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The attached is the copy
of memorandum which Hon. Harold C.
Ickes has sent you prepared by Mr.
Paul Mazur, of Lehman Brothers of
New York — his views on the best
way to bring about recovery.



Februaiy 2, 1935.

My dear Governor Eccles:
When I met you at Secretary Dernfs recently, I spoke to
you of Mr. Paul Mazur, of Lehman Brothers of New York, and
his promise to send me a memorandum of his views on the best
way to bring about recovery.

You expressed an interest and

I said I would send you a copy of his memorandum when it
came to me. Two copies have just reached my desk, one of
which I am sending to the President, and the other I am enclosing herewith.

Will you be good enough to return this to

me when it has served your purpose?
Sincerely yours,

Secretary of the Interior.

Hon. Marriner S. Eccles,
Governor of Federal Reserve Board,
Washington, D. C.

February 7, 1935-

My dear Secretary:
I greatly appreciate your sending me the memorandum covering the views of Mr. Paul Mazur, of Lehman Brothers
of New York,
In view of your desiring this memorandum returned
to you and the fact that 1 am so busy, with legislative and
other matters right now* I have had a copy made of the memorandum so that I may not delay you and at the same time have
it available when I can read it. I hope that this is satisfactory to you.
I am returning herewith the memorandum you enclosed
in your letter of February 2nd.
Sincerely yours,


Hon. Harold L. Iekes,
Secretly of the Interior,
Washington, D. C.

Jaxmary SI, 1935
I. As a premise fear this memorandum it is agreed that the
Government in spending money in order to offset the lack
of expenditures on the part of private enterprise is
fulfilling a desirable function.
II• It is, nevertheless, necessary to realize the reason for

the failure of private enterprise to employ the total
number of employable men and women during the past four
years• The reasons are simple to state although it would
appear that neither the Government, businessmen, bankers
nor economists have indicated any of these reasons in their
published statements•
It is doubtful whether manipulations of currency have
been either helpful or harmful; it is equally doubtful if
the so-called lack of confidence has been a substantial
deterrent to the necessary recovery in business. Rather
it would appear that business has failed to recover because of the following factors:
A. The automobile industry has not been able to employ
as many people as it did in 1929 because of the dis-


appearance of an important portion of its market. For
the five years 1925 to 1929 the automobile industry
produced over 4,000,000 cars annually* Since 1929 the
average number of cars produced has been about 2,400,000
or a decrease in the market for automobiles of 1,600,000
cars per year*

Foreign trade which amounted in 1929 to over #5,000,000,000
declined to #2,100,000,000 and even with the correction
for the variations in price, the loss in employment inherent in the direct expenditures for the manufacture
of such exports was over #2,000,000,000*


From 1922 to 1928 building increased at the rate of 6|#
cumulatively per year to a total annual expenditure in
1928 of #6,600,000,000* Since 1929 this figure has
amounted to an average of #2,500,000,000 and today
stands at about #1,500,000,000*

From these three items alone the loss in capital goods has
actually amounted to #8,500,000,000 per jeer. If we assume
that a primary expenditure of #8,500,000,000 for automobiles,
foreign trade and building multiplies itself by a minimum of
two and one-half times in figuring the effect of such an expenditure upon the total national income, the loss through
the diminution of these three markets alone in our national
income would amount to #21,250,000,000* This figure represents a loss of practically one-quarter of the total markets
inherent in our national income figures for 1929*

It should be clear, therefore, that until these markets are
rehabilitated or until substitute markets are obtained, this


country cannot recover and cannot re-employ those people whose
employment and whose purchasing power were dependent upon the
industries which have suffered a diminution of such dramatic
It is important for the Government and business to cooperate in planning the rehabilitation of old markets and the
creation of new markets rather than to have the nation wait
until accident or inventive genius creates such new markets.

For two years a Government spending program of large proportions has been under way. It has failed to accomplish all of
its purposes because some of the Federal activities have been a
deterrent rather than a stimulus to private business and because
most of the Federal expenditures have not been regenerative.
In order to induce recovery Government funds should be
expended in such a manner as to encourage the simultaneous and
collateral expenditures of private funds in amounts substantially
larger than those actually advanced by the Government.
!• Government activities in some instances have deterred private

