has anyone to have manufactured by any process at Muscle Shoals cheap fertilizer?

Mr. MORRISON. I don't think anyone has any hope of manufacturing fertilizer at a profit at Muscle Shoals. But we are talking about the elimination of profit, sir. I think with the cheap water powers in Norway and its convenient location on the deep sea, if they start manufacturing fertilizers in Norway, they can put them in this country at least as low if not lower than they can be produced in this country without profit.

Senator KENDRICK. Would it be your idea that with cheap power at Muscle Shoals it would at least have a tendency to hold the price down of imported fertilizers?

Mr. MORRISON. I should say yes to that proposition; but I want to call attention to another fact, and that is this: That the actual quantity which can be produced at Muscle Shoals is not going to affect the entire market for the United States. Simply because you manufacture a quarter of the nitrogen fertilizer at Muscle Shoals that is used by the entire country it may have a tendency to reduce the price generally; but as for breaking the hold that foreigners have upon the business, I don't think it is going to make a whole lot of difference. Suppose they say, "Yes; they are going to make it at Muscle Shoals, and it is going to be sold anyway; and we know that, but why should we cut our price at all? Let them take a quarter of our business."

The CHAIRMAN. Suppose it was brought over at cheaper rates. Just as soon as it strikes our borders, then we have to add the freight, and that would take it up rapidly at all points except adjacent to the seacoast. The freight would soon take it all up.

Personally, I am not at all frightened by cheap fertilizer from abroad. If they could bring it in so cheaply that we could not make it by any water power that we have in the United States, I would be glad if they would do that. Then we could use our power for other purposes and get the fertilizer just as cheap as we can. We will always have some use for the electric power in the United States and for all the water power in the United States.

Mr. MORRISON. I think you have brought forward, Mr. Chairman, the very thing that I wanted to say, that hydroelectric power is usable for the manufacture of certain things for which it alone can be used for instance, in the manufacture of electric-furnace products, which require hydroelectric power.

Senator MCKINLEY. You mean require cheap power.

Mr. MORRISON. It is not altogether cheap power. It is temperature as well as cheap power; and lots of things you can not make in any other way except in the electric furnace.

Senator MCKINLEY. I know; but not necessarily hydroelectric

power.

Mr. MORRISON. Well, I will qualify my statement to this extent, that electricity manufactured by coal is the same electricity as that manufactured by water power; but you can not make electric-furnace products in a furnace that uses coal as its source of heat.

Senator McKINLEY. Why?

Mr. MORRISON. Because the cost of production of power is so much higher that you can not compete.

Senator MCKINLEY. Yes; certainly.

Mr. MORRISON. Now, let me add one more thought, if you will pardon me, on the very point that you brought forward.

If Muscle Shoals is available as a source of hydroelectric power and there is cheap power there, we ought not to use that cheap power for the production of any commodity which can be economically produced by other processes.

The CHAIRMAN. More economically produced by other processes? Mr. MORRISON. Yes.

The CHAIRMAN. That is true as a business proposition in anything.

Mr. MORRISON. It is more than a business proposition, because if you can manufacture some substance by the use of coal or at a temperature which can be produced from coal you ought not to utilize hydroelectric power. That is, you ought not to get your source of temperature from hydroelectric power, which should be used for things for which it is exclusively necessary.

I would like to give a specific instance. During the war the companies that I represented manufactured ferrochrome. Without the ferrochrome which we produced the war could not have been conducted, because you can not make armor plate and high-grade tools and projectiles or guns without ferrochrome. That could be produced economically only in the electric furnace. Certainly you don't want to divert power which is utilizable for such a purpose to the manufacture of ordinary commodities which can be manufactured in another way. That is the principle.

The CHAIRMAN. I think underlying it all we all want to produce fertilizer, and the price is a comparative thing. If we can produce fertilizer cheaper by some other method than by using the electricity at Muscle Shoals or if we can buy it abroad cheaper than we can produce it at Muscle Shoals, why, we want to get our fertilizer in the cheapest possible market, not only for the benefit of the farmer but everybody who consumes the products of the farm is interested in getting fertilizer as cheaply as possible. The only reason we are talking about producing fertilizer at Muscle Shoals is because we expect to cheapen the product. If we can do it in some other way, of course we want to do it the other way.

