measure was in many respects substantially in accord with my own bill. At the request, therefore, of Secretary Mills, on behalf of the administration. I introduced in the Senate on June 4. a bill for unemployment relief similar to the one offered in the House by Representative Hawley, of Oregon. It is in relation to this bill that I requested that the chairman of this committee arrange for this hearing and invite the Secretary of the Treasury to appear on behalf of the measure.

The CHAIRMAN. Do you desire Secretary Mills to appear now? Senator BARBOUR. Please.

The CHAIRMAN. Mr. Secretary.

STATEMENT OF HON. OGDEN L. MILLS, SECRETARY OF THE TREASURY-Resumed

Secretary MILLS. Mr. Chairman. the bill introduced by Senator Barbour (Š. 4822) seeks to accomplish, in the main, some of the purposes, at least, of the Wagner bill, certainly in so far as section 5-b is concerned. In other words, it authorizes the Reconstruction Finance Corporation to make loans to any State or political subdivision, or any agency constituted pursuant to the authority of such State; loans for the purpose of financing public improvements of a self-liquidating character. There is one fundamental difference between the bill proposed by Senator Wagner, and the Barbour bill, and that is that the Barbour bill would permit the loans to be made to private corporations to finance the construction, replacement, or reconstruction of economically sound and useful projects, the construction, replacement or reconstruction of which will provide employment at an early date for a substantial number of persons, provided, of course, that the project can be shown to be self-supporting and self-liquidating.

Senator COUZENS. The decision on that point, I understand, would be left to the Reconstruction Finance Corporation.

Secretary MILLS. The decision would be left to the Reconstruction Finance Corporation.

Senator COUZENS. Have you any suggestions as to a rule that Congress might enunciate to guide them in the matter, or would you leave it solely with them?

Secretary MILLS. I think these are real tests: First, will it put men to work? Second, is it economically sound, in the sense that it can carry itself and eventually liquidate the loan? I think those are the only tests that ought to be laid down.

Senator COUZENS. How soon would you say the loan ought to be liquidated, or would you leave that also with the Reconstruction Finance Corporation?

Secretary MILLS. I think it clearly ought to be liquidated within the life of the corporation, and that is true of these public projectų, If they are economically sound-if they are truly self-supporting it is perfectly clear that within five years they ought to be able to sell the securities. I do not believe that the United States Government should, as a permanent proposition, finance a $220,000,000 water-development program for the city of Los Angeles; nor do I think that the United States Government, as a permanent proposal,

should finance the tunnel contemplated by the Port Authority of New York.

The need for this legislation, Mr. Chairman, arises from the fact that, temporarily, at least, the bond market is closed to even sound projects of this kind. Therefore, temporarily, the Reconstruction Finance Corporation is to finance them until they can find a market for their securities; and if the judgment of the gentlemen who offer these projects is sound, and if the judgment of the Reconstruction Finance Corporation is sound, that they are truly self-sustaining, it is morally certain that within five years these bonds can be sold to the public and the loan paid off. Therefore, the time element does not seriously concern me. It would seriously concern me, however, if a corporation the life of which is limited to five years should undertake 50-year loans. That seems to me to be an absurdity, and we certainly do not want to prolong the life of the Reconstruction Finance Corporation for 50 years.

However, it seems to me that it is perfectly possible, with some minor amendments, to take care both of the Los Angeles situation and the port authority situation, or these other quasi public bodies that have projects in contemplation. That is a matter of detailed amendment, rather than of fundamentals.

Senator COUZENS. How would you suggest that it be amended in that respect, so that in case, at the end of the 5-year period, the situation is such that the Government could not be relieved

Secretary MILLS. The Congress of the United States will still be here, and if these quasi public obligations can not be paid off, if there is no bond market, let us cross the bridge when we come to it. But let us not undertake in the first instance to commit the Reconstruction Finance Corporation to purchase $220,000,000 of 50-year bonds. As I understand that corporation, it is an emergency corporation, created to meet an emergency situation, and not to do long-term financing for municipalities, or quasi public corporations.

