! If '\ HE NOT A PERIODICAL THE UNIVERSITY OF ILLINOIS LIBRARY O5 ZEL- N/.IO Return this book on or before the Latest Date stamped below. Theft, mutilation, and underlining o( F book, are reasons for disciplinary action and may result in dismissal from the Univers.ry. University of Illinois Library L161 O-1096 THE LIBRm OF THE 05 im UNIVERSITY OF ILLINOIS STUDIES IN THE I SOCIAL SCIENCES Vol. X JUNE, 1922 No. 2 BOARD OF EDITORS : ERNEST L. BOGART JOHN A. FAIRLIE LAURENCE M. LARSON PUBLISHED BY THE UNIVERSITY OF ILLINOIS UNDER THE AUSPICES OF THE GRADUATE SCHOOL URBANA, ILLINOIS COPYRIGHT, 1923 BY THE UNIVERSITY OF ILLINOIS OPEN PRICE ASSOCIATIONS BY MILTON NELS NELSON Instructor in Economics University of Illinois PUBLISHED BY THE UNIVERSITY OF ILLINOIS URBANA TABLE OF CONTENTS AFTER PAGE I. Terminology, Definition, Prevalence, Purposes, and His- toric Origin 9 Character of terms in use to designate open price activity 9 Open price associations and ordinary trade associations compared 10 Prevalence in the various industries 10 Distribution among manufacturers, wholesalers, and retailers 18 Objects of Eddy and other associations 19 Historic origin 24 Recent developments 28 II. Description of the Combination and Association Develop- ment in the Iron and Steel Industry and Comparison with the Open Price Association 29 Reporting system of combinations and open price associations com- pared 29 Objects of combinations and open price associations compared 31 Resemblances between statistical associations and open price associa- tions 32 Statistical associations succeeded by the Gary dinner system 33 The Gary dinner system succeeded by the open price system 39 III. The Eddy Theory and Plan of New Competition 41 Theory in support of the open price plan 41 , Eddy's arraignment of present competitive conditions 41 Eddy's exposition of "true competition" 44 Criticism of the Eddy statement of theory ,. 44 Knowledge, the essence of competition 45 Competitive conditions on the Exchanges 45 Vindication of competition as conceived by the economist 46 The worth of Eddy's work estimated 47 Criticism of the Eddy open price plan 47 IV. Structural Features of the Open Price Association 50 Voluntary and incorporated types compared 50 Membership 54 Officers 58 The Central Office .'. 62 Meetings 63 V. The Reporting Plan 68 Reporting among manufacturers who make goods to specification 68 The Eddy Plan 68 Deviations from the Eddy Plan ; 69 Method of reporting among typical Eddy associations 70 Deviations from methods in use by Eddy associations 71 Reporting among manufacturers who sell to jobbers and retailers 72 Standardization , 72 Differences in the amount of information interchanged 74 Filing of price lists 75 Filing reports of actual sales transactions 77 Trade statistics, costs, etc 80 VI. The Advantages and Disadvantages Connected with Open Price Work 90 Development of the spirit of cooperation 90 Relative benefits to the small and large manufacturer 93 Preventing purchasers from overreaching manufacturers 95 Benefits to the Government 98 Uses made of statistics , 99 Handicaps to the installation of an open price system 104 Negligence in the performance of obligations 109 Deficiencies in the reporting system 112 Probable success or failure of open price work 115 VII. Open Price Activity in the Lumber Industry , 116 Prevalence 116 Comparison with the Eddy type of open price activity 117 The Yellow Pine Association 119 The American Hardwood Manufacturers' Association 124 Public and economic aspects of open price activity 134 VIII. Regulatory Aspects of Open Price Activity 142 Importance of the case of the United States vs. American Column and Lumber Co. et al 142 Decisions applicable to the open price system .'. 145 Expositions of the law relating to the open price plan 149 Illegal activities and suggested remedies 158 Attitude of the Federal Government _ 169 IX. Some Considerations Involved in a Study of the Influ- ence of Open Price Activity on Prices 174 Difficulty of ascertaining effect on prices 174 Method of ascertaining influence on prices 175 The need of exercising care in choosing data for study 182 Influences at work 183 X. Open Price Associations and the Public Welfare 196 The open price plan in its relation to competition 196 Benefits to the sellers and buyers compared 197 Conditions under which open price work may jeopardize the public interest 199 Inadvisability of abandoning open price work 200 Establishment of an open price bureau by the Federal Government 202 Illustrative charts: 1. Comparison of prices received by members of American Hardwood Manufacturers' Association with those received by a non-member.... 178 2. Comparison of prices received by members of American Hardwood Manufacturers' Association 179 3. Compilation of prices received by members of American Hardwood Manufacturers' Association disclosing the wide variation of prices received 181 Appendix, Exhibits 1-14: 1. List of associations reputed to be doing open price work 207 2. Minutes of Meeting, American Hardwood Manufacturers' Associa- tion 211 3: Constitution and By-Laws of a typical open price association 214 Reporting forms: 4. Society of Manufacturing Confectioners 220 5. North Carolina Pine Association 221 6. American Hardwood Manufacturers' Association 222 7. West Coast Lumbermen's Association 223 8. North Carolina Pine Association 224 9. Society of Manufacturing Confectioners 1 225 10. American Hardwood Manufacturers' Association 226 U-I2. National Association of Box Manufacturers , 227-228 13-14. North Carolina Pine Association 229-230 Bibliography 231 PREFACE The dissertation which follows must be looked upon as an introductory study of the open-price movement rather than an exhaustive one. The movement being of comparatively recent origin, the accumulated data, based on observation and experi- ence, are necessarily inconclusive on many points. In conse- quence it has been found necessary in many instances to base conclusions mainly on theoretical considerations. There remains for future investigators the obvious task of testing out these conclusions in the light of a more adequate fund of data. , The writer desires to express his obligation to officers of open price associations, too numerous to mention by name, for their cooperation in furnishing data. Special acknowledgments are due to Professor Maurice H. Robinson of the University of Illinois, who suggested the topic and under whose supervision the work has been brought to completion. Appreciation is also expressed to members of the Economics Seminar (1920-1921) of the University of Illinois for permission to read and offer for their criticism certain chapters of the dissertation. UNIVERSITY OF ILLINOIS. CHAPTER I TERMINOLOGY, DEFINITION, PREVALENCE, PURPOSES, AND HISTORIC ORIGIN TERMINOLOGY It is not easy to identify an open price association by its name. They are most commonly designated as "associations" or "bureaus" or "institutes" or "societies" or "exchanges". 1 The terms most commonly used to designate the kind of activity engaged in by open price associations are "New Com- petition", "Open Door Competition", "Open Price Cooperation", and "Cooperative Competition". Perhaps the last named term is the most expressive because it invites attention to the fact that members of an open price association aim to cooperate in such a manner that competition between themselves will not be impaired. The use of such a term as "Open Price Cooperation" is open to the objection that it lays undue stress on the price feature of the open price plan. Many supporters of the plan take the ground that this activity occupies a position of lesser importance than other activities involved in the operation of the plan. That there is some weight to this assertion will be shown in another connection. 2 Of course the same criticism applies to the use of the term "Open Price Association". However, it has merit in that it calls attention to an activity that is peculiar to this type of association as distinct from that of the ordinary trade association, namely, price reporting. DEFINITION The open price association is an organization which provides a medium for the exchange of business information among mem- bers of a given industry whereby they may arrive at an intimate illustrations: American Hardwood Manufacturers' Association; Lumber- mens' Statistical Bureau {National Bar Iron Institute; Manganese Steel Founders' Society; Steel Locker and Shelving Manufacturers' Exchange. J C/. ch. 5, p. 80. IO OPEN PRICE ASSOCIATIONS [174 acquaintance with competitive conditions as they exist among themselves and in the whole industry. The business facts most commonly exchanged are those relating to prices actually quoted or charged, terms of payment, manufacturing and selling costs, purchases, stocks, production, orders, shipments, inquiries, bids, contracts, returned goods, cancellations, advertising, and credits. There are discernible several points of difference between an open price association and the ordinary trade association. The ordinary trade association is very loosely organized and serves only certain general purposes. There is little or no attempt to systematically assemble, compile, and disseminate complete and accurate business statistics. Meetings are infrequent; members do not come much in personal contact at these meetings because the membership is usually large. Divergence of interests is more or less great, making it difficult to secure harmony of action. It is often found that the members of such an association do ex- change price information. In so far as this is done, the association may be considered a kind of open price association, but it is not a typical one. The typical open price association is a small, closely knit organization. Its members place heavy emphasis on the impor- tance of assembling, compiling, and disseminating among them- selves complete and accurate statistics. These statistics serve the purpose of putting each member in possession of business facts which will provide him with a basis for the intelligent direction and control of his business. If anything, even more emphasis is put upon the importance of securing frequent per- sonal contact between members. This is accomplished by having frequent meetings. Where membership is relatively large, or where it is spread over a wide area of territory, it is customary to have group meetings. In these meetings members freely discuss all matters of interest bearing on the problems of their industry, including prices that have been received in past trans- actions. Discussions relating to future prices are not permitted. PREVALENCE The open price association is an American institution. 3 How many of these associations exist in the United States is very *Eddy, Arthur J., Address, American Lumberman, Dec. 20, 1913. 175] DEFINITION, PREVALENCE, PURPOSES, ORIGIN II difficult to determine. One estimate places the number at 250.* A prominent counsel for several open price associations, whose opinion bears weight, states, "It is probably true that no great industry in this country is entirely without some form of coop- eration that meets at some point some principle of the so-called open price work. I have no doubt at all that there are as many as three hundred and possibly three times three hundred." 5 The writer is informed by one of the representatives of a prominent bureau doing open price work that the bureau in question has collected a list of four hundred and twenty-nine open price asso- ciations, and the opinion was expressed that there are in existence some four hundred and fifty of these associations. 6 However the informant did not know what percentage of this number repre- sented associations which had adopted the open price plan in its entirety. Probably the number falling in the latter class would be considerably less. There is no doubt that the late war gave an impetus to the spread of this association movement. In supplying its needs, the Government made a practise of dealing with associations of manufacturers rather than with individuals. Many associations that were hastily thrown together for war purposes were kept up after the advent of peace. 7 Requests made by the Govern- ment for statistical data relating to such matters as stocks of goods on hand in any given industry, productive capacity of individual manufacturers, et cetera, provided associations with a strong incentive for gathering and compiling statistics relating to their industry. 8 Many associations, organized to do open price work, sprang up. Ordinary trade associations added certain features of the open price system to their other functions. Shortly after the close of the war, as a part of its avowed purpose of determining the reasons for the high cost of living, the Depart- ment of Justice of the United States began a searching investiga- 4 Rohrbach, C. R., Printer's Ink, Feb. 5, 1920. 'McKercher, Clark, Letter, Nov. 22, 1920. Armstrong Bureau of Related Industries, Chicago, Illinois. 'Rohrbach, C. R., Printers' Ink, Feb. 5, 1920. New York Journal of Commerce, May 11, 1917; May 16, 1918. 12 OPEN PRICE ASSOCIATIONS [176 tion into the workings of certain of the so-called open price asso- ciations. Early in the year 1920 a Bill of Complaint 9 was filed against the largest open price association in the country, the American Hardwood Manufacturers' Association. A month later, the Federal Court for the Western District of Tennessee 10 granted an injunction restraining the members of this association who were members of the open price plan from engaging in any open price activity whatever. Subsequently an announcement was made by one of the assistants to the Attorney General that he considered the law as applied in this case firmly established and that any other associations operating similarly would be proceeded against. 11 These events naturally reacted on the rapid spread of associations of this kind and resulted in the suspension of open price activity on the part of many of them, 12 at least temporarily, pending the outcome of the appeal that the mem- bers of the hardwood open price plan had made to the Supreme Court. The open price movement is therefore now (1921) at a standstill. Open price associations may be found in all parts of the United States. A large number of them, if not the largest, appear to have their headquarters in New York and Chicago. A glance at the appended list of associations reputed to be doing open price work 13 will indicate how widely different are the lines of trade in which they flourish. The list, which is believed to be a representative one, also points to the conclusion that the open price movement in its most highly developed form is spreading most rapidly in lines of trade wherein the number of competitors is relatively small. 1 * The reasons for this would appear to be, in the first place, 9 Bi/l of Complaint, American Column & Lumber Co. et al vs. U. S.; Bill filed in Federal Court for Western District of Tenn., Feb. 1920. ^American Lumberman, Mar. 20, 1920. Decision rendered in March, 1920. ^American Lumberman, Mar. 20, 1920. Statement of Judge C. B. Ames, Assistant to the Attorney General. "For instance, National Coal Assn., Hollow Building Tile Assn., National Warm Air Heating and Ventilating Assn. Several in lumber industry. 13 Appendix Exh. I. "One of the largest, if not the largest, open price association of the fifteen or sixteen organized by Mr. Eddy, i. e., The National Association of Finishers of Cotton Fabrics, has sixty-seven members. The average number seems to be no 177] DEFINITION, PREVALENCE, PURPOSES, ORIGIN 13 that groups of competitors in the smaller lines, not having the benefit of trade papers, feel a peculiar need of some medium for learning of conditions of trade. The open price system meets this need. In the second place it is, generally speaking, true that the more numerous the competitors in a given line are the more difficult it is to bring about effective cooperation between them. This is particularly true when the cooperation required is of a most intimate and unprecedented kind. Even the most intelligent of business men find it difficult to grasp the spirit of cooperation which makes men willing, for example, to lay bare before competitors vital statistics pertaining to their own busi- nesses. Filled, as he is, with distrust and suspicion of the motives and actions of his competitors, the ordinary business man is not easily reconciled to a program which involves coop- eration with them in this very intimate way. A long campaign of education must ensue before these barriers can be cleared away. Even when he has reached the point where he is willing to cooperate, there is the difficult task of teaching him to be accurate, punctual, and regular in reporting such information as may be requested of him by the bureau gathering, compiling, and disseminating the information. The open price plan has been in existence for about nine years only. 18 It would seem almost impossible, then, for lines of trade with large numbers of competitors to have arrived at a very high stage of development in open price work. Some industries, like the textile industry, do have open price associations that are highly developed in their structure and functional activities, but it will generally be found that their activities are limited to certain lines of trade in the industry wherein competitors are relatively few and processes are more or less simple and there- fore comparatively easy to standardize. The lumber industry, perhaps, offers the most conspicuous example of the attempt to secure cooperation of a large body of competitors in its entirety under the open price plan. Even in greater than twenty-five. Cf. Testimony of Wm. J. Mathews before the Joint Legislative Committee on Housing, Legislature of New York, Dec. 29, 1920, pp. 4602-4603. "This statement is written in 1921. 14 OPEN PRICE ASSOCIATIONS [178 the most successful association of the many in the lumber indus- try doing open price work the American Hardwood Manufac- turers' Association it was found well nigh impossible to secure sufficient cooperation among competitors to make the plan en- tirely successful. Early in the year 1919, after an existence of about two years as a consolidation of two associations that had existed for several years previous, the membership had nearly reached the four hundred mark. This membership controlled but twenty-eight per cent of the total hardwood production of the industry. 16 Thousands of small sawmill owners scattered over practically the entire United States east of the Mississippi River and west of the Mississippi River, in the States of Mis- souri, Arkansas, Louisiana, and Texas were not members. The United States census for 1910 gives between 12,000 to 15,000 independent hardwood sawmills. 17 Such statistics of stocks, production, et cetera as were reported by the members would not give totals which could be considered representative of the hardwood industry, except in a very crude, inaccurate way. Enough competitors must cooperate in furnishing information to make it possible to at least reduce the operations of the re- maining ones to a calculable basis. Those who did join the association were very dilatory in furnishing information. It was found necessary to give up the plan of having all members make monthly reports of their production, because members failed to do so. 18 In the coal industry an attempt has been made to cope with the problem of getting cooperation among large numbers of competitors by having several local bureaus for the gathering, compiling, and dissemination of statistics, each one of them being located in a coal operating center. Each local bureau then keeps the operators in its vicinity lined up, obtains the necessary sta- tistics from them, compiles them and relays them to the asso- ciation headquarters, where they receive further treatment in "American Column & Lumber Co. et al vs. U. S., Argument of L. C. Boyle before the Supreme Court, p. 6. "ItiJ., p. 35- "American Column & Lumber Co. et al vs. U. S., Transcript ofRecord, Vol. II p. 1107. 179] DEFINITION, PREVALENCE, PURPOSES, ORIGIN 15 the way of tabulations and compilations, after which they are returned to the various local exchanges, where they are again disseminated among the local operators. 19 Fearing legal conse- quences, the association ceased issuing market reports in July, 1920. How successful this scheme was in getting the desired cooperation is not known. Probably open price associations occupy as important a place in the lumber industry as they do anywhere else. The recent report on the lumber industry rendered by the Federal Trade Commission to the Senate and the House 20 discloses that all ten of the lumber manufacturers' associations affiliated with the National Lumber Manufacturers' Association have been engaged in open price activity. There are only two large associations devoting themselves principally to the interests of manufacturers that are not affiliated with the National Lumber Manufacturers' Association, namely, the National Hardwood Lumber Associa- tion and the American Hardwood Manufacturers' Association. Of these only the National Hardwood Lumber Association has not been doing open price work. The Southern Pine Association ceased doing open price work when the United States Attorney General filed a bill of complaint against the American Hardwood Manufacturers' Association. The latter association, prior to the cessation of its open price activities, was not only the most nota- ble example of an open price association in the lumber industry, but it was the largest open price association in existence. 21 The Yellow Pine Wholesalers' Association having recently ceased operation under the open price plan, it appears that no associations of wholesalers are now engaged in open price work. As far as can be ascertained, only one retail lumber associa- tion is doing open price work, that being the Chicago Lumber Dealers' Association. 22 Open price associations seem to occupy a position of nearly as great importance in textiles as they do in lumber. A chronic , "Editorial, "How National Association Reports Sales." The Black Diamond, Oct. ii, 1919. ^Preliminary Report, Federal Trade Commission, Jan. 10, 1921, Pt. I, p. i. J1 For further discussion, see ch. 7, pp. 137-148. ^Preliminary Report, Federal Trade Commission, Jan. 10, 1921, Pt. 2, p. 101. l6 OPEN PRICE ASSOCIATIONS [l8o condition of cut-throat competition characteristic of the textile industry has tended to abet the movement; 23 however, the secre- tiveness of competitors, explained in large degree by the impor- tance to them of securing individuality and originality of styles, has impeded the movement, 24 as has a certain determined opposition manifested by buyers against these associations, par- ticularly in the knit goods line. 20 Close to a dozen open price associations are said to be in operation. 20 All of these exist among manufacturers, with the exception of one or two to be found among jobbers. 27 The first to adopt the open price plan were the important finishing firms (bleachers, dyers, printers). In 1914 they united to form the National Association of Finishers of Cotton Fabrics. Mr. Eddy organized it and was its counsel from the beginning. 28 It is said that by the end of 1916 all of the cotton finishers had joined the association. Its success in helping the finishers to weather the depression that hit the textile industry in 1914 stimulated mill owners in other centers to adopt the plan. By the end of 1915 such asso- ciations existed in Boston, among knit goods manufacturers there, among mill owners at New Bedford and Fall River, and among certain of the mill owners in Southern cotton centers. Late in 1915 a joint council composed of representatives from the two national associations the National Cotton Manufactur- ers' Association and the American Cotton Manufacturers' Asso- ciation met to consider the feasibility of joining in the open price movement. As a result of their deliberations it was con- cluded that because of the complicated and involved nature of the dry goods trade it would probably not be practicable for the national associations to attempt to do open price work, and that such work could best be outlined and developed in each line of trade taken as a unit. 29 M New York Journal of Commerce, Sept. 18, 1916. ^Textile World Journal ', Jan. 20, 1917. ^New York Journal of Commerce, Mar. 19, 1920. n lbid., Mar. 19, 1920. "//id.,p. 101. Foradiscussionoftheeffectofopenpriceactivityonpricessee ch.p. 'For a discussion of the advantages of the open price plan see ch. 6. 10 In every case where the term "competition" is used, the meaning is "commer- cial competition." See Taussig, F. W., Principles of Economics, Vol. I, p. 149. "See Palgrave, Dictionary of Political Economy on "Competition," Vol. I, pp. 376-380. 209] THE EDDY THEORY AND PLAN 45 their own interest if they are not acquainted with all the condi- tions affecting the supply of and the demand for the particular product in which interest is centered. Ignorance of business conditions is admittedly so prevalent among business men of the ordinary type as to render them incapable of acting intelli- gently in their own interest. Perhaps the reason why knowledge is the essence of compe- tition may be made clear by the following: A knowledge on the part of sellers and buyers of their own interest, implying, as it does, a knowledge of all conditions that might have a bearing on the supply of, and the demand for, a given commodity, to- gether with the ability and willingness to intelligently act thereon, would result, according to the law of supply and demand, in similar exchanges taking place on similar terms, or to state it in terms of price, it would result in the naming of an equilibrium price "for the same unit of the same quality of the same article in the same market." 