"How much coffee are you selling?" and he said, "Two or three bags a week." I said, "Who wants that stuff?" He said, "Old ladies and dyspeptic cranks."

Now, that goes to show all the way along the line just what happens. This line of goods goes on out and we sell them to the grocer and the grocer sells them to the housewives. We sell them to the wagon men. Now, we do everything possible to keep all these businesses within the tight limits of the law and regulations. We can not afford to do otherwise, because we have a good business and we have been at it many years and we are not going to do anything to upset it. Now, you know it does upset things awfully if you want a few drums of alcohol for extract purposes and it takes you a week or two or three weeks to get it, and you do not know when you start whether it is going to take one week or two or three weeks. It is put on a truck and hauled to us, after we have complied with all the numerous regulations. Of course, we watch them closely and comply with them. We do not want to break any of them. There are a lot of us in business who are not bootleggers. We are trying to go right along and if you can keep the law as it is and make it as reasonable as possible for people who are in legitimate business to get their legitimate wants in a proper way, people who take good care of it and who see that it is looked after properly, why not do it? I can not tell you whether you should have this law or some other law. I am not a lawyer. But I find a lot of lawyers do not even know what the other fellow knows. You gentlemen can not always agree when you get together.

You might make a new law, and who knows whether it is a good law or not, or whether some people may be fighting for three or four years to find out whether it is something or whether it is nothing. When I was a lad some few years ago I liked bread pudding, and I know a good many of us do, and the thing that flavored it was vanilla extract. Mother had a cook one day and there was some disturbance and I said, "Why don't you drop the cook?" She said, "Oh, Samuel, it is better to keep the devil you know than to get one you don't know." Maybe that is the same way with some of these regulations under the law.

That is all I have to say. Thank you, gentlemen.

The CHAIRMAN. Mr. Ilsley, of Portland, Me., is here. Do you wish to say anything?

Mr. ILSLEY. I think I can add nothing to what the gentlemen have already said.

The CHAIRMAN. What is your name?

Mr. ILSLEY. George B. Ilsley, Portland, Me.

The CHAIRMAN. What is your company?

Mr. ILSLEY. Makers of flavoring extracts.

Mr. DYER. What is your position upon the legislation? You have come here apparently in regard to it.

Mr. ILSLEY. I came down more to support the numbers, possibly. But our position is that we would like well enough to be let alone, that with the experience we have had we feel that taking the right of appeal to the Commissioner of Internal Revenue would be detrimental to our business.

The CHAIRMAN. You support the remarks that have been made, as far as you have heard them?

Mr. ILSLEY. Yes, sir.

Mr. W. L. CROUNSE. Mr. Chairman, taking advantage of the permission accorded me last week I would like to file a short brief on behalf of the National Wholesale Druggist's Association and the American Manufacturers of Toilet Articles, and also a resolution passed by the National Drug Trade Conference to the same end. (The papers referred to are as follows:)

BRIEF SUBMITTED BY MR. W. L. CROUNSE

In view of the testimony given before this committee by representatives of the Prohibition Unit concerning law violation by individuals and concerns to which the bureau has issued permits to use or handle industrial alcohol, I deem it advisable to present a brief statement the accuracy of which I am confident will be conceded by the officials themselves. In this connection I would say I have represented the National Wholesale Druggists' Association in Washington for the past 15 years and the American Manufacturers of Toilet Articles for a dozen years in addition to serving the committee of manufacturers organized prior to 1900 which secured the enactment by Congress of the original denatured alcohol law.

That a certain amount of alcohol has been diverted to beverage purposes is a well-known fact. The grossly exaggerated estimate that 40 per cent of an annual production of 100,000,000 gallons has been diverted, which was made by counsel for the Prohibition Commissioner, has already been completely discredited by Doctor Doran, Chief of the Industrial Alcohol and Chemical Division of the Prohibition Unit, who has called your attention to the fact that the official figures show an annual production of alcohol of about 60,000,000 gallons, of which in his opinion fully 90 per cent has been consumed for legitimate purposes, leaving 6,000,000 gallons or less to be accounted for by diversions.

