-Caveat Lector-
an excerpt from:
Mellon's Millions
Harvey O'Conner©1933
Blue Ribbon Books
New York, N.Y.
--[10]--
10
The Perfect Monopoly-Aluminum
CALVIN COOLIDGE retained a frigid silence when the Democratic National
Committee, on the eve of the 1924 election, challenged Secretary Mellon to
ask the President to release the Federal Tariff Commission's unpublished
report on aluminum duties. The report, the Democrats maintained, found that
the aluminum tariff was unnecessarily high and fostered the monopoly position
of Aluminum Company of America. Mellon treated the presumptuous request with
the disdain it deserved.
Five days later the serenity of the White House was shattered by another
report, whose repercussions could not be ignored. The Federal Trade
Commission had published its findings on an investigation into the aluminum
ware branch of the house furnishings industry.
"The Aluminum Company of America with its complete monopoly of the production
of aluminum in the United States, fortified by a high protective tariff on
imports, controls the domestic price of sheet aluminum to utensil
manufacturers," the Commission summarized. The Aluminum Company had violated
the federal court's perpetual injunction of 1912, and should be prosecuted by
the Department of Justice, the report added.
The Secretary said nothing. As a court biographer put it: "Just why this
should affect Andrew Mellon is a mystery. He had resigned as director of
Aluminum Company of America in 1921. That should have left him out; it
didn't."
The White House Spokesman was indignant. The Federal Trade Commission, the
spokesman said, "was letting itself be used for political purposes." More
quietly it became known that the culprits responsible for the report would
not be reappointed.
The Federal Trade Commission, created during the Wilsonian New Freedom, was
dedicated to defense of the small fry against the advance of a complexly
integrated industrial society that could no longer tolerate scores of small
competitive units with their separate wills and inefficiencies. The
Commission itself seemed, in the eyes of more reflective Administration
leaders, to be a Don Quixote jousting against the windmills of combination.
President Coolidge felt instinctively that the Commission's report on
aluminum was a futile effort to bring back a competition that had never
existed; at the moment moreover the report was embarrassing politically. The
American people were not yet ready to be told that the Federal Trade
Commission could be triumphant in its avowed purpose of restoring competition
only at the cost of dismembering industry and setting it back in the
Nineteenth Century.
The Commission itself had no choice in the matter: it could either carry out
the intent of the law or recommend to Congress its own abolition. The Senate
had ordered it to investigate the house furnishing industries in 1921, at a
time when staggeringly high prices aroused vehement protests from
householders. Its report on aluminum kitchen wares was merely a part of that
investigation.
The Aluminum leopard, the Commission found, had been unable to change its
spots since 1912: "A comparison of the provisions of the consent decree of
1912, especially with respect to delaying shipments of material, furnishing
known defective material, discriminating in prices of crude or semi-finished
aluminum, and hindering competitors from enlarging their business operations,
appears to disclose repeated violations of the said decrees. Moreover, the
original decree is obviously insufficient to restore competitive conditions
in harmony with the anti-trust laws, especially with respect to the
monopolization of high-grade bauxite lands."
Chairman Huston Thompson announced that the investigation would continue into
wider aspects of the aluminum monopoly and that the evidence would be sent to
Attorney-General Stone for his action. Vice President Roy A. Hunt—son of a
founder of Aluminum—replied that the charges were "biased and unfair to the
last degree. . . . The company can readily dispose of these accusations
before any impartial tribunal." No monopoly existed in aluminum, he stated,
because anyone has been privileged to enter the field since 1909, when the
Bradley patents expired.
Twelve months after the Federal Trade Commission had aroused the ire of the
White House Spokesman with its in-timed report, George D. Haskell entered
federal court in Boston to file a suit against Aluminum Company of America
for $15,000,000 for alleged conspiracy in restraint of trade and the
maintenance of a monopoly. Haskell, president of the Baush Machine Tool
Company of Springfield, owners of the rights to duralumin in the United
States, claimed, in an amazing story, that he had been defrauded of
$22,000,000 to $25,000,000 by the Mellon company.
Later a similar suit against executors of the James B. Duke estate was filed
in federal court in Newark, N. J. On February 14, 1928, a Newark jury brought
in a verdict for $8,000,000 for Haskell. Federal judge Runyon commented: "I
am not shocked at the size of the verdict nor, in view of the evidence
presented for the jury's consideration, does it seem to me to have been
excessive." It was the largest sum ever awarded an individual by a jury, Max
Steuer said.
The substance of Haskell's suit was that shortly after Andrew Mellon had
insisted stoutly in reply to the Federal Trade Commission that "no monopoly
in the aluminum trade exists," President Arthur V. Davis of Aluminum Company
of America had spent the better part of the winter of 1924-25 in suppressing
the first serious challenge to the trust since the ill-fated Southern
Aluminum Company was bought in in 1915
The duralumin magnate testified that he had had bitter experience with the
aluminum trust. His firm had pioneered in the duralumin airplane propellor to
replace wood and in other new uses for the tough aluminum alloy. But hardly
did he get a new product launched than Aluminum Company stepped in, slashed
prices, and took his customers away. The trust, he discovered, could easily
afford to sacrifice profits on a thin slice of its business because of its
varied enterprises. Baush Machine Tool Company however found its very life
threatened. It needed access to cheap aluminum on the same terms as the
trust's subsidiaries.
