13 Private Governments

One of the foremost problems facing our government today is the formulation of an economic policy for the future. The development of this policy is the concern of every American and will affect vitally (1) the domestic prosperity of this country, (2) our role in world affairs, (3) our national security. I should like to point out in this connection certain important considerations which must be taken into account if errors of the past are to be avoided and progress in the future guaranteed.

No economic policy adopted by the government can be effective if the industrial policies of the country in the international field are determined, controlled, and executed by private agreements of which the government has no knowledge. The formulation and conduct of the foreign policy of the United States is provided for in the Constitution: “[The President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur.”

Past history demonstrates clearly that our economic foreign policy has in many instances been rendered ineffectual by the operation of secret agreements conceived and ratified by cartels. These agreements admit of no sovereignty other than their own, and serve no interests other than the shortsighted aims of monopoly. This has only too often resulted in situations which have endangered our national security, injured our position in the world economy, and denied us opportunity for the fullest use of our resources and labor. Domestically, businessmen have had to yield to the dictates of large aggregates of power vested in international cartels. What and how much they might produce, and to whom and at what price they might sell, have been decided for them. If they did not yield, they risked elimination.

Internationally, our foreign policy has in many respects been frustrated. The Good Neighbor policy governing our relations with Latin America, the reciprocal trade treaties, our alien property policy, and other basic principles of America’s conduct of foreign affairs have in many instances been seriously weakened by the interference of cartel activities. Indeed, it is difficult to see how our future policies—for example the Atlantic Charter—can be executed successfully, if the dispositions made by cartels continue into the postwar world.

Cartels will find it difficult to operate if the agreements upon which they are based are open to public scrutiny and examination. Any law requiring the filing of international agreements should operate like the Foreign Agents’ Registration Act. It should not give immunity to cartels, but should let the government and the public know of their existence, their identity, and their scope.

The cost of secrecy is illustrated by the following examples. Two very basic raw materials necessary to any industrial community are petroleum and rubber. The crucial nature of these materials to our industrial economy and military operations is clearly apparent. Without them, practically all industrial activity would cease. Yet our oil and rubber supplies have been dependent upon policies arrived at secretly, operated clandestinely, and run in a manner contrary to the fundamental foreign policy of our country. The public had no voice in making these private policies, yet today it bears the burden of their effects.

The very nature of modern warfare and industrial life is such that both petroleum and rubber have political and military, as well as economic, aspects. Not all countries have petroleum within their borders and, prior to the present war, only Britain, for practical purposes, had rubber. Access to these raw materials is a prime military requisite to any nation desirous of maintaining a strong international position. Without them, no nation could hope to wage a war, maintain a healthy industrial economy, or impose a treaty of Munich.

Among Germany’s raw material deficiencies, oil and rubber have been the two greatest. Within her own borders there is little, if any, oil, and no rubber. This fact has certainly been a consideration in the basis of our own as well as the French and British foreign policy. Hence, the discovery in 1926 that petroleum could be made from Germany’s plentiful coal was a political event of the first magnitude. That synthetic rubber became a reality in Germany shortly afterward served to magnify the shock.

The petroleum industry, dominated in this country by Standard Oil Co. (New Jersey), was shaken at its very foundation. A Standard Oil official, Frank Howard, wrote at the time from Mannheim, Germany, on March 28, 1926, to Walter Teagle, president of Standard Oil, the following:

“Based upon my observations and discussion today, I think that this matter is the most important which has ever faced the company since the dissolution.

“The Badische can make high grade motor fuel from lignite and other low quality coals in amounts up to half the weight of the coal. This means absolutely the independence of Europe on the matter of gasoline supply. Straight price competition is all that is left....

“They can make up to 100% by weight from any liquid hydrocarbon, tar, fuel oil, or crude oil. This means that refining of oil will have as a competitive industry in America and elsewhere, catalytic conversion of the crude into motor fuel.

“I shall not attempt to cover any details, but I think this will be evidence of my state of mind.”

Standard Oil was worried about its monopoly position. The discovery threatened competition and Standard Oil met the threat.

