Rough Draft Chapter III - Overall Report
September 14, 1957

CHAPTER III

THE AMERICAN ECONOMY

I

In any scrutiny of the national scene, different observers are struck by different aspects of the whole -- by the irresistible expansion of cities, the stretching of new highways across the land, the forests of television aerials lifting their branches above the rooftops of every town and hamlet from coast to coast, the restless roaming of innumerable cars, the headlong growth of industries and the speed of technological advance. Yet these multifarious phenomena are simply the varied projections of a central source of energy: the American economic system. Today it stands as the most successful economic system which has ever been evolved. For tomorrow, it holds forth the promise of a new living environment on a scale of social plenty never before enjoyed or even remotely envisaged by any other people in any epoch of civilization.

The achievements of our economy have been so vast that we often take them for granted. With 6% of the world's population we produce and consume more than 40% 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% of the nation's population and a standard of consumption higher than any other in the world.

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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 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, a figure 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 percent the value of our entire stock of national wealth -- the land, machines, houses, cars and grain which comprise our economic riches.

The causes of this sustained growth are not exclusively or even primarily economic. Another chapter will deal with the distinguishing features of the American economic tradition. No discussion of American life can be complete, however, without including the extraordinary role played not only by the reality of growth but by the aspiration to it in American consciousness.

The corollary to the emphasis on individual performance as the determinant of status has been the faith in growth as the test of accomplishment. In America innovation has not been something to be feared but to be actively sought. Obsolescence became not something to be avoided but to be consciously planned. The concept of the dignity of the individual was always linked

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in American consciousness with equality of economic opportunity, and the notion of the perfectibility of man has included his "right" to material growth as well. Thus American enterprise sought *profit* not a depressed class working for low wages and assuring wide profit margins. Rather it strove to abolish a proletariat -- in fact the notion of a proletariat has never had any significance in American thought. And a strong and vigorous trade union movement has contributed its share not only in protecting the dignity of the working men but in assuring the widest possible sharing of their increased productivity.

While it would be absurd to suggest that the motives of the American economic system have been altruistic, they have been in their major thrust identical with the requirement of improving the well-being of the American people. Because the status of the individual was defined by performance and because the test of the economic system was conceived to be growth, the fortunate coincidence of a growing population and vast natural resources resulted in an economy of abundance. A growing population can be a bane as well as a blessing as is demonstrated in many parts of the world. Enormous natural resources can remain untapped for lack of incentives to exploit them. But in America the ideal of equality of opportunity that induced people to leave their homelands in the first place was quickly translated into universal education with the result that the expansion of our economy went hand in hand with an increased supply of talent. And the same emphasis on opportunity produced a widespread pursuit of venturesome enterprise and the willingness to assume major risks.

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Moreover, however selfish the motivations of these risk-takers, they were operating in a social environment whose ideals were all the more firmly held for being rarely ~~activated~~ *artificially* An economic system to be vital must reflect the aspirations of the people comprising it. And the fulfilment of America has always been the concern with the individual. It was the haven for men whose independent spirit would not accept religious or political conformity, whose sense of adventure would not be confined by a stratified society. Over the history of the American economic system the common man has frequently been misused, abused or even exploited. But -- and this is crucial -- he has never been despised. Traditionally ours has been the only country where a man was proud of his humble ancestry rather than ashamed of it. In consequence many programs of social reform which elsewhere required a revolution or the threat of it, were accomplished here almost matter-of-factly as part of the ordinary process of legislation.

Therefore, too, the figures of a growing Gross National Product became significant for American life not as statistical abstractions but in terms of the individual life they make possible. In the mid-thirties, 40 percent of all American wage earners had incomes of less than $1,000 a year. By 1950, only 7.6 percent had incomes of less than $1,000 a year. Today the annual income of the average American family is somewhat more than $6,000, and it is steadily rising. By 1975, assuming that present trends will not be halted by any global catastrophe, the yearly income of the average American family will be in the vicinity of $7,500 at current dollar valuation. Against the

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background of the fact that in 1954, the average income for all *professional* and
*semi-professional* families in the U. S. was just slightly more than $7,300,
and that of so-called *managerial* families was slightly less than $7,500, the
promise of 1975 is the elevation of the American people to an economic level
where the average family will enjoy an income comparable to that of the upper
middle class today.