12 This stability of market conditions, which finds expression in a single price, will ensue only under the conditions named. It is attainable only in theory. But such stability can be approximated by means of systematic efforts put forth to eradicate sources of friction. Undoubtedly one of the most serious sources of friction is due to sellers and buyers lacking adequate knowledge. The nearest approximation in real life to a stability of condi- tions such as is attainable theoretically seems to have been achieved in the case of those commodities which have their mar- ket made on the exchanges. The reason undoubtedly is that the machinery of these exchanges, be they stock, bond, wheat, coffee, cotton, or any other kind of exchanges, puts at the disposal of buyers and sellers an unusual amount of information bearing on competitive conditions. The higgling between buyers and sellers, based as it is, on a general knowledge of substantially all facts that have a bearing on competitive conditions, results in prices being named which vary very little from each other for given units of a given commodity of a given quality on a given exchange at a given moment of time. One only has to note the general "Palgrave, Dictionary of Political Economy on "Competition" Vol. I, pp. 376- 380. 46 OPEN PRICE ASSOCIATIONS [2IO confusion among buyers and sellers, manifesting itself in wide "spreads" of prices, that occurs in consequence of a temporary cessation of this exchange machinery to know the importance of putting buyers and sellers in a position where they can know all the facts of competition as well as act thereon. 13 It is a matter of common observation that there is considerable variation in the prices named for identical commodities in those cases where they do not have their market made on an exchange. This is particularly true of the great class of manufactured goods. It is a fair assumption that the "spread" in prices apparent in many, if not most, lines of manufactured commodities is to a considerable degree the result of buyers and sellers possessing an inadequate knowledge of market conditions. Of course con- ditions may arise which would result in similar commodities selling at different prices even tho sellers and buyers are thoroly acquainted with all essential facts pertaining to mar- ket conditions. This cannot be denied; but the contention is that, other things being equal, there will be less of a "spread" in prices meaning, of course, that ideal conditions of competi- tion are more nearly approximated when buyers and sellers are well informed than when they are not. If this country is to continue to shape its destiny in a business way in accordance with the theory that the ideal philosophy of trade is competition in trade, it becomes important that means be sought looking toward a more free play of competitive forces. Perhaps the time will come when the theory of competition as laid down by the economist, now so maligned in many quarters, will find itself vindicated, provided means can be found for eliminating the more serious causes of friction that now prevent actual competitive conditions from approaching ideal competitive conditions. Undoubtedly a very serious amount of friction is occasioned by the lack of machinery for putting business men in possession of the salient facts relating to their particular lines of industry. \ "At the outset of the war, when the New York Stock Exchange was temp- * orarily closed, the very best of securities fluctuated violently in price. As soon as the Stock Exchange opened these violent fluctuations disappeared, and "spreads" in prices became less pronounced. 2 1 1 ] THE EDDY THEORY AND PLAN 47 Mr. Eddy, in the opinion of the writer, should be credited with an achievement of signal worth in calling the attention of business men to the fact that there are ways of providing ma- chinery that will enable them systematically to get at the infor- mation of inestimable value to them in diagnosing market conditions. However, he should not also be credited with devel- oping a new theory of competition. The discovery that know- ledge is the essence of competition is, as previously stated, not a new one. Mr. Eddy, however, apparently thinks that he has found a new theory of competition, when, as a matter of fact, econo- mists have always assumed the existence of the very thing that Mr. Eddy would raise to the dignity of a new theory, namely, that sellers and buyers possess enough knowledge of the facts influ- encing competitive conditions to make them alive to their own interest in their capacity of bargainers. We turn now to consider briefly the general nature of the plans that Mr. Eddy would set up as models for those who would learn how to achieve true competition. From the standpoint of theory, at least, irrespective of the practical difficulties that might arise, it would seem essential that any system devised for the purpose of securing more intelligence in competition should be sufficiently comprehensive to take in buyers as well as sellers. It is assumed that in the ideal kind of competition, all parties are sufficiently intelligent to know their own interests. However, if one class is > in possession of all the salient facts of competition and the other , is not, it is safe to assume that the one will have an undue advan- < tage over the other in bargaining. In other words, true competi- tion will not prevail. In the statement of his theory Mr. Eddy seems to have the seller primarily in mind. He says that "true competition exists only where there are two or more competitors 1 * competing under conditions that enable each to know and fairly judge what the others are doing. 15 To have true competition, it is necessary that not only sellers be informed, but that also buyers be informed. "This term may be applied to purchasers who are competing against each other in making purchases of goods, but Mr. Eddy undoubtedly uses the term in its more commonly accepted meaning of denoting sellers in competition with each other for the custom of the buyer. "Eddy, New Competition, p. 82. 48 OPEN PRICE ASSOCIATIONS [212 To be sure, Mr. Eddy does make reference to one plan in which connection the "goal to be kept in mind is a Central Exchange, so open, so public, that labor, employers, customers will resort to it for information regarding work, wages, prices, and all conditions affecting every trade and industry repre- sented." Under this plan, apparently, every town is to have its Industrial Exchange, a place of meeting for all trades, and every contractor in all lines of work is to be a member. The exchange that Mr. Eddy here has in mind is apparently to be mainly for the use of those who are engaged in the various building and allied trades. Nothing is said as to the place that buyers and sellers of manufactured goods are to occupy in these exchanges. Apparently Mr. Eddy has little faith in the practicability of this plan for it is given only a passing reference in a passage leading up to the real plan that he has in mind. 16 This plan which has come to be known as the open price plan 17 is devised almost entirely from the point of view of the seller. In fact one of the principal inducements for trying out the plan, as Mr. Eddy states, is to prevent buyers from misrepresenting prices that are being currently quoted. 18 He also suggests that the plan will put purchaser and seller more nearly "on a footing of equality." 19 An outline of the steps that should be taken by the manufacturer in organizing an open price association is ..given. 20 The purchaser has no part to play in the organization. Purchasers are to be permitted to attend meetings, but nothing is said about permitting them to have a part in the reporting system. The suggestion is made that purchasers organize their own open price associations, but obviously the trade statistics that they could obtain for themselves would be very limited in scope. They could compare prices paid for purchases, but they could not obtain statistics pertaining to such vital matters as amount and character of production, size, character, and loca- tion of stocks of commodities, et cetera. These statistics could "Eddy, New Competition, pp. 101-104. 17 For a description of the typical Eddy plan, see ch. 5, pp. 71-72. 18 Eddy, New Competition, p. 145. "ItiJ., p. 145- K Ibid., pp. 124-136. 2I3J THE EDDY THEORY AND PLAN 49 be obtained only from the producers themselves. It is plain that the machinery of the open price plan does not put all the facts of competition before both the buyer and the seller in the impartial way in which it is done, for example, on the various commodity exchanges. As long as all parties concerned are not in possession of all the facts relating to the competitive market, exchanges cannot be made on the terms contemplated by the law of free competition. Mr. Eddy's plan, then, failing as it does, to provide a system whereby both buyers and sellers may be put in possession of all necessary information to make them intelligent bargainers, cannot be regarded as a complete solution to the problem of securing full and free competition in the transaction of business. The plan is meritorious, however, in so far as it points to the direc- tion, perhaps, in which may be found a solution. Mr. Eddy was above all things a practical minded man, intent on proposing a practical plan which might give redress to the manufacturer who, he undoubtedly felt, was not on an equal footing with the pur- chaser in bargaining power. However, he leaves the impression with the reader that his plan will achieve a larger result than merely to give redress to one industrial class. It is heralded as a plan which will lead to true competition. CHAPTER IV STRUCTURAL FEATURES OF THE OPEN PRICE ASSOCIATION ORGANIC ORIGIN With very few exceptions the prevalent type of open price association is the voluntary association type. The incorporated type has been observed to exist among a few of the lumber manufacturers' associations. 1 Only one of these, namely, the Southern Pine Association, was organized to do open price work; the others have made it an adjunct of their other activities. The Southern Pine Association, in adopting the form of asso- ciation that it did, was actuated chiefly by legal motives. Even tho it has ceased to function as an open price association, it is interesting to recount the circumstances attending the organi- zation of this association, 2 because here is recorded one of the first attempts made to avoid the alleged weaknesses of the vol- untary form of association. It was in 1914 that this association came into existence as a result of the reorganization of the old Yellow Pine Association, the latter having been dissolved and many members heavily fined by decree of the Supreme Court of Missouri in consequence of a conspiracy to boost prices. 3 The old association had been a voluntary one. Its disastrous experi- ence with the courts made it clear that under this form of asso- ciation any member might be held bound by the acts or comments, public or private, of every other member. Under such circum- stances as these there would not be much inducement for yellow pine manufacturers to again join hands as members of a volun- tary association. Neither was it likely that state authorities, Southern Pine Assn.; West Coast Lumbermens' Assn.; California White & Sugar Pine Manufacturers' Assn. 2 Price reporting was abandoned when suit was brought against the American Hardwood Manufacturers' Assn. * American Lumberman, Dec. 20, 1913. 50 215] STRUCTURAL FEATURES 51 particularly those of Missouri, would view with any degree of equanimity any efforts that might be made to resuscitate the old form of organization. Faced as they were by this two-horned dilemma, the leaders among the yellow pine manufacturers hit upon the corporate form of organization as a welcome solution to their problem. Under the corporate form there would be no members from the legal point of view. A corporation would be organized to sell information to subscribers in a manner similar to that done by Bradstreet's or Dun's. Instead of having mem- bers, it would have subscribers who would enter into a contract with the corporation for such service as the corporation might be authorized under its charter and by-laws to furnish. Meetings of subscribers would be held at various times and places to make recommendations to the directors, who would act upon them only if the action recommended came within the law. The subscrib- ers' meetings would be in effect voluntary organizations, whose will and wishes the corporate directors would follow so far as the law permitted. 4 It was contended by counsel, 5 as previously intimated, that the act of one subscriber would not bind any other subscriber. Neither would any act of the corporation the association itself bind the subscriber. Furthermore the legality of the plan, it was contended, would be tested in advance. After filing the articles of incorporation with the Secretary of State, they would be brought to the notice of the Attorney General in order that he might advise against their certification if he found them in con- flict with the law. One other leading argument in favor of the corporate form had to do with the placing of responsibility with those who subscribed. Under the voluntary form there were, it was contended, no adequate means of getting members to live up to their obligations. Under the corporate form, however, subscribers would sign contracts which would be legal, binding, and enforceable. There could be no voluntary withdrawal, the contract running its full term to the date of expiration, during which time the subscriber would be bound, legally as well as 4 C/., American Lumberman, Dec. 12, 1914. ^Argument of Judge Lucas before meeting of Yellow Pine manufacturers. See American Lumberman, Dec. 12, 1914. 52 OPEN PRICE ASSOCIATIONS [2l6 morally, to all obligations assumed by him therein. Among other things, promptness in reporting necessary business information would be insured, as would the necessary financial support needed to carry out the purposes of the corporation. These arguments are passed on to the reader for what they are worth. They involve primarily questions of law which in time will be passed upon by the courts. Undoubtedly one of the se- rious weaknesses of the voluntary type is the lax manner in which members carry their responsibilities. The infliction of penalties for infractions of rules, such as is provided for by the corporate form of association, is a business like way of coping with this difficulty, say the advocates of this plan. 6 Advocates of the voluntary type, however, maintain that the infliction of penalties is out of harmony with the very purpose of the open price association, in that it tends to tear down the very thing that the open price plan aims to build up, namely, a mutual spirit of friendliness, confidence, and trust between members. The infliction of penalties is at best a crude means of securing a minimum degree of cooperation from those who in the absence of this provision would perhaps disregard their obligations en- tirely. Possibly a stage of ethical development among business men has not yet been reached which will permit of their relations with one another being left entirely to the field of honor. Prac- tically all of the voluntary type of open price associations have found it necessary to compromise with their principles to the extent of inflicting a penalty of a kind, at least, upon members who fail to furnish the information called for by the secretary. The simple rule adopted is that those who do not contribute infor- mation shall not be entitled to receive any. 7 The writer is inclined to the point of view that the "loose" form of association characteristic of the Eddy type is the prefer- able kind. It is characteristic of human nature to rebel against The Armstrong Bureau of Related Industries, Chicago, Illinois, is organized as a corporation to do open price work for manufacturers who become subscribers. In this case a bond deposit is required as a guarantee of faithful performance of all terms. For an explanation of this system see Montague Ferry, Intelligent Selfishness, Chicago, 1919, ch. 6. Tor a further discussion of the weaknesses of open price associations see ch. 6. 217] STRUCTURAL FEATURES 53 restriction or restraint. The imposition of prohibitions usually generates a desire to circumvent them. With respect to the relative immunity of the two types from visitations of the law, perhaps the only safe statement that a layman can make is that the courts will seek to punish those who are guilty of violations of the law regardless of the form of association that may have been adopted. Irrespective of whether they belong to the corporate or the voluntary type of association, all open price associations may be grouped according to the following classification : they have either been organized as open price associations, or they have come into existence as an outgrowth of a trade association, or they have had their functions assumed by trade associations as a depart- mental activity. 8 Most of the associations that were organized by Mr. Eddy would belong to the first group. Prominent exam- ples of the second group are furnished by the Southern Pine Association and the American Hardwood Manufacturers' Asso- ciation. Most of the other lumber manufacturers' associations belong to the third group. 9 In general it may be said that the associations which belong to the third group show all manner of differences in the character and scope of their open price activities. This is naturally ex- plained by reason of the fact that having retained their identity as trade associations, they have adopted only such phases of open price activity as have seemed to offer a solution for prob- lems which the old type of organization has been unable to handle. The one element of open price work that all the asso- ciations of this group have adopted in common is price report- ing. With some this is as far as the semblance to the Eddy type of association goes. Others arrange for the sporadic exchange of information among members, and still others may have a regular and definite system of exchanging information of a limited char- acter. Seldom, if ever, will it be found that an association be- 'A similar classification is made by H. R. Tosdal in his article on "Open Price Associations" which appeared in the American Economic Review for June, 1917. See p. 336. Examples of the third group are: National Box Manufacturers' Assn.; Na- tional Canners' Assn.; National Association of Brass Manufacturers; National Machine Tool Builders' Assn.; the various associations of millers, etc. 54 OPEN PRICE ASSOCIATIONS . [2 1 8 reports with every one of the other bureaus. 51 The Associated Metal Lath Manufacturers also have a similar method of relaying information from local bureaus to a central office. 12 Where membership is spread over a wide area it is usually found necessary to provide for group meetings. For this purpose the Leather Belting Exchange divides its membership into two groups one comprising the manufacturers of the West and the other those of the East. The western group meets in Chicago each month and the eastern group in New York one week after the Chicago meeting, thus enabling the secretary to be present at both meetings and coordinate the work done. Further coordina- tion of the work of the two groups is obtained by holding a joint meeting every three months. These are held alternately at New York and Chicago. 13 The American Hardwood Manufacturers' Association has conducted four monthly group meetings, these being held at Cincinnati, Ohio; Memphis, Tennessee; New Or- leans, Louisiana; and Jackson, Mississippi. Once a year all the groups have come together in a convention. 14 Because it is to the advantage of an open price association to have as many members as possible and because restrictions would be out of harmony with the open price plan, it is found that restrictions upon membership are practically non-existent. Membership is ordinarily open to any firm, corporation, or indi- vidual in good standing engaged in the particular line of business involved, provided agreement is made, first, to comply with the provisions of the constitution and by-laws; second, to pay the required fees and dues. However, it is usually specified that only those who are engaged in the manufacture of the product in which the association is interested are eligible. In this connection at least two associations would permit others than manufacturers to become members under certain restrictions not enforced upon u The Black Diamond, "How the National Association Reports Sales," Oct. n, '9J9, PP. 3 22 -324- ^ Annual Official Program, New England Builders' Supply Association, Boston, J9 1 ?, P. 43- "Spaulding, W. V., Experiences in Cooperative Competition, p. 5. An address de- livered before the Babson Conference, Sept. 15, 1915. u Sa!es Report of A. R. Gadd, Record, American Column and Lumber Co. vs. U. S., Vol. II, p. 1067. 219] STRUCTURAL FEATURES 55 longing to this group has anything like the complete system for exchanging information among members that is characteristic of the Eddy type. It goes without saying that the associations belonging to the first two groups, having been specifically organ- ized to do open price work, are usually patterned after the Eddy type of association. MEMBERSHIP In order to get the best results out of their cooperative activi- ties, open price associations endeavor to gather within their fold all competitors who are engaged in the various lines which these associations would aspire to control. It will therefore be found, that in so far as the industry is localized, the membership of these associations will be localized. In so far as the territorial distribution of the industry is a national one, membership will be spread over a wide area. No members of the National Asso- ciation of the Finishers of Cotton Fabrics, for example, will be found anywhere but in the East, for the industry is localized there. On the other hand membership in the Leather Belting Exchange, for example, is distributed over a wide area, as is that of the American Hardwood Manufacturers' Association or the National Coal Association. The territory should undoubtedly be limited sufficiently to permit of a ready exchange of information and meetings of mem- bers at frequent intervals. Where the industry is such that membership must necessarily cover a wide area local exchanges may be provided for, as in the case of the National Coal Asso- ciation. Before price reporting was discontinued by this asso- ciation, 10 four exchanges were maintained in all one in Washington, D. C., one in Chicago, one in Cincinnati, and one in Pittsburgh. The work of these exchanges, or "bureaus", as they are called in the coal industry, was directed from the na- tional headquarters at Washington. Instead of making their reports to one central agency for the industry, operators would send them through their local associations to the nearest local bureau. Each local bureau in turn would exchange its compiled 10 July, 1920. 56 OPEN PRICE ASSOCIATIONS [22O the others. The Ohio Millers' State Association permits any manufacturer of flour or meal to become a "regular" member of the association and other persons, firms, and corporations may be admitted and become "associate" members, and may have all the privileges of regular members, except voting. 15 The Knit Goods Manufacturers of America also provides for regular and associate members. The regular members are to be those who participate in the reporting plan. 16 The associate members are divisible into two classes. One class consists of manufacturers who do not participate in open price work; the other class con- sists of sales agents or commission houses which sell knit goods, and this class is to have no vote in the management of the asso- ciation. 17 It is evident that manufacturers, even in the few cases where they permit others than members of their own class to come into the association, are careful to see that no control of management shall fall into any other hands than their own. The rules determining the manner in which members shall be voted into the association vary considerably. The most com- mon practise seems to be to require the affirmative vote of the majority of members present at regular meeting. 18 The Tap and Dye Institute requires the affirmative vote of three-fourths of the members present. 19 The Society of Manufacturing Confec- tioners requires the approval of the executive committee followed by the majority vote of members present in regular meeting. 20 The American Hardwood Manufacturers' Association merely requires a majority vote of the Board of Directors; 21 the Salt Producers' Association a majority vote of the executive commit- tee. 22 The American Tack Manufacturers' Association requires unanimous election. 