Draft Chapter III - Overall Report

November 22, 1957

# CHAPTER III
## THE AMERICAN ECONOMY

### I

The abundance of America is proverbial: if it is not the most meaningful attribute of American civilization, it is certainly the most striking. To a visitor from another land our political system may be difficult to comprehend or our social institutions baffling, but our economic achievement is impossible to miss. The forests of television aerials, the armadas of cars, the enormous display of the supermarkets, the style and dress of ordinary people -- these are aspects of our national life which first impress any observer of the American scene.

With 6 per cent of the world's population we produce and consume more than 40 per cent of the world's output. All but a small fraction of our homes have radio and telephone and a large proportion have television. We have 1-1/2 million miles of surfaced roads and 45 million serviceable automobiles or enough to transport the whole population of the United States simultaneously. Our agriculture is producing surpluses with but 13 per cent of the nation's population and a standard of consumption higher than any other in the world.

Moreover, the economy has been growing at an explosive rate. While the total labor force is now eight times greater than it was a century ago, the national income is 25 times greater. In the past half-century the average

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output per man hour has tripled each decade. Since 1950, the American
business has been adding to its productive equipment at the rate of
approximately $25 billion a year, this is in itself too large a figure to be
visualized: we may give it concreteness by pointing out that it is equivalent
to _all_ the assets of General Motors, Standard Oil (N.J.), Ford, U. S. Steel
and General Electric. If the American business community continues for
another two decades to add $25 billion a year to its plant and equipment, it
will increase by 50 per cent the value of our entire stock of national wealth --
the land, machines, houses, cars and grain which comprise our economic
riches.

This economic growth has not resulted moreover, in a permanently
repressed inferior class -- as Marxism had predicted. It has not been bought
at the price of an ever widening gap between rich and poor. On the contrary,
as the statistics of income distribution will demonstrate later in this chapter,
the predominant characteristic of American society has been its emergence
as a middle-class society.

Whence comes this American abundance?

Many forces have combined to bring it about. We have been blessed
with a magnificently endowed continent, fertile, wooded, rich with mineral
deposits and laced with navigable rivers. The great oceans have buffered our
shores from military incursions while opening highways of commerce, and

November 22, 1957

the good fortune of history has made possible the gradual acquisition and consolidation of an enormous single economic territory. But the mere presence of these factors was not enough. To a considerable extent the growth of our economy was the result of a tradition and an attitude.

In a later chapter we shall examine the evolution of the American economic system more closely and particularly the moral tradition which shaped it. At this juncture and at the risk of oversimplification it may be useful to emphasize the non-material influences behind our material abundance. The first is a religious strain which has permeated American society from its beginnings. A product of the Calvinist movement, this severe, self-denying ethic was a natural complement to a society seeking to convert a wilderness and needing to encourage attitudes of hard work, thrift, and dedication to one's worldly calling. These religious roots of American capitalism have from the beginning infused our economic system with a self-conscious morality, with an ideal of public service, and with an uneasy feeling that the pursuit of gain was not to be an end in itself but must be justified by the use to which that gain was put.

Thus our Puritan ancestry has been importantly involved in the evolution of the American moral attitude of *social consciousness*. And despite the fact that much of our economic history is the story of irresponsibility writ large, this strain of self-imposed public and private accountability has been a persistent, if not always dominant note of our society. It has asserted

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itself in the typically American phenomenon of philanthropy, in the
championship of the causes of the underprivileged by some of our wealthiest
citizens, in the essential recognition -- sometimes tardy and reluctant,
but never totally lacking -- that the ultimate justification of the economic
system was, in the final analysis, not the private pocketbook but the public
welfare.

A second vital characteristic of the American economic system has
been the absence of a national feudal heritage. It was not a matter of class
ties alone, not merely a question of titles and the privileges of nobility
which are of the essence here, but a deeper attitude toward the inherent
capacities and the rightful opportunities to be accorded to the common man.
Over the history of the American economy the common man has at times been
abused, misused, even exploited, but -- and this is the crucial thing --
he has never been dispised. The idea of a permanently inferior class of
men is and always has been repugnant to the American mind. Traditionally
ours has been one of the very few countries in the world where a man was
proud of his humble ancestry rather than ashamed of it, and where his
advancement typically depended on his abilities rather than his blood.

