Price filing under NRA codes

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Material Information

Title:
Price filing under NRA codes
Series Title:
Work materials ;
Physical Description:
2 v. (xix, 835 p., 6 leaves) : map ; 28 cm.
Language:
English
Creator:
Baird, Enid, 1904-
Publisher:
National Recovery Administration, Division of Review, Trade Practice Studies Section
Place of Publication:
Washington, D.C.?
Publication Date:

Subjects

Subjects / Keywords:
Prices -- Government policy -- United States   ( lcsh )
Genre:
federal government publication   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )

Notes

Bibliography:
Includes bibliographical references.
Statement of Responsibility:
by Enid Baird.
General Note:
"March, 1936."

Record Information

Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 020508884
oclc - 31031433
System ID:
AA00018843:00001

Full Text


























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OFFICE OF NATIONAL RECOVERY ADMINISTRATION

DIVISION OF REVIEW


















PRICE FILING UNDER NRA CODES


By

Enid Baird








WORK MATERIALS NO. 76

VOLUME II






















TRADE PRACTICE STUDIES SECTION

MARCH, 1936






















































































-j









OFFICE OF NATIONAL RECOVERY ADLIIISTRATION


DI VI SI 01 OF REVIEW














PRI CE FILING UNDER NRA CODES

By

Enid Baird





























TRADE PRACTICE STUDIES SECTION


MARCH, 1936




MAGAZINES BOUND
By P- A'

M 194




- 415 -


3. The Scope of the Codc.e.

The i ?roval of HA had to be secured for many actions
of the Code Authority for the asbestos i-.i.ustry. One of these
that caused considerable debate a-d discussion between the LIRA
and the code authority was the definition of the term "Affiliates".
"Affiliates" of members of the ind'.tr;y, according to the code, were
to be subject to the code, the definition of the term, therefore,
was of importance in determining who should wile prices. In
i ptember, 1934, the sub-code authority for the brake lining in-
dustry proposed that certain large private brand buyers be regarded
as affiliates. The IFRA took exception to this and the proposal was
rejected; after further attempts to secure a definition satisfactory
to the Administration the matter was dropped.(*)

4. Standard Pr.ice Piling Forms

On January 11, 1935, the Code Authority for the valve and
:fittings industry wrote to the deputy in charge of the code submitting
a standard price filing foiTn, "....which we are endeavoring to bring
into general use in our industry for the puropse of price filing...."
The deputy submitted the form to the advisory boards and divisions.
The Legal Division and Research and Planning Division objected to
its use beirn,, made mandatory, and the Consumers' Doard felt it was
unwise to ap'rcve it even as a sug-csted form. The price filing
form was withdre.vn for further iLn.-ustry consideration, without for-
mal action. One aspect of the form to which all parties in the NA
tock exception was a clause which provided for the filing of minimum,
rather than actual selling. prices. On Janua:y 21, 1935, the deputy
in a letter to the code authority objected to this aspect of the
form, The letter read in part as follows:

"....In the first place the Valve and Fittin.g-s Code
Authority is not arnpovwered to issue such an interpre-
tation. he IIRA is the sole authority in this res-
pect. Moreover, the ;'ord 'other' cannot be inter-
prated in any -y ',but its true meani i; namely, that
there shall be no deviation in prices filed by them
either up or dovn. In this respect, therefore, the
Code Authority has exceeded its power in interpreting
'other than' to mean 'lower than', which has an en-
tirely different meaning...."(**)



(*) See"ianufacturers' Gontrol of Distribution; a Study of Trade
Practice Provisions in Selected IRA Codes", Trade Practice
Studies Section, Division of Review, 'iarch, 1936, Part II,
Cha-tcr IV.

(**) Documents referred to above are in ITRA files, valve and
fittings industry code authority folders.

9826 ''
.','f




C -


-416-


In the shovel dragline and crane industry, the code authority
also desired to secure a standard form for price filing. In connec-
tion with this, the deputy administrator in charge of the code on
September 19, 19Z4, wrote the administration member of the code
authority as follows:

".... I have wired Mr. Lutkin that no attempt should
be made to force the standard price list form upon
members of the industry without first having tho
approval of the form by the Administrator. It
would seem better to report this form to the in-
dustry, stating that the accompanying form or its
equivalent should be used that the Code Authority
may have uniform filing of prices. It is under-
stood that the Code Authority will nnt attempt to
make the use of this form mandatory.... "

Later, the form was submitted for official approval in order
that it might be made mandatory. The Research and Planning Di-
vision and the Consumers' Advisory Board both strongly objected to
it. The former, in a report quoted in a letter from the deputy
to the code authority dated December 18, 1934, contended that
such a form was both contrary to policy and contrary to the pro-
visions of the code for the industry, which provided that each
member should "individually publish his price list".(*)

E. Supervision Subsequent to Action (Corrective)

1. Price Fixing Activities

In a number of instances the Administration found it
necessary to reprimand code authorities for activities connected
with price filing which were tending, or might tend, toward price
fixing. One of these, which merits consideration in some detail,
concerned the mayonnaise industry.

In the summer of 1934, a price roauction on mayonnaise and
salad dressing was announced by one of the largest producers in the
industry. The code authority met, declared that an emergency existed
and asked that the Administration approve their findings. Prior to
the hearing on the matter, the largo producers in the industry, in
conference with a representative of the Administration,- agreed upon
an upward revision of prices; thereafter the code authority requested
that the hearing on the emergency be postponed. In making this re-
quest, Mr. W.7. F. L. Tuttle, Mar.aging Agent of the Code Authority, in



(*) Letters quoted are in NTRA files, shovel, dragline and crane indus-
try.


9826




- 417 -


a letter to Deputy Administrator Ualter whitee dated July 7, 1934,
said:

U,... If the conditions which caused the emergency
continue, I will immediately request the Administra-
tor that he promptly fix a date for a public hear-
ing. May I report to you those conditions, which,
if continued, will result in a continuance of the
emergency., *."

Then he proceeded to list a series of prices for the various
sizes of both mayonnaise and salad dressing, with differentials
between advertised and unadvertised brands, and stated that the
emergency would exist if prices fell belor those he has specified.
In reply, Mr, White stated, in a letter dated July 11, 1934:

",,.,The conditions which you report with respect
to price may be true in a general way, but I very
strongly advise against any inclusion of these
statements in bulletin form, -as such a procedure
could only be interpreted as a deliberate price
fixing activity. It seems to me that the principal
factors in this business can establish their price
schedules and then they must disregard a certain
amount of nonconformance by the smaller factors.
If any small factor threatens to increase his volume
to a point where disruption of the market is threaten-
ed, then that man should be dealt with individually by
the code authority or their representative, I trust
that your industry may continue to stabilize its own
affairs without the necessity of government inter-
vention.,.." (*)

Mr. White's warning appears, however, to have largely
gone unheeded for the code authority shortly thereafter
virtually ordered the filing of higher prices. A code authority
bulletin dated July 23, 1934, reads:

",... The Code Authority in view of the recent
substantial increase in oil, has voted by telegram
to amend the'Lowest Reasonable Cost' figures pre-
viously adopted by it and submitted to the Adminis-
trator for industrial recovery following its declara-
tion that an emergency existed in this Industry..,.
It was thought necessary by the Code Authority to
adjust only the unadvertised brands of salad dress-
ing as the item that was sold at an improper level



(') Letters quoted above are in IRA files IMayonnaise Industry.


9826




- 418-419-


and in vital needU of "dJ.j.su- nt in vie;: of rising
ingredient costz..."

(then follows a list of prices on three sives of salad dress-
ing).

"Sales below those fi-ures, in the opinion of the
Code Authlority as ex,)ressed bby its action, vould
constitute destructive Crice cuttingl. The CoC.e
Authority reaffirms its pi'.rpose of elirinaiting
destructive rrice cutting : in this industry end
hopes that this uill be accorplishcd by the
voluntary individual action of manufacturers in
their efforts to rehabilitate this Industry rvnd
their ov.i businesses. j.:-ver, if it cannot be
accomplished in such mannuL, then the full -,owers
of the Coie and of the l)ational In2ustrir.l .ec.very Act,
together with its --ernaltics, rill be fully util-
ized...." (*)

In connection with the co:".o authority bulletin just quoted,
mention m nay be made of a letter dated July '24, 1974, sent by Mr.
Otto Seidner, a member nf the rmsyonn-.ise code authority, to Mr.
Lester S. D-lme, assistant deputy aalmiristrator. I.lr. Seidner,
objecting to some of the actions of ir. Tuttle, referred to
the bulletin quoted above, w-hich he F.tated he had just recoiv-
el. lie also enclosed a copy cf a lette-r scnt to niia by a
fellow member of the code authority. Speahini of the latter
he said:

"....It v'ould seem front this letter than I am
not the only one v.who is convinced that the
lMayonnaise Ind.ustry is being run b:.y Mr.
Tuttle, who is evidently takin6 dictation
from someone ulse."

Then, referring to the code authority bulletin he continued:

"I also received a circule.r letter from Mr. Tuttle this
morning;, in which was stated that the Code Authority
had agreed to this and voted this and votCed that....
But I have not had an opportunity to sNy whether or
not I agreed to vote on any question. This is not
the first time the members cf the Code Authority
have been notified that they have agreed to do things
of which they knen nothin....." 11



(*) Bulletin in NRA files, mayonnaise industry.


9826







- 421 -


system, to a point which will prevent....increase
in volume of sales."

He stated that it had been sug:csted that certain changes be
made in the Code in order to pevwnt too fast an increase in
prices. Among these was the cLauin- of the open price plan to
conform with the provisions of Office _'emorandum No. 228, He
asked the armininstration member to sou-id out the code authority
on the matter and also to submit his omwn opinions on the question.
The record does not show any s-bsequent action on the case.(*)

Mr. R. W. Morrell, Administration'iember of the Code Authority
for the Scientific Ap-paratus Indistry,,. on February 19, 1935, wrote
to Mr. Alfred Hand, Assistant r,.uty Administrator of the code
concerning another instance of alleged attonrpted price fixing which
he had sought to discourage. !r. Morrell stated that shortly before
he wrote, a meeting of the industry was held. Describing this meet-
ing, his letter roads in part:

"....There was a long discussion on a proposed agree-
ment not to file prices below a fi::ed schedule. I
had to advise them that 11PA policy is-oposed to price
fixing and that ITLA could not sanction or recognize
any fixing of prices by their Institute, so far as
Code provisions might be concerned. Also that formal
action by their Institute of this nature might be illegal.
However, the general sentiment !as in favor of an infor-
mal agrccmeit along these lines, as their only salva-
tionrL in elimainating the price-cutting which seems to
have disorgarized this Section, and they did not con-
sider that sucn action would involve any violation of
the Code. It appeared to"mo that any such action
that they might take in their Institute would not
amount to anything as it would not be adhered to,
and that the situation would work itself out, per-
haps by a request for decl-ration of emeroncy, if
conditions warrant it, and perhaps accompanied by the
establishment of cost accounting system if policy
permits...."(**)

A number rf other instances of supervisory action by 1TRA to
offset price fixing activities should also be noted. In the crushed
Et(de industry, the 17orthwcst Construction Co. lost a bid because



(*) Letter in NRA files, wall clay tile industry.

(**) Letter in IRA files, scientific apparatus industry.


9826






- 422 -


they were informed by the district corrrittee that they must figure
the cost of r.aterials at the lowest price which was $1.50 per yd.
Another contractor, who had bid at 'l,00 per yd.., received the
award. The Jlorthwest Constiruaction Co.' Is original bid had been
at 900 a yard. As a result they v.ished the contract readvertised.
The Legal Division ruled tha district committee out of order in
advising the Northwest Construction Co. of the requirement that they
bid at $1.50 a yd., and that the company wrho received the bid could
not bo cite'? for violation.(*)

A memorandum from the Leg-l Division to the deputy in charge
of the canvas goods code, datcO. Docc.iber 24, 1934, stated reasons
for staying the price filing and certain other provisions in the
code. One of the reasons :&r. that a public hearing had developed
substantial evidence that -rice fixing had taken place under the
guise of price filing. (**)

Subsequently the price filing provisions of this code wore
stayed, in accordance with this rocoramendation.

Investigation of the alleged efforts of the Regional Code
Authority of the Wholesale Confectioners Trade to arrive at a price-
fixing agrccmec.t caused ITRA to conduct an investigation of these
activities. Price filing 1ad played an important role in this
effort to fix prices. The entire matter was summarized in a
lengthy memorandum to the lNation-nl Industriel Recovery Board from
Mr. Edward K. -arren, Regional 113A Director in New York City, dated
iMay 14, 1935, concerning charges against the Treasurer of the
Wholesale Confectioners' Code Authority. This memorandum reads
in p-art:

".... in or about June, July and August, 1934,
respondent accepted blank forms of price lists
which had not been filled in with prices but
which had been signed by members of the Industry,
and also accepted authorization from such members
of the Industry to insert prices in such price form,
such prices to be those which he thought should be
inserted therein in order that the filed p-orices
of all members of the Industry in the New York
trading area would be identical or essentially
the same....rosoon'.ent neglected to file or
treat as filed, .....twenty price lists aeUosited
with him pursuant to the nrcvisions of the code....
respondent told members cf the industry rhat prices
and discounts '7oul. be acce-table to the Code Autho-



(*) Letter in ITRA files, crushed stone industry.

(**) Letter in 1TRA fil3s, canvas goods industry.


9826







rityr.,.. urged members of the Inrdustryj to file
uniform prices and discounts which result in rices
approximately 310,G above cost of the products and
considerably above th.i total cost of doing busi-
ness. The rezor!lenr-t indicated that the Code
Authority would not accept filing of lowur
prices. 1I

Lir. Warrents memorandum continues by stati.ir that Lr. .7ober
refused to

"treat as filed one or more price lists tendered to
him, b.sin- his refusn.l on the ground t'-Lat price
lists could not be filed and made effective which
containers prices below tIhe stanard prices sponsor-
ed by thc respondeiLt, which prices were considerably
above cost...."(*)

The New York regional office reccmreiende. the ousting of the
head of the regional code authority but the Supreme Court decision
on Ma:y 27, 1935, prevented the carrying out of this action.



(*) Mlermor.ndnur, in 1IRA files, wholesale confectionery industry,


9826




- 424r.-


The secretary of the Code Authority for the Macaroni Industry was
warned by the deputy administrator against too extensive recommendations
for price increases and the maintenance of filed prices at a profitable
level. These warning resulted in no special corrective measures, al-
though the industry was subjected to some brief investigations by the
Department of Justice because of complaints of price fixing activities. (*)

The activities of the Oode Authority for the fire extinguishing App-
liance Industry in issuing bulletins containing regulations not in accord
with the code provisions and in attempting to fix prices were criticized
by the IRA and were subjected to investigation by the Federal Trade
Commission. The review of the code authority bulletins and the actions
concerning them are given in detail in another section of this report. (5*)
The establishment of trade factors and mandatory price differentials to
be used in connection with them, and tne establishment of lowest reasonable
costs by means of a cost accounting system not approved by the IRA were
among the activities to which objection v'as raised. Most of these matters
had been informally approved by the de-uty administrator who had been in
charge of the code when it was first approved. The Federal Trade Commission
investigation of this industry resulted in a cease and desist order being
acce':ted by the industry in November, 1935.

An JRA investigation of alleged price-fixing in the candy manufacturing
industry was conducted in the spring 3f 1935. The charges centered around.
the activities of the chairman of the code authority, and others connected
with the national confectioners' association, in attempting to restore the
waiting period which had been stayed by NRA action at the time the code was
approved. The methods employed in certain areas in which these activities
occurred were the holding of meetings of industry members at which a
price level was agreed upon, with members obligated to file such prices with
the regional officers of the code authority before they were forwarded to
Dun and Bradstreet, which was serving as a confidential agent for the code
authority. These activities were alleged to have occurred during December,
1934, and necessary action to remove the chairman from his official capacity
was taken early in 1935. (***)

The chairman of the Code Authority of the Tuilders' Supply Trade wase
charged with issuing bulletins to the industry without approval of the NRA
with publishing suggested price lists in metropolitan New York trading area
and with issuing a cost schedule without NRA approval. Members of the trad

(*) See letter from Mr. Welter Thite to IHr. G. G. Hoskins, April 17,
1934, in NRA files, macaroni industry.

(**) Pages 251 & 292-294, above.

(***) See Transcript of the Hearing on the Code for tne candy
Manufacturing Industry, January 19, 1935, in !-,A files; also
memorandum from C. 7. Dunning, Deputy Administrator to D). M.
:holson, Code Administration Director, dated January 28, 1935,
in NRA files, candy manufacturing industry; also minutes of the
meeting of the Code Authority for this industry, held February
22-24, 1935, in IRA files, Candy Manufacturing Industry.


9826







complained that he comoletel-r dominated the Industry. A memorandum from
the assistant deputy administrator, dated March 11, 1935, summarizes the
charges and describes the investi-ation of his activities, but does not
include the outcome.(*)

2. Suspension of Price Fviing P1i.n.

The Legal Division of the IM3A objected to the po'.,ers assumed by the
code authorities for various divisions of the paper and pulp industry in
suspending price filing provisions without special authorization. These
suspensions of rice filing for particular areas and products for varying
periods of time, had been made during downward spirals of prices in an
effort to deter price cuts and stabilize prices. These actions by the
Legal Division amounted to condemnation of the entire pric-e filing plans
of some of these industries as being illegal because of the assumption of
quAsi-lcjislative and quai-judicial powers not within the scope of the code.
One opinion b- Mrr. Jack Scott of the Legal Division held that no open
price picn of, any kind could be put into effect without approval of the ITRA,
despite the enabling language in the code.

This opinion was transmitted to the deputy in charge of a Paper
Division, I;;r. VT. J. Brown, in connection with the plan of the folding
paper box industry and was severely criticized by Mr. Brow.n in a memo-
randum t6 Division Administrator Battley on January 4, 1935. (**)
This and other legal criticisms of the price filing plans in the
paper codes effectively prevented -TRA enforcement activities in connection
with these plans, but did not prevent voluntary com-vliance on the part of
members.

The disapproval of the mandatory customer classification set up by
the envelope manufacturing industry and the revoking of that bulletin led
to the voluntary suspension of price filing in that Industry in April, 1935.


An illustration of im.ir-utLorized suspension of the price filing plan,
as it applied to one industry product is contained in a letter dated January
9, 1935, from Deouty Administrator Janssen to the Code Authority for the
Crushed Stone Industry. The letter (****) stated that the action of a dis-
trict committee in exenmtin7 railroz-d ballast from the price filing require-
ments was not justified; the letter stated that, once a district committee


(*) memorandum to 2. A. Hechit, De-outy Adviinistrotor, front A. C. Coo-k,
Assistant De outy, Administrator, March 11, 1935. In iMA files,
bTilders supply trode.

(**) In ERA files, napoer and pulp industr-,.

(*) Sco above- pages, 248-249.

(****) Quoted in "The Administration of the Code for the Crushed Stone,
Sand, Gravel and Slag-; Incustr-r," by the Code Administration Study
Section of the Hesearch and Planning Division, in MR-A files.




- 426 -


had elected to make price filing effective, only code amendment could re-
verse this process.

3. Irregular Allegations of Violation

On December 21, 1934, the Code Authority for the Scientific Apparatus
Industry filed a complaint against the Abernathy Furniture Company and the
Swenson Construction Company. The charge was failure to file prices and
bidding below the lowest filed price on a P.W.A. contract by the former
company, to which the latter concern had sublet a contract for laboratory
furniture. It was commented on this case by the assistant deputy that no
violation had occurred since no.notice to file prices had been sent by the
manager of the code authority to the respondent prior to the filing of bids.


4. Supervision of Application of Executive Order No. 6767, and
Administrative Order X-48.

Considerable correction and guidance. was given to code authorities in
connection with Executive Order 1;o. 6767- and Administrative Order X-48. (**)
Only one example of this will be given here.

On July 1, 1934, the code authority of the plumbing fixtures industry
filed a notice to members, stating that E:ecutive Order X-48, requiring that
the Government be granted as favorable terms for.like quantities as any other
purchaser; did not apply tb that industry, since the code prohibited selling
direct to consumers'. The'legal Division of the I'A ruled that X-48 and 6767
did apply and the code authority in October, 1934, rescinded its original.
order. (**) "

5. Supervision Connected v.ith Cost Formulae

The pricing formula designated by the code authority of the Marking
Devices Industry was ordered withdrawn by the NBA since there was no sanc-
tion in the code for such a formula. A request for withdrawal of the uni-
form price lists filed pursuant to the formula was made in May, 1934. (*n'')

6. Availability of Filings to Members

The secretary of the Code Authority for the Cast Iron Soil Pipe Industr
was rebuked on a number of occasions by the deputy for issuing bulletins and
other instructions to the industry contrary to the provisions of the code. I
one instance he was ordered to retract a letter stating that price lists fill
with him were available only to members of the cast iron soil pipe associate
and to disseminate such prices to all members of the industry. (****s)

(*) Letter in i'tRA files, scientific apparatus industry.
(**) For a more complete consideration of these two Orders, see below,
pp. 477-483.
(***) A files, plumbing fixtures industry.
(****) 1IRA files, marking devices industry.
(*****) On this see MacKenzie, J. T., "Preliminary Report on the Administra'
tion of Trade Prabtces by'Godo Authoritiei'.",Code Administration
Studies Section, December, 1935, paces 30-33, NMRA files.


9826





- 427 -


7. Classification of Oustoners.

The practice of tie As,,,.lt Shirn;-le and Roofing Code Authority of
holding meetings to consider the crl:,sifications of customers used in
filing prices, was objected to b1- the Administration. The code authority
was ordered to abolish this *;rectice of ",isic c-ossification meetings", as
they were called. (*)

8. Rejection of Filings.

The activities of the Code Authority for the Gas Appliances Industry
were subjected to ,RA investigation late in 1934, and a report on these
activities "ws prepared by the Deputy for the consideration of the National
Industrial Recovery Board. These alleged activities included efforts to fix
prices, to reject filed prices here not acceptable to the code authority,
and to coerce non-members (of the industry) to conform to regulations not
included in the code. (**)

9. Miscellaneous Items.

The Code Authority of the Vitrified Cic- Sew.r Pipe Industry informed
its members that they would be in violation of the price filing provisions
of the code if they gave prior information of price changes to their cus-
tomers. The I1TRA objected to this interpretation and asked that it be with-
dravwn. (***)

In a bulletin issued on October 18, 1934 the Code Authority for the
Crushed Stone Industry set forth a number of resolutions in the nature of
explanations or interpretations.

These stated, among other things, that the code was to be interpreted
to mean that it was unlariful to makCe a sale at less than prime plant cost
plus 10 per cent, that the code provision permitting filing of prices less
than prime cost plus 10 per cent to meet competition meant to meet a com-
petition for ;7hich a price 7as filed; that in the absence of definite rulings
on the matter by the district committees, certain rules concerning delivery
terms were to be observed; and that "any producer not having filed prices at
least five days prior to fie time of any letting thereto, cannot subsequently
file prices to meet the filed prices of any other producer which were not
properly applicable to that letting". (****)

(*) See A)pendix A for furt;ier .etnils.

(**) See "Price Filing in the Gas Appliances Industry" Appendix "C" of "A
Limited Survey of Price Filing in IT'RA Codes", Preliminary Report of
the Price Filing Unit of the Division'of Review of the --A, Novem-
ber, 1935. 1?RA f les

I(***) TR files, vitrified clatr sewer pipe industry.

(****) l iil.r, c: *..,:eC. -to'-o i":t-As....


9826




- 4ed -


John E. Skillinr, Legpl Advisor, in r memorandum to Assistant Deputy
Administrator Dic-erman, drted Tovember 24, '934, stated that the effect of
each of the resolutions ras to anend the code. Deput'r Administrator Janssen,
on December 5, 19Z4, wrote to the code authority and submitted the legal
acviser'l's criticisms, but stated that in his opinion the first two resolutions
did ndt exceed the power given to tne code authority. The code authority re-
plied by stating that the third resolution had been amended and the fourth one
rescindeC. Sneaking of this the wrriter of the Research and Planning Code
Administration Study said:

"With further reference to the latter of the Deputy Administrator,
in which he concurred in the Code Authority's resolution Nodl and
No. 2, the investigator finds no record of approval of these resolutions
by the various BTRA divisions and Advisory Boards, nor of any official
action thereon. It is evident, however, from the renly of the Code
Authority that it considered its resolutions 14o. 1 and 2 had been con-
curred it, since it expressed satisfaction at this result. It should
be noted here that Resolution Uo. 1 presumed that the Codal restriction
against sales belor prime olant cost plus 10 .per cent is in effect,
whereas ac a matter of fact, the standard uniform accounting and costing
system, on the basis of x.hich that allowable cost is to be computed
(Article VII, Section 2 d) had not been approved by the INA as required
under Article II, Sectior 2, and still remains unapproved....." (*)

Administrative Order Uio. 109-46, dated October 15, 1934 exercised
further supervision over this industry. It read:

"Whereas, on September 25, 1934, the District Committee of North
Carolina for the Crushed Stone, Sand and Gravel and Slag Industries,
adopted the follo-'ing resolution: 'Be it resolved, where quotations
are filed by a -il:-nt that is not set up, the producer must designate
the exact location of the Alant and the property on which it is to be
located and the n'-rber,-of miles sr.id plant is located from some specific
part of the project for which h prices are filed.'

"And whereas the Deputy Aldninistrator has reported and it appears to
the satisfaction of the National Industrial Recovery Board, that the
said resolutions will result in h-rdships to such members of the
Industries, and that justice requires that it be disapproved:

"'or:, therefore, pursuant to the authority vested in the National
Industrial Recovery Board, it i- hcrcb .Qpi.?f tt .th1e ?.ie resolv-h
tions be and they ere hereby disapproved.1 "

In suinary, the foregoing instances of cases involving NBA supervision
may be analyzed as follows:

SAmong the items involved 'in the various cases -:rere: the use of a
standard price filing form, price fixing activities associated with price
filing, the use of cost formulae, customer classification, the rejection of
certain price filings, the soope of membership subject to the code, the avail.

(N) Quoted in "The Administration of the code for the Crushed Stone, Sand,
Gravel, and Slag Industry", by Sterling :arch, Code Administration Study,
Section of the Research and Planning Division, page 99.

9826





-- 4?9 -


ability of price filings to all members of industry, failure of certain
members to file prices failure to adhere to filed prices, failure to
file prices on certain products, establishment of uniform credit terms,
the application of Executive Order iTo. 6767 permitting sales to governmental
agencies at less than fid prices, and substitution of filing of elements
of cost for the filing of prices.

The problems involving the above matters reached the attention of the
Administration through a number of channels. Amon,7 these were (1) submission
of question to the NRA by the code authority, (either by virtue of a code
requirement or because the code authority wished to avoid unauthorized
action; (2) through raising of the issue as a result of a ruling or inter-
pretation of the code authority, as evidenced by code authority minutes or
bulletins (sometimes the matter was brought up mhen the deputy saw such a
bulletin; sometimes a member of onm of the advisory boards or divisions
raised the issue); (3) a complaint alleging violation of a code 'requirement
or a code authority ruling might have been filed with an IRA compliance
agency by the code authority; (4) a customer or member of the industry might
have complained against some action or ruling of the code authority; or (5)
the administration member of the code authority might have brought to the
attention of the Administration some questionable action by the code authority.