The alcohol now available for legitimate use is divided into three classes-first, 'pure or nonbeverage alcohol which pays a tax of $2.20 per proof gallon, or about $4.16 per wine gallon; second, completely denatured alcohol, which pays no tax and which is rendered nonpotable by the use of agents which make it impracticable to recover the pure alcohol and which, therefore, is allowed to be sold freely from hand to hand, one of the chief outlets being as an antifreeze mixture in automobile radiators; and third, specially denatured alcohol which through the use of a great variety of agents is rendered sufficiently nonpotable to allow it to be transported tax free under bond from denaturing bonded warehouses to factories for the manufacture of thousands of useful products.

I believe the officials of the Prohibition Unit will concede that the diversion of pure tax-paid alcohol at the present time is practically nil. It is certainly so small as to be absolutely negligible especially if the essential character of pure alcohol in the manufacture of medicines and other indispensable products is borne in mind.

There is probably a slight diversion of completely denatured alcohol but in my opinion the quantity is unimportant, the recovery of pure spirits from completely denatured alcohol being difficult and costly and the product in almost all cases being so tainted with the denaturing agents as to be incapable of use for beverage purposes by any but the most hardened degenerates.

In my opinion 90 per cent of the alcohol currently diverted to illegitimate use is the product of denaturing bonded warehouses and is reported to the Government as specially denatured in accordance with three or four formulae. In some cases it is denatured and afterwards purified while in other cases the records of denaturation are deliberately forged and the alcohol is sold in a pure state to parties who convert it into synthetic beverages for bootleg distribution.

Of the total amount of alcohol diverted to irregular use, including pure grain spirits and completely denatured and specially denatured alcohol, I believe that 95 per cent finds its way into illegitimate channels through the hands of parties who, prior to the passage of the Volstead Act, had never been engaged in any line of industry in which alcohol was employed. I am confident that the prohibition officials will confirm this statement. These law violators, therefore, are in a class by themselves; they saw in the conditions which arose immeditely following the taking effect of the prohibition law an opportunity to exploit the statute and their success has justified their expectations.

But to hold up to criticism the great mass of legitimate manufacturers, dealers, and consumers of industrial alcohol because of the crimes committed by a comparatively small class of individuals never before identified with legitimate trades

The

using or handling alcohol is manifestly unwarranted and most unjust. rather vague statements made to your committee by counsel for the Prohibition Commissioner might give the impression to the uninformed that the diversion of alcohol has been practiced quite generally throughout the alcohol-using industries. This is absolutely untrue. The statements of Assistant Secretary Moss and Doctor Doran, who has a closer knowledge of the facts and figures than any other official of the Prohibition Unit, have done much to correct the impression this committee would otherwise have gained from the testimony of counsel to the Prohibition Commissioner, who is without records or other data from which to derive accurate knowledge concerning diversions of alcohol in all parts of the country either as to the number of law violations or the total amount of spirits involved.

The obvious remedy for existing conditions-assuming that there is now a 10 per cent diversion of alcohol, which is a comparatively small leakage in view of all the circumstances-is a thorough overhauling and closer supervision of the operations of the bonded denaturing warehouses which have come into existence in comparatively large numbers since the Volstead Act became effective. This work is already on foot and under the energetic direction of Doctor Doran very substantial progress has already been made. I have no doubt whatever that in a comparatively short time as the result of the revocation of permits of parties who have abused their permit privileges a very great reform will be effected and current diversions reduced to a small fraction of the present volume.

My confidence in this regard is not without a sound basis in actual experience. I am in position to put before you an official record which shows what can be done by vigorous housecleaning.

I have here a chart which shows graphically the conditions prevailing in the early months following the taking effect of the Volstead Act, the methods that were used to reform them, and the astonishing results secured.

When the Volstead Act went into force in January, 1920, the current monthly withdrawals of pure nonbeverage alcohol ranged from 1,750,000 to 2,000,000 gallons. This was about normal consumption and represented an increase of nearly 1,000,000 gallons from the low-water mark of the war period during which the Government had commandeered the alcohol supply and had reduced its consumption by non-war industries to an unprecedently low level.

But when the Volstead Act took effect prohibition directors under Prohibition Commissioner Kramer issued large numbers of permits with little or no investigation to parties who had never before used alcohol for any industrial purposes. As you will note from this chart, alcohol withdrawals in one month rose from 1,750,000 gallons to 4,000,000 gallons, an increase of more than 125 per cent. With some fluctuations this high level was maintained for six months, and in September, 1920, the high-water mark of 4,300,000 gallons was reached.

