petitive structure without affecting the basic technological processes. If competition is restored, monopolistic pricing policies will be abandoned; Federal control will be unnecessary. One of the basic purposes of antitrust policy is to protect business from public regulation and to harass the individuals who object to private enterprise and wish to be rid of it (118-119).

In answer to committee questioning, Dr. Stigler stated:

1. Thirty to fifty percent of the supply of iron ore should be available annually to those members of the steel industry who do not own their own source of supply (121).

2. He does not favor nationalization of the industry because it would be inconsistent with the defusion of powers which are necessary to a democracy, and because one huge firm would not be economically efficient (121).

3. An analysis of the steel industry for 5 years during the 30's indicated that United States Steel ranked around the middle in efficiency (121).

4. He favors application of the antitrust laws to the steel workers union as well as to the employers.

5. Profits of the Universal Atlas Co., the cement producer, were higher prior to its merger with United States Steel (123).

6. Price behavior of the steel industry is inconsistant with strong competition (125).

7. In recent years, United States Steel has held down prices and profits in the steel industry, and has discouraged investment (127).

8. Sherman and Clayton Acts should be reexamined to determine whether they should be amended to meet the abuses of oligopolies (129).

9. The tobacco industry seems to be very much the same today as it was at the time of its dissolution.

HEARINGS TUESDAY, APRIL 18. 1950

TESTIMONY OF JAMES M. MEAD (141-157)

In a prepared statement (141-153), Mr. Mead described the function of the Federal Trade Commission as one of serving as the economic eyes and ears of Congress-keeping it informed of current economic developments which may endanger the future of competition and small business in this country. The Commission is particularly concerned with three problems involving the steel industry: the approaching shortage of iron ore, the further expansion of the industry into the fields of fabricated and finished goods, and the persistent shortage of steel supplies (142).

On Aug. 14, 1947, the Commission issued a complaint against practically all steel producers in the United States, charging the industry with using the basing-point system as a collusive means to control prices, in violation of section 5 of the Federal Trade Commission Act. The trial examiner has not yet prepared a report or recommendations to the Commission (142).

The shortage of iron ore stems largely from the gradual exhaustion of the Mesabi Range in Minnesota. By 1960, shipments from this area will have shrunk to 31,000.00 tons a year-less than half of the present level. This depletion will seriously affect some 17 smaller firms which depend largely on Lake Superior ore for their furnaces but do not possess an assured future supply. In addition, there are some 60-odd semiintegrated steel makers who depend upon pig iron which they must obtain from the large integrated companies. If these two groups find themselves unable to secure basic raw material, their competitive influence in the steel industry will disappear. The Commission, therefore, is not concerned only with the general adequacy of supply. It is also concerned with its distribution (153).

Taconites, lower grade domestic ores, and foreign ores, particularly those of Labrador and Venezuela, have been counted on to replace the approaching exhaustion of the Mesabi Range. However, to process taconite, elaborate and costly facilities are required. An investment of 1% to 1 billion dollars will be required to replace present Lake Superior ores with taconites. The cost of the ore, too, would be higher than at the present time. A large share of taconite reserves is owned by three companies: United States Steel. Erie Mining Co., and the Reserve Mining Co. Smaller companies neither own any substantial share of these deposits nor possess the capital necessary for their processing (143 144).

An investment of more than $200 million for a railroad and port development will be necessary to open up the Labrador ore deposits. About 5 years

may elapse before ore appears at the proposed St. Lawrence River port. The Venezuelan situation also appears to present difficult transportation problems involving costly ocean carriers, port developments, river improvements and railway construction. It may be 5 years before large shipments begin to move from that area. The control of both of these foreign deposits seems to be largely in the hands of the same large companies of the steel industry. If the smaller firms do secure ore from these deposits, they will be able to do so only by purchasing it from their larger rivals (144-145).

Prior to 1930, mergers in the steel industry had been mainly horizontal and vertical in nature, i. e., acquisition of other steel companies and acquiring their own sources of iron ore, coal, and related products, respectively. However, since 1930 United States Steel has acquired the following: Oil Well Supply Co., Witte Engine Works, Neilson Pump Co., Boyle Manufacturing Co., Petroleum Iron Works,, Bennett Manufacturing Co., Virginia Bridge & Iron Co., Gerrard Co., Jackson Fence Co., Gunnison Housing Corp., Consolidated Steel Corp., Savannah Wire Cloth Mills, and Moise Steel Co. (145-146).

