Mr. CARSON. In your city we have the Central States Cooperative and several retail cooperatives. Now, there can be no objection on the part of the Government or society to you and me and a group of men getting together to serve ourselves through cooperatives.

Mr. MCKEOUGH. I have no formal theory. I am attempting to bring out the actual practical application. In the service to your members, in the event of it becoming entirely branched out, so that you have a lot of members in the city of Chicago, obviously you make no contribution. You merely take away from the fellow who has been engaged in this business a customer he has had. You have merely extended your set-up, under that picture, at the expense of the existing set-up, and there is no contribution made to the solution of the general problem.

Mr. CARSON. If the existing set-up has not proved itself efficient

Mr. McKEOUGH. That I do not admit, nor do I assume you do, that a long-established development in the distribution of coal or any other product is not an efficient system because of its long existence.

Mr. CARSON. No; nor do I assume that existing business organizations have a vested right on their part.

Mr. McKEOUGH. No. But the point I am trying to make is, in the event this committee gives you the relief you now seek, there has been no contribution made to a solution of the general problem.

Mr. CARSON. If we can distribute coal at less cost, don't you think that would be a contribution to the problem?

Mr. MCKEOUGH. No; because I think the saving you make is so insignificant, with all due respect to the theory of the cooperative, in this instance that it is not worthy of any particular attention, because it destroys employment that is now in existence for those engaged with an already established dealer who is a good citizen, part of the community, a taxpayer raising a family, contributing to his Government, doing a social service in that community. He is going to go out of business because you ask for 5 cents a year so that somebody can save 75 cents a year, 15 cents a ton on 5 tons of coal. I think that you, the new employer, simply take whatever you can salvage from the dying distributors' organization, the necessary equipment and personnel with which to render the service.

Mr. CARSON. Mr. McKeough, my own answer to that is that our general economic problem is the spread between the cost of production and the cost to the consumer.

Mr. MCKEOUGH. Right. But let me point out, if you will permit me to interrupt. I don't know the number of members you have to have before you can go to the Administrator of the Coal Act, in the event this amendment is adopted. But let us assume it is a thousand members.

Mr. CARSON. Yes.

Mr. MCKEOUGH. Maybe it will be less than that.

Mr. CARSON. Yes.

Mr. MCKEOUGH. Now, I say that at 5 cents a year contribution to your unit you are bringing about an injustice to a long-existing situation, and I am not one, even though I have been accused of being a Communist; I don't believe that business in this country is nearly as simple as some might want us to believe it is. I happen

to know personally several people engaged in my city in the distribution of coal on a retail basis. I think they are very fine people. Mr. CARSON. I know them, and I think so also.

Mr. MCKEOUGH. I think they have made a great contribution to the development of the community. I think they have extended credit. to a point where they have suffered financial loss in times of distress. Now, you want to put these people out of business on the theory that you can come in and ask for a discount because somebody pays your unit 5 cents a year.

Mr. CARSON. We are asking for the discount only where we deliver the service as a wholesale cooperation. You don't say to the people of Chicago, "We are going to prohibit you from having a more efficient operation in Chicago.'"

Mr. McKEOUGH. I don't believe you have a more efficient operation. Mr. CARSON. Then, if not, we won't put them out of business.

Mr. McKEOUGH. No. If you can sell your program, sell it, but not through me, because I am not going to disrupt and disorganize a long-established, fine service, proven by experience in the community that these people serve, for 5 cents a year.

Mr. CARSON. The only answer I can make to that is if you don't want a more efficient service, all right. We don't see eye to eye.

Mr. MCKEOUGH. Please don't let the record finish with that observation, because I want the opportunity of rebuttal. I am in no way opposed to any scientific contribution growing out of experience, which, after all, is the best basis. The ultimate consumer will not be deprived of getting a service theoretically as fine as that which your unit indicates it can offer by any act of mine as a Member of Congress. On the other hand, just because you come in with this very fine theoretical contribution and indicate because you are serving members of your cooperative unit with a specialized service, I, as a Member of Congress, have to hesitate to determine whether the contribution I make to you at your request might not be imposing a greater harm on the national economy. I don't believe 5 cents a year is a sufficient contribution for the benefits that are to be taken out of the existing situation from the people who are now members of our society, good citizens, contributing a splendid service, well regulated, under this program as well as many others of a local administrative nature under the ordinances of the city, protecting the people as to the weight, the quality of the coal, the services, and put them out on the street and force them to be put on W. P. A. if you don't employ them in your distribution service.

