annoying and unsatisfactory to the consumers, is certain. That competition within the coal industry will constantly grow worse and more antisocial, decreasing present price realizations, is the verdict of all who have investigated.

The future offers absolutely no hope for coal prosperity, according to advice sent out by the Standard Statistics Service to brokers and investors.

What is Standard Statistics Service? It can not be classified as political or philanthropic, but quite the contrary is recognized as the hight court of financial judgment. Located within a stone's throw of the New York Stock Exchange, this organization is rated the best available service on industrial analysis. Here is this organization's appraisal of coal:

Concentrated efforts toward effecting a basic improvement in the soft-coal industry this year have so far been successful only to a limited degree. Fundamental difficulties remain uncorrected and there is little hope for early marked improvement in earnings. In fact, larger producers w. in almost every case probably report even less satisfactory operating results this year than in 1927 * * * Reflecting complete failure of the labor unions to enforce its wage demands, mining operations are now upon an open-shop basis over a wide area, while in those districts still operating under union conditions, wage agreements have recently been negotiated involving rates sharply under those stipulated in the union schedules previously operative. In the aggregate, labor costs throughout the central competitive territory are roughly 20 per cent under those of a year ago * Aside from the peaceful labor situation and the

*

reduction in mining costs there is little basis for an early optimism.

Coal prices reflecting increased competition have averaged 10 per cent below last year's levels and currently stand at approximately the lowest point in the past 12 years.

Furthermore, in view of the industry's fundamental overcapacity, it is extremely improbable that any early sustained advance in prices can be effected. Profit margins are generally inadequate under present conditions.

And then as advice to investors this service says:

Reflecting the unfavorable earnings prospect, interest in coal company securities has been lacking this year. In the absence of any indicated favorable developments in the near term we do not advise purchase of common stocks in this group, even at present deflated levels.

Such is the market verdict of the high court of money in America on coal under date of October 11, 1928. This judgment was rendered at a time when business forecasters everywhere were predicting record breaking earnings for industry as a whole, which in turn, resulted in the greatest "bull market " of all time.

In this judgment of the court of money, rendered upon standards which are based upon and expressed in dollars and cents, we find the same conclusion as to the incompetence of the management of the coal industry which has already been placed in the records of the tribunals which have tried coal by ethical and humanitarian standards and found it socially delinquent.

The courts of engineering have found it guilty of technical incompetence. Tried by the standards of conservation of natural resources, the promotion of national self-sufficiency and of potential national defense, the industry has been convicted of imbecile waste.

That American railroads have been profiting for several years past at the expense of the demoralized coal industry by the purchase of a coal supply amounting to more than 25 per cent of the total production, at and below production costs, has already been established by the testimony given this committee.

The gas and electric utilities are buying their coal below production costs and using such coal to manufacture gas and electricity to compete with coal in supplying the increased demand for heat and power. Utilities are prosperous. Earnings are constantly increasing. The financial tipsters are advising investors to buy gas and electric utility stocks. Utilities experience no difficulty in securing ample funds to finance consolidations and improvements.

Utility rates are fixed by public-service commissions upon a basis that yields a fair return upon invested capital and the service rendered. These allowances are most generous. For the most part the structure of utility rates in the United States are predicated on coal costs from 30 to 50 per cent higher than the prevailing coal sales prices. Thus behind the unprecedented prosperity of the American public utilities lies a direct loot of the coal industry and of the natural resources upon which the future living standards of our children depend. It does not matter whether it is brought about by a conspiracy on the part of purchasing agents or by the incompetence of coal management, the result is the same. And the result is that the American coal miner is to-day the innocent victim of an unAmerican and uneconomic wage for his daily drudgery, and along with him the dollar of the owner of coal securities is being diminished at a perilous rate.

The fact that organized utilities are profiting at the expense of the coal industry needs on better proof than to state that utilityowned mines are closed down because utilities find it more profitable to buy coal on the open market than to produce their own require

ments.

The continued expansion of gas and electric utility-holding companies means a greater concentrated purchasing power and a diminished number of sales outlets for coal. The result will be that the 5,000 separate unorganized units in the coal industry will further reduce prices in an attempt to secure business.

