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Senator COUZENS. You mean by an aggregation of the industry?

Mr. HOUSTON. These facilities to be loaned to the industry when they found it advantageous to use it so that each industry would have the same use of the facility.

Senator COUZENS. What would you do in the case that you found a surplus of productivity in which you were supplying the money, and that it was simply adding to that competitive situation?

Mr. Houston. You are speaking of the productivity of the producer of things?

Senator COUZENS. No--
Mr. HOUSTON (interposing). Of the buyer?

Senator COUZENS. No; of the interest that is producing the machinery.

Mer Houston. That is what I mean. This plan would not be built up so as to affect the production resources of the demand. Those production resources are now used to such a small extent that the demand could be supplied. There would be no justification for the expansion of that industry to supply the demand.

Senator COUZENS. So you would not lend the producer those capital goods? Mr. HOUSTON. I would lend the buyers always. Senator COUZENS. In no case the producer? Mr. HOUSTON. No. Senator COUZENS. Just the buyer. Mr. HOUSTEN. No; but I would take it and use it for the buyer. Senator COUZENS. That is all I have. The CHAIRMAN. The witness will be excused. Senator COUZENS. May we hear Mr. Muir now?

The CHAIRMAN. Yes. Senator Couzens, I am obliged to leave, will you take the chair?

Senator COUZENS (presiding). Mr. Muir, will you please come forward, and give your name and address?



Senator COUZENS. Will you please give the reporter your name and business and address?

Mr. Muir. My name is Malcolm Muir. I am president of McGraw-Hill Publishing Co. (Inc.), New York.

Senator COUZENS. Now you are speaking with respect to the subject matter of which the prior witness spoke?

Mr. Muir. Yes, sir.

Mr. Chairman, what I want to say can be said very briefly and very simply which, I presume, you will be very glad to have me do. I understand this whole question is one of meeting an emergency and that this discussion is brought about, and this measure proposed because of the present unemployment situation.

I am going to read the material I want to present and comment on it. I think that way will save you a great deal of time.

My. brief is based on the theory that one of the great causes of unemployment is the great drop in production of capital goods.

Senator COUZENS. Do you call the automobile industry capital goods producers?

Mr. MUIR. No, sir; I do not.

Senator COUZENS. How do you account for the great drop in that industry?

Mr. Muir. It is largely due to unemployment in the capital-goods industries and that great drop in employment has caused a shrinkage in consumption. The capital-goods industries have had to let out so many people, that it has resulted in a drop in consuming and purchasing power by the public.

My other point is that there is a need for these capital goods, and that in supplying the credit which is not available now to fill that need, we will more directly than in any other way increase employment.

If you will permit me, I will read this memorandum and answer any questions which you may want to put. The facts which I want to present show conclusively, to my mind, that there is an opportunity and a need for credit throughout the many divisions of industry to-day.

I am speaking as president of an organization which publishes 32 industrial and engineering magazines which are intimately associated with the basic industries of this country, and we are in a position to observe the growing need for the replacement of equipment. Everything I shall have to say is on the replacement of equipment; not to increase productive capacity or through mechanization to decrease employment, but for the purpose of lowering the cost of manufacturing and thereby the price of goods to the consumer.

Increased equipment does not mean greater capacity, if only enough new machines are installed to provide for the same output and if the old equipment is scrapped.

That is another important thing. In the past, in many cases, the new equipment is bought by industry and the old, second-hand equipment is not scrapped. Then you have an oversupply of equipment and productive capacity is increased. That has been true in the textile industry for example.

Senator COUZENS. What assurance have you that the old equipment would be junked?

Mr. MUIR. This can be controlled if the credit is made available by the Reconstruction Finance Corporation. It should be done, through an intermediate credit corporation.

Senator COUzens. You agree, substantially, with what the other witness said?

