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Senator CAPEHART. But up until then the Capehart amendment repealed the formula you are talking about?
Mr. ARNALL. No, no, no. The formula which we have came about in April 1951, whereas the Defense Production Act was signed by the President on another date.
Senator CAPEHART. The Congress passed the Capehart amendment, which directed you to permit all increases in costs that occurred from Korea up to July 26 if the companies wished it?
Mr. ARNALL. That is right.
Senator CAPEHART. How, under those circumstances, then, could you apply any other formula?
Mr. ARNALL. Because you gave us an additional mandate, Senator Capehart. You said that our prices should be "generally fair and equitable," and under that provision we have established this formula.
The Capehart provision was not the only provision. There was an additional one, to be fair and equitable, and that is the one that we used.
Listen, Senator, you members of the committee have been after me about being fair and equitable. We want to be. .
So then we come to the steel case. Now, forget the labor dispute. Forget the wage issue. We take this standard that we have and apply it to the steel companies if they ask us for a price increase. We find that under that standard, as applied to the steel companies, they are not entitled to a price increase. It is that simple.
If they are entitled to it, they get it. If they are not entitled to it, they do not get it.
Now, let me give you the figures. During the base period, 1947–49, we estimate that the steel companies made, before taxes, on each ton of finished steel produced, on the average, $11.22 per ton. After taxes they made $6.59 per ton during the three of the best 4 years' normal operations,
In 1957, before taxes, the steel companies made profits on each ton of steel on the average amounting to $20.26. That is an accurate estimate, I believe.
Senator CAPEHART. What year is that?
Mr. ARNALL. 1951. They averaged $20.26 per ton of steel. After taxes their average last year was $7.07 per ton.
Now, if the steel companies accepted the WSB recommendationsand please understand I am not telling the steel companies what to do, I just have to tell you what would happen
Senator ROBERTSON. At first you did think that the recommendation was too high?
Mr. ARNALL. That is right. I thought it was, but I will likewise tell you since I have gone into the matter fully I am not at all sure that is true and I am showing you that by these figures.
Senator ROBERTSON. All right.
Mr. ARNALL. The profits per ton in 1952, if the wage increaseabout $5 per ton-recommended by WSB were put into effect, and the steel companies took their Capehart adjustment, which we estimate—it has not been completed, but we estimate it a little under $3 a ton-it would mean that before taxes the steel companies would make $18.26 a ton and after taxes $6.47 a ton.
Senator ROBERTSON. Let me ask you this, for what period? Does that include the final increase or not, or just the immediate situation?
Mr. ARNALL. That is for 1952.
Senator Douglas. Then we cannot include the 24-cent increase January 1?
Mr. ARNALL. No, sir.
Senator Douglas. Or the 3%-cent increase caused by time and a quarter for Sundays.
Mr. ARNALL. This figure covers the average for the entire 18 months.
Senator SPARKMAN. Do you mean the figures you gave us?
Mr. ARNALL. Then after taxes the steel companies would have a profit per ton of $6.47. That would mean that after taxes this entire wage increase package would cost the steel companies exactly to cents per ton.
The CHAIRMAN. Do the steel officials agree with you?
Mr. ARNALL. Yes, sir. Their economists worked together with ours about 3 weeks ago on estimating the cost of the WSB package.
The CHAIRMAN. I understand you to say that the steel representatives, Mr. Moreell, Mr. Fairless, and others are in agreement with the figures?
Mr. ARNALL. I have not discussed that with the presidents of the companies. My economists and their economists agree on the amount of the cost increase.
The CHAIRMAN. The economists of the industry and the Government both agree that the figures you are now talking about are correct?
Mr. ARNALL. That is my understanding, Senator.
Senator ROBERTSON. You have gotten down to 60 cents a ton. We want to know how that is going to compare with his formula, and what the effect is that it will haye on invested capital.
Senator SPARKMAN. This is 12 cents a ton less than their three best base years.
Mr. ARNALL. In their base years they were making $11 a ton.
Senator SPARKMAN. I am talking about after taxes because I think that is what happens.
