of commerce — the wholesaler and retailer? The big and powerful manufacturers may sell at fixed prices to the public by chain stores, by consignees, by agents, by salaried men. Why penalize the small manufacturers? These restrictions only serve to compel the manufacturer to deal directly with the public at the same fixed prices, cutting out and wiping out large numbers of independent dealers and turning them into dependents and subservient agents and mere salesmen. This is bad public policy. i There is another fundamental reason against such restrictions on Iso-called resale prices. As a matter of basic truth, it is not a resale /at all. The sale to a dealer is only a technical sale, a step toward a completed sale. From the standpoint of a business, of a growing, permanent busi- ness, the sale to a dealer is only part of a process of sale. Without the sales to the consumers the sales to dealers stop short; business 4ies almost instantly. In the large sense, in the real sense, in the philosophy of business, the first sale of the article is made only when I the article is sold to the consumer. It is simply technical to say that the article has entered the wide domain of commerce when it is sold to the dealer. It is only a passing on through a medium to reach the real buyer. In the narrow, restricted sense, when applied to one particular article, it may be true; but in the large sense, from the viewpoint of building up a business in the article, it is not trueat all. Now, the manufacturer who has built a reputation for an article by honesty, efficiency, and advertising, by good workmanship and good value, and by putting his name and guaranty back of it, should, as a matter of common justice, be permitted to name the price to the user. It is utterly false reasoning to say that he has no further interest in the article after the technical first sale to the dealer. Over and above the right reserved to him by his contract the resale is based upon his reputation, his name, and the reputation of his article, and, more than that, it is vital to his future business in ways too well known and too obvious to require pointing out here. One price to all, in our opinion, is the only moral and honest way to do busi- ness. One fixed and well-known price to all is bound to result in good values to the purchasers, for otherwise competitors will take the business. Now, on that subject, four years ago the price on this Ford car that I mentioned was $950; it is now $550. How many KEGULATION OF PRICES. 227 Ford cars of that type do you suppose would be sold in these days at $950 in competition with the more pretentious productions that are being put out at that price? In other words, the competition among manufacturers is such that to live at all a manufacturer has got to keep his price right down. ' Now, in the automobile business every automobile manufacturer has fixed his prices up to the present time to the consumer. Of course there have been some variations; there has been some price cutting, but in the main and notwithstanding that practice of fixing prices, prices have been coming down regularly and gradually as efficiency has increased and as competition has increased. Differing and varying prices to the public for the same article mul- tiply fraud, dishonesty, and cheating, and those suffer the most who are most innocent and least able to bear it. In the one-price system the strong and the shrewd can get no advantage over the weak. You can send your children to buy with confidence and they will not be cheated. And, in fact, the buying public are all children. Not one in a hundred is expert and able to judge. The dealer has all the ad- vantage. The one-price system is §ssentially honest. Monopoly only should be condemned and wiped out. Now, gentlemen, as there was a bill before the Committee on the Judiciary by which it was proposed to affirmatively enact that this practice, which ha,s prevailed so long, should be condemned by stat- ute, I went before that committee and some of the questions asked there have suggested to me to say two or three things to you in con- nection with this bill which is before you. We ask no special privileges. We do not ask Congress to fix any prices; we do not ask Congress for any commission to fix prices; we do not ask that anybody be compelled to fix his prices, but that every- body be given permission to fix prices to the consumer of his manu- factured article' if he chooses, provided there is no monopoly and abundant competition. Under such conditions business will regulate itself just as it has in the past in the automobile business. Every automobile in the past has had a fixed price, but there are all kinds of competition in the business and a constant, steady lowering of prices. We do ask the restoration of what seems to us to be a matter of common right, to make a contract as you like so long as you are not monopolizing anything; that everybody be treated alike; that there be liberty of contract, and that we be allowed to build up our business in our own way. I notice the argument that is put forth that the dealer should have the privilege of doing as he pleases with his own. Now, that is true, in a general way, if it is sold to him unqualifiedly ; if it is not sold to him in that way, but sold to him under certain conditions, he should observe those conditions unless there is something inherently wrong or immoral in the contract. Another thing, gentlemen, is this: I have said to you already that the big manufacturers may reach it by selling direct to the consumer, whereas the small manufacturer ought to be permitted to go through the ordinary channels of commerce, the wholesaler and the retailer, and be allowed to build up a business in that way. No man can build up a business except through sub- stantially wise methods of doing business. 228 REGULATION OF PEICES. And my final word is, gentlemen, that so long as there is competi- tion in any business and people get free and complete competition, there is no danger of a man putting his price too high to the public; there is no danger whatever, because others will get the busmess if he should do that, and no manufacturer is going to fix his price any higher than he safely can to build up that business. The Chairman. Do you mean that you have made this same show- ing before the Judiciary Committee ? Mr. Lucking. A portion of it I did, because there is a bill proposed there which affirmatively says no prices shall be fixed. In fact, I was not aware that this bill was pending before you until I got down here, then I immediately asked the privilege to come before your honors. The statement of mine that this is an ancient common-law right was questioned by one or two members of the Committee on the Judiciary, who said they understood these contracts were not valid at common law, appealing to the old principle that if a man sell an article unqualifiedly, that some restriction which he might place upon that article in selling it again would be disregarded by the court. That principle has been announced in a general way at common law, and we have all heard of it, but never until recently, as far as I can discover, has there been a decision holding that a contract such as we describe was invalid or but what it was the common law of this country to permit such contracts. I have here a decision to which I am gomg to call your attention in the record for your future refer- ence, just decided in December of this past year, December, 1913, in the Supreme Court of the State of Washmgton. It was decided unanimously by eight judges of that court. Mr. Talcott. The Miles case and the Sana'togen case turned on the terms of the Sherman Act, did they not ? Mr. Lucking. In the Miles case, where the contracts covered prac- tically the whole country, it was held to be in restraint of trade at common law, reprehensible at common law, and also contrary to the Sherman Act. Mr. Montague. Was not that expression obiter dictum ? Mr. Lucking. I would not be inclined to think so, reading the case. I should like to say so if I could, but I hardly think so. As I recol- lect the Miles decision, it was where the manufacturer made his con- tract with each one of these dealers all over the country, and the court said it amounted to the same thing as if these retail dealers had all got together in a combination. Mr. Montague. The Supreme Court did not dispose of that case, though, by reason of the common law, did it? Mr. Lucking. I think it was held to be in violation of the common law and also the Sherman Act. I would not want to be sure of that, without going through it again. Mr. Montague. Is there any common law in the United States? Mr. Lucking. Not of the United States as such. Mr. Tai^cott. Could the United States court obtain jurisdiction unless the case was under the provisions of the Sherman Act ? Mr. Lucking. I doubt very much if it could. But now just thiiJr for a moment. As I recollect that case — I am not positively sure of this — that biU was brought by the manufacturers to enjoin price REGULATION OF PRICES. 