# Current Economic Affairs/Chapter 6

CHAPTER VI
WHAT IS OUR NATIONAL PRODUCTIVITY
I have in the previous chapters repeatedly expressed the opinion that our national productivity has not been increasing at a rate commensurate with our increase in population, that upon the whole our national scale of living is not so good as it was before the war, and that our recent burst of industrial activity has been at the expense of necessary savings, for which we are going to be constrained ultimately to pay the penalty. There has been a good deal of publication of opinion to the contrary, much of which has been idle and shallow, but some of which has been intelligent and thoughtful. Of the latter the best expression appears in an article by the Hon. Herbert Hoover under the title “We Can Hold the Prosperity We Have” in the Nation’s Business for June 5, 1923. If this view is right of course my own is wrong. In order to bring out the issue clearly, therefore, I quote from Mr. Hoover’s article at considerable length as follows:
We must get our minds away from the notion that pre-war standards of living and volume of business would be normal now. Normalcy is a vastly higher and more comfortable standard than 1913. We must not judge the state of business activity by pre-war figures, but by a hugely increased base. We must not be frightened when our output of steel or textiles or automobiles, lumber, corn or hogs, or our car loadings amount to figures far in excess of those that would be implied alone in a normal growth of population.
There has been in the past decade an unparalleled growth of our industrial and commercial efficiency and our consequent ability to consume. I do not refer to that growth of productivity which should naturally be expected to accompany the addition of 14 millions to our population during the last ​decade, nor do I refer to the increase in dollar figures due to higher prices. Entirely over and above these contributions to increased figures, we are producing a larger amount of commodities per capita than ever before in our history.
Precise comparisons are difficult to adduce. But exhaustive study from many angles of production over average periods 10 years apart, before and since the war, would indicate that while our productivity should have increased about 15 per cent due to the increase in population, yet the actual increase has been from 25 to 30 per cent, indicating an increase in efficiency of somewhere from 10 to 15 per cent.
For example, there has been no increase in the number of our farmers during the last decade, yet the agricultural community not only feeds an increase of 14,000,000 of population, but has increased its average exports from about 7,500,000 tons to 17,500,000 tons annually. This would show that the individual farmer has increased his efficiency in production by from 15 to 20 per cent in this period.
There are many commodities where we have years since reached a point of saturation per capita and whose industries grow approximately with the growth of population or in increasing exports. There are other commodities where saturation has not been reached. Increasing efficiency not only releases labor and direction for greater production of these things but enables their wider diffusion over the population. A selection of such industries shows a growth of 60 per cent in the last decade.
We have been able to add to our standards of living by the more general distribution of many articles which were either altogether luxuries 10 years ago, or which were luxuries to a large portion of the population. Thus an increased proportion of the population are using electric lights, telephones, automobiles and better housing—and have added movies and what not to their daily routine. A rough estimate would show that we could today supply to each person the same amount of commodities that he consumed 10 years ago, and lay off about 2,000,000 people from work.
Some people have looked upon these conditions of new commodities and services in the daily expenditure of our people as representing extravagances, but as a matter of fact they are no entrenchment upon savings. They are the result of steady improvement in management and method all along the line.
The result has been a lift in the standard of living to the whole of our people, manual worker and brain worker alike. This is the real index of economic progress.
The construction of our buildings, our railways, our plant and equipment generally, naturally tends to expand parallel with the increased demand for consumable goods because people are both more courageous and more easily financed in good times. We have not only the normal growth of the country to meet, but the long-overdue and accumulated deficit. The delays of war and of post-war slump, and our increasing efficiency in production all demand more buildings and transportation facilities.
