STATEMENT OF ROBERT J. McEWEN, S. J., ASSOCIATE PROFESSOR OF ECONOMICS, BOSTON COLLEGE, CHESTNUT HILL, MASS.

Father MCEWEN. Thank you, Mr. Chairman.

My name is Robert J. McEwen. I am an associate professor of economics and chairman of the department in the university at Boston College.

Mr. Chairman, if it is all right with you, I would like to file this complete statement at this point in the record, and then briefly comment from it.

Mr. MACK. The committee will receive the statement for the record at this point, sir.

Father McEWEN. Thank you.

(Father McEwen's prepared statement follows:)

STATEMENT OF ROBERT J. MCEWEN, S. J., ASSOCIATE PROFESSOR OF ECONOMICS, BOSTON COLLEGE, CHESTNUT HILL, MASS.

My name is Robert J. McEwen. I am an associate professor of economics and chairman of the department in the university at Boston College. My qualifications include graduate degrees in economics from Fordham University and from the university at Boston College, and degrees in philosophy and theology from the Pontifical Institute at Weston, Mass. I have specialized in teaching courses in the social responsibilities of business, in the socioeconomic teachings of the church and in the area of money and banking. My doctoral dissertation was on the subject of fair-trade laws. Now in the hands of a publisher, it will bear the title "Price Justice and the Fair Trade Laws." In preparation for this work I have been doing research on the subject of fair trade for the last 8 years.

REPRESENTATION

Though a member of several organizations, I must emphasize that my testimony in no sense reflects either official policy positions or official statements of these organizations.

REASONS FOR APPEARANCE

A word of explanation may be in order to clarify my reasons for consenting to take a public part and a public position in this delicate area of public policy. Because I am connected with none of the special interest groups that have a vital and direct stake in this legislation, and because I believe that members of the legislature may be interested in hearing testimony that links the professional economic and ethical viewpoints on this question, I have consented to go on public record with views that I have frequently expressed in private conversations and in individual classes.

Furthermore, I want my testimony to bear witness to the fact that Christian philosophers and economists are vitally interested in the practical problems of the business civilization. Political and economic policies and actions are fundamentally moral and ethical decisions. If right principles and honest objectives guide us to the selection of correct practical policies, the whole moral tone of our society will remain healthy.

If the suspicion grows that your practical decisions are based solely or mainly on narrow prejudices or selfish pressures, a dangerous cynicism will pervade the souls and minds of the people. Their loyalty and confidence in our democratic processes of government will be destroyed. Need I remind this audience that such an effect is almost an automatic sequel to the narration of certain facts of American political history—even when the teacher bends over backward to be "understanding" and "realistic."

It is good, therefore, that Congress has a practice of calling independent witnesses to testify on issues of public policy. To leave it to chance that the conflicting views of interested parties would develop all the information and argument needed by Congress to decide where the general public interest lies would be risky. It could happen that the policies urged by such interested parties may be fully in harmony with their own particular self-interest, but not

at all conducive to the general welfare of the public. The reliance by Congress on the presentation of the views of conflicting lobbies could lead to the evils of special interest legislation so much deplored of late by political scientists.

FOCUS OF TESTIMONY

Ignoring for the most part legal technicalities involved in this present bill, I shall focus my testimony on the aspect of desirable public policy for congressional action in this area. My specific viewpoint will be a blend of economic, social, and ethical considerations.

As an introduction to my statement, allow me to insert here a brief summary or abstract of the main conclusions of my doctoral study.

SUMMARY OF STUDY, PRICE JUSTICE AND THE FAIR TRADE LAWS

(By Robert J. McEwen, S. J.)

The inspiration for this study came from long years of searching the philosophical literature dealing with economic questions for a satisfactory statement of the meaning of the adjectives "fair" and "just." It appeared that these adjectives, without sufficient explanation or justification, had come to be applied to many current business practices whose nature demanded exploration. Fair trade laws presented the most obvious area where the justification of the word "fair" should be examined in the light of the philosophy of price justice.

The core problems are two: (1) Is there a workable philosophy of price justice capable of application to modern economic realities? (2) If so, are fairtrade laws in harmony with the principles of pricing justice?

