INVESTIGATION OF ACTIVITIES OF THOSE ENGAGED IN PURCHASING COTTONSEED OIL, ETC.

HOUSE OF REPRESENTATIVES,
COMMITTEE ON RULES,

Monday, February 10, 1930.

The committee met at 10 o'clock a. m., Hon. Bertrand H. Snell (chairman) presiding.

The CHAIRMAN. Mr. Patman wants us to consider a resolution that he has introduced, House Resolution 77. We can give you 10 or 15 minutes, Mr. Patman, if you can make your statement in that time.

STATEMENT OF HON. WRIGHT PATMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. PATMAN. Mr. Chairman and members of the committee, I appreciate the fact that I shall have as much as 15 minutes, Mr. Chairman, but it will take much longer than that to intelligently tell the committee what the situation is.

The CHAIRMAN. We do not want to go into every detail of it. If you can outline the purpose of your resolution in that length of time, we have some other matters we want to consider.

Mr. PATMAN. In order to let the committee know something about the importance of this investigation, it will first be necessary that I tell you something about the cottonseed industry.

In the South, with every bale of cotton there is produced almost half a ton of cottonseed. Ordinarily, the farmer carries a 1,500 bale of cotton to the gin and out of the 1,500 pounds of seed cotton, between 925 and 975 pounds of seed are produced.

There are produced in the South from four to six million tons of cottonseed each year, and the value of the seed, of course, has ranged all the way from $20 to $75 in the last few years.

The commodities produced from cottonseed-the principal commodities are the oil, hulls, lint, and meal, and one can very quickly determine the price that cottonseed should be worth by first determining the value of the commodities that are produced from cottonseed.

If we will take the value of commodities that were produced from cottonseed during the last season, 1929, we will discover that cottonseed, after deducting a reasonable marketing cost, should have been selling for around $40 to $42.50 a ton.

Heretofore, the dairy farmers of the East and West have been able to buy their cottonseed meal for the same price per ton that the farmers of the South sold their cottonseed for. But for some reason, some unknown reason, at the beginning of the last season,

1929, cottonseed meal was from $8 to $15 a ton higher than cottonseed. No one seemed to understand that. Heretofore, for years and years, I will venture to say for 15 years, the price of cottonseed meal and cottonseed were approximately the same, and we did not understand why the cottonseed market was from $8 to $15 a ton above the price of cottonseed.

If that is true, the farmers are deprived of from $8 to $15 a ton on their seed, which is from $4 to $7.50 a bale.

That means that the farmers of the South were deprived of from $50,000,000 to $100,000,000 last fall. That means that the manufacturers of the East were deprived of that much selling power in the South.

Some manufacturers are grumbling about not being able to sell their goods in the South. Why? It is because the purchasing power of the southern farmer has gone down $50,000,000 to $100,000,000; it went down that much last fall, and it was due to one thing. That is the organization and the existence of an unlawful trust.

Every person that is connected with cottonseed, from the time it leaves the farmer, has been organized into one industry. They belong to one great organization. They assess a tax against every part of that commodity that is made from cottonseed for the purpose of paying the expenses of this illegal trust.

Going to the bottom of it, I want first to invite your attention to a report that was made by the Federal Trade Commission on this item.

I presume that all the members of the committee are acquainted with this resolution generally; am I right in that assumption? The CHAIRMAN. I think so.

Mr. PATMAN. That is to investigate the Cottonseed Oil Trust and also investigate the Federal Trade Commission's connection with it.

I am charging that the Federal Trade Commission is guilty of having organized that trust, and I am not making the charge either, Mr. Chairman, without being able to substantiate it, and corroborate it by the facts.

A few years ago Mr. Rutherford of Georgia introduced a resolution asking the Federal Trade Commission to investigate a Cottonseed Oil Trust and there was one at that time, and I will tell you why there was. During that season that I am speaking of, the cottonseed oil mills bought farmers' seed for $21 a ton, on the average, and sold the finished products for $50 a ton, or a spread of $29 a ton. That was in one season. For some reason, the trust broke up. This investigation might have had something to do with it.

