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No. 32 "The Bituminous Coal Bill: An Analysis of a Proposed Step toward Socialization of Industry," April 29, 1935. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_32 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 32 "The Bituminous Coal Bill: An Analysis of a Proposed Step toward Socialization of Industry," April 29, 1935. American Liberty League. American Liberty League. Washington, D.C. 1935. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. Pamphlets Available â˜… Copies of the following pamphlets may be obtained upon application to the League's national headquarters: Why, The American Liberty League? Statement of Principles and Purposes American Liberty League Its Platform An Analysis of the President's Budget Message N. R. A. Its Past, and Recommendations jot the Future Analysis of the $4,880,000,000 Emergency Relief Appropriation Act. Economic Security A Study of Proposed Legislation The Bonus An Analysis of Legislative Proposals Inflation Possibilities Involved in Existing and Proposed Legislation The Thirty Hour Week Dangers Inherent in Proposed Legislation The Pending Banking Bill A Proposal to Subject the Nation's Monetary Structure to the Exigencies of Politics The Holding Company Bill An Analysis of Proposed Legislation "What is the Constitution Between Friends?" Speech by James M. Beck Where Are We Going? Speech by James W. Wadsworth Congress at the Crossroads Speech by Jouett Shouse Price Control An Analysis of Experiments and Recommendations for the Future Yesterday, Today and Tomorrow A Review of Factual Analyses issued by the American Liberty League and a discussion of the Legislative Situation. The Labor Relations Bill An Analysis of an Undesirable Measure Government by Experiment Speech by Dr. Neil Car others How Inflation Affects the Average Family Speech by Dr. Ray Bert Westerfield The AAA Amendments A Study of Proposals Illustrating a Trend Toward Fascist Control of Agriculture and other Industries Political Banking Speech by Dr. Walter E. Spahr â˜… AMERICAN LIBERTY LEAGUE NATIONAL PRESS BUILDING WASHINGTON, D. C. â˜… â˜… THE BITUMINOUS COAL BILL â˜… â˜… â˜… An Analysis of a Proposed Step toward Socialization of Industry AMERICAN LIBERTY LEAGUE Tiational Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. â˜… â˜… Document No. 3a April, 1935 The Bituminous Coal Bill â˜… The Bituminous Coal Conservation Bill (S. 2481), now before the Senate with a favorable report from its Committee on Interstate Commerce, represents a step toward socialization of industry. The menace in the measure is so great as to outweigh any possible benefits. Objections and dangers include the following: 1. Complete government control of the bituminous coal industry as proposed would be entirely inconsistent with American principles. 2. Federal regulation of mining would be in defiance of numerous court decisions interpreting the commerce and revenue clauses of the Constitution. 3. Failure of the plan to solve the problems of the industry would be followed logically by government ownership and a heavy burden upon the taxpayers. 4. Designation of the industry as being affected with a public interest would encourage similar action for other equally important industrial groups. 5. Control of prices would mean a permanently higher price level which, if maintained successfully, would divert a large volume of business to competitive fuels. 6. Recovery would be retarded through higher prices charged to industries forced to use coal. 7. Control of production would disrupt existing market relationships as well as inflict injury upon portions of the industry not favored in the allotment of tonnages. 8. Granting of power to one labor organisation sufficient to tie up the entire industry at will would be unfair to the public. 9. Expenditure of $300,000,000 in the acquisition of a bituminous coal reserve would not solve the immediate problems of the industry and would encourage a raid upon the Treasury. 10. Creation of two new permanent boards and 21 district boards would expand further the ever-spreading governmental bureaucracy. Terms of Bill The bill declares that the mining and distribution of bituminous coal are affected with a 3 national public interest and that the general welfare of the Nation requires that the industry be regulated. It is further maintained that all production and distribution of bituminous coal bear upon and affect interstate commerce and render regulation imperative for the protection of such commerce, that excessive facilities for production have led to practices and methods that waste the coal resources of the nation and burden and obstruct interstate commerce, and that the right of mine workers to organize and bargain collectively for wages, hours of labor and conditions of employment should be guaranteed in order to avoid obstructions to interstate commerce. A National Bituminous Coal Commission of nine members appointed by the President is created in the Interior Department with jurisdiction over production and marketing. The Commission would make allotments of tonnage and fix prices with the aid of 21 district boards. A Bituminous Coal Labor Board of three members appointed by the President is created in the Labor Department with jurisdiction over labor relations. Conditions prescribed in the Act would be formulated in a code, which must be subscribed to by all producers. Code members are exempt from anti-trust laws. Enforcement of the code is facilitated by a tax of 25 per cent on the sale price or fair market value of coal at the mine, 99 per cent of the tax being remitted to producers who comply with the Act. Title II of the bill creates a National Bituminous Coal Reserve "for the purpose of conserving the nation's bituminous coal resources, to promote the economical production of coal, to prevent and eliminate