H 37 a Cornell University Library HD6983.L37 The relation between vyages and the incre lAUCK THE REUTION BETWEEN WAGES ANO THE INCREASED COST OE LIVING N Y S SCHOOLOF INDUSTRIAL & LABOR RELATIONS C.U. THE LIBRARY OF THE NEW YORK STATE SCHOOL OF INDUSTRIAL AND LABOR RELATIONS AT CORNELL UNIVERSITY Digitized by Microsoft® This book was digitized by Microsoft Corporation in cooperation witli Cornell University Libraries, 2007. You may use and print this copy in limited quantity for your personal purposes, but may not distribute or provide access to it (or modified or partial versions of it) for revenue-generating or other commercial purposes. Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® BEFORE THE UNITED STATES RAILROAD LABOR BOARD The Relation Between Wages and the Increased Cost of Living AN ANALYSIS OF THE EFFECT OF INCREASED WAGES AND PROFITS UPON COMMODITY PRICES PRESENTED BY W. JETT LAUCK ON BEHALF OF W. S. STONE, Grand Chief Engineer, Brotherhood ot Liocomo- tlve Engineers. L. E. SHBPPARD. President. Order of Railroad Conductors. S. B. HEBERLING. President. Switchmen's Union of North America. LOUIS WETAND. Acting International President, International Brotherhood of Boilermakers. Iron Ship- bnllders and Helpers of America. J. J. HTNBS, International President, Amalgamated Sheet- Hetal Workers' International Alliance. J. P. NOONAN, International President, International Brother- hood of Electrical Workers. TIMOTHY SHEA, Assistant President, Brotherhood of Locomotive Firemen and Enginemen. W. G. LEE. President, Brotherhood of Railroad Trainmen. WM. H. JOHNSTON, International President. International Associa- tion of Machinists. J. W. KLINE. General President, International Brotherhood of Blacksmiths. Drop forgers and Helpers. MARTIN P. RYAN, General President, Brotherhood Railway Car- mpn of America. E. J. MANION, President, Order of Railroad Telegraphers. F. GRABLE, Grand President, United BrottMBhood of M. of W. Employees and Railroad shop liaborers. . B. J. FITZGERALD, Grand President, Brotherhood of Railway and Steamship Clerks, Freight Handlers, Express and Station Employees. n. W. HBLT. President, Brotherhood of Railroad Signalmen of America. TIMOTHY HEALY, President. International Brotherhood of Sta- tionary Firemen and Oilers. B. M. JEWELL, President. Railway Employees Department, American Federation of Labor. Washington 1920 Digitized by Microsoft® Digitized by Microsoft® BEFORE THE UNITED STATES RAILROAD LABOR BOARD The Relation Between Wages and the Increased Cost of Living An Analysis of the Effect of Increased Wages and Profits Upon Commodity Prices WASHINGTON 1920 "2 lilts Digitized by Microsoft® Digitized by Microsoft® TABLE OF CONTENTS I'AKT J. General Survey 5 Paet II. Profiteeeing and Labor Costs by Industry' Groups 25 1. Sugar 27 2. Meat Packing 31 3. Canned Goods and other Food Products 36 4. Boots and Shoes 45 5. TextUe 54 6. Clothing and Dry Goods 08 7. Bituminous Coal 60 8. Anthracite Coal 66 9. Petroleum 72 10. Iron and Steel 75 11. Copper 81 12. Metal Products 85 13. Railroad Equipment 88 14. Building Material 90 15. Miscellaneous 92 r PROPERTY C' J-3FARY NEW YOBK SmE SCIPI CORNEU. UNIVERSITY Digitized by Microsoft® Digitized by Microsoft® RELATION BETWEEN WAGES AND THE INCREASED COST OF LIVING PART I. GENERAL SURVEY OF PROFITEERING AND LABOR COSTS A careful analysis of the data bearing on the causes of high prices and the relation of cost of production to prices leads to the follow- ing specific conclusions: 1. Profiteering — by which is meant the exaction of profits greatly in excess of pre-war profits on the part of producers, middlemen and retailers — is a fundamental cause of the high prices of practically all commodities. 2. Increased wages to labor are in no way responsible for in- creased prices. To cite increased wages as a cause of increased prices is to betray an ignorance of the facts. Wage advances have been an effect of price advances, not a cause. An examination of the experience of every industry shows, practically without exception, that wage increases have lagged behind price increases and usually very far behind. In a period of rapidly rising cost of living it is inevitable that wages also rise in some measure, if the great body of wage earners, living as they do at best not far above the line of poverty, is not to suffer complete degradation. But in no way has labor been the initial influence. Prices were pushed up by factors over which the workers had no control. They have merely struggled as best they could and in the only way they could to keep their old standards of living. In this struggle they have met with only very partial success. For the great body of wage earners, wages have not kept step with prices. As a result, labor as a class is now woi-se off tlian it was before the war. Almost without exception a day's wage buys less than it did in 1912 to 1914. In other words, in the distribution of the income of the country labor is receiving a smaller proportion than it did before the war, while capital — in the form of profits, interests and rent — is receiving a very much larger proportion. It is not contended that profiteering is the sole cause for the Digitized by Microsoft® "^ maintenance of prices at their present level. It is contended, how ever, and data are submitted in proof bel»w, that profiteering has been responsible for a very large proportion of the price increases — probably one-half. Moreover, the other possible factors are more or less intangible and perhaps not susceptible to immediate remedy. But profiteering is a perfectly tangible thing, and one which can be remedied by intelligent statesmanship. And it is only by striking at this root cause of our present troubles that permanent remedy may be obtained. It is not possible to compute the full extent of the profiteering that has taken place and is now taking place. The complete infer mation is not available and probably never will be. Too many hands have dipped into the golden stream of war-time profits. Too many ways have been discovered by corporations and business men for concealing the full measure of their earnings. But, in spite of these diflSculties, sufftcient evidence does exist to establish a conclusive case of "profiteering" — of profiteering on a scale that makes one almost despair of the future of the country. The evidence referred to is of an entirely authoritative character. It includes the financial statements of corporations, the Federal income tax returns, the investigations of Governmental bodies such as the Federal Trade Commission, the Tariff Commission and the Bureau of Foreign, and Domestic Commerce, and various reports, studies and statements by other official agencies and men in close touch with public and business affairs. Profiteering as Shown by Corporation Keports. Perhaps the most conclusive evidence of profiteering is contained in tte financial reports of the corporations themselves. In order to develop this point a careful analysis has been made, for the years 1912 to 1918, inclusive, of the financial reports of all corporations, of 11,000,000 annual income, in certain lines of business in which the ordinary consumer is particularly interested. The sources used were the well-known financial manuals such as Moody's and Poor's. The following table summarizes the results of this study. It shows, for a large number of corporations by industry groups, the average annual net income, and the per cent, of net income to capital stock, for the three pre-war years 1912-1914 in contrast with similar data for the three war years 1916-1918 : Digitized by Microsoft® Increase in Set Income and Percentage Earned on Capital Stock of Corpora- tions in Specified Industries During the Periods 3912-1914 and 1916-1918.