The Federal Trade Commission, in investigating this trust, found that the farmer usually disposes of his seed at the gin; not necessarily sells it there, but he has no place to keep his seed. He has got to leave it somewhere and he leaves it in the ginner's warehouse. That is what he usually does. That is, if the price is not right. If the price is right, he sells it right then and there. If not, he will store the seed in their warehouse and sell the seed later on. That is what the Federal Trade Commission reported.

It further reported that there had been considerable cooperation among the members of that industry, and in this cooperation they have often discussed coming to some price agreement. The Federal Trade Commission reports that, although they deny that they did

come to any positive agreement, they admit that that subject was discussed at their meetings; set prices were discussed and they failed to come to any agreement.

But this report is full of statements from different millers and refiners, which show on their face that they had a determination to fix the price of cottonseed, the price that the farmer should receive for his cottonseed; and notwithstanding that fact, this report being made in March, 1928, the Federal Trade Commission, making that report and knowing the intention of that industry, went ahead and in the face of the fact that there had not been a complaint by any member of that industry in two years or longer-a complaint against an unfair trade practice-they went ahead and voluntarily called the members. of that industry together, 95 per cent by volume, from every one of the Southern States and from the North where they were interested in the refineries-got them together at Memphis and organized one big trust. And when I say one big trust, I mean an illegal trust and monopoly.

Mr. BANKHEAD. You say the Federal Trade Commission took the initiative and called that meeting?

Mr. PATMAN. The Federal Trade Commission took the initiative and called that meeting. General Counsel Benet, of South Carolina, has been working on this for years. He has been trying to organize this trust. He has been going around holding meetings in my State and everywhere else in the South, getting the refiners and the bankers and the millers-everybody connected with cottonseed except the farmers-together in little group meetings and preparing for this one big organization.

In Memphis, on July 24, 1928, they had that meeting. At this meeting, this General Counsel Benet, was the man who mainly participated, outside of the chairman of the Federal Trade Commission, who presided.

I have the names here. There were only about 15 or 20 who actually took any part, but they did represent a large part of the cottonseed industry.

Take one concern, the Southern Cotton Oil Co.; they own more than 50 oil mills in the South. They own a number of refineries all over the United States. They control a large part of the cottonseed industry and they are the ones that took a leading part in this matter, too.

They met there, as I say, at Memphis. I have a copy of the proceedings of that meeting. There was a stenographer present, whose address is 217 Broadway, New York, there, to take down the proceedings. He transcribed his notes and the transcripts are for sale to the public. I obtained a copy from the secretary of the Federal Trade Commission. I just want to invite your attention to what was done at this conference. Remember, the Supreme Court of the United States has repeatedly held that it is a violation of law for any trade association to put out information about what they expect to pay for a commodity. They can put out information about a past or closed transaction. That is perfectly legal. But whenever you put out information about a proposed price, a bid price, you are violating the antitrust laws of the United States.

What was the Federal Trade Commission organized for? I wish I had the time to tell you, to go into the history of it. It was indorsed by both parties.

The name was given to it by the Republican Party although the Democratic Party was in power at the time. It was organized for the purpose of breaking up trusts and monopolies, and it was not organized for the purpose of organizing trusts. From 1914, when it was organized, until 1919 a Federal trade conference was never thought of.

But in 1919 they got one industry together for the purpose of defining rayon-apparently some little insignificant something which was all right. But from that time on they have continued that practice and enlarged on it until now they are organizing one of these trusts almost each day. There are hundreds of thousands of these industries which are clamoring for the privilege of having the Federal Trade Commission organize them into a trust, which they call throwing the cloak of legality around them; and it is throwing the cloak of legality around them.

Here is Mr. McCulloch, the chairman of the commission, presiding at this meeting. I have a list of the names of the companies who were represented there.

