The Bottlenecks of Business

SEVERAL years ago Wendell Willkie was introducing Thurman Arnold to a dinner audience of industrialists and financiers in New York City. ‘I have read this man’s book, The Folklore of Capitalism, three times,’ he began. The distinguished diners looked surprised. But the happy author was ablaze with satisfaction. Then the deluge: ‘But I have yet to understand what Mr. Arnold is driving at.’

Wendell Willkie certainly would not make such a statement about Thurman Arnold’s new book, The Bottlenecks of Business. The Assistant Attorney General of the United States has written a clear and concise exposé of what ails our economic machine, and what he, as the master mechanic, proposes to do about it. It is the most significant contribution of the New Dea toward an understanding of our economic problems.

Unlike most of the New Deal’s economic policies, this contribution is rooted deeply in American tradition. In short, Mr. Arnold believes firmly in the maintenance of a free market, ‘ the first concern of every democracy.’

He charges that the market place of today in the United States is shot through with restraints of trade and ‘economic toll bridges’ in the hands of private groups. They cause disparity of prices. They create the need for subsidies to balance that disparity and for special privileges to unorganized groups to offset those of long standing held by organizations that have too strong a hold to be deprived of them by a democratic government. Mr. Arnold warns that ‘this pyramiding of subsidies and special privileges cannot go on indefinitely without threatening our political institutions.’

In fact, he explains the rise of Hitler by the loss of the free market in Germany. Industry was regimented into trade associations and cartels which exercised arbitrary power in prices without public control. By 1927 a commission was appointed to study the monopoly problem. It produced nearly forty volumes in three years, but no practical results. With the destruction of the free market, state control of distribution had to follow. And Mr. Arnold adds: ‘Had it not been Hitler it would have been someone else.’

Mr. Arnold is bound that this will not happen here. In Germany there was no strong tradition of free enterprise. Here the Sherman Act is half a century old. In truth, it is so old that we have taken it for granted. That is the trouble, according to Mr. Arnold. The Antitrust Division of the Department of Justice has been allowed to lapse into innocuous desuetude. Like a toothless lion, it has merely emitted feeble roars.

In 1933 the Division boasted of only fifteen lawyers, who were supposed to police the enforcement of a law covering the industrial activity of 130,000,000 people. At the same time these lawyers had to handle all legal proceedings connected with thirty-one other major acts of Congress. You cannot keep order in a nation with a corporal’s guard, says Mr. Arnold.

‘Well,’the reader may say with a yawn, ‘this is just trust-busting, isn’t it?’ Mr. Arnold shuns that explanation, He would rather call it maintenance of free trade between the states. This is necessary to prevent the ‘Balkanization of America.’ Besides, Mr. Arnold is not opposed to bigness as such. He is concerned with the evils of industries which are not efficient or do not pass efficiency on to consumers.

Specifically, he finds two kinds of restraints of trade instrumental in destroying a free market. One type protects inefficiency by eliminating standardized materials and the products of mass production. For years, Mr. Arnold points out as an example, it has been impossible in Chicago to use ready-mixed concrete in the construction of a house. Every consumer has had to have it puddled in the building site in an expensive and obsolete way.

The other type of restraint of trade is more complicated. The Assistant Attorney General finds it to lie in the control of new, more efficient processes of production by a few large combinations which dominate the market in such a way that the savings are not passed on to consumers. By way of illustration, Mr. Arnold points to the tobacco industry, whose increased efficiency in production has not been offset by lower prices for cigarettes.

In addition to these two restraints of trade, there are two others of a rarer variety: one, the monopoly, ‘the rarest type of all,’the nearest approaches being the Aluminum Company of America and the United Shoe Machinery Company; the other Mr. Arnold calls the ‘Chinese bandit system of restraint in unorganized industry,’tolls levied on the small business man by racketeers.

Many of the restraints of trade are arrived at in ‘smoke-filled rooms.’ Others are seemingly arrived at more openly. Take cheese, for example. It is not so generally known, Mr. Arnold points out in a burst of understatement, that on Friday afternoon of each week a few men interested in cheese go to Plymouth, Wisconsin, only a few miles from Madison. After a good lunch they meet for a few minutes at the Plymouth Cheese Exchange. After friendly conversation, the Secretary of the Exchange calls for offerings of cheese and then, after a ceremonious interval, for bids. Miraculously the friendly gentlemen all seem to have the same price in mind, and this becomes the basic settlement price for the whole week for millions and millions of pounds of cheese bought and sold throughout the United States.

