RELATIVE 1929=100 rates. Until correction can be made for this factor, the figures will have to serve. An examination of the wage data shows very much. greater similarity of behavior in wage rates than in goods prices, and a much smaller sensitivity to depression. This is brought out in chart XXVIII, which shows the 44 industries distributed according to the drop in wage rates between 1929 and 1932, and the rise from 1932 to 1936. In half the industries, the hourly wage rate dropped less than 15 percent while the all commodity wholesale price index dropped 32 percent and the retail prices dropped 20 percent. Only four industries in the sample show a cut in wage rates of more than 20 percent. Since in most cases the hourly wage rate dropped less than retail prices, these figures suggest that workers who continued to be fully employed experienced, on the whole, a gain in real buying power, and that the real burden of the depression took the form of unemployment or partial employment and the lack of stability which goes with such conditions. In the recovery period the differences in behavior were greater, presumably in part due to the increased strength of labor organizations which were able to lift wage rates in particular industries appreciably above their 1929 level. The extent of the depression drop in wage rates does not appear to be closely associated with the durability of goods produced or with the depression drop in employment. In 20 of the 21 durable goods industries included in the sample, employment dropped over 50 percent while it dropped less than 50 percent in all but three of the semi- or non-durable industries covered. Yet indexes of the hourly wage rates in the two groups behave almost alike. This is shown in chart XXIX which indicates not only the behavior of wage rates in the durable and nondurable groups of industries but also the difference in the volume of man-hours worked. The same lack of any clear connection between the decline in the manpower required by an industry and the decline in wage rates is apparent when the individual industries are compared with each other. The 44 industries are listed in table VII in order of the percentage decline in hours worked and the percent decline in wage rates. In the recovery period, the semi- and nondurable industries showed greater increases in wage rates than did the durable goods but the difference is not very significant. Examination of table VII suggests that, on the whole, the wage rates in the concentrated industries like auto Source: Based on data given in appendix 6, table II A. SEMI-NON-DURABLE ALL INDUSTRIES DURABLE 1929-100 RELATIVE 120 100 80 60 40 MAN-HOURS WORKED NON-DURABLE ALL INDUSTRIES DURABLE 20 1936 1929 1932 1936 to more intensive analysis, would undoubtedly disclose important elements in wage behavior. How are wages actually affected by labor organization, by regional difference, and by other factors? As it is, one can point to the greater homogeneity in the behavior of wage rates than in the behavior of goods prices and a very much greater stability than is shown by wholesale prices. At the same time a degree of flexibility is shown which suggests a process of constant gradual readjustment to altered conditions. Security Prices The third main element in the price structure consists of security prices and the associated interest and dividend rates. They are just as much a part of the But price structure as are goods prices and labor rates. research using modern methods of investigation has not yet been carried to the point where characteristics significant to the structure of the whole economy have been disclosed. Only the general independence and fluidity of security prices referred to in the first section of this chapter are evident. The fact that security prices act more or less independently of goods prices and labor rates can undoubt CHART XXX EARNINGS AND EMPLOYMENT IN RELATION TO DURABILITY AND CONCENTRATION 1929, 1932 & 1936 Chewing and smoking tobacco and snuff.. Source: Based on data given in appendix 6, table I. mobiles, rayon, and rubber tires, declined less than wage rates in the unconcentrated industries like cotton textiles and men's clothing. To bring out this difference in behavior, both the durable goods industries and the semi- and non-durable goods industries have been divided into concentrated and nonconcentrated industries on the basis of the proportion of the workers in the industry employed by the four largest companies. Industries in which four companies hired more than 30 percent of the workers are arbitrarily classed as concentrated industries. When the wage rates for the separate groups are plotted, as in chart XXX, the greater sensitivity of the nonconcentrated industries is apparent. In the case of both durable and nondurable goods, wage rates in the concentrated industries as a group fell less than rates in the nonconcentrated industries and rose more in the period of recovery. Apart from the difference in behavior shown in the charts mentioned above, reflecting the durability of goods and degrees of industrial concentration, the analysis of the wage data for the 44 industries has not disclosed any characteristics of wage behavior which appear significant for the structure of prices.30 A larger sample, covering a longer period and subjected 10 Analysis of the sample of 44 industries disclosed no significant association between the level of wage rates in 1929 and the depression drop, or between price changes and changes in wage rates. edly be explained in part by the small volume of new 'securities issued each year in relation to the total issues outstanding. The average annual issue of new securities between 1926 and 1929 as reported by the Financial and Industrial Chronicle was only 8 billion dollars, compared with a total of corporate and governmental securities outstanding of over 185 billion dollars in 1929. The market is, therefore, to a large extent dominated by the outstanding securities and only to a secondary extent influenced by new issues. It is a little as though 200 to 250 million bales of cotton were constantly kept on hand. In such a case a difference between a 15 million bale crop and a 10 million bale crop in any one year would be likely to be of secondary significance compared to variations in the desire to store cotton. Because of the large volume of outstanding securities in relation to the annual increment, security prices can move in ways which are not directly related to productive activity. Just how these movements actually contribute to or impede effective use of resources needs to be made the subject of more intensive study along with the study of the interrelation of particular groups of security prices and of interest and dividends rates and their differential behavior. Conclusion