Senator GORE. Do you not think $220,000,000 is too much to put in any one project?

Secretary MILLS. I do; but, of course, these gentlemen do not need any such vast amount of money as that. To start the Los Angeles project, I think it would take, as I understand, $12,000,000, to be spent in the course of the next few months; and I am informedand this is subject to correction-that all the port authority would expect to spend during the course of the next 12 months is $10,000,000. What we really have in mind is that we should take over their bonds, either as security, or directly to cover the expenditures during the next 12 months, confident that by the end of that time, or even before the end of that period, the financial situation will be such that they will be able to resume their normal methods of obtaining funds, and that is by the sale of their securities to the public. In other words, we ought to deal with it as a temporary situation, and not view it as an obligation on the Government to undertake longterm financing through a corporation with a life of five years. That is as I view it. I think we can meet their immediate needs without doing violence to that principle by adapting the language of this bill to meet these peculiar situations.

The gentlemen from Los Angeles were in to see me this morning, and I am confident it could be done. It is a matter of draftsmanship and a minor amendment.

Now, Mr. Chairman, the real difference between Senator Wagner's bill and Senator Barbour's bill is that Senator Barbour's bill goes further, in that it includes loans by the Reconstruction Finance Čorporation for capital purposes to private industry. Frankly, I think that it is necessary if we are to do this job on a large enough scale to be effective. I do not want to repeat, of course, what I said before the committee the other day, but the plain truth of the matter is that if you limit this to loans to quasi-public corporations, the amount of work that they can do in the course of the next 12 months, due to the limited number of projects, is not enough, in my judgment, to do this job. What we really want to do is to bridge this gap between the vast amount of credit that is actually available, and the very real demand which exists, by temporarily advancing funds through the Reconstruction Finance Corporation so as to start the upward movement through the expenditure of funds on capital improvements, rather than in the first instance the further production of consumption goods.

Senator WAGNER. Mr. Secretary, in view of the fact that you state that undoubtedly is a very important feature of the bill, to help in our efforts at rehabilitation, you must have in mind some particular private industries that are seeking aid, or would like aid by the Government in extending to them credit that apparently they can not get from any other source. Have you any particular projects in mind?

Secretary MILLS. I have no corporations in mind, but I would like to read to the committee a very interesting analysis of the situation which I have received this morning through the Federal Reserve Bank of New York. It was not prepared in the Federal Reserve Bank of New York, but the figures are taken from the index of industrial production and business activity of the Federal reserve bank.

Senator TOWNSEND. Mr. Secretary, by whom did you say it was prepared?

Secretary MILLS. I do not feel at liberty to disclose the gentleman's name, because I got this only early this morning, and did not have a chance to consult him. But it represents the picture so clearly, as I see it, that I should like to present it to the committee, with the statement that the figures do come from an official source. [Reading:]

The greatest source of present unemployment in the United States is in the field of capital goods production-that is, goods entering into facilities used for industrial production, transportation, power generation and transmission, and building construction, commercial and residential. The volume of this output, including building construction, probably aggregated in 1929 more than $15,000,000,000, the following items as reported by the Bureau of Census amounting to more than $13,000,000,000:

As nearly as can be ascertained, the present volume of capital goods output is not more than 25 per cent of the 1929 peak, the latest index in a few of the principal items entered into this group being as follows:

An examination of consumption goods shows a much smaller reduction as is indicated by the following typical products:

Percentage of normal

Chain grocery sales

Hosiery

Mail order sales_.

Textiles-.

Distribution to consumer.

Sole leather.

Gasoline consumption_

Tobacco

Newsprint paper.

Wheat flour__

Wholesale trade

Shoes

Farm produce-

Livestock slaughtered

Wholesale grocery sales

Normal is computed at 7 per cent below 1929 peak.

