The criticism which is most fundamental, and which properly has been one to which committee members have directed considerable attention, relates to the question of monopoly power. Mr. Bradford Smith's comment on my testimony on this points up an important question of policy.

In the course of my testimony I was questioned at some length with respect to my opinion about monopoly power and its exercise.

Mr. Smith says that by power to monopolize I seem to mean producing a lot of goods and services for satisfied customers. The opposite is the case. Does Mr. Smith disagree that the most efficient use of the country's resources is achieved under a system of free competition? Monopoly power is incompatible with competition and inhibits the kind of maximum production which is in the public interest. I have not said nor do I hold that monopoly power is synonymous with bigness or productiveness. It is relative bigness, not bigness per se, that is relevant to the question of monopoly power.

There need be no misunderstanding. By monopoly power I mean that kind of power which enables those who possess it to appropriate and administer functions which under competition are determined by the impersonal forces of buyers and sellers in the market.

Mr. Smith seems to believe that an antitrust program adequately serves public interest if it is limited to ferreting out and eliminating abusive tactics and restrictive activity. He says, for example, in this connection: "It is in the searching out and elimination of coercive restriction of output whereby monopoly, as it is ethically understood by most Americans, can be prevented and competition thereby maintained."

Mr. Smith points to only one aspect of an antimonopoly program. This alone is not enough. It would place an unwarranted burden on enforcement officials. The Sherman Act is no malpractice statute. Antitrust laws can and should do more than this. Furthermore, courts have increasingly recognized the importance of forms of organization which are themselves inimical to standards of effective competition. To limit the monopoly problem as Mr. Smith would limit it runs the serious danger of playing into the hands of those who would adopt alternative systems of public policy on the ground that antitrust enforcement cannot be adequate.

Mr. Smith goes further. He admonishes against restriction or punishment of power without regard to benevolence or malevolence. He hereby embarks on that "sea of doubt" which Mr. Justice Taft so eloquently cautioned against in a landmark opinion. (Addyston Pipe case).

If it had been necessary for courts to distinguish between malevolence and benevolence, between helpful or hurtful cartels, between good trusts and bad trusts, or to differentiate just prices from unjust prices, our antitrust laws would long since have become meaningless, or converted to instruments of business regimentation. This comes of not recognizing monopoly power.

Perhaps a brief example can point up what is involved in the phrase monopoly power as I have attempted to use it. If 8 or 10 competing producers, jointly supplying from 30 to 60 percent of the market for the product of their industry agreed among themselves to apportion business or jointly to fix prices, such an arrangement would and should, in my judgment, be a violation of law. This would be so irrespective of the fairness of the prices or the benevolence of the allocation. Mr. Smith, I believe, might agree. I say such a combination has monopoly power.

Now, if this same group merged into a single concern (even without coercion) the economic result would involve just as much if not more monopoly power as in the case of the "cartel." Probably it would involve more power because the arrangement allows less freedom and because the danger of breaking away is eliminated. This latter case represents a departure from effective competition just as does the former. This is irrespective of how the power is exercised.

Mr. Smith's reference to “monopoly power" as a term of many meanings, implying loose, or "theoretical" thinking, not applicable to real and practical problems, is no answer at all. There reed be no such confusion. Either free competition is a desirable guide for public policy or it isn't. I think it is. If it is not, then another standard is required. Where is it?

Mr. Tyson's comments (May 16, 1950) relate to four principal subjects in addition to the tabulating errors to which he calls attention:

1. Comparison of finished steel shipments and ingot production (table 1, line 4) Mr. Tyson comments, "Mr. Bowman showed that in the prewar years 1939 and 1940, and in the postwar years 1946, 1947, and 1948, United States Steel secured

a yield of finished products from ingots below that of the steel industry in all but one year." Then Mr. Tyson makes the obvious point that the figures shown (ingot production and finished steel shipments) do not and were not intended as originally compiled to show yield. It has not been contended that the figures, presented in table 1, measure yield. In fact, the use of the term "yield" is Mr. Tyson's, not mine.

