It's what happens when government starts handing out "risk" capital.

"You know, Carl," someone at the lunch table said, "you could make houses out of that stuff. And in this housing crises..." On the tablecloth, engineer Strandlund began designing what he later called the Lustron house. A few weeks later he went to Washington to get permission to build his service stations. He stuffed the preliminary drawings for the Lustron house in his briefcase, he says, to fool around with in the evenings.

No Mr. Smith ever went to Washington with less political background than Carl Strandlund. He didn't even know the name of his Congressman. He had never heard of 5 percenters. He lugged his briefcase on the dreary routine of seeing bureaucratic officials, getting the routine treatment according to those without influence. He made many friends - Strandlund is an enthusiast, a natural promoter, an eternal optimist, a salesman; promises flow from him like poetry in an Irish pub. He climbed the ladder of bureaucracy, andfinally he reached Wilson Wyatt, Truman's new housing administrator, the hottest young Fair Dealer on the Washington scene. Wyatt was the man who was supposed to rehouse practically the whole U.S., and in a hurry.

Wyatt was bored by a request for a permit to build service stations; then suddenly he took fire: "Why not build houses out of these steel panels?" Strandlund says now, "I just happen to have the Lustron plans on me." Wyatt was a convert on sight; he thought he saw a quick, comparatively cheap way out of his impossible assignment - hundreds of houses a day moving out of a factory! Strandlund said he needed $52 million; the houses would be forthcoming in a few months. In fact, he promised to make 100 houses a day, to sell at $7,000 a house, within nine months. The houses retail at around $11,000. And Strandlund, ever the optimist, says he expects to break even in ninety days. But that is getting ahead of the story.

SO WYATT went to workwith a will. After a hard fight, he persuaded the War Assets Administration to lease Lustron the new Curtiss-Wright plant in Columbus, Ohuo, for a rental of $428,000 a year. Then he went after a RFC loan. Right away Wyatt bumped into George Allen, the shrewd politician mistakenly called the White House jester, then head of RFC. Allen smiled fondly at Wyatt and Strandlund, listened closely to their request for $52 million, and then asked: "Where are the assets?" This was a stopper. If there was onbe thing Strandlund was fresh out of, it was assets. Allen took pity and told him that as a special favor, what with the housing crises and all, he would reconsider the loan if Strandlund could raise $3,600,000; that little ought to be easy. Strandlund optimistically engaged Hornblower & Weeks of Chicago, which with considerable effort sold only 840,000 worth of stock to about twenty Midwesterners, many of them suppliers of the kinds of things Lustron would be buying. Strandlund himself put up exactly $1,000, for which he got all 86,000 shares of the voting stock.

Wyatt, undiscouraged, decided to force the issue with a showdown at the White House. He lost. George Allen burned to keep clean his record of never having made a bad investment - at least away from the racetrack. The two were photographed shaking hands outside the White House; shortly afterward, giving Lustron as the reason, Wyatt resigned and returned to private life. George Allen, his record clear, resigned a few weeks later.

Strandlund had been through such discouraging experiences that at one point, in May, 1947, he actually began packing his bag in the Mayflower Hotel, ready to leave Washington forever. As he tossed in his pajamas, the phone rang; a friend, Lewis E. Starr, National Commander of the Veterans of Foreign Wars, begged Strandlund to see just one more man: Senator Ralph Flanders of Vermont. Strandlund set off with his designs. Flanders, an engineer himself, got excited, and told Strandlund to present his case to the Senate Banking and Currency Committee.