In other words, there has been an enormous decrease in the actual amount of capital goods being produced, while there has been a much smaller decrease in the amount of consumption goods moving into consumption. [Continuing reading:]

A large increase in employment is possible only through one or more of the three following channels:

1. Increase in production of consumption goods.

2. Increase in production of capital goods for private enterprise.

3. Increase in volume of public works (a) of a nonliquidating character; and (b) of a self-liquidating character.

Increase in the output of consumption goods beyond the point of current consumption would tend to inflate inventories and further depress prices. Public works of a nonliquidating character can be created only by a direct diversion of private capital to public use either through taxation or increase in the public debt, or both. One of the most serious aspects of the present economic situation is the constant and large increase in the cost of government, with the consequent increase in taxation. This character of expenditure

should not be increased.

That does not necessarily represent my viewpoint, because, as you know, we have already included in the present Budget $575,000,000 for public building of one kind and another.

Senator WAGNER. I was hoping it would not represent your view. I think too much of you.

Secretary MILLS. This is a very interesting memorandum, all the

same.

Senator WAGNER. Very.

Secretary MILLS (continuing reading):

This leave available for alleviation of unemployment, public works of a selfliquidating character and capital goods for private enterprise. Public works of this character must be financed by taxation or increase in the public debt, or by the sale of securities upon specific projects so arranged as to be liquidated from the proceeds of operation. Production of capital goods for private enterprise must be financed ordinarily through one of the following channels:

1. Investment of personal savings of individuals as used in the payment for private homes.

2. Investment of depreciation reserve accruals of industry.

3. Investment of surplus earnings of industry.

4. Investment of the proceeds of the sale of perpetual securities-common and preferred stocks.

5. Investment of the proceeds of the sale of fixed maturity securities-bonds, equipment trust certificates, notes, etc.

Purchase of capital goods by private enterprises will be undertaken only if capital is available and if there is a prospect of profit. The present lack of earnings in industry practically eliminates as a resource for financing such expenditures, surplus earnings, depreciation reserve accruals, and stock sales. Therefore, as a practical matter such expenditures must be made (outside of the expenditures of individual savings in housing projects) from the proceeds of the sale of fixed maturity securities.

Expenditures for capital goods by private enterprises may be classified in general as follows:

1. Those for the purpose of increasing capacity. There is at present little or not demand for such capital expenditures although in various parts of the country there is a real demand for residential housing. Other opportunities will arise, however, for the advantageous anticipation of future needs of this character such as electrical output by public utilities, if the conditions of cost and capital were sufficiently favorable.

2. Those involving modernization of existing facilities to obtain improved product and reduced cost. There will be an insistent demand for capital goods in this field as soon as the current volume of industrial production turns upward. Probably the outstanding opportunity of this character lies in the absolescence of equipment existing on American railroads. A portion of this demand could be anticipated advantageously at this time if conditions as to cost and capital were sufficiently favorable.

3. Those involved in the development of new products. There will be some opportunity for development along these lines but only if conditions of cost and capital requirements are most favorable.

There is serious question as to the propriety of private enterprise anticipating any future requirements for capital goods at this time even under the most favorable circumstances of low cost and adequate credit. With industrial bonds of average quality selling at a yield of from 10 per cent to 15 per cent. and railroad equipment trust certificates selling at a yield of from 7 per cent to 10 per cent, there is no possibility of private enterprise looking to such future needs even with the present exceedingly low cost of commodities and the reducing cost of labor. This objective can be accomplished only by use of cheap, long-time credit in adequate quantity.

No one desires to see the Government become further involved in American business, but if it becomes essential to relieve unemployment by Government aid, there can be little question as to the relative advantages of doing so through private enterprise stimulated by Government credit if production can thus be stimulated, as compared with public works of a nonproductive character or even of a self-liquidating character. These advantages are several, including:

1. The immediacy of results: Private enterprises engaged in the production of capital goods have done a great deal of engineering and preparatory work looking to a return of normal business, much of such work having to do with specific projects held up awaiting cheap credit or for other reasons. Stimulation to action along these lines would result in an immediate increase in employment as many such projects are ready to start. Public works of any character would require a substantial period to get under way and while those of a self-liquidating character would be desirable in some instances, and certainly are to be preferred over those of a permanently nonproductive charac