Since 1930 Bethlehem Steel has acquired the following producers of fabricated and finished goods: McClintic-Marshall Corp., Levering & Garrigues Co., Hay Foundry & Iron Works, Hedden Iron Construction Co., Taubman Supply Co., International Supply Co., American Well & Prospecting Co., the Buffalo Tank Corp., Rheem Manufacturing Corp., Atlas Steel Barrel Corp., United Shipyards, Inc., Union Shipbuilding Corp., Pennsylvania Shipyards, Inc., Pacific Coast Forge Co., and Shoemaker Bridge Co. (147).

In some industries the effect of these forward acquisitions has been to give the steel companies almost complete dominance over the fabricating field. Today, the country's leading steel producer is also the leading steel drum producer. In this industry, United States Steel shares the Pacific coast region on a 50-50 basis with Bethlehem Steel. Steel companies have also entered the steelstamping industring to a lesser degree and the competitive position of the smaller firms which continue to operate have been seriously undermined. Many independent stampers have become mere subcontractors, dependent on such scraps of business as their larger competitors may turn over to them (147-148).

During the recent postwar period when steel has been in tight supply, many independent fabricators have complained that there has been an increasing flow of steel to the fabricating subsidiaries of the steel companies; that, consequently, the total steel supply available for small business has been correspondingly reduced; and that this development has been one of the principal factors behind the inability of small business to obtain steel expansion by the steel companies into fabricating fields constitutes a serious, potential danger to the maintenance of competition. It is only to be expected that the fabricating subsidiaries will be able to secure their steel at a lower price than their independent competitors. Passage of H. R. 2734, the Celler bill, would plug the loophole in section 7 of the Clayton Act, and permit the Commission to prevent certain types of acquisitions in the future (149-150).

Extremely tight supply conditions prevail in the steel industry at the present time. Continuance of such a condition could only lead to a substantial lessening of competition and thus ultimately to higher prices for consumers. It would also lead to a lessening of competition within the steel industry itself. When basic steel is in short supply nonintegrated companies experience more difficulty in obtaining supplies than do integrated concerns. Several of the large integrated steel producers have already stopped supplying their smaller nonintegrated competitors with certain types of basic steel (150-151).

Shortages of iron and steel during the postwar period may not be of the same nature, nor so readily cured, as those of previous sellers' markets which the country has experienced from time to time. The shortage certainly cannot be blamed entirely on the steel strike of 1946. The adjustment of the steel industry to the decline in demand in the spring of 1949 took the form of a reduction in output rather than a reduction in prices (151-152).

Trade journals suggest that demand for steel is expected to continue to be strong for a considerable period of time-perhaps longer than it might normally be expected it would take to catch up with the production lost by strikes. Moreover, the journals predict that the present demand for steel will not be limited to a few special items; rather it will be diversified over a whole range of steel products. If these predictions of the trade press turn out to be correct, it will be very difficult to dismiss the postwar shortage of steel as merely a temporary phenomenon. The country would then be face to face with the fundamental question of whether or not steel capacity is adequate for its long-term needs. (152-153).

With respect to the problem of iron-ore supply, the Commission is securing facts necessary for a thoroughgoing and complete report. With respect to the problem of expansion into fabricated and finished goods, the Commission may be able to prevent some of the forward acquisitions of the steel companies if the Celler bill is passed by Congress. With respect to the problem of the shortage of supply of steel, the Commission recommends that an extremely extensive analysis be undertaken at the earliest possible moment. The Commission has already sent questionnaires to steel companies and when the answers have been analyzed it will issue a report on the subject about 3 months hence (153-154).

In answer to a question by Mr. Keating as to the need for development of the St. Lawrence seaway in order to facilitate transportation of the Labrador iron ore to the Great Lakes area, the witness stated: Current transportation on the St. Lawrence has clearance of 265 feet. Some shippers think iron-ore vessels of that clearance would be commercially successful. If this point of view is incorrect, the alternatives would be to deliver to the mills on Atlantic port sites, or to improve navigation on the St. Lawrence (154-155).

In answer to a question by Mr. Michener concerning the advisability of restraining large steel companies from acquiring and developing iron ore sources in foreign countries, the witness stated: Congress should be concerned if a situation developed where there are no sources of supply for the 17 independents in the steel industry. Mr. Michener pointed out that the alternative to development of foreign deposits by the big steel companies was Government activity in the matter (155-156).

In answer to Mr. Michener's contention that the committee does not have jurisdiction over the problem of creating sufficient supply in industry, but merely over antitrust laws and monopoly, the Chairman said: (1) It is impossible to consider the problem of concentration of power in the steel industry without also considering the problem of concentration in the supply of raw materials; (2) in considering the Alcoa case, the Supreme Court stated it could not consider concentration in the industry without also considering the question of the supply out of which aluminum is made, namely bauxite; (3) if it is essential for companies to be big to exploit foreign deposits, let them be big, but the Government must have some assurance that the smaller entities will have access to the source of supply (156-157).