Irrespective of one's views about the interpretation of the table, the figures do show that United States Steel shipped less steel in relation to ingots produced than the rest of the industry in 4 of the 5 years indicated. I listed a number of factors that might account for the differences shown. They might be accounted for, at least in part, by differences in operating efficiency (yield?), in addition to the other factors mentioned. Mr. Tyson does not deny this. Neither does he explain how differences in reporting, or other factors which he mentions can fully account for the results shown.

Mr. Tyson apparently feels that an improper inference is occasioned by including among other possible explanations reference to what he calls yield. I also explained that the differences could arise from better quality control by United States Steel. Would Mr. Tyson contend that this was disparagement of United States Steel's competitors?

2. Limitations on production data and double counting

Mr. Tyson's criticism here is that I interpret production figures as though they showed market participation. That is, if I understand him correctly, that I treat figures showing United States Steel's production as a percent of total production by products as if they were shipments to the trade. If this were true, an erroneous impression could be created, especially for products which are produced for further production in the company rather than for sale. But I find no basis in the testimony for concluding that the committee was mislead. Then, too, the tables are clearly headed "capacity" and "production.”

Now, if the figures are recognized for what they are, there seems to be ample reason for presenting production data on both semifinished and finished products. An allegation of double counting in this connection is not relevant. It seems too obvious to stress that a monopoly committee might be interested if, for example, a company produced 100 percent of a semifinished product and, say, 40 percent of the finished product which was made from this semi-finished material.

Mr. Tyson also comments that failure to recognize such realities as the fact that seamless tube competes with other kinds of pipe, leads to wholly erroneous conclusions. It is not made clear to what conclusions he is referring. It is, of course, true that many if not most products have substitutes for at least some of their uses. For some purposes different kinds of pipe may be substituted, for other purposes substitution may be made with difficulty or at great expense, and for still other purposes no substitution is feasible. This coin also has another side. Three-inch pipe does not compete with 24-inch pipe, although the production figures do not make such a breakdown possible. There are numerous specifications and gradations for all steel products. For example, the committee was told by a west coast fabricator that there were only two sources in the country for wide-flange beams. The figures presented for capacity and production by United States Steel concealed wide-flange beams in the general category "structural shapes."

3. Sample data by geographic areas (tables 1a)

Mr. Tyson says, "Mr. Bowman has taken a special-purpose report of the Senate Special Committee to Study Problems of American Small Business and applied selected and incomplete information to reach the conclusions he expressed in his testimony that United States Steel was dominant in certain areas and certain products." Mr. Tyson also states that despite my frank admission of the obvious fact that the incomplete data contained in the Senate committee's report were an overstatement of United States Steel's participation in the various market areas, I proceeded to use it for that purpose.

As was clearly pointed out in testimony, these tables reflect the position of the United States Steel Corp. in certain geographic areas among 14 principal steel-producing companies with respect to 5 products. For each product total capacity, production, and United States Steel's percent are shown for the years covered by the tables as contrasted with the 14 company totals shown in the body of the tables. Of course, it would have been preferable to have shipments of all companies included, as well as to cover more products and more years.

Mr. Tyson seems to feel that I loaded my interpretation of the tables by use of the term "dominant." A statement in question is as follows: "In general, it

can be said that when the corporation's position among the products reported is dominant for the country as a whole it tends to be dominant in all areas."

The point is that in general the corporation's proportion of the sample does not vary consistently-high in some areas, low in others. The seamless tube percentages, as related to the sample, are substantial in all regions, for example. Were it the purpose of these tables to ascribe position of dominance, in the monopoly sense, the corporation, scarcely less suitable products for such a purpose could be chosen than hot-rolled sheets, cold-rolled sheets, hot-rolled bars and butt-weld pipe. The relative production by United States Steel of each of these is substantially below that of United States Steel's proportion of total steel production. United States Steel's relative production of these sampled products in 1947 was 20.5 percent, 13.3 percent, 20.2 percent, and 18.1 percent, respectively, compared to ingot production of more than 33 percent.

