The Maritime Commission and the Navy have very formally taken the position that they are going to restrict the contracts they give out to as few large existing well-equipped plants as possible. That is their frank statement, and they defend that upon the position that that is the best way to get the work done.

Now, those shipbuilding contractors are loaded up with hundreds of millions of dollars in contracts, and they are endeavoring in every way by any means to seize any kind of machinery they can adapt to their purpose in southern California and I believe that the Army and Navy authorities desire to do that very thing, and I have no doubt with the very highest integrity.

The same is true, to a somewhat lesser extent, perhaps in the airplane industry.

Now, what I believe is that the passage of this bill will result in the destruction of hundreds of the smaller manufacturing businesses, of Los Angeles, that have been built up over 10, 20, and 30 years. I think we are going to see there that machines are taken away from them. I think we are going to see their business destroyed without compensation, so far as the business is concerned. I think we are going to see them lose their architects, and their mechanics, and their foremen.

As a matter of fact, I think that is the purpose of this bill, at least, so far as southern California is concerned, and I have made some investigations, Judge Patterson, actually on the ground, and much of my information comes to me from the military men themselves directly. It is a condition that is very much frightening the small businessmen of southern California.

Now, it may be necessary to have that kind of a military dictatorship under which an Army officer can go into any plant in southern California he wants to and say "Give us half of your plant" or onethird, or all of it, and turns it over to the Bethlehem or the Consolidated, or the Los Angeles, that may be necessary. We may be in that great peril, but I do not believe that the committee should underestimate the power and the possible prejudices of this bill to men who have spent decades building up their businesses.

Mr. PATTERSON. Well, that takes it into the buying policies, and I can speak on that, so far as the War Department is concerned.

It is our policy, of course, to place as many prime orders as broadly as we can with concerns of the type that you speak of and where we cannot place prime orders, to assist in the subcontracting of larger orders so that it is fed down to those smaller plants.

We got a direction from the President within the last month to try to do that, as much as we could.

We would rather use the machine tool right in the plant where it is now located then move the machine tool. There is no doubt of that. In my opinion it is better in every way, economically and socially; better for our own production. Failing in that, however, we do want the power to take essential machine tools. Of course, most of these machine tools that you speak of are not of the nature or sort that we want for any armament production. Most of them— that is my understanding from the machine-tool people are not.

Senator DowNEY. In the first place, let me say I have been informed by representatives of the Maritime Commission and of the Navy Department that the policy you now mention is exactly the

contrary. That is, the policy you mention as that of the War Department is contrary to their policy. They are now following a policy whereby they desire to have all of the work done upon one site within the factory itself and not let it out. They desire to restrict the work to as many large corporations as possible. For instance, they want to throw all the work together in the Bethlehem and two other shipbuilding companies out there, so far as possible. I have been informed of this, Judge Patterson, by representatives of the Navy itself, and if you desire me to cite authority, I will be pleased to do it. They desire not to have that work done out in the smaller plants, but to have the machine tools assembled there on the site itself, and I can call the representatives of the Navy Department, if you care, and I am sure that they will fortify or corroborate that statement.

Mr. PATTERSON. All I was speaking of, Senator, was the War Department.

Senator DOWNEY. Yes; I also, so far as the War Department is concerned, I have heard by representatives of your own War Department that there are very great difficulties that have developed, and delays in farming out these small contracts.

Mr. PATTERSON. That is true.

Senator DOWNEY. And one of the purposes of this very bill is to obviate the necessity of doing that very thing.

Mr. PATTERSON. No; it is true we have had a good deal of trouble doing it, and in the nature of things, that trouble will persist for some time, but it is our policy to resort to subcontracting in every case where we can. Of the two alternatives, if you are going to remove the order or the business to the machines, or the shop, or move the shop to some other place where the main order might be, in the course of performance, we would prefer the first.

Senator DOWNEY. Well, in the first place, Mr. Chairman, if I may make my position clear, I would certainly not object to any bill which allowed the Army to commandeer second-hand machinery needed for defense, especially if that is being held for speculative purposes. That would clearly be in the interest of national defense and would not injure anyone except the particular man who might be trying to make a speculative profit.