* No. of eom- panies Basic Metal Indxistries— Copper mining 14 Misc. mineral mining... 6 Iron and steel vorks 19 K. R. equipment manuf. 7 Metal products manuf... 11 Total 57 Clothing — Textile Manufacturing... 8 Clothing and dry goods. 11 Total Id Food— Packing-bouses 5 Sugar producing and ref. 12 Food products, misc 12 Total 29 fuel. Light and Bousing— Coal and coke product'n 32 Petroleum products 22 Building material manu. 10 Total 64 Miscellaneous — Mercantile establishm'ts 7 Agricultural supplies.... 7 Misc. industries 22 Total 36 Grand total 205 Per cent net income is of Average annual net capital stock income for period} for periodt 1912-1914 1916-1918 1912-1914 1916-1918 Capital stock 1918 J253.290.655 182,764,263 1,384,433,855 220,809.152 167,716,560 12,209,014,485 tl72,729,194 $590,138,605 8.4 28.2 M6.557,451 $137,046,514 19.7 540 17,571,427 27,998,792 7.7 13.6 74,649,117 334^888,406 6.1 26.9 15,745,728 38,S76,951 7.3 17.7 18.205,471 51,527,942 11.8 31.1 $100,251,744 242,352,066 $3,734,215 15,299,288 $21,551,064 33,621,247 3.9 6.2 $342,603,800 $19,033,503 $172,477,050 179,257,338 296,733493 $179,691,396 316,005,600 757,183,933 $22,790,700 22,901,434 50,976,849 $1,252,880,929 $96,668,983 $209,668,041 $5,372,208,452 $438,663,427 $1,234,359,688 8.1 8.7 22.6 13.8 $55,172,311 5.8 15.8 $20,146,784 , $58,644,468 14.4 36.9 11,306,923 34,174,794 6.5 19.1 18,535,631 39,857,473 6.9 13.6 $648,467,581 $49,989,328 $132,676,735 8.6 21.3 $262,672,277 $16,098,691 $40,196,220 7.6 15.2 478,758,480 73,989,006 178,779,091 18.7 39.8 177,810,900 10,154,722 27,729,685 5.7 15.6 $919,241,657 $100,242,419 $246,703,996 12.3 27.6 $37,632,491 13.9 21.3 37,895,558 7.4 12.1 134,139,992 7.1 17.9 16.9 23.9 The outstanding fact in this table is simply stated. The cor- porations listed — including all with incomes of |1,000,000 or over in any one year in so far as they are listed in the financial man- uals — earned during the years 1916-1918 an average income oJf nearly $1,250,000,000 a year, or nearly 24 per cent, on their capital stock. This appears to be nearly three times the average for the pre-war years 1912-1914, and the figures for production, where these are available, show concluswely that these increased profits were not due to increased production. They were due in large meas- •Income of companies for wliich average for pre-war period was unobtainable elim- inated in order to render totals comparable. tin computing these percentages, entries of net income and capital stock were omitted when both of these items were not given. This occurred in only a few cases. When issues of stock since 1912 are known to have been in the form of "stock dividends," such issues have been ignored on the basis that nothing was added to the property investment thereby. }In cases where income is reported for only one or two of the three years, either the amount for the one year or the average of the amounts for the two years has been treated as an average for the period. Digitized by Microsoft® ure to the fact that the corporations took a larger proportion of every dollar spent by a purchaser. This fact will be shown con- clusively in another part of this study. .Here it is sufflcient to note that for the three years 1916-1918 the annual profits of these cor- porations averaged approximately |800,000,000 more per year than during the three-year period preceding the war, 1912-1914. This is a startling fact. Basing our calculations upon the reported net corporation income as shown in the income tax returns these corporations repi;esent about one-sixth of the total corporate income of the United States. If these other corporations did as well as those of which record is available, and there is reason to believe they did, then the combined corporations of the country earned approxi- mately 14,800,000,000 more per year during the three war-years 1916-1918 than during the three pre-war years 1912-1914. A total of $800,000,000 means $40 per family of five throughout the nation. A total of $4,800,000,000 means |240 per family of five throughout the nation. Gonsider that each family of five paid as a toll, not to so-called legitimate profits, but to excess of war profits over pre-war profits, $240 per year, and one gains an idea of the total burden which profiteering meant to the country. Yet it is a conservative estimate of what actually happened, and it must be remembered that this huge figure does not represent the whole profit, but only the part in excess of the pre-war level. Even such stupendous figures do not tell the whole story. For the most superficial investigations reveal the fact that during late years the companies have been resorting to numerous devices for concealing profits. Excessive deductions for depletion and deprecia- tion reveal themselves very quickly when we turn to such basic in- dustries as copper and coal. In other industries huge sums are found set aside for Federal Tax Reserves, sums out of all proportion to the necessities of the case. Payment of excessive salaries to offi- cials is another favorite method.. The Federal Trade Commission found that the American Metal Company was paying salaries rang- ing as high as $364,000. In other words, there are very good grounds for concluding that the figures given above very much understate the real profits taken by corporations during the war years. An average of $1,200 per family of five during the years 1916-1918 is probably a highly con- servative estimate of the actual cost of corporate profiteering to the consumer. During the three years 1916-1918 the consumer has been paying the food corporations whose reports are available over two and one- Digitized by Microsoft® half times as large profits as were considered acceptable before the . war. In the clothing group the increase in profits was proportionally even greater, the price of clothing carrying a charge for profits nearly three times the pre-war figure. Turning to the corporations which produce various kinds of fuel, together with certain building products, we find the profits for the war years 1916-1918 nearly two and one-half times those for the pre-war years 1912-1914. For the three years 1916-1918 the average was nearly a quarter of a billion dollars a year. The accumulation of profits for the four years 1916-1919 undoubtedly totaled more than a billion dollars. This means that dufihg the years mentioned these corporations earned, after eVery possible deduction had been made, enough to replace their entire capital stock. The profits of the basic metal industries, however, outdistance those of any other group. These industries are the ones which pro- duce commodities — such as iron, steel and copper — which the con- sumer never buys directly, goods which are bought by other inter- mediate producers. But the cost of these basic products enters into the price paid by the consumer for almost everything that he buys. The war, with its demand for munitions, greatly increased the oppor- tunity to profiteer in these lines. As a result the industries, whosei services the nation needed most, more than trebled their profits. The profits taken during the war years 1916-1918 were, in fact, nearly three and one-half times those taken during the years 1912- 1914— $590,138,605 as opposed to .