As the foregoing indicates, sometimes Administrntive supervision took
place before a o--epl.-be. action or rulir." diC not come to li;h>t until it ha
effect. Sometimes the action or ruling did not come to light until it had
been put into force and sonric objection to it was voiced. It is impossible
to determine what proportion of the cases involved action beforehand, and
what proportion involved action after the fact.

As to methods of handling, :;,-.ny cases vere handled by correspondence
between the Administraticn P.nc. tfie code authorit-, or between the Adminis-
tration and the member of the incLuctri- or customer of the industry affected.
In some instances, special irvesti,-'-tors or the administration member were
asked to look into the ,raattkr. Public hen.rinr-s resulted from the efforts to
adjust some of the problems requiring supervisio:. Conferences were held
with members of the advisor. boards and divisions to ascertain appropriate
action in other cases.

Because of the incompleteness of the records it is most difficult to
state very much of a definite nature concerning the efficacy of Administra-
tive supervisory activities. It is clear that in some instances warnings
against more or less outright price fixing activitiesalmost completely
disregarded. In other cases, advice to code authorities that certain
activities were outside cf their proper field of action appears to have been
effective. Again any quantitative measure is virtually impossible.

Supplementing the asDects of administrative supervision presented
in the foregoing section, the section following will deal with the work
to the Administration and thCe code authorities in effecting compliance with
the open price provisions.


9826
L --------*-----"





- 430 -.


SECTION B COMPLIAI1CE: ALt LITIGATION ACTIVITIES

I. COM0PLIAICE ACTIVITIES B'I CODn: AUT:-oU..:S ` ::) N.K.A.

Introducti m

In securing; complia'.cc vith thC. rice filing -"rovisions )f codes,
as with vthcr trade practice "rovisians, mach of the responsibility and
authority was delegated by the Administration to the code authorities,
their trade practice complaints committees and other representatives.
However, the Administration -ad itc ov-n Compliance Division, with
Washington r.nd field headquarters; and. the Government Contracts Branch
also worked to ring about conformity with trade practice provisions of
codes. The work of tiese compliance agencies will be considered in this
section.

A. Code Authority Compliance Activities

"The Manual for the Adjustment of Complaints by State Direc"Ors
and Code Authorities" laid down the following proportion as a basic
guide for the division between code authorities and the Administration
of responsibility for obtaining coamplianc4:

"....The rcsponsibility for insuring that codes are
administered and that the public is protected lies
with the Administrator; bOut the aim of :T.R.A. is to
give t) Industry, t:iroujh its code authorities, the
widest possible range of self-government, subject to
the ultimate rcsponsioility of the Administrator..."(*)

In order to become officially authorized to handle trade practice
complaints, code authorities were required to submit for the approval
of the Ac'ninistration their plans for procedure in such cases, modeled
upon the outlines nf methods for handling complaints contained in the
Bulletin #7 previously referred to.

1. Code Authority ?'ethods For Handling Complaints

Little information is available concerning the details of the pro-
cedure actually followed by compliance agencies of code authorities in
t.-ie handling of complaints. H-owever, charges were made that some code
authorities failed to follow the describedd methods of obtaining com-
pliance. It is impossible to state definitely the extent to which such
charges were justified, and, if justified, whether such instances were
typical or excepti-nal. One case of alleged mal-administration will be
mentioned to illustrate the point. It concerns the activities of the
liayonn'aise Code Autnority. On September 3, 1934, Mr. Nathan Raff,
President of the United Food Produ',.cts Company )f Brooklyn, iT. Y., al-
dressed a letter to Gencral Hugh S. Johnson stating:

".. .It would seem to us that after the filing of our
advance schedule with the local Code Authority, the gentle-
men who are administering and managing the business of this
Authority would recognize that we have shown a spirit of co-

(*) NRA Bulletin #7, dated January 22, 1934, page 3, JTRA files

9826








operation which should be welcomed and a ,preciated, but since Aug-
ust 2', (thi effective c-ate of the- schedule filed by Mr. Raff con-
taining the increase in prices) these gentlemen, especially Mr. Tut-
tie, the managing agent of the Code Authority, gave us nothing but
continuous annoyance. They called us a nuiaber of times telling us
that we must again raise o'Ur prices in oraer to conform with price
schedules filed b,, otht r manufacturers. We finally arranged for a
conference with Mr. Tuttle at 10:30 A, M. on Friday, August 31. The
writer and his business associate' went down to see Mr. Tuttle at the
appointed hour, 1!r. Tuattle again told us that we must raise our
prices tj the level of the schedules filed by other manufacturers.
All rf our arguments that it woulJd oe sneer folly for us to announce
another price rise now was of no evail to Mr. Tuttle, or facts and -
figures that our present prices are not below cost an. do not, there-
foire, constitute an act :if -.nfair competition meant nothing to him
.....then Mr. Tuttle..... calle, in two men from thE adjoining room,
whose namec he Ci, not give ui and announced that this was a meeting
of the Complaints Co.ummrittee of the local Authority. He started to
reau the riot ?ct to us; he threatened.. to have us indicted ano con-
victed of all sorts of crimes .. .. After iMr. Tuttle got through wi thi
all of his cajoling, intimidations no. threats, we again Rnnjuncecu
that we woul not raise our rice. now out woulc. onl do so when
conditions wmulc so warrant....."

On September 10, Mr. Tuttle v.'rote to .ir. Lestcr S. Lame, Assistant
Deputy Administrator concerning this matter:

"..... Our Coo.e contains the rovi 1ion prohibiting destructive price
cutting which incluc-s, V'it.1olt linitatiol2, sales oelcw cost. In
view :,f the i-ct that the Coe Authority had c;etermineL the lowest
rea. onaole cost, it is ovi:- s t]-.t if the C-,ue Autl-ioritj can sus-
tain its figures, an, seals Lel...w tnCsc c:sts constitute destructive
1,rice cutting. WVie are ,mfi..cnt t: Ct experrt examination wc.uld sus-
tain these lowest c-sts.

"The Trace Prectice Co-plaint-; :.-irmittce requesLec. the presence of
the officials of ti-ie 7v1i:n F-Dd Pr. ducts C:., a. outlined in the
letter. The Trade Practice Cinpla;nts Commnittee spiu not,.ing abol.ut
the prite level of ot.-,ecr manufacturers, b t state that complaint
ha- been mac:e to the effect t-at 'ni n Fo. Products filed prices
reo)rescntinc destructivee price cu tin,- orohibited bd the klMafnnaise
C oCe.

"Neitner the managingng Agent or n;., -ther member of the Trade Practice
Complaint0 C-' mittee reach th, ri-.t act to the officialss of the Union
Food Product-. Co. anC tho only reference to penalties of the Act
were made in res'-.)nc.e t:) t e suq estion advanced b, an official of
the Uniun Food Prducts to the effect that they would continue to d:
so as th y pleased and thr.t t'.e ITIRA coulc not or would n-t be en-
fcrced ...

Tendency f.;r codc aut -ritie3 to attempt t: anticiuete their
official aut~orizpti n t- act "in the first instance" is efidenced in
the following correspondence from Mr. G. G. skins, Chairman of the
Code Authorit, for the Macaroni Industry. It also indicates the
Methods used. b. one code authorityy t, achieve mobility A! their au-
justment agency:
LAMf___________-----





- 433 "-


oWe h.ve a letter fr:i Divisi).- A.-ministrator Riley
stating th.t mo.r duly elected members of the Code
Authority have Ceen rrcomnized as such. Can we as-
sume thn.L their rcco,:.ition as the highest industrial
adjustment agency z.s iPer ..RA bulletin #7 will be forth.
coming soon?

"Procoecinx; under the .uchority 1jiven me in your
recent letter :,e are assuming t,.t they can handle
compla-ints in" the first instance but sooner or later
we are -oin,! to cone against a st -te compliance director
who does not reco...ize us as beIinug the highest adjustment
ac-rncy, in our Industry. Incil'.eitally, orr by-laws call
for three nemoers of the Code Authority to sit as such
committee. This revision was made so that by traveling
to various part of t:ic cou..try I could pull in two other
members of the Code Au-.tn-:rity without requiring, a meeting
of tae whole Code Authority...."(*)

Certain Code Authorities, by virtue cf articularr code provisions
enabling the2. t: do so, enforced compliance by -.enns of so-called "liqui-
dated dariage" agreements. While there was considerable variation between
the. codes as t the exact procedure, the generall nature of th6se plans
was the same; ..lemoers guilty of violation.i of trade -)ractice nrovisioht"
were assessed a fine bz. the code authority or one of its agents.

Discussing t,,e o-'cr ti-)n -)f liquidated damage provisions, Mr.
Walter M:ngunri, Actins r-muty A':t.-inistrator, in- a npinemoramdum to Acting
Division Administrator P'-entisc L. Co~nley, November 27, 1934, said:

".... There --re various proceduress set u. for handling
the caces, but t.n't ado-nted by the Reinforcing Materials
Fap.bricating, I-:. .stry -,'oul'-. -,cear t. be extremely fair
ancL irpartial. T'ecse cases are presented to the Code
Authority in the .bstiract T.-.d im-nersonally. The name
is not divulgeed even to h. :-.erm'.bers of the Code Author-
ity. If a member of the Industry is found guilty, damages
are then fixed. If he pays willingly, his name is never
disclosed. Sho-ai he desire to azreal, a public hearing
is then ordered and. all the fa-cts, including names, are dis-
closed. The Reinforcin: l1.terials Fabricating Code Authority
ias iiandled four hundred ninety-eight (498) cases in nine
(9) months. While some of th;,i have been rather bitterly
fought, in mot, i:ist,.rnccc tLie offending member has admitted
cuilt an,-'aid tae d. ria1es assessed. This Code Authority
estimates that the average case is completed and the money
paid within three -.inths from the time it is first brought
t) their notice. This Industry -hs now collected as damages
a sum sufficient to support itd Code Authority operations for
t.'.e next six: months."(**) .

(*) Letter to I.!r. Walter White, De-iuty A'kmninistrator, NRA files
April 12, 1934

(**) Copy of memorandum appenr'ed to "The Use of Liquidated Damage
Provisions in Industry Agreements", :TRA, Enforcement Studies
Section.
9826






- 433 -


Concerning the effectiveness of this type of provision as an aid
to enforcement, this. emor..ncMLnr c::Utinaes:

"....Generally spea':in; it is fomLzn that these -rovisions
are most ap-licabl. t t "...... forceCte'nt )f trade practice
article, an2 are niot uai:.; brolyht to bear in cases of
labor violations. A most c'-nsiuerable measure of success
has been obtained in th:se co whic.re the procedure has
been adopted and the provisions m2ade effective. I feel
that the liquidated d&.r.iage provisions could be made most
effective in a number of codes in the (textile) Division ....
The provisions are wor._inL better inin.id stories which have
string trade associations or institute,;, rather than in
those which are not closely knitted together....Every
effort should be made to have industries adopt these pro-
visions. Their value is in forcin- compliance in small
cases where publicity, might be both harmful and unfair,
ar:d frequently mr.ny cases could be handled in this way
where the offense is not such that the conviction could be
secured in court....1"

Some further indicab.tions of code authority compliance procedure
may be found in the digecst of 109 price filing cases (involving the 57
codes treated by the Price Filing Unit) made by the Compliance Division
a'd sent tD the'Trade Practice Studios Section. -These cases were those
w'ich were referred to the National Compliance Council and (after January,
1935) t, certain of the regional offices, after state offices and code
authorities had been un.successful in brin-ing about conformity with code
provisions. Of the 109 cases digested, 75 were handled originally by,
the code auth-,ritic., L' boy the stqtc officess aad 6 by the Government
Contracts Br..'-nch. 74 o-' this tt-l number were h led by c.=rre.3o)ndence,
3. by interview '.Nit-i the Sr,':,-.;.ent ..n. oy. interview with competitors.
Although this b.roa:.d.wn i 'cscriptiorn of ..cth.d of inLndling by the
three crmpliance .r b.y c:od authorities in the -fi-r.zt instaicc sn,.L thie ;re:Ltest number were
handled by correspon.cnce, it is c.vi,-..ent that tiic majority of cases handled
by code authorities must have oern :-Landled by correspondence.

It is interesting -.nJ,- p-rhapd significant to note that 89 of the
above comnulr.ints vcrc.c o.riina..ly br-*uW"ht by coc'c authorities, 18 by
competitors, 1 by a trade association Aind 1 b-, -in -employee.

i1:, acd.oq'.a.Le ouCkntitotivc data are available as to the extent of
the handlii-: )f trae .,r.actice comrplaints in goncral by the code author-
ities, or tne *proportion whic.i -price filing complaints made up of the
total number o, cDmnlair.ts dealt with. Figures t: be presented below
in c:-n-ection wvit'h :.IirMa comrpliance work indicate th:i.t in codes wit.i price
filing, provisions, violations -4f t iese ,rovisions often made up a con-
sidr,-able pro-ortion of the toti.l violations v.vhich ierc referred t-
NPA for action.

2. Code Authority Compliance Di:" i.ultic41

Difficulties in securingl conpqlii.ncc: were in.erenc in tji- nature of
certain open -rice plans, such as t.:ise c mtaini-ig provisions requiring

- 9.826





- 434 -


price filing by a great number of small units of the industry or filing
of prices on a great number of non-standard items.

Of the difficu-Llties which "'erc o-rerienced by Code Authorities in
their compliance activities, three major problems will be treated here:

(a) FPilurc of NRA t3 actively, persistentlyy and
successfully pr:'secjct' viola-tors;

(b) Inadequate code authority firrnncing to carry on
compliance work; aind

(c) Reluctance of ind.ustrT embers to report violations.

The most frequently repeated complaint made in explanation of the
failure t: secure compliance with pricc filing provisions is that vio-
lators of open :-.rice provisions wver.: not actively, o.ersistently and
successfully prosecuted. It is rc-.-eatcdly pointed. out in the code
histories an.d elscviewherc that failure to secure convictions of violators
sooner or later bro]:e Corn comn-liance with price filing provisions. The
following is a typical expression conccrning this situation:

"...There was one outstanding casc of violation by a member
who defied all revisions of the Code...This case had a very
serious effect on tnc Industry and was quite a problem to the
Co'c Authority as it developed early in. its administration,
and "lthnuch vi't.:or'ously pushed for settlement, no p-osecution
or adj-stment w.as made during the lif.- of the code. Failure
to cnfcrcc c:mpliance in this one outstanding case had a vety
discourr.ing effect in the Code Authority and prompted the
question as t: v'hcther or not the provisions of the Code could
be cnf.Jrced..." (*)

In certain coccs, tie lrcl: ;f adequLnte code authority financing,
played a part in the frilurc to secure c:-,mnli.ance. Thus, a memorandum
dated December 24,1934, signed by Frentiss L. Coonley, Division ACminis-
trator, stated that one of the rc-sms for the sta.;-inc of the price filing
and certain other trade -iractice -rovisi--i-s :f the Code for the Ca.nvas
Goods Industry was the realization that the Industry did not have the
funds necessary to secure cwr-iliance with highly restrictive trade 'rac-
tice provisions.(**)

In some instances the hesitancy of members of the industry to report
code violations by their competit-irs made the securing of compliance
difficult. An instance -.f this type of difficulty was experienced in

*) Codee :-:ist-.r2' for the La&'..cr ::- auf.icturing Inldustry, page 30-39.
For other illustrti ns -f this point, see Code -isttrics for the
Retail :-)numnicnt Industry, ;*a(e, 9; for the Plumbing Fixtures In-
dustry, page 44; for the :.ay-onnaise Industry, page 230; for the
Iacarm-ni In.ustry, pages 40-44 a--d 93; for the Cement Industry,
page 5L; and for the Foldin; P..er Box: Industry, page 81.

(**) Codc i-istory for the La.dcr r'-.nufacturi-.n, In'dustry, pages 38-9.


9826






- 435 -


th-r' Candy T I..s t-tr;;. T -: . ..it.- '-.c. z,,c, hist ,ry,. for the industry
says:

T..... .' ,. i . .: t . -..:." .r c t visions
V-.s lal )C r : .C ., t -r ...mb-rs
if the Inr ..st t fil . ... I Ciw.,.t c -.:: -titors who
violated tr;::..c cV-icf '-. .1 *-.. :r vC, I ..t o.brut a
situation v' r: in i ,. .:: ti .it .i files cn-
tamiing cviconcc of vi.loti :rv ". i" t-ey; planned to re-
lease oJnly in sel&-...ci.s:. -.,,i.,-ist cmolai-its filed
acai n-,!7 t t hem ...."(*)

As Las breen a -ted abDvc the ,A'.rinist iati :>n lai:. ';rr i.-L ulletin
.'T 7, ..Id its suose.q-c."it s..e -.._ents, r.ule' f:',r the L-uidaice .:,f co'm-
plir.ice -Cencies -of code 'ni.th-rities;- and the coi'c ai..thiriict weore re-
quire... submit for AdLninic t--Ea tive ar.rval t-.heir p.il.sE fo.r handling
trs-.e -r:.ctice c-ipl:.ints; but nIce such plans were amr-,rved, N'IRA sue,.r-
viiO )ver the nxeor dele-jted t.' c?de authorities tD bring ab:'ut corn-
;oli?.ncc ,;as t: a considerable extent haphazard, indirect and incidental.
A limited Iamcount Df direct su;ocrvisiion was effected thukt;h the 1re-- of
administr-.tion rm.-nbers if c'de auth'ritics, and :if the trade practice
c jmolia-ce officers ..iC adjusters att:.-.c 'ed to State ]VRA offices. Accord-
ing t-, a st'.te..:ent m.-.de in ?.n ineorvie:a by Ir. H:vward C. Dun_-i, formerly
'rade Practice C-mpliance Officer fojr the State of Illi-nois, state ITRA
offices did c-.'nsidera -le wor-: ducating, thin' ra,-ucrs :f tro.de -.ractice
com-l..iits cz:miittccs as t- their duties an)C recpcnzibilities. Such
gr Lxxps oftc-n did not ;\ ,t mvi proceed, ir. Duinn staLtcd, arnd they were
uiCeC., ch,.c.ed aod :ssistcd in t':ir b-'r: b-; the State _,fficcs. Some
cneccl: was *-r.d. th"'.,ixh chccki-. -"'cs .:.rid rx ncunck:.::.ents in codc author-
ity bulletins, b'-it such c.I. chin. '.:. ., n_ n:sr.r.us unvicrsal. Cormpl-Aints,
such as thn: cn cited -b y.-v fi-.. i"'. RL7'f f thn: '-. mn'.ise Industry,(**)
som.etimcs ld t li. itod i:..? ti -" ti '- f *: ...li.ncc pr',cedures. i.i-.ch
of the IRA su.-crvisi-,-n Fvcr c s.C aC-I -. -itr- c-,., li-.cc activity y was brought
aboajc boy such indirect rT07,.s.

TO.: nature a.nd cxtcnt. '" 'YIRA's :n c._-roli-i.:ce cff-rtc with respc.ct
to p-lice filingA will -1 .: :.utlinc. in th. section foll-.wing:

B. iTRA Comnlianc. Act ivit;,'.

1. Volume and Disr-siti-i,,, Cases Handled by State Offices.

On an acc-,mpanying ,age is shn\on, a table which indicates the vo.lume
o: cnrmli,..cC activity ,.f' the KRA State cnr.i.-'liancc offices relative to
pric filing .rovisi.,ns in tin c-rde, .nd t-.. rop :,rti n which thl-is
activity re'-resonted -f t.i_-soe Ofic's' t-,tal c-.piTplir.rnce work2.Th. 1 rcat
::iaj:rity )f these cases, it is i.acicrted, weore- rcfca-r. t I the TRA ae.:,cn-
cies by t'hD cice authorities a.fte.r ,r'ior att..-.!.)ts t- justut the cases
adr. failed. Th: f-llowin<: :'iot roc .ffcrr.d a.s tic hi-hi lights -f tihe
t-blc:


(*) Codec History fir the Can&.'- i.-.ust:-y oa,:e 48

(*) STR?,-,F. 43,.

B. 9826





- 436 -


Of 6,115 individuals and firms charged with violating trade orao-
tice provisions in th3 57 codes comprising the open price sample, 46
per cent were alleved to have failed to file prices. Complaints of
failure to file prices outnumbered complaints of failure to adhere to
prices filed in these codes by approximately 7 to 1.

In- any instances a case against a single individual or firm
involved several tyoes of violations. The data for the 57 codes further
show that the 6,115 cases noted above violations, total of 7,142 trade
practice violations. Of this total m'nrnber of violations charged, 3,264
or 45 -oer cent involved either failure to file or failure to adhere to
filed prices.

Con-roarable figures for the entire number of codes for whichh
figures were compiled (*) show that alleged price filing violations
made up 19 per cent of all cases, and approximately the same oro-
portion of all the violations charged.

It is thus evident that from a comoliance standpoint the price
filing provisions were a source of a large amount of difficulty. The
office of the field division of the :TRA advises that a survey of NRA
State office complaints which have been made since the Schechter de-
cision, indicates that failure to file prices accounted for more of the
alleged violations tha. any other one type of trade practice provision.
Failure to file statistics accounted for the next largest number.

The majority of cases in the Open Price Sample Codes involved
members of 12 codes. These codes are: Baking, Bailders' Sapplies'
Canvas Goods, Crushed Stone, Electrical Manufacturing, Macaroni, Plumb-
ing Fixtures, Retail Monument, Retail Rubber Tire and Battery, Set Up
Paner Box, Structural Clay Products, Wholesale Confectionery. These
Industries each contain a large number of units (though not necessarily
a larce number of employees or large dollar sales volume).

These 12 codes account for 86%o of the total number of cases in-
volving the 57 codes in the onen rice sample. Likewise the 12
codes listed account for 875 of the total number of violations of trade
practice provisions in the codes in the sanple, To look at it in
another way, these 12 codes account for 36,0 of all complaints alleging
failure to file prices in all, (not just the sarrole of 57) codes. The
12 account for 565 of all complaints alleging failure to adhere to
filed prices in all codes. Since over 440 codes contained oDen p-orice
provisions, and since 12 of these accounted for over one third of all
alleged violations of open price provisions investigated by NRA State
offices, it is clear that compliance difficulties with price filing for
which NRA aid was involved tended to cluster in a small percentage of
the total number of open pricc codes.


(*) See footnote to the t.ble cited above.


9826







- 437 -


I'r1,I7OD 0" ]IS0''I:I' C' CASE, ALL CODES(*)


TotFl Vinl-ti.-.ns : Al1,'.L:, f.iiTr- t:. : Alleged failure to
:______o-_ _____ ile r':ices :adhere to filed, price
.ethod. of Tui.fber of Pcrc.A.t- ;e: o"'.Tur cu' Fercent,' .e: u.iber of Percentag
Disoosition Violations of tot.l : Vio1k.tiors of tot-'. : Violations of total

Adjusted 21,961 53.3- 405C 56. 5) 392 56.9-
No Violation 9,205 2Y., 1709 23.7-", 135 19.6.
Dro-oDed 6,144 34.& t 863 12.1% 101 14.65
Pendin:r 3,887 r .6e 550 7.7L, 60 8.9

TOTAL 41,197 100. Q% 7182 100.0 t 688 Io'C. .,




3rom this tabulati,-n it 'ill be seen tlihat there were no significant
differences in the pro-ortion of the -price filing and other case dis-oosed
of by the different methods. All three of the iteT'.s listed, total alleged
violations, all.,:e.e. violations involving; failure to file orices a---d alleg-
ations of failure to adhecre to filed prices, had aocroxinatelyr the save
percentage of ta-eir respective totr.ls ha-idled in ':?.ch of the four.i- methods.
Over half of the alleged violations docketedd. u.ider each of the three
categories uWore ad.ji.,sted; about one fifth did not involve actual violation;
about one seventh of the cases droprned; and somewhat less than one
tenth '.Tero bonding rhen the Su.reme Court invalidated thu ITRA.

To summarize briefly, alle;Gt failure to fil. prices was-' the most
frequent of all trade prncticec conj]l.lints investignateud by the YRA
State offices. A very small ororinrtion of the oo.n oricr codes account
for a substan-tial number of tho alle.-ed violptio.is. Somewhat ovzr half
of the co:.pla,.ints jwert adj'ist.cd and abouLt o. fifth of the. complaints
were fouC'. to be without ba.sis.

2. Difficultt' of Stt..,-. Offices itai Code Authority Procedurcs
E.nc. With 3han.':in- Cod- P-ovisions.

Aponarcntl-r conidcrcbl., difficulty -'as e:-..oriaccd by th:c Comoliance
Division because 3orne codc. authorities naabitually filed co.lnlaintsE of
violations without t having previously inv,-stinated to cletcmrnine the souind-
ness of the accusations. In an attenrpt to reduce the number of complaints
not substrmtintitd, t-_ CorT!liancc Division, on August 11., 134, issued
Field Letter 'o. 148, rcaCiag as follows:


"4. CO2PLAT-TS FILED B9Y CrDE AKTJTW'-IrT:S. It aonears
thrt Cod,- Autnirrities arc secndi.n; lists of alleged vio-
lators of their code to Field Offices -'-here subsequent
investi-ation rcv,.1ls either that the rcsoond,-nts arc
no longer in business, or are neot properly cla.ssificd under
such code. In the fut-jrc, 3-you -ill not investigate lists

S(*) See Attached ta.ble for det-iled definitions of ,,ethods of disposition.

9826




- 438 -


of complaints of failure to file vtrtistics, contracts,
pricess, "to., u-1nlcso r c rtificitn iu attacix:d to such
complaint that tn,-. rcspnndwnt wPs in business as of some
recent d.te, -und --nat a r c;isterud letter Yas sent to him
nntifyilL; him of i.is codL violation."

This policy v-s noodifird some' ha.t by Field Letter VTo. 173, dated
November 3, 1934. This stated:

"Section 3. Itc'-i 4 of Field Letter 'To. 148 instructs iou
to t-kc no action on corrol.aiints filer. b: Code Authorities
allegin,; f-Liliro to file nricc, statistics, etc., unless
they art acco rna.iied by r. certificate that the rosn-ondcmnt
*7-s in, busit.os" as of sorc recc-nt d.te 9nd thrt a registered
letter r,'rs se-it hin notif-.','.- hi;i of his code obli otio:tis.
If the actiron t .kur U,- your office ,rill consist
merely i-i scndin; the res-ondcnt n. lcttr inior'r.ng hi:
tlhat he i'ill be dee-ied to be in violation unless the
necessary infor-w,;-.ti.cn is filed .7ith the Code Autinority
(particulIr.-;- -hen a lon:; 'ist of alleged violators is
filed b-' yne) it r:ill not be neccssnry to require a
-orcviou. notice b., rcr-istorcd mail. If, hin-eover, a con-
plaint. .s !.ccentecL for 2or rl action, "ita the possibility
t'a.t it rnay be later r-fcrruJI to Washinton-., the file should
include P return r:cc i.-t for n re.isterod letter."