This summary analysis of the behavior of prices brings out two characteristics of the price structure which throw important light on the organizing influence of prices and the market mechanism. The preceding .e 2 analysis of J u as the lev naintained. of bor s a degree allow the reflect ar Co char has indicated that the market can act as an organizing influence partly tarough the characteristics of money transactions and partly through racal or rapid changes in price relationships actual price behavior in this that, for the bulk of goods prices. summary analyses can indicate, rates and the bulk of security pr of price flexibility which appears gradual readjustment of ~ the gradual changes in, techniques of production activity were reasonably other hand, the analysis ide it abundantly clear that large groups of pric 1 to some extent labor rates, do not have a qu, ser itivity to the decline in buying power which accompanied the recent depression, while other goods do have such a quick sensitivity. On the whole, it is the administration-dominated prices which show relatively little price readjustment with depression, while the market-dominated prices have tended to be sensitive not only to the more slowly working influence of changes in wants, resources and techniques, but also to the more rapid changes in mass buying power. This differential sensitivity of prices to depression influences tends to introduce serious distortions in the price structure and appears to reflect a disorganizing rather than an organizing role that the market can play. It is a characteristic of the price structure of the greatest importance. udp1ľ make for istration, VIII has the mar1ch ence tr ad to ssed the main influences which rganization-the market, admin, and accepted goals. Chapter Structure of prices through which ence economic activity. In be made to examine the col build up int quite as important as mining the use which i which economic activity w the innumerable threads ucture of controls which is ucture of prices in deterof national resources. The major elements col which are significant for the structure of the American economy are to be found in the great operating corporations, in the big financial institutions, in the trade and businesss associations, in the labor unions, in the farm organizations, in consumer organizations, and finally in the State and Federal Governments. If the economic controls associated with these organizations could be clearly delineated, the results would yield the main essentials in the structure of controls. In practice, the task of outlining the structure of controls is more difficult than that of giving the essentails of the price structure. This difficulty arises in part from the greater difficulty of observing and measuring controls, and partly from lack of a background in economic literature for the conception of such a structure. Prices can fairly readily be measured, but the threads of control which constitute the control structures are often hidden, ill defined, and difficult to determine. Economic literature is full of discussions of price relationships and the conception of a system of interrelated prices. Against this background it is possible to set actual prices and bring out both their interrelated character and their behavior as they condition the use of resources. But economic literature has been little concerned with building up the conception of a system of more or less interrelated controls which might equally condition the use of resources. Since, in fact, economic activity in this country is quite as much organized through systems of administrative or canalizing controls as it is by the market, it is impossible to outline the structure of the American economy without covering the structure of such controls. The absence of any well articulated conception of such a system of controls makes this task more difficult and is likely to make the results less satisfactory. The Concept "Controls" Because the term "controls" involves a relatively new economic concept, it is important to give it the greatest 70418°-39-11 possible clarity. It is used here to refer to the ability of one individual or group to influence the policies in respect to the use of resources which are adopted by another individual or group. Thus, if a person can influence the production policy of a particular farmer by offering to buy his product at a price, by threatening to foreclose his mortgage, or by some other means so that the farmer raises one crop rather than another, to that extent the person is in a position to exercise some measure of control over the farmer's activity. Likewise, a factory superintendent is usually in a position. to exercise a considerable measure of control over the activities of the workers in the factory during working hours. The management of a corporation similarly exercises a measure of control over the activities of subordinates, while the directors and the securityholders may, in turn, exercise varying degrees of control over the policies adopted by the management. Other groups, such as important buyers of a company's products, suppliers of raw material, financing agencies, labor unions, and government agencies, may exercise a considerable influence over the policies of an enterprise and to that extent share in its control. In each case, policies are developed with respect to the use of the resources available to the individual, or enterprise, or agency, and each of the persons or groups who influenced these policies may be said to have exercised some measure of control over them. It is possible to conceive of a highly complex pattern of threads of control running between all the individuals. and groups in a society much as the physicist conceives of lines of attraction connecting all the stars and 1 To some extent this chapter is concerned with subject matter which is covered by the political scientists under the heading of "power." The term "controls" is used rather than the term "power" for two reasons. First, the political writers in discussing "power" have traditionally limited the discussion to the field of Government and have centered their attention, not on how power operates to make for more or less effective use of resources, but on how power is acquired, maintained, or displaced. Therefore, in attempting to integrate market, administrative and canalizing factors as they affect the organization of resources it has seemed advisable to use a term not likely to be given the traditional connotations usually attached to the term "power." A second and more significant reason for using the term "controls" rather than the term "power" is the dynamic implications of the former. "Power" is solely a term of position whereas "control" is a term of both position and action. A person