With the increase of individual income there will ensue a concurrent
decrease in working hours. The present 40-hour week -- already curtailed
in some industries -- will in all probability shrink to a 35-hour week by 1975.
Looking still further into the future, economists anticipate a day, not too
remote, when our productive skills and developing technologies will make it
possible for a single American worker to produce as much in one seven-hour
day as he now produces in a 40-hour week. It is not, therefore, the abolition
of poverty which looms as the goal of the potential future. Indeed it is fair
to say that poverty in its broad, pervasive sense (as opposed to the localized
poverty, the "pockets of depression", existing in urban slums and certain
blighted rural areas), has been largely eradicated from America today. The
visible and possible goal of the next two decades is an approach to a society
in which the average family will enjoy not merely the perquisites of civilized
existence but a modest share of its luxuries as well. Such a society has never
existed previously. It will add a new dimension to social experience.

This prospect, it must be emphasized is a projection not a prediction.
It assumes that we *will* grow, that we will keep economic recession within

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tolerable bounds and -- which may be more difficult -- that we will not
vitiate our economic growth in inflation. For our historic growth can be
sustained only through a subtle blend of five factors: the availability of
resources will set its framework. The motivations of the individual American
and of the economic system will determine its direction. The role of govern-
ment will shape the rules of the contest and influence the nature of the economy.
Our reaction to the problem of social and economic distress will determine
the validity of the principles by which we live, for in the final analysis a
society must be true to itself. Above all we must develop priorities among
the many goals we may wish to set ourselves, for while our growing economy
will make many things possible, it will not make all things possible.

Thus the outlook is at once heartening and sobering -- great with
promise but chastening in the degree of intelligence, self-discipline and
energetic action which it presupposes. We face problems of resources, of
economic incentives, of social and economic distress; we must be clear
about the role of government and the assignment of priorities. However it is
well to realize that these reservations only obscure the magnitude of the
underlying potential achievement. The proper measure of our opportunity
is that if the American economy lives up to its prospects it will bring about a
social environment unique in history which will offer the average individual
an opportunity for self-realization, comparable to that enjoyed only by the
favored strata of past societies.

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Rough Draft Chapter III -- Overall Report
September 14, 1957

II

A major element in a nation's strength is its stock of, or access to the raw material and sources of energy from which it must fashion its output.

For the most part the United States is well endowed in this regard. Nature has been kind to us with respect to the most important sources of raw materials and energy. Still the drain on our traditional supplies of raw materials is prodigious. According to the best available estimates our requirements in certain initial categories will enlarge between now and 1975 as follows:

We will need 358% more aluminum; 340% more cobalt; 260% more electricity; 250% more fertilizers; 138% more natural gas; 110% more petroleum; 100% more nickel; 90% more fresh water; and 41% more food.

So far as minerals are concerned, American consumption of basic metals and minerals today exceeds that of all the rest of the free world put together, We used to export copper, petroleum and zinc. Now we are importers. Between 1900 and 1950 our use of copper increased three times, our use of iron ore increased 3 1/2 times, our use of zinc increased four times. In 1900 our production of all minerals exceeded our consumption by 15 percent. By 1950 our consumption exceeded our production by 9 percent. By 1975 our consumption will exceed our production by 20 percent. It is estimated that our reserves of good iron ores -- those containing more than 50 percent iron--will have vanished in the next two decades. Our reserves of poorer ores -- containing 25-35 percent iron are still substantial and it is

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to these lower-grade ores that we will have to resort through the development of new technologies, new plants, more efficient extraction processes and more efficient use.