229 cutters, in the United States court, and the court had to pEiss on every question that was raised as it came up. This presents to my mind a new thought with reference to this particular idea that you now offer, and I should want to study the case a little before I stated posi- tively just what was said about that; but I am sure the justice who wrote the opinion considered it from the standpoint of general public policy as well as the statute — ^the Sherman Act ; I am positive of that.' The Chairman. Do you say that the Judiciary Committee is trying to report a bill that would make it illegal for you to pursue your present method of retaining the title in your machine until it was finally sold? Mr. Doremus understood you that way. Mr. Lucking. No, sir ; I did not. The Chairman. If they tried to pass such a law as that, we would put a veto on it. Mr. Lucking. Yes, sir. The Chairman. Because the Ford Co. is the smartest thing in the world and is prospering because it has adopted a wise course. Mr. Lucking. There is no question about the Ford Co. being able to go right ahead on present lines and do business. The Chairman. I have been citing them as an example of the futility of any such legislation. Mr. Lucking. They followed the other policy until last October, and they regarded it as somewhat preferable. And I might say to you that the treasurer of that company said to me last fall that while we could go forward under these new contracts, which personally I prepared, that they felt the other principle was a matter of com- mon justice and right ; that it was necessary in order for the small manufacturers to make a living that they should deal through the wholesalers, and that I should do everything I reasonably and justly could to bring about the restoration of the old method. The Chairman. Their unparalled success is due to the fact that by reason of their devices and systems they have fallen upon that class of car that suits the most people ? Mr. Lucking. Yes, sir. . . ,, ,.,, ^, . The Chairman. And then by merely retaining the title through their various agents until the car is sold, they fix their business so it is unnecessary for them to resort to any legislation, so far as they are concerned ? . Mr. Lucking. So far as they are concerned, yes, sir. Mr. D. V. Stephens. As I understand it, you have your own inde- pendent agents everywhere? Mr. Lucking. Yes, sir. Mr. D. V. Stephens. You are not selling through regular inde- pendent dealers? , ,, , • i . /-. i. u Mr.'LucKiNG. "We have changed that since last October. Mr Sims But under compulsion, not as a matter of choice ? Mr! Lucking. Every one of those gentlemen have got to comply with our wishes. , , Mr. Sims. The company, I mean, has been compelled. Mr. Lucking. That is true. ^ ■ — -^ — \ iThe court held sueH a system of contracts Invalid both at common law and under / the Sherman Act. (See 220 U. S., 373.) 230 BEGULATION OF PRICES. The Chairman. It is the popular plan adopted by every man in any country, large or small, who sells anything from a wheelbarrow to a locomotive, to retain title until the article is paid for? Mr. LrrcKiNG. You might find difficulty with a good many articles that are handled by perhaps 50 grocers in a city of this size, or 50 drug stores; the dealers simply would not be bothered signing the contracts to make them agents, and all that sort of thing. The Chairman. You had some pretty complicated contracts under your old system, had you not ? Mr. Lucking. Yes; the Ford Co. and any manufacturer of an automobile can often resort to complicated or difficult contracts and more or less intricate contracts that the proprietor of a small article could not do. Mr. Montague. Are these agents that you have throughout the country responsible for the price of the machine, or is the ultimate buyer of it ? Mr. Lucking. How do you mean responsible? Do you mean to us? Mr. Montague. Yes, sir. Mr. Lucking. We require the agent to remit or pay, either by draft or check, at least 85 per cent of the retail price of the car at the begin- ning. Mr. Montague. In other words, the agent that you appoint is responsible to you for 85 per cent of the machine? Mr. Lucking. Yes, sir. And then we agree, under certain condi- tions, to return him an additional commission at the end of his year, or as he earns additional commissions. Mr. Montague. In other words, you sell to him at 85 per cent of the wholesale price of the machine; he makes the difference between 85 per cent and 100 per cent? The Chairman. That is his commission? Mr. Lucking. Yes; he makes 15 per cent, and, under certain cir- cumstances, a slight addition to that. Mr. Montague. But he is responsible to you for the wholesale price ? Mr. Lucking. Certainly he is ; absolutely. Mr. DoEEMus. In your contract to the agent you fix the price at which the car is to be sold ? Mr. Lucking. Yes, sir ; we have always done that. Mr. DoREMus. Is there any bill pending before the Judiciary Com- mittee that would make it unlawful for you "to do that ? Mr. Lucking. Not as we are now cond.ucting business. Every man who handles our car is our agent. The title is reserved in the Ford Co. until the car is sold to the consumer, and the bills of sale come direct from the company ; they do not come from the dealer or agent at all. Mr. Montague. You would not permit this man you call your agent to sell at less than the price you fixed ? Mr. Lucking. No, sir. Mr. Montague. If he were a wholesale buyer you would sell to him at the same price that you sell to your agent ? Mr. Lucking. Precisely. Mr. Montague. You would designate him your agent? Mr. Lucking. Not only that, but a limited agent. He puts our sign over his doors and he can not sign bills of sales or anything of EEGULATION OF PRICES. 231 that kind. The title goes from our company direct to the user of the machine. Mr. Montague. But that is a mere device, is it not ? Mr. Lucking. I would not say so. It has many substantial fea- tures different from the old contracts. Mr. Montague. Is not that a mere device to distinguish him from the common law agent ? Is he not really a purchaser ? Mr. Lucking. He is not; no. Mr. Montague. You wholesale to him at a certain price? ■ Mr. Lucking. "We do not wholesale to anybody. Mr. Montague. I use that term — I mean at a given, fixed price ? Mr. Lucking. We do — that is, we require him ultimately to produce to us so much, and the first deposits that are made on that car are transmitted to us. Mr. Montague. The machines are charged to him? Mr. Lucking. I have never examined the books to say about that. Mr. Montague. Take an agent in Washington. If I buy a Ford you do not charge that machine to me, do you ? Mr. Lucking. It is not charged to anybody. They pay 85 per cent in the beginning. It is carried on our books as our machine until it is sold to the user. Mr. Sims. In other words, you do not sell to the agent at all ? Mr. Lucking. Not at all, except when his business is being' wound up, if he wants to buy that machine he pays 10 per cent additional. The Chairman. It is never sold until the money is paid and you make title to the user ? Mr. Lucking. That is it, exactly. Mr. EscH. Have you any objection to filing with the committee one of your blank contracts? Mr. Lucking. I do not think there would be any objection to that. I have filed one in the Department of Justice here at the request of Attorney General McKeynolds. I do not think there would be the slightest objection. Certainly there would be no objection to any of you gentlemen seeing them. If there is any objection to filing it for the record, I will communicate with the chairman; otherwise I will file it. Mr. Hamilton. What part of the price of your machine do you require shall be paid down ? Mr. Lucking. Eighty-five per cent. Mr. Hamilton. Under your system no machine is sold on which less than 85 per cent is paid ? Mr. Lucking. Yes, sir. Mr. Montague. The