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similar conclusions may be reached, "the power to regulate rates is exercised against a business which in every case used tangible property devoted to a public use.” Mr. Justice Lamar, dissenting in German Alliance Insurance Co. v. Lewis (233 U. S. 389, at p. 423). Some of the foregoing businesses had monopolies, some franchises, most used public ways or employed property acquired by virtue of the power of eminent domain. With practically no exceptions, they have a direct relationship to the business or facilities of transportation or distribution.

It is hardly necessary to point out that in no case is the regulation of the above industries exercised by the Federal Government under any fancied "public interest”, but all the above are instances of State regulation

(6) Analysis shows that the States have confined the regulation of these industries to the field of rates and charges for the services and products covered. Departures from this general rule have been made. But such departures have been made within a very limited range and the Supreme Court of the United States has indicated the outermost limits of this range. The Court has said that a State may regulate more than rates, if there actually exists a "danger of monopoly" and a "disaster from stoppage.” This rule is laid down in the Wolf Packing Co. case, where the court pointed out that regulation in this field had never extended to fixing wages except where the force of competition did not effectively operate. In the light of this explicit limitation, it is interesting to note the proposed findings of fact in the Ellenbogen bill. The bill purports to find that the effects

. upon interstate commercehave been caused directly and primarily

by excessive competition in lowering such wage rates and other costs, by over-expansion and excessive capacity of the productive equipment in the industry.

(sec. I a 4). In other words, although the proponents of the bill seek to justify it on the theory that the industry is affected with the public interest, and it is clear that this theory cannot possibly survive without the existence of a practical monopoly to sustain even the least objectionable of the proposed regulations, the above quoted findings of fact themselves on their face indicate that no such practical monopoly exists but that the exact opposite is true. The bill, therefore, by its own terms, shows the absence of a basis jurisdictional requirement and legal prerequisite. And this may be carried one step further by pointing out that some of the regulations proposed in the bill, such as the power of the Textile Commission to curtail production and restrict operations, would tend to create a monopolistic condition. To put it another way, a result of the bill would be to create a situation which, under the legal theory upon which the bill itself is based, must exist before such a power can conceivably be vested or exercised. The proposed action is as far-fetched in principle as would be an endeavor by Congress to compel every manufacturer to ship a portion of his goods into other States and then to assert a right to regulate his business based upon the fact that some of his products are consumed outside the State of origin.

IV. The control of production is sought to be achieved by the imposition of restrictions on the use of the mails and the right of citizens to do business with the Government as a proprietor, despite





as in many other industries, overcapacity is in part the result of shifts from old to newer regions, creating a condition of overcapacity in the declining region. In addition, all industries are confronted with a measure of overcapacity owing to rapid technical strides which render obsolete each year some considerable fraction of the available equipment. Finally, the excessive optimism of competitors with respect to the share of the market which each can get and hold, together with the mistaken judgment of individual units with respect to the size of the available market, are everywhere causes of overcapacity.

Likewise, the losses suffered by a considerable section of the industry even in good years is a characteristic common to all industry. As is shown elsewhere in this report, the cotton-textile industry reveals an array of costs varying from mill to mill and ranging from low through intermediate to very high cost firms. A tendency for weak firms to cause distress competition is present in greater or less degree in all industry. It must, therefore, be frankly recognized that many of the things complained of are basically unavoidable if we are to retain the advantages of competition and the stimulus which it affords.

Mr. Wood. Why do you read that portion of the report from this committee?

Mr. SMETHURST. For the simple reason that I think it points out definitely that if there is a national public interest relating to any industry it relates to all industries. The textile industry is in no different situation.

Mr. Wood. What would you say as to the textile industry compared with the coal industry?

Mr. SMETHURST. I am not an economist and am not acquainted with the conditions in the textile industry as related to the coal industry. I am relying upon this Cabinet committee report, which committee did make a very comprehensive study.

Mr. WOOD. The Cabinet committee did not deny that the coal industry was one that had a public interest, as well as the textile industry?

Mr. SMETHURST. They were not studying the coal industry, Mr. Wood. This bill relates to the textile industry. And, in order to do no injustice to either industry, I think I should not say anything about a comparison. I think undoubtedly there are many differences. One is certainly a natural-resource industry all the way through.

