22 



HARDWOOD RECORD 



December 25. 1921 



coal and oil, the Government collects and publishes regularly, at frequent 

 intervals, current information on production, consumption and stocks on 

 hand ; and boards of trade furnish freely to the public details of current 

 market prices of those commodities, the volume of sales, and even Individual 

 sales, as recorded in daily transactions. Persons interested in such com- 

 modities are enabled through this information to deal with one another on 

 an equal footing. The absence of such information in the hardwood lumber 

 trade enables dealers in the large centers more readily to secure advantage 

 over smaller concerns. Surely it is not against the public interest to distri- 

 bute knowledge of trade facts, however detailed. Nor are the other features 

 of the plan — the market letters and the regional conferences — an un- 

 reasonable interference with freedom of trade. Intelligent conduct of 

 business implies not only knowledge of trade facts, but an understanding 

 of them. To this understanding editorial comment and free discussion by 

 those engaged in the business and by others Interested are aids. Opinions 

 expressed may be unsound ; predictions may be unfounded, but there is 

 nothing in the Sherman Law which should limit freedom of discussion, even 

 among traders. 



No Evidence of Attempt to Limit Cut 



It is insisted that there was a purpose to curtail production. No evidence 

 of any such purpose was introduced. There was* at no time uniformity in 

 the percentage of production to capacity. On the contrary, the evidence is 

 uncontradicted that the high prices induced strenuous efforts to increase 

 production. Weather and labor conditions had made production diificult. 

 Tractors were purchased at great cost to get the logs out of the forests, 

 which excessive rains had rendered inaccessible to the usual methods of 

 transport. The current sales of new machinery to hardwood lumber mills 

 were on an unprecedented scale. Where eiiuipment and supply of logs 

 permitted, mills were run at night to overcome the restrictions upon produc- 

 tion which the bad weather had imposed. There were, it is true, from 

 time to time, warnings in the market letters and otherwise, against over- 

 production — warnings which seem not to have been heeded. But surely 

 Congress did not Intend by the Sherman Act to prohibit self-restraint and 

 it was for self-restraint that the only appeal was made. The- purpose of 

 the warnings was to induce mill owners to curb their greed — lest both they 

 and others suflfer from the crnshing evils of overproduction. Such warn- 

 ings or advice, whether given by individuals or the representatives of an 

 association, present no element of Illegality. 



Co-operative Action Not Illegal 



It is urged that this was a concerted effort to enhance prices. There was 

 at no one time uniformity in prices. So far as appears every mill charged 

 for its product as much as it could get. There Is no evidence that the 

 hardwood mills expected, by adopting the Plan, to earn more In profits, afld 

 to do so, at least in part, by getting higher prices for their product. It 

 may be that the distribution of the trade data, the editorial comment and 

 the conferences enabled the producers to obtain, on the average, higher 

 prices than would otherwise have been possible. But there Is nothing in 

 the Sherman Law to Indicate that Congress Intended to condemn co- 

 operative action In the exchange of information, merely because phophecy 



resulting from comment on the data collected may lead, for a period, to 

 higher market prices. Congress assumed that the desire to acquire and to 

 enjoy property is the safest and most promising basis tor society. And to 

 that end it sought, among other things, to protect the pursuit of business 

 for private profit. Its purpose, obviously, was not to prevent the making 

 of proflts or to counteract the operation of the law of supply and demand. 

 Its purpose was merely to prevent restraint. The illegality of a combina- 

 tion under the Sherman Law lies not in its effect upon the price level, but 

 in the coercion thereby effected. It is the limitation of freedom, by agree- 

 ments which narrow a market, as in Eddystone Pipe & Steel Co., vs. the 

 U. S., 175 U. S. 211, and Montague & Co. vs. Lowry, 193 U. S., 

 38, or by organized boycott, as in Loewe vs. Lawley, 208 D. S. 274, and 

 Eastern States Retail Lumber Co. vs. the U. S., 234, U. S. 600, or by the 

 coercive power of rebates. Thomson vs. Cayser, 243 U. S. 66, which con- 

 stitutes the unlawful restraint. 



