OFFICIAL PROOF OF PROFITEERING
Official Proof Of Profiteering Evidence Placed Before Congress Sustains Last Year's Fight For Higher Tax On War Profits And Incomes FROM three separate and distinct official sources, there has...
...Wholesale shoe dealers secured wider margins of profit in 1917 than they had been accustomed to receive...
...Armour, this being the balance due on 6,020 shares of common stock held for...
...Stull, we are charging off in re- duction of the above the following reserves: Earnings as above...
...000,000 per annum...
...945,051.37 1916...
...P.anks, up to 80 per cent...
...16.8* 26.7 18.6 23.8 18.7 Rate on common stock, 1917...
...If a regulation of profits or price is placed at so low a level as to restrain the profits of the low cost producer to a normal profit, it will not only cut off high-cost producers and increase the shortage, but sometimes gives to the low-cost producer the entire field and means the crowding out of many business concerns...
...but the return of profit increased 400 per cent, or two and a half times as much as the sales...
...Comparisons between their present profits and those of-the prewar period are given below...
...In the report filed by the Treasury Department some startling percentages of profit are shown...
...While the partial report contains startling figures, it is disappointing in that it generalizes and is not specific...
...This was true to a less extent on staple shoes...
...employees...
...View of Herbert Hoover...
...H. W. Boyd, writes Mr...
...Furthermore, if such increased taxation were imposed, it would enable regulation to be carried out with a more liberal hand and less friction...
...However delicate a definition is framed for "profiteering" these packers have preyed upon the people unconscionably...
...It is in a sense a defense of the high prices fixed by the Food Administration...
...I am sure the packers themselves will agree upon their prewar experience that this would be an inordinate profit...
...ONE small miller made 236 per cent profit with a capital of $9,000...
...J. Ogden Armour, City Offices...
...If there were a strong excess profits tax on war profits, all these measures could be formulated with a broader hand and a real reduction of Government interference...
...This minority creates the impression of profiteering...
...The sales of these companies in this period increased 150 per cent, much of this increase being due to higher prices rather than to increased volume by weight...
...In Government regulation, to safeguard production, all profits or prices must be based either directly through price or indirectly through profits on the stimulation of production...
...t0 ATES of profit earned by these five com-panies in war years compared with the prewar average, based on net worth (capital and surplus) and on common stock are as follows: Actual profit on net worth: Ar- Mor- Wil- Cumour Swift ris son dahy Prewar average 1913, 1913, 1914...
...Dear Mr...
...proceed when a Government limitation of profits is expected is shown by the following letter in which Louis F. Swift writes to his brother, Edward F. Swift stating that he has learned that the Government expects to establish profit control in the leather industry and suggesting the advisability of reappraising their properties in certain companies...
...While the publie e*a receive its major protection through the measures taken, the correction of this minority profiteering can only be remedied by stronger taxation of war profits...
...As per Mr...
...There is abundant fuel for the light in the records of the Treasury with regard to profits of every sort...
...A scientifically worked-out index shows in the margin between the prices received by the producer and those received by wholesalers for the prepared foods a reduction of approximately 30 per cent durkig the past year...
...Many shoe manufacturers in 1917 made larger profits than usual...
...As an indication of earnings of the big packers in the selling branch of their leather business, the following is quoted from a letter of January 17, 1917, by the Eastern Leather Co., r.n Armour selling subsidary, to Mr...
...In other words, these figures apply to mills that in a large part supply the demand for flour in interstate commerce and for export...
...We were able also to force an abandonment of the tax on tea, coffee, cocoa and sugar, amounting to eighty-six million dollars ($80,000,000) and of the proposed increase on letter postage amounting to fifty million dollars ($50,000,000), and other con-sumption taxes, reducing the total of the consumption taxes so stricken out of the bill one hundred and fifty-eight million, five hundred thousand dollars ($158,500,-000...