Difficult- o.: th1c field offices i-i ke 'tin un -ith st-ys of code
provisions is evidlncc.i i-i the follo-in,; e:xcernt front Fiold Letter '"o.
198, dated Febru-.r:, 9, l35.:

6. Cr-iv,-s Goods Industry. The Apparel Section infor-is
us t r t office.- rvc doc'.eted co:iolaints under provisions
of th, CEmnv s GonC.s Code 'hKlich have begin stc'yed. This stay
rent ,r.to effect on Jnnu.r-iu. 14th P-ni covers the following
provi sions of Article VII, B; Section 1 (a); Section 1 (b);
Section 2; Section 3 (a) and (b); Section 4; Section 5;
Section 6; Section 7; Section 6; Section 9; cnd Section 10.

(Sect-ions 4 and 5 provide for thL -rice filing; ol.Pn and for
adher-ence to .Pilec prices.)
3. National .n1 d Regional NIA Co.mnnliance Procedure.

Whon a corpla.i.it soenmed i-rnossiblo of adjustment b" the code awthorit;
enforcenen.ct agonc-- r:d the JTRA Stat office, it '-,s g-enerally referred
to tle Co:r.lia:ice Council cf ~?A, of eftc' January, 1935, -to the "TIA
regionlrl office. Infor.irtion co.icer'i v-- Cor-rol.i1.ce Division policy and
procedure "ait' r s-ect to cases of alleged virln.tinz--, of the 'rice filing
Drovision WPs obtained in rni intervic '"itlL Mr. J.J. Reinstoin, formerly
Acting Chief of tne Co-ordinating Br- nch of the Compliance Division. The
first step ras to notify; t'.e resoondent i-i tihe case that the complaint
had been referred to the NRA Co-rolinnce Council (or regional office)
and that a hearing rould be held oI rP designated date. The respondent
ras entitled to appear in person at mach hearing but few apocarod, gener-
ally3r duo to the f,.ct that they nere so far removed from Washington or

982S




VIOLATIONS AND ALLIG.IL VIOLATIONS Cr' 0P- PRICE FILING PROVISIONS
rERSTIGAT-- BY TM N.B.A. STATE OFICE3S m/


nourea: Itatitical leetia,
Field Divisim, PA.


% 0 Or .;Z. *- -A 22 y GL- L'J2iJ M3 Y
Total -nber of all.1 trade :Total no. of alleged violationS Jailure to file prices lallue to adhere to filed
----)u practice coaes nded f te a nrovlane. h actual op all A.ai_ _--ries m.tuanl or 1llmMLW
Total Adjusted No Dropped Pending : Total Adj. N.Y. Drop. Pend.:Total Adj. N.Y. Drop. Pand.: fetoal Adj. N.Y. Drop. Puand.
Violation : a
M() (2) (3) (4) (5) t (1) (2) (3) (4) (5) : (1) (2) (3) (4) (5) : (1) (2) (3) (4) (5)
Total all codes I/ 36,425 19,6764 .094 5.295 3.377 41.197 21961 9205 6144 3887 7182 4060 1709 .863 550 688 392 135 101 60
Total 57 codes g/ 6,115 3.619 1.401 581 514 7142 4211 1668 677 5s6 2869 1761 699 251 158 1415 275 50 60 30
total 45 code A/ S0o 471 179 70 54 909 54 209 0o 96 217 128 49 17 23 25 12 14 3 6
Total 12 codes a/ 5.311 3,14 1,222 511 430 6233 3687 1459 597 490 2652 1633 650 234 135 390 263 46 57 2k
Raking 1,096 78 106 127 115 1305 922 119 138 126 663 502 35 79 47 114 99 24 23 1
Be)ders qLiplies 525 303 97 62 63 563 323 103 71 66 275 165 36 25 149 93 64 7 15 7
OCanvas goods 395 219 115 58 423 22 127 68 335 186 98 41 1 -
Crmshed Stone. etc. 168 102 43 8 15 186 113 49 8 16 59 41 15 2 1 8 4 3 1 -
slectrial Mfg. 464 222 48 44 150 465 222 48 44 151 75 40 17 12 6 6 1 1 3 l
aaro-i 175 96 41 1S 20 253 1.33 48 25 47 34 20 6 2 6 6 25 2 12 7
Plmbingm fixtures 135 85 36 11 3 154 99 4o 12 3 36 24 9 3 -- -
Retala Uamoa nt 704 520 169 6o 35 S74 569 195 71 39 351 233 82 27 9 26 19 6 1
Retail Bulber Tire 770 364 369 29 8 856 41 8 395 34 9 536 230 296 5 5 59 4118 1 10 -
Set U Paper Boz 332 158 117 54 3 424 160 190 70 4 25 2 1 21 1 1 1 -
Structural ay Prod. 119 77 29 9 4 128 83 32 9 4 44 22 15 4 3 4 2 1 1 -
Wholeeale Confectionery 348 254 49 31 14 602 417 113 47 25 229 168 40 13 8 1 1 -
DI/ D ITIONS: Cases and Violation.. The number of cases indicates the number of persons or firms charged with code violation. The number of
violations indicates the number of code provisions allegedly violated. The number of violations is always equal to or greater than the umber
of cases since a given respondent (person or firm) may be charged with violating more than one code provision.
Adjusted Oaes,. Adjusted cases are those in which a violation ceased and (usually) a certificate of compliance was signed.
fo Violation Cases. No violation cases are those in which the allegation of code violation was found, upon Investigation, to be without basis
in fact.
Droumed Cases. Dropped case' represent actual instances of violation which could not be adjusted but which were deemed unwasultable for further
action. If the practice complained of ceased to be a code violation, because of a change in the code (e.g., price filing under the Canvas Goode
Code), unadjusted violations were normally dropped. The majority of these mce., however, were dropped because they were unsuitable for liti-
gation, sometLJase became the violation wai minor or of a technical nature, often because the respondent was small and only an unimportanut feae-
tar in his Industry.
Pendin Cases Pending cases consist of those a-ndlrg on KMay 27, 1935, which had been investigated sufficiently to disclose the nature of the
violation.
I/ Violation of trade practice provisions were docketed under 475 codes and supmplements.
S/ This Item gives the total for the 57 codee which made up the open price sample.
/ this item gives the totals for the 45 codes in the open price sample for which less than 100 cases each were docketed.
/ This item gives the totals for the 12 codes in the open price sample for which 100 cases or more each were docketed. The detail for each of
these 12 codes Is given immediately following the totals for the 12.







- 439 -


other hearing headquarters. In liew of such -ersonal appearance, the re-
spondent vwas entitled to transmit evidence denying the allegation of
violation. Mr. Reinstein stated that rice filing cases.wpre regarded
as "routine". The code authority would make a showing that the alleged
violator .was a member of the industry and that he had not filed prices.
Removal of the respondent's Blue Eagle frequently followed. In most cases,
Mr. Reiistein stated, no further action was taken, since the Litigation
Division did not push such cases in co',.rt action(*)If the respondent
filed prices at a later date, he as entitled to the return of his
Blue Eagle.

4. The Government Contracts Division.

The Gov :nment Contracts Division of the IIRA (earlier the Government
Contracts Branch of the Compliance Division) also ,as an aid toward the
enforcement of tihe trade practice provisions in certain codes. This Div-
ision, .am.ong other activities, attempted (1) to secure the cancellation
of contracts between government agencies and code violators and (2) to
bring about the withholding of new government contracts from such vio-
lators.
".... The case of Morrison Brothers is tyroical of such
instances. They were the lo: bidders -nd were awarded a
contract to remodel school buildings at Bethesda, lid.
Before the job '.7as started they were found to be in
violation of the Contractor's Code, and the right to use
the Blue Eagle w7-.s terminated by the Compliance Division.
The Government Contracts Division, after investigation,
recommended cancellation of the contract, but P.W.A.,
for reasons that seemed good end sufficient to them
declined to follow the recommendation and permitted the
performance df the contract. Without meaning to criticize
the action of P.W.A., or to question the soundness of the
reasons whichh prompted such action, it is submitted that
the work of the Government Contracts Division was seriously
hampered and its prestige -nd effectivcmess considerably
damaged thereby.

"Despite its lack of newer of cancellation of contracts end
the lack of connlete cooperation of Govcrn-ient Departments,
there can be little doubt as to the value of the 'ork of the
Division in securing cod, compliance ii rTan" industries.
In +he case against the Baltimore Lumber CorMoany(L-1407), it
an -ered that orders for government 'work constituted 7&,
of the defendant's business, and because of this f-cU the
defendant w7.s willing to con-isent to an injunction in order
to retain his eligibility; status. In the building trades
and among building and roads contractors conditions in Govern-
ment contracts were very v-luable in securing code compli-
ance, and the tremendous purchases, under such contracts,
of steel, cer.ent, lumber, machine shops, products, cotton
garments and pap'-:r undoubtedly greatly aided enforcement by
other means."(* *)

(*) See section II, Litigation Activities, belo'7.
(**) "Extra Judicial Methods of Enforcenent",Work Materials "o. 27,Legal
I Enforcement Studies Section, Division of Revie'-7, NTRA,Jan, 1936 pp.44.

L: 9826






- 440 -


Other testimony may also be cited relating to the effectiveness of
this ajeicy of cormoliance. The National Fertilizer Association News,
in its issue of April 18,lSS5, stated tli-t the cancellation of certain
government contra,-cts had acted as an efficient meons of bringing about
conformity nith code provisions in thnt industry. The History of the
Code for the Builders Sun-oly Tradt; rlso testifies to the efficacy of btW:
activities of the Government Contracts Division.(*)

The work of this division was hnndicap-oed in some capes, it is said,
because of the fn.ct that the Division was unable to secure definite and
certain information concerning whether or not a given action complained
against constituted a code violation. Its position was thus rendered
difficult 'hen, after attempting to have contracts cancelled because a
given concern had violated a code authority interpretation of a code
provision, this interpretation was held to be an improper action on the
part of the code authority.

(*) .See oaPe 19 of the code history.





N


9826






-441 -


II, LITIGAT; A C':VI:'I--S

A. Number of Cases Hr.-idleci.

There -7ere, dtLrin th lij.'t o :Lc lA.,, 2,064 cases referred to the
Litigation Division fo-- court .ctioa. (*) Of t30se c:-.ses, 279 involved
failure to file prices. (In no:-t, I- co't dll c-ses, othe-r violations
were associated with f;ilm'.re to file -rices.) Thc. numb.-.r of cases in-
volving selling belor fileC. rice is nt .'.vilri.ble, since such cases,
in the tabuljAtion made by the enforcementt Studies Section, --ere lumped
with a number of other t.y-oes of violations under the heading "Violations
Involving .inimun Price."

The 279 cases Were distributed among the codes as follows:

Cod_ e Ho. of C.ses
Involving
Failure to Pile Prices

Lumbe', and Timber Products 70
Retail Solid Fuel 23
Retail Lu,-.ber 21
Retail Monument 11
Wholesale or Distributint. Trrrde 9
Builders Sui.,'lie c 9
Grahic Arts 8
Fabricated M.etal Products 8
Electircn.l IirnufPcturins' 6
Business Furniture 5
Funeral Supplies 5
Cigear 4
Wholesale Confectionerr. 4
Baking 4
Icd 4
Crushed Stonu, etc. 4
Rubber Ma.nufacturing 4
Slate 4
44 Others (3 or less cases er&ch) 68

Total........279

B. Attitude of the Litigation Division Toward Prosecution of Price
Filing: C.ses.

Mr. Robert Denvir, Chief of the Enforcement Studies Section of the
Division of Revie'-r, in response to questions concernint- the -oolicy of the
Litigation Division .in prosecuting violations of the Drice filing provisions.
stpted that there wan.s no general policy with respect to the type of cases
which the division wouldd prosecute.. However, he continued, few if any
cases involving only failure to filo price wcro brought up for court action,
since it was necessary in each case successfully prosecuted, to.show that
interstate commerce pwas Pffected or involved. It was difficult or imnossi-
ble, he stated,, to demonstrate that the failure to file prices had adversely
affected interstate commerce, .and hence cases involving failure to file
i (*) Data su.-,lild by the office of Vr. Robe-rt Denx-ir, Enforcement Studies
98 6 Section, Division of Review, ITRAl
I IIIII I I^^^ ^^ ^ ^^ ^^ ^ ^^ ^^ ^




- 442 -


prices or failure to addhere to filed -prices rere not actively pushed by
the Division unless the transaction involved in the rrice violation vas
clearly of ran interstate charr'cter. In general, it nas felt thatia:
violation of rice filing -rovisions could. not be successfully .rose-
cuted by itself. (*)

SECTI01 C '-'IMRA PQLICOY ?7::LATIiTG TO OPE:T PZICJ FILING?




The precedin.; sections o.' this chanter hr.ve presented the Work of
the IRA in supervising code authorit-- administration of the rice filing
provisions, and in assisting to obtain ind-astrr cormliance ri'th their
requirements.

The :ro-sent Jectio.i traces the develo-nent of the .olicy rhich
guided the Adciinistrr.tion in its derling. -i.ith the subject of open rice
filing as a hole.

Two major trends are r-p.-n.rent in the official -jolicy statements of
the !MA vrith respect to -rice filing, ?Ind in the vie.os set forth by
the v,-rious advisory7 divisions .-nd jo,-rds. The first of these is an
evolution from rn rlnost wholly uncoordinated -.nd unoritical acquies-
cence in open price nro rans -.s )r-3sentod by the sponsoring industries,
to a carefully considere. ,nd definitely announced policy dealing nith
both the aims and tie techniques of the price filing device.

The first coJde providingg for rico filii:; *"ws r-mjroved on August 4,
1933. As late rs M -rch, 1934, an. s-o!hes;i. of tne Administration stated
thnt no official rice fili-J -olic," ha1FL Ps yet been formed. At thrt time
more than 300 Codes, r lar-e -iro portion of the- i contp.inin: o-4oen price
provisions, had b!uen anroved. On June 7, 193o4, rith the issuance of
Office M1emorandum 1o. 228, thc first official pronouncement of price
filing policy api-mrred.

The second )nrincippJl trend accoirpanied "the first. The provisions
approved during this earl7 period --rere diverse in form. The industries
proposing them -ere frankly intent u-jon -orice strbilizrtion, rhich in
many instances --'z taken to signify price control. The price filing
provisions r-ere in the urin designed to effectuate this. Policy develoomeni
in the Administrtiot; 'hdtever, tended definitely ,ray from this aim -nd
toward the objective of ;rica -;ublicitr divorced from rice control.



(*) The dubious ledaity of mnr-ny of the o-'en price plans set up in pur-
supnce of code revisionss -'P, rIso a factor, if -e can judge by the
memoranda o- individual leg-.l -dvisorn. Tote wmrticulsrly the
business furniture, macaroni, foldin.r paper box cases referred to
in the te:t of this study. -Further study of the subject of this
section vouldc oe desira'o6le- '


9826







- 443 -


To achieve this aim rer.tmire'i that the -:,rice filing provisions be
more uniformly drawn, ind th.]t -;-)ecific srfe,.r6.s iand limitations,
based uponft adninistra.tive :c-jeri.ence, :. *-'ritten in Office IMemorandum
No. 228 set forth the first model -,rlc-. 2ili.. clr.se. The following
are among the srfegu.nrds i 'ri w.r )ro"7'1,. P-;.;ii-- sought to be thrown
around the price filii.,: jro/i;ions i. i..iZ .,ovc!,.-.t t. .-ake them more
nearly mediums of o.)rice ublicity -nd li.:;s i-iechanism: for thLe main-
tenance of orice:

The rule was laid do-/n that -r'icez :iust be filed '-ith confidential
and disinterested regents rather thin vith the code authorities.

The waiting -eriod. prior to the effective date of price reivisions
was declared contrary to policy, except in special instances.

It was held that price filed must be actual selling prices, instead
of merely minimum -prices.

i1sndatory customer classification, which had frequently been incor-
porated as .P.rt of the .rice filing provisions, was forbidden.

Restrictions n.e:,on rreniums, "free deals" and advertising a..llowances,
other than that they be filed nlon_ with orices and terms of sale, were
declared to be contrary to .olic-r.

In order th.t there might ..e sun)ervision of -.)rice filing plans and
study of their effects, it was st-.ted in newly incoroorated -rovisions
that no price filings could be destroyed without thE written consent of the
Administrator.

It was ruled that -rice lists should be disseminated immediately
unon receipt by the agency receiving theri (this both aided in price pub-
licity and prevented suspension lor i. rice byv persons interested in
maintaining or increan-in] -iricc levels).

It "-as required that .21l -)rice information, including all terms and
conditions of sale, be filed.

It was provided thnt filed pricess :.iust be made available to all inter-
ested parties (including. customers).

There was by no means entire unanimity within the Administration it-
self upon these j-oints, nor acquisuence in them by industry; neither was
there any .-reat progress made in applyin-. this 'olicy to the many, and
highly important, codes whose price filing provisions had been app.)roved
prior to the policy formulation. Nevertheless, the rbove represents in
general the prevailing joint of vie- concerning price filing policy at
Which the Administration had arrivedi when the code )eriod came to an end.

In the follo',7int; section the general course of this )olicy develop-
ment, and the principal factors affecting- it, -ill be traced, beginning
with the debates in Con'ress recodin, )j-.ssr-e of the ilftlonal Industrial
SRecovery Act in June, 1flS3, and carrying through to the inva.lidating of


!.. 9826





- 444 -


the codes by reason of the Schechter decision in May, 1935.

I. SENATE DEBATES ONI PRICE FILING PRIOR TO PASSAGE OF THE ]IRA.

Among the earliest intimations linking; the subject of open price.
filing with the proposed INotional Industrial Recovery Administration, and.
indicating the objectives sought by such a policy, may be found in refer-
ences to the subject nade in the Senate rhile the Act ns being debated.
This has already been referred to briefly in the introductory chapter of
the report.

At that tine, Senator Borah wanted the anti-monopoly clause of the
Act supplemented by an anti-price-fixin.r clause and an anti-restraint-of-
trade clause. Senator Wagner, one of the chief proponents of the Act,
objected to these proposals, holding that "* * a prohibition of 1res-
traint of trade and )rice fixing' as these )hrrses hve been interpreted
by the courts '-7ould stand in the way of the most salutary effects which
the bill is designed to accomplish."

He continued:

iFor instance, exchange of information, which serves
to make competition ,'r.tonril instead of blind and
destructive and which thus expands treadle and commerce,
would be prohibited. It was .declared an illegal re-
straint of trade in U.S. vs. American Linseed Oil. ()

'Trice stability as distinguished from mqnotolistic
price fixing, is a universallyy recognized necessity in
order to achieve economic welfare, and yet it would
be made practical impossible by the Borah amendment.
This amendment would prevent eve-i the publication by
business of their own price scheduler and their ad-
herence to these schedules even for short .ieriodn of time.
Such practice uPs declare& an illegal restraint of
trade in the Linseed Case. Yet such practices might
be necessary to prevent unfair price cutting and other
destructive price manipulations .(**)

Speaking of this debate and of its legal implications, Mr. George J3
Feldman, Assistant Counsel of the Litigetion Division of the NIRA, in an
undated "Memorandum of Lrw Considering the Legality of Code Provisions
Requiring the Filing of Prices" wrote:

"One of the Supreme Court's favorite methods of determining
what changes ,."ere contemplated by a ne' statute is a resort
to the intention of Congress, which mry be in part adduced
from the Congressional hearings and debates. That price fil-
ing weas definitely conterT'lated is obvious from the debates.


(*) U.S. vs. American Linseed Oil, 262 U.S. 371-1923.

(**) Congressional Record, June 13, 1933, page 5840.


9826







- 445 -


Indeed, a close re: :c.n' Au-rke:G it 2:,'err that, in tha proper
circumnstr.nces, it iu l",o0c the dut of the Reco.,r A.&-nin-
istrrtion to iacl'iLe -'i.en in t'.: i::t..-i'7.t of a stable -warke,-.

". ....It i '?itC *: .t. i. r ,_ .c : 't'. t r m- nid-
ment to the orijir. i-]. 11'.-". ... i -.; L,.i'r':, & Lui the Senate,
which souk:ht to forti.'c2 bir:,.tt- m.: i e t ra.-traint of trade
and price fixing'. Tie f .c; ti;,t tn..x-o provisions did not
find their ",:py into Irr, a.: i 'infl(]. ci'ctcrd is o-f th.- utmost
importancee. As vas sta.ted b- Ir. JUstice Crardozo ... (in
another case), the o;Aission may have been unwise, but it cer-
tainly 1as not inndvertant. *w.... It is of special signi-
ficance that Senator t'orah made sUveral unsuccessful attempts
to have his amendment reinstated -fter the conference report
had oeen submitted and before the final vote u.-s t.aken. In
Fact, this issue was the hig-hlight of the Ccn.re.sional de-
bates.

"In vieFv of the established intent of Congress, which not only
permitted but encoura.-:ed, -rice filing when necessary, the Re-
covery Administration has no alternative. The intent of Con-
gress governs."(*)

Tuo points o_' a.rtic'ilrr iTnmortrnce an.rner from the foregoing: first,
that "r.ice stability Ts.. distinguished Tron monopolistic -)rice fixing"
was one of the orir:...ry a.iis of the, Act, an,' second, tna.t it was the appar-
ent intent of Congress that -rice filin.; -uder the lIRA should be "not only
permitted but encoura,-ed * uhen necessary".

The Working out in terms of rd-niinistrntive action of !ihat thus seems
to have been the brsic lr:.isl; tiv. -olicj '-ith respect to the filing of
prices will be seen in tfle Secti,-an :Collo'1 ing.T

II. FIRST FRA PRICE FILIII3'P-.RIOD J'T/ 16, 1937. THFOITGH JUITE 6, 1934-
EXPERIIE2TATI,"iI A SD... ,,. -O POLICY .

Almost precisely a. year ela.ised fro'n the date of the npss'ge of the
N1.IAU to the tine -hen a definite ,-,n. relatively couilete Dolicy nith re-
spect to open price loanss "as forminlly enunciated b; ITRA. This period
was characterized by the- adoption of a lart:e number of codes containing
price filing -rovisions differing widely in various details, and, especially
during; its later months, by 'n increasing : tendency toward critical examination
of the effects of these diverse e-cperiments and search for some basic
policy with respect to tiem.

A. Six Months of Price Filin.-. Experimentation.

The fourth Code to be .o .'roved under the IDRA contained a detailed and
comprehensive -:rice filing )lan. This '-'as the Code for the Electrical
Ianufacturin:.c Industry a ;proved( Au,-ust 4, 1935. irumerous others quickly
followed. ringg this i-eriod of intensive code-making manJV" codes, includ-


9826


(*) Legal Division IfMA files, "Price Filing, No. 413".




- 446 -


ing those for major industries, here' approved -ith )rice filing plans
to which virtually no considerati )n had been given-in the public hear-
ings. During this period, in f-ct (nith certain exceptions to be
noted lctc-r) little serious consideration of ,:/iy kihdf ras given either
to the nature or the possible: economic effects of the price filing
provisions as provisions as proposed or n-a)roved.

1I Reasons for Administr.tive Attitude.

One reason Pdvanced for this early attitude of relative inattention
to the price, filing -lans on the -prt of IR.A is the primary preoccupa-
tion of the Administration during this period -Tith the' tnsk of obtain-
ing satisfactory ni.-;e and hour .provisions in the codes for the purpose
of relieving the unem iloynent emergency and bolstering purchasing porter.
Again',-: the aim of )rice stabilization already noted in the Senate de-
bates -.ras almost universal, sought by the industries "-ro;osing codes,
and ras to a consider-able degree acquiesced in by the Adninistrr.tion,
especially when claimed as an effect to the increased labor costs as-
sumed. The )olicy of the Adninistrrtion therefore, insofar as it mayr be
called a policy, a-pears to ha-ve been to apnrove what the industries
asked for rith res--ect to price filing provisions, without serious ques-
tioning. It was, in faqt, a period of broad e:.neriwentn.tion 7ith price
controls of various kinds, and -ith rice filing :ieth6ds in narticulere

As an illustration both of the gencr 1 nat-.re of the .rice filing
plans a-)roved 'urin-: this -oeriod, and the scant attention given thera in
the orocess, an account of one of the try-)ic?".l e.rly provisions may be
given.

2. The Price Filing PlPn in the Electircal .Linnufacturing Code.

This Code, as re-irked above, '-.as the fourth to be approved under
1RA and the first to contain a -rice filing )lan. Only one reference of
any significance concerning filing n-nperrs in the transcript public hear-
ings on this code. Deputy Commissioner Allen, who conducted the hearing,
in speaking of the plan, said:

". the intent is that a manufacturer may at any: tine
elect what he vants to sell his .oods for; if he does, he
reports it to the supervisory nent, showing his list and
discount, lacingc; u-ion hin the obligation to publish that
Sto all competitors r.nd interested aprties, and it provides
the op-iortunity for any manufacturer to change his list and
discount at any time he rwants providing ; he 'ill not sell
below his -ublishlied disco-unt _rice, so lon': as the period
of that list -nd discount is effective." (*)


9826


(*) Transcript of Hearing on the Code for the Electrical llenufacturing
Industry, July 19-21, 1933, Vol. I, p?.ge 224.






- 44.17 -


li'othi.: ols., of ir.T-ortance cc-ncernin: rice filiing p-oeoears .in the
transcript of the heorinlj. .,nnc of the re,,orts o-i tho final draft of the
code submitted by tne boar'.".: u di :i-X-onis of t.. Ld.dli:istrn.tion to the
deputy administrator )'ioi' to i .ro.:-i c o.i th r-ference whateverr to
the price fili r.i,, ,.:. Si :i -.r.!- .Ll t: I .`...t.. ri.-21l suIMar'yc of
the main points riscussec.d i., c .3 .'.'.1e e t c, 0..c CO Which De-.-juty
Administrator Allen sub:.riitt-'. to tm- _- ,:i:-iItr- -c."- 'h tile code wTent
up for -.-.v-,:v'-il, th.:re i o c 'ie-LtiLc)2 of t.- o ..:a o.rice -:lai (* )

The escsentia.l )cints concer-.i -mric filin contained in Article
X (**) of the Electrical .-I.nu-aLCcturin" Code, 'rere:

1. If the code authority determined that it 1-1s customery in the
industry to sell products on the brsis of ,rinte'i )rice lists, it could
require tha filin,; of such lists.

2. If tnio.code authority; determined that conditions in a. subdivision
which h.?& not previously y sold o.i the '.asis of .)rice list.s '--ere similar to
those in a subdivision nihich ha..d, it cou.ld require that the for!ier sub-
divisio.i also file :-,rices.

3. A ten dan r7oitinu period 'c-': -)rovided for revisions of rice
lists.

4. Co.roetitors cou.ld file revised li.its to becoiie effective on
the svme date ,s a revisio.i about which they hAod been notified.

5. All blO'.-n marufrcture:,: in tha Industr-- -,ere to receive the
original and( revised p-rice lists.

Se MJembers o' the indust .-- -er. f,:rtidden to sell below filed
prices. Thi-'re '--s no rouire-ien-it that the' sell a.t filed -prices.

