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districts, since which time they have been dormant, but since the recent Supreme Court decision the activities of this agency have been revived and others have been put in process of formation, until there is now a similar agency in process of organization in practically every coal-producing section of the United States, embracing 50 to 75 percent of the national production.
The Snyder bill, by its specific provisions limiting the activities of these marketing agencies, attempts to sound the death knell of each one of them. If, on the other hand, they are permitted to go forward and if Congress will give sufficient modification of the trust laws, permitting such agencies to coordinate in their activities, subject to full protection of the public against prices in excess of a reasonable profit in any district, the coal industry will be able to handle its own affairs, pay its employees a reasonable wage, and the public interest will be fully protected. The coal industry has for the past 25 years suffered from too much legislation, and it only needs an opportunity to be let alone with a reasonable protection to the public in order to set its own house in order.
Gentlemen, I again thank you for this opportunity of speaking to you and for your attention.
Mr. Hill. How about Mr. Arnold Gerstell?
Mr. HAWTHORNE. Mr. Gerstell desires to file a statement. I do not have it, and will file it later.
Mr. Hill. He may have permission to file a statement. (The statement referred to follows:)
A STATEMENT FROM THE CONSUMER STANDPOINT AGAINST THE GUFFEY BILL BY
ARNOLD GERSTELL, VICE PRESIDENT PURITAN COAL CORPORATION, PHILA
In the welter of opinion and belief impinging upon the Guffey-Snyder Coal bill, there is one thing that stands out clear and clean. It is the simple fact that there will not be, and cannot be, any coal business without customers.
A statement so rudimentary in character and so manifestly self-evident leaves me open to the suspicion of trying to be funny. But the single purpose of this memorandum is to outline some of the circumstances by which the use of coal is delimited and hedged in through certain factors that weigh down upon it from the standpoint of consumption.
Please understand that I hold no brief for the consumer. I have no interest in the purchaser except only insofar as he is of use to me. My personal attitude regarding him has nothing to do with the case. I have to live with him just the same and in that respect the coal industry generally has nothing on me individually. A few bits of back history bear directly upon the producer-consumer relationship to which I allude:
From 1895 until 1917 the production of bituminous coal in the United States increased at the rate of approximately 10 percent annually. In 1917 under the McAdoo railroad regime freight rates were doubled. Nevertheless, under the stress of war, production reached an all-time peak of nearly 600,000,000 tons in 1918. Gradually thereafter production decreased annually, falling to 358,000,000 tons in 1934.
With slight variations rail freights have continued at war-time levels since 1917. The famous Jacksonville wage-scale agreement, forcing miners' wages up to the untenable figure of $7.50 per day, the strike of 1919, the railroad strikes of 1920, the strike of 1922, British labor troubles following the war, and the British coal strike of 1926, kept the delivered price of coal to the American consumer up to an unprecedented altitude over a period of 9 years.
These prices drove consumers to expend millions of dollars in modernizing their coal-burning equipment in order to reduce fuel costs. During that period publicservice companies dropped the consumption of coal from more than 2 pounds per kilowatt-hour to something less than eight-tenths of a pound. The railroads reduced their fuel usage per ton-mile in a similar fashion. High coal prices made feasible the development of hydroelectric projects which would have been otherwise impractical. Oil cut in. Long-distance pipe lines were constructed to carry natural gas, thereby directly displacing gas made from the carbonization of coal. Other developments of like character took place along the same lines, all because the price of coal to the consumer was more than the traffic would bear.
Regardless of its continuous shrinkage in tonnage after 1918 the coal industry did not hit the toboggan slide until 1927. General industry was running at that time at peak levels. Nevertheless, coal prices began to melt, wages toppled, and
this condition continued through 1928, 1929, 1930, 1931, and 1932. In 1933 f. o. b. mine prices were below pre-war figures. Six years of low prices had put the weaker operations out of business. Overcapitalized companies, high-cost mines, and low-grade producers were all washed up. The coal industry had been liquidated. Further capital was not available. Wages had gone down with prices to distressing levels. The bottom had been reached. Inevitably the slightest improvement in market conditions at that time would have brought higher wages, and it would have been not only impractical, but impossible, to deny or delay wage increases of commensurate suitability.
Unquestionably an upswing was in the making, but almost at that very moment a wave of political evangelism swept the industry completely from its moorings. Over night a new philosophy was embraced. Engendered under the efflorescent torridity of National Recovery Administration it came to maturity in a remarkably short time. Succinctly, that new philosophy was this: “Cut production. Pay labor whatever it asks. The Government gives industry a license to exploit. Let the consumer pay the bill. He will get his returns through higher prices. The increased purchasing power accorded labor will enable the manufacturer to sell his product for more money. Everybody will be happy."