Competition Was Not Suppressed 



The co-operation which is incident to this plan does not suppress com- 

 petition. On the contrary, it tends to promote all in competition which is 

 desirable. By substituting knowledge for ignorance, rumor, guess, and 

 suspicion, it tends also to substitute research and reasoning for gambling 

 and piracy, without closing the door to adventure or lessening the value 

 of prophetic wisdom. In making such knowledge available to the smallest 

 concern it creates among producers equality of opportunity. In making It 

 available also to purchasers and the general public, it does all that can 

 actually be done to protect the community from extortion. If, as is alleged, 

 the plan tends to substitute stability in prices for violent fluctuation, its 

 Influence, in this respect, is not against the public interest. Tfw evidence 

 in this case, far from establishing an illegal restraint of trade, presents, in 

 my opinion, an instanee of commendable effort by concerns engaged in a 

 chaotic industry to make possible its intelligent conduct under competitive 

 conditions. 



The refusal to permit a multitude of small rivals to co-operate, as they 

 have done here. In order to protect themselves and the public from the 

 chaos and havoc wrought in their trade by ignorance, may result in sup- 

 pressing competition in the hardwood Industry. These keen business rivals, 

 who sought co-operative exchange of trade information to create conditions 

 under which alone rational competition is possible, produce in the aggre- 

 gate about one-third of the hardwood lumber of the country. This Court 

 held In the U. S. vs. U. S. Steel Corporation. 251 U. S. 417, that it was not 

 unlawful to vest in a single corporation control of 50 percent of the steel 

 industry of the country ; and In the U. S. vs. United Shoe Machinery Co., 

 247 U. S. 32, the Court held that It was not unlawful to vest in a single 

 corporation control of practically the whole shoe machinery Industry. 

 May not these hardwood lumber concerns, frustrated in their efforts to 

 rationalize competition, be led to enter the inviting field of consolidation? 

 .\nd if they do, may not another huge trust, with highly centralized control 

 over vast resources, natural, manufacturing aJd flnancial, become so 

 powerful as to dominate competitors, wholesalersflftetallers, consumers, em- 

 ployees, and, in large measure, the community? 



History of the Case 



It was in February, 1920, that the department of justice, follow- 

 ing instructions issued by Attorney General A. Mitchell Palmer, filed 

 its bill in equity against F. R. Gadd, manager of statistics of the 

 American Hardwood Manufacturers Association, and 328 members of 

 the open competition plan of that organization, charging them with 

 liaving entered into a conspiracy in restraint of interstate commerce 

 in hardwood lumber and forest products by restricting production 

 and increasing prices for this commodity. 



Hearing of the suit began before the late Judge John E. McCaU, 

 at Memphis, in March, 1920. Both sides were represented by a 

 V)riUiant array of counsel. Assistant Attorney General Ames headed 

 the attorneys for the government and he was supported by special 

 represent^itives of the Department of Justice and by W. D. Kyser, 

 attorney for this district. L. C. Boyle, of Washington, general counsel 

 for the American Hardwood Manufacturers' Association, directed the 

 case for the defendants. He was supported by 6. Carroll Todd, 

 assistant United States attorney general under a former administra- 

 tion, and by local attorneys, H. B. Anderson and W. H. Fitzhugh. 



One of the striking features of the original hearing was the boast 

 of attorneys for the government that they did not have to go outside 

 of the records of the defendants, in the form of "stock reports," 

 "product on reports" and weekly "sales reports," running comment 

 made in connection with these "reports" made by F. R. Gadd, as 

 manager of statistics, and letters received from the defendants -tell- 

 ing of the wonderful benefits of the open competition plan, to secure 



all the evidence necessary to prove all of the contentions of the gov- 

 ernment. 



Defense Counsel Make Brilliant Effort 

 Attorneys for the defendants made a brilliant effort to counteract 

 the evidence presented by the government but at no time did they 

 make appreciable impression on the trial judge. They insisted that 

 the defendants represented too small a percentage of the total pro- 

 duction of hardwood lumber to control production or to advance prices 

 at will and they introduced hundreds of affidavits from hardwood 

 manufacturers, from machinery interests and from other sources to 

 prove tliat they were doing everything in their power to increase pro- 

 duction at the very time they were charged with being in a conspiracy 

 to decrease hardwood output. They cited decisions of the Supreme 

 Court in the United States Steel Corporation, American Tobacco 

 Company and other cases to show that they were well within their 

 legal rights in compiling and disseminating the basic facts of the 

 industry. But all to no avail. Judge McCall, within less than a week 

 after the hearing, which lasted three days, was over, handed down 

 one of the most sweeping decisions ever known, in the form of a 

 temporary order restraining the defendants, individually and jointly, 

 from holding any further meetings or conducting any activities what- 

 soever under the "open competition plan." He insisted, in his written 

 order, that, whatever might have been the intent of the defendants, 

 the fact remained that the plan had operated to boost prices. 

 (Continued on page 24) 