Meantime, Wyatt's Fair Deal friends were busy in the White House woodwork. "The White House is interested," came the word. George Allen was no longer in the way at the RFC, but even the new management, though it had gotten a favorable report on Lustron's ability to produce from the engineering firm of Stone & Webster, did not want to reverse its field right away. By now, however, Carl Strandlund had friends, both Republican and Democratic, in the key banking committees in the House and Senate. Pressures built up swiftly; on the very day that the Emergency Housing Act was to expire, a friendly Congress whipped through a little section authorizing the RFC to loan - without the usual restrictions - up to $50 million for prefabricated housing. This meant Lustron. And on June 30, 1947, the RFC received a note from John R. Steelman, presidential assistant, informing it that the President himself had thought well of the Lustron proposition. The RFC promptly passed a loan for $15,500,000. Successive loans have increased the figure to $37,500,000.

There were a few complaints about log-rolling. One of the most ardent Lustron advocates in the House of Representatives had been Frank Sundstrom of New Jersey, who, when beaten for re-election, turned up as a Lustron vice president. And one of the more ardent advocates of a Lustron loan at RFC had been Merle Young, whose wife is a White House secretary; Young left his $6,500-a-year job at RFC to become Lustron's Washington "representative" (i.e., lobbyist) at $18,000 a year. But this sort of thing was soon forgotten.

ENTERPRISER STRANDLUND: HE GOT $37,500,000 FROM THE RFC
Three years ago Strandlund promised to solve the housing crises in nine months, with prefabricated steel houses selling for $7,000. The "crises" has gone, relatively few houses have been built, and they cost from $10,000 to $12,000.

FEW PEOPLE had made a house in a factory before. When Kaiser and Frazer entered Detroit as ingenues in the automobile business they at least had the advantage that Americans had been building cars in factories for almost fifty years; they could hire all kinds of experts. But there were no experts on how to stamp out steel walls, or how to insulate them. To Strandlund's own credit, he built a good steel house with the government's money. There was not enough steel to begin with, but thanks to government help again, Strandlund did not have to worry. The ordinary small house uses not more than a ton to a ton and a half of steel; the Lustron house uses more than ten tons. Small steel users were outraged when Lustron was allocated 59,000 tons of steel over their protest; particularly outraged, for example, was J.C. Rodman, of Alliance Wares, Alliance, Ohio. Mr. Rodman makes bathtubs; he was alarmed at Strandlund's casual testimony before the recent congressional investigating committee that he expected to make up to 400 bathtubs a day. Mr. Rodman stormed against a situation in which the government was deliberately subsidizing and favoring someone who might knock his business into a cocked hat.

It did him little good. Lustron today employs about 2,200 people, working in two huge sections of the enormous war-time Curtiss-Wright plant in Columbus. The twenty-three acres of floor space are alive in one long rythmic flow, with the special kind of beauty of a great American factory: the monstorous two-story-high presses stamping steel into exact shapes; the tall shiny wire baskets, floating gently, swaying like mobiles by Alexander Calder, carrying things around a couple of miles of production line; dozens of huge mixers rolling endlessly overhead, sloshing colored porcelain mix; long steel beams coming together, laced in a pattern and then sent on a wide merry-go-round through an electronic welder that works like a thinking machine, jiggling the frame forward, hitting it with the welding nipples, burning the loose beams into solid roof trusses and wall frames; and the endless lines of huge Fruehauf trailer trucks, slowly sliding forward along a track toward the daylight; men loading and sealing parts until the truck reaches the door, loaded with all the components.

For a prefabricated job, the house is extraordinary attractive and livable. It is a two-bedroom ranch-style dwelling, with built-in vanity, built-in bookcases, built-in washer and dishwasher, and radiant-heat system. The whole thing is made of sheet steel, enameled in pastel tints, insulated with enough Fiberglas to keep it cooler in summer and warmer in winter then most conventional houses. An ordinary cloth is enough to wipe it clean, outside and in.