It t-ill thus be se'-.n t.-. Y,-r-t l-..t',r s to become one of the
orinci-opl pointss of contention> ;ith rozeect to 2earsl IA policy con-
cerning rice filing0 tue "-' it.i:': .-..nriod beforee revised prices could
beco.ie effective x.-.. w-.ritten into the code and .-:,cquir-ed so.,iethlin of
the force o.? precedent ii the verr first .-rice filin,- )L-n. 1, )roved.


3. Early Dissent With Respect to Price Filing Provisions.

While --hat has been previously said as to the degree of attention
paid to the price filin- -.,'Tans in process. of approval reflects,. the general
situa,.-tioan t this time, certain grow-.s end. individuals within the Adminis-
tration, and closely connected rith the code-making process, soon began to
object to, or at least to question tent.atir.el- the wisdom of, the types of
open )rice provisionss which '-ere bei.i- 'writte.n iito the codes.


(*) ,Ir. Starlin-; icKittrick, who r,-as an assistow-t deputy encg-ed in the
adninistr.-tion of this codee, st-ted that he i.s of the opinion that
minor comi.,ents on its -.,.rice "ilinog )rovisio.:s Tere m.nde b'r some of
Sthe hig&- A.Adiinistr:.tion officials in memoranda prior to the appl)roval
of the code. These.? have not been located. by the Price Filing Unit.
(*) Codes of Fair Competition, as A.nroved, Government Printinr Office Vol.
I, p. 49.,




448 -

Although the objections of these individuals and groups did not
serve immediately to alter the nature of the vlrns which were being ac>
proved, the t-)e of -oolicT, eventually r-doited b iiRA 's, as will be
seen in a lnter -ectio-, ntorill' 'ected b- the dissenting opinions
expressed in the.:.e enrly- months of cole forn ulr 'i6n.

Several instances of these dissident attitudes follow:

(a) The Code Analysis Division.

During the latter )2rt of Jul-, -nd during" August and Sentem)er of
1933, the Code Analysis Division headed b'- I'r. Ste-Then De.Bruhl, served
in, a sense as P -)olicy advisin; .-rouno for the Administration. According
to information secured fron iMr. U7. I. Bardsley rnd 1r. Pat Taft, both
of rrhod were me.abe:- of the division, the function of the group a-is to
take the codes shortly after the,- -etrrn originally submiitted by the indus-
tries and conmaent on the :-)rovision; for the benefit of the deputies in
charge of code :necoita.tions. Their -oli6,i udvisin: activities 'ere of
a rather negative chrr. cter, accordin; to Mr. 3:.rdsley, ,7ho character-
ized the -ork: of the roundn as t.irt of -tt: c'in; "red flIs" to cr.11 to
the attention o the de-uties -rovisions of doubtful desirability. In
general, lir. Taft re- orted, this grou. looleedL --'ith disfavor on price
filing provisions al- ure"ed their elininn.tio-:. 'The mernbers of The divi-
sion had no very- clear cut rorso. for this, ::r. Toft stated, but '-ere
vaguely afra.id that o )en rice systems ramiht be usc&. in'-,rice f:-ing
activities.

The fplloini- illustrr.tes the position of the Division on opeh prices

"This article (in the iro-osed Code for the ;lIchine Tool and
Forgin; ]k .chinerr IndJ.ustr/) sets up -.n onen price association.
Thile the r'2sociotion as defined is not of vn extreme tyne, the
difference bet--reen an open price association and a fixed -)rice
pla. is apt to be a nrrro'7 one." (a)

(b) The Division of Research ,nd Plrnning

This p-ency, estab1 ished to advise tj-,e Deputy Adrainistr-tors rnd the
Administr;-tio:i generally concerning" t'., probable economic effects of code
operation, o-v.i to studs' those effects, issued no formal statement of nolic
for the guidance of its code advisers. :r. Ja.es Hughes., former chief of
Code Adninistrction Section of the Division, stated (*) that prior to the
issuance of Official Memornadum iTo. 228 ()rice filing policy) on Junp 7,
1934, the division h.c.d no established policyy on the subject.

Mr. Victor von Szeliaki, ',ho p-)receded LMr. Hughes in the administra-
tive work of the division made the scan statement but added that, neverthb
certain of the division's economic advisers looked with disfavor on naitil
periods, and in general on the re )orting of pricess other thrn fot closed
transactio.s.s.


(*) Reaort submitted by Code Analysis Division to the Control Iivision
on September 6, 1933, .)ior to the public hearing on the Code.

(**) In conversation with representative of Price ailing Unit.
9826 .

q.___







- 4;49 -


(C) The Co-isu' !e Ad'- :r'- -r Board

Re orts of the o- ,o P...i"-'i of t'he ol-ers1 Advisory
Beo.rd L.lso, during: the e;Jiod. t- t. t -.:' "'; Y*:c f Office emo-
cu.: o S ';, fre~nme "." ..... .'i-*;*'' t ... tb fie ttitui':.-- of thst
m,-ndw[.2 ',o. 23.",, J-. U,. U ,a 0 tt
Jor'-' 7-s, in ;;ener ]L, o:.coe uo the :"i'hi..i of "-v other thrn
jast :.ricps. As for e:.r)le, is te o-I'r s re ),rt -rith re-
s:.ect to the Ce:-.mnt Code, d-..ed S t...er 15, 19. Li other
crseG no objection 'as rais 'e to the :Il" .. of current prices ,
hut only; to certrin tyoes of curreait re-)ortiVY;. O-osition was
*,.sIO e:rOressed to l-aiti-.u: -periods in open rriee provisions, as in
the report on the Li-,e Industry Coe, '3e -'te!ber 16, 1933.

In statement pre-.-re a.s a -.,ui7e to its Consiuner ACvisors,
the Consai.ers' Axvisor,, ".opr&- strted.-in .a aenornmidiu date& September
38, 1933,

"... Under the -ui;e of -collectin. inforviction, the open
price scheClales -)ro)oqedr in scne codes la7 the foundation
of ?.ono)olistic control of )rices. Periodic collection of
-vere "e .-rices or of the rr-i:e, of -)rice ouotr.tions is de-
sirable. Detruiled re )orts of prices m-ua.litie-;, -PAe
buyers, etc., i r.rti,".'. r tr-:..-s-.tins r.i. be '-r,. e the
:,r, sis for ctron' rcossum-e to live ,-i', to trcit .ir-o -oliscic
unucrsto.. i.in .s, ,*-. L-,.ou',-d -)e .- -ii .'. closel-r 'roi', thf t
po.nt -f vie-;.

"PuLb ic-1 4 .- o. C e .. c -. .t'.re ;i: ce3 s".ou'.'_ oe o )posed
,.s dev-,ice to c: i it tric, fiizi -._ ree .ents. In .,-rses
wlLere ,uc.> r.. i-rt' -tc '3 c-, -. ot he ejected fror the
codLies, t-ic.- .' c: . :- ,-, '-.iL: -fe u' :

1. The ti e i-tr.:- .:: e t; fili., of r -,--ice schedule
and tL e ..-t 0c .,: c t-. .'- '. :. tl.I bo r:-..uced to
a minim-'n iP, o-. t .. r e r,'.... '-i ,-:- su ion.
A fivo ... it.r--, ; ;n to't 1on -, should be taken
rq tne o.-ts:.-, li .it.

2, .-Riu1 es; ",rc.e .u-rl" -i.e,. u."II .:'l'. oeco:ie --f 'ecti-.:e -uto-
,ti.. 'l .. itr,il.t etc ) -- tr-..e ssoci ti-;n, code
,pu`iorit-,- or -iro,'-huicr.

Z It Thcul.& ho.e :: to" thrt, t the -, c ti ie -n` in the
s i.e nnier ri r e ,._i"c ."o ? .e t" other -" roducers, the
s- ie re --rts c.,~ui.d b-- :'r :'e to 'lj,:rer,' of t'.e r;or.uct.
Tlie o 'il" 'i tnt io .'. Io: : tl.i:- rn- uire ie--i.t ;h.:l.ld be
thirt -,here t i.- ) rt -r,?re dc. T -i. il, v,-.r- s i.-T!
e V.er',, -'ho hr -'e -1ot uel L . .c. e i'iit;, r ..- be
o iitte i, r i t,"t th.,re t e re : i-rts .r- r..,:.e to -n
r s,;O"t :0 n buyers r h rI .ro not r': )r 3enited x. I a-
eqni ri_-le ,t i'..IOio i .ti.n ,'.* ,L '* .,ti:"id i 3inch
other '-',r,',s ,' '-,ill -ie t.e ,'. :'l c-'ejs to the
i r"or 'iti :1.


9326





- 450 -


4. .o time i. lit .hA.l.. '.- .' *-ied or t9 Jur'-i*tion of
-'. ric- c:ieu7. Suca li:,it o'-t;:cn seek, to elni'r, te
lon-, ter- r:c- ':--ct. 3 or .' '.h.r..' ... i.liver, T..rticulrrly in
in ci e thc onr,'g' e ;'t .o, -ji'i;ri s in order
t? kec "l-.it-- ru'..t. J.-iii: : of se-son. The con-
sm-ie:' s inter. s t 1 i2-2 ii c:'.co'r"' r" t'ie 9ttn il i ty of
*:c'.otction by vuh ccntrc.cts."*

4.i. The "3e;-i:iiin;.:s of O0ficir-1 -A ?ri'-.e ?iln.i Polic *

'Thilc :or the -io-t ..rrt '.-L *ri-,: Cuil" :,olic- during; this -eriod
vas, a- n-s ;ee i. i-.-,t2&, :e1'0l- th.t rl:ich .Fs i:nilicit in the vn-
pro e' o e--n rice ilrjis. with so.:i criti,'rl o position n front r-rticul"r
groups, tLer. "7 ere e .'e-7 ':'-liiii:- . rr tr t" t ',.Itz forezh,.do-in .efinite
fornulrtion of policy b the Ad'ci.nistr-tion.

The e-rliect -o.,-:i codc, t..t? October 25, 1933, contr.ineu no
preference to rice filila'-; but a conifidenti-l )olic-l nle::orrndum c,-rry-
in,; the sane d-te (lid. This -"e:'or; -i.:i- --n)w .nerirr to" hrve been the earli-
est authoritative st.-.tc i it CC 'ecrr.-l )rinci les n- to o')ln -)rice sys-
teis unier the i:}I. It re- in .rrt as follows:

0 :en Price Syste :s .hov-l,. -e ur :ec, nrovic.hi ; th-t -.,)rices--

(a) siIcKi be cf"ectiie -it!-in not nore thnn ton ..rs in
cc.;inle:: i:i C.ustrics or fiv( d'ys in si:--l3.

(b) si'l oe c-"fi".le of 'ithdr,'-al ,t the nlensure
of the selle:.

(c) nrc iot s-_wject to veto or nod.ificntion Iby nny
r, 'o";C-r,

(d) n. re to -e :e.-:rr11 *ni A.ishe ; for th eenefit of
bu.yr.rs r, *",el.. :.. i .- l er ."

This "'Gcr.".nl;i., .i .".e.. b' A. in :.,ro-m, ---s strt'neit of the con-
clusions re.-cie& aIt c entin',, helCd on ,O':tobjer 25, 133, of tie Policy
'oorrl '-,-oiAtef. nt the 'irectio:2 o." th.e ACiini.tra.tor in Office Order
o170. 35, issue. 3e'te',ber 15, 1C$3.

This .o-rd 'r n. Oe u-, of th! follor-i U: ,'7. L. Allen, Alvin 0ror:,
Thoina- S. H.I.m':on..., _o'jert .-. Le-., .. 7. 'c. ." Ch-rl : .ic'ielson,
alcol:j] Tuir, D"nl.d R. R.ichi'arj, 'rs. C. C. .uL.TLiscv., lc::p ider S-cha,
K. Si i )so:. 'elso-i S -t r, f oJ'.-1t '. -t:.vu,, It-r ,. 'e. r.'le, ".. 59
hitjsiL.o, C. C. Iillia.,i-, -.md Leo 7olm?.n.


(*) Conficeiti-.l u ,n-r 'i.;: fro-. the Coa.--v-.:1-'rs' A.'.vi'-,or-, Boar" to CouLe
Advisors, D-te2 .3)teo sr 1., Sr.. 1\ I' A files.


9820






- 451 -


It s'lo 7. .)e -IoC th0 t, Uth : .-. .:ce -tiofi of the r rov'l .Tive,.
to toe witi-.; uer'io:., t:-: -'' .]. 1...: .:..t ";' -t t. e'..in e- rIicst official
expression of u:rice -'ilja ..'l ic"' li' c ..T-j:' o the oritic-1 o.finiofl
recordeL. in the oecziao. .,-,c., .). ,'c t-:...-.c .- -,. si.-.e t!'e ..ro-)er
functio-2 of'" th-e )rice- .. .. c .. ..iu o." 'ric3 .u'Cl i.: ty, -s
distinmtishe-l froii .r c',..:" .J.' ,,' et ..:trol. T'lis funr'ientgl
aiver.Dence fro:.i Iirt r-ll- .r;.: -.. : 1. i_ i -lu cr-r rttitu&e to-
-vrrd the nr'ic 'i in '-il.- .: il. c L. ,u''.. to C-'i".' c e'i-e .o L-. olicy
on the subbject c ,ore r 'n.'. e orIo P- t:,. t ;ol,..'. t ,V.- ]OG s.

It should .I.s-) 'e n ote.L, ho,-ewcr, tnr t in thle c-ze of n. number of
code :" :'rovc'' after the iss.nc of- this .ie!.:or-nr.un, the Jolicies ex-
oress',x in. it ne-.-e not follo-red. The i-".:;sis of o-oen )rice provisions
-)ire ). red j- the .es,.-rch and Pln-iing Division indicates that three
code-..; nd one su Y)le-e.t .-cre .-,rove. after Octobrr 25, 1933, in r-hich
thore 's a *7riti!i on in Po:cesr, o7 I d-- s. Of these, on'.-' one
thr 'savii ,roin theese,"Ird '
:-..tu l..-T 'e.t into effect, the othnr three h: vin hrP d the -;,itinrt
oeriod str'-e&d*

Of );erh ..)s even '.,ore i ;i :ortricc: is the fact th t ac( ori('.i I to
this s- ie re3errc. P". ,l.rvai rnalysis, there '-ere, after October
25, 1933, r'h:.'n t'e -.olic" -' iorr-..n'iuI T'rC, issued 'rcvi'i" for nvail-
abilit, of fi] in-s to custo:i.rs, 1537 codes a;,:roved ,rhich u.rdie no
-orovision for buyers to receive fil.in -s.


(*) "-clyvsis o:' Tr-d.e -r-ctices, P-ro -isio.:- .lr tin to 0men Price
'. 'I-_', .ilir S ',ste'". --'_. ,D -,' t'- ivicion o.." e-.e rch
li.-I r57 1 T'35
,:.. ?i.rn ii' ,., -.RA, _e"isc,: 0 ','':I' ct .. t.,l'JU 'h r" -7, 1935,
n 9__ C t--11'-2





























L9826








B. Six Montas of Study and Searcih for Policy.

In the first half of this sectLcn there have been pointed
out t'.e raid and largely unccnsiderel ado'ticn of o)en )rice orovisions
in t"e c-'es, thie outcropping of critical protest ,n:inst the types of
provisions adopted, and the beginnings of an official :TA policy with
respect to :pen price systems, all of which characterized the first six
months of t-_e code period.

During the second six months of tLie 'RA, various efforts
were na-'.e t:. find, out t-Le actual effects of tie several types of price
filing pl:-ns th-at had been approved, and to take certain preliminary
stezs t: safeguard open rice systems in general against abuse. It .ied
become increasingly apparent that certain Pspects Af price filing -lans
approved in the early codes vere le .ding to unlesirable results.

The Administration wvis still without explicit and authori-
tative )rice filing policy, altaiou4'. during tLis ri'. various movements
were set on foot which eventually culminated in br-.r.., definite state-
.nents :-- _rinciples. In arl4itiorn, the Revievw Divisii" d.id certain world:
in co,.i-'ing expressions of policy on matters of let.il.

Te most drastic action so far taken in connection with P.
policy ccnsi".eration affecting )rice filing was effected toward tie
end of ti.is .erio"' by an official order staying all waiting period pro-
visions n.t /et approved, pen,'ini, tie outcome of a general study of op.)en
price p-lans.

The details of t-s-e various developments are presented in
the sections following.

1. Efforts t- Ascertain te Results of Approved Price
Plans.

In January, 1934, a public hearingg was held by the
NRA on "Price Changes". This action was taken especially for the -purpose
of giving an opportunity for expressions of opinion as to the actual
operati-n c-f the price provisions. At that hearing considerable testimony
was given to the effect that prices generally, ani especially bids on
governr.ent -urci-iases, had increased and .iad become much more uniform since
codes weri' put into operation. It v'as maintained by many that the open
price *provis-ons, and more spoecificr-lly the waiting period in the rice
filing srste.,is, were in large part responsible for this. (*)



(*) For testimony concerning identical bi.is, see statement of
Lir. J. 7. NTicholson, Purchasing Agent for tie City of M1ilwaukee,
;7isc-nsin, at the he:.rin on "Price Jianges", January 9, 1934,
-aies 5'3-580. See also ap::'en.,ix "A" of tCe !.ie.'_-'andum submitted
*to Ge.sr,.! Johnson cn February 19, 1934, by t-- ..'.nsiumers'
Adviser, Board.


9826
._ ______I


- 45:2 -








- 453 -


T.-is 1-earing was the first major move to ascertain the effect of
thie trade practicee provisions of codes. Other similar efforts followed.

Lsarzely as a result of t.ie evidence produced at th-is meeting,
three official MIRA orders affecting open price provisions were issued
successively. They were Cfi'ice Orders 63, 6i5-A, and 63-B, the text of
which follow:


OFI'ICE ORDER N0.63

January 25, 1934

Provisions for Open Price Associations

Pending completion cf a stud. now beinaI .iiade as a
result of the price change hearing, no farther
)rovisions for open price associati-ns (including
)rice registration) are to become effective in
codes. Therefore, where such provisions are in-
cluded in )ro-osed codes not yet approved, they
s- all be stayed in the Executive or Administra-
tor' s order of approval for 60 days pending corm-
. ]etion of the aforesaid study.

By direction of tiie Administrator.


Alvin Brown



OFFICE ORDER NO. 63 A

January 27, 1934

iSDIFICATIOI OF LOFICE ORDER 63 011 PROVISIONS FOR
OPEN PRICE ASSOCIATIONS


Office Order No. 63 is modified to read as follows:

"Pending completion of a study of open price associa-
tions now being made as a result of the price change
h-earing no further provisions which prescribe a
waiting period before tie prices filed become effec-
tive will be approved in codes. Therefore, where
such provisions are included in proposed codes not
yet approved, they shall be stayed in t-.e Executive
or Adiiinistrator' s order of approval f.r sixty days
or pending completion of the aforesaid study.





- 454 -


"'ITfis OrOer is not intended 1 to oro.,_ibit or stay provi-
.- sions for'open price associations which provide that
S.revision prices shall become effective immediately
upon filing."

By direction of the Admninistrator:


Alvin Brown





OFFICi ORDER NO. 63 B

January 27, 1934

I.::DIFICATI "N OP OFFICE -RDIR NO. 63 A ON
?RDiVI3IONGS FOR OPEN PRICE ASSOCIATIJIS3

Cffice Ord,er No. 63 -A A is modified to read -s follows:

"As -a result of thie price change hearing a study is
bei,-.g made of open price associations. This study
.particularly involves the waiting period before
filed prices become effective. Therefore, any pro-
viszion for a waiting period in codes not yet
a.) :roved will be stayed in the Executive or Admin-
istrator's Crier *of A. 'pr-val for sixty days, or
pending completion of tne study."

By direction of the Aiministrator.


Alvin Brown

An extensive but unsuccessful search was made by the writer to
locate in the 1IRA files the originals of these orders, to which, it
is assumed, would be attached recommendations concerning the orders
by the officials concerned. None of the various sections of the
organization'in which the original orders might'logically be filed
was able to locate the documents. Therefore, it is not possible to
indicate just why, two days after an order was issued staying all
open price provisions, the stay was modified to apply only to those
with waiting -jeriods; and why on the day the second order was issued,
- -rr ;


9826






- 455 -


a t-iirt. .'-as promulgated which stayed only waiting periods. (*)

Whatever the precise reasons for t.Le .n--iificatiz:ns, it seems
certain that there was strong, in'Xastr' )-rotest at thiis drastic move to
curtail th--e rig-t to a ty)e of revisionn ailrealy possessed by large
numbers of codified industries.

Moreover, in five codes, inclaiing supplements, the policy ex-
pressed in Office Order No. 63-B was not followed. The co&es, approved
after January 27, 1935, in which there were waiting periods which were
not stayed, were:

232 Merchandise Warehousing
(Approved January 27, 1934)

287 Graphic Arts (All Divisions and 31 Appendices)
(Approved February 17, 1934)

401 Copper
(Approved April 21, 1934)

4-1 Refrigerator Manufacturing (Supp. to Electrical Mfg.)
(Approve,1 June 9, 1934)

4'-2 Portable Electrical Lamp ani Shade (3ua).. tc Elec. Mfg.)
(Approved June 27, 1934)

Accor-..i; to a responsible administrative official, the action as
tb tie codes listed above, with the exception of the Copper Code, was
due to "-ri~r commitments", which it-was felt could not be disregarded.
The Copper Code provision was of a special type.

Except for these cases, however, Office Order To. 63-B marked the
definite ado-. tion of a policy disapproving tie further acceptance, at
least without stay, of mandatory waiting periods in connection with
*t ,


(*) In this connection it may be noted t.Aat Jir. Irving S. Paul, head
of the code authorities of three of the subdivisions of the fabri-
cated metal products industry, stated in personal conversation with
the writer that the three codes with which he was concerned were
up for approval just at the time Office Order No. 63 was issued.
Mr. Paul reported that when he was advised that by virtue of this
order the price filing provisions in his three codes were to be
stayed, he protested vigorously to the Administration. He based
this protest, he said, on the contention that the industries would
have no price protection at all, and get nothing from the codes to
compensate them for the increased cost burden the codes would bring.
He felt that his protest, and his proposal to withdraw the appli-
cation for the codes, were influential in bringing about the modli-
fications contained in Office Orders 63-A and 63-B.


.9826






- 456 -


open price plans. (*) The stays iTm)osee by that.,Order were never re-
moved.

2. Special Stu.ies Undertaken With an Eye to Policy.

As a furthe-r oat growth o! ti'e hearing on price
changes, and as a result o.f t.Le increasingly felt neei to find out
what was resulting under the rice filing provisions if a definite
policy nas to be formulated, both the Research and Planning Division
and the Consumers' Advisory Board! madre special studies and reports "
during this period on the operation of the open price plans; Each of
these re-)ports included a number of policy recommendations, the princi-
pal points o0 wnicn are summarized below.. .

(a) Research and Planning Division Report.

The first of these *studies, dated April 3, 1934,
was -repared by Mr. Simon Waitney for the Division of Research and.
Planning.

After surveying the operation of open price
provisions in -the codes approved up to that time, Mr. Whitney advised-.
against comp-lete elimination of open price provisions. HIe said that
suc'. a -roceC'Lure woull be "taking away a useful but dangerous tool in-
steac. of teaching its use."

Mr. Thitney's definite recomnen-'.at'ions were:

"1. The reporting of prices on pae.st transactions
is already legal and sliculd be permitted but the
buyer should :1 not be identified and even the
seller's name should. probably not be reported to
his coompetitors, unless the industry can show a
real nec.essit' for identification.

"2. The exchange of current price lists should
be permitted.

"3. Tne mandatory waiting perioil should be elimi- ..
nated from cooles unless a given i-ndustry can
prove its necessity to prevent rave abuses, or
unless the customers want it too..:

"4. Price reporting should not be taken over by .
the government but the NRA--should reserve the
right to require copies of all price data to be.
filed with it.


(*) Thie later amendments, however, affecting the Lime and Cement Codes,
continued approvals of waiting periods which had been included
in the original provisions.



9826







- 457 -


Price re",'-rts .-.:-.]: be ., 2e 1j= .miab]e to buyers
.2s well as sellert-, un'.e: r.as-nable conLitions.

"C. Ser.-ecd. bi-s sj..ii'. n-t be exchtn;ge-1 until n'fter
t. e .e ...r..

"7. Frica fixin. shnul. be st.pe el by tak:in, all
-.rice fixing p)-)viSI,:; (c,1 v; -ic.- price re:,,rting
is n-t one) out of co'.es, a.i:; Jy is--uing a warning
to industry 'ollowe- x, pro-.ecuticrn in c,-:e of
continued price fixing."(1*)

(b) Consu-lers' Advisory. Boar1 Report.

Tne second of tiese studies, undertaken pursuant to
an order issued directly by General Johmson, was conducted by the Con-
sumers1 A,..visory Board. This boarl had, almost from the first, as the
precedCLinr subsection has shown, been opposed to much in the openr price
plans mic- were being approverl by the Administraticn. Typical of the
attituf.e c' this Boardi is the following extract from a letter to General
Jonnson C.o.ted February 19, 19%4:

"The recent -icaring on price changes ro'luced a
considerable volume of evidence that open .)rice
systems are facilitating uniform .rice fixing
....the information at hand indicates that the
difficulty cannot be dealt witi me-ely by elimi-
nation of tne waiting w.erioi. The b'tsic diffi-
culty as we see it is tiat open rtce systems,
with or witne.ut wvr.itins :-eriols, i .e.1tify the
person or firm quotin. tLe low .)rice .in.- thus
facilitate tie use of -.ress;re t:' force '>is
rice up to the level ,enerall:, le-'ire'. in the
industry... .MTile we ,. not believe it lesir-
able to eliminate tie re.)ortin- of -rices and
price transactions completely, we feel that it
would be possiblee to throw safeguards around the
reporting in suc-. a manner as tco make more d'liffi-
cult tie harassing of th::.se wno would keep prices
down. To this end we suggest as worthy bf your
consideration, that actual prices charged in sales
already made be recx-rted to T--RA agency pledged to
keep the detaile,! recrts cor-.fi.lential and to
supply to members of the industry only statements
of the range of prices at P given date. If the
repcrte1. prices indicate that existence of oues-
tionable conditions, we believe tiat remedies
can best be applied bj such an agency rather


(*) "Open Prices" by Simon Whitney, Research and Planning Division,
TRA, April 3, 1934, page 40.



9826
V





- 458 -


t..an by those who have private interests at stake."

On i.1ey 4, 1934, after a study of thie operation of price filing pro-
visions, t--e Boari issued a report. Its recommendations concerning
policy *viz:re:

1. Im crtant revisions are needed in nearly all open price pro-
visions in ccd.es.

2. OGen price provisions should. not be abolis'-hed until attempts
have been .nade to remedy abuses.

3. In revising open price provisions, a model clause is not
enouh-i; varying conditions in the different industries should be taken
into consideration.

/I. Tie result of open price )rovi-ions should be true publicity.
Therefore, code authorities si:ulI. irniediately u)on receipt make all
price information available to all members of tnt industry, to the govern-
ment anCt to tLie public.