The process of making oil from coal was controlled by I. G. Farbenindustrie, the German chemical trust. In 1926 a meeting between Standard Oil and I. G. Farben was arranged. The result was a series of treaties. The agreements preserved the position of the parties in the fields which they respectively dominated. As stated by a Standard Oil official: “The I. G. are going to stay out of the oil business proposition and we are going to stay out of the chemical business insofar as that has no bearing on the oil business.”

Competition between I. G. Farben and Standard Oil was eliminated, and the technology of chemistry and petroleum was made part of their feudal preserve. The economic effect was the maintenance of monopoly.

Stated in a more detailed way, Standard Oil was given the world right on the oil process and I. G. Farben was given the chemical business of the world. But there was one exception. While I. G. was given the right to engage in the oil business in Germany, Standard Oil was permitted to engage in the chemical business in the United States only as a junior partner to I. G. The staggering implications of this are clear. Germany could not afford, considering her aims, to permit any outsider to control within her own borders as important a development to her national life as the production of oil from coal.

But when Standard Oil gave up its rights in the chemical field, including those in the United States, the repercussions were to seriously affect our wartime efforts.

Included in the chemical field was the synthetic rubber, buna. Under the agreements, therefore, it was a German-controlled monopoly. When the war broke out in September 1939, the Germans had not permitted buna to be manufactured in the United States. We had no experience, information, or know-how, and we had not obtained permission from Germany to produce synthetic rubber. Of equal importance is the fact that the United States Government had no knowledge of these facts. The terms of the Standard Oil-I. G. Farben treaty were secret.

When corporations outside the I. G.-Standard Oil orbit attempted to manufacture buna rubber, they were confronted with the combined strength, wealth and power of the private coalition. Goodrich and Goodyear attempted such production, but the former was sued for patent infringement and the latter formally threatened with suit by the Standard Oil Company under the I. G. patents. This took place in October 1941, a few weeks before Pearl Harbor. Thus, not only did Standard Oil agree with I. G. Farben that the latter should control the exploitation of synthetic rubber, but cooperated in preventing anyone else from producing. In fact, on April 20, 1938, a Standard Oil official wrote as follows:

“Until we have this permission, however, there is absolutely nothing we can do and we must be especially careful not to make any move whatever even on a purely informal, personal or friendly basis, without the consent of our friends. We know some of the difficulties they have, both from business complications and interrelations with the rubber and chemical trades in the United States, and from a national standpoint in Germany, but we do not know the whole situation—and since under the agreement they have full control over the exploitation of this process, the only thing we can do is to continue to press for authority to act, but in the meantime loyally preserve the restrictions they have put on us.”

On its own, Standard Oil received little, if any, information on synthetic rubber from I. G. The following quotations from Standard Oil letters and documents are clear:

“Our people have never made buna ... the I. G. has not furnished anyone technical information.”

“The only information our people have is derived from published patents.”

“Information ... about the technical aspects of this development has not been forthcoming as a result of the German Government’s refusal because of military expediency to permit I. G. to reveal such information to anyone outside Germany.”

The ambiguous position in which Standard found itself arises from the fact that Standard never considered that it was making foreign policy, or took into account the political implications of its acts. We neither expect nor require this of our businessmen. After all, they are not supposed to have such responsibility. Nevertheless, neither Standard Oil nor the country could escape the consequences of these agreements. It would seem, in the light of this experience, that the least the Government can do is to provide a mechanism for acquainting itself with the existence and terms of such agreements. The Government, on the other hand, is unable to make proper judgments if it does not have complete information.

The Monroe Doctrine and the Good Neighbor policy are both pillars of our foreign relations. Nevertheless, many cartel agreements ran directly counter to these policies. The causes of conflict are not difficult to understand. In a large number of cartel agreements, world territory is divided into exclusive, non-competitive domains. In the drug, magnesium, optical glass, dyestuffs, plastics and a host of fields, the United States was the exclusive territory of American cartel members. The rest of the world was allocated to Germany. This included Latin America. As a result, the Germans were able to set up economic colonies in Latin America and elsewhere free from American competition. The large members of Nazis in South America were a partial consequence of the character of these agreements.