reason I asked that question, I was trying to get at whether or not he is not merely arbitrarily termed an agent j that he was not really an agent. Mr. Lucking. Then I would be glad if you would inspect the contract. For instance, if at the end of a year he has any cars left we have the right to take them off his hands by returning whatever advances he made, or he may buy them and get full title by paying an additional 10 per cent. Mr. Montague. Various wholesale dealers in the country do that also, do they not? Mr. Lucking. I really do not know. 232 REGULATION OF PRICES. Mr. Talcott. Your provision is not to cut the price with the purchaser ? Mr. Lucking. Absolutely not. If that is done or ever has been done, the agent or dealer loses his contract. They deem it vitally necessary to their business that the price be maintained. Mr. D. V. Stephens. Under your old contract, do you understand now that under the rulings of the courts you have the right to compel an independent dealer to sell those cars at your price? Mr. Lucking. We construe the decisions as rendered as forbidding that right on all unpatented articles, but the Ford machine embraces several patents. The question on patented articles, we claim, has not been fully decided. Most people think it has been decided. That matter is now up for adjudication before Judge HoUister in Cincumati. He has held the case — it was finally argued and sub- mitted about the 6th day of November, I think, and he has not ren- dered a decision yet. In that case Judge Harmon was on the other side, and we argued on our side that the decisions already rendered did not p;rohibit contracts of this nature, but the contracts might be quite effective. In concluding the argument, I will say that Judge Harmon said he thought the Sanatogen case covered it, but the court has taken time and asked for full briefs, and still has it under -advise- ment. I call your attention to this supreme court decision of the State of Washington. Fisher Flouring Mills Co. v. C. A. Swanson, decided December 13, 1913, by unanimous decision of eight judges. In that case, among other things, the court said : A single question is presented : Has a manufacturer who has given a reputa- tion to particular goods which he creates the right to fix in his contract of sale to retailers a reasonable minimum price at which those goods shall be sold to consumers? * * * The question is thus reduced to the inquiry whether at common law the con- tract here involved is violative of public policy. * * * The public interest can only be secured by a prohibition of all contracts hav- ing a tendency to create or foster monopoly. * * * In the absence of a monopoly, either .ictual or potential, as above defined, a contract fixing retail prices to the consumer can not have an effect appreciably Inimical to the public interest, because it can not fix prices at an unreasonably high figure without defeating its own purpose by either signally failing to main- tain the fixed price or putting the individual manufacturer out of business. In either case it fails to restrict competition. Either the consumers will not buy the product at the price fixed, or, if they do, the high price will stimulate competition in production and the price will inevitably fall. The given manu- facturer will thus be compelled to accept one or the other alternative. He must either fix the price to cover only a reasonable profit or he must retire from business. • * * , Applying the principles which we have developed from the cases, it seems clear that this contract is valid. • * * There is nothing either unreasonable or unlawful in the effort by a manufac- turer to maintain a standard price for his goods. It is simply a means of securing the legitimate benefits of the reputation which his product may have attained. Contracts similar to the one under discussion have been consMered in a number of cases, and have generally been upheld where, as here, they had no tendency to create a monopoly. * * * In England courts maintain the same doctrine. (Elliman v. Carrington, 2 C. H. Div., 275; National Phonograph Co. v. Edison Bell Co., 1908, First C. H. Div., 335.) That the tendency to monopoly, complete or substantial, is the real test In all cases Involving the restraint of competition. * * * EEGULATIOiSr OF PRICES. 233 Finally, it seems to us an economic fallacy to assume that the competition, which, in the absence of monopoly, benefits the public. Is competition between rival retailers. The true competition is between rival articles * * * Fixing the price on all brands of high-grade flour is a very different thing from fixing the price on one brand of high-grade flour. The one means destruc- tion of competition. * * * The other means heightened competition and intensified incentive to Increased excellence. * * * it will not do to sav that the manufacturer has not interests to protect by contract in the goods after he has sold them. They are personally identified and morally guaranteed by his mark and his advertisement. Will you allow me to just read a sentence from Elliman Sons, in 2 Chancery Division, 275 ; year, 1901. This identical question was before that court. The court con- sidered it fully and held as follows : The plaintiffs, who were manufacturers of goods, sold them to wholesale traders under a contract whereby the purchasers bound themselves not to sell the goods for less than certain specified prices, and if they sold to the trade to ■procure a similar signed agreement from every retailer. The purchasers sold some of the goods to retailers without procuring from them any such agreement as provided by the contract, Held, that the contract was not in restraint of trade and that the vendors could maintain an action in respect of breach of it. In another English case they held the same thing. ' Why do I call your attention to this? Simply to prove to you that we are not asking anything but a restoration of an ancient right. It never has been interfered with in this country or in Eng- land until very recently, and it would seem to be a matter of the commonest justice that a man engaged in building up a business, if he is not in a monopoly, if there is plenty of competition against him, should be permitted to build up that business in any way that he sees fit. He may fix his prices uniformly or he may sell at cut prices if he choose^ unless he is doing it for the purpose of killing a competitor off with malice aforethought. He should be permitted to take either course. Entire liberty should be accorded him, unless there be monopoly. The Chairman. If he had agreed in that contract that he would not sell some simUar article made by somebody else at a lower price, he would have come within your idea of restraint of trade ? Mr. Lucking. I should not want to say that, because in this Wash- ington case they considered that very question and hold that a pro- vision in the contract The Chairman. Selling somebody else's goods cheaper ? Mr. Lucking (continuing). Held that the contract may provide that the vendee may deal exclusively with the vendor and sell only articles of the vendor's manufacture. They cite Illinois, South Carolina, Indiana, and Massachusetts cases in support of that doc- trine at common law. The Chairman. Suppose he did not exclude other articles but merely agreed that while handling the other articles he would not sell them at a lower price than that? Mr. Lucking. I believe that the restriction as to the article and as to the person are both valid ; I think so. Mr. Montague. I should like to ask you this question. Is not that the specific practice, the one condemned in the American To- bacco Co. case? Mr. Lucking. Of what ? 234 KEGTJLATION OP PEICES. Mr. Montague. Fixing the prices all along down the line ? Mr. Lucking. Any monopoly that does anything of that character ought to be condemned. Mr. Montague. You beg the question. Does not that sort of transaction so result in building up a monopoly? Mr. Lucking. I think not. That was a question asked me before the other committee, and I was coming to that. Mr. Montague. Did they not hold in the American Tobacco Co. cases that that particular practice was one of the great instrumen- talities by which they perfected a monopoly? Mr. Lucking. I should not want to say without reading that case ; I can not remember positively. Mr. Montague. I may not be absolutely accurate, but my recol- lection is that a great many of the people who sold tobacco had con- tracts in certain towns that they were not to sell.