As for the fuels that supply our industrial society with energy, we find that at the present time the U. S. derives two-thirds of its mechanical power from oil and natural gas, one-third from coal, and 4% from water power. But our demands for all of these energy sources is rising rapidly. By 1960 our consumption will have increased by 42 percent over 1950; by 1975 it will have increased by 135 percent. Of the various fuels we employ, coal alone has declined in use in the last quarter century, and our coal reserves are adequate to sustain us for several centuries to come.

Within the 10-15 year range of our immediate interest two resource items call for special attention. One of them is oil. Our basic dilemma in oil is well known: if we rely on domestic supply, we risk an early exhaustion of oil reserves; whereas if we turn to foreign sources, we run a certain risk of discouraging the domestic exploration of new oil fields. The problem is an exceedingly complex one, and rendered no simpler by its inevitable entanglement with the delicate political situation of the Near East and by the fact that we do not have a fully reliable estimate of the total available supply of oil at home.

The extremes of current estimates of oil supply are widely variant, from alarmist projections that would cover our needs only for another few

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decades to optimistic projections that give us an "indefinite" future availability. Two facts are of importance in this geological guessing game. One is that oil shale exists in gigantic quantities. This insures us an ample _physical_ supply of petroleum, provided that we can bring down the present uneconomical cost of extracting the oil. The second important fact is that more adequate recovery methods could add 10 and 20 per cent to our domestic resources without the need to discover another oil field. Hence a solution to the oil resource problem rests partly with the further development of oil technology and partly with the turn of international events.

The second initial item is the classical "free good" of economic texts: water. Within the United States as a whole the annual precipitation averages 30 inches a year -- a figure which varies of course from state to state and season to season. Of this yearly bequest from the skies, about 21 inches either evaporates or is absorbed by vegetation and ultimately returned to the atmosphere. Only nine inches becomes run-off or ground water, perpetuating our rivers, lakes and streams. And of these nine inches, only a little more than one inch is employed by man. This one inch, of course, represents an enormous quantity when translated into volume. We use, every day of the year, more than 170 billion gallons -- 48 per cent of it for irrigation and other agricultural purposes, 43 per cent of it for industrial use, and nine per cent for domestic use -- for drinking, bathing and laundering.

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Our water problems stem from the fact that in the last half century, the number of water users in American cities has doubled, while their use of water has increased five fold. By 1975 the growth of population plus the growth of certain thirsty industries -- chemical industries which need water for cooling, paper and pulp industries which need water for processing, and all the industries and offices and homes which install air-conditioning -- will more than double the rate of water consumption today. To give one example: it requires 300,000 gallons of water to manufacture one ton of rayon, and the rayon industry in the U. S. turns out 600,000 tons of rayon a year.

Apart from industrial use, domestic use imposes severe strains on existing water supplies in certain areas of the country. Foremost among these are the states of the arid west -- 17 in all which occupy more than half of the total area of the U. S. but receive far less than one half of the nation's run-off. Because of their need for irrigation they use eight times as much water as all the other 31 states together. And not only in the west, but elsewhere in the country, there are areas where, for one reason or another, communities are withdrawing water from the ground and lowering subterranean water tables at an alarming rate. The nation's water problem may well become, in the next ten or twenty years, the most serious and complex issue presented by our national resources.

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A solution depends on technology and partly upon social action.

The industrial use of water -- which accounts for 38% of the total -- can be greatly economized: an instance in point being the fact that modern steel mills need but one-quarter the amount of water per ton of those built 20 years ago. In agriculture as well more efficient techniques can stretch water use.

On Hawaiian sugar plantations, for example, it has been found that overhead irrigation is four times as efficient as standard irrigation through ground-troughs. In the arid regions of the west, losses through evaporation account for as much as 50% of the total water impounded in reservoirs. Active research is now under way to reduce this loss by thin surface films of other liquids. And finally, there exists the possibility of distilling sea water for use along our coastal areas.

