shrink much more than enough to offset twice-over whatever gains (if any) actually might come from proposed third-class raise.-Rolling Prairie, Wis. 8. The Post Office should try for more effective supervision.—Chicago, Ill. 9. Up to the beginning of 1948, the Post Office Department has been very fair: but their proposed increases are hard to take today since so many businesses have softened from previous levels.-Boston, Mass.

10. Let's forget about increasing prices and get down to the business of getting more business. I believe the Postal Department should be considered the same as any other business. Prices are on the downward trend-why should the Postal Department start increasing prices. More postal business is what's needed, and profits will take care of themselves.

Any increase no matter how small-will seriously jeopardize the mail-order business. Profit is extremely small; any increase would wipe it out.-New York City.

11. Home mailings net only $5 to $15 per thousand on each 1,000 mailed. Naturally these mailings would have to be dropped.-New York 19, N. Y.

12. Permits for third class should be classified as to volume of mail; $10 for companies sending out 100,000 pieces per year or less, and increasing rates in accordance with number of pieces. Permit mail does save individual stamping and should be charged in ratio of 100,000 units mailed in each year. This would give added revenue without breaking the camel's back-of small users of permit, and encourage more small mail-order companies to buy permits.-Dedham, Mass.

13. The Post Office cannot operate, as a private business, at a profit. It is a service institution in the same manner as the Agriculture Department. We businessmen have caused much of our own present trouble by insisting that all Government services be made to pay their own way.-St. Louis, Mo.

14. Two years ago, when there was a threat of an increase in third-class rates, we began experimenting with ways of getting business without so much dependence on the mails. Because we have found other ways, there is no reason to feel that we will do anything more than just continue to cut our volume of third class. Newburgh, N. Y.

15. The Post Office Department should be subsidized by appropriations, at least in part, as other Government agencies are, as this Department is responsible for the progress of the Nation.-Chicago, Ill.

16. I have talked to our customers who are heavy third-class mailers, and they say, with few exceptions, that they will turn to radio and newspaper for a high percentage of their mailing.-Pittsburgh, Pa.

17. We just do not know what we will do if rates are increased. We plan a 50-percent increase in promotion this year if rates remain constant.-Evanston. Ill.

18. Business is not what it has been in the past. The raising of third-class rate could certainly make our business worse-not better.-New York City.

19. We will definitely lose one account grossing us $3,200 per year and another will drop to 6 mailings a year instead of 12; gross loss to us, $1,800 to $1,200 per year if third-class rates are increased.-Rockford, Ill.

20. With present business conditions and returns on mailings, we could not possibly stand an increase.--Indianapolis, Ind.

21. We are fairly small users of direct mail, but our business, to a great extent. is done largely by first-class mail, as one inquiry derived from a third-class mailing usually means several letters by first-class mail, or air mail, due to representing factories all over the country, and the correspondence naturally accumulates fast in getting facts and figures from the factories, and, in turn, handling back and forth with customer, all by first-class mail.-Memphis, Tenn. 22. I believe the proposed increase will defeat its own purpose, in that there will be curtailment of much third-class mail and also the first-class mail used in connection with it for reply.-Brockton, Mass.

23. Before any raises are made, the whole Post Office should be subject to a scientific cost analysis, and raises, if any, should be made only in proportion to the cost of handling.-St. Paul, Minn.

24. Somewhere around 1942, while an employee of the Post Office, I submitted an idea, duly acknowledged, for the use of an electric eye to automatically separate city from "dis" mail (first class) by color of stamps (2 cent, 3 cent). This might have helped to preserve the local 2-cent rate if adopted at the time. I believe that new ideas could be found which would economize the handling of third-class mail also.-New York, N. Y.

25. Due to the fact that we are a new concern, now struggling, a 100-percent increase could mean failure to us.-Ridgefield, Conn.

26. Such an increase would, in effect, be an additional tax on business which is altogether too high at present.-New York, N. Y.

27. The local postmaster is very happy to handle our mail at $10 a thousand. The fact is, it helps them considerably.-Palatine, Ill.

28. Doubling bulk postage rates from $10 to $20 or even any portion is a very serious mistake, especially at this time.-Seattle, Wash.

29. We employ about 35 persons printing, mailing, etc. Any increase would affect not only the mailing but printing as well.-Milwaukee Wis.

30. More of a business administration needed; one man to a job.-Chicago, Ill. 31. As business is now more competitive the present would be an especially had time to increase third-class rates, and in our estimation would be a grave error.-Cincinnati, Ohio.