^ The Chairman. As I understand Mr. Lucking, he is advocating the return to the ancient policy, and he must show there was such a policy. Mr. Lucking. The question in the Tobacco case was. Is it a monop- oly? Now, if the Ford Co. or any other institution in this country has a monopoly of its class of business, we are not asking for this practice; but to say that this practice is an instrumentality of mo- nopoly, I deny absolutely. It is an instrumentality of legitimate business. The principal instrumentality of monopoly is money, and plenty of it. Are we going to abolish money? This question was asked me in the other committee. Is it not true that in order to abolish monopolies we must abolish the instrumentalities of monop- oly? I say this practice is not necessarily an instrumentality of monopoly. It does not inhere in monopoly at all; it has been the practice of independent dealers time out of mind who had nothing to do with any monopoly. There is no monopoly in the automobile business, and every manufacturer has fixed his own prices to the public. Mr. Montague. There was no monopoly in the tobacco business. At the start it was about the most competitive business in America. Mr. Lucking. At the start? Mr. Montague. Yes. Mr. Lucking. And for a long time after it started ? Mr. Montague. Yes, sir. Mr. Lucking. I will, of course, read that decision with respect to this question, but I do not believe the practice was denounced there unless it was merely an incidental circumstance, just as the Supreme Court of Washington, in the Fisher Flouring Mills case, said : " The possibility of such a result as a mere coincidence is too remote to furnish a reason for declaring the contracts of a single manufacturer, who has no monopoly, void." There is the full answer, it seems to me. Mr. Sims. Let me ask you this question : With the law as it is now umderstood to be, and with the permit to the Ford Automobile Co., or any other company that has not already got ah established busi- ness — suppose they started out in the manufacture of a car that in 1 The American Tobacco case Is reported In 221 U. S., p. 106. An examination of the decision does not disclose any reference to the practice of price maintenance. REGULATION OF PRICES. 235 price and quality and all" would naturally compete with the Ford Co., but they are not already in the business; they are not adver- tised, and the public does not know it. Now, the present law would give your company a very decided advantage over any struggling company to bring m another article substantially competitive. Mr. Lucking. I agree with you, and especially in articles outside of the automobile business — very small articles. Mr. Sims. I speak of automobiles because you illustrated the proposition by them. Mr. Lucking. I think that is true in the automobile business. Mr. Sims. In other words, the law as at present constituted will have a tendency to permit or to make it so that the Ford Co. can retain its supremacy in the trade so far as articles directly com- petitive with it are concerned, because no other company now com- petes with it as to the exact quality and service and price of the car, and so on. Mr. Lucking. I agree with your general proposition that this helps to build up and maintain the big companies. I could not agree to what you last said, that there is no competition with the Ford Co., because there is an intense competition. Mr. Sims. I did not mean that. But will it not give your company an opportunity to retain its position that it has now ? Mr. Lucking. Unquestionably. Mr. Sims. As against some other companies seeking to occupy the same field for the same reason ? Mr. Lucking. I think so, and I think that thought is intensified in other lines of business. Mr. Sims. Have you finished with your direct statement ? Mr. Lucking. Yes, sir. - Mr. Talcott. If Judge Sims's ideas were carried out it woud re^ quire an amendment of the Sherman Act, would it not ? Mr. Lucking. Yes, sir. I proposed to attach as an amendment to one of the bills which prohibited price fixing generally this proviso : Provided, That it shall not be unlawful nor held to be a violation hereof for an individual manufacturer or producer or owner of an article to stipulate with his jobbers or retailers, or both, to resell such article only at a price fixed by such manufacturer, producer, or owner : Provided, That this shall not be held to legalize any combination of manufacturers, producers, or owners to fix prices or restrain trade. Mr. D. P. Stephens. I should like to ask you one short question : I discovered the other day that automobiles are discriminated against in freight rates. For instance, the railroad companies charge three and one-half times as much, or approximately so, first-class freight rates on automobiles as on other first-class freight. Has your com- pany ever taken that up with the Interstate Commerce Commission ? Mr. Lucking. I could not tell vou. I do not loiow. The Chairman. I hope, if you have anything additional you wish to say. vou "will add it to your testimony. Mr. Lucking. I shall probably take the liberty to add just one- or two thoughts suggested by the questions. The Chairman. The committee wishes to express its appreciation for your very enlightening statement. 236 begtjlatioif oit prices. Committee on Intekstate and Fobeign Commerce, House of Representatives, Washington, D. C, Friday, Ma/rch 13, 19H. The committee met at 10 o'clock a. m., Hon. William C. Adamson (chairman) presiding. STATEMENT OF ME. JOHN A. GREEN, SECRETARY NATIONAL AS- SOCIATION OF RETAIL GROCERS OF THE UNITED STATES 01 AMERICA, CLEVELAND, OHIO. Mr. Green. Mr. Chairman and gentlemen, we have present sev- eral gentlemen who wish to speak before your committee on H. E. 13305, Mr. Stevens's bill to prevent discrimination in prices and to provide for publicity of prices to dealers and to the public. I will first introduce Mr. Lake. STATEMENT OF MR. JOHN A. LAKE, PETOSKEY, MICH. Mr. Green. You may state your name and occupation to the com- mittee. Mr. Lake. I am in the retail grocery and meat business. I am also first vice president and representative of the State Retail Gro- cers and General Merchants' Association of Michigan. I wish to speak before you on the Stevens bill — of the favorable things that we, as retail merchants, see in that biU. First 1 want to draw a comparison between the merchants. I be- lieve that the merchant engaged in any line of business is directly influenced by the environment of our laws that govern his business, coupled with his environment — ^that is, the people with whom he deals. In classifying our business men as to business ability I be- lieve that the highest standard might be found in the banker; pos- sibly next in the retail hardware merchant and dry-goods merchant of the average town; and the retail groceryman, as an average, possibly will not measure up with them; and the meat men, I believe, would come still below them. The Chairman. Under what qualifications do you classify these men ; under intelligence or integrity ? Mr. Lake. I do not know that I could classify them under integ- rity without having intelligence coupled with it. Both qualities seem to me to go together. The Chairman. Do you think intelligence and integrity always go together? Mr. Lake. I think you are apt to find them both in the same man, at least. •n^^i^' ^^^ ^^^^ ^^^^ ^^^^ ^^^^ *^® standard of our business and still keep it in the hands of the retailer, without allowing trusts, monopolies, or combinations, would be favorable to our business and to the general public, and I believe the Stevens law is such a law hf,Z^=o ^^<^°"lPlish this result. By raising the standard of the Ms SfC'^ .I'^^^^P?^' ^^^^'^«^' ^nd morl sanitary will he get eoo#mfrchnnV^.-?\ri^"e^'' .*? *^« consumer. I maintain that a more Sf actor rf' ^^""^^^ *''°'" *^^"^^ «^«^P«^' ^^^^^^ *"^ more satistactorily than a poor one, and for that reason I am in REGULATION OF PRICES. 