Freeze in Steel

Five days after Leon Henderson took office as price tsar, the only price action he had taken was to crack down dramatically on steel with an order freezing all the industry’s prices, at least temporarily.

The decree threw the steel industry into an uproar of protest. But the uproar was nothing compared with the indignation aroused when Steel Tycoon Ernest Tener Weir lined himself up on Henderson’s side this week. Figuring the wage increase his National Steel precipitated earlier this month would cost the industry not more than $135,000,000, he termed the amount “insignificant” compared with Government defense spending. Said he: “There are no facts available today on which … to determine the necessity of a price change now. … It won’t hurt the industry to take three months to produce facts.”

But other steelmen were much less philosophical over losing their hoped-for price boost. Asked one “spokesman”: “How can the industry be expected to increase wages 50% as it has since 1929 and then be permitted to have an increase of but 2% in average steel prices in the same period?” But New York Times Columnist C. F. Hughes pointed out that despite the increased hourly rates the Bureau of Labor Statistics showed a decline of 2.6% in the unit labor cost of steel between 1929 and 1939. Furthermore, other Government figures covering part of the period since then show a still continuing decline of 18.4% in unit labor cost, from an index of 112.8 in 1938 to an index of 92 in 1940. This drop in costs was slightly greater than this month’s wage increase (the first since 1937). These are the sort of figures steelmen will have to bat down when they talk to Henderson.

Loudest protest against the price-freezing order came from Elroy J. Kulas of Otis Steel, who said the labor upping would cost his company $1,200,000, almost twice its last year’s $717,000 profit. But even pro-steel sources pointed out that more than half of the wage increase, for the industry as a whole, will come out of the Government’s pocket rather than out of the steel mills’. Reason: the corporation and excess-profits taxes which now take 62% of all earnings of $500,000 or more over the base exemption (and will probably rise still higher shortly).

Clarifying this point the Wall Street Journal estimated that the net cost of the wage rise this year to U.S. Steel (gross cost: $62,000,000) would be only $23,560,000 after allowing for tax savings; to Bethlehem (gross cost: $18,000,000), $6,840,000; to Republic (gross cost: $10,000,000), $3,800,000. Proof of how steel earnings are mounting under present capacity operations, and how big a slice the excess-profits tax is taking, was contained in Republic’s first-quarter report. It showed a net profit of $8,189,967 (highest in history for a March quarter), but the Federal tax allowance was $8,025,000, or slightly more than the entire 1940 Federal tax bill.

Henderson agreed not to close the door on price increases, started his own investigation of the entire steel price situation, invited steelmakers to submit figures too. But neither side in the debate got down to the real nub of the price question last week: whether any system of price control can operate fairly on a piecemeal basis.

Hottest issue last week was whether finished-goods prices can be fixed without fixing labor rates too. Editorialized the seldom rabid New York Times: “The Government is trying to freeze prices but it is not trying to freeze wages. . . . While it has been trying to keep prices down its effective policy is still to help force wages up. … It is sometimes said . . . that the Government’s policy is that no one shall profit out of the existing war crisis. But actually its effective policy is in danger of being that no one but strategic labor units shall profit.” To this the New Deal’s answer is that the wage increase in steel, first since 1937, was long overdue in view of soaring profits; that certain other wage increases are similarly overdue today, but that once the present wave of “belated” pay adjustments is completed wages must be held stable too.

Labor is not the only steel cost that is rising. Just 24 hours before Henderson’s freezing decree iron-ore freight rates on the Lakes were upped 10%, and higher coal prices are in order under the Guffey-Vinson Act passing on higher mine wages. Said Elder Statesman Bernard M. Baruch: “The time has come for an overall price ceiling.”

Whether or not the appointment of a price administrator had any effect in curbing price rises remained an open question at week’s end. Said the New York Journal of Commerce: “Despite the . . . war news and the drastic steel price order . . . the general advance in commodity prices continued for the sixth consecutive week.” But other price indexes held steady or declined fractionally.