Mr. ARNALL. It is perfectly all right for you to say that, but I want to talk a little bit about profits after taxes. They do not fix your salary in the Senate after taxes. You get a salary and you pay your taxes. I thought the Congress of the United States, in passing the tax laws, provided that everybody should pay whatever you
Senator SPARKMAN. Applying your 85 percent formula, is that not after taxes?
Mr. ARNALL. We apply it before taxes, but if we were to apply it after taxes they are still not entitled to a price increase, so you can apply it either way. It does not matter.
Senator Moody. Mr. Chairman, I would like to make this suggestion: A statement has been made here by some responsible officials that the steel companies concur in the analysis of the price-profit-wage situation here as put forth by the officials and by the President.
If that is so, it seems to me a very clear-cut case has been made in which their strike and that seizure could be ended very quickly. I think since that is true it might be a very good idea for us to call in the steel companies at the same time that Mr. Arnall, Mr. Putnam,
said to pay:
and Mr. Feinsinger are here, perhaps tomorrow or the next day, and let's have this out right here around the table and find out if this thing should not be settled now.
It is a terrible thing for the steel plants to have to be seized by the President of the United States, but if these facts are true, I think the public should know it and I think the proceedings of this hearing should be made public so that the public can get the facts.
Senator ROBERTSON. He did not finish his analysis of these steel prices and it is a very valuable thing for the record.
Mr. ARNALL. I think you ought to know it.
The CHAIRMAN. And how much more is it going to cost the users of the country?
Vr. ARNALL. There are 550,000 steelworkers involved in the plants in this dispute. Now, they have a union to look after them and an able president of their union. There are 675,000 stockholders in these plants in dispute. I happen to be one of them. I have small savings in United States Steel, Jones & Laughlin, and Inland, up in your part of the country, Senator Dirksen, Acme, National. I can go right down the line. I would not say that I am a big stockholder, but I am a little stockholder.
There are 675,000 of us and we have officials to look after our interests; good officials. They are fine gentlemen. But, after you add the steel stockholders and the steelworkers together and subtract it from the number of people in our country, you get 154 million who do not have anybody to look after them.
Now, it is my job, I believe, under your mandate, while being “fair and equitable” in prices, nevertheless to give consideration to this great mass of American people. In my own estimate, if steel breaks the line here in prices and we pass those prices on, then, in my figures, the cost of living will go up on an average of about $300 for every American family. I do not believe Congress wants that to happen.
Now, if our standards are wrong, you ought to tell me and let's work out some standards that will give the steel people an adjustment in price, but I do not think we can apply one set of standards to a favored industry and a different set to another.
I want to point out to you that the three best years the steel people had up until Korea were 1947–49; and those were the best 3 years the industry had had since 1918. This is not an impoverished industry. I do not believe that because they are profitable they ought to be penalized. Of course not, but when you consider whether or not they are entitled to a price increase, we have to apply our standards.
Senator FULBRIGHT. Does the main part of this come out of the taxes that the steel companies would have paid?
Mr. ARNALL. Yes, sir. Listen to this. This will be interesting to you. If the steel companies give the entire WSB recommendation, which we, with the steel companies' statisticians, believe will be a maximum of about $6 a ton cost increase, that would actually reduce the profits of the steel companies, after taxes, by about $1.80 per ton.
The CHAIRMAN. The staff has been working for quite some time on this and our figures show that the Government loses about $90 million. Is that right?
Mr. ARNALL. Let me state it another way. If you gave them a $12 a ton price increase the steel companies would keep $3.50 and $8.50 would be paid in excess-profits taxes.
I want to point that out. The public would pay $12 and the companies would keep $3.50 and pay $8.50 in excess-profits taxes.
Now, gentlemen, if you are going to ask me the next question which always comes, "Well, what about the Government's taxes" then I tell you that we in OPS can never properly set ourselves up as an agency to look after taxes because if that is our purpose, Senator Fulbright, we ought to let everybody in America double their prices if what we are trying to do is get taxes into the Government.
The CHAIRMAN. Since you brought that up, that was the one thing this committee did not expect of you and that is one thing that this committee did not want to do, to legislate on tax matters.
Mr. ARNALL. You ought not to, of course.
The CHAIRMAN. But we ought to know what it is going to cost the Government.