A. While some Administration members have, on one hand,
challenged private enterprise to promote recovery by


-4increasing volume and employing those now unemployed,
other Administration members have, on the other hand,
removed the chance of profit or have threatened to remove such chance of profit to private enterprise*
!• In the air mail investigation, in the munitions
inquiry, in the Governments position on the
entire public utility problem, in the two Acts
regulating the issuance of and trading in securities, in the proposed Pure Food and Drug Act and
in the F*E*BJU self-help factories there are
direct and potential threat to the profit of
private enterprise•
2. Because of Government activity it has been increasingly difficult to arrange private financing of private industry*
3* Government activity has competed with private
enterprise, particularly in housing, and has thereby discouraged such activity by private enterprise•
a* Private enterprise can neither be encouraged
nor financed in private building construction
if the Government using public funds builds
housing units by:
(l) Providing money at lower rates than those
obtainable in the open market»
(E) Granting subsidies of substantial amounts,
(3) Providing a maximum rental to be charged
regardless of cost of operation*



(4) Eliminating profit*
As a result of such Government activities,
the total new constriction will be almost
limited to such Government construction;
private enterprise cannot afford to construct buildings *

Government activities have not been coordinated
but rather have been conflicting and contradictory
a* P. ¥• A*, C. W. A., F* E. R. A* and F* H* A.
have been unintegrated; their relationship
has been confusing*

Government expenditures have not been regenerative»
In large part Government funds have been used for
self-limited activities - that is projects which,
when completed, provided no stimulus for further
activity by private enterprise •

Government measures looking toward stimulation
have in some instances been abortive and in other
instances been insufficient to serve the needs
a.* It is impossible economically to construct
low rent housing facilities without a Government subsidy*

Even with a Government subsidy

of a tremendous sise housing facilities can
be supplied for only a very small portion of
the market*

The F#H»A. loans for renovation were limited
to |2,000 - an amount far too low*

The terms



of repayment for these loans were too onerous •

Mortgage paper should be subject to rediscount
by the Federal Reserve. If this could be arranged thousands of member banks could be made
agencies for the loaning of money on new homes*
Credit control could also be established*


Unquestionably the best opportunity in terms of economic
and social need lies in a major rebuilding program for the American
population. Although the Government has directed some attention
to this effort, results have been unsatisfactory because the devices
used by tie Government have in some instances been misdirected*


is questionable whether the funds used for slum clearance and low
rent housing will be effective in reviving construction or in providing housing on a scale sufficiently large to be useful*
It is therefore suggested that #1,000,000,000 of Government
money be made available for a housing program upon a basis which
throtigh the expenditure of such funds will insure a total building
program of #5,000,000,000, and including collateral developments
and the stimulation of private building outside of the program,
will mean a primary expenditure of #10,000,000,000* Byising the
same multiplier in calculating the effect of primary expenditures
on national income, namely two and one-half times the expenditure the direct, collateral, and derivative increase in national income
would amount to #25,000,000,000 for #1,000,000,000 of Government


The purposes of housing in the Administration's program are*
A* To stimulate heavy industry and thereby promote recovery*
B* To increase employment in the heavy industries and
particularly in the construction industry in the hope
that construction will continue once started, thus
absorbing substantial numbers from the lists of unemployed •
1* Construction employment has suffered more than
employment in almost any other field*
2. It is estimated that 76$ of the cost of a building represents funds going directly and indirectly
to labor*
C. To re-establish the flow of capital into mortgages and
1. To reopen mortgage markets (particularly F*H*A*
Title II)*
2* To revive capital markets as a means of reviving
widespread construction which in turn would provide employment*
D. To provide an active demand for housing which, on an
economic basis, offers the chance for re-establishing
one of the major markets lost to this country in the



The available demand for housing is tremendous•

There exists a great market for modern housing for
families of middle class incomes• The market for
low rent housing is restricted»

Table I below provides an analysis of families,
incomes per year, and expenditures for housing
as reported by the Brookings Institution in
"America's Capacity to Consume"•

Table I


Family Income

Ifemi 11 A S










Under $600
$600 -- 950
950 •- 1250
1250 -- 1450
1450 -- 1700
1700 -- 2000
2000 -• 2450
2450 -- 3100
3100 -- 4600
Over 4600
All Classes


$ 300

$ 600


These figures indicate that as of 1929 there
were 5,500,000 families with annual incomes
of under #950 per year whose total expenditures for housing amounted to #1,200,000,000*


The same figures indicate that there were
16,500,000 families having incomes between
#950 and #3,100 per year in 1929j these
families spent #7,700,000,000 annually for

housing* Obviously the latter group presents a much larger and a much more important market than does the former group*
B* It is estimated that our country has today a potential
isarket for 5,000,000 middle and upper class homes
costing about $25,000,000,000*
III* The failure of any natural revival of construction.