TESTIMONY OF GARLAND PEYTON (157-165)

In a prepared outline, Mr. Peyton said that in the Cartersville district of Bartow County, Ga., there exists the largest reserve of medium- to low-grade manganese are in the Southeast. It has been estimated that the total concentrate reserves containing 35 percent or more manganese would not exceed 200,000 tons; that the reserves containing 10 to 35 percent manganese are about 500,000; and that the reserves containing 5 to 10 percent are about 150,000 tons (158). Mining and processing of this relatively low-grade material produced a product which analyzes from 30 to 45 percent manganese, which was shipped in this form to the smelters. As this ore was under 50 percent average manganese content, it could not compete on a favorable basis with imported higher grade ore. Steel companies purchased Georgia manganese ore only in times of emergency (158).

Research by the Georgia Department of Mines, the Federal Bureau of Mines, and other agencies enabled production of a salable concentrate of manganese and a high-grade concentrate of magnetic iron oxide (158-159).

In a 60-square-mile area in northwest Georgia are found deposits of brown iron ore which should be considered in the stockpiling of strategic materials for emergency use. The importance of this ore is attested by the fact that for more than three-quarters of a century it has been mined extensively, both locally and by the smelters in the Birmingham district. There is an estimated 100,000,000 tons of brown ore in this district. However, production has been retarded by the fact that Birmingham smelters have never been willing to enter into a regular contract for purchases extending over any long period. If aid were granted by the Government, the brown ores could be so beneficiated that they would produce high-grade concentrates analyzing over 50 percent metallic iron and which would contain manganese up to 5 percent. An Alabama steel company official has stated that the Georgia brown ores contain sufficient managnese to satisfy their requirements without the addition of any regular manganese ore (159-160).

Most of the Georgia ores have been purchased by the Republic Steel Corp. and by a subsidiary of the United States Steel Co. These companies refuse to enter into contracts for the purchase of these ores. They merely issue a letter of authorization stating that shipments can be made until further notice, providing the ore contains 45 or higher percentage of iron content. Most big producers get definite contracts for one or more years in advance (161).

Two executives from the American Rolling Mills, of Columbus, Ohio, stated that if the manganese content of the Georgia ore could be brought up to 10 percent, the ore could be shipped to Ohio at a profit. It has been charged that Republic and United States Steel have a gentlemen's agreement that Georgia producers, when orders have been canceled, must get permission from the company that canceled before they can approach another company for business. The witness stated that Georgia producers are reluctant to complain about conditions for fear of reprisals (162-164).

TESTIMONY OF E. A. WISCO (165-177)

The witness was employed by the Butler Ore Co., the largest independent producer of iron ore in Minnesota, to formulate plans of economy in the mining of low-grade ore which needs extensive processing to make it salable. After a 6 months' study, Mr. Wisco devised a way to obtain lower power rate for the production of ore. This enabled the company to obtain a somewhat better contract on a 5-year basis. Most contracts are on a 1-year basis (166).

The witness' next asignment was to see if freight rates were what they should be. A comprehensive study of the ore situation in Minnesota was undertaken in cooperation with the mines experimental station of the University of Minnesota, which obtained their records from the State Department of Taxation. Minnesota law requires that all persons owning developed ore state, among other things, the type and amount of their holdings so that a proper tax rate can be determined. Using figures based on this study, the witness presented to the committee a summary of the ore situation in the Great Lakes region (167-177). At a later hearing, the chairman summarized the conclusions he had drawn from this testimony as follows: (1) The percentage controlled by the United States Steel Corp. through its subsidiary, the Oliver Mining Co., is rather high on high-grade ore. It apparently has an 80 percent control of those ores in the Mesabi range; (2) the United States Steel Corp. controls the Duluth & Mesabi Railroad, and that railroad is very profitable, with a return of more than 15 percent; (3) the small companies own the low-grade ores which are expensive to prepare, and many of these companies are losing money; (4) when the smaller companies, like Butler Bros., which, incidentally, has since been absorbed by Hanna Co., tried to get the freight rates reduced, the United States Steel Corp., through its subsidiary, the Duluth & Mesabi Railroad, refused to reduce the rates; (5) the United States Steel Corp. keeps high rates of transportation which bear down on the smaller companies operating in the ores. It can pay the rate since it pays itself, and since its costs are lower anyway, because it has practically all the high-grade ores, which cost less to bring out (185).

