Trade Association Activities and the Law

PREFACE

Coöperation is the keystone of civilization. Power-orderprogress, civilization itself depend upon the ability of men to work together for the common good. Just as the maintenance of the State requires coöperative organization, so too is there a compelling necessity for unity of purpose and action in industry if the progress of American commerce and the national interests are to be forwarded. If unreasonable legal prohibitions make coöperation between competing groups in industry impossible, even though not hurtful to the public, the result will be to compel a process of merger, consolidation and ultimate monopoly with its dangerous social and economic effects. We can encourage a coöperative organization of industry, without endangering competition. Indeed the preservation of the competitive system depends in no small degree upon the ability of business men, particularly the smaller business men, to work out their larger problems through collective action.

Unfortunately, the wilful violation of the law by some associations has created a spirit of hostility and suspicion on the part of the general public toward any united action by business men. The achievements of our trade associations, redounding to the public good, have not been told. The strengthening of business ideals, the reduction of the wastes and frictions of trade, the increased efficiency in production and distribution, the vast savings to the public, all of which have resulted from the collective action of business men through their trade organizations, are a closed book to the public. The great program of coöperation between industry and government, now being effected by the Department of Commerce, under the direction of Secretary Hoover, is just awakening a general interest and creating a realization of the importance of the effective organization of our industries, both in domestic and foreign trade.

This book has a two-fold purpose. First, an endeavor is made to explain in as non-technical language as is possible, the

meaning and purpose of the laws regulating competition. As a means of guidance for association officials and members, the forms of collective acts prohibited by the law are enumerated. If I have been guilty of overstating the prohibitions of the law, it is to aid the great majority of business men, whom I feel sincerely desire to avoid those legal entanglements, which sometimes result from the attempts of attorneys to define exactly the limits of the "twilight zone." Second, a summary is presented of that great group of lawful activities, in which our trade associations are steadily achieving results of vast benefit to industry and to the nation. It is hoped that a recital of these achievements may reveal to the public the value of trade associations in our national life. It is my hope also that a summary of the methods of many associations will at least be suggestive of the basis on which a constructive program of trade association activities can be formulated by any industry. No one realizes more than the writer the imperfections of this. presentation.

I desire to express my appreciation to Joseph E. Davies, former Chairman of the Federal Trade Commission, and W. S. Culbertson, Vice-Chairman of the United States Tariff Commission, for helpful suggestions given me. I am also deeply indebted to W. H. S. Stevens, Assistant Chief Economist of the Federal Trade Commission, and Adrien F. Busick, Assistant Chief Counsel of the Commission, who have been good enough to read considerable portions of the manuscript and give me the benefit of very valuable criticisms. My thanks are due William F. Notz, Chief of the Export Trade Division of the Federal Trade Commission, to George Weber, Certified Public Accountant, of New York City, and Edward A. Haid, Traffic Attorney, of St. Louis, Missouri, for reading and criticising Chapters XIV, V and X, respectively. Raymond N. Beebe and Byron Phelps Parry have assisted me greatly in many ways. To Russell Hardie, Assistant to the Attorney General, and to the officials of many trade associations, who have been very generous in furnishing me a great deal of material, I also express my thanks.

WASHINGTON, D. C.,

June, 1922.

FRANKLIN D. JONES.

CONTENTS

PREFACE

CHAPTER I.-THE RULES OF COMPETITION

Sherman Anti Trust Act-Prohibits unreasonable restraints of

trade-Test of unreasonableness-Extent of restraint-Effect of

restraint-Methods employed-Peculiar facts of the industry.

Clayton Act-Supplements Sherman Act Price discriminations

-Exclusive dealing contracts-Intercorporate stock holding-In-

terlocking directorates-Test of unlawfulness is whether probable

effect of use will be to substantially lessen competition. Excep-

tions to Sherman Act-Webb Act permits combinations solely

in export trade Clayton Act, Sec. 6-Legalizes labor and farm

organizations as such, but does not legalize acts in restraint of

trade-Act of Feb. 6, 1922, authorizes associations of producers

subject to regulation by Department of Agriculture. Federal

Trade Commission Act-Prohibits unfair methods of competition

-Test of unfairness-Enlargement of jurisdiction by Webb Act-

Revenue Act of Sept. 8, 1916, makes dumping unfair method

of competition-Limitation of jurisdiction by Packers and Stock-

yards Act of 1921. Summary.

CHAPTER II.-THE PURPOSE OF THE LAWS REGULATING COMPETITION

Protection of the efficient-Preservation of individual opportunity

-Encouragement of invention-Protection of producers of raw

material-Protection of labor-Dangers of unregulated competi-

tion to industry-Protection of public against enhancement of

price-Protection against depreciation of quality-Protection

against depreciation of service-Protection of government against

monopolistic control or socialism-Dangers of unregulated com-

petition to the public.

CHAPTER III.-FRAMING THE RULES OF BUSINESS CONDUCT

Value of written documents in crystallizing sentiment-Harmful

effect of dishonest practices by small minority-Statement of

principles of business conduct-Lack of control over non-members

-Complaints to Federal Trade Commission-Trade Practice Sub-

mittal before Federal Trade Commission-Legality.

CHAPTER IV. THE DISSEMINATION OF BASIC BUSINESS FACTS

Business men entitled to know facts. Evils flowing from lack of

knowledge of facts. Value of facts on productive capacity-Rela-

tion to production-Prevents overproduction-Relation to in-

vestment of capital-Relation to credit. Value of facts on supply

and demand-Data compiled by associations-Comparison indi-

vidual with general business conditions-Protection against mis-

representation of buyers-Speculation-Local surpluses and short-

ages Oversupply or undersupply of particular items-Revealment

potential markets-Comparison with competing industries.

Value of facts on operation and management-Increased efficiency

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-Safety of operation-Limitation of waste. Value of facts show-

ing general business trend-Type of data disseminated-Survey
of Business, Department of Commerce. Benefits to public-Pro-
tection of small manufacturer-Collection of trade data of value
to government-Use in war-Effect on prices. Legality.

CHAPTER V.-THE STUDY OF COST AND ACCOUNTING METHODS

Cost knowledge lacking. Association cost systems. Advantages

of cost accounting systems-Factor in determination of price-

Location and elimination of waste-Improvement of quality—

Stimulation of production-Increase of business-Aid in making

tax returns. Additional benefits of uniform association systems

-Cost comparisons and efficiency-Value in government relations

-Price stabilization. Methods of installation-Cost accounting
committee Coöperation with educational institutions-Employ-
ment of cost accountants-Subsidiary cost associations.
gestions. Legality.

CHAPTER VI.-STANDARDIZATION

Varieties-Dimensions.

Sug-

Classification of Standards-Standardization of Nomenclature-

Quantity Quality-Performance-Practice-Types, Sizes, and

Benefits of standardization-To manu-

facturers-To distributors-To general public. Dangers of stand-

ardization. Procedure in adopting standards-Action by associa-

tion only-Coöperation with technical organizations-Coöperation

with the government-Legislation. Means of enforcement.

Legality.