Mr. Muir. Yes, sir.
Senator COUZENS. How much has your advertising fallen off?
Mr. MUIR. Our advertising values fallen off?
Senator COUZENS. Yes.
Mr. Muir. About 50 per cent.
Senator COUZENS. So you are vitally interested?

Mr. Muir. We are interested, the same as any other business man would be interested. McGraw-Hill Publishing Co. will be prosperous again when business returns to its normal activity, as will every other business. I think that is the position of every man in this room.

Funds for the purchase of modern, efficient machinery are immediately translated into increased employment, more so than funds that are used for

purpose. I want to emphasize this. Funds made available and used for the purchase of capital equipment are immediately transferred, in large measure, into increased employment.

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The out-of-date equipment of American industry, amounting to about 50 per cent of that now installed, is increasing the expense of manufacture, cutting profits and depressing business. Lower production costs, possible with modern equipment, will reduce prices and stimulate business.

The types of equipment to which I refer that decidedly need modernization are

Senator COUZENS. Is it not rather unusual that this equipment has all gotten out of date in two and one-half years?

Mr. Muir. As a matter of fact, it did not, Senator. It should have been modernized long ago. Much of this machinery should have been modernized years ago, as our study made 12 years ago, revealed.

Senator CouzENS. Why did they not modernize it then?
Mr. Muir. I think they were all too busy.

Senator COUZENS. And they would not modernize now, unless they get Government money?

Mr. Muir. No; I do not think that, but I do not see any other way to make money available. I am going to give you examples of the types of machinery they would buy if they could get the credit.

The types of equipment to which I refer and which need modernization are machine tools, electrical machinery, engines, water wheels, turbines, textile machinery, pumping equipment, woodworking machinery, steam locomotives, material handling equipment, road and excavating machinery, construction machinery, mechanical equipment for offices, kitchen equipment for hotels, lighting, heating, and air-conditioning equipment. In other words, the general line of industrial equipment that is used to-day.

And I want to say this: That for over a year and a half we have been watching this growth of obsolescence with a great deal of concern. We have spent a great deal of time discussing this subject with manufacturers, and in making surveys, because if this keeps up American manufacturing as a whole will be much more inefficient than it is to-day.

Now, for example, in the metal-working industries, 48 per cent of all machine tools are obsolete and were obsolete two years ago. So little has been purchased since then that the figure now is at least 50 per cent.

When I say obsolete, I do not mean to say that they can not turn out work and produce. I mean that there is a better machine available, a machine that a manufacturer could use which would make his plant much more efficient. I am going to anticipate what some of you gentlemen may say. I realize that a more highly effective machine which replaces an old one, probably means a temporary reduction of labor in that plant, but what I propose to show here is that the purchase of the new equipment and the manufacture of the product with the new equipment will set up a widening circle of buying that will increase employment in the country as a whole.

The replacement of all this equipment—that is, the metal-working equipment which is obsolete would require capital amounting to $500,000,000.

Yesterday afternoon, when I knew that I was going to appear before this committee, I asked the editor of our American Machinist, to make a check, by telephone. He got in touch with a number of

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metal-working plants, and in an hour's time had a list of urgently needed replacement equipment amounting to $50,000,000.

Senator COUZENS. Just what risk would the borrowers take if they were to secure this $50,000,000?

Mr. MUIR. What risk? Senator COUZENS. How much risk would they take? Mr. MUIR. They would not be taking much risk. Senator COUZENS. That is what I thought. Mr. Muir. As a matter of fact, if they had the money they would go ahead anyway. That is not, to my mind, the reason why the Government, through the Reconstruction Finance Corporation, or any other group, should finance industry. I do not mean to say that for a moment. "I am saying only that if Government funds are made available in this way, you will start a chain of employment which, I think, is the objective of this committee.

Senator CouzeNS. What would you think of setting up a Federal machine bank, something like the Federal farm loan bank?

Muir. My thought is to make the funds available to all manufacturers of machinery. Let the largest group of machinery builders form a corporation; let them put on that corporation board directors from industry acceptable to the Reconstruction Finance Corporation.