TESTIMONY OF M. D. HARBAUGH (181-183)

The witness, secretary of the Lake Superior Iron Ore Association, testified concerning the shipments of the Lake Superior mining companies for the last 5 years, divided as between ore companies and steel companies or their affiliates or subsidiaries. A statement was placed in the record (Steel Exhibit S-43, Steel Exhibits, p. 69) which shows for the years 1945 through 1949 the following information: The iron ore tonnage shipped from the United States ranges by Picklands Mather & Co., M. A. Hanna Co., Cleveland-Cliffs Iron Co., Oglebay, Norton & Co., and miscellaneous companies. Similar information is given on tonnage shipped by the Oliver Mining Co., Jones & Laughlin Steel Corp., Republic Steel Corp., Inland Steel Co., and other small iron and steel companies. The Oliver Mining Co. is a subsidiary of the United States Steel Corp. (181-183).

HEARINGS, WEDNESDAY, APRIL 19, 1950

The chairman stated that a summary of the testimony by E. A. Wisco on Tuesday, April 18, 1950 (p. 135) had been submitted to United States Steel Corp. officials with the view of having the charges contained therein answered when and if they appear before the committee to testify. Mr. Michener commented that

he did not know whether Mr. Wisco's figures refer to any specific type of ore, and whether any differentiation was given the different types of ore in shipment.

TESTIMONY OF FRANK SMITH (186-204)

Mr. Smith, who said he spoke for 10 independent ore producers in the Georgia region, contrasted the contract which Republic Steel Corp. had with the producers in 1923, which specified that the order could be canceled by either party on 30 days' written notice, with the 1950 contract, which gives the corporation the right to all the ore produced by the companies and provides cancellation at the wish of the steel company. Also, the ore producers are forbidden to sell to any other company. In 1923 Republic paid the freight charge; in 1950 the producers had to pay the charge. Republic started using their new contract in 1928, soon after they bought out Gulf State Steel, the last independent steel purchaser in the district (186-189).

Witness was offered 12 cents a unit for three cars of ore a month by the Atlantic Steel Co., but the deal was countermanded by Republic, which was paying 6 cents a unit. The reason why the producers sign exclusive contracts with Republic is that the steel company is the only buyer of their contract. When the witness tried to sell to United States Steel he was told by Arthur Blair, ore agent for one of the corporation's subsidiaries: “We would like to have your ore. It is worth more to us than you are getting, but because of our arrangement with Republic Steel we cannot buy any ore from you" (191). Another producer made arrangements with American Rolling Mills, Middletown, Ohio, for sale of ore, only to be informed later by the mill that they could not deal with him because he was in the Birmingham territory. J. R. Dellinger, soft-ore producer in the Georgia area, was about to close a deal with the Oglebay-Norton Co., of Cleveland, and so informed W. S. Sanford, a Republic Steel representative. The deal was subsequently called off (190-194).

In 1923, when the price of ore was double the present price, there were seven prospective buyers. Today Republic is the only prospective buyer (195). Ten other ore-deposit operators in the Georgia-Alabama district share the sentiments of the witness about conditions in the district but are reluctant to come forward and speak for fear of reprisals (196).

Witness quotes Verne D. Johnston, of Oglebay-Norton, to the effect that he had seen more ore in the Georgia-Alabama district in 3 days than he had seen in the whole State of Texas, and that the Government in wartime should have developed this area rather than the Texas one (197).

Committee Counsel Levi summarized Mr. Smith's testimony as follows; (1) Witness believes he has good ore available and wants to sell; (2) witness has had contracts to sell, but these contracts have in them provisions that Republic can stop orders at will. Witness may not sell the ores covered by the contract to anyone else without permission of the corporation, even when latter has stopped buying; (3) when witness talked to the representative of United States Steel Corp., he was told by them that he was on the list of Republic Steel and that therefore he could not sell to the former corporation; (4) witness has testified that American Rolling Mills, Armco, and Oglebay-Norton have shown some interest in his ores, but that they have never actually entered into an agree ment with him; (5) witness is representing other operators in his district (200-201).

The witness was questioned as to whether he had ever made any complaints to the Federal Trade Commission or to the Antitrust Division of the Department of Justice, that the Sherman antitrust law was being violated. Mr. Smith's only recourse to Government aid was through his Congressman, to whom he appealed on the matter of freight-rate increases (202).

TESTIMONY OF C. M. WHITE (205-246)

In commenting on Mr. Smith's previous testimony, Mr. White stated that there is no agreement of any kind between United States Steel and Republic concerning the purchase of ore in the Georgia-Alabama region or in any other place. As for the exclusive contract between Republic and the ore producers, the witness' interpretation was the same as Mr. Smith's but he contended that it was necessary to assure a steady supply of raw material. As for the breaking off of the contract, the witness stated it would have been foolish for Republic to pay Mr. Smith the same price for an inferior grade of ore as a competitor was paying for a high-grade ore. (206).