$172,729,195. In other words, the excess war profits amounted to over $400,000,000, which eventually reached the consumer in the prices which he paid for the various commodities into which these basic metals entered. And it must be constantly remembered that these profits are net profits after all income and excess-profits taxes have been deducted. For a corporation here and there to find itself in a strategic posi- tion which enabled it to make huge profits, there was precedent be- fore the war. But for practically the entire business organization of the country, the sum total of the corporations, to be in such a strategic position that it could hold up the public for enormous profits upon everything, no precedent can be found. After all ex- penses of operation and maintenance had been paid — after all charges for replacement of capital had been set aside — in fact, after every conceivable or imaginary expense had been met — these great groups of corporations, controlling the various products essential to. our life, made profits which were suflScient to replace the entire Digitized by Microsoft® 10 value of the capital stock within a period of slightly over four years. This is proved by their own published reports. The Income Tax Returns Confirm the Fact of Profiteering. Statistics compiled by the Commissioner of Internal Revenue from income tax returns show that the corporate profits of the companies listed in the financial manuals are representative of the whole tend- ency throughout the country's business. For the years 1912-1914 the average of net corporate income was approximately $4,268,000,000. For the years 1916-1917 it had increased to approximately nine and three-quarter billions of dollars. In other words, the net income for the war years was more than double that for the preceding years, despite an excessive deduction of $74,000,000,000 from gross income before net income was reached in 1917. Detailed data on this point will be found in a separate study. The significant fact is that in 1917 reported corporate income was over ten and one-half billion dollars. As in the preceding analysis of the financial reports of corpora- tions, so here it is found that the most extraordinary increase in profits during the war appeared in the industrial and mining group, where the corporate income returned for 1917 was approximately four times the pre-war average — $6,500,000,000 as contrasted with $1,669,012,000. If, from the figure given for the total net corporate income for 1917, we deduct the approximate value of the excess profits taxes, and further deduct 10 per cent on all additional capital invested to expand industry to meet war demands, the profits of corporations are still found to be over three and one-half billion dollars above the pre-war average. Such enormous profits made at the expense of the consumer were too large to be divided all at once, especially when a large propor- tion of high incomes went to help the country carry the enormous expense of war. So only a part of the profits was disbursed. The remainder swelled reserves to huge proportions. Thus the consume!" discovers that he has been taxed not only to pay high dividends' dur- ing the war period, but also in order that these same high dividends may be continued over the recession of industry which is bound to follow. Some of these reserves will find their way into stock divi- dends, thus creating more paper value upon which the country will he expected to pay a fair rate of profit. Digitized by Microsoft® 11 Unite!d States Treasury Report on Corporate Income. The extraordinary nature of the profits of industry during the war jears is manifest in so incomplete a document as that submitted to the Senate by the Treasury Department in 1919, entitled "Corporate Earnings and Government Revenue." This document purported to show the incomes of approximately 20,000 of the 31,500 corpora- tions in the United States reporting incomes over 15 per cent on their capital stock. Altogether these corporations earned an average return on capital stock of 331/^ per cent after all taxes had been deducted. In other words, with three years of such good fortune as war brought, these corporations would make profits totaling the whole value of their capital stock. "" ^\ The following table shows the great increase in profits enjoyed b^ the leading industrial groups. CORPORATE EARNINGS IN 1917, BY MAIN GROUPS OP INDUSTRY. (Prom "Corporate Earnings and Qovemment Revenues" — Senate Document 259.) ^Per cent of net income for the year 1917-, To capital stock To invested capital Before After Before After deducting deducting deducting deducting Industry Taxes Taxes Taxes Taxes Fisheries 90.95 55.07 .oO.lo 30.39 Banking and brokerage institutions 35.09 28.10 10.98 8.77 Business pursuits and personal services.. . 36.50 29.01 22.28 17.68 Chemical and allied industries 52.36 41.76 34.89 22.08 Food and food preparations 41.89 33.48 31.57 23.19 Iron and steel industries 50.52 36.43 33.59 23.26 Leather and leather goods industries 33.32 26.41 23.41 18.35 Metal and metallurgical industries 28.79 22.89 22.03 16.93 Mining and mineral extraction 49.27 36.02 32.74 22.75 Paper printing, bookbinding and publishing 35.82 27.41 22.71 16.90'^ Special manufacturing industries 38.90 30.43 24.70 18.57 Stone, clay and glass industries 36.89 28.22 26.86 21.00 Textile industries 47.23 34.26 28.24 20.76 Timbering, logging, lumbering and wood- working industries 40.98 3-3.88 15.73 12.97 Trading 44.30 33.99 25.07 19.20 Transportation and public utilities 26.63 20.98 16.38 12.88 Total 44.34 33.51 25.95 19.11 There is no business group listed here with an average net income under 20 per cent. Over one-fourth of these corporations, 5724 in nu/mber, showed net profits of over 50 per cent on capital' stock. And over one-tenth of them (2030) showed net profits of over 100 per cent. In other words, there were over 5000 corporations which, Digitized by Microsoft® 12 in 1917, earned over one-half th& value of their capital stock and over 2000 that earned the entire valuQ in a single year. Thus the statement that tremendous profits and high prices are closely associated is substantiated by data from two authoritative sources which certainly lean toward conservatism. The effect of these pi'oflts on prices can best be shown by an analysis of the data for each general group of purchases made by the consumer. Full discussion of each of the important industries from this point of view will be found in a later section. Profiteerino in Food. Profiteering in industries connected with the production of food is perhaps most quickly felt by the consumer. In the case of sugar, the facts show beyond a shadow, of doubt that the extraordinary increase in price, now amounting to 300 per cent, can find no justification in terms of the wages paid to labor