...In the case of the other four companies, the earned rate on common capital stock is much lower— from 27 per cent to 47 per cent—but the reason for this is that these companies have from time to time declared stock dividends and in other ways capitalized their growing surpluses...
...However, Senator Borah has been given verbal assurance to the effect that when the complete reply is made it will be specific...
...Edward F. Swift, Second Floor: We have had a virtual statement from Mr...
...Herbert Hoover to Senator Simmons is illuminating...
...The net change was to increase the taxes four hundred and three million, five hundred thousand dollars ($403,500,000) over the amount originally proposed in the bill...
...It is my belief from an intimate contact with many industries that such a course of enlarged taxation will be patriotically supported by them...
...Awaiting your reply, LOUIS F. SWIFT...
...Do It Quietly...
...644,390.90 1915...
...Thus, while the market was prevented from running away, as it would have done undoubtedly if it had not been regulated by a fixed price, the stronger factors in the industry are further strengthened in their position and enriched by profits which are without precedent...
...Some of it is attributable to inordinate greed and bare-faced fraud...
...Edward F. Swift replies: "I approve, if done quietly and promptly...
...Chemical manufacturers, 58 per cent...
...for the fiscal year ended November 1, 1917, is equal to a rate of 18.6 per cent on the net worth of the company (capital and surplus) and 263.7 per cent on the three millions of capital stock outstanding...
...Their manipulations of the market embrace every device that is useful to them without regard to law...
...Trade Report Important...
...THE way in which Swift & Co...
...In Congressional circles it is the universal comment that the facia presented in these reports together with the legislation proposed to meet the conditions sustain every contention with respect to Profiteering set forth in the report of the minority of the Committee on Finance and justifies the remedies proposed when in August and September, 1917, a handful of Senators who were outrageously denounced for their action forced twenty-three roll calls upon amendments to the Revenue Bill to place a higher tax on war profits and surplus incomes...
...This is conservation for the rich and not for the poor...
...profits for considerably more than a year...
...These trades are nearly all seasonal, and they are in the vast majority dealing with perishable products...
...We made $600,000 and they are doing four times the amount of business and only made $1,900,000, and, as stated above, after deducting interest on the bonds and paying dividends they only had $40,000 left to add to their surplus...
...This is particularly true in the grain and vegetable handling and in cereal-milling trades...
...1,501,408.45 "Here is another letter in which Mr...
...The Food Administration has succeeded in reducing the profit of these concerns, but for the year 1917 it was still twice as high as in the earlier years...
...The great majority of producers, manufacturers and the public agree that restraint ia essential...
...H. W. Boyd, president of the Armour Leather Co.: May 15, 1917...
...The independent packers, as measured by results compiled for 65 of the largest of them earned during 1914, 1915, and 1916 a rate of profit as high or slightly higher than that earned by the big packers in those years...
...The consequence is that it is necessary to set these standards sufficiently high to maintain and stimulate a certain level of high-cost producers...
...These figures came from accounts cohering nearly 40,000,000 barrels output annually...
...E. F. S. The letter, with marginal direction, is as follows: Chicago, November, 26, 1917...
...That the income and war profits taxes of the bill, even with the increases we forced upon the majority, are absurdly and unjustly small, even by the standard of Great Britain, is shown by the interview ' of Lord Chief Justice Reading, of England, given to the press on August 25, 1917...
...331 per cent...
...1 approve, if done quietly and promptly...
...I am equally convinced that a large percentage of extra normal profits earned out of war conditions, whether by more fortunately situated members of regulated trades or otherwise, should be ay propriated to the Public Treasury through tax-ation...
...3,576,544.27 "The tanners took advantage of the enormous demand for leather and took very high prices...
...In manv industries it means bigger businesses will survive and the smaller businesses will be extinguished...
...These great increases in profits are not due solely to increased volume of business...
...and in 1917 $68,000,000 more profit than in the prewar period...