Haskell, in 1919, found a companion in distress. He was William B. Mayo,
chief engineer for the Ford Motor Company, which wanted to use aluminum for
engines but declined to place itself at the mercy of a capricious monopoly
whose price policies could not be controlled. The Ford organization was an
admirable illustration of an integrated industry which owned iron mines,
limestone deposits, coking coal and steel mills. But there was no Ford
aluminum plant.
With Mayo's active support, Haskell opened negotiations for purchase of an
interest in Norsk Aluminum. Suddenly, to his surprise, the property dropped
out of the market. An alliance of British, French and American aluminum
companies had stepped into joint ownership of Norsk.
Haskell continued his search for aluminum. Only two water power possibilities
were left in the United States, one on the Columbia River, too remote from
markets, the other Muscle Shoals, too big for Haskell to swing. Ford however
toyed with the idea of converting Muscle Shoals into a giant aluminum works,
with fertilizer as a side-issue to entice farmers to bring pressure on the
Administration and Congress to give him favorable terms.
The Springfield manufacturer and the Ford engineer studied Du Pont
experiments with the acid process of refining aluminum as well as the new
Haglund iron ore-bauxite smelting process in Sweden. In the meantime General
Motors bad informed Haskell it would welcome quotations from him on 25 to 50
per cent of 10,000,000 pounds annual aluminum requirements. Willys-Overland
was also interested.
Haskell continued his search for the cheap, abundant power without which his
dream of becoming an aluminum lord would remain vain. TO Quebec be turned,
with a letter to provincial authorities, who referred him to F. W. Lee of the
Quebec Development Company, with offices in North Carolina. Lee turned out to
be an official of the Duke Power Company, and it was with James B. Duke, the
tobacco king, that he found himself conferring about a 20-year contract for
50,000 h.p. at Duke's Isle Maligne development on the Saguenay River in the
northern wastes of Quebec.
Duke was overjoyed. He was an old man and he craved to see his judgment in
Isle Maligne vindicated before he died. Actually his great power project was
a white elephant. He must find other customers than the Price paper makers.
But industries were reluctant to locate several hundred miles by water from
the nearest possible market. To aluminum that was no obstacle. It flees the
industrial centers to find its essential cheap power, whether in the
fastnessess of Southern mountains, the bleak spaces of Quebec or the lonely
fiords of Norway.
Haskell, too, congratulated himself on his good fortune. He sketched on
paper the International Aluminum Company with himself as president, his Baush
associates as vice presidents and Caleb Loring of Boston as treasurer.
William B. Mayo would be on his board. Capitalization would be fixed at
$2,000,000 in preferred stock, and $2,000,000 in ten-year notes.
The two were off for the Saguenay on Duke's private car, the Doris. En route
they checked production costs: alumina, 6 cents; power, 5 cents; electrodes,
2 cents; cryolite bath, 1 cent; labor, 3 cents-aluminum could be produced for
17 cents a pound. The plant would cost $2,500,000.
Duke nodded approval. Why should Haskell waste time seeking New York backing
for his plant? Even if $5,000,000 were required to break into the aluminum
business, it would be cheap in the long run, absorbing Isle Maligne's output,
promising great profits both in power disposal and aluminum production. Yes,
he would be glad to finance it. Duke would take the preferred stock and
Haskell would get a block of the common.
Duke sought out Mayo. Did he believe Haskell capable of putting through such
a big project? Was Henry Ford still considering Muscle Shoals as a power
source for aluminum? Would Ford return to aluminum panels if assured of an
independent source of supply? Mayo's answers satisfied him. He told Ford's
chief engineer he had agreed to go into International Aluminum.
With 50,000 h.p. in his pocket, Haskell turned energetically to the problem
of acquiring bauxite. Since 1919 he had worked on that. He had talked with
scouts from France and Yugoslavia, from India and the Guianas and French
Guinea. He had no hopes of breaking Aluminum's monoply on the domestic market.
On June 15, 1924, he cabled Sir Trevor Dawsonn of Vickers, Ltd., to use his
good offices in obtaining a bauxite concession in British Guiana or India,
offering a share in International Aluminum in return. Two days later he
dispatched a scout to French Guiana. President G. G. Allen of Duke's Quebec
Development Company cautioned him. "Your inquiries regarding bauxite," said
Allen, "should be made with a good deal of discretion because some of your
large competitors, should they find out you are interested in bauxite
deposits, might see fit to take steps to further monopolize that mineral."
Sir Trevor reported that Aluminum Company of America was already in on the
ground floor in British Guiana, through its Demerara Bauxite Company. Some of
its 20,000 acres had been leased from the Government, the rest was owned
outright.
During the winter Haskell and Duke employees scurried over Europe, inspecting
aluminum plants, while scouts reported from the Guianas and negotiations
progressed to hire technicians for International Aluminum Company. The
British Government was inquiring which was the more British, Mellon's
Northern Aluminum or the Haskell-Duke International Aluminum.
Dr. W. S. Landis of the American Cyanamid Company, Duke subsidiary, who was
in charge of the search for bauxite, told Haskell the strange story of the
Mellons' acquisition of the rich British Guiana deposits. At the opening of
the World War, he related, the British Government asked Northern Aluminum,
the Mellons' Canadian subsidiary, to turn over its plant to the government
for war purposes. Northern Aluminum flatly refused. True, it was a Canadian
concern but its first loyalty was to its Pittsburgh owners. President Arthur
V. Davis of Aluminum Company of America curtly told the politicians he would
do as he pleased about the Shawinigan Falls output. The Government countered
with a threat to seize the plant. "Go ahead and seize it," said Davis, in
effect. "You can't operate it without alumina, and I make my alumina in the
United States."
