Atlantic & Pacific Transportation Co., a proposed independent American line of steamships to be run between Atlantic and Pacific ports of the United States and Panama, called at the White House yesterday and laid before President Taft a history of the obstacles which he contends have been interposed through the influence of transcontinental railroads to the organization of an independent line of vessels. He claims that the transcontinental roads are blocking the way of that enterprise in every way by closing the financial institutions with which they are influential against them and also the shipbuilding organizations, and that they have been unable to make any headway and that it is entirely due to the operations of the transcontinental railroads; that they are engaged in a conspiracy to prevent the Panama Canal from being utilized as a highway of

commerce.

Mr. Baker is here, and it seems to me that it is quite important, in connection with this investigation, that he should be heard, and I would suggest that the chairman communicate with Mr. Baker and secure his attendance before this committee.

I will also state that I have heard from other sources that there is the utmost difficulty in financing an organization of this kind, although it involves comparatively limited capital. The Panama Canal now owns the Panama Railroad Co., and is running a line of steamships from Panama to New York, and all that is needed to supplement that is a line of steamships from Panama to San Francisco, and it seems to me perfectly clear that if by organization of the great financial and transportation interests of the country that that enterprise be blocked, the Government should see to it that the canal is made fully complete as an instrument of commerce, by itself securing these ships and operating them, just as it does the line from New York to Panama.

The CHAIRMAN. Mr. Baker will be asked to appear before the committee.

Mr. Jaritz, you may proceed.

STATEMENT OF ANDREW JARITZ.

The CHAIRMAN. Just state your name, residence, and occupation to the stenographer.

Mr. JARITZ. My name is Andrew Jaritz; I live at 917 Nineteenth Street NW., Washington, D. C.; I am a student studying by myself at the present time.

Mr. Chairman and gentlemen of the committee, in presenting my ideas and conclusions at which I have arrived in a rather condensed form, I am conscious of the fact that they admit of much modification, amplification, and illustration. I should be very glad if I should be given the opportunity of applying the suggestions.

Relatively permanent and progressive habits of economic legislation constitute one of the most urgent and persistent needs of the economic life of this Nation.

As a basis for the formation, criticism, improvement, and disintegration of such habits of economic legislation the Nation needs a body of economic principles. Economic principles alone are adequate and permanent tools for dealing with the intricacies of modern economic problems.

The relations of modern economic problems to each other are too intimate and subtle to be detected from any one particular viewpoint, except the general economic. Economic principles alone are as broad as economic situations. Given such principles it must be seen that the trust problem is organically connected with other modern economic problems. It should not, therefore, be treated in a disconnected and isolated manner. The trust problem should be placed back into its modern economic context and should be interpreted and dealt with also in its intricate relations to other problems.

The trust problem is very intimately bound up with the problem of conservation, taking this problem in its broadest significance. One of the main reasons of the existence of the trusts is the saving or conservation of wastes. The wastes saved by the trusts can be analyzed as wastes of production, wastes of distribution, and wastes of consumption.

Legislative attention dwells mostly upon production, less upon justice and economy in distribution-taking the word distribution in its widest sense-and hardly at all upon prudence and the saving of wastes in consumption. And this in spite of the probable fact that production needs compartively little legislative attention, distribution needs a great deal more, and consumption probably the most, because, first, production and distribution exist or should exist for the sake of consumption; second, because the waste is probably the greatest in consumption, is smaller in distribution, and is probably the smallest in production, and third, because the savings effected in consumption properly belong to their greatest part, at leastto the consumers, and all citizens are consumers, while not all citizens are profiting equally and directly from production and distribution and from the saving of the wastes of production and distribution. The saving of waste should enrich those who are affecting it. Combinations and trusts are in the main instruments for the saving of wastes. It is quite just and proper that they should profit by the savings effected by them in production and distribution. It is un- . just if they are instruments for extorting unreasonable prices and profits and if through high prices they incidentally profit from effecting, by compulsion, savings in consumption.