23 ^Constitution, Art. 3, Sec. I, 2. ^Constitution, Art. 4. "Ibid., Art. 5, Sec. i. 18 For instance, the Ohio Millers' State Assn.; National Coal Assn.; Leather Belting Exchange; Steel Barrel Manufacturers' Assn. "Constitution, Art. 3, Sec. 2. ^Constitution, Art. 4, Sec. 2. ^Constitution, Art. 3, Sec. 2. ^Constitution, Art. 3. "Tosdal, H. R., "Open Price Associations", American Economic Review, Vol. VII, No. 2, p. 339. 22 I ] STRUCTURAL FEATURES 57 Provisions are usually inserted in the constitution indicating under what circumstances members may be expelled. The usual provision is that they may be expelled "for good and sufficient reasons" by a vote of the members, a majority or three-fourths vote usually being required. The more common reasons for ex- pulsion are the non-payment of dues, and breach of the constitu- tion and by-laws. Some associations make members liable to expulsion for filing misleading information. 24 Expenses incurred in the operation of open price associations are usually defrayed by membership dues and the levy of special assessments. In addition some associations require the payment of an initiation fee. The Salt Producers' Association has an initia- tion fee of $200.00, the Pressed Metal Association $50.00, the Tap and Dye Institute $100.00, and the Hardwood Manufactur- ers' Association $25.oo. 25 In exacting payments for dues, most associations apparently go on the theory that members derive benefits from the work of the association in proportion to the volume of their business. Practically all of them base their dues and special assessments on a capacity, production, shipments, or sales basis. Regular members of the Ohio State Millers' Asso- ciation pay dues annually in advance based upon the daily capacity of each mill owned or operated by each member. 20 The common practise in the lumber industry is to base dues on the number of feet of logs cut annually. Manufacturers belonging to the Hardwood Manufacturers' Association, for example, pay dues in twelve monthly installments, based on an assessment "at the rate of not to exceed five cents per thousand feet log scale, with a maximum of $2000.00 per annum, based on the number of feet of hardwood logs cut for the preceding calendar year." 27 All assessments levied by the Salt Producers' Association are on the basis of output. 28 The same is true of the National Coal Associa- "Society of Manufacturing Confectioners, Constitution, Art. 7. Sec. 8; Tap & Dye Institute, By -Laws, Sec. 5. Tosdal, H. R., "Open Price Associations" Economic Review, Vol. VII, No. 2, P- 339. ^Constitution, Art. 6, Sec. I. "Constitution, Art. 5, Sec. i. See Record, American Column & Lumber Co. vs. U.S., Vol. i, p. 73- ^Constitution, Art. 5. 58 OPEN PRICE ASSOCIATIONS [222 tion. 29 The National Chair Manufacturers' Association bases its dues on the volume of shipments. The Tap and Die Institute and the Steel Barrel Manufacturers' Association and the Society of Manufacturing Confectioners base their dues on the amount of sales. 30 Obviously there is a disadvantage which militates against the proper financing of the work of an association in having dues based upon the amount of business done. Those in control cannot be sure of obtaining stated amounts of money from year to year. It is therefore rendered difficult to plan a program of financial expenditure that will not overreach or underreach the size of the fund that is available at any given time. When business is poor, the income from dues is small, and the consequence often is that operations must be curtailed. Of course this objection loses force when those in control are sagacious enough to reserve for the lean years surplus funds that have been collected during the fat years. Members as a class have as their chief duties, aside from the payment of dues, first, to furnish information to the central office, second, to attend meetings. Their chief privileges are to vote at meetings and to receive such information as the secretary may circulate among them. Usually the rule is that unless members are willing to furnish information, they receive none. OFFICERS The list of officers of an open price association differs in no essential particulars from that which is found in any formal type .of association. These officers are a president, vice-president, sec- retary, treasurer, and an executive committee or a board of direc- tors. The Ohio Millers' State Association has both a board of directors and an executive committee. 31 Such an arrangement is not often found. In the lumber industry provision is also made for several vice-presidents. 32 The typical Eddy association, how- ever, seldom has more than one vice-president. "Constitution, Art. 5. ^Constitutions, Art. 6; Art. 5; Art. 7; Sec. 9. ^Constitution, Art. 4. 32 American Hardwood Manufacturers' Assn., Constitution, Art. 8, Record, Vol. I, P- 75- 223] STRUCTURAL FEATURES 59 The president is usually elected annually by a majority vote of the membership. He is practically always a man active in the line of business that the association represents. In fact, the con- stitution of the Leather Belting Exchange specifically states that the "President shall be a member of the Exchange, and engaged in the manufacture of leather belting." 33 He performs the usual duties of the chief executive officer. In most constitutions they are not minutely specified. They may be summed up as follows: to preside at all meetings, including those of the executive com- mittee; to appoint all committees not provided for in some other way; call meetings of the executive committee, and special meet- ings of the association upon written request of a certain number of members, as well as call meetings of all permanent and special committees. He is generally an ex-officio member of all commit- tees. It is usually customary for him to review the work of the year at the annual meeting. The vice-president assumes the duties of the president during his absence. Most constitutions provide that the treasurer and the secretary may be one and the same person. In cases where the treasurer is not also the secretary the common practise is to elect him at the annual meeting. Only in a few cases is it customary to elect a treasurer when he is also the secretary. 34 More often the pro- cedure followed is that the executive committee makes an ap- pointment subject to the approval of the membership. The constitution of the Leather Belting Exchange, in contrast to the general practise, specifies that the treasurer shall be a trust com- pany or other banking corporation of recognized standing, and shall be appointed by the exchange. 35 In general it is the duty of the treasurer to collect and receive all moneys of the associa- tion, pay all orders for money when countersigned by the secre- tary, and keep a correct record of all receipts and disbursements. If the treasurer and the secretary are united in one person, his signature upon checks is usually considered sufficient. 86 "By-Laws, Sec. 2. "Tap & Dye Institute, Constitution, Art. i. K By-Laws, Sec. 4. "Society of Manufacturing Confectioners, By-Laws, Sec. 3; Hardwood Manu- facturers' Assn., Constitution, Art. 9, Sec. 3. 6O OPEN PRICE ASSOCIATIONS [224 The executive committee usually consists of one or more of the elective officers in addition to several elected members ranging anywhere from three to seven in number. The executive com- mittee of the Tap and Die Institute is composed of the president, vice-president, and three other members elected at the annual meeting. 37 That of the Salt Producers' Association is composed of the president and seven elected members. Only three members comprise the executive committee of the Leather Belting Ex- change. 38 The executive committee of the Ohio Millers' State Association is made up of the president, vice-president, treasurer, secretary, and a board of directors comprised of five elected mem- bers. 39 The common type of executive committee has the general power of management of the affairs of the association. Its func- tion is to see that all of the objects and purposes of the association are carried out. Typical of the powers given to executive com- mittees are the following: I. call special meetings; 2. fill vacant offices until the next annual meeting; 3. retain counsel; 4. em- ploy a secretary; 5. authorize necessary expenditures. 40 Practi- cally always there is a provision that all acts of the executive committee must be submitted to the next regular or special meet- ing of the association for approval. The office of the secretary is by far the most important cog in the machinery of the open price organization. The secretary of one open price association writes as follows : "The success of any individual organization depends entirely on the secretary and un- questionably most of the failures of the association work have been due to his ignorance of what constitutes proper cooperation and how to attain it." 41 A representative of Babson's Statistical Organization who has been active in acquainting the business world with the open price form of cooperation states that a secre- tary should be, first, an executive officer, not merely a clerk; second, he should have business experience, education, tact, and ability to speak in public; third, he should command respect for V Constitution, Art. 4, Sec. 3. **By-Laws, Sec. 2. "By-Laws, Art. i, Sec. 5- "Society of Manufacturing Confectioners, Constitution, Art. 3, Sec. 4. "Letter from D. S. Hunter, Secretary of the Steel Barrel Manufacturers' Assn., Dec. 20, 1920. 225] STRUCTURAL FEATURES 6l his merits as a man; fourth, that it is not necessary that he be familiar with the line of business that the association is at work on. 42 In addition it should be remarked that it is absolutely necessary that he be a man of integrity and dignity, for he occu- pies a position of confidence and trust. Because of his position of confidence and trust a provision is found in most constitutions specifying that he must have no connection or affiliation with the line of business with which the association is identified. The secretary is usually the only salaried officer of the association. Most associations outline the duties of the secretary very minutely. Undoubtedly this is done because of the feeling of dis- trust that prevails among competitors who at the outset of their experiment in cooperation are in a state of mind which prompts them to throw all the safeguards that they can about themselves. Some associations require that the secretary retain in absolute secrecy all information furnished him by members, and it is often specified that when he has made proper record thereof the state- ments conveying the information shall be returned to their owners or be destroyed. 43 In one case the secretary is required to keep this information secret even from the executive committee. 44 The secretary may be either elected or appointed. Where election is the rule the electing is usually done by the association as a whole; where appointment is the rule the appointing is usu- ally done by the executive committee subject to the approval of the association. There are exceptions to both statements, how- ever. In the case of the Ohio Millers' State Association the secre- tary is elected by the executive committee. 45 In the Leather Belt- ing Exchange the office is filled by an election conducted by the exchange. 46 The same is true of the Tap and Die Institute. 47 "Address of G. E. Macllwaine before American Specialty Manufacturers' Assn., New York Journal of Commerce , Dec. 1 i, 1916. "Leather Belting Exchange, By-Laws, Sec. 2. **The North Carolina Pine Box and Shook Manufacturers' Assn. requires that reports received from members be destroyed. See Weekly Sales and Lumber Price Report. The Leather Belting Exchange requires that all papers be returned to their owners. See By-Laws, Sec. 1. ^Constitution, Art. 4, Sec. 4. *By-Laws, Sec. 4. "Constitution, Art. 4, Sec. 2. 62 OPEN PRICE ASSOCIATIONS [226 Appointment is made by the membership in the case of the Na- tional Coal Association. 48 The duties of the secretary, as outlined by one association, are, first, to provide and operate a regular central office for the proper care of business; second, to take care of finances and funds; third, to keep in close personal touch with all members at meet- ings and by personal visits; fourth, to conduct necessary corre- spondence; fifth, to maintain and increase membership; sixth, to serve as a clearing house between the members for the exchange of credit information; seventh, to develop and distribute information and statistics of educational value relating to costs of production, selling markets, trade and labor conditions; eighth, to attend all meetings and keep accurate stenographic records thereof. 49 Other duties sometimes enumerated are, to send copies of minutes of meetings of the association and the executive committee to mem- bers; 50 to keep a list of members and the date of their election; 51 to notify all members of assessments due; to notify all members of the times and places of meetings; 52 to examine all bills and countersign all orders on the treasurer; 53 to prepare an annual and semi-annual report of all transactions and all conditions; 54 to preside at all meetings. 55 THE CENTRAL OFFICE An essential part of the structure of an open price association is an office where the secretary may carry on the work of gath- ering and disseminating information. Some associations have their own central office in charge of a salaried secretary. 58 How- ever, a very common practise is for several open price associations to have an office and secretary in common. 87 There is a tendency ^Constitution, Art. 2. 49 Tap & Dye Institute, By-Laws, Sec. 2. "Leather Belting Exchange, By-Laws, Sec. 3. B1 Steel Barrel Manufacturers' Assn., Constitution, Art. 4, Sec. 4. 82 Society of Manufacturing Confectioners, By-Laws, Sec. 3. "Society of Manufacturing Confectioners, By-Laws, Sec. 3. "American Hardwood Manufacturers' Assn., Constitution, Art. 9, Sec. 4. "Leather Belting Exchange, By-Laws, Sec. 3. M For instance, Bridge Builders' Society; National Association of Finishers of Cotton Fabrics; Leather Belting Exchange. 87 A. A. Ainsworth and A. A. Blake each serve about a dozen associations in New York City. 227] STRUCTURAL FEATURES 63 in the direction of centralization of this kind. Not only does it reduce expense, but it makes possible the employment of a secre- tary, highly trained in cooperative work, whose salary in the aggregate would be too large, perhaps, for any one association to undertake to pay. Secretaries find, that by a proper organiza- tion of their office force, they can readily handle several associa- tions. In fact, the experience which a secretary derives from coming in contact with the problems of several different lines of business can be used to good account in coping with the problems that are encountered by any one of the associations. Where open price work is done as an adjunct to other trade association activi- ties it is customary for the trade association secretary also to assume the duties connected therewith. A few instances may be found where an association does not run an office of its own nor employ a secretary, but simply arranges for an outside agency to manage the details of operation. The Pressed Metal Associa- tion, for example, has its open price work done by a Boston firm of certified public accountants. 88 The Associated Metal Lath Manufacturers and the Linseed Crushers' Council operate through the Armstrong Bureau of Related Industries, located in Chicago. 59 MEETINGS Great stress is placed on the importance of bringing members frequently together in meetings. Most of the associations that are planned along the lines advocated by Mr. Eddy have monthly meetings. 60 A few have them two months apart. 61 Those asso- ciations that are really trade associations engaged in open price work as a branch of their activity usually have meetiugs only once or twice a year. 82 Besides the monthly meetings there are the annual and special meetings. The constitution nearly always provides a set date for regular and annual meetings. Special "Scovell- Wellington & Co. "For a description of the Armstrong Plan, see Montague Ferry's book, Intelli- gent Selfishness, Chicago, 1919. For instance, Leather Belting Exchange; Cotton Finishers; Bridge Builders' Society, American Hardwood Manufacturers' Association. "For instance, Steel Barrel Manufacturers' Assn. "Examples are Knit Goods Manufacturers of America; Ohio State Millers' Assn. 64 OPEN PRICE ASSOCIATIONS [228 meetings may usually be called by the president, or on the written request of a certain number of members. The constitution of the Leather Belting Exchange, however, provides that special meetings may be called at any time or place by the executive committee, or upon the demand of six members. That of the Knit Goods Manufacturers of America provides that they may be called upon the request of the secretary, or by five members, or a majority of the executive committee, or "upon the sole authority of the President." 63 Sometimes the date for the monthly meeting of the executive committee is specified. 64 It is nearly always provided that members must be notified of meetings a certain number of days in advance. The usual quorum for the transaction of business is a majority of the membership. The Ohio Millers' State Association provides that fifteen members present at meetings shall constitute a quorum. 85 A few associations, judging from the clauses incorporated in their constitutions, encourage the attendance of buyers at meet- ings; 66 others prohibit it; 67 the majority, however, make no decla- ration on the matter. Those who are uninitiated in the work of open price associations would naturally suppose that the chief topic of discussion in meetings is prices. The truth seems to be that prices, themselves, are not so much discussed as are, first, the circumstances attend- ing the quotation of certain prices, second, the conditions of the market that make for lower or higher prices. The reason for the apparent anomaly, that prices themselves are not discussed to any extent in an open price meeting, is that this information is imparted to the membership through the reporting system. Mem- bers, therefore, already know what prices have been charged, and they come to the meetings to find out why prices are as they are, and to learn what the business outlook is in order that they may put themselves in a position to quote future prices intelli- n Constitution, Art. 8, Sec. 1. "See Constitution, Franklin County Coal Operators' Assn., Art. i. ^Constitution, Art. 7, Sec. 3. "Knit Goods Manufacturers of America, Constitution, Art. 8; American Hard- wood Manufacturers' Assn., Record, American Column & Lumber Co. vs. U. S., Vol. Ill, p. 1104; Society of Manufacturing Confectioners, Constitution, Art. 5. "Steel Barrel Manufacturers' Assn., Letter, Jan. 20, 1921. 229] STRUCTURAL FEATURES 65 gently. An examination of the minutes of all the group meetings of the American Hardwood Manufacturers' Association for the year 1919 discloses only three references to the prices of specific items of lumber, and two of these, by the way, were made by non-members of the plan. 68 Undoubtedly there is a temptation to discuss future prices; it is therefore generally provided that counsel be present at meetings to see that discussions are confined to strictly lawful subject matter. The Eddy associations appear to be very scrupulous in avoid- ing discussion that might be construed to be in violation of the law. Among organizations that have not come under the influence of Mr. Eddy or his lieutenants less vigilance in this respect is not infrequently displayed. The following quotation illustrates the kind of discussion which is permitted by many so-called open price associations but which would not be tolerated by an Eddy association: "As showing the utility of the Price Exchange Plan, a price was taken from the first report presented and was stated to the members present for their opinion. The merchandise concerned was a 176-needle half hose, 16 ounce, with looped toe, sold at $1.15. It was the opinion of all, including several New York sell- ing agents who were present as guests that the price was too low, and one selling agent stated that the price should be #i.25." 69 Reference to the minutes of a typical Eddy Association shows that members are not even permitted to act as a body in stand- ardizing terms of payment. 70 In as much as terms of payment are an integral part of price, a united effort to fix terms would be just as illegal as a united effort to fix the prices themselves. Apparently this fact is not recognized among many associations because the practise of standardizing terms is exceedingly prevalent. 71 In general the chief features of an open price meeting program as conducted by the typical Eddy associations may be summa- "See Record, American Column & Lumber Co. vs. U. S., Vol. I, p. 100. "Account of a meeting of the Pennsylvania Division of the National Association of Hosiery & Underwear Manufacturers, Textile World Journal, Oct. 20, 1917, p. 73. "The Drill and Reamer Society, Minutes of Meeting, June n, 1920. "Particularly so in the lumber industry. See American Lumberman, Dec. 22, 1917; Nov. 3, 1917; Oct. 20, 1917. 66 OPEN PRICE ASSOCIATIONS [2jO rized as follows: first, a meeting of the executive committee, followed by a meeting of the association; second, the transaction of all routine business; third, discussion of questions touching on the details of past transactions such as reasons for quoting certain prices, methods of figuring costs, and the like; 72 fourth, the hearing of reports from each member regarding general con- ditions in the industry. 73 The device adopted by the American Hardwood Manufactur- ers' Association for making the round robin discussion of market conditions most effective is worthy of special comment. Prior to the holding of the monthly meetings a questionnaire was sent to each member. The following questions were contained in the questionnaire: 1. "From what class of customers are your inquiries com- ing and what per cent of your total inquiries come from each class ? 2. "From what class of customers are your orders coming and what per cent of your total orders come from this class? 3. "Check off from the following list how long it would take you to ship out the total orders on hand working under normal conditions, and assuming that all orders you have on your books are ready for shipment. 4. "What is your total production of hardwoods during the month of ? What do you estimate your production will probably be for .... months? 5. "What is your total present stock of hardwoods, sold and unsold? What part of your present stock of hardwood is unsold? 6. "Are your labor conditions any different from 30 days ago? Are they better or worse? What caused the change, if any? 7. "How is the car supply at the present time; better or worse, as compared with 30 days ago? What per cent of your requirements are you getting? 8. "How are your collections? Are they better or worse as compared with 30 days ago? "See Textile World Journal, Jan. 13, 1917, p. 109. ^Transcript of Minutes of Meeting of the American Hardwood Manufacturers' Assn. may be found in the appendix. See Exh. No. 2. 231] STRUCTURAL FEATURES 6/ 9. "What per cent of normal for this time of the year is your present supply of logs banked ahead of the mill? 10. "Do you expect to be shut down within the next few months on account of the shortage of logs, or for any other rea- son? If so, please state how long mill will be idle. 11. "What is your view of market conditions for the next few months? What is the general outlook for business? State all reasons for your conclusions." 74 A summary of the replies received under each head was pre- pared by the manager of statistics and the results were made the basis of discussion at the next group meetings, each member present being called upon in turn to express his point of view with reference to each question as it came up for discussion. Gathered, as they were, from a substantial part of the whole industry, these data when properly summarized gave a bird's- eye view of the industry, which, when reenforced by an open and free discussion in meetings, proved a great aid to members in finding remedies for conditions that were unsatisfactory. It is peculiarly characteristic of the open price meeting that discussions, instead of being of a rambling, disconnected nature and leading to no definite end, are calculated to give each mem- ber a perspective of the industry as a whole to the effect that he may direct his individual business efforts in consonance with those of all the others in such a way as to inure to the greatest profit of all." "Affidavit of F. R. Gadd, Record, American Column & Lumber Co. vs. U. S., Vol. II, p. noi. "For a copy of a typical open price constitution, see appendix, Exh. 3. CHAPTER V THE REPORTING PLAN Barring the work done at meetings, the reporting system cov- ers most of the activities ordinarily engaged in by open price associations. Since no two industries use the same method in marketing their output there will be found points of difference in every reporting plan; however, these plans readily group themselves into two broad classes: one pertains to manufacturers who produce goods sold to jobbers and retailers primarily; the other to manufacturers who make goods only to specification, each contract differing more or less from all others and calling for special bids and prices. 