to produce it. The increase in labor cost was less than 15 per cent of the increase paid by the consumer. The high price of sugar was the direct result of speculation which followed the shortage due to the increased demand of Europe. The result of these uncalled-for prices appears in the reports of twelve companies producing over 50 per cent of the total sugar consumed in the United States. The net profits of these concerns rose from an average of $11,000,000 during the years 1912-1914 to $34,000,000 for the years 1916-1918— that is, from 6I/2 to 19 per cent on capital stock. In other words, war profits were practically three tdmes those of the pre-war period. Nor was this increase in profits due to increased production, for enough figures are at hand to show that the profit per pound of sugar was practically three times as large in the years 1916-1918 as it was in the pre-war years. In the meat-packing industry, the domination of the five big pack- ers has tended to accentuate this profiteering. Their control extends far beyond the meat-packing industry into nearly all departments of food production. Eggs, milk, cheese, vegetable oil, and even canning come within the scope of their system. In fact, the real extent of their influence is unknown. The labor item in the production of meat is so small a factor as to be almost negligible. A wage increase of 100 per cent would add less than 5 per cent to the total cost of meat. Yet the price exacted of the consumer has increased from 50 to 100 per cent. The increase in price between 1914 and 1918 was eight times the total labor cost Digitized by Microsoft® 13 add the 1918 price represented 25 times the total labor item: The increase in retail price was 14 times as great as the entire labor cosi. Even a 1000 per cent wage increase would not account for the in- crease in price. On the other hand, profits have actually increased between 300 and 400 per cent. Four of the big packing houses earned during the years 1915-1917, $140,000,000. Such profits were made despite the deduction of enormous amounts for excessive salaries, advertis- ing and overhead charges. Altogether in the period 1912-1918 these concerns took one quarter of a billion dollars in profits, or nearly double the pre-war value of their stock. Three-fourths of the new stock issued to conceal these huge profits was stock dividend repre- senting no real investment. In this jjrofiteering enterprise the five big packers have been assisted by their control of affiliated and sub' sidiary companies, such as stock yards and rendering plants. These companies were acquired with practically no real expenditure through stock dividends, etc. They have paid large profits, especially since the war. It is such accumulating profits that cause the high cost of living. Beyond the closely defined realm of sugar and meat packing plenty of evidence is found for the belief that profiteering was general throughout the food industry. Throughout the vegetable-canning industry, for instance, prices have advanced far more rapidly than have labor costs. The chief responsibility for high prices must be placed upon the greater margins taken by manufacturers and selling agents, although the metal trades must share the responsibility for the price of cans played a very considerable part. Labor's share throughout the canning industry increased proportionally less than any other item in the price, while the profit margins show the largest proportional increases. Everywhere in the industry we find labor receiving a smaller proportion of the costs and selling prices in 1917 than in the previous year. Further investigation shows that in a year's time, 1916-1917, profits in vegetable canning more than tripled. In the canned-salmon industry the situation is practically the same. Increases in prices and profits were very much greater pro- portionally than increases in labor costs. Here again data are at hand only for the years 1916-1917, but within this brief period the profits of the group of packers studied by the Federal Trade Com- mission rose from 22 per cent to 52 per cent on investment. Eleven of the 78 companies made over 100 per cent profit in a single year. Profits represented over half of the cost and over one-third of the, selling price. i Digitized by Microsoft® 14 Financial reports serve only to confirm these facts of large profits. Taking a group of corporations producing a great variety of prod ucts — cereal, canned food, fruits, groceries, etc. — we find that the profits for 1916-1918 were double those for pre-war years. The suc- ceeding pages show the specific instances. Here it is sufficient to note that throughout the food industry profits have doubled, and prices have gone up far beyond that which is necessary to cover increased labor cost. The people of the country have been forced to pay a heavy and unnecessary toll. Profiteering in Clothing. In this branch of industry data are scant, but enough is available to show that profits absorb approximately one-half the retail price of certain kinds of cloth, while the labor item is insignificant, amounting to from one-fourteenth to one-twentieth of the price. The extent to which this indicates profiteering is apparent when we face the fact that recent profits have been nearly five times those exacted in pre-war years, representing an increase in profits in the case of eight representative textile concerns from a yearly average of $3,734,215 to ?22,630,562. Passing on to made-up garments and dry goods as they are retailed to the consumer, a similar increase in profits is found, although in the case of the manufacture of men's garments, etc., the great in- crease in profits did not begin to show itself until after the war, as will be pointed out in a subsequent section. The militarization of a large portion of the male population interfered with the specula- tive value of this particular market. Shoes, however, furnished a splendid opportunity for the profiteer At each stage, from packer to tanner, from tanner to manufacturer, from manufacturer to wholesaler or retailer, an increased profit was exacted until in 1918 the shoe bought by the consumer was actually worth little more than two-fifths of the price which he was forced to pay. In the tanning industry the tanner's profit shows in all cases a greater proportional increase than any other item shown by the Federal Trade Commission's analysis of costs. The percentage of labor cost to total cost of tanned leather was already small, and it actually declined, while the price advanced. On the other hand, the tanners' profits steadily increased until the average profits for the industry in 1917 were double those in 1914, amounting to over 2.5 per cent on invested capital. During the war years the shoe manufac- turers also earned approximately 25 per cent on their invested capi- Digitized by Microsoft® m tal. This is shown by a study of 237 shoe manufacturers made by the Federal Trade Commission. The proportional increase is not quite so great, because the shoe manufacturers made very generous profits prior to the war. Four of the large shoe manufacturing companies of the country publish their financial reports in Moody's manuals. These reports show an increase in net profits from $4,800,000 for the years 1912- 