[From the Battle for Democracy, 1935]

The Constitution is used as a holy of holies within which the ugly practices of free competition can be hid from vulgar eyes (p. 5).

*

At the center of this constitutional law was the conception of government as policeman. Government was to stop flagrant abuses, but not, in any circumstances, to do more It was to prevent interferences with the competitive system. Behind that system (so it was thoroughly believed) was an invisible hand which beneficiently guided warring businessmen to the promotion of the general welfare (p. 13).

never was.

* ** *

The jig is up. The cat is out of the bag. There is no invisible hand. There We must now supply a real and visible guiding hand to do the task which that mythical, nonexistent, invisible agency was supposed to perform, but never did (p. 14).

In the preliminary stages all this is voluntary on the part of industry. Yet Government recognition endows such an agreement or code "with the force and effect of law", so that any small recalcitrant group within the industry, which chooses not to meet the standards, can be subjected to the severest discipline (p. 19).

This will perhaps explain what President Roosevelt meant when he spoke of this new system of relationship as governmental partnership with industry. The phrase is precise. The Government, however, is the senior and controlling partner (p. 19).

If we can keep our heads, if we can work out of our system little by little the venom of unrestrained competitive greed; * * **then we can continue making revolutionary changes without violence (p. 52).

interests

for consumers. 272).

Competition no longer operates as the great protector of consumer Competition cannot be relied upon as an adequate protection If it does so at all, it is by accident rather than by design (p. There are today in this country still a considerable number of irrational people who do not realize that something more than an ordinary Presidential election took place in 1932, and who are now clamoring for a return to a kind of civilization which is as archaic as the ox cart and the windmill (p. 290).

[From A Third Economy, address before Rochester Teachers Association, Rochester, N. Y., April 9, 1935]

For the main task of production we shall always have to work under some form of coordination, whether that coordination is expressed through public control over wages, hours, prices, and conditions of employment, or through what President Roosevelt has called partnership with industry *. It

seems to me that we are now engaged in a more or less conscious process of reassigning and redistributing powers and controls in this indispensable coordination. In certain spheres, no doubt, where enterprise is affected with a public interest we shall be forced to resort to an increasing degree of public authority to achieve the necessary control.

[Los Angeles, Calif., October 28, 1935]

I believe in the extension of this investment principle (listing as liabilities, mortgage, bond, stock, and property investments), first in rescue operations, next in the yardstick acquisitions, and then in the complete dominance by the Government of suitable areas of enterprise.

On the whole I think we may expect this particular attack to separate from our ranks only the receivers of unearned income together with their hangers-on. Some other of the fainter hearted, who confuse the traditions of competition with the Ten Commandments and the Constitution will go with them. But this will be a salutary purge. * * *

* * * We should succeed for once in establishing a farmer-worker alliance in this country which will carry all before it.

To do this we shall have to recognize our enemies, pouring out upon them the indignation we have too much withheld; and we shall have to consolidate our support and go forward with closed ranks.

Our best strategy is to surge forward with the workers and the farmers of this Nation, committed to general achievements, but trusting the genius of our leader for the disposition of our forces and the timing of our attacks. I do not need to remind you of his genius for this task, nor of his devotion to the cause of overthrowing industrial autocracy and the creation of the democratic discipline. If you do not believe in these qualities of his by now, I despair of convincing you. I only hope to make more clear to you the need for coming together under his leadership.

* * *

Out of these long-run commitments we must create the strategy of the immediate campaign. It will be a titanic one, with forces massed as they have never been before. We shall have certain disadvantages, among them unscrupulousness and lack of sportsmanship among the enemy, as well as their access to plentiful funds. But he is notoriously well-armed who has a righteous cause— it nurses an energizing wrath—and no cause was ever more fundamentally righteous than our own.

It is well enough known by now what the leadership of President Roosevelt commits America to; it is also well enough known by what methods the further achievements will be made. If on this record and with these methods the progressives of this country are unwilling to form themselves into the necessary army of victory, no plan would have that effect. We measure prosperity by profits. This is a fundamental error.

*

Mr. REED. You spoke about the pottery industry of Ohio and the glass industry-I don't know that you mentioned the glass manufacture of this country, but it is a fact, is it not-not theory- that those pay rolls resumed when the war practically created an embargo? Mr. GAUNT. That is true; yes, sir.

Mr. REED. Of this competitive product?

Mr. GAUNT. That is true.