EXCEPT FOR THIS, the record so far has been dismal. Strandlund has not delivered a $7,000 "crises" house as he promised he would; he did not deliver any house in time for the crises; and he has not even delivered a house as cheaply as private builders like Levitt & Sons of Long Island. Levitt's small, mass-produced (but not prefabricated) house, which it (and many others) regard as superior to the Lustron job, sells for less than $8,000 including the lot. The Lustron dwellings, although they come to only $6,000 wholesale, retail at from $10,000 to $12,000. This brings up prefabrication's most ominous shortcomings: the house itself represents less than 60 per cent of the price to the consumer. There is nothing at all the prefabricator can do about the other 40 per cent. Worse, the houses are now costing Lustron somewhere between $7,000 and $16,000 to manufacture, depending on who is doing the figuring and what figures he is using. Lustron has therefore lost some $15 million so far, and is still losing about $1 million a month. Strandlund says he can break even at thirty-five houses a day, but present production is only twenty. Taking everything together, it appears to most observers that the RFC will have to throw many more millions into Lustron to save its $37,500,000.

The crucial questions are whether enough people are willing to pay $11,000 to enable the Lustron house to go into profitable mass production, and whether it can be distributed economically. Before people can buy, a distribution setup obviously has to be worked out. One minor problem is that in many communities a Lustron house cannot be erected on account of building codes, deed restrictions, and local prejudices. The dealer problemis worse, and presents enormous difficulties. The dealer needs enough money to lay the concrete foundation, bring in the utilities, sometimes buy the land, and pay $6,000 spot cash for each house. Total: $9,000 or $10,000 a house. What is more, he must take the houses in big lots, for Lustron cannot afford to sell one at a time. To do all this he needs from $50,000 to $100,000 in working capital - which at present he must tie up mostly on his conviction that people will buy the house.

Lustron has complained that the rigidities of FHA methods of financing have hampered distribution unnecessarily. As this is written, Congress may let the RFC spend another $75 million to finance prefabricated housing, which presumably means that the RFC could lend money to Lustron to build up its distribution dealer system. Lustron has indeed anticipated this and already organized its own Lustron Mortgage Corp., along the lines of General Motors Acceptance Corp.The RFC, which has always cast a banker's hard eye on propositions, rather sheepishly admits that the Lustron loan might not be sound from a conventional banking viewpoint, but it was an "experimental venture in harmony with the government's desire to expand the production of industrially produced homes in the expectation that lower cost would result." At last, however, it is adopting a more businesslike attitude. It has hired a lot of experts and analysts. Some of them think Lustron could break even on twenty units a day, and would need not $50 million or $75 million in new capital, but less than $10 million.

As this is written, the RFC is said to be demanding that two Lustron vice presidents resign, That Carl Strandlund be kicked upstairs to the board Chairmanship of the Lustron company, and V.A. McKechnie, production boss, he made President. And at long last, after having thrown $37,500,000 into Lustron, the RFC is conducting a thorough survey of the market for prefabricated houses!

LET US ASSUME,with nothing but a charitable impulse to back us up, that Lustron gets going soon and sells enough houses to break even. What is there to be said about the whole amazing business? Apparently there was nothing illegal in it. And aside from the RFC's vulnerability to executive whim and the flabby rationalization of its decisions, there was nothing downright disgraceful about any one act. What is scandalous about the whole affair is the government's assumption (which it finds easier and easier to make) that the taxpayer is a bottomless well of money. What is still more scandalous is the government's presumption in putting that money into a consumer product that it isn't even sure the consumer wants. This is the crux of the matter. A private enterpriser may and sometimes does put his money into a product that he believes people want. His judgement, however, is tempered and sharpened by the consideration that if he is wrong he loses money, reputation, and sometimes even his shirt. A government's judgement is subject to no such direct and punitive check and balance; and inevitably it finds itself putting money into what it guesses the people want, or what it believes is good for them. Such indeed is exactly the attitude of the Labor government in Britain today.

The Lustron case has set a precedent. This is the first time the government has appropriated, in peacetime, any considerable sum for private venture capital,. The woods are full of bright young men with ideas for revolutionizing something or other. If Carl Strandlund deserved help, so probably do many of them. But does anyone in his right mind want the government to decide who deserves it?

THE HOUSE THAT GOVERNMENT JACK BUILT