Mr. Wood. Do you contend that the manufacture and the distribution of textile goods in these United States is not in any wise connected with a public interest?

Mr. SMETHURST. That is a different thing, Mr. Wood. I am speaking about a public interest in the legal sense, which is the basis of this legislation. A business may be affected with a public interest in a legal sense to justify a certain degree of regulation by a State. And that purports to be the basis of this bill.

Mr. Wood. If it affects the public interest as an actuality it naturally goes without saying that there are certainly some legal methods we could employ to remedy any practice that might be against the public interest?

Mr. SMETHURST. That is the question, Mr. Wood. We do not deny that there is a public interest in the textile industry. But there is a distinction between the general public interest in an industry and a public interest in the legal sense which justifies regulation of that industry, not by the States, but by the Federal Government. And in order to justify that regulation by the Federal Government you have to find within the Constitution the power so to regulate. I think that that will be developed in these other points.

The second point which we wish to make, and which is discussed in some detail, is that even if the cotton-textile industry would possibly be so considered, namely, affected with a public interest, the Congress has no power of regulation with regard thereto, but the sole and exclusive right to regulate is reserved to the State.

I think, in view of recent decisions confirming a long line of previous decisions by the Court, there is no necessity of going into that second point.

Mr. Wood. What do you say about the transportation of textile goods in interstate commerce? Do you mean to say that there is no legal method we can employ to prevent certain practices against the public interest?

Mr. SMETHURST. In transportation?
Mr. Wood. Yes; in transportation.
Mr. SMETHURST. Or in production?
Mr. Wood. In interstate commerce.

Mr. SMETHURST. If it is a regulation of interstate commerce, I say: Yes--a regulation of the transportation.

Mr. Wood. What would you say about the feature of this bill that prohibits the shipment of these goods in interstate commerce under certain conditions? We do not attempt to regulate it intrastate. A manufacturer can do what he pleases in the State so far as the Federal regulation is concerned, but, when he ships those goods across a State line, immediately they are in interstate commerce.

Mr. SMETHURST. Frankly, sir, I do not see that that is the situation at all. Section 9 of this bill says:

(a) No textile product shall be eligible for purchase, sale, shipment, transportation, or delivery in interstate commerce which has been manufactured, processed, or produced by any person not licensed for such purposes by the Commissionnot that the person who is shipping in interstate commerce has to have a Federal license, but that the goods must be produced by a person licensed by the Federal Government. And that license requires compliance with a detailed regulation of the entire production of the product.

Mr. Wood. What do you think of the Constitutionality of the Hawes-Cooper bill?

Mr. SMETHURST. That has not been decided.

Mr. Wood. I am asking for your opinion. You seem to be very learned about this other matter.

Mr. SMETHURST. I make no claim on that.

Mr. Wood. The Hawes-Cooper bill divests them of their intrastate character when they cross the State line.

Mr. SMETHURST. That is right. But it is my understanding that a case is now before the Supreme Court in this connection.

Mr. Wood. You haven't any opinion on that, have you?

Mr. SMETHURST. Yes; I will express an opinion. It may not mean much, but my own opinion is that on past performance that law is invalid.

You have brought up the substance of the bill, which is the denial to ship in interstate commerce textile products not produced according to a license, which license regulates all the details of production.

As to the third point, sir, carrying this one step further, even if Congress has this power, the things sought to be regulated must

bear some reasonable relation to what the public interest is alleged to require, and it is obvious that the multifarious restrictions and regulations contemplated in the proposed bill have no reasonable connection with the evils stated to require regulation.

The fourth point is as follows: The control of production is sought to be achieved by the imposition of restrictions on use of the mails and the right of persons to do business with the Government as a proprietor, despite the fact that such restrictions are bad in policy and legally invalid when used in these ways for these purposes.

5. The bill as drafted contains many flaws and defects, the more glaring of which are summarized herein. Although some defects may be cured, the more outstanding objections are inherent in the bill itself and are not susceptible of correction.

As I said, I will not take up the time of the committee to point out the particular defects.

Mr. Wood. You talk about the constitutionality. What do you think about the constitutionality of the Reconstruction Finance Corporation, which has granted numerous loans, running into the hundreds of millions of dollars, to textile manufacturers and other manufacturers? Do you think that is constitutional?

