Economy and Prosperity

Any transaction called economic is one involving negotiable evaluations. For instance, "prices" are the evaluations given to goods; "fees" and "wages" are the evaluations given to services and labor. A measure of the prosperity of a society is its gross national product (GNP) which is the value of all the total output of goods and services in a year. In 1960 GNP passed the level of 500 billion dollars a year. In all, the United States is not just barely the most prosperous nation in the world: income per capita is roughly double that of the richest European country. Comparisons over time between any measures of prosperity must take into account changes in the unit of evaluation, that is, in the purchasing power of the dollar. Discounting inflation, the GNP has had a long-range average increase of about 2.9 per cent from 1909 to 1959. Fluctuations are rather large: the 1948-53 average (which included the national effort of the Korean War) was 5.2 per cent, and the period 1953 to 1957 averaged 2.7 per cent of growth a year, while the average was 3.5 per cent in 1959 and 1960.1) The 1960 election made the issue of growth of the GNP somewhat of a national concern; however, it may be a while before the politicians and the voters grasp the not-too-clear technical principles of economic growth. In general, growth is a function of investment, that is, money taken from consumers of wealth and channeled back to the producers of wealth. While statistics on these matters are subject to many a caveat, published reports indicate that in the United Kingdom between 1950 and 1957 gross investment represented somewhat over 13 per cent of GNP and the annual rate of increase in GNP was below 3 per cent. In Mexico, the U.S., France, and Belgium, gross investment ran higher –between 16 per cent and 17 per cent of GNP; and in these countries GNP climbed at rates varying from just over 3 per cent to just over 5 per cent. In Japan, Venezuela, and the U.S.S.R., on the other hand, gross investment reached such expansive rates as 25 per cent to 29 per cent of GNP. And the growth of GNP speeded up accordingly, ranging up to 8 per cent rate in Japan and above 9 per cent in Venezuela.2) Investments, in turn, occur when profitable opportunities are manifold; inventions that flow from research provide such opportunities and so does a growing population and an increasing public concern for its welfare. Since these three factors are all expanding, the prospects are good that investments, and hence growth, will continue.

In the economy, we distinguish the producers of wealth (earners) from the consumers of wealth (spenders); between them stand the dealers. Of course the same organization or person may, at different times, appear in all these capacities. The traditional American producer of wealth is usually pictured as a resourceful entrepreneur, and the traditional American consumer as a materialistically oriented sucker, avidly acquiring mechanical gadgets and capital goods from a fast-talking, not-too-honest salesman. Considerable correction is needed in all these images. The biggest producers of wealth are corporations with diffuse ownership directed by specialists in administration; the biggest consumers of wealth are the federal, state, and local governments; and the biggest dealers in wealth are professional investment managers.

In 1956 there were 827,900 corporations in the United States which filed balance sheets with their tax returns. The total book value of these corporations in 1956 was 949 billion dollars. They controlled about two-thirds of the national wealth, and their net income was 47 billion dollars. There were 2,000 corporations with assets over 50 million dollars.3) This 0.2 per cent of all corporations accounted for 61 per cent of all corporate income.4) In some areas of manufacturing, a few companies dominate the market. Thus, in the field of motor vehicles, of motors and generators, of aircraft engines, of aircrafts, of structural steel, and of packed meat, four or fewer corporations employed one-half or more of all persons engaged in the industry.

Legally, the corporations are owned and operated by their shareholders. However, on the average, executives and directors own only a per cent or two of the outstanding shares of the large corporations. This separation of ownership and control was already well established in the 1920’s. Recent practices tend to reverse, or at least hold this trend in check. During the post-war years, it has become standard practice to remunerate executives not merely in the form of high salaries but also by offering them options to buy stock in the company they serve. A stock option plan usually states that certain executives over their years of service to the company shall have the right to buy a specified number of its shares at a price that is equal to or somewhat lower than the market price at time of their appointment, or at the time of the enactment of the option plan. While this practice involves the executives deeply in the growth of the company (and in the consequent appreciation of their option shares) it has not changed the fact that the vast majority of all common shares are held by "absentee" owners.

