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Mr. CUTLER. No, sir; they are no longer concerned with the bookkeeping systems. They are concerned with cost finding and the regulation of commerce, so far as it may be covered by existing law.

Mr. SHERLEY. For instance, very recently we appropriated certain moneys for them to inquire into the Beef Trust. Now, in order to ascertain whether a given price for beef is warranted, they have to know what it cost the packer, and, in order to know what it costs the packer, they must know whether the packer has properly charged certain items of cost like the one that has been used as an illustration here; that is, the item of depreciation. Now, if they undertake to ascertain that data, will they not be doing to that extent the same kind of work that you are doing?

Mr. CUTLER. Yes, sir; if they did that; but they do not go that far. They ascertain the accuracy

Mr. SHERLEY (interposing). Does the Federal Trade Commission determine what it costs an industry to do a particular thing without undertaking to determine whether in its estimate of the cost it has probably charged or not charged too great a sum for depreciation ? I think they will take exception to that indictment of the accuracy of their work.

Secretary REDFIELD. Here is their request (presenting letter].

Mr. CUTLER. They are primarily concerned with the accuracy of the figures as they now exist, without any relation to the form in which they may be brought together and collated.

Mr. SHERLEY. I do not quite understand this letter which has been handed to me. It reads as follows:

FEDERAL TRADE COMMISSION,

Washington, August 9, 1917. Hon. WILLIAM C. REDFIELD, Secretary of Commerce,

Department of Commerce, Washington, D. C. DEAR MR. SECRETARY: I am inclosing herewith a copy of a communication received by the Federal Trade Commission from the President, dated July 25, 1917, for your personal attention, with the request that it be communicated to the several branches of your department, in order that all offices in the Federal departments in this city may have proper notice and information of the President's directions in the particulars covered in his letter.

Particular attention is invited to the last paragraph of the communication in the matter of establishing a uniform method of cost determination. This commission is perfecting the organization necessary to carry out this direction, and will be pleased to receive any information along these lines from any of the bureaus or offices in your department that may be pertinent to the subject. Very respectfully,

WM. J. HARRIS, Chairman. Mr. Secretary, that alludes to the detail of certain men from that commission to meet with the other departments in the formulation of this report you spoke of?

Secretary REDFIELD. It alludes specifically to that report and in general to the assistance of all the divisions in helping them to determine the proper principles on which their studies should be based.

Mr. SHERLEY. The letter speaks of their perfecting the organization necessary to carry out this direction.” What is meant by that?

Secretary REDFIELD. That refers to the President's letter. The portion that it refers to is at the bottom.

Mr. SHERLEY. This seems to say that they shall create an organization.

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Secretary REDFIELD. They are to create a cost-of-production organization, which we do not deal with. We deal with the principles that underlie the work that they do. In other words, we teach the men and they practice it..

Mr. CUTLER. That is the distinction.

Secretary REDFIELD. It is like the professor in a dental school as distinguished from the dentist.

Mr. SHERLEY. I am surprised that the Federal Trade Commission should seem to have been working so long without learning their business.

Mr. Candox. I want to make one observation: This proposition is an entirely new one to me, but it seems to me, as I have listened to you, that if you do effective work, you will need, instead of $65.000, $6,000,000 or $12,000,000. For instance, I received a circular this morning that I glanced at, from which it appears that out in my State the Council of National Defense, under the State law. seemingly with the approval of the governor, wants to seize all of the coal mines.

Secretary REDFIELD. That is a State council.

Mr. Cannox. Yes; that is a State council. Under laws already enacted the National Administration can seize all the coal mines and all the shipyards, and under the food-control bill I suppose they can seize pretty much of everything. Now, in the event this shall be done by the national authorities and by the State authorities, with all the inevitable conflicts and duplications, we will have confusion unbounded. I voted for this legislation largely because I thought that the vesting of this broad power would enable the powers that be to make reasonable arrangements. Now, to go back again, I do not know how many contracts have been made on the cost-plus basis, but I fancy a great many have been. That is necessarily so.