1914 to $10,000,000 for the years 1916-1918, an increase of over 100 per cent. The astounding thing about the shoe industry is the proportion of the price which goes into the various margins, especially when this is contrasted with labor's share of the price. In 1914 all the labor from the hide to the finished shoe absorbed less than one- sixth of the price paid by the consumer, while in 1917 this share of labor had decreased to one-ninth. On the other hand, the profit items in 1914 absorbed nearly one-half the price paid by the con- sumer, or nearly three times the total labor costs, while in 1917 the profit items amounted to approximately three-fifths of the total pHce and to over five times the total labor costs. The question as to who is responsible for the increased cost of shoes can be quickly answered when we realize that of the $.3.50 increase in the price of a pair of standard shoes labor received 15 cents, while the margins of the various manufacturers and merchants absorbed |2.75. Very obviously, if the various profiteers had been satisfied with the old margin, the price of shoes need not have advanced very seriously. Thus in the matter of clothing, where all feel the pinch of the high cost of living almost as seriously as they do in the matter of food, it is apparent that there is a very close relationship between the profits of the manufacturers and retailers and high prices. Peofiteering in Fuel. Increases in the retail price of bituminous coal have been four times as great as the increase in labor costs. The proportion of the proceeds of the industry received by the coal operator has increased from 75 to 400 per cent. The extent to which this state of affairs resulted in huge profits is shown by the income tax data which the Treasury Department computed for the Senate. Out of the 392 bituminous coal companies given, 334 showed net profits after every possible deduction of over 25 per cent; 218, or over one-half, shotoed earnings of over 50 per cent on capital stock; while 118, or nearly one-third, showed net profits of over 100 per cent. Digitized by Microsoft® 16 Turning to the financial manuals we find the net annual profit of 17 bituminous companies for 1917 nearly four times the pre-war figure. This proportion appears not only in the absolute figures where the increase is from approximately $13,000,000 in 1914 to nearly |48,000,000 in 1917, but also in the percentage earned on capital stock, which increased from 7^^ to over 27 per cent, as well as in the net profit per ton, which rose from 20 cents to 66 cents. As a matter of fact the operator's margin showed a larger propor- tional increase than any other item in the price of coal paid by the consumer. If the average profit per ton shown by these companies was representative of the industry, it indicates that the operators during the four years 1916-1919 gathered a clear profit totaling over one billion dollars. This means a tax on every man, woman and child in the United States of $10 to pay the four-year profits of the bituminous coal operators. Had the operators been satisfied with normal profits the nation might have been saved hundreds of mil- lions of dollars in its coal bill. Since the consolidation of the anthracite market prices of anthra- cite coal have always been high and profits have always been large. The real magnitude of these profits has not been generally apparent, not only because of heavy over-capitalization, but also because of the clever device by which the majority of the companies have sepa- rately incorporated their selling departments. The producing com- pany, then, shows but an ordinary return. The real profits are made by the selling corporation, very little of whose capital stock represents real investment. In 1918 the real profit margin taten by the producing corporations in their two aspects averaged approxi- mately three-eighths of the entire cost of producing the coal. When we add in the margin of the retailer the total margins appear to be larger than the entire cost of producing the coal. The consumer in New York who paid $11.82 for a ton of anthracite coal in 1918 was paying $4.22 for the production and loading of the coal, $2.30 for transportation, and $4.80 in margins. A certain percentage of the retail margin must be reckoned as cost of delivery, so that the most inexcusable profiteering rests with the great anthracite cor- Dorations, which practically control the market. Here again we find the increase in price out of all proportion to the increase in labor costs. The financial reports of the leading anthracite companies show conclusively that large profits prior to the war in no way prevented them from practically doubling those profits during the war years. Four of these companies show an average annual income for pre- war years of nearly $7,000,000, being a return of approximately 15 Digitized by Microsoft® IT per cent on the total capital stock. By 1917 this had risen to over 116,000,000, or over 34 per cent on the total capital stock. The income tax returns of six smaller anthracite companies, published by the Treasury Department, show that their net income increased from 57 per cent on capital stock in 1916 to 941/2 per cent in 1917. Thus it is evident that during recent years a large element in the high cost of living has been the result of the burdensome profits of the coal operator. And it must be recognized that the influence of high prices of coal reaches everywhere, for the cost of coal consumed in power plants and factories, in gas plants and on railways, enters into the price of every article bought by the average household. Profiteering in the production of another fuel, petroleum products, is coming to bear as heavily upon the consumer as profiteering in coal. Profits of approximately 1800,000,000 were earned between 1912 and 1918 by the oil corporations listed in the financial manuals, and this list is by no means complete. The war enabled these cor- porations to take profits more than double those enjoyed during the four preceding years. The stupendous profits of the war years meant that within less than three years the entire value of the capital stock had been earned. Certain companies earned on real investment as high as 1000 per cent. In 1916 one corporation took profits equal to the entire value of its capital stock, which had been increased to 30 times the original investment by stock dividends. Altogether the material summarized in later sections shows that the price of fuel oil in its various forms carried a very large load of profit before the war, and that this profit item was immensely increased during the war. Broadly speaking, then, one important item in the increased cost of living has been traced to the exorbitant profits of the companies which control the sources of the country's fuel supply. If. we could get behind the published figures to determine how much additiou&l is being paid to the owners of land in the form of royalties, we would be in a position to estimate the real extent of profiteering in this industry. Profiteering in Metals. Our entire civilization seems almost to be organized about iron, steel and copper. The war accentuated the strategic character of their position. The price of the raw metals and of their products has increased