Quite aside from the fraternal tone which such an idea gives to social
life, the absence of a feudal preconception of "classes" has rescued American
capitalism from the terrible civil conflict of internecine warfare. Certainly

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there are classes in this nation, and class antagonism has sometimes been sharp and bitter. Yet it has never rigidified into an irreconcilable conflict of economic interest or of social aim. At the height of the anti-union days of the late nineteenth century or of the anti-capital days of the desperate 1930's, the idea of a struggle *a outrance*, a fight to the brutal finish, never characterized more than a fringe of the contestants. A basic outlook on men as individuals rather than as representatives of a class has tended to permeate American thought, and social attitudes.

A third impetus to the American economic system has been the democratic political framework within which it has operated. In effect this has meant the supremacy of the political ideal over that of the economic, and since that political ideal was responsive to the will of the people as a whole, it has resulted in the constant adaptation of the economic system to the political wishes of the electorate. Thus capitalism in America has always been contained within the political framework and has had to make its peace -- sometimes an uneasy peace -- with the political desires and ideals of the populace.

And it is not only in the largest national setting that this has been true. The democratic concept in America has also expressed itself in a certain suspicion of power, private or public, and in the insistence that power be regularized, curbed, and legitimized by public consent. Hence

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the wariness with which the public eye has always regarded size, whether
in Washington or Detroit, has resulted in the gradual evolution of an
attitude of self-consciousness on the part of big organizations, economic
or political. Big business has been a focal point of attack, justly and
unjustly, over the American past, but the happy consequence of this
hostility has been the gradual recognition on the part of big business that
it existed by public sufferance rather than by God-given right. Thus the
democratic strain in American life has imposed a standard of good conduct
which has shaped American economic institutions from within as well as
from without. This allows us to envision our economic future as one in
which self-discipline can provide us with the social responsibility which
might otherwise have to be externally imposed.

The result has been an economic system in which private incentive,
public responsibility, and moral convictions formed a singularly dynamic
combination. A zest for enterprise, combined with a willingness to innovate,
has given the American economy a driving stimulus which has been tempered
by an acceptance of competition, a tradition of low-profit margins and high
volumes of output, and an acquiescence in the regulation of private excess,
such as that provided by the anti-trust laws. Equally important, a strong
and free trade union movement has contributed to growth, not alone in protect-
ing the dignity of the workingman, but in assuring a wide sharing of the
incomes resulting from economic results of increased productivity.

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To be sure, without the resources of our continent, and the insulation
from the contemporary turmoil of Europe, the formidable expansion of the
American economy could never have taken place. But to a very real degree
the growth of our economy was also the result of a complex attitude. No
discussion of our economic growth is complete without including the
extraordinary role played by our *aspiration* to growth. In the driving and
sometimes demoniac energy with which we assailed the riches of the earth,
bound the continent with lines of steel, subdued our forests, planted our
cities, there was a quality of impetuous vitality and hopefulness. The
economic building of America was not only a matter of cold economic
motivation. Bold, imaginative, sometimes ruthless and even cruel, it was
above all a tremendous human adventure.

That quality of adventuresomeness marks it still. But the problems
of the future will call for a different direction of the adventuring spirit.
It is not the geographic frontier which now beckons to us, but the frontiers
of science, and even more importantly, of human well-being and human
inspiration. The material abundance whose realization is still in the future
is nonetheless the culmination of a past trend. Ahead the challenge lies
in subtler fields; whether we can generate a concept of frontier when it is
no longer imposed by the environment, whether we can avoid having material
progress turn into an end in itself. The challenge of the American economy
will reside not in the quantity of goods it provides, but in the quality of life
it makes possible.

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II

Any survey of the American economy must begin, as did our previous chapter's inquiry, with the simplest questions. How great is our national abundance? How successfully does our economy work? What is the framework within which economic activity is carried on? Only when we have answered these questions can we move on to the longer range challenges of our economic society.