The Britishers capitulated. It was now Davis' turn to be peremptory. Title to
bauxite lands in British Guiana became Mellon property.
International Aluminum was to furnish no idyllic pages for the history of
industrial progress. Haskell first detected the snake in the garden early in
February, 1925, when a letterhead of the mysterious Quebec Aluminum Company
came to his attention by accident. Allen laughed Haskell out of his
suspicions. Nevertheless it had been curious, seeing Arthur V. Davis
conferring with Allen back in November. That was on some other business,
Allen assured him. Nothing to do with aluminum.
The scout sent to prospect Dutch Guiana for bauxite reported that "this
bauxite-aluminum business is a very strong game; one must play and bet his
cards or pass." He had about closed on some Dutch Guiana bauxite when
Aluminum Company of America offered $200,000 for the concession. The
DukeHaskell scout cabled New York for instructions, but none was sent. The
land passed to the Mellon company, much to the disgust of business interests
in the provincial capital of Paramaribo, who hated to see it bought merely to
prevent someone else from operating the deposits.
On May 4, 1925, came a note from a friend in Quebec. "Dickie told me the
other day," it read, "that he heard that Davis had bought out Duke or rather
that they had exchanged power; Davis getting Canadian power- in exchange for
his Southern power. Haskell replied: "Of course, it is disturbing, but I am
depending absolutely on the honesty and good faith of Mr. Duke and his
associates."
Haskell hurried up to Allen's office. Allen was frank. "The whole thing is
off," he admitted. "We have made arrangements with Davis." No, he doubted if
Mr. Duke would care to see him about it. The matter was definitely settled.
Nevertheless Allen would try to persuade Aluminum Company of America to give
Haskell a below-market price on aluminum. President Davis however saw no need
of softening the blow to Haskellhad he not aimed a vital thrust at Aluminum?
Haskell could have a long-term contract-but at the market price.
Presumably Davis had presented some compelling reasons to the tobacco magnate
to dissuade him from embarking on the production of aluminum. The information
to be obtained from the patent office was a help, but refinements and secrets
in the manufacture of the lightweight metal were not shouted from the
housetops. And where would Duke get his labor supply? The only trained
aluminum men in America were employees of Davis, and they were unlikely to
switch over to an experimental enterprise. Would Duke care to entrust secrets
of his own in aluminum to such renegades as might be enticed from the trust's
employ by bribes of higher pay? Duke, as a practical businessman, was aware,
too, that there were no Marquis of Queensbury rules in an industrial fight.
On May 6, 1925, the Canadian Manufacturing and Development Company was
organized to take over Duke's Saguenay power. On July 7, it disappeared into
Aluminum Company of America, taking with it Duke's Quebec Development Company
and his Quebec Aluminum Company. Outstanding now Were $147,262,500 in
preferred Aluminum stock and 1,472,625 shares of common, no par value,
against the previous $20,000,000 capitalization. One-ninth of the new stock
represented Duke holdings, of which three-fourths was his personal property.
Once Davis had headed off the Haskell threat, he looked over the Saguenay
development coolly and decided that he wanted not Isle Maligne, but
Chute-a-Caron, Duke's undeveloped site which lay near tidewater. He drew
plans of a city to rise there, where ocean-going vessels could discharge
bauxite from the Guianas at the foot of an immense bauxite and alumina
reduction plant. Near by would be the electric smelter. Perhaps roiling mills
would be added and aluminum would leave from the same docks where the bauxite
had been discharged, directed to the four corners of the earth, along its sea
channels. So Duke obtained onetwelfth interest in what was to be a
$250,000,000 concern in return for an undeveloped water power site. Aluminum
contracted to buy annually $1,200,000 of Duke-Price power from Isle Maligne
and later bought 53.5 per cent of its stock.
It cannot be said that Secretary Mellon's mind revealed that sharpness and
grasp for which he was famed in Pittsburgh, when he entered his deposition in
the Haskell case. Three years after the Duke business had been settled, a
gentle haze had descended on his memory. He had forgotten that he had taken
much interest in the negotiations which headed off a vital threat to his
aluminum monopoly and ended in its reorganization. Only letters and telegrams
offered by counsel for Haskell refreshed his memory and brought admissions
that he had taken a hand in the proceedings.
The Secretary maintained an innocence about the true inwardness of the affair
which spoke worlds for his guilelessness. President Davis, anxious perhaps to
keep sordid concerns from him, had told him about November 6, 1924, that "Mr.
Duke was desirous of making an alliance with the Aluminum Company on account
of this water power." On January 16, 1925, Duke Allen and Davis had dinner at
the Secretary's apartment at' Washington, but there was no mention of Quebec
Aluminum Company or of Haskell's plans, according to Mellon. Instead Duke
talked about the marvelous perpetual motion of hydroelec.tric- power, of
waterfalls, rain and more waterfalls; and of logging great expanses of pulp
timber land only to return to cut more timber from the same ground years
later.
Duke didn't mention that he had been spending tens of thousands of dollars
looking for bauxite not controlled by Aluminum Company. Nor was Mellon
"always more or less on the lookout for possibilities of competition," as
Haskell's attorney suggested. "I am not troubling my mind about Mr. Davis
lacking in resourcefulness so far as looking after the interests of the
business is concerned," he answered.