5. Code authorities should be prohibited from promulgating regula-
tions c-ncerning customer classification, grading, discounts, etc. under
the guise of price filing forms.

6. Th'ere should be no revelation of identity of the filers; only
the range of prices should be distributed. Therefore, a confidential
agent sh.:ul:'. be the recipient of the filing.

7. Waiting period should be retained only if the above safeguards
are made.

8. Detailed check on the operation of the provision should be
made.

9. There should be prompt investigation of alleged abuses of price
filing systems; if there was abuse proven, the system should be suspend-
ed automatically penr.ing a hearing concerning revision of the plan.(*)

It will be noted that tie recommendations contained in these reports
of th'e tvw: advisory divisions were in substantial agreement upon the
following General points: (1) th-iat open price filin- systems should not
be done away with until efforts had been made to remedy the abuses con-
nected with them; (2) (by implication) that features related to price
publicity sh:ulJd be encouraged and those tending to price control should
be weakened; (3) specifically, that the waiting period should be abolish-
ed except ;-Lere positive need for it could be shown; and (4) recommended
changes should apply to codes already approved, as well as to future
approvals.


(*) "Exherience with Open Price Provisions of kpprove-1 Codes", Ccn-
suiierst Advisory Board, NR7A, May 4, 1934, pages 39-42, NRA files.


9836






.- .' ., -


3. Further Searc-i For a Basic Policy.

A further effort t. ascertaIn t.-ic result:. of t'e price
provisions in the URA codes, an-, to hel 3 in ti.e forraulation of a
basic _-:2ic. filing *i.ic", t k,' t.".e f:-.nn of a. series cf conferences
with codCLe aLt.L.rities .ci n .-rch, .1 -1,-4.

That even at ti.at late date no definite policy hal been
a-lopte' i- evidenced b; the follov.ins statement trade b.r l.ir. A.D.
Tnitesi.e in his introductory rernar.:s as chairman of one of the group
conver--ence on "Prices", held as part of these general code authority
confcrana ss:

"***I must reiterate, in closing, and say to
you that irrespective of rumors to t.Le con-
trary, the National Recovery Administration
..as formulated no concl.isi-n for a ,Jefinite
opinion regarding open price provisions*****"1(*)

Still another evidence of the absence of definite policy,
even at r >'.r.te v;wLen ,nost of tihe major codes had been approved, is seen
in the L'-.ct t-'at although the "Suggested Outline for Use in Code Draft-
ing", '..atedc A)ril &, 1934, notes as a possible Rule 11 of Trade Practice
Rules, am mpen price provision, no .model is suggested. The outline
state.-, t at su-gested form of open price provision would be "separately
circul.teC.". As far as can be discovered, however, no such model pro-
vision was distributed.

To these scattered ani largel:y'uncoordinated attempts on
the )Lrt 3f t.-e Aiministrati .n t.. reach a :.,finite position on open
price s7rstei.-is, as set f-.orth in the ?receding nages, there was aided, on
April 9, 1934, a somew':iat more systematic eff-rt resulting from the
issuance cf Policy Order No. 83 which created the office of Assistant
Administrator for Policy.

Subsequent to this a Policy Group of four was appointed
consisting of i.-r. BLckwvell Smith, Mr. Leverett S. Lyon, M.ir. William 17.
Barrlsle-,r, and I'r,. L. C. marshallll. This group advised different ad.nin-
istrative officers in the ITRA on policy matters, some'of which related
to or.ce filing. An undated document has been prepared concerning the
work of this group; it is entitled: "Compendium of Abstracts of Policy
and Other Statemients issued by the Policy Group."(**)



(C) Conference of Code Authorities and Trade Association Code Committee
Conference Group Io. II "Trade Practices Prices", March 5, 1934,
pae 3.

(**) Av:.ille in tne office of t-.e Legal Service Section,
U:RA files.




- 460 -


T-e following opinions on -olicies concerning price filing were
ex.resset'. b- this group prior t'- the issuance of Office memorandum
No. 223:

(1) Prices filed should be those at which tne member sells, not
his alini.zin _)iice.

(2) A member of an industry shoUld not be required by the Code
to file '.elivired prices. The filing of delivered prices should not,
however, be forbidden.

(5) In the case of an inter-retation of a code provision, the
group recc.ime-ided that "**** the date of filing of prices, terms, or
cond-iti-ns c- sale shall be ".eemrued to mean the late :f receipt of
notice b- tl.-c code authority, with instructions to t'he code authority
that it ac:. -;t regulations that such filing must be by registered mail
with return recei.)t requested."

finally it snoulrl be noted that policy statements touching at
times uc"n -rice filing matters, were ude rcuring tC:-is period by t'-ihe
Review, Div-i.lonr.. This livlzion, '.esi&-nated to advise the Administrator
concerning conformaity of proporel code provisions and rulings with .TiBA
policy, wa: one of t-ie first agencies tc begin compilation of state-
ments of princiDles. Unlike tie advisory groups who represented -,arti-
cular. interests (industry, labor and consumers) the Review Divisiam .ied
not atten)t to influence tL.e formulation 3f Alninistration policy.
Rather, its function was tc cz.tity policy and precedents, as indicated
by previous atjninistrative action, ani to check new rulings and cokde
provisions against suc-i a ccailrtion. To some extent, t.ierefare, ac-
tion -ireceded rather tian followed policyy during s great portion of tihe
code-ma2;ing -eriod.

An unc.ated su-nmary if policy prep-re&. for the guidance of the
members of t--ie Review Division and based upon precedents, by Mr. Alvin
Brown, contains a digest of matters of policy with respect to price
filing :.s follows:

A mandatory list of extras embodied in a code was locked upon with
disfavor; it was urged that in place of this the members of the indus-
try in question be required to file t-ieir extras the same as any other
price. (i.ay 1, 1934)

A provision for filing -rices by basing points was "believed valid"
since eac..- member was free w.ien filing ti define his own delivery bases.
(May 1, 193,4)

Tie policy of permitting the code authority to prescribe the price
filing form was approved. (iuay 1, 1934)

T-.e objection of a Consumers' Advisor to a pnrvisicn that producers
must include marble at filed prices in estimating on finished jobs was
not sustained. It was contended that this was objectionable since the


9826











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nrio U-.' 'r c,,i -i'r.-3 iicy eL n '-ii part 3 t'ia A.:lninis tzr- t.:n, ..r,,
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tCi- 1 : 6 ..:, u > R 'i i. .I'.f, 1'.3.. to efforts to ieterrrin? t.,e
&,ct''l ".-. .,.'t ..f i .. rt,_-. r .r. r,-.' 'icn 3 (stirnuIl te.- t s.' .,3 e,:,t.L .
by 3JL'.-:" . -.-,i -f '. -.:n). '.'i].t':d .n var.'cus teht t.i-'e e' .i n t
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J iC t , ,,; 4 ., -'- ,[






-462-



III. SECONr NRA PRICE ?'ILING FE IOD JUTE 7, 1934 to UAY 29, 1935 -
DECLARATION, CLARIiICATIOW AND APPLI'ATIOY OF POLICY.

A. Office te:qor-ndum No. 226.

This period was inpugur-ted by the Pprearance of Office iemorqndumn
No. 228, the most imoortent statement of NfA policy concerning price filing
ever issued, and one of the most important of Pll NF-A policy statements.
The memor-ndum cerIt with the question of trice provisions in general, but
its Exhibit A contained a very detailed end comprehensive setting forth
of what were henceforth to be considered permissible price filing re-
quirements, in "-hich was disclosed P marked alteration of previous
attitude in several respects.

1. Background of the ,emorrndum.

The origin of this policy statement is probably to be found in the
nearing on price changes held in January, 1934, Pnd noted under Section
II, B, above. Aouses of ooen rrice systems uncovered at that hearing
had led to various inquiries into the o'ertion of the rrovisicns, and the
unfortunate corsecuence 01o lack oi F: uniform AdminjLstrption policy as
to prices in general hpa oeco.-t incrersinzly rrpprent, resulting in the
organization of a policy for:nulating giruap.

The immediate bpck&:rounc of the memorpncum ,-'as a rrouv of policy
recommendationE suumaitted to x. Blnck'-ell Siitn, the Assistant Adaini-
strator lor Po]icir, ny r. Leveret S. LTvo-, Deputy Administrator for
Trade Practice Polic,', in the letter part of ay,, 1934. The memorandum
was also signed by the :embers of a policy committee working 'ith 1rt. Iyon.
The members of that comi..iittee rver(: !r. .ilton Katz of the Legal Division,
M1r. James E. Hughes of the -.esearch Pnc ?lanning Division, Mr. V..H.S.
Stevens oi the Consumers' Advisory Boarc, Lr.Edwin George of the
Industripl Advisory Board Pnc Mr. papl hutchinp-s of the Labor Advisory
Board.

This memorandum contqine6, with only slight differences, what later
became Exhibit "A" of Office e-oranou:.n -228. In DrescntineT this draft,
Mr. Lyon explained that he had proceeded on three assumiartions:

"(1) That price policies of the r'ational recovery Administration
Pre to be designed in terms of a continuation of p cppitelis-
tic economic order;

"(2) thaint fair co petition is desirable and

"(3) that fair competition reouire- knowledge of competitive
actors to the fullest extent possible without unduly
curtailing private initiative or giving rise to collusion
and price fixing."

Mr. Lyon further stated:

"On the bpsis of these assumptions, I have concluded that open

9626

i


m







- 463 -


rice provisions properly dr,'-n :,.y be .rde a desirable r.art
of r code of fair colmnetition as a device to secure genuinely
intelligent end free co:-etition."

He further said that he believed that the model provision which
was later designated Exhioit "A" o: Office t.uemoranduam #228, provided
industry "':ith what is really necesu ry in tht attainment of an open
market."

laborating on the reasons for the various portions of the recom-
mended provision, Mr. Lyon stated that waiting periods have been excluded
becausee it -as regarded as important "to retain the possibility of gain
through the quick realization o0 market trends and nro-unt action. If
business men are not permitted the possibility of replizinr' such gains,
the incentive to alertness and the inducement to '-'holesome price read-
justments is largely nulliiied." he stated that nile there were some
evidence and considerable feeling that jaitin, periods aided collusion,
this was not the- principal reason ior o:.ittinc- provisiDn for -aiting
periods.

-,e stated that ne believed that the acts tnr-t all prices had
to oe received by the coniidential agent be.aore triev oecpme effective,
tnat they were to be imncdiatel,'- ?nd simultaneousl, distributed to all
buyers Pnd sellers, and thpt they could not be increased for 4b hours were
sufficient g.uarpantees ainst PDuses in the nature 01 "price raids."

There '-'P s soe thou-h oicorv.-tl' not i great riflerence in opinion
in the committee concernin,- iet-ntiiictio'r oa sellers. In his memorandum,
Mr. Lyon stated thpt he j..lieved mucli ',s to be s-,id for non-identification
but that he felt ti.at in vie" ol th( lack oi standardization in so ma.nv
lines, non-identification --s iiir-rcticnl. '-.e ur-ed, however, that
divisional and deputy rdiinistrptors "be asked to attempt to work out such
provisions for unidentifiable, cu.,lication in'every possible case, esrec-
ially in. dealing with industries '-nose products are well standardized."
On the other hand, M.r. '. H. S. Stevens, o0 the Uorsumers' Advisory
Board, expressing a minority opinion, urged that "the confidential" arent
should be directed to issue prices in unidentifiable iorm wherever prac-
ticable. The deputy administrators ;iaint then be instructed that theyV were
to modify this rule only when it wrs clearly inr.arcticable to release the
price in unidentiliable fori." This appears to bc primarily a difference
in emrnasic; in one case the stpn'-erd v'as to contain identification but
deputies "ere to depart from thie standard in this respect wherever possible.
In the otner case, the stan.rPrd was to be non-identiiication and departures
from it were to be made onl7 wriere absolutely essential.

ifair. Lyon stated that requests from industries for waiting periods
should be considered on the meritss as "procosea departure irom announced
policy." A draft article providing for a waiting period of three days
was submitted as a :,iodel for those cases in which the need for a 1-aiting
period ras established by an industry.


9b26





- 464 -


He stressed the importance o01 the provision for ailing with a con-
fidential paent; this 'r:s pn it.-rm of cPrvnount importance, he maintsired.
This provision would have the iolloriT:r -dvrntges, Pmonp others: (I)
It could d eli'iinate favoritism pmon' members ol the industry; (2) it -ould
prevent the plan from being used to the detriment oi customers and the
public and (3) it rould help to secure comunliance riti, rice filing pro-
visions since filing would not 1:e made with a group, such as a code author
ity, made up of competitors.

2. FPrincipal Points as to Price Filing in
Office memorandum No. 226

The chief points in Exhibit "A" ol Office I.iemorpndum No. 228 as
issued were:

(1) Iilings *-ere to be mpde with confidential agent of the
code authority, or, ii. there wps none, th pn agent designated by the
administrator.

(2) Price lists were to be filed for Pll stnncard items and
such non-standero items as the code Puthority should designate.

(3) Prices and revised prices were to be effective immediately
upon receipt by such agent.

(4) Price lists were to be distributed at once to all members
of the industry and to those customeTs -'no -,)Pi. the cost of distribution.
They were also to be ivpilpble Pt the office o- tne a[-ent for inspection
by any customer.

(5) The code authority wPs to keep p permanent list ol -ll Drices
filed.

(6) revisions uprerd could not be :ede until tiled prices were
in effect at least 4b hours.

(7) All sples were to be made at prices listed, no higher, no
l o-7er.

(8) There should be no agreement, conspiracy, etc. concerning
prices; a free and open market was to be mpirteined. (*)

3. Differences Between Suo.iitted pnd Announced 'raft.

The ororosed price filinr provision presented to iHir. Smith bv

(*) As 'Ps noteC acove concerning Oxice Orcer No. 63, it was likewise
not possible to locate the documents (other than the memorandum to
Ir. Smith iromi Mr. .yon quoted) v-hich "ere exchanged with the Ad-
ministration urior to the issuance of this order. F6r the full
text oi Exhibit "A" of Office N.eiorandum No. 226 see hxnibit V of
Appendix A.

9826






- 4G6


Mr. Lyon differed only slightly iroa the model provision as finally
incorpor ated in Off ice ie-morPT du.i1 :T. 2--. The chnv:e which are of
significance -re:

The provision as it ras finally ,-ri:ro-ed provided that -prices should
be filed with "a confidential and disinterested agent of the Code Authority,
or if none, then v'ith such rn Lp:,t__ce..,iriptd c" the Ad.ninistrator." The
portion of the sentence underlined was not' included in the draft prepared
by the committee,

The final draft added to the proposed draft the section providing that
Pll prices, in addition to being distributed, should "be available for in-
snection oy any of their customers at the office of such agent."

The draft proposed by Mr. Lyon's committee provided that after a re-
vision of prices, -orices and terms should remain unchanged for not less
than 48 hours. The final draft provided that a hi-her price should not
be filed for 46 hours.

The following Tppcpred in the original draft as a carpgraph to precede
all the sections ircoroorated in the final drpft:

"In order to prevent unfair competitive practices contrary to the
policy of the Act by making -generally available full information
concerning -orices and pricing practices, but not thereby to permit
monopolies or monopolistic practices, this article provides for
the open filing of prices and terms 0o: members of the trade and/or
industry,"

Just as the foregoini- -rprar:, "1iich ,-s an irtror'uctorv parpgraioph
in the Lyon draft, ,'Ps omitte:.. ii tihe -in--.! fora, o the finpl form also
omitted tne lollo--i-..-:, v'hich in tr.-. L-ron orait wvrs the concluding nsragrapn.

"If the Admiristrato:- on cjm;-ilnint tiled or on his of n initiative,
Pfter cue investigation pnd on ooPortunity to the Code Autnoritv
and other interested nercons to oe rieard, shpll find that this article
has permitted or is nu.rnittin.- action contrary to the provisions of
the Yptionpl Inoustri-l ecovery.Act or otner'ise a,7pinst the ouolic
interest, he mrv stay, modiiy or cancel this article or any part or
eni.-lic!tion tnereoi, in accordr.nce v'ith such firdings."

Otner chpnges were in phrasuoloi'v, pnd c'id not affect the sense of
the text.

o.hat was of particular sil*nificrnce a. out 1,emorxncum No. 2.5, beyond
the fpct 0o a definite rice filin.r policy, oeinr7 Pnnouncec, vas its
sssertiun that a "free end open market" was pronosea to be maintained, and
its opnn~ng of waPiting periods and other control features in favor of re-
quirements aimed '-hollr at effectuating rice pualicitv. It is obvious
that such a chpn,-e o01 attitude woulo meet rith a certain amount of resis-
tance and difficult/ in ronlication, especially insofPr as such alolication
might be attempted to j6 extended to codes Palredy approved.





- 466 -


4. Policy Connected ith Aorlication of the Policy.

Becausethe majorr codes had been apDroveQ before the issuance of
Office memorandum NIJu. 228, the eiiuctivenesz of this policy statement de-
pended largely uron the attitude tPken by the Administration with regard
to amending :"6es to conform to the ne,-; policy.

_age 1 of this .e.norandum contained an important statement con-
cerning the applicatior of the policy it set forth. It stated:

"11(4) Adjustment of Codes: Fending coaes rnd codes hereafter sub-
/ mitted shall be adjusteQ to tnese policies. Divisional Ad-
ministrators shall seek through agreements rith Code Authorities
of Paproved Codes to P lend tnem to conform with these policies
and, whereverr resistance is encountered, the suojcct shpll be
taken up with the Admninistretor."

This statement, however, w-s considerpoly qualified by Office Memoran-
dum Yo. ?o0 issued July 16, 1934, which h stated in rtrt:

"....This (thF fpct thpt Pttenrts -ere being: made to formulate policy
does not inmepn that every code in process and not aoproved at the time
of arnounccEment of r? general policy must conform in the sense of in-
cludin. the tyDe of provision iavored by policy. Under certain cir-
cumstpnces it might oe manifestly unaieir to reruire substitution of
a new cplause after lengthy negotiations have finally resulted in
assent byv the industry to P supposed final form of the code.

"Char'ee in codes designed to ring them into conformity with policy
-'ill be reLuired only to the follo-ing eAtent:

",hen in final form and assented to by tne Industri, before the date
of announcement of g general policy, the coCt, if other,.vise acceptable,
"ill be aonroved. howeverr, provisions flatlv inconsistent with the
essential's of such policy will be stpjed, to the extent of such in-
consistency, until the Incustry sho-s rny such portions should not
be permanently stayed or made to coniorm in substance to such policy."

As to a-rroved codes, ltmiorpndum No, 260 said that nothing would be
done if the provisions cortrarv to policy was causing no diificulty, but in
such c.ses the .-.eseprch and Planning Divisior.n would check the operation
of the provision '"Whenever desired by the Industry, or whenever the
occasion is pprororiate, changes will be effected." whenever r a provision
out of line with policy was found to be causing difficulty, after consul-
tFtion with the industry it should be stayed unless the eiificulty were
re:aedied. (*)


(*) i'or the full text of Office 1e-norpndum #260 see Exhibit V of
Anpendix "C".


9B26






- 467--


5. actionss to the New 7olicyr.

This mnoCiiicft.t.on of the Ac..iri-: trpticn 's ct7itjor concerning appli-
cation oi the new. poliL., cp:I. !s *, ;alit of the o,7-)oo -tio- o* '-members of
industry and of certain individuals rnr6 groupss within the Administration
to the tvype of price provisions set forth in Office '.e iorrc'um No. 228.

Suilniiarrizinp both the reasons for the chance in Administration policy
which h culminated in this 1iemornc'uwi and also industry' reactions, I'r. Leon
Fendercon, Director of the Division of Economic Research and Planning at
the hearing on Price Policy held by the Administration in January 1935,
said:

"...As to the open price feature. The open price -provisions in the
early codes departed from the best thought as to ideals of open
prices. The...best ideals of onen -rices r'ere those which were eia-
ohasized...by EdCy, the precairsor of the plan, which were to provide
publicity to competitors, to the public, to the Government, and the
buyers, so that everyone miniht have notice as to hat prices were
oeing quoted and it 'ras thought that secret rebates and the destruc-
tive influence .of private -crices and concessions would be largely
dissirpated if a strong open price policy were minted.

"The present policy, as enunciated in Office ie iorandum No. 228,
which is at everyonels disposal, is to get opck to these ideals.
Our files indicate, :.iost npturrllW, that Vnary members of industry
rep-ard price publicity in the3e idep'istic forms as not of high
value, end reward it as a mel'ns of preventing price cutting and
as an agency by which coercion, mild and otherwise, as our files
snowr,. and our open orici studies shov-, .ipy be applied to competitors,
-'ho -ere Fettin: out o: li'e, crd M!',/ De .-;iven notice as to what
thL industry tiiinr:.- of ti,.'.. ."("(

During the ensuing ne:-ioc there es fie dent conrilict betv'een those
groups within the iFL, -'hich favored tnt nrincipoles o: Oil fice .,emorandum
io. 22b and those ritnin I-.A anr in industry '7ho or-r'oscd it. Industry
-as particularly inrlired to avci any, reopening ci .*:-roved codes, since
groups sucrL as the ConsuiErso.' Acvisor'r -oprd, whichh favored in iost res-
pects tne policy oi memorandum No. 2"Co, sought, 'hr-riever a code -aas up
ior Pny consideration, to have it amended to coniorid fully to policy.

Thc fpct thrt under the terms oi Office :e.ior'rdum Io. 22b, price
cnanares -ere to become effective i:.r edirtely was one re son -or tne dis-
-pprovpl oi it b, members o01 incustry. Thus the Code History for the-
landy Industry says: "The Code Auit.,oritv rejected su-'gc-stions thpt the
provisions of Art. VII of the open rrice nia-n be- P leaded in conformit'r
-ith Office ',Lem.-iorrncum ,.:o. -, the me.bers ex.lining individually that
even though the -,'itir,- rerioc ,-'a- stayed b- th.z- L'.ecutive Order they

(*) See Transcrint o01 -TEarins- on "-rice cliccv", Jan. ', lj35, ra.es 32-4.
YA files.






- 46a -


still entertained hone tnat this stq.y mihrnt be riftod.,' (*)

Tne 'oce History,, for the Scientific Anraratus Industry njsj deals
with the reluctance o0 inrustrv to _tonr-e coc'es. It states:

"A reluctance to propose Pmnr.e.n-rt. or to re-,,ritc tne code was
always evident. In the matter of price i'ilinc-; provisrions, the presence
of '"aitinx; ceriod oi not to exceed fiiteen c rys belorc rEvised prices
become effective is sufficient reason for un'-111irness to jeopardize
the provisions de, med esser.tiEl ov oro-osir- pny E-mendnents thereof." (**)

'"htrn a niolic hearing ras held on Sentember 2b, 1934, to consider an
emencment to the I'pcpro.-i Code w ion wouldd Provide that future contracts bi
limited to filed prices, Pll rL:crences to ailed prices and e'nerencies
"ere deleted front tne Pnencuent nt the request 01 tne code authority. Thii
,-Ps done because the code put:,oritv.r.is very PnAious to keep the pro-
visions nrohibitin- sples belo'- cost in tne code. Thev feared that if
this section of the cods '-ere opened uo for r:.iendment they mirht be r'eqira
to accept the wordin- of office mn iorpndum 28. (,**)

The situation relptin.; to p:aending, codes to include Office .iemorandum
Io. !78 has been concisely stPted by trie writer of the Code Wistorv for the
Lire Extirn-uishinL ADrlirnce *'fg. Ind. ,s follows "...It ,e.s early evident
that Pn industry to vhich hpd been rT-r'nted e "Pitint period nprlicpble to
price filing, e nur-nntory cost Pccountinr.g system, pnc lowestt reDresentatii
cost,' 'ouli not -illhnIlvy ore-:o such spoarert advartaes in favor of the
newer I'RA uolicv rronounce:aents...."(****)

In short, iciembers o0 industries -ith codes nroviding ior a type Cf
price filing suitable to el'tict rrice control as vwell as price publicity,
'-ere as might ,e exoectec, extieielv lozth to -dupt P t-'pe of price filing
which h lent itself much les- rcPcil'v to efftctirn; such control.

As a result oi this cls.9sover the Cesirability us tne ne'-' policy pro-
nouncement, there r-s constant corxlict between these rroups within the
NRA whichh favored the principles of Oifice eIor;ncum #226 and those within
T1TA and in incustripl i-ro'n ": ici o.rosed it. Those -rouos such as the
Consumer' Advisory -oaro -rhich -.favored in mo. t respects the new price pro
visions endeavored to hr-ve the codes p:ner.ed to conform to policy whenever
pany code vs up for consideration, or '-r.enever anytninr related to codes
-"as to be a-mrovec. As .r result there.'-Ps a general inois'osition to
open up codes for einer.dmnnt.


(*) Code History for the CUncv fg. Inc. P. E1

(**) Code ti-story for the Sciertific Annarptus Industry, p. 12.

(***) See onde i istorv, p-rpge 67 f.4

(****) See Soae History, rege 47.

982 6







- 469 -


The reluctance oi inou'..t'ries to aurrercer tt,ir "$rvious price
control provisions ir favor o' trie ailktr Tr:ovi.:r-n- rccomnended in
Office L.iL.lorF.ncum -'b", in num, rou infstvnces, acco -.?,nied by a
feeling of resentment tnat r':,orovnl d- denied to re-ulrtions that
would effectuate existinc- code nrovi-iors,, re.-'rrdless o' the ipct that
such nrovisicns were contrai'y to the revised policy. There is some
evidence th"t these attitudes '-eri- not li.,ited to industry me ribers but
w',ere shared by certain deputies '-,o Paministered the codes, and by
others who were advising on code .iocii ic&tions. It is obvious from
communications addressed to Division Aitiinlstrators and others
that the principles of Office emorsnrum 225 "ere never thoroughly
accepted by some of those charged with the direct administration of
codes, and in the best position to e.re:l ence the resistance from
industry engendered by the policy.

As one instance of this, as late as January 27', 1935 (six months
alter the declaration of the policy of June 7, 1934), a memorandum was
addressed to '7.A. 'arrimn, then Administrative Officer, from the
Lenuty in charge of the business Murniture Code, recom.nending approval
of certain regulations f',r the mairtenance of resale prices, and a
liquidated damep-e agreement to enforce them. In suoi.iitting these
resaulatiors +or tie pcproval of the adminiistrative officer, the deputy
voiced tie iollo'-in? opinion concerning the position taken by the economic
advisor, '",ho stated that the res-ulations -"ere contrary to PIEA policy as
expressed in Office ;emorancum -:' 'nd should be disapproved:

"I do not concur in this orini-n. Office .e.iorrnd-i.m
228 provides that the riincinles expressec therein
shall be incorporated in Pll codes -'nroved after its
issuance, and '"here an:ree.ent cn be secured, in
all codes previously aejroveci, cut it does not
forbia approval of rE-ulationc cesi:.r.ed to eiiec-
tuate code provisions curtra1-v to these: principles
in codes previously approved.

