From Labor Action, Vol. 5 No. 40, 6 October 1941, p. 3.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
In response to the-growing dissatisfaction with the tremendous amount of profiteering that is taking place under the “defense” program, Secretary of the Treasury Henry Morgenthau, Jr., precipitated one of the bitterest economic controversies ever touched off by the Roosevelt Administration when he proposed that the .government take all profits over 6 per cent of the capital invested. The eminent Secretary was testifying in favor of price control as the only alternative to inflation. The bombshell was let loose in response to a question from a reporter about controlling the present rise in prices. Immediately a storm arose on Capitol Hill and in the boss press about the “radical” Morgenthau trying to “carry out the New Deal program for the establishment of socialism” and “the destruction of private initiative.” Both the proposal and the response are extremely interesting and deserve the careful attention of the workers. Morgenthau was very careful to dress his proposal up as an additional measure to prevent inflation. He did not dare to mention the super-colossal profiteering going on now in all branches of industry and business. But there is no doubt that the chief motivation for the 6 per cent profit limitation is the widespread feeling that there is something slightly unethical, to say the least, when the big corporations are raking in the dough so fast that they can’t count it. It strikes the masses of the population as something: less than 100 per cent patriotism when the bosses are making from 100 to 400 per cent profit in many cases – during a period officially proclaimed as a “national emergency.” This is bad for the morale of the people. It leaves the workers and the soldiers feeling very disgruntled. The common man begins to feel that he is holding the bag, so to speak, while the bosses empty it – which is as good a description of the present situation as any. Such a situation breeds strikes and unrest. Worst of all, it sharpens class antagonisms. The best way, from the point of view of the bosses, is to PRETEND to impose sacrifices on the bosses.
We welcome the idea of a 100 per cent excess profits tax. This is an essential first step in the direction of elementary social justice. Yet I hope that our readers will forgive us if we introduce a slightly skeptical note.
In the first place, “we’re from Missouri.” We don’t believe the bosses will tolerate a 6 per cent limit on their profits – even on paper. Already, it is indicated that the government will have to “compromise” if it wants to get any bill passed which limits profits. The nature of such a “compromise” measure is not hard to guess. It will still permit the bosses to coin fabulous profits. A meaningless gesture to appease the outraged sentiment of the workers is all that can be expected from a boss government, dominated by “dollar-a-year” men. If the bosses refused to produce during the first period of the “defense” program until the Vinson-Trammell Act, limiting profits on naval order to 8 per cent, was repealed; if they virtually went on a “sit-down” strike until they got a fake excess profits bill passed, coupled with a very liberal amortization clause that allows them to write off the cost of new plants in five years instead of the customary 20 years – there doesn’t seem to be any reason for believing that the big capitalists will sit idly by and watch the government reduce their profits to a “starvation” minimum.
But, since the age of miracles has not yet passed and this war is a very serious business, let us suppose that the government gets a 6 per cent profit limitation bill passed. This brings us to the second reason for our skepticism. Profits can be concealed, with or without the connivance of the Treasury’s tax experts, so that what appears to be a 6 per cent profit away well turn out to be 60 or 100 per cent or more. The International Federation of Trade Unions, for example, reports that even in Germany, with a 6 per cent limit on profits, supposedly enforced by a powerful and ruthless government, the big capitalists are able to conceal fantastic profits under the legal 6 per cent clause.
One of the favorite tricks is to “water the stock.” In this favorite dodge of the big bosses, the Americans don’t have anything to learn from the Germans. The aircraft companies, among many others, are excellent examples of this technique. Let us say that a corporation has raised $10,000,000 through issuing common stock. Six per cent on this capital invested would mean that the most that could be paid out in dividends is $600,000. Now let us suppose this stock is “watered.” That is, more stock is issued than the corporation is worth. What happens? Just this – if, for example, twice the amount of stock is issued (and it only requires a “vote” of the stockholders to authorize such a maneuver), then the corporation presumably has a capital of $20,000,000. Six per cent on this amount would mean double the profit, or $1,200,000. There is practically no limit to the extent to which this profit-concealing device can be used.
And if they get tired of using this method of concealing profits, there are many others that the bosses can use and are using every day. One of the favorites is to pay out huge salaries and bonuses to the officers (for their hard work in concealing profits, of course). Such items become part of the costs of manufacturing, according to capitalist bookkeeping methods. They are, is reality, profits.
There are many other methods that the bosses use to conceal their profits. Corporation lawyers are paid fancy salaries for precisely this reason and we are sure that with the incentive for concealing profits increased by a profit-limitation bill, the corporation lawyers will work overtime to find new methods to conceal profits. As long as the bosses control the economic set-up, any profit-limitation can only be a paper one.
If the government is serious in its desire to control and limit profits, then let the workers examine the books of the bosses. Only the workers know the real situation in their own factories. Only the workers can make sure that the profits of the bosses are really limited. The workers, however, will never get this right from the bosses or from the boss government. They must fight for it, make it one of their demands on the picket line. This, and only this, is the way to limit profits.
Last updated: 5.2.2013