stance, if the wheat crop one year is 1,000,000,000 bushels and sells at $1 per bushel, its value is $1,000,000,000; but if the wheat crop the next year is the same in number of bushels and sells at $2 per bushel, its value is $2,000,000,000. The bushels are the same, but the dollars are doubled. To overcome this discrepancy, the value in dollars may be adjusted to some base year, taken as 100. For instance, the following table adjusts the dollars of national income to the value of 1913 as 100. The result is two pecuniary measures of national income. The first is expressed in dollars of the current year, without reference to changes in price levels. The second is expressed in dollars of a constant value, in this case the dollars of 1913. The following table presents this twofold estimate of the income of the United States: p. 337. National Bureau of Economic Research, Income in the United States, Volume II, † According to estimates by the National Industrial Conference Board. See also estimates by W. R. Ingalls, in The Annalist, June 16, 1924, and by Benjamin M. Anderson, Jr., in The Annalist, January 5, 1925. The money income of the nation is quite different from the physical income. The war emphasized this distinction with perfect clearness. The money income rose from 45 billions in 1916 to 66 billions in 1919, but the dollars of the latter year were so much lower in purchasing power that they actually commanded fewer goods than in 1916. The general welfare of the community rests upon the quantity of goods and services available for use and consumption. It is no advantage to have twice as many dollars of wealth, if the goods and services behind them are the same as before. The severe fluctuations in prices make it impossible to consider production in terms of money as a measure of wealth in terms of concrete goods. Endless obscurity and confusion result from the loose and careless assumption that money wealth is material wealth. There is a chasm of difference between the two, and the difference must at all times be kept in mind in measuring the income of the nation. Production Per Capita.-The increase in physical production needs to be compared with the increase in population. Material progress requires increased production per capita. Below are given indexes of per capita output for all production and for production in certain major lines. INDEXES OF PER CAPITA PRODUCTION OVER A QUARTER OF A CENTURY (1899-1924) Various significant conclusions are apparent. Total production per capita increased just about 33 per cent, during the 25-year period. At this rate, physical output per capita would double in about 70 to 80 years. Or, to express the same fact from a different viewpoint, the average rate of increase in per capita production is from 1 to 2 per cent per annum. The secular trend of production per capita has been upward. The decade centering about the World War shows a slowing up in the rate of material progress. The indexes bear out the inference that war obstructs and delays productive capacity and industrial growth. The World War was a setback to economic progress. Farm production per capita remained practically constant throughout the period. This was due to rapid increases in efficiency on farms rather than to any increases in farm population. The population on the farms probably declined slightly during the period. But the total population of the country increased from 74 million in 1899 to 113 million in 1924. The farms, without increase of labor force, were feeding and clothing about 39,000,000 more people in town and city at the end of the period than at the beginning. Mineral output per capita more than doubled. Manufacturing output per capita increased more than 70 per cent. The new population of the quarter century went almost wholly into urban communities and devoted the new labor power to mining, manufacture, and the industries closely related to them, such as transportation and merchandising.2 This tendency is clearly evidenced by the fact that the volume of transportation per capita more than doubled during the 25 years. Raw materials are being carried greater distances from farm and mine to factory, are being shipped farther from one factory to another before manufacture is completed, and are being distributed at greater distances from the centers of manufacture. Production per capita consists more and more of keeping goods in transit. Commodities travel far longer distances than formerly in their itinerary from the soil, the forest, and the mine to their destination in consumers' hands. Production Per Worker. The following indexes show the relative. increases of production per worker in various major occupations. The period taken for the estimates is the 20 years from 1900 to 1920. INDEXES OF PRODUCTION PER WORKER, 1920, COMPARED WITH 1900 AS 100 Manufacture has shown least advance among the four major groups, and railroads have shown most advance. Agriculture and mining each increased the efficiency of workers about one-third. Doubtless one main reason for the relatively mild increase in manufacture is the intro 2 Below are estimates of per capita income in dollars for the decade 1910 to 1919. In dollars of the current years, a striking increase in money income is shown. The leap is from $338 to $637. But when changes in price levels are eliminated, and dollars are reduced to a common purchasing power, the increase is only from $345 to $359. The smallness of this increase is due primarily to the World War. From National Bureau of Economic Research, Income in the United States, Volume II, p. 338. duction of the 8-hour day in industry during the period. The main reasons for an increase in efficiency have been improvement in science and engineering as applied to management, addition to the amount of capital available per worker, utilization of more mechanical energy per worker, and education and training of labor. The net outcome is a greater output per laborer, although the laborer works from 2 to 4 hours less per day now than at the beginning of the period. Countless instances could be cited of striking increases in output per worker. During a thirty-year period, the annual steel production per worker increased from 267 to 709 tons. During a twenty-year period, the annual gasoline production per worker increased from 23,000 to 71,000 gallons. During a twenty-year period, the daily bituminous coal production per worker increased from less than 3 to more than 4 tons. During a ten-year period, the annual automobile production per worker increased more than three times. Improved machinery, applied science, industrial engineering, and suitable labor, have combined to make these increases possible. The record embodies tangible achievements in the advance of the material wealth of the nation. Main Types of Economic Fluctuation.-Older economic discussions dealt with the main time variations in economic activity in an indefinite and loose manner. They recognized a distinction between long time and short time variations, but could not reduce these variations to any definite measurement. The traditional discussions abound in references to what will tend to be true in the long run and what will tend to be true in the short run. By the aid of modern statistics, it has been possible to reduce these vague notions of time variation to definite concepts. Economic fluctuations fall into four major types: seasonal, secular, cyclical, and residual. The accompanying diagrams show these four types of fluctuation with reference to pig iron production. Pig iron is taken for illustrative purposes because it is a basic product in modern. industry, but the same type of chart may be constructed for any other commodity or any group of commodities. The seasonal fluctuation is the month to month change in production. Pig iron production on the average is lowest in February and highest in March. Each product has its own peculiar seasonal movement. Bituminous coal production is high in winter and low in summer, whereas building is low in winter and high in summer. Retail clothing sales are highest in spring and fall. Holidays, temperature, and weather conditions affect the seasonal fluctuation, and make it different from country to country and from section to section in the same country. The secular trend of production is the long time rate of growth or decline. The trend of pig iron production is one of growth, but if we were to chart lumber production, for instance, it would show a decline over a similar period. The average annual rate of growth of pig iron production shown in the accompanying diagram is 1,200,000 gross tons. 3 In many instances plant output has increased under the shorter working day. Further data on this point will be found in later chapters on labor problems. |