The Tools That Make Tools

December 8, 1952

A few weeks ago I attended and spoke before the annual meeting of the National Machine Tool Builders’ Association, which this year celebrates its 50th anniversary. The machine-tool industry does not deal directly with the consuming public, but with other industries. It makes the tools that make tools, the machines that make machines. It turns out the machines that turn out trucks, tractors, automobiles, radios, television sets, refrigerators, washing machines, lawnmowers, watches, razor blades, milk bottles, shoes, suits, pills—almost anything you can think of. Machine tools themselves can only be made by other machine tools.

Surely the men in this industry do not exaggerate when they call machine tools the muscles of America; when they point out that the better our tools, the greater our capacity to produce, the higher our standard of living, the stronger our military security. For we must have machine tools to produce guns, bullets, shells, tanks, aircraft, battleships, and bombs. The machine tool is the very basis of America’s industrial supremacy, of our whole mechanical civilization. It has enormously increased labor productivity. It is the secret of America’s unparalleled wages.

For technical reasons, changes in the demand for and output of consumers’ goods give rise to much more violent changes in the demand for and output of producers’ goods. And as the machine-tool builders are producers’ producers, they are the classic example of the prince-or-pauper, feast-or-famine, boom-or-bust industry. Yet Washington has been extremely slow to realize the industry’s special problems. It was not until August 1951 that price relief and priority assistance were extended to it. The price-control program has been stupid generally, yet as applied to machine tools it was almost disastrous.

Instead of offering incentives and inducements for the expansion of the American machine-tool industry since the outbreak of war in Korea, the Truman Administration in the main has provided deterrents.

The so-called excess-profits tax discourages growth generally; but it is particularly discouraging to an industry subject, like machine tools, to extreme swings in profits. For this tax is liable to take years of low earnings as the “normal” base, and so take away an extra heavy slice of earnings in the rare good years. Its effect, in other words, is to cut much more heavily into the average profits of industries subject to wide fluctuations in demand than into the profits of industries benefiting from steady demand. In this way it is depriving the machine-tool industry of the needed reserves for lean years, of reserves for survival, not to speak of funds for the expansion of plant, or for the research necessary to keep ahead of our potential enemies.

The same considerations apply to the renegotiation of government contracts. The general effect of this practice is to place an arbitrary limit on profits, and so undermine the incentive to economies and efficiency in production. It may be seriously questioned whether renegotiation does not reduce defense output below what it would otherwise be, and actually cost the government much more money in the long run than it saves.

Finally, the American machine-tool builder has watched with misgiving a foreign policy which has subsidized his European competitors with his own tax dollars and then effectively prevented him from selling his own goods in the foreign market. Does it make sense even from a military standpoint, he asks himself, for us to build up the European machine-tool industry at the expense of our own, when Stalin’s hordes could overrun Europe and then use all this equipment against us?

The recent proposal by Henry Fowler, the Defense Mobilizer, to set up a government stand-by reserve of machine tools to be ready for use in the event of full-scale war is a step in the right direction. But the new administration should reexamine the whole policy toward the machine-tool industry—and, for that matter, toward industry in general.