When the Nazis came to power in Germany, they immediately utilized the cartel system as a device for political, as well as economic, infiltration in countries outside of Germany, particularly in the Western Hemisphere. A bold assertion of this policy is set forth in a communication, written in 1933, from a director of Robert Bosch, A. G., of Germany, to the president of the United American Bosch Corporation, which states:

“With regard to the political situation ... only one thing is very evident, namely, that all forces of administrative and economic endeavour such as the different cartels, etc., are to be brought into one definite line of endeavour coinciding, of course, with the policy of the ruling [Nazi] party and that individual opinions and utterances will be submitted to a similar rule.”

When the present war broke out, Germany, because of the sea blockade, was unable to supply goods to Latin America. Cartels made full provision for the contingency of war. The South American market was preserved for the German firms by cartel members of other countries, notably the United States. Not only did American cartel members supply products to the German agents in South America, in many cases they used German labels. What is most important, they agreed to withdraw at the end of the war and once again give Germany a free hand in Latin America. In some cases, realizing that the blacklist might make this kind of arrangement difficult, dummy firms in South America stood ready to replace those blacklisted. Many instances of efforts by cartels to maintain their usual relations, and to preserve the restrictions by which German dominance in South American markets was achieved, are available. A characteristic attitude is indicated in the statement made by the head of the Chemical Marketing Co., an American firm, which had relations with the Deutsche Gold-und-Silber Scheideanstalt of Germany. In the early period of the war, this officer of the American company wrote:

“We insure thereby that the German trade up to the present with our South and Central American friends can be held firmly in our hands and, should export from Germany become impossible—as you yourself can well visualize—the loss would be much less if for the duration of the war American chemicals can be delivered, rather than complete loss of business for many, many years, if we place our clients in such a position that they can continue to serve their customers.”

The dyestuffs industry ranks among the most strategic branches of production. During the first World War, the United States and the Allies experienced severe and crippling shortages of dyestuffs, medicines and related products which were controlled by the German dyestuffs cartel. In the years between the Armistice in 1919 and the outbreak of the present war in 1939, the United States endeavored to build up a strong dyestuffs industry because of its peacetime as well as its wartime importance. The German dye trust, however, succeeded in re-establishing a substantial and significant degree of control in this industry through a series of cartel agreements. In addition, I. G. Farben, through its American subsidiary, General Aniline & Film, was able to exert direct influence on the dyestuffs market in the United States. In the many agreements made between American, British and German dyestuffs producers, the American companies were generally restricted to the domestic markets.

Upon the outbreak of war, when the British blockade threatened to cut off the exports of I. G., it nevertheless attempted to insure the maintenance of its control over various markets. The boldness of I. G.’s tactics is indicated in a cable addressed to General Aniline & Film on September 19, 1939, which released that firm from export restrictions for the purpose of supplying I. G.’s customers and agents in the British Empire. This communication stated:

“In addition to Canada we release you from export restriction in regard to the following countries: Great Britain, British India, Australia, New Zealand but only for duration of present state of war and as far as supplies to following firms are concerned.” [A list of distributing agents within the British Empire is included.]

This cable was modified on September 21, 1939, when I. G. communicated further with General Aniline & Film, stating: “Replace in first telegram ‘for duration of present state of war’ by ‘until further notice’ and act accordingly.” Similar arrangements were made regarding I. G.’s distributing agencies in South America. This effort on I. G.’s part to circumvent the British blockade is further illustration of the implications which inhere in such cartel arrangements.

The same type of practice was no less significant in other parts of the world. In the winter of 1941, while Congress was debating the Lend-Lease Act, cartel agreements had already decreed that certain critical types of products could not be sold to Great Britain. For example, when Great Britain attempted to place an order for tetrazene-primed ammunition, a cartel agreement between du Pont and I. G. Farben forbade their sale, and it was not made.

In this case the patent attorney for the Remington Arms Company, a subsidiary of du Pont, wrote a memorandum dated January 23, 1941, stating:

“The further sale of Tetrazene Primed Ammunition to the British Purchasing Commission or to the Government of the Union of South Africa or to the Government of Canada is most undesirable by reason of our Tetrazene contract with R. W. S. [Rheinische Westfalische Sprengstoff, a wholly-owned subsidiary of I. G. Farben].