1 REPORTING AMONG MANUFACTURERS WHO MAKE GOODS TO SPECIFICATION Variations in plans among this group of manufacturers are less pronounced than they are among the other group. Mr. Eddy evidently had chiefly the class of contracting manufactur- ers in mind when he wrote his book, for only passing notice is given to the class of manufacturers that sells to jobbers and retailers. 2 Briefly outlined, Mr. Eddy's plan, as presented in his book, calls for the filing by members of all inquiries received, all bids made, and all contracts awarded. Under this plan the secretary does not permit the information contained in the re- ports of inquiries to be interchanged among members for the reason that there would be a strong temptation for members to resort to collusive bidding. 3 The reports of inquiries are used to make up a weekly bulletin containing statistical information throwing light on the volume of work in prospect, as well as the general character of the work. The secretary interchanges all , A. J., New Competition, p. 123. */* p. 42. "Opinion of the Judge, State vs. Arkansas Lumber Co. et al., 169 S. W., p. 177. 124 OPEN PRICE ASSOCIATIONS [288 the name of the Southern Pine Association. Of the open price associations that have been mentioned this association is the largest in point of membership with the exception of the Ameri- can Hardwood Manufacturers' Association. There were approx- imately two hundred members in 1918. Since the scope of its activities is very similar to that of the American Hardwood Man- ufacturers' Association, whose activities are to be reviewed later in this chapter, this subject will be omitted. 27 The history of the Yellow Pine Association illustrates with what readiness the open price system may be made a tool in the hands of those who would pervert its use in order to accomplish results at once unlawful and injurious to the public. THE AMERICAN HARDWOOD MANUFACTURERS' ASSOCIATION The American Hardwood Manufacturers' Association, before it recently ceased doing open price work, 28 was the largest open price association in existence. Early in 1920 its membership comprised 383 manufacturers, who operated approximately 465 out of an approximate total of 9,524 mills engaged in hardwood manufacture in the United States, and their output was about thirty-three and one-third per cent of the total production in the United States. 29 This association came into existence January I, 1919, as a re- sult of the amalgamation of two associations of hardwood man- ufacturers, the Hardwood Manufacturers' Association of the United States, with headquarters in Cincinnati, organized in 1902, which drew its membership in the main from the eastern part of the United States; and the American Hardwood Manufactur- ers' Association, with headquarters at Memphis, organized in 1917, as a consolidation of two smaller groups, which drew its membership almost entirely from the southern part of the United States. The two smaller groups were the Gum Lumber Manu- facturers' Association, organized in 1914, and the American Oak 17 A review of its activities may be found in the American Lumberman, March 26, 1920, p. 53. 28 In March, 1920, the Federal Court for the Western District of Tennessee granted an injunction restraining members from engaging in open price activity. See ch. I, pp. 4-5. ** American Lumberman, March 13, 1920. 289] THE LUMBER INDUSTRY 125 Manufacturers' Association, organized in 1916. Each of these small groups did open price work from their inception. 30 The open price plan operated by the American Hardwood Manufac- turers' Association since January i, 1919, was that adopted by the American Hardwood Manufacturers' Association of the United States, March I, igiy. 31 The reason for the amalgamation was that these two groups, to-wit, the Hardwood Manufacturers' As- sociation of the United States and the American Hardwood Man- ufacturers' Association, had an intermingled membership, and were doing more or less the same character of work. It was thought that by avoiding duplication of work much expense could be saved the members. 32 The objects and purposes of the American Hardwood Manu- facturers' Association, as expressed in its constitution, are "to secure a full understanding of conditions surrounding the Hard- wood Industry; to adopt such measures as will provide for uniform standards and improved methods of manufacturing and marketing Hardwood Forest Products; to acquire, preserve and disseminate information in connection therewith; and to generally promote the interests and welfare of Hardwood manufacturers." 33 Membership is limited to manufacturers of hardwood forest products. Each member is entitled to one vote, and this vote must be cast in person or by an authorized representative of the firm; proxies are not permitted. A majority vote of the board of directors is sufficient to elect an applicant to membership. The board of directors has the power to expel any member for cause, by a majority vote. Upon being elected into membership, members must pay an initiation fee of $25.00. Dues are graduated according to the volume of production. The rate of dues is fixed by the Board of Directors and are assessed annually by a committee on s An account of the open price work done by the Gum Lumber Manufacturers' Association may be found in the American Lumberman, May 23, 1914. For ac- counts of the organization and operation of the American Oak Manufacturers' Association, see American Lumberman, Nov. 14, 1916 and Jan. 27, 1917. "Stark, M. W., Record, American Column & Lumber Co. vs. U. S., Vol. II, p. 1 249. Gadd, F. R., Record, Vol. II, p. 1 100. ^Constitution, Art. 2, Record, Vol. II, p. 1293. 126 OPEN PRICE ASSOCIATIONS [290 assessments. They are payable in monthly installments, and any member failing to pay any installment within thirty days after it is due, is subject to suspension. 34 The officers of the association consist of the president, first and second vice-presidents, treasurer, secretary-manager and twenty-one trustees. The president, vice-presidents and treasurer are elected annually by the membership; the trustees, every third year. The secretary-manager is appointed and has his salary fixed by the board of directors. The latter consist of the elective officers and trustees. The executive committee is made up of the president and six of the directors. The latter are appointed by the president at the annual meeting, and serve one year, their appointments being subject to the approval of the board of directors. The duties of officers and directors are those which ordinarily go with their offices. 35 In addition to these officers and directors there are a number of standing committees appointed annually by the president, subject to ratification by the members. The scope of the activi- ties of the association is pretty well indicated in noting the scope of the activities of these permanent committees. The committee on membership takes such steps as are neces- sary to increase the membership of the association, and passes upon the eligibility of those making application for membership. The committee on assessments assesses the annual dues. The committee on advertising passes upon and handles the adver- tising programs of the Association. The committee on finance audits the books of the association and supervises financial mat- ters in general. The committee on resolutions handles matters which would properly come before such a committee. The com- mittee on reports and statistics works out plans for securing and tabulating such information and statistics as will be of value to the membership. The committee on inspection rules deals with all matters pertaining to inspection and grading. Then there is a committee representing the interests of each wood, which undertakes to promote and take charge of such scientific and commercial investigations as will inure to the benefit of the ^Constitution, Art. 3, Record, Vol. II, p. 1293. ^Constitution, Art. 8, Record, Vol. II, p. 1297. 291 J THE LUMBER INDUSTRY I2/ manufacturers of that wood. These woods are gum, oak, pop- lar, ash and hackberry, cottonwood, chestnut, elm, maple, cy- press, hickory and pecan, walnut, and sycamore. There is another committee which exists to promote the interests of manufacturers of sawn and sliced veneers, and another for manufacturers of commercial rotary veneers. 36 Annual and monthly meetings are held, and special meetings may be called by the president or by a majority of the board of directors. At the annual meetings officers are elected for the ensuing year. 37 In addition it is customary for the president to review in a general way, and the secretary more in detail, the work accomplished by the association during the year. The monthly meetings have been held by groups in the various re- gions of production. These group meetings have been held at Cincinnati, Ohio; Memphis, Tennessee; New Orleans, Louisiana; and Little Rock, Arkansas. They have been held at these points as a convenience to the members in attending. In order to have the discussion at these meetings proceed in an orderly and systematic manner, the manager of statistics was in the habit of mailing to each member, a few days in advance of the date of the meeting, a questionnaire containing a request for infor- mation bearing on market conditions as related to the hard- wood industry. 38 In the light of the replies received to the questions, members present at meetings would discuss the various subjects developed by the answers. The minutes disclose that these discussions were free and open. Outsiders, including competitors and buyers, freely participated in them. 39 At prac- tically every group meeting manufacturers and other people not members of the Open Competition Plan were present. If one were to make a summary of the chief points that usually came up for discussion in these meetings, perhaps the following would be representative: i. The class of customers from which most inquiries and orders were coming. Answers to this question showed what K By-Laws, Art. ^, Record, Vol. II, pp. 1300-1301. "Constitution, Art. 6, Record, Vol. II, p. 1296. "Gadd, F. R., Record, Vol. II, p. 1101. p. 1104. 128 OPEN PRICE ASSOCIATIONS [292 industries, consuming hardwoods, were most active, and served to guide members in determining on what kinds of lumber to accentuate and diminish production. 2. The length of time that it would take members to ship out total orders on hand, working under normal conditions. The answer to this question obviously disclosed the amount of un- filled orders on hand, indicating whether business was good or not. 3. The total production of hardwoods for the past month. These data when compared to normal production showed whether or not there was a tendency to accelerate or slow down production. When considered in relation to the size of stocks on hand and volume of orders, it was possible to discern roughly whether the tendency was in the direction of overproduction or underproduction. 4. The total present stock of hardwoods, sold and unsold. These data when compared to the normal stocks on hand, and taken in relation to the volume of production and orders, were criteria of the probable future trend of prices, and also served to guide members in formulating their production policy. 5. The condition of labor as compared to thirty days ago and the causes for any changes that might have come about. The efficiency and availability of labor, of course, had a direct bear- ing on the quantity and quality of production. 6. The character of the car supply as compared to thirty days ago. The answer to this question obviously revealed with what dispatch shipments were going forward to customers. 7. The character of collections as compared to thirty days ago. These data revealed the financial conditions prevailing among customers in the consuming industries, and reflected to some extent the general financial condition of the country. 8. The number of mills, if any, expecting to shut down; the length of time they were to remain shut down and the reasons therefor. The answer to this question revealed to a degree the future trend of production. 40 The reporting plan, as inaugurated by the Hardwood Manu- facturers' Association of the United States in 1917, and taken ^Minutes of Meetings, Record, Vol. I, pp. 104-223; also Gadd, F. R. Record, Vol. II, pp. 1101-1103. 293] THE LUMBER INDUSTRY 129 over by the American Hardwood Manufacturers' Association in 1919, provided for, first, production reports; second, sales re- ports; third, shipping reports; fourth, stock reports; fifth, price lists; sixth, inspection reports. 41 Reports of production were to have been made to the secre- tary, monthly, each wood being classified according to grades and thicknesses, and the secretary was to have sent to each member, once a month, a summary of the production for the previous month, but this feature of the plan had to be aban- doned because a sufficient number of mills did not turn in re- ports to make the information complete enough to be representative. 42 The sales report, as originally planned, was retained, with the exception of a few minor changes. Members were required to make a daily report of all sales and cancellations, and these were to be exact copies of orders taken and were to include all agreements. These reports were compiled and issued to mem- bers weekly, in printed form. The plan, as it originally stood, involved publishing the names of customers, but this was dis- continued as it was found that some of the members objected to publishing the names of their customers. The sales report mailed to members, as finally evolved, showed for each kind of wood and grade the date of sale, by whom sold, the number of feet sold, the thickness, the destination by city or territory, the delivered price made to the customer, its equivalence at a common gateway, such as Cairo or Cincinnati, and the current average of sales at these gateways. The purpose of the gate- way price was to put all prices on a common basis for compari- son. Comparison of the actual prices received was not possible because of difference in freight rates to different points. "Pro- jection of prices to their gateway equivalent" put all prices on a common basis, thus making them comparable. 43 Having members make reports of shipments was a phase of the plan that was never put in operation. It was found im- practicable to do so. These reports were to have been made Gadd, F. R., Exh. 12, Record, Vol. I, p. 82. Gadd, F. R., Record, Vol. II, p. 1 107. "See copy of sales report, appendix, Exh. 6. IjO OPEN PRICE ASSOCIATIONS [294 daily by members, and were to have been exact copies of the invoice. They were to have been summarized by the secretary, much in the same way that reports of sales were summarized, and mailed weekly to members. 44 Reports of stocks were made monthly to the secretary, show- ing the amount of stock in each grade, kind, and thickness on hand the first of the month. Three columns were provided. The first two columns showed the total stock on hand both sold and unsold divided into green and dry. The third column showed the total stock of each kind, grade, and thickness sold. The secretary compiled all reports into one report, showing for each grade, kind, and thickness, in separate columns, total dry stocks, total green stocks, stocks sold, stocks oversold, stocks unsold, stocks unsold for the month previous, and the increase or decrease in stocks unsold. 45 Price lists were to have been filed by each member with the secretary at the beginning of each month, and any changes of prices were to have been filed as soon as made. The secretary- was to have sent out each month a summary of these price lists showing the prices asked by each member, and any changes reported by members were to have been immediately transmit- ted by the secretary to all members. However, this phase of the plan was discontinued because many members did not pub- lish price lists regularly, and the information was not sufficiently complete to be representative. 46 Inspection reports were submitted to the secretary by inspect- ors who were employed to check up on the grading of members. This report to the secretary showed the grading of the various mills and also the association inspector's grading on the same shipments. It was relayed by the secretary to all members. The purpose, as expressed by the organizers of this plan, was not to change any member's grading, but to furnish each mem- ber with a "basis upon which he can compare his prices with Gadd, F. R., Record, Vol. II, p. 1 107. tf See copy of stock report, appendix, Exh. 10. Gadd, F. R., Record, Vol. II, p. 1 107. 295] THE LUMBER INDUSTRY 13 T those of other members, thereby making the price reports more intelligible and accurate."* 7 The remaining feature of the plan was a market report letter which was to have been issued monthly by the Committee on Reports and Statistics. The intention was to have the committee give its idea of the market and incorporate a general analysis of market conditions. 48 However, the work of getting out this market letter was turned over to the secretary. He did not mail out the letters monthly as was provided for by the original plan, but issued them at irregular intervals. They were written on a great many different subjects bearing on matters of business interest, but in the main they were an expression of the secre- tary's understanding of industrial conditions as related particu- larly to the hardwood industry. These letters seem to have been the chief cause of the action of the Government in filing suit against the members of the Association. 49 The contention of the Government was that they were written with the purpose of inciting members to "boost" prices, and that a conspiracy existed among members to effect this end. The writer, having read them, inclines toward the point of view that these letters did little more than point out the actual conditions of the market. These conditions were such as would inevitably have led to rapidly rising prices, irrespective of any conspiracy that may or may not have existed. The fol- lowing quotation taken from the report on the lumber industry, made June I, 1920, by the Forest Service of the United States Department of Agriculture, depicts very succinctly conditions as they prevailed early in 1919, the time that the Government alleges the conspiracy began: "" "The termination of the war found the lumber industry with depleted stocks. Production during the war had been much less than normal on account of shortages of labor and equip- ment and embargoes on transportation. A large part of the lumber produced had been taken by the Government for war purposes. During the same time, the normal construction of "Report of Open Competition Plan, Record, Vol. I, p. 86. "/id., p. 1195. K Ibid. t pp. 1197-1198. "Ibid., p. 1198. 303] THE LUMBER INDUSTRY 139 In a later report on the lumber industry the Forest Service of the Department of Agriculture makes a rather positive state- ment regarding the stabilizing influence on prices of the exchange of price information, and its consequent benefit to seller and buyer alike: "Solely as a matter of information, the current distribution of prices received by different members of the asso- ciation tends to unify the rates at which lumber is offered for sale and to make increases or decreases in accordance with the fluctuation 1n the market more nearly similar at all producing plants. The same information would doubtless be of equal value to buyers of lumber, particularly to the small buyers less able to keep posted upon market fluctuations, if available to them." 67 No doubt the public would profit immensely if remedies could be invoked which would prevent the tremendous waste of timber that occurs when, through overproduction, prices decline so radically as to make it unprofitable for operators to attempt to market the lower grades of lumber. The exchange of informa- tion among producers, is, as the report of the Forest Service makes clear, not the sole remedy, but it certainly has a very important part to play in eliminating unsatisfactory conditions. This is particularly true because it has been found next to impos- sible to arrive at the cost of producing individual items of lumber. In the logging operations, "it is almost impossible to allocate the cost to the various species, altho there is known to be a difference in the cost of handling them, by reason of difference in the size of the logs, the relative positions in which the various species grow in the forest, etc. Even if such differ- ence could be ascertained so that the logging cost would be allocated properly to each species, or even to each log, the con- tinuity of this allocation could not be maintained, because various grades and sizes of lumber are produced from each log." 68 Therefore in establishing a selling price for each grade the producer has no cost basis to guide him. It costs no more to "Report by the Forest Service, U. S. Department of Agriculture, Timber Deple- tion, Lumber Prices, Lumber Exports, and Concentration of Timber Ownership, issued June i, 1920, p. 68. "Stark, M. W., Record, American Column & Lumber Co. vs. U. S., Vol. II, p. 1 246. I4O OPEN PRICE ASSOCIATIONS [304 produce the better grades than it does the poorer, but a consid- erable proportion of the latter will not bring a price that will cover the cost of production. In order to secure a profit a good enough price must be obtained for the better grades to insure that the average price received on all varieties of grades and kinds is higher than the average cost of production. 69 It is clear from these statements that in establishing a selling price for each grade the producer has a very inadequate cost basis to guide him. Finding that he cannot use costs as a proper basis for determin- ing selling price, he is at sea regarding a solution, unless he can obtain information of a kind that will give him an idea of the trend of the market. Hence he finds that a knowledge of con- ditions, such as is afforded him by membership in an open, price association is a most valuable asset in formulating a selling policy. No doubt a widespread knowledge among producers of the vital market and trade statistics would go a long way toward elimi- nating the conditions which are responsible for the maladjustment of demand and supply, and which leave a heritage of economic waste that must be borne by the public. Being well informed, producers probably would find it to their interest to direct their production in such a way as to bring about a more normal ad- justment of supply to demand. If, for instance, they should find that the stocks of a certain item are low, and orders seem to be well sustained, they would undoubtedly accentuate produc- tion of that item in the hope of getting the benefit of higher prices that might be expected to result from the low condition of stocks. On the other hand, if orders for an item should show signs of declining, while stocks seemed to be well supplied, and in reflection of these conditions, prices should show signs of sagging, no doubt the well informed producers would cut down production of the item affected. In the one case, where produc- tion is stimulated, a stringency of supply, accompanied by an abnormally high price, is prevented. In the other case, where production is diminished, an oversupply, accompanied by an ab- normally low price, is prevented. In other words, supply comes to be adjusted to demand at more or less normal price levels. As "Ibid., p. 1247. 305] THE LUMBER INDUSTRY 141 a consequence the sudden dips of prices that have so often made it unprofitable to attempt to market any but the best grades of lumber tend to be eradicated. With prices confined to normal levels, the prospects for profitably marketing the poorer grades are greatly enhanced. On the assumption that this is the result, the public profits thereby through the conservation of its timber resources. CHAPTER VIII REGULATORY ASPECTS OF OPEN PRICE ACTIVITY The aim in this chapter is not to pass an opinion upon the legality of the open price plan, but, first, to call attention to such court cases as attorneys consider have a bearing on the plan; second, to review such opinions relative to the plan as may have been expressed by prominent members of the legal fraternity; third, to briefly recount activities engaged in by so-called open price associations that may be considered in contravention of law and suggested remedies for these abuses; fourth, to interpret the attitude assumed by various departments of the Federal Gov- ernment toward the plan. Members of the open price associations are in a quandary as to their standing before the law. The question at issue is whether the activities of these associations are in violation of State and Federal anti-trust laws. Perhaps the fundamental proposition involved reduces itself to this question: are members within their lawful rights in associating for the purpose of furnishing each other with accurate information of conditions in the industry in which they are engaged, including stocks on hand, rate of production, and prices at which the product has been sold, and does such association cease to be lawful because, being informed by the knowledge so obtained, but without agreement of any kind, the individual members may ask different prices or produce in different quantities, than they would have done had they not been so informed? For the first time an opportunity has been afforded the Supreme Court of the United States of determining the legality of the open price plan. The defendants involved are the members of the American Hardwood Manufacturers' Association. They made an appeal from the final decree of the District Court in the West- ern District of Tennessee, Western Division, in a proceeding 142 307] REGULATORY ASPECTS 143 brought by the United States under the Sherman Anti-Trust Act, to enjoin them from continuing an alleged combination to enhance the price of hardwood lumber. There were 329 corporations, firms, and individuals involved. All were members of the "Open Competition Plan" of the association. The alleged conspiracy to enhance prices began in January, 1919, and continued to the date of the filing of the bill of complaint in February, 1920. The alleged means of accomplishing this conspiracy may be briefly described as follows: 1. Compiling and distributing monthly stock reports and pro- duction reports. 