For the year 1957, despite a slackening in the pace of business in the last quarter, the American economy seemed destined to produce a volume of output which would be the largest ever realized in peace or war by any nation-state in history. In terms of physical magnitudes -- that is, in tonnage and yards and bushels rather than in dollar values -- the industrial production of our nation was nearly 45 per cent above its average from 1947 to 1949 and almost two and a half times its level in 1939.

This great productivity arose in response to three principal sources of demand. The first of these was our personal consumption which absorbed nearly two-thirds of our gross output. The second was our investment in residential construction and in new productive facilities for industry: this absorbed somewhat less than half the remaining third of our output. And the final fraction--one-sixth of the total--was destined to fill the demands of our Federal, state, and local governments for the goods and services they require.

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Under the impetus of these three interdependent sources of economic activity our Gross National Product -- the market value of our total output -- has displayed a spectacular rise over the last decades. For each of its components has been steadily growing. Consumers in 1957 were purchasing over 60 per cent more goods and services than they bought twenty years before. Business demands for new plant and equipment were nearly 50 per cent higher than a decade ago to satisfy this burgeoning consumer demand and to provide facilities for future increases in output. And our government had increased its demands by more than twice since 1948 -- the bulk of the increase representing higher expenditures related to our national security. The sum total of the dollar value of our output in 1957 was nearing the enormous figure of $440 billions. If its rate of growth is to be maintained, it will by 1975 have exceeded $800 billions -- in terms of present prices.

These are astronomical figures which have a bewildering rather than clarifying effect. But they can be translated into magnitudes which are more readily comprehended. The percentage of social demands cited above makes clear that ours is a consumption economy: an increase in the Gross National Product tends immediately to be translated into a higher standard of living for the mass of the people. Since by 1975 our population of about 220 million will comprise in the neighborhood of 70 million households, we must divide the $700 to $800 billion of potential Gross National Product into 70 million shares. Then we must reduce each share to eliminate that part of Gross

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National Product which does not become part of individual income.* If we make these adjustments, we end with an average income per household of approximately $7,500 a year -- in terms of the purchasing power of today's dollars.

This average income must now be considered in the light of the expected characteristics of the 1975 economy. Almost certainly it will be supplemented with an amount of "free" (i.e., socially supported) services considerably larger than today: the trend of welfare services has shown a steady tendency to increase. It is probable that the dependability of this income will be greater than that of most incomes in the past, primarily by virtue of more effective public control over economic fluctuations, but also by some growth of private responsibility for the "guaranteeing" of incomes. And finally we must picture the projected $7,500 family income as a more representative figure than the corresponding average income of $5,500 today. Although we cannot know what the actual distribution of income will be in 1975, it is certainly in line with the trend of the past to expect to find the great bulk of the nation's families within the $5,000 to $10,000 range.

*This eliminates such items as business depreciation allowances, etc. The relationship of Total Personal income to GNP 1948-1956 has been approximately 3:4.

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What is significant here is not the quantitative magnitude of these figures alone. It is the qualitative meaning of the level of life which they make possible. If we consider that the average income for all professional and semi-professional families in the United States in 1954 was just over $7,300, and that of "managerial" families just under $7,500,* then the possible economy of 1975 represents the upgrading of an entire society to the point where its *representative* family enjoys an income comparable to that of the upper middle class today. Hence it is not the abolition of poverty in its broad, pervasive sense (as opposed to localized poverty and blighted areas which will be discussed below) which is the signal factor of the potential future -- indeed, it is fair to say that poverty in its ugliest sense is already on its way to being eradicated in America today. Rather it is the first approach to a society in which the average person enjoys not merely the perquisites of civilized existence but a modest share of its luxuries as well. Such a social environment has never before existed save for a limited sector of any community. Its realization will add a new dimension and social experience.

This bright image, it must again be emphasized, is not a prediction but a projection. It assumes that we will grow, that we will be able to keep economic recession within tolerable proportions, and -- which may be more difficult -- that we will not dissipate our growth in inflation. It further assumes that difficult problems of taxation and fiscal policy, international economic imbalance and domestic economic and social bottlenecks will have been, as they can be, met and mastered. It need hardly be emphasized that these are major assumptions. Yet they are the measure of the opportunity before us.