This study, therefore, is an attempt to apply social philosophy. with its general and specific principles of pricing justice, to a definite system of pricing practices sanctioned by law.

As sources for the doctrine of justice, main reliance is placed upon the JudeoChristian tradition as interpreted by contemporary authorities in the socioeconomic field, such as Monsignor Messner and the Reverend B. W. Dempsey, S. J. The writings and speeches of Pope Pius XII are frequently used to illustrate doctrinal points and to emphasize the fact that this teaching is not limited to medieval times but is meant explicitly for 20th century economies. An explicit attempt is made to avoid entering the area of historical controversy about the development of the just price doctrines.

Part 1 presents a currently applicable synthesis of the requirements of pricing justice. The first core problem is thus answered with a qualified affirmative. There is sufficiently workable philosophy of pricing justice from which the conditions for correct markets can be derived. Thus, the just price is defined as the "economically correct price," the resultant of the interaction of real and natural economic forces operating through a market mechanism which is geared to insure the free and accurate expression of the valuations of the community. Further, the purposes which will justify attempts at interference with, or regulation of, the market process are also deduced from the conditions for market correctness. Thus, criteria for the evaluation of the purposes of fair trade are established.

Part 2 presents the purposes of fair trade in the words of its proponents. The prime purpose claimed is the prohibition of price cutting on branded products in order to protect the manufacturer, the consumer, and the small-business man. Part 3 narrates the results of a series of statistical and industry studies, including surveys of the market distribution of photo flashbulbs in the cities of Boston and Washington. This industry was chosen because (1) there were only. 3 important producers, (2) their product was easily identified by investigators, (3) 1 company used fair trade while the others did not, and (4) the product was sold in 2 types of store. Washington, as a non-fair-trade area, is useful as a test against which to compare the Boston data. The main conclusion of such a comparison is that no real differences, based on the existence or nonexistence of fair trade laws, can be detected in this industry, with the exception of the availability of bargains in Washington. What differences there are may be traced to differences in store type. Strong drug trade associations and the oligopolistic nature of the flashbulb industry are responsible for the observed similarities of retailing behavior. A very high index of identical pricing of competing brands in the stores carrying multiple brands is observed. (The observed index is 91 percent.)

Part 4 evaluates each of the alleged purposes of fair trade in the light of criteria for price justice and market regulation derived from part 1 and in the light of the evidence produced by the fair-trade surveys and studies of part 3. Among others, three core propositions in the Christian doctrine on price justice are involved in the evaluation. They are (1) the necessity for social control of the pricing process, either through the mechanism of effective competition or through public-law regulation; (2) the necessity of allowing the buyer side of the market to have a full share in the determination of the prices of both goods and services; (3) the principle that the social product should be produced at the minimum level of socially necessary costs.

As fair-trade evaluative criteria, the following deductions from the doctrine of part 1 need emphasis:

1. The crucial importance of a sensitive market mechanism to express the common estimation of values.

2. All market forces must ultimately express values as monetary prices. To remove these from market determination is to break the community's economic thermometer.

3. The ideal market-a goal always to be sought, though never fully achieved-involves the perfect fulfillment of the four conditions of knowl-edge, will, freedom, and absence of influence.

4. Only two ways are open to achieve just prices either naturally, through correct markets, or legally, through governmental price fixing.

5. The law must not supplant the market unless (a) the latter cannot operate, and (b) important public-welfare goals are at stake.

6. The law, or other social controls, must not regulate the market except with the purpose of allowing it to perform its natural function more perfectly..

CONCLUSIONS

1. There is no sufficient justification for lending public legal support to the objective of protecting trademarks or channels of distribution for the manu-facturer. While these may be legitimate private goals, there is no evidence that they constitute a valid object of public concern.

2. The consumer-protection argument cannot be taken seriously. Consumer organizations deny such a need. The sponsors of fair trade have not been recognized as champions of the consumer. No independent evidence of the need for consumer protection of this nature has been found. The statistical evidence advanced by fair-trade advocates was found to be inadequate, false, or misleading. Errors of statistical procedure have vitiated every attempt to produce statistical proofs.

