Concrete and specific points might well be borne in mind in determining sources ́of funds and amounts that might be available in the form of taxes without unduly undermining individual incentive. The following are important:

Have no income taxes on income less than $5,000 other than to support budgets (1) and (2) and possibly (5)-because about everything one buys is already loaded with taxes so that each person now actually uses a part of his cash to pay someone else's tax; because there are and probably will be excise or sales taxes to swallow up some more of the average family income; and because every man should be able to save a real part of his earnings, buy a home or a farm, enjoy life, and provide for the years after he retires. I have seen it stated that for a dollar of income to a Connecticut resident in 1945, 40 cents was absorbed by a direct tax burden of one form or another. I have been informed that the salary of a full professor at Yale University, in spite of a substantial dollar increase, has less net buying power than it did 35 years ago.

Levy no progressive taxes or surtaxes on income over $5,000. Surtaxes are unjust, unscientific, and benumbing. I emphatically deny that Congress should have the right to fix arbitrarily any surtax rate it sees fit in the absence of some acceptable standard. The success of the Western Tax Council, located in Chicago, indicates that there is a great body of people who share this view. The Council is sponsoring an amendment to the Federal Constitution to repeal the sixteenth amendment (authorizing income taxes) and to forbid Congress to tax incomes, inheritances, or gifts more than 25 percent, except in time of war.

Have no excess-profits taxes on corporations. This tax is unscientific and almost impossible to administer. By preventing the owners from plowing money back into the business, this tax very effectively hamstrings the new and competent company that we must look to for increasing employment. This tax nourishes and fosters unfair competition between new concerns and the big old companies with stable income. It has been repealed as of 1946 and it should remain so.

Section 102 of the Internal Revenue Code should be repealed or revised, for by penalizing companies for not distributing what the Treasury thinks is a sufficient part of their earnings it is very unfair to small companies that are privately owned. There are millions of these small companies and we want more and more. As it is, prudent, far-seeing managers who retain reserves for bad times or expansions are faced with excessive punishment. I also recommend that a straight exemption on corporate income up to $50,000 would stimulate the growth and stability of smal decentralized business.

No tax should be levied on corporate dividends. This type of tax is discriminating and unjust. However the problem of double taxation on corporate income is reached, more than one tax offends our basic principle. Relief from this tax will be effective in augmenting buying power and employment.

By putting into effect the above suggestions, which are but examples, great buying power could almost certainly be developed without cost to government or taxpayer. We shall spend our own money our own way, and as this will result in developing a maximum demand for the greatest variety of goods, it is sure to produce expanding employment.

There is, in addition to the foregoing, an imperative need for a joint commission representing the states and the federal authority to at once study the entire field of taxation with a view to delimiting in a general way suitable types of levies for the former and for the latter, for the purpose of eliminating conflicts. Success here will reduce the present harassment of the citizens and should tend to reduce materially the over-all tax burden.2

Mr. HEWES. The essence of lower taxation, of course, is political decentralization. That is where it comes in. Getting back to this free market, the next thing that is vitally important and I have touched on it-is financial aid. I do not believe that the United States Government should go into the matter of loaning risk capital, and I do not believe that the State of Connecticut should go into the matter of loaning risk capital. We are a self-reliant people in this

See Appendix V for a cogent_analysis of the present situation, with recommendations prepared by a friend, Dr. Henry L. Shepherd, Ph. D., formerly Assistant to the Director of Research and Statistics, United States Department of the Treasury, and author of The Moneary Experience of Belgium, 1914–1936.

country. The question is how to create risk-capital pools without looking to the Government, and I have tried in this book, I have written a statute which any State could adopt, which provides for the rising of risk capital for new enterprises, and it has been up in the Connecticut Legislature twice.

So, in substance, the financial needs of small businesses are very important, and I don't think it is the business of the Federal Government to supply it.

The next thing and I am pretty near through, gentlemen. I appreciate your patience.

Mr. BALLINGER. I could ask one question here. Is it your feeling that the function of lending risk capital is being passed on to the Government? I mean in recent years.

Mr. HEWES. There is a lot of agitation for it, and, of course, the Government has gone into the risk capital business, and I don't think it should. I think the risk capital business is a private show, and it is so easy to put the hand out and try to get Uncle Sam to do something, and I personally am opposed to it.