*United States Statistical Abstract, 1956, Table 368, p.306

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In projecting the possibilities for the future, we must guard, however,
against several fallacies. We must not assume that our growth will be
automatic or that we could not vitiate all our prospects by the absence of self-
restraint. For while our economy will make many things possible, it will not
make _all_ things possible. Inability to establish priorities among the claims
on our national product may produce an inflationary spiral which could shake
public moral; the selection of the wrong priorities may bring about imbalances
that imperil our survival.

Moreover, we should not expect an uninterrupted rate of advance. The
projected growth rate is based on the average of our historical performance.
In an economy based on private decisions some adjustments are inevitable.
Interruptions to our rate of growth are certain: they are the price we pay for
economic liberty and for the extraordinary dynamism of our economy. And the
government has at its disposal many measures to cushion the effect of economic
fluctuations.

Finally, the rate of advance is not likely to be uniform throughout the
economy. The greatest beneficiaries of increased productivity are the manu-
facturing industries; while the service industries, which play an increasingly
important role in our economy, can increase efficiency only much more slowly.
Since their wage and hour pattern tend to be set by most efficient industries,
there is here a built-in inflationary factor.

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Yet the control over the factors that might inhibit our growth is largely up to us. Whether we choose our priorities wisely, whether we can avoid excesses of inflation and deflation, whether both management and labor exhibit self-restraint -- these are decisions largely within our control. We can assert that the long-term outlook is propitious for growth. The past decades testify to the vast consuming propensities of a nation of increasing middle-class incomes. The demands of government are likely to rise over the future prompted both by the urgency of defense and widening conceptions of social welfare. The growing reliance of industry on systematic research for new products, the pressure of government expenditures and the buoyancy of a high-consumption market promise a considerably enhanced stability of investment.

Thus the long-term view holds bright prospects for economic growth, provided the framework within which our economic activities are carried out maintains a proper balance between spontaneity and restraint, between initiative and excessive concentration of economic power. Later chapters will deal with purely economic issues of growth such as economic policy. Here we must turn to its institutional aspects.

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III

The institutional aspect of our economy has two sides: the role of private economic power and the role of government.

Much of the social history of our nation over the past century and a half can be described as the continuing effort to define and control the exercise of economic power. And it has not merely been the abuses of power which have evoked attention and remedy: not merely the arbitrary acts of government, or the misrepresentations of fraudulent business, or the racketeering fringe of labor. It has been the central core of _legitimate_ economic power which we have sought to define and circumscribe: -- the extent to which business might conduct its affairs by considerations of profit maximization alone, or the bounds within which labor unions might properly use their fundamental right to strike.

In a democratic society the framework within which economic power may be legitimately exercised is never static. The definition of legitimacy is constantly subject to public review and to new interpretations. The past half century, for example, has seen a steady narrowing of the limits within which business power may freely operate. Today, business access to many raw materials, its right to acquire other businesses by purchase or merger, the quality of many of the goods it produces, the terms of its advertising, the manner of its own financing, the nature of its dealings with labor -- all matters which were once its uninhibited and unquestioned rights -- have been made partly or wholly subject to control.

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More recently labor power has come under similar public scrutiny. In the early days of labor, most legislation was designed to protect and facilitate this then precarious social movement. However, with the virtual complete unionization of big industry and with the growing demonstration of the economic impact of union decisions, the question of the bounds of legitimate labor power has emerged as a new area of social concern. To what extent may unions conceal their financial strength, when the survival of the union itself is no longer a matter of danger or even dispute? To what extent may labor extend its interests into areas previously reserved for management itself -- such as the promotion of employees or the design of employment policies?

These delicate and difficult questions are far from commanding general assent today just as in the past the efforts to legitimize business power were hotly disputed. Yet it is likely that the future will witness attempts to define a legitimate exercise of the power of labor similar to those which have in the past defined and which will in the future continue to define the power of the business community. A final definition of the respective power of business or labor will never be achieved so long as our society itself is dynamic, and so long as its goals and environment are changing. Yet it seems fair to say that the future definitions of private economic power are unlikely to assume socially disrupting proportions. Something like a broad consensus has been

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reached in our nation: if business has long ceased to be regarded as an inviolable institution, so too labor has now achieved the institutional solidity which makes it subject to a new public responsibility.