3. There is merit to the argument that small business must be given some form of special assistance. Fair-trade laws are not the proper instrumentality to give this aid to small business. They probably do the small man more harm than is realized, particularly because they raise the general cost of doing business and invite chainstore competition with specialty shops.

4. The concept of competition in business that is found to be implicit in the fair-trade position is distorted and deficient. It is inadequate to fulfill the func tion of competition as conceived by Christian price-justice doctrine. It is deficient because (a) it excludes competition completely from the retail level, and (b) it really makes possible the exclusion of price competition, even at the manufacturer level, in many industries. The fair-trade position implies the desirability merely of interproduct competition. Both Christian price justice and the United States antitrust laws imply interseller competition. Only the latter is able to supply a theory of the function of the retailer that makes it clear that distributors perform a real economic service to society worthy of a justineu financial reward.

5. The inadequacies of legal measures which attempt the direct control of prices and the undesirability of adding public-law sanction to privately fixed prices supply further motives for concluding that fair-trade laws are not in harmony with the principles of price justice.

6. The social implications of the fair-trade philosophy, as is clear from foreign as well as domestic experience, are dangerous to a free, progressive economy,. due to the multiplicity of restrictive trade practices encouraged by such laws. Attempts at a system of licensing members of a trade, at quotas allowed to each member, at entry restrictions into the trade, at restrictive sales laws forbidding other types of store from selling certain products-all these have been, and. are logically, the next steps after fair trade price fixing.

At the outset, let me emphasize that I have real respect and admiration for those members of the retailing profession that I happen to know, personally, particularly drugstore owners. There are no finer men in the world. Let me add, too, that I am conscious of and sympathize deeply with their problems and difficulties. I realize that there do exist certain unethical practices by a small minority of retailers, and that frustration at the unfairness of these tactics has led to the demand for some protection, such as it thought to be given by fair-trade laws.

Since the word "fair" occurs so prominently in all discussions on this problem, it may be advantageous for me to sketch for you an outline of the JudeoChristian theory of market justice-in other words, of what is fair in market practices and in market prices. For, after all, in this context the words "fair"

and "just" should mean the same thing.

It may be well, at this point, to state clearly the meaning of the adjective "Christian" as used in this study. Primarily, it means the conclusions and arguments of natural human reason, attempting to apply the so-called Judeo-Christian natural-law tradition to social questions. The reason for keeping the argument on this level of natural reason is this: It appears to be the best way to achieve that "coalition of all people of good will throughout the world" which Pius XII said was the only way to reach a solution of grave social problems (address of June 4, 1950; see Review of Social Economy, vol. 8, No. 2, p. 134.)

The central core of the theory of price fairness or price justice lies in the concept of an exchange of equivalent values. What I give you in exchange for what you give me must be equal in objective economic value. If this were not true, one party to an exchange would be cheated by the other party, and the exchange would be clearly unfair and unjust. This does by no means preclude the possibility, or the reality, of subjective profit or gain on both sides of the exchange. In other words, I gain subjectively from an exchange because I have a greater desire for what I receive than for what I give up in payment. And, of course, my opposite number in an exchange profits subjectively, also, because he has a greater subjective desire for what I am giving him.

Now, the key question in the determination of economic justice in exchanges in markets is this: How do we know the objective values of things, in order that we can perceive when an exchange is really between two equal values? It is possible for a mind possessing infinite wisdom to make such an evaluation for all goods and services in the world, but such a mind does not exist on this earth except, perhaps, as a fictional element of totalitarian economies. In free societies and free economies, the manfestation of objective equality of values for exchange purposes must be left to the social device known as the common estimation of free buyers and sellers in a correct market. (The characteristics of a correct market we shall enumerate shortly.) Some products and services, however, do not have by their very nature a free and common market and, therefore, some other device must be used by society to establish equivalents of value in exchanges. This is the field known as public-utility monopolies. Here, equivalence of value is decided, either directly or indirectly, by the supreme civil authority acting in the name of the general public. Such prices, in the terms of social ethics, are known as legal prices. The former, that is, those established by the common estimation of buyers and sellers in a correct market, are known as natural prices. Now, what are the required conditions for a correct market?