can have powers, i. e., be in a position of power. Likewise, a person can have controls, i. e., be in a position of control. But only in the case of control is it possible to say that a person controls, referring thereby to the dynamic process of influencing the policies adopted by others. The verb "to control" thus corresponds to the phrase "to exercise power." A third advantage of the term "controls" is that it is likely to result in greater concreteness. The statement that A has control will usually evoke the questions "control over what or whom?" Power is more likely to be treated as an abstract quality so that the statement that A has power is more likely to be accepted as requiring no further definition. The term "controls" is used throughout this report in the plural or in the form "threads of control" to suggest the very partial character of the controls exercised by anyone over others in any concrete situation. Like the term "power" when applied to the problems of political science, the term "controls" applied to economic problems in this report is limited in its scope to cover only social relationships and does not refer to an individual's control over physical matter. planets in the universe. In outlining the structure of controls, however, only certain major controls need to be considered. Market Controls Many of the threads of control exercised by individuals or groups are summarized in market phenomena. The influence which millions of bread consumers exercise over wheat farmers operates almost entirely through the influence of their demand on price and is thus summarized in the price of wheat. The controls exercised by millions of telephone users over the telephone systems are partly reflected in the demand for telephone service. To the extent that threads of control are summarized in market phenomena, they can be referred to as market controls and be analyzed as such. It is possible to imagine an economy in which all controls consisted of market controls. In such an economy, the policy of every enterprise would be so dominated by market controls reflected in market prices that no significant alternatives in price policy would be left to be influenced by nonmarket controls.2 In such a case, all controls would be covered by an analysis of markets. Nonmarket Controls However, in practice, market controls only partly determine the use of resources. In many producing units there is a wide latitude of choice in price policy, and economic controls not operating through the market are in effect. The extent of these nonmarket controls is suggested by the prevalence of insensitive administered prices already noted and by the absence of free market prices in a large part of the American economy.3 Where policies with respect to the use of resources are only limited and not dominated by market controls, the nonmarket controls become a significant factor making for more or less effective use of resources. These nonmarket controls appear to build up into what has here been called a structure of controls, some of minor significance, some of major significance to the functioning of the national economy. The present outline of the structure of controls is concerned only with these major nonmarket controls. Nonmarket controls may be said to be of major importance when policies affecting a very large number of persons can be significantly influenced. The major policies developed in large administrative organizations, such as an army or a large business corporation, usually are subject to a very considerable measure of nonmarket control and influence the actions of so many people in their use of resources as to be of signifi * Such a conception is, of course, the basis of traditional economic analysis. * It should be noted that the existence of a "price policy" on the part of a functioning firm is prima facie evidence of the presence of nonmarket controls, though it does not indicate their magnitude. cance to the functioning of the whole economy. The nonmarket controls exercised by financial institutions through the handling of investment funds, and the nonmarket controls exercised by government through the regulation of business enterprises, through its fiscal policies, through the protection of property and enforcement of contracts, and through other major policies, likewise influence the activities of millions of people and are important to the structure of controls. Persons or groups in a position to influence policies at these points are, for this reason, in a position to influence to a corresponding extent the effectiveness with which the national resources are employed. The nonmarket controls over policy are seldom sharply defined. Often the threads of nonmarket control build up in such a way as to result in many different foci of control, each focus having to do with some particular phase of activity. Thus, in a big corporation, while the main threads of control over operating policy may come to a focus in the hands of the corporation president, some threads of control are likely to rest with other groups; controls over financial policy may be partly focused in a special finance committee of the board of directors and partly focused in some bank or financial house to which the corporation is under obligation; the threads of control over labor policy may be divided between the corporation and a labor union, some threads focusing in the corporate management and some in the union officials; threads of control over some aspects of policy may rest with the government bodies, as in the case of minimum working standards or public utility regulation; still other threads may rest with some dominant buyer whose orders are so important that he can, within limits, dictate the internal policy of the corporation, say with respect to its policy toward labor organization; or a supplier of raw materials or of services may hold sufficient threads of control to influence or dominate corporate policy in particular respects. Thus, in any concrete situation, there is likely to be a complex network of controls, and a series of foci of varying degrees of importance, each concerned with some particular phase of activity. The controls which come together at these different foci are sometimes direct and immediate, as in the case of a soldier and his immediate superior officer, or the worker and his shop foreman, but as often they are indirect and intangible. Sometimes they may operate simply through establishing a climate of opinion within which policies are developed. More often they impinge directly on the process of policy formation. The controls which a banker can exercise over a business enterprise may be only indirectly related to the process of borrowing. The controls exercised by Government through its monetary and fiscal policies |