For underlying all our efforts to legitimize power is a tacit agreement on the need for a pluralistic exercise of economic strength -- on a need for a counterbalance of force against force, and on a limitation of what appears to be an excess of force on either side. An essential element of the American social scene is a general agreement on the basic nature of the economic society which we wish to achieve: a society in which economic decision-making is fragmented, in which broad public responsibilities are conscientiously assumed by private economic organizations, and in which the individual person is given an optimum chance for self development.

As for the role of government, it may well appear to future historians that the most significant development of the last twenty five years was not in our gradual curbing of *private* economic power, but in the forging of a consensus on the role of *public* economic powers. For the past three decades have seen nothing less than a new definition of the function of government in a free enterprise society.

During the 1930's, in the heat of the great debate over the legitimacy of public economic power both sides of this issue were badly misrepresented. Those who wished to deny to government any positive role in the economic conduct of the nation's affairs tended to overlook the historic partnership between government and enterprise: a partnership beginning with the early

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protection of the infant industries of our young republic; later evidenced when
the government aided the accomplishment of our transcontinental railway
projects; and continuing down through the 1920's in the form of conservation,
commercial stimulation, central banking, and a hundred other universally
accepted government functions. The opponents of "government intervention"
often talked of government as if it were a foreign body rather than an indispen-
sible element in the American economy.

Equally one-sidedly, many of the proponents of all-out government
planning failed to recognize the long-term trends of vitality, flexibility and
invention which American business enterprise had revealed. They discounted
the value to a free society of the fragmentation of economic power which a
multiplicity of private centers of economic activity insured. Dismayed by the
suffering wrought by the depression and worried over the concentration of
economic power into large private units, the advocates of the planned economy
often proposed remedies for real shortcomings which portended an aggravation
of the very problems they feared: for the concentration of big business they
would have substituted the concentration of the big state; and for the lack of
private investment initiative, the lethargy of a public bureaucracy.

It is one of the evidences of the pragmatism and adaptability of the
American economic system that this rift of views is now virtually healed.
There continues to be, and there will quite properly continue to be, divergences
of opinion about the exact line of demarcation which is best drawn between
public and private economic responsibility.. But the passions are now largely

[LC]

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a thing of the past. The broad lines of a workable philosophy seem to have emerged.

In its essence this agreement has charged the government with the overall guardianship of the economic health and vitality of the nation. The *source and direction* of economic energy continue to be lodged primarily in the motivations of free individuals and in the pursuit of profit by business organizations. But the responsibility for the overall framework within which this energy is expended -- for its balance, its restraint, its continued forward movement -- now rests to a considerable degree with our government.

Specifically this places many responsibilities on the shoulders of our public agencies, local, state, and especially federal. Some of the major ones are these:

Our government is charged with the husbanding of our scarce resources lest we jeopardize our national strength through lack of public foresight.

Our government is charged with the provision of those necessary public assets, such as schools, or roads, or hospitals, without which private growth lacks a balanced underpinning.

Our government is made responsible for the rehabilitation of those areas of economic life which are beyond the scope of private enterprise, such as agricultural poverty or urban redevelopment.

Our government is broadly given responsibility for our social welfare, assisting in the provision of private economic well being and taking the lead in the rehabilitation of the underprivileged.

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These social and economic functions of our public institutions derive
their support mainly from a moral agreement that our abundance, to be made
meaningful, must be applied for the social good. But what is perhaps an even
more important new area of public economic power rests on a somewhat dif-
ferent source of legitimacy. <u>This is the agreement that our government must
aid the process of growth itself.</u>

In a word, our government is charged with a basic responsibility for
our economic growth. Through its tax policies it must seek to ensure a
maximum flow of new private investment. Through its fiscal and monetary
policies it must seek to reverse any major recession and to restrain an in-
flationary trend. Through its economic controls, such as those over installment
purchase, it must seek to balance the demands of the consuming public with
the resources available to it. And finally, within its own sphere of activities
it must establish priorities of importance among programs ranging from
defense to welfare, not all of which can necessarily be simultaneously
accommodated within the capacities of our nation.