Senator Benton. Do you explain that the steel companies can get half of their $6 back out of the increased price due them under the Capehart amendment? Actually the other half they are writing off on their certificates of necessity, so they do not seem as badly off as some pretend.
Mr. ARNALL. Senator Benton, I do not know how rapidly they will amortize their plants under the tax-exemption certificates. However, that is being done. But that is not my job in price control. My job is to apply the standards, and if they are entitled to a price increase, to give it to them. If they are not, to deny it. If the standards are wrong, Chairman Maybank, tell me that we should have our standards changed, if they are wrong.
Senator ROBERTSON. Is it a part of your present price plan to nullify the benefits that Congress intended for the steel companies and others who took a chance in tremendous plant expansion, coupled with the amortization provision? Are you going to nullify that?
Mr. ARNALL. No, sir; we are not going to do that.
Senator CAPEHART. You said if we think your policy is wrong we ought to change it. Well, I think your policy is wrong because your policy is based 100 percent on controlling profits. I think that is a dangerous thing in America.
Mr. ARNALL. If you can devise any system that controls prices and wages without indirectly controlling profits, I would like to know about it. I just do not believe you can do it.
Senator DIRKSEN. Yes; you can do it.
Mr. ARNALL. If the Congress wants controls kicked out, I will be delighted to be relieved from duty. I again tell you, Senator Maybank, with all candor and appreciation to this fine committee which confirmed my appointment, I cannot help but think, Senator Dirksen, I am doing someone a real service at my own personal expense and inconvenience. And do not think for a minute it is any fun sitting over there all day saying “No” to people. It gets awfully tiresome.
Senator BENTON. Do you not think the steel companies have indicated they would raise steel prices $12 a ton if there were no controls?
Mr. PUTNAM. Senator Benton, I could not tell you that for sure. They have told us that if the wage package cost $6 a ton in extra cost to them, that in addition to that they would have to have another $6 and for this reason: They say that all of their costs of supplies and materials will go up another $6.
Senator ROBERTSON. But, Governor, the Richmond paper quoted you as saying in your recent speech down there that the steel companies never asked you for $12 a ton.
Mr. Putnam. Well, if that was me, they quoted me wrong. The steel companies have not asked me for an increase in prices at all. They have asked me to change formulas. They have said in their statements that the wage increases would cost them $12 a ton.
Mr. ARNALL. Senator Robertson, they have never asked me for $12 a ton, but here is what they do say: They say it costs them $12 a ton.
Now, one other thing I want to make plain to the committee: I had some very delightful conferences with Mr. Fairless, president of the United States Steel Co., and I admire him greatly. He is a fine gentleman, a fine executive, and an honorable man. When we started our conferences about price increase, I asked him two questions and the first question was this:
"Do you believe that it is necessarily true, historically and traditionally, in American business, that every time you have a price increase you have to have a wage increase?”
He said, "No."
Then I asked, “Do you believe, in American business, traditionally, every time you have a wage increase, you have to have a price increase?"
He said, "No."
Of course, he and I both recognize that if you get such a tremendous wage or cost increase the other would have to increase. For instance, I have a small insurance company,
We recently gave all our employees salary increases, but we did not raise our premium cost to our policyholders because we assumed that through greater operating efficiency, securing more business, working harder, expanding, developing our business, we could still give that salary increase without adversely affecting the returns to our stockholders.
Senator Moody. Is that not the history of American industry?
Mr. ARNALL. If that is not true, Senator Moody, how do you explain the high standard of living we have in this country if there has not always been the capacity on the part of American business, by its own ingenuity and operating efficiency and increased productivity, to increase its profits even after it does wonderfully well for its workers.
Senator Moody. If they were to be tied together, absolutely inflexibly, would not that mean a static condition in America?
Mr. ARNALL. That would mean a static condition.
The CHAIRMAN. We only have 20 minutes more and I want Senator Dirksen and Senator Frear to have a chance to question.
Senator ROBERTSON. But he said it would cost the consumers $300 apiece. How?
Mr. ARNALL. The cost of living.
Mr. ARNALL. If we gave to the steel companies $12 a ton price increase, including Capehart.
Senator ROBERTSON. What would it cost the consumers if we just abolished this law and let everybody fight it out on their own grounds?