Mr. Tyson's criticism in this connection would have been considerably more useful had he indicated in which areas the sample misrepresented the relative participation of United States Steel by areas. That was the purpose of the tables.

4. Profit data (tables 2, 2a, and 2b)

Mr. Tyson comments that the comparisons included in the tables presented, showing higher rates of return for iron mining and railroad subsidiaries than for steel making, cover only years of high production and high income. That is true, as is the statement that the iron-mining subsidiary had losses in some prior years not shown. The point of Mr. Tyson's comments in this connection is not entirely clear. Is it to be inferred that current high returns on ore mining are or can be designed to balance past losses which were no greater than in steel making, in a manner different than among steel-making subsidiaries?

It is said that I have disregarded the fact that iron ore is directly or indirectly mined by members of the steel industry or companies in which such members have interests. But it is precisely because of the high degree of integration in the steel industry that a monopoly committee concerns itself with various operations at the several stages. Furthermore, the degree of integration varies greatly among steel-making concerns.

From the time of the corporation commission steel investigation in the early part of the century up to the present time the iron-ore situation has been pointed to as a strategic point for possible monopoly power. That is not to say that profit data is at all conclusive with respect to the issue. On the other hand, many analysts including United States Steel representatives have on a number of occasions cited profit data as evidence of competition or its absence. There is no basis in the testimony for concluding that the profit data is conclusive on the point. The committee has been presented with a great deal of information relating to the raw material position of United States Steel.

This leads to Mr. Bradford Smith's criticism in this connection. Mr. Smith questions the propriety of presenting profit information on subsidiaries of United States Steel. Although there are those who believe that profit data are irrelevant to an inquiry into competition and monopoly, Mr. Smith is not one of those. Mr. Smith himself prepared a pamphlet for the committee entitled "Facts About Concentration and Profits in the Steel Industry." On page 12 of this pamphlet he says, "While the presence of exceptional profits may reflect superior management or factors other than monopolistic conditions, certainly the absence of exceptional profits may be taken as an indication of competition."

Even though Mr. Smith's explanation conspicuously omits reference to poor management, and other factors in addition to competition as explaining the absence of high profits, he falls somewhat short of denying their pertinence. Mr. Smith criticizes profit figures on subsidiaries as "departmental" profits. He implies they are misleading. The committee invited United States Steel to submit any alternative data it might choose. Mr. Smith has not done so. Neither does he state how the material should be revised or corrected.

Mr. Smith comments as follows with respect to the interpretation of profits: "If a company or, in Mr. Bowman's case even a department of a company, earns a large profit ("large profit" being undefined) then that is "proof" that it is monopolistic; if, on the other hand, a company (or in Mr. Bowman's case a department of a company, makes a small ("small" being undefined) profit or loss, then it is per se monopolistically inefficient and should be broken up so that it could become more efficient and more profitable."

Mr. Smith has erected a straw man. My testimony does not give the slightest indication that I hold such views. If Mr. Smith has found any testimony that

high profits prove monopoly and that low profits indicate per se inefficiency requiring breaking up companies, I gladly join Mr. Smith in the observation that it has no merit.

Varying policy standards

Mr. Smith complains that he is somewhat confused by what he calls the double standards with which his industry is confronted in Washington. This criticism arises, in part at least, because United States Steel has been criticized in other quarters recently for raising prices. Certainly this does not indicate that Mr. Smith, or those he represents, favors Government regulation, supervision, or prior Government approval of price changes. But Mr. Smith wonders if I know what competition really is because I suggest the possibility of nongovernmental monopoly power when I see private rationing, gray markets, and administered prices that can be too low as well as too high.

There may well be varying standards for business in Washington and certainly elsewhere. Also, it is perfectly obvious that business enterprise cannot live by all of them. It is my view that the standard that deserves support is the competitive standard of the market place. The danger it faces comes from the private as well as the public sector.

WARD S. BOWMAN,

Research Associate, the Law School, University of Chicago. The CHAIRMAN. Any further questions? Otherwise our next witness is Alfred C. Neal, vice president and director of research, Federal Reserve Bank of Boston, Mass.