A survey in 1957 showed that 11 per cent of all American households own common stock. One out of four households headed by professional, managerial, or self-employed persons owns stock, as does one out of every eight farm households, one out of every eight households of office workers and salesmen, and one out of 22 of the workers’ households.5) In the 1950’s stockholders enjoyed not merely dividends from their holdings, but also a substantial appreciation of their capital. During the six year period 1953 to 1959 the Dow Jones Index of the prices of shares of selected big industrial companies traded on the New York Stock Exchange rose 224 per cent. By international standards, this is a good record. A German and an Italian investor, however, did better than an American during this period – their corresponding indices rose 311 and 252 per cent, respectively. By comparison, a Belgian index rose 128 per cent, a British 219 per cent, a Canadian 170 per cent, the Australian and French both 196 per cent, a Dutch index 215 per cent, and a Japanese index rose 213 per cent.6) In 1960, however, most foreign stock markets did better than the American one, and since interest rates were also generally higher abroad, much capital was moved out of the United States, creating strain on the U.S. gold reserve that is maintained essentially to back international exchanges in dollars.

In effect, individual savers who buy stock in companies are estimated to contribute only about 5 per cent of the capital that flows into the nonagricultural industries. Some 20 per cent is borrowed from banks and another 20 per cent comes from insurance companies and pension trusts. More than half of the new capital invested in American industries comes from undistributed profits, that is, depreciation allowances and retained earnings, that are plowed back into the company.7) The latter figure suggests that the executives are keenly interested in the consolidation and expansion of their companies, thereby consolidating and enhancing their own position of power and appreciating the value of their option shares. The traditional practice of turning all profit over to the shareholders is very rare. The shareholders do not object much about this; they pay a high income tax on their dividends, but a lower capital gains tax on increases in the value of their equity in a company. Given this structure, changes in depreciation allowances are likely to have the most powerful and immediate impact on investment rates and hence on economic growth.

We mentioned that 20 per cent of capital entering American industry comes by a little known avenue, the investment staffs of insurance companies and pension trusts. This channel of capital movement is becoming increasingly important in the United States. In 1957-58 seventy-one per cent of all stockholdings (in terms of their dollar value) were held by individual Americans or American firms, and two per cent by foreigners. The balance – 27 per cent – was in trusts and non-profit foundations, of which the insurance and pension funds are the most important.8) These "institutional holdings" expanded in the 1950’s more rapidly than any other sector of the national prosperity. They represent riches that are owned neither by individuals, as in traditional capitalism, nor by the state, as in socialism, but vested in the hands of a rather small group of professional investment trustees. The investment trustees of various funds, and the executives in banks and corporations with similar functions, form a new category of middle men, whose activities place them between the producers of wealth and the consumers of wealth. In effect, they are the brokers and dealers in big money, and around them the American prosperity revolves.

The largest consumers of wealth are the national, state, and local governments which during the past decade have spent between a fifth and a quarter of the GNP.9a) The government during the 1950’s spent more than it received in revenues. While both parties subscribe to the idea of a budget balanced over the long run, the deficits in years of crises generally exceed the surpluses in good years. In volume, the market in government bonds and other instruments of its debt dwarfs the stock market. In 1958, 33 billion dollars worth of common stock was traded on the New York Stock Exchange, compared with trades of 353 billion in U.S. government securities on the over-the-counter market.

The U.S. government spends about half of its revenue on defense. (This is more than all business profits in the land.) The government farms out most of its needs for military supplies and research to corporations; actually half of all money for prime military contracts goes to 25 leading corporations. The total defense cost is less than one tenth of the GNP, a proportion higher than most NATO countries.9b) The Soviet Union spends about 20 per cent of its GNP on defense. Since its GNP is about half that of the U. S. figure, the actual amount spent on defense by these two powers is about the same. The over-riding question is which one spends it most wisely.

Perhaps a quarter of all the money the federal government collects in taxes from businesses goes back to business enterprises (including farms) in the form of subsidies. A recent study estimates the rise in direct federal subsidies from 1.9 billion in 1951 to 7.5 billions in 1960. Business mail is subsidized to the tune of half a billion dollars, and so is the transportation industry, particularly airlines and maritime companies. The largest recipient of federal subsidies is agriculture, which received .9 billion in 1951 and 3.6 billions in 1960.10)  If it were not for the human and political agony involved, the country could dispense with the smallest four fifths of its farms and the remaining big ones would produce enough food to feed the nation without the present rate of subsidies.