Should the Government help in bringing about a saving of wastes, it would thereby entitle itself to profit from part of the waste saved. The waste is, indeed, so enormous that the National Government could probably be supported on the national waste. Therefore, let business organize itself along the lines of greatest economy and efficiency.

The Government should assist business in this endeavor and should share in the savings effected. As said, business has the right to profit from the savings of consolidation, but it has no right to eliminate bargaining, to raise prices and profits to unreasonable levels, and incidentally to profit from compelled savings in consumption (compelled through unreasonable prices). This is one more reason why the Government should yield to the pressure of the movement toward combination, should step into its tide and direct it.

What we deem the Government in duty bound to do in respect to this phase of the trust problem is collective bargaining for the consumers. The Government should help guiding the productive activities of the trusts, in this way serving also the trusts' interests,

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Productive efforts should be guided by an accurate knowledge of the quality and quantity of the fluctuating and changing needs of society. The Government should assist business in the diagnosis of the quality and quantity of current social needs.

Society needs goods and services of good quality in sufficient quantity. To this end, however, it does not need prices as cheap as possible. Society rather needs prices that are not too cheap, prices not so cheap as to induce extravagance on its part. Modern machinery is wonderfully effective in reducing costs of production and prices, and in thereby promoting waste in consumption. If conservation is to be comprehensive and is to help in eliminating the wastes of consumption, the sales prices of trust products should not be allowed to be so low as to induce and invite waste. What we mean by a reasonable sales price is a price not so high as to bar the satisfaction of genuine needs on the one hand, and on the other hand not so low as to make for wasteful expenditures and speculation. All wasteful consumption can not, of course, be eliminated.

The wastes of consumption do not, however, constitute the only waste, and a mere regulation of prices to be paid by consumers to trusts does not suffice, because it does not remedy waste in distribution and waste in production-through overproduction, i. e., overcapacity.

In order to save or reduce the waste incidental to distribution, the profits made in this line of activity need to be reduced to such an extent as not to invite more distributive service than society actually needs.

To eliminate the wastes of production, which are largely competitive wastes, the profits to be received by the producing trusts need also to be reduced or fixed. Modern machinery is wonderfully effective in exhausting natural resources, in inducing losing speculative ventures, and in thus wasting enterpreneurial and productive efforts and capital. This is so because machine production, through its cheapness, promises large returns, and consequently invites more promotive and productive effort, induces greater investments, and consumes more natural resources than are actually needed to satisfy the needs of consuming society. Trusts' profits should be so fixed as to eliminate or rather reduce superfluous enterprising.

The difference between the net income of a trust from sales at reasonable prices and its reasonable profits should go to the Government. It is the similar difference between profits promised by market prices and reasonable profits in a certain line of business which invites unnecessary competition, which really is the animus of competition. This difference or margin is in the end almost invariably wasted in the competitive struggle, and in the end much capital and labor and resources are wasted within this process of producing waste. This "competitive margin," which is the object of competitive struggle, which makes for wasteful investments, and which in the end is itself wasted, should-at least in the case of industries controlled by combinations-be "cut out" or levied by the Government by means of taxation, and should enrich the whole Nation.

In this manner, provided the Government has an adequate method of taxation, the fixing of the prices and profits of trusts and combinations would be effected indirectly, i. e., not directly through pre

scription, and the freedom of the business would not seriously be interfered with.

The method of taxing trusts must be of such a nature as to answer two demands that of fixing reasonable sales prices and that of fixing reasonable profits. By reasonable profits we mean profits, on the one hand, not too low to constitute an adequate reward or return for productive services rendered, for capital invested, and for labor and material used, and, on the other hand, not too highnot so high as to invite and promote unnecessary and wasteful and speculative production.

Trust prices are to be controlled by a tax, respectively, by the remission of a tax, and in some instances by a subvention, per unit of product.

Trust profits should be controlled by a fixed tax, respectively, by a fixed subvention. In the levying of this fixed tax, respectively, in the payment of this fixed subvention, the effect of the per unit tax, respectively, of the per unit remission of a tax, and in some instances of the subvention per unit of product, on the profits of a trust should be taken into consideration.

TRUST PRICES AND PROFITS MAY BE REASONABLE.