Dr. Neal, will you state for the record your name and address? Mr. NEAL. Alfred C. Neal; address, Federal Reserve bank, 30 Pearl Street, Boston, Mass.

STATEMENT OF ALFRED C. NEAL, VICE PRESIDENT AND DIRECTOR OF RESEARCH, FEDERAL RESERVE BANK OF BOSTON

Mr. NEAL. I am making this statement on behalf of the steel committee of the New England Council.

I understand that you want me to tell you why New England needs an integrated steel mill and why we believe that such a mill is economically justified.

The CHAIRMAN. Doctor, you are appearing here under a subpena; are you not?

Mr. NEAL. Yes, sir.

The CHAIRMAN. You may proceed.

Mr. NEAL. I have a short statement which I have prepared in answer to those questions; however, before I give you that I would like to make it perfectly clear whom I represent and the assumptions upon which we carry out our activity.

I am appearing on behalf of the steel committee of the New England Council. The New England Council is an organization composed of people, representing all major segments of the New England economy, who are interested in New England's problems and seeking its further development. The New England Council is wholly financed by voluntary contributions from its more than 2,300 members. The steel committee of the New England Council is a group of business and professional men who are working voluntarily and without pay to promote the establishment of an integrated steel mill in New England.

So that there will be no misunderstanding of where we stand, I should like to make it clear that we are in favor of having a steel mill established in New England by private enterprise, preferably by one of the existing steel companies. I think that I can speak for every member of the steel committee when I say that we are opposed to

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nationalization of the steel industry or to Government control of the operations of that industry. We are, to be brief, wholly committed to the philosophy that our best hope for the future economic growth of this country, as well as for New England, lies in preserving and strengthening a free competitive private-enterprise system. We are trying to do our part to strengthen competition in the steel industry by introducing a new mill; we not only believe in free enterprise-we are trying to practice it.

Now to the first question: Why do we need an integrated steel mill in New England? By an integrated steel mill we mean a mill which starts with iron ore, coal, limestone, and similar raw materials; it converts these materials into pig iron, which it then further converts into steel ingots, which in turn it converts into finished steel in the form of sheets, plates, bars, and similar products. There is no such mill now in New England and, in fact, the nearest integrated mills of any importance are in the Baltimore area, in eastern Pennsylvania, and at Buffalo, N. Y.

New England is an area with 9,300,000 people, a very large proportion of whom derive their living from manufacturing 4 out of every 10 workers are employed in manufacturing, which is a considerably higher proportion than the national average of about 3 out of 10. This mainstay of New England's economic life, manufacturing, has been subject to a long-term downward trend. We are employing about 14 percent fewer workers in manufacturing New England than we did 30 years ago, whereas the Nation is employing about 39 percent more. Manufacturing in New England suffered relatively more than the Nation from the recession which occurred during the last half of 1948 and the first half of 1949. This is shown in part by the fact that during this period employment dropped off more in New England than it did in the Nation and has not recovered proportionately as much. For example, manufacturing employment in New England in February of this year was 14 percent below the level of February 1948, a period prior to the beginning of the recession, whereas manufacturing employment in the Nation was only 8.7 percent below the February 1948 level. We have lost more than 200,000 jobs in manufacturing since February 1948.

The seriousness of the recession in New England is also indicated by the fact that in the middle of last year we had one-half of the socalled distress areas classified by the Department of Labor as having more than 12 percent of the labor force employed. We still had 30 percent of such distress areas as of February 1950. We have, in the area that would be benefited most by the establishment of a steel mill, a surplus of male labor looking for jobs.

I have given you these few figures to indicate that New England's position in manufacturing has been somewhat weak. Many of my friends do not like to mention these figures, and I want to add here that I believe New England is and will continue to be an area of opportunity for new economic growth. Because the area is shifting the character of its manufacturing, however, it shows the weakness indicated. Its losses have occurred mainly in textiles, shoes, and some of the other nondurable goods industries. It has been gaining, especially in recent years, in the metalworking industries. These industries account for most of the modest gain in manufacturing employment that