the evil of excessive and wasteful production, to assure future supplies of coal in time of peace and war, and to promote the future interstate and foreign commerce of the United States." The Secretary of the Interior, upon approval of the National Bituminous Coal Commission, is authorized to purchase, or acquire by condemnation proceedings, coal lands, properties and mining rights. The desirability of the acquisition of properties would be considered from the standpoint of conservation, effect upon the employment of labor, cost of coal to the consumer, promotion of fair competitive relations in and between coal-producing districts and elimination of over-capacity for coal production in the industry. The sum of $300,000,000 is appropriated for the purposes of Title II. Three per cent 50-year bonds would be issued to this amount for use in exchange for coal properties and for sale to obtain necessary cash. To provide funds for the administration of the coal reserve, the relocation and rehabilitation of miners who have lost employment by reason of the acquisition of coal properties by the government, and for the creation of a sinking fund for the payment of interest on and the retirement of the bonds, a tax is levied on all bituminous coal mined in the United States. The tax is four cents per ton in 1935, 7.3 cents in 1936, 8.7 cents in 1937, 6.9 cents in 1938 and 3.21 cents in 1939 and each year thereafter. No lands held in the reserve would be mined, sold or leased for mining except upon the order of the Commission after a hearing and a finding that such mining, sale or lease is in the public interest. The provisions for the levying of taxes, the issuance of bonds and the appropriation of funds make the measure one which properly should originate in the House of Representatives. Nevertheless, S. 2481 was reported on April 11 from the Senate Committee on Interstate Commerce, which ordinarily does not have jurisdiction over revenue or appropriation measures, and is on the Senate calendar. A similar bill, H. R. 4661, is pending before the House Committee on Ways and Means. Constitutionality Mining of coal is clearly outside the range of authority of the Federal government. The courts have uniformly held that production is not commerce as the term is used in the Constitution. A declaration by the Congress that the bituminous coal industry is affected with a national public interest and a further assertion that all production and distribution of bituminous coal bear upon and affect interstate commerce do not make the measure valid from a constitutional standpoint. The recent decision by United States District Judge Charles I. Dawson at Louisville, Kentucky, holding unconstitutional the Kerr-Smith Act for the regulation of tobacco production, is pertinent in connection with the language used in the Bituminous Coal Bill. "It is the plainest kind of an attempt to accomplish an unconstitutional purpose by the pretended exercise of constitutional powers," said Judge Dawson. "The garment used to hide the naked unconstitutionality of the Act was fabricated from the taxation and commerce clauses of the Constitution; but neither congressional recitations of purpose, nor the formal dress of a statute, is conclusive upon the courts." Judge Dawson held that the Congress had no authority to control production, which he said was an intrastate business. While admitting a reluctance on the part of the courts to invalidate an act of a coordinate department of government, Judge Dawson said that if the act itself showed "subterfuges were resorted to to circumvent constitutional limitations, no judge who respects his oath to support and defend the Constitution will hesitate to strike it down, it matters not how great may be the demand for such legislation." Judge Dawson continued: "For nearly 150 years the Constitution has been the fortress behind which the individual citizen has found security against all dangers inherent in a representative government based upon popular suffrage. Its worth has been tested by time and proved by experience and it must not be discarded or weakened to meet the exigencies of the moment." The bill provides that every corporation engaged in mining bituminous coal "which ships its coal in interstate commerce either directly or through a subsidiary or an agent, or which uses the mails or other means of communication in interstate commerce to dispose of such coal," shall file with the Commission its acceptance of the Act. It is obvious that no coal-producing company of importance can escape the effect of the bill. If the use of the mails makes an individual or corporation subject to Federal regulation, it means that no manufacturers, merchants or farmers are immune. The taxing feature invokes the authority of the revenue clause of the Constitution. The validity of this regulatory device is doubtful. The Supreme Court in the Child Labor Tax Case in 1922 held that the taxing power cannot be used to enforce a police regulation properly within the control of the states. Enforcement of regulatory provisions of the pending bill is manifestly the sole purpose of the 25 per cent tax. The allotment of tonnages to mines below their customary output would permit confiscation of property without due process of law. Government Ownership The bill definitely tends toward Socialistic control of industry. For the present, at least, ownership of mines in active operation would remain in private hands. Every phase of production and distribution, however, would be under the control of the government. Eventually without doubt this would lead to government ownership. If prices were reduced sufficiently to satisfy consumers, the owners, faced with continued losses but powerless to dictate policies, would be glad to sell to the government. Rigid control, which prevents the full exercise of private initiative, is contrary