If this ‘hocus-pocus’ were limited to cheese, avers Mr. Arnold, it would not be so bad, but it applies in a greater or less degree to a multitude of farm products. It is somewhat disillusioning to learn that at terminal markets, at precisely the same time every day, a printed circular oracularly announces the price of spinach for the spinach world.

Mr. Arnold believes that combinations in restraint of trade exist at every stage of the industrial process; that business men, by themselves, are unable to change the general pattern of distribution in their industry. They have to violate the law in order to survive against aggressive combinations which attack them. In spite of his recognition of the plight of the business man, Mr. Arnold has not hesitated to resort to criminal procedure against respectable violators. This has been his right, according to law, but it has undoubtedly resulted in increased antagonism in business circles which, at least by their professions of faith, should favor safeguarding free enterprise.

There are many other examples which Mr. Arnold gives of the bottlenecks choking business. Some of these, such as the case of building materials, have received wide attention in the press.

In one city, for example, the stopping of illegal practices in the building trades has brought about substantially lower building prices. Lumber prices dropped 18 per cent and sand and gravel prices declined 22 per cent. The low bid on a large electrical contract which was readvertised was 21 per cent under the previous low bid. In Pittsburgh a newspaper editorial complimented Mr. Arnold by warning him: ’Don’t Drop This Great Work.’

Six months ago a clear-cut victory for Thurman Arnold’s Antitrust Division in the Ethyl case opened the way to consumer savings in everyday articles. The Supreme Court had declared illegal the methods of the Ethyl Corporation. The distribution of Ethyl fluid had been controlled by refusing to license persons who did not follow the ‘marketing policies and posted prices’ of the major oil companies or their market leaders.

Because of this decision the price of spectacles, which had been maintained by a similar arrangement, was reduced. A pair of eyeglasses selling for $20 could be profitably sold for $7.50, according to one estimate. After the Ethyl decision and at the suggestion of the Department of Justice, the Du Pont Company voluntarily abandoned its proposed plan of price control for Nylon stockings.

Mr. Arnold has been particularly active in attempting to remove the bottlenecks between farm and table, and he has already succeeded in a number of instances. In the famous Chicago milk case he found a ‘combination of farmers, large dairy companies, a labor union, and members of the Board of Health, was forcing upon the poor a luxury system of distribution.’ At the beginning of this proceeding, milk was selling at thirteen cents a quart in Chicago, delivered at the doorstep. It could not be purchased cheaper without some risk. Now, after the Supreme Court upheld Mr. Arnold, milk is available at 8 1/2 cents, store delivery. By eliminating restraints of trade he estimates the consumers of Chicago have been saved about $10,000,000 a year.

There is still plenty of work for Mr. Arnold to do in this field. Rhode Island, for example, is cited as permitting the sale of milk from sources beyond the regular milkshed only if it is first colored red!

No section of society is immune from Mr. Arnold’s fearless probing. To our captains of industry, humiliated by being dragged into the public docks, it is at least some consolation that the sins of labor are recognized. ‘Many unions are interested in restricting output, in building trade barriers between states, and even in discriminating against working men themselves for the advantage of a few,’ the author charges. In fact, ‘corruption in unions has become notorious.’

Mr. Arnold has moved more cautiously with regard to the economic toll bridges erected by labor. Yet the fact that he has moved at all is an indication of his sincere belief in the necessity for maintaining free trade in our democracy. It is not just another anti-business crusade.

Since taking office in 1938, Mr. Arnold has quadrupled the number of men in the Antitrust Division. Yet, uniquely enough, it seems to be more than paying its way. At date of writing, the Division had collected in fines this year three times as much as it had spent, and had ‘a potential of $5,000,000 more.’ Surely this is an extraordinary government bureau; but then Mr. Arnold, as his book shows, is an extraordinary man.

Besides, the consumer has been benefited in every case. We are all consumers, and to most of us — 85 per cent, says Mr. Arnold — prices are very important . We are interested in saving pennies which, in the end, add up to a goodly portion of our incomes.

‘The root of the currency problem,’ observed Mr. Dooley, ‘is the fact that the people who need money the most don’t have any.’ Mr. Arnold’s vigorous revival of the Sherman Act is supplying money, in increased buying power, to that great class which needs it the most — the American consumer. In so doing, by methods in keeping with our traditions, he is safeguarding our democracy.