destination, and the two mills had identical published prices at their points of production. In those cases, and only in those cases, could the price be the same.

Mr. WILLIS. In connection with that Navy contract, those were sealed bids too, were they not?

Mr. AUSTIN. I would assume so.

Mr. WILLIS. And what made the prices identical was the basing-point system which was condemned by the Supreme Court as you said in the Cement case.

Mr. AUSTIN. Regardless of system, any system, the competition will reach a leveling-out point, it seems to me, on any product anywhere, under any system, or no system.

Mr. WILLIS. Up to 4 and 5 decimal points under sealed bids?

Mr. AUSTIN. Yes.

Mr. BRYSON. You are assuming that is true in open competition with no connivance?

Mr. AUSTIN. I am assuming that it is true competition, sir.

Mr. DENTON. Do you not have some factories that operate more efficiently? You have several rolling mills in your organization. Do you not have some that operate more efficiently than others and produce products cheaper than others?

Mr. AUSTIN. Yes.

Mr. DENTON. And as between different companies, will not that same condition prevail, that one will be more efficient and produce a product cheaper than another?

Mr. AUSTIN. To a degree and varying daily with the demand and the load, product by product, product mix, with all those variable factors included, I am sure that on occasion results, yes.

Mr. DENTON. Now how could they get six bids within four decimal points of another just by chance?

Mr. FAIRLESS. Might I use just a simple example? Here_[illustrating] is the customer, here is a producer. Here are other producers. Here is the nearest one to the customer. He has published his price for the product so he quotes his price including the delivery, transportation charges from here to here. The only way this fellow farther away can get in or this other fellow can get in is by absorbing freight, the difference in the freight, from this producing point to the consumer as against the freight that is involved here. So therefore these identical prices result in this competitor closest to the customer here setting the price, and these fellows knowing the only way they can share in the business is to meet it. Today you cannot do that. Today what happens is this: This fellow closest to the customer quotes his price and his freight, this fellow farther away cannot compete, this fellow cannot compete, and no one else can compete.23

Against these strong statements, and the apparent conviction of most if not all industry leaders, that strong price competition exists within the steel industry, must be placed the statements of other witnesses who see the price situation within the steel industry from a different point of view. Each of the economists who were called upon to give independent testimony maintained that there was a substantial degree of price leadership within the steel industry. They agreed that there was no significant evidence of widespread collusion or explicit agreement on prices among the large steel companies. However, as Arthur Robert Burns, of Columbia University, expressed it:

The most important single influence affecting the making of prices in the steel industry is the leadership of the United States Steel Corp. This is not any mechanical or perfect leadership; there are times when other firms make changes in price before the United States Steel Corp. and there are times when other firms charge less than the steel corporation. But, over the long period, the most important immediate influence affecting steel prices is the prices of the corporation.

I am not suggesting that this influence of the United States Steel Corp. results from any sort of agreement. But, in an industry where there is one firm considerably larger than all the rest, it is natural for firms to feel that they cannot advance their price if the largest producer in the industry is not ready to, or has not already advanced his price. In ordinary times, it is also very difficult for

firms to reduce their prices if they know that the largest firm in the industry will not do so. The only result will be a great shift of business from the firm that does not reduce its price to those that do.

The essence of the matter is that the mere existence of a large seller in an industry causes other firms, perfectly rationally and morally, to take account of the large seller's policies with regard to price. There have been conflicts in the steel industry, but over the stretch of time the existence of this large firm greatly affects prices.

Steel prices are almost always uniform from firm to firm for the same product, except for very short periods of time. This uniformity is not in itself evidence of either monopoly or competition. Under a complete monopoly, prices would usually be uniform. Under most conditions of competition, prices might differ among sellers, but there would be a tendency to uniformity.

Secondly, it is more important, that over the years steel prices have been more stable from times of good business to times of bad business than prices in many other; particularly raw-material industries.

*

*

* the steel industry * * * frequently contends that the industry is very competitive. For the most part, this statement is true, but it is important to ask what kinds of competition exist. There is more than just one kind of competition. Some kinds of competition work out in the public interest and some work out less well. The great emphasis in industries like steel is that there is a lot of competiton in quality and in service. Expenditure on quality and service in the steel industry, and similar industries, is to be expected if there is little competition in price. If the buyer finds that almost all of the sellers are charging the same price, he looks for other benefits, which frequently involve sales cost and service effort. Some of this selling effort provides services which are worth what the buyer pays for it; some does not. But the buyer has no choice.24

Kenneth Hunter, chairman of the department of economics of American University and supervisor of the Department of Labor report on consumer steel prices, quoted above, came to substantially the same conclusions as Burns. He stated:

The three largest firms control 56 percent of the total ingot capacity and the most important firm, the United States Steel Corp., is the acknowledged price leader. * * * There is price competition in the steel industry only when mills are operating well below capacity and only then on a sub rosa basis below published prices.2

25

In a concise statement, George J. Stigler, professor of economics at Columbia University, maintained, similar to the two previously mentioned economists:

Over long periods, prices [in the steel industry] average more than they would with greater competition. The rigid prices in depression contribute to the contraction of employment and output, and, what is more important, monopoly has adverse effects on private investment. On the other hand, price rigidity during inflation leads to arbitrary allocations of products among buyers, and discourages desirable expansion of capacity.26

Finally, George Stocking, professor of economics at Vanderbilt University, presented the general setting in which steel-price operations may take place:

Most economists recognize that where a few large sellers dominate a market both logic and experience may teach them that price competition does not pay. If one firm lowers its price in periods of slack demand, others will be quick to follow. If the demand for their product is inelastic-as the steel companies contendeach may find itself selling about the same amount at a lower price as it could have sold at the higher. Price leaders are apt to appear in such industries. The price leader is generally the biggest firm. Its rivals, frequently without an overt agreement, may accept its lead. Sometimes concerted action may be necessary

24 Hearings, pp. 839-843.

25 Hearings, p. 770.

to insure effective price leadership. When the number of sellers are few, such concerted action may be so intangible that it can either not be detected or if detected may violate no statute. For these reasons most economists would probably hold that society's interest is best served when the number of sellers is as large as is consistent with the economies of mass production. The steel industry seems to correspond to the pattern.27

Thus the steel executives who testified at these hearings and the independent economists who testified may be seen to view the pricing policies of the steel industry from two quite different angles. While generally far apart, the steel executives and economists would appear to agree on certain points. The existence of some competition in steel is fairly well agreed upon-competition that is often demonstrated more in service, location, or special convenience than in price. The influence of the major steel companies in setting prices after consideration of costs, competitive advantages, and benefits to consumers, was apparent throughout most of the testimony.

The fundamental conflict arises in the contention by steel executives. that vigorous competition exists in the steel industry, in contrast to the statements of economists that the monopolistic or oligopolistic structure of the steel industry in the United States makes a truly competitive price policy impossible, and that the strictures due to this oligopoly are standing in the way of the maximum performance of the steel industry in the interests of the people.

We turn now to another crucial question upon which there is fundamental disagreement: has the steel industry increased its capacity sufficiently to meet the needs of the American people?

VI. STEEL CAPACITY

The adequacy of the steel capacity of the Nation has long been a matter of substantial differences of opinion between men in the steel industry and others. That difference of opinion was also exemplified at these hearings.

In general, the representatives of the steel industry stated or implied that the steel industry was continually building up its capacity and was doing so at a rate sufficient to meet the Nation's demands for steel. Ernest S. Weir, chairman of the National Steel Corp., for example, stated:

There has never been a steel shortage under normal conditions in my experience. The steel industry has always had capacity exceeding current demand. In fact, it has always built in advance of demand. In the past 50 years, the public requirement for steel has amounted to an average of only 70 percent of steel capacity. Remember that this half century includes the super demand of two world wars and two postwar periods. Obviously, in the very great majority of these 50 years, therefore, the industry has had capacity to supply a great deal more steel than was required.28

And at a later portion of his testimony:

I don't think anybody is suffering really for want of steel, Mr. Celler. Look at the enormous development in the production of all sorts of articles fabricated from steel. More automobiles today than ever in our history.

Now, I have pointed out here that we have lost 29,000,000 tons of steel through labor troubles; we lost 10,000,000 beginning with last fall. If we had those 10,000,000 tons there would be no shortage of steel any place, if there is any today. I don't know of any that amounts to anything.

27 Hearings, p. 972.

* I say that before the end of the year there will be a surplus of steel available for New England and every other place in the United States. There would be a surplus of steel available for New England today if we had not lost this 10,000,000 tons. There is no shortage of capacity for steel.29

The adequacy of the steel capacity was most explicitly challenged by Louis H. Bean, economist in the Office of the Secretary, United States Department of Agriculture. His thesis may be seen from the following excerpts from his testimony:

Steel capacity is now at a record level. For the whole year of 1950, in view of current expansion programs, it will amount to about 100,000,000 ingot tons, exceeding the wartime peak of 96,000,000. But to say that steel capacity is now at an all-time high does not indicate its adequacy. * * *

The record of steel production corroborates the conclusion that steel capacity of at least 100,000,000 tons would be about normal for 1950 and that an annual increase in that figure by perhaps 2,000,000 tons per year, as suggested by the long-time record, would be a normal trend of expansion for the 1950's.

The record of total demand for steel (domestic and for export) is a rising one. It tends to rise more rapidly than total population. Given full employment, it is likely to continue to expand. Forty years ago we were consuming steel at the rate of about 600 pounds per person; 20 years ago at the rate of 900 pounds per person. By 1941, consumption had risen to over 1,200 pounds and could have gone higher had more capacity been available. Today, according to that experience, we would be consuming about 1,350 pounds, or about two-thirds of a ton per person.

* * *

If now we can more readily accept a per capita consumption of 1,350 pounds (or two-thirds of a ton) as about normal for full employment it is clear that for the present population of 152,000,000 we need a normal full-employment production of about 100,000,000 tons. That, however, would be pressing present capacity to the limit. Capacity normally should exceed production required for conditions of full employment. * * * These considerations as well as the desirability of avoiding market-price advances either black or gray, during periods of full employment, suggest that for a normal production of 100,000,000 tons, normal capacity could be 110,000,000 tons or more.

Estimates of capacity and production requirements for full employment over the next 10 years will, of course, differ according to the estimates of population, growth in national production of goods and services requiring steel, the supply of ore and other raw materials, and many other considerations, technological, international, and strategic. It is probably sufficient for the present to suggest that if by 1960 per capita consumption should continue to expand to, say, threefourths of a ton per person, and if total population should increase at the rate of only 1 percent per year, say, to 165,000,000, we would need a total production of around 125,000,000 tons per year and a capacity to provide the necessary "elbow room" of at least 135,000,000 tons.29 a

This estimate on future capacity needs of the Nation may well be compared with that by James Boyd, Director of the Bureau of Mines, who stated:

The capacity on January 1, 1950, was 99,400,000 short tons but due to the critical raw material supply problem it is doubtful if substantial increases in this capacity will be made during the 5 years, 1950-54. During this 5-year period while foreign deposits are being developed and concentrating plants are being constructed in the United States, a substantial inadequacy of iron ore will persist if a high steel production rate is maintained and thus the construction of new steel facilities would be unwarranted. Consequently steel capacity estimates show a modest increase to 101,000,000 tons in 1952 with no further increase until 1955. Thereafter, however, as new iron ore deposits are developed and made available to the United States furnaces, it is estimated that steel capacity will reach 110,000,000 tons by 1960 and perhaps increase at a rate of 1,500,000 tons per year, or to 125,000,000 tons by 1970.30

29 Hearings, p. 823-824.

29a Hearings, pp. 788-791, passim.

Kenneth Hunter, head of the economics department of American University, was another who considered the problems of expansion in the steel industry. In response to a question by Congressman McCulloch asking whether he thought that conditions in America warrant the organization and construction of new steel facilities to the extent of a plant costing 150 or 250 million dollars, or more, at this time, Hunter replied:

I think my judgment is borne out by that of United States Steel Co. which announced plans for a large plant to be built in the neighborhood of Philadelphia, which, if I remember the figure rightly, will have a 2,000,000-ton ingot capacity. * * Taking into consideration probable future needs in the next few years, I think we could expand maybe to as much as 110,000,000 tons in the near future, as against the less than 100,000,000 tons at the present time.

*

You want to remember, however, that when steel demand is as high as it is now there is a tendency not to build steel plants, because steel plants take about a ton of steel for a ton of capacity, and if you build plants which won't come into production for 3 or 4 years, you are making the current shortage greater.

In my opinion that is one of the important reasons, probably, why steel capacity has not expanded to the extent that the steel companies might want it to at the present time.31

Following the close of these hearings there have been announcements by many steel companies on plans for expanding steel capacity, particularly after the beginning of the accelerated defense program that began with the outbreak of armed conflict in Korea. Earle C. Smith, chief metallurgist of Republic Steel Corp., submitted a timetable of steel capacity expansion at the Chicago meeting of the American Society of Metals during the last week of October 1950. The following table gives his estimate together with the estimates given above, which were submitted by witnesses at these hearings. It will be noted that Smith's estimate corresponds with that of James Boyd, submitted during the course of the hearings in April 1950.

Estimates on steel-ingot capacity in the United States, 1950-70

1 Earle C. Smith, chief metallurgist, Republic Steel Corp., in New York Times, Oct. 29, 1950, sec. 3, p. 1. James Boyd, Director, U. S. Bureau of Mines, hearings, p. 87 and exhibits, p. 2, Apr. 17, 1950.

Louis H. Bean, economist, Office of the Secretary, U. S. Department of Agriculture, Hearings, pp. 789, 791, May 4, 1950.

Kenneth H. Hunter, chairman, department of economics, American University, in Hearings, p. 776, May 3, 1950.

Steel capacity of at least 100,000,000 tons would be about normal for 1950 and that an annual increase in that figure by perhaps 2,000,000 tons per year, as suggested by the long-time record, would be a normal trend of expansion for the 1950's," Hearings, p. 789.

"In the near future," no specific date given, Hearings, p. 776.

"Recommended capacity for full employment, based on assumption that per capita consumption would reach 3/4 of a ton per person in 1960 and that population would have reached 165,000,000, Hearings, p. 791.