32. Increased cost of mail efforts will mean less volume of mail efforts. Less efforts will mean less volume. Less volume means less dollar returns. Less business mean labor lay-offs. Consequently, less taxes to Government. The whole plan of increasing business costs means business suicide.-New York, N. Y. 33. The 1-cent mail is used almost exclusively here by small retailers, who cannot afford newspaper or radio. Any increase would cut the volume and leave many of them with no inexpensive method of advertising. The proposed increase will be a blow to the small-business man.-Akron, Ohio.

34. It will not be economical or profitable for Post Office Department to raise third-class rate because of tremendous loss in volume of all mail.

Volume is the lifeblood of any large business. We are successful in America because of volume production.—Omaha, Nebr.

35. We have a national service by which we have encouraged several hundred new users of third-class mail. All of this is in danger of being lost for us in event of drastic increase.

36. Appoint a committee of experts to study rate structure.-Detroit, Mich. 37. Lowest communication costs are vital, to continue present rate of business and commercial activity. Kill or stifle sales promotion, and sales and every branch of business and industry must suffer.-New York, N. Y.

38. Third-class mail supports our promotion, helps keep our business growing and our first-class mail increasing.-Weehawken, N. J.

39. An increase in postal rates would prevent new direct-mail uses from getting started.-Reading, Mass.

The CHAIRMAN. Are there any further questions of the witness? If not, thank you very much, Mr. Mosely.

The next witness is Mr. J. M. George, general counsel of the National Association of Direct Selling Companies.

STATEMENT OF J. M. GEORGE, GENERAL COUNSEL OF THE NATIONAL ASSOCIATION OF DIRECT SELLING COMPANIES, WINONA, MINN.

Mr. GEORGE. Mr. Chairman and gentlemen of the committee, my name is J. M. George. I am general counsel for and appearing on behalf of the National Association of Direct Selling Companies. It is a trade association having its office at 165 Center Street, Winona, Minn. Its membership consists of concerns whose merchandise ultimately reaches the consumer through person-to-person or house-tohouse soliciting at the retail level. It should not be confused with the type of distribution commonly known as mail order. These concerns handle a wide range of merchandise consisting principally of consumer goods.

The problems of the members of this association are representative of the problems of all companies in the United States using similar methods of distribution. Our membership represents somewhere between 20 to 25 percent, conservatively speaking, of the volume of distribution in this field.

OUR UNUSUAL POSTAL SITUATION

In this particular type of business we use practically all of the mail classifications and special services on practically every transac tion.

For business promotion and the servicing of accounts or outlets, we are heavy users of first-class mail.

To a very considerable extent we use postal cards for promotion and recruiting. We also extensively use post cards for giving notice of shipments and acceptance of orders.

Third-class postage is the chief vehicle of business promotion in this field, and represents a very large proportion of our total postal expenditures. Third-class mailings are used in recruiting salespersons and in follow-up for recruiting and business-volume promotion.

From 75 to 80 percent of the concerns in this field do practically all of their shipping by parcel post and probably 50 percent of these concerns are small catalogs.

The concerns in this field which ship by parcel post make most of these shipments on a c. o. d. basis which involves special postal services such as c. o. d., money orders, and often insurance.

It can be seen from the foregoing facts that whenever an acrossthe-board postal rate increase occurs it constitutes a definite shock having a pyramiding effect which is very difficult to meet. We get hit on third class; we get hit on first-class postal cards; we get hit on fourth-class parcel post, and we get hit on special services, such as money orders and c. o. d.

The post office historically has developed from a carrier service to a widespread public service. When the Post Office Department puts on new services and new functions, business people pattern their business to use those functions. The thing that I feel the committee should give more attention to in a rate hearing is that the mail receiver. in other words the general public-you, as a citizen, and you, as a person receiving mail-are the first consideration of the Post Office Department. If it were not for the function of furnishing services to the public, as such, there would not be any post office. The post office was not built for businessmen, it was not built for business use; it set up functions of convenience for the public, which have become the underlying basis for patterns of doing business in the Post Office Department.

I might say that $100,000 spent in 1948 for promotion in third-class and first-class mail in our business, under the new rate, added to the 1949 rate, assuming you pass this bill as written, would buy just half as much business as it did under the old situation. Business people have promotional budgets, and they put a certain amount of money into promotion, and if that money does not go as far as it should. they do not get the business. In other words, the business is reduced. I am saying that is true of people advertising in second class and using all other classes of mail.

We do not yet know what is going to be the result of the drastic increases which went into effect on January 1. We feel little doubt that the effects of another increase on top thereof will be hard if not impossible to bear by these companies concentrating shipments via parcel post with the added special service charges.

There will be other witnesses appearing before the Post Office Comittees who will talk about the situation from the standpoint of the gures involved.