Here is Mr. McCulloch, the chairman of the commission, presiding at this meeting. I have a list of the names of the companies who were represented there; Swift & Co., Armour & Co., and these big soap makers, Procter & Gamble-all those people had their representatives there, everybody, except the farmer, was represented. There was nobody there to represent the farmer and nobody there to represent the consumer.

At this meeting the first resolution that came up was one to set a bid price on cottonseed, which is a direct violation of the laws of the United States:

Resolved, That each mill shall make public immediately all prices paid or bid for cottonseed and all prices received for products thereof or at which they are offered for sale, and report any just or fair and reasonable price, and failure to report said price paid or bid for cottonseed or prices received for the products of cottonseed, and so forth, is hereby declared to be an unfair method of competition.

Mr. PURNELL. That refers to prices paid?

Mr. PATMAN. Yes, and to bid prices.

Mr. PURNELL. Does that have reference to future bids?

Mr. PATMAN. Absolutely. The discussions at this meeting, Mr. Purnell, disclosed that it was intended for future prices.

Chairman McCulloch first took issue with them. He said: "Why, gentlemen, you can not do that. It is a violation of the laws of the United States." Nine-tenths of the proceedings of this meeting were taken up by a discussion of that one item. That is what they met there for; to set the price of cottonseed; and Mr. Asbury who is the head of the Southern Cotton Oil Co., in New Orleans, which owns all these mills all over the Unted States, made a long speech in which he said, "We have got to do that. That is what we want to do," or words to that effect.

The CHAIRMAN. Let me ask you a question at this point, if I may. You say that the chairman of the Federal Trade Commission told them that was against the law?

Mr. PATMAN. At first, he did. He said, "Gentlemen, of course, I will take back to the commission anything you pass, but we want to put it in form so it will not show on its face to be a violation of the law." That is what he said; that is his exact language. He said, "We want to put it in form so it will not show on its face to be a violation of the law."

That was his object, not so much that he opposed the resolution, but he opposed it in the form in which it was at that time, which showed on its face to be a violation of the law.

Mr. PURNELL. Who was the chairman?

Mr. PATMAN. Mr. McCulloch.

Mr. BRAND. What State is he from?

Mr. PATMAN. He is from Arkansas.

Mr. BRAND. I thought he was from South Carolina.

Mr. PATMAN. No; he is from Arkansas.

There is a good deal of the discussion here that I would like to read, but I know I have not got the time and I do not want to impose on you any longer than I have to.

Mr. BANKHEAD. To follow that up just a little, what did Mr. McCulloch subsequently do? Did he make some suggestions to show how they could continue to violate the antitrust law and yet apparently be operating within the law?

Mr. PATMAN. Absolutely. Here is what he said:

Mr. Benet, who was general counsel for this association said, "Mr. McCulloch, do you mean to say we are going to have to put in there the prices we have been paying? We do not want to do that. We want to let them know we are going to pay the bid price." Chairman McCulloch in substance said: "You have got to change the language. Let us change it so it will not detract so much from the substance but so that the form will not show on its face to be a violation of the law." Then he said that the way to change the resolution would be to say, "The prices we have been paying for cottonseed." He said, "Do not make it 'have been paid.' Do not put it in the past tense," in other words, to show the price paid for cottonseed. He said that would have the same effect and would not show on its face to be a violation of the law.

Mr. MICHENER. Does that resolution have to do simply with the price bid or paid

Mr. PATMAN (interposing). Absolutely.

Mr. MICHENER. Wait a minute-price bid or paid for cottonseed by itself to the farmer, for instance, or would it affect the price bid or paid for the products of cottonseed?

In other words, was it the purpose to show what they got for these various by-products of cottonseed?

Mr. PATMAN. They were not talking about that. They were talking about cottonseed prices they were going to pay the farmer. Mr. MICHENER. I am talking about that resolution. You were referring to a resolution.

Mr. PATMAN. That is on cottonseed.

Mr. MICHENER. It not only affected cottonseed, but it affected the products of cottonseed?

Mr. PATMAN. Yes; they included them all.