“Article III, Paragraph D of the original contract of November 14, 1929, reads as follows: ‘Remington shall not sell military ammunition containing any Tetrazene in Germany and in any or all of the countries in the British Empire.’

“There can be little if any question that pistol and revolver ammunition sold at this time to his Majesty’s Government in the United Kingdom is military ammunition ... or that such sale is a sale in a country of the British Empire within the intent of Article III D of the contract.

“We understand that the Process Division have recommended the use of Tetrazene priming in certain ammunition to be sold to the British Purchasing Commission. It appears obvious that this should not be done.”

Similar situations existed in aviation precision equipment, drugs, and chemicals. Thus, I. G. Farben sought to obtain assurances from du Pont that information on certain industrial processes would not be transmitted to the British. On October 4, 1939, I. G. wrote to du Pont, stating:

“You advise us that for the duration of the war, you will not pass the experiences and applications which you receive from one licensee on to another. We thank you for having quickly taken the necessary steps for meeting the altered conditions.”

A significant and clear-cut example of the way in which cartel agreements enabled the German Government to influence the policies of American cartel partners of German industry is provided in the case of aviation instruments. In this instance Siemens-Halske, the great German electrical equipment producer, wrote to Bendix Aviation Company on October 25, 1939, as follows:

“Under our agreement your geographical contract territory includes the United States, its territories and Canada. A state of war exists at the present time between Canada and ourselves.

“Notwithstanding the war we are of course willing to live up to the agreement as far as possible. However, we would appreciate receiving your assurance that the records which you will receive from us within the scope of our agreement will not be given to Canada for the duration of the war and that you will supply no instruments, built under a license, if you know that they are destined for our enemies.”

An official of Bendix answered:

“As regards the drawings sent over you may rest assured. As regards fabrication ... we will arrange to the best of our ability to keep within the orbit of domestic use.”

One of the most necessary economic measures of war is the seizure of enemy property. Although we have a policy concerning enemy property, the Antitrust Division of the Department of Justice has come across frequent attempts to nullify this policy by private agreement.

In one case, I. G. Farben transferred over 2,000 patents to the Standard Oil Company. While there may be some dispute as to the purpose of the assignment, the fact is clear. The Alien Property Custodian, even though he has vested this property, found himself in litigation as to whether the patents were in fact transferred in a bona fide manner. Taken together with the provision in the Standard Oil-I. G. Farben contract, this instance presents the result of a carefully-conceived and well-developed policy of not only considering the war as an unfortunate interlude, but as a method of defeating public policy. The clause in question provides that even if the agreement should be interfered with by the government of the United States or if, in effect, war should take place between the countries of the respective parties, then at the conclusion of such interruption the parties shall come to a new agreement “in the spirit of the old.”

Another phase of the relationships between Standard Oil and I. G. Farben with respect to the eventuality of war between the United States and Germany is indicated in a letter written by the Assistant Comptroller of Standard Oil to one of the directors of the company, on September 8, 1939. The body of this letter deals with the Standard-I. G. Corporation, a joint subsidiary in which Standard Oil owned 80% and I. G. 20%, which had been formed to carry out the purposes of the Standard Oil-I. G. agreements. Standard Oil was considering the purchase of I. G.’s holdings in this subsidiary company. One paragraph in the letter indicates clearly the objective which Standard Oil sought. This paragraph states:

“Of course what we have in mind is protecting this minority interest in the event of war between ourselves and Germany as it would certainly be very undesirable to have this 20% interest in Standard-I. G. passed to an Alien Property Custodian who might sell to an unfriendly interest.”

Another case shows how devious and complex cartel schemes can be. Briefly, the Siemens-Halske Company of Germany and the Beryllium Corporation of America entered into an agreement concerning the production and distribution of beryllium alloys which had all the usual characteristics of a cartel, such as the division of world territory, etc.

Before this highly interesting agreement was entered into, however, Siemens-Halske attempted to protect its position by assigning its patents in this field to the Metal & Thermit Company of New York. Actually these patents were held by Metal & Thermit in escrow for the Siemens-Halske Company. For this service, the Metal & Thermit Company received $10,000.

Without such a bill as is now contemplated, no Alien Property Custodian could have known that the above patents were really property of an enemy national. They would have remained concealed in this instance if it had not been for the fortuitous action of an investigation by the Department of Justice.

