Mr. MOREELL. Yes,

Senator FULBRIGHT. Your time is up and you may come back.

Mr. MOREELL. Mr. Stephens is going to cover all the labor aspects of this situation and I would like to suggest that the matters having to do with the labor rates and the cost of the various demands are going to covered in detail by Mr. Stephens.

Senator FULBRIGHT. We would like the material requested of Mr. Elliott as well as Mr. Stephens.

Mr. MOREELL. All right.

Mr. STEPHENS. I have a statement, gentlemen, and the statements I have heard so far encompass the answers of a great many questions. It might be well for me to make my statement now and you question us later.

could

Senator FULBRIGHT. Do you have any questions, Senator Sparkman? Senator SPARKMAN. I have a great many questions I would like to ask.

Admiral, I read your statement and listened to the part that you read yesterday, with a great deal of interest. One thing I would like to ask you about was relating to your objection to the standard that had been laid down, the Eric Johnston formula. That was in the letter you addressed to Mr. Putnam.

Mr. ELLIOTT. Yes, sir.

Senator SPARKMAN. In 1942, when the Emergency Price Control Act for World War II was passed, we used the same language that we used in the Defense Production Act of 1950, about the general fair and equitable treatment.

OPA under that act likewise went to the excess profits tax to work out its formula as to the three best base years, from 1936 to 1939.

Now the Emergency Court of Appeals passed on several issues that arose out of that. In other words, it became more or less tested.

Then in 1950, in adopting the Defense Production Act, we went back and used the same thing, and the OPS again went to the excess profits tax to adopt its standard: If that is something we have used and followed the same procedure, why is that not just about as good an arrangement as you can work out?

Before you answer, let me add this second question, too: If you do complain about them, do you not think instead of directing your complaint to OPS it should be directed to Congress? I think you would agree that OPS has probably done the natural thing in following the precedents established during the Second World War. This committee, apparently, decided that that was a pretty good thing because we adopted the exact language.

Mr. MOREELL. In answering your first question I will say this, Senator, that the excess profits tax is calculated after accelerated amortization.

The purpose of the excess profits tax is just exactly what its name implies; namely, to determine what the tax will be.

The purpose of the Eric Johnston earnings standard formula is to control profits. It is obviously not to control prices. But again I come back to the fact that in calculating the excess profits tax, the taxes calculated after accelerated amortization is included as a cost of doing business.

Now with respect to your second question, I would like very much to enter into the record a telegram which I sent to the chairman of this

committee. I did exactly what you suggested, Senator. I sent this telegram to Senator Maybank, on March 7, and it is very short and I would like to read it. I said:

I regret that because of the meeting of your committee today I was unable to personally present to you my views on the current wage-price dispute in the steel industry. It appears from statements made by certain Government officials that they believe that the wage issues between the steelworkers union and the companies can and should be settled without consideration of the abilities of the steel companies to carry the increased wage costs. I have stated my position to the wage panel, to Mr. Feinsinger, and to other Government officials that the propriety of any wage increase regardless of amount must be considered in the light of the ability of the companies to pay the increase without impairing their financial stability or incurring the risk of bankruptcy.

On February 19, last, the Office of Price Stabilization released a statement entitled, "Application of OPS Industry Earnings Standard," which indicated that the so-called Eric Johnston standard for industry earnings issued in April 1951 would be adhered to by the present administration of OPS.

I maintain that the standard therein defined is unfair and impractical and constitutes a breach of good faith by the Federal Government.

The standard adopts as the base period for computing earnings the 4 years, 1946-49. This is a period when the steel industry had not yet begun to emerge from the depressed earnings status which had been forced on the industry by Government controls during the war period.

Furthermore, the standard uses for its computations a nonexistent entity which Mr. Johnston called profits before taxes.

There is no such thing. Profits are not profits until all of the costs have been deducted from income. Unfortunately, taxes are one of the major costs of doing business today. It is just as logical to speak of profits before taxes as it would be to speak of profits before wages, or profits before any other cost of doing business.