Thus the resources problem becomes transformed from that of sheer physical availability to a series of related technical, social and economic problems. It enjoins the need for heightened research into substitute materials and sources of energy. It calls for attention to better methods of extraction and utilization. It makes imperative a sound policy of conservation. It highlights the need for a steady flow of critical materials from abroad. And at least it emphasizes the importance of capital expenditures which will be necessary to use secondary sources efficiently.

But problems and opportunities with respect to *existing* resources will be dwarfed in significance by the vistas unfolded by the technological

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revolution which has barely begun. One of its results is the peaceful uses of atomic energy. It offers prospects of increased supplies of energy to the nation and to the rest of the world. The known reserves of thorium and uranium offer more than 1000 times the still untapped energy of the earth's remaining reserves of the conventional fuels -- coal, oil and gas.

If we master the peaceful technology of hydrogen fusion -- and some progress has already been made along these lines -- the oceans will become the ultimate reservoirs of energy. Machine civilization will then be fed by the processing of the lowest common denominators: air, sea, water and sunlight.

We stand on the verge of an age in which the fuels which sparked the industrial revolution -- coal and its derivatives -- are in the process of being supplanted. Even should our traditional sources of materials and energy be exhausted, modern technology would still enable us to achieve an economy of abundance. "The time must inevitably come", one writer concludes: "when ores as such no longer exist and machine civilization, if it survives, will feed on the leanest of substances -- the rocks which make up the surface of our planet, the waters of the seas, and the gases of the atmosphere . . .

"One hundred tons of igneous rock contain, in addition to other useful elements, eight tons of aluminum, five tons of iron, 1,200 pounds of titanium, 180 pounds of manganese, 70 pounds of chromium, 40 pounds of nickel, 30 pounds of vanadium, 20 pounds of copper, 10 pounds of tungsten, and four

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pounds of lead. Given adequate supplies of energy these elements could be extracted from the rock, _and it appears likely that the rock itself contains the requisite amount of energy in the form of uranium and thorium._" *

* Paper IV-13, Lindsey, F.A. (quoting Harrison Brown), Planning for Non-Renewable Resources, page 4. (Italics added).

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III

However bright the over-all prospects of our economy, its growth is not and has not been uniform. The statistics of a rising Gross National Product do not account for areas of our national life which have been benefitted proportionately and for others which have actually declined. The problem of social welfare therefore looms as one of the major challenges in America's future.

Of the lagging areas of our economy two stand out most sharply: the problem of housing and the problem of agriculture.

The national housing problem urgently demands remedial action. Many of the cheap homes rushed into completion in the post-war years are already decaying. In the South, seven-eighths of farm homes stand in a state of disrepair without toilets or running water. In the Northeast a quarter of the farm houses have no running water. A recent estimate reveals a need for at least 1.55 million new dwelling units a year. The social impact of the slum has been discussed in the previous chapter. The economic dimension of the challenge is revealed by an estimate that rebuilding our core cities may cost $100 billions in the next two decades. And the longer we wait the higher the cost will be.

As for agriculture, most of its problems have been caused by the fact that the increased efficiency of farming has made it possible to achieve ever greater productivity with an ever smaller labor force. And the decline in the labor force has not kept pace with the increased productivity. As a result

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at a time when food production has never been higher about 60 percent of our farm population is superfluous from the strictly economic point of view. Our farm problem is therefore two-fold: on the one hand it is to encourage the efficient farmers and to insure them against disaster; on the other, the submarginal farmers must be induced to leave their occupation. Simply to transplant rural poverty into an urban setting would benefit no one. The challenge is for programs of information and regarding employment opportunities; decentralization of industry; technical training for new employment and housing assistance for displaced farmers.

