SEC. 14. There is hereby created an emergency finance board, to be composed of three members appointed by the President, by and with the advice and consent of the Senate. One of the members of the board shall be experienced in State and municipal finance, one shall be experienced in housing construction, and one shall be experienced in banking and finance generally. All applications for loans under sections 12 and 13 shall, subsequent to their approval by the administrator, be referred to the board for its approval. In acting upon such applications for loans the board shall take into consideration (1) the financial condition of the borrower and (2) the ability of the borrower to obtain funds at reasonable rates from other sources. No salary shall be paid to board members, but they shall be paid from funds available for the administration of this act a per diem compensation not to exceed $ for time devoted to the business of the board, and necessary traveling and subsistence expenses or per diem allowance in lieu thereof, within the limitations prescribed by law for civilian employees in the executive branch of the Government. The members of the board shall serve during the continuation of the emergency.

SEC. 15. Appropriations authorized by section 7 shall remain available until expended or until the index of industrial production, as now computed, of the Federal Reserve Board reaches index numbered 100. Thereafter the administrator shall make no new commitments, and shall have the emergency powers conferred upon him by this act only so far as may be necessary to complete contracts already under way and liquidate the emergency affairs of the Administration of Public Works.

PROSPERITY BOND ISSUE

SEO. 16. (a) To provide funds for the emergency construction program authorized by this act, the Secretary of the Treasury, with the approval of the President, is authorized to borrow, from time to time as may be necessary for the purposes of this act, on the credit of the United States, not to exceed $5,500,000,000 and to issue bonds therefor, to be known as prosperity bonds, in such form as he may prescribe, and at such rates of interest, not to exceed 44 per centum per annum, as may be fixed by him.

(b) Such bonds shall be in denominations of $50 and upwards and shall mature ten years from the date of their issue. The principal and interest thereof shall be payable in United States gold coin of the present standard of value, and such bonds shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by authority of the United States or its possessions, or by any State or local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, now or hereafter imposed by the United States upon the income of individuals, partnerships, associations, or corporations.

(c) Such bonds shall be first offered at not less than par, as a popular loan, under such regulations prescribed by the Secretary of the Treasury as will give all citizens of the United States an equal opportunity to participate therein, and any portion of the bonds so offered and not subscribed for may be otherwise disposed of at not less than par by the Secretary of the Treasury; but no commissions shall be allowed or paid on any bonds issued under authority of this act.

ADDITIONAL TAX LEVY

SEC. 17. (a) In addition to the surtax imposed by section 12 of the revenue act of 1928, there shall be levied, collected, and paid for each taxable year, beginning with the taxable year 1932, upon the net income of every individual having net income in excess of $5,000, an additional surtax of 2 per centum of his net income less the credit provided in subdivision (b).

(b) For the purpose of such additional tax there shall be allowed the following credits against the net income of individuals having a net income not in excess of $10,000 :

(1) In the case of a single person, a personal exemption of $1,000; or in the case of the head of a family or a married person living with husband or wife, a personal exemption of $2,500. A husband and wife living together shall receive but one personal exemption. The amount of such personal exemption shall be $2,500. If such husband and wife make separate returns, the personal exemption may be taken by either or divided between them.

(2) In the case of a change of status the personal exemption shall be determined in the manner provided in section 25 (e) of the revenue act of 1928 in the case of the personal exemption there provided for.

(c) The tax imposed by this section shall be levied, assessed, collected, and paid upon the same basis and in the same manner as the similar taxes imposed by section 12 of the revenue act of 1928, and shall for all purposes be regarded as a tax imposed by Title I of the revenue act of 1928.

(d) All moneys received from taxes imposed by this section shall be covered into a special fund in the Treasury and shall be available only for the payment, redemption, or purchase, at not to exceed par and accrued interest, of any bonds issued pursuant to the provisions of this act; and all moneys in the fund are hereby appropriated for that purpose.

EFFECTIVE DATE

SEC. 18. This act shall take effect immediately; except that the provisions of this act in relation to the transfer of any agency from the jurisdiction and control of one officer to the jurisdiction and control of another, or in relation to the transfer of functions from one officer or agency to another, shall take effect on the thirtieth day after the enactment of this act.

The CHAIRMAN. The committee will come to order. La Follette, will you call the first witness?

