"Recovery depends in large measure upon the expansion of capital investment in housing, railroads, and public utilities," declared Alvin H. Hanson, Littaner Professor of Political Economy, in an interview with the CRIMSON yesterday.
According to Professor Hanson, no substantial revival occurred in these three fields in the recovery of 1935-1937. Although there was a real boom in the production of automobiles and some other durable consumers' goods and a very considerable investment in industrial plant and equipment, capital expenditures remained low in the basic fields of housing, railroads, and public utilities.
Suggests Lower Wage Rates
To remedy the housing problem, the noted economist suggests that the guaranteed interest rate of the Federal Housing Administration be reduced from five to four percent. Lower building material costs and reduced hourly wage rates are vitally necessary. "With building costs as high now as in 1926 and the national income 25 percent lower," lower," he said, "the situation is not favorable for a large expansion in housing construction."
"It is perfectly clear that the life insurance companies and other saving institutions have more funds at their disposal than they can possibly place," Professor Bansen continued. "The problem is to get enough projects in which they can invest."
Railroad Industry Declining
As for the railroad industry, Professor Hansen states, "It is a declining industry owing to the competition of other methods of transportation. The solution of the railroad problem is not to charge higher rates but to thoroughly reorganize the capital structure. This involves the enormously difficult task of liquidation. To keep on bolstering up the top-heavy capital structure is hopeless."
"The bonded indebtedness of the railroads must be scaled down to a level which can be sustained." Professor Hansen explained.
However, a drastic change in the capitalization may necessitate salvaging the investment of life insurance companies and savings banks in railroad securities."