beyond anything which can be justified by the in- creased cost of production. This has resulted in enormous profits. While the labor costs have tended to decrease, due to improved Digitized by Microsoft® 18 methods, prices have steadily increased. Increases in the price of steel products during the war years were from eight to nine times the increases in labor costs. The net profits of the U. S. Steel Cor- poration per ton of finished product were 220 per cent greater in 1917 and 111 per cent greater in 1918 than they had averaged for the three years prior to the toar. Throughout the steel industry the same condition prevailed. Profits which averaged |74,650,000 for the three pre-war years were more than four times as large in 1916-1918, approximately $337,- 000,000. This means that over one billion dollars in profits were turned over to the steel corporations in the course of three short years. A billion dollars of excess profit means a tax of $10 upon every man, woman and child throughout the nation. In 1916 the Bethlehem Steel Company took profits nearly half again as large as its capital stock. Such facts are merely an index of the enormous profiteering which has characterized the steel industry, and which has entered into the high cost of living resulting from a constant pyramiding of profits. In the case of copper, one and three-quarters billion pounds of which are consumed annually in the country, the situation is almost more striking. For, an analysis of the price of copper shows that in 1918 over 54 per cent of the total price was absorbed either by royalties or by profits. In other words, capital received more than two and one-half times as much per pound as labor received. The amount received by capital is larger than the entire cost of pro- ducing the copper, including production, transportation, marketing and charges for depletion and depreciation. The royalties on copper paid to owners of land in 1918 may be estimated as nearly one hundred million dollars. During the same year the return to invested capital amounted to 28 per cent for the entire industry. Such enormous returns, traced directly to their place in the price of copper, show clearly who is to blame for the increased prices. The net incomes of 14 copper companies, which publish their reports in the financial manuals, were approximately three times as large in the years 1916-1918 as in the years 1912-1914. The average net income of the group rose from |46,5o7,451 in 1912- 1914 to over $137,000,000 for the years 1916-1918. This latter profit means a return of 54 per cent on capital stock. During four years these corporations earned nearly half a billion dollars on capital stock, totaling only a quarter of a billion. This means profiteering which staggers the imagination. Moreover, it must be recognized that much of the reported capitalization is fictitious. This profiteering was carried on into secondary metal trades, into Digitized by Microsoft® 19 the maHufacture of machines, hardware, brass, ships, engines and railroad equipment. In all these various branches of national indus- try the profits more than doubled as a result of the war. And the exorbitant profits of these concerns, when added to the profits of the basic industries just mentioned, tend to increase the price of transportation, of building, of light and power and manufacture. Their importance cannot be neglected. The companies manufactur- ing electrical equipment have followed the same lines. So have the manufacturers of farm implements. But we have perhaps covered a large enough area of the country's industry to indicate, by way of introduction, the cumulative load of profits which the nation is carrying. The high cost of living is often treated as something which is inevitable. But it is not inevi- table. Were profits to be brought down even to pre-war proportions, prices could be reduced very materially without in the least reduc- ing wages. It is in such facts as are briefly reviewed above that we get a real insight into the nature of the problem which faces the people today. It is the problem of making a fight to prevent these war profits from establishing a precedent, from capitalizing themselves into a perpetual burden which will mean that from now on the worker will have to be satisfied with a smaller proportion than ever before of the actual value of his product in order that capital may be per- petually rewarded for its war services. Profiteering Did Not Stop With the Armistice. A survey of such financial statements as are now available (April, 1920) shows that excess profit-taking did not stop with the armistice. This survey, which covers 178 corporations, brings out some very interesting facts which bear definitely upon the problem of the high cost of living. The corporations for which information is available divide them- selves immediately into two groups. In one group are fifty-one cor- porations whose profits for 1919 are considerably below those for 1918, $259,470,504, as against |428,335,174. These are the corpora- tions controlling the production of coal, iron, steel, copper, metal products, and the packing industry, corporations which had a prac- tical monopoly of the requirements of a government at war. In other words, faced with a situation in which the dire need of nations for these products far exceeded the supply, the corporations in these lines reaped huge profits. And it should be noted here that these apparent decreases in profits between 1918 and 1919 cannot Digitized by Microsoft® 20 be taken at their face value. During the war period these compa,nies had expanded greatly. When they faced what appeared to be an era of failing prices, they deducted from their total earnings enor- mous sums for "amortization of war plants," depletion, depreciation, etc. This served them a two-fold purpose. It not only enabled them to avoid excess profits taxes, but also furnished them with a bulwark against possible lean times. With the cessation of the demand for war supplies, the accumu- lated needs of the civil population for clothing, household supplies, etc., gave the industries engaged in these lines their opportunity to exploit the public. The records of the corporations producing those commodities, as shown in the published reports of 127 corporations, prove that they have been profiteering more since the armistice than they did during the war years 1916-1918. The profits of this group for 1919 were $740,391,243 as contrasted with $619,373,699 in 1918. The following tables show the net income of the various industrial groups as described above, in so far as financial reports for 1919 are available : PROFITS OP -CORPORATIONS IN 1918 AND 19i9. Past I. — Industries Showing Decbeased Profits. No. of Industry. companies. 1918. 1919. Coal and Coke 4 $16,112,927 $10,499,623 Iron and Steel 14 222,981,889 133,547.469 Copper and Minerals 16 94,156,071 50,052,684 Metal Products 13 46,829,778 .33.719,072 Packing-houses 4 48,254,S09 31.651,656 Total 51 $428,335,174 $259,470,504 Part II. — Industries Showing Increased Profits. No. of Industry. companies. 1918. 1919. Textile 5 $12,531,026 $15,071,012 Clotting and Dry Goods 10 22.479,122 39,177.063 Sugar 4 16,860,496 24,136.496 Food Products'. 