attention to certain implications of the structure of the economy in a direction which efforts at solution might take. Knowledge of structure becomes imperative when any organization or machine fails to run properly. The characteristics of any machine can be roughly grouped into its structural characteristics and its operating characteristics. So long as a machine runs well, its operating characteristics are all important, and its structure can be largely taken for granted. In order to drive an automobile it is enough to know how to manipulate the operating controls such as the starter, throttle, clutch, steering wheel, and brake. But when the machine fails to operate properly a knowledge of its essential structure is necessary in order to make the appropriate adjustments. So also with the national economy; as long as it runs reasonably well, a knowledge of its structure is of secondary importance. Individuals, enterprises, and governments can continue to adopt the operating policies that have been found to work successfully in the past. But when it fails to run well, knowledge of its structure becomes of vital importance. Only as both its structure and the operating policies being adopted are clearly understood can faulty functioning be corrected. Yet to talk of the characteristics of the national economy in terms of an analogy to a machine is to lose sight of the dynamic characteristics of both the economic structure and the multitude of separate decisions which together make up operating policy. The economic structure is constantly changing, sometimes gradually as consumer wants gradually shift or as new inventions are gradually developed and put into use, and, like the automobile or radio, call for new production arrangements; sometimes rapidly as a wave of mergers rapidly alters the industrial scene or as a new impetus is given to labor organization by a shift in public policy. Likewise operating policies are subject to constant modification as new conditions and opportunities develop. Both structure and operating policies interact on each other and each to some extent conditions the other. Often they cannot be clearly separated from each other. Yet their separation is important because, as a result of their dynamic character, they can develop in such a way that the operating policies and the structure are not compatible with each other. Just as the operating policies which are effective with a horse and buggy are not effective when the latter is replaced by the automobile, so the operating policies appropriate to one economic structure may not be effective when that structure has become significantly altered. The faulty functioning of the American economy necessarily raises the question of whether the present operating policies and the present economic structure are compatible with each other. A clear delineation of the essential structure of the American economy is a first step toward answering this question. Such an analysis of the economic structure is not only made necessary by the depression in economic activity which followed 1929 but is greatly aided by that depression. The rapid drop in national production from a value of over 80 billion in 1929 to under 50 billion 3 years later, and the very considerable recovery since that time, give the economic analyst what is almost equivalent to a laboratory experiment on the basis of which many structural characteristics may be observed. The violence of the change, and the fact that production was almost as high at the end as at the beginning of the period, make certain structural characteristics stand out, just as a high wind brings out the structural difference not evident on a windless day between the tree that bends to the wind and that which stands unbending. Without the data of the depression years it would be much more difficult to recognize the structural characteristics of the national economy. In order to be effective, an analysis of the economic structure must treat the American economy as an integral whole as a going concern. To treat only certain activities is to lose the essential unity of all the separate and interrelated activities which make up the whole. Yet the American economy in all its structural aspects involves such a complex and ever-changing system of relationships that it could not be set forth in detail in a single report, however extensive that report might be. The most that can be done in treating the structure of the American economy in a single report is to set forth the structure only in its broadest outlines, emphasizing those elements of structure which appear most significant to the effective functioning of the whole economy. Even when approached in the broadest terms, reliable data with which to block in the economic structure are missing at many points. Because completeness of the outline has seemed more important than a high degree of precision, crude estimates such as that for the total national wealth sometimes have been used where they are derived from the best data available. In such cases the reader has been warned of their crudity. At a few points even the basis for making crude estimates is lacking and a significant gap appears in the outline of the structure. The lack of adequate data means that at many points the outline of the economic structure in this report is only approximate, leaving to future analysis the task of bringing greater precision. In this report the structure of the American economy will be examined under three main heads. First, the economic bases for production will be considered-the wants calling for satisfaction and the resources available Both expressed in 1929 dollars. for use in filling wants. Second, the structure of production through which resources are used to fill wants will be discussed in its geographical, its functional, and its financial aspects. Third, the influences which give organization to the activity of the millions of separate individuals composing the American economy will be considered with particular emphasis on the market mechanism and administration. For purposes of presentation it is necessary to make some such break-down as this. It should be remem bered, however, that the structure of the economy is a single entity. Each chapter involves an examination of one aspect of this whole rather than a part of the whole. The report is not made up of a series of pieces which fit together like a puzzle but of a series of different points of view from which to consider one thing, the structure of the economy. In spite of a certain amount of inevitable repetition, this is the only way in which it is possible to view the structure of the whole economy as a going concern. CHAPTER II-THE STRUCTURE OF WANTS Basic to the structure of the American economy are the wants of consumers. Food, clothing, shelter, education, transportation, and a host of other items are sought by consumers. To the extent that consumers have the power to make their wants effective, these wants are reflected in economic activity. The character and proportioning of these wants influences production and contributes to the structure of the whole economy. Consumer Wants The main characteristics of consumer wants are reflected in the way consumers apportion their expenditures. If consumers have the same amount of money to spend at one time as at another, but spend more on automobiles and less on food and shelter, this may reflect a shift in consumer wants. When consumers have less to spend the items which they forego are presumably those which they want less strongly. Thus, by examining the pattern of consumer expenditure in the past and the consumption from year to year of certain types of goods it is possible to discover the outline of what might be called the "structure of wants." The pattern of consumer wants is not, of course, fixed and immutable, but is continually changing under the impact of fashion, advertising, education and new goods coming into use. Within limited periods of time, however, changes in the pattern of wants are largely changes in detail, not in the basic structure of wants as they relate to major categories of activity. While consumer expenditure is the most important channel through which consumer wants influence production, it is not the only one, and some account must be taken of the wants reflected through other channels. The three most important cases of this sort occur in (1) production at home for home use, (2) Government services supplied without any direct charge but financed for the most part out of taxes and (3) group expenditure by consumers combined in such bodies as churches, hospitals, and similar consumer institutions. By placing money values on food raised for home consumption and on shelter obtained from owned homes, these, the two most important items of home production, can be combined with purchased goods in analyzing consumer wants. The services rendered free by Government and by consumer institutions cannot be converted into the equivalent of private expenditure and can best be treated as reflecting wants which are met through social expenditure. These social expenditures are relatively small in comparison with all expenditures, so that the main elements of the structure of wants are to be found in the analysis of private expenditures. All consumers are, of course, not equally able to express their wants in the market. Significant differences between different groups of consumers can be brought out in two related maps. Map 1 shows the distribution of all consumers, regardless of their ability to make their wants effective. In map 2 these same consumers are weighted by their purchasing power-by their ability to express their wants in terms which affect the direction of economic activity. From this map it will be seen that urban consumers are on the whole more economically articulate than rural ones1 and in particular that the wants of consumers living in the northeast section of the country and on the west coast are more effectively expressed in purchasing power than are the wants of consumers in some parts of the South. The distribution of the total consumer income in 1935-36 is shown by tenths in chart I, from the highest tenth with incomes of $2,600 and over a year, to the lowest tenth with incomes under $340. Obviously, the wants of consumers at the upper income levels can be more effectively expressed than the wants of those at the lower level. The actual expenditures which direct production, however, reflect primarily the wants of families and individuals with relatively small incomes. In chart II, 1 The map exaggerates this difference by showing as urban the purchases made by rural people in neighboring cities. |