State of Rearmament

Of the vast and variegated job of rearming the U. S. the part that U. S. industry must play is vast and variegated enough. It means building a strange, specialized, plane-ship-and-munitions economy inside and alongside a vast, sluggish bread-&-butter economy, and meshing them. Yet the first step needed for the industrial job was by last week clear: constructing new plant and equipment. But, after seven weeks of hard desk work and high talk in Washington, few new factories for war materials had taken shape.

Last week one big obstacle to new plant was detected and removed. The obstacle: the long memories of manufacturers and investors, reluctant to put money into new plant that may be as useless five or six years hence as the Hog Island Shipyard was in 1923. The U. S. Treasury took the rap for Hog Island. Why should the stockholders of Packard Motor Car Co., for example, take the rap for $30,000,000 of new equipment which, after building enough Rolls-Royce plane engines to beat Hitler, might find its market destroyed by peace?

To stiffen venture capital's spine against this hazard, the White House announced a new policy. Treasury, Defense Advisory Commission and Federal Loan Agency all agreed that capital outlays for Defense may be written off the owner's books, in the tax returns, at 20% a year (far higher than normal depreciation rates in most manufacturing industries). By reducing their taxable profits on war goods, this depreciation rate will keep many manufacturers out of the higher brackets of an excess-profits tax.

Capital's fear of the excess-profits tax now in the works (TIME, July 15) was thus partly assuaged. Also soothing was a second White House announcement: the Vinson-Trammell Act, which limits profits of ship and aircraft builders to 7 and 8% on Government contracts, would be repealed (Congress willing). Makers of war goods were thenceforth to be considered just as useful and profit-meriting people as any other manufacturers. For them, it was a forgotten but not a new sensation. In 1918 they were given special tax incentives; in the '20s they were shamed or starved out of the munitions business; in the '30s they were excoriated by the Nye Committee; last week their prestige had come almost full circle.

As these proposals went into the hopper, Defense activity began to look up. RFC announced it would make 4% loans for Defense construction. Packard, whose directors had tabled the order early in the week (TIME, July 15). announced a "general agreement" on the Rolls-Royce job, considered asking for an RFC loan. Meanwhile the War Department made a deal with Du Pont (which virtually forswore the munitions business after the last war) to operate a projected $30,000,000 smokeless-powder plant at Louisville. First of four such plants to be built and owned by the U. S., it will have a daily capacity of 200,000 lb., more than double the present total U. S. output.

Another important move on the construction front last week was the appointment of a factory construction expert to the Defense Advisory Commission. The expert: A. T. & T.'s construction vice president and chief engineer, 47-year-old, white-haired, keen-witted ex-Repair Man William Henry Harrison. With the freer tax policy stimulating investors, RFC prodding manufacturers, and orders with money attached beginning to roll out of Washington, Builder Harrison should soon have plenty to do.

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