Explc losive Question

Everyone knows that business profits are high. Are they too high? To this short, explosive question, a Senate subcommittee, weighing the pros & cons of an excess profits tax, last week got some long-winded and contradictory answers.

Harvard's white-haired Sumner Slichter, an economist whom businessmen understand, thought that profits were not really high, although he conceded that they might look that way.

The reason for this, said Slichter, was that U.S. businessmen have not yet learned to write off the inflationary water-in their profits. When the value of inventories rose, businessmen took a paper profit, ignoring the fact that the replacement cost had risen too. They did the same with their plants and equipment. Thus, of the estimated $21 billion in profits (after taxes) this year, Slichter thought at least $5 billion is sheer self-deception.

Stunted Growth. Slichter maintained that corporate profits should be even higher. The only way to tell whether profits are excessive, he held, is "the community's [need] for expanded output and productive capacity." That need Slichter assessed at $70 billion "at present prices." To cut corporate profits now, he implied, would stunt the country's economic growth.

Chase National Bank's Joseph E. Pogue agreed. The U.S. was lucky, said he, that the oil industry's profits had been so high. Pogue cited 30 oil companies whose total earnings topped the $2 billion mark. 'The same companies had invested an equal amount (71% of which came from earnings) in new refineries and fields, and had licked the oil shortage.

General Foods Corp.'s Clarence Francis made no bones about General Foods' high profits. It had earned $70 million since the war. But General Foods had reinvested half its profits in modernization and new plants. Earnings, said Francis, were the best kind of venture capital, because there was no worry about interest payments. Without this "costless capital," Francis indicated, General Foods might not have been able to expand.

Smaller Profits. This argument got nowhere with Harvard Professor Seymour Harris, an economist who has usually taken the New Deal line. He thought that business profits were too high. And he worried, over the "overinvestment" in new plants. Said Harris: "Obviously, we are doing too much with our limited resources. Hence the pressure on prices." The fact that management was spending so much had helped cause a scramble for materials, and had driven up prices. The plant expansion, he thought, was an "inflationary factor of great importance."

The A.F.L.'s economist, Nelson Cruikshank, was even blunter. Cruikshank thought the practice of retaining earnings for capital investment rank injustice. Snapped Cruikshank: "Taxation by corporation without representation. Through prices paid for consumer goods, buyers are providing capital for industries over which they have no control and from which they receive no dividends."

The C.I.O.'s case was made by chesty, talky Economist Stanley Ruttenberg, and it was a muddled one. Ruttenberg first accused businessmen of failing to expand production, then he accused them of hoarding earnings to expand and build up monopolistic enterprises. He castigated steel companies for putting away earnings as reserves against a depression, saying: "This is an extremely dangerous attitude for American industry to take." Ruttenberg's cureall: an all-out attack on "monopoly" by slapping on excess profits and undistributed profits taxes.

Such conflicting testimony was sad news to Vermont's Senator Ralph E. Flanders, committee chairman, who had hoped to find a meeting of minds on what new corporation taxes, if any, should be imposed. But though patient Senator Flanders had still to hear from more businessmen, it looked as if he--and Congress--would need all their patience to find a statesmanlike middle ground.

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