Now, after that has been done, if you undertake by general rules to say that you can hold up what has been done under stress and that you will fix the market, you will find that there is no market. To undertake to make this thing effective under these abnormal conditions, when things have to be done in the twinkling of an eye-conditions that ought to last only during the war, and, possibly, only during the earlier stages of the war-would be to attempt the impossible. It seems to me that you would have to have so many people watching other people that you would find great difficulty in enforcing the selective draft. It seems to me that you could not cover the matter at all unless you have a considerable army of people to find out these things, and a large sum would be required to meet the travel expense of the people whom you would have to send here, there. and vonder.

Mr. CUTLER. We are really like a small college that by a university extension course gives tuition to vast numbers of people. If we were auditors, we would need a tremendous force, but as the promulgators of principles, we can radiate the principles over a large area with a small force. Is not that true, Mr. Secretary?

Secretary REDFIELD. Yes, that is true. I think the best answer that can be made to what Mr. Cannon has said is simply to point to the evidence of what has actually been done by five men. There is the fact, that with this force of five men we have brought that great industry into line and they have agreed to a contract which is new in the history of the Government. That has been done by five men.

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Mr. CANNON. It is said, and I believe it is true, that the Advisory Commission of the Council of National Defense has done much valuable work. They have so coordinated the railroads that they will not have difficulties in the matter of transportation. The railroads coordinate in the handling of their rolling stock and the Government shipments have the preference. That was done, comparatively speaking, in the twinkling of an eye. The statement is made, and I believe it is correct, that through the efforts of the Advisory Commission the copper people and the steel people are in line, so that you are not going to have any trouble with them. Just how far this has progressed, I do not know, but I am under the impression that up to this time, through the Advisory Commission of the Council of National Defense, and with the aid of everybody connected therewith, a great work has been accomplished.

Secretary REDFIELD. I think that is undoubtedly true, Mr. Cannon, and they call upon us to render assistance and to help them in that work. We have been called upon to cooperate with them in doing that work. But I can not make a better comparison than the one Mr. Cutler has made. We are not proposing to be auditors, and we are not proposing to do vast detail work of that kind, but the best comparison is that of the small college with a highly trained staff. We have the confidence of the great industries, and they are coming in and talking over these things frankly. They are willing to accept out viewpoint. We have been the means of bringing them and the Government together and making them work in coordination. have seen the same thing operate in the city government of New York, where a considerable number of contracts were made to the very great advantage of the city.

Mr. Cannon. Let me call attention to this case: I have no doubt that the contractor for the Rantoul aviation camp, on the cost-plus basis, is a man of high character, but if you take into consideration the normal labor market before they commenced that work and the labor market after they commenced that work, which was done under stress, it seems to me that the contractor would have great difficulty in getting his plus allowance, because, I apprehend, when the showdown comes the figures are going to be away up yonder. Now, I do not know how you will check that account.

Secretary REDFIELD. I think I can make a suggestion that will make that clear to you: Take, for instance, the National Canners Association, which includes everybody putting up any form of canned goods. We are able, through the officers of that association and through cooperation with its members, to lay down to them the principles on which they shall base their contract prices to the Government. Now, we are not concerned with the details, but the question that we are concerned with is whether or not the thing is fundamentally right-whether the foundation on which the structure is built is right and proper. We can reach the whole canning industry through them, and, having their confidence, it is a comparatively simple thing to keep in touch with them throughout the year, using a man now and then to guide the whole thing, with the result, as I have already said, that the Government can save thousands of dollars. Mr. Nicholson reports that in the purchase of peas, tomatoes, corn, and string beans we can save over the price that would other

wise be honestly, though ignorantly, made $50,000 per month. We are in a position to make that saving on that one thing. We are not in the position of detectives, but we cooperate with them. Mr. Hurley's statement that one-half of the manufacturers do not know what their goods cost them is true, and every man who has had erperience with the large industries of the country, I think, accepts that statement as true. I could cite the case of one great industry in which the three leading concerns did not know and frankly admitted that they did not know.

Mr. CANNON. But they are still in business?
Secretary REDFIELD. They are still in business.

Mr. Cannon. They are still in business under the law of supply and demand ?

Secretary REDFIELD. They are still in business under the law of supply and demand, but I was the accountant for one such concern myself once and saw the tendency and withdrew just in time.

