In other words, the facilities which we are installing because we received these certificates would then be producing taxable income sufficient in itself to cover the amount of amortization we are allowed to write off. The Government will not have lost 1 cent in taxes.

Furthermore, and most important, the increased production of steel from these facilities will result in a much greater production in the industries which fabricate this steel into finished products. The increased profits from this higher level of production will mean more tax dollars to the Government in that period.

If we do not have earnings we will not obtain any help from accelerated amortization. In fact we will lose because we would be using up the equivalent of depreciation deductions to no purpose. The financial risk is still ours.

Actually, these new facilities help to fight inflation. I know of no way to strangle inflation more effectively than by increased production. Accelerated amortization has speeded up expansion everywhere in the steel industry. We have increased output now rather than at some indefinite time in the future.

To return to our financial situation for a moment, I think you can readily see from the budget figures I have shown you why our present low profits must not be further reduced. We have spent a great deal of time and study on all of our uncompleted construction jobs with the sole purpose of cutting back or canceling outright any project not absolutely essential at this time. For example, we must build a new battery of byproduct coke ovens at our Pittsburgh works.

Originally it was planned for 106 ovens with related coal-handling and byproduct facilities. We received a necessity certificate for a battery of this size estimated to cost over $20,000,000. We have since cut this project back to 79 ovens and eliminated a number of items in order to get the cost down to $11,000,000.

Other similar cut-backs have been made. I am not telling you this for dramatic effect. These are the hard, plain facts of our business. But it is discouraging, to say the least, when we are doing everything in our power to carry out our commitments for increasing steel capacity which have strained our financial condition to the utmost, for us to be told that we are making exorbitant profits.

There is also one other very important reason why we believe our income must not be further reduced. I have mentioned it before in connection with our 1952 budget. This is the very real prospect of declining operating rates. Today our budgets, which are revised quarterly, have been cut back to reflect reduced operations by the end of the year.

This is certainly not a pessimistic conclusion. The Government demanded we increase our steel output to a level we did not plan to attain for another 10 years. Unless there is all-out war, it should be no surprise if some of this expanded capacity is temporarily excess. Such a situation is not unusual in the history of the steel industry. Because steel requires such large investments, it is always necessary, when expanding, to anticipate future requirements. Later on the expanding economy catches up with steel-making capacity.

But because of those large investments there are many costs which continue even though output falls. Wage costs are among the most important of these. Certain facilities such as coke ovens must continue to operate so that they will not deteriorate. They must be kept

going though little output will be derived. Even equipment which can be partly or totally shut down requires some maintenance to keep it in a stand-by condition so that it would be ready when needed.

Even at present prices and costs, our margin of safety is narrow. Any reduction in operating rates or in profit margin is a serious threat. We have extended ourselves financially to our limit in this emergency period. Our margin of safety, small as it is, must be maintained. Prices, even without Government controls, can hardly be raised on a falling market, and we certainly cannot anticipate the possibility of reducing wages.

To portray more concretely the seriousness of the situation that confronts us, I will show you what our net income was for the first quarter of 1952 and what we have budgeted for the succeeding four quarters. I will also show you how those figures would be affected by the WSB package and by various price increases to offset the cost of that package.

This is what we are budgeting:

Earnings forecast, 1952 and first quarter 1953

Mr. MOREELL. The following is what would happen to our net income after giving effect to the WSB package:

Earnings forecast, 1952 and first quarter 1953
[In thousands]

1 The cost of the WSB recommendations includes the indirect effect of increased wage costs on materials, supplies, etc. on the basis of a straight line curve resulting in a full doubling of the cost of the wage increases at the end of 6 months. The full effect of the WSB package would not be felt until July 1, 1953.

The foregoing figures of Federal income taxes do not give effect to refunds of excess profits taxes accrued in prior or future periods resulting from carry-forwards or carry-backs of unused excess profits tax credits.

Mr. MOREELL. In the tabulation below is shown the effect of the WSB wage package on our net income. We are also showing the increase in the reduced net income which would result from various price increases.