The whole sales policy of the bituminous coal industry revolves on an uneconomic axis. The organic sales policy embraces the sale of from 30 to 40 per cent of the total production known as screenings at from 30 to 50 cents the ton less than cost of production. This sales condition prevails when the industry reckons itself on an earning basis. The selling of screenings below the cost of production is an ancient practice born in the industry's infancy, when combustion methods demanded the coarse sizes. Hence the lower prices originally prevailed as an inducement to buyers to use screenings. Present-day combustion equipment of utilities and most manufacturing establishments demand screenings. In fact, screeenings give almost equal while powdered coal gives greater efficiency when used under modern combustion methods than the coarse sizes. The unorganized industry, clinging to the custom of its cradle days of daddyism, has made no organized attempt to meet this changed efficiency in combustion methods which makes screenings and powdered coal a preferred product.

John Morrow, president of the Pittsburgh Coal Co., addressing the Illinois Manufacturers' Association in August, 1928, directed the attention of that group to the disproportionate cheapness of screenings, with a warning that such a condition must be corrected. Imagine, if you will, what a big laugh for an organized group of

manufacturers who spend a good part of their daily lives_chasing price-cutting coal salesmen from the reception rooms. Not as a feasible plan to correct the evil but merely as the testimony of the president of one of the largest producing units showing the uneconomic results of selling screenings below cost, Mr. Morrow's address in part follows:

In my humble opinion you (manufacturers, industrials) have been buying your coal too cheaply, and you can not expect to keep on doing it. The reason I say that is this: American manufacturing business, very largely, is built upon the consumption of screenings, the undersizes of coal, and screenings comprise from one hundred to a hundred and fifty million tons of the total production of coal, bituminous, in the United States. Screenings are traditionally sold for 50 cents to a dollar a ton below the cost of producting.

Now, I say traditionally. That has been the case for many, many years, and you gentlemen have been accustomed to buying your coal on that basis of prices. Now, I say to you that it is only reasonable for you, as business men, to expect us, as business men, to endeavor to get a better price for that onethird of our product which we have been selling to you below our production cost.

We expect to get it not merely by asking for it, but possibly by taking the screenings away from you, doing something else with them, finding other ways of disposing of that coal, so that there won't be such a quantity of screenings to sell. And then if we could just persuade a few coal men that they ought not to crush their mine run coal so that they can sell it to you at a loss, and thus insure themselves a loss on all of their product, maybe we will get somewhere after a while.

At any rate, I repeat, that for you, as business men looking 10 years ahead, it would be well for you to take into your account the possible readjustment of values on your fine sizes of coal.

What are the effects of this futile antisocial competition?

Wholesome competition is the kind of competition that is referred to as being the "life of trade." Competition that reduces prices where such reduction results in increased consumption of useful goods and services is desirable competition.

Without increased consumption lower prices do not benefit the social order. The measure of the social utility is whether it increases consumption or not. If consumption is not increased by the buyer, any financial benefit he might get and services that might result is counterbalanced by the decreased buying power and living standards of the seller.

Constructive competition has been demonstrated by countless business leaders in automobile and varied manufacturing lines. Increased output from improved manufacturing facilities operated on increased wage rates have enabled far-visioned industrialists to develop efficient methods by which the finished product has been reduced in price to such a degree that consumption increased by leaps and bounds. This plainly is socially useful-competition in keeping with American thought and progress.

Destructive competition, such as the coal industry has been pursuing for many years, is distinctly antisocial. Destructive competition reduces wages, sells labor and capital assets without increasing the consumption of the product. This benefits no one because it destroys and impoverishes the purchasing power of such great numbers of the social order dependent upon coal for earnings and also leads to wasteful exploitation of national assets.

The futile competition in coal has not reduced transportation or utility rates. Coal is such an infinitesimal part of manufacturing

costs that no possible benefit to the consumer could accrue if the price were cut in half. No increased burden would result if the prices were doubled.

Many coal operators who have testified before this committee have attempted to excuse destructive competition by charging their conduct to the alleged inevitable operation of the law of supply and demand.

Coal operators refer to the law of supply and demand as though some supernatural force controlled a lever by which all production and sales were finally adjusted.

As a matter of fact the law of supply and demand operates only as a regulator of production under conditions of scarcity; it performs no function, can not possibly serve to remedy or regulate the ills resulting from overproduction and free-for-all selling attempts of its own economic force, unaided and undirected.

