The absolute figures for the assets and income items of the 200 largest nonfinancial corporations and their subsidiaries are in themselves significant, as they show the great volume of assets controlled by the relatively small group of corporations. That 200 corporations control over 60 billion dollars worth of physical assets is in itself a striking fact. The real significance of these figures, however, lies in the basis they give for comparing the assets of the large corporations with other asset and wealth items.

The three most important items with which the assets of the 200 largest corporations could be compared are: (1) the assets of all nonfinancial corporations, (2) the total industrial wealth of the nation, and (3) the total national wealth. The figures for all nonfinancial corporations can be derived directly from the income tax statements, the same source as that for the figures on the 200 largest corporations and their subsidiaries, and are directly comparable with them. For national wealth a very crude estimate of the value of all physical

17 Depreciated.

79418--39- -8

wealth of the country other than personal belongings has been made which gives figures comparable with the figure for land, building, equipment, and inventory held by the largest corporations.

Figures for total industrial wealth have been obtained by summating estimates of the wealth (land, buildings, equipment, and inventory) used by the railroads and other public utilities, by manufacturing and mining enterprises, by wholesale and retail enterprises, by the construction industry, by finance companies exclusive of their holdings of farm and residential real estate, and by the service industries exclusive of public education. The resulting figures for industrial wealth represent the national wealth less agricultural wealth, governmental wealth, and residential housing which together make up more than half of the national total. Presumably some of the wealth used in the service industries should be excluded from the total of industrial wealth, but no adequate basis was found for making such a deduction, so that if anything, the figures for industrial wealth are slightly exaggerated. The figures arrived at for these different categories of assets and wealth (in 1933) are given in table V along with the proportion of each category which is controlled by the 200 largest corporations. 18 Together these 200 largest corporations controlled in 1933 approximately 19 to 21 percent of the national wealth, between 46 and 51 percent of the Nation's industrial wealth, and approximately 60 percent of the physical assets of all nonfinancial corporations.

A break-down of large corporations into major industrial categories is given in table VI. It shows, as has already been indicated, that the bulk of transportation and of other public utility assets is in the hands of the very large corporations and that over 45 percent of the land, buildings, and equipment (depreciated) of manufacturing corporations was held by the 75 largest manufacturing corporations. Since approximately 92 percent of the manufacturing is carried on by corporations, these 75 corporations must have held in the vicinity of 40 percent of the total plant used in manufacturing.19 The 25 largest nonfinancial corporations not classed by the Bureau of Internal Revenue as transportation, public utility, or manufacturing represent only 17 percent of the land, buildings, and equip

18 It should be noted that throughout this section, the figures given are not concerned with the assets owned by large corporations but with the assets controlled. “Assets controlled" includes both the assets owned by a corporation and the assets owned by its subsidiaries. A corporation has been treated as a subsidiary when a majority of the voting power of its stock is held directly or through subsidiaries by another corporation. Where only working control of a corporation (a large minority interest) is held by another corporation the former has not been treated as a subsidiary of the latter.

19 An exact figure cannot be given because some of the assets of corporations properly classed as manufacturing corporations are concerned with other activities than manufacturing.

of the largest corporations increased from approximately one-third of the assets (exclusive of intercorporate securities) of all nonfinancial corporations in 1909 to over 54 percent in 1933.23 Since there is no reason to believe that a smaller proportion of economic activity was carried on in 1933 by corporations than in 1909, the figures would seem to indicate an increasing proportion of all activity carried on by the 200 nonfinancial corporations which were largest in the successive years. This evidence of corporate growth serves to emphasize the increased role of large administrative units in determining the use which is made of national resources.

It would be highly desirable to have comparable figures on the changing role of large government units, particularly that of the Federal government. Relatively few precise data on this score are available. If adequate estimates could be made as to the proportion of the country's wealth which was owned by the Federal government or its agencies and the proportion of the gainfully employed who were in government service, they would undoubtedly show similar general growth in the relative importance of government, temporarily accelerated by periods of war or other national emergency. That the proportionate role in the national economy of the large administrative units, including both corporate and government, has greatly increased in the last 50 years there can be little doubt. The alteration in the structure of the American economy resulting from the increased importance of administrative coordination will become apparent in subsequent chapters.

Determinants of Size of Enterprise

The prevalence of very large administrative units in some segments of the economy and their absence in others raises the question of the forces making for size. Why are some activities dominated by large units and others by small? This is a question that deserves intensive research, both in its technical aspects and its social implications. Here the most that can be done is to indicate certain elements of the problem.