Toward the end of the 1950’s, the United States spent about three per cent of its GNP on public education and two per cent on public welfare programs. The prevailing sentiments favor increased investments in education, science and welfare. The federal government seems to be the only agency able and prepared to pay the lion’s share of the added cost for these programs. Such additional federal expenditures for non-defense services will probably force some adjustments at the points where the body politic and the economy meet. Several adjustments to the increased federal spending are possible: one can have a gradual inflation which allows every debtor, and above all the government, to pay back in cheaper money than he borrowed; one can cut other government expenses (e.g. the subsidies for agriculture may be gradually abolished, or defense spendings may be reduced after an international arms control agreement is negotiated), or, one can increase the government income by levying higher taxes. Funds may also be forthcoming in a less painful way: by an increase in the general prosperity of the land at a faster pace than any increase in government expenditures. If so, one can add somewhat to the government’s outlays without increasing its debt or boosting its tax rates – and still have the citizens more prosperous.

It should not be forgotten that public funds for research, education and welfare are to a considerable extent augmented from private sources. In the past decade, more private foundations were formed than ever before. One calculation from the late 1950’s showed that 743 foundations had a capital of a million dollars or more, and total assets of 10.6 billion dollars, a third of which was accounted for by the giant Ford Foundation.11)  The foundations in 1957 divided their giving so that education got 47 per cent, health institutions 14 per cent, other social welfare programs 9 per cent, research 13 per cent, religious institutions 3 per cent and the balance to miscellaneous projects.12) Private citizens also have giving habits. For persons in higher income brackets, in which tax deductions normally are itemized and documented, the Internal Revenue Service has compiled some averages. People in the $5,000-10,000 income range give $239 to charities; those in the $10,000-15,000 range give $407, those in the $15,000-20,000 income range give $601, the $20,000-25,000 bracket gives $771, and the $25,000 to 50,000 income receiver gives on the average $1,137.13)

Economic facts on the level of the household are easier to grasp. Most family income comes from salaries and wages. The American labor force almost tripled in size between 1890 and 1955, thus expanding somewhat faster than did the population of working age. The number of women in the labor force rose by 405 per cent in this period, while the female population rose only 198 per cent.14) In 1959, 31 per cent of the total labor force were females, of whom over half were married. In 1890, 4.5 per cent of all married women were in the labor force, compared to 32.3 per cent in 1959.15) To be gainfully employed is no longer a prerogative of the single woman or a reluctant necessity for the poor one. We have already mentioned that modern women, unlike their mothers, tend to marry young and have all their children during the span of a few years while they are in their twenties. They are still comparatively young when their children become old enough to take care of themselves, and the mothers are thus free to voluntarily enter the labor force and to spend many years working before retirement age. (In European countries with later marriage age, it is probably more common for women to work before marriage.)

Every month the Bureau of the Census asks a representative sample of American households whether anyone in them now holds a job or is looking for a job. Those who answer that they are looking for a job are counted as "unemployed." This measure of unemployment is very generous since housewives, teenagers, and retired people may at times be in the mood of looking and at times not; there is no social norm expecting them to work consistently, and many go in and out of the labor force, depending on personal emergencies and temptations. This subjective basis for American statistics on unemployment largely accounts for the fact that the U.S. figures of unemployment are usually higher than those of Western European countries. However, the U.S. figure for the end of 1960 came to 5 million unemployed, a number that is high even by U.S. standards. (This number implies that there are more unemployed persons in the United States than there are farmers.) The future prospects for a long-range check on unemployment are somewhat dim. Increased mechanization and automation threatens many manual and clerical jobs. Particularly jobs demanding little skill – and hence often held by Negroes and Puerto Ricans – may disappear with automation, thus creating unemployment. Further complications are added by the increasing cadres of teen-agers and young adults that will enter the job market, and also the swelling number of wives who will be launching their children and be ready to go to work. Even if we allow for the fact that many more teenagers and adults than before will spend time in colleges rather than jobs, it seems likely that the labor force during the 60’s will increase at rates over 2 per cent a year, or more than twice as fast as in the 50’s. In the last few decades it has been the practice of both Democratic and Republican administrations to use government powers to stem slumps in the labor market. A formal declaration in the Employment Act of 1946 states that "it is the continuing policy and responsibility of the federal government to use all practicable means. . . to promote maximum employment, production and purchasing power." This sentiment – although subject to some ideologically inspired opposition – is likely to prevail in the near future. Since the unemployed is a voter and often allied with a powerful labor bloc, we may expect increased government manipulation of the economy in the name of full employment.