The Government should follow the principle that reasonable prices are to be maintained under all conditions. If reasonable prices of sale are in a case higher than monopoly or quasi monopoly prices charged by a combination, the Government should levy on each unit of trust product a tax equal to the difference between the trust price and the reasonable price. This per unit tax would, in accordance with what is known in political economy as the law of monopoly price, be added by the trust to the per unit sales price of its product. Thus indirectly the tax would fix the trust price for the higher and lift it to the reasonable level.

Conversely, if the trust price exceeds the reasonable sales price of a commodity in question, the trust price of the commodity should be lowered to the reasonable level by a remission of taxes per unit of product, this remission being made from the fixed tax paid by the same trust, and in some instances where it is desirable to help an enterprise which is a losing venture, and which therefore can not pay a fixed tax by a per unit of product subvention. This per unit remission, respectively, subvention, would amount to the difference by which the trust price exceeds the reasonable sales price. The amount remitted per unit would, in the nature of monopoly or quasi monopoly prices, be deducted by the trust from its price. In all of this discussion the power of a trust or combination to fix or maintain prices is, of course, assumed.

The fixed taxes to be paid by a trust should be fixed in such a way as to leave a reasonable profit or reward to the trust, a reward not more than adequate to induce business enterprise to produce the needed quality and quantity of goods or services. All efforts of the trusts aiming at a better quality of goods sold or of services rendered should be encouraged, and better quality should receive its adequate reward. Under competitive conditions the attention of producers is necessarily divided between real social service and wasteful com

petitive struggle, and competition being often competition in price rather than competition in quality, quality not seldom suffers in the competitive struggle, is not seldom willfully deteriorated to make possible cheap competitive prices.

The subventions to be paid to enterprises in case industries are to be encouraged in spite of their current unprofitableness should be so fixed as to be not more than ample to induce business enterprise to produce the needed quality and quantity of goods or services.

Subventions should, or rather would, be repaid by the subventioned enterprises when these come to make real profits. Subventioning for the sake of affording protection should cease as soon as it is no longer needed.

Principles of exact modern accounting and of financiering would thus come to be applied to the giving of protection and help to industrial enterprises which are in need of temporary support. From this it would follow, first, that costly protective help would not be tendered to industries unless there be a secured hope of the return of the cost of protection through subvention into the Nation's Treasury, excepting only those cases in which industries are to be encouraged and developed at any price; and, second, that protective help given to business would partake less of the nature of national speculation and more of the nature of national investment.

Protective schedules would never fix prices above the reasonable level, but would in part function in maintaining prices on that level. If an industry stands in need of more protection than is afforded by such a "reasonable schedule," the surplus protection, if merited, would be given in the form of a subvention, ordinarily as a loan.

Tariff schedules should be fixed, if foreign goods are to be admitted, in such a manner as to make for reasonable sales prices. The margin between the sales prices due to the tariff and the monopoly or quasi-monopoly prices that are asked by a trust, should be levied per unit of product if the trust price is below the tariff price, and should be remitted from the fixed tax if the trust price is above the tariff price.

Such methods of taxation and tariff making would need to be based on an accurate knowledge of the costs of production, both home and abroad. On the basis of this knowledge the Government would be helped in finding out whether or not it is desirable to encourage a certain industry. Moreover, the Government would have pecuniary motives for doing so, and would for this reason be very liable to encourage only those industries which it is desirable to encourage for the best economic interests of the whole Nation. To illustrate: The cost of production of steel rails is, including reasonable profits for the makers, in this country, let us suppose, $18, and abroad, including both profits and transportation charges, let us assume, $19 per ton. The reasonable price to be paid by railroads for a ton of steel rails is, we assume, $20. This price is being maintained by the Government by means of taxation, as described, the Government, in effect (as a revenue from the system of taxation as a whole, and not simply from a per ton tax), receiving $2 per ton of steel rails produced in this country. The prices of imported rails are maintained by means of a duty of, let us suppose, $1 per ton, the Government thus receiving, after each ton of steel rails imported, $1. There is, we assume,