TheFrontpiece isapaintingdoneinacrylicsbytheauthor.Itisacompositeofsymbols representingthephilosophicaloriginsoftheideasembodiedinPeoples Capitalism. ThefirstsymbolunderlyingalltheothersistheStarofDavidthatrepresents thebasicconceptsofeconomicjusticeandindividualhumanworthsetdown intheLawofMosesandelaboratedthroughouttheprophetictradition. AmongtheMosaicstatutesisanordinanceestablishingaYearofJubilee,a periodtobecelebratedonceeveryhalfcenturybythecancellationofdebts, theliberationofslaves,andthereturnoflandrightstotheoriginalowners (Lev25:1055).Thedeepconcernforhumanwelfarethatisexpressedin thisandotherHebrewlawsreachesitsclimaxinthepropheciesofIsaiah concerningatimewhentheLordsMessiahshallbringjusticetothepoor andequitytothemeek(Is11:19).

Alsoonthefrontpieceisacross,symbolizingtheteachingsofJesusof Nazareth.Thissonofasimplecarpentersawinhimselfthefulfillmentofthe Messianicprophecy:TheSpiritoftheLordhasanointedmetobringgood newstothepoor,toproclaimreleasetothecaptives,recoveryofsighttothe blind,libertytotheoppressed,andtoannouncetheyearofrecompenseof ourLord[AreferencetotheYearofJubilee](Lu4:1821).Jesuspromised themeekthattheyshouldinherittheearth,andadmonishedhisfollowersto lovetheirenemiesandprayfortheirtormentors(Mt.5:5,45),yethe castigatedthepolitical,academic,andreligiousestablishment,callingthe priestsandprofessorshypocritesandvipersforusingthepowerinherentin theirpositionsofhonorandtrusttocheatthesimpleandstealfromthe helpless(Mt23:1423). ThefrontpiecealsocontainsthefivepointedStarofRevolution.Thisstar representsthebodyofideasthathasarisenfromthethreegreatWestern revolutions:theAmerican,theFrench,andtheIndustrial.Thisisthe ideologythatinspiredmentooverthrowtheDivineRightofKings,to declarethepoliticalequalityofallhumanbeings,andtoperceivethe inseparablerelationshipbetweenpersonallibertyandthesecureownership ofincomeproducingproperty. Lastly,thereisthefourpointedstar,asymbolchosentorepresentan ideologyforthecomingSecondIndustrialRevolution theRobot

Revolution therevolutioninindustrialproductionthatwilleventually resultfromtheinventionofthecomputer.Thefourpointsofthisstar correspondtothefourfundamentalaxiomsofPeoplesCapitalism,andtoits fourpracticaloperationalelements:technologicalinnovation,rational investment,adequatesavings,andequitabledistributionofwealthand income.[**Atthetimeofthefirstedition,theauthorwasunawarethatthe fourpointedstarwasalsothesymboloftheNorthAtlanticTreaty Organization(NATO).**] Theentirepaintingconveysasenseofhopeandreverenceappropriatetothe profoundnatureoftheeventsthatarenowtakingplace.Wearelivingina historicalmomentofcreation.Withinthepastthreedecadestherehave emergedthefundamentalbuildingblocksofwhatcanonlybetermedanew lifeform,basednotonthecarbonatomandthedoublehelixofDNA,buton thesemiconductorcrystalandthemathematicsofsymboliclogicand numericalcomputation.Thereisnowevolvinganewkindofselfregulating, evenselfreproducing,organismthatwillhavethepowertoendphysical povertyandmakeeveryhumanbeingeconomicallysecureandself sufficient. PeoplesCapitalismisapoliticalprogramthatattemptstoanticipatethe scopeofthecomingrobotrevolutionandtosubjectitsenormousproductive powertotheinfluenceoftheancientJudeoChristianprecepts.Peoples Capitalismisamessageofhope,aplanofescapefromthepresent worldwideeconomicdilemma,andaprogramforanewworldorderin whichmaterialprosperitywillbecommonplaceandthefullpotentialof humanknowledgewillbedirectedtowardthefulfillmentofmankindsmost majesticimaginations. ************** Notablequotesfromthebook: ThecentralconceptofJeffersonianDemocracywasthatownershipofthe meansofproductionshouldbewidelydistributedamongtheelectorate. PeoplesCapitalismisameansbywhichtheJeffersonianidealcouldbe achievedinapostindustrialsociety.