...It is evident that the figures given do not concern the big packing companies...
...The Federal Trade Commission sent to the Senate its reply to the resolution of Senator Borah calling upon it for facts as to profiteering...
...In face of the regulation of 25 cents per barrel maximum, the averSge profit per barrel on this floor was about 45 cents, or over three tunes the normal profit per barrel referred to above...
...H. W. Boyd: "Herewith comparative statement of results in the leather business for the three Trying To Tax The Profiteers, One Year Ago The following statement is taken from an editorial in La Follette's Magazine, September 1917, when Senator La Follette made his 6ght for Higher Taxes on Profiteers...
...Their profits are inordinate...
...Information collected and verified by the commission shows for the four years ending June 30, 1916, a profit of 13 1/2 cents on each barrel of flour and 12 per cent on the capital investment...
...They are soon to come under further governmental regulation approved by Executive order...
...A liquor dealer with a capital of $5,000 showed an excess profit for 1917 of 1,220 per cent...
...Cotton that the Government expects to establish profit control in the leather industry...
...Made 236 Per Cent Profit...
...As to the food trades generally, I atn convinced that the unreasonable profits, since regulations as to reasonable margins on various commodity operations were established, have greatly diminished...
...It says: "Profiteering exists...
...The profits of these independent packers for 1917 are not as yet available...
...Armour's instructions, given through Mr...
...OF THE reports submitted, that of the Federal Trade Commission is the most important...
...In the year ending June 30, 1917, these same mills made an average of 52 cents on each barrel of flour sold, and nearly 38 per cent on their investment—profits that are indefensible, considering that an average of the profits of one mill for six months of the year shows as high as $2 per barrel...
...An exposition of the excess profits of four of the big meat packers (Armour, Swift, Morris, Cudahy, omitting Wilson as not comparable) is given in the fact that their aggregate average prewar profit (1912, 1913, 1914) was $19,000,000...
...Governmental figures show that revenues for the current year (for England) are estimated on a basis of $2,000,000,000 from incomes and excess profits tax...
...In the three war years, from 1915 to 1917, their total profits have reached the astounding figure of $140,000,-000, of which $121,000,000 represents excess over their prewar profits...
...These profits include all the pay received by the profiteers of the business for their services...
...The years covered, 1913, 1914, 1915, 1916, should probably be accepted as fairly representative in spite of the fact that the war demand in 1915 and 1916 would lead one to expect them to show an abnormally high profit...
...The latter can, and will, be reached in the the food trades when a sufficient period to permit of action based on just procedure has been covered...
...Thus Armour in 1916 raised its capital stock from twenty millions to one hundred millions without receiving a dollar more of cash...If Swift, Wilson, Cudahy and Armour had followed the practice of Morris in not capitalizing their surpluses (accumulated from excessive profits) they, too, would now show an enormous rate of profit on their original capital...
...6.2 8.3 6.8 (1) 7.3 War average, 1815, 1916, 1917...
...In that interview the Lord Chief Justice said: "Don't leave the burden of the war to posterity...
...460,536.45 Net Earnings...
...With this and other available material as a basis, a strong minority opposition developed in the Senate against the bill...
...The profit taken by Morris & Co...
...Moon to go into the matter and submit figures...
...Here is a memorandum of May 15, 1917, from J. D. Murphy to Mr...
...14.6 21.0 13.5 (1) 14.1 Year 1917...
...This is somewhat less than 10 per cent of the annual output of the whole country, but a very much larger part of the flour sold in the regular commercial market...
...It will name the corporation and set out in detail all the excess profits...
...Joseph Tanning Co...
...There is one feature in all regulation of profits—in food trades particularly—that is sometimes over looked...
...Five meat packers, Armour, Swift, Morris, Wilson, and Cudahy and their subsidiary and affiliated companies have mo- nopolistic control of the meat industry and are reaching for like domination in other products...