Mr. MORRISON. Mr. Chairman, you understand the thing exactly, that if in the process we find it can be produced more economically elsewhere, then neither the Government nor ourselves will wish to produce it uneconomically at Muscle Shoals.

The CHAIRMAN. Why, of course not.

Mr. MORRISON. That point has not been fully emphasized heretofore, Mr. Chairman.

There is a surprising little thing about our offer that I think will attract the attention of the committee. You will note that we leave with the Government all its property and hand it over to the Government at the end of 50 years. We are not attempting to buy it. Curiously, if we wanted to buy it, our figures would show that we were willing to pay a very much better price than is contained in some of the other offers you have received.

In the first six years of his contract Mr. Ford pays in rent and all other expenses $1,400,000, and he purchases the plant without Gorgas for $1,527,520, making Mr. Ford's total expenditures for

the first six years $2,937,512, and he owns the entire plant, including No. 2, No. 1, and the quarry. Now, he has bought it. It belongs to him. It does not belong any longer to the Government.. Senator McKINLEY. And Dam No. 3?

Mr. MORRISON. Well, that, of course, is another matter. But I am just making this flat statement as to what he pays.

Senator KENDRICK. You are speaking now of the property that is delivered to Mr. Ford in fee simple?

Mr. MORRISON. In fee simple. This includes that great steam plant for which you were offered $4,500,000, and it includes plant No. 2, plant No. 1, the quarry, and everything. It is all delivered to him in fee simple. In all, in the six years he pays $2,937,512, and that includes his rent and the purchase price of all that property. In our present proposal we agree to pay as rent in six years $6,840,000, or more than twice as much.

Senator KENDRICK. And you take title to nothing.

Mr. MORRISON. We take title to nothing. Under our old proposal we agree in six years to pay $5,490,000, and you have your steam plant rented at $200,000 a year, which would be $1,200,000 more. Senator MCNARY. How do you arrive at the figure $6,840,000 that you pay in in six years?

Mr. MORRISON. We actually agree under contract to do so.

Senator MCKINLEY. I think Mr. Morrison is confusing the committee by mixing up his offer No. 1, which nobody is considering, and offer No. 2, which he is just putting in.

The CHAIRMAN. I am considering offer No. 1.

Senator MCKINLEY. He keeps mixing the two up all the time. Senator MCNARY. The $6,800,000 that you speak of there is under your last proposal?

Mr. MORRISON. Under our last proposal.

Senator MCNARY. That is what I want to get at. How do you arrive at those figures?

Mr. MORRISON. I will read from our present offer.

Senator MCNARY. Never mind, if it is in the record here.

The CHAIRMAN. We had better get it now and come to a stopping place.

Mr. MORRISON (reading):

As rental for Dam No. 2 and other leased properties and rights set forth in item (a) in section 1 hereof.

We agree for each of the first six years of the term of the lease to pay $750,000. For the steam plant we agree to pay $200,000 a year. For the nitrate plant we agree to pay $150,000 a year. For plant No. 1 we agree to pay $25,000 a year. For the stone removed from the quarry we agree to pay 5 cents per ton. That amounts to about $15,000. I think that those will figure up the amount I stated, $6,840,000.

The CHAIRMAN. The committee is going into executive session. and it will convene again to-morrow at 10 o'clock.

(Whereupon the committee went into executive session, to continue with the hearing at 10 o'clock a. m. to-morrow, Friday, May 9,

MUSCLE SHOALS

FRIDAY, MAY 9, 1924

UNITED STATES SENATE,

COMMITTEE ON AGRICULTURE AND FORESTRY,

Washington, D. C. The committee this day met, pursuant to adjournment, at 10 o'clock a. m., Senator George W. Norris presiding.

Present: Senators Norris (chairman), McNary, Capper, McKinley, Ransdell, Ralston, and Johnson.

The CHAIRMAN. All right, we will go ahead.

