A Political-Economic Solution of the Coal Problem

Date01 December 1950
Published date01 December 1950
Subject MatterArticles
Russell Sage College
IMPORTANT strikes of the United Mine Workers during the
~ last three years have again brought attention to the problems of what
President Truman, in 1949, called the &dquo;sick&dquo; bituminous-coal in-
dustry when he began considering the need for a new investigation of it.
The present interest in this industry is not new, however, either in its
cause or in its possible results. The 1922 strike resulted in the investigations
of the United States Coal Commission.’ In 1928 the Senate Committee on
Interstate Commerce investigated conditions in the coal fields following
the strike of 1927-1928.
Some major legislation has been directed at
solving the problems of the industry. The Guffey coal act of 1935 aimed
at correcting &dquo;overproduction and ruthless competition&dquo; in the industry.3
When this act was declared unconstitutional by the Supreme Court,4 a
new bituminous-coal act was enacted to replace it in 1937.5 The industry
itself attempted solution of its difficulties through the creation of a regional
marketing agency, which was found by the Supreme Court to be unable
to fix prices and to be innocent of monopolization
The relative ineffectiveness of these measures in solving the coal &dquo;ills&dquo;
is evident in the renewed attention now being given the industry. If it is
true, as seems likely, that the chief &dquo;ill&dquo; of the industry lies in the existence
of excess capacity,7 one solution may be the removal of excess capacity by
the imposition of a tax on mines. Special taxation on bituminous-coal
mining is not new. The Guffey coal acts of 1935 and 1937 relied for their
See Report of the Coal Commission, 68th Cong., 2d Sess., S. Doc. 195 (1925). "The principal investi-
gation, and one of the most pretentious fact-finding tasks ever laid upon a governmental body
was that of the United States Coal Commission, following the disastrous strike in 1922." (Harvey
C. Mansfield, The Lake Cargo Coal Rate Controversy, New York: Columbia University Press,
1932), p. 18.
2 This investigation, while directed primarily at labor conditions, supplemented and supported to a
degree the findings of the Coal Commission concerning the basic problems of the industry. See
Hearings before the Senate Committee on Interstate Commerce, on Conditions in the Coal Fields
of Ohio, Pennsylvania and West Virginia (pursuant to S. Res. 105, 70th Cong., 1st Sess. [1928]).
Bituminous Coal Conservation Act of 1935, 49 Stat. 991, 15 U.S.C.A., Sec. 801.
4 Carter v. Carter Coal Company, 298 U. S. 238, 56 Sup. Ct. 855 (1936).
Apr. 26, 1937, c. 127, 50 Stat. 72.
6 "The evidence as to the conditions of the production and distribution of bituminous coal, the available
facilities for its transportation, the extent of developed mining capacity, and the vast potential
undeveloped capacity, makes it impossible to conclude that defendants through the operation
of their plan will be able to fix the price of coal in the consuming markets." (Appalachian Coals,
Inc. v. United States, 288 U. S. 344 [1933]).
"The heart of the difficulty in the bituminous industry lies in the severity of the competition that
results from an enormous surplus of productive capacity divided among a large number of inde-
pendent producers." (Mansfield, op. cit., p. 21). See also below footnote 9.

effectiveness upon the imposition of a tax per unit of output.8 The effect
of such a tax is to raise the price of coal, since such a tax is applied as a
given amount per ton of coal produced. The provisions of the Guffey
coal acts tended to cause higher prices in the attempt to increase the
margin between cost and price. The imposition of a different kind of tax,
however, might well have had the effect of removing excess capacity
while at the same time allowing price reductions rather than price increases
to occur, and indeed in doing so to increase the margin between cost and
price. Such is the tax proposed in this article.
Excess capacity is characteristic of the modern industrial firm. A
firm normally possesses capacity for production that is adjusted to an
expected peak, often reached only during wars or exceptional prosperity.
When capital is invested in machines, it is invested in indivisible units that
are adjusted to the peak load. Operation at any output below this maxi-
will be operation of each machine below its full capacity. The cost
of the machine must be amortized and the machine must be maintained
regardless of the speed of its operation, or the number of hours per day
it is used or stands idle. At any degree of operation less than the maxi-
mum, a greater output can be obained at very little cost-or indeed at
zero cost as far as the capital factor is concerned. An increased output is
achieved at a lower unit cost. Two conditions are thus postulated when
the firm has an output less than the maximum: It is operating with excess
capacity, and it can increase production at decreasing average cost.
Excess capacity of another kind may exist in an industry, if &dquo;an
industry&dquo; is understood to mean a number of firms producing the same
commodity. The firms will be of varying efficiencies-that is, they will
range from high-cost to low-cost firms. At any output below the maximum
for the industry, submarginal firms will exist; these will be the high-cost
producers, who may or may not go out of business. These firms represent
excess capacity for the industry.
The foregoing description applies to bituminous-coal mining.9 It is
likely that there is a greater amount of excess capacity in this industry
than in some other mining industries and than in much of industry in
In the act of 1935, "The Commission had power to revoke membership of producers and to determine
liability for the payment of a 15% excise tax on the mine price of coal, or, in the case of captive
mines, the fair market value.
Code members were to receive a 90% drawback or 131/2% of
the value of the coal. Enforcement of regulation was’ thus based on use of the taxing power of
the Federal Government in addition to the power to regulate interstate commerce." (Glen L.
Parker, The Coal Industry: A Study in Social Control, Washington: American Council on Public
Affairs, 1940), p. 139. In the act of 1937, "Tax provisions were changed to obviate the objection
that a penalty was involved in the tax levy. The Senate Committee on Interstate Commerce
substituted a sales tax of 11/2%, with an additional 131/2% added to all coal sold in interstate
commerce by...

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