You set up the Reconstruction Finance Corporation as doing a private business of lending money to private institutions, as they do every day; and numerous textile manufacturers have availed themselves of the law and have borrowed large sums of money from the Government. One southern manufacturer borrowed $800,000 from the R. F. C. Do you think that is constitutional? Do you think that that law is constitutional? The Government is dealing with private business there.

Mr. SMETHURST. On legal grounds? Mr. Wood. Yes; on legal grounds. Mr. SMETHURST. The main difficulty there, it seems to me, Mr. Wood, is that there is no practical way to determine whether it is constitutional.

Mr. Wood. No practical way?

Mr. SMETHURST. I do not see how the issue could arise. In the light of some of the language in the recent A. A. A. decision I think it is quite doubtful if the Government can appropriate money for the benefit of a private group.

Mr. Wood. Of course, the Supreme Court declared the A. A. A. unconstitutional. But I have yet to find my first employer who attacked that R. F. C. law. I would like to have them test that law, because I would like to know whether they are getting that money legally or illegally.

Mr. SMETHURST. That might be arranged, but I do not know how it could be done.

There is just one other point I wish to raise. I was very much interested hearing the Senator from Pennsylvania this morning and also, after an earlier time in the hearing, the Representatives from Massachusetts. And I can say right now that personally I am as sympathetic with the situation confronting industry in Massachusetts as anyone is. But there is just one thing that I want to bring out. That situation in Massachusetts was the subject of a rather intensive investigation which resulted in a report to the Massachusetts Industrial Commission in 1931. That report and the investigation was



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made by a firm of industrial engineers, and I think the full report would certainly be a very desirable document to incorporate in the record. I would like to point out just one quotation from that report because I think it has a bearing not only upon this legislation but upon legislation of a similar character which we know will follow.

In this report by the firm of Freeland, Bates & Lawrence, filed with the Massachusetts Industrial Commission in 1931 following an investigation of the situation under which industry was moving either from Massachusetts to other States or from urban centers to rural areas in Massachusetts and surrounding States, it is stated:

We clearly found that in order to have healthy, growing communities, we must have healthy, growing industries, and that whenever industries for any reason become embarrassed, the community suffers

Taxes are a serious problem in all States. They are particularly serious in Massachusetts Massachusetts has some of the most restrictive laws governing industry of any State in the Union.

Labor in Massachusetts, with the assistance of social workers, has imposed restrictions upon management which seriously hamper the securing of profitable orders. We believe that labor, in its own interest, could well afford to make a study of this condition and determine if it is not to its best interest to revise these restrictions and certain of its policies.

It is a shame to permit some of our best communities to be really distressed by our failure to study the condition and to prescribe the proper remedies, and we believe this to be the active duty of the State, which can be prosperious only to the degree to which it is made up of prosperous communities.

Mr. Wood. What do you mean by revising these restrictions? Do you mean by that the Labor Law that was passed in Massachusetts?

Mr. SMETHURST. To a considerable extent.

Mr. Wood. The hours of labor law for women and child labor and safety measures?

Mr. SMETHURST. No; I do not think there is any objection to the minimum wage legislation in Massachusetts.

Mr. Wood. Is that what you are referring to?
Mr. SMETHURST. No; it is not.

Mr. Wood. What is this legislation you speak of that labor has imposed?

Mr. SMETHURST. It is the general factory laws, for one thing, I suppose.

Mr. Wood. The factory inspection law?

Mr. SMETHURST. Not factory inspection; no, sir; but relating to compensation legislation.

Mr. Wood. Workmens' compensation?
Mr. SMETHURST. Yes, sir.
Mr. Wood. We have that in about 46 States.
Mr. SMETHURST. Yes; we have that in 43 States.

Mr. Wood. In 46 States, I think it is. What is your objection to that law?

Mr. SMETHURST. I would say I haven't any objection to it at all. I am merely pointing out a situation which we have in Massachusetts which we know to exist. And here was a report filed with the Industrial Commission which went into all of the details of Massachusetts laws and found what was the trouble. And this is the report as & result of that investigation. I am not stating it myself.

Mr. Wood. What revision would you suggest?

Mr. SMETHURST. I am not suggesting any. I am suggesting this committee might consider this report with profit.

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