restoration of competition in many important industries is clearly more advantageous.

Dr. FETTER. Yes, Mr. Ballinger, there are various proposals to pass laws that will postpone the operation of this decision.

Mr. BALLINGER. The next question that I want to ask you-I also want to be fair about this-in making this recommendation, the committee was impressed by the fact that if we proceeded under the existing antitrust laws suit by suit against industry by industry, we might be quite old before we got through the job. So what they wanted to do was to have Congress legislate away basing point systems, but in the recommendation they did say this:

Because such systems have resulted in uneconomic and often wasteful location of plant equipment, it is recognized by this committee that the abolition of basingpoint system should provide for a brief period of time for industries to divest themselves of this monopolistic practice.

Would you agree with that recommendation?

Dr. FETTER. One may mildly agree with it without favoring an explicit law to that effect. And note particularly the word "brief.” All that is needed is a little practical adjustment of the administrative machinery. After we have been cursed by this system for more than 40 years-I don't count the first 20-we can be a little patient for a year or so. Let the administrative authorities proceed at once to see that the corporations conform with the law by exchanging customers where there is cross hauling. That is the first thing to do. A special law for this, I think, would be dangerous. There is always a lobby, and they will fool you into some sort of tricky phraseology. Mr. PATMAN. They have already changed, anyway.

Dr. FETTER. They changed?

Mr. PATMAN. So give them more time to do what they have already done.

Dr. FETTER. That is, leading industries have. We don't yet know much about the others.

Mr. PATMAN. They are about the only ones I imagine that would be involved.

Dr. FETTER. Others will come around very quickly, and when they have operated that way for a while, most of them will not care to change back, I venture to predict. I would not consider that an administrative agency was derelict in its duty if it used some such moderate measure of postponement. A company that showed that it was taking the proper steps as fast as possible could be given necessary time.

Mr. PATMAN. If it had good reasons for it.

Dr. FETTER. Yes; good reasons. Still, I would not make it a dispensing power, Mr. Congressman. I would be afraid of any such wording of the law. We want business to succeed, and ownership to spread and to be decentralized, but it will take a little time to do it. Mr. RIEHLMAN. Do you have any other questions?

Mr. PATMAN. No other questions.

Mr. RIEHLMAN. We appreciate very much your coming before the committee and giving us this very helpful and interesting testimony. Dr. FETTER. Thank you, sir.

(The charts referred to by Dr. Fetter are as follows:)

Effect of raising a mill's base price f. o. b. mill versus freight absorption (also on becoming

Mr. Chairman, Mr. Wooden is the associate chief counsel of the Federal Trade Commission, and the chief trial counsel of the now celebrated Cement case, decided by the Supreme Court. We have requested Mr. Wooden to come before us today to give his interpretation of that decision as it may affect small business.

STATEMENT OF WALTER B. WOODEN, ASSOCIATE GENERAL COUNSEL AND CHIEF, DIVISION OF APPELLATE PROCEEDINGS, FEDERAL TRADE COMMISSION

Mr. WOODEN. Mr. Chairman and members of the committee, I have no prepared statement. I just want to talk briefly and generally about the basing point problem, based upon my experience with it, which goes back some considerable period of time.

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I think my first contact with the basing point question came back in 1912 or 1913, when I was engaged for the Bureau of Corporations, in working on the lumber investigation, and particularly as to the practices of lumber manufacturers.

Mr. PATMAN. The Bureau of Corporations? That was the predecessor to the Federal Trade Commission?

Mr. WOODEN. That is right; yes.

Mr. PATMAN. You do not hear that spoken of very much nowadays. Mr. WOODEN. No. I am one of the relics of the Bureau of Corporations.

As I say, in 1912 or '13, I was investigating the lumber industry, and my first contact with the basing point system came when I found that the white pine manufacturers of Minnesota and Wisconsin, scattered over a considerable area, were quoting delivered prices based upon Minneapolis, although there were only a few mills at Minneapolis, and the great majority of them were quite a distance to the north and east.

Well, they worked up their price list based upon that base price at Minneapolis, and the freight, rail freight, from Minneapolis. The result was that they all had the same delivered prices at any given point served by that industry.

I found the same condition in the manufacturers of lumber in Wisconsin, among the manufacturers of hardwood and hemlock.

I went on to the West, and I found the same condition among the manufacturers of so-called western pine. In the intermountain area and the Inland Empire, so-called, they were basing on Spokane, and with the same typical result: all getting the same delivered price.

The same thing I found in other areas of the lumber industry. Well, those conditions were exposed by the Bureau of Corporations in reports that it made and published, but nothing ever happened.

Again they were exposed in some reports that I wrote along in the early twenties, as a result of a supplementary investigation into the lumber industry. They were still using the basing point system 10 years after it had been exposed, and there were one or two suits brought that time by the Department of Justice under the Sherman Act, based upon our investigation.

Along about the early part of the twenties, I was in charge of the investigating work for the Commission at the Chicago office, and at that time the Pittsburgh Plus basing point case began. I was not associated in the trial of the case, but was able to render some service in an investigatory way, the results of which went into the records of that case, the Pittsburgh Plus case. In general, those results were the same as I had found in the lumber industry: that the basing point system was used as a means of having all the steel producers make exactly the same delivery price at any given point.

