Senator COUZENS. In defining "proper" by this administrative agency, to what extent should private capital share with the Government in providing capital for these capital investments?

Mr. HOUSTON. To a sufficient extent to create an adequate equity junior to such loans as to assure their repayment.

Senator COUZENS. What is to be the junior?

Mr. HOUSTON. Private capital.

Senator COUZENS. That is to be junior?

Mr. HOUSTON. Yes.

Senator COUZENS. Assuming, for example, that an industry applies for a million dollars to expand its plant or to renew its machinery, to what extent do you believe that private capital should supply the need and to what extent the Government should supply it?

Mr. HOUSTON. I would say that that would be largely a question of the practice in the industry and in the security markets where such enterprise ordinarily obtains its credit. For instance, it had been a long-established practice that the railroads should procure their equipment by the use of equipment trust certificates sold to the public to the extent of 80 per cent of the sales price of such equipment, 20 per cent being provided by the railroads as an equity or cushion to insure the repayment of the 80 per cent going to the general credit of the railroad. I would say that the ratio of equity to such senior financing would be somewhat larger in most instances. Senator COUZENS. So that you believe that if a railroad wanted to purchase your locomotives the Government should put up at least 80 per cent of the required amount to build your locomotives!

Mr. HOUSTON. Experience has shown that the ratio has assured a repayment of all financing of that kind done to date. The equipment trust certificate as a medium for financing is one of the finest in the form of transportation or industrial security in the country. Senator COUZENS. And you believe that railroads, if there was adequate credit, would be in the market for locomotives and box cars?

Mr. HOUSTON. I would answer that question by a general statement including an answer to your previous question. The railroads of the United States have to-day about 55,000 locomotives. As nearly as we can estimate, they cost originally about $2,000,000,000. In the four years ended with 1929 the railroads spent, according to the Interstate Commerce Commission, for the operation and maintenance of these locomotives about $1,400,000,000 per annum, or approximately 72 per cent of their first cost.

Senator BROOKHART. Does that include expense of operation? Mr. HOUSTON. Yes.

Senator BROOKHART. You can not make a comparison of that, can you, with depreciation or anything of that kind?

Mr. HOUSTON. Yes; you can. I would like to analyze that figure somewhat. These figures are somewhat general. That includes labor operation, roundhouse service, maintenance, depreciationSenator CouZENS. And fuel?

Mr. HOUSTON. Fuel, and miscellaneous items.

The locomotives of the railroads of the United States 20 years ago were being turned over, that is, replaced, on an average of about once every 18 years. Twenty years ago, 25 years ago, in other

words, about 60 per cent were less than 10 years old. At the present time only 18 per cent of the locomotives in the United States are less than 10 years old.

Senator BROOKHART. Is the life longer than it used to be?

Mr. HOUSTON. It is about twice as long as it used to be.
Senator BULKLEY. What is the life?

Mr. HOUSTON. In the judgment of the equipment companies a locomotive should not be used more than, say, 25 years, because of obsolescence of their construction-I will say, improvements in the design and construction of new equipment creates such economies as to warrant their much more rapid replacement. For instance, we say that the locomotives in the United States must be replaced within the next 20 years. We estimate that instead of 55,000 locomotives the country will require about 45,000; that due to their more intricate design, their better materials, and the higher price of labor, now than when those locomotives were originaly built, they will cost about $3,000,000,000.

We hold that the economies arising from the replacement of those locomotives out of this $1,400,000,000, which is partly out of that and partly out of the cost of operating trains in this country which, during the same period, amounted to something in excess of $1,200,000,000, will be great enough to pay interest on the investment, amortize it within the life of the equipment-trust certificate issued for the replacement, which is 15 years, and leave a substantial profit to the railroads.

Senator COUZENS. Of course this increased efficiency would require less men to operate?

Mr. HOUSTON. Not much. The greater savings would be in fuel and maintenance. There would be some reduction in labor. All economy in industry and transportation, or practically all economy in industry and transportation, ultimately boils down to a reduction in labor.