The next point that I would like to make, briefly, is that for a man to enjoy the fruits of his labor in the small-business world, no matter who he is, we should have sound money in this country, because a man is building up an estate for himself or his family, and the constant wearing down of the buying power of the American dollar, which is exactly the same as has happened in every country in the world-we cannot escape from it unless we mend our ways-is a real detriment to the encouragement of private enterprise in this country, and I feel so strongly that we should go back on the gold standard. If that is not the best standard, some better standard, so that a small business conserving its assets, frugally running its business, shall have the buying power 10 years from now that it thinks it will have to meet the pay roll.

I know of a company that we represent, spent its entire surplus in 1932 and 1933 paying its employees, and they never let a soul go. They had the buying power saved up. If that buying power had only purchased about a third of what it did then, the people who were taken care of by that business would have been out of luck.

Another thing that I think we should have for a small business is equal access to foreign markets as well as domestic markets for the buying and selling of their products. That is an American tradition. It does not exist today, and I think it should exist.

So, I will just discontinue my testimony. I would like to say one more thing. I think I have indicated how I feel this committee can do really constructive things. They are drastic, but they are dynamic, and the time, in my opinion, for compromising and all of that is over with. If we are going to restore the small independent enterprise in this country, we have to do realistic things, and I think our efforts would be more successful if we dealt with the things that affect the life of the small enterpriser.

I would like to say one other thing, and then I will cease. Mr. Ballinger and I had some conversation on the phone about big business, and I am sure you had the pleasure of listening to my friend Ted Quinn out in South Bend, who wrote a book, I Quit Monster Business. The problem-Mr. Ballinger discusses at great length in his bookthe problem of the immoral, impractical, unethical, destructive influ

ence of monster business on the small enterpriser, cannot be overemphasized.

We have a client who is engaged in the fabrication of a particular metal, and he sells a very small part of the sum total of metal, fabricated metal, of that kind, and he buys the raw material from one or two companies that dominate the industry. This particular company, I know, because I am a director of it, does not dare alter its price rates because of the possibility of being shut off from the supply of raw material, so in the realm of what I call monster business and monster unionism and monster agriculture, the things that hurt us when we want to have a business of our own, I was very much interested to find Mr. Ballinger had arrived at exactly the same conclusion I have arrived at without my ever seeing his book. We have on the books a statute which is called, I think, Public Utility Holding Company Act, and it was enacted back in 1933 or 1934 or 1935, and that undertook to put the ring in the nose of the bulls that were in the public utility holding business. It did not destroy anything.

It brought about the distintegration of these companies and the restoration of their operating units to the people that owned them. In this so-called proposed congressional resolution, which I would like also to leave, I have tried to reorient peoples' thinking back to liberty instead of collectivism. In it, I have expressed the belief, as Mr. Ballinger does, that a simple statute along the lines of the Public Utility Holding Company Act which would undertake to eliminate from the life of the small business, the independent businesses in this country, the undue pressures of business and labor, would be a practical way of enforcing the free market.

The Sherman Antitrust Act, as I said in the beginning, is wholly inadequate. The Federal Trade Commission Act is not adequate because none of those acts deal with monsterism, and monsterism is not illegal in this country today, and yet it is the vice that is killing us off. I believe if this committee would consider as one of the sections in this proposed statute establishing the free market, Mr. Ballinger's own suggestion of attempting to define types of activities which were in support of equality of opportunity and types of activities which were in derogation of equality of opportunity, in analogy to the Public Utilities Holding Act, it would be a marvelous contribution which you gentlemen can make to our political liberty, because I agree with Mr. Ballinger, and I am sure you are of the same mind, that unless there are enough economically independent Americans, you cannot possibly have political freedom. It just goes by the board.

So I am delighted that you were kind enough to let me come down here and make my contribution to this thinking.

Mr. RIEHLMAN. Are there any questions?

Thank you very much, Mr. Hewes. We appreciate your coming down.

Mr. BALLINGER. Mr. Morris Ernst. Mr. Ernst is a very distinguished lawyer. I have known him ever since I have been in Government, 15 years. He is one of the most public spirited men I know. He is interested in public questions, particularly antitrust. He is also regarded in many circles as the heir to the Brandeis mantle because of his consistent and forthright criticism of bigness in business. In

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fact, he wrote a book called Too Big, which was a best seller and very widely read.

It is a great pleasure to present him to the committee.

Mr. RIEHLMAN. You may proceed.

STATEMENT OF MORRIS ERNST, NEW YORK CITY, N. Y.

Mr. ERNST. I am a "country lawyer" in New York City. I happen to be able to make a living, out of a segment of the 500,000 small businesses as distinguished from the 400 companies that own half of the resources of our Nation.

Mr. PATMAN. Say that again: 500,000?

