Socialistic Prod?

President Truman, who thinks the U.S. steel industry has not expanded fast enough to meet the nation's needs, last week gave it a sharp prod. In his "State of the Union" message (see NATIONAL AFFAIRS), he asked Congress for an "immediate study" to find out if existing steel capacity is adequate. If it is not, said the President, then the Government should lend industry the money to expand or, if steelmen balk at that, put up the plants itself.

Many an observer, like Michigan's Republican Senator Homer Ferguson, cried that this was another "step toward socialism." It was hardly that--yet. But it was a shrewd political move designed to scare steelmen into making more steel. It also put out the welcome mat for such companies as Dallas' Lone Star Steel Co. Lone Star got its start with a $25 million war-surplus blast furnace which it bought in 1947 for $7,500,000 (TIME, April 7, 1947). Last week Lone Star's President Eugene B. Germany called on Truman to discuss an RFC loan to add a $61 million rolling mill to his plant.

Ready Answer. The rest of the industry had a ready answer to the President's challenge. Walter S. Tower, president of the American Iron & Steel Institute, gave it. In 1948, said he, the industry had added 1,800,000 net tons of capacity. This year and next it will add 2,700,000 tons more and its total expansion bill will come to $2 billion.

But the industry had also been retiring obsolescent capacity almost as fast as it built new plants. Thus, in 1948, capacity was 1,271,000 tons less than in 1945. The capacity for 1949 (at 96,120,000 tons) was only 615,000 tons higher than at war's end. The truth was that U.S. steelmen did not trust prosperity. Said National Steel's Chairman Ernest T. Weir last week: "It is obvious that the huge immediate need for steel is abnormal."

Money Talks. Steelmen had some other plausible arguments against big expansion now. They pointed out that throughout the 1930s, capacity was far greater than the country's demand for steel. Even in recent years production has been below capacity because of strikes, shortages of scrap and coke, etc. But that argument lost some of its point recently. Production stood at 100% of capacity, and scrap had once again become plentiful enough so that the price was dropping.

The most cogent argument against expansion was that it now costs an estimated $300 to add one ton of new capacity for finished steel (v. $75 prewar). Yet tax allowances for depreciation do not take the high replacement cost into account. For example, much of the cash being put in U.S. Steel's depreciation reserve has come out of profits and, as such, is taxable.

Even New Dealing, rebellious Henry Kaiser, who believes in maximum expansion (he is currently spending upwards of $45 million on Fontana alone), agreed with other steelmen that the key to more expansion is the quicker--or more realistic--write-off of its cost. In lieu of that, Kaiser has adopted his own harsh substitute. He raised the price of his Fontana steel $30 a ton to apply against the Government debt on his plant.

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