(The chart referred to and submitted by the witness showing index of petroleum refining products, was marked "Exhibit No. 12.")

Mr. HOUSTON. The next chart shows sole leather at 82 per cent. (The chart referred to, showing index of sole leather production, was marked " Exhibit No. 13.")

Mr. HOUSTON. The next chart is a composite index showing distribution to consumers, showing department store sales, chain store sales and other chains, automobile registrations, mail orders, advertising, gasoline consumption. Those are used solely as a general indication of the volume of movement to the consumer. That is

at 77 per cent.

(The chart referred to and submitted by the witness, showing distributor to consumer, was marked "Exhibit No. 14.”)

Mr. HOUSTON. The next chart shows the consumption of textiles, made up of cotton consumption, wool mill, and silk, at a volume of 75 per cent.

(The chart referred to and submitted by the witness, showing index of consumption of textiles, was marked "Exhibit No. 15.") Mr. HOUSTON. The next chart shows mail-order sales, a value of 59 per cent.

(The chart referred to and submitted by the witness, showing index of volume of mail-order sales, was marked "Exhibit No. 16.") Mr. HOUSTON. The next shows hosiery production, at a present volume of 73 per cent.

(The chart referred to and submitted by the witness, showing hosiery production, was marked "Exhibit No. 17.")

Mr. HOUSTON. The next chart shows chain store grocery sales at a volume of 72 per cent.

(The chart referred to and submitted by the witness, showing chain store grocery sales, was marked "Exhibit No. 18.")

Mr. HOUSTON. These charts show, I believe quite clearly, the movement of commodities into consumption. I am of the opinion. that it is impracticable to increase production of these commodities faster than consumption increases. In my statement, which the secretary read to you, I expressed the opinion that to do so would merely increase the existing inventories and further depress prices. I also called attention to the fact that employment could be stimulated only by increase in demand for consumption goods which we have discussed, by increase in public works, or by increase in the production of capital goods by private enterprise, and have argued for the stimulation of demand for capital goods by private enterprise, believing that in this resource we have the greatest possible. opportunity for stimulating further employment.

I showed that these capital goods are produced in normal times in very large volume. In 1929 I estimated this volume at fifteen billions of dollars. It is very difficult to get these over-all figures, in that the statistics for capital goods have been so built up as not to

separate clearly the flow of basic materials into capital goods and those that go into consumption goods, so that at best we must use a general estimate; but we do have sufficient information to indicate that this capital-goods demand is a very large demand in normal times.

I want to show you now the marked difference between the present demand for goods of this character and the present demand for goods n.oving into consumption, which we have just gone over.

I made the statement in the memorandum previously referred to that present demand for capital goods is not more than 25 per cent of that experienced in the country during 1929. The normal shown in the following charts of capital-goods material is 15 per cent below the 1929 figure. To put it in another way, the 1929 demand for those goods was 15 per cent above normal.

Senator BULKLEY. I suppose as to these charts you are also unable to explain how normal was arrived at?

Mr. HOUSTON. That is true. I have not attempted to analyze the make-up of these normals. I will be glad to get that for you from the Federal Reserve Bank of New York if you are interested. Senator BULKLEY. I think that would be very important.

Mr. HOUSTON. All right.

The first chart I wish to submit is with reference to cement. You will appreciate that cement is not consumed in living, but enters into more or less permanent construction only.

Senator FLETCHER. Have you ascertained the cause of this tremendous falling off in demand, 25 per cent, you say, off normal?

Mr. HOUSTON. Yes; I am coming to that when I am through presenting these charts, when I will present what I believe to be

the reason.

Th's chart shows that from 1922 through 1930 the demand for cement was well above the normal and is now down to 45 per cent of normal and falling rapidly.

(The chart referred to and submitted by the witness, showing index of Portland cement production, was marked "Exhibit No. Mr. HOUSTON. The second chart is for lumber production, which was above normal with the exception of two or three very short 19.")

periods from the middle of 1922 to the latter part of 1929, and is now down to 31 per cent of normal.

(The chart referred to and submitted by the witness, showing lumber production, was marked "Exhibit No. 20.")

Mr. HOUSTON. The next chart is an index of railroad-locomotive shipments-down to 2 per cent of normal at the present time, practically stopped. That chart is not quite up to date. The latest figures we have bring it under 2 per cent.

Senator COUZENS. May I ask the witness at this point if he agrees with the statement that appears in so-called Railroad Data issued from the Committee on Public Relations of the Eastern Railroads, dated June 3, 1932, made by Mr. Julian L. Eisman, vice president of the Pennsylvania Railroad, in which he speaks of railroad conditions and, among other things, says:

Now, however, we are faced with a very great and unprecedented abundance of transportation, and even when we pass out of the present depression there will be a superfluous and unneeded capacity which will last for many years. Mr. HOUSTON. I do not agree with that statement as to certain phases of railroad facilities. I do agree with it as to certain others. I would rather defer discussion of the railroad situation until I have got this general picture presented and then come back to it further, if I may.

Senator COUZENS. That is entirely agreeable to me.

(The chart referred to and submitted by the witness, showing index of railroad-locomotive shipments, was marked "Exhibit No. 21.")

Mr. HOUSTON. The next chart that I wish to present is that with reference to freight cars, now standing at 8 per cent of normal, and a chart of railroad equipment combining locomotives and cars. This chart is down to about 12 per cent, but it is not entirely up to date. The average would be somewhere between 2 and 8. The figures I have given in this statement are the latest.

Senator BROOKHART. Later than the charts?

Mr. HOUSTON. Yes, sir. The charts in some instances have not been brought up to date.

(The two charts last above referred to, showing freight cars and combined railroad equipment, were respectively marked "Exhibit No. 22" and "Exhibt No. 23.")