237 favor of this law. He can do this because there is more integrity behind the man. He is ready to stand back of the class of goods he handles, and there is less waste and less overhead charges in the management and carrying on of his business. Mr. Talcott. Can not an intelligent retail man of integrity do business along these lines now ? Mr. Lake. Yes ; he can ; but he is handicapped from time to time by some unscrupulous dealer, and I believe I shall be able to explain how that is done before my remarks are closed. We do not ask for a law that will raise any prices. I think that the average man who regards his business is honest in handling the goods as cheaply as possible between the producer and the con- sumer. He is anxious to do this for the simple reason that the life of his business depends upon his ability to do this ; and the present proposed Stevens law, it seems to me, is such a law as will aid him in the accomplishment of this result. The Stevens law does not favor combinations or trusts. I hold those to be wrong. There is no man who has the welfare of his community or his people at heart that would care to enter a combination if he thought that it would de- velop far enough to be one of those kinds that would destroy com- petition; and we do not want a law that forbids competition. We do want free competition. There is, however, a question as to what that competition should be on. For myself, I would prefer to see the competition not made on the lowest possible selling price, but on a reasonable selling price — giving the best value and the best goods for that selling price. I think that would produce the best results. We do ask for a law that will protect a good article. The Stevens law certainly does this. You want a law that fosters good merchants, because the standing, morally and influentially, of any community is to a large extent reflected through its retail stores, with whom every person comes in contact. We do want business on a sound basis. That does not mean a basis that will pay great big exorbitant dividends, but it means business that would pay a fair dividend on the capital invested and pay for services rendered. And we do want justice in having our business recognized as a legitimate business, first, because I believe the retail merchant will always exist, as he always has existed. Second, it is the cheapest known means of handling produce between the producer and the consumer. There is no system that can get goods from one part of the country to the other as cheaply and with as little waste as the retail merchant. The Chairman. In what line of business are you ? Mr. Lake. I am in the retail grocery and meat business. The Chairman. You are not interested in any patents or copy- rights, are you ? Mr. Lake. I am coming to that later. I am interested in patented and copyrighted goods simply for the reason that I believe if a man has brains that can produce an extraordinary article, has executive power to combine modern machinery with the best possible trained help, and an advertising ability, that he is entitled to the benefit of such production if he uses it honestly. The Chairman. In relation to your theory, I meant, are you finan- cially interested in anj^ patented or copyrighted articles ? Mr. Lake. No ; not in any way. 238 REGULATION OF PRICES. The Chairman. My purpose in asking was to ascertain if this Jegislation had not been inspired in the interest of those men who hold patents and copyrights? Mr. Lake. No, sir ; I do not hold a patent or copyright and have no interest in one whatever. Mr. Sims. But you do sell such articles in your business, do you not? Mr. Lake. We do sell copyrighted articles. I do not think, how- ever, that we have a patented article in my store. That is, I do not recall one at the present time. The Chairman. You merely advocate that these patentees shall fix these ptices; you do not make it compulsory on them always to fix them ? Mr. Lake. No, sir; I do not. I would not make it compulsory under any condition; but if a man can produce through economical advertising processes a superior article and can build up a trade on that article, I believe he is entitled to the benefit of his efforts. The Chairman. In other words, if the Government gives him a reward by protecting him in his invention, and gives him the sole right to control and manufacture and- the sole right of original sale, you think he ought to be given the further advantage to control the price on that through all subsequent transactions, no matter how it hampers trade ? Mr. Lake. I do, if it does not hamper trade; and I believe that control should be under the most rigid conditions of some govern- mental department whereby that man would give value received to the consumer and that value would be approved by some govern- mental department. I believe that such a thing would be a good thing. I will furnish an illustration of my reason for saying this. I be- lieve that every manufacturer is honest in the goods he manufac- tures, and that he is interested in the man who consumes those goods, and that he is anxious to get that article to the consumer at as low. a possible price as he can. Now, he gets those goods introduced to the retail merchant through heavy expenses. The retail merchant handles them because they pay him what we would call a legitimate profit for services and on capital invested. "We, through our own advertising, build up a business on that article. Somebody comes in beside us and cuts the price out of it. Possibly he has not the busi- ness qualities to succeed, and he adopts that method. We have then got to throw that article out and introduce a new article in order to continue in business ourselves at a margin. My reason for stating that the manufacturer is interested in the consumer and in the article until it is in the consumer's hands is this : This interest and protection warrants him in keeping a good article on the market, and let me say here that those articles, the standard articles and the copyrighted articles, will average to the retail dealer less profit than the imknown article, but they can be sold cheaper. They can be guaranteed and they can be placed before the public with more satisfaction and honor to the retail merchant than the unknown article, and for that reason we stand in favor of them. The comparison that I want to draw from this is here : If I owned a lot beside my own I am_ interested in my home and its value. I BEGULATION OF PKICES. 239 want to sell that lot to one of you gentlemen under restrictions that you will keep it m good men's hands and build a house on it^ if you build at alL that will be in line with the other houses of the neigh- borhood. Our Government would recognize such a law as that, T believe. I am interested in that property I sold. I continue to exer- cise my interest, my right in it, because it is beside me. I believe that the manufacturer has the same interest in his article, if he is pro- ducing a good article, until it is in the consumer's hands, as I had in that lot. The Chairman. I do not know anything in the law that will pre- vent him doing that now if he wants to and the other fellow is will- ing. If you have anything you want to control the price of the only thing you have to do is to retain title to it as long as you want to, or until the conditions are complied with. Mr. Lake. That is all we are asking for here and what the Stev- ens law, as I understand it, gives the manufacturer the right to do. We ask for a continuation of that right under the Stevens law. Mr. Sims. If I understand you, you want the law so modified that you may actually part with the title and yet compel the purchaser to sell at the price made by the manufacturer, just as though the manufacturer had retained title and was selling the goods directly through agents? Mr. Lake. Yes, sir. If he sold the article under contract or un- der provisions the purchaser agree to certain known conditions when the purchase was made. Mr. Sims. I am speaking of the manufacturer now, from his stand- point, not from the other. The chairman is right in his statement that you have the right to place that article for sale through agents ; you will thereby retain the title, and therefore you can absolutely fix the price. But under the law, as I understand it, or as the decisions of the courts have been in the patent cases, you can not sell it and actually part with title and then afterwards control its sale to the consumer at the price you think is profitable ? Mr. Lake. That is as I understand it. Mr. Sims. You want the law passed to enable you to actually sell it, yet control the price to the consumer just as though you retained the title, selling through agents? Mr. Lake. Yes, sir. The Chairman. All civilized nations have regarded it as a pretty good recognition of genius that they give tlie inventor or patentee a number of years exclusive right to manufacture and sell the article or secure a royalty on it. If you go ahead and heap up other bene- fits on him and attempt to give him a monopoly through all genera- tions, that is something unheard of, I think, and as the law now is the balance of the world will pray that the limit of his protection under his patent will expire as soon as possible, so they may get a chance to buy it cheaply. Mr. Lake. It appears to me from observation that many articles that he has patented or copyrighted, after they pass from his protec- tion, are substituted by articles that many unscrupulous people push upon the market that do not contain the merit of the original article. As I explained, I believe that these articles should be under the most careful scrutiny of some department of the United States Govern- ment and this privilege granted only to those that have value. 