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BOARD OF GOVERNORS

FEDERAL RESERVE SYSTEM

Office Correspondence
To_

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From.

Walter g . Stettner and
Ramsay Wood

Date

May 18, 19k5

Subject: Hearings on the Construction
Industry before the Senate Special Committee on Small Business» May 8-10,191*5

The Senate Speoial Comraittee on Small Business under the
chairmanship o f Senator Murray o f Montana held hearings on May 8 , 9*
and 10 on the Construction Industry. Those who t e s t i f i e d were*
Henry A. Wallace, Secretary of Commerce
Robinson Mewcomb, Division of Construction Research,
War Production Board
Beardsley Ruml, Chairman of the Business Committee
o f the National Planning Association,
accompanied by Miles Colean,
Architectural Consultant.
J. Frederick Dewhurst, Economist f o r the 20th Century Fund
Malcolm P i r n i e , Chairman o f the Action and Advisory Committee on Construction o f the Committee
f o r Economic Development
Maj. Gen. P h i l l i p B* Fleming, Federal Tiorks Administrator
The main subject o f the hearings was the r o l e o f the construct i o n industry i n the economy and the r e l a t i o n o f construction a c t i v i t y
t o postwar prosperity and full employment. Several witnesses brought
out the urgent need f o r advanced planning of p u b l i c and private construct i o n i f we are t o reach high l e v e l s o f a c t i v i t y immediately a f t e r the
war, and the absence o f such planning on an adequate scale at the p r e sent time. Several m t n e s s e s dealt with the question o f reducing the
f l u c t u a t i o n s i n construction through well-planned and well-timed public
works. There was no extensive discussion at any o f the sessions.
Mr» Wallace said that our o b j e c t i v e s f o r the construction i n dustry should b e : rapid expansion o f a c t i v i t y as soon as resources can
be released; a sustained construction volume of |15-#20 b i l l i o n per annum; more goods f o r more people at l e s s c o s t ; the s t a b i l i z a t i o n o f the
industry. He stressed the importance of working toward a more even f l o w
o f private p r o j e c t s . Mr. Wallace a l s o raised the question o f establishing
a Construction D i v i s i o n i n the Bureau o f Foreign and Domestic Commerce
t o assemble, improve and analyze b a s i c data on the industry, and t o p r o mote t e c h n o l o g i c a l improvement.




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Mr* iiewcomb mentioned the s p e c i a l i z a t i o n in the construction
industry and the small size of firms. He stressed the time element i n volved i n the preparation of plans f o r construction, and estimated that
i t w i l l require from three t o f i v e years a f t e r e f f e c t i v e r e s t r a i n t s
have been dropped before construction a c t i v i t y w i l l be back t o needed
postwar l e v e l s * This estimate seems t o o long.
Mr. Ruml discussed construction from the point o f view of
f i s c a l p o l i c y and f u l l employment and emphasized that p u b l i c works ana
conservation p r o j e c t s should be used t o s t a b i l i z e only the construction
industry i t s e l f , not t o s t a b i l i z e the whole economy* He a l s o discussed
the wastefulness o f the industry, and i n s i s t e d that the s t a b i l i z a t i o n
of construction at the high l e v e l i s not desirable as long as the i n dustry i s not reorganized«
His statement was supplemented by Miles Colean who read a
short statement on p r i c i n g p o l i c y i n the construction industry* He made
the point that there i s a marked d i f f e r e n c e in construction costs b e tween the troughs and peaks o f a c t i v i t y and that the attempts of the
industry t o p r o t e c t i t s e l f through r e s t r a i n t s have not been s u c c e s s f u l .
He mentioned the p o s s i b i l i t y o f achieving limited r e s u l t s i n balancing
the construction industry and suggested that emphasis should be placed
on increasing e f f i c i e n c y in the industry.
Mr* Dewhurst reported on some preliminary data of a 20th
Century Fund study which indicate a need f o r c a p i t a l outlays o f |28
b i l l i o n per annum i n 19i|-0 p r i c e s over the next f i f t e e n years i n order
t o take care o f current demands and accumulated d e f i c i e n c i e s at a
f u l l employment l e v e l of production. This estimate of capital outlays
covers f o u r f i e l d s : urban development, commercial and i n d u s t r i a l o u t l a y s , transportation, and rural development* However, he considered
t h i s f i g u r e i n the nature o f a maximum and doubted that i t would a c t u a l l y be reached.
Mr* Firaie spoke o f the absence o f adequate plans and p r e paration f o r postwar construction and suggested a six-point program
t o expedite plan preparation. One o f these p o i n t s was the suggestion
that the cost o f making construction plans be considered as current
operating charges and exempted from t a x a t i o n . M o t h e r was that income
invested by individuals i n new construction should be exempted from
surtax. He a l s o suggested an early r e l a x a t i o n of c o n t r o l s on construct i o n and construction materials and an increase in the Federal Loan
Fund available t o states and l o c a l i t i e s f o r the planning of p u b l i c
works»




General Fleming reported on the survey which the Federal
Works 4gency made r e c e n t l y at the request of the Postwar Economic
Committee of the House t o determine the present state of plans f o r
public construction» He mentioned some of the s p e c i f i c obstacles
t o an e f f i c i e n t construction industry such as high building c o s t s
due t o outdated construction methods, monopolies in the materials
f i e l d * building codes, e t c . * and discussed the outlook f o r three
major categories of construction namely, 1) t o meet consumer demands
(housing), 2) t o increase or replace productive plant, and 3) t o
provide the " s o c i a l overhead11 (highways, s c h o o l s , h o s p i t a l s , water
systems, e t c ? ) » He concluded that the demand f o r construction i n
the f i r s t category and the third had no foreseeable l i m i t s at the
present time, while the outlook f o r construction of productive plant
was l e s s promising»
The next hearings o f the Committee w i l l be held on the
lumber situation but no d e f i n i t e date has been set*




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