to American principles of government. Ownership of industry by the government would be a complete departure from the system under which the nation has prospered. A definite beginning of a program of government ownership is involved in the scheme for the creation of a National Bituminous Coal Reserve. A Public Interest The bill as first introduced, besides declaring that the production and distribution of bituminous coal are affected with a national public interest, also asserted that the general welfare of the nation requires that the industry be regulated as a public utility. As reported from the Senate Committee the bill omits the designation of the industry as a public utility although it recites reasons why it should be regulated. There is no reason to classify the bituminous coal industry as a public utility and to ignore anthracite, oil, lumber and various agricultural industries which are equally essential. The bituminous coal industry is not "affected with a national public interest" as the term is understood in a legal sense. If it were, regulation would be within the province of the states rather than of the Federal government. The Supreme Court of the United States in the case of Charles Wolff Packing Company vs. Kansas Court of Industrial Relations 13 years ago said: "It has never been supposed, since the adoption of the Constitution, that the business of the butcher, or the baker, the tailor, the wood-chopper, the mining operator, or the miner was clothed with such a public interest that the price of his product or his wages could be fixed by state regulation." In the decision of the Supreme Court in the Appalachian Coals Case in 1933 there was no suggestion that the industry was affected with a national public interest or possessed any of the characteristics of a public utility. If there be any justification for special treatment of the coal industry, it can only grow out of the necessity of conserving coal by prevention of waste. Necessity for such conservation is extremely doubtful. If there should be such necessity, then it would be the duty of the coal-producing states to conserve the supply. There is nothing in the inherent nature of coal or in the conduct of the coal business that gives justification for declaring the industry a public utility or affected with a public interest any more than in the case of any other producer or manufacturer of a commodity of general use. The problems in the marketing of coal are no different from those which abide in the wholesaling and retailing of other commodities. Competitive Fuels The situation with respect to competitive fuels furnishes one of the chief problems of the coal industry. The pending bill offers no solution whatever of this problem except as it tends in the direction of a government subsidy to meet losses incurred by reason of the necessity of selling coal at prices low enough to meet competition of oil, gas and wate* power. 8 Competitive fuels have made serious inroads upon the coal industry. The plight of the industry is being aggravated by the use of government money for the development of electric power by the Tennessee Valley Authority and in other areas. Even now there is pending legislation for an extension of the activities of the Tennessee Valley Authority in a field directly competitive with the coal industry. Twenty-five years ago it was the fact that water power could furnish electricity cheaper than coal. This situation has changed, and the efficiency of a pound of coal in producing an electric unit has increased more than one-third. Today, in many cases, electricity can be generated more cheaply through the use of bituminous coal than through the use of water power. The present administration is encouraging the development of water power. The bill tends to facilitate its displacement of coal. The coal producers have been squeezed between demands for lower prices to meet competition of other fuels and demands for higher wages. Their costs have been otherwise increased by the general advance in prices of materials due to the NRA. It is a certainty that enactment of the pending bill would mean an increase in costs in the production of coal. Prices would have to be advanced if the owners of the coal properties are to receive an adequate return on their investment. The higher prices would result in a decrease in consumption by reason of a greater diversion of the business to other fuels. This would require a curtailment of production. The higher prices would give only temporary relief to the producers. Still higher prices would be necessary to make the smaller production profitable. Eventually either the price structure would break down or losses would have to be absorbed by the government. The passage of this law would completely upset that part of our foreign commerce which is carried under the American flag. Many ships now burning coal would have to pay increased prices for their coal, or go to the expense of changing their engines for oil consumption, and the measure would have a great effect in driving the American flag from the seas. 9 Costs to Consumers Higher prices to consumers would be unavoidable because of the special taxes imposed by the bill, greater unit costs due to limitation of production, a higher cost of inferior grades by reason of such limitation, establishment of a labor monopoly with power to force wage increases regardless of economic justification and costs of code administration. Some classes of consumers would be unable to avoid the higher prices by turning to substitute fuels. In their case it would mean an added burden at a time when lower costs are needed to overcome other obstacles faced by industry. The railroads are among the important groups which would be hard hit. Already under the Bituminous Coal Code the fuel costs of the railroads have been increased by $45,000,000 annually. The