The titanium and optical goods cases previously related are other examples of this practice.

The development of the magnesium industry in the United States provides further illustration of the political effects of cartels in addition to the corrosive effects of monopoly upon industrial expansion. From an international standpoint the cartelization of the magnesium industry prior to the outbreak of the present war had equally serious effects. As a consequence of both monopoly and international cartel arrangements in the industry, Germany obtained an initial lead in the production of magnesium while at the same time Germany’s potential opponents were restricting magnesium output. According to estimates made by the U. S. Bureau of Mines, Germany produced 61% of the world’s total output of magnesium in 1937. The United States produced 10%. In 1940 Germany was still producing one-half of the world’s output while the United States was producing about 14%.

The importance of magnesium is indicated by the uses for which it is employed. In general, its principal consumer is the aircraft industry. Magnesium is used in the construction of aircraft engines, the frames of airplanes, various interior parts, wheels, and other similar portions of aircraft. Magnesium is also employed in the manufacture of incendiary bombs, tracer bullets, and flares.

The two principal producers in this country during the years 1919 to 1927 were the Dow Chemical Company and the American Magnesium Company, a subsidiary of the Aluminum Company of America. In 1927, the American Magnesium Company ceased production, and the Dow Chemical Company thereafter enjoyed a monopoly in the production of magnesium in the United States. The American Magnesium Company by agreement purchased all of its requirements from Dow and constituted Dow’s largest customer. In tracing the relationship between Dow, the sole producer of magnesium, and Alcoa, the sole producer of aluminum, during the period in question, it is essential to bear in mind that magnesium is the principal technological rival to aluminum. Nearly all of the functions for which aluminum is employed can also be fulfilled by magnesium with greater efficiency, in many instances, because magnesium is not only one-third lighter than aluminum, but is more readily machined and, when properly alloyed, has greater tensile strength.

In the year 1931, I. G. Farbenindustrie, the principal producer of magnesium in Germany, entered into an agreement with the Aluminum Company of America known as the Alig Agreement. According to the terms of this contract, a joint corporation, the Magnesium Development Company, was formed in which Alcoa and I. G. each held 50% control. The Magnesium Development Company was primarily a patent-holding corporation to which I. G. transferred some patents for the fabrication of magnesium and to which Alcoa contributed process patents. In addition to participating in the Magnesium Development Company, I. G. also obtained a 50% interest in Alcoa’s own subsidiary, the American Magnesium Company.

The significance of the arrangements between Alcoa and I. G. was twofold: Alcoa was interested in obtaining a secure foothold in the magnesium industry in order to protect its primary interest in aluminum; I. G. was endeavoring by its usual tactics to extend the sphere of its influence. It is especially significant to note that in the Alig Agreement it was stipulated that any licenses issued by the jointly-owned Magnesium Development Company were to be restricted to the United States. It was also provided that:

“As long as magnesium is produced by any ... producing company under a license or licenses granted ... the holders of the I. G. shares in Alig ... shall have the right to limit the increases in production capacity of every such producing company after the initial contemplated production capacity shall have been reached. The initial contemplated production capacity shall in no case be more than 4,000 tons per annum.”

Dow Chemical Company was not a party to the 1931 agreement between Alcoa and I. G. During the period immediately following the Alig Agreement, every effort was made to bring Dow into the cartel picture, with the consequence that, on January 1, 1934, Dow entered into a patent-holding agreement with Magnesium Development Company. In 1933 also Dow and American Magnesium Company had entered into a five-year purchase contract by which the American Magnesium Company was guaranteed a position as a preferred customer of Dow. In return, Dow’s position as the sole producer of magnesium was protected.

In 1934 also Dow entered into a sales contract with I. G. Farben. This contract stated:

“Dow agrees to confine its sales in Europe solely to the I. G., with the exception that it reserves the right to sell the British Maxium or its successors not more than 300,000 pounds (150 tons) per annum at a price not lower than the price quoted to I. G. for the same quantities, plus an extra charge of not less than 4¢ per pound for I. G.’s larger consumption. Dow further promises to use its best endeavor to keep British Maxium or its successors from reselling magnesium in ingot form and will try to limit its purchases to its own use in fabricating.”