​We may overlook some contradictory and paradoxical things in Mr. Hoover’s expression such as the declaration about there being a vastly improved scale of living on the one hand and the declaration about there being a deficit in our housing and transportation facilities on the other hand; also the paradox about a general state of national prosperity which a large part of the people are obviously not enjoying. We may avoid any controversy upon those subjects and confine our attention to the positive declaration that while in recent economic history the American population has increased about 15 per cent the increase in productivity has been from 25-30 per cent, which if true would indeed spell an increase in the scale of living by the people, that might be expressed by the acquisition of more comforts or release from the exigency of having to work so hard, or both. I hesitate even to attempt to contradict Mr. Hoover upon those points, for there is in his statement a certain vagueness respecting the period of time that he had in mind. He refers to normality being in 1923 “a vastly higher and more comfortable standard than in 1913” and to “an unparalleled growth in our industrial and commercial efficiency” in the last decade, but further on he refers to studies of production “over average periods of 10 years apart, before and since the war.”
As between 1901 and 1916 there will be no question respecting the validity of Mr. Hoover's assertions; nor, probably, as between 1901 and 1921. As between 1913 and the present time or between 1916 and the present time, there can not be the same assent, and for the reason that between the middle of 1914 and the end of 1918 there happened to the world some things— ​physical and psychological―of a cataclysmic nature. Mr. Hoover himself has recognized this, for in an article in Forbes’ Magazine in the early part of 1922 he said, in discussing our ability to compete against foreign imports and sustain our scale of living―
There is only one practicable remedy, viz. to increase our efficiency in production, manufacture and distribution. Increase in efficiency means not only more able production, but also elimination of great wastes. If nothing is done to cut down waste and increase productive efficiency, the people of this country must inevitably suffer a reduction of their standard of living to meet the lower standards of Europe.
I pay great attention to Mr. Hoover for he is both an engineer and economist of extraordinarily high attainments. There is perhaps nothing inconsistent between his two opinions, of a little more than a year apart, that I have quoted. I can not, however, deduce from our statistics that we are producing a larger quantity of commodities per person than ever before in our history. I propose to deal with that subject in this paper. In a subsequent paper I shall take up the matter of our present scale of living and shall throw great doubt upon its being at the Present time any better than it was 10 years ago.
The production of the principal raw materials in the United States, all converted into tons of 2,000 lb., in comparison with the population at the middle of each year, and with computation of the production in tons per person, appears in the table on page 75:
The estimate of the production of raw materials is based on the data of the U. S. Department of Agriculture and the U. S. Geological Survey, but the original data are converted into tons so as to get the same denominator, i.e., bushels of wheat, bales of cotton and thousands of board feet of lumber are computed
in terms of weight by the use of well-known factors. The summation in tons represents practically the whole production of the United States. Statistics of the population of the United States by census are available only at decennial intervals, but statisticians have developed nearly accurate methods for computing the population annually for intervening years.
The statistics of production and population become more illuminating if they be separated into agricultural and non-agricultural. This may be done with sufficient accuracy, for we know that according to the census the farm population of the United States changed but little from Jan. 1, 1910, when it was 30,925,000, to Jan. 1, 1920, when it was 31,357,670. If we assume a constant farm population of 31,000,000 and if we assume that the difference between that figure and the total population is non-agricultural, the quotients will be no more than insignificantly out of the way. These computations appear in the two tables immediately following:
The above tables do not indicate any increase in productivity, but rather the opposite. Attention should be drawn to misapprehensions that may result from annual comparisons. Thus the output of minerals and metals may be swollen in one year by intense ​production for the replenishment of depleted stocks. Production may show a statistical increase at the expense of quality, as in 1917-18 when a good deal of slate was dug and sold as coal. An industrial depression, as in 1921, leads to a shrinkage of production. In agricultural production the benign or malign influences of the weather are explanations of great changes from year to year.