The fallacy therein hinged mainly on the fact that labor cost on manufactured products, especially in the heavy industries, is generally but 70 percent of the total production cost. Thus the laborer's purchasing power when he went to buy his goods off the shelf fell 30 percent short of the figure he could afford to pay, and it was on this rock fundamentally that the National Recovery Administration was wrecked. No force was strong enough, penalties and all the rest of it attached, to compel a consumer to buy when he lacked the wherewithal to pay.
Under code regulations the wages of coal miners were doubled. F. o. b. mine prices were also doubled. From a mean level of about $1 per ton they went to approximately $2. These figures, while of a general character, are nevertheless valid. But, as will be readily preceived, the purchasing power of the miner remained unchanged. It was left relatively as before.
On April 1, 1935, the mine wage scale negotiated under the emotional hysteria coincident to the establishment of the Coal Code expired. The handwriting was on the wall. The miners realized that the continuance of National Recovery Adminstration was an extremely weak crutch to lean upon. Hence the Guffey bill.
This bill was provocative initially of little more than general amusement. Slowly, however, and with sly acumen certain operators began to evince a serious interest in it and this interest was growing rapidly when the Supreme Court broke its decision on the N. R. A.
With no horse and buggy at hand the operators as a whole suddenly found themselves with no place to go and with fewer facilities for getting there. Immediately their ranks broke sharply into two camps---pro-Guffey and anti-Guffey.
But however that may be, the foregoingly-mentioned advance of $1 per ton in the f. o. b. mine price of coal that took place under 2 years of N. R. A., lifted the cost of coal to the consumer by approximately $700,000,000, and that the minimum prices to be forthcomingly established under the Guffey bill are those which in the aggregate shall be equal to the average total cost of production.
As to the aggregate cost of production, only one set of figures are presently available. They are those which have been already gathered and tabulated under the N. R. A. Însofar as the consumer is concerned they show that the totality of coal produced under the N. R. A. code was sold, believe it or not, at less than cost of production.
From this point forward the Guffey bill starts climbing the ladder. All the high-cost mines, resurrected under N. R. A. are back again, and a price strueture for the consumer is to be reared upon a foundation that rests on the average cost of producing coal throughout the entire country. This elusive intangibility is reduced by computation based on N. R. A. figures to a nebulous sort of a formula that works out at something in excess of the per-ton average realization derived from the sale of coal at prices established under code authority.
That, of course, is a bit thick, but the thing therein to which attention is particularly directed is the use of that tricky word "average”-a word that seems recently to have become a synonym for more sophistry and chicanery than Machiavelli ever dreamed of.
By way of pinning this word down to the carpet, the classic propaganda used widely to prove the advantage of a college education is typical. Commonly, it is asserted that the average salary of this or that class, so many years out of college, is maybe $10,000 a year.
When claims of this sort are checked up it is almost always revealed that several members of the class have slipped into the shoes of rich daddies, while the remaining members draw down the old reliable salary of $3,000 or less. Manifestly, no sane employer would be idiot enough to hire all the members of his old college class at $10,000 per year each.
In this Guffey bill, mark you, it is precisely this sort of class average that is employed as a base structure upon which the price of coal to the consumer is to be fixed. Accordingly, it is not strange that some operators are supporting the bill with ardor and affection. They forget the consumer.
Hazarding an estimate concerning the enormity of the load that this bill would foist upon him, it is safe to say that it would not be less than $100,000,000 annually, over and above the increased cost passed along to him under the code. Regardless, however, of the amount involved, the disintegration of code regulations during the past year may be accepted as conclusive evidence that he won't be sap enough to accept it quiescently, and that only in a measured degree can he be forced to pay it.
Why, by stealth or by legal stricture, attempt to garrote the man who, ahore all others, makes the coal business possible? Again, therefore, it is repeated that the coal industry cannot survive without customers.
Mr. HawTHORNE. I would like also, at the request of Mr. R. A. Young, of Fort Smith, who was the second witness below Mr. Dickinson, to file a statement for him.
Mr. Hill. You have that permission. (The statement referred to follows:)
STATEMENT IN OPPOSITION TO H. R. 8479, FILED IN BEHALF OF THE ARKANSAS
OKLAHOMA SMOKELESS COAL BUREAU BY R. A. YOUNG My name is R. A. Young, Fort Smith, Ark. I represent the coal operators of Arkansas and Oklahoma and appear in opposition to the Guffey-Snyder bill now pending before the committee.
The operators in Arkansas and Oklahoma are peculiarly situated. Our market s Kansas City and points north and, therefore, the freight rates are against us. Our real competitive field is Illinois.