240 BEGULATION OF PEICES. Mr. Willis. Do you know of any country that has such a law as is proposed in the Stevens bill ? I am asking for information. Mr. Lake. I would answer by saying that I do not. I have not carried the study of it far enough to answer that question. I was simply called here from the ranks of the retailers to speak from my own business experience. Mr. Willis. That is the kind of information, practical informa- tion, this committee wants. Let me ask you another question to de- velop your thought and not at all to express any idea I have. We are asked here to legislate on other lines to bring about the greatest possible freedom of competition. Mr. Lake. Yes, sir. Mr. Willis. What have you to say on the proposition that this bill tends not to bring about freedom of competition, but tends to destroy competition ? I have heard that objection, to it. I am not stating it as mine, but I want to know your observation on it. Mr. Lake. I appreciate this question, because it is one I shall be glad to answer. I do not believe that it destroys competition. I believe that competition will still exist. The competition will not be alone with the retailer, but it will be with the manufacturer and the jobber, who are anxious to give the best article possible and as large a volume as possible, or as large value as possible for a certain retail price. That price might be 10 cents, for instance, and I believe that rather than working down from the standard to the cheaper quality, we would work up to a certain retail price that would have greater value to the consumer. Let me say here that as a business man I would rather sell more volume for 10 cents proportionately than I would for 5 cents. I would rather give more for a certain amount than less for a lower price, because we can handle it in putting up the packages, in deliver- ing, and in serving the people cheaper than we can the other way, and give better goods and a better value. Mr. Willis. Your idea, then, is, as I understand it, to practically do away with competition, so far as price is concerned, and transfer that competition to the quantity and quality of the article? Mr. Lake. Yes, sir ; and I would say it would only be the smallest per cent of the retail articles that would come under this law; bulk stock and the majority of goods handled in our stores could not possibly come under it. Mr. Willis. I have heard the complaint that possibly this biU, if enacted into law, would result in increased prices. Now, in your very excellent statement you turn that about. Can you give us any further light upon that proposition? Mr. Lake. I would be pleased to in this way : I am going to fur- nish two or three illustrations along that line. We will take the Ivory soap, manufactured by Proctor & Gamble, of Cincinnati. That is familiar to every person in this House, and it is a standard article. Proctor & Gamble charge the retailer 4 cents, regardless of the quantity purchased. The price is the same. There are never any free deals, yet I do not laiow of any article sold out of a retail store along that line of goods at a 5-cent price that has an equal value with that soap. There are certainly few, and if there are any it is something for which the manufacturer gets a good price and BEGXJLATION OF PBICES, 241 gives a good value for his money. The Kellogg Toasted Com Flakes come under the same line. Formerly toasted corn flakes sold at 15 cents. Through manufacturing a superior article for the money he now charges us about 8 cents per package. We sell it at 10 cents. The price almost forbids the better stores from selling it at three for a quarter, and I believe that in that article we get a better value and a better article than we do in most competitive goods. The Royal baking powder is a line of goods that comes under a good price and a good article. Mr. Sims. The Proctor & Gamble 4-cent price you mentioned, does that refer to the standard cake of soap they make? Mr. Lake. The Ivory soap. Mr. Sims. Do you mean the Ivory soap ? Mr. Lake. Yes, sir. Mr. Sims. And the retail price is 10 cents? Mr. Lake. The retail price is 5 cents. Mr. Sims. It costs 4 cents and retails for 5 cents? Mr. Lake. Yes, sir. By the way, I am going to furnish you gentlemen with an illustration of cut prices on that very article. Do you know that three bars of 10-cent Ivory soap, sold three for a quarter, weigh exactly the same as five 5-cent bars ? The man who buys one bar of Ivory soap for 10 cents is the loser in volume. It is made so as to sell three for a quarter. The weight of three large bars or five small bars is identical. The man who buys the 10-cent bar does not get value received for his money in comparison with two 5-cent bars. Here is a cut made in quantity to meet a certain price. Mr. Sims. This legislation, of course, will not prevent competitive manufacturers from fixing prices at either wholesale or retail for their own goods as against each other? Mr. Lake. No, sir ; I would not want it to. Mr. Sims. And as a means of distribution by parting with the title instead of the more expensive method, in many cases, of estab- lishing an agency — I mean establishing a direct agency? For in- .stance, it was brought out here in the hearings with reference to the Ford Motor Car Co., that it is a large manufacturer and sufficiently strong to establish in evei-y city of any size their own sales depart- ment and retain the title and sell their machines, keep up the price, and everything of that sort; but another motor car company, not being so large and strong, could distribute better by selling through dealers in the particular locality rather than by establishing a direct agency. Mr. Lake. My belief along that line is that goods can pass from the manufacturer or producer to the consumer cheaper by parting with the title. Mr. Sims. Yet fixing the price? Mr. Lake. On some articles. Mr. Sims. So as not to put it up or down on selling? Mr. Lake. So as not to put it up or down, but to give a value for a fixed price on an article. The life of bis business depends upon him giving value for the price asked*^ Mr. Sims. It has been insisted here that without some provision of law on this that only the larger concerns with the greatest amount of capital can deal through the agent directly and, as was referred to 81295— 1& 1« 242 REGULATION OF PE.ICES. by the chairman, that it would restrict the production rather than increase it by this kind of legislation. Mr. Lake. I do not feel that it would restrict it. In the first place, the fee charged would be so little that any manufacturer, if he is manufacturing an article that should be offered to the trade at all, can readily part with the small fee if he wants to put it under this law ; if he does not want to, give him the right to continue as a free article, allowing the retailer to do as he pleases with it. The objection I raise to a great many of those standard articles being cut is the fact they are used for bait to get people into stores, and then the store will take an unknown article and pass it off on the man, some other article, possibly, to make up for his loss on this article. Under the present conditions that is his own privilege, but it is competition that is lowering our class of merchants and drawr ing a- poorer class into the retail business. Now, let me offer as an illustration of this that our pure-food com- missioner, Mr. Helm, made the statement at a recent convention in Grand Eapids that the only colored oleo license in the State of Michigan was owned in the city of Detroit, and not by reputable retail dealers, but by people who would put in a small store for the winter season during the high price