New Equipment

U.S. business last week got a chance to take a hardheaded look at what the war is doing to its No. 1 heavy industry--steel. What it saw would have startled stanch private capitalists of the brand of the elder Morgan or Judge Gary.

Between 1940 and 1942 expenditures on plant and equipment in the steel industry have skyrocketed (see chart above) from $180 million a year to nearly $700 million. But the Government's contribution to these expenditures has steadily risen until in 1942 it stood at $420 million, or better than 60% of the total. Moreover at the end of 1942 the Government was committed to spend another $648 million, which will bring its total contribution to steel up to over $1 billion.

Against this huge contribution by Government the steel industry itself between 1940 and 1942 spent some $728 million of its own money. But in only one year, 1941, did these expenditures run much above reserves set aside for depreciation. Thus while the steel companies last year spent $262 million on new equipment, total depreciation charges amounted to $232 million. This means that the major steel producers have relied on their depreciation reserves to maintain the value of their plants, while the Government has stepped in to finance most of the new plant capacity. Such financing was unknown in World War I and raises some thorny ownership questions for the postwar era.

But the great economic question is whether, in view of the steel industry's rapid expansion now, there will be need for new private capital expenditures after the war. In the past, continuous high capital outlays have been a key to prosperity: thus the big investments which steel firms made in new continuous strip mills in 1936 and 1937 (as indicated on the chart) played an important part in the 1937 recovery. Whether industry discovers such new technologies after the war and invests in them will have a lot to do with whether private capitalism works or not.

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