Senator

STATEMENT OF COL. SANFORD E. THOMPSON, PRESIDENT OF THE THOMPSON & LICHTNER CO. (INC.); PRESIDENT OF THE TAYLOR SOCIETY

The CHAIRMAN. Will you give your full name for the record?
Colonel THOMPSON. Sanford E. Thompson.

The CHAIRMAN. What is your address?

Colonel THOMPSON. Statler Building, Boston, Mass.

The CHAIRMAN. You may proceed, Senator La Follette.

Senator LA FOLLETTE. What is your present occupation or profession, Colonel Thompson?

Colonel THOMPSON. I am president of The Thompson & Lichtner Co. (Inc.), engineers in industrial management and construction, with offices in Boston, Chicago, and Cincinnati; also president of the Taylor Society.

Senator LA FOLLETTE. For the record, will you explain briefly what the Taylor Society is?

Colonel THOMPSON. The Taylor Society is an international society to promote the science and the art of administration and of management. Its membership includes those of a wide variety of occupations-manufacturers, economists, business men, and engineers.

Senator LA FOLLETTE. Have you given any consideration to the bill S. 2419.

Colonel THOMPSON. Yes, sir; I have.

Senator LA FOLLETTE. Would you in your own way give the committee the benefit of your criticism and comment on the bill and the subject-matter which is involved in it?

Colonel THOMPSON. The bill, as I read it, is really in three distinct divisions; the first covering the administration of public works, the second, means of expanding public works through the expenditure of a sum of money, and third, the means of obtaining the money for its

use.

In my opinion all three sections of the bill are of very immediate need and value. Whether or not they should all go through as one bill or be separated into different ones, I am not sure, but the general scheme is good. In other words, if we have a large appropriation for public works, there must be some definite authority with administra

tive power to carry the plan through, and of course it follows without saying that we have got to find some way of raising the money to carry it through.

I have been particularly interested in this phase of the business situation through studies that I have made personally in connection with my presidency of the Taylor Society and also the fact that our engineering busineess takes us into contact with almost all branches of industry, including construction, so that we see some of the things which are needed.

It seems an absolute necessity that aggressive measures be taken directly to reduce unemployment and by other measures than anything approaching a dole.

The general principle of the building of public works and of construction generally during a period of lag in business, is recognized as sound. It employs men who would otherwise be idle, it utilizes capital and it tends to bring back consumer purchasing, and thus increases general employment throughout industry. Of course, this is our aim, it is the recognized aim of almost everyone who has given thought to it, that we must bring back consumer purchasing which results in increased employment. So we may say that the general principle of emphasizing construction during a business depression is sound. As a matter of fact, construction tends to lead general business. In January of this year-January 28-I wrote an article for the Engineering News-Record (January 28, 1932, issue) under the title of "Construction Revival is Essential to Prosperity," and in this is a diagram which is of some interest. If those of you who have this diagram will follow it you will note that whereas general business-that is, the upper curve-begins to drop in 1929, the middle of 1929, the construction curve drops off long before this, that is, early in 1928, a year ahead of the drop in general business. Turning back to the beginning of the curve, following the war, we see that the upturn-and this is a very important point-the upturn of construction is in 1920, whereas the upturn of general business, as shown by the data prepared by Standard Statistics, a recognized authority, does not begin until 1921, or just about a year later. The top of the first wave in general business is in 1923, and in construction it is 1922. Again, construction is ahead of general business. The next upturn in general business is in 1924, the middle of the year, and in construction about the end of the year 1923. Again, construction is ahead. The sloughing off of general business in 1926 is preceded by a sloughing off in construction in 1925, and again the upturn in business in the latter part of 1927 is preceded by an increase in construction in the latter part of 1926.

Now, this has a bearing on the present situation in this way: We find, for example, that construction, including construction industries-that is, manufacturing industries which make construction material-and construction itself, occupy from 10 to 15 per cent of the general business of the country; so that it is of very great importance. We find at the present time—and we notice it particularly in our relation to construction as engineers-that the construction situation is getting worse and worse.

Senator LA FOLLETTE. Have you any general figures on the situation in the construction industries?

Colonel THOMPSON. I have it more from observation in visiting plants and talking with people when going from place to place, because my business takes me all over the country. In general the dropping off in industries manufacturing construction material, I find to be about 70 to 75 per cent; that is, manufacturing plants, which make specifically construction material, are running only about 25 or 30 per cent of normal.