PeoplesCapitalismwouldplaceacomfortableincomefloorunder

everyone,butmoreimportant,itwouldimposenoceilingonanyone.It woulddistributedividendsfromhightechnologyrobotfactoriesonanequal percapitabasis,andtherestoftheeconomywouldbefairgamefor competition. ************** BasicaxiomsofPeoplesCapitalism 1. 1. Allelsebeingequal,itisbettertobewealthythanpoor. 2. 2. Theindividualisthebestjudgeofwhatconstituteshis(orher) ownbetterment. 3. 3. Humanbenefitistheultimatemeasureofgoodnessforanysocial oreconomicsystem. Theoremstobeproved Theexistingeconomicsystemisfarfromoptimuminitsproductionand distributionofwhatpeopleneedandwant. Americaisnotacapitalistsociety itisanemployeesociety.Wearea nationofwageearners,andinaveryrealsense,wageslaves. Thelabortheoryofvalueandtheworkethicmaynowconstitutethemost importantimpedimenttotechnologicaladvancesthatcouldeliminateboth povertyandpollution,notonlyintheUnitedStates,butthroughoutthe entireworld. Questionstobeaddressed Ifrobotseventuallydomostoftheeconomicallyproductive work,howwillpeoplereceiveanincome? Whowillownthesemachines? Whowillcontrolthepowerfuleconomicandpoliticalforces theywillrepresent?

Preface

EpiloguetoScarcity
Thesearerevolutionarytimes.Changesasprofoundasthoseresulting fromtheinventionofagricultureorthedomesticationofwildanimalsare rushingustowardanewworld.Thehumanraceisnowpoisedonthebrink ofanewindustrialrevolutionthatwillatleastequal,ifnotfarexceed,the firstindustrialrevolutioninitsimpactonmankind.Thefirstindustrial revolutionwasbasedonthesubstitutionofmechanicalenergyformuscle power.Thenextindustrialrevolution willbebasedonthesubstitutionof electroniccomputersforthehumanbraininthecontrolofmachinesand industrialprocesses. Fromthebeginningofhumanexistence,mankindhaslivedunderthe ancientbiblicalcurse:Bythesweatofthyfaceshaltthoueatbread,tillthou returnuntotheground.Beforetheinventionofthesteamengine,virtually alleconomicwealthwascreatedbythephysicallaborofhumanbeings, assistedonlybytheirdomesticanimals. Thefirstindustrialrevolutiononlypartiallyliftedtheancientcurse. Yet,eventhispartialreprievehadprofoundconsequences.Inallthe thousandsofcenturiespriortothefirstindustrialrevolution,thehumanrace existednearthethresholdofsurvival,andeverymajorcivilizationwas basedonsomeformofslaveryorserfdom.Yetameretwocenturiesafter theintroductionofsteampowerintothemanufacturingprocess,slaveryhas becomelittlemorethanadistantmemoryforthecitizensofeverymajor country.Today,alargepercentageofthepopulationoftheworldlivesina mannerthatfarsurpassesthewildestutopianfantasiesofformer generations. Thereisgoodreasontobelievethatthenextindustrialrevolutionwill changethehistoryoftheworldeverybitasprofoundlyasthefirst.The applicationofcomputerstothecontrolofindustrialprocesseswillbringinto beinganewgenerationofmachinesmachinesthatcannotonlycreate wealthunassistedbyhumanbeings,butcanevenreproducethemselvesat continuouslydecreasingcosts.Thepotentiallongruneffectsofthisevent aretwofold:First,itwillallowthehumanracetofreeitselffromthe dehumanizingdemandsofmechanization.Theselfregulatingcapacityof