...Profits are UnusuaL ELABORATING upon this, the Commission continues: "The floor millers have had unusual President Wilson To Congress On Profiteering IF lobbyists hurry to Washington to attempt to turn what you do in the matter of taxation to their protection or advantage, the light will beat also upon them...
...in which we have only 50 per cent ownership...
...Their reward expressed in terms of profit reveals that four of these concerns have pocketed in 1915, 1916, and 1917, $140,000,000...
...Paul Tannery Co., Ashland Leather Co., St...
...Remember that England is a country with much less than half our population and very much less than one-third of our wealth, and yet she is raising $2,000,000,-000 in taxes on war profits and individual incomes, against $1,767,000,000 we propose to raise through the same sources under this bill...
...In the face of shortage—and we are short of most commodities—the maximum production of that commodity is positively essential...
...1,964,945.18 Reserve for income tax three months ending April 29, 1917—,,— 36,915.61 Reserve for estimated excess profits tax, six months ending April 28, 1917...
...months ending April 28, showing earnings of $1,964,945.18...
...It appears that the retailer has profited more in proportion than the wholesaler...
...During 1917 the prices of hides,, particularly packer hides, were advanced very rapidly, notwithstanding that during the period of advance great supplies of hides were withheld from the public...
...During the year 1917 a large proportion of the tanners in the United States made unusual profits...
...You will notice that after deducting interest and dividends they only have $40,000 to add to the surplus...
...that in 1915 they earned $17,000,000 excess profits over the prewar period, in 1916 $36,000,000 more profit than in the prewar period...
...Armour: In reference to the Central Leather Co.'s statement, would say that it does not compare favorably with ours...
...While I am convinced that regulation of the types in practice by many executive departments are fundamentally essential to prevent runaway markets and vicious speculation, I can see no remedy for the intermediate situations below such regulations, except a graduated excess-profits tax that will restore that excess of profits made from public necessity back to the public...
...Yet if they earned this amount they would earn $70...
...Papermakers, 176 per cent...
...There is still another feature of this work that needs emphasis...
...One striking instance is a company whose net profits were reported as follows: 1914...
...The commission has tabulated returns covering the sale of something over 4,000,-000 barrels of flour made and sold under the Food Administration's regulations from September, 1917, to March, 1918, inclusive...
...It is a document in which every consumer is interested...
...On the other hand, neither the cost nor the profits in any two units of production will be the same, and while the high-cost producers may be limited to low margins the low-cost producers under these conditions will make profiteering profiits...
...The profiteering that can not be got at by the restraints of conscience and love of country can be got at by taxation...
...Department stores...
...Under the device of cost, plus a margin of profit, these profits are necessarily great ia the case of the low-cost mills...
...Contractors, 596 per cent...
...The average net profits_of jobbers reporting to the commission was about 15 cents per barrel for 1913 and 1914, but increased to nearly 50 cents in the first half of 1917...
...The report further says: "In the case of basic metals, as in steel, when the Government announced a fixed price, it was made so high that it would insure and stimulate production...
...Electrical machinery makers, 91 per cent...
...There is such profiteering now, and the information in regard to it is available and indisputable.—President Wilson...
...It is always possible that either certain favorably situated and managed concerns will make undue profits or that unpatriotic men will violate regulations or agreements...
...Machine tool makers, 788 per cent...
...IN BEHALF of the minority members of the committee, consisting of Senator Gore of Oklahoma, Senator Thomas, of Colorado, and the writer, I presented a minority report setting forth not only the views of the minority, but submitting as well tables which showed, among other things, the net income for the years 1911 to 1917, of ninety-five leading industrial corporations and fifty representative railroads, together with their respective net earnings for the pre-war period, and their undistributed surplus for the year 1916...
...Five Meat Packers...
...It is clear that if the profit above such pay was reasonably high in 1913 and 1914, it was exorbitant in the first half of 1917...
