DOLLARS PER TON

125

100

Capehart amendment, the steel industry will receive approximately a $3-a-ton average price increase.

Thus, after the wage increase and the Capehart price increase, profit per ton for these 18 months would be about $17, and for the year 1952, the profits per ton would be not less than $18 because the full impact of the wage arrangement would not have gone into effect.

Now I point out to the committee, that a profit of $17 a ton before taxes, or $18 a ton before taxes compares very favorably with the average profit of $11 per ton before taxes during the most prosperous years the steel industry has ever had, up until Korea.

Now, I want you to look at chart No. 5, gentlemen of the committee, please.

Senator BENTON. Why do you think the steel companies have not come in, any of these 49 companies, and asked for a price increase under the Capehart amendment?

Mr. ARNALL. We had an agreement with the steel companies not to raise their prices, and they never have.

They have had the right to ask for it, but as I pointed out this morning, there are 300,000 or 400,000 manufacturing concerns in America and only a small percentage, some 1,500 have applied for Capehart adjustments. I don't know. That is a matter I cannot

answer.

Now, look at chart 5, please, gentlemen, just for a moment. This chart represents the official Government estimates of earnings for the entire primary iron and steel industry and it is denoted on the chart as the "Earnings before and after taxes, 1947-51." The average for the base period was $1,200,000,000, and the earnings required by the Standard in 1951 is $1,312,000,000. Thus, under our Earnings Standard that we apply to every industry in America, this industry, the steel industry, could have absorbed cost increases of almost $1,200,000,000, before price increases would be justified under our standards.

Senator MOODY. What is the dollar cost of the proposed wage increase?

Mr. ARNALL. That is on the next chart.

Now, the source of these figures is the Federal Trade Commission, which uses the data collected by itself, and the Securities and Exchange Commission, and the figures can be verified by the officials involved.

The figures for 1951 include a conservative estimate for the fourth quarter of 1951.

Now then, the next chart, I want to show to you is my chart 6, which we call "Earnings before and after taxes, 1946-51, and Earnings required by the industry earnings standard, 1951, American Iron and Steel Institute."

You will see that although profits for the entire industry broadly defined are roughly 30 percent higher than for the Steel Institute membership, the patterns are almost identical. We could trace through the calculations with either set, but let us use the industry's own figures so there can be no mystery about the arithmetic.

As the chart shows, the industry earned $643 million on the average during the 1947-49 base period. This represented a return of 18.5 percent on net worth, or stockholders' investment, during that particular period.

Taking 85 percent of this rate gives a minimum rate of return, under the industry earnings standard, of 15.7 percent on net worth. Applying this rate to current net worth would produce a current minimum earnings figure of $936 million shown in the last bar of the chart. Actually, 1951 earnings were $1,918,000,000; so the industry could absorb cost increases of a little less than $1 billion, before they would be entitled to any cost increase beyond that to which they are entitled under the so-called Capehart amendment.

We estimate that these companies produced about 75 million tons of finished steel in 1951. Dividing the amount the industry could absorb, $982 million by 75 million tons, shows the industry could absorb cost increases of about $13.10 a ton before they would be entitled to any price increase.

Mr. Chairman, if anybody is entitled to a price increase I will fight just as hard for them to get it as I will fight against getting it if they are not entitled to it.

The law goes into effect and there is no way they can apply for a price increase. If our standards are wrong, then we ought to have new standards.

I pointed out at the beginning that if we raised our standards to where instead of applying to 85 percent of the base period in earnings, we made it 100 percent, or 125 percent, or 150 percent, they still wouldn't be entitled to a price increase. If it is the wish of this committee to give the steel people a price increase, I told you I would do what you wanted done but I will tell you I don't see how we are going to do it unless we arbitrarily say we are going to give it.

Senator BENTON. I don't think you should do any such thing on the wish of this committee. This committee is only one committee of the Congress, and certainly, this committee isn't entitled to sit here and change the laws under which you operate.

Mr. ARNALL. If you do, I want it to be your responsibility and not mine.

Senator BENTON. This is the first thing that you have said where I speak up in vigorous disagreement. I have often been in agreement with the Congress as a whole, and in disagreement with this committee. I hope if you are ever in that position you will stand up against the committee.

Mr. Chairman, Governor Arnall has answered a great many of the questions I wanted to ask him in these charts.

Have you made similar charts to this first one, on other industries, to show the rate of return on invested capital?

Is the steel industry doing far better than most other major American industries?

Your chart shows 30 percent return before taxes and only a day or two ago I was told the earnings before taxes are up 34 percent.

Have they gone up since?

Mr. ARNALL. The steel industry is in one of the most favorable positions insofar as profits are concerned.

Steel profits in 1951 exceeded the base period rate by more than 80 percent. For manufacturing industry generally, however, the comparison is far less favorable. The latest data suggest that manufacturers' earnings on the average exceed the base period rate by only about 18 percent.

EARNINGS BEFORE AND AFTER TAXES, 1946-1951
AND EARNINGS REQUIRED BY THE INDUSTRY EARNINGS STANDARD, 1951
AMERICAN IRON AND STEEL INSTITUTE