A good deal of the annual variation in agricultural production is ascribable to changes in the acreage cultivated. Thus, there was a maximum of 51,482,000 acres seeded to winter wheat in the fall of 1918. In the fall of 1921 the acreage was 47,611,000 and in the fall of 1922 it was 46,069,000. The total wheat area of the United States in 1923 is around 58,200,000 acres, compared with an average of 47,097,000 acres in the period 1909-13. The ability to cultivate such a greatly increased area may be ascribable to increased mechanicalization of farm work, by the use of tractors, automobiles, etc., but that may not be deduced with certainty. There is a good deal of elasticity in farm work, and in the ability of farm labor to do considerably more or less even with manual and animal work. But if increased mechanicalization has really played any important part in agriculture there is evidence indicating that it has not offset the effects of land impoverishment. In 1909 the average yield of wheat in the United States was 15.44 bu. per acre. In 1909 it was 12.93 bu. In three great wheat growing states—Minnesota and the two Dakotas—the average in 1919 was but little more than half that of 1909. Impoverishment of the land implies, of course, the obligation to do more work to make the same production.
​Substantially the same thing is to be observed in the statistics of important metal mining companies, which function in a highly mechanicalized industry, perhaps the most perfectly mechanicalized of any. Also in the railway statistics something of the same order is discernible. Data of railway traffic are given in the following tables:
Railway traffic in terms of ton-miles, if represented by 294 in 1913, was 338 in 1922. We have been constrained, or led, or both, to move our freight a greater distance during the last few years. For a series of years previous to 1915 the average haul was steadily about 154 miles. Beginning in 1915 there was an increase and in 1920 the figure had risen to 181 miles, the average for 1921 being about the same. The causes for this are not well understood, but anyway it is not to be construed as a favorable economic factor. However, the railways were operated by about the same number of men in 1921 as on the average just before 1915. The ability of the railways to do more work without increase in personnel is wholly ascribable to managerial improvements, for the efficiency of labor has ​decreased. In pre-war years there was about 1.37 man per 1,000 train miles. In 1919 this factor had risen to 1.71. In 1921 it had been reduced to 1.52
The number of transportation service train miles effected per railway employee is shown in the following table:
These data indicate diminishing efficiency of labor, more or less offset by increased efficiency of management, which is however constrained to contend against some increasing adversity necessitating the moving of freight more miles.
The physical volume of our foreign trade, as computed by the Federal Reserve Board, may be taken as a rough indication of the general trend of our foreign commerce, the factors of price having been eliminated. These data are given in the table on page 80.
The above tables show that not even in 1919 had the physical volume of our exports risen hugely above the average for 1913. The physical volume of our imports on the other hand has been in recent years largely above the pre-war level.
In the production of houses the record of the last 10 years is in no way satisfactory. The common statistics on this subject are quite misleading, in that they are expressed in terms of dollars, not in terms of quantity. Moreover there is no consistent set of statistics with respect to this subject running far back. I have developed the following estimates from Bradstreet and Dodge.
The accompanying table is at first sight surprising in its showing that in recent years, notwithstanding much talk about a building boom, we have actually been doing less construction than previous to the war. Refer, however, to the statistics for the consumption of building materials (see Chapter VII) and the same thing will be found to appear there. In Chapter I there are also some illuminating statements in regard to this subject.
The building that we do annually is not of clear gain, for we are constantly losing old buildings by fire, obsolescence or demolition. A comparative study of the statistics of new building construction along with increased population shows that in late years the additions have fallen short of the requirements of the growth in population. In other words there has been a cumulative shortage. In my “Wealth and Income of the American People” I showed how there used to be normally a surplus of houses, and how the housing ​situation did not become acute until that surplus had been exhausted. Obviously we cannot expect ease and comfort in housing until we begin again to have a surplus, for rent, like other things, conforms to the law of supply and demand. Since the armistice, however, we have failed to build as much as is pressingly needed, much less to make any start upon reaccumulating a surplus.
The capital savings of the American people since 1918 are represented in the mam by the following data (in terms of millions of dollars).
The totals are incomplete in that they do not include what was put into public improvements, public utilities and industrial plant. Investments under those heads are relatively small, however, and there is no reason to suppose that the total savings of the American people during the last three years have been in excess of 7 or 8 per cent of the income.