...Furthermore, in an effort to prevent profiteering and secure tha best terms these arrangements are elaborated to cover all sorts of conditions, and the economic reactions from this paternalism are often bad...
...The Senate has ordered a print to five thousand copies and within the limit, those who are interested may obtain a copy of the full report by writing to their Congressman...
...This has resulted in giving a wide range of profits...
...This statement was repeated many times in many forms by majority members of the committee...
...Much of it is due to advantages taken of the necessities of the times, as evidenced in the war pressure for heavy production...
...As a net result of the minority opposition, we forced an addition to income taxes amounting to sixty-four million dollars ($64,000,000) and an addition to the war profits tax amounting to four hundred and ninety-eight million dollars ($498,000,000...
...On the other hand, a further drastic lowering of profits would, in some branches of the business covered by the packers, drive struggling competition from the field...
...As the American people consume 8,000,-000,000 pounds, such a rise in price would cost the consumers $800,000,000...
...By taking a few months during the season of prime operations, their profits may appear large, but they must face largely reduced profits or even losses over the balance of the year...
...Yet at this level a minority of the best factories will be earning profits of from 40 per cent to 100 per cent upon their investment...
...There is an additional phase of the limitation of profits by regulation where such regulation needs coordination with taxation...
...It covers flour, milling, coal, petroleum, meat packing, steel, copper, zinc, leather and leather goods, canned milk, salmon eanners, and gives examples of high salaries and bonuses, the juggling of accounts, and is a general survey •f the profiteering game...
...The third official evidence of profiteering is the letter of Food Administrator Herbert Hoover addressed to Senator Simmons, Chairman of the Committee on Finance of the Senate...
...Clothing trades, 191 per cent...
...with the Central Leather Co.'s statement: October 31, 1917...
...There are, however, certain economic necessities which must dominate war regulation of industry and which, in themselves, can not entirely eliminate profiteering and which, in my views, can only be accomplished if reinforced by taxation on war profits...
...If it is agreeable to you will arrange with Mr...
...The Treasury department has made partial reply to another resolution of Senator Borah calling upon the Secretary to furnish the profiteering facts disclosed by the returns made by corporations...
...Failing in all argument to sustain their position, the majority members of the Senate committee undertook on the floor of the Senate to charge the Senators who favored a reasonable rate of taxation for war profits and fat incomes with "lack of patriotism," and declared the course we were pursuing would "make the war unpopular with the people...
...I think considering their lumber business, which is wonderful (the manager of the Pennsylvania Lumber Co...
...27.1* 47.2 263.7 42.5 47.0 (1) Figures not available * Foreign business not included...
...The abnormal profits out of war conditions of the favorably situated producer can only be reached by taxation, unless, by regulation, we take the risk of curtailing production and the demoralization of the economic conditions of the country...
...They will this year produce about 7,000,000,000 pounds of meat products...
...Such a statement should be illuminating even though not convincing.—From Signed Editorial by Robert M. La Follette in La Follette's Magazine, September 1917...
...FURTHER discussing the meat packing and leather goods situation, and having in mind that the leather situation is largely controlled by the packers, the commission says: "Similarly the power of dominant factors in a given industry in maintaining high prices and harvesting unprecedented profits is shown in a survey of the meat packing situation...
...Yours truly, H. W. BOYD...
...We are also inclosing a check on the National City Bank for $202,145.62, payable to Mr...
...In the administration of regulatory measures or the formulation of trade agreements affecting profits and prices to the public and to the Government, all officials are under great pressure to keep margins at a very low ebb...
...The return on investment was apparently between 25 and 30 per cent...
...With this notice, I think we should at least consider the advisability of reappraising the properties of the following companies: A. C. Lawrence Leather Co., National Calfskin Co., Winchester Tannery Co., St...
...IN VIEW of the report of the Federal Trade Commission with respect to the regulated pvofits of the flour mills and meat packing industry, tho letter of Mr...