Then Mr. Kramer roused himself and undertook to clean house. To his credit be it said that he employed effective means. He rigidly investigated a large number of illegitimate permit holders and cancelled their permits by the thousands.

In testifying before the committee on May 13, 1921 (Hearings, p. 150), Prohibition Commissioner Kramer made this significant statement:

"We issued hundreds of permits this past year to fellows who were not legitimate. We are taking out precautions this year. Hundreds of those fellows get no permits for 1921-thousands of them for that matter. I want to say, gentlemen, that the fault-I will be perfectly frank with you the fault of the thing during the past year does not rest so much with the law; it rested with the administration of the law. That is the trouble."

Mr. Kramer's statement was supplemented by Wayne B. Wheeler, general counsel for the Anti-Saloon League, who (hearings, p. 8) said:

We have had a good deal of difficulty in trying to get the revocation of some of these permits. I want to say for the department that they have been doing good work in the last few months. There have been 11,000 permits revoked, canceled, or marked for disapproval. That is good work out of 75,000 permits that were granted."

If you will again examine this chart you will note the result of this housecleaning. In the space of four months the unprecedented withdrawals were relentlessly cut down until in January, 1921, the total was reduced to 1,750,000 gallons which was about the normal total prior to the effective date of the Volstead Act. Under the present administration of the Prohibition Unit the withdrawals of nonbeverage alcohol have been forced far below the preprohibition level. Part of this reduction is due to the substitution of specially denatured alcohol 96962-24-SER 28 11

for pure nonbeverage spirits in the manufacture of certain products, but this accounts for only a fraction of the reduction in the consumption. The increased use of specially denatured alcohol is chiefly due to the manufacture and sale of a number of products like rubbing alcohols, hair tonics, medium grade barber supplies, etc., never before made for the reason that the cost of tax-paid alcohol for such goods was prohibitory. Much of the decline in the use of pure nonbeverage alcohol is due to the drastic regulation of the Prohibition Unit which has discouraged manufactures and dealers from handling the product. A very large number of druggists have refrained from taking out alcohol permits and numerous manufacturers of alcoholic preparations have ceased to push these goods and have directed their energies to the exploitation of their nonalcoholic products.

Notwithstanding the plain provisions of section 13 of Title III which make it the duty of the Prohibition Commissioner to stimulate the production and consumption of alcohol for every legitimate purpose, the policy of the present incumbent has been to restrict and to make a virtue of that restriction. While the Prohibition Commissioner when addressing certain audiences expresses solicitude for the welfare of legitimate alcohol users, his real sentiments may be judged by the following extract from an official bulletin issued by his bureua in which he is quoted as saying:

Effectiveness of enforcement is shown by results in curtailing the source of supply of grain alcohol for medicinal and drug purposes, such cutrailment being reflected in the reduction of tax-paid withdrawals of alcohol as measured in taxable gallons."

This statement was reprined in the newspapers in all sections of the country and undoubtedly created considerable prejudice in the public mind against the alcohol-using industries. No one could read the bulletin without receiving the impression that the Prohibition Commissioner regarded every user of industrial alcohol as a potential bootlegger. When this statement was challenged by a representative of one of the leading industries using alcohol, the commissioner in a personal letter sought to explain the bulletin by saying that he referred to alcohol used for illegitimate purposes, thus taking a position wholly at variance with the plain language employed in the bulletin. It was then pointed out to the commissioner that the injury done by the bulletin could not be repaired through the means of a personal letter to an individual and request was made that he issue another bulletin advising the public and the interested trades of his exact position with respect to an adequate supply of alcohol for industry. To this request he made no response and so far as the public is concerned the commissioner's original statement claiming credit for restricting the supply of alcohol for legitimate manufacturing purposes stands without amendment.

Your committee will fail to appreciate the conditions that have existed throughout the alcohol-using industries since the prohibition law became effective if it is not made clear to you that legitimate industry everywhere has suffered because the bureau, while imposing drastic restrictions upon reputable users of alcohol, has failed to exercise proper vigilance in the investigation of new concerns applying for permits and in the policing of the operations of such concerns. Too often, I fear, the bureau officials have yielded to political pressure and have issued permits with well-defined misgivings that the applicants should be denied the privileges accorded them.