The same rule would certainly apply to strategic war materials where they are being hoarded, and the Government ought to have the right to commandeer them; but I must admit, Judge Patterson, I look with horror upon giving our Army officers the right to go into any machine tool shop in southern California or any manufacturing plant and say, "We are going to move out today 24 percent" or "one-third" or "50 percent," or "75 percent of your machines, and pay you the value of the machine tools we take."

There will be businesses there worth hundreds of thousands of dollars, perhaps millions of dollars which will be affected and we are giving the Army the right under this bill to destroy those without any compensation, as I understand it-I may be in error-for the goodwill or the value of the business, and I do not believe it is necessary. I might say that, to me, it seems that the airplane industry in southern California is going ahead with tremendous speed. I think looking ahead 18 months, we are going to have more airplanes than we can find pilots and air fields for. According to the statement of

the Government representatives, within a year we will be outproducing Germany and almost all of the rest of the world. It is a marvel to me as to what is being done under existing conditions in southern California.

Mr. PATTERSON. I agree with you that they have done a fine job, but right there again there is a shortage of machine tools today.

Senator DowNEY. Mr. Patterson, I have seen statements from the War Department that within 1 year our assembly lines would be turning out more planes than can possibly be used under existing conditions.

It may be necessary to create a military dictatorship under which the Army has the power to destroy almost any manufacturing business in the country in order to speed the manufacture of airplanes. If that is necessary for our defense, then I would be for it; but I look with a great deal of trepidation upon this bill.

Let me ask you this, Judge Patterson, as a matter of law, if in some manufacturing plant the Government would go in and take say a third of the machinery, commandeer it, and that would prevent the operation of that business employing 100 or 200 men, as I understand it under this, they may only be paid for the value, the actual value of the machines taken.

Mr. PATTERSON. That is my opinion, too; the value of the article requisitioned.

Senator DowNEY. In other words

Mr. PATTERSON (continuing). Collateral effects, I do not think, would be taken into account.

Senator DOWNEY. And that would make the remaining part of the machinery of no value to him.

Mr. PATTERSON. That is true today, if you condemn land or real estate for a post-office site, I think you just pay for the value of the land.

Senator DoWNEY. I do not think so. I think you are entitled to your consequential damages.

Mr. PATTERSON. They would be here, perhaps.

Senator DOWNEY. No, here very clearly it would indicate that you are entitled to the value of the machinery. If you have a piece of real property, and half of it is taken, you are entitled to consequential damages as the result of the taking to the remaining half, at least in California.

Mr. PATTERSON. I do not think that that is true under the Federal law. I have had plenty of cases of the taking of real estate by eminent domain when I was on the bench. They appraised the property just like any other property. Of course if the property has a valuable plant on it they would have to give the value of the buildings.

Senator DOWNEY. Yes; but you are not doing that. If you take a man's manufacturing plant, and pay for it, however injurious that might be to the community to destroy that particular business that would be one thing, but destroying his own business and maybe paying him 25 percent of the value of this machine is another.

I would like to make this further comment, Mr. Chairman, and then I am through.

I look with horror upon what is going to happen in southern California after this war emergency is over, when we wake up from this

hysteria that now engulfs us and we have absorbed these small businesses, and hundreds and thousands of our men are working in these defense industries, and then they stop. I would say in Southern California we are going into a far worse condition, if those events take place, and we have that to guard against, than anything we otherwise expect, and I do think that this is a long step toward military dictatorship which might produce most injurious consequences in my own State.

Now, if it is necessary for our national defense, I understand everything has to give way to that, but I am not yet convinced of that myself.

Senator LODGE. Mr. Chairman.

The CHAIRMAN. I want to make this statement in pursuance to what the Senator from California (Senator Downey) has stated about the requisition of property. I assume that he has in mind, as one of the features of the effect, the destruction of business. For instance, a man might have had a machine tool in his shop for 20 years. The Government takes that property, and the result thereof is that the business that he has built up over 20 years is destroyed.