The object of the dinner never became clear to inquiring counsel, for the
Secretary had no memory of any decision or result arrived at. Duke, Davis and
Allen had just dropped in from New York to spend a sociable evening. Sherman
L. Whipple, of Haskell counsel, was out of patience. "And therefore," he
queried, "although this man [Duke] as it appears now had organized the Quebec
Aluminum Company and had been spending considerable sums of money in
investigating the aluminum business and had sought to talk with you, the
thing you can remember most is that he talked about a business that you had
never been in, that is the paper and pulp business, nor he either?"
Mellon's testimony developed an even more remarkable fact: that perhaps he
signed papers dealing with a quarter billion dollar corporation without
reading them. It was on the private train bearing him, Duke and the party of
Duke-Mellon executives up to the Saguenay in July, 1925. "They were all
together and I signed the alleement with the others," he said. "I did not
read the agreement." Later on in the testimony it appeared though that Mellon
had signed nothing: he just thought he had. Only directors signed the
reorganization papers and he of course had resigned his directorship back in
1921. "1 thought I had signed it," he explained. "I went in there, I know,
and I thought I had signed something."
The Haskell suit in Newark federal court assumed the proportions of a battle
royal between two opposing philosophies. Did a freeborn American citizen have
the inalienable right to go into any business he pleased, provided he had the
needed backing? Or was there a higher law that dictated division of the
national domain and its market among a small group of powerful industrial
lords and guaranteed their jurisdiction? For the defense, Charles Evans
Hughes and his son lent the prestige of their name, while Homer Cummings,
former Democratic national committee chairman, later to be Attorney-General
under the "New Deal," represented Haskell.
All Haskell got for his efforts to break the monopoly was the satisfaction of
virtue rewarded, and, presumably, a bill from his attorneys. On February 21,
1929, the federal district court of appeals set aside the jury verdict
awarding him $8,000,000, holding that Haskell had failed to prove a definite
contract with Duke. On June 4, the U. S. Supreme Court refused to consider
the case.
On July 23, 1931, the Baush Machine Tool Company filed suit in federal court
at New Haven against Aluminum Company of America, asking $9,000,000 damages,
on complaint that the defendant is a monopoly controlling prices, engaging in
unfair competition and holding the bulk of the world's bauxite. Nearly a year
later Federal judge Edwin S. Thomas refused Aluminum lawyers' plea to dismiss
the case, ordered answers filed to Haskell's charges and empowered his
attorneys to examine officials of Aluminium, Ltd., Aluminum's Canadian
affiliate. The press predicted an early trial, but on April 17, 1933, the U.
S. Supreme Court was rejecting an appeal from the Mellon company against a
district court order to produce information from its files asked by Haskell.
So the case dragged its weary feet through the courts.
The Federal Trade Commission of 1926 was a chastened, renovated body, in
accordance with the White House promise after the Commission's inopportune
report on aluminum in October, 1924. William E. Humphrey, of Seattle
postoffice site
fame, was now a Commissioner, and in the course of his duties he composed a
Litany to Big Business, whose refrain ran this way:
We do not believe that Success is a Crime
Failure a Virtue
Wealth a Presumptive Wrong
Poverty a Presumptive Right
We do not believe that Independence, Economy, Honesty
Should be Penalized
Incompetence,
Extravagance,
Idleness, Inefficiency
Should be Glorified
We do not believe that Business is Synonymous with Crooked Business
Unfortunately, evil lives on. The old Federal Trade Commission had
recommended prosecution by the Department of justice. Attorney-General Stone
ordered his staff to look into the Commission's charges. On January 30, 1925,
Stone wrote the Federal Trade Commission:
"Without attempting to review the evidence submitted in your report, it is
sufficient to say that the evidence submitted supports to a greater or less
extent the above cited complaints of the competitors. And especially is it
clear and convincing in respect to repeated shipment of defective materials,
known at the time of shipment to be defective. This became so common and so
flagrant as to call forth remonstrances from Mr. Fulton of the Chicago office
of the [Aluminum] company. . . .
"It is apparent, therefore, that during the time covered by your report, the
Aluminum Company of America violated several provisions of the decree. That
with respect to some of the practices complained of, they were so frequent
and long continued, the fair inference is the company either was indifferent
to the provisions of the decree [of 19 12], or knowingly intended that its
provisions should be disregarded, with a view of suppressing competition in
the aluminum industry." He added that since the report contained little light
on practices since 1922, he had instructed the Department of justice to bring
the investigation "down to date."
Administration Senators were shocked. Had the Attorney-General no loyalty to
a fellow Cabinet member? Worse, he proposed more investigation, in the face
of their declarations that the country was "sick and tired of investigations,
of mudslinging and muckraking."
The Attorney-General announced his intention of studying the Aluminum case on
October 20, 1924. On January 6, 1925, he was nominated for the Supreme Court
and on March 2 sworn in as an Associate justice. Insurgents claimed he had
been "kicked upstairs." Administration supporters retorted that his report on
Aluminum followed by three weeks his nomination to the bench.
Stone's successor was an obscure Vermont lawyer and politician. The new
appointee provoked smiles from Washington correspondents when he arrived in
Washington, his eyes blinking in astonishment as he viewed the building which
housed his Department. Colonel William J. Donovan was installed as assistant,
in charge of the Department's most sensitive division, that entrusted with
running down anti-trust law violations.
Nine months later the Department of justice absolved Aluminum Company of
America of all charges. It had not violated the consent decree of 19 12.