computercontrolledindustrieswillrenderitunnecessaryforpeopleto structuretheirlivesarounddailyemploymentinfactoriesandoffices.The firstindustrialrevolutiondrewpeopleawayfromthelandandconcentrated theminurbanindustrialcommunities.Therobotrevolutionwillfreehuman beingsfromthepressuresandcongestionofurbanizationandallowthemto choosetheirownlifestylesfromamuchwidervarietyofpossibilities. Theintroductionofthecomputerintomanufacturinghasthepotential forremovingmaterialscarcityfromtheagendaofcriticalhumanproblems. Thetechnicalfeasibilityoffactoriesandindustriesthatcanoperate unattendedandreproducetheirownessentialcomponentsimpliesthat manufacturedgoodsmayeventuallybecomeasinexpensiveandunlimited byprocesscomplexityastheproductsofbiochemicalmechanismsinliving organisms.Increasedefficiencyandflexibilityofsubstitutionbetween materialsandprocessescouldrendercurrentlyprojectedshortagesoffuel andmaterialslargelyirrelevanttothe21stcentury. Unfortunately,thepresenteconomicsystemisnotstructuredtodeal withtheimplicationsofarobotrevolution.Therepresentlyexistsnomeans bywhichaveragepeoplecanbenefitfromtheunprecedentedpotentialsof thenextgenerationofindustrialtechnology.Quitetothecontrary,underthe presenteconomicsystem,thewidespreaddeploymentofautomaticfactories wouldthreatenjobsandunderminethefinancialsecurityofvirtuallyevery Americanfamily. [**Authorsupdate**Inthe28yearssincethelaststatementwas originallywritten,thisconventionalwisdomhasnotbeenborneoutby experience.Althoughadvancesinmanufacturingtechnologyhavereduced thenumberofworkersinsomecraftunions,andproductivitygainshave reducedthepercentageoftheworkforceengageddirectlyinmanufacturing processes,thereisnoevidencethatautomationhasincreasedunemployment intheoveralleconomy.Infact,theevidenceisquitetheopposite.The correlationbetweenautomationandunemploymentisstronglynegative. Thoseareasoftheworldwhereautomationismostprevalenthavethelowest overallunemployment,andthoseareaswhereautomationisleastprevalent iswhereunemploymentisthehighest.Automationispositivelycorrelated withlowunemploymentandhighlivingstandards. Furthermore,economictheorypredictsthatrapidproductivitygrowth createsmorejobopportunities,notless.Jobsarenotcreatedbyworkthat needstobedone,butbyprofitableenterprisesthatcanaffordtohire workers.Productivitygrowthincreasesprofits,reducescosts,andcauses marketstoexpand.Thisgeneratesdemandforlabor,andreduces,not increasesunemployment.

Nevertheless,thepopularmyththatautomationthreatensjobsremains apowerfulinfluenceinpoliticsandatleastindirectlyeffectsfunding decisionsregardinggovernmentsupportforautomationresearch.Almost everyonefearsthatarobotmightsomedaytakeovertheirjobs,eventhough veryfewpeoplehaveeverexperiencedthishappening.**] Thisbookisanattempttoaddresssomeofthefundamentalproblems ofincomedistributionandcapitalownershipinasocietywheremostofthe goodsandserviceseitherare,orcouldbe,producedbymachinesratherthan people.Itquestionstheadequacyofconventionaleconomicsforthepresent, aswellasforthefuture.Itarguesthattheprimarycauseoftherecent economiccrisisisnotalackofresourcesorinsufficientwealthproducing capacitybutanunrealisticviewofhowwealthiscreatedandanoutmoded systemofincentivesthatdoesnotmakeuseofwhatisavailabletoproduce whatisneeded. Thisbookclaimsthat,ifweproperlyutilizedourscientificknowledge andourindustrialcapacity,wecouldnotonlyovercomethepresent economiccrisis,butwecouldgoontoeliminatepovertyaltogetherand guaranteepersonalfinancialsecuritytoeveryindividual.Furthermore,this couldbedoneinamannercompatiblewithacleanenvironmentandaneco logicallybalancedworld. Thegreatchallengeofthecomingindustrialrevolutionwillbethe developmentofaneconomicsystemwhereinprosperitycanbeachieved withoutwaste,affluencecanbemadecompatiblewiththelimitstogrowth, andpersonalfreedomcanbepreservedandenhancedin aworldwheremost wealthiscreatedbyautomaticmachines.Thisbookisanattemptto formulateaplanbywhichthiscouldbeaccomplished.Theproposals containedinthefollowingchaptersmightbestbedescribedasaformulafor PEOPLESCAPITALISM,orasablueprintforJeffersonianDemocracyin amoderntechnologicalsociety. Specificallythreenewinstitutionsareproposed: 1. ANationalMutualFund(NMF)issuggestedtofinancecapital investmentforincreasingproductivityinsociallybeneficialindustries.The NMFwouldbeasemiprivateprofitmakinginvestmentcorporationthat wouldbeauthorizedbyCongresstoborrowmoneyfromtheFederal ReserveSystem.Itwouldusethismoneytopurchasestockfromprivate industryforthemodernizationof plantsandmachineryandtheintroduction ofadvancedcomputerbasedautomation.Profitsfromtheseinvestments wouldbepaidbytheNMFtothegeneralpublicintheformofdividends.By thismeans,theaveragecitizenwouldreceiveincomefromtheindustrial