Mr. REED. So they are very busy in Ohio-excuse me, Mr. Jenkins; I didn't mean to trespass on your domain. I didn't notice you were here at the moment, so I will not go into that. But this idea that we should suspend certain industries in this country that cannot undersell some foreign industry or foreign agriculture or what not, and thus give the consumers an opportunity to buy in the cheapest market, no matter where that is, I consider a fallacy. How do you consider it?

Mr. GAUNT. That certainly is a fallacy.

Mr. REED. If we did that we would simply see our pay rolls just fade out of the picture, would we not, and we would see our farm business destroyed.

Mr. GAUNT. And we would see a distorted unbalanced economy, and increase of monopolies and the decrease of small business.

Mr. REED. I don't think Congress has given the study that it should to the potential possibilities as manufacturing countries, such as India. I don't need to tell you of the great textile industries in India where cheap labor is to be had on a slave basis.

Mr. GAUNT. Yes, sir.

Mr. REED. And yet Japan was able to go in and undersell in the cities of India the textiles made in Japan. England was terrifically disturbed about that along about 1938, and they were just endeavoring to find some way to prevent Japan capturing their markets, not only their English markets but the markets in their colonies, everywhere, with cheap labor, and we just can't afford to bind ourselves, knowing that most of those countries will be almost willing to work for slave wages, and then all the accumulation of goods that are being bought up by our Government, pouring into this market, don't you think it

would be better and safer to restrict these trade agreements at least to 2 years, and then come back and report the results in the light of circumstances at that time?

Mr. GAUNT. Most certainly so. We will be throwing away our most precious asset if we throw away our own home market, our domestic market, and make it the object of exploitation and raiding by other people.

Mr. REED. And to repeat again, don't you think that in the light of what has already happened, we should have a set-up, either in Congress by a method of ratification or approval, ratification by the Senate or approval by the Congress, or some organization not responsible to the Executive but to Congress, where the man who is injured, or even thinks he is injured, should have an opportunity to be heard?

Mr. GAUNT. Right you are, sir-responsible to the people.

Mr. REED. In other words, it is a good deal, as I told the gentleman here a while ago, if I get a letter from home on a piece of brown paper, written with a lead pencil, and it is signed and there is a stamp on it and it comes to me. I might look at that letter and say, "Well, what on earth does a man write to me on a matter that appears to be trivial,” but I know that to him it is important; he is a part of this great Republic. Under our representative system, if I want him to respect and have confidence in his Government it is my business to at least furnish him every bit of information on that subject that I can obtain for him. Then he will feel that his Government is responding to him; that he is getting service. Well, you take the small businessman who is being injured. If he comes here and has an opportunity to be heard, he has more confidence in his Government. That is much safer than to have a group of interdepartmental men down town who have had no business experience and have an arrogant way of meeting all ideas that conflict with their own disregard the complaint of a citizen.

Mr. GAUNT. That kind of touches on the definition of a small busivote, it passed the House by a unanimous vote, and I do think the small businessman is one who has no representatives in Washington, but on the contrary, I do believe that the small businessman has a sincere, fine, honest representation in the heart and attitude of every single Congressman, and that is proved by the fact that when the small war plants corporation bill came up, it passed the Senate by a unanimous vote, it passed the House by a unanimous vate, and I do think the small businessman has many friends in Washington. He hasn't had an organized lobby, but we can get our story across to our Representatives. Mr. REED. Here is another thing. I remember when John Willys was just a bicycle repairer. Then he became the head of a great industry. Take the history of W. C. Durant, or the history of Walter Chrysler or of Henry Ford; they were small businessmen at one time, were they not?

Mr. GAUNT. Correct.

Mr. REED. And I could go on down the whole line-the International Harvester Co., starting in a blacksmith shop, and all of these industries grew up in that way. You will see hundreds of acres covered

with great plants of those industries, and the man who started it and built it up was a small businessman in the beginning. So I say that they should have the machinery by which they can be properly taken care of by this Government.

Mr. GAUNT. Quite right, sir.

Mr. REED. I am sorry, but I have to leave now. Thank you very much, Mr. Gaunt.

Mr. DEWEY. Mr. Gaunt, you are one of the first witnesses that has volunteered any suggestions as to cartels. I notice on page 5 of your statement you say:

The kind of reciprocity that we don't want was illustrated last week in testimony before the House Appropriations Committee, revealing a cartel agreement between the British Imperial Chemical Co. and the American du Pont Co., whereby the two huge companies agreed to divide the world market with du Pont holding exclusive rights in the United States.