In the Mississippi Valley, fuel oil and natural gas take our business, as their prices decrease and coal prices increase.
In 1924 the operators and miners were in conference in Kansas City for the purpose of making a contract with the United Mine Workers. We insisted that the wage at that time of $7.50 a day was entirely out of line; that if we paid that rate we could not meet the competition of fuel oil, natural gas, and other cheap fuels and asked for a lower wage scale. We were told at that time by John L. Lewis, international president of the United Mine Workers, that he had one policy and one purpose—the greatest good for the greatest number-and that he would not recognize any lower scale in wage rates in one community over another, even though he lost the entire Southwest to open shop. The operators insisted that if that were true there should be a paragraph written in the contract giving the operators the same privilege that was already extended to the miner, that is, the right to terminate the contract by notice, thereby relieving the owners of all contractual relationship with the miners and that the miners should have the right to cease work. That clause was written into this contract.
In 1925 the operators in Arkansas and Oklahoma hard reached the point where they had lost a substantial and large percent of their business and, exercising their rights under the contract, they gave notice and withdrew from the contract. Part of the miners, of course, went on strike temporarily, but all soon returned to work on what is known as the “1917 wage scale”, based on $5 a day. This established a differential between Arkansas-Oklahoma and Illinois of $2.50 per day.
In 1932 John L. Lewis realizing that with a wage scale of $7.50 per day other fuels would take all the coal trade, agreed with the operators in Illinois on a wage scale of $5 per day. Oklahoma and Arkansas agreed to waive their large differeritial of $2.50 and after negotiations signed contracts with the United Mine Workers at $3.75 per dayThe differential of $1.25 being one-half of the existing differential.
In 1933 the National Recovery Act was put into effect. Mr. John L. Lewis, the president of the United Mine Workers, persuaded the administration to increase the wage rates in the Southwest to $4.60 per day, notwithstanding the fact that we had a contract with the United Mine Workers that had 2 years yet
to run, based on $3.75 and 8 hours per day, with no provision for either party to cancel on notice. As a result of this, the mines in the Southwest were idle for 4 months on account of this disturbance in the differential. I discussed this matter with Mr. John L. Lewis and insisted that he recommend to the Administrator that he should modify the order, putting into effect the contract that we had, which set up the proper differential between Illinois and the Southwest.
I insisted that this was proper because it did not recommend to the Administrator that wages in Illinois, which were then $5 per day, be increased. Lewis refused to do this, reaffirming his declaration of 1924.
After 4 months of idleness, we finally convinced the Administrator that we had been discriminated against, and the Administrator made an order reducing the rates of the Southwest from $4.60 to $4 based on 7 hours. We are willing to go along on this fair differential, worked out after years of conference and strife, but we do not want the Guffey bill with an arbitrary rule for making prices which ignores freight rates to put us in position to lose all the business which we have had for 35 years.
I have listened very carefully to the many witnesses who have appeared before your committee and I am convinced that the bill is unconstitutional and unsound and that if enacted it will only serve to disturb the industry for a short period of time until the courts declare the act unconstitutional.
Let us assume that Congress passes this bill and that the President signs it; that it is in operation through the coming winter, and soon thereafter is thrown out by the Supreme Court. The managers and operatives of a single industry, given the temporary opportunity to fix prices, will have been the gainers. The coal-consuming public will have paid the cost. Nothing will have been done to bring permanent relief to the long-sick bituminous coal industry.
Therefore, we are opposed to this bill.
Mr. Hill. Mr. Calvin Holmes desires to file a statement. He has that permission.
(The statement referred to follows:)
STATEMENT OF Calvin HOLMES OF KNOXVILLE, TENN. I am engaged in the production and distribution of approximately 1,500,000 tons of coal in eastern Kentucky, east Tennessee and Old Virginia. Distribution offices located in Knoxville, Atlanta, Spartanburg, Detroit, Cincinnati, and Des Moines, Iowa.
In the southern Appalachian Tennessee field I am familiar with the sentiment of the operators as to the Guffey bill and only know of one who is for the measureall others being opposed thereto.
Our management wishes to go on record in opposition to House bill 8479 for several reasons:
1. The provisions of the bill are unworkable; 2. that dislocation of markets will result from its operation; 3. that price set-up, if worked out along the lines proposed, will lose markets for the coal industry as a whole and especially for the "long-haul” mines of eastern Kentucky, east Tennessee and Virginia.
In our opinion the provisions of the bill will not work from a market-wise standpoint because of the provisions applying to a "weighted average price” to such a large marketing area as area no. 1 seems to embrace. In this large section of our country lies our Nation's greatest coal-consuming industries. Mr. Francis testified as to 175,000,000 tons moving into this area over a period of 10 months. An exhibit filed by him showed the weighted average cost to be $1.85.