...A good case in point is sugar...
...In summary, my view is that broad regulatory restraints now in force are essential in commodity handling in the face of shortages...
...However, with prices maintained at the same level, cost would probably have increased and profit would have been somewhat reduced in April, May, and June, 1918, because of the smaller outpnt in those months...
...Garment manufacturers, 246 per cent...
...As the commission reported in January last reports of a number of the larger companies show that net profits in 1916 were in several instances two, three, four, or even five times as large as in 1915, and the 1915 net profits in turn showed increases of from 30 per cent to more than 100 per cent over those of 1914...
...In considering the costs of production we find that a certain level is necessary to protect the high-cost producers...
...This is typically the case in the meat packing industry...
...They are so regulated as to profits on animal business (in fact, on all business except foreign holdings and nonfood business) that their earnings could not exceed 1 cent per pound of meat products produced...
...If sugar were unrestrained by agreements, the price would, in the face of this world shortage, go to 20 cents per pound, as it has in countries where no restraints exist...
...It is not possible within the space limitations of "LaFoliette's" to print this report in full...
...J. Ogden Armour, for $915,787, same being a dividend of 53 per cent on the 17,279 shares of common stock standing in his name...
...Armour comparing the results for the Armour Leather Co...
...The five large concerns together kill about 40 per cent of the animals of the eountry...
...In the meat packing business the excess profits of 1917 over 1916 ranged from nothing to 204 per cent...
...told me that they never expected to realize the profits they were making on hemlock lumber and that they were doing an enormous business), that our statement is a great deal better than theirs...
...Hoover says in part: "The Government is, through many departments, endeavoring to reduce profiteering through regulation and trade agreements and with a great measure of success...
...423,620.84 Total reserve...
...Rates of Profit...
...In addition to this, and in accordance with our conversation when in Chicago, we have set aside as a surplus $250,000, which represents 10 per cent on the common stc.-.k...
...One food dealer—the report does not say whether he was a retail or wholesale dealer —-showed an excess profit for 1917 over 1916 of 2,183 per cent...
...There is, however, a point in profits or price where the increase in production is not commensurate and restraint is needed lest price ascend to a height where the people of the moro limited means can no longer buy...
...The margins of retail shoe dealers widened greatly during 1917, especially upon fancy shoes...
...The Borah resolution only called for profits of concerns which made more than 15 per cent in 1917, and when complete reply is made, it will be a most interesting and valuable contribution to a thorough understanding of the war profits situation in this country...
...E. F. S. These examples are sufficient to demonstrate the character of the report...
...Dairy interests made from nothing to 180 per cent...
...Discussing flour milling, the commission says: "Again, in the case of flour milling, it is apparent that while a Government-fixed price for wheat and an allowance of maximum margin of profit over cost of flour have had the virtue of stabilization nevertheless the profits resulting are heavy...
...Coal dealers, 504 per cent...
...All these reports sustain the statement of President Wilson's message that: "There i.-i such profiteering now and information in regard to it is available and indisputable...
...This does not include Woodstock, as we have not finished enough of our own leather up there to make a loss and gain result of any value as indicating the possibilities of the plant...
...The tendency is to be too narrow in such negotiations and to endanger production...
...The debate lasted for just one month...
...Official Proof Of Profiteering Evidence Placed Before Congress Sustains Last Year's Fight For Higher Tax On War Profits And Incomes FROM three separate and distinct official sources, there has been placed before Congress evidence of inordinate and unconscionable profiteering...
...would undoubtedly raise percentages...
...Regulated margins, while placed at levels preventative of extortion, must still be high enough to cover risks and inequalities in earnings and the excess profits Of the more fortunate operators can only be further equalized by strong taxation of war profits...
...F. W. Croll, cf Armour & Co.: "We are enclosing our check on the National City Bank, New York City, payable to Mr...
Vol. 10 • July 1918 • No. 7