"It is my belief that so I.on.-: as the industry con-
tinued to desire, and refuses to agree to deletion
or amendment of a code provision not in accord with.
policy, and the NiA does not stay sacn nrovison,
NRA should no: refuse to rerinit Pction effectuating
it, merely because the code provision is contrary
to policy. To refuse approval for this reason is
to my mind, coercive and unfair to the industry."

The Yationl Recovery '3oa?6 did not concur with the recommendation:-
of the deputy in this case Pnd tne result price maintenance regulations
were not approved, although there was no im.,iediate move to stay the ex-
tensive price control provisions in the code or to modify the code in
accord with policy declarations. i'')__________________________
C*) The industry later asked voluntary stays of clauses requiring adherence
to filed prices ir tvwo supplements of this code, but not to the supple-
ment that had been interpreted by industry as containing resale price
maintenance. A study oi the code was ordered for possible revision
after June 16, 1935.




- 470 -


.-Ien c,-dcr., in spit. cf inc'us.try crosition, /were rmcndcd to
proviCe for -i'icc filing of the type )rovic.ed for in Office Memorandum
No. 228, efforts vrere .IcCLO i.i s3mc instrnccs to secure the control
features of el<. style pricL filing .)lL'S -vc.i ounc-er the new type of
provision.

The rea.cti;n of the b'il,.'r'2 -u .plicEs industry took the
for,1i of o,)ositi.-,n to the litc-r'.l r".plic-tion f Office itemorandum
228, which hc.'- been inserted in their code by en.undjient. The admninis-
tration member of the code .uthority for thia indlCstry in a. letter to
the deputy Lated Lecember IC', 19Z4, stated tiat at a. c,'.e authority
meeting thl-e cecretrry of t,,e code -Lt.' -urity .ihad ur.red agencies "under
the terns of the neo" (228) price filing jrcvision to It&ke ll the
time necessar; in cici..ing the filings and receipting therefore and
urge. t.'izt rccei:iting be lela.yed ut le-st for 48 hours." The letter
from the AdCinistration muLrnbLr continued:

"His (the Secreta..ry of the Code Authority's) attention
vrcs invit.-d to the Cor'e -irovisibn whichh prescribed that
the prices filed by a me,,ber of the inCustry become ef-
fective ihmiediatcly End that rcccrdin,-ly no member of the
trac-.E could technici Ily be termed in violation of the code
in quLotin.i prices nfter he hcd imonvledce through registered
rEtu.rn receipt that his filings had been received. The
Secretary argued this point bitterly amd no doubt an
L'._. l 'vill be rarde to Wrhin.gtnn, as it seeris he hrs
been :(Lvisced that filed *.ricus do not become effective un-
til the Secretary h, s filed theri in his owrn -ood time and
hr.s rC.vised the members ')f the industry of sr.ch filing. "'

The Ciffercncc of -.pinicn ovr the r.p-)lic-tion uf the provi-
sions ao Officc iLEmrnrid.-i, #228 to the Co-e for the Farm Equipment
Industry J.rczentsl an interesting c ze, whichh is -orthy of mention at
this .:.oint. The producers of tr c'c type tractor:- in this industry
were sn.-rply Kivided ever the dcsirabilit1 of incor-iorating the
price filing rovisions of office .':emorc'.ndim 0'22C in thtir Code. One
group, ,e-L.ec1. by th Internationrl. Ha-.rvester Conmrny, -"posed price
filing unlc-t. there v'erc included -. revisionn which exempted from
prices to be filed the prices ousted nn ,fjve--nrmcnt bids for track
type contractors. The opposing group, headed by the Caterpillar
Tractor Coo-w.n;:, wished prices to be filed on all types of sales in-
cluding thuse to the government. In a r.ermornndui'.dcted July 16, 1934,
to Mr. Geo'.L-e l.:cilty of the Legal Division, Mr. W.L. Schurz, Assistant
Deputy, sc.jar.-.ed up the c ntrov rsy a. fll' s:

"The entire controversy c-n be reduced to this single i'-sue...
The br.cl;ground of the aisagreemnent between the tvo groups is
probabJy the intense rivalry between the International Har-
vestc r Company and the Cater *illar Trcctor Company for the
lr.rc 7-.vernment business in track-type tra.ctors bought for road
building ,; rnd for other public work projects. At present,
the Co.terfillar Comprny has the grert bulk of this business
r-id ic.rs that without price filing a ,price %rr would re-
sul;, with the International H:prvester Company taking the


9626





- 471--


i1iti-. ivc. On the other side the Internc.tional Harvester
Con r.ny has rtep;, t .dly represented that price filing on
iv n-.nt business inevitably results in identical bids and so
dcfcrts the purpose of such bids vs de.ii-.cd to -prevent
cc'l-..sion -nd price filing. "

Tic cost of retrinin, a c.'rfidential agent, end a desire that
_iL. p.- ice information should not be available tc customers, were
otier re. -ns advanced by the industries for opposition to
Office ;.cL:orrndnmn Io. 228. The Code Authority for the Ladder
M'-.~i: -tuL'in.; Industry, at a hcar'.n; on mend-K .ts held on Sep-
tdrner 13, 1934, objected to filing prices 'ith a confidential
agent Lecrus. of the additional expense involved, vid clso ob-
jected to dissemination of filed Drices to customers on the
'rouvn& t.h-t it wps "none of our distributors' business what price
the w uere ouotins -nother dListribu.tor. (*)

Since this question of tie -.i lj'-int of p. con:id.ential -.,gent
for )-'ice fliinz -mtrios-:s '.-, c(.ne of th'e oinific,-rnt ner' re-
ouir.,ients embodiedr inr emorr_-.c .L. -'., sc-ie diE:cussion of the point,
anc of )roblens whichh ar-ose in: co,.-ectiois 'it'L ap-lic-..tior. of the
provision may oe ir:clhie-d hre.

6. The Confid.enti-.l A:ent.

The oualificatiu..ns for "coiifiC.caiti',. -).,ent" un'er the terT.s
of thie model open p.,rice -rovision iven iai Gfi'ipe i ei.iorrndum 228
were n.-ver set forth in ;-ny form -'! order an'd, as a ccnseuence,
there -.-s no established. method for C.etorrming th.c. eligibility of
those selected by code u-lthorities to -oerforn such factions.

The code authroity for the C-.bon Dio--.:ide Inf.ustry, which
was the first code to be ruiendrd in .ccorda-lnci, with ith .fti
policy, appointed +he ch;.irr.pn of the code -authority, who was like-
wise -presi&ent of the C:i-bon Dio-.:iC'e Institute, as the confidential
agent for receiving filed prices. The institute had acted as the
agency "ith -'hich prices ,ere fil,-d" before the amendu.ient to in-
coroorated. Office :"emorandwur 228. tring ti'ds time there had been
repeated com'lr.ints of mono-ol- .,K dominance of s ll
by the institute nenbers. In at l *st one cisr' turned .ver for
co.nliance action, result in,; in the recnnendt ion that the Blue
Eagle be removed, the rienber had n.C.nitted his refusal to file prices
and strter. that he rouldC be entirl; tilling to file then in VTsh-
in['ton, L'Ut not '7ith the coc'.e aut'-hority made uo of the ex-ecutive
menber- of t -e Cnlrbon Dio::iCe Institate, These same ch]rg:es had
been i...de at the origin-rl hc-ring of the code.

SabseCqa.pntly, the IT.":.A. required that co.jies of all price
filing: be forw-rrded to n'.'.'.s'..n:ttnn, -nd at the rec,uest of the
deoutyt an investigation -:is launched into the operation of the
Code Authority as to ithe rice filin aid other provisio-.s.(**)

(*) Page 63 67 of transcriot of h.etrig, S:-tnrber 18, 1934,
it A files
(See other footnote on ne;;t nage.)
9826
r rI' ,,, i






Despite all this, there was apparently no MRA objection
voiced to the appointment of the president of the institute as con-
fidentirl agent rhen the model price filing provision was written
in the code. An objection vrs made by the non-association member of
the cooke authority, -ho v-s told thfat the form of the -oronosed code
provision (with the except )tion of th'e -uaming of the chpirnan as con-
fidential agent) ras sti-'ilatec by the IRA and did not originate "ith
the industry, and that, in the o inion of the code authority, the
plan -ould operate better end at lezs e:c.oense with the chairman as
the confidential agent.

Tie available records indicated that the Chairman, ];r. Pettee,
vas vice-president of the largest carbon dioxide company prior to
his resigLation to become ;resident of the Carbon Dioxide Institute
when it v'ns organized just before the submission of the code. Other
rep-orts, not fully subst:antiated, stated that he held the controll-
ing interest of a company given an exclusive Cistributor contract
nith this same l.-rpe member. (*)

In still another case, the Builderst Supply Code, in which
the price filing plan vat forth in Cffice i-eiorandum 228 -as intro-
duced by areadment, it vas. C-sired -o na:'e the chairmain ansd the
Secretary of the code authority r.s t.-e aents for the receipt of
fil&d prices, on the grounds thait they '7ere not members or connect-
ed :ith the trade. The administration member, in a report to the
deputy, raised the question if they.- could rightfully be considered
members of the code authority if they .ere not trade members, as re-
quired in Article VI, Stction 1, of the coCe. Present records do
not shor- the ans,.-er given to this question.

In at- least one instance, the Administration heard an ob-
jection to the qualifications of Stevenson, Jordr.n and Harrison as
confidential agents. This organization, ..s agent for the Code
Authority of' the Corrugated rid Solid Fibre Shipping Container Code,
ras designated as -the imoartiel agent for receiving statistical in-
formation, One company refused to submit statistics because of
the activities of Stevenson, Jord.jin 2nd Ha-rrison in operating the
voluntary plan for sharing bi:siness *-'hich Ras participated in by a
majority, but not all, of the nenbprs of the corrugated and solid
fibre shipping container industry. The legal propriety of the two-
fold agency relationship 'ar.s questioned by the Agar Corporation, on
the grounds that it introduced tco great a strain on the agent to
maintain a disinterested, impartial view. Unfortunately, for the
purpose of ascertaining N.A policy on the necessary attributes of
confidential agents, this particular issue was settled by compromise.

(*) Confidential Report on C-i-bon Dio-ide Industry, op. cit.

(**) Confidential Report on Price Filing and Customer Classification
in the Carbon Dioxide Industry, A. F. O'Donuiell, H.y, 1935,
iGiA files


9826




- 473 -


The un.rling cornor-"tion'1. .n not rF.ay1 to cilar..e that the Stevenson,
Jor,'.,-n end HE-rrison ri'oup had .cl ctu:lly violated the confidential
c'r.-,"-ctrr of inform ..ti-in, ",nd. the. .rener.-.l questio.i of prooriety of
the Cu.ua rlat ions.ui'r .,ns inloreC so far -.s any formiwl action or. the
rj-.rt of the YETA "-s co-ic%-neJ.

Ina.L:much as the co-rra.nted .nid solid fibre Shipoing Container
Coce Authority na.d np-,-er atter:!oted to implement the price filing
provisionn contained in thl-.t code, the question of filed prices 'm.s
not involved in this oarticular-heiaring, tl.ithough the market informa-
tion service carried o.i by the i.nency, ii coni.ection "ith the volun-
tcryr sh.iring of business, ,-'s far u..ore con.-.lete thi.n tha't of the oir-
di.i-:'n .'i'ice filing clin, and to thct extent !:-is more comparable to
the '.-.rket infcr,..tion tywe of o en price plan described in the Fed-
er.l TrdLe Comi'sion resort. This some r".ency did conduct the
orice filing 'Ictivities of other o-.-nr price codes, however, Asing
similar statisticnrl re.Jortinz methods. (*)

It is fr.irl-r obvious, frc,. com:,'ents by critics of o.en price
plc-.n, thc.t the notenti.,.l evils C.esined to be done -'.ny '-ith by
requiring )rices to be '"ilh d ,ith -n irn-3.artial arent vere of at
least t.'o C.isti.ict t--.es: (1) the -ng-:er of favoritism in dissem-
initing informnrtion or in ciLcloF.in- confidential C.atn.a to a com-
petitor; an&_ (2) the use of tl'-e rice filing pl-n for coercion or for
pro-.-ga.nda to7,ard rice contrcl. T.e solution .arrived at unCer
Office :iemoranduri 228 'as ,ierti,.cnt chiefl.'- to the first end.
This conce-tion of imparti?-. ,nd disinterested, ,.s applied to mem-
bers of the industry, :ithoi.t specific regard to the interest of
customers oid the public, is not ttn.ik.e the conception of unfair
Competition as aunlied litera,.lly to harnful effects upon competitors.
Within the bounds of thi2 int-.r-rciet-,tion, however, '.ere failures to
guard. ag:.inst cazes ..u.c as in thie Chrbon Dio-ide Code, in uhich
non-members of the Association anticipated discrimination and vere
reluctant to sub-.lit Prices ar.Ci oth-ier stt.tirtic.al data to a trade
association official. :he oocsi:ility of group bia.s as 7ell as in-
divid-a.al bias vas soNetimes not con-idered in t.e appointment of
such confiL.ential a.-.-nts.

7. &:tent to Which iTeu Policy Uas Incoroorated in NT.R.A. Codes.

The Drinciples of Office Lemor-ndun "228 uere quite generally
arplied to the pric- filing nirovisions of ne.. codes in the l.st half
of 1934 and the first h-lf of 1935. However, because of the opposition
of industry to the type of price filing in this memorandum as set
forth above, and its unwillingness to open codes for amendment, and
because of the va.cillating policy, of the Administration concerning



(*) The Folding Paper Box, the Kraft P-.per and Sult.hate Board divisions
of the Paper and Pulp Code and the nveloae Industries are cases
in point.


9826




- 474 -


the amendment of codes to conform to ne7 policy, in only a fen in-
st.ances were codes amended to include the new type of open price
system. (*) Thercfore the ne'7 policy, while not completely nullified,
vas rendered much less effective than it otherwise might have been.

According to Research and Planning study and other sources, 76
codes rnd supplements had open price provisions conforming to the
policy and exhibit set forth in Office Lemorandum No. 228 when code
ooervtion c-.me to an end. Of these, 58 nere approved after the
nei1orcrndLIm ras issued; the remaining 18 had been approved before the
date of the LMemorandun and had price filing provisions incorporated
by unendnent.

A break donrm of this information may of interest:



(*) '&..r..-',t n "m;n tj:s suctoxm cs based iX-)m "Analysis of Trade
?r ct..c Previsions Relating: to Open Price and Bid Filing
S--3t.'L.s" Lnrcparod bythc Division of Res'arch and Planning of
:RUA rtvtsed and corrected u,) through May 27, 1935, and on otihcr
r ccrs.S


9826




- 475 -


CODES 7ITH OPEI PRICE PROVISIOITS C01o7OPJII:G TO
OTrICE i; 1EORAADJ nu I7-J TER 228.


1._, AIT 1J,.:w Dv DiVISIOUI


I. Food Division

I Te:tile Division

III. Basic Eaterials Division

IV. Chemical Divi-ion

V. Equipmreit Division

VI. ...anufactuir- Division

VII. Construction Divisi-n

VIII. Public Utilities Division

IX. Finance, Graphic Arts and
Aruserments Division

X. Professional Division

XI. Wholesale and Retail Division
TOTAL


TO. O'0 F0 I'N.'I^
THRU A2U.ElTDFEIT
THRU Al .E~f :'EM"TT


1
18


APPROVED ALTER
O.Il. 228 ISSUED


4
58


The coies in r-hich the price filin; provisions of Office
i.ev.aorandun I1o. 22C were included by amendient vere therefore relatively
fev, and. nost of thei.i were for Cnall industries. They include.

TEXTILE DIVISIOIT

I/o. Sb ; ill: Filterin; Iiaterialb an Dairy Pror'iucts Cotton Wrapoinjs

NTo. 3.12. lIarrorv Fabrics.

BASIC MATERIALS DIVISION

ITo. 115 Wood Plug
No. 389 Clay and Shale Roofinu Tile (Fpcific Coast Division)
NTo. 31 Lime (but sec paragraph fol'onin2J)
110. 128 Cement (but see parr.;rarh follovlin-)

CH i ICAL DIVI SION

No. 275-2 Carbon Dioxide
No. 110 Hardwood Distillation
No. 83-A Soap and Glycerine (Pacific Coast Section)


9826




- Uro -


EQUIPMENT DIVISIOi:

Nio. 374 San and Steel Products lianufacturing
iNo. 315 Industrial Safety Equipment

LArJFACTURII:G DIVIS ION

Nilo. 58 Cap & Closure
No.277 Gray Iron Foundry
11o.252 Porce'ain Breakfast Furniture
Io.286 Beaut, and Barber Shop lachanical Equipment manufacturing.
iTo. 84.6 Shot. Shank

tHOLESLE AiD RETAIL DIVISION

I-o. 37 B builders' Supnlies

PROFESSIONAL DiIVISIfNl

No. 562 Photographic and Photo Fini ;. ':

It should be noted that t.7o of t' :'.>,e cot'_.s which are listed
as con.on.iing to thlie price fil'ig provl-'_.", of ',f'ice memorandum
I:o. 2?C by amendment, deviatrri :ron t'is !tJ,'l o'--n price system in one
iruortant particular. These "-re the code.- for *;'e line and cement
industries. Amendment lNo. 9 of the Line C,:.e. c-.-,,ooved April 1, 1935,
and. kiendnent iNo. 1 of the Ccr.nt Code, a -. v"- 1 n ilay 11, 1935, b oth
incluC.ed nandatory raitin: of five dnys in n1.1c, filing plans which
other'.'ise conforme1. to Ofiice ::emorandum 1o. 228. Such waiting periods
had, in both cases, been part of the provisions originally approved
rith the codes.

A further analysis of the material collected and tabulated by
Research and Planning indicates that the first code (*) in which the
price filing provisions of Office Lkeuorandum iNo. 223 were incorporated
ars No. 473, Woven Wood Iabric Shade, which T-as am-roved on June 28,1934,
After June 7, 1934 there rere at least 11 codes apv)roved (again not con-
sidering supplements) which contained price filin~ provisions varying in
sorn.e respect from the standard set forth in No. 228. The last of these
11 co-es vras ".. 492, Stereotype Dry Lat, which Tas approved on
July 27, 1934. (**)


(*) Information about supplements to codes is not readily available.

(**) Among the inport&nt differences between the open price plan
provided for in this code and Exhibit "A" of Office memorandum
Io. 228 are the following:

1. Prices were to be filed with the code authority, not a con-
fidential agent.
2. The code provided that if a member did not file, he should be
deemed to have filed prices equal to the lowest filed and
terms equal to the most favorable filed.


9826




- 477 -


3. Executive Oi.-der 76767 A Concession to-) CovcrrLm.nnt
Purchasin,- Ag-eits.

As the nrom.ul ration of Cf-ice hie:orandu.i No. 223 may be
regarded as a res,?onse to de.-mands from both within and w-ithout IURA that
price proviuLo.s in general be safeguarCLed against use to effect too
rigid, controls, so Executive Order :To. 6767 '.r?.s issued in response to
complaints of e::cessive price unifoirity in bids on pablic purchasing,
broghJt by varican government -urchacin.; a, :ents Federal, stat-: and.
:iu:Ticipal. Also, as with :To. 229, some co:!.-proris.e .-ith o-ononents .)- the
order is foumd in the processs of its splicr.tion, thr orcenta-e of
"1;overnm:ent tolerance" bein; in sone instance reduced fror 15 to 5.

1. Essential Points Involved in Executive Order 6767.
The essentiu.l points s in this order issued June 22, 1.31, were:

a. A person subject to E code calling for price filing niiht,
without violating the code, bi'. to a Tovernnent.? ].body at a price less
than his filed. price b! r.s Much ar. 1i.

b He r.ust file -rit'>. the cob.ia authority p copy of his bid
after bids -:ere opened, if hie bid bto.-.. his file-,J. price.

c. The Adhinistrator coul-.' reduce this l`j tolerance to as
little as 5- if he fom.ui.'. the: 15;j was resuitin-y in destructive price
cutting.

d. The Ad.iinistrator ws.F to reicrt to the President on
th- effect of the ordtr within C i.ioniiths after the date of the order.(*)

Cont' d.
3. Accordin- to the code provisions, if a member withdrew a
price schedule ;LinL did not substitute a ne7 one, he uas
deemed to have filed enual to th' most favorable ones on
file.
4. There ,7cs in tU-:e code a ten day waitin,g' period on do,.m-
uard[ price revisions. (Th.is was strcred in the order of
ap-i)roval.)
5. It uas provided in the code that a member selling belou cost
to meot competition mi.'tht adopt as his filed price the price
of the member whose competition he was meeting. It further
provided that "such ado-ption shall becor.e automatically void
upon the :-ithdr.a-Mal or revision up--ard of tie price adopted."
6. Filed prices -'ere to be amninirum, not necessarily actual
selling prices.
7. There was no requairenent that filings be preserved or be
uiade available to the Administrator.
8. The code '.iC not contain tl.e cnti-conspiracy clause vrhich
forced the final p:aragraph of Office :;emorandum No. 228.

(*) For full text of Executive Order lIo. 6767 see Exdhibit V of
A-ipenc.ix "C" .


9826





ihis, order supplemented an earlier NRA Administrative Order dealing
with governmental purchases, Order X-48, issued on June 12, 1935. The
salient featuress of this Order were:

In spite of any code prohibitions there might be to the contrary,
members of industry biding on government co.itracts were, by authority of
the order, entitled to:

a. Quote prices to government agencies as favorable as those oer-
mitted to an-r commercial buyer of the sane quantity.

b. Ha'ke with government agencies a definite contract for future de-
livery of a definite amount within three months from the date of the con-
tract at a fixed price.

c. Make such contract with a go"erPrert n.gency for an indefinite
amount for up to 6 months.

d. Quote to such ao!eacies prices and terms to au-oly on contracts to
become effective not more than sirty days from the date of the opening of
bids.

e. Quot such agencies prices f.o.b. point of origin and/or f.o.b.
destination.

"Provided, however, .....that nothing in this order contained shall
operate to permit deviation front or abandonment of ooen rice and cost
protection provisions now or hereafter contained in a.ny such code."(*)

2. Relation of Order No. 6767 to Frice Filing Policy.

While the inunediate effect of Z-ecutive Order 6767 was to permit
sales in one very imoortent purchasing field at prices considerably, below
those file&, and thus in a degree to nullify the filing provisions, the
Order was nevertheless in the direct line of price-filing policy of the
time in that, like Memorandum 228, it sought to eliminate undesirable
consequences which had developed in practice, without abolishing orLce fil-
ing altogether.

The purchasing agents who testified at the rice change hearings pre-
sented a large and convincing mass of evidence of the current tendency to
price uniformity in government bidding. This was objected to, not only as
indicating the existence of orice control and the probability of arti-
ficially hieth prices for public purchasing,, iut also because it was seen as
striking at a public policyr of long and rather slow growth, namely, the
aviardin, of contracts for government supplies on the basis of the lowest
bid price.

What was desired was a means to maintain some measure of rice flaxi-
bility in bidding on government requirements. Whereas Memorandum 228 sought


(*} For text of Administrative Order X-36 see Exhibit V of Apooendix "C".


9826





- 479 -


Sto achieve a similar general end b7 modifyingg th- technique of price fil-
ing itself, 0:rs,.er 6767, e.,iployed tne method :f relaxing aoolication of the
open orice reauir-."Tlent in the particular circumstance.

It was not, in fact, exoectea that actual quotations would droo the
full 151 oermitted, bat rather that the co-Petitive uncertainty as to just
*how fr tney would dron would tnd to restore tne "free" if not entirely
tihe "o-jen" 'iar-.et called for my ', emo 228. 7or cases where orices showed
n tsndeaicy to Cror to a destructive degree, the modification from 15'- to
5cl Was provided.

Nevertheless, the oolacvr rescribed b,- Order 6767 met with strong
reactions from ma.ny of the industries orincioally affected, as the follow-
ing section -ill show.

3. Re.ections to Or.ae-r ;o. 6767.

As would be e.Tected, the .-enern.l attitude of industry members toward
this Executive Order was not favorable.

a. Ex-:ressio'zs of inuustrv 0-coinion.

Co",olaints a;a-i'-st t.ne pul icv e;abodieL. in the order v;ere registered
by a lare nu-iiber of thie industri-eFhose business was, in a significant
degree, connected with governmental agencies. 2ive t-ipes of objections,
not altogether mutually exclusive, LiihV be noted. :'any more illustrations
of these types than are given, are at hand.

It was first contended, ilraost universally, that "destructive price
cutting" and "price chaos" vould result from o:,erction of the Order. At
a meeting of the 1,overnin7 committee of the '7ater works Valve and hydrant
producers sub-di'vision of. the valve and fittings industry, on July 6, 1934,
a resolution .,as oassed stating that the commit tce considered that the
enforcement of Thxecutive Order 6,67 'would result in ruinous competition
among the manufacturers of this industry." They further stated that "...
unless exe-pted from this order we cannot .guarantee to maintain or be able
to afford the cost of the labor provisions of our code.,.."(*)

The second allegation ui.ac.e in connection with the Order was that it
involved unfair discrimination. Thus, 1,r. A. L. Boniface, Secretary of
the Code authority for the Fire Txtinguisning Aonliances Industry, in a
letter to the .-_'A dated July 3, 1934 stated: ".. Wie would d also call
attention to the unfairness of selling cie unit of our oro'duct to a Federal,
State or municipal or other public authority, at the same rice at which
we woul&' sell n hundred such units. We would also point 'out the unfairness
of nutting the smallest village in the sane class with the Federal Govern-
ment as a buyer of products of this industry".

In the third. place, it was contended that this order brought about
secrecy .and uncertainty as to probable prices to be ouoted in bids. On



(*' Resolution contained in F letter front the Code Authority for the Valve
and Pitting Industry to General Johnson, July 11, 1934.




this point the chairman of the code authority for the portland cement in-
dustry on July 1i, 1934, wrote to tne Administration: "....Our second
objection is that the Executive Order practically eliminates the open price
plan. The essence of the open price jlan is to make competition fair and
fully effective by putting all competitors on notice of the ,ertinent facts
of the competition ,vhich faces them. This p-ournose is not effected if
notice of the facts is given after the bidding is over. The Executive
Order, therefore, effectively brings o-oen dealing to an end and thrusts
bidders once :ore into darkness with ils attendant suspicions and lack of
comi-etitive facts....."

The order was also oooosed on the ground that it would break down
the established channels of distribution. The Code History for the Plumb-4
ing Fixtures .adustrr, commenting on this asoect, says: "The Industry
strenously o-ijacted to Executive Order 'o. 6767 :and Administrative Order
X-48 permittiin7 Industry membersrs to c'uote the government as low as 1$
below the lowest filed prices (prices to distributors. The Industry always
regarded the government as a consumer. Cost governmental sales were made
through wholesalers or contractors. Hence many of the objections had their
genesis at those sources. ."(*)

Finap.lly, it was contend*-d that the Order jade comoliance with the
price filing provisions more difficult to obtain. On this noint, the Code
Authority of the Valve and Fitting Industryv, in a letter to Hr. A. C. Cook
of the i'AB, said, on July 51, 1934: ". . our code authority has not
secured complete compliance by all iaernbers of the industry with the re-
quirement that they shoul.i file their -orices. Our efforts to secure this
compliance has been defeated by the Tcecutive Order itself which leads
these non-coouerative members to assun.e that the administration does not
deem it is good policy to file prices and abide by them in accordance with
code provisions."

b. Attempts to Circumvent the Operation of the Order.