A study will show that about 55 percent of coal sold under this $1.85 fixed cost would yield a profit of small mount to some mines and more to others.
From 16 to 20 percent of the mines struggle under costs so high that they will be out of business in a measureably short time. As they disappear the weighted average line goes lower-more mines slip into the losing class and are wiped out. Eventually it becomes a struggle--won eventually by the biggest pocketbook. In other words a company able to buy labor-saving machinery, and increasingly more of it-has an advantage right from the start.
The bill itself provides for the cost becoming the actual selling price. I have been selling coal since 1900 and since that year I have heard the old story that there was an overproduction of coal. Except in the years of (part of) 1916, 1917, 1918, then skipping to 1920, and skipping again to 1922, when a railroad strike caused shortage of supply, the struggle to survive has been keen.
To refer to the language of the bill:
“Said weighted average of the total costs shall be taken as the basis for the establishment of mininum prices to be effective until changed by the commission. Thereafter upon satisfactory proof made at any time by any district board of a change in excess of 2 cents per ton net of 2,000 pounds in the weighted average of the total costs in the minimum-price area, exclusive of seasonal changes, the commission shall increase or decrease minimum price accordingly. The weighted-average figures of total cost determined as aforesaid shall be available to the public”.
Today, at the present moment, we are in a buyers' market. The published average minimum prices will be the actual selling prices, and the net result will be that those whose costs are close to the weighted-average cost, will be selling coal at cost. No one need bother to fix a maximum price for the present. I'ntil enough mines are killed off and a real shortage of coal result, the public will need no protection from high price levels. They, the consumers, will be able to buy all they need at the minimum.
Dislocation of markets will be bound to result. Under the play of the law of supply and demand for instance coals place themselves into natural markets. Mr. Jonas Waffle called attention to what the "weighted average cost" and s price based thereon, would do to Indiana. He was eternally right.
The hard splint coals of West Virginia and eastern Kentucky when separated into various sizings, have a larger percentage of lump and a smaller percentage of nut and slack sizings than their Indiana competitors. A weighted average cost used to base the selling price would allow an influx of eastern Kentucky and West Virginia coal greater than now exists.
Further, if any one mine, or group of mines, decided not to go along under the provisions of this bill, they would have a large and providential umbrella provided. In other words their system would be to chisel slightly and make a little lower price, and grow rich. That has been done under the N. R. A.
Of course 25 percent penalty tax, based upon $1.85 coal would mean some 40 cents a ton tax. It being true that just 4 months' full-time operation, upon which such tax was collected, would wipe out the entire working capital of the offender, presumably. I'm not a lawyer and know not a thing of the constitutionality of this proposed law, but it seems to me some judges could be found who would enjoin the commission set up to enforce the act because of the very excessiveness of this penalty.
The whole coal industry will lose markets if prices are raised further than they are today.
I have brought along no exhibits but many can be quickly obtained showing losses over the past 15 years to oil, hydro power, and natural gas. Even such a small advance as the recent railroad freight rate surcharge is having its effect. I have in mind one plant in Savannah Ga., a large paper plant just being started, or rather ground just broken for construction, planning to buy oil-burning equipment as the price of coal is too high and too uncertain. Appalachian Coals, Inc.
, have their engineers sitting in on this case any more coal price advance would, in this case, be too bad.
Captive mines would surely increase. Today a captive mine in East St. Louis would be able to buy coal cheaper than he could mine the coal. The cost is said to be in Mr. Francis' chart $1.553 for Illinois coal.
But, if the weighted average idea were applied and this price climbed to $1.85, the industry using the coal would buy the mines he cared to pick and if he paid himself $1.85 he could get it out of one pocket into the other by declaring a dividend on the capital stock of the coal company he had bought.
Further, cost is based upon running time. Overhead increase by leaps and bounds as running time decreases. I have not seen recently a statement as to the number of days worked by the mines of America in recent years. The United States Geological Survey has those figures. I just have not seen them but I'd say offhand that half time, or 190 days, would cover last calendar year.
The captive mine would run every day permissible under its contract with their men, and by full running time enjoy a less overhead cost than the groups of mines running intermittently.
We independents would thereby lose markets in another way.
Men vary greatly, and coal no less. The value of a coal is made up of its chemical parts, ash, sulphur, thermal-unit value, ash fusion point, etc.
Consumers have their habits, and their desire to have a free choice remains unchecked. You can expect consumer resistance to this H. R. 8479 when the public runs afoul of its provisions.