Delays in shipping aluminum had not been intentional, or price variations
unjustified, or competitors kept from enlarging their plants. The Federal
Trade Commission's observation that the decree of 1912 was insufficient to
restore competitive conditions was "unwarranted." Aluminum's position was not
due to its control of bauxite fields. The Mellons did not control Aluminum.
They held but 33% per cent of the stock; control really lay in the hands of
Inventor Hall's estate, for which Arthur V. Davis was trustee.
The Department's finding was in direct conflict with Arthur V. Davis' own
statement to a Federal Trade Commission examiner. Then he said: "This company
[Aluminum] really consists of A. W. Mellon and R. B. Mellon. Of course, Mr.
A. W. Mellon resigned as a member of the board of directors when he went into
the Government and we now have six directors instead of seven. When he has
finished his work in Washington, he will again become a member of the board
of directors."
Senators Walsh and Norris were, of course, dissatisfied. Walsh asked the
judiciary Committee to ascertain if the Department of justice had proceeded
with due diligence against Aluminum to determine whether it should be held in
contempt of court, and whether the revamped Federal Trade Commission had
interfered with the Department's investigation by refusing evidence. Senator
Reed of Pittsburgh blocked immediate consideration but the Senate
nevertheless on January 5, 1926, authorized the judiciary Committee to
proceed and three days later Attorney-General Sargent was in the witness
chair. He knew nothing of the Aluminum case, he admitted, until he had been
in office "five, or six or eight months." He had never heard of the Aluminum
Company before he came to Washington and did not know of his fellow Cabinet
member's interest in it until he read it in the "public prints" a few weeks
before. The Attorney-General, he complained, could not be expected to know
the minutiae of every case pending in the Department. He recalled, his memory
refreshed by a letter with his signature on it, that he had turned the
Aluminum case over to Colonel Donovan. He did not know whether the Department
had tried to force the Federal Trade Commission to turn over its evidence.
It was revealed that the new Commission majority had adopted a rule that
information given by firms being investigated for alleged violation of the
law could not be turned over to the Department of justice without the firm's
consent. Senator Neely of West Virginia commented that "if the Federal Trade
Commission is helping to protect persons who are violating the law I want to
abolish it."
The Senators wrestled with Sargent's involved mental processes through two
mornings and then called Donovan. He was positive, nay, electric. In
testimonial to his fearlessness as a trust prosecutor, he reminded Senators
that "I have learned my obligation to my country at places other than around
this committee table." "Now so far as its [Aluminum] being a Mellon concern,"
he said heatedly, "I do not give a damn whether it is a Mellon concern or any
other concern."
Senator Walsh, again chief inquisitor as in the Teapot Dome hearings, was
trying to establish a chain of connection between three events of January 2,
1926.
First, there was a box in the New York World, announcing an expose of the
Department of justice and the Federal Trade Commission for their failure to
act in the Aluminum case, and charging that this was due to Mellon's
influence in the Cabinet.
Second, was a hurried conference of Department of Justice employees the same
day, followed by an official communique stating that "although this inquiry
is not yet completed and the report is yet to be prepared, it may be stated
that the facts thus far disclosed do not support the oft repeated charge that
the consent decree in question has been violated." The press release recited
in full occasions on which Aluminum had consulted the Department before
acquiring possible competitors.
Third, was a meeting late in the day at the White House of the President,
Mellon and Sargent. Donovan could shed little light on the White House and
Department meetings, or on its press release. "I do not know what was in the
mind of the scrivener of that statement," he retorted. "I know the impression
that it made on my mind, and I thought the time had come to tell the whole
story, chronologically, of aluminum."
The "whole story" of aluminum was subject apparently to the most widely
varying versions. There was the version given by the Department of justice in
1912, supported by Federal judge Young, brought up to date to 1922 by the
Federal Trade Commission and confirmed by Attorney-General Stone in 1925. And
there was the other version of the Department of justice of 19 2 6, as
written into the records by Field Examiners Dunn and Benham, confirmed by the
Sargent-Donovan regime, and presented to the Senate by David A. Reed. This
version, in Donovan's words, stated that "the result of the investigation
makes it evident that no proceedings in contempt can be successfully
maintained."
Senator Walsh summoned Dunn. He had been a clerk, he testified, before going
to work for the Department. He had neither legal nor economic training, was
neither stenographer nor accountant. He came back empty-handed from nearly
all his interviews: the firms whose correspondence and complaints fined an
alcove of the Federal Trade Commission's archives and were part of Docket
1335 had little to say to him.
The chief economist, assistant chief economist and assistant chief counsel of
the Federal Trade Commission were summoned. They testified that a competent
examination of their files on Aluminum would take from one to four months:
Dunn had spent ten days. They testified that the examination should be made
by a person trained in both law and economics: Dunn was innocent of either
qualification. Walsh exploded after listening to Dunn and the Commission's
technicians. "Why, I wouldn't hire him to investigate a bootleg case," he
snapped.
Two facts stuck out: Dunn's examination of witnesses in the field had not
been marked by the inquisitorial eagerness that characterized Senator Walsh's
merciless pursuit of Harry Daugherty and the Teapot Dome principals; and a
strange reluctance had fallen upon the voluble witnesses of 1920-22 to give
vent to complaints, if any, against Aluminum. Aluminum imports had been heavy
in those years, following the demoralization of the international aluminum
cartel after the war. Early in 1923 the Fordney-McCumber tariff law, with its
stiff rates on aluminum imports, had dammed up the foreign supply and
manufacturers had become dependent on the Mellon company for steady and quick
deliveries.
