Evening star., 1941-11-23
Profits Frozen
Al Record Low
For Defense
Most Meoger Return
In History Foreseen
As Activity Soors
BY FRANK MacMILLEN,


NEW YORK, Nov. 22-Money. .
materials and man power, poured
into defense and lease-lend effort
unprecedented in the history Of the
Nation. today promise the most
meager profits return in the his
tory Of the country.
Managers concurred with financial
men, primarily concerned with In.
dustrial profits. in this judgment OF
the business outlook, inquiry today
disclosed.
While as almost always - the
financial and managerial men looked
at the industrial picture from diff
ferent angles, both appeared agreed
the return on invested capital
seemed to be frozen at unusually low
level for the duration Of the emer.
gency.
To Wall Street men, the rising
trend of taxes on corporation profits
seemed the surest sign that, from
now on, increased industrial output
would fail to produce a correspond
ing lift in the return to stockholders
in the form of dividends on their in
vesuments.
Unit Costs Boosted.
But production-min executives
pointed to what. after all. appeared
a more fundamental factor. since 1t
was not affected by outside inf1u-
ences:
One hundred per cent production.
the apparent ideal goal of any in
dustrial plant. and the ultimate aim
of most factories engaged in de-
fense work. is not the most profitable
Wav to run factory.
There are many reasons for this,
production men said. but they all
add I'D to the fact that, as factory
approaches its maximum production
its costs per unit of output tend 10
increase.
Wall Street men would translate
this to read that for each dollar OF
gross business done toward the top
of the production potential, the per-
centage of profit tends TO decrease.
These are some of the causes OF
this tendency toward smaller prof1t
margin at the peak Of the proouc--
ton cycle. as the men in charge at
the factories recount them:
l. Four shifts in almost any Klno
of factory won't produce four times
what one shift will produce. Rea-
son: Skilled management supervl-
sion IS usually not available for al
Sour shifts.
shortages Intensified.
Materials or labor shortages
are maenified in their impact at lOo
per cent Of capacity. Running fuli
tilt. a skilled labor shortage In one
department can, in some instances
slow production throughout the
plant.
2. Heavily-vorked machinery re-
ouires more dollars and more man
| hours of labor for maintenance and
periodic repairs than lightly-Torkeo
machinery does. Many companies
have found that a more constant
production gait can be maintained
by operating six days a week ano
closing for machine renovation ana
repair on Sunday than keeping
machines going steadily Throughout
the week and trying to sandwich IN
overhauls at odd times.
4. Practical operating experience
indicates that the crews which wor,-.
normal daylight shifts produce mo-e
per man than the midntght-to-
morning dog watch" shift.
Old Axiom Shelved.
It Is an old economic axiom that
as unit production rises unit cost
Of production declines.
The old axiom. however, does not
take into consideration the human
element. Another economic statute
is the law of diminishing returns.
AS production approaches the 100
per cent capacity mark. economies
sometimes have to be sacrificed for
increased output.
And what about corporation
taxes, which become heavier as the
ratio between net profits and in
vested capital rises? As production
mounts toward the 100 per cent
mark and total profits increase. the
amount of each additional profit
dollar that must be earmarked for
taxes grows.
Even higher taxes and lower
profits from each unit Of produc-
ton. of course, do not necessarily
mean that the total profits Of any
given concern may drop off
If enough goods are turned out,
profits may rise above anything pre-
viouslv recorded for a company as
1t pushes its plants to the full.
Profits records in recent months
for many leading concerns have
shown new top marks. But the re-
lationship Of net income to gross
output has taken a sharp dip.