Mr. CARSON. Well, Mr. McKeough, there are only two things-the first thing is, if you are going to protect the existing rights of existing distributors, you should not allow this discount to anybody but such distributors. I don't agree with that at all. I think you should open the door. And please don't think that this is an experiment. This cooperative business is doing three-quarters of a billion dollars

a year.

Mr. MCKEOUGH. That is over 48 States.

Mr. CARSON. Well, we are not developed so far in Chicago, but we are moving very rapidly.

Mr. MCKEOUGH. I don't know that we have many retired farmers in Chicago.

Mr. CARSON. Perhaps not.

Mr. HEALEY. Under section 15 of the act there is this language:

The Commission may institute proceedings under this section and complaints may be filed by any State or political subdivision of a State or by the Consumers' Counsel.

You acted as Consumers' Counsel for some time, didn't you? Mr. CARSON. Yes, Mr. Healey.

Mr. HEALEY. Do you understand that this language means that a user of coal, a consumer of coal in my district, could not himself institute a complaint against the price of coal?

Mr. CARSON. Yes, Mr. Healey. I think that is the intent of the act. It seems that the intent of Congress was to consolidate consumer petitions in one group, the Consumers' Counsel. I don't think there is any right on the part of the individual consumer to come in. It seems that the intent of the Congress was to set the Consumers' Counsel up more or less as a trial court first.

Mr. HEALEY. What is the remedy of that individual who has a grievance because of the excessive cost of coal?

Mr. CARSON. He has to prove to the Consumers' Counsel that he has a case.

Mr. HEALEY. And then you, the Consumers' Counsel, may prosecute the complaint before the Commission; is that right?

Mr. CARSON. That is the way we felt. We may have been entirely wrong, but we felt that was the intent of Congress. For example, we might have to appear against low prices for some reason.

Mr. HEALEY. But under this language no consumer or group of consumers may themselves file a complaint; it would have to be done by a State, political subdivision of a State, a city, or town? Mr. CARSON. That is right.

Mr. HEALEY. Under this language?

Mr. CARSON. Right.

Mr. HEALEY. That particular subdivision of a State may in and of itself file a complaint in the case of excessive costs?

Mr. CARSON. Yes.

Mr. HEALEY. Section 16 authorizes the Commission or the Consumers' Counsel, either, to prosecute complaints before the Interstate Commerce Commission.

Mr. CARSON. Yes, sir.

Mr. HEALEY. On the ground of excessive freight rates or excessive costs of transportation. That is correct, is it not?

Mr. CARSON. Yes, Mr. Healey.

Mr. HEALEY. So that after the cost of coal is fixed by the Commission on the basis of cost of production, the cost of coal at the mine, then if it develops that the cost to the ultimate consumer is excessive because of excessive handling charges, freight rates, and that sort of thing, then the Consumers' Counsel or the Commission is authorized, under the language of the act, to prosecute that complaint before the Interstate Commerce Commission; is that right? Mr. CARSON. Yes, sir.

Mr. HEALEY. And, as a matter of fact, in any complaint that is before the Commission having to do with exessive rates for the transportation of coal, the Commission or Consumers' Counsel must be notified, and may thereafter appear and be heard on that particular

complaint before the Interstate Commerce Commission; is that right? Mr. CARSON. That is right.

Mr. HEALEY. So that there is some authority in this act for the Commission or the Consumers' Counsel to take action with the proper authority where there are excessive freight rates?

Mr. CARSON. Yes, sir.

Mr. HEALEY. Which add to the sum total of the cost of the product to the ultimate consumer?

Mr. CARSON. Right.

The CHAIRMAN. If there are no further questions, we thank you, Mr. Carson, for your appearance and the testimony you have given the committee.