You have in mind the fact that the Government probably would not compensate him for the good will of his business.

Senator DowNEY. That is right; might only take a third of his machines, but destroy his whole business. Mr. Chairman, let me say this. I know whereof I speak. I say that within 24 hours after this law becomes effective there will be many machine shops and small manufacturing industries destroyed in southern California. I know it, and I am prepared, if necessary, to show the committee that already out there on the Pacific coast many of these big industries are looking with jealous and longing eyes at the machine-tool industry of the smaller units that they want badly to take over. If that is what we want done, if that is necessary, that is one thing; but let us frankly face it.

This bill creates a military dictatorship under which probably tens of thousands of small businesses in the United States will be ruined by the taking over of their materials and machines. That is the very purpose of the bill. And, it will affect hundreds of concerns in southern California.

Mr. PATTERSON. Well, that is a prediction, sir. I do not anticipate, as I have said already in answer to questions by Senator Lodge I think, that the bill will be actually used to any great extent. However, we want the power so to do, that is true.

Senator DowNEY. Mr. Chairman, let me make this further comment: In the event of a man who has machinery that is available for defense purposes that he is not using in nondefense industry, he is happy to sell it. Now, men are not just storing and wasting machinery. They are glad to sell it. The only machines that would have to be considered under this are machines that are being used by men in their own business.

Mr. PATTERSON. Unfortunately there are a great many machines that are not being used now that are being held for high prices. Senator DowNEY. Mr. Chairman, so far as that is concernedMr. PATTERSON (interposing). Not only by second-hand dealersSenator DOWNEY. I would make no objection to the commandeering of machines that are not in use over any permanent period of time, of course.

Mr. PATTERSON. People hoping to get orders or something like that do not like to or do not want to part with their machines. Senator DowNEY. From the Federal Government?

Mr. PATTERSON. Yes, sir.

Senator DOWNEY. Well, there are many small businessmen in southern California hoping to get orders from the Federal Government, when the Government has already committed itself to the policy of restricting its orders to the bigger corporations. There is no doubt about that.

Senator HILL. Now, let us make that clear.

The Senator from California-and I know that he is absolutely honest and sincere in his statement-says that the Government has the policy of restricting its orders to the bigger companies. Is that true, Mr. Secretary?

Mr. PATTERSON. It is not true with the War Department, but I think that the Senator mentioned the Navy.

Senator DOWNEY. The Maritime Commission and the Navy have expressly taken that position in writing, I think. At least they have notified my office of it very clearly and very precisely, and I have conferred with the leading members of both departments who say that that is their policy.

Mr. PATTERSON. General Wesson, Chief of Ordnance, War Department, informed me theot her day that out of 1,400 prime contracts entered into, well, within a period of some months, I do not remember exactly, down to May 15, over 21,000 subcontracts had resulted from those 1,400 orders.

Senator LODGE. That is very good.

Mr. PATTERSON. I happen to know that Pratt & Whitney Co. up in Hartford, who make airplane engines, have over 700 subcontractors for that one plant.

The Boeing Co. at Seattle-I have seen the map of the sources where their parts come from, and they stretch interminably right across the United States.

Senator JOHNSON of Colorado. Colonel, I saw that map also, Mr. Secretary, and this was out in Colorado-we do not have very many even small industries, but such industries as we do have are tremendously interested in subcontracts and they have been having a very difficult time getting them.

Mr. PATTERSON. I did not make these statements that I have just made with the idea that we have achieved perfection. There is a great deal to be done yet.

Senator JOHNSON of Colorado. I think your policy has been a correct policy in trying to farm out these subcontracts. I only hope that it will be perfected.

Mr. PATTERSON. I promise you it will be pursued with vigor. Senator JOHNSON of Colorado. Well, that is very encouraging, and I am mighty glad to have that statement.

Senator HILL. I am gratified to hear that statement, too.

In that connection, I know that the committee will be interested in knowing, does it lie, so far as the War Department's contracts are concerned, does the matter lie entirely in your hands, or does the O. P. M. have a certain amount of authority with reference to this policy and these subcontractors?