A* In spite of the existing demand and market for housing,
private industry has failed to reopen this available
market for a number of reasons:
1* With the onset of the depression real estate values
fell, individuals1 incomes dwindled, families
doubled up* Maintenance was discontinued while
depreciation went on. Because of lack of funds
the market for real estate disappeared while the
income from real estate continued to decline*
2. While all of this went on building costs remained
high. Today it is more expensive to build than
to buy*
3. Construction activity has failed to revive because
of the absence of a sufficient profit in such
4. Recent conditions have shown some improvement.
Bentals have shown a tendency to increase although
present rentals show no profit on original capitalizations, such apparent losses discouraging new
5. It is possible today for private capital to build

-10new housing at some profit but,

The former builders and contractors are bankrupt*

b. Existing structures are available at low prices*

It is difficult to obtain mortgage money and
equity capital.

6. The threat of a so-called low rent housing program
financed by the Government discourages owners from
constructing buildings which in effect will be competitive but which cannot be competitive in rental*
a* The experience of Knickerbocker Village is an
example. This project has attracted white
collar and junior executive classes of people.
It is*now low rent housing in any sense; it
is merely bargain housing for shrewd purchasers*
7* Building has failed to revive naturally because it
is cheaper to buy than to build since f toaneial deflation has carried values down while construction
costs have not declined.
IV. The Administration^ low rent housing program has been, in a
sense, unfortunate.

A. The standards of construction set for low rent housing
are higher than are the standards of existing housing
occupied by middle class groups*
B* Low rent housing is a sociological ideal but it does
not advance a program of recovery for:
1. It cannot be built and operated profitably either
by private capital or by the Government*


fact that the Government undertakes the burden and
by subsidy constructs the buildings, does not


-11eliminate or minimize the social cost to the
solvent and tax paying elements in our population•
2. The effect of Government subsidies for low rent
housing serves to delay and even perhaps to eliminate the possibility for any natural recovery in
real estate values or for any natural recovery of
housing - as distinguished from low rent housing construction.
a. When the Government makes it possible to construct and rent a building on a basis such
that a similar building could not be constructed and related by private capital, further
declines in real estate values must follow.
The fear of Government competition will
sterilize completely the flow of private capital into construction. Will not the net result be that the only housing activity that
goes on will be that sponsored by the Government? Can the Federal budget stand amounts
large enough to permit such Government activity to continue for long at a substantial, rate?
3* There may be some justification for Government subsidized housing provided such housing be rented only
to families actually in the poorest classes•

The table above showing income distributions
as of 1929 indicates that the lowest class
income groups in 1929 had incomes of tinder
$950 per year. If we take as a rough guide


-12the fact that similar incomes have probably
decreased by about 40% since 1929, these
groups as of 1934 might be held to have incomes of about #600. If the Government
were to have a specific section written into a statute making it a criminal offense
for any individual to misrepresent his income in an attempt to rent an apartment in
a Government subsidized housing project and
if further the rental of Government subsidized houses were to be restricted to families of incomes of under, let us say #600 to #750 per
year, then such Government low rent housing
would definitely be noncompetitive in the
real estate market.
b. The approach of the Government to date has
been much less realistic. In the first
place it lends money at low rates and a
suggestion has now been made that these
rates even be reduced still further to lf#.
The Goverwaent then proceeds to set limitations on family incomes as high as $4,000,
the figure set in Knickerbocker Village.
(1) A number of Knickerbocker Village
apartments have been rented to


-15individuals or families with incomes
in excess of #4,000. It is submitted
that housing of such type is not low
rent housing for the benefit of the
under privileged classes of our population, but actually bargain housing
for shrewd people*
4* It should be pointed out that even with very substantial funds only an inadequate job can be done
by the Government on any low rent housing program*
Even if the Government were to spend $1,000,000,000
on low rent housing at present construction costs,
accommodations for only about 800,000 to 1,000,000
people would result. This would mean that 200,000
to 250,000 families would obtain new low rent housing. As has already been indicated there are
5,500,000 families in the two lowest income groups
in our population. It must be obvious then that
only a very small proportion of the under privileged would benefit from a direct Government expenditure of as large as #1,000,000,000.
5. To provide modern low rent housing for the 5,500,000
families in the two lowest income groups in our
population would require the construction of
22,000,000 rooms. At an average over all cost
of, let us say, #1,200 per room, such construction
would require #26,400,000,000 of Government funds,
a. As against an outright expenditure by the
Government of #26,400,000,000 on which the