Then we come along to the period marked by the NRA codes. Many of those codes, and particularly the steel code, set up in the codes themselves the details regarding the basing point system; and very elaborate mechanisms for machinery for seeing that the basing point prices and practices relating to them were all observed in practice were established, even to the extent of fining people who did not follow the rules laid down.

I had a part in writing some of the Commission's reports at that time to the Senate on the Borah resolution, and to the President on the operation of the steel code.

Then it came along to the point where the Cement case was instituted by the Commission, in 1937, and I was assigned as the chief trial counsel for it. We took evidence in that case until 1940. We finished our evidence in it in the elapsed time of about a year and a half. And then the other side took over, and they ran it for a longer period and put in a great deal more-in volume, at any rate-than we had.

Well, you all know that that case, from the time that it was started in 1937, continued until the time the Supreme Court decided it last April-that is, an elapsed time of nearly 11 years-which illustrates the wisdom of the recommendation made by TNEC for a legislative outlawing of the basing point system. It took us 10 or 11 years to fight that one case through. And believe me it was a fight. There wasn't an inch of the way that was not disputed by every device and strategy that the best lawyers the industry could employ could think of.

Now, my own concept of the basing point system is just what I have already indicated; namely, that it is a monopolistic device designed to prevent and frustrate price competition. And when it is working 100 percent, price competition is frustrated just 100 percent.

I would not attempt to go into the economic phases of the question in any such way as the marvelous fashion in which Dr. Fetter has done it, but I would just like to say generally that so far as the economic aspects of the problem are concerned, and particularly its relation to and effect upon small business, the development of small business, I agree with him 100 percent.

We are dealing here, it seems to me, with a question which has many aspects, but one of the important aspects that is so obvious to everybody that it comes to mind very promptly is the question of decentralization and the relation of the basing-point problem and the ending of the basing-point system to the matter of decentralization.

The word "decentralization" to me has two meanings. The one most generally used is, "The geographical scattering of physical facilities so that they would not be such easy targets for atomic bombing attacks."

Everyone agrees that that kind of decentralization is desirable, and the other kind of decentralization is decentralization of ownership in industries that are now heavily and overly concentrated. That is an important aspect of the monopoly problem, but there is some difference of opinion as to whether that kind of decentralization is desirable. Naturally, concentrated economic power does not want to be decentralized.

It is my judgment that the basing-point decisions tend substantially to promote both these types of decentralization. They promote the decentralization of physical facilities by encouraging and making possible the building of new plants wherever economically warranted by the availability of raw materials, and the economic needs of a growing market-area population, economically suppliable from such locations.

The encouragement comes from the fact that such new local enterprises would not have to share the business with large concerns, in

large industrial centers, at a distance, which in the past have shipped into those areas on a freight-absorption basis at mill-net prices lower than they were charging the customers in their home territories. The decisions hold such prices to be discriminatory.

Of course, in some circles these new local enterprises would be denounced as local monopolies because they would be protected somewhat against the discriminatory pricing practices of their large competitors at distant industrial centers.

If the large concerns at such centers thought it worth while, they could erect new branch plants in those distant areas and thereby still further accelerate the process of physical decentralization.

Now, as to decentralization of concentrated ownership, as I see it, the basing-point system and the price discriminations which the Supreme Court held were inherent in it have discouraged the development of locally owned small enterprises. It is obvious that whatever shipments come into a small town from a distance on a discriminatory freight-absorption basis lessen by just that amount the ability of small local enterprises to come into existence there, or to survive and prosper if they do come into existence.

The argument has been made that to legalize the basing-point system would promote decentralization. But it seems to me that that is a fallacy, and that the condition that we are now faced with, in which we are somewhat alarmed and disturbed by the extent of centralization, obviously came into existence under the basing-point system. At least, it did not operate to prevent it, and in my judgment it operated to facilitate it.

And yet the argument is made that we will have more centralization without the basing-point system than with it. I just do not follow that at all, and I think it is a fallacy.

I am of the opinion that the discriminatory aspects of this basingpoint system are more important than the price-fixing aspects of it, if you want to look at it that way. We have been going around, it seems to me, in circles, in antitrust law enforcement, for 40 or 50 years, trying to prevent price-fixing conspiracies. To my mind we have been enjoining them, and ordering them to cease and desist from conspiring, and all the time we were striking at something that was a shadowy subjective concept, something in men's minds; rather than coming to grips with the actual competitive and economic situation. And we will always have that trouble when we try to reach the concept of the meeting of the minds of the men engaged in an unlawful conspiracy.

But this approach by way of discrimination, to my mind is a thoroughly objective approach. It does not depend upon what is in men's minds. It depends upon what they do; and it can easily be proved what they do, and what results they get; which also can easily be proved. And the Supreme Court has now said that when they do these things and get these results, they are discriminating in price; and it is a matter of mathematical demonstration.

To my mind, to think of weakening the laws against price discrimination, as applicable to this problem, is to throw away the strongest and best weapon that the laws now provide; and it will be like trying to reach and remedy the noncompetitive conditions of 1950 with nothing but the remedies provided back in 1890.