Every agency which has investigated coal has been able to penetrate the mindless chaos and to disclose the existing evils in poignant detail.

But few have ventured to suggest a remedy. A bugaboo is met. at the close of every analysis. Taboo, slogan, and shibboleth smother reason under ancient metaphysical dogmas which pass current as economic laws among the half informed.

There is an element in American business among whom the fear of governmental invasion of the sacred precincts of industrial management amounts to an obsession. Paradoxically enough the more backward an industry may be, the more it relies upon governmental intervention such as tariff or carrier regulation in its internal relations, the more it is inclined to disregard all the canons of individualism and political liberty in labor relations, the more fanatically it clings to outworn conceptions as to the public relations and responsibilities of business management. No matter how unprogressive an industry may be, no matter how much the public welfare may depend upon its product, no matter how much poverty and oppression may prevail among its working forces, the mere hint of socially intelligent action to give more progressive management and investment capital a chance to improve things stirs up a frenzy of protest. There is something ludicrous in these fierce assertions of individual rights by the leaders of industries which have the least right to demand a doctrinaire independence of action, unless we are prepared to admit that independence is a corollary of incompetence. We hear no such language from the leaders of industries which have proved their ability to give service. Some of the successful industries have never been regulated because they discharge their public duties so well that no demand for it ever arose. Others, like the utilities, have been regulated, and now parade their "chains " as inducements to the investor.

In such controversies as this, one hears a good deal about the rights of private property. I think that the old common-law judges in their rulings against perpetuities and spendthrift trusts have crystallized into our law as it is crystallized into common sense the fact that the right of private property is safeguarded by society, because the right to own is the right to manage, and experience has usually been that those competent to acquire property are on the average the best qualified to manage business. But when management is incom

petent and appeals to historic rights, it becomes the enemy of those historic rights because it has betrayed the reason for their existence. Irrational appeals of this sort are a potential menace to the property rights of all other classes of owners. By discrediting one species of ownership, public respect for all ownership may be weakened. All investigators seem to be satisfied that as the industry stands. the thousands of separate coal company units can not hope to reach a voluntary agreement restricting production, consequently most conclusions of investigators end in an epilogue of "why, it can not be done."

I sometimes ponder the reasoning ability of coal operators, expressing themselves as opposed to government regulation, when the facts are that fully 35 per cent of bituminous coal is consumed by regulated railroads and utilities. What would happen to transportation if we had a return to rebates and cut-rate wars? Where would our transportation system secure the capital to keep development abreast of the times if it were being operated on a basis of selling its capital assets? It is indeed a curious circumstance, a bewildering stupidity to the casual observer that the average coal leader persistently refuses to do anything of his own accord, through the promotion of consolidation, pool-selling agencies, or acceptance of any of the basic fundamentals of sound business; yet at the mere mention of Government action being invoked to promote betterments and stabilize the industry, he responds to the Babbit clarion call and proclaims his independence his right of self-determination in opposition to Government direction and possible rescue. Just now this type of business underling is busy issuing verbal and written denunciations against further Government investigations of the coal industry.

It is claimed by operators that investigations contribute nothing toward a solution of coal's problems. Furthermore, they point out that coal has been investigated sixteen times since 1913 and that nothing has resulted to correct the chaotic conditions.

That nothing has been accomplished from investigations, I will agree, but the responsibility for the lack of progress rests squarely upon the operators who have refused to accept individual and collective responsibility for the improvements which the investigations have shown to be imperative.

The operators are apparently blind to developed facts. They do not seem to comprehend that the future holds nothing more than present profitless operation, unless Government regulation can be invoked under which a code of producing and selling practices can be established and through the instrumentality of Federal license óperators can be educated to the advantages of being good by observing the sane fundamentals of sound business intelligence.

There is no magic by which the industry can be made pliable to American standards. Since failure on its own resources is firmly established, then there is but one recourse left and that is Government regulation. That such economic reasoning is shared by others, I will quote from "A Way of Order for Bituminous Coal," by Hamilton and Wright, published by the Institute of Economics:

An industry does not automatically organize itself; there is no natural, immutable, indefeasible scheme of order. No industrial structure comes into