STATEMENT OF ARTHUR J. SMABY, REPRESENTING MIDLAND

COOPERATIVE WHOLESALE

Mr. SMABY. Mr. Chairman and members of the committee, my name is Arthur J. Smaby. I am the general manager of Midland Cooperative Wholesale at Minneapolis, Minn., and Milwaukee, Wis., a position to which I was named by the board of directors of this cooperative. I have been authorized by my board to come here and present this case for Midland and request the adoption of the amendment which we have proposed.

Midland Cooperative Wholesale was organized in 1927, without capital. A group of retail cooperative oil associations pooled their purchases and paid for them in advance in order to obtain a better price. The total volume of business the first year was $270,000, with net earnings of approximately $3,500. These earnings were distributed in cash on the basis of patronage to the cooperative associations which had purchased oil and gasoline that year. It soon became apparent, however, that it would be necessary to retain the earnings in the wholesale in order to build the capital structure if the wholesale were to be of any great benefit to the retail cooperatives.

Our capital today is $518,000 which has been built up by retaining the earnings from operation and issuing capital stock to the members instead of distributing all of the earnings as cash patronage dividends. Our sales in 1940 were approximately $4,500,000. We have 200 retail cooperatives as members of Midland Cooperative Wholesale and these retail cooperatives are owned by approximately 110,000 individual members or families.

Midland at the present time operates in Minnesota, Wisconsin, Iowa, and North and South Dakota. Midland's business developed out of the plans for distribution of petroleum products, and these commodities still constitute a large part of the total business. It may impress you to know that cooperatives are now the second largest distributors of petroleum products in Minnesota, and Midland has a large part of this cooperative business. However, Midland is rapidly extending its business into other fields as a means of providing greater service to consumers. Cooperatives are built through educational processes. They are purely voluntary organizations. Midland has spent throughout the years and is still spending a great part of its earnings in organizing and promoting cooperatives. We sin

cerely feel that cooperative organizations offer the greatest support to the maintenance of democratic institutions. We feel these expenditures for education are expenditures entirely for the public welfare. I might add, also, that the true cooperative business is entirely unselfish in all of its aspects.

The policy which Midland follows in establishing prices on the commodities it sells is to follow the going market price. Cooperatives in Minnesota and Wisconsin have a high reputation among all competitors. They are recognized as very ethical competitors. We are not price cutters and are not recognized as such, but we insist the consumers of this country are entitled to the advantages and the savings of the most efficient form of doing business. We believe that form is the cooperative form. Therefore, we insist that the consumers are entitled to get the savings from efficient operations and that cooperatives are entitled and must be permitted to pass on these savings to their members in the form of patronage dividends on all commodities. We are not apologizing for cooperatives in any way. We are boldly proclaiming what we believe are their virtues. We sincerely believe that they are now, and more and more they will become in this country as they have in other countries, the bulwarks of democracy. We sincerely believe that it is the obligation and duty of this Congress, the duty this Congress owes to the public, to make certain at all times that cooperatives are free to serve, that they shall not be destroyed by laws, that their right to equal competitive opportunities shall be preserved.

In this connection may I remind you that when another venture was made in price fixing by the Government, the N. R. A., the President, by Executive order, made it clear and certain that the rights of cooperatives were to be preserved under N. R. A. regulations. That Executive order said in effect that the distribution of savings or patronage dividends should not be interpreted to be discounts or price rebates or violations of the price orders made under the N. R. A.

Midland began its coal operations in the winter of 1934-35. At that time we questioned the wisdom of having our low-income farming groups and low-income wage earning groups burn oil, even though we were in the petroleum business. We began to investigate as to the economy of burning coal because the cooperative interest is always that of giving service to its members. So we began to handle coal in carload lots as a wholesaler. We handled only a little coal at that time, but gradually, through hard work, and the investment of earnings in education work, we built our wholesale business until we now handle 600 carloads a year. Last year we would have handled at least 800 carloads or 40,000 tons, had we not been hampered in our operations by the refusal of the Coal Division to give us a license as a distributor or wholesaler.

Until now the income from our wholesale coal business has not been sufficient to pay all the expenses of the development of the business. We have always felt, however, that in the promotional stages of our business, as is the case of all other business, we must make some investment of capital funds. But we always try to make certain that eventually we will have earnings to compensate for the period of josses. We have now reached the point where our net earnings should be four or five thousand dollars a year from our wholesale coal business. But the Coal Division has refused as yet to grant us a