Mr. ERNST. Five hundred thousand free enterprises in America; there are about that many, as distinguished from 400 that control onehalf of the resources of the United States. That is, corporations.

There are no personal devils in this situation. I happen to be a good drinking friend of many of the giants that head these empires. I imagine that most human beings, if they were in position of dominating an empire, would want to get still bigger, and I don't believe this is a political question at all.

I think this committee, dominated by Republicans, could really electrify the Nation as to the danger of bigness, if it would undo some of the harm which was committed, in my opinion, by the candidate on the Republican ticket in the recent election with respect to the survival of free enterprise in America.

May I say this, that there are two things involved: One is the spirit of man, and the other is dollars. I want to tell a story on each. I took the head of one of the big chains in to see Judge Brandeis while he was on the bench. The man was worried about the Supreme Court's activity on the chain tax legislation which, in effect, was an attempt to curb absentee ownership. The judge looked at him and said, “You have got about 90,000 employees. You have got about 16,000 stores; and you won't allow a single one of your managers, will you, to buy a loaf of bread or a can of peas except on direction from you in New York City?"

And the head of that chain said honestly, "Of course, I won't." And the judge said, "Do you see what you are doing? You are developing a race of robots. You are boiler plating the mind of the Nation, and the only wealth of society is the development of individual ingenuity, and it can't be allocated to a handful of people." And the judge went on and said, "I suppose if you went and opened a store of your own opposite any one of your chain stores, in 60 days you could compete the chain store out of business."

And this great merchant, very interesting person, forgetting his mission for a split second, said, "I could put him out of business in 10 days." That was the judge's point, that, "What you have done in effect," he said to this man, "is throttled the ingenuity of the little men of America."

The other story-I have permission to use the name-I give a party every year to my favorite Tory of the season, and one year I picked Wendell Willkie who was a great friend of mine. And at a party with Leon Henderson and Rex Tugwell, George Roberts (Willkie's attorneys, Stimpson's partner) Wendell wanted to get John Lewis there. He had never met him. I started to pick on Wendell Willkie, and I

said, "What about this empire of yours? It is not a good empire. You have never paid a dividend on your common stock and your preferred is selling at $1.50. How big do you think it ought to be allowed to grow?"

He said, "One hundred billion if I am smart enough. Never throttle. the man's imagination power." Metropolitan Life Insurance Co. would be 50 million; he went on at that rate. Later in the evening somebody said, "Where do you buy your curling irons and stoves, of which you sell millions to the public?" And Wendell Willkie said, "Of course not from GE." "Why not?" "Of course, I don't want any big firm like that to dominate the field." John Lewis said, "You so and so, you. It is just a question of whether you are a buyer or a seller, whose ox is gored." And that goes to the next point on bigness.

I hope that this committee will become a permanent committee as the Senate's committee should be. I hope that the name of the committee is changed from Small Business to the Committee on Free Enterprise. There is a great confusion due to the word "big"; it is a comparative term. A million dollars in the hairpin business may be too big and in the automobile business it is insignificant. And so you have to treat industry by industry and case by case.

I have seen this movement for years, of earnest people like you gentlemen, trying to come to grips with the restoration of free enterprise in America. We are getting practically nowhere, because by the time you come to a decision on the basing point problem, whichever side you take, somebody else has grabbed all of the patents on facsimile and controls the press of the Nation. And by the time you are finished grabbing hold of facsimile, you get a tax situation such as Mr. Hewes described. And when you come to grips with that, somebody else has got the newsprint of the Nation; and you can't get anywhere piece by piece.

Let me tell you what I think is the first important step. The farmers of the Nation are organized with a vocal spokesman, their Secretary of Agriculture. He is there slugging as he should for the interests of the farmers. The labor people of the country have an advocate in the form of the Secretary of Labor. But there is no advocate for free enterprise. The Department of Commerce-and I have no criticism whatsoever to make against the Department-my criticism of anything is against Congress-the Department was formed, as I see it, historically as a method of gathering some facts and figures for the big-business men of America, and the Department of Commerce must be promptly converted so that you have a mouthpiece for the perpetuation of free business.

Mr. Ballinger and a lot of others have tried for decades to get smallbusiness men together. You can't do it as you can laborers. They are not in the same building. The farmers are in the same county. Moreover, the laboring man does not compete against the man at the next bench the way the little grocer in your town competes against the other grocer. They can't travel. They haven't the resources to become vocal, to have a lobby, and so they are not heard; and so the Department of Commerce, in the first place, should become the advocate of free enterprise.

Big-business men are not venal, not too greedy, but only stupid, and it is amazing the number of giant businessmen who are learning that