Senator DOUGLAS. In this connection, a report was made by the Joint Committee on the Economic Report, issued in 1950, basic data relating to steel prices, and on page 19 profits of various companies before taxes were listed, including Jones & Laughlin, and steel companies in column 4. Would you have your men look that over and see whether that column is correct?

Mr. MOREELL. Yes, sir.

(The following was received in response to the above:)

We have attempted to verify the figures given. While we cannot check the results exactly, I will say that they are substantially correct.

Mr. MOREELL. I am sure that you have also noticed one other thing about our earnings. The years 1947 to date have all been above the average. And rather obviously this is the reason for most of the outcries that steel company profits are too high.

Mr. MOREELL Yes, sir. I am sure that you have also noticed one other thing about our earnings. The years 1947 to date have all been above the average. And rather obviously this is the reason for most of the outcries that steel company profits are too high.

It seems to be the belief of some people that our earnings should be governed by earnings in the decade of the thirties when our operating rate averaged 46 percent, and when each dollar of income went so much further than it does today. Increases in the cost of living are important for a business, too.

Steel is a large industry. It deals in large tonnages and large numbers of dollars. But the number of dollars means nothing unless it is related to the industry's needs for replacement of equipment and to the need for new investors' funds for expansion.

It is generally true that the companies which fabricate our steel into consumer products make a far better return than we do. The only fair way to judge the steel industry's earnings is to compare them with earnings of other manufacturing industries with whom steel must compete for the investor's dollar.

When we do this we find that the steel industry has made a very poor showing. Each year the National City Bank of New York publishes a table showing the relative net incomes of the 45 principal manufacturing industries expressed as percentages of net worth.

Mr. MOREELL. In the 17 years from 1935 to 1951, inclusive, the highest position ever achieved by the steel industry was twenty-fourth place. But in 11 of those 17 years steel was in fortieth place, or below. During the war years (1942 to 1945, inclusive), when steel and practically all other industries were under price controls, steel ranked forty-fifth, forty-third, forty-fourth, and forty-fourth-almost at the bottom of the list.

Steel, by reason of its large capital investment in producing plant and equipment, is at more of a disadvantage from the devaluation of the dollar than are most of the other industries with which it is compared.

In 1951, after the industry had spent $3 billion on new plants and equipment in the postwar period, and as a result of some modest price increases, the industry was in twenty-fourth place. But its earnings were still well below the average of the 45 industries and well below many which have a more direct effect on the cost of living, such, for example, as household and electrical equipment, automobiles, building, heating and plumbing equipment, drugs, soap, and petroleum products.

I will admit that the industry's earnings in 1951 look large in comparison with 1945. But that does not prove that they are excessive or even adequate. A person on starvation rations is not overfed if he gets a small slice of pie.

I also want to point out how the investing public values the properties of the eight largest steel companies in terms of annual ingot capacity.

TABLE 3.-Market value of ingot capacity, 8 largest steel companies

Mr. MOREELL. Table 3 shows that the market value of their common stock at December 31, 1951, prices, plus debt and preferred stock at par amounted to over $4,000,000,000. On January 1, 1952, ingot capacity of these companies was over 84,000,000 tons.

In other words, the investors placed a value of about $50 a net ton on annual ingot capacity with all its accompanying working capital. If working capital is subtracted, the resulting market valuation of the physical plant is $30 per annual ingot ton of capacity. At today's prices, it would cost $300 a ton to build new the equivalent integrated

facilities. And this is allowing nothing for the necessary working capital.

Senator DOUGLAS. Admiral, I have just one other clarification question, if I may.

Mr. MOREELL. Yes, sir.

Senator DOUGLAS. Does this figure of $30 per annual ingot ton include the value of the bonds?

Mr. MOREELL. No, sir, that is just the physical plant alone.

Senator DOUGLAS. Take the market value of common stock plus debt and preferred stock. Under debt do you include bonds? Mr. MOREELL. It includes the debt and preferred stock. Senator DOUGLAS. It includes bonds?

Mr. MOREELL. Yes, sir.

Senator DOUGLAS. Total value of securities?

Mr. MOREELL. That is correct, yes, sir. I was wrong in that. It is also important to see how the investing public values the various steel stocks in relation to their asset value.

TABLE 4.-Market value versus asset value of common stocks-8 largest steel

Mr. MOREELL. In table 4 we have shown the market value of common stocks of the eight largest companies at December 31, 1951, compared with the asset value of those stocks at the same date. It is significant that the stocks of only two companies were selling for more than their asset value. For all eight companies the average selling price was only 68 percent of the asset value-hardly a vote of confidence. Obviously the investing public does not share the opinion of some that steel industry profits are or will be exorbitant.

Senator FULBRIGHT. Do you call asset value the book value?
Mr. MOREELL. Yes, sir; the book value of the stock.

There is only one conclusion to be drawn from these facts. By any measure used, the income of the steel industry, even in periods of high business activity, is among the lowest in the manufacturing field. It is my opinion that only if the earning power of the steel industry were to rise to the levels found in other manufacturing industries. could its stocks be sold at reasonable prices.

Steel is the basic industry in any national defense program. If it is to be able to expand quickly to meet any emergency need, it must be kept in a sound financial position. For example, in 1940 the steel industry had just come through 10 years of little or no earnings. As a result, it was not in a good position to meet the large demands made upon it in World War II. During the war period to June 1945, a