-14Government would show a loss, the program here
suggested should provide stimulation to national
income in an amount almost as large with the expenditure of only $1,000,000,000 of Government
6. The proper method of providing low rent housing for
the lowest income groups is through a program which
will provide competitive housing units at competitive
prices. Such a program, if it provides funds to
private owners, will force activity of the construction industry. Not only will there be new construction, but that new construction will force necessary
rehabilitation of existirjg structures.
C. Middle class housing is more inadequate relatively today
than is the housing of the poorest classes. The real
market is among those groups of middle class incomes.
The Government is making a mistake by restricting its
housing program to low rent projects.
I. Principles.
A. Government funds should be made available to supplement

private funds on a basis whereby:
1. For each dollar spent by the Government a multiple
of that sum would be spent by private capital*

-152. The Government funds will be invested on a basis
which will insure their repayment preferably with
a profit to the Government•
3, The stimulus to private industry would make such
a program definitely regenerative*
B* In order to provide the stimulating and regenerative
effect which will promote recovery the Government should
provide junior or equity money*
II• Practice*

A* Establish a Federal Housing Authority with an appropriation of #1,000,000,000 to be employed in the financing
of approved housing developments - apartment buildings,
groups of private houses and individual private houses.
B. It is desirable that the functions of construction and
operation of houses be decentralized, the Federal Housing Authority exercising the right to approve or disapprove, with supervision within wide limits*
1* Decentralization of construction and operation of
the buildings is desirable in order to promote efficiency* Decentralization is desirable in order
to provide housing suitable for local needs* Decentralization is desirable in order to permit
private interests to make a profit consistent with
the existing real estate market on both construction and operation*
2* Senior financing might very well be centralized
Q& decentralized depending on a study of the relative advantages of each plan*

-16III • Plan of financing - general outline.

A. It is suggested that the following general basis be
1. A 7(# mortgage to be sold to the public in the
form of an insured mortgage bond following the
issuance of mortgage insurance under Title II of
the Hational Housing Act. The entire mortgage
issue should carry with it one-sixth of the equity•
By permitting the mortgage bonds to carry a small
portion of the equity there will be a speculative
attractiveness in the bonds. Purchasers will be
given what appears to them a hedge against inflation .
It is interesting to point out that if the
program here suggested is successful there will
be no reason for any inflation. On the other
hand, people with capital fear an inflation.
The equity interest which accompanies these bonds
will make them attractive to such people.
2. A 20$ preferred stock issue to be purchased by the
Federal Housing Authority. Such preferred stock
issue to carry with it one-third of the equity.
The equity interest obtained by the Government
will provide a reasonable opportunity for a
profit on some funds to provide insurance against
loss on others. On the other hand, since a recapture provision is to be given to the equity
owner there will be no difficulty from having
the Government active in private business through

-17the operation of real estate*
3* 10$ of the total construction coats to be advanced
by the owner or builder for which such owner or
builder will receive 5<# of the equity* Arrangements to be made for owner to repurchase from the
Government the portion of the equity owned by the
Government on a basis such that in the event of
repurchase, the Government will show an actual
profit on its purchase of preferred stock*
B* It will be important to have legislation so set up as
to permit local sponsoring groups9 whether such groups
be housing authorities or other instrumentalities already established to continue operations in the housing
field* The encouragement of such operations so long as
the operations are kept on a competitive basis is desirable. The right of condemnation held by such Governmental units is of great aid in assembling land on a
fair and reasonable basis through avoiding speculative
and hold-up tactics by present owners*
IV* Advantages*

A. The mortgage bonds to be sold to the public will be
sound securities with a definite attractiveness because
of the equity interest which they carry*
B* A builder requires but 1(# of the total cost of land
and building - in most instances less than the cost of
the land alone*
C. This plan will make Title II of the national Housing
Act - potentially a very constructive piece of legislation - both practical and effective.

-18D* Arrangements can be made for the amortization of the
preferred stock purchased by the Government so that
there will be no drain on the Federal budget* The
possible resale of the Governments equity interest to
the owner will yield a profit in laany instances on individual projects and will definitely yield a profit on
a total housing program. The return flow of funds to
the Federal Housing Authority resulting from the amortization payments on the preferred stock will supply
funds for a continuing housing program.
E. A program such as is here suggested would be regenerative j it would stimulate the construction industry by
encouraging expenditures of private funds greatly in
excess of the amount of Federal funds employed.
The general principle can be applied to the purchase of air
conditioning apparatus for office buildings, factories, and transportation facilities* The market would be substantial.
The same plan or a modification thereof could be used for the
construction of new streamlined facilities for the railroads* The need

-19for modernization of our railroads is great and Government funds for
this purpose can be made regenerative by one of several plans •
Plan I.
Grant junior money to the railroads so that private funds can
be raised upon a reasonable basis.
Plan II.
Grant a subsidy (ffee of cost) to railroads if used in eighteen
months for the construction of new equipment*
Plan III.
Government could organize an equipment corporation financed
to build two or three streamlined trains for each railroad
system* This equipment would be built at Government expense
and rented to the railroad at a low interest rate on the
principal invested with an option upon the part of the railroad to purchase either at cost or a small profit to the
If new type of equipment has a service to render,
the introduction of individual units would prove their competitive value and should force the rapid extension of other
similar new types to replace the old obsolete equipment.