2. Printing and distributing monthly bulletins which called attention to a shortage of hardwood lumber and admonished members to exact higher prices, but not to meet the shortage by increasing production. 3. Compiling and distributing weekly sales reports. 4. Printing and distributing a bulletin containing excerpts from commendatory letters which the secretary received from members, and which were alleged to have been explanations by members of the manner in which the reports of sales were used in enhancing future prices. 5. Discussing prices at monthly group meetings "so as to pro- duce mutual approval for high prices received, and mutual oral predictions that high prices would continue." 6. Compiling and distributing monthly replies to question- naires "constituting an exchange of written predictions by the defendants that prices would continue high." 1 The main attack of the Government was directed at the market letters which the Manager of Statistics issued to members at irregular intervals. The defendants in their answer admitted that they were exchanging information of the kind described in the bill of complaint but denied that this activity was carried on as a means of accomplishing by collusion the enhancement of prices or the curtailment of production. The judge in the case decided that there was "a common note running through all the evidence," namely "increase in prices," l BriefJor the United States, American Column & Lumber Co., et al. vs. U. S., PP. 2, 3- 144 OPEN PRICE ASSOCIATIONS [308 and therefore granted an injunction which permanently forbade defendants to participate in any open price activity. On appeal, the case went direct to the Supreme Court. Hear- ings were held on October 20, 1920. Apparently the Court has not been satisfied with the evidence then presented because there is to be a rehearing on April nth, 1921. Business men who are interested in the open price plan hope that the Court will give the question of legality of the open price plan a broad and com- prehensive treatment and that some fixed general rules of a con- structive nature will be laid down which will make clear to what extent cooperation may be legitimately carried on. To enter into the merits, pro and con, of the Hardwood case from a legal point of view would lead the writer into a ramifica- tion of legal discussion such as he, as a layman, does not feel competent to undertake. 2 At all events it is thought that such a discussion would lead away from the real point at issue, namely the legality of the open price plan taken in the abstract. The reason for this point of view is that the charges made by the Government against members of the American Hardwood Man- ufacturers' Association may be regarded as being directed, not against the plan as conceived by Mr. Eddy, but against an abuse of the plan. Statements were made in meetings and bulletins which the Government alleges were evidence of a conspiracy to suppress competition. These statements were not necessary accompaniments of the open price plan. In fact, it is thought that an open price association under the guidance of Mr. Eddy or his associates would never have allowed loose statements of the kind made by the Manager of Statistics and members of the Hardwood association to gain currency. The Government took occasion to condemn the open price plan because it seemed to be the instru- ment by which the alleged conspiracy was consummated. If it was so used it constituted an abuse of the plan. Even if the court did establish that the plan was so abused, that fact could not be regarded in the light of a demonstration that the plan when not so abused would be illegal. 8 2 In ch. 7 is a short discussion to the effect that the rise in price of hardwood lumber can be explained by attributing it to natural causes. See pp. 145-148. 'Felix H. Levy, a prominent attorney of New York City, states in a letter to the 309] REGULATORY ASPECTS 145 The writer, however, does feel justified in recording an objec- tion to the method employed by the Government in presenting its evidence in the Hardwood case. Isolated excerpts from letters or minutes of meetings were cited or quoted, and then strung together so as to fit in with the theory of the Government. As a result, in reading the evidence, one gets an entirely different conception of its character than he would if the phrases were read in connection with their context. In many instances the evidence so presented is grossly distorted or misleading as one will discern by reading the letters or minutes of the meetings themselves. DECISIONS APPLICABLE TO THE OPEN PRICE SYSTEM Barring the opinion handed down by the Missouri Supreme Court in the Yellow Pine case, 4 such case law as seems to touch on the legality of open price work is limited to opinions rendered in the lower Federal courts. In the Hardwood case Judge McCall, who handed down the decision, did not state under what circum- stances, if any, open price work would be considered legal. He confined his remarks to a condemnation of the criminal acts alleged to have been committed, these being of a character that may properly be designated as an abuse of the open price plan. 5 The opinion most often cited by proponents of the open price plan as indicating specific approval of this character of activity was given by Judges Buffington, Hunt, McPherson, and Wooley in the famous Steel case. In commenting on the Gary Dinners they quoted with approval the Government's concession in the original petition: "It is not here alleged that merely assembling and mutually exchanging information and declaration of purpose amount to an agreement or a combination in restraint of trade," and added, "when the business is manufacturing, of course all writer, "You will find that the matters complained against by the Government went far beyond the usual procedure commonly described as 'open competition*. Therefore the decision of the Court in overruling the demurrer cannot be deemed to mean a specific finding of illegality against the 'open competition' principle." 4 For an extended account of this case see ch. 7, pp. 132-137. 6 See opinion of Judge McCall, Dist. Court of U. S. Western District of Tenn. Western Division, in equity No. 751; U. S. vs. American Column & Lumber Co. et al., p. 61. 146 OPEN PRICE ASSOCIATIONS [310 this has a direct bearing on the subject of prices, and these con- ferences may therefore consider that subject specifically." 6 How- ever, the judges went further than this, and made it clear that it would be permissible for individuals who were really acting for themselves to make announcement of future prices but im- plied that what may be granted to an individual may be denied an association of individuals. The language used was as follows: "And if each individual should choose to announce at such a meeting the specific price he intends to charge for his wares, we are aware of no law that forbids him so to do. But at this point we approach debatable ground, for an individual is permitted to do some things that are denied to an association of individuals. 7 In concluding this phase of the opinion, *it was stated that a de- cision as to the legality of this procedure would depend upon the fact as to whether the action in announcing future prices "was really taken by each individual acting for himself, or whether those present were in fact pursuing a common object." 8 Attorneys associated with open price associations have con- strued this opinion to mean that there exists an implied distinc- tinction between past and future prices. Mr. Eddy constructed the open price plan on the theory that, altho a discussion and declaration of intent as to future prices in all probability would result in an agreement as to future prices, no such danger would be confronted if discussions and declarations were confined to past prices. However, it may be interpolated that this line of distinction might become exceedingly fine. As the Manager of Statistics of the American Hardwood Manufacturers' Association once remarked, "If you know what your competitor has done up to last week or last night, you are pretty close to knowing what he will do tomorrow and you can act accordingly, with intelligence and wisdom." 9 6 U. S. vs. U. S. Steel Corporation, 223 Fed. Rep., 154-155; also Todd, G. C., Argument before the Supreme Court, Oct. 20 1920, American Column & Lumber Co. vs. United States. 7 I6itJ., p. 155. *Ibid. y p. 155. * Annual Report of the Manager of Statistics, Dec. 1919, American Lumberman, Dec. 20, 1919. 31 1] REGULATORY ASPECTS 147 In the Chicago Board of Trade Case 10 the court stated: "It is an unhealthy condition of affairs where men are compelled to buy and sell without adequate knowledge of actual market condi- tions." In this case it was decided that a rule adopted by the Chicago Board of Trade fixing the price at which members should buy grain from country dealers and farmers between the closing of the exchange on one day and the opening on the next did not have the effect of suppressing or destroying competition, but only to reasonably regulate it. One of the grounds for sus- taining this rule was that it purposed to correct evils that had resulted from ignorance of market conditions. 11 This decree is often cited by attorneys representing open price associations in support of their assertion that even tho it be true that open price work has a regulatory effect on competition, the illegality of such activity is therefore not established, because as was stated in the Steel case, the Sherman Act " 'does not compel competition, nor require all that is possible.' " 12 Attorneys for open price asso- ciations contend that the only manner in which open price work "regulates" competition is in the sense of enabling members to determine their price and production policy in the light of accu- rate knowledge of conditions in the industry. In the case of the United States vs. Reading Company it was disclosed that there had been an exchange of information among carriers and producers of anthracite coal under the auspices of "The Bureau of Anthracite Coal Statistics." To this bureau members reported monthly their tonnage, their sales at New York Harbor and Brooklyn and prices charged. From these data the secretary of the bureau made up a composite report showing the tonnages, sales at New York Harbor and Brooklyn, and the prices of each member. The report was sent to members of the plan. The court held that this arrangement was not in violation of law. 18 10 2 4 6 U. S., 231. "Board of Trade of Chicago vs. U. S., 246 U. S., 231, quoted in Brief, American Column & Lumber Co. vs. U. S., p. 52. U U. S. vs. U. S. Steel Corporation, 223 Fed. Rep., quoted in argument of Todd, G. C., before Supreme Court, Oct. 20, 1920, American Column & Lumber Co. vs. U.S. "U. S. vs. Reading Company, 183 Fed. Rep., quoted in Argument of Todd, 148 OPEN PRICE ASSOCIATIONS [3 12 In the case of the United States vs. Aileen Coal Co. et al, it was charged that members had combined to enhance the price of coal by agreement. One item of evidence related to the exchange of information among members regarding their sales and prices. In giving his instructions to the jury, Judge Grubb said in part as follows: "It is the right of every man in business involving the sale of his product to seek to acquire as full information as to the conditions in the market in which he is selling his product as he can, and it is also entirely within the right of persons in the trade to share that information openly among themselves. Nor does the mere fact that they accompanied this interchange of information with statements as to what each expects to try to obtain for his product in itself constitute such action a combi- nation within the meaning of this Act." 14 In the case of the State vs. Arkansas Lumber Co., the court held: "If in the instant case there had been touching this price current matter no antecedent unlawful acts of the Yellow Pine Association, if this association had not for years promulgated as current prices lists which falsely represented and arbitrarily fixed the prices of yellow pine lumber pursuant to the adopted report of a committee on values, and if Smith, the secretary of the association, pursuing the lawful methods originated by him of obtaining reports from correspondents of actual sales, had fairly compiled and averaged such reports into a list of current prices of yellow pine lumber, we would not say that Smith's acts or the acts of the association in his behalf were unlawful." 15 In the case of the United States vs. the Eastern States Retail Lumber Dealers' Association, the principle was laid down that when information is exchanged for the obvious purpose of sup- pressing competition or raising prices, it becomes illegal to distribute such information. The defendants who were retail lumber dealers compiled and distributed among themselves from G. C., before Supreme Court, Oct. 20, 1920, American Column & Lumber Co. vs. U.S. "U. S. vs. Aileen Coal Co. et al., U. S. District Court, Southern District of N. Y., Brief for Appellants, American Column & Lumber Co. vs. U. S., p. 64. "State vs. Arkansas Lumber Co., 169 S. W., 177. 313] REGULATORY ASPECTS 149 time to time lists of manufacturers of lumber and wholesale dealers who sold directly to consumers. The object in doing so was "to cause retailers receiving these reports to withhold their patronage from listed concerns." The court held that this object, namely to boycott those who sold direct to consumers, was illegal, and members were enjoined from continuing to distribute this class of information. 16 A similar decision was handed down in a case involving members of the Northwestern Lumbermen's Association, i. e. United States vs. Hollis et al, where the pur- pose also was to prevent manufacturers and wholesalers from selling direct to consumers. 17 The cases here reviewed were brought into evidence by the defence in the Hardwood case in an attempt to prove the valid- ity of the furnishing of information through the medium of an open price association when the object is merely to keep mem- bers posted on market conditions, no purpose of using such in- formation to restrain trade being in contemplation. The Government cited no decisions involving the question as to the validity of exchanging information through the medium of a trade association. The cases cited may therefore probably be considered representative of the drift of court opinion. The legality of the practise has apparently been sustained in every case. These decisions may, of course, be disregarded in the opinion which it is expected the Supreme Court will hand down in the near future. EXPOSITIONS OF THE LAW RELATING TO THE OPEN PRICE PLAN Turning to a consideration of the point of view of attor- neys, a considerable number hold that the collection and dis- tribution of business statistics through the medium of an open price association, when properly conducted, is legal beyond doubt. Mr. Arthur Jerome Eddy, the "father" of the open price plan, was to the time of his death 18 the most conspicuous defender of "Eastern States Retail Lumber Dealers Association vs. U. S., 234 U. S. 600, quoted in Brief for Appellants, American Column & Lumber Co. vs. U. S., p. 71. "246 Fed., Rep., 61 1 , quoted in Brief for Appellants, American Column & Lumber Co. vs. U. S., p. 71. "Mr. Eddy died in July, 1920. I5O OPEN PRICE ASSOCIATIONS the plan. Others are Judge Dickinson, who was prosecutor for the Government in the Steel case; Mr. Elmer H. Adams, of Adams, Childs, Bobb & Westcott, Chicago; Mr. B. K. McCloskey, of Kinnear, McCloskey and Best, Pittsburgh; Mr. Henry A. Wise, late United States District Attorney, New York City; Mr. Rush C. Butler, of Butler, Lamb, Foster and Pote, Chicago; Mr. Wm. J. Mathews, of Wetton, Mathews & Pegler, Chicago; Mr. James L. Bruff, New York City; Mr. Clark McKercher, former assistant to the United States Attorney General, of McKercher & Link, New York City; and W. F. Lehmann, of Lehmann and Lehmann, St. Louis. What is considered the most famous exposition of the law relating to open price activity is that which Mr. W. F. Lehmann gave to the secretary of the Yellow Pine Manufacturers' Asso- ciation, in a letter dated April 8, 1909. Mr. Joseph E. Davis, Commissioner of Corporations, regarded this exposition of suffi- cient worth to incorporate in the volume devoted to "Trust Laws and Unfair Competition" which came out as a publication of the Bureau of Corporations of the Department of Commerce, March 15, 1915. The Commissioner describes Mr. Lehmann as "an eminent member of the American bar." 19 As far as the writer's observation goes, expositions of the law contributed by other attorneys have been essentially a rehash of the arguments pre- sented in this document. Because of its importance, as embody- ing the interpretation put upon the law by a large number of prominent attorneys who firmly believe in the validity of the open price plan, it is here given in full: "Mr. George K. Smith, St. Louis, Missouri. "Dear Sir: I have given due consideration to the matters we talked about on Tuesday and have found no occasion to change the opinion then expressed. "You have the undoubted right to collect and distribute the fullest information you can get of what is being done in the lumber field, with all details as to the amount of production from day to day, the stock on hand, prices asked and received, etc., "Davis, Joseph E., Trust Laws and Unfair Competition, p. 715. 315] REGULATORY ASPECTS 151 and every man who receives this information has the right to act upon it as he thinks proper. If he thinks more is being produced than can be sold, he can reduce the amount of his cutting, or cease cutting altogether if he chooses, until conditions improve. "Beyond this, however, you can not go. There can be no agreement or understanding between two or more lumbermen to limit their production and therefore no course of conduct from which such an agreement could be inferred by a court or a jury. "If some man should go from one lumberman to another getting from each a statement or a promise that he would limit his output in the future and what each man thus said was com- municated to the others, and if this were followed by a limita- tion of the output, a court or a jury would be very likely to infer, despite all protestations to the contrary, that the limita- tion of output was the result of an agreement or understanding. "So, too, if one lumberman after another declares that he will hereafter curtail his production and they inform each other of this purpose and then act in accordance with their declara- tions, a court or a jury would be very likely to infer that this was all in pursuance of an agreement or understanding. "What is in fact being done, each and all have a right to know. This is no more than is done every day by the market reports in our newspapers. They show, for example, the daily receipts of grain and livestock, the prices received, information as to the visible supply, etc., and farmers individually govern themselves accordingly. The man not pressed for money does not ship his grain or livestock to a glutted market. The lumber- man may undoubtedly get like information as to his business and may determine his conduct by it. "But the action based upon this information must be individual and independent. If he concludes for himself that the market is overloaded and that he cannot produce at a profit, he may curtail or cease producing altogether and for as long a time as he pleases, but if he concludes that he will continue as he is doing, unless his competitors will also curtail or cease pro- duction, and there is a curtailment or a cessation as a result 152 OPEN PRICE ASSOCIATIONS [316 of any sort of a preconcert, agreement or understanding, the law is violated. "The conditions of the trade, however bad; the price of lumber, however low; the persistence of lumbermen in cutting an amount above the market demands will not legalize an agreement among any number of them to limit the output of their commodity or to fix the price of it. The policy of the law is free competition and it plainly requires that each pro- ducer shall conduct his business independently of any compact with his competitors. This does not prohibit any producer from taking into account all the conditions of business in determining his own conduct, and it does not forbid cooperation for the pur- pose of obtaining information that is useful to each and all. "I repeat, however, that beyond the collection and distribution of information as to what is being done, you cannot go, and can not state too strongly that any agreement or understanding, no matter how indirect the means by which it is brought about, falls under the ban of the law. 20 "Respectfully yours, F. W. LEHMANN." Some attorneys apparently believe that the operation of the open price plan must inevitably lead to a violation of the law because the plan provides exceptional facilities for the accom- plishment of illegal acts, 21 but, as far as the writer's observation goes, few, if any, take the ground that the open price plan, con- sidered in the abstract, is in and of itself illegal. The practise of members exchanging price lists through the medium of a secretary, regarded in many quarters as an integral part of the open price plan, and engaged in by fully as many associations as pursue the other method of reporting only actual transactions, has, however, met with disapproval. Mr. Eddy, the "father" of the open price plan, is among those who declare the interchange of price lists to be illegal. During the Babson "Davis, Joseph E., Trust Laws and Unfair Competition, p. 715. M Mr. Samuel Untermyer, an attorney of repute practising in New York City, holds this point of view. See Hearings before the New York Joint Legislative Committee on Housing, Record, pp. 4598-4666. 317] REGULATORY ASPECTS I S3 conference on Cooperative Competition held in October, 1914, various open price plans then in operation were discussed and a final composite opinion of a plan which would cover many lines of business was drawn up. Section three of the plan pro- vided that "Each member shall, without previous consultation or agreement upon the subject with any other member, make up a price list of net prices or discounts as each class of goods may require, which shall be the lowest prices at which he cares to sell, and forward such list to the secretary before a date to be specified by vote of the Association." 22 Mr. Eddy criticized this provision as follows: "In my opinion the law does not permit the filing of price lists as provided in this paragraph, and plans along these lines have been severely criticized. I know of no authority which permits members of an association to file a list of prices, either lowest or highest, 'at which he cares to sell!'" 23 Upon the receipt of these lists the plan provided that the secre- tary should make up a composite list, stating thereon "the lowest comparative prices found on any of the individual lists submitted to him," and immediately send a copy of this list of lowest prices to each member of the Association. 24 Mr. Eddy criticized this provision as follows: "The precise duty of the secretary is not clearly outlined in this paragraph, but, as worded, the paragraph is clearly open to the objection that it permits the issuance of a more or less arbitrary list for the guidance of the trade; and if so, such practise has been specifically condemned by the courts." 