Walsh laid before the Senate judiciary Committee on February 1, 1926, a
report asking authority to conduct a thoroughgoing investigation into
Secretary Mellon's company. By 9 to 7, Borah and Norris voting with the
-Democrats, the Committee recommended an investigation.
Senator David A. Reed, spokesman for the Pittsburgh banker in the Upper
Chamber, worked feverishly on the minority report. Ile Department of justice
had no case against Aluminum. Senate investigations were a "laborious
process" for which the Senate was neither intended nor equipped. Such
investigations involved a struggle between the executive and legislative arms
of the Government, which if continued must mean the "overthrow of our form of
government." After all, the Department of justice was entrusted with that
function and its findings must be accepted as final. Otherwise chaos. So ran
the Reed logic, the result of innumerable conferences with the White House,
the Treasury, and Donovan.
Fiery words preceded the Senate roll call, February 18, 1926, on the issue of
investigating Aluminum, but by grace of two Democratic votes, Reed of
Pennsylvania and Aluminum won. The vote was 36 to 33. Senator Bruce of
Maryland, whose son was to marry Ailsa Mellon a year later, and Blease of
South Carolina were the two Democrats.
On July 21, 1925, Aluminum Company of America again stood defendant before
the Federal Trade Commission. The three Administration members of the
Commission found delay futile in the face of the insistent demands of the two
minority members that Commission counsel investigate the charges of
manufacturers that the Mellon company was setting a monopoly in aluminum sand
castings, much used in the automobile industry.
The filing of the complaint was the signal for a last effort to bring
effective competition into the industry which the Mellons had staked out as a
private preserve. William Watson Smith, Aluminum specialist in the firm of
Gordon, Smith, Buchanan & Scott, Pittsburgh's leading law firm, prepared to
match wits with Robert E. Healy and Richard P. Whitely, Commission counsel.
Hearings opened just as the Senate battle over its own proposed investigation
was in full blast.
Federal judge Young, who had warned the adolescent Aluminum Company of
America in 1912 to set certain limits to its acquisitive methods, would have
been astonished fourteen years later to witness the futility of his perpetual
injunction. He had warned Aluminum about its methods in buying up bauxite
deposits in the United States; now the firm had controlling interests in
bauxite all the way from the Guianas to France and Yugoslavia. Its only
competitor in producing aluminum ingots claimed but 1 per cent of the
national output. Ile trust controlled 65 per cent of the kitchen ware market;
75 per cent of American Body, supplying panels for automobiles; 64 per cent
of Aluminum Manufactures, making sand castings for automobile engine parts;
89 per cent of Aluminum Die Castings; 80 per cent of Aluminum Screw Machine
Products; 50 per cent of Norsk Aluminum; 331/3 per cent of Norsk Nitrid; 100
per cent of Northern Aluminum of Canada. In all, Aluminum Company of America
owned outright all the stock in thirty-four corporations; half or more in
nine, and less than half in seventeen corporations.
Methods used to corner the market were revealed in the letter, written
September 9, 1922, by Edward L. Cheyney, manager of sales in Ohio for the
trust, to Edward K. Davis, brother of President Arthur V. Davis, and head of
Aluminum's sales department. "I was in Detroit last Friday," he wrote, "and
spent most of the day talking to Byrnes and Youngs [Aluminum executives]
about the feasibility of our controlling the market on aluminum scrap and the
advantages to be gained by us and principally to our sand casting business by
boosting the price of scrap as close to the price of new metal as possible. .
. . The effect would be to put all jobbing founders, including our own, on
the same metal [price] level . . . and to permit us to offset where necessary
any peculiar advantage in manufacturing conditions that some of our
competitors may enjoy. . . . I talked this feature of it over with Mr. Head
who was of the opinion that scrap prices could be held up to an arbitrary
level by the purchase of perhaps less than half that which is offered." He
and the Detroit officials, Cheyney added, tried all afternoon to "shoot
holes" in the idea but failed.
The enterprising Cheyney was worried by the fact that 22,000,000 pounds of
scrap were being reclaimed yearly from odds and ends sheared off sheets of
virgin aluminum in auto factories and other sources. An enterprising
manufacturer need no longer depend on Aluminum Company of America. He could
buy scrap, melt it in his furnaces and be independent. The situation
challenged the best efforts of Aluminum executives.
Sales Manager Edward K. Davis denied indignantly that his company had adopted
Cheyney's "wild idea." Cheyney, questioned by Commission counsel, said: "I
have no recollection of it at all myself. This whole thing is awful dim in my
mind. It is four years ago and it was unimportant." Byrnes, who, Cheyney had
written, spent the better part of an afternoon "shooting" unsuccessfully at
Cheyney's plan to corner the scrap aluminum market, had no recollection
whatever of a scheme as "radical and fanciful as that." Youngs denied
anything in the long conversation except a reference to "stabilization of
scrap prices."
Nevertheless Counsel Whitely was able to prove that soon after the
conversation, the price of scrap ascended. Indeed, by some special virtue
scrap became more valuable to Aluminum Company of America than its own virgin
ingot. In 1922-24 it was paying Budd Manufacturing Company, which supplied
the Ford Motor Company with panels, 20 to 23.5 cents a pound for its scrap,
while its cost of producing virgin metal ranged from 16.75 to 18.25 cents.
