SEC. 3. (1) The third paragraph of section 24 of the Federal Reserve Act is amended by striking out the word "established" where it appears in said paragraph, by substituting the words "the Industrial Loan Corporation" for the words "a Federal Reserve bank" wherever they appear in said paragraph, and by striking out the words "or (d) in which" which appear in said paragraph and substituting therefor the following: "(d) which are insured by the Industrial Loan Corporation, or (e) in which".

(2) The last sentence of paragraph "Seventh" of section 5136 of the Revised Statutes, as amended, is further amended by inserting before the colon after the words "national mortgage associations" a comma and the following: “or obligations of the Industrial Loan Corporation".

SEC. 4. Sections 1, 2, and 3 of this Act shall become effective on the 1st day of the second calendar month following the date of its enactment.

1

INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER

WEDNESDAY, FEBRUARY 26, 1941

UNITED STATES SENATE,

TEMPORARY NATIONAL ECONOMIC COMMITTEE,

Washington, D. C.

The committee met at 10:28 a. m., pursuant to adjournment on Tuesday, February 25, 1941, in the caucus room, Senate Office Building, the chairman, Senator Joseph C. O'Mahoney, presiding.

Present: Senator Joseph C. O'Mahoney (chairman); Sumner T. Pike, Commissioner, Securities and Exchange Commission; Joseph J. O'Connell, Jr., Special Assistant to General Counsel, Department of the Treasury; Garland Ferguson, Commissioner, Federal Trade Commission; Willis J. Ballinger, Director of Studies, Federal Trade Commission; George Comer, Department of Justice; Joseph Meehan, Department of Commerce; Isador Lubin, Commissioner, Bureau of Labor Statistics, Department of Labor; A. Ford Hinrichs, Chief Economist, Bureau of Labor Statistics, Department of Labor; Miss Aryness Joy, Department of Labor; Saul Nelson, Department of Labor; H. Dewey Anderson, executive secretary of the committee.

The CHAIRMAN. The committee will please come to order.

As announced yesterday, this morning was set aside for the Department of Labor, Dr. Lubin, are you ready to proceed?

STATEMENT OF ISADOR LUBIN, COMMISSIONER OF LABOR STATISTICS, UNITED STATES DEPARTMENT OF LABOR

Mr. LUBIN. Yes, Mr. Chairman.

Wage earners have a special interest in the work of the Temporary National Economic Committee. No other group in the community is quite so exposed to a complete loss of income during depressions. Other groups suffer a severe shrinkage in income. The prices of farm products fall and there is a corresponding decrease in farm incomes. Small businessmen have a shrinking volume of business and increased losses from bad debts. Those dependent upon interest or dividend payments find their incomes severely out. The wage earner in the city, however, faces the loss of his job and the complete cessation of all income.

During the prolonged depression of the 1930's, therefore, workers the world over turned to their governments with the demand that they be given jobs. While we have not pretended to supply jobs to all the unemployed in the United States, the operations of the Work Projects Administration and the other public-works programs have aimed to assure that in every family with a potential breadwinner, some person shall have employment.

Today, when we live in a world in which democracy is challenged, it is widely recognized that the challenge from within may be more dangerous than the challenge from without. Our strength to resist external aggression depends upon the faith of individual citizens that they can face the future with confidence. In 1941 we are strong. In 1932 our morale was pitifully low. The assumption of responsibility for the welfare of individual citizens by the Government in the intervening years has been partly responsible for this change.

Today we must mass our resources for a major national effort. How long this effort must continue we cannot foretell. We do not yet know what sacrifices will have to be demanded. We do know, however, that we must assure our people that they will never again be asked to face the needless suffering of the years from 1930 to 1932.

In fact, that debacle of our economic life aggravates many of the problems which we face today; some of our depression legacies are still with us. At the first public hearing of the Temporary National Economic Committee, I introduced a chart showing the national income lost in the depression. That was exhibit 13, page 17 (December 1, 1938). That loss amounted to more than $133,000,000,000. In other words, in 8 years we wasted more than five or six times more that the projected expenditures for national defense.

The CHAIRMAN. May I interrupt there to clarify the meaning of that table. The $133,000,000,000 loss was computed, as I recall, by adding the amounts for each year of national income less than the income for the year before the depression.

Mr. LUBIN. In other words, the assumption was that if we had maintained a national income on a level equal to that of 1929, the difference would have been $133,000,000,000, which, as I say, is almost six times greater than we expect to spend on our national-defense plan.

The CHAIRMAN. In other words, it was an income that was not earned but which the people of the country were capable of earning. Mr. LUBIN. Had they maintained employment and agriculture and all other activity at the level of 1929?

The CHAIRMAN. And had we been able at that time to devise a formula for our economic life that would have kept the country going at the speed it was traveling when the depression came. So that is it proper to use the word "waste" in that connection?

Mr. LUBIN. Well, to me any resource that we don't use and which, in the process of not using, we make unavailable for the future, is a waste. In other words, a day's labor that is lost can't be made up That day is lost. The day's use of a machine in many instances once it is lost, and that to me is a wasteful process.

The CHAIRMAN. Well, waste in the sense that it has not been recovered, it has not been used.

Mr. LUBIN. Exactly.

The CHAIRMAN. Advantage has not been taken of it.

Mr. LUBIN. Yes.

The CHAIRMAN. But not in the sense of the squandering of an actual present value in hand.

Mr. LUBIN. True.

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Mr. HINRICHS. Mr. Chairman, there is a very good analogy, however, in which we always use the word "waste." If you are engaged in a mining operation and are leaving extremely large pillars to support the roof in an effort to get out hastily and easily and without too much thought and planning, we always refer to that as a waste of a natural resource. This waste of unused resources is precisely in that same category; it is a squandering that can never be recovered.

The CHAIRMAN. But with this difference, that in the mine frequently the operators go back and strip the pillars, but in this instance, it is never possible to recover what is done.

Mr. LUBIN. As I stated at that time, December 1938, if we had employed everybody who was working in 1929 constantly during the last 9 years, we could all stop our regular work, and all the gainfully employed wage and salaried workers could go to work on armaments for a year and 2 months, and the net effect on the national income would be just about the same as took place during the period from 1930 to 1938.

We hear a lot about potential shortages of skilled labor for defense work. Many of the shortages of labor that we are now experiencing were in effect forecast more than 2 years ago in a second chart that I introduced on employment and pay rolls in the durable-goods manufacturing industries (exhibit 35, p. 46).1 Between 1929 and 1932 employment was cut in half. The index of employment declined from 106 percent of the 1923-25 average to 53 percent. During that period we laid a foundation for a subsequent shortage of labor. In that period almost no workers were trained. In that period dextrous fingers stiffened as men waited in bread lines or turned to such casual odd jobs as they could find. In that period men who had been highly skilled mechanics disappeared by the tens of thousands into jobs that made no use of their skills. Today we are paying a high price for this dissipation of our labor resources.

To be sure, nothing that we might reasonably have been expected to do in the early 1930's would have built the airplane plants, the ordnance works, and the shipways that we need today. The needs of those industries are beyond our ability to produce certain types of equipment. The result is that we find ourselves forced to use priorities to meet their needs, but the exercise of priorities with respect to equipment, however, necessarily operates to the disadvantage of businessmen, large and small, with obsolete equipment in nondefense industries. Priorities make it impossible for them to modernize promptly now that good business is in sight. Their needs would be far less acute and their problems far simpler if we had maintained our capital equipment during the period of the depression.

I might cite an instance that came to my attention just the other day of a large manufacturing firm catering primarily to civilian needs that is trying to modernize its plant and was told it would have to wait at least 35 weeks for certain equipment because of the fact that there would not be enough aluminum available under the priorities that were issued to fill their order.

In other words, what you have is a situation where businessmen who, during periods of depression have not been in a position to mod

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ernize, now that they must modernize or expand equipment because of better business, find themselves unable to get the equipment that they could have gotten very easily had business been at a normal pace during the last 10 years.

Representative SUMNERS. Doctor, while you are interrupted, may I make a suggestion, or rather an observation. Some manufacturers whose equipment is not modernized tell me that one of the difficulties they have in being able to get into operation at all is that the labor scale, more or less uniform throughout all industry, doesn't take into consideration their handicap, and that in small communities, especially where people who have been working for a long time may own their homes and could work for a lower wage, perhaps, than other people could afford to work where living conditions are higher, and who if they could work would make more money than they could make in any other business, run into that difficulty. And I imagine it is a very great difficulty to deal with, a difficult situation to deal with. Mr. LUBIN. Judge, that situation, as I see it, is the outgrowth of the fact that for 10 years we have not done enough training, have not had enough apprentices to make up for the loss through death and retirement of people who stepped out of industry after 1929. Consequently, you get a situation where you have a sudden increase in the demand for labor, and in many skills there are not enough to go around. One employer bids against the other.

We have a case right now in one of our big industrial cities where employers are offering 10 cents an hour more than the union contract calls for in order to steal workers from each other. That affects the whole wage level, there is no doubt about it. I think there is this other fact to be considered. The facts do not show a uniformity of wage rates throughout the country. You will find variations of as much as 50 percent in certain categories of labor, depending upon the size of the community and its geographical location. One of the things that we did for this committee was to make a study of differentials in wage rates for the same type of work, and the study, which is Monograph 14, called "Hourly Earnings of Employees in Large and Small Enterprises," shows tremendous variations not only between size of plant but even between different localities.

Representative SUMNERS. Is that with reference to plants engaged in interstate commerce?

Mr. LUBIN. Virtually all of them would be in interstate commerce. Representative SUMNERS. I think it is a good idea to get that clear for the record. There are many administrative agencies of the Government that have to do with this thing that in the course of their administration have recognized those conditions and have made allowances for them in their rules and regulations.

Mr. LUBIN. Oh, very definitely, and as a matter of fact you will find, for example, not only in industry as such, but let's say in construction, very wide differentials as fixed by the Davis-Bacon Act, or under the Davis-Bacon Act, between different areas in the country. The differences are very marked.

Representative SUMNERS. We have heard a good deal of complaint, and I think it would be a pretty good idea to get some statement in the record that these areas may cover the whole country.

Mr. LUBIN. I don't think the facts would show that. As a matter of fact, Judge, you have an interesting situation in some cities today