During 1934 and 1935 Dow delivered to I. G. (which was, of course, the principal producer of magnesium in the world) more than 3,800,000 pounds of magnesium out of Dow’s total production of little more than 4,000,000 pounds. This magnesium was sold to I. G. at a price approximately 30% below the price to Dow’s other customers, with the exception of American Magnesium Corporation, which also enjoyed a preferential position. It is interesting to note that, during this same period, the sales manager of Dow Chemical travelled to England and wrote to his home office as follows:

“They [British Maxium] are very much in need of additional magnesium for the balance of 1935, but they understand our position perfectly well and do not blame us at all because we are not in a position to furnish them the metal they want. They were at fault in not getting in touch with us sooner regarding their increased demands. They advised me that they had exported 20 tons of ingot to Europe but I later obtained definite proof from Mr. Ziegler of the I. G. that they had exported 60 tons in Europe. If they had kept this metal in England they would have had sufficient supplies for this year.”

It may be remarked that, in consequence of these arrangements between Dow and I. G., I. G.’s position in the European magnesium market was enormously strengthened. One particularly significant result of I. G.’s dominance was that Great Britain was rendered primarily dependent upon Germany for its magnesium imports. As late as 1938, 87.9% of the magnesium imported into Great Britain was obtained from Germany. When war broke out, Great Britain was at once cut off from a large part of its magnesium supply.

From the standpoint of the development of the industry in the United States, it is clear that the total effect of the arrangements among Alcoa, I. G., and Dow was to restrict magnesium production. The extent of the disparity in the magnesium output of Germany and the United States is clearly evident in the production figures for the years 1937 to 1940. In 1940, the year in which France fell, the United States produced 5,680 tons, while Germany produced more than 19,000 tons. Strenuous efforts on the part of the government and industry have been necessary to expand magnesium production sufficiently to meet our minimum wartime needs. The large plant construction undertaken by the government in cooperation with various magnesium producers has achieved initial success. It is clearly evident, however, that the magnesium program had to be inaugurated and carried out under the tremendous handicap of the monopoly situation which existed in the industry prior to the war.

It is equally clear that, from a political standpoint, the government began its operations completely in the dark. It is scarcely credible that, had the arrangements between Alcoa and I. G. and between Dow and I. G. been known to the government at the time at which they were made, the risks inherent in the private treating making of this type would have been permitted to stand.

It is characteristic of many cartel agreements which are arrived at secretly and maintained in silence that concealment of their provisions is motivated by the desire to avoid scrutiny of their operations by public authority. In some instances, the illegal nature of the terms of cartel agreements explains the cloak of secrecy which is cast over their provisions. Moreover, it is often stipulated in cartel agreements that, in any eventuality of action taken by government, the parties to the agreements shall cooperate in order to maintain their relationships despite anything that government may do.

There are numerous examples among the many agreements which have been investigated by the Department of Justice which clearly reveal the intent as well as the necessity for secrecy from the point of view of the cartels. Thus, in a letter from Canadian Industries, Limited, to the du Pont Company, the writer states:

“In the course of recent meetings in connection with the new Patents and Processes Agreement, I understand a suggestion has been made by the du Pont legal representatives which will involve the new agreement making specific reference to the respective territorial rights of du Pont and ICI. I cannot help feeling that on broad grounds this is undesirable both from the viewpoint of C-I-L and of the major stockholders. For instance, should any investigation take place in Canada which will require the production of this agreement, the clause in question would automatically necessitate the production in its term of the ICI and du Pont agreements: at least that is the way we would read it, and this would be bound to lead to publicity of a very undesirable nature in regard to the division of world territories. My practical suggestion is that, as the detailed prior commitments are now to be dealt with in the form of a letter separate from the agreement (this at the suggestion of the du Pont legal representatives) it might be possible to include the point in question in that separate letter also.”

The attitude of cartels toward the relation between their own policies and the policies of government are epitomized in the exchange of correspondence between Sir Harry McGowan, Chairman of the Board of Imperial Chemical Industries, and Lammot du Pont in May 1933. Sir Harry wrote:

“With a large organization such as we have I find it is a good thing to issue such warnings from time to time—one went out at the time of the Ottawa Conference—so that everything possible is done to ensure that no prospective political or legislative action on the part of governments is permitted to influence relations between du Pont and I.C.I.”