Mr. REES. You do not know what the effects have been on your lients?

Mr. GEORGE. I do not. There is an increase in rejections of c. o. d. ail. Of course, there is an increase already, under the 1949 rate, on he cost of promotion and getting business. This may have a serious ffect on small concerns, particularly those not having large capital, o increase their promotional operations, and not being able to operate on as big an income basis as some of the larger companies.

It is necessary to say that some of these increased charges go directly o the public, such as the money-order fees. Indirectly it is the conumer who ultimately bears increases in transportation and other merhandising costs. Concerns which are able to do so will, of course, bear a proportion of this added cost. Companies working on small margins may find it impossible. The shock will be greatest to the mall, low-margin operators. These people do not have capital reources with which to double their promotional budgets involving firstand third-class mail. Large operators can do this, and the rate inreases would actually give them a preferred position. Their power of absorption of the increased cost is greater, thus giving a further competitive preference.

In any event, the increased direct or indirect costs to the consumer set up a sales resistance which is portentous in the face of conditions when the cost of living should be going downward. Resulting sales resistance could very well mean the end of extensive mail users, particularly those operating with ordinary capital facilities.

THE PRESENT ECONOMIC PICTURE

Production and sales mean income. Income means taxes. Taxes mean revenue to the Government.

No one knows better than Members of the Congress that we as a Nation are now confronted with enormous new spending projects such as result from the Marshall plan, the North Atlantic pact, the rearming of Europe, not to mention the possible bonus or pension outlays for ex-servicemen.

A piece of legislation which may very well shake the foundations of our economy seems to be especially unwarranted at a time when facing these new burdens and at a time when business conditions are a bit uncertain to say the least, and when buying resistance is growing. We are in no position to raise prices to meet the increased cost that the proposed rates will bring about in our business.

Mr. REES. What you mean to say is that you are going to charge this $500,000,000 to the taxpayers and let it go at that?

Mr. GEORGE. I will develop that idea as I go along in my statement, Mr. Rees.

Mr. REES. I just wanted to know what you think about it.

Mr. GEORGE. Sales must be kept at a high level or production must be cut. When these cuts come, incomes go down, go into lower brackets, or cease to be net.

In our field we are noticing some sales resistance already on the new January 1 postal rates. We fear very much the results that

would flow from the proposed additional increases. We doubt that many of us would remain in any substantial income-tax brackets on December 31, 1949.

At the beginning of each business year our people, like most others, set up a business-promotion budget. With us the use of this budget means postal expenditures.

A promotional budget under rates in effect in 1948 would buy about twice as much business, via promotion, as it would buy under the proposed new rates. In most cases, capital is not available to double the promotional budget. The result our business may be reduced by one-half. Contributing further to this possibility is the buyer's resistance to increased cost of merchandise and cost of getting it into the buyer's hands, and this is true especially at a time when these items should be going downward.

Business and profit reduction caused by these factors will in our case undoubtedly lower incomes and income-tax brackets.

Leave the money represented by the Post Office shortage in the hands of business for business promotion and repeated turn-overs, and the effect will be felt by the Treasury Department many times over. In the hands of the Treasury this money is nothing but a static $400,000,000 to be spent-not to be turned over.

This is only to mention the direct loss of revenue from these con- ! cerns themselves. Add to this the loss of income revenue from executive and other salaries and wages and the reduction of employment.

The Government is one great entity. The Post Office Department is only one of many parts. The Treasury Department is another. The Post Office, due to its important part in the production of business in America, is one of the Treasury Department's best customers.

If the Government were looked at as an entity and as a business operation, it might well be said that the postal shortage is nothing more or less than a loss leader to stimulate Treasury income.

The Post Office Department is one of the few subdivisions of the Federal Government which does produce revenue from things done and services rendered. It is difficult to understand why a small shortage in a largely self-sustaining department should cause so much worry in the minds of so many people. We seem to show little or no reluctance in spending money in unbelievable amounts for the service and well-being of people of other countries.

If government is looked on as a business, then there isn't a department which doesn't have a deficit, and most of these departments have a 100-percent deficit.

Right now the price curve is downward and the unemployment curve is upward. For $400,000,000 can we take a chance on aggravating a precarious situation? Can we take a chance, for that amount. of stimulating unemployment or of increasing buyer resistance?

In the face of our great international commitments, can we take a chance for $400,000,000 of rocking the boat which now finds the water at least a bit rough?

If you leave in the Post Office Department the amount of money that would be taken out of business promotional use by increased rates, then you have merely taken $400,000,000 and paid a debt with it. If you leave that $400,000,000 in the hands of business, it will turn over repeatedly and repeatedly and repeatedly, and in the Treas