Various devices were employed, more or less legally, to defeat the
purpose of the Executive Order.

Statements 'ere issued attemrtirn" to dissuade members of industry
from quoting prices to governmental agencies below those they had filed.
Code Authority Bulletin No. 23 of the Gas Apoliance Industry, dated
July 11, 1934, and sent to members of the Industry, stated the provisions
of the Order and concluded with the following paragraph:

"Prices to Governmental Agencies should be fkir and reasonable
prices. The .member of the Industry is not wrranted in selling
products of his manufacture to Governmental Agencies at less than
cost. It is our hope tnat each member of the Industry will comply
with all provisions of our Code and the Orders of the Administration.
The Industry, as a whole and each member of the Industry will be damage
greatly and if the members of the Industry use it the exception per-
mitted under President Roosevelt's Executive Order will result in


(^ Code History, Plumbing Fixtures Industry on. 61-61l


9826




S- 481 -


destructive price competition."t

Similarly, a code authority bulletin dated July 3, 1934, sent to the
members of the suppliers, furniture and optical sections of the'scientific
aoparatus industry, stated:

"Our members before availi-;,- themselves of this -orivilege (to bid
as much as 15o less under E7ecutive Order #6767) should carefully
weigh its advantages or disadvantages on the following points:

"(a) This order is in the form of a privilege; you are not com-
pelled to take advantage of it as it is iourely optional. As v"our
discounted prices vouild immediately upon filing the same at this
office become available to all customers, the result would be that by
giving the public buyer a discount, you have automatically lowered
to all customers the level of your prices in all brackets to the
amount of- your discount. (w)

"(b) Your competitor is privileged to file a complaint with your
manager that you are engaged in destructive price cutting.

"(c) Accourding to Article II, Section 1, Schedule C, all consumers
must be given the same prices. Therefore, ycur filed quotation be-
comes your filed o-rice effective at once and cannot be changed for
10 days. (**)

"(d) This of course, will not anoly to franchise items whose terms
of sale are determined by the manufacturer of the same.

II(e) All members arD requested to report any violations of the above
at the earliest possible moment which will be investigated at once by
your manager.

"11(f) You realize, of course, that your competitor by revising and
filing his -orices to you. lower level can then reduce the same by
15, and, of course, the next competitor can also."

On May 3, 1934, the 'TI?A stayed the Drivisions relating the price
filing, customer classification, and uniform sales terr.s of the Code for
the Rubber manufacturing g Industy, in so far as they applied to the IFechanical
Rubber Goods Division. This action, in large oart, grew out of code author-
ity connected with Executive Order 76767.

Discussi.-v- this action of tne board, 'IRA Press Release #11170, dated
May 3, 1935, stated:

"At the hearing held April 16 to 18, testimony adduced clearly showed
abuse of autnority. . The hearings relati-Te to the charges were con-


(* This is a misunderstanding on the *art of the code authority The
order did not have the meaning. here given to it.

(**) Idem.


9826




- 482 -


ducted byr D. P. Telson, former Assistant to the Chairman of the N.I.R.B.
His findings, reported to the Board, were as follows:

"'That th- evidence discloses: a participation by respondents, both
as an individual code authority and in conjunction with the Rubber
Manufacturers' Association and the Code Authority for the Rubber MIanu-
facturing Industry, in an active and, for a time, a successful attemuot
to obtain concerted action among members of the Division, particularly
those manufacturing fire hose, to disregard the provisions of Execu-
tive Order 6767...."

On January 23, 1935, the mechanical rubber goods divisional code auth-
ority sent a circular letter to all members of the division stating that
the authority had taken exception to Executive Order #6767, which permitted
members of all codes to quote prices on Government bids 15% below filed
prices, that the code authority had requested an exemption, and that pend-
ing such action, members were to disregard the Executive Order. (*)

On February 5, 1935, in a memorandumni to the dupty in charge of the
code, the Code Legal Advisor, commenting on this release, said:

"The Code Authority is required to effectuate the policies of the
Act and assist in the administration of the Code. It is a heinous
disregard of their functions to issue such a statement as 'pending
such -ction, they have deemed it advisable to disregard this order'.
This is an illegal and unwarranted act asking Industry members to
uphold prices on governmental order .."

This action of the code authority resulted, before the provisions of
the code were suspended, in a boycott of a jobbing firm which attempted to
sell to the Cty of Wilwaukee fire hose at less than the uniform filed
price. This flrm bid about 8% below its filed price, pursuant to Executive
Order $6767. It was unable to fill this order because no manufacturer
would sell it the hose.

Attempts so to interpret the order as to affect its operation were
made by certain code authorities. Thus, in a Bulletin dated July 16, 1934,
discussing the executivee Order, the code authority for the Macaroni In-
dustry stated: "THIS DOES NOT PERMIT YOU TO SELL BELOW COST IN VIOLATION
OF ARTICLE VII SECTION 5 OF ThE .IACARO:1I CODE." (The caps are their) This
interpretation was issued without any official sanction. When the issue
Tas raised (byafiotherrcideo1aith L-ty), the.'NRA LegaliDivision ruled that
the order took precedence over code provisions concerning selling below
cost. (**'



(s) Research and Planning Code Administration Study of the Rubber Industry,
page 42-3, ITRA files.

(**) See letter to A. M. Davis, Counsel for the Code Authority for the
Mayonnaise Industry, dated July 23, 1934, by Lester S. Dame, Asst.
Deputy Administrator. This letter states: "After checking with the
Legal Division, I wish to advise that even though the 15% reduction
of said price, as is permitted to a government agency under Executive
Order 6767, represents a price below cost, a manufacturer may quote
9826 such a price ....." N. R. A. files





-. 483 -


More might be quoted to the same general effect. In addition to
this industry opposition, there was considerable divergence of opinion
within the Administration itself as to the policy expressed in Order 6767,
Nevertheless, the order remained in force throughout the remainder of the
life L. the codes.

C. Other Orders Affecting Price Filing Policy.

Issuance of Office :-emorandum 228 had, as previously shown, definitely
ligned Atministration policy with the proposition that the proper function
of price filing was to effectuate price publicity, rather than price con-
trol. A series of other policy stc.te-.ients follow--d which, while primarily
concerned with setting limits to the use of specific control devices as
such, also had a bearing upon rice filing as a publicity medium.

1. Customer Cl ssification.

The first of these policy statements, contained in Office M.emorandum
:No. 257 dated July 20, 1934, related to customer classification. The gen-
eral relation of this subject to price filing already has'been indicated
in Chapters Three and Four above. In various of the earlier codes, provisions
had been included em.powerinj code authorities to set up such classifications,
which members were required to follow in reporting their prices. In pract-
ice, such mandatory classification had been found in some cases to work
hardships on certain classes of custo:.,.ers. In other, the traditional
business methods of individual members had been disrupted. More broadly,
the ma7-ing rigid of one elem-ri&t in the price structure was seen as possibly
facilitating the effectuatin.g of general price-fixing agreements.

Office L.emorandum 267 was the Administration's answer to this problem.
Its essential features were as follows:

1. The code authority was to formnul.te and 'zeep current a suggested
classification of types of customers.

2. The classification was to be subject to the disapproval of the
administrator.

3. To members wer.--e to be required or coerced into rutting an-v custo-
mer in any particular class, nor >"-,s any discount for any class to be re-
quired of any member.

4. Each .aemoer was to be free at all times to classify his own
customers as he sta fit.

By thus ina:in; possible a suggested, but not mandatory, system of cust-
omer classification, the AdmiaistrF-tion Dro-,-csed to mi:imiie the use of such
classification as a control device; but to the extent thr-t it should be used
by members in reporting their prices, the effectiveness of price filing as
a medium of price publicity would be enhanced.

2. "Free Deals" or Premiums.

Another problem concerning which the Administration had to make policy


9826






- 484 -


determination related to "free deals" or ure.-iums. Lany of the earlier
codes, in the days when price control provisions were more readily grant-
ed had prohibited the use of premiums. If control of price -as to be
the objective, obviously such patent subterfuges as the giving of free
items or premiums of significant value in connection with the sale of
articles had to be orhibited. But if the objective' was simply to make
all dealings known and above boa.-c... with fredo-i to the individual to
price and sell his goods as he sav fit, a comrlat 'ly different approach
was necessary.

Office i.emorpndlun No. 316, issued December 6, 1934, and dealing
with this matter, stated that

". . the orocer ray to preve.it. . evasion of any trade practice
provision (where such ctte'ioted evasion is connected with premiums
or 'free dealss) is careful drafting of the provision in question.
For example, in an open price provision, it should be required that
all terms and conditions of sale, including premiums or 'free deals'
and conditions relating thereto, must be filed."

Here again is seen a suggestion thet publicity of prices be employed
as one mer-ns of abating a questionable trade practice, rather than more
rigid methods tending to price control.

3. Advertising Allowances

Similar to the situeticn relating to 'remiums is the question of
advertising allowance.. Again the position of the Administration, as
eroressed in official policy stpter'ents, was that there should be free-
dom to act, but that there should be publicity for the type of action a
member of an industry chose to take. Office : emorandum No. 326, issued
on January 5, 1935, said that the remedy for evils connected with the
practice (use of ad'Tertisin- allowances as orice concessions, lay in
part in "causing that part of the advertising allowance rhich is actually
a price reduction to aonepr in Drices reported n-rices, if the industry
or trade has an open price plan." It also stated that the part of the
allowance which was actually a pavryment for advertising or promotional
service should auoear as such, with a definite description of the service
for which it was given.

4. Forward Contrpcts

The problem of limitation of the duration of forward contracts to
sell had been presented to the Administration on a number of occasions.
Definite policy on this matter vas announced in Office i!emorandum No. 327,
dated Jsanuary l'), 1935. The question involve- may be sunmed up as followS

Any price control efforts on the part of industry groups could be
effectively hampered if members coulo uiake long-term contracts to
sell at a fixed rice, regardless of 1:-ter market changes. There
were, therefore, efforts made, particularly because of the rising
mar':At which in many industries accompanied the life of the NRA, to
have code provisions established a limit to the length of these con-
tracts. Again, in the policy determination as to the matter, there


9826




-485-


can b.- seen the effort on the -Dart of the Administration to apply the
principles of -oublicity without control. The order stated:

"1. 7RA policy generally does not favor code provisions which
would limit the permissible period of forward contracts to sell.

"2. Policy favors provisions, having the purpose of improving
competitive conditions, which require the filing by each member of
an industry in Pccoraance with open price provisions of Office
i.emorandum "lTo. 228, of his practices as to forward contracts to sell.

.11 3. In cases in which it is reasonably clear that the require-
m ent for filing would be ineffectual, provisions which would limit
the. d6.uration of forward contracts to sell may be approved i' the
Sfollowring conditions are met:......" tt

Then arc listed six conditions which required that the maximum contract
period (1) be "reasonable", (.) be in line with oast practice in the in-
dustry,. (5) take into account special cases and. problems, (4) be not of a
nature as to create compliance oroble.s, (5) be not of such a nature as to
render em-oloyment and -croduction less stable, and (6) give adequate con-
sideration to the effect of the provision upon purchasers. (*)

D. Interpretations and Advisory Opinions

In addition to the official orders enunciating policy, various inter-
pretations and opinions expressed by the Acvisory Council (**' touched upon
price filing questions.

The Administration position that publicity, not control, wps the aim
of rice filing was reflected in Advisory Council opinions concerning the
type of -rroducts on which prices should be filed. If control of prices
is the objective, oresumbly any and all prices should be filed; if, how-
ever, the aim is merely to apaoroximate an organized marked similar to the
commodity and securities exchanges, certain products clearly do not lend
themselves to -orice filing. nmon-- the latter are products made to special
specifications, and. oerishable commodities on Which the price varies con-
siderably from de.y to d.y depenridin- upon the u1i ,l, which must be disposed
of. The first t,,pe of nroduct is dealt with in a decision cf the Council
which was given in response to the following question from a Denuty Ad-
milistrator in charge of the lTon-hietallic ProdLcts Section: "17here codes
provide for ooen crice filiig;, is it a reouirerent that -%ermbers of industry
file orices quoted on orders placed with definite specifications given?"

The reply by the Council w.as:

"It is the sense of the Council that the Code Authority should
not require the filing of prices on -products which are manu-
factured on unique specifications until such time as there are
(*) For the full text of Office ,emoranda ',os. 316, 326 and 327 see
Exhibit V of Apoendix "E"

(*m) Set up to advise the jTational Industrial .evocery Board on policy matter.


9826




- 486 -


recurring salesof such products in other words, an onen rice
filing provision may be aoplie'f logically only to such products
as enter regularly into channels cf trade. .There there are no
persisting and recognized soecific-tions, there aopears to be little
value in price filing." (*)

A case in which the advisory council expressed its doubts as to the
applicability of rice filing to perishable products, other than perhaps
the reporting of past prices, concerned. the cede for the southeast fish
and shellfish oreparing and wholesalinE industry.

Price filin; provisions were "revised to restrict the obligation of
the trucker (as oooosed to the established wholesaler; there was, appar-
ently, such dispute and friction between these two groups) to one of
regularly reporting at the close of e-ach drv, to the aporooriate agent,
the quantity of each community sold at each price term, rather than to
compel him to file prices in advance of sale anr. to adhere to filed
prices."1

Said the Council: "..... the change from advance price filing by
truckers to rice reporting upon conclusion of sales is an improvement,
even though the hole effort in such an industry is still regarded as high-
ly doubtful...... "(**

As has been noted above, one of the cardinal points of Office Memo-
randum iHo. 228 was that the -orice filed should be made available to pro-
spective purchasers, as well as to industry members. The proposed code
for the clock manuf- cturin.- industry followed Office Memorandum No. 228
for the most part, but did not orovi6e for giving price data to consumers,
and in one p- ce, oroviaed thct price must not be lower than (instead of
other than, those filed. Because of these deviations from announced policy
the matter ras brought to the attention of the advisory council. The de-
cision of the council concerned ifself for the most part with the desire
of the Industry to withheld prices from buyers.

The industry contended thrt large buyers would oress to the utmost
for price reductions and stated specifically that i' all their price lists
to jobbers and chain stores were oden to chain stores, the latter would
insist not only on as low a price as any jobber vwas sold but on a lower
price because of quantity pruchases.

The decision of the council reads in part as follows:.

".....The possibility that an entirely open price would not work to
the Industry advantage is no warrant for .*ermitting the Industry to
pick and choose parts of policy that taken alone would give it in
turn an unfair advantage. The obligation of distributing prices to
customers is the responsibility that goes with the privilege of a
free exchange of prices among sellers. To take one without the other
was never contemplated by policy and vould in fact amount to the
declaration of a new policy. All other industries would be entitled
to claim it as a precedent and thereby provide themselves with a
perfect sta-e setting for price collusion." (***)
(*) I bid, oage 87, Decision No. 92, iTovember 9, 1934.
(**) I bid, Page 318, Decision No. 196, March 18, 1935.
(***) "Decisions of the Advisory Council", page 235. Office of L. C. "'a
Head of Division of Review, NRA, and formerly Executive Secretary "
9826 the fIR3, NRA files.





- 487 -


Accordingly, the council recommended. refusal of the -oroposed plan on
the baris of its b-i -' contrary to policy.

Similarly, if as Off :ice Toriaum 'o. 228 stated, a free and open
m!ar-et v'as the aim of price filing, the code authority could not be em-
oo'-.r-c to suspend price fiLn.-; such a procedure was too susceptible to
abiscs involving price control. Therefore the council recommended dis-
np-proval when the unming indClustrv so-.ght an amendment which followed the
Office i e-oran-ddui in most particu.lars but which provided that the code
authority could sus-oe-d an', price it found to be willfully destructive.
The suLoe.asion '.'.s to be for 8 da-'s, and could be extF.-nded by the Adminis-
trator. Tre council said this -out too much tower in the hands of the node
authority. It also said, however, that the request evidenced a perhaps
justifica need. for some sound method cf dealing quickly with genuinely
destructive -orice cutting. (*)

Office iemorndun 228 provided that price change., were to become
effective iumaedi'tely u-oon filing. -Ief sons for elimination of the %'ait-
ing period: given b-r ;r. Leveret L'ron in the memorandum accompanying the
proposed draft of No. 2 28 have bee. noted. above. (**' The attitude of the
advisory council on this :oi.it is Jllustrrted from the following with re-
spect to a porooosed azeni-Leuit, in which the lime industry accented Office
Memoranoua ,o. 228's price filing provisio-is, eoce. t that it insisted on
a waitin-.g period. It .r.dv-.'c .d the usual ar -unceit that it would prevent
"price foravs." The council said that it ha.d "considerable respect" for
"the oft cited argument that, since the usual incentive to reduce prices
is the chance to -.-t more business, the effect of the waiting period in
warnin- ea.ch member of the industry that cny price reductions are li1:ely
to be met and therefore to be without adv, "tage, will merely be to main-
tain prices. Thrt is not a function of ooe'i price systems as the Adminis-
tration conceives them. The council (oes not oresuime to offer this single
point as closing tha case. for vxaitin; periods, but does stand on the
ground that the point is a stro.0C ore and that oolicy is still against
them. Tha council recommernds thef the awaiting period be deleted from the
oeoon price provisions."1 (Industrial Advisory Board dissented as to both
premises and conclusions.)

The NTational Industrial Recovery Board., howe-vcr, subceo-.ently
approved. tue %.aitin.j -oeriod in this code, the reconi-,end. t.on of the
advisory council to thoe contraryr nctvriths+andin.r. An exleisive search
has been made in the files to ascertain the reason for the rev-rsril of
the council's reconm'-en..; tions, but no information on the matter has been
secured.



(* I bid, Page 186, Decision 11o. 146,Ja-iu?.ry 9, 1935.

(** See Secti.n LLL, A, 1, of this Cheaoter.

(***) I bid., Pa,;e 322, DecisioI .o. 198, arch ', 1935.


9826




- 488. -


IV. VIEWS ON PRICE FILING 'OLICY IN THE FINAL DAYS OF NRA.

The preceding oagps nave outlined thp trend of development of a def-
inite policy on the Dart of thc Administration as a wziol- with respect to
price filing, tnis policy bping concerned chiefly with throwing various
safeguards around the onen Drice provisions an-oroved, in order to prevent
their undue use as devices for ricee control. That, despite this develop-
ment, there still remained varying attitudes unon the question among dif-
ferent elements within the Administration itself, tt the very end of its
existence, is pvid-nced by significant exprossicns of opinion noted below,

A. Onen Price Policy as Discuzsed at the Senate Finance Committee
Hearing on the NRA, ..qrch 1935.

At the hearings held b-fcre ti, Senate Finance Committee during
March, 1935, with rps-pect, to various aspects of NRA, questions concerning
the rice filing provisions were raised by certain senators.

Replying to queries cf Senators Couzens and King. Mr. S. Clay Willian
then Chairman of the National Industrial Pecoveay Board, said:

". . there is not anything in an ooen rice
provision in a cod- that fixes prices. . .
There is an argument that it is desirable that
the purchasers of any commodity in this country
should laow what (price) that commodity is
moving te others at "(*)

Mr. Williams continued:

.. If an industry comps forward and says that
a majority of the industry is in fivor of onen
price n-Dublicntion or an oien Drice clause, I
have been willing6 to say, 'well, all right with
me if you want it."((**)

He continued by saying that one argument advanced for open prices
is that they tend to prevent one producer from ,-obbling up the market at
a secret low rice. This, he said, was hpld by some to be undesirable
since it would mean concentration of business and dislocation of business
in plants not getting the orders. He snid he f-lt this argument was Im-
portant enough to outweigh the possible coercion of persons filing low
prices, as contended by opnonents of onen nricps.

The questioning continued:

Senator Cousens: "Is he (a member of an industry whicn has to post
prices) not fearful of doing it (posting a lower orice) because he would
drag the others down and not get the business anyhow?"

Mr. Williams: "I believe he is."
(*)"Investigation of the National Recovery Administration", Hearing Befori
the Finance Committee of the U. S. Senate, March, 1935, page 246.
(**) Ibid., page 247.


9826 j




.;..Senator George: Thi-rice posting has been done at least
with the hope of keeping the price up.
..... Mr. Williams: "I assume that a grent many peo-ole who were
favorable to price posting were of the opinion that it would not be hurt-
ful to prices... (*)

Mr. Williams was asked concerning the identical bids which Government
agencies had received, and if this did not indicate that comroetition had
b-=n eliminated. He re-olied that he thought not; that the identical bids
came from the fact that all bid the lowest price on file; he contended
thn.t had there not been rice filing, bids would have been higher; he
said that "The posting of prices tc-nds to ring your bids down."(**)

The question was raised by Senator Black whether permission to have
a rice filing system should be granted by an administrative organiza-
tion like the ITRA or by Congress. Mr. Williams' answer wps that he thought
it ws -dministratively impossible for Congress to do it; that only a
body like.th I1TRA could investigate the particular situation in an in-
dustry aAd find out.(***)

The g-n-rnl viw of nricF filing her express-d differs little from
that held by nrooonentz of o-en -nrice systems in th- first days of the
WRA.

B. Policy Views of Vfrious Grouos Within tn- Administration.

Otrtr coins of view ..xress-d in tn- uo-riod inrnLTdint.-ly nrecding
th- Sc,,ct-Ler decision, and illustr ting oot,, divprgenc-s and agreements
of oniiiion as to different asoec~s of oricp filing policy, are outlined
in th suosections below. Certain of tnr-s- expressions w-re the result
of direct requests by th- AdminisLration for policy y recominendations.

In Anril 193b, tir Cod- Planning Comnrdittee vis appointeFd to consider
tie -olicy to b- follo,.'.ed in th- revisions of codes which it was ex-
pected voald of- mad- after the anticinat-d renewal of th- IIIRA by Congress.
Colonel '.,alter Mmngum, Chiirman c*f this Cormm-nittee, requ-sted suggestions
from th- Advisory 3oar.-s "nd divisionss conc-rning policy.

1. Ccnsumers' Advisory Board Recomrrend'tions

On Miay 8, Mr. Corvin L. Edwards, T-cuinic.Pl -,ir;ctor of the Consumers'
Advisory Board, in r m-mor.-,n-um to ,iir. H. Ferris 'iiit, Chairman of the
Administrqtion Subcommitte- of th- Code Plnninz Conmitte-, said:

"... the Consum-rs' Advisory Board oelipvps that an
od-n rice: syst-m 'hicn iiclud,-s nublicity for th>-
oric--s of individual conc-rns is so capable of abuse
that the nrasum.tion is a^-inst it."


(*) Ibid., pn,4- 2z0.

(**) Ibid., nag-s 268-270.

(***) Ibid., pages 280-281.


9826




H.


490 -
He referred in this connection to thL_ resolution of th executive corn-
mittee on the Consumers' Advisory Board, nnssr-d on Anril 19, 1935.

This resolution expressed fundirmental omosition to the open price
policy hitherto employed by NRA, ovpn as mcdified by Office Memorandum
No. 228. The st-'te:nent contended that re-orting should be limited to
oast transactions and that th- information circulated to participants
in the reporting system should b- in the form of summaries. It stated
that in its view even an onen nric- system so limited would serve no de-
siraole public nurnose in many markets in which monopoly exists.

In an earlier report, d-it-d Aoril 22, 1935, to Colonel Mangum, Mr.
Edwards had stated that if current oricps were to bp reported and sellers!
were to be identified, th- provisions of Office Memorandum #228 were
satisfactory. In this memor-'ndum also, however, he stressed the im-
oortance of the non-identifying, summary-only, oast-transncticns type
of oric- reporting, contending that this typ- was capable of much less
abusp than the kind providedd in Office Memorandum #228.

Thus it will op se'-n that this board, which -rior to the- issuance
of Office Memorandum No. 228 had argued strongly for the tyne of rice
filing sot un in that memorandum, after the issuance of this policy
statement movad still further in the direction of safeguarding the device
to the noint of favoring non-identification cf s-.-llers.

2. Rpsenrch and Planning Division's Recommendations

In connection with Colonel Mangum's rpqupst for suggestions from
the Rescnrch -nd Planning Division, a memorandum nreoared by C. A. Pearce
and transmitted through Mr. James Hughes conveyed certain suggestions
concerning che g-nprnl problem of nric- filing.

His rPnTor endorsed the rice filing policy set forth in New Series
;o. 1, d-t-d A-ril 23, 1935, (discussed later in this section), and
stressed the importanc- of certain points made th'-rein. It emphasized
the imnTortanc- of the filing of all terms and conditions of sale as well
as the filing of nominal prices, if price filing was to be employed at
all. The report stressed that this did not imply that price terms and
conditions should be made uniform by code restrictions; on the contrary
it contended that it was of imnortancp that m-mbers of the industry have
freedom in determination of tprms and conditions. Summarizing this po-
sition, th- renort said:

"It is felt that unless it is demonstratively nrac-
ticable to file all th- terms and conditions of sale
used by members of a giv-n industry, a price-filing
system for that industry is not acceotabl-."

If the aoove conditions wer0 met, the report continued,

"It was unobjectionable to prohibit subterfuges which
would make it possible to sell at less than filed prices,

Unless there was cor.siderable sLandriization in industry products


9826




- 491 -


it would be impossible to compargitems- on wtLich pric-s were filed, it
was stated, and the objective of poulicity of prices would not be achieved;
th-r=fore, th' report continued, tnher was no point in having a price
filing )lan in such -n indiistry. .

The r'-nort also stpted that rice filing provisions should be ao-
orovpd in cod"s only if the Administration were "squisfied thnt they
(the price, filing, provisions) would not add an element of inflexioility
to the price "structure- or be a subject of abus-e."

In tha.s= industries where "dangers of aouse or of unfortunate ec-
onomic consqquencps may be anticipated," the r-mort r"com.ended that the
extent of rice publicity be confined to thp reporting o.f past trans-
actions and their dissemination in such a way -s to be unidentifiable.

The importance of the complete impartiality of the.receiving agent
was e.-iphasized, as was also the necessity for having supervision of the
operation and results of the plan by the Administration.

3. Ouher Policy Recommendations

Wh-ile, as has been previously shown, th- waiting period was regarded
with disfavor by the Administration generally after the issuance of
Office miemor-ndum No. ?.P, it found defenders within the NRA to the last.
In a memoiandumi dated iiay 8, 1935, Ovid E. Roberts, Jr., Chairman of the
Sub-committee on Trade Practice Provisions wrote to the chairman of tne
Code Planing Committe'e: ".... It is r-cognized that certain industries
have fairly met the requirements of true competition where as much as a
ten d.y waiting n-riod has oeen provided. Your Coinittee submits that
trnere are certain justifications for this v.niting T-riod which may not
be lightly egnored. Essentially this is true in the cas- of industries
mrde up of firms %,hicn -'o n. nationw'iap busin-ss."

