Oh Yes!

"Oh no," he reiterated in his sure, firm voice. "Oh no, wages in the steel industry are not coming down!"

But President James Augustine Farrell, onetime wire drawer, dictates the financial policies of United States Steel Corp. no more than did the late great Judge Elbert Henry Gary. The Ruler of Steel is its finance committee. Member John Pierpont Morgan was absent in England when Steel's finance committee met last week in the unadorned Steel Corporation offices at No. 71 Broadway. But present were his partner Thomas William Lament, Committee Chairman Myron Charles Taylor and Banker George Fisher Baker Jr. Just as in 1921 the finance committee lowered wages over the protest of Judge Gary, last week in effect it politely edited President Farrell's former statement to read: "Oh yes, wages in the steel industry are coming down 10%." Handsome Chairman Taylor made the announcement. The actual, fateful words were: "For the purpose of better meeting prevailing, unsatisfactory conditions in the industry, rates of wages . . . will, effective October 1, be reduced by approximately 10%, varying somewhat in the character of work performed."

Steel, Copper, Rubber, Motors. Thus the greatest argument in U. S. business for the past year was settled. Many a potent industrialist is still against reductions, including President Walter Sherman Gifford of American Telephone & Telegraph who carries great weight on the U. S. Steel directorate. But with Steel taking the lead, other companies rushed to follow. Bethlehem Steel Corp. and Youngstown Sheet & Tube followed suit so precipitously as to suggest that they had settled the argument long ago, were merely awaiting a strong lead to follow. As more and more steel companies were added to the list, absences became conspicuous. It was clear that many companies had already taken their 10% off wages. "We are living in a fool's paradise," President Farrell said a few months ago, "if we think that every steel manufacturer in the United States has maintained . . . current rate of wages."

Companies in other industries jumped to take advantage of Steel's movement. General Motors Corp. knocked 10%-20% off the salaries of its 25,000 white-collar men. United States Rubber adopted a five-day week as its normal schedule --first step of its kind to be taken by a big U. S. corporation. U. S. Rubber salaries were reduced 1/11 in adjustment to the new schedule. Aluminum Co. of America, controlled by the Mellons, announced a 10% wage cut.

Boomerang? In these five companies alone, some 320,000 men are affected by the reductions and the movement continued spreading throughout the week. Labor was being deflated on a large scale for the first time in the current Depression. In addition to protesting Laborites and politicians (see p. 13), many a voice was heard condemning the move, hoping it would be halted. Mr. Gifford did not elaborate his reasons for opposing, and special factors may prejudice Mr. Gifford's case (he is National Relief Director; American Telephone & Telegraph was earning its dividend; A. T. & T.'s wages are indirectly fixed by public service commissions; political goodwill is essential to A. T. & T.). But the prime argument against wage reduction is that it lowers the purchasing power of the people, may be a boomerang to business.

Obviously the boomerang, if any, would get back to different businesses at different rates of speed. No steel employe buys billets or rails. A reduction in steel dividends is apt to have a more direct effect on purchases, although this too would be small. But purchasing power ceased to be a prime consideration for steel company executives when they were obliged to consider their companies' capital positions. Working capital and surplus had shrunk to points beyond which responsible executives felt they could not let shrinkage go. The cut will save U. S. Steel some $30,000,000 a year.

U. S. Steel could show, for example, that through two years of Depression it had been paying its then normal hourly rate even though fading earnings pro claimed the need of lower production costs. It had, for the first time in any depression, widely adopted the "stagger system," part-time work for as many men as possible. It had cut its salaries and its dividend, yet from October 1930 to August 1931 its number of employes had dropped only 6%. During this time out put fell 27% to 31% of capacity.

No question of solvency was involved, but it might be poor management to allow further depletion of working capital. As soon as business picks up vast sums of money will be needed to improve plants, to purchase and move raw materials. Un less working capital were kept up there would be the need of further borrowing which would be a burden on future operations. When the turn comes, any company, unable to borrow at once, would find its competitive position weakened. Thus, while wage-cutting seems on the surface merely to decrease Steel's employes' earning power, its real reason is to safeguard ultimate earning power.

$1=? In addition to such theorizing, last week Business mustered figures in its defense. Just as the slashes were announced, the Bureau of Labor Statistics of the Department of Commerce issued a report on the purchasing power of the dollar. It showed that since December 1929 the U. S. cost of living has dropped 21.1% by an average weighted to take into account all major items of expenditure in their proportionate amount. For the past year alone food was off 20%, household furnishings 9.6%, clothing 8.1%, rent 5.1%, fuel 4.3%. Detroit showed a 12.7% drop, Kansas City 5.6%, New York 8.5%, Atlanta 8.9%, Birmingham 12.8%, Philadelphia 8.1%, St. Louis 10.2%, Boston 9.8%, Chicago 10.2%, Cleveland 10.9%, San Francisco 8.4%.

Because of this it was possible to argue that the workingman can live as well (theoretically a little better) on a 10%-reduced wage as he did in 1929. However, the standard of living is measured not by the purchasing power of the dollar, but by the purchasing power of actual earnings, taking their fluctuations into account. This figure, termed Real Wages, shows the workingman not so well off as in 1929.

Figures compiled by the National Industrial Conference Board, Inc., show that with 1923 as normal the purchasing power of the dollar was at $1 in the summer of 1929. After Depression came it rose to $1.16 on Sept. 1, 1931. In other words the same dollar on that date would buy 16-c- more worth of goods than it would in 1929, a 16% increase. But actual money earnings last August stood at 84.5% of normal, which, weighted with the purchasing power of the dollar, gave a real wage or purchasing power of earnings of 98.4%. Subsequent reductions in wages have lowered it, and last week's movement undoubtedly carried it to a new low.

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