January 31, 1955


It is suggested that #1,000,000,000 be made available
by the Government for a housing program - not low rent housing - upon a basis which will insure expenditure by private
capital of sinus greatly in excess of such Government expenditure.
It is suggested that this objective may be attained
if the Government will provide junior capital* One possible
plan would be as follows:

70$ of constriction cost to be raised through
mortgage bonds insured under Title II of the
National Housing Act} mortgage bonds to carry
one-sixth of the equity in the building •


20$ of the cost to be supplied by the Government
through the purchase of preferred stock carrying
with it one-third of the equity*


1C$ of the cost to be supplied by the owner or
builder in return for which he will receive 50$
of the equity and the right of purchasing from
the Government the portion of the equity owned
by the Government*

These suggestions are submitted as a result of an
analysis substantially as follows:

I* Government expenditures are necessary in order to
stimulate recovery* Unless substitute markets are
found to replace the markets for automobiles, export trade, and the building construction of 1929,
the present low level of activity in this country
represents the only recovery that can be expected*
II. The Governments program of pump priming has not
met with substantial success because Government
funds have been poured into dry pumps; the only
resulting employment and spending created was the
expenditure of those Government funds*
Some Government activities have exerted a
deterring rather than a stimulating influence on
private enterprise* Government funds should be
spent in such a manner as to encourage the simultaneous and collateral expenditure of private
funds in amounts substantially larger than those
actually advanced by the Government*



III» A substantial housing program would promote recovery
&• It would fulfill the purposes of the Administration through the stimulation of employment
in the construction and allied heavy industries«
B« The available demand for modern middle class
housing is tremendous•
(!• Housing construction can be undertaken at a
snail profit today but outside stimulus is
needed since it is still cheaper to buy existing structures than to build new structures
at present construction costs*
D. It would eliminate the objection to the Administration^ present low rent housing program
which does not stimulate private enterprise
and is bound to be unsuccessful both socially
and from the standpoint of stimulating recovery.




Governor Eccles

FROM: Mr. Edmiston


Subject: Suggested Housing; Program Forwarded to you by Secretary Ickes.

Comments on General Contents of Memorandum
The general objectives outlined in this memorandum are admirable • With limited funds available for public spending it is
essential that they be spent in ways that will encourage and promote private expenditure* Moreover, the methods of public expenditure which tend to disturb confidence and discourage private capital investment should be avoided. This memorandum points out
clearly the dangers when funds are used on low-cost housing projects which appear as a potential threat to private ownership of
housing accommodations•

Comments on the Specific Plan to Promote Building
The main question at issue is whether or not the specific
proposal will actually lead to the objectives claimed for it. As
a practical proposition I doubt if it would be successful, particularly in the field of residential housing. Several objections
are listed below:
1. There is nothing in the plan that will cut down interest
rates or provide a method by which the discrepancy between building
costs and rents is narrowed sufficiently to make new building
operations profitable. The inducement to draw private capital into
housing is a 20$ purchase of preferred stock by the Government.
However, this is not a gift and as the stock would have to be repaid in the future, it would not provide a great incentive to
2. The red tape that would be involved in the purchase of
preferred stock by the Government in the case of small homes throughout the country would be tremendous. The immense amount of Y/ork involved in checking up on each project would make for a slow rate of
spending and would destroy the effectiveness of the program as a
pump-priming operation. Preferred stock on a $^00Dhouse seems
slightly ridiculous.
3. The schedule of dividing the equity between the mortgageholder, the preferred stock-holder and the owner is an unnecessary
complication. Why the mortgage-holder or the Government is entitled to any equity in a property is more than I can see. They
already have prior liens against the property in case of default of
interest or dividend payments and they are entitled to nothing more.



4. Another difficulty is that the prospective builder
must finance his operation through the Federal Housing Administration* This is a restriction that would delay the program. The
owners should be left free to obtain capital from any source
available to them.
On every count a direct subsidy scheme is preferable to
this plan* The money would be taken up rapidly and a large volume
of private expenditure would result* Moreover, the administration
of the subsidy would be more efficient*

February £3, 1935•