On the one hand, the amount of acreage devoted to agriculture has declined drastically -- by almost one third -- since World War I. The distributed cities and their suburbs are engulfing farmlands at a rate of one million acres a year. Meanwhile agricultural employment has dropped 38 percent in the last quarter century. Yet in that same quarter century total U. S. farm production has increased by 52 percent. The reasons for this increased production -- despite diminished acreage, and despite a reduced farm labor force -- are mostly technological. They include better fertilizer, better seed, better insecticides, better utilization of soil and the widespread use of tractors, trucks, harvesters and other mechanized equipment. Today the independent farmers, who represent more than three-quarters of the nation's total agricultural labor force and who produce about 90 percent of the nation's farm products, are far better educated, and better informed of current developments in agricultural science than their fathers and grandfathers.

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So today in America we find ourselves in a situation where, despite the extraordinary growth of the nation's population, and despite the fact that per capita consumption of food has increased by 14 percent in the last decade, and despite the fact that our exports of farm products have continued to increase, U. S. farm production has not only stayed abreast of the increasing demand for food but has vastly exceeded it. We are free from the age-old fear of hunger, but in freeing ourselves we have created a situation in which the income of the farmer has steadily fallen. Net farm income dropped from $16 billion in 1951 to $11 billion in 1955. Individual earnings per individual farm family worker dropped from $2,150 in 1950 to $1,450 in 1955 -- a decrease of 33 percent, while at the same time the earnings of industrial workers throughout the land rose 20 percent.

As a consequence of these economic vicissitudes it is inevitable that a substantial proportion of the farm population must abandon the soil and seek urban employment. Current estimates show that only 40 percent of the present farms could supply the nation abundantly and profitably.

This problem of social welfare thus intrudes itself for two reasons: on one plane the alleviation of distress must be a national concern because of its contribution to our goal of growth. The more distressed areas can be lifted to the general level of well-being, the more dynamic our economy is likely to be. The fewer individuals with submarginal income, the higher the general level of consumption. The better the nation's health, the more efficient its labor force is likely to be.

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All these are good and valid reasons. Yet while we like to pretend
that we are 'hard-boiled' in our concern for others, the whole thrust of our
tradition makes clear that the welfare of our citizens is a social goal in its
own right. Even if it did not contribute to the efficiency of the economy, the
national health would be a major challenge. Apart from its impact on the
level of consumption, we would seek to alleviate social or economic distress.
To react otherwise would run counter to the moral and social ideals of our
nation. Our concern for the dignity of the individual would cause us to con-
sider the alleviation of suffering and an increasingly just distribution of the
national product as goals to be sought for their own sake.

Just as the 19th century concept of "charity" as the giving of alms
to a permanently depressed class was transformed into the modern notion of
philanthropy which seeks to achieve a greater degree of self-realization, so
the next two decades are likely to witness a redefinition of the term "social
welfare." It will come to refer less and less to the old-fashioned concept
of bailing out the individual who has fallen below economic subsistence
standards (although this kind of welfare program will not cease to exist),
and it will turn more and more towards affirmative and creative programs con-
ducive to greater self-achievement. The gain of leisure time and wealth will
bring with it rising expectations in respect to social welfare just as our
first successes in coping with economic problems have brought rising ex-
pectations as to what economic welfare programs can properly do.

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This does not imply a future in which we are all increasingly the recipients of public "handouts" of one form or another. Rather it implies an accepted level of public services considerably higher than those to which we are now accustomed. An example in point concerns our conception of the government's role in the maintenance of the nation's health. Originally organized to cope with elementary problems of sanitation or with immunization against infectious diseases, our public health services have steadily expanded to include prenatal clinics, tubercular care, and even psychiatric services. Over the long run future it is clear that the government will be held increasingly responsible for an ever wider concept of what is meant by national health, perhaps eventually including mental as well as physical well-being. The administrative techniques by which this will be accomplished may be a matter for debate, but the social concept itself is likely to be increasingly a matter of general agreement.

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IV

The problem of social welfare indicates to what extent our future
development depends on governmental action. This is not to say that it
must be made the subject of direct governmental planning but it cannot
escape the influence of indirect government planning. In any consideration
of the prospects of the American economy the role of government must take
a major place.