These are formidable responsibilities, and we do not yet know the
extent to which they can be adequately discharged. The fact that our govern-
ment is democratically responsive often places political obstacles in the path
of economic policy: thus its tax policies or its choice of priorities may reflect
popular prejudice to the detriment of economic wisdom. And even in the less
politically sensitive areas, we are not yet sure of our mastery of economic
forces. The experience of the two mild recessions of the recent past indicates

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that the government can indeed cushion a decline and can create conditions
that favor expansion, but we have yet to test our arsenal of economic weapons
against a formidable economic setback. And on the other side of the fence,
our record in combatting inflation has thus far been less reassuring. From
the end of World War II to the present, the consumer price level has risen by
roughly one-fifth. And it has not alone been the pace of inflation which has
been worrisome but its "built-in" character in the pressures of a tight-employ-
ment, tight-market economy. Even if overall fiscal and monetary policies are
boldly applied, they may lack the specific impact needed to deal with stra-
tegically placed labor unions pressing for wage increases, or by powerful
industrial groups passing them along as price increases. Unless greater
self-discipline is displayed by these groups, far more drastic controls than
our present indirect ones may be needed.

Thus the fact that our government is now given the legitimacy to
promote economic growth does not mean that growth is thereby assured. With
the power to take forceful action inescapably comes the ability to make
powerful mistakes. At best the encouragement of our government can create
conditions in which growth may flourish. In the later chapters of this book
we shall return to many of the problems which we have hitherto barely indi-
cated: our resources, our welfare programs, our tax and fiscal policies,
and other vital aspects of government economic power.

Here, where we are concerned with a broad perspective of the problems
ahead, it is sufficient that we make but two main points. The first is that we

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clearly possess a greater capacity for economic self-direction than ever before.

The second is that this capacity is not an assurance of performance.

Government action cannot provide the technological innovation, the executive
skill, the labor morale to make growth an actuality. In an economy where
voluntarism and not obedience is the basic motive force, the overall momentum
will depend to a high degree on the degree of aspiration, of effort, of self-
control which inspires the participants in the economic process. It may well
be that a successful exercise of government functions will act to sustain and
perhaps elevate the level of private economic striving, but in the end the
vitality of our economy is beyond public control.

IV

We thus return to the human beings who sustain our economy and
whom in turn it sustains. Can we be more specific about the prospects,
the problems and opportunities of the individuals and families who comprise
our economic effort?

Perhaps the most immediate diagram of the impact of the American
economic system on the individual, of its successes as well as its failures,
can be found in a table of income distribution.

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DISTRIBUTION OF INCOME *-- 1956

<table><thead><tr><th>Number of Families</th><th>Percent of Total Families</th><th>Incomes</th></tr></thead><tbody><tr><td>7,000,000</td><td>20</td><td>less than $ 2,000</td></tr><tr><td>16,000,000</td><td>36</td><td>$ 2,000 - $ 5,000</td></tr><tr><td>16,500,000</td><td>36</td><td>$ 5,000 - $10,000</td></tr><tr><td>3,500,000</td><td>8</td><td>over $10,000</td></tr></tbody></table>

Perhaps the most disturbing aspect of our income distribution is the fact that one American family out of five subsists at an economic level of below $2,000 a year. Yet what we must note about this bottom income stratum is that the bulk of its constituents are not victims of economic but of social misfortune. For it is certainly not the industrial worker who is found here; his average yearly earnings in 1957 was over $4200. Nor is it the retail clerk, who averaged $3100. Rather the great majority of the lowest income group are to be found outside the mainstream of our economy. Here are the aged pensioners, the broken households, the handicapped and mentally ill, and most important, the submarginal farmers. Thus, what characterizes the stratum of poverty is not that it constitutes a body of sweated labor sustaining the economy, but that it is comprised of a group which essentially lies outside the economy.