On June 17, 1933, Lammot du Pont replied as follows:

“I am much interested in what you say and have heartily approved your attitude toward our Patents and Processes Agreement and the relations between the two companies. I feel the same; namely that our relations have been so happy and have produced such satisfactory results that we should let nothing in the way of international agreements interfere in any way with the progress we have made or may make in the future. If any legislation or international agreements are brought about which affect these I.C.I.-du Pont relations I am sure we will be able to adjust ourselves so as to get the continued benefit of our agreement.”

A striking and instructive illustration of the role of secrecy in cartel agreements is provided in the terms of an arrangement concerning the pharmaceutical industry, between the Schering Corporation of Bloomfield, New Jersey, and the Schering, A. G., of Germany. One clause in this agreement, which was made in 1938, stated that “the existence, the content, and the details of operation of this agreement have to be kept secret by both parties notwithstanding the possible obligation of disclosing it to public officials.”

In connection with an agreement concerning the plastics industry, the consideration taken into account by the Rohm & Haas Company and du Pont are indicated in a memorandum written by the latter company in 1936, in which it is stated:

“We discussed the whole situation again. They repeated over and over again that there is not the slightest possibility of the I.C.I.’s coming into the American market, but du Ponts are afraid to write a letter to this effect because in the case of an investigation of their firm by politicians, the politicians might make capital of such a statement, i.e., they might attempt to point out that the world was divided up between I.C.I. and du Ponts.

“I told Mr. Wardenburg that I had implicit faith in all the assurances which they had made to me, but that for my own protection I had to have a letter from du Ponts, in which they can assure us, in one way or another, that the I.C.I. will not take the opportunity to come into this market. After a lengthy discussion of the different ways to accomplish this purpose, it was agreed that Mr. Wardenburg will write a letter saying that while it is true that the I.C.I. under their contract have a right to come into the American market, they [du Ponts] happen to know that the I.C.I.’s development in the methacrylic ester field has taken a direction which is quite different from the one that is being taken by du Ponts and ourselves, so that it will be highly improbable that the I.C.I. will attempt to come into the U. S. market. I told him that such a letter will be satisfactory.”

It is clear that cartel interests fear that the revelation of the provisions of their agreements might impede the functioning of the agreements or perhaps draw down upon them action by public authority. Very often cartel agreements endeavor to discount this possibility in advance. In the case of the agreements between Standard Oil and I. G. Farbenindustrie it is provided that:

“It is our understanding ... that each party proposes to hold itself willing to take care of any future eventualities in a spirit of mutual helpfulness particularly along the following lines: In the event the performance of these agreements ... by either party should be hereafter restrained or prevented by operation of any existing or future law, or the beneficial interests of either party be alienated to substantial degree by operation of law or governmental authority, both parties should enter into new negotiations in the spirit of the present agreements and endeavor to adapt their relations to the changed conditions which have arisen.”

Because most cartel agreements provide for their resumption at the end of the present war, efforts to rehabilitate world trade may be insuperably handicapped unless prompt and effective action is taken by the government with full knowledge of the existence and character of such cartel agreements. Regardless of the particular form or direction of this nation’s trade policies after the war they could not become effective if secret agreements among the large industrial groups of the world contain arrangements which clash with the government’s program.

It is well to recall that the provisions of the Versailles Treaty at the end of the first World War which prohibited the manufacture of certain strategic products in Germany were rendered ineffective in many instances. Through foreign subsidiaries and under the cloak of cartel agreements with concerns in the United States and other countries, German producers of military equipment were able to nullify the application of the conditions imposed by the Treaty.

Public authority must not be left in the position of having to work in ignorance. Only by compelling the official acknowledgement and registration of the existence and provisions of agreements which affect our foreign and domestic commerce can government acquaint itself with the arrangements which have been made and which affect so vitally national security and national welfare.