FURTHER STATEMENT OF MR. A. CRESSY MORRISON

Mr. MORRISON. Mr. Chairman and gentlemen, I have very little to add to the general statement which I made yesterday, but I do want to bring out two points.

I was asked yesterday the question if we go into the manufacture of fertilizer and it requires the construction of additional plant whether that expense, so far as it goes into the manufacture of fertilizer is concerned, would be borne by the Government, and I answered, "Yes, sir; of course," and then I explained that because of the limitation of profits on the manufacture of fertilizer all costs would have to go into the ultimate cost of fertilizer.

I wish to amplify that somewhat. In answer to a question as to what additions would be required to plant No. 2 should we operate it for the manufacture of urea, I said that the additional investment to develop the plant would be about $1,250,000 or less. Our own figures are somewhat less, but I make that statement so that we shall be safe. That, of course, is a trivial investment compared to the magnitude of the operations which are proposed there.

It was stated by a previous witness that plant No. 2, in order to manufacture fertilizer under the processes which that witness had in mind would have to be swept from the face of the earth.

The CHAIRMAN. That was Mr. Waldo.

Mr. MORRISON. That was Mr. Waldo. And that the total reconstruction would have to take place, and then he gave a detailed statement of the additional cost to carry out the fertilizer program of one of the bidders.

The CHAIRMAN. I think that you mean Mr. Ford. I think that we ought to be plain about these things, so that anybody reading the testimony will know to whom you refer.

Mr. MORRISON. I refer to Mr. Waldo, and he apparently had Mr. Ford in mind and he said that the additional investment, as tabulated here, would be $59,000,000 in order to manufacture fertilizer.

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I don't think that he intended to imply that Mr. Ford would pay that whole $59,000,000 himself and not figure the interest and amortization into the cost of fertilizer. This large investment would make a very heavy addition to the cost of the fertilizer.

Now, as regards plant No. 1, I think that it is well established that that plant is not adequate in size, is more or less experimental, and under the present conditions will have to be practically rebuilt. If under our offer we undertake the manufacture of fertilizer in plant No. 1, it will have to be built and designed in accordance with what the Government decides shall be done there, and the expense of the fertilizer at plant No. 1 will have to be borne by the fertilizer, because no bidder can profitably put in that investment or amortize it any more than he could pay for wear and tear.

I just want to emphasize that point so that we will not be put in the position of being any different from any other bidder on the fertilizer proposition, because all the expense of manufacturing fertilizer will have to go into the cost of manufacture of fertilizer, and ultimately be borne by the farmer.

I do wish to call attention to the fact that with our process plant No. 2 can be converted, and a large part of that plant is in perfect condition for use for that manufacture now, and we merely have to add a certain extension at modest expense which can be easily absorbed by the production of fertilizer in a year or two.

There is one other statement that I wish to make at this time: Witnesses before this committee have made, in general terms, rather broad statements as to what they can and can not do, and others have made statements as to the effect on the farmer or the community, and with some of these statements we would differ. We do not wish, by implication, or by omission, to be in any way held as concurring in those extravagant statements, because we are not only looking to the present, but to the future in this great operation.

We hope that no statement of ours made before this committee will be otherwise than conservative and reasonable, so that as the years go by we can not be charged with any failure to fulfill any details, any promise, or statement we have made here.

That seems to us extremely important, because if there should be at any time disappointment in any direction regarding the ultimate value of this great plant to any section we want our statements here to be of such a character that you never can point back and say, "You said this, and you are doing the other." It is a binding business contract, and therefore our statements are and will be necessarily conservative and within our best knowledge of the possibilities of the operation at the present time. And that is skilled knowledge. During yesterday we were making general statements and we were subjected to very keen and very proper inquiry as to these general statements, but no opportunity was really given to put our proposition in detail before the committee, and because of that many advantageous clauses for the Government and many limitations which seem to us to be necessary were not brought out before the committee, and with the permission of the committee I would like to suggest that Mr. Davis, who is here as an expert on hydroelectric power, be permitted to make a statement as to what our proposition really is, more or less in detail, with the suggestion that it be more or less consecutive,