Obviously, this will be a matter of degree. The perfect fulfillment of all the conditions for a correct market will represent an ideal that exists nowhere in full reality. However, the proper policy for the social action of a political community will be one that attempts to approach as closely as feasible to the ideal conditions of a correct market.

The correct market is one where the following conditions are fulfilled:

(a) Information: Knowledge must be had by all buyers and sellers, at least in an adequate measure, concerning all the conditions affecting the product, its cost, uses, qualities, substitutes, and other factors affecting both the supply and the demand side of the market.

(b) The will to accept justice in market dealings as the guiding principle of their business activity.

(c) Freedom available to all buyers and sellers to express in the market their true judgment of the values of the product.

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(d) The absence of any substantial influence which could distort either the demand or the supply side. This means the exclusion of all types of fraud, deception, and monopolistic compulsion.

The first condition, that of adequate knowledge, is probably the one that offers the greatest possibility of private and governmental improvement. As Professor Mason has said, "Consumer's ignorance has opened up a wide field of economic opportunity for methods of nonprice competition of dubious merit” (Economic Concentration and the Monoply Problem, p. 157).

Improved knowledge, of course, is the chief goal that motivates consumer organizations in their activities for their members. Reformers might usefully concentrate their efforts in this area. It may prove to be the best way to improve the correctness of the markets without destroying freedom, mobility, adaptability, and initiative.

To this end, attention should be directed to current efforts in States like Massachusets, New York, Michigan, and Florida to establish a State office of consumer's counsel. The potential good, in a purely publicity and educational way, that such offices could achieve is sufficient justification for their existence. Farsighted governors in these States have had the wisdom to advocate such official attention to the needs of consumers.

The condition of freedom to express a true market judgment is also an obvious necessity. No true reflection of society's evaluation of goods and services will be found in a market where buyers and sellers are not really free. This, of course, is not the unlimited freedom of action implied in laissez-faire markets. The last condition, prohibiting the exercise of undue influences, places obvious boundaries within which the free judgment must remain.

In summary, these four conditions are necessary in order to get a correct market; a correct market is necessary in order to establish objective equivalence of exchanged values; and objective equivalence of values is necessary in order to preserve the balance of justice in exchanges. A social organization which is not geared to assure substantial justice to the participants in the social organism will soon decay from within. Herein lies the importance of the specific principles of pricing justice which should govern the exchange activity

of men.

Another name for the just price is the natural price. This brings out very well the idea that the requirements of pricing justice do not flow arbitrarily out of the head of some ecclesiastic, but do proceed, logically, as rational conclusions from the nature of things and of men.

But what of the cases where it is impossible to have a correct market? Catholic doctrine knows only two general types of prices, (1) natural prices, i. e., those resulting from the orderly interaction of the forces of demand and supply in the market, and (2) legal prices, i. e., those fixed by public authority. And these latter are only just to the extent that they equivalate that natural price which a true communis aestimatio would establish if the conditions for a correct market were fulfilled.

Any other kind of price which may, de facto, exist in the economy is not a true price, i. e., monetary expression of value. Rather, it is a distortion of true value.

Thus, when society is so organized that the requirements of a proper social framework are achieved, and when, as a consequence, legitimate owners of wealth have both the will and the opportunity to meet each other in correct markets, the resulting interaction of the actual forces of supply and demand will produce the just price. This will be, accordingly, the economically correct price, also that is, correct in an economy that has subordinated itself to all the moral requirements listed above.

Two very important characteristics of this just price deserve special mention. It is expected that the just price be subject to variation with differences of time, place, and technology (including the development already reached by the economy in question). Furthermore, the just price is not to be considered a fixed point. It is, instead, a range with upper and lower limits. The width of this range will, as a general feature of all markets, grow with the increasing prosperity of the country and with the concomitant growth in its money supply.

FUNCTION OF RETAIL COMPETITION

The functions of the retailer, and of competition, as conceived either implicitly or explicitly by the proponents of fair trade, should be judged in the light of the following questions.