sectoroftheeconomyquiteindependentlyofemploymentinfactoriesand offices.Everyadultcitizenwouldbecomeacapitalistinthesenseof derivingasubstantialpercentageofhisorherincomefromdividendspaid oninvestedcapital. 2.ADemandRegulationPolicy(DRP)wouldbeinstitutedinparallel withtheNMFinordertoprovidesufficientsavingstooffsetNMF investmentspending.Thiswouldpreventshorttermdemandpullinflation. TheDRPwouldwithholdincomefromconsumersbymandatorypayroll deductionsandconvertitintohighinterestfiveyearsavingsbonds. Deductionswouldbegraduatedaccordingtoincome(lowincomepersons wouldhavelittlewithheld,highincomemore)andwouldbeadjusted monthlyaccordingtoaformulabasedonthebestavailableindicatorsfor inflation.TheDRPwouldallowhighratesofinvestmentandtheac companyinghighemploymentandhighproductionwhilepreventingexcess demandfromforcingpricesupward. 3.AFederalDepartmentofScienceandTechnologyisalso suggestedtofocusmoderntechnologymoredirectlyonproblemsrelevantto humanneeds. Itisarguedthat,ifimplemented,theseproposalswouldleadwithinthree decadesto: 1.Asocietywhereeveryadultcitizenwouldderiveasignificant fractionofhisorherincomefrominvestedcapital. 2.Asocietywhereindustrialownershipandeconomicpowerwould bedistributedwidelyenoughsothateverycitizenwouldbefinancially independent. 3.Asocietywherepeoplewouldworkprimarilyforpleasureorfor supplementalmonetarybenefits.Therewouldcontinuetobemany incentivesforworkingandmanyjobsavailable,butnoonewouldbeforced toworkoutofeconomicnecessity. 4.Asocietywhereadiversityoflifestyleswouldflourishand rewardsforachievementwouldbehigh. 5.Asocietyinwhichpriceswouldbestableandprosperitycouldbe maintainedwithoutplannedobsolescence,makework,waste,pollution,or continuallyincreasingeconomicgrowth. Inshort,thisbookisaplan wherebyPEOPLESCAPITALISMcould beachievedintheUnitedStatesbytheturnofthecenturywithoutany significantchangesinourconstitutionalformofgovernment.Infact,far fromalteringanyofthefundamentalprinciplesuponwhichthiscountrywas founded,thisplanwouldrevitalizethefreeenterprisesystem.Intheprocess, itwouldmobilizethefullcreativeresourcesofourscientificandindustrial

capacityinanationalefforttosolveourmostpressinghumanproblems.

APersonalNote Asyoureadthisbook,itwillquicklybecomeevidentthatitwasnotwritten byaprofessionaleconomist.Myexpertiseliesinthefieldofscience,not economics.IfIamanexpertinanything,itisinthetheoryofcerebellar mechanisms[**morerecently,intelligentsystems**]anditspotential applicationtorobotcontrol.Asascientist,Itendtoaskwhatispossible,not whatiscustomary.Ihavebeentrainedtoasksimplequestionsandto distrustcomplicatedanswers.Iwonderwhy,forexample,humanneed shouldcoexistwithunusedproductivecapacity.Ifailtograspwhyfiscal andmonetaryrestraintaretheproperpolicieswheninflationiscausedby shortages.Icannotcomprