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ent upon it. Its opposition to S. 4490 is based not upon a desire to obstruct but upon its belief that the bill is not sound from a constitutional or an economic standpoint. For that reason it feels that it is its duty to give to this committee the reasons for said opposition.
The object of this bill is to place the production, prices, and sales of bituminous coal directly under the supervision and control of a commission to be created for the purpose of carrying out the provisions of the act. Since the production of coal is not interstate commerce under the decisions of the Supreme Court of the United States, the adoption of this bill would constitute a wide departure from all former theories and practices. It would give the Federal Government a control over the production of coal, which it has never heretofore had and which it has always been believed it never could have. If this sort of regulation and control can be applied to coal, it necessarily follows that it can be applied to all other commodities. This would mean the projection of the Federal Government into business in such a way as to destroy the right of the individual to manage and direct his own business.
Such a radical departure from our traditional beliefs and practices deserves most careful consideration from every standpoint.
A coal commission such as that proposed by the bill would be objectionable for additional reasons growing out of the nature of the industry itself. There is no provision in the bill as to the qualifications of the men to be appointed commissioners. There is no assurance that they would be men qualified by training and experience to perform the very important duties which would be imposed upon them. It is apparent that even if the commissioners themselves were properly qualified they would be obliged to delegate the actual performance of a larger part of their work to others, there would necessarily be a great expense attached to such commission, which the people would have to pay, and a lack of efficiency in governing this great industry. It is certain that the proposed experiment would be costly, and it is reasonably certain that the result would be a lessening in the efficiency of the production of coal, which would in turn result in an increased cost of production.
Before undertaking to discuss the specific provisions of this bill it may be well to recall some of the well-known facts in the history of the coal business and the events leading up to the present situation.
It is not necessary to go back further than the Great War. The disturbed and abnormal conditions existing during the war are well known. Following the war conditions were likewise disturbed and abnormal, both in coal and in transportation. Strike followed strike in the union districts. The coal mines suffered from a shortage of cars at the mines periodically for several years, due to railroad strikes and other transportation difficulties. It was not until about the beginning of the year 1923 that the railroads had so readjusted themselves as to be able to give proper service to the coal mines. During this same period of strikes and of transportation difficulties, and due to them, the prices of coal varied greatly, sometimes reaching relatively high levels. Speaking generally, it may be said to be a fact that when during this period the selling price of coal was above the cost of production it was due to two things—(a) car shortages at the mines and other transportation failures, and (b) strikes in the union coal fields. The effect of these things on prices was due solely to the reduction in production caused by them.
The first of these causes has been entirely removed. The railroads now have, and have had since the first of the year 1923, an abundant car supply and they are otherwise prepared to transport promptly and rapidly all the coal that may be offered them.
The second cause likewise, at least for the present, is inoperative. The shutting down of mines in the union coal fields at various times had the natural and inevitable effect of stimulating production in the nonunion fields to meet the demand for coal by the consumers who had been theretofore supplied by the union mines. Another effect was to cause individual mines to change from the union to the nonunion basis. This process continued until the point was reached when the nonunion districts were able to supply the total demand for coal in this country.
This was the final breaking point between the union operators and the miners. The agreement between operators and the union was not renewed and more of the former union mines began to operate on a nonunion basis. The power of the strike to decrease production materially was ended.
In the meantime the industry was handicapped by the increased potential production brought about by the war when the demand for coal was so insistent that many new mines were opened which otherwise would probably not have been opened for many years.
The result was that the coal industry suddenly found itself free from those former restraints on production, with operating mines having a potential productive capacity vastly greater than was necessary to supply all the coal which the market could absorb.
While this increase in productive capacity was taking place the normal expansion in the market for bituminous coal was sharply checked in two ways. On the one hand, improved preparation of coal, improved methods of combustion, and improved machinery reduced the amount of fuel needed to perform a given amount of work. For example, between 1919 and 1927 there was a decline of nearly 43 per cent in the amount of coal consumed in generating a given quantity of electricity. If the 1927 product of steam-driven public utilities had required coal consumption at the 1919 rate, the additional tonnage needed would have amounted to 31,000,000 tons. Similarly in the case of the railroads, the amount of coal needed to move a thousand tons of freight and equipment 1 mile declined 25 per cent between 1920 and 1927. This coal economy resulted in the loss of a market for 42,000,000 tons of coal. Similar economies have taken place in all forms of industry, but no figures are available by which the loss of markets can be measured.
The second method by which the expansion in the bituminous market was checked was through the use of substitutes. According to the estimate of the United States Geological Survey, the developed water power in this country on January 1, 1928, has a horsepower capacity the production of which would have required the (onsumption of at least 31,000,000 tons of coal. The consumption of oil as fuel in the United States in 1927 amounted to 431,067,000 bar
rels. This oil replaces in round numbers 110,000,000 tons of coal. Water power and petroleum, therefore, have caused a bituminous coal market loss of not less than 140,000,000 tons. To this should be added a substantial but undetermined amount replaced by the rapidly expanding use of natural gas.
We have here an actual annual loss of market from these two causes amounting to 215,000,000 tons, with other undetermined losses from similar causes nearly as quite as great. The whole movement is reflected in the last estimate put out by the Bureau of Mines as to the amount of different kinds of fuel used in the United States in the generation of power. According to that estimate, in 1913, 70 per cent of the power generated in the country was produced by the use of bituminous coal, whereas, in 1927, the amount so generated had declined to 55 per cent.
Under the inescapable and unyielding law of supply and demand competition drove the price of coal down to the present low level.
It is no easy task for the industry to adapt itself to such rapidly changing conditions. And I might say not only rapidly changing conditions but changes extreme in their nature. It is not believed that there is any justification for much of the criticism that has been made of coal producers. They are, instead of being an aggregation of incompetents, as has often been alleged, probably as keen and resourceful business men as can be found in any industry. The progress they have made in mining methods, in the preparation of coal, and in efficiency and economy generally, can hardly be equaled in any other line of business
. The defects, whatever they may be, in their sales policies and practices may properly be attributed to the crushing competitive situation in which overproduction has placed them.
It is perfectly clear that there can be, by no possibility, any increase in the price of coal received by the producer except by lessening the pressure of excess productive capacity on the market. No Federal power, it is believed, can control or lessen competition, with such a productive capacity constantly seeking a market. No Federal legisIation can meet this situation. It can only be done by the industry itself, as hereinafter shown.
In their statements, prior to adjournment of the committee on December 17, 1928, the proponents of this bill have gone to great lengths in their charges that the bituminous coal industry is demoralized, is in a chaotic condition generally, and is not upon what Mr. John L. Lewis calls “a rational basis.” It is clear that he means by this statement that there is too much coal produced and that, to put the industry upon a “rational basis," it would be necessary to reduce production.
Mr. Lewis further says that the proposed marketing pools under licenses to be issued by the proposed commission are provided " for the purpose of avoiding the cut-throat competition that is now destroying the capital assets and deflating the labor of the bitumi. nous coal industry."
It is recognized by everyone that the alleged “ cut-throat competition” is due solely to the production situation. There would be no cut-throat competition in bituminous coal under any other circumstances. Cut-throat competition is the unreasonable cutting of prices in order to induce the purchase of products from particular individuals by price concessions alone.
It is obvious that the only remedy for such a situation is to reduce the pressure of excess productive capacity.
It would seem that there are only two ways by which a lessening of this pressure may be brought about:
(a) By the working out of this problem by the industry itself, in accord with economic laws. In fact, all industries are engaged in that same task. A growing number of them are trying to solve their problems through associational work, including trade-practice standards and trade-practice conferences with the Federal Trade Commission. Many other industries, such as oil, lumber, and textiles, are suffering from the same problem of overproductive capacity as is coal.
(6) By some sort of drastic governmental intervention and control.
The proponents of this bill, however, are not satisfied with the slow processes of economic law, fully recognized by the Government by the creation of the Federal Trade Commission, and advocate governmental intervention in the form provided in the bill. Presumably, licenses would not be granted to all applicants, for if they were, the fundamental difficulty would not be removed. This means that the very first act of the proposed commission, by refusing licenses to operating companies, would be to “take,” that is, destroy, private property, without due process of law.
Two questions arise: First, would the bill, if enacted into law, accomplish the desired end? And second, is the bill constitutional ?
I shall practically confine what I have to say to the first of these questions, leaving the second to my colleagues, some of whom have already spoken, and others are to follow.
Let us first consider the bill from a practical standpoint, in a double aspect, (a) as to what it would actually do, and (6) as to the methods to be used, in order to determine whether or not it is desirable and beneficial legislation, assuming, for the moment, it to be free from constitutional objection. To this end, a short analysis of the bill, section by section, will be helpful.
Section 1: The bill provides for the creation of a bituminous coal commission. Why it is limited to bituminous coal does not appear. It would seem that all coal and all fuel competitors of coal should be brought under the same control as that applied to bituminous coal. All commissions are more or less objectionable per se, and the existence of any commission can be justified only by obvious need and indisputable evidence that it will meet that need.
The proposed commission, if otherwise justified, and it is not, is objectionable because there is no provision as to the experience and qualifications of its members and because it would be strictly a political body.
Section 2: No one could obtain the benefit, if any, growing out of the authorization to form marketing pools or selling associations for the purpose of fixing prices without surrendering the right to do business except under Government license, supervision, and regulation. That sort of governmental bargaining on legal favors is in and of itself objectionable for many reasons. The Government should never grant special favors in consideration of the surrender of private rights. In this case the bargain is but a device to secure absolute governmental control over private business where otherwise it has no such' control. It would make impossible for one class of citizens to contract, as another class might, to fix the price of their coal. It is intended that any real freedom of action shall be made impossible by making the privilege of fixing prices so valuable as to make the surrender of independent control of business imperative. The whole act hinges upon this proposition. The scheme is fundamentally and uncurably unconstitutional, as has been shown by others who have addressed themselves specifically to that subject or will hereafter do so.
This section of the bill then proceeds to limit the privileges ostensibly theretofore granted to "marketing pools and selling associations as their consideration for the surrender of their control over their business, as follows: (a) By providing that “such license to be granted only upon the applicant's acceptance of the provisions of this act, and compliance with the rules and regulations promulgated by said commission for the purpose of carrying the act into effect "; (6) by conferring upon the commission the “authority to inquire into all matters touching the mining and shipment of bituminous coal by said pool or association and the members thereof," and Government construction of the authority to "inquire into ” would be that it meant to "regulate,” since the right to " inquire ” without the authority to“ remedy” would amount to nothing; (c) by reserving to the commission itself the power “ to fix maximum prices which may be agreed upon or charged through the operation of said pool or marketing association.” It looks like an operator going into this scheme might be “ selling his birthright for a mess of pottage,” after all. Certainly the mining of coal is put under Government control, whereas now it can not be so controlled.
Section 3. This section goes further, and the commission is practically made the curator and manager of the corpus of the corporate operator's property, since it is deprived of the most valuable incident of ownership, the right to sell its property in any manner and upon any terms satisfactory to it. It could not merge," " combine," or “consolidate,” its property with other property without “a license there for granted by the commission and such license shall be granted only upon the applicants' acceptance of the provisions of this act and compliance with the rules and regulations of said commission promulgated for the purpose of carrying the provisions of said act into effect.” The corporate owner is deprived of these methods of disposing of its property, whether it" accepts the provisions of this act” or not. That penalty is imposed to compel it to " accept." There is not even a nominal quid quo for that surrender of these vital rights, necessarily incident to ownership. The provisions of other acts, the Sherman and Clayton Acts, are affirmatively nullified as to the acceptors of the regulations set out in the act under discussion, as a necessary step to carry out the plan.
Section 4: This section further curtails the rights and powers of those " accepting" by giving the commission “ general control” over them. This control begins upon the filing of the application for the contemplated license. " In considering the request for such licenses said commission shall have authority to inquire into all matters relative to the mining and shipping of coal by said applicants, including