The labor force is not merely increasing, but is also changing in composition. The proportions engaged in agricultural and related fields and in private household service have shown a long-term decline, while there are slow increases in proportions engaged in manufacturing, transportation, and communications, and pronounced increases in the professional, managerial, and clerical groups and among operatives and kindred workers. One out of every ten economically active persons is now a professional or a technician. Of special significance is the decline in farmers and farm workers from over one-third of the economically active in 1900 to 8.5 per cent in 1959.16)

The variation in income from occupation to occupation is considerable. Figures from the 1960 census are not yet available, but in 1949, the median income of male physicians was 4.1 times larger than that of male non-farm laborers. Clergymen earned 1.2 times more, lawyers and judges 3.2 times more, male teachers 1.8 times more, managers, officials, and proprietors 2.0 times more, clerks 1.5 times more, and sales workers earned 1.5 times more than male laborers, but farmers, on the average, earned less, and farm workers much less, than did the non-farm workers.17) In terms of money income, in 1957 one-third of all families made less than $3,000, one-third made between $3,000 and $6,000, and one-third over $6,000. One family out of 19 could be called genuinely poor, by virtue of having had a yearly income under $500, and one out of 250 could be called genuinely affluent, by virtue of having had a yearly income of more than $25,000.18) There was a considerable income differential between annual earnings of men and women, and between the white and non-white populations; in 1958, men earned three times as much as women.19)

The constantly rising wages and salaries (both the actual and the inflationary portions) and the constantly improved consumer goods that wages can buy seem to give most Americans a feeling that they are "getting ahead." In reality, the chances of getting ahead in the United States do not seem to be too different from those in other advanced countries. Thus, 33 per cent of adult Americans whose fathers were non-farm manual workers now hold middle-class or better jobs. The corresponding figure for movement out of the working class in Germany is 29 per cent, in France 39 per cent, and in Japan 36 per cent.20) In this specific sense, America is no more a land of opportunity than any other highly industrialized country.

As consumers, Americans enjoy the prosperity of their nation. There has been a steady rise in the proportion of families who own their own homes. In 1956, 60 per cent of all families owned their homes, and the median value of their homes was $11,400.21) In 1958, over 8 out of 10 American homes had a television set.22) In consumer goods during the 1950’s America was as rich as all the rest of the world combined. With 6 per cent of the world’s population, it had 66 per cent of all the world’s motor vehicles, 48 per cent of all the world’s radios, and 55 per cent of all the world’s telephones.23) Enormous effort goes into the enterprise of making the consumers absorb the abundance of goods produced by the American economy. To this end, a huge advertising and marketing system has emerged, and to a considerable extent mass media, such as television, have become adjuncts to corporative marketing. If a time-and-motion study were made of all Americans, we should probably find an unprecedented amount of time and energy devoted to receiving information about consumer goods from mass media, and in comparing notes on consumer goods in conversation.

Buying on installment plans has become exceedingly frequent, and the amount of consumer debt has more than doubled in the last ten years. It has become common for the monthly re-payments of installment debts to absorb more than 10 per cent of the consumers’ take-home pay. More people than ever can borrow money with comparative ease. It is now normal that heads of families are subject to semi-public credit ratings, and concern over one’s credit standing may often be greater than the concern over one’s saving account. This extensive consumer credit structure has many repercussions. It pre-supposes stable family incomes and is, in effect, one reason why the government and the business community endorse a policy of relatively full employment. The extensive use of credit in buying homes has also had a complicating effect on the labor market. People sometimes cannot move from a house in an area of high unemployment to an area with many jobs, because no one wants to buy their house and assume their mortgage obligations.

American households in 1955-56 spent 29 per cent of their income on food, 12 per cent on clothing and personal accessories, 28 per cent on the home and its furnishings. Five per cent was spent on recreation. No less than 14 per cent was spent on the family car.24) It took an influx of smaller and cheaper European cars for the Detroit auto makers to realize that they could not count on this high proportion of the family budget and the since introduced "compact" cars are less costly.

It is perhaps worth noting that expenditures on main items increase proportionately with increasing income. Households receiving under $2,000 in annual income and households receiving more than $10,000 spend 36 and 24 per cent respectively on food, 7 and 11 per cent on homes and furnishings, 5 and 6 per cent on recreation.25) These small differences indicate the existence of a steeply graded series of consumer goods; good meat may cost three times more than standard meat, a fancy car four times more than the standard model, a mansion many times more than the pre-fabricated house, and so forth. Contrary to a great deal of popular talk about the deplorable extent of standardization in American life, these facts suggest considerable differentiation between Americans.