Let me come back to that later, if you will.

Senator Walcott. While you are on this matter of credit, do you consider that that $500,000,000 would be amply protected? The Reconstruction Finance Corporation can only make loans to those corporations and institutions which are adequately financed. Do you think it would be amply protected?

Mr. MUIR. Yes; but I am not sure that it would all be used. We are not at a point in this country where there would be 100 per cent modernization. You can not expect that.

Senator WALCOTT. Have you any idea how much would be used?

Mr. Muir. That $50,000,000 figure would be used immediately, but I can check further than that if given time.

Senator FLETCHER. If you have demand now for only 50 per cent of the output, what do you mean by wanting to increase the facilities so as to double the output?

Mr. Muir. We do not want to double the output. But if a plant is producing at 50 per cent of capacity to-day and losing money with new equipment, it probably could produce at a profit. In many plants you have got to produce at least at 70 per cent of capacity to make a profit. Others are less than that. There are various percentage points in various plants at which you start making money. This point partly depends on the degree of efficiency of the equipment.

Senator FLETCHER. You want to increase purchasing power by giving employment?

Mr. Muir. I want to get an increase in purchasing power, which will mean an increase in consuming power, which will give an increase in employment, and all to get business started again.

Senator FLETCHER. Would the same thing be done if we gave $2,000,000,000 to the veterans and let them all buy automobiles?

Mr. Muir. No; not for a minute. I will touch on that when I get a little farther along.

In the textile industry 50 per cent of the equipment of 5,000 mills that are worth modernizing is now obsolete. Two hundred million


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dollars spent in this industry for this purpose would lower manufacturing costs and prices to the consumer, without increasing productive capacity

Senator COUZENS. May I ask you at that point, if that industry would mortgage itself completely to get the money from the Government?

Mr. Muir. No; not 100 per cent; but I think a great deal of the equipment would be bought. I know that a number of thèse. 5,000 mills would buy modern equipment if they could get credit.

Senator CouZENS. I say, would they mortgage their plants to get credit?

Mr. Muir. Probably their plants are mortgaged now, in the first place; and in the second place, I doubt if they could get the money.'

Senator COUZENS. No; but I say, if the Government furnished the money, would they be willing to mortgage their plants to get the money?

Mr. Muir. That I could not tell you.

As I said, about $200,000,000 spent in this industry for the purpose of modernizing would lower manufacturing costs and prices to the consumer, without increasing productive capacity.

In the food manufacturing industries $80,000,000 could profitably be spent in plant modernization to improve the quality and lower the price of foods without increasing capacity:

Very little money is needed for improving the manufacturing facilities of one of our newest industries, that of aviation, but $4,000,000 is needed for the building of the most modern and safest type of passenger transport planes. That money is not available.

Even our most efficient and modern chemical industry needs $10,000,000 for modernization of plant and equipment. And they can not get that to-day. Its greatest need, however, is for capital funds for new projects that have been planned and held up for lack of money.

Senator BROOKHART. Why can they not get that money?

Mr. Muir. Why? Because to get the money they would have to float stocks or bonds, which means that the investing public would have to buy the stocks or bonds, and they will not buy industrial securities now.

Senator BROOKHART. The public has enough of stocks and bonds. Mr. MUIR. Where they still have them; yes.

Senator BULKLEY. Where do you think the Government would get this money?

Mr. Muir. From the Reconstruction Finance Corporation.

Senator BULKLEY. Where would the Reconstruction Finance Corporation get the money?

Mr. Muir. They would get it from the public, because the investing public will put its money into Government tax-exempt securities. They are afraid to-day to buy industrial stocks and bonds.

Senator WALCOTT. Yes, they are.

Mr. Muir. There is no investing public for industrial stocks and bonds, that is true.

Senator COUZENS. You made a very interesting statement a little while ago that money is needed for new projects. What are they?

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