During the present war one of the most serious problems with which the fighting services have had to contend on the battle fronts is the frequency of malaria, one of the most widespread diseases in the world. There are two standard remedies for malaria: one is quinine, a natural product obtained from the cinchona trees of Java; the other is atabrine, a synthetic coal-tar product. Because the production and distribution of quinine were controlled by one of the most closely-knit cartels in existence, a shortage developed almost immediately when the Japanese seized Java. The dwindling stockpile of quinine in the United States compelled the government to call upon druggists and housewives alike to turn over whatever small quantities were on hand in order to keep the fighting front supplied.

In the case of atabrine, only one company in the United States had a license to manufacture the drug under the I. G. Farben patents. It required the concerted effort of manufacturers and government to institute expanded production in order to make up for the deficiencies of quinine. Fortunately, these efforts have met with some success. With regard to the future, however, it must be borne in mind that cartels which are able to control and restrict the output of medical products, in particular those which are so widely needed, as quinine and atabrine, exert a direct influence on the military position of the United States and other countries, as well as upon the general health of the population. The opportunities for abuse which are present in monopolistic control of medical products are obvious. It is equally obvious that this government cannot afford to tolerate them. It would seem a minimum precaution to require that where cartels control the supply, the price, and the distribution of medical products, they should be compelled to record the terms on which control is based, in order that government might in its turn develop adequate safeguards for the general welfare.

I believe it has been clearly demonstrated that certain fundamental decisions affecting our relations with the rest of the world have been formulated and put into effect by private groups without the sanction or knowledge of government. These decisions concerning our strategic materials, industries and trade, our Good Neighbor and our European policies, our disposition of enemy property, considerations of espionage, secrecy and the evasion of our laws, have all been accomplished without the knowledge of our government or its acquiescence.

If cartels are permitted to continue to enter into their secret agreements, then it will be impossible for the peoples of the world to develop mutual understanding or to share industrial experience and progress. Cartels have been a focus of conspiracy and distrust among nations in the past. It is not too much to say that they will form a nucleus of future distrust and intrigue. A world partitioned by cartels breeds economic friction and disunity. We must face the fact that a cartelized postwar world would inevitably be a world of suspicion and of clandestine international intrigue. Full reciprocity in respect of trade and technology can only be founded on mutual confidence and good faith.

There is current a school of thought which believes we must differentiate between good cartels and bad cartels. Do these people still propose to leave the conduct of our foreign economic policy in the hands of private monopolists, with the one caveat that these people be good monopolists and not bad monopolists? With all the best intentions in the world, it is neither the role nor the responsibility of businessmen to determine political questions which can only be resolved by constituted government. This is a responsibility which I believe businessmen should not undertake, and one which I believe that they do not wish to undertake. Even those businessmen who have engaged in these practices would be shocked to realize the implications of their acts. At the time they were operating in this manner they never thought in political terms, but rather in terms of the local market. Once operating in the international market, however, these businessmen found themselves in ambiguous positions where they were forced to make choices which they never contemplated. What would they do when confronted with the problem of choosing between national policy as it should be and their own private interests? It would seem, from the standpoint of public interest, that when questions of national concern arise they should be handled by properly constituted government authority.

American businessmen have not realized the significance of the relationship between their foreign cartel partners and the foreign governments involved. I doubt that they knew, for example, that the following statement was made by Mr. Meinhardt of Osram, a member of the international lamp cartel: “An international cartel has no right of existence and a German businessman has no right to become a member of such a cartel if this cartel is acting against the common interests of Germany.”

The attitude of American businessmen is typified in the following statement by an executive of the General Motors Company: “an international business operating throughout the world, should conduct its operations in strictly business terms, without regard to the political beliefs of its management, or the political beliefs of the country in which it is operating.”

All American businessmen and the Congress particularly should weigh with care the type of thinking which results from a cartelized economy such as Germany’s. Carl Duisberg, formerly chairman of the board of I. G. Farbenindustrie, expressed succinctly the philosophy of Germany’s cartel system when he said, in 1932: “The narrowness of the national economic territory must be overcome by trans-national economic territories.... For a final settlement of the problem of Europe ... a close economic combine must be formed from Bordeaux to Odessa as the backbone of Europe.” The ultimate consequences of such cartel aims have been reckoned across the council tables of Munich and the battlefields of Europe and Asia.