1 Full effect of WSB package not felt until July 1, 1953 (price increases are assumed to be effective May 1).

Mr. MOREELL. Those are the facts, gentlemen. I will agree that our earnings have been good in recent years when compared with some of the years in the past. We can all be thankful that they were because they laid the foundation for the present important expansion program. However, those earnings were and are now inadequate when compared to earnings of other industries with which we must compete for the investor's dollar.

I have shown that we need adequate earnings to complete the emergency expansion program, to repay the huge financial commitments we incurred in meeting the Nation's call for more steel, and to maintain our facilities in modern, competitive condition.

The steel industry is big and many people believe its size alone gives it strength. Nothing can be farther from the truth. Failure to earn enough to maintain financial strength would result in such weakness that the industry could no longer do the constructive and expanding job which is expected of it and which is essential for the economy of this country. A strong, dynamic steel industry developing under individual initiative is and should continue to be a bulwark of strength to our industrial life and our national defense.

Our company's earnings are not excessive or evil, but are the foundation of the prosperity and health necessary for the good of all.

We believe that the management of Jones & Laughlin has an obligation to our shareholders, our employees, our customers, and the Nation to keep this company strong and healthy. We believe in fair wages and salaries to our employees, fair prices to our customers, and fair dividends to our shareholders. In the long run, we will all go up or come down together. No group can profit at the expense of any other group for any length of time. If the stability of this company is to be maintained, all groups must have fair treatment. We will exert every effort to see that they get it.

If I were called upon to summarize the foregoing, I would say that the steel industry, as exemplified by Jones & Laughlin, faces a very serious problem. It must work out its destiny in the light of extremely heavy financial burdens which it has assumed at the request

of the United States Government. In order to do this, it is essential that it have freedom of action. If its wages, prices, and the distribution of its products are controlled by Federal agencies, there will result, at best, a very difficult period and, at worst, a serious threat to the survival of the industry under private enterprise.

The CHAIRMAN. We appreciate your coming down here. We are sorry we had to delay hearing you. We will look for you tomorrow morning at 10:30.

Mr. MOREELL. Thank you, sir. I will be very glad to be here.

The CHAIRMAN. The committee will stand in recess until 10:30. (Whereupon, at 5:30 p. m., the committee recessed to reconvene at 10:30 a. m., Thursday, May 1, 1952.)

DEFENSE PRODUCTION ACT AMENDMENTS OF 1952

THURSDAY, MAY 1, 1952

UNITED STATES SENATE,

BANKING AND CURRENCY COMMITTEE,

Washington, D. C.

The committee met, pursuant to adjournment, at 10:30 a. m. in room 301, Senate Office Building, Washington, D. C., Senator Burnet R. Maybank (chairman) presiding.

Present: Senators Maybank, Fulbright, Sparkman, Frear, Moody, Capehart, Dirksen, Bricker, Ives, and Schoeppel.

The CHAIRMAN. The meeting will come to order.

I have called the meeting to order promptly because, as I stated yesterday, I made arrangements with Admiral Cochran last week to be with him this morning in the Appropriations Committee and he has canceled all his engagements to come down here to discuss the budget for the Maritime Commission.

Senator Fulbright was good enough to say that he would preside. 1 would like to ask you one or two questions for the record before I go over there.

I do not have much time and I do not believe anybody will object if I go ahead.

I want to ask you if you believe in collective bargaining?

Mr. MOREELL. I did not understand?

The CHAIRMAN. Do you believe in collective bargaining?

Mr. MOREELL. I do believe in collective bargaining; yes, sir.

The CHAIRMAN. Do you believe that the Defense Production Act interferes with collective bargaining?

Mr. MOREELL. Insofar as the Defense Production Act provides for the control of wages and prices, I do believe that it interferes with collective bargaining; yes.

The CHAIRMAN. Other witnesses who have appeared here have described it as a restraint.

Mr. MOREELL. That is right, sir. That is exactly my view.

It is quite obvious that if a union feels that by carrying its case to the Government it can obtain something more, it obtains all that it can from the industry, and then uses that as a platform from which to move upward.

The CHAIRMAN. This is a rather difficult question, but what do you think would have happened if there had been no control law and the dispute had been satisfactorily settled by collective bargaining, which you state you believe in, insofar as the price of steel is concerned? Mr. MOREELL. If we had no control law, I believe we would have long since arrived at a settlement of this dispute, Mr. Chairman.