In response to:

Monopoly from the March 11, 1965 issue

To the Editors:

Toward the end of his life the late Senator Kefauver became increasingly concerned with getting to a wider audience the results of his inquiry into administered prices, which except for some aspects of the hearings on drugs and steel, had gone largely unreported by the press. But here he faced a formidable problem of exposition. While the hearings, numbering 18,241 pages contained in 29 volumes, had been summarized in reports on steel, automobiles, bread and drugs, these reports, plus an accompanying compendium on public policies totalled well over 1,000 closely-printed pages. No book intended for general circulation could possibly have treated each of the topics examined in each of the reports—to say nothing of the hearings. Nor would there be much point in printing privately the Subcommittee’s reports which are already available from the Superintendent of Documents—and at a much lower cost. Since monopoly tends to have much the same effects, regardless of industry, the Senator hit on the technique of using each of the industry investigations to illustrate a different injurious consequence of monopoly. Hence, as the introduction and even the chapter hearings indicate, excessive prices are illustrated by drugs, waste and unnecessary costs by automobiles, restrictions of employment by steel and the destruction of competition by bread.

In his review of In a Few Hands (3-11-65) Oscar Gass ignores this conceptual design of the book and attacks the various chapters for not treating matters which they were not intended to illustrate. The impression is created and indeed cultivated that if a monopoly problem relating to a particular industry is not discussed in the book, the Senator was ignorant of it. Yet without exception each of the subjects which Mr. Gass belabors the Senator for ignoring in the book was examined at length in his hearings and reports.

By the time he reaches his conclusion, Mr. Gass has abandoned any pretense that what he has written is a book review. The focus of his attack has completely shifted from the book to the Senator himself, who is condemned for an “absence of an intellectual hunger to understand economics and politics better,” for “a shortfall of moral commitment” and for “a deficit of painful intellectual activity.” Now if what is at issue are these alleged deficiencies of the Senator, the basis for judgment must not be what the Senator struggled to get within the confines of a 238-page book for the general reader; rather it must be the totality of his work. When Mr. Gass made these alleged deficiencies of the Senator the subject of his discourse, he placed upon himself the obligation to make his judgment, at least in this area, on the basis of the 32 volumes of hearings and reports. Unhappily, he demonstrates in his review not even a nodding acquaintanceship with this body of work.

Thus the chapter on automobiles is attacked not because it fails in its intended purpose of illustrating the fantastic costs of model changes, advertising and other forms of non-price competition, but on the grounds that, “Characteristically, Kefauver simply refuses to face up to the classic dilemma of the competitor who is so efficient that he eliminates all other competitors.” It happens that this apparent dilemma is one of the central issues of the automobile report, which presents abundant evidence that GM’s domination stems more from its possession and use of monopoly power than from the size of plant required for efficient production. In view of this evidence it is indeed surprising to find Gass repeating this well-worn cliché.

On steel the charges are that Kefauver failed to recognize that steel profits are low, that the U. S. steel industry cannot compete in world markets, and that the Senator’s “analysis makes only such points as were made already a quarter of a century ago in proceedings before the Temporary National Economic Committee.” But profit rates in steel are low only when steel production is low. And the high prices charged by the steel industry have been one of the causes of low steel production. Moreover, at any given level of production, profit rates in steel have shown a noticeable increase since the mid-Fifties. After all, an industry which can make money with more than two-thirds of its capacity idle is more to be censured than pitied.

As to the industry’s widely-publicized inability to compete in world markets, Mr. Gass simply ignores the data placed in the record by Senator Kefauver showing that the U. S. steel producers not only enjoy a marked advantage over their European rivals with respect to materials costs but that their higher hourly wage rates appear to be offset by the greater productivity of the U. S. mills.

Finally, as the author of the T.N.E.C. monograph on steel, I think I can state with some assurance that the Senator’s inquiry covered many points not examined by the T.N.E.C., including the process of price determination by the leader, upward price matching, cost-price relationships, productivity trends, etc.

Mr. Gass employs the same technique in his criticism of the chapter of drugs, cited to illustrate the high prices resulting from monopoly. Again, ignoring the question of how well the chapter succeeded in its purpose, Mr. Gass creates the impression that the Senator was oblivious to other injurious practices in the drug industry, notably the failure to provide adequate information to physicians on dangerous side effects. Here his selection of the product to make his point, Chloromycetin, is simply beyond belief. Nowhere throughout the long investigation was any witness so excoriated by the Senator as the product’s manufacturer—and on precisely the same grounds which now Mr. Gass accuses the Senator of ignoring. Indeed, the principal case example of this abuse cited in the drug report is Chloromycetin.

What has been set forth above by no means exhausts the erroneous statements and misleading implications with which the review abounds. Contrary to Mr. Gass, Senator Kefauver did support the reduction of taxes on automobile imports; he did hold extensive hearings on Senator O’Mahoney’s price notification bill; and his preference for competition over regulation stemmed not from naive Populism but from a sophisticated awareness of what tends to happen to regulatory agencies.

In this reply I have endeavored to confine myself to the substantive criticisms made by Mr. Gass. But nearly half of the review has nothing to do with the book at all; it is simply a personal and at times vituperative attack upon the Senator. Thus our attention is drawn to one of the few pieces of civil rights legislation which the Senator failed to support (an early FEPC bill) while the Senator’s incredibly courageous record in supporting other civil rights measures is ignored. Through an elaborate and contrived exposition one of Senator McCarthy’s strongest opponents in the Senate is portrayed as a supporter of McCarthyism! There is no need to refute these and similar personal attacks; they fall by their utter absurdity.

John M. Blair

Chief Economist

U.S. Senate Committee on the Judiciary

Subcommittee on Antitrust and Monopoly

This Issue

April 22, 1965