In this connection I beg to call your attention to an episode in the development of prohibition enforcement which gives special point to my contention that the legitimate trades are in no way responsible for the law violations that have resulted in the diversion of alcohol. When the original regulations under the prohibition law were promulgated several thousand permits were issued to wholesale liquor dealers to operate as such. A close examination of the statute, however, convinced former Prohibition Commissioner Kramer that there was no warrant of law for the issuance of such permits, and the question being referred to the Attorney General that officer sustained the contention of the commissioner, who thereupon revoked the outstanding wholesale liquor dealers' permits.

In the opinion rendered in this connection the Attorney General held that wholesale druggists were the only parties empowered by the statute to handle intoxicating liquors, including alcohol at wholesale. Immediately after the revocation of their permits a number of former wholesale liquor dealers sought to procure permits as wholesale druggists, endeavoring to qualify under the bureau's definition of a wholesale drug house which conformed closely to commercial usage. In a few cases there applicants for permits provided themselves with stocks of drugs and usual side lines and were granted permits. The majority of the applicants, however, failed to meet the very moderate requirements of the

bureau, but in certain cases invoked political influence, and in some instances secured permits.

This development brought into the wholesale drug trade a disturbing element of a most demoralizing character. Because the regulations limit the sale of potable liquor by wholesale druggists to 10 per cent of their turnover of drug merchandise some of these concerns have cut prices of drugs to cost or less presumably for the purpose of enabling them to sell maximum quantities of whisky and other potable liquors. I believe that in the majority of cases these attempts to sell liquor under the guise of wholesaling drugs have failed because of the difficulties in the way of disposing of the large quantities of drug merchandise necessarily involved and some of these concerns have been forced to suspend operations. Their activities, however, have been a constant source of annoyance to the legitimate trade and of anxiety to the prohibition officials. If they had been denied permits at the outset, or if their operations had been more adequately policed, all this trouble would have been saved and an important trade would have been relieved of annoyance, due to the operations of parties who entered it with the deliberate purpose of exploiting the prohibition law.

RESOLUTIONS ADOPTED BY THE NATIONAL DRUG TRADE CONFERENCE-SEPARATION OF FUNCTIONS OF PROHIBITION ENFORCEMENT

(The National Drug Trade Conference is composed of the following national organizations: American Pharmaceutical Association, National Association of Retail Druggists, American Drug Manufacturers' Association, American Conference of Pharmaceutical Faculties, National Wholesale Druggists' Association, The Proprietary Association, American Pharmaceutical Manufacturers' Association, National Association of State Board of Examiners.)

Resolved, That the National Drug Trade Conference in annual meeting assembled, heartily indorses the recommendation made to the Commissioner of Internal Revenue by the National Wholesale Druggists' Association at its last annual convention that there be a separation of the functions of the supervision of alcohol for industrial purposes from the policing of violations of the prohibition law and urging the appointment of a deputy commissioner to take over the industrial alcohol and chemical division of the Prohibition Unit, to have charge of the issuing of permits and such other functions as relate to the supervision of alcohol for industrial and medicinal purposes.

The CHAIRMAN. I have here a brief which came in the mail from the Interstate Manufacturers Association of Winona, Minn.

Mr. MICHENER. Who are they, Judge-one of the patent medicine people, like the Raleigh?

Mr. CROUNSE. If I may answer the gentleman's question, the Interstate Manufacturers Association

The CHAIRMAN (interposing). Pardon me a moment, please. Answering your question, Mr. Michener, it seems it is a flavoring extract and toilet article concern.

Mr. CROUNSE. And many other products. They are called the wagon men. They employ some 10,000 wagons distributing many household necessities in the country districts.

Mr. MICHENER. Something like the Raleigh people?

Mr. CROUNSE. Yes, sir.

(The brief of the Interstate Manufacturers Association follows:) The COMMITTEE ON THE JUDICIARY,

House of Representatives, Washington, D. C.,

GENTLEMEN: We take the liberty of filing this brief in protest against the passage of H. R. 6645 by Mr. Cramton.

This brief is filed on behalf of the Inter-State Manufacturers Association, Winona, Minn., which association has for its membership those manufacturers who sell their products through wagons traveling from house to house, principally in rural communities.

Many of the articles manufactured by these persons and sold direct to the consumer in this manner contain alcohol. These articles are principally of the following character: Flavoring extracts, toilet articles, perfumes, antiseptic solutions, and domestic proprietary medicines.