This has important implications for our policies of social welfare. On the one hand it reveals the magnitude of the problem. Public assistance

*Reported by Census Bureau N.Y. Times, September 9, 1957

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is not only a moral imperative, it is inescapably a major economic commitment. But on the other hand, the nature of our social distress also clarifies the purpose of public assistance: its aim is not the support of the economically exploited, but the redirection of the socially underprivileged back into the main economic channels. For example, a great deal of our worst poverty is to be found in our three million submarginal farm families -- half of whom have cash incomes below $1,000 a year. Hitherto these families have been maintained by an agricultural price-support program which, while it aims at some valid economic objectives, is built on an invalid social premise. For in effect our agricultural poor have been given an incentive to remain in the very occupation which they should leave. The task is to induce submarginal farmers to shed their impoverished agricultural work for more promising urban occupations. Needless to say, this requires much careful planning if we are not merely to move rural poverty to an urban setting. But it serves to illustrate that the purpose of welfare policies must not be to prop up the lowest economic groups, but to enable them to regain their proper economic status elsewhere. In a later chapter we shall deal at some length with the tasks which this obligation imposes.

Above the socially disadvantaged lies the lowest echelon, from an income point of view, of the economy proper: the 16 million families, representing 36 per cent of the population with incomes of between $2000-$5000. Here are the unskilled laborers and many of the semi-skilled; the great mass of farmers who manage to make ends meet but little more; the marginal store-

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keepers and the fringe of small business enterprise. An income of between $2,000 and $5,000 today is not poverty or acute neediness, but neither is it large enough, even at its upper end, to permit its recipients to enjoy more than a taste of the American abundance.

The problems of this group therefore also fall partly within the concern of public welfare. There is no question, for instance, that consumers at this level of income cannot or do not adequately provide for their own health, particularly when illness assumes "disaster" proportions. Still this income group presents a very different picture from the preceding one. It has had, for one thing, the most rapid percentage rise in income. Between 1935-36 and 1948 the second lowest "fifth" of our income pyramid increased its income by 93 per cent, compared with an overall gain of all groups of 59 per cent. And this upward tendency should be accelerated by the upgrading of work under the impact of automation mentioned in the previous chapter. It is in this group that the greatest gains from growth are likely to accrue; it is this layer of our economic pyramid which will emerge fully into middle class status and standard of living with the expansion of our economy.

The next large income group -- that between $5,000 to $10,000 -- is the single most impressive phenomenon of the American economy. It is the middle class whose expansion has been the most striking outcome of our economic and social dynamic. The middle class is now the single largest economic group: it is the great mass market on which our economic system has come to base its strength.

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Every indication points to a further expansion of the middle sector: if the performance of our economy measures up to its capacities, we may expect this income class to comprise a majority of income receivers within the span of our lifetimes. This is not to say, of course, that economic problems do not exist for this group. Typically its desires are in excess of its incomes, for a whole new range of living patterns opens within its economic brackets. But certainly this is also an economic status in which the individual achieves a self-sufficiency -- an economic independence -- which it is the ultimate purpose of our economy to promote.

As we reach the top bracket we pass from the problems of subsistence to those of wealth. Of the 3-1/2 million families receiving more than $10,000, 900,000 received over $15,000; in 1954 -- the last available statistical year -- some 85,000 families had incomes of $50,000 or more. The share of the upper income bracket has shown a steady decline. In 1928, the top one per cent of the nation enjoyed nineteen per cent of the nation's disposable income. In the 1930's it ranged between 11 and 14 per cent of the nation's income. By the late 1940's it had fallen below eight per cent -- a drop of nearly 60 per cent in twenty years. While there are no more recent statistics, it is worth noting that the impact of our tax structure has been unfavorable to the top brackets since the last study was made. Great wealth inherited and earned, still exists in America, but the remarkable feature of the American scene is the degree to which an astonishing and nearly revolutionary redistribution of income has taken place without social upheaval.

November 22, 1957

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In a society which rewards achievement largely by income, but which cherishes social ideals of equality, the attitude toward high rewards will always be a somewhat ambivalent one. If, in the past, we have looked somewhat askance upon the winning of very large incomes -- and have brought the tax powers to bear against them -- it was not so much because we wished to reduce the rewards of success, as because the disproportion between great success and average performance was so great as to threaten social disharmony.

That condition has very largely been rectified today. Extremes of wealth and poverty may be striking a few special areas where luxury and squalor exist side by side -- as in many great cities -- but a jarring contrast of economic conditions cannot fairly be called characteristic of our nation. In its place a new problem of income distribution has arisen. This is the fact that the scale of relative rewards no longer fully reflects the scale of the relative social importance of work.