Mr. Cannox. There are said to be 110,000,000 people in the United States, and substantially all of them are engaged in producing matter that assumes a shape useful to the human family, and that fact, of course, necessitates an exchange of products. Now, the great majority of the people engaged in production, whether working with or without machines, are complaining very severely that their wages are not high enough, and, of course, if they are not high enough, your peas. for instance, will not be gathered and you will not put them in the cans. Heretofore all of these things have been regulated without Government control, but now if the Government is to control them all along the line, giving the man more wages for his production or giving him more of the other man's profits for his wages, it becomes a very serious question, and, it seems to me, that it is impracticable from any standpoint, without chaos, to undertake to regulate all along the line unless you can compel all along the line. I have read this report and these recommendations, and, while I am not criticizing, it seems to me that unless you can say Come here ” and “Go there ” all along the line of production, the regulation of prices will be impossible.

Secretary REDFIELD. I have just a single word to say, and that is that the evidence of the need of intelligent guidance in these matters in the business world, but which we do not propose to do except in the way of cooperation, is the fact that three men out of four in business make a failure of it. That is a perfectly well-known fact. Now, in regard to what you have suggested, that would be entirely true but for one fact which Mr. Cutler has referred to, and that is that these men are eager and willing to serve the country and they are anxious to learn. They will gladly take guidance and direction to-day in these things in a way that they would not think of doing in ordinary times. They are most anxious to learn, and nobody is more conscious of the need for it than the small business men. There is no school in which to teach these things to these men, and, as I have said, they are most anxious, eager, and willing to learn. They will take guidance and direction and absorb it voluntarily.

Mr. SHERLEY. There is a contract for emergency work that has been drawn up and that is now being used by the Quartermaster Department. Is that a result of consultation with your board, or did you supervise it?

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Mr. NICHOLSON. I am not quite positive about it.
Mr. SHERLEY. This is the contract [indicating].
Mr. CUTLER. Yes, sir; that is one that came from our office.

Mr. NICHOLSOX. I am not positive about this particular contract, but I do happen to know that the contracts that are now being used in the Ordnance Department are contracts which were first promulgated by our cost conference.

Mr. SHERLEY. I notice, in reading over the personnel of this conference, that there are representatives of all the departments, and, without undertaking to pass judgment on their technical knowledge, they constituted nine-tenths, or more, of the conference.

Mr. CUTLER. I will explain that. Each one of those contracting officers has a certain division of supplies under his jurisdiction. It is

a quite essential that each one of them individually should be acquainted with our proceedings. If they had delegated only one man he would have been put to the trouble of teaching all of his subordinates and clerks.

Mr. SHERLEY. I am not complaining of the principle and neither am I trying to apportion the credit that comes as a result of this new work of standardization, but I am simply calling attention to the fact that the personnel indicated here shows that more than nine-tenths of it was composed of men outside of your organization.

Mr. CUTLER. Yes, sir; we were strictly the leaders of it.

Now, if I may submit one thing in answer to a question you asked some time ago, which I think you may believe was not properly answered, I would like to do so. You asked Mr. Nicholson several times whether as an individual he could carry out what we are trying to do, and he said: “Yes; on conditions.”

Mr. SHERLEY. I do not think my question was in just that form.

Mr. CUTLER. I am making it as nearly as possible in that form. Now, I submit this program [handing manuscript], and I say that it would be impossible for any one firm to follow it, because it extends into every line of industry. It covers a full conversant knowledge of manufacturing methods in all industries, with which I might say no other body in the country has to deal except the Department of Commerce.

THURSDAY, August 16, 1917.

DEVELOPMENT AND USE OF THE INTERNAL WATERWAYS OF THE UNITED

STATES.

(See p. 176.) STATEMENT OF HON. J. H. SMALL, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NORTH CAROLINA. The CHAIRMAX. Mr. Small, vou desire to be heard on the item appearing on page 149 of the bill, as follows:

Development and use of the internal waterways of the United States: For promoting the development and use of the internal waterways of the United States in the transportation of freight; for studying the needs of water transportation as regards terminals, railway connections, and vessels; for investi. gating the existing relations between the railway system and water transportation and the attitude of shippers toward the use of waterways, including personal services in Washington, District of Columbia, and elsewhere, purchase

Paports, and contingencies of all kinds, $37,500.

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