Senator COUZENS. So that these improved locomotives would not only decrease the number of railroad men used, but would also decrease the number of miners necessary to produce fuel?

Mr. HOUSTON. Yes, sir; and I would say, further, that that has been the history of the success of industrial America, and I for one am not prepared to say we have reached the point in America where we should stop all improvement for fear that we will not have subsequent employment for the personnel; but I would say

Senator COUZENS. You speak of the success of America. Success of what group of America? All of it?

Mr. HOUSTON. Yes.

Senator COUZENS. Even the 8,000,000 or 10,000,000 unemployed have been equally benefited by this efficiency?

Mr. HOUSTON. I would say the present crisis is not due to the technical efficiency of American industry but is due, first, to the dislocation of our foreign trade and to the consumption of our capital by the war and by the enormous inflation and subsequent deflation of the stock market.

Senator COUZENS. Yes; but may I point out that under a resolution of the Senate an investigation or inquiry was made into the unemployment condition in the fall of 1928 and continued up to the

early part of 1929. Those years were assumed prosperous and fairly satisfactory years; and the testimony introduced at that time. before the Committee on Education and Labor was to the effect that there was a very large number of unemployed then and that the number was still growing.

So the thing I am trying to find out is what plan is to be developed, if we are to proceed along these efficient lines, to care for the number of workers without jobs, which number is constantly increasing. If we are going into lines that you suggest, what plan shall we develop to take care of the increasing number of unemployed?

I am not opposed and never have been opposed to machinery or equipment or efficiency or competency, but I have just reached a frame of mind where it seems to me some action has to be taken to take care of these surplus employees who are continually growing in number because of this efficient development of our country's productivity and service.

Mr. HOUSTON. That, of course, Senator, is a very big problem to discuss in the very few minutes that we have here. I would say, in general, that it must be dealt with along several lines: First, a continued decrease in the overall hours of labor in all enterprises; second, a cessation of the trend from the land to the cities; third, a continued development along safe and intelligent lines of our export business.

Senator COUZENS. With reference to export business, is it not a fact that the greater the drive or the greater the energy we put into the export business the greater we depress other countries who are looking for export business?

Mr. HOUSTON. That is so within limits.

Senator COUZENS. Would you define the limits?

Mr. HOUSTON. My own personal opinion is that outside of a few agricultural products and basic materials in which this country is peculiarly qualified to compete with foreign countries, our exports are growing more and more light within those fields in which we peculiarly excel, and in those fields we would not be so unduly depressing the competing foreign countries, because we are already in the lead in many of those fields and should stay there and hold our relative position in the export markets of the world without unduly expanding them into fields where the other countries peculiarly excel.

Senator COUZENS. You have been speaking of machinery and locomotives, and so on. Do you believe a drive to expand the export business in locomotives, machinery, and so on, would have a very grave effect upon such countries as Germany and England, for instance?

Mr. HOUSTON. Well, I would say as to the export business for locomotives that it is practically nonexistent to-day not because of the greater facility of England and Germany to produce them but because of the lack of resources and credit of the railroads in countries that naturally look to America for their equipment.

Senator COUZENS What about machinery?

Mr. HOUSTON. Yes. The American equipment for railroads is radically different from that of Europe or England, so that there is

little competition. Each different field of demand requires either the American type of equipment or the continental type, depending upon the character of their traffic.

Senator COUZENS. Now, as to machinery?

Mr. Houston. I believe the same principle holds good in a considerable amount of our machinery. I believe the American automobile has a place of its own throughout the world which can not be occupied by the foreign automobile except as American manufacturers have begun production in foreign countries.

Senator COUZENS. Is it not a fact that we have always had a rather large market for exporting American machinery?

Mr. HOUSTON. Yes, sir; not because of cost, because our costs have always been higher in most lines of machinery construction than European costs, but because of the advantage of our technique and design.

Senator FLETCHER. The fact that the foreign countries are so limited in their financial arrangements and their credits and buying power has a great deal to do with our ability to build up exports, has it not? That is, their financial situation?

Mr. HOUSTON. I would say, rather, just the reverse. The financial situation you speak of pertains to the countries to which America might sell-South America, the Orient, and other countries of a lower stage of development than America.

