Evening star., 1950-01-25
US. Economic System
Declared on Trial at
Hearings in Senate
Business Must Find Way
To Absorb Higher Labor
Costs or Raise Prices
By David Laurence

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economic system is on trial in the
hearings before the Senate Com
mittee on the Joint Economic Re
port which have just begun un-
der the Craftsmanship Of Senator
O'Mahoney of Wyoming, Demo-
crat.
For not merely the steel indus
try but all businesses which are
confronted with increases in la
Dor charges must find a way to
absorb that cost out of income or
increase the price. The way the
leaders of the steelworkers' union
constantly referred last autumn
to 10 cents an hour as the cost
of pensions and social insurance,
it seemed cheap enough-just a
mere pittance-but now it turns
out that United States Steel has
to pay at least $65 100000 a year
for that item alone, and the
chances are this will increase as
the years go on.
A simple wage increase would
not be permanently fixed. It
could be cut in depression times.
But social insurance and pension
plans are permanent and cannot
very well be cut down or
abandoned unless the company
itself is on. the verge of bank
ruptcy or some equally serious
crisis.
Bears on Whole Picture.
What Benjamin Fairless, pres
ident of United States Steel Corp,
told the committee about the va
rious factors that recently forced
up the price of steel has a bearing
on the whole economic picture.
He said that stockholders couldn't
be asked to take a cut in dividends
without causing all investors to
hesitate to buy securities in the
company. He made it clear that,
unless investors were receptive,
there could be little financing
done to handle plant replacement.
to say nothing of expansion. Mr..
Fairless opposed the issuance of
bonds as he thought that to
borrow long-term money to re-
place existing facilities" was a
certain way Ito ruin or liquidate
business"
On the same point Clarence 3.
Randall, president of the Inland
Steel Co., issued gentle reminder
of what President Truman and
his advisers were saying a couple
of years ago about taking over
steel companies unless they ex-
panded capacity.
1T was only a short time ago."
said Mr.. Randall to the commit
tee. that many important mem
bers of Congress urged in the most
vigorous language, that steel COM
panies expand their facilities. OBJ
yiously. however, Congress cannot
have it both ways. They cannot,
on the one hand. ask us to risk
new capital and. on the other,
deny us the earnings by which
capital can be attracted"
This becomes even more sig
f1ificant when 1t is realized, as the
testimony of Mr.. Randall shows,
that a blast furnace which in
1889 cost $10,80o,o00 would cost
today about $21, TOO. 600.
Other Increases In Costs.
The crux of the whole matter
Is that the steel companies are
faced not just with an increase
In wage costs related to pensions
but with increased costs of fuel
and freight and a high cost of re-
placement of plant. It is to be
noted that the Bethlehem Steel
Co., which is supposed to have
gotten off lightly on pension costs
because it already has for many
years had pension plan in effect,
also increased its prices. Other
cost items affected Bethlehem.
Certainly every company seeks to
cover its costs and to pave tbs
way for higher costs that are in
the oftlng or for the cutting of
prices when demand for the prod
uct may fall off.
Judged by what U. S. Steel has
revealed on pension costs, many
of the smaller companies will find
1t hard to meet expenses even with
the increased prices.
Congress, by its inquiry, has
dramatized the simple fact that
costs must come out of price or
else the American system OF priv
ate enterprise goes by the board.
So long as labor unions-with
their indastry-wide bargaining
power-haye no ceiling placed on
their demands, the economic
system will have to witness a
steadily increasing price level.
This, of course, is inflationary-
which is but another way of say
ing that labor is today engaged
In the dubious process of cheat
ing itself.
The dollar Is shrinking in pur-
chasing power. President Tru-
man said not long ago that he
envisioned an income of $4,000
for the average family in the year
1000. But he didn't say what kind
of dollars-and some economists
have figured it out that, if present
trends continue, the dollar will
then be worth just 18 cents.
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