Evening star., 1949-01-10
Need for High Profits
Found 10 Be Admitted
By Economic Report
Passages Are Quoted
TO Show How Capitol
Responded to Incentive
Bv David Laurence


mentary In which the Presidents
own political viewpoint is inter-
tected so as to harmonic with his
legislative recommendations, and a
review written by the Presidents
Council of Economic Advisers, pre-
sumably nonpolitical.
This latter document, because it
contains among its cautious and
often technical phrases some of the
principal facts of our economic
life, is perhaps the more important.
For here there is less Of conscious
purpose to cloak the truth in
phrases that fit campaign slogans
or party policy.
Analysis 10000 Words Long.
The economic analysis is 10000
words long, bat it is derived from
information gathered by all the
governmental agencies having econ
onists and statisticians. In a sense,
1t can be offered as a reliable report
of what has been happening, with
some thoughtful observations as to
what may happen.
There are many things in this re-
port which refute the claims of the
CIO economists who insist that all
management has to do is increase
wages and take it out Of profits and
all will be well. Thus, for instance,
the Presidents report dispels the
notion that generalizations can be
made from mere adding up of
industrial profits.
In the part of the report which is
signed by the President appears this
significant paragraph:
LAS pointed out year ago, such
profits are in excess of the levels
needed to furnish incentives and
equity funds for industrial expan-
sion and to promote sustained eco
nomic health, although some buSi-
nesses have not thrived nearly so
we'll as Others"
No Mention of Losses.
No mention is made of the busi-
nesses which sustained losses or
made slight profits. Yet wage rates
are expected to apply uniformly
through an industry. Nor is there
any concession that profits were
wisely and prudently used to pre-
vent postwar depression such as
happened three years after the end
of World War I.
But the economic report by the
Presidents advisers tackles this
ticklish subject very frankly. 1t
says:
THE small amount of common
stock issued in recent years, COM
pared with the late 1905, has given
rise to concern in some quarters
that there is a SeriNls general
shortage Of equity capital. While
1t is true that outside equity capital
is difficult to obtain on terms as
favorable as those available for loan
capital, it does not appear that, so
long as profits remain large, there
will be any general lack of suf1i-
cient total equity capital for desir-
able levels Of business investment"
There's the conspicuous contra
diction. The President wants to
siphon off the profits so as to have
more money for so-called welfare
projects and for an increased Fed
eral expense while business wants |
to use profits to replace old equip
ment or build modern plants. Ac-
cording to the economic advisers,
65 per cent of the money spent for
plant facilities came from internal
sources, chiefly undistributed profits
and depreciation allowances" This
meant a lower dividend rate than
in the 1920s.
Went for Higher Salaries.
So it didn't go to the stockholders
in dividends to be used for yachts
and luxurieS, ETC., nor did it 60 to
corporation management in the
form of higher salaries. 1t went
for productive management in the
form Of higher salaries. 1t went for
productive purposes-into plant ex-
pansion-and created more jobs,
and 1t was paid out to a large ex-
tent in labor payrolls.
The economic report of the ad-
visers goes on to say:
whether the financial needs of
business can be satisfied in the
future depends Importantly on the
level of profits. These are the i'm
mediate source from which the bulk
of financial needs is met, and are
also an important factor in the
availability of outside capital, both
loan and equity
Abundant profits during the past
two years have stimulated and per-
mitted business investment so large
in proportion to total national in
come that it is probable that in
vestment of lower proportion in
the future will meet our long term
peacetime needs The general level
OF profits should continue to be
ample so long as we are successful
IN maintaining high production and
employment.
Difficulties Foreseen.
"1t should not be assumed how
ever. that financial resources will be
adequate for all types of business,
or that a higher share of equity
investment would not be desirable
Difficulties arise, particularly, for
small and new business enterprises,
which often find it difficult to OBJ
tain long-term bank loans and prac-
tically impossible to secure outside
equity capital.
1T Is undoubtedly true that GER
tain features of our tax system bear
particularly on equity financing
When a reduction in taxes becomes
possible, the tax system should be
revised to strike the best balance
between the objectives of main
tanning adequate consumer markets
and Of providing capital of the
needed character in adequate
amounts"
This is, of course, veiled warn
ing against an excess-profits tax and
a confirmation of the views ex-
pressed by businessmen that but for
the existence of the high profits
since the war there would not have
been high-level employment in many
3nd1YStrias This ic b,,t epo+lo. u,o1,