Statement of A. '\(/. Clapp in Bchalf of Weyerhaeuser and Shevlin Interests Belorc Lumber Code Authority Mecting in Chicago, October 3, Condemning Lumber

I wish to make a statement on the general subject before this meeting on behalf of the Weyerhaeuser an-d Shevlin lumber interests.- These Weyerhaeuser interests may be generally- described as those companies,-four in number, whose products are sold through Weyerhaeusel Sales Company, plus two other companies -operat- ing-in the State of Washington. The'se-companies altogether opetite fi.re fir plants with twelve mills. They operate two -pla-nts .in the Ponderosi Pine region of Oregon and Idaho; four. in the WhitePine region of ldaho- and one in the Northern Pine region of Minneso-ia. The combined capacity of these plants is in the neighborhood of 6 per cent of what is said to be the capacity of all softwood plants of the United States.

The- operations of the Shevlin group consist of- four- plants, all producing pine. These four plants .sell .their produc-t through the r"*" r.Gs- organization. The combined capacity of -these .plants is in the neig[borhood ol lrl per cent of what is said to be the total softwood capacity of the United States.

The two groupJ have nothing in common gxcept- in -their hi'story of cooperatlon with others in all phases of the lumber business, including the promotion of the use of lumber, -a1{ now -in their commoriviewpbint with respect to the subject which is before the meeting; a viewpoint which they have asked me to express.

I thi;k that ii is entirely appropriate that this should be done, and done with entire candor. No organizations were more active in the formative states of the Lumber Code; none have been more anxious that its administration should be free from criticism; none have contributed any more in man power from their respective organizations in its administration, up to this,date. -I mys-elf sat with the Emergency National Committee of the lumber industries during those tirrific and sometimes disheartening days in July and August last year when the Code was being written. I have been, eiiher as an alternate or as a member, until very recently, connected with Lumber Code Authority and present at all of its meetings since the Code was adopted; and-betwe,en June 10 and the latter fart of August I was a member of the Control Committee. Other - members of the Weyerhaeuser and Shevlin organizations have taken active parts both in the framing of the Code and in its administration, noi only through the Lumber Code Authority and the Control Committee but upon numerous boards and committees of several of the softwood divisions. These services, like the services of others in the industry, while arduous, were rendered cheerfully, and with the desire and hope that industry self-government under the terms of the Lumber Code and the Code itself would iustifv themselves.

' I make these preliminary remarks as justification for what you may feel is a rather extended statement of the attitude of these two groups at the present time and the reasons for that attitude.

Alf experimens such as that upon which industry and the government embarked under the NIRA, and specifically such as the Lumber Code, must proceed by trial and error. We have now had a little over a year in which to judge of the wisdom and the practicability of the various portions of our Code. It is now our settled conviction that minimum prices must be abandoned, that they are impracticable and economically unsound in the lumber divisions; that any continued attempt to administer Article IX in those divisions iJ not only an economic mistake, but a subversion of justice; that it has created and is festering a canker sore of dishonesty in our industry; that the failure to recognize this is resulting in moral chaos which will destroy the already weakened bonds of cooperative efiort by which alone the other portions of our code may be salvaged; and finally that those other portions of our code shoutd be salvaged.

During the period that the Code was under discussion in Washinston list year, there was a considerable element in the NRA wfiich did not believe that cost protection or minimum prices were either necessary or advisable. This element was perfectly willing to allow production control; their chief reason for thinking that control of prices was not necessary was that control of production 'would have practically the same effect and would bring that effect about in a much more natural way. At the time I was acting as a sort of legal adviser and draftsman and all-around-hack for the Emersency National Committee. A large majority of that Committet wai in favor of having in the Code provision for cost protection prices, and at their request I wrote a brief in an attqmpt to demonstrate that cost protectlon prices were necessary even

Price Fixation

though we had control of production. That was not an easy brief for me to write because I was not myself entirely convinced that the element in the NRA to which I have referred was not substantially correct. However, the brief was written and was said to be a good one, and I think was filed with the NRA; it may be that I had some small part in the inclusion in our Code of an Article which we think trial has shown to be extremely unwise and unworkable.

Up to the last meeting of the Control Committee which started on September 10, I sat in every meeting of the Lumber Code Authority and of the Control Committee. I don't think that it is an exaggeration to say that not less than four-fifths of the time of the Authority and of its committees has been taken up with the determination and fixing of so-called cogt protection prices, with adjustments in them, with complaints against them, with differentials, with a multitude of correlated matters such as the major part of Schedule B and the "Wholesaler" question, and with a multitude of problems, some of them foreseen but most of them unforeseen, which inhered in or followed upon the attempt to create and administer a wholly artificial restriction.

That the Lumber Code Authority and the Control Committee have exerted their very best efforts to administer this part of the Code, I know. No just criticism can be made of those efiorts; they failed of success for a number of reasons: l. A system of set prices-and what we have called minimum or cost protection prices based on weighted average cost were bound to be maximum prices-in any industry of as many units, of such variety of size, kind and quality of product and mediums of distribution as in the lumber industry is just an economic robot, and no kind or amount of differentials, or of tinkering, or of exemptions can ever breathe life into it.

2. It seems to be impossible to repeal by legislative fiat the simplest of the natural economic laws-that of supply and demand. An assumed level of prices which does not take into account and does not respond to the pressure. of overproduction or oversupply is like an earthen dam in a mighty 1iy61-x dam without floodgates. We have permitted overproduction ev€n since the Code to build up a pressure that was too much for any artificial barrier.

3. The number of what I would call natural or born chisellers in our industry is probably greater in percentage than in most industries. Chiselling on prices commenced immediately after the adoption of minimum prices. It increased in momentum, slowly at first, and indulged in for a number of months targely by those who would chisel under any conditions. Then starting in the late of 1934 there rny conditions. Then late spring up another kind of price violation which I hesi- ot lyJrt tnere grew up anorner Klnq or pflce vlolauon I hesrtate. to call chiselling. There were two major causes, first the tate to There undue pressure which excessive excessive production exerted upon our artificial price structure, and second, the lack of enforcement againstagainst the real and chronic chiseller-I shall return later to the matter of lack of enforcement. For these two major 1s4s6n5-2nd the first was the more impelling, the ranks of those who violated code prices by every artifice imaginable grew by leaps and bounds. It was more or less common by June l; it probably increased when certain inadequately qualified executive orders and announcements came from NRA in June; it increased during the period when there tvas some doubt during the latter part of June and the early part of July as to whether NRA would approve prices desired, we thought it would decrease when the new prices, with the NRA's assurance of their legality and their enforcement, went into eftect; violation of code prices has steadily increased since then. And increased up to this point, and while these statements are difficult of exact proof, they are easily proven by the common knowledge of the advised and candid members of the industry; there is no substantial proportion of the West Coast products sotd on the Attantic Coast or in the back-haut territory at code prices; there is no substantial proportion of West Coast products sotd in California at Code prices. These two markets normally absorb a major part of West Coast domestic distribution. In the third market-the rail market-conditions have not been so bad but a very targe portiort of sales in this territory are at less than Code prices, and the situation is rapidly growing worse. Almost any retail line yard in the Middle West will admit that it is being offered wholesale discounts, or grades higher than those invoiced, or dry lumber

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