The mathematics of virgin and scrap aluminum became involved. In October,
1922, the trust raised the price of virgin sheet to Budd by 1.5 cents. Budd,
canny buyer in the Ford tradition, objected. Thereupon the trust adjusted the
price of scrap, equalizing the total price. It worked out this way:
April, 1922 October, 1922 December, 1922
100 lbs. virgin sheet @30˘ $30 @31.5˘ $31.50 @31.5˘
$31.50
Allowance for return
of 18 lbs. of scrap @14˘ 2.52 @20˘ 3.60
@22.33˘ 4.02
Net price on 100 lbs. 27.48 27.90
27.48
Accompanying the favorable terms on scrap was a clause in the Aluminum-Budd
contract specifying that all Budd scrap must be baled and returned to
Aluminum.
Otto Mueller, general manager for Budd Manufacturing at the time, deposed
reluctantly in London that Aluminum had threatened to cut off supply of sheet
unless Budd returned all scrap. "It was made very clear to me by the
Philadelphia representative of the Aluminum Company," he declared, "that the
Budd Company might have difficulty in securing aluminum sheet from the
Aluminum Company at a satisfactory price, or deliveries sufficient to enable
us to maintain our production, unless we agreed to return to the Aluminum
Company all our scrap." When Mueller interviewed Sales Manager Davis to
protest, "he became excited and very profane and abusive in his criticism of
Mr. [Henry] Ford personally and also of Mr. Budd and several other gentlemen
in the steel business," the former Budd manager testified. "Ford can take it
or leave it," shouted the angry Davis. "I don't care a damn what he does." In
June, 19 24, Budd-and Ford-discontinued the use of aluminum panels because of
fear of arbitrary price changes by Aluminum, Mueller said.
Buttressed by complaints of other companies in the automobile field,
Commission counsel concluded that their evidence "inexorably established the
fact that the respondent [Aluminum. Company] proceeded to carry out the
policy outlined in the [Cheyney] letter of September 9, 1922, and in so doing
unfairly restricted competition in the sale and distribution of secondary
aluminum and the production and sale of aluminum sand castings."
They urged issuance of a cease and desist order against the trust,
prohibiting: 1. Boosting the price of aluminum scrap. 2. Attempting to
monopolize the aluminum sand castings business. 3. Making contracts and
agreements in restraint of commerce in aluminum- 4. Preventing competitors
getting good aluminum in the open market.
If the proprietor of Overholt Whisky could become an aluminum lord, why could
not the owners of the Schlitz Brewing Company aspire to the same heights? The
Uihleins, German brewing family, finding their Republic Carbon Company plant
at Niagara Falls standing idle after the war, decided to share in the
enormous profits the Mellons had found in "silver from clay." Their carbon
plant had made electrodes for Aluminum Company of America, and the brothers
were familiar, in general, with the electrolytic problems involved in making
the metal. But they needed bauxite.
Lloyd T. Emery, former manager of the Mellons' Demerara Bauxite Company, was
retained by the Uihleins in 19 18 to obtain bauxite in the Guianas. He
testified before the Federal Trade Commission examiner, Aluminum counsel
fighting every word, because he contradicted flatly President Arthur V.
Davis' assurances that bauxite could be gotten almost everywhere.
Hardly had he obtained options on two tracts in British Guiana' Emery
related, than he faced suits questioning their validity. He won. Then appeals
to the West India Court of Appeals, in which the Demerara Bauxite Company,
Mellon concern, appeared as plaintiff. Emery won again. The Mellon company
appealed to the Privy Council in London and although represented by Sir John
Simon, lost. After a three-year struggle, Emery was confirmed in his
possession of bauxite lands that rivaled Aluminum's.
He was fighting the results of a mysterious boundary survey which threatened
his court victories when, in 1924, the Uihleins suddenly ordered him home.
Arrived in New York, he found out that the Republic Carbon Company, nucleus
for the Uihleins' aluminum business, had been sold out to Acheson Graphite,
Carborundum—and Aluminum Company of America.
Emery was looking for a job, beard that James B. Duke was planning to enter
the aluminum business, went back to the Guianas to obtain the Christianburg
crown lands for Quebec Aluminum Company. Another cablegram. Aluminum Company
had absorbed Quebec Aluminum.
"I can state," Emery told the Commission's examiner, "that I do not know of
deposits large enough to justify anyone going into the aluminum business
which today are commercially available. I mean accessible to water
transportation at a freight rate which would allow it to be placed in New
York on a competing basis with ores from lands owned by various producing
companies."
Chief Counsel Healy was curious about Aluminum's bauxite holdings. Secretary
Gibbons obliged. In British Guiana, the Demerara Bauxite Company; in Dutch
Guiana, the Surinaamsche Bauxit Maatschappij; in Brazil, undeveloped
holdings; in Yugoslavia, Yadranski Bauxit and Primorske Bauxit; in Italy,
Societa Anonima Mineraria Triestina; in France, Bauxit du Midi. Counsel Healy
decided that Aluminum's bauxite holdings in the United States were "trivial
as compared with its bauxite holdings in foreign countries."
But President Davis laughed at the idea that Aluminum and its European allies
owned and controlled all the known commercial deposits in the world. "Why,
it's one of the commonest minerals in the world," he declared. Nobody knows,
he said, when a new deposit will be discovered almost anywhere on the earth's
surface. He was correct. But it was also true that Aluminum scouts would be
likely to be the discoverers.