To political historians, it may well seem that the great issue of the
past three decades has been the gradual forging of a consensus on the role
which government can legitimately occupy in a basically free enterprise so-
ciety. In the heat of the great debate, during the 1930s and 1940s, both
sides of this issue were badly misrepresented by the passions of the debaters.
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 in early
republican days when the government actively promoted the foreign trade
interests of the young nation and sought to protect its infant industries; later
evidenced in the halcyon railroad building era when the government provided
both land and funds for the accomplishment of these herculean projects; and
continuing down through the 1920s themselves in the guise of conservation,
commercial stimulation and protection, currency regulation and a hundred other
universally accepted government functions. The opponents of "government

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intervention" often talked of government as if it were a foreign body in the American economy, rather than an indispensable public element of that 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, 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, divergencies of opinion about the exact line of demarcation which is best drawn between public and private economic responsibility, but the passions are now largely a thing of the past. The broad lines of a workable philosophy seem to have emerged:

a. It is accepted that the government should not, except in rare cases directly charged with the most vital national interest, own and administer the productive or distributive machinery

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of the economy.

b. It is likewise accepted that the government should, as the guardian of the general economic health of the nation, take positive steps to encourage economic growth reverse any major recession, and maintain a stable price level.

c. It is further agreed that the methods which the government must employ for this general purpose are, in normal times, in-direct rather than direct; that the tools of fiscal and monetary policy are preferable to intervention into the private decision-making apparatus.

d. There also exists a consensus that the government may and often must undertake special projects for purposes which are beyond the scope of private enterprise. Not only the economics of defense, but the economics of distress, is considered to be a government function.

Within this broad working agreement there is more than an "acceptable" division of state and private economic power. The aim of this philosophy is the creation of a climate conducive to growth, on the one hand, by the establishment of a degree of confidence which enables business to undertake longer - run planning than would be possible in a totally unsupported economy, and on the other hand, by creating an economic atmosphere in which private risk-taking and expansion, by its very presence, will minimize the necessary economic activities of the state.

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But as the economy grows more complex and the role of government
enlarges, ever greater demands will be placed on our national self-restraint.

For the government's responsibility to protect the economy against
undue economic fluctuation was conceived largely in terms of warding off
depression. Although we have not had much experience to judge the effective-
ness of our stabilizing measures, the record of the two mild recessions we
have had -- one in 1949, the other in 1953-54 -- indicated that governmental
policies operated to cushion decline and to create conditions that favored
a new period of expansion.

By contrast our record in combatting inflation is less reassuring.

To be sure, in point of statistical fact, our experience with inflation has
not been intolerably severe. From 1948 to 1957, the prices of all consumer
items rose approximately 18%, and if we include only the years 1952 through
1956, the rise was less than three percent. In view of the fact that our
national output rose at the rate of four percent a year over this period, and
taking in consideration the distortions (such as rent freezes) inherited from
the war periods, the record does not seem unduly bad.

It has not however been the *pace* of our inflation which causes concern
so much as its endemic character. What is especially disturbing about the
slow, but relentless rise of prices, has been its roots in the very character-
istics of a growth economy itself. There may well be a tendency, in what
has been called a "high-pressure economy" for investment chronically to
outpace savings, with a resulting inflationary pressure via the credit mechanism.

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Equally a product of our high-employment, tight-market, growth economy has been the power of strong trade unions to press for wage increases and the ability of large corporations to pass these increases along as price rises. Thus what is especially sobering about our inflationary problem is its "built-in" character. If inflation is the undoubted enemy of growth, it is also to some extent the product of growth.