And on page 6, item 5 reads:

No concession on monopoly or cartel-controlled products should be allowed. I would be very appreciative if you will enlarge a little on the effect of cartels as regards these reciprocal trade agreements.

Mr. GAUNT. Well, let us take the optical industry, for instance. It was revealed in the suit against the American Optical Co. and Bausch & Lomb that they had a watertight agreement with the German optical people, whereby Germany would not invade our market, and that left the market in America to Bausch & Lomb and the American Optical Co., and as brought out by Thurman Arnold in his suit against them, which I understand has been suspended on account of war conditions, they entered the war short of optical lenses, instruments; not only that, but our own people suffered by, as I said a minute ago, and as also was brought out in the testimony before the S. E. C., that we were in this country paying $25 for glasses that could be manufactured and sold possibly for $7.50. That is the kind of cartel, as I understand "cartel" that has an implication of foreign corporation; whereas, monopoly they think of as being only in our own country, as opposed to an international monopoly or cartel. And my point here is that no concessions should be made to people like the American Optical Co. or Bausch & Lomb, or Zeiss in Germany; on the contrary, we should vote to increase the tariff, that theoretically is possible under this law, to break up that monopoly and to promote individual competition in building up small manufactures in this country. There used to be 40 small manufacturers of optical goods in this country. I understand that number today is down to less than half a dozen, and the ones that exist are pretty much controlled, according to the testimony in that suit, by the American Optical Co.

Mr. DEWEY. It seems to me that your illustration points more to monopolistic practices here in the United States than it does to any matter of trade treaty, because you say that in this case the German optical companies agreed not to come into this market. Now, that leaves a monopoly here in this market, which is outside of our present consideration. That is something for the Antitrust Division to look into, rather than reciprocal trade ageements. What I have been

attempting to do is to find if national cartels were effective in upsetting or undercutting the provisions of the rates established by these various trade agreements. Do you know anything about that? As I say, I think your example would pertain more to monopoly here than it does to trade agreements.

Mr. GAUNT. We had the example, as has just been mentioned, of the dye industry in the last war, and whenever our dye industry-we had a couple of small ones in New York State-whenever it started to develop, immediately the products that they had made were undercut and undersold in order to paralyze them. That was the German Farben Industrie, or the German trust. Would that be the sort of example you have in mind?

Mr. DEWEY. I was wondering if the cartels as they were developed in Europe, where industry, we will say, in Germany, France, and Great Britain, or whatever other countries, are so combined that they could offset the provisions of a trade agreement made with any one of those three countries. In other words, if we had a high-tariff arrangement with one of them, could the cartel so operate that they could put their trade through that country that had a favorable rate, which would not be extended to the other countries that did not have such favorable rates for one reason or another? That is what I have been trying to find out from practical people, what were the effects of international cartels in regard to our trade agreements, not so much as regards monopolistic practices that might be carried on between them, such as you mention? That has nothing to do with reciprocal trade. That has to do with the Sherman antitrust law. Have you any knowledge of that?

Mr. GAUNT. Well, a cartel conspiracy of that sort is perfectly possible under that act as now written, and is one of the points that I should like to make, that the act should be so reworded that we would have recourse to protection or increased tariffs, where such a cartel conspiracy develops.

Mr. DEWEY. Have you known of any that have existed and taken advantage of the cartels to get around the trade agreements?

Mr. GAUNT. The only ones that suggest themselves to me are the dyestuffs cartel that I mentioned.

Mr. DEWEY. Thank you very much.

Mr. ROBERTSON (presiding). Mr. Gaunt, I was interested in your statement of the Bausch & Lomb control of the optical industry in this country and that the small businessman didn't have any chance to compete with that outfit that was operating under this German cartel system that you spoke of. Isn't it a fact that that industry had some friends in this country when the tariff law was framed? Didn't they get from 45 to 60 percent protection against any competitive products that somebody else might bring in?

Mr. GAUNT. If they did, Mr. Robertson, it was dead wrong.

Mr. ROBERTSON. Well, I am glad to hear you say that, because that is what was done. They got tariff protection plus the cartel, and between the two, the small businessman just couldn't compete with them. But that is what was done, and if we can break up the carteland I think the Department of Justice has done a pretty good job on that-and then under the reciprocal trade agreements we can lower