Profits and Profit Control

June 8, 1951

Report Outline
Defense Profits and Curbs on Profitering
Record Profits of American Corporations
Price Control and the Control of Profits
Contract Renegotiation and Profits Taxes
Special Focus

Defense Profits and Curbs on Profitering

Fear that the federal government will impose too tight a rein on industry profits, through its administration of price controls, is agitating the business world as Congress considers renewal of the price-control authority contained in the Defense Production Act. The United States Chamber of Commerce, the National Association of Manufacturers, and others are advocating outright abolition of price and wage controls. Congress, however, is not likely to let the power to impose those controls lapse on June 30, its current expiration date. Although the upward spiral of prices seems to have momentarily slackened, the full weight of inflationary forces generated by the defense program has yet to be felt. It is widely believed that higher taxes, more stringent credit restrictions, and reduction of ordinary government expenditures could not alone hold inflation in check, as the opponents of price and wage controls maintain.

Business Concern for Profits Under Price Control

Concern over the effects of price control on profits began to be expressed after Economic Stabilization Administrator Johnston announced, Apr. 21, that requests for price increases would be denied if the profits of the petitioning industry amounted to 85 per cent of its average profits for the three best years in the four-year period 1946–1949. In formulating a basic earnings standard as a yardstick for judging applications for price increases, the Economic Stabilization Agency was adopting a procedure similar to that followed by the Office of Price Administration in World War II. The resulting protests that the agency was thus setting out to control profits instead of prices echoed earlier protests leveled against O.P.A. Congress did not interfere with the O.P.A. practice. However, it remains to be seen whether, in renewing the present price-control authority, it will force modification of the announced earnings standard or impose restrictions on its use.

One of the objections raised against the earnings standard is that it will require industry to absorb cost increases, up to the point where such increases reduce profits below the designated level. It is conceded in some business quarters that current high profits will permit considerable absorption of cost increases without serious immediate damage. But it is feared that over a protracted period the squeeze on profits will diminish the incentives, as well as the funds available, for industrial expansion.

ISSUE TRACKER for Related Reports
Regulation and Deregulation