One aspect of the problem of size of administrative unit has to do with the economical size of plant. It is generally agreed that in any concrete situation there is an appropriate size of plant such that a much larger plant would be uneconomically large, and a smaller plant would be uneconomically small. The appropriate size of plant for supplying a particular product will depend on a wide variety of circumstances of which the most important are usually the techniques of production, the techniques of administration, and the size of the available supply of raw materials and labor, and

"Changes in the method of reporting to the Bureau of Internal Revenue prevented the carrying of the compilation and estimating beyond 1933 with the small staff of technicians available.

Source: For the method used, see appendix 11.

1 Involves intercorporate duplication.

2 Slight intercorporate duplication.

3 Inventories not available for 1930-32 because of inadequate data for interpolation. 4 No intercorporate duplication.

the size of the available market for the product. The appropriate size is likely to become larger or smaller with improvements in technique or administration, or with changes in the market. But whatever its size, whether a mammoth rolling mill, standard mediumsized cotton mill, a corner drug store, or a 160-acre farm, it is likely to set a minimum limit to the size of the appropriate administrative unit.24

In the case of most of the very large enterprises, however, the administrative unit is not limited to a single plant. Instead, it is likely to embrace a number of plants, perhaps hundreds or even thousands. The General Motors Corporation, The Great Atlantic & Pacific Tea Co., and The National Dairy Corporation are examples of companies operating many separate plants scattered over the entire country. There is much less agreement as to the efficiences of multiplant administrative units. It is claimed by some that all, or pratically all, the technical efficiencies of large scale operations are obtained in the large single plants. Others claim that there are in many instances technical efficiencies as well as operational economies in multiplant operation. It is quite possible that just as there

24 It is, of course, possible to have several quasi-independent administrative units operating the same plant. Thus, a separate department in a department store is sometimes rented to an enterprise which is independent of other departments, or a steel company may contract out the operating of particular blast furnaces. But this is exceptional.

is presumed to be an optimum size of plant, there may be an optimum size of administrative unit, sometimes involving only a single plant and sometimes embracing a multitude of plants. Just what are the factors making for the optimum administrative unit is likewise a question deserving intensive study.

Until the forces making for large as against small enterprises have been intensively studied it will not be possible to say how much the concentration into large. administrative units is a product of technical considerations, how much it is a product of the drive to reduce or eliminate market controls, and how far it results from other considerations such as the ability to raise capital or the requirements of mass marketing. For the present discussion of the structure of the American economy, the first consideration is to recognize the extent and scope of administrative coordination in the use of resources. Until the extensive role played by administration in the organization of economic activity is fully recognized, there is danger of overestimating the extent to which coordination is brought about through the market mechanism

Extent of Market Coordination

While administration plays the role of coordinating the activities of individuals within economic units, the market functions to coordinate the activities between economic units. As has been noted, it is not the sole influence coordinating the activities of separate economic units, but operates within the framework established by canalizing rules, in conjunction with the greater or less influence of accepted goals, and supplemented by threads of administrative control running between economic units. In conjunction with these other influences, the market interrelates the millions of families and individuals who constitute the ultimate consuming units, the millions of gainfully occupied who constitute the ultimate producers, the millions of investors who in part finance the formation of capital, and the millions of producing units, some large and some small, within which production is carried on.

Characteristics of Market Coordination

The market contributes to economic organization through two quite different characteristics, money transactions and flexibility of price. Both these characteristics are thoroughly familiar but are so often confused that their difference needs to be emphasized here.

Coordination through money transactions. In the preceding chapter the circuit flows of money have already been discussed. These circuit flows are made up of a series of money transactions which facilitate the organized use of resources. Through these money transactions, manpower and capital funds are made available to producers; raw materials, semifinished products, and

capital goods are transferred from one producer to another, and finished products or services are made. available to consumers. These money transactions also provide a system of prices which are stated in terms of a common money medium and which act as a guide to the use of resources, stimulating some uses and repressing others. The organizing role of money transactions is too familiar to justify discussion here.