Mr. HOUSTON. The next chart is a chart showing shipbuilding, indicating a present volume of 10 per cent of normal.

Senator BROOKHART. That has been up and down so violently that you can hardly have a normal in it.

(The chart referred to and submitted by the witness, showing index of ship construction, was marked "Exhibit No. 24.")

Mr. HOUSTON. The next is a chart of building contracts, now standing at 21 per cent of normal. It is interesting to note that it was above normal from the early part of 1922 to the end of 1929, but has been falling constantly since.

(The chart referred to and submitted by the witness, showing building contracts, was marked " Exhibt No. 25.")

Mr. HOUSTON. The next chart is a chart of pig-iron production, now standing at 28 per cent of normal.

(The chart referred to and submitted by the witness, showing pigiron production, was marked " Exhibit No. 26.")

Senator STEIWER. Are these charts in every case based upon production?

Mr. HOUSTON. They are based upon, in some instances, composites, mostly of volume, but in a few instances where volume is not available

Senator STEIWER. Do you consider orders for consumptive requirements?

Mr. HOUSTON. These are output.

Senator STEIWER. These are factory output?

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Mr. HOUSTON. Yes, sir; all output.

Senator STEIWER. The output may be in excess of the consumption?

Mr. HOUSTON. The only way they have of measuring the consumption, except where they deal with movement into consumption of wholesale goods, is output.

Senator COUZENS. That output would be sales, not necessarily stock on hand?

Mr. HOUSTON. It should be clearly pointed out that the practice of making inventories in capital goods is nonexistent. There is practically no such thing as inventory with the exception of a few items like pig iron. The ratio of volume to capital invested in those industries is of such a nature that very little inventory can be built up. They can not afford to carry it. All such industries must make up their product as a direct reflection of receipt of orders. It will be noted with reference to the Steel Corporation that their productive ratio fluctuates very accurately with the flow of orders, so that these indices of production are a very accurate reflection of the demand.

Senator COUZENS. So, in effect, when you say production you mean sales?

Mr. HOUSTON. Yes, sir.

Senator STEIWER. Do you think that is true of lumber?

Mr. HOUSTON. No, sir; because lumber must be carried through a seasoning process; but I would say it is probably true of finished lumber to a much greater degree than raw lumber.

Senator STEIWER. Yes; I would agree with that.

Mr. HOUSTON. But there is a long seasoning process between the time timber is cut and the time the lumber reaches its ultimate destination. That is due to the character of the product.

The next chart I wish to submit is that of metal production, standing at a present volume of 39 per cent of normal.

(The chart referred to and submitted by the witness, showing index of production of metals, was marked "Exhibt No. 27.")

Mr. HOUSTON. Finally, I wish to submit a chart of steel-ingot production, at 29 per cent of normal as of the date of this chart. I have not the latest figures.

(The chart referred to, showing steel-ingot production, was marked "Exhibit No. 28.")

Mr. HOUSTON. A further consideration of these charts of capitalgoods production will indicate violent fluctuations. You will notice they are very much above or below normal. There is nothing like uniformity in output

Senator COUZENS. May that not be due to undue expansion of capital goods?

Mr. HOUSTON. I would say, rather, it is inherent in the character of the product and the underlying causes of demand.

Senator COUZENS. Yes; but what I meant to imply was this: Is it not possible under our existing system to purchase capital goods in excess of requirements, and therefore make it difficult to obtain a normal?

Mr. HOUSTON. It is possible. Of course there are two distinct fields of thought on this whole subject. One has to do with the

balancing of the supply and demand of goods, and the other has to do with the supply of credit available for the acquisition and distribution of goods.

My own judgment is that the credit theory more nearly reflects the general situation, while the volumetric theory affects the general situation with respect to specific commodities.

Senator COUZENS. To what group do you refer when you say the credit theory applies?

Mr. HOUSTON. I do not know that they go by any particular name, but they believe that the volume of demand will respond largely to the volume of credit available for the acquisition and distribution of goods.

Senator COUZENS. Then you have in mind a consumer's credit? Mr. HOUSTON. Or not only a customer's credit, but credit for capital goods.

Senator COUZENS. Yes; but what is the advantage of having credit for capital goods if there is no consumer's purchasing power or consumer's credit?

Mr. HOUSTON. There is no advantage. If there is no purchasing power, there will be no demand for capital goods.

Senator COUZENS. So, then, in effect, where should the credit start?

Mr. HOUSTON. But there may be credit available for the movement of goods into consumption without adequate credit being available for the production of capital goods. Credit must start, in the final analysis, with the serving of consumption goods.

Senator COUZENS. In other words, the consumer must have the credit or the purchasing power before you can require the other credit?

Mr. HOUSTON. Yes, that is true; but it is a fact that I think will be demonstrated by a study of our depressions in the past that there can be no demand for consumption goods approaching normal in this country when the production of capital goods is at a standstill. Senator COUZENS. Take, for example, the capital goods now ready for production. It is quite evident that they are not in use; is not that true?

Mr. HOUSTON. The capital facilities used for the production of consumption goods are in use in about the ratio that consumption goods are now running to normal, which, in the instance of wholesale groceries, is 105 per cent of normal, running down to 59 per cent in mail-order sales. I would judge that facilities for the production of consumption goods are now being used to the extent of 75 per cent of normal.

Senator COUZENS. So that you have in excess of capital invested in capital account about 25 per cent over and above consumption needs?

Mr. HOUSTON. An excess of facilities for present demand by about that amount; yes.

Senator COUZENS. Let me ask you this. Would it be more desirable to bring up that 25 per cent before you invested any more in capital?

Mr. HOUSTON. By all means; but that can not be done, in my judgment, without further demand; and the only way further de