of butter and then he had trouble to keep those men from selling that oleo for butler, at 4 or 5 cents per pound under the butter price, but at 5, 6, or 8 cents per pound above the oleo price. Another illustration that he furnished : He had several postal cards in his pocket from outside canners of beans or tomato sauce, where they were advertising within the State of Michigan. Michigan is the great bean State of the Union. These cards asked for cull beans. They wanted them for canning purposes, and on the card they said : " You would be surprised at the low quality of the beans that we can use." Now, those canners were not some reputable firm, such as Heinz, Snyder, or Van Camp, whose goods the majority of our people who care about our business wish to give our customers, yet they served the stores who did not care what they passed out, and I can not see either honor or good conditions following a business that would permit such an article to be recognized by the market. Mr. Sims. As a practical result to the consumer, what difference would it make to him whether the goods are sold as you want them sold, with the power to fix the price to the consumer, or that they should be sent there and put in the hands of the agents of the manu- facturer and sold, at least to the consumer, at a lower price? Mr. Lake. I will answer that by saying that I believe the manu- facturer with a good article can reach the consumer cheaper, give a better article for the money, and at a fixed price, than he can on the open price. Mt. Sims. You do not catch what I am trying to get at. The chairman, you will remember, said in substance that you could do that ; that you could fix your price without any law by retaining title to the goods. Now, if that can be done, the consumer after all would have to buy from the manufacturer who had fixed his prices. What difference is it to the consumer whether he fixes prices by the device of retaining title or by parting with the title and yet retaining', the right to fix the retail price ? What is the practical difference to the consumer ? REGULATION OF PRICES. 243 f>.a^^;Lt'?' ^^l^"^ ^"^"^ question correctly, I would say that under the present conditions if the consumer got the article at the same price, It would make no difference. But I am convinced that often- times he is paying more, and oftentimes less. They are not uniform. Mr. biMS You mean paying more by reason of the manufacturer retaining title to his property until he sells it to the ultimate con- sumer? Mr. Lake. Not understood. Mr. O'Shaunessy. Because he has parted with it? Mr. Lake. You can travel this country over, and while you will find that our earnings average not far from uniform, the retail price of many articles is far from being uniform. We have to bring out certain results in our business in order to provide for the service and investment, and it is largely a matter of locality that controls the amount of profit that is pkced on the various articles. Mr. Baekley. If this bill becomes a law, it would be impossible for a man to mark down a suit of clothes until the manufacturer agreed with the retailer to reduce the price on it after the season was over? Mr._ Lake. If the suit of clothes was damaged or he was closing out his business, or something like that, it would not be an impos- sibility. But I believe that the average retail clothier who is selling the marked-down suit of clothes is selling an inferior article, and the article ought to be marked down. Mr. Baeklet. Suppose the season is over and he has bought more than he has been able to sell of first-class goods. He does not want to carry them over to the next season and he marks them down, and that is done in every town in the United States. He may mark them below the cost, because he wants the money in order to buy spring or fall goods, as the case might be. Now, if this bill passes, if a manu- facturer of a suit of clothes fixes a price on the article and compels the retailer to fcU it at that price, it would be an impossibility for him to sell it under that price for any reason, would it not ? Mr. Lake. I am not versed in the retail clothing business. Mr. Baekley. Let me ask you another question! Is it not true that in different localities there is a difference in rents and clerk hire and expenses of the store, and would that not have something to do with the price at which the retailer sells his commodities, and the profit he makes out of them ? Mr. Lake. Yes, sir; that is absolutely true. Mr. Baekley. Your contention is that the manufacturer ought to be permitted to fix a uniform price for his product regardless of the- locality and regardless of the expense of running the retail store, and thereby fixing a higher profit than the retailer would want or expect ? Mr. Lake. My contention is that the articles that would come under this trade-mark would be so small that they would not seri- ously affect the earnings of any retail store. They would protect the retail store that was doing an honest and honorable business from cut-rate prices on standard articles used as bait, and would protect the public also from inferior goods. , Mr. Baekley. A retail merchant doing a dishonprable business does not deal with honorable manufacturers, does he ? Mr. Lake. He deals with enough of them to get goods of a reliable nature to use as a bait at least. 244 REGULATION OF PBICES. Mr. Barklby. The question I am interested in is whether the pub- lic, the consumer, is benefited by permitting the manufacturer to fix the price of the article so that the retailer can not sell it under that price, even though he might be justified in doing so and still make a reasonable profit. Mr. Lake. The consumer^ — I tried to make that clear — ^under such a law, allowing a just merchant and a just consumer to be the judges. Both would be apt to get better value under a fixed price for a cer- tain article than he would be under an open market where cutting and slashing was allowed. Mr. O'Shaunesst. Is it because the consumer gets skinned in an- other direction when he gets a benefit in the purchase of one article? You say there is a bait thrown out in the way of a good article, then they take the opportunity to skin him in other directions? Mr. Lake. Yes, sir. Mr. O'Shaxjnessy. Then in the final analysis, he is the loser! Mr. Lake. He is the loser; yes, sir. Mr. Barkley. Would any law that Congress can pass ever prevent consumers from getting skinned, if they are willing to be skinned? Mr. Lake. No; I do not know that there is one. I never saw any profession but had its skinning at some time or other; We all get it The Chairman. Is it not probable that fixing this price on the patented and copyrighted articles will enable what you call the dis- honorable dealers to make more out of them and then skin folks on the other articles when they are not looking? Mr. Lake. If this law will do as I expect, it will develop a better class of men in business and would not produce that result. The Chairman. Do you think we are going to be able to make honest business men by congressional enactment? Mr. Lake. I think we are all governed by the laws. I think that is what Congress is for, to make laws. . The Chairman. For 6,000 years we have had honest merchants all over the world, before Congress was ever invented. How in the world did they get along? Mr. Lake. I was not there at that time. Mr. Baekley. I might suggest that the chairman was living in those days. He might tell you about it. The CHAiRifAN. While I did not bless the preceding generations by living then, I have had some word from them down the line. I want to ask you, though, about the term " dishonorable dealers." I believe that term has been used several times. Is that used to denote those men who cut prices and undersell others ? Mr. Lake. No, sir; it is mentioned against men who use unscru- pulous business methods whereby the public is not getting value re- ceived for the price they pay. The Chairman. Will this legislation remedy those methods? Mr. Lake. It will ; yes, sir. The Chairman. What are some of those methods? if'j u^' '^^^^ ^^^ methods that all of us run against and methods that are being remedied. In the first place, I will take a package o± Ivoty soap that costs tB¥'retaiier 4 cents. If a reta'iler wants to advertise that at 4 cents he throws in his services, h^ rent, REGULATION OF PBICES. 