What is less often recognized is that money transactions can perform at least part of their organizing role regardless of whether prices are flexible or rigid. In the middle ages under the guild system, prices for most guild products were extremely inflexible, some remaining constant for a century at a time. Yet if all prices could be made perfectly rigid for years at a time, this would not prevent money transactions at these rigid prices from playing a role in the organizing of resources. Even if the system of rigid prices bore no close relation to a set of prices which would correspond to effective use of resources, both production and consumption could be expected to adjust to the particular prices. Where the particular prices were too high in relation to a balanced use of resources, consumption would presumably be lower than would be warranted by the available resources, while competition to supply this limited market at a high price might lead to such a large number of producers operating at partial capacity that costs of production would be increased to the point that no one producer was making more than a competitive profit. Gasoline distribution suggests a case of this type of competition which acts to increase costs instead of reducing distribution margins. Conversely, a price too low in relation to effective use of resources might result in insufficient production to supply the demand at the particular price. The deficiency of supply might lead to rationing, or perhaps the extra demand might be discouraged by the necessity of waiting in queues for the chance to buy, as happened on a large scale in Russia in the 1920's.

But neither in the case of too high nor too low prices would the perfect rigidity of prices prevent money transactions from contributing to a major extent to the organizing of economic activity. The market would be playing the same role between enterprises that administration plays within enterprises, directing manpower and materials into different channels and helping transfer materials from one step in production to another. Likewise, it would allocate the products of activity between consuming units, performing the same function that the head of a family performs in apportioning products among the family members. How well it would perform these functions would depend very largely on the price relationships actually existing. One pattern of prices might lead to ineffective or only partially effective use of resources, just as incompetent

management within an administrative unit can lead to wasteful use of resources while another set of prices might lead to more effective use. Thus, whether prices are inflexible or more or less flexible, the market mechanism contributes to the organization of economic activity through money transactions.

Coordination through price flexibility. In addition to money transactions, the market can contribute to the organization of production through price flexibility. This can arise in two ways, first, by price adjustments which alter price relationships in such a way as to make them conform more nearly with price relationships conducive to effective use of resources, and second, by price adjustments which insure an adequate supply of buying power. Both of these will be discussed in detail in the next chapter in connection with the price structure. It is sufficient here to mention them before examining certain types of price formation and the character of the market in different parts of the American economy.

There are two main processes by which prices are arrived at.25 Prices may be made in the free market as the result of the interaction of a very large number of buyers and sellers or, in a more restricted market prices may be made by administrative decisions influenced to a greater or less extent by market conditions.26 The price of wheat in the Chicago Wheat Pit and the price of steel shares on the New York Stock Exchange are examples of prices made in a free market. Such prices will be referred to hereafter as market prices. The wholesale prices of automobiles and agricultural implements are set by the respective manufacturers and these result from administrative decision. Such prices will be referred to as administered prices.

The chief differentiating characteristic of market and administered prices lies in the relation between the prices at which successive transactions are likely to take place. In a free market there is nothing tending to make successive transactions in a particular commodity take place at identical prices. Occasionally there may be a run of identical prices for hundred-share lots of steel

25 There are many other ways by which prices are arrived at. Prices, particularly fees for services, are often customary. They may be arrived at on a basis of auction. Other pricing processes have sometimes developed. However, market prices and administered prices are the most important in the American economy at the present time.

The term "free market" is used here in general to refer to a market in which no one producer or organized group can influence price through expansion or contraction of its production to an extent sufficient to justify it in giving weight to this influence in developing its production policy and in which no one consumer (ultimate or intermediate) can influence price through expanding or contracting its consumption to an extent sufficient to justify it in giving weight to this influence in developing its consumption policies. Stated in technical terms, a free market would be one in which each individual producer was faced with a virtually horizontal demand curve for its product and each individual consumer was faced with a virtually horizontal supply curve. Other economic conditions are also necessary to the existence of a free market such as the absence of government restriction on prices and the absence of temporary speculative control of prices such as is involved in a corner on wheat or an effective stock pool.

stock but it is highly unlikely that all round-lot transactions in steel stock would take place at the same price for several days at a time 27 On the other hand, it is the nature of an administered price that it is set for periods of time, and a series of successive transactions take place at that price. Thousands of automobiles of a given make and model may be sold through a period of months at identical wholesale prices and only occasionally will the administered price be altered to meet changes in market conditions, changes in model, or an alteration in costs. Thus, it is the nature of free-market prices to be highly flexible, responding quickly to the short-run ebb and flow of demand and supply, whereas administered prices tend to lack the very short run flexibility of market prices.

Theoretically. an administered price could be so frequently altered, hourly or daily, as to approximate the flexibility of a market price, but in practice administered prices tend to be less flexible, varying from the relatively flexible to the highly inflexible. This is brought out clearly in chart I which shows the items underlying the Bureau of Labor Statistics wholesale price index distributed according to the frequency with which their prices changed in successive months between 1926 and 1932. Some items showed a difference in price in every month over the preceding month, thus changing 95 times in the 96 monthly observations. Other items were the same in price throughout the