Warren G. Harding bad been President less than a year when the Senate ordered
the Federal Trade Commission to investigate the household goods
industry-including aluminum kitchen ware. Vice President Coolidge had been in
the White House more than a year when that report was made public. His second
term had gone into its second year when Senator Walsh demanded to know why
the Department of justice had not proceeded against Aluminum. At that time
the Commission opened hearings in Pittsburgh in the Aluminum case. Counsel
Whitely submitted six new complaints against Aluminum on September 24., 19 2
8. They were:
1. Acquiring all bauxite deposits where there might be com-petition.
2. Acquiring water power or riparian rights that might fur-nish
opportunity for competition.
3- Preventing others from entering the aluminum business by representing
itself as in control of the market.
4. Controlling the market for foreign aluminum in the United States.
5. Transferring aluminum to its subsidiaries below cost of production.
6. Selling aluminum alloy products at prices less than cost or less than
competing producers can sell same at a profit.
The Coolidge majority on the Federal Trade Commission, protesting that
inclusion of new charges would protract the hearings indefinitely, agreed
with Aluminum counsel to restrict the points at issue. Hoover was President
when the hearings ended in April, 1929.
On April 7, 1930, the Federal Trade Commission announced dismissal of the
complaint against Aluminum Company of America. It gave no word of explanation
nor review of testimony. The curt word "dismissed" summed up the results of
years of investigation. Perhaps the less said, the better, was the policy of
a Federal Trade Commission which believed that "bigness was no crime and
success no sin."
In order, as Secretary Mellon explained, to protect the high standards of
workers in the industry, aluminum has enjoyed a tariff equal to 20 to 25 per
cent of its price. The first tariff was imposed in 1890 a year after the
infant Pittsburgh Reduction Company started business as a million dollar
corporation.
The company was fortunate to have been born in Pennsylvania, whose Senators
have always perceived the close relation between the prosperity of its great
manufacturers and the retention of tariff walls. Senator Oliver, Pittsburgh
steel magnate and publisher, fought valiantly for the aluminum tariff against
the onslaughts of free traders. In 1913 a rebuff was suffered under the
Wilsonian New Freedom when the duty was cut from 7 cents to 2, but
fortunately the war followed soon, automatically cutting off imports.
Aluminum threw itself enthusiastically into the 1920 campaign to elect
Harding and reestablish protective tariffs. Its proprietor was listed as the
Republican Party's heaviest donor. The Fordney-McCumber tariff act of 1922
placed a 5-cent duty on aluminum over the energetic protests of the National
Automobile Chamber of Commerce. Four days after it went into effect, lifting
the tariff wall by 3 cents, Aluminum raised its price from 20 cents to 22 and
a few weeks later took advantage of the remaining 1 cent differential to lift
the price to 23 cents. By 1923 the price was 26 cents a pound, against
reported production cost of 18.25 cents.
President Davis again resumed his conversations with European aluminum
makers, backed by a tariff which aided effective international policing.
Imports fell off and American aluminum rose to 28 cents, against production
cost of 16.75 cents. The 11.25 cent margin on each of the 160,000,000 pounds
produced by the trust was worth all the expense of helping to install Warren
Harding in the White House and defending Andrew Mellon against ignoble
attacks by his enemies.
Nevertheless the sight of a man engaged in "well-doing" continued to excite
the cupidity of jealous souls in and out of the Senate. In 1924 another
Presidential campaign was in progress, and the Democratic candidate was
assailing the aluminum tariff. Profits in that year—$10,000,000 on a
capitalization of $18,000,000—did not reveal the need for a protective duty
Of 5 cents a pound, John W. Davis insisted.
Secretary Mellon's office issued a rebuttal, in which his patriotic war
service was recalled. Bernard Baruch's testimonial was cited that "Mr. Mellon
deserves high commendation for his attitude toward the Government at the
beginning of the war when aluminum prices were high. Mr. Mellon offered to
supply all needs at the Government's own price. The Mellon Institute was
given to the Government for experimental work." Mellon himself added that go
per cent of the cost of producing aluminum goes to labor. The Democratic
candidate was aiming a blow at the heads Of 35,000 aluminum workers.
Debate on the new Smoot-Hawley tariff of 1930 was a signal for renewed
attacks on the lean, gray figure in the Treasury. The Democratic bill scaled
down the duty from 5 cents to 2 cents on crude aluminum and from 9 cents to 5
on semi-finished metal. With Senator Reed of Pittsburgh fighting every inch
of the way, the Senate, by a vote Of 41 to 39, adopted the Democratic rates
of the 1913 Underwood tariff.
Senator Copeland, Democrat, of New York, arose on the floor to astonish his
colleagues with a tearful plea for the Fordney-McCumber rates. Ten thousand
aluminum workers in New York state were scheduled to lose their jobs if the
tariff was reduced, he said. The company would pick up its business and move
to Canada. Senator Smoot reechoed Copeland's appeal.
Norris was caustic. "Ile Senator from New York," he said, "in his argument
frankly admits that it is on account of fear of the power of this corporation
to bring distress, poverty and unemployment to the American toiling masses"
that he found himself allied with Reed and Smoot. Sadly Copeland conceded
that the "people of this country are at the mercy of this monster monopoly,
no matter what we do."
The astute Republican leaders suddenly abandoned their demand for the 5-cent
schedule. Five weeks later the finished bill went to conference between the
House and Senate committees, and there, far from the noisy publicity that
accompanied Senate debates, the aluminum duty was put at 4 cents. Senator
Reed congratulated himself on the success of his strategy.
pps 162-184
-----
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
Omnia Bona Bonis,
All My Relations.
Adieu, Adios, Aloha.
Amen.
Roads End
Kris
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