Now, general construction, contracting, and work of that kind, has dropped off, I should say, about the same amount; in other words, the drop is very much greater even than general business. Referring again to the curves you will see they are percentage curves and do not represent volume, but you will notice that the percentage drop in the lower curve-that is in the construction curve-is very much greater than in the general business curve, although they only go to the middle of 1931. The drop has been increasing ever since in the same direction.

Senator LA FOLLETTE. You mean it has been decreasing?

Colonel THOMPSON. Decreasing further and further. Now, at the present time the cities and municipalities, with the object of reducing costs, are cutting out more and more construction expenditures. Our company had occasion to write to the road departments of all of the States recently with relation to certain specifications in which we were interested in connection with one of the national engineering societies, and we found that some of the States are not interested in the specifications because they are not using construction materials at all; this applies to some of the western States. Others are cutting down their expenses, and every dollar of expense that is cut off means lack of employment, and increase in unemployment, because almost all construction expenditures go very directly to labor. Labor, we will say direct labor, runs in general something like 50 per cent of construction costs, and the balance is made up of materials which come directly from industry, and in which labor occupies a very large part. For example, take the cement industry. The manufacture of cement is based on raw materials which are dug out of the ground, that is stone-shale and limestone-and it also uses large quantities of coal. These are the only raw materials-and these industries directly employ labor. The Federal Government, as we, of course, know, is scarcely normal in its actual construction of public works. All of this is rapidly increasing unemployment at the present time and the amount of money to buy goods is becoming less.

It would seem that the only way to change this current is to deliberately divert capital to the purchase of goods, and, in my opinion, the plan which is suggested in this bill appears to be the only way to obtain this directly. I am saying this without any disparagement of the Reconstruction Finance Corporation act or the Glass bill in connection with the Federal reserve; but even suppose these are effective, we still have a vast army of men and women who are being thrown out of employment by lack of construction work, and we also have the opportunity, through public-works expenditures, of gradually changing over from this condition to one of greater employment.

Even the $5,000,000,000, we will say, is a small amount to actually turn the tide; but having once gotten started, it should prove of a great deal of benefit. When we consider the expenditure of a sum like this in comparison with the actual loss in wealth that has taken place from unemployment, which amounts at the present time to perhaps $20,000,000,000 a year, we see the absolute necessity of doing something, and doing something quick, and doing it in a broad, big way.

But, assuming this is needed, we must also consider whether the measures indicated by the bill are right measures as they relate to general business, and in considering that I think we might go back a little bit to the development of the depression. It is recognized quite generally at the present time that the prime cause of the depression is the fact that during a period, particularly of 1925-1929, a disproportionate part of the money and credit of the country was devoted to capital investment, and that an inadequate part remained available for consumer purchasing, and that the reduced consumer purchasing impaired the ability of industry to meet the huge overhead of debts caused by capital investments during a period of inflated values and prices. Business was compelled on this account to stop activities for the purpose of readjustment. The resulting alarming unemployment, as I have said, has been further increased by the drastic economies in public expenditures with nothing to balance it. We have a condition that is generally recognized as equal to that of war time.

There is one thing which would bring back business quicker than anything else, although it would be very much to the detriment of the country as a whole, and this is war. It is out of the question to consider this as a remedy, and yet it is worth while to look back a bit and note the causes which made for prosperity—that is, for increased business activity in war time.

The actual cost of the war has been figured at some $50,000,000,000. Business rapidly increased because of the manufacture of munitions and other matériel.

The money distributed helped to increase business in 1919 and early 1920 because of the money brought into circulation and available to buy goods. Now, the question is whether at the present time we can not utilize this experience by issuing bonds during the present period for public works and other expenditures, Government research, and other factors which make for real economic value; and it is practically the only way I can see to obtain this end.

Senator LA FOLLETTE. Have you any figures that indicate the actual situation as to municipal, county, and State expenditures for public works at the present time compared with a normal year?

Colonel THOMPSON. I have no definite figures although those figures could be easily compiled. The general trend is evident from public statements in the press and personal observation. For example, our city of Newton, Mass., is in a fine financial condition. Newton is largely populated by men who are not dependent entirely upon daily wage. The mayor of Newton made an address at the beginning of the year, at the beginning of his second term, in which he told what fine condition the city was in, and then right after this