increase in the price of bituminous coal, between May, 1933, and September, 1934, to the railroads amounted to 41 cents per ton. It is estimated by railway executives that the effect of the pending bill would be to increase the fuel costs by at least 30 cents and perhaps as much as 50 cents a ton. It would mean a minimum extra charge on the railroads of $24,-000,000 annually. The railroads are unable to avoid losses under existing conditions. Any additional costs not only would affect them injuriously but also would make it impossible to reduce freight rates. The railroads also are likely to suffer by reason of a smaller tonnage of coal, should this bill be passed. The bill fails to exclude so-called captive mines which are owned by the railroads, steel companies and other large industries. The product of these mines is used by the owners and is not sold to the public. The operation of the mines figures in costs of the railroads and of the industries. The effect of the bill would be both to increase production costs in these mines and to interfere needlessly with management of integrated industrial groups. Price Control Prices have been fixed under the Bituminous Coal Code, which became effective September 10 18, 1933. Enforcement has proved impossible. The pending bill invokes the taxing power to aid enforcement. Even with the aid of a tax there would be chiseling and bootlegging. It would be difficult to obtain 100 per cent compliance without an army of enforcement agents. Minimum and maximum prices would be fixed by district boards subject to the approval of the Commission. The minimum price would be the average production cost of 90 per cent of the tonnage of a district, excluding that 10 per cent represented by the highest cost mine production. The production cost would include labor, supplies, power, taxes, insurance, local administration, sales and all other direct expenses of production, but not including depletion, depreciation or royalties. Under rules and regulations prescribed by the Commission the district boards and marketing agencies of producing fields serving competitive markets would agree upon fair competitive trade practices and fair competitive prices in such markets. When approved by the Commission such fair competitive prices and practices would be binding upon all code members. The district boards would be composed of 15 members each. All but one of the members of each board would be producers or representatives of producers elected for terms of two years by producers voting in the proportion of their annual tonnage output for the preceding year. One of the members would be selected by the national organization of employees representing the preponderant number of employees in the industry, which would mean the United Mine Workers of America. The boundaries of the 21 districts are fixed in the bill. Production Control Control of production has not been attempted under the present NRA code. It will be attempted, if the pending bill is passed, on the theory that production control would make it easier to maintain fixed prices. Production control is contemplated under the bill through maximum allotments of tonnage by the National Bituminous Coal Commission. The allotments would be made for each of the 21 districts. The district boards would fix tonnage allot-11 ments for the different mines from the quota assigned to the district by the Commission. No code member and no one desiring to become a member of the code would be allowed to open a new mine except upon a finding of the Commission that the market requirements justified such action in the public interest. The production allotments would involve many difficulties. There would be opportunity for political favoritism. Injustice would be done both respecting individual companies and producing districts. Market relationships have been built up over the years on the basis of competitive conditions and transportation facilities. Consumers have preferences for different kinds of coal. They often buy coal from one area when other coal might be available at a less distant point. Rival producing districts have fought for advantage through freight differentials and differing labor costs. The bill would apply economic planning to the problem of coal distribution. The tonnage allotments by districts and mines would attempt to substitute arbitrary factors for natural laws. The demonstration under the AAA of what takes place in such circumstances should be too fresh in the minds of members of the Congress to permit similar experimentation to be applied to the bituminous coal industry. The plight of the cotton textile industry is a case in point. Labor Relations The labor provisions required to be included in the Bituminous Coal Code are such as to assure the United Mine Workers of America a dominant position. The intention is to facilitate wage contracts covering the entire industry. With such contracts the union would be able effectually to shut off all mining operations in a strike. The United Mine Workers had contracts of this kind during the World War and for a few years thereafter. Invariably the organization was successful in forcing concessions when it had power to make good a threat to deprive industry and the railroads of their source of fuel. Eventually the effort to maintain wage rates at a level higher than was justified by existing conditions collapsed of its own weight. Such wage contracts as existed in the period just 12 prior to the NRA were for small districts. The public was spared the danger of nation-wide strikes. The NRA Bituminous Coal Code restored a wage contract covering the entire industry, with the result that it was necessary recently for the administration to intervene to prevent a general strike. Opposition by the producers to the labor provisions of the bill has been less marked than would have been