25 Mr. Felix H. Levy, former Special United States Government Attorney, now practising in New York City, in a speech before the National Pipe and Supplies Association, held at New York City, April 22, 1914, gave it as his opinion that the interchange of price lists was in violation of the Sherman Act. In develop- ing his line of argument he cited an instance where a certain association of manufacturers of machinery devised a plan for interchanging price lists through the medium of their secretary, the purpose being, that "if a buyer came and said so and so is 13 Bab son's Reports on Co operation , C. C-io. 154 OPEN PRICE ASSOCIATIONS [318 quoting a certain price, the manufacturer could look it up and tell whether or not it was true." 26 The existence of this practise so the argument runs implied that members had faith in the veracity of the reports of prices contained in these price lists. The mere fact of the presence of these prices in the price lists constituted no proof in itself of their authenticity, unless members were in some kind of agreement to abide by them. In other words there was present an element constituting a promise, express or tacit, to the effect that members would "stick" to the prices named in their price lists. This, according to the exposition of Mr. Levy, constituted an agreement in viola- tion of the Sherman Anti-trust Law. 27 Even the most staunch supporters of open price associations among attorneys are frank to admit that members of open price associations are strongly tempted by the facilities afforded them through the operation of the open price system to commit acts condemned by law. Some attorneys regard the open price plan as nothing more than a subterfuge for effecting agreements to enhance prices. The following record of questions and answers taken in the Hearing before the New York Legislative Committee on Housing is illustrative of the points, first, that staunch de- fenders of the plan admit that it really lends itself to abuse; second, that the plan is regarded as a cloak for the perpetration of illegal practises. Mr. Samuel Untermyer is conducting the examination. Mr. Wm. J. Mathews, a former associate with Mr. Eddy in the practise of law, and now counsel for several open price associations organized by Mr. Eddy is on the witness stand: Q. "Do you subscribe to this:" reading from Mr. Eddy's book, New Competition, page 109: "'It is almost needless to point out' referring to these associations of the character that you represent 'that the danger ahead of such frank and friendly cooperation is as the law now stands in this country the agree- ment that suppresses competition." " 'Given an association in any trade or industry based upon the single agreement to exchange information, there would be the temptation for groups of members to agree upon their bids, to ^Domestic Engineering, Vol. LXVII, May 9, 1914, p. 203. 11 1 bid., p. 203. 319] REGULATORY ASPECTS 155 apportion work and so secure for the time being arbitrarily high profits, by suppressing competition.' You agree to that, don't your" A. "Yes, the effect of that is . . ," 28 Q. "That that is the temptation of these associations?" A. "That the temptation would thereby be afforded. * * *" Q. Reading: "'It is almost as common to hear men say, "We have an association, but we don't agree upon prices.' "' "What do you do?" " ' "Why, I get up and say, 'My price is so and so,' and the others get up and say their prices are so and so.' " ' "And the result is, the price of everybody is 'so and so.' " * "Naturally, but we don't agree they shall be, we just ex- change views and let prices take care of themselves." ' "Do .you remember that?" A. "Yes." Q. "Do you agree that that can be done, that the law is going to be whipped around the stump that way?" A. "No, Mr. Un- termyer. . . ." Q. "Do you agree to that?" A. "To the effect that they made statements as to what their prices had been. Beyond that I do not agree that they can state what their prices will be. If that means that they can state what their prices shall be I don't agree with that." Q. "You are skating on pretty thin ice, aren't you, on that proposition?" A. "Sure, it is a very thin line." Q. "Pretty fine line, so fine it disappears when you look at it?" A. "No, it doesn't." Q. "Of course you know that business men do not travel across the continent in order to tell one another what their prices have been; don't you know that? Because competitors are sup- posed to know what their prices have been?" A. "They don't know it and that's one of the purposes of this society." Q. "You think that competitors in these great industries with their swarms of salespeople out, one man doesn't know what the other man's prices are?" A. "Sure; they find it out very quickly." Q. "So they don't get together to suggest what their prices "Mathews, Wm. J., Record, Hearings before the New York Joint Legislative Committee on Housing, p. 4629. 156 OPEN PRICE ASSOCIATIONS [3 2 are or have been they get together to suggest what their prices should be?" A. "They don't do that in any of our societies. * * *" 29 Q. "The principle of the Eddy Plan is cooperation, isn't it?" A. "Yes, but not to eliminate competition." Q. "You are of the opinion, are you, that there can be coop- eration, combination and still competition, are you?" A. "Yes, sir." Q. "It doesn't strike you that those are absolutely contradic- tory terms, does it?" A. "It does not. * * * *" Q. "Don't you know that cooperation between competitors is unsafe to the public unless it is guarded by governmental super- vision and regulation, so that the public shall not be taken ad- vantage of; don't you agree to that?" A. "I can see that it can be abused." Q. "Now, then, we have at present no governmental regula- tions over competition, have we, that is opposed to the principle of the present economic system?" A. "Yes." Q. "Now, in. the absence of government regulation of agree- ments between competitors, don't you see the peril of such agreements to the public safety?" A. "Oh, sure." Q. "Therefore, until we get government regulation, don't you see that cooperation among competitors must be suppressed for the safety of the public?" A. "No." 30 Mr. Gilbert H. Montague, of the New York Bar, and counsel for defendants in numerous prosecutions under anti-trust laws also has emphasized the danger of open price work leading to violations of the law. Speaking of open price associations he is quoted as saying: "So long as its members enter into no agree- ment to fix prices or control competition, some say the legality of such an association can hardly be questioned. Probably this is so, but the question will remain, how far removed from fixing prices and controlling competition are the results of such an asso- ciation? It is a hair line that divides many trade associations from admittedly unlawful combinations in restraint of trade, and during the past five or six years [this statement was made in "Ibid., p. 4624. id. t p. 4629. 32 1 ] REGULATORY ASPECTS 157 1920] there has been an increasing laxity on the part of many trade association officials and some of the lawyers who have been advising regarding the proper limits of trade association activities. Interchange of information, while always dangerous wherever prices are touched upon, would seem to be no impos- sible feat for trade associations lawfully to accomplish pro- vided always that they observe proper safeguards and precautions." 31 The Forest Service of the Department of Agriculture, in its recent report on the lumber industry, concludes that the open price system is susceptible of abuse at the hands of those who would divert its activities into improper channels, but apparently there is no thought that open price activity must inevitably lead to violations of the law, for, altho "the assembling and distri- bution of prices received by different members of these associa- tions obviously forms a possible vehicle or medium for reaching more or less definite agreements or understandings controlling the prices at which lumber is offered, the extent to which they may serve as such a medium depends upon the policy followed by the particular association as to the degree of publicity given to data of this character, upon the efforts which the association may make to induce its members to price their product in con- formity with the highest rates shown by the current reports, and upon the extent to which the individual lumber producers or selling organizations may use the data as a basis for price- control agreements or informal understandings. Properly em- ployed, particularly with a large degree of publicity, such information should serve to stabilize the lumber market to the advantage of both producer and consumer." 32 In the face of the statements made by the staunchest sup- porters of the open price plan, tantamount to an admission that the interests of the public may all too easily be jeopardized by the unrestrained operation of such a system, it appears that unless open price associations are to be forbidden their existence, ^Printers Ink, June 24, 1920, p. 44. "Report of the Forest Service of the U. S. Department of Agriculture on Timber Depletion, Lumber Prices, Lumber Exports, and Concentration of Timber Ownership, June i, 1920, p. 68. 158 OPEN PRICE ASSOCIATIONS [j22 some means of regulation or control must be sought, looking toward the end of confining the activities of these associations to their proper channels. Before considering the remedial meas- ures that have been proposed, it may be well to give particular notice to some of the more common methods employed by so- called open price associations in their endeavor to maintain or enhance prices unlawfully. ILLEGAL ACTIVITIES AND SUGGESTED REMEDIES In the attempt to maintain or enhance prices by means of concerted action, reports pertaining particularly to production, shipments, stocks, costs, and prices play an important part, for they serve to illuminate the competitive situation in such a way as to make clear the course of action that should be adopted in order to accomplish the object in view. If it is thought desirable to seek to achieve the end in view indirectly by curtailing pro- duction, a particular study is made of production, order, and stock reports. After learning the conditions of supply and de- mand therefrom, it becomes possible to determine* approximately the percentage of curtailment that is necessary to net members the maximum profit. In the case of the Yellow Pine Association reports of this character were made the basis for determining the percentage of curtailment. Action to curtail was decided upon by resolution. Not only were the reports used for the purpose of determining the percentage of curtailment but the secretary used them after the resolution to curtail had been passed to determine whether members were complying or not. 33 The use of cost information as a basis for enhancing prices in concert is often resorted to because the circuitous method in- volved in this procedure is helpful in camouflaging from the gaze of the public the true character of the activity engaged in. Incrimination is therefore less likely to result than if some more direct means were used. In its report on the Causes of High Prices of Farm Implements, May 4, 1920, the Federal Trade Commission exposed the practise in vogue among the associations of implement manufacturers of perverting the study of costs to the end of controlling prices. In effect what was done was to "State vs. Arkansas Lumber Co., et al., 169 S. W., p. 160. 323] REGULATORY ASPECTS 159 have cost comparison meetings at which inflated costs were com- pared with the tacit understanding that prices would be advanced the same percentage shown by the inflated costs. The standard- ization of implements, and the equipment that was furnished therewith, was pushed with energy because by means of this achievement not only prices but also costs could be made com- parable. With some degree of standardization accomplished, cost committees could proceed to arrange a cost schedule, assigning arbitrary inflated costs to each kind of implement and equip- ment, these having no necessary relation to actual costs, but serv- ing as a basis for "recommendations" to members that the percentage of increase in costs would justify a like advance in prices. There appeared to be no direct price agreements; no doubt it was appreciated that there lay less risk of detection in controlling prices through cost education. As the report of the Federal Trade Commission states, the "connection between cost study and prices of members was one of subtle group suggestion and unity of group opinion created at meetings rather than one of direct price agreement or other formal action taken to influ- ence prices of members." 34 Reports of prices submitted by members were used to check up their activities to see whether they were following the course indicated by cost study. It is apparent that the cost work done by these associations was not for the legitimate purpose of educating members in proper meth- ods of cost keeping so as to make it possible for them to ascertain their actual costs, but the purpose clearly was to encourage members to advance prices by disseminating among them studies of inflated costs. 35 There remain to be discussed the various legal abuses attend- ing the exchange of price information. The exchange of price information may take the form of correspondence and conver- sations indicating prices to be charged or it may be confined to past prices. Most so-called open price associations have been ^Report of the Federal Trade Commission on the Causes of High Prices of Farm Implements, May 4, 1920, p. 427. "Accounts of the cost activities of the farm implement manufacturers' associa- tion may be found on pages 308, 309, 318, 414, 459, 460, 526, 584-587, in the Report of the Federal Trade Commission on the Causes of High Prices of Farm Im- plements , May 4, 1920. l6o OPEN PRICE ASSOCIATIONS [324 rather circumspect about exchanging information of future prices, because it has been generally believed the courts would look upon activity of this character as almost prima facie evidence of an agreement to enhance or fix prices. However, manufac- turers of implements have been exchanging such information among themselves, but they have been careful not to involve their associations as such, in this activity. The following letter of F. G. Allen, General Manager of the Moline Plow Works, to W. B. Brinton, President of the Grand Detour Plow Co., September 17, 1915, is illustrative of their methods: "It has been our intention since the Bloomington Tractor demonstration to raise the price of our tractor plow. We made a price on our plow which seemed to us to net a legitimate profit, and find that we are below the other people who are making this class of goods, and are disposed to get all we can for our goods, even tho the price we are making nets us an adequate profit. ***** \Ve could not see how they could have the courage to demand so large a profit, but we assure you that it is our intention of raising prices just as soon as we can get to it, and that we think will be within a few days." 36 Prostitution of the system of reporting past prices to the end of maintaining or enhancing prices is most commonly achieved, first, by members, in their individual capacity or through their association leaders, urging each other to strive toward the accom- plishment of these objects; second, by the acts of association officers in disseminating data with the purpose of influencing members to direct their energies toward this result. If dissemination of price data is decided upon, the central office may choose the method of withholding some of the price information received from members, disseminating only that which will seem to indicate that going prices are higher than they really are, or the method may be adopted of issuing to the membership, "suggested" lists of prices purporting to reflect the character of going prices, but in reality being "boosting" prices. Most of the lumber associations have resorted to both methods. In the case of the Yellow Pine Association, the secretary assem- bled reports of all prices charged by members, but he compiled *Ibid., p. 343. 325] REGULATORY ASPECTS l6l and disseminated only those which reflected the highest prices secured. This was characterized by the court as a price boosting device. 37 The American Hardwood Manufacturers' Association also adopted the same scheme but very soon abandoned it on the advise of counsel. 38 Mr. L. C. Boyle, attorney for this asso- ciation, upon being questioned regarding the legality of the prac- tise, replied in part: "It is my judgment that it is unwise, especially at this time, to circularize this form of market report of high sales and this because the conclusion is liable to be reached that the high peaks are designedly given for the purpose of forcing up the general market." 39 It has been suggested earlier in this chapter that in some quar- ters it is considered illegal to interchange lists of prices actually being quoted by members; however this may be, the illegality of distributing "suggested" price lists is unquestioned. This device has been very commonly used in the lumber industry in an effort to maintain or enhance prices. A description of this practise has been given elsewhere. 40 By the interchange of information pertaining to past prices officers and members alike may learn to what extent fellow-mem- bers are adhering to such arrangements, understandings, or agree- ments as may be in force. Being possessed of this knowledge, they can use it as a basis for bringing pressure to bear on those who seem to be out of line with the general policy of the asso- ciation. It is no longer customary to exact hard and fast agree- ments calling for penalties in the event of violations thereof; exhortations, recommendations and resolutions have taken their place. Little trace of compulsion exists. Unity of opinion de- veloped at meetings and by means of correspondence is relied upon to carry out recommendations made and resolutions passed. To illustrate: In an investigation of the book-paper industry 41 |7 See account given in ch. 7, pp. 132-137. "Gadd, F. R., Record, American Column & Lumber Co. vs. U. S., Vol. II, p. i no. "Gadd, F. R., Exh. 5, Record, Vol. II, p. 1242. 40 Seech. 7, pp. 129-131. n Report of the Federal Trade Commission on the Book Paper Industry, pursuant to Senate Resolution No. 122, dated August 15, 1917. 1 62 OPEN PRICE ASSOCIATIONS [326 the Federal Trade Commission found that, while ostensibly the duties of the secretary of the statistical bureau to which most of the manufacturers belonged was to compile and distribute cer- tain statistical information, in reality he was principally engaged in inciting members to increase their prices, this being done by correspondence, use of the telephone and telegraph, attending meetings, and holding personal conferences with members. 42 In the farm implement industry members often took it upon themselves to give notice to fellow-members when their prices were found to be out of line with those "recommended" by com- mittees. On January 19, 1917, C. S. Brantingham, president of Emerson-Brantingham Co., wrote to one of his sales managers as follows: "My attention has been called by a competitor to the fact that our recent instructions sent out to branches and competitors show sulky plows with an advance of fifteen per cent instead of ten per cent as was arranged. You can perhaps imagine my humiliation in getting this information from this source, inasmuch as they have before this called my attention to errors in getting out our price instructions." 43 The issuance of "recommendations" by committees of members is a common device for working up a unified sentiment that may be counted upon to crystallize into price maintenance or price enhancement activity. This practise has been particularly preva- lent in the lumber industry. For instance, in its report before the Fall Meeting (1914) of the Michigan Hardwood Manufactur- ers' Association, the Market Conditions Committee stated in part: "Your committee has carefully studied all recent sales as re- ported to your secretary and the attached price list is their best judgment as to present prices. We want you to study more carefully than you have heretofore statistics as to stock as pre- pared by your secretary. If you will study them carefully, we feel sure that each and everyone of you will decide to curtail your production all you possibly can and then some." 44 a lbid., p. 17. "Report of the Federal Trade Commission on the Cause of High Prices of Farm Implements, May 4, 1920, p. 312. "American Lumberman, Oct. 24, 1914, p. 42. 327] REGULATORY ASPECTS 165 Not only have recommendations and resolutions been used for the purpose of exerting a direct effect on price policy, but they have been used for the purpose of affecting the price policy of members indirectly through regulation of terms of payment. It is the writer's observation that nearly every trade association in the textile and lumber industries advocates standardization of terms. The Eddy associations appear not to countenance this form of activity. The Babson Statistical Organization once quoted to Mr. Eddy the opinion of a correspondent that terms of payment might properly be put upon a standard basis and asked Mr. Eddy to comment on this point of view. Mr. Eddy replied in part: "It seems to be the opinion of your correspondent that while men may not advance prices directly, they may do so indirectly by shortening the terms of payment, etc. It is needless to say that all such attempts to control the freedom of the individual to run his business as he pleases, are contrary, not only to the Sherman Law, but to the laws of practically every state in the Union, and no open price association is permitted f to do anything of the kind, except with the cooperation and consent of customers obtained in advance of the adoption of the new regulations." 45 The foregoing discussion, it is thought, makes clear without further demonstration that open price associations, or any other trade association for that matter, can all too easily extend their activities to the point where they become a detriment to the public welfare. The Federal Trade Commission, as a result of its investigations of numerous trade associations, concludes that "such associations are frequently tempted to extend their activi- ties beyond the useful function of. collecting trade information regarding supply and demand and prices, and to engage in ac- tivities tending to artificially control prices and the channels of distribution." 46 It is generally recognized that the present law enforcement machinery is inadequate to prevent lawless trade association bodies from committing abuses. Proposals for reme- dies have been made, but they are general and superficial in ^Babson, R. W., Reports on Co operation , C. .-9. Quotation in American Lumberman, Dec. 22, 1917, from Annual Report of the Federal Trade Commission for the Fiscal Year ended June JJ, /9/7, p. 3 1 . 164 OPEN PRICE ASSOCIATIONS [328 % I character just what one might expect, considering the newness of the problem. The chief remedies proposed have been along the lines of greater publicity and more governmental supervision, A combination of these is advocated by Mr. Samuel Untermyer, New York attorney: "The real way of preventing injury from these combinations," he is quoted as saying, "is to subject them to publicity, and all their acts to rigid governmental supervision." 47 His plan for controlling their activities by means of a State Trade Commission is the most concrete proposal for a remedy yet presented. The chief points called for by this plan may be briefly summarized as follows: 1. Creation of a State bi-partisan Trade Commission of six members. 2. Require every trade organization that is subject to the jurisdiction of the State to file with the commission a copy of its charter and by-laws, with the names of its officers, directors, and members. 3. Require all those engaged in business in the State to file a report with the commission disclosing all trade associations of which they are members, and any "agreement, arrangement or understanding, whether written or oral" with anyone else engaged in a similar line of business. 4. Prohibit those who do not make proper disclosures from remaining affiliated with any trade associations. 5. Permit members to participate in agreements, arrange- ments or understandings intended to regulate or affect or fix prices, or output, or the division or apportionment of territory, or the "reporting or exchange of cost prices, or the names of cus- tomers, or reports of sales, or that otherwise deal with any sub- ject that tends or is intended to regulate or restrain competi- tion," provided "such agreement, or understanding, whether writ- ten or oral, shall have first been submitted to the commission and approved by it." 6. No agreements, arrangements, or understandings are to be approved by the commission "unless or until the commission shall have approved the prices at which commodities are to be "The World, Sept. 15, 1920. 329] REGULATORY ASPECTS 165 sold which may not permit of a profit beyond that which the commission deems to be reasonable, nor unless all the terms and details have been exposed to the commission and have been approved by it." 7. Failure on the part of members who are parties to agree- ments, arrangements, or understandings to comply with the pro- visions as above outlined shall make them guilty of a misde- meanor and upon conviction they shall be punished, etc. 8. The Trade Commission shall have the same powers of supervision and visitation, etc. "as are now possessed by the Fed- eral Trade Commission with respect to interstate corporations." 48 Mr. E. H. Gaunt, a prominent secretary of several open price associations, favors legislation that would give the Federal Trade Commission power to permit trade associations to fix the price of articles sold by their members, this price to be a fair one based on accurate costs. "This could be done," says Mr. Gaunt, "in the same manner as the Public Service Commissions of various States control the price of gas, electric lights, railroad rates, and street-car fares by requiring trade associations to file with the Federal Trade Commission their proposed changes in prices." 49 The policy of price fixation involved in both Mr. Untermyer's plan and that of Mr. Gaunt has its obvious drawbacks. To review the arguments for and against this feature would extend the scope of this chapter unduly. Suffice it to say, that many economists of eminence as well as prominent men in other pro- fessions hold that price fixing under control of Government com- missions is not desirable. Perhaps their leading argument is that such a course has the effect of checking technical development, because with prices fixed, incentive to improve processes with a view of increasing business by lowering prices below those of competitors is diminished. 50 A study of war experiences with "For a more detailed account of the Untermyer Plan, see The World, New York City, Sept. 15, 1920. "Gaunt, E. H., Cooperative Competition, Providence, R. I., Jan., 1918, p. 32. *Clark, J. B., "The Possibility of Competition in Commerce and Industry," Annals of the American Academy qf Political and Social Science, Vol. XLII, No. 131, p. 63. 1 66 OPEN PRICE ASSOCIATIONS [330 government price fixing ought to contribute a vast amount of data of value in determining the advisability of adopting a plan involving this feature. The Babson Statistical Organization contends that most vio- lations of the law result from ignorance on the part of business men as to what they may or may not do under the law; this institution accordingly advocates legislation conferring power upon the Federal Trade Commission to advise business men in advance whether their acts will be legal or illegal. 51 Others have contended that the Department of Justice should do the same thing. However, Mr. Colver, a member of the Federal Trade Com- mission, has asserted that it is not possible to give "rulings in advance." "To begin with," Mr. Colver is quoted as saying, "no man can say what his conduct is going to be for the next year, the next week, or the next hour. Even if he did, no man knows what the reflex of any act which he may do may have upon some other man. He looks at his line of conduct from his own point of view, and may be sincere and honest in believing it to be a good thing; but he does not and can not know how, in the complex web of modern commercial relations, his conduct may react upon another. That seems to bring us to an impasse. We cannot repeal the law; the lawyers cannot tell you what it means, and the Federal Trade Commission cannot prophesy. That leaves business in doubt, and doubt breeds suspicion and fear and despair; sometimes it breeds defiance of law." 02 As a result of their study of trade associations both the Federal Trade Commission and the Forest Bureau of the Department of Agriculture have concluded that throwing the light of publicity on the activities of these associations offers at least a partial remedy for abuses now rampant. The Forest Bureau thinks that the activities of trade associations can be safeguarded by the cooperation and control of a responsible public agency like the Federal Trade Commission, and by systematic publicity. 53 "Babson, R. W., Reports on Cooperation, C. C.-6. ^Quoted in the American Lumberman, June 19, 1920, p. 44. M This report refers more particularly to trade associations in the lumber in- dustry. See Report of the Forest Service, Some Public and Economic Aspects of 33 I ] REGULATORY ASPECTS 167 In its annual report for the year 1917, the Federal Trade Com- mission recommends that "all trade association files should be made public records." 54 "Such publicity," declares the commis- sion, "would extend the knowledge of all producers and consum- ers regarding conditions of supply and demand and help to pre- vent abnormal trade fluctuations in supply and prices. It would also tend to curb association activities of an objectionable character." 55 Neither the Forest Service Bureau nor the Federal Trade Commission has done more than suggest the direction in which to seek a remedy. In other words the suggestion is not accom- panied by a working plan. It is believed that a study of the possible means for putting into practise this plan of publicity will reveal some very knotty problems to be overcome before the plan can be put into operation. Our study, thus far, has revealed that membership in even the most successful associa- tions represents only a moderate proportion of the persons who are eligible to membership. The inducement to membership is, first, that the association is a benefit to the industry as a whole; second, that the association is, in a direct and personal way, of benefit to the individual members. It goes without saying that usually the second inducement must be strongly present in order to impress prospective members sufficiently to cause them to join. The average association member has joined because of the belief that by so doing he can acquire valuable information that would otherwise not be accessible to him. But suppose that the association records were, as contemplated in the plan of the Federal Trade Commission, made freely open to the public, would not that take away the chief incentive that mem- bers have for joining? Why pay out material sums to cover the expense of collecting and disseminating these facts when non- members may secure them without contributing anything? It is manifest that the suggestion of the Forest Service and the Federal Trade Commission would have to be accompanied by the Lumber Industry, June 24, 1917, Gadd Exh. "A," Record, American Column & Lumber Co. vs. U. S., Vol. II, p. 1198. "Quoted in American Lumberman, Dec. 22, 1917, p. 26. "Ibid. l68 OPEN PRICE ASSOCIATIONS [332 provisions that would make their plan of publicity workable and equitable. It is thought that trade associations honestly endeavoring to operate along legitimate lines would find it distinctly to their advantage to take the initiative, themselves, in admitting the pub- lic to a share of the results of the knowledge which they are pooling. The statistics published might be of such a character as to be instructive to the public and yet not disclose information of more particular value to members themselves, thereby pre- serving, perhaps, the incentive that under the present arrange- ment of things seems to be needed to induce membership. The statistics made public might relate to the industry as a whole, showing, for instance, the character and amount of annual out- put; the percentage of fluctuation in amounts on hand from year to year; the relation of prices to cost of production* and of profit to capital. Sketches of any developments in the industry such as amalgamations, new issues of capital, changes in directorates, et cetera could also very well be made public. A policy of frankness, such as a step of this kind would entail, might help trade associations to break down the prejudice, sus- picion, and distrust to which the public in a large degree makes them the object, and which is reflected to their disadvantage in hostile government action. With adequate data at their disposal, the public could in a large measure arrive at their own conclu- sions regarding the reasonableness of prices, wages, profits, et cetera. Many unfounded and exaggerated suspicions would be dispelled thereby, and many allegations of profiteering or exploit- ing now blindly hurled at the undeserving as well as the deserv- ing would fall of their own weight. The educating effect on the consumer, investor, legislator, and business man would itself be helpful to the trade associations themselves as well as to the recipients of this education; in the course of time these various groups would come to understand the possibilities involved in helpful cooperation. 66 Trade associations engaged in illegitimate trade practises that now find it possible to thrive unmolested because of the M The gist of this line of argument is taken from an article, entitled "Trade Com- binations," by C. Ernest Fayle, appearing in the Edinburgh Review, July, 1919. 333] REGULATORY ASPECTS 169 prevailing state of public ignorance of their operations, would undoubtedly be obliged to reform were the glaring searchlight of publicity turned upon them. The rise of trade associations may itself be taken as evidence that the policy of secrecy in business is being rapidly exploded. Open price associations go further in sanctioning publicity than do other trade associations, but even they show a disposition to confine the information at their disposal to their own members. It is believed that in the future the public will insist on sharing the benefit of the knowledge that is being pooled by these asso- ciations. Certainly in its capacity of purchaser, the public will be at a relative disadvantage unless it possesses knowledge of market conditions equivalent to that possessed by members in their capacity of sellers. However, if the public is to insist on having the benefit of this accumulated knowledge it must not demur at sharing the expense which is necessarily associated with gathering, compiling, and disseminating information. ATTITUDE OF THE FEDERAL GOVERNMENT It is the writer's conviction that trade associations would be less, secretive with reference to their activities if they had some assurance that by doing things publicly they would not be laying themselves open to attacks by the Government. In other words many associations have sought cover because of the hostility shown them in the past. The misdeeds of some trade associa- tions have resulted in enveloping all, good or bad, in a storm of public and governmental disapproval. The conception has prevailed in governmental circles that the only true competition is competition carried on in secret and in ignorance. Thus trade associations have been shown hostility because they have tried to make their members intelligent com- petitors. The point of view that business men should compete in ignorance is well illustrated by the tenor of the questions put to Mr. Wm. J. Mathews, counsel for several open price associa- tions, by Mr. Samuel Untermyer who was appointed to conduct the hearings before the New York Joint Legislative Committee oi> Housing: Q. "Now we are talking about competition and you are talk- I7O OPEN PRICE ASSOCIATIONS [334 ing about cooperation, which is to my mind the antithesis of competition. Now in an economic system such as ours in this country, based upon competition, you understand?" A. "Yes." Q. "Don't you see how absolutely incongruous is the idea that every competitor should know every other competitor's business?" A. "Absolutely not." 67 However, there is evidence on every hand that the attitude of governmental bodies toward cooperative activities is changing. In the case of the United States vs. United States Steel Corpo- ration, the Department of Justice made the following concession in its original petition: "It is not here alleged that merely assembling and mutually exchanging information and declaration of purpose amount to an agreement or a combination in restraint of trade." 68 A letter written by President Wilson to Edward N. Hurley, then vice-chairman of the Federal Trade Commission, dated May 12, 1916, has been widely quoted as indicating the attitude of the administration under the Wilson regime. In this letter Mr. Wilson said in part: "Your suggestion, that trade associations, associations of retail and wholesale merchants, commercial clubs, boards of trade, manufacturers' associations, credit associations, and other similar organizations, should be encouraged in every feasible way by the Government seems to be a very wise one. To furnish them with data and comprehensive information in order that they may more easily accomplish the result that they are organized for is a proper and useful Government function. These associations, when organized for the purpose of improving conditions in their particular industry, such as unifying cost accounting and book- keeping methods, should meet with the approval of every man interested in the business progress of the country." 69 Significant of the trend of opinion is the passage of the Webb- Pomerene Law permitting combinations of American business "Hearings before the New York Legislative Committee on Housing, Dec. 29, 1920, Record, p. 4638. For an account of the writer's conception of true com- petition, see ch. 3, pp. 44-47. S8 U. S. vs. U. S. Steel Corporation, 223 Fed., 155. S9 Quoted by E. N. Hurley in his article entitled, "Present Attitude of theGov- 335] REGULATORY ASPECTS 171 men in promoting and preserving foreign trade. This bill received the active support of the Federal Trade Commission and President Wilson. Mr. Robert E. Belt, then Chief Accountant for the Federal Trade Commission, in an address before an association of hard- wood manufacturers, January 30, 1917, endorsed the work done by open price associations in the following language: "My ob- servation has been that the associations that are accomplishing most in a legitimate way, for the Individual members and for the industry, are those associations where the members meet peri- odically to exchange information, compare experiences, discuss trade problems, and profit by the interchange of ideas. It ap- pears to me that cooperative work of this character is essential to the economic and financial strength of our industries, and to the full development of our domestic and foreign trade." 60 Those who are identified with the work of open price associa- tions appear to view favorably the turn taken in the point of view of those in control of governmental affairs. Mr. Clark McKercher, former assistant to the United States Attorney Gen- eral, now counsel for a number of open price associations, is quoted as saying early in 1917: "General business believes that the Government is now on the right track. ****** Gov- ernment espionage, once feared as a counter irritant to all indus- trial disturbances, has under the intelligent guidance of the Federal Trade Commission turned out to be an admirable cor- rective and a beneficial stimulant. With a restricted jurisdiction, the Commission has been decidedly encouraging in its helpful activities. It is making good on the promise of Commissioner Hurley, who, after speaking of the assistance rendered to busi- ness by the Interstate Commerce Commission, Department of Agriculture, and the Federal Reserve Board, said, 'To do for general business that which these other agencies do for groups eminent towards Trade Associations," Heating and Ventilating Mag., Sept. 1916, Vol. XIII, pp. 46-47. '"Belt, R. E., Improved Accounting Methods and Business Practises. An ad- dress before the Hardwood Manufacturers' Association of the United States, Jan. 30, 1917, American Lumberman, Feb. 3, 1917. 172 OPEN PRICE ASSOCIATIONS [336 to which I have referred was the thought behind the creation of the Federal Trade Commission.' " 61 The recent action of the Federal Reserve Board, acting through the Federal Reserve Banks, in developing a system under which trade data are to be collected and distributed much in the same manner as is done by the typical open price association is highly significant because it amounts to an admission on the part of an important branch of the Government that the methods employed by these associations have a distinct value. The fact that the Federal Trade Commission some months ago worked out a plan almost identical to that of the Federal Reserve Board is of added significance. The plan of the Commission had to be abandoned because its facilities were unequal to the task. The plan promulgated by the Federal Reserve Board is de- scribed in a general way in a pamphlet entitled How is Business, published earily in 1920 by the Federal Reserve Bank of Phila- delphia. In brief, the purpose is to secure from representative firms in each of the more important lines of industry, certain figures relating to their production, stocks, unfilled orders, et cetera. The same firms will be asked to make these reports at monthly intervals. The figures collected are then to be compiled so as to show certain facts for the industry as a whole, such as the increase or decrease in production "from a known standard;" the increase or decrease in unfilled orders, and the increase or decrease in raw materials and finished product on hand. The work of assembling and disseminating such figures as these has already been begun in some fields, notably in the textile and wholesale grocery lines. 62 Indorsement of open price activity, at least as applied to the lumber industry, has also been given by the Forest Service Bureau of the Department of Agriculture. In its report on the lumber industry issued in 1917, it specifically recommended that asso- ciations furnish lumber manufacturers with the current trade statistics necessary to keep them informed on the condition of the market, in order that they might "adapt their own business to its changing requirements," these statistics to include data n New York Journal of Commerce,, Jan. 3, 1917. ^Federal Reserve Bank of Philadelphia, How is Business?, pp. i, 4, 6. 33?1 REGULATORY ASPECTS 173 on the volume of orders, shipments, lumber stocks on hand, and prices. The report concludes that "with adequate safeguards the public should encourage such forms of cooperation among manu- facturers as a necessary means of making the lumber industry more efficient." 63 That the various branches of the Government are veering into the position of recognizing the value of open price activity, when it is not perverted to the end of maintaining or enhancing prices, seems to be amply demonstrated in what has gone before. No doubt the war did much to bring about this revolutionary change in the attitude of the Government toward trade associations, altho it is probably true that it would have come about had there been no war, for signs of such a change were clearly visi- ble prior to that event. Nevertheless, had not the war intervened, the change would undoubtedly have come about more slowly than it did. During the war the Government fell into the habit of depending upon trade associations for aid in lining up the various industries so as to achieve maximum efficiency of production. In fact, the Government, during the last few months of the war, told firms and individuals who were not then members of trade associations, that if they wished to do busi- ness with the Government they would be obliged to get into organizations and do business as organizations and not as indi- viduals. 64 It may confidently be predicted that governmental recognition of the necessity for industrial organization will not lapse even tho the pressing circumstances which were instru- mental in calling it into being are no longer existent. The Gov-. ernment has taken a step which it is not likely to retrace. "Report of the Forest Service Bureau, Some Public and Economic Aspects oj the Lumber Industry , Jan. 24, 1917, pp. 1197-98. "Kellogg, R. S., The Legitimate Functions of Trade Organizations; an address delivered before the Business Secretaries Forum, Chicago, Illinois, Jan. 25, 1918, p. 7- CHAPTER IX To attempt to ascertain with any degree of accuracy the effect on prices exerted by open price activity is indeed a most difficult task. The youthful character of the open price association taken together with the numerous and confusing influences at work, particularly during the last few years, makes the value of a study of this character problematic. Moreover, the data upon which to base such a study are difficult of access. Those who are in control of open price associations hesitate to permit outsiders to avail themselves of the information that has been accumulated especially of the kind bearing on prices. Perhaps their attitude may be chiefly ascribed to a fear that such infor- mation, were it released, might come into the hands of those who would attempt to use it to jeopardize the interests of open price associations, or perhaps they are actuated by the feeling that as custodians of the information which members have im- parted to them they are not privileged to make common property of it, and that to do so would be to violate the confidence mem- bers have reposed in them. Altho the inaccessibility of competent price data makes it futile to attempt to formulate any conclusions based on statistics respecting the effect of open price activity on prices, it is believed that some progress looking toward an ultimate solution of this knotty problem can be made by pointing out, first, the probable method of approach in the solution of such a problem; second, influences at work tending to vitiate the accuracy of results de- rived from a study of this character; third, influences tending to confine prices to channels in which they would be expected to run if their course were not upset by open price operations; 174 339J INFLUENCE ON PRICES 175 fourth, influences tending to swerve prices away from the course that they would be likely to take in the absence of open price activity; fifth, the probable effect on prices of the interaction of these conflicting influences. METHOD OF ASCERTAINING INFLUENCE ON PRICES It is believed that the best method to pursue in determining the influence of open price activity on prices is to compare price data of two kinds. The first kind involves a comparison of prices obtained by members of open price associations with those re- ceived by non-members. The object of this investigation is to determine, first, if all members are getting the same prices as non-members or higher or lower prices; second, if periodic fluc- tuations in members' prices are more pronounced or less so than those of non-members. The second kind involves a comparison of the prices obtained by members themselves. The object of this investigation is to determine to what extent, if at all, prices show a tendency to become uniform. The commodities involved must, of course, be of like kind. Likewise the investigation should cover a period of several years. It should also be established that the non-members whose prices are used have had no access to the information pooled by members. Information bearing on prices received by members of open price associations can most conveniently be obtained from the compiled reports of sales issued at periodic intervals to the mem- bership by the central office of each of these associations. Most of these compiled sales reports not only show the individual membership reports of prices, but also give the average of all prices reported for the period. It is thought that sufficiently accurate results can be secured by using these reports of aver- ages. To get accurate price data pertaining to competitors who are not members of open price associations in their industry, it would seem necessary to go to the records of non-members them- selves. No doubt it is very difficult to obtain adequate data from a sufficient number of competitors to make these data representative. Probably very few non-members can be found who have preserved records of sales for several consecutive years. 176 OPEN PRICE ASSOCIATIONS [340 The question might be raised why prices given in trade jour- nals, or in the reports of the Bureau of Labor Statistics or other recognized sources of price information may not properly be used to represent the prices obtained by non-members. The diffi- culty with this proposal is that these prices are a composite of prices received in the industry as a whole; for this reason they are representative of neither the group of non-members nor the group of members but of both groups. If the industry were wholly within the control of an open price association, figures taken from these sources might be of some value when compared with figures covering a period prior to the existence of the asso- ciation, provided that proper allowance could be made for such changes in the economic situation as might have occurred in the course of the transition from one period to the other. Altho it appears exceedingly difficult to obtain competent data at the present time, even if no other sources of information are made available, no doubt future litigation involving open price associations, or investigations made of them by the Federal Trade Commission, will reveal much information of an illumi- nating character bearing on prices received by non-members as well as members. The record of the United States vs. The American Column and Lumber Co. et al. offers the first considerable contribution of price data available for study. In this case the defendants introduced several charts indicating prices received during 1919 for different kinds of hardwood by competitors who were not members of the "Open Competition Plan". This open price plan was that in use by the American Hardwood Manufacturers' Association. 1 In addition the defendants introduced copies of all the sales reports compiled by the manager of statistics and dis- seminated among the membership during the year 1919. This was done in order that comparisons might be made between prices charged by members and prices charged by non-members, the contention of the defendants being that such comparison would reveal that members were neither maintaining fixed prices nor were they obtaining prices any higher than those received by outside competitors. The Transcript of Record, which was all of 'See account of plan in ch. 7, pp. 137-148. 341 ] INFLUENCE ON PRICES 177 the record that was accessible to the writer, contains charts giv- ing the prices that were received by certain non-members for the entire year of I9I9, 2 but the reports of sales, showing prices received by members during 1919, are not given in their entirety in the Transcript of Record. 3 The Manager of Statistics, how- ever, placed at the writer's disposal all of the sales reports issued during 1919. It was found possible to extract price data from these reports of sales which were comparable to the data con- tained in one of the charts showing prices received by a non- member. Prices received by non-members as shown in the other charts could not be made comparable with prices contained in the reports of members' sales because kinds, grades, or thick- nesses of lumber did not correspond. In the instance where it was found possible to make a comparison, the graphs which the writer plotted to show the trend of prices in each case disclosed that the average prices received by members of the association for the year 1919 were no higher than those received by this particular non-member. 4 The writer also prepared a chart with four graphs, three of them showing the average weekly prices received by three lead- ing members of the association, the fourth showing the average weekly prices of all members. The period covered was from July 26th, 1919, to December 27th, of the same year. An exami- nation of this chart reveals at a glance that the prices received by each of these manufacturers varied widely from time to time; nor can one trace any existing relationship between the prices received by the manufacturers and the average prices received by all the members. 8 Assuming that the trend of these prices may be considered typical of that of all the other members, the inference to be drawn therefrom is that open price activity among members of the Hardwood Manufacturers' Association did * Record, American Column & Lumber Co. vs. U. S., Vol. Ill, Krebs Exh. No. I, p. 1509; May, Exh. No. I, p. 1513; Wertz Exh. No. i, p. 1613; Thomas Exh. No. I, p. 1398. 'Reports of sales are shown for the month of January, 1920, Record, Vol. I, Exh. "A," p. 33. 'See chart No. I, in this chapter, p. 178. "See chart No. 2, in this chapter, p. 179. [178] S3SS5*rS7^ *"""""*" :::::::::::::::::::::::::::::::.: ::: ::::::::::s::s :::::::::: :::::::::? : : ;:::::::::;.::::::::?::? i:::::::::::::::::::::::::::::::::::::::: i:::::::::::' :::::::5 : i:: [179] ISO OPEN PRICE ASSOCIATIONS [344 not lead to uniformity in price policy, at least during the year 1919. That the statistical conclusions indicated on the charts drawn by the writer, altho inconclusive in themselves becaused based on inadequate data, truly depict the character of the prices re- ceived by members during 1919 is attested to by several pur- chasers who stated that the prices paid by them to different members were neither uniform nor were they any higher than those paid to non-members. 6 In this connection it must be pointed out, however, that the price data taken from the association reports of sales cannot properly be used as a basis for determining the effect of open price activity on prices, because, as indicated elsewhere, 7 only to a very small extent did members use the sales reports issued in 1919 as a guide to the trend of the market, for by the time that they were received from the manager of statistics (a week or two subsequent to the time when the sales listed were made) current market prices had advanced so far ahead of those listed on sales reports, that the latter, if they had been taken as a guide would in a great many instances have resulted in sales at prices below the current rate. Only the class of small manufacturers seem to have derived any benefit from studying the sales reports. Even tho the prices listed on the sales reports were below the best market prices then prevailing, yet they were higher, apparently, than the ones these small manu- facturers had been accustomed to receive prior to their entry into the association. Of the numerous letters received by the manager of statistics in commendation of the Open Competition Plan, all of those which pointed to the fact that the plan had enabled members to get better prices, were from small manufac- turers. 8 An unprecedented demand, accompanied by a shortage of supply, resulted in such a rapid advance in prices that the sales reporting system proved unequal to the task of keeping members properly apprised of the latest price developments. It is obvious, therefore, that the results obtained by the writer See Record, Vol. II, pp. 1372, 1367, 1394, 1395; Vol. Ill, p. 1563. See Chart No. 3, in this chapter, showing variation in prices received by members during 1919. p. 181. 7 Ch. 6, pp. 124-125. *Boyle, L. C., Argument before the Supreme Court, p. 68. GADD EXHIBIT "J" APPENDIX A speciet ' A-- 00 tO'Hi .' to'- GO t* Ob \fl VO -VO 10 00 tx tv ON tx - I 00 * O O 00 to vO IX OO QO VO VO 6 v*: w ,! uononpojj "" jaqmnq pissajQ i III! 1 | * 00 O Q O O 00* O* tT vo* vo" nT M O O to 1^ M ~ VO VO O\ o ^ jsqinni psssajQ S," v8 Slow 2, oioo vo 2 "N?; " S,R9> VO to * to 10 vo t*- O HI o 10 Ov ON JO 1SOQ M. 10 10 10 10 10 * * VO * ^ * 0^ to to 00 W td Wi W! . M. 1 "2, S ??; 1o JCvo" * 5^0 t^Slo S *"-9> * HI VO M 00 O O 00 * to VO 00 1 2 ||IJM SUIUBIJ - ^uo,o ^ M ^ ,010 ^ * JB M AT t % A Mi c, pJBMJOj paiJJVQ paonpo-ij 11 11 11 11 IS S uojiDnpoaj oo -j^ -g'sSBissj wquini qSno^ IPII j|!j pi 111 ill p 30,107,092 tx vo vo 10 to 10 IO t^ IO OO HI OO vo" i tC vb" 10 tx o o o * O *** <*" O ^ **00 O^**T-l -r OViO_.tx OO r^ 10 > H- < 4 J S , ; , HI HI H, H, ,0;., HI H, ; M ^ H.T3 HI O ' Ov ' Ov O> PB3UJ3AO OOVO^.0 -?00 nt^^o'N S,-!*^,*? o^figlRSv v&otS f; SRjj^S^S-jS^SS s 1B10X oo r4 >H tn'O O* ^ ^rt^O *O "-coo t** r%vO *^ to^O 00"^ ^ocooowiii-o *4-c.OO O *O "O OO O S. bQ. xo :J?82 <2S ; LT, U-) 1/1 T}- O CN 2 uoiwpaKfaa isoi -Vr*^ M : --- :- - M A A A A M. S3XBJ, pUB v8 10 * M O VO * ^ 33UBJUSUI A ^ t* M M M M M 8uunwB,nuB W fflS^S 1 ^S-g;? SSSTRS 1 S 1 -? ,^ ^^g-H?^ S=8 i tx t^ VO * l^ IO 00 jo 1803 IBJOJ, t3. M: ( ,'5 vS*5;S? 'S'&S to 00 2 2 1 ? * 8; 5 ** "> Il!J\ *S ^ _ OOOVO VOVOVOI^W t *iovow>* VOVO tovo * *vOvo * VO vO 10 * HI u c ^ Ov*O N O\tN,^t*>*4- TLO*^ i/'jOO M c4O*-- ^ ** O u-joo "HOO-* OOfiOQ*M OOVO^OO^ MMO c^rJOstN, 1 -^- ts.N.triNw "+\O >-oOr* OsM"*- 1 00^000^0*0 *-voO ? tx 00 HI HI VQ HI O M VO 00 VO VO _; C ^HIMHIH, H.H.-.H, H.H.H. H, HIHIHIHIH, M tA 2 2 Si ^ M? M. < 88888 88888 88888 88888 88888 888 8 888888 U rr Wl & % % vi & & % E c 2 nm. a yo ^ _a y ? M VOtvOI^Hi VO*C>00 O*Oto 00010*00 J^OOOO NVO OO 3 BIBLIOGRAPHY I. OFFICIAL PAMPHLETS, REPORTS, AND RECORDS FEDERAL RESERVE BANK OF PHILADELPHIA, How Is Business? Philadelphia, Federal Reserve Bank of Philadelphia, 1920. FEDERAL TRADE COMMISSION: 1. Report on the Book-Paper Industry, Washington, D. C. 1917. 2. Report on the Causes of High Prices of Farm Implements, Washington, D. C. 1920. 3. Preliminary Report to the Senate and House on Lumber Associations, Washington, D. C. January 10, 1921. FOREST SERVICE, THE, United States Department of Agriculture, Timber Depletion, Lumber Prices, Lumber Exports, and Con- centration of Timber Ownership, Washington, D. C. 1920. NEW YORK JOINT LEGISLATIVE COMMITTEE ON HOUSING, Record of Hearings, New York. 1920. STATE vs. AMERICAN LUMBER Co., et al., 260 Mo. 212. 1914. UNITED STATES vs. AMERICAN COLUMN AND LUMBER Co., et al., No. 369, U. S. Supreme Court: 1. Transcript of Record, Supreme Court, October Term, 1920, No. 369. 2. Boyle, L. C., Argument for the Appellants before the U. S. Supreme Court, October 21, 1920. 3. Brief for the Appellants, 1920. 4. Brief for the United States, Washington, D. C. 1920. 5. Opinion of Judge McCall, District Court of the U. S., West- ern District of Tennessee, Western Division, March 16, 1920. 6. Oral Arguments before the Supreme Court, October 21, 1920. UNITED STATES vs. AMERICAN LINSEED OIL COMPANY, et al.: 1. Bill of Complaint, filed June 30, 1920, Northern District, Eastern Division. 2. Answer to Bill of Complaint. UNITED STATES vs. BOARD OF TRADE, 246 U. S. 231. 1918. 231 232 OPEN PRICE ASSOCIATIONS [396 UNITED STATES vs. READING Co., 183 Fed. Rep., 427. 1910. UNITED STATES vs. UNITED STATES STEEL CORPORATION, et al., 223 Fed. Rep. 55. 1915. 1. Transcript of Record, 59 volumes. See especially volumes 2 > 3> 4> 5> 6, 8, 9, 12, 15, 19, 20, Defendants' Exhibit 3. 2. Opinions of the Judges, 223 Fed. Rep. 55. UNITED STATES BUREAU OF CORPORATIONS: 1. Farm Machinery Trade Associations, Washington, D. C. 1915. 2. Trust Laws and Unfair Competition, Washington, D. C. II. MISCELLANEOUS PAMPHLETS, BULLETINS, AND DOCUMENTS AINSWORTH, A. A., "Address before the Western-Central Associa- tion of Stove Manufacturers," May 7, 1917. (No p. no d.) ARNY, Louis W., "The Leather Belting Exchange." Address be- fore the Babson Conference on Cooperative Competition, Sept. 29-30, 1915. Philadelphia. The Leather Belting Exchange. 1915. BABSON, R. W., "Reports on Cooperation." Wellesley Hills, Mass. Babson's Statistical Organization. 1915. GARSIDE, ALSTON H., "The Value of Statistical Reports in Business." Address before the Annual Convention of Knit Goods Manu- facturers of America, Utica, N. Y., May 20, 1920. New York. Clark McKercher. 1920. KELLOGG, R. S., "The Legitimate Functions of Trade Associations." Address before the Business Secretaries' Forum, Chicago, Jan. 25, 1918. Leather Belting Exchange, By-Laws. (No p. no d.) MCKERCHER, CLARK: 1. "Open Door Competition." Address before the National Asso- ciation of Cotton Manufacturers, Boston, April 28, 1915. 2. "Recent Literature on Cooperation in Business." (No p. nod.) NATIONAL COAL ASSOCIATION, "Illinois Coal Trade Associations." Washington, D. C. (No d., probably 1920.) 397] BIBLIOGRAPHY 233 NEW ENGLAND BUILDERS' SUPPLY ASSOCIATION, Annual Official Program, Boston. 1917. OHIO MILLERS' STATE ASSOCIATION, THE, Directory of Ohio Flour Mills, 1920. (Contains copy of constitution.) Columbus, Ohio. Frank H. Tanner. 1920. SALT PRODUCERS' ASSOCIATION, Articles of Association and By- Laws. (No p. no d.) SOCIETY OF MANUFACTURING CONFECTIONERS, Constitution and By- Laws. (No p. no d.) STEEL BARREL MANUFACTURERS' ASSOCIATION, Constitution and By-Laws. (No p. no d.) SPAULDING, W. V., "Experience in Cooperative Competition." Ad- dress before the Babson Conference on Cooperative Competi- tion, Sept. 15, 1916. Philadelphia. The Leather Belting Ex- change. 1916. STEVENSON, C. R., "The Elimination of Unfair Competition." Ad- dress before the National Bottle Manufacturers' Association, Atlantic City, N. J., May i, 1920. Transactions of the National Association of Cotton Goods Manu- facturers. Boston. 1866. WEST COAST LUMBERMEN'S ASSOCIATION, Constitution and By- Laws. (No p., 1911.) III. BOOKS AND ARTICLES BELT, ROBERT E., "Improved Accounting Methods and Business Practises." American Lumberman, Feb. 3, 1917. (Volumes not numbered.) BLACK DIAMOND, THE, "How National Coal Association Reports Sales." Editorial, Oct. i, 1919, vol. 63. BRANDEIS, L. D., "Cutthroat Prices the Competition that Kills." Harper's Weekly, Nov. 15, 1913, vol. 58. CLARK, J. B., "The Possibility of Competition in Commerce and Industry." Annals of the American Academy of Political and Social Science, July, 1912, vol. 42. COAL AGE, "Open Price Bureau and Scheme to Sustain Price De- clared Unlawful." Editorial, April 8, 1920, vol. 17. 234 OPEN PRICE ASSOCIATIONS [398 COFFIN, W. C., "Cooperation vs. Unrestrained Competition." Iron Age, April 23, 1914, vol. 93. EDDY, ARTHUR J.: 1. "New Competition." World's Work, October, 1911, vol. 23. 2. "New Competition." World's Work, June, 1912, vol. 24. 3. "New Competition." World's Work, July, 1912, vol. 24. 4. New Competition, The. New York. D. Appleton and Com- pany. 1912. ELECTRIC REVIEW, "Open Price Competition Offers Remedy for Overproduction: System of Institute of Lighting Fixture Man- ufacturers." Editorial, Oct. 12, 1918, vol. 73. FAYLE, C. ERNEST, "Trade Combinations in the United Kingdom." Edinburgh Review, July, 1919, vol. 230. FERRY, MONTAGUE, Intelligent Selfishness a Business Builder. Chicago. L. C. Woodworth. 1919. FOOTE, ALLEN RIPLEY, "Unregulated Competition is Destructive of National Welfare." Annals of the American Academy of Polit- ical and Social Science, July, 1912, vol. 42. FRANCIS, ROBERT T., "Observations on the Woolen Market." Jour- nal of Commerce, May 27, 1916. GAUNT, E. H.: 1. Cooperative Competition. Providence, R. I. The Stevens Press. 1918. 2. "Open Price Plan for Woolens and Worsteds." Textile World Journal, April 8, 1916, vol. 51, pt. 2. HURLEY, E. N.: 1. The Awakening of Business. New York. Doubleday, Page & Co. 1916. 2. "Present Attitude of the Government Towards Trade Asso- ciations." Heating ? Ventilating, September, 1916, vol. 13. 3. "Trade Associations and Business Methods." Metal Worker, Plumber & Steam Fitter, January 9, 1916, vol. 121. JEVONS, W. S., Theory of Political Economy. London. MacMil- lan & Co. 1888. JOHNSON, ALVIN S., "Review of 'New Competition' by A. J. Eddy." Political Science Quarterly, March, 1913, vol. 28. 399] BIBLIOGRAPHY 235 KEITH, CHAS. S., "Organization and Cooperation." American Lumberman, January 22, 1916. (Volumes not numbered.) LEVY, F. H., "The Sherman Law as Affecting Trade Associations." Domestic Engineering, May, 9, 1914, vol. 67. LORD, FRED W., "The Ethics of Contracting & Stabilizing Profits." New York. The Country Life Press. 1918. MAC!LWAINE, G. E., "Address before American Specialty Manu- facturers' Association." Journal of Commerce, December n, 1916. MCKERCHER, CLARK: 1. "Progress Made in Applying Cooperative Competition in Textiles." New York. Journal of Commerce, January 3, 1917. 2. "Open Competition." Textile World Journal, December 9, 1916, vol. 52, pt. i. MONTAGUE, GILBERT H.: 1. Business Competition and the Law. New York. London. G. P. Putnam's Sons. 1917. 2. "Legal Phases of Open Price Work." Journal of Commerce, March 20, 1920. MOORE, O. L., "The Open Price Plan." The Business Secretaries' Forum, December, 1919. NATION'S BUSINESS, "The Open Competition Plan." Editorial, April, 1920. NAYLOR, E. H., Trade Associations. New York. The Ronald Press Company. 1921. PALGRAVE, R. H. I., Dictionary of Political Economy. New York. London. MacMillan & Co. 1910. 3 volumes. ROBINSON, M. H., Gary Dinner System. Unpublished Manu- script. Champaign, Illinois. ROHRBACH, C. H. AND MURPHY, J. A.: 1. "Open Price Associations." Printers' Ink, June 3, 1920, vol. 3. 2. "Reverse Side of Open Price Association." Printers' Ink, June 24, 1920, vol. 3. 236 OPEN PRICE ASSOCIATIONS [400 TAUSSIG, F. W., Principles of Economics. New York. The Mac- millan Company. 1911. 2 volumes. THOMPSON, H. B., "Keystone of Open Price Theory is Publicity." New York Journal of Commerce, January 4, 1916. TOSDAL, H. R., "Open Price Associations." American Economic Review, January 17, 1917, vol. 7. Periodicals American Lumberman. Chicago. Weekly. See 1912 et seq. Chicago Tribune. Chicago. Daily. See April 18, 1921. New York Journal of Commerce. New York. Daily. See No- vember, 1915 et seq. New York Times. New York. Daily. See December 29, 30, 1920 and January 3, 1921. Southern Lumberman. Nashville, Tenn. Weekly. See 1912 et seq. New York Tribune. New York. Daily. See December 29, 30, 1920. Textile World Journal. New York. Weekly. See 1916 et seq. World, The. New York. Daily. See September 13, 1920. INDEX Advertising, reporting of, 72; coopera- tion in, 86-87 American Cotton Manufacturers' Asso- | ciation, 16 American Hardwood Manufacturers' Association, membership, 14*^5; atti-, tude toward buyers/ 23; prices^6^f nature of meetings, 66-67; sales re- ports,V77; production reports, *8o; stock reports/ioi; history, purposes, organization, and operation/^- 133; bill of complaint, U. S. Attorney General, ilfj; decree of district court of Tennessee, ijfi. y 1^4; hearings be- fore U. S. Supreme Court, 144 American Iron and Steel Institute, 38-39 American Oak Manufacturers' Associa- tion, 125 Armstrong Bureau of Related Indus- tries, 63, 77, 109, no Associated Metal Lath Manufacturers, 63 Attorney General, opinion of, on legal- ity of open price plan as conducted by the American Hardwood Manu- facturers' Association, 144 Attorneys, opinions of, on legality of open price plan, 149-157 Babson Statistical Organization, as popularizer of open price plan, 28; on legal aspects of open price work, 165 Bargaining, comparison of advantages to buyers and sellers of, 186, 197, 198; efficiency in, 201 Belt, R. E., on false price reporting, 96; on legitimacy of trade association activities, 170 Bids, 68-71, 96, 1 10, 185 Bill of complaint, American Hardwood Manufacturers' Association, 143 Book-paper industry, association ac- tivities in, 162 Boyle, L. C., on legality of issuing price lists and discount sheets, 118; on legality of reporting high sales, 161 Bridge Builders' and Structural Society, 2 4 Business statistics, reporting of, 41; use of, 99; advantage of, 103; demand for, 200 Buyers, attitude of associations toward, 2 3 47> fraudulent practises, 95, 97, 185, 190, 192-194; attitude toward open price plan, 106-107; desire for stable market, 136; position as bar- gainers, 1 86, 197-198 California White & Sugar Pine Manu- facturers' Association, on delin- quency in reporting, no California Wholesale Grocers' Asso- ciation, on difficulties of reporting on a variety of articles, 108 Cancellations, reporting of, 72 Central office, organization and oper- ation of, 62-63 Chair manufacturers, reporting among, 73 Chicago Lumber Dealers' Association, 15 . Coal industry, open price work in, 14 Combinations (iron and steel indus- try), regulation of output, 29; price fixing, 29; division of business, 29; reporting system, 30; objects, 31 Commerce, Department of Foreign & Domestic, relation to open price movement, 204-206 Competition, ignorance in, 23; evils of, 41-43; economists on, 43-44; views of A. j. Eddy on, 43; views of Samuel Untermyer on, 169-170; views of W. J. Mathews on, 169-170; potential and indirect, 189, 199; criticism of Eddy's concept, 197; views of U S. Government on, 201 Contracts, reporting of, 71-72 Cooperative competition, 9 Cooperative spirit, development of, 34, 41,91 Cost accounting, cooperation in, 19, 23-24, 80 Costs, reporting of, 72, 86, 87; abuses, 159; ignorance of, 190 Court cases, State vs. Arkansas Lum- ber Co., 145-148; t). S. vs. American Column & Lumber Co., 145, 149; Chicago Board of Trade case, 147; U. S. vs. Reading Co., 147; U. S. vs. U. S. Steel Corporation, 148; U. S. vs. Aileen Coal Co., 148; U. S. vs. Eastern States Retail Lumber Deal- ers' Association, 148; U. S. vs. Hollis etal, 149 237 238 INDEX [402 Credit information, reports of, 72, 88-89 Credit mens" associations, 88 Discount sheets, 117-118 Dues, 57, 58, 126 Eddy, A. J., open price work in lumber industry, 27; on competition, 41-44; open price plan, 47-49; on legality of open price plan, 149, 152, 153; on co- operation in regulation of terms of payment, 163 Exchanges, value of, 45 Expense of open price work, 105 Farm implement industry, association activities in, 158-159; 162 Federal anti-trust laws, violation of, 142 Federal Government, attitude of, 169- i?3 Federal Reserve Board, reporting sys- tem, 172, 204 Federal Trade Commission, on co- operative activities in the lumber in- dustry, 116; on cooperation in the study of costs, 158-159; on publicity of association activities, 166-167 Forest Service of the United States De- partment of Agriculture, report on the lumber industry, 131, 137; on legality of open price work, 157; on publicity of association activities, 1 66; attitude toward association activity, 172 Freight allowances, reporting of, 72 Gary dinners, 33-38 Gaunt, E. H., on remedy for trade asso- ciation abuses, 165 Grades, 81, 108 Gum Lumber Manufacturers' Associa- tion, 124 Hardwood Manufacturers' Association ofU. S., 124 Hurley, E. N., on prevalence of cost systems, 190 Incorporation, comparison with volun- tary association type, 50-53 Information Bureaus, 28 Inquiries, reports of, 68, 70 Inspection, reports of, 130 Iron and steel industry, open price activity in, 17-18, 39; combinations in, 29-31; statistical associations, 32- 33; Gary dinner system, 33-38; de- velopment of cooperative system in, 34 Jevons, W. S., on competition, 183 Jobbers, 72 Knit Goods Manufacturers of America, 17,56,64,73,76,110,111 Labor costs, reports of, 86 Leather Belting Exchange, 54, 64, 76 Legality^ of open price work, 123, 142- 145; opinions of attorneys, 149-157; opinion of Forest Service, 157-1^8 Lehmann, W. F., on legality of open price plan, 150-152 Levy, F. H., on legality of open price plan, 153-154 Linseed Crushers' Council, reporting system of, 76 Lockwood Committee (New York Joint Legislative Committee on Housing), testimony of Wm. J. Math- ews before, no Lumber industry, extent of open price activity in, 15; development of open price work in, 26; influence of buyers in, 97; standardization in, 114, 120; associations in, 116; evils and remed- ies, 134-137, 140; Forest Service re- port on, 137; cost of production in, 139; conservation of timber, 141 McKercher, Clark, on attitude of Federal Government toward trade associations, 171 Manganese Steel Founders' Society, 25 Manganese Track Society, 25 Mathews, Wm. J., on legality of open price plan, 154-156; on ignorance in competition, 169-170 Meetings, frequency of, 63-64; quorum, 64; attendance of buyers at, 64; top- ics of discussion at, 64-66; attendance of members at, 109; Yellow Pine Association, 122; American Hard- wood Manufacturers' Association, 127 Members, duties of, 58; privileges of, 58; negligence of, 104; interests of, 109; prices of, 175 Membership, territory covered, 55; regular and associate, 56 Michigan Hardwood Manufacturers' Association, 112, 162 Montague, Gilbert H., on legality of open price plan, 156-157 Murphy, J. A., on effect of standardi- zation on prices, 187 National Association of Finishers of Cotton Fabrics, 16, 70 INDEX National Association of Hosiery & Underwear Manufacturers, 17, 108 National Association of Purchasing Agents, attitude of, 107 National Association of Woolen Manu- facturers, 17 National Bottle Manufacturers' Asso- ciation, 109; reporting, 71 National Box & Shook Manufacturers' Association, 79, 86 National Coal Association, 55 National Cotton Manufacturers' Asso- ciation, 16 National Hardwood Lumber Associa- tion, 15 National Lumber Manufacturers' Asso- ciation, 15, 116-117 New York Joint Legislative Committee on Housing, testimony on nature of competition, 154, 169 News Print Service Bureau, report of sales, 78 North Carolina Pine Association, 77, 81, 82, 85 Northern Hemlock & Hardwood Manu- facturers' Association, 77, no Ohio Millers' State Association, 19, 56, 64,74 Open price cooperation, 9 Optical Manufacturers' Association, 85 Orders, reports of, 70; reporting of, 72, 82, 84 Penalties, 19, 21, 30, 112, 161 Pressed Metal Association, 63, 70 Prevalence of open price associations, 10-19 Price lists, reporting of, 72, 74, 75, 76; abuse of, 117, 160; use by Yellow Pine Association, 121; use by American Hardwood Manufacturers' Asso- ciation, 130, 133 Prices (all of chapter nine), fixing of, 29, 37-38, 105, 122, 164; reports of, 75; ruling prices, 79; effect of open price work on, 100, 187, 194; in lum- ber industry, 136-137, 140; main- tenance and enhancement of, 158; abuse of price reporting, 160; of members and non-members, 175; effect on small producer of, 180, 192; stabilization of, 183; uniformity of, 184; false reports of, 185, 190; effect of standardization on, 187; effect of failure to utilize reporting system on, 188-189; effect of potential and in- direct competition on, 189 Production, reporting of, 72, 80, 84, 103; regulation of, 102; reporting by American Hardwood Manufacturers' Association of, 129 Promoters of open price associations, 28 Publicity, relation to open price move- ment, 19, 22, 23, 41; as remedy for illegal activities, 164; Federal Trade Commission on, 166; Forest Service on, 1 66 Purchases, reports of, 72, 74, 86 Quorum, 64 Remedies, Government supervision, 164; plan of Samuel Untermyer, 164; publicity, 164-166; plan of E. H. Gaunt, 165; conclusions on, 200-205. Retailers, relation to open price move- ment, 1 8, 72, 74 Returned goods, reports of, 72 Rohrbach, C. H., on effect of standard- ization on prices, 187 Sales, reports of, 74, 76, 78-80, 99-100, in, 113, 121, 1 29; size and volume of, 109 Sales Book Manufacturers, Associa- tion of, 83 Salt Producers' Association, 85, 86 Secretaries, as promoters, 28; functions of, 60-62 Sellers, position as bargainers, 185-186 Shipments, reports of, 72, 79, 80, 84, 129 Southern Pine Association, 15, 26, 50, 124 Standardization, of grades and sizes, 19, 72; of terms of payment, 65; of cost systems, 80; of lumber, ico; effect on prices of, 187 State trade commission, 164 Statistical Associations, 32-33 Steel Barrel Manufacturers' Associa- tion, 77 Steel Plate Association, 29 Steel Shafting Association, 29 Stock, reporting of, 72, 74, 80, 82, 84, 100-102, 130 Structural Steel Association, 29 Structural Steel Association, 29 Styles, effect on open price work, 108 Supply and demand, law of, 196 Swan, O. T., on influence of association activity on prices, 191 Terms of payment, 163 Textile industry, associations in, 15; standardization in, 73; opposition of buyers in, 106 240 INDEX [404 Treasurer, functions of, 59 U. S. Potash Producers' Association, 78 U. S. Steel Corporation, 18, 25, 35 Untermyer, Samuel, on legality of open price plan, 154-156; on remedies for controlling association activities, 164; on competition, 169-170 Voluntary associations, 50, 108 Webb-Pomerene Act, 170-171 West Coast Lumber Manufacturers' Association, 20, 77, no Western Pine Manufacturers' Associa- tion, 27 Wholesalers, relation to open price work, 1 8 Wilson, Woodrow, on trade association activity, 170 Woolen and worsted industry, 17 Woolen Goods Exchange, 17, 73 Yellow Pine Association, 26, 119-124, 158 Yellow Pine Wholesalers' Association, 15 THE LIBRARY OF THE OF Kt uNivERsrrv OP ILLINOIS-URBANA SCO 30112084204392 "-" 'fb