For the size of executive business rewards which characterizes our system is a measure of the emphasis and importance which society has in the past placed upon the function of business. Today important as the bold and intelligent conduct of business remains, it should share our concern with the spheres of science, education, government, military and diplomatic service and the like. In an age less crucially dependent on these tasks, they could be left to those who had no taste for or success in a race largely run for business prizes. But under contemporary conditions the importance of these

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critical non-business tasks has risen to the point where the weighting of rewards toward business enterprise threatens to divert talent away from some of the most crucial employments. It is this difficult matter of the attraction of talent to the most vital sectors rather than the mere size of incomes as such which seems likely to become the critical income distribution problem of the future.

The problem of human motivation is therefore at the center of our economic system, and it comes as a particular challenge to a society poised at the threshold of universal well-being. There is a tendency, in an atmosphere of economic well-being, for our traditional economic motivations to decrease in effectiveness. We are no longer stimulated by the harsh economic climate of needier days. The pressure of an economy in which there were too few jobs to go around has given way to the security of a full-employment society, while at the same time, the Puritan drives of our forefathers, with the self-discipline and unflagging effort which they tended to produce, seem to be giving way to less intense, less self-demanding goals. Such intangibles are difficult to measure or to demonstrate, but it is doubtful if many would disagree that the aspirations of young people are more temperate and security-oriented, less grandiose and ambitious than a few generations ago. To a certain extent this change in the nature of aspirations may reflect a reaction from the excessive cult of individualism which marked

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the twenties. Undoubtedly it has been reinforced by social institutions,
such as higher taxation. But to some extent it may simply reflect the narrowing
of the gap between desires and achievement brought about by our rising level
of social well-being.

Can the lessened aspirations of a more organized society be raised?
Can the diminished efficacy of economic incentives in a society of ever
greater abundance be offset by more intangible incentives? Perhaps there
is no more basic question which our society must face.

For in a very real sense the purpose of our economic growth is to
<u>provide</u> morale as much as to benefit from it. A feeling of purposefulness is
one of the highest rewards which an economic system can offer. In the past
that purposefulness has centered about the idea of individual economic growth --
of working one's way up the income scale, of "getting rich." Today most of
our people although far from rich are increasingly prosperous. And the more
easily we satisfy our material needs, the less compelling is the goal of
monetary improvement <u>alone</u>. As the first requisites of a decent and modestly
substantial life are fulfilled the content, the meaningfulness of work, assumes
ever greater significance.

No honest appraisal of our society today can reassure us about the
meaningfulness of our work. As far back as the 1920s experiments with
workers' morale at the Western Electric Company revealed that productivity
was directly related with the participation felt by the worker in his task, but

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the lessons of those experiments have yet to be applied. Recent studies show that worker dissatisfaction today is not primarily caused by rate of pay, but by the dullness, the lack of creativity of his job. At the lower echelons of work this boredom and lack of personal identification with work is the great weakness of an industrial society. It is a problem to which we must now devote ourselves with the same energy which we have addressed in the past to the creation of the industrial process itself. We have built an enormous industrial machine. Now we must learn to humanize it.

The problem is not limited to the lower echelons alone. The challenge of a free society is to staff the whole hierarchy of social tasks with men and women who are dedicated to their employment -- who seek from it not merely the rewards of income and status but the intense personal satisfaction that comes from a *belief* in one's work. For the ultimate test of our economic system will be the quality of seriousness of purpose and of personal engagement which it brings forth among its members. American society was built in a spirit of optimistic adventure in which the individual felt, however inarticulately, a sense of personal commitment to a great social enterprise. If his eyes were fixed on his own chances for advancement, he was also aware of the nearing horizon of a tremendous social accomplishment.

As a society of abundance comes within our realization, that horizon becomes the ground underfoot. Like all human goals, it is not an end in itself, but only a new starting place. Another horizon must be sought -- one which

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measures both the individual and the social potential achievement in terms of self-realization rather than self-enrichment. This will be the overriding problem and the opportunity of the American economic future.