In addition, Mr. Johnston excludes from permissible costs all charges for accelerated amortization of plant facilities. This, I believe, to be a breach of good faith by the Federal Government. The Congress, by the Revenue Act of 1950, established the policy of granting certificates of necessity for accelerated amortization of plant facilities. The purpose as I understand it was to encourage the investment of private capital for plant expansions for the national defense, thus relieving the Federal Treasury of these financial burdens. Our company accepted this action in good faith and upon receiving certificates of necessity for certain major facilities, we borrowed large sums of money to finance one of the largest expansions in the steel industry. Our total construction program will cost in excess of $400 million. If now the Federal Government proceeds to welch on its commitments by employing devious and ambiguous formulas such as that embodied in the Johnston standard referred to above, I believe it is pertinent to ask whether any commitment of the Government can henceforth be relied upon. Wage costs and price structures in the steel industry are tied together as firmly as were the Siamese twins. Any attempt to cut them apart, even by the most skillful and well-intentioned surgery would be fatal to both. That is, we would have neither wages nor prices left and the solid core of the American economy would be destroyed.

I hereby submit my earnest plea that your committee take action to prevent the emasculation of the steel industry which is the basic industry of America and which has served our Nation well and faithfully in war and in peace. Respectfully yours.

I did exactly what you recommended, Senator. I brought my problem to the Congress.

Senator SPARKMAN. You say that the steel industry during that base period had not fully emerged from the depressed conditions of earlier controls.

Mr. Arnall testifying before us said that those 3 years-1947, 1948, and 1949-were the best 3 years the steel industry had had since 1918, if I recall his testimony correctly.

Mr. MOREELL. I do not have the figures back to 1918 for the steel industry, but the best year Jones & Laughlin ever had was in 1950 and I believe that year is the best year for the industry.

Senator SPARKMAN. Yes; but that was prior to the base period. Naturally, and I think you will agree with us, the outbreak of Korea came in 1950, and whatever we tied to that, predated it and I assume that is why they took years 1946, 1947, 1948, and 1949 and allowed the industry to pick the three best years.

Mr. MOREELL. That is correct.

Senator SPARKMAN. Of course, that was the same theory that backed up the excess profits provision on that same line.

Another thing, this applies to the industry as a whole rather than to individual companies.

Mr. MOREELL. That is right.

Senator SPARKMAN. Now Mr. Arnall gave us a chart. I do not know whether you have seen this chart. (See p. 2015.)

Mr. MOREELL. No, sir; I have not.

Senator SPARKMAN. It does show those years to be very good. It does show some good years back here in the middle forties. At least, it went up to a peak and went off to a nice plateau for 1 year and then down pretty sharply.

Senator FULBRIGHT. Your time is up for the moment, Senator Sparkman.

Senator Bricker.

Mr. MOREELL. May I point out one thing, Mr. Chairman? We have never suggested that wages should be held to 85 percent of the period selected by Mr. Arnall. If it applies to industry why shouldn't it apply to labor?

Senator FULBRIGHT. Senator Bricker.

Senator BRICKER. You are closed down at the present time?
Mr. MOREELL. Yes; we are closed down, Senator.

Senator BRICKER. All the other companies are?

Mr. MOREELL. I believe all major companies are closed down; yes, sir.

Senator BRICKER. Do you have any estimate of the amount of taxes the Government would lose if this wage schedule were put into effect and your prices were not increased?

Mr. MOREELL. We did have an estimate; yes, sir.

I think the Senator is interested in the reduction for the industry. I think it came out to about $1 billion. I would have to put that in the record, Senator. We calculated it for the 54-cent demand Mr. Elliott mentioned earlier in the meeting, but we did not calculate it on the basis of the present Wage Stabilization Board package.

Senator BRICKER. If you could do that, I would like to have in the record the amount of taxes the Government would lose if the package were put into effect and you were given no increase.

Then, also, the amount that would be lost by the Government in taxes if the package were put into effect and the Capehart formula were applied for your increase in prices.

Mr. MOREELL. We can calculate that quite easily, because we have the effect on our own company, and it is more or less typical throughout the industry.

Senator BRICKER. You say there has been no application made for Capehart increases on the part of the individual industry companies? Mr. MOREELL. No, sir; there has not been.

Senator BRICKER. Was there any opposition on the part of the industry to the application of the Capehart amendment individually

or per-ton unit of the various kinds of production as against the acrossthe-board increase?

Mr. MOREELL. No, sir. May I explain a little bit about the Capehart amendment? The industry signed a voluntary agreement to hold the price line with the DPA. That agreement was in effect when this wage demand was presented to the industry. It was agreed that there would be no change in prices without a 20-day prior notification to the Defense Production Administration, and that resulted in a freezing of prices on the part of the industry.

When this wage demand came into effect, I saw Mr. Putnam and later Mr. Arnall, and they were urging that the industry come in and take the price adjustment which was due them under the Capehart amendment.

