Greatly Expanded Production
Required for Full Recovery
By HAROLD G. MOULTON
President, The Hrookings Institution
WASHINGTON Recovery in the
United States has sone far, but it has
been marked by two striking charac
teristics—slowness of the gains In the
durable goods industries and the per
sistence of a great volume of unem
ployment. At the Brookings Institu
tion. we have made a comprehensive
analysis of the American situation
which included a !• -tailed study of the
production requirements for full re
covery. The production task aln ad -if
stantlurds of living are to he restored
even to their former level—is found to
be as follows:
I To make good the. actual deteriora
tion of titant ami eii'iipmrnt sustained
(ft;11.;;/ the depression.
i. To nirri tse prodactive eatotal in
line trilk tht itrotrlh of population
!l. To t'J'i 11 I the output of consump
tion tjooJs in accordance icilh this
frotfth of population.
The study was made utiih r a grant
from the Falk Fotiiida.im of Pitts
burgh. In It. we sought (o estimate how
great on Increase in output would he
required to restore by 1941 a per capita
"Real" Hourly Earnings in Manufacturing, 1920-36
INDEX NUMEERS INDEX NUMEF.FS
I4°| !4C
120 A 120
/ \CpST OF LIVING
100— 7 1 J —lOO
>H"tT 1 I /
7~ NL'AVERAGE HOURLY EARNINGS V\ 7
eo N MANUFACTURING Q(J
60 60
40 40
20 20
I
1222222222
The above chart lllmtratei the improvement In "real" hourly earnings of
manufacturing worker! that took place from 1919 to 1937. Earning* moved
upward, while the coit of living went down, making it posaible for worker* to
buy more for their money. Thii i* particularly noticeable in the recovery
period cinee 1932. It should be kept in mind, however, that the average number
of hours worked has been substantially reduced in recent years. On the other
hand, the buying power of the consumer's dollar has Increased somewhat more
I* Indicated because of Improvement in the quality of goods and services
used in the cost-of-living index.
level of production and consumption
equal to that of 1929. The results of the
survey of the situation in the fields of
housing and other forms of durable
goods, steam railroads, public utilities,
• Industrial enterprises, etc., are strik
ing. It would be necessary to produce
such durable goods at the rate of ap
proximately 33 billion dollars annually
from 1937 through 1941, as compared
with actual production of only 21 bil
lions in 1936, aud of 26 billions annually
In ths boom period between 1925 and
1929.
In other words, to make up tor what
It did not produce In depression years,
and to provide for the needs of an ex
panding population, the nation would
have to produce annually 60 per cent
more durable goods than in 1936. Three
times as much housing construction
would be necessary. In the field of
non-durable, consumption goods which
are such things as food, clothes, and
amusements, such a large expansion
would not be needed.
Labor Shortage Might Result
The production program required In
the field of durable goods would ne
cessitate —at present working hours —
the employment of from 8 to 9 million
additional laborers. Making allowance
for additional workers needed to pro
duce consumption goods, It appears cer
tain that unless working hours were
lengthened, there would be shortages
of both skilled and unskilled labor.
Since standards of living cannot be
restored to former levels unless pro
ductive output it restored, any further
shortening of the working week will
restrain the expansion of output and
thus restrict the raising of standards
of living. It ahould be borne in mind
that working hours bave been reduced
since 1929 by approximately 20 per
cent, as compared with only 13 per
cent in the preceding 30 yeare.
The present recovery movement has
been marked by steadily Increasing
wage rates as compared with pricea,
and this has Increased purchasing
power among the masses. The employ
ment of more workers at production
has expanded hat Increased the flow
of money to the working population;
and at the same time those already
employed have been able to buy more
with their wages. Duriug the same
period, profits have been greatly In
creased from low depression levels as
j a result of the expansion of output nnd
an Increase of efficiency. This effi
ciency Increase hss been sbont In pro
portion to wage rates.
Doctor: Say, Rastus, did you
do as I told you; did you take
all the powder you could get on
a dime yesterday?
Rastus: N 0 Bah, boss, I didn't
have no dime, so I took aU I
could geh on two nickles.
The recovery movement between
1934 and 1936 was thus soundly based.
Production was steadily mounting, pur
chasing power was being spread broad
ly among tlio masses, speculation was
not excessive, business men had not
stoeb'd up with heavy supplies of
goods, and the general balance be
tween production and consumption was
satisfactory.
At the end of 11136, therefore, the
stage seemed set for a period of great
expansion. Production requirements
w re adequate to absorb all the iins-nt
ploy. d. Tlte leeuvery movement was
sti adily broadening; the economic sys
mm as a whole was in reason tidy g iod
lialan •(*. and at the same time the pes I
hllltv of the government lialatf tig lis
bade t appear, d somewhat bright! r.
Further Expansion Threatened
In recent mouths, particularly since
i.ruary, the situation has chattgi d iu
ot!" v 11: !ly important respect. Kap ii in
erctt!;. s in raw material prices .nd in
wages liavu laid the basis for an old
time vicious spiral of inflation. \V!..ie
the particular labor groups who roc
higher wages may stand to gain for a
time, and while the Industries In ques
tion may temporarily pass on higher
costs to consumers, further broad ex
pansion of business activity appears to
be threatened.
The advance In the prices of such
basic products as iron and steel and
other metals, building materials, etc.,
may hamper expansion of production
in certain very important lines. Only
recently have the railroads gotten into
a financial shape that would permit
them to spend much money on new
equipment and the building of better
roadbed and track. Now, with the price
of ateel rising, and with wage Increases
also In prospect, It is doubtful whether
the railroads will be able to carry out
the extensive programs of rehabilita
tion which they bave planned. Simi
larly, the building of new houses, apart
ments, etc., may be held back by the
rising prices of building materials, if
Ibis turns out to be the case, it will
check the reemployment of ldl > ''
workers, and the attainment or th 1 ..» ,
higher standards of living which an£ft
so greatly desired.
Large sections of the
would soon suffer as a result of a rapid if
rise in prices. Among them are
ere who do uot work for wages, indi- 3
viduals on fixed salaries; and those
living on incomes from investments.
These constitute more than half the
total population. Perhaps the most I
serious phase of the problem is the
possibility of a new disparity between
Industrial and agricultural prices which -
may result If wages force Industrial }
prices upward.
Stimulation Only Temporary
The adverse effects upon production
may be considerably delayed, be
cause a rise In prices usually stlmu-, ;
latea business for the time being. With
pricea going up, business men and|9
others hasten to place orders aod buy a
extra quantities in order to be ahead
of the price advance. This speeds
business activity and for a time
creases the demand for labor. Such «*-&
panslon of demand In turn serves torn
increase the demand for products andtt
to raise prices the more rapidly. In due
course, however, price relationships araH
so disturbed that certain groups ofW
people lose purchasing power. This, lqaj
turn, sets In motion forces which teotrij
to reduce prosperity.
Fortunately, the dangers inherent iiu|
this situation appear to have beexH
recognised, and efforts are being mederjg
by both business and the government*
to restrain pries advances. ■
Stranger: Hey, John, wheiS
you going?
John: How did you know nfl
name was John?
Stranger: I guessed it.
John: Well, guess where ijH
going then.
DAMAGED TEXT