13 50,762,298 56,806.549 Petroleum 16 176,032,752 187,811.6.54 Building Material 7 21,929,652 27,919.208 Railroad Equipment 9 54.334,943 58,148.614 Mercantile 9 32.261,369 50,712.041 Miscellaneous 54 232,182,041 280.608.606 Total 127 $619,373,699 $740,391,243 The table showing the industries having higher profits in 1919 than in .1918 is particularly interesting, because it proves con- Digitized by Microsoft® 21 clusively tte'scaut justification there is for the continued increase in the cost of living. Net profits of the five textile concerns for which data are available are over 20 per cent higher for 1919 than they were for 1918. In the case of the ten clothing and dry go6ds firms the proportionate increase is even greater, being over 75 per cent. Sugar profits are evidently still mounting in response to the artificially high prices which prevail. The thirteen other food prod- ucts concerns and seven oil corporations also show an increase in profits. With the world face to face with a housing crisis, the cost of building material renders building almost impossible. This is reflected in an increase of over 25 per cent in the profits of concerns producing building supplies. The cost of rubber goods continues to increase, and with it the profits of the rubber industry. And the whole is capped by the merchant; nine mercantile establishments have increased their 1918 profits by over |18,000,000. In spite of the limited number of companies for which 1919 data are available, it is interesting to note that the decrease in the profits of the distinctively war time industries very closely parallel in amount the increase in the profits of the concerns which are today exploiting the regular market. In fact, if we add together the profits of all the industries hitherto divided between the two tables we dis- cover that the total profits for 1919 are very little less than those of 1918, approximately 4 per cent. In other words, the profits for the first year of peace are practically equivalent in amount to the profits for the last war year. As a matter of fact, the total profits for all corporations for which comparable figures are available were, in 1919, 110 per cent over the pre-war average. This means that the profits of 1919 were more than double the average profits for the years 1912-1914. Thus again we come face to face with the fundamental issue involved. Is the prece- dent of exorbitant war profits to establish itself in peace-time in dustry? What the Individual Income Tax Returns Show. In concluding this summary it may be well to call attention to the fact that high prices, "the high cost of living," tend to make the rich richer and the poor poorer; in other words, to increase the wealth of those who own property and to reduce the value of the income of the man dependent upon wages. Profiteering blesses the wealthy and curses the people. The individual income tax returns for 1916 and 1917 show con chisively that high prices have been a blessing to those who own Digitized by Microsoft® property, and that the reward has been in proportion to the amount of property held. An outstanding result of the war seems to be a crop of millionaires. During the three years 1915-1917 the number of millionaires in the United States nearly trebled, rising from 2,348 in 1914 to 6,664 in 1917. These individuals had an aggregate income of 11,709,365,988 or over one-eighth of the entire taxable income of the United States. Seventy per cent of this income, or over a billioik and a quarter dollars of it, came from property. In fact, as we examine the data available we find that the higher the income the greater the proportion coming from property, and also that the higher incomes tended to increase more rapidly than the lower ones. Statistics of income for 1917 show that income from property con- stituted only 121/2 per cent of incomes between |3,000 and |4,000, while it constituted 92 per cent of incomes over |2,000,000. When we pause to consider the fact that the very wealthy are the ones who receive the greatest share of the stock dividends and other capital distributions, it becomes apparent how large a sum is going annually to support these millionaires not on the basis of real investment, but on the basis of their strategic position. In general the outstanding facts which are revealed in the sta- tistics published by the Commissoner of Internal Revenue may be summarized as follows: (1) As a result of the war the number of millionaires in the United States has practically trebled. This does not tell the whole story ; it merely indicates a much more general increase in the wealth of the comparatively wealthy. The number of incomes over $100,000' stood at 2,348 in 1914. In 1917 they numbered 6,664. Incomes between |400,000 and |500,000 show the highest rate of increase, from 69 in 1914 to 245 in 1916. In 1917 there were reported 140 incomes of over $1,000,000 as contrasted with only 60 in 1914. In 1916 the figure for these incomes of over $1,000,000 stood at 206, nearly three and a half times as many as in 1914. All along the line the tendency is for the large incomes to increase more rapidly than the small. (2) These new millionaires were products of the war. They developed most rapidly in the centers of war production and finance. Their ranks were recruited chiefly from the ranks of capitalists, investors, corporation oflBcials and manufacturers. Their develop- ment is closely paralleled by the mushroom growth of corporate income. (3) This tendency of the rich to grow richer is found not onlj in the centers of wealth, but also in the communities where the gen- Digitized by Microsoft® 23 eral level of incomes is lower. In each community examined the tendency is for the relatively higher incomes to increase more rapidly than those in the lower ranges. (4) This is to be explained by the fact that the higher the income the greater the proportion of it which is derived from property. In other words, it means that property "profiteered" out of war condi- tions. The result can almost be stated as an equation in propor- tion — the rate of inci'ease in income as a result of the war is directly proportional to the percentage of the income representing return on property. It might be suggested here that thfe higher the income the greater the probability that much of the stock from which it is derived was originally "water." (5) The close relationship between this enormous increase in the number of large incomes and property becomes even more apparent when we see that it reflects growth of corporate income. The cor- porate net income of the country increased between 1914 and 1917 from approximately |4,000,000,000 to over |10,500,000,000. Accept- ing all deductions made by the corporations, and further deducting 10 per cent on new capital, together with all excess profits taxes, it will be found that the remaining net profits of 1917 were three and a half billion dollars above those of pre-war years. (6) This first-hand evidence of profiteering is accentuated by the huge undivided profits which are about to flow out to the wealthy in stock dividends, following the recent Supreme Court decision. This means that the figures already examined are short of the mark. Profits were held in reserve for a favorable moment of distribution. The increase in large incomes will continue. (7) This