Whatever the causes of inflation there is no question but that the nation must strive to maintain a stable price level in the years ahead. While the dangers of deflation hardly need be spelled out, continued inflation can also be disastrous. In addition to its erosion of the savings and security of millions, by creating distortion in our economic structure, it can lead to dangerous patterns of boom and bust. Moreover by undercutting the incentives for saving and investment, inflation poses a real threat to the nation's capacity to grow. The containment of inflationary forces must be considered one of the most important objectives of national policy.

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V

But ultimately the meaning of our economy derives from its impact on the human beings who sustain it and whom in turn it sustains. The painful efforts of the underdeveloped countries for economic advancement illustrate the importance of the human element in economic growth. For the experience of many of these countries shows that perhaps the most important single ingredient in growth is an intangible quality which may be called economic faith: a belief in a realizable future and confidence in the economic system as a means for arriving there; a willingness to undertake tasks whose fruition may be beyond the life span of the individual and a readiness to make sacrifices in the present for the sake of the future.

Without such faith the motivation of a people will be low. They will refuse to exercise the drive or the self-discipline demanded by a high level of economic activity. The economic system will either stagnate as in many parts of Asia, or else it will be sustained only by governmental compulsion as in the Communist countries.

The problem of human motivation is therefore at the moral center of an economic system. It is a particular challenge to a society with a democratic political organization and an economy based on free enterprise. Its task as a society is to insure that the jobs which are essential to economic growth and social progress are filled by individuals of the highest

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calibre. But they will not be filled unless the motivation of the individual with high talent coincides with the social needs. If the ablest people in a society strive for fulfillment to withdraw from the world in contemplation, the structure of the society will be different than if the meaning of existence is sought in the active mastery of the environment. What is considered significant at a given period will determine the range and profundity of the work in that sphere and at that time.

Thus the _meaningfulness_ of work is the crucial aspect of incentives and motivation, the essential component of economic faith. It poses the challenge of achieving the efficiency of mass production without spiritual impoverishment. As far back as the 1920's, experiments with worker's morale at the Western Electric Company revealed that productivity was importantly associated with the _participation_ felt by the worker in his task. Recent studies have shown that worker dissatisfaction is less frequently caused by pay scales, than by the repetitiveness of a job, its dullness, its lack of creativity.

As we grow wealthier the purely economic "rewards" will fail to command their formerly all-important status. If our economic system is to continue to inspire faith among its members, it will need to pay increasing attention to work content as well as to work rewards. It is a hopeful note that in a growing economy there is an inherent burgeoning of new opportunities of higher inherent skill and interest. At the same time the

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growth of large organization places increasing obstacles in the path of creativity at the executive level. It is not that creativity is consciously discouraged -- on the contrary it will continue to be exalted as a desirable goal; it is rather that the routine by which large organizations must be run always poses the danger of becoming an end in itself.

The bane of our economy of growth will be complacency; the failure to realize that achievement contains its own nemesis within itself; the temptation to rest on one's oars. But while each generation can build on the material achievements of its predecessors, it cannot be spared the task of giving its own meaning to life. In a very real sense, therefore, the purpose of our economy growth is to provide economic morale as much as to benefit from it. A feeling of purposefulness, of dedication to one's work is one of the highest rewards which any economic system can offer.

Thus the ultimate test of our economic system is the quality of life it will make possible and paradoxically it is only by giving meaning and depth to our natural achievement that we can sustain its momentum. We find ourselves moving along a current of economic progress which has already created a new kind of social environment which bids fair to end poverty in its traditional sense. But we must beware not to transform material progress into an end in itself. It is a very necessary companion for our buoyant and hopeful economic expectations to have a chastening

September 14, 1957

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sense of the finitude of material achievement and to remind ourselves
that our final goal can be increased not in the calculus of wealth but in
the intangibles of human existence. It is to the improvement of the
quality of life -- partly but by no means wholly attainable by an improve-
ment in the quantities of life's goods -- that we must ultimately address
our deepest efforts. It is to the extent that we are an intellectually,
morally and spiritually richer nation, rather than merely a wealthier one,
that history will judge the use we have made of the opportunity before us.