Facts of Life

3 minute read
TIME

Up before the American Iron & Steel Institute last week stepped Enders M. Voorhees, chairman of U.S. Steel’s finance committee. He wanted to get off his chest some steel-hard economic and financial facts which the steelmen knew, but which the U.S. has largely ignored. Said Mr. Voorhees:

“We are in a sellers’ market, but we do not know how long the sellers’ market will last. . . . As I see the picture today, it is none too cheery.

“We have been operating between rigidly controlled prices and uncontrolled costs. The heavy wage increases have only partially seeped through to what we buy, but eventually they will be felt in full [see Autos]. It is convenient … to blame our present situation upon Government price-fixing. . . . But let us scratch a little deeper.

“It is apparent that something akin to the corn-hog ratio extends through our whole economic life, and that when we talk prices we are really talking exchange values. Thus, although a ton of steel is selling at its highest peacetime price in two decades, it is exchanging for the smallest quantity of goods and services.”

The nub of the problem, said Mr. Voorhees, is: How can costs and profits be covered when some costs, such as wages, have been arbitrarily shoved up without the increased production necessary to cover them? “A portion of the public,” said he, “has been made to believe that wages in large industry can be advanced without limit and without effect on price.”

Actually, he said, wage increases can be met only by increased volume and productivity, or by a rise in prices. In steel (and it is typical of many industries), peacetime volume will be less than that during the war, so volume is not the answer. Nor is increased productivity.

“Estimates of increased productivity,” said he, “run from 1.7% a year to double that amount”—far from enough to cover the 70% rise in wage costs since 1939.

So, concluded Mr. Voorhees: “It is clear that wage rises have greatly exceeded the production required to offset them and hence must be covered in an abnormal price rise. But the first abnormal wage and price rise starts a wave of other increases. You can see it coming today in thousands of items. And then where are we? We are on our way to the final squeeze by the customer—for the customer always has his own ceiling price.”

And when the customer stopped buying after World War I, because prices were too high, Mr. Voorhees and all other businessmen know what happened. The boom turned into a bust.

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