245 what he pays for labor, the exact cost of handling that article, and he does it not to benefit the consumer, but for the sole purpose of getting the profit on that Ivory soap out of that consumer from some other article of which the consumer does not know the value. Mr. O'Shatjnessy. Or more than the profit? Mr. Lake. Or more than the profit. Mr. O'Shaunessy. How many articles are embraced by this bill: how many articles are covered ? Mr. Lake. No number, I believe, is mentioned. Mr. O'Shaunessy. Tell me some of the things it would cover. Mr. Lake. It might cover any package goods or special brands put up in packages. Mr. O'Shaunessy. The Gold Dust soap ? Mr. Lake. The Gold iDust washing powder. Mr. O'Shaunessy. The Gold Dust washing powder. What does this bill cover? Proprietary articles — is that what is covers mostly? Mr. Lake. It covers proprietary articles mostly. It could not cover flour and sugar or such goods as that'. Mr. Sims. This bill says, "Under trade-mark or special brand," therefore it can not cover such goods; they do not come under a trade-mark or a special brand. Mr. Barkley. Would it cover such an article as Gold Medal flour, which is advertised ? _ Mr. Lake. I do not believe that the manufacturer of such an ar- ticle would be foolish enough to take advantage of this law, for the simple reason that the basis of flour is a fluctuating article, and if he fixes the price of it, at one time he would be too low ; the next time he would be too high, and it seems to me as though it would be detri- mental for such a concern to put their flour under a trade-mark and a fixed price. Mr. Barkley. If the Government says that the manufacturer by an aifirmative law may fix a price on his article which shall follow that article into the most remote communities of this country and be sold at that price, it will follow as a logical conclusion that it will eventually compel the Government to inquire into the reasonableness of that price so as to determine whether the manufacturer is fixing the price too high and is making too much profit. Would that not be in the nature of the Government regulating the price of manu- factured articles by permitting him to regulate it, and either keeping our hands off his regulations or stepping in and saying : " You are fixing this price too high to the public." Mr. Lake. I believe that no article should be placed to the public except under governmental regulations and the Government or some department of the Government being satisfied that the consumer is getting value received for his money. Mr. Sims. I want to ask you for my own information — of course I know what trade-mark means— but what does " special brand " mean? What particularly does it apply to ? That is not registered, I sup- pose, is not a trade-mark? What does that language intend to cover ? ' , Mr. Lake. I am somewhat dumfounded on that portion tof the biU as to exactly what it means. Mr. Sims. I know what patent means and what trade-mark means, but what is the meaning of " special brand " ? "^$6 REGULATION OF PKICES. Mr. Lake. That special brand would have to be registered with the Grovernment, the same as the other, as a special brand. Mr. Sims. Do we have any such law now, requiring special brands to be registered ? Mr. Lake. Something like the Chase & Sanborn coffee, something one dealer puts out would be a special brand. The Chairman. But if they have not secured a trade-mark, it would not be interfering with anybody's use ? Mr. Lake. It would be a special brand, however. Mr. Babklet. A special brand would be any article a manufac- turer puts out with a special name on it, would it not? He may manufacture many kinds of articles and each one have a special name, if it is sold under that special name — it might not be a trade-mark'/ Mr. Lake. Yes; it might not be a trade-mark. Mr. Barkley. Take shirts or shoes or watches, it might be a special brand by reason of having a special name on it, and all the articles of a certain character, made of a certain thing, might have that special brand, yet it may not be a trade-mark ? Mr. Lake. That is true. Mr. Green. Perhaps Mr. Westefeld could define the term " special brand." Mr. Lake. I shall be glad to yield to Mr. Westefeld. Mr. Willis. How will this bill apply, if at all, in case of auction sales or sales to merchandise brokers? The other witness, Mr. Westerfeld, spoke about bankrupt sales. Does this section include such sales as I have indicated? Mr. Lake. Provided that the goods are damaged, or anything like that ; but if not, I do not see why a man should have the right to auction them. We all know one thing, that a man conducts an auction sale not to give value received to the public, but conducts it for the privilege of getting all he possibly can out of it, and in an auction sale there is no competition. We have some stores where they sell oriental rugs, and so forth, in our town, where they depend entirely upon auction sales for their profits. Mr. O'Shattnessy. What is your business ? Mr. Lake. Retail grocer and meat dealer. Mr. O'Shaunessy. This legislation is directed principally against proprietary articles. That is the trouble with the retail grocer, largely, is it not, that he has trouble with these proprietary articles in the market, the market for which is made by the manufacturer through advertising? Mr. Lake. Very largely; yes, sir. Mr. O'Shaunessy. And those articles are used, as you say, as bait by which in the last analysis the people are defrauded ? Mr. Lake. Yes, sir. Mr. Talcott. But the manufacturers of proprietary articles them- selves want this kind of legislation, do they not? Mr. Lake. Our best ones do ; yes, sir. Mr. Talcott. There are cases in the court where manufacturers of pBOpf^tary articles^ have been ■ prosecuted for making contracts which bring about just these results? Mr. Lake. There have been cases; yes, sir. The manufacturers who produce our best articles, the very best ones we hand out froiii EEQULATION OF PRICES. 247 our Store, the ones which have got the greatest value to the com- munity, these are the men who want this law. Mr. Talcott. Do they not all want it? ■Mr. Lake. I could not say as to that. I know that the maioritv of our best ones do. Mr. Barkuet. Here is something which bothers me. I do not know much about proprietary articles. Here, however, is a cigar. Two men are engaged in the cigar business, one on one side of the street and one on the other. One pays $100 rent and pays his clerk $75 a month. The other one pays $50 rent and pays his clerk $60 a month. Now, they both want to sell the El Verso or the Portuando cigar, or some other brand; take that as an example. Each one of them buys from the. same manufacturer and pays 6 cents apiece for the cigars. If the man who pays only $50 a month rent and $60 for his elerk can afford to sell that cigar at 8 cents or 9 cents or three for a quarter, and the other man can not afford to sell them except at 10 cents straight, whose business is that, if the man who pays the less amount of rent and the less salary and expenses, if he cuts the price in behalf of the public ? Mr. Lake. I will answer that by saying that the man who pays $75 rent has the superior location where he can turn out more goods from that location, or he could not pay that much more. Mr. Baeklet. His profit comes in the volume of the business he does? Mr. Lake. His profit comes in the volume of his business, yes, sir; and he has a superior location or he would not be paying the higher rental. -Mr. Baekley. But that will not prevent the other man selling at the less price if he can make a profit out of it and make a living, and the public would be benefited by the lower price? Mr. Lake. The policy you are speaking of is a policy where I do not see that the public would be benefited, because in the first place the man in the superior location and with the superior salesman and under better sanitary conditions, such as he would naturally have, would appeal to the public as giving a better value, in my judgment, than the man who was welling to take a poor location and have his gopds handled in a poor manner by a poor salesman. Mr. Baekley. In other words, you think the public would prefer to pay 10 cents in the better store than to go across the street and get the same thing at a smaller price, although the store might be more humble ? Mr. Lake. I know I would, speaking for myself. Mr. Baekley. That would be a matter wholly within your dis- cretion ? Mr. Lake. And I believe the majority of the public would. Mr. Willis. The chairman suggested a little while ago that under