The industry did not do that because it was still following the policy of trying to hold the wage and price line, and we also felt very strongly that once the adjustments under the Capehart amendment were accepted by the industry there would be no further adjustment regardless of the size of the wage package. Our bargaining position would then have been destroyed.

Senator BRICKER. Mr. Brubaker testified if you should take it on a ton basis in the various products without applying the Capehart increase across the board that it would raise competitive factors and your price structure would be upset.

Is there anything to that?

Mr. MOREELL. If we would take it on a per-ton basis?
Senator BRICKER. That is right.

Mr. MOREELL. That would not be fair, Senator, because some of the high-priced steels use up to 80 or 90 man-hours per ton, while we cal culate for ordinary carbon steel that we use 20 man-hours per ton. To have just a flat-price increase per ton would be an undesirable thing.

Senator BRICKER. If you were given a complete price increase that you say would be necessary as a result of the package wage increase, and considering that you said you would be operating at the end of this year at 90 percent of capacity, would you be able to maintain such a price because of the competitive situation in the industry?

Mr. MOREELL. We would for certain products, Senator.

Senator BRICKER. But only for certain products. What are those products mainly?

Mr. MOREELL. Well, it would depend on how the market moves. For example, cold-rolled sheets, if the automobile industry were turned loose, we feel we could maintain the price. Or cold-drawn bars. On wide-flange heavy structurals, I am informed they are in short supply and will continue to be in short supply. Evidently the price could be maintained on them.

Senator BRICKER. Mr. Brubaker testified the industry made no objection to submitting the whole problem to the Wage Stabilization Board. Is there any basis for that assumption?

Mr. MOREELL. We would not accept the decision of the Wage Stabilization Board or their recommendation as binding upon us, but the industry, as far as I know, did not object to having the problem considered by the Wage Stabilization Board.

Senator BRICKER. Of course, it could not be binding because the Board had no statutory basis at all.

Mr. MOREELL. That is right, sir.

Senator BRICKER. I have one further question.

Mr. Brubaker also testified that you were not opposed as an industry to the union shop, that you only wanted to use it for bargaining purposes in the monetary aspects of the whole problem. Is that true! I think Mr. Brubaker testified to that.

Mr. MOREELL. That is not true, Senator. As far as Jones & Laughlin is concerned, we have publicly announced our position in opposition to the union shop and I believe that the other major companies have done so, or most of them, I know that the United States Steel Co. has done so, in a speech by Mr. Fairless, and others have done the same thing.

Senator BRICKER. I think Mr. Harris supported him in that statement that it was being used for negotiation purposes only.

Mr. MOREELL. That is not correct, sir.

Senator FULBRIGHT. Senator, your time is up.

Senator Frear.

Mr. MOREELL. Senator, may I answer one thing? I find here a calculation by our negotiating committee in which it says, "About three-quarters of the proposed billion dollars cost increase of the Wage Stabilization Board package would come out of taxes now paid to the Treasury." The remaining amount would come out of the company's profit, so $750 million is the answer to your question, Senator Bricker.

Senator BRICKER. That would actually be the loss to the Government if the package were put into effect and no price increase were granted.

Mr. MOREELL. Yes. Now, we have to calculate what the effect would be if the Capehart increase were granted.

Senator BRICKER. Thank you very much.

Senator FULBRIGHT. Senator Frear?

Senator FREAR. Admiral, in your testimony yesterday you gave as a comparison on table 3 the par value of preferred stock where you used the market value of common stock. Is the market value of preferred stock much different at the present time than when this table was calculated from the par of the preferred stock?

Mr. MOREELL. Ours is selling under par, Senator, but they run around 90 or 95.

Senator FREAR. Would it make any significant change in table 3 were it based on the market value rather than the par value of the stock contained in this table?

Mr. MOREELL. No, sir; it would not.

Senator FREAR. What do you estimate the cost to the steel companies has been so far for the shut-down in the steel industry? Mr. MOREELL. That would be a difficult figure to arrive at.

Senator FREAR. Would you want to make a guess in dollars and cents?

Mr. MOREELL. I would not like to make a guess or insert that in the record. I would not want to make a guess now.

Senator FREAR. All right, sir.

Can you make a guess on what the cost has been in tons of steel? Mr. MOREELL. Well, I know that, sir. The slowing down of the steel industry in anticipation of Mr. Murray's strike on April 9 cost