Many protest movements against an uneven distribution of riches in society are recorded by historians. In its extreme form, a denial of its legitimacy takes the form of utopian socialism, the idea that everyone shall be given equal shares of the economic good. In practice, however, there seems to be no exception to the rule that class protests have served only to modify existing class divisions, or to replace one class division by another. In the United States, socialist protests have been weak; a Socialist Labor Party participated in the elections of 1888 and 1896 and received in the latter year only 36,000 votes. In the depression election of 1932, the socialists polled 918,000 votes. This represents the strongest year in the recent record of the socialist movement in the United States; by 1936 their support had fallen to 197,000 votes.26)

Less extreme devices than socialism, however, have succeeded in effecting changes in the distribution of income. As the United States has grown more prosperous the difference in income between the very rich and the very poor has somewhat declined. In 1935-36 the five per cent of all families with the highest income received 26.5 per cent of all the nation’s personal income. In 1941 this percentage had declined to 24.0, in 1950 to 21.4, and in 1958 to 20.2 per cent.27) (These figures, incidentally, contradict the Marxian prediction that under capitalism the rich get richer and the poor get poorer.) Legal guarantees of a minimum wage and of old-age pensions reduce the number of the very poor, and progressive taxation and inheritance taxes check the accumulation of wealth among the rich.

Much existing discontent with one’s economic position in the United States is channeled not into renewed efforts to improve one’s lot through study or hard work, nor into political radicalism, but into – gambling. Gambling keeps alive the hope of a spectacular economic advancement. Since most gambling in the United States is illegal, we have no reliable figures showing how much money is wagered. However, most estimates agree that large sums are involved, perhaps as much as a few per cent of the GNP. A good share of this money is used to pay bribes to local authorities so that anti-gambling laws will not be enforced, and another good share is kept by the underworld syndicates that control illegal gambling. Some money is, of course, returned to the gambler, but at poor odds – just enough to keep his dream alive and his gambling habits active. The nation faces a difficult problem here. A modest amount of gambling may be an antidote to economic frustrations which, if allowed to run their course, might destroy the present political and economic system. Yet it is an outrage that this antidote is administered in doses that make for addiction and that it is administered by underworld syndicates. However, government control or licensing of the gambling industry, channeling the "the take" to the U.S. Treasury and non-profit accounts used for the public good, is contrary both to the American ideology of private enterprise and to the American Puritanism which abhors the thought that the state should implicitly encourage establishments of gambling. As a social problem in the United States, gambling ranks second only to race relations.

>> Introduction
>> Human Resources
>> Polity and Order
>> Economy and Prosperity
>>NEXT>> Science and Knowledge
>> Religion and Sacredness
>> Art and Beauty
>> Ethics and Virtue
>> Community: Local and National

1) Infra, Table 40 shows GNP in selected years 1929-59.

2) "The U. S. invents a New Way to Grow", Business Week, Special Report reprint from issue of January 23, 1960, p. 11.

3) Infra, Table 42

4) Infra, Table 43

5) U. S. Bureau of the Census, Statistical Abstract of the United States: 1958. Washington, D. C., 1958, p. 475.

6) Robert A. Gilbert, "Stock Markets Abroad", Barron’s, vol. XL (1960), no. 52 (December), p. 5.

7) Adolf A. Berle, Jr., Power Without Property, Harpers, New York, 1959, p. 45.

8) Infra, Table 44

9) Infra, Table 41

10) From a study of federal subsidy and subsidy-like programs by the Joint Economic Committee of Congress, reported in The New York Times, December 19, 1960, p. 38.

11) Infra, Table 45

12) Infra, Table 46

13) U. S. Treasury Department, Statistics of Income 1958: Individual Income Tax Returns for 1958, Internal Revenue Service, Publication No. 79 (9-60), Table 5, p. 42.

14) Infra, Table 47

15) Infra, Table 48

16) Infra, Table 49

17) Infra, Table 51 shows median income in 1958 for some broad occupational categories.

18) Infra, Table 53

19) Infra, Table 52

20) Infra, Table 50

21) Infra, Table 56

22) Infra, Table 58

23) Infra, Table 57 and its source.

24) Infra, Table 55

25) Loc. cit.

26) U. S. Statistical Abstract 1959, op. cit., p. 345.

27) Infra, Table 54