true except for the price control provisions. The government would undertake to maintain prices high enough to absorb any added wage costs. The privileges assured to organized labor under requirements for the code are much more far-reaching than in the famous Section 7 (a) of the NIRA. Besides guaranty of the right of collective bargaining and assurance against interference by employers and compulsion as to company unions, the bill gives statutory sanction to the majority rule. A minority, even of 49 per cent of the workers, would have no standing in collective bargaining. Agreements as to hours and wages between the producers of more than two-thirds of the annual national tonnage and the representatives of more than one-half the mine workers would be binding upon all the code members. Of the three members of the Bituminous Coal Board one would be an impartial person with no financial interest in the industry or connection with any organization of employees, one a representative of the producers and one a representative of the organized employees, each of whom might retain his respective interests while on the Board. A Coal Reserve The proposed expenditure of $300,000,000 for the acquisition of a National Bituminous Coal Reserve has not been shown to be feasible or desirable. There is no pressing emergency in respect to the conservation of coal. In the hearings before the Senate Committee one witness cited a Federal Trade Commission report which asserted that 7,000 years would be required to exhaust the known coal resources of the United States while another witness estimated from data of the Bureau of Mines and Geological Survey ,that bituminous coal deposits are sufficient to last for 510 years. In its decision in the Appa-13 lachian Coals Case the Supreme Court said that "the supply of coal is virtually inexhaustible." The problem of the bituminous coal industry is one of excess capacity rather than actual excess production. Coal cannot be stored easily It has been customary to produce only sufficient for the market demands. The creation of a coal reserve would not affect production and therefore would have no influence upon prices. The plan would open the Treasury doors to owners of land now lying idle and subject to taxes. Politically favored owners would be able to make a handsome profit at the expense of the government. Available evidence indicates that $300,000,000 would not be sufficient to do what is. contemplated. The project would contribute to the increased cost of coal by reason of the tax to pay interest on and retire the $300,000,000 of bonds and to finance the rehabilitation and relocation of labor thrown out of employment by the withdrawal of mines from operation. The states would suffer losses by inability to tax lands shifted to government ownership. West Virginia witnesses estimated before the Senate Committee that the effect might be to reduce by almost 25 per cent the amount of tax funds available in that State for the support of local governments and free schools. Just what might be done in the rehabilitation and relocation of labor is not specified in the bill. It is conceivable that the purpose might be to readjust mining operations so as to release more than 100,000 workers. Sole authority is vested in the President. In a single sentence the Congress would delegate to him power to do anything he pleases with these people. Government Bureaucracy The bill makes a very substantial addition to the already huge government bureaucracy. The two new agencies would require a small army of employees. The nine members of the National Bituminous Coal Commission would receive salaries of $12,000 each. The Commission would have authority to appoint a Secretary and "necessary clerical and other assistants" without regard to provisions of civil service laws and without restriction as to salaries. The three members of the Bituminous Coal Labor Board also would receive $12,000 salaries and would have the same freedom in the appointment of an unlimited number of employees. Both the new agencies would be of a permanent character. The 21 district boards would have power to "appoint officers from their own membership, to fix their terms and compensation, to provide for reports, and to employ such committees, employees, arbitrators and other persons necessary to effectuate their purposes." Altogether there would be thousands of new government employees. American Principles By its price fixing, production control and other regulatory provisions, the bill goes counter to our system of private industry wherein individual initiative is allowed free play, and governmental interference with business is held to a minimum. A stabilization of conditions in the bituminous coal industry is highly desirable. Some coal producers have given their support to the pending bill in desperation, believing that a solution of the problem by the industry itself is hopeless. The government has contributed to this situation through its competition with the coal industry as well as in other ways. If the government would refrain from competing with it and interfering with it, private industry would have a better chance to resist the movement for socialization. The pending bill is permanent legislation. The coal problem is a part of the present emergency situation. The industry by its own initiative has developed a cooperative marketing plan which received court approval in the Appalachian Coals Case. It has not been demonstrated that the only solution of the coal problem lies in complete governmental control. It has not been shown that political interference and bureaucracy could improve matters. The evidence indicates that positive injuries both to the industry and to the public would result. The resources of private initiative have not been exhausted. The program proposed involves a surrender of American principles. IS