In my “Wealth and Income of the American People” I estimated the national wealth at the ends of 1916 and 1920 as follows, in billions of dollars:
​At the same time I expressed the opinion that the external credits at the end of 1920 were a very doubtful asset. That opinion has certainly been confirmed by subsequent events. The funding of the British debt to us is on the basis of a reduction of “present value.” The French government has recently declared that France can not pay her debts unless she can collect from Germany.
The American people did not add to their wealth by virtue of war so much as they would have done normally if there had been no war. In point of fact it is doubtful if they added anything. Any idea that we grew rich out of the war is preposterous. Warfare is no device for a people to grow rich, anyway not under modern conditions.
I find no evidence in the statistics of national production or accumulation of wealth that the efficiency of the American people has so increased during the last 10 years as to afford them an enjoyment of a higher scale of living on the whole. The evidence points rather to failure of production to increase commensurately with the population. There are some ominous indications that improvements in mechanicalization and management have been doing no more than offset increasing adversities of nature, and perhaps not even that. The data of the Federal Reserve Board show that the fiscal volume of our exports has not increased, while our imports have increased. In 1912–14 the excess of our exports over imports was about $500,000,000 per annum. In the fiscal year ending with June 30, 1923, it was only about $175,000,000 of inflated value.
In manufactures our production has increased greatly in some things, e.g., automobiles, electrical apparatus, ​telephones, etc. In other things, with equal certainty, it has decreased, e.g., railway equipment and fabrications for house building. The construction of railways and houses has been at a diminishing rate.
It is difficult to determine the comparative manufacturing activity in 1913 and 1922 in the aggregate. In mining, railway transportation and building we have positive evidence of diminished efficiency of labor, which in the aggregate is not offset by the improvements of management, or but barely. There remains but manufacturing as the other great branch of producing industry, apart from agriculture. We have available the census figures of manufactures for 1914 and 1921, but these are expressed in terms of value, with no quantitative indication, and there is apt to be confusion in such census studies anyhow. However, we may put some reliance upon the census reports of the number of wage earners, which show the following:
It appears therefore that the wage earners in 1921 were a little fewer than in 1914, while the total number of employees (including the salaried men) was a little greater. Both 1914 and 1921 were years of industrial depression, which was far more serious in 1921 than in 1914. Allowance must be made for these conditions.
​Now the National Industrial Conference Board has shown that im 3,800 manufacturing plants representing 26 major industries and accounting for upward of 25 per cent of the workers in those industries, between the middles of 1914 and 1920 the nominal week of work was reduced from 55.1 hours to 50.7, a sacrifice of nearly 10 per cent. The reports of the Department of Labor of the State of New York show that the number of workers in the factories of that state was no greater in 1922 than at the middle of 1914, and was less in 1921, which is substantially a confirmation of the census figures, the manufacturing industry of the State of New York being large and widely diversified, and therefore probably a good sample of the whole country.
If then, along with the substantial increase in population, there were no more workers in factories in 1922 than in 1913, and if they were working nearly 10 per cent fewer hours we should have to imagine a vast improvement in managerial efficiency and a great increase in mechanicalization in order to have had even the same production, not to speak of increased production.
In some industries that has without any doubt occurred. Thus in the manufacture of automobiles and the tires for them the output per man has greatly increased. Both of these are relatively new industries and the opportunities for development were great. In other industries also there have undoubtedly been improvements but not so great as in those previously mentioned. On the whole, however, it is extremely doubtful that production has been maintained at a rate high enough to give the people of this country the ​same quantity of manufactured goods per person as in 1913. If the contrary should appear to be the case it will probably be found to have been at the expense of houses, railways and other necessary things that have been neglected as the data for savings and investments in new capital clearly show.
* ↑ The Federal Reserve Board index of exports is figured by dividing the aggregate value in “1913 dollars” of 29 commodities for any period by the value of the same commodities exported during an equal average period during 1913. The index of imports is computed in the same way but is based on 27 commodities. The 29 export commodities constituted 56.3 per cent of the total export values for 1913, while the 27 import commodities constituted 49.3 per cent of the total import values for 1913.
* ↑ Reference may be made to remarks on this subject on p. 13.