June 21. 1919





RECORD    AND    GUIDE





827





The  Report  On   Economics  of   Construction  Industry

Compiled by Division of Public Works and Construction Development of the

Federal ]3epartment of Labor





THE following summary of a forthcoming report entitled
"Economics of the Construction Industry," has been
prepared by the Division of Public Works, and Con¬
struction Development, Information and Education Service,
Department of Labor, Franklin T. Miller, Director:

In January, 1919, the Division of Public Works and Con¬
struction Development was organized as a branch of the In¬
formation and Education Service oi the Department of
Labor. Its purpose was to be the stimulation of the interest
of the nation in public and private construction with a view
to the creation of buffer employment for labor during the
period of transition of manufacturing industries from war to
peace production. It was charged with the securing of data
for the use of the construction industry, but its activities
were also to comprehend a study of the economic conditions
affecting  industry as  a  whole.

In conformity with its purpose it has given wide publicity
to the material which it has gatheied on prices and price
tendencies in the construction industry, and to such other
information as it believed was of immediate value for the
construction industry and for general industry. Its findings
are contained in "Economics of the Construction Industry,"
now in press. In the following pages a brief summary of these
findings is presented, which it is hoped will provide conviction
for those who, on the threshold of an era of business pros¬
perity, still hesitate. On the basis of its study it has come
to the conclusion that construction in 1919 can be justified
on financial grounds.

1.  Most people believed that the high level of prices reached
during the war was caused merely by the extraordinary de¬
mand for commodities which exceeded the supply. With the
end of the war and with war demand a thing of the past.
they quite naturally expected a sharp drop in prices and a
price level approximating in a short time the prewar price
level,

2.  It was also commonly believed that the industrial ca¬
pacity of the world had been greatly expanded under the
stimulation of war orders, and that this expansion would
bring sharp competition between rival concerns in time of
peace. Furthermore, it was thought that there would be after
the war great armies of unemployed workmen, who would be
compelled by necessity to accept work at low wages; that
there would be sharp competition among the leading nations
in international trade; and that buyers generally, looking
forward toward an era of lower prices, would postpone buy¬
ing. In the light of these considerations it was but natural
for people to expect a great fall in prices, and even to fear an
industrial panic.

However, the expected great fall in prices has not occurred,
and it is not likely to occur for the following reasons:

3.  The rise in prices during the war was not merely the
result of a great demand for goods and of a scarcity of cer¬
tain goods. It was largely brought about by means of in¬
flation of the currency by the governments at war and by the
neutrals, either by the direct issue of paper money or by
the issue of bonds. Although war orders are now largely a
thing of the past, the extension of credits still exists as a
continuing cause of high prices. There is little to indicate
an early contraction of credits.

4.  World production in general during the war, contrary to
a widely held view, was not abnormally large. This is shown
by statistics of world production of leading basic materials of
industry such as coal, petroleum, iron ore, and of cotton,
sugar, wool, wheat, and other agricultural products. Conse¬
quently the abnormal consumption of goods for war purposes
has depleted the stocks of commodities of the world.

5.  Armies of unemployed, in the United States at least,
have  not   materialized,   and  an   actual   labor   shortage   is   in





prospect.   Wages are not likely to be lowered.

6.  Buyers since the armistice, although showing a desire
to wait for lower prices, have been compelled to buy to
meet their daily needs. During the war, because of scarcity
of commodities and high prices or because of patriotic self-
denial, they did not buy in advance of need, as is customary
in an era of rising prices. Consumers' goods are in great
demand and retail trade is now moving in great volume.

7.  If the production capacity of industry should be greatly
increased, lower prices would not necessarily follow. If there
is a strong enough demand for commodities, prices need not
fall, no matter in how large volume commodities are produced.
There is every reason for expecting such a strong demand.
The world is now suffering from a great shortage of durable
goods—buildings, transportation facilities, and industrial
equipment. Furthermore people, both in the United States
and Europe, have a stronger desire for consumers' goods
than ever before. This is true partly because of the scarcity
cf certain goods during the war period, and partly because
of the new experiences through which tens of millions have
passed, which have awakened in them desires for goods and
services they never enjoyed before. Along with greater pro¬
duction of goods there is likely to go further extension of
credits rather than contraction. Neither the credit system of
the United States nor that of the world has reached the limits
of   its   power  of   expansion.

8.  Business men of the United States need not hesitate to
flan for an immediate period of business prosperity. No pe¬
riod of depression and no collapse of values need to be feared.
The man who goes full speed ahead will gain an advantage
over his procrastinating competitor which will far outweigh
any  possible   slight   decline  in   costs  of   production.

For a fuller discussion of the effect of inflation on prices
see "The New Price Revolution," by Prof. Irving Fisher,
Yale University. Prof. Fisher's paper is briefly summarized
in  the  following paragraphs:

9.  Prices are not going to fall much, if at all. We are on
a permanently higher price level, and business men should
go ahead on that basis.

10.  The general level of prices is dependent upon the
volume and rapidity of turnover of the circulating medium
in relation to the business to be transacted thereby. If the
number of dollars circulated by cash or by check doubles,
while the number of goods and services exchanged thereby
remains  constant,  prices  will  about  double.

11.  The great price changes in history have come about in
just this way. The price revolution of the sixteenth cen¬
tury was a result of the great influx of gold and silver from
American mines. A similar increase in prices all over the
world occurred between 1896 and 1914, following the discovery
of rich new gold fields and the introduction of cheaper
methods of mining.

12.  The present rise in prices has resulted from the great
extension of credits by the countries at war, and a more
economical use of gold reserves as a basis of credit, and not
from any great increase in the gold supply of the world.
In the United States, however, the supply of gold has been
greatly increased because of our large excess of exports of
commodities and our present gold reserves would permit of
a much greater expansion of credits than exists  now.

13.  There is a little likelihood of a fall in prices in the
United States. The gold reserve, which is now the basis of
our currency, is not likely to leave the banks and return to
general circulation, since this is contrary to monetary expe¬
rience. No great outflow of gold is to be expected through
international trade, since our exports are likely to exceed
our imports in the reconstruction period, and we no longer
will  have  large interests and freight  payments  to  make  to