Tne m-mor-ndum w-nt on to state that it should not oe th- policy
of the administration to encourag- th- use of waiting periods, but that
wher- tney \"-re justifi-d, they should be saf-gu.rd-d by a provision
making it an unfair trade practice to exert Pny influence "inconsistent
with the maint-nmncr of a fr;-- and cunn mark-t."

C. Final Stat-m-nt of ITFA Price Filing policy.

What in-y be takrn r-s the final official, statement of -he- Administra-
tion Ps to the -nds to be scrvpd by an op-n price system, its essential
characteristics and fi-ld of usF, aouenr-d bir-l:y a month before the
Supr-me Court decision invalidating the Eecovery Act. This was in "Ad-
ministrntive Policy", New Series 'o.1, issued by the National Industrial
Recovery Bonrd on April 23, 1935, "to expedite administrative procedure."

The portion of this document dealing witi price filing was summar-
ized in a digest of I-TEA policy prepared by Mr. Alvin Brown of tne Review
Division shortly aftor the decision.

This summary, portions of which are quoted below, shows increased
clarity both with resv,ect to the function of price filing and with respect


9826




- 492 -


to the safeguards npcpszqry. The summary is quoted h-re in order to give
a conolete view of the position .hich the NRA held on open -ricp systems
at the end of two y-ars of exrj-eriment-tioi, with thpm.

"O-pen Price Filing.

Onen orice filing is a mere device. Its notentialities
for benefit or mischiFf defend union the nurnose to which
it is put and the methods which atte-nd its use. The stand-
ard oy which it should be judged is Dric- making similar
to Lhnt afforded byan ooen and competitive market, such
as an organized commodity excrnange.

"Oojectives of Price Filing.

The ideal of an onen and competitive market can seldom
be fully Pttained. IR is no-'ed to anoroximate its object-
ives by oren pric- filing undpr aopropri.-ite circumstances.
It is possible for thp on-n file to allow ouyers and seller
to icco.nodate their activities to competitive conditions,
to fix lir,.its to thc snre-d of quotations at any given time:
and to tend to make rice perform its iniustrini function.
Oopn rice filing snould, so far as possible, be made to
furnish a public record of -ric- movements, provide a check
on discri.mination among customers, _ive the small enter-
priser information about the activities of his larger corn-
oetitors, reduce th amount of deception among buyers and
sellers, give the onrties concerned a fuller knowledge of
conditions affecting tne market, and promote and safeguard
the integrity of bhe nroc-ss of competitive -nrice making.

"Essential characteristics

Mhe following ;re thr essential characteristics of an
onen -rice orovision:

"The filing agency

An impartial and confidential body should be the ad-
ministrative age-ncy in order that norice lists may be dis-
tributed to members of the industry and to their customers
without nartiality and without efforts to influence the
quotations. If the body is a -orivate agency, its activity.
must be subject to the immediate oversight of the Govern-
ment.

"Publi c i ty

The prices must De genuinely available to all customers
and members of the industry, together with the name of the
seller whenever it is npcessnry to an identification of
tne quality of the product.


9E26




--49- -


"DP-finit& -prices.

The filed prices must be those at which sales are ac-
tually to take')lace, rather than merely minimn above
which m-mbers of an industry may secretly vary their
prices as they choose, or maxima from which discounts are
to be allowed.

"Identification of productt.

The various qualities, styles, and sizes of the pro-
duct must be capable of identification.

"Complete filing.

Since any one of the terms of sale may be employed
to vary the actual sales -rice, all such terms quality,
quantity, style, size, discounts, -ooint of shipment,
class-es of customers, manner of payment, and so forth -
muist be filld in precise and definite terms.

"The field.'for use of onen pricing.

"Unf aVoariole fields.

OPen rice systFms should not be indiscriminately
aonlied to th- entire r.jnge of AX.Liricpn industry. This
device may require much effort and give little usable
information Where --

(1) Commoditi-s differ so widely in quality, character,
and -.ccompn:inying services that prices are likely, to
vary.with each sale.

(2) -.'ere the number of concerns and products is very
l rg e.

(S) ',:h.re, through custom or convenience, prices
remain stable and market changes lie mostly in the
character of the goods sold.

(4) Where commodities are highly perishable and their
surnly -fluctuates rarnidly.

(i rhere Lh- natur- of th! product m-krs identifi-
cation of quality, style, or size difficult.

"Favorabl- Fields.

On the- otni,-r hand, tn- feasibility of !n o-en nrice
system incr-Ps-s insofar as ,rice competition is active,
the Drocucts of tin- industry c~n be clearly identified,
anc price changes nre frequ-nritly without being incessant.


9826





- 494 -


"F'qctors to b- Considered.

Consid-ration s-hould be given to the following factors

(i) Frequency nno exL=nt of rice change.

(2) Comnlesity of tcrms of sqle.

(3) Ease of identifying the product.

(t) Number and geogrnonical diffusion of members of
the industry.

(5) Degree of price competition.

(6) Economic imnoortance of thp product.

(7) In some instances, as where the finished product
of one industry is the raw material of Pnotner, the
conditions in correlative industries.

"'Where op-n prico systems should be avoided.

In certain industries, onen nric- systems involve such
nrobaDilities of serious aouse that, even though they
ar- feasible, they should be avoided. These are in-
dustries in which the need is to preserve competition
a&iiist attack. Such is An industry in which the dom
finance of an entprnrise or ground is intimidating to
small, indF-oendents, or one in which the chief ob-
starcle to collusion is tne difficulty of devising mac
inery for price und-rstandings. The field for onen
pricing is that in which competition tends to be ac-
tive, but ill-informcd and chaotic; not that in which
competition tends to evolve into monopolistic restrain

"Waiting Period

A waiting period is likely to frpeze a competitive
process which should be k-ept active. In an onen market
there is no counterpart of such a device. When prices
are rising, a flood of orders during a waiting period may
unsettle a future market. \Then pDrices are too high, the
incentive to reduce them may be lessen-d by knowledge tha
competitors may destroy most of the sales advantage befo
reductions can become effective., Therefore, the general
presumption must be against thp use of the waiting period
and the burden of proof is unon the industry which wisnes
to employ it.

"Brst cqse for waiting period.

Probably the best case for a waiting period can be
made for industries in which sales are of large size and


9826




- 495 -


smrll number, members are many and widely scattered, and
information about prices cannot, for some reason, bbe quickly
circulated.

"Limit on frequency of price change.

In industries where prices immediately effective are
manipulated for the purpose of allowing large discrimin-
atory discounts to n'ivileged customers, it may be neces-
sary to impose some limit upon the frequency of price
change. In such rare cases this can be done by requiring
that a price, once effective, must remain so for some re-
asonable minimum period."

The policy stptement of April 23, 1935, also considered the de-
sirability of the com pilati:n of unidentifying summaries of prices
based ugon pass transactions and stated that this method of price
reporting involved neither the teciLnical difficulties nor the pos-
sible abuses that might arise in the reporting of current prices.
It said: "There may be many industries in which the ends of public
policy will be adequately served ..." by these price summaries.

The board concluded by stating that it felt that the price filing
device should be perfected and guarded against abuse.

A month and four days following this pronouncement the codes
censed legally to exist.






-496-





























APPRTDICES


9826




497 -
Aprendin A

Price Filing in the Asohalt arind Shir.gle Roofing Industry

CI'.APTER I

DEVELOP.LEIT OF TiE MDEFII INDUSTRIAL
ANlD
PSC-AATCRY SSTTIITU

The Asnhalt Shingle and Roofing Ind.ustry,- dates bac: to ab-out the
middle of the nineteenth century, but develoonment was slo-7 until 19,0.
The first trade association was organized in 1916 and according to a
statement made some thirteen .-.'ears later, the purposes were as follows:

"The essential purposes of the association were stated
by the secretary to be the gener:.l development of the
industry and to increase consumption of tie member's
-urodacts; sirl-)ific'o.tion -mnd stUandUrdization; obtain-
ing better freight rates; the development of statistics;
industrial research; aind 'or'- lea,:ing up to a national
advertising nfl oi.biicity c.?i.;n." (*)

It nTust be born in 7,1inC. that this statencnt followed by a number of
years the establishment of the aszociration -nd tiLe probability is that all
of these activities uere not anticipated at the outset. By 1923 or 1924
thirteen men.ibers reported their costs to, -sid received summarized reports
from, the association. (**)

I. TILE ASPH1UT SHjITGE Ai'D ROLFIIIG ASSu.CITIUi'

On JapTuary 1, 1926, the Prepared Roofing Association moved its head-
quarters froT, Chicr'-o to lye- Yori: rad chan'-ed its title to the Asphalt
Shingle and Roofing Association because "the old nane did not correctly
describe the business of the nemnbers." (***) These changes in no way in-
dicated the death of the old org-inization, but rather a strengthening of
the lines and in generall the creation of a nore closely knit unit. It
is mor.oe likely that the ai:s anid pur,)oses of the Association, as quoted
by the association secret'--.-, are descriptive of this body rather than
the previous one.
(a) Size
The membership of the organization is reported by the Federal Trade
Comm-ission in its re ort of 1929 as being 27, which number represented
about 75 per cent, by n-.iber, of tlhe concerns enagedC in this line of
business. Applying that percentage, there were at that time about 36
members of the industry and all but nine belonged to the Association.


(*) Federal Trad.e Coi.mission, Open Price Trade Associations, 1929,
po. 429-430.

(**) Ibid, p.429

(*S*) p.429, Ibid.



S9826




- 498 -


In the same report it is stated that the membership of the Associa-
tion represented "about 65 per cent of the volume of business as measured
by sales." This figure ou-ld appear to be conservative; inasmuch as the
Association included in its membership five of the six larger concerns
and the largest single industry rdember, 85 per cent of the production
would seem to be a more accurate estimate. At the lower figure a situa-
tion would exist in which a majority of the larger concerns roughly five-
sixths, and a majority of the smaller concerns, roughly three-fourths,
produced less on an average than the minority element.

B. Activities

The cost reporting and the dissemination of summarized costs under-
taken by the Prepared Roofing Association (*) did not prove to be a worth
while venture, and before the association reorganization, the activity
had been discontinued for want of interest. After the reorganization had
been completed, activities tending to keep the members better informed as
to the status of the industry and their particular positions within the
industry were begun. Among the various enterprises were:

"Statistics. The Association, according to the
character of the returns made by members, dis-
tributes each month reports of shipments, in four
classes and a total, and shows the distribution
by states. With the summarized reports, the
Association returns to each member his original
report to the Association. The Association also
issues a weekly report of orders for the four
classes, with comparison for identical concern
with the previous uionth and the corresponding
month of the previous year collected end handled
in the same way as the shipment reports.

The Survey of Current Business publishes monthly
shipments of "prepared", based on the Association
data prorated to ln per cent.......

Prices.- Whenever a member issues a price list to
the trade he sends 80 copies to the Association,
which, in turn, sends a copy to each member. If
a change is made in any list, the manufacturer notifies
the secretary, who in turn notifies each member.



Others.- The Association is interested in siurplifica-
tion and standardization, and has a research associate
at the Bureau of Standards. A revise& simplified pra-
ctice plan was put into effect by the Association late
in 1927. It has a connittee to cooperate with the
Department of Commerce. A cooperative advertising
campaign is contemplated." (**)

(*) Supra, p. A-1
(**) Federal Trade Commission, Op.cit., pp.429-430

9826
,. .




- 4939 -


The years in which each of th.?se activities began are given in a
letter froLT J. S. Brya.it, former Secretary of the Code Authority and,
since ""o, Secretary of Vthe Trade Association, (*) as follows:

Report Year started

Teel-lly Report of Orders 1926
IT.onthly Report of Shipments 1925
Lionthly Report of Shipments by states 1925

The letter further states that these reports were compiled by a
Confidential Agency, West, Flint and Company from information submitted
by inC'ivi'dual concerns. The reports in the form'of summaries were mailed
to the contributing co.mLianies, and at the sane time the original data
submitteCd by each company was returned. In a previous letter (**) Mr.
Bryant informed Mr. Lawson that some of the companies did not make their
reports directly to West, Flint and Company but reported to the Department
of Cornnerce. These data were added by the Department to the summaries of
the Association Agency and issued as a monthly report by the Bureau of
the Census.

It may be seen from the above outline of activities undertaken by the
reorganized. Association that the members of the industry were becoming
converted to the belief that a fuller understanding of the condition of
the industry and of the relative standing of the individual members within
the inc.ustry was more desirable than complete secrecy in business.

II. EVELOPIlTS WThI, THE IEDUSTTRY

Concurrently with the growing enthusiasm for industry organization
other factors were developing which' were to have a lasting effect upon
the industry and industrial develop'-ient. Two of these were and are of
sufficient importance to merit attention. The discussion of these will
of necessity overlap the chronological discussion of the various arbitra-
rily selected periods of this trer.tnent, but it is felt that present con-
side:stion will not be confusing.

A. Paten Bights

It has beeh previously intii".tec. that early in the history of the
industry t-ie guarding of inr.ovaticns in products became customary, andc.
it was the general practice to procure patents to protect developments.



(*) Letter from J. S. 1r'rant, Secretqr-" to the Code Authority for the
Asphalt Shingle anc. Roofing In-custry to William Lawson, Assistant
De)utt- Ac-ministra.tor, July 0, 1934, (In :17A consolidated files,
Asphalt Shingle and Rcofing Inc~ustr:-, folder: "Statistics").

(**) Letter from J. S. r-rv-.nt, Secretary; to the Code Authority ior
the Asphalt Shingle and Poofing Indstry to William Lawson,
Assistant Deputy A..ministrator, J-ne 28, 1S34. (In 1TRA files,
Asphalt Shingle and Roofing Code, Statistics Folder).


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These patents covered both the finished products and the processes
under which they were made. Literally anything pertaining to the industry
was r.rde the subject of a pateiAt; thus it is that today we find patents
covering colors, composition, the direction in which the figures run, the
materials used, the nachinery used anO. other phases and steps concerned
with the finished commodity. The fact that a product or process was pat-
ented did not mean that it was produced exclusively by any one member of
the industry; in fact, for a period of time these rights did not seem to
restrict the other members of the industry at all. Later it was custom-
ary, for the one who owned the patent to grant a license to others to pro-
duce the product or to ase the process so protected. This plan, it appeal
ed, served two purposes; the licensor was permitted to fix the minimum
price at which such commodities could be offered for sale, and royalties
might be collected from those to whom the license was granted.

Originally these patents were rather equally distributed amount the
respective members as the discoveries were raade. Any lack of equal bal-
ance existing generally represented the variance in perspective and
assiduity of the individual representatives. About 1920 the Flintkote
Company undertook to get control of the patents affecting the products of
the industry and by 1929 had acquired about 100, which represented a
considerable proportion of the total and far more than were held by any
other individual manufacturer. The reason for this policy is not clear.
However, as indicated above the acquisition offered the possibility of
increaseC. revenue through royalties and it afforded an instrument of
price control through the license agreements, under which the licensor
could legitimately fix minimiun prices at which the controlled products
might be offered for sale.

1. Patent and Licensing Corporation

By 1929 this department of the Flintkote Company had reached such
proportions that the Patent and Licensing Corporation was set up to
handle all patents and all license agreeLents arising from them. This
Corporation was a wholly owned subsidiary of the Flintkote Company, capital
lized at $l,Onn, and the checks to cover its operations were issued by
the patent concern. The advent of this company marked the beginning of a
rather vigorous licensing policy, and all concerns were urged to avail
themselves of the privileges offered by such agreements. Frequently, as
a means of inducement to the prospective licensees, it was pointed out
that the increased earnings would more than offset the amount paid out in
royalties. In some instances the Flintkote Company or the Patent and
Licensing Corporation were unable to obtain outright ownership of the
patents, but in such cases they were able to gain control through a pool-
ing arrangement whereby the right to administer was turned over to them
and the royalties were divided with the previous owner. Such agreements
were entered into with Certain-teed, Bird and Sons, Ott and F. R. Brydle.
Under these agreements the pro rata amount to the respective companies
depended primarily on the individual bargaining ability of the company re-
presentatives, In one agreement, the He:cogan, Certain-teed received 40
per cent of the royalties; an1 in another, the Iulti-Color, the returns

(*) Patent and Licensing Corporation v. Weaver-Wall, D.C. N.D. Ohio,
Testimony of Frank Gilchrist pp, 170 and ff. in Transcript.


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wprp divid-d on a 50-50-bsis. (*) It. would appear from tnese ar-
rangements tr.at som- additional advantages warp expected to accrue
from the fact that control of the patents was centered in the hands
of on- comnoiny.

B. Combinations, IMrgprs and Absorptions

The other movement which mat-rially affected the picture of the
Industry was that reducing the number of members. In its report of
Tne Administration Of the Code Of Fair Comnetition For the Asphalt
Single and Roofing Industry, the Code Autnority states that:

"In the ten years preceding the approval of
the Code eighteen (18) companies were
merged with other companies in the industry,
six (6) fell into receivership, and one (1)
burn-d up."(*)

The same report lists the following mergers:

1. S.torm-cite Roofing Corporation, East St. Louis,
Ill., merg-d with the American Asphalt Roof
Corporation, 1925.

2. Beaver Products Comoany merged with Certain-teed
Products Corporation, 1928.

3. Lockport Paper Company merged with Beckman-Dawson
Roofing Company.

4. Mur-ohy-Llc-Ewven Company merged with Beckman-Dawson
Roofing Comno.ny.

5. Beckmnan-Dawson Roofing Comnoany merged with
Flintkote Company.

6. Chatfield Manufacturing Corporation merged with
Flintkote Comnany..

7. Pioneer Paner Company merged with Flintkote Company

8. Richardson Roofing Company merged with
Flintkote Company.

9. Sall-l'nuntain Comnany, Scranton, Pa., merged
with Flintkote Comnany, 1929.


(*) Ibi

(**) r1-nurt of the Administration of the Code of Fair Comoetition
fo- AsphLlt Shingle and Roofing Industry. Letter of trans-
mittal to F. J. Patcnell, Assistant Denuty Administrator from
Smith Simpson, Agent for the Code Authority. (In NRA Files,
Code Autnority Folder)


9826




-502 -


1C. Waver-Henry Corporation, Los Angeles,
Calif., merged with Johns-Mpnvill-.

11. Amalgnmat-d Roofing Company, Chicago,
merged with the Logan-Long Company.

12. McHenry-Millhouse Manufacturing Coanmny
of New York, Inc., Fulton, N. Y.,
merged with the Logan-Long Company.

13. Continental Roofing Mills merged with the
Rub-roid Co:'-rny.

14. Srferack mills merged with the Ruberoid
Company.

b15. F. F. 'Watson Mills merg-d with the
Rubzroid Comppny.

16. Mc,-i nry-Millnouse Roofing Cornoration,
of Soutn Bend, Ind., m-rg'-d with
United Stnt-s 3ynsum Comnany.

17. SiFo Products Coown-ny merged with the
United Statos Gypsum Comnrany.

18. Star Roofing Comoany merged with the
Unit-d Statrs Gypsum Coran-ny, 1934.

It is possible that thnr- w-r" other mergers and consolidations during
tne Deriod which are not r-corded. In 1928 Flintkote eff-cted a
combination with Royal Dutch Snell whereby th latter company acquired
a majority of the voting stock of th- former.

From the above it will be s-Pn that Flintkote, aside from the
combination with RFoyil Dutch Shell, acquir.-d seven (7) companies;
Certain-teed, one (I); John-Manville, one (1); Logan-Long, two (2);
Rubcroid, thr-e (3); United Statzs Gypsum Comosny, threp (3); and
American As-halt Roof Corporation, one (l).

Othpr alignments of interest, which did not n-cessarily take place
during this period, are Barrett Comppny with Allied Chemical; The
Texas Company (Texas Oil Comnany) and the Barber Asphalt Company, a
subsidiary of thp General Asphalt Comnany.

These combinations and mergers may narve been a result of the
tendencies toward combinations which were anpar-nt late in the 19th
and early in the 20th centuries in other lines of industrial endeavors
and may have ben stimulated by desire te rean the benefits of the
internal and external economies of large scale production. There is
no doubt that tney resulted in joth vertical and horizontal inte-
grations, an example of the former type oeing the Flintkote Company
which, through its closely held affiliates, carries on a business
varying from the sale of raw mat-rials, such as asponalt oil (a residue
of refined Detroleum), t' the finish-d oroduct, roofing paper and


9826





- 503 -


shingl-s. Certain-tFc, furnishfs a good example of the latter type
manufacturing asphalt singles and roofing, tarred and asphalt felts,
building and insulating oaoers, newsprint paper and boxboard, paints
and vrnishIes, gypsum, plasterboard blocks and plaster laths, and
Kalite sound-absorbing plaster.(*)





(*) "Asphalt Shingle and E.oofing Industry: A Study of Some Factors
Bearing upon the Industry," Jam's E. Gates, Consumer's Advisory
Board, p.3.
(In 1TBA Files, Asohalt Sningle and Roofing Industry, Folder,
Legal Code Authority)




- 504 -


III. TME ASPHALT SHINGLE AFl ROOFIIGC- INSTITUTE, 1928

Despite t iE nlan of enlifitened co;znetition under which the
Association.-h- .d been operation at least since 1926, the Industry was
still beret by the vicissitud s of price wars, secret rebates,
fluctuating dizco-'rts a-nd the li:-e, and it caneared that further
steps were i.ecessa.ry to elimir. .te these evils. The filing oi prices
and the dissemination of price information to members of the Industry
had not proved to be .a panacea

A Trceting of the members -as called for Lry 29, 1928. at the
Cormmodore Hotel. The exact pnu-aose of th-is meeting is in doubt. One
attendant stated under oeth th t prices were discussed and that a
formula was advanced for deter ininj prices on non-patented products
based on the minimum prices of patented products as fixed by Flintkoto.(*)
That prices cand pricing practice es were receiving the attention of the
assembleci group is inCicatcd b; subsequent events. On June 14, 1926,
the Constitution and By-Laws were c.dopted and the name changed to the
Asphalt Shizngle and Roofing Ins 'itute.

A. Institute Activities

It is reasonably certain t" .t t'his reorganization heralded a
strengthenir.nC of the bonds of ii dustry orgrrizr-tion and the further
intensification of the renlig;htcr me-.-.t of coripetition. The activities
of the association were continue d and the scone of operation broadened..
During~ this -'crlod a U'ereh cCisinj Plan vis rdo-toc" by the In-
stitute which est.blishc6. a co:Tr Lex systc..i of custoricr classification,
divided t--e cour.tly into shim in.; zones (determined by location of
factories, warehouses, etc.) .-::-.d r.dontc. the principlee of freight
equalization as a b"r.is for q'otjn an rnd selling. Tie rules thus
adopted by the Inrtitute rrerc to $overn aeli mcribers in the marketing
of their products Eit:'-,cr because 3f fear of the consequences, con-
scientous objections or ftilurn o.t Thec -la to cornfor:i to their es-
tnblishod nerctr-mLLisinV. policies, some of the former Association
members refused to become affilii ed with the new org-anization.

It a.-,ears to be advisable be 'ore going deener inio the new order
to review the K:ay mectin:g. Tlohe -r .cing formula advanced at that time
was -iro->csec. by 1r. Bonney of the V'uberoid Corma:/y and established a
ratio between -orice rnmi dimensions ,C shingles. B d c I-rlying this
ratio to t'!e units of -rea of r.on-,-.tented products there would be
derived a cross )rice which' w-ould vC rv ith the rminirnun nriccs quoted
on natented -rodacts. Under this scene control of the prices of all
industr-.-, products would be vested in the owner of the n-atent, who was
allowed by virtue of patent rights t) determine the minimum prices -.t
which such -roducts could bc offered for srile. (**)

At thL conclusion of this .neeti; ; it was agreed Ghzt this method
of rice deternin-tion should be -.do. ted. Mr. Bryant, Manager of the
Institute, the:-- cautioned the neL.erf that the revised rice list

(*) Pter.t n.r.d Licensirn; Cornorat'ic I v. Weaver-WE.ll, Testimony of
A. L. Wall. Trai-script of Heari iv pn.l120 c"nd ff.
(**) Pate-t and Licensinx, Cor-ooratio.- v. reaver-W1.ll,pr.1122 and ff.


9026




- 505 -


sh-'ul,'., be sore e:. ovor e .riod ,'f t'., '-3 ti.ree w,-eeks but could be made
retroactive ,.s of th-it iate.(4)

Lhi :ie:, orsnniz':.ticn continued t-ie .lan of price filing whVich had
been beg,;un b-r its ,reae ;essnr ',erc:.r ech i;ieriber filed 80 copies of
his .rice lists with the Institute, '-hici in turn sent a copy to each
member. If n change 7'ere m:.r'.e in an.- list, the manufacturer, in
addition to sending, the required number of copies, notified the secre-
tarry, who in turn notified, eccn member of the change. Thus in addition
to receiving copies of their competitors price -lists, members had
--,articular notice of Pny price fluctu-.ti. n.

1. I'erchandising Plan

The above described. procedure for price filing: did not introduce
any novel )lan to the Industry but, -ith tne adoption of the Merchandis-
ing Plan, tended. to strengthen as well .iL broaden the: scope covered by
price filing. The soeci-ic orovisio.is -f the -lan will be discussed
later in connection rith the Merch.,-.ndisin2 P1.an of 1929(**). The
essential di-'ference bet,ieen this '-lan r.nd that of 1929 was that the
latter included a. liqi.id;.tej. dar.age a reorieent under ;thich each member
of the Institute nosteC. a borLd in the amount of $100,000 to guarantee
performance. The nev rnl-n ..i 3 not greatly improve conditions. Though
the menbe s did file their .rices an''. tho,.,-h custonerF, were classified
and terms and condcitilns of sale '"ere s2t forth, there was no provis-
ion in the agreement that insured observ",-nce of these prices, classes
and terms. Price '7,-'s, eitji-er sec'-et or ooen, continued throughout
the year and e,.rly i:n 192) go.mie of the members of the 'Institute began
to visualize an even better e^ul.tioi.

(a) As A1%ended in 1929

Had the plan of 1928 -eon observed i' Would. have no doubt solved
the Droblemis of the Industr-. PFrice determination would have been
vested in the P.-,.tent and Licensin. Cor-'or.i tioai which could be de)end-
ed upon to c,re for the int-:.rets of ir.rLividusl members. The one-
vealmess of the ?rogrsa! arose not from its -nrovisions but from the fact
that there was no penalty for failure to observe its terms. A survey
of prices (***) will show that immediately following the i.'Vay meeting
prices jumped roughly 11.5 rer cent Fad for a time remained both uni-
form and constant. Eventually some member of the Industry, motivated,
no doube, by selfish interests, begEn to violate the ag-reement and. the
Industry ae.s acnain throvrn into a price 'as.

That it 'a, a matter which dena".ded the attention of the
'master minds' is evidenced b,. the nurierous meetings which were held in
192_ to remned the situ-tiopri.(****_ .. .. ..-..

(*) IbL., p. 1237

(**) Infra. D. 506 & ff.

(***) Infr. Table 3, Y. 570.,

(****) Patent ;nd Licensin,'. Cor-poration v. 7eaver-Vall, p. 1112


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