survey proves that in the division of national income between labor and property, property has received a much larger share than it did prior to the war. Labor, therefore, must have re- ceived a smaller share. This means that the strategic position of property has been strengthened, that of labor weakened. (8) The real significance of this is that, as a result of the period 1914-1918, there are at least three times as many people living pri- marily off large blocks of the nation's property. In other words, the production of the country must, as a result of the war fortunes, carry a heavier overhead than previously. This does not mean that there is today more property in the country for which rent must be paid. It means that the property which existed before the war has been given a higher money value. In other words, as a result of war profiteering a greater proportion of national income must go to those Digitized by Microsoft® 24 who have given their share of the nation's property a higher paper value. It means to the worker that a smaller proportion of the total production of the country will come to him as w^ages. Conclusion. In concluding this brief summary, which aims to show the three- fold relationship between high prices, profiteering and the addition to the quota of millionaires, it should be pointed out that these facts as to the enormous increase in the wealth of the wealthy are an un- answerable refutation to all attempts to charge labor with profiteer- ing, to all attempts to hold labor responsible for the high cost of liv- ing. For, as previously pointed out, if invested wealth gets a larger return, a larger proportion of the national income than formerly, the man who gives personal service or labor is bound to get a smaller proportion. The menace of the future lies in the probability that the vast profits which are still held in reserve will be capitalized in order that, under the pretext of a fair return on capital, those who own them may continue to take the larger proportion of national income, even at the expense of very great suflfering on the part of the work- ers, when the overstimulation of war has passed away. Digitized by Microsoft® PART II. PROFITEERING AND LABOR C03TS BY INDUSTRY GROUPS PROFITEEEING IN THE SUGAR INDUSTRY. The course of the sugar market during and since the world war furnishes a conspicuous example of the excessive burdens which have been imposed upon consumers since the beginning of the war through the artificial stimulation of prices. After an increase of from 75 to 100 per cent over the pre-war period the retail price of sugar abruptly advanced, in 1919, to around 18 to 20 cents per pound, an increase over pre-war prices of about 14 cents or nearly 300 per cent. A$ contrasted with this enormous advance in prices there was an increase in the labor cost of producing a pound of sugar during the same period of not more than 2 cents, which represents less than 15 per cent of the increased cost of sugar to the consumer over the pre- war period and only about 18 per cent of the advance in the whole- sale price of sugar over pre-war prices. It should be pointed out that the labor cost here mentioned is the entire labor cost, including both agricultural labor required to produce the cane and beets and factory labor in the refineriies. An examination of recent Government reports on the cost of pro- duction of sugar shows conclusively that advances in labor costs have been a factor of relatively slight importance in the increased cost of sugar to the consumer. The extensive tables given in these reports have been condensed into the following table, which shows the changes in labor costs in relation to total costs and prices. The figures represent cents per pound : I Cuban , ( Beet -^ , Louisiana v Items 1913-14 1916-17 1917-18 1913-14 1916-17 1917-18 1913-14 1916-17 1917-18 Agricultural labor 0.505 0.966 1.085 1.47 1.522 1.939 1..543 1.764 2.552 Factory labor.. 0.135 0.136 0.191 0.275 0.284 0.393 0.264 0.271 0.410 Total labor 0.65 1.102 1.276 1.745 1.806 2.332 1.801 2.035 2.962 Total cost 2.70* 3.65* 4.93* 4.12 4.36 5.50 4.48 4.79 6.84 Wholesale price. 3.87 6.28 6.42 4.86 7.52 8.13 4.71 7.71 7.79 Retail price 4.6 8.2 9.3 4.6 8.2 9.3 4.6 8.2 9.3 * Includes duty 1 cent per lb. Digitized by Microsoft® 25 26 In this table the great disparity between increase in labor costs and increase in prices stands out in bold relief. In Ibe lieet-sugar industry labor costs per pound of output advanced from l.Tl cents to 2.33 cents, an increase of only 62 hundredths of one cent as con- trasted with an advance in the wholesale price of beet sugar during the same period from 4.86 cents to 8.18 cents, an increase of 3.27 cents, or five times the advance in labor costs. In the case of Lou- isiana cane sugar labor costs advanced from 1.80 cents per pound in 1913-14: to 2.96 cents in 1917-18, an increase of 1.16 cents per pound. The increase in tlie wholesale price of cane sugar during this period was almost three times as great. A still greater disparity between the increase in labor costs and the corresponding increase in prices is shown in the case of the Cuban sugar crop, which furnishes under normal conditions about 50 per cent of the sugar consumed in the United States, as against only 23 per cent produced in this country. In the Cuban sugar in- dustry labor costs for the production of raw sugar advanced 64 hundredths of one cent per pound in 1913-14 to 1.27 cents in 1917-18, an increase of only 63 hundredths of one cent, as contrasted with the advance during the same period of 2..5.5 cents per pound in the wholesale price of the same sugar. In other words, the increased labor cost represented only about 25 per cent of the increase in the wholesale price. In the case of retail sugar prices there was an advance from 4.6 cents per pound in 1913 to 9.3 cents in 1918, an increase of 4.7 cents, which was eight times as great as the increase in labor costs in the beet-sugar industry, four times as great as the advance of labor costs in the Louisiana cane-sugar industry, and seven times as great as the increase in labor costs in the Cuban-sugar industry. In the case of the sugar crop of 1919-20, the increase in labor costs over 1917-18 has been somewhat liberally estimated at 50 per cent. On this basis the increase in the labor costs of producing a pound of sugar for the season of 1919-20 over the pre-war period is approxi- mately 1.75 cents for beet sugar, 2.64 cents for Louisiana cane sugar, and 1.26 cents for raw Cuban sugar. These increases are only 12.5 per cent, 18.9 per cent and 9.0 per cent, respectively, of the increasp of approximately 14 cents in retail sugar prices since 1914. In the case of wholesale prices, current quotations vary from 15 to 16 cents per pound, an increase of approximately 11 cents over 1914. This is about six times the increase in labor costs for beet sugar over the pre-war period, more than four times the increase in labor costs for Louisiana cane sugar and nearly nine times as great as the in- Digitized by Microsoft® 27 <;rease in the labor cost of producing raw Cuban sugar during tlie period under consideration. The increases above noted in the labor cost of producing sugar are obviously of relatively small importance as a factor in the re