Senator BROOKHART. How about Russia?

Mr. HOUSTON. Russia has an unlimited need for American products of all kinds, but due to the character of its governmental organization and to the total inability of the seller to have any recourse against the property in the event of failure to pay, Russia has no basis of credit.

Senator BROOKHART. The Hart-Parr Co., at Charles City, Iowa, told me recently that they had sold them 5,000 tractors on credit, and every payment was made exactly as they agreed to pay it; and they were paid out very nearly at that time; but they were unable to get new credit arrangements to give further orders, due, largely, to the fact that we had no international relations with them.

Mr. HOUSTON. That is true. I feel that recognition by the United States of the Soviet Union under the conditions laid down by Secretary Hughes, modified to date, would be truly constructive and helpful to the economical relations between the United States and Russia.

Senator BROOKHART. Do you feel they would keep their contracts?
Mr. HOUSTON. That is altogether a matter of opinion.
Senator BROOKHART. Well, let me ask you-

Mr. HOUSTON (interposing). I would like to add to that. I would say that in my own company's relations with Russia, since the revolution, they have kept all their commitments scrupulously, and I believe they would use their best efforts to do so in the future.

Senator BROOKHART. Well, the only way we have to enforce any demand on a foreign country is the force of the Army, and we have the same chance against Russia.

Mr. HOUSTON. Well, there is this difference between dealing with Russia and another man. A private corporation selling to England, or Germany, or France, or any other country organized along capitalistic lines, it is not the whole sale to the Government, but to private

individuals, and it has recourse to the property of such individuals through the courts of law for recovery.

Senator BROOKHART. We usually regard those contracts with the Government as better than contracts with private individuals in those countries.

Mr. HOUSTON. That is only because they have had no expensive experience with the governments. No private citizen selling to a foreign government has any recourse in the event of failure of payment. I believe, in time, the Russian Government may develop as favorable a reputation for meeting its obligations as that held by other foreign governments.

Senator BROOKHART. Well, it may develop a better reputation, if all these debts are repudiated.

Mr. HOUSTON. That is right.

Senator BROOKHART. And then all this talk of the Russian Government repudiating its debts under the old government of the Czar, that is no longer a fact, since they are sending in big armies and perpetrating great damage without the declaration of war, in the case of the United States. They claim we are the repudiators on that, and do not pay them for the damage we did.

Mr. HOUSTON. Senator, I had an opportunity to spend a large part of the

The CHAIRMAN (interposing). The Chair wants to say to the witness that we have gone far afield. I have no objection to your answering question, but please answer it briefly.

Mr. HOUSTON. I will answer it, and I will try not to go far afield any more.

Senator BROOKHART. This is important.

The CHAIRMAN. We can not go into all the important matters. Mr. HOUSTON. Well, I discussed the question quite frankly with a number of the officers of the Soviet Government, and I was quite surprised at the attitude they expressed of willingness to meet the United States Government at any time and place for the fullest discussion and freest discussion of all the United States' requirements for recognition, as laid down by Secretary Hughes. I think I am correct in stating Secretary Hughes. And they said there was nothing they would like better than an opportunity for such discussion.

Senator BROOKHART. It was hardly Secretary Hughes, because he told them to repudiate their debts without a discussion. They wanted to pay it up and base a counterclaim.

Senator FLETCHER. Coming back to our question here, of locomotive equipment trust certificates, as I understand these locomotives cost about $100,000 apiece?

Mr. HOUSTON. Yes, sir.

Senator FLETCHER. And pay for themselves in three years.
Mr. HOUSTON. No, sir.

Senator FLETCHER. How many years?

Mr. HOUSTON. The usual form of financing is

Senator FLETCHER (interposing). The matured certificate?

Mr. HOUSTON. Just how rapidly they will deteriorate depends on the conditions of the ones they are replacing. If they are replacing very expensive and obsolete locomotives; if the traffic is heavy and they have hard usage, the rate at which they pay for the new equipment would be less than that. They pay more for the equipment.