Mr. VINSON. That is the point I have in mind. You say that they have a right to fix a maximum price. You say they have the right to fix it whenever they deem proper. Is that substantially it?

Mr. STEINBUGLER. Yes, substantially so.

Mr. VINSON. Under what circumstances can you conceive that the Commission might fix maximum prices?

Mr. STEINBUGLER. The first circumstance that occurs to me would be a war in Europe calling for very large exports of coal, as was the case in the United States in the fall of 1916.

Mr. VINSON. What was the necessity of fixing maximum prices? If you have a minimum price, then you would have a price that competition would fix. That would be your maximum price, would it not; or it could well be.

Mr. STEINBUGLER. The minimum price, I believe, would be the only price until such time as some adventitious occurrence like a war in Europe calling for large exports of coal from the United States would create a relative shortage of coal in the United States.

Mr. VINSON. What benefit would there be to have a maximum price?

Mr. STEINBUGLER. The benefit would be to the man who buys the coal. The man who buys the coal would not pay them the natural market price.

Mr. VINSON. Then you have abandoned the philosophy of the bill, have you not, to some degree?

Mr. STEINBUGLER. I think not, Mr. Vinson.

Mr. HILL. In other words, the maximum price is a limitation on the operator, is that the idea?

Mr. STEINBUGLER. It is a limitation on his possible profit. In other words, it deliberately starts out to say to the coal producer: you must not sell your coal at a price which in the aggregate is less than the cost of your production; but on the other hand, you must not at any time sell the coal at a higher price than we, the Government, will prescribe. Provided only that that price will be sufficiently above your cost of production so that it will give you a fair profit upon your investment.

Mr. VINSON. What was the act that during the war, fixed prices? Was that the Lever Act?

Mr. STEINBUGLER. The Lever Act fixed maximum prices.

Mr. VINSON. The fellow that lived within that got the maximum price, but no more. Those who paid no attention to it sold their coal for whatever price they could obtain. And I believe the Supreme Court held it unconstitutional, did it not?

Mr. STEINBUGLER. It held section 4 of the Lever Law unconstitutional, with respect to unreasonable prices, but it held valid a provision as to the precise prices that were fixed by the Fuel Administration.

Mr. HILL. The precise prices?

Mr. STEINBUGLER. The precise prices, yes.

Mr. HILL. You do not fix any precise prices here; you say "determine a reasonable profit."

Mr. STEINBUGLER. But to determine what is a reasonable profit becomes, in my judgment, Mr. Chairman, a function of the Commission, based upon a showing of the cost of production and the investment in the industry.

Mr. HILL. Do you think that comes within the definite standard that you spoke about previously in your remarks, the definite standard for fixing minimum prices? You were talking about minimum prices, then.

Mr. STEINBUGLER. Yes, I was then speaking of minimum prices. The provision for maximum prices naturally is not nearly as definite. Mr. HILL. You have no apprehension as to the legality of the discretion here conferred upon the Commission in determining what is a reasonable margin above cost?

Mr. STEINBUGLER. I think probably not, Mr. Chairman; no. I think it would be bound to have a direct reference to the investment in the industry.

Mr. HILL. Suppose the Commission decided 25 percent was a reasonable margin of profit, do you think the Supreme Court would uphold that?

Mr. STEINBUGLER. Against the attack of a purchaser?

Mr. HILL. Yes; against any attack that involved the legality of that

power.

Mr. STEINBUGLER. I am wondering how the question might be raised, Mr. Chairman.

Mr. VINSON. Passing that, it might not be raised. Let us get down to the merit of the proposition.

Mr. STEINBUGLER. I am trying to think of it. If the Commission fixes a maximum price that did not return, let us say, 6 or 7 percent upon the investment, I would have to conclude that that was an invalid and unlawful exercise of the power delegated to it.

Mr. HILL. I did not quite understand what you said.

Mr. STEINBUGLER. I said that if the Commission were to fix a maximum price for coal which would not return even, let us say, 6 percent interest on the investment in the industry, and claim that its action was nevertheless an act fixing a reasonable return upon the investment in the industry, I should expect the Supreme Court to hold its action invalid.

Mr. HILL. Because the price was unreasonably low?

Mr. STEINBUGLER. Because the price was unreasonably low.

Mr. HILL. In the Transportation Act there was a return specified, of, I think, 5%1⁄2 percent; something like that.

Mr. VINSON. Plus 1 percent for rehabilitation, as I recall it. Mr. HILL. Do you think that that was too low a percentage of profit?

Mr. STEINBUGLER. As to coal, as compared with railroads?
Mr. HILL. It is proposed to be a net return.

Mr. STEINBUGLER. Yes.

Mr. HILL. Suppose the Commission should determine that a reasonable return would be 85 percent net. What do you think the Court would do about that?

Mr. STEINBUGLER. I think the Court would say it was clearly unreasonable.

Mr. HILL. Unreasonably high?

Mr. STEINBUGLER. Unreasonably high.

Mr. HILL. It seems to me you are getting into a field of uncertainty that might involve the legality of that provision. That is what I am talking about.

Mr. VINSON. When did maximum price come into this picture?

Mr. STEINBUGLER. When did it come into the picture?

Mr. VINSON. In the history of this legislation; when did maximum price come in?

Mr. STEINBUGLER. I think maximum price was in the first bill introduced by Senator Guffey in the Senate.

Mr. HILL. And it was discretionary with the Commission to determine?

Mr. STEINBUGLER. I think so. In S. 1417, the original Senate bill, under "Marketing" the district boards were required to submit for the approval of the Commission maximum prices from time to time for coal produced within the district, and the Commission was authorized to fix such maximum prices at not less above the minimum prices as would provide a fair return on the investment.

Mr. VINSON. The thing I cannot get through my head is-you have the minimum price, you have the potential production, you have no trouble about producing much more coal than ordinarily can be consumed. It seems to me that you have not assigned any reason yet why there should be a maximum price. It may be that there should be one. It occurs to me that if you have the factors that actually would bring about an increased price, a price above the minimum, that the immediate increase in production would protect in great degree the price to the consumer.

Mr. STEINBUGLER. I agree with you, sir. Of course, the producers are not responsible for the inclusion of this maximum-price provision in the bill.

Mr. VINSON. I thought you wrote this.

Mr. STEINBUGLER. It follows from Senator Guffey's original bill. Mr. VINSON. What reason is there for the Congress of the United States putting a ceiling, a maximum price, upon a commodity? You have stated here reasons for the minimum prices; but so far as I am concerned, I have not heard yet the reasons for a maximum price.

Mr. STEINBUGLER. I can only say the reason that might be argued is to fix the limit of price and profit that the people shall pay to the operators for producing their coal in a case where the price

Mr. CROWTHER. Might it not be for the protection of the consumer? Mr. HILL. "In the public interest" is rather a vague term. It might be in the public interest that these coal companies make a large profit. You cannot tell what the Commission might deem to be in the public interest. That seems to me the situation you have presented here in this language. On page 16, line 1, you say, "When, in the public interest, the Commission deems it necessary", and so forth. Nobody knows what the Commission may determine to be in the public interest.

Mr. COOPER. Under your interpretation given a few moments ago about the interest of the consumer or the man who buys the coal, could it be considered that this is in the nature of a safety valve to prevent the skyrocketing of the price of coal to the consumers of the country? Mr. STEINBUGLER. That is its purpose.

Mr. COOPER. That is the impression I got.

Mr. VINSON. My attitude toward it is the same attitude I have with regard to the price for tobacco. Sometimes the people who do not want the farmer to get a price for his tobacco inject some argument into it that he may get too much for his tobacco. I would like to see the time come when he got too much for his tobacco once,

before I would come to build against that possibility. It has been a long time since the coal industry ever received too much for its coal. Mr. STEINBUGLER. Quite right.

Mr. VINSON. I do not know but what that might be reached when we get to it.

It just occurs to me that the suggestion Mr. Hill makes, that the legality might be involved by this maximum-price provision, is sound.

Mr. HILL. If you are guarding against too high a price, would not the mere fact that the coal is bringing that high price bring other mines into production, and the operation of competition would control it in the interest of the consumer?

Mr. STEINBUGLER. Certainly, sir. There is no real risk of price appreciation above the minimum price fixed.

Mr. HILL. What you want is cost of production first. You want to be saved whole.

Mr. STEINBUGLER. That is what this bill hopes to accomplish, the return of the average cost of production of coal. There has been no substantial sale of coal at above the prices fixed under the code. The code price was the minimum price, and it was the price for coal. It was so regarded.

Mr. HILL. If I get the point of your argument here, in response to Mr. Vinson's questions as to maximum price, that feature in the bill is not here for the protection of the operators?

Mr. STEINBUGLER. No.

Mr. HILL. You are not asking for the protection of the operators. in the maximum price you set-up?

Mr. STEINBUGLER. No, sir. That provision continues in the bill because it was in the original Senate bill, and we assumed it was intended to be there.

Mr. HILL. Theoretically, for the protection of the consumer.
Mr. STEINBUGLER. For the protection of the consumer.

Mr. HILL. You spoke, in the early part of your statement, about making more definite standards guiding the administrative body here in carrying out the purposes of this act and with reference particularly to the establishment of minimum prices. I do not find in this billit may be here any definite standards for the establishment of minimum prices. What factors shall be considered in establishing that? Mr. STEINBUGLER. If you will refer first to page 10, we will go briefly over the procedure under "Marketing."

Of course, the district boards have been set-up, and they now proceed to exercise their functions. At line 21, they proceed to fix minimum prices f. o. b. the mines for all the mines under their jurisdiction. If we turn immediately to page 12, at line 9, we see that the minimum prices so to be established shall reflect as nearly as possible the market values of the different coals produced within the district, the market values intending to give each mine a fair competitive opportunity with all the competing mines in the district. So that is our first standard, that as to the differential in price as between mine and mine, it shall reflect as near as possible the difference in the actual value of the coal in the market.

Mr. HILL. The witness preceding you said that during 1933 they sold at an average loss of 30 cents a ton. That was the market value. Suppose the market value reflected below-production-cost value?

Mr. STEINBUGLER. No, Mr. Chairman. What is covered here is the relative market value not the abstract market value. The prices so established shall reflect as near as possible the relative market value.

Mr. HILL. What is the relative market value? What do you mean by that?

Mr. STEINBUGLER. In other words, the relation as between price and price $2 for your mine, $1.90 for Mr. Vinson's mine, and $1.75 for my mine, and so on; simply the differential in the price of our respective coals to reflect the difference in the value of our coals to the buyer. That is what we intend by the relative market value of coals; in other words, the comparative market value.

Mr. HILL. Suppose the relative market value reflected a profit to the operators of 20 percent net. Would you take that as the basis for your minimum price?

Mr. STEINBUGLER. No, not at all, sir. The relative prices have nothing to do yet with the actual price. The relative prices are an approach to the actual price. They are determined for the purpose of establishing differentials between your mine and my mine and the mines of our competitors. Once the differentials have been established as between mine and mine and coal and coal, then we must proceed to the fixing of the absolute price, the abstract price.

Mr. HILL. What do you mean by the "abstract price"?

Mr. STEINBUGLER. Then we must turn to page 11 and read that, on line 3:

In order to sustain the stabilization of wages, working conditions, and maximum hours of labor, said prices

now we are coming to the actual prices, which are related one to the other to reflect market values

shall be established so as to yield a return per net ton for each district— each district board is operating in its own district-to yield a return for the coal in its district, as the districts are defined in the appendix, equal as nearly as it is mathematically possible to come, and not less than the weighted average of the total costs of producing all the coal within the minimum-price area in which that district is located.

Mr. HILL. I am trying to get at what factors go in to make up this cost. That is the proposition I have in mind.

Mr. STEINBUGLER. Oh, the cost? The first sentence refers to costdetermined as hereinafter provided * * * including, but without limitation, the total cost of production, the cost of selling, and the cost of administration Mr. HILL. In other words, in the cost of production would you include depletion and depreciation?

Mr. STEINBUGLER. Yes, sir.

Mr. HILL. You have not said so here.

Mr. STEINBUGLER. The total cost was intended, Mr. Chairman, to include everything.

Mr. HILL. Would it include interest on the investment?

Mr. STEINBUGLER. I would not think it would include interest, because interest would not ordinarily be regarded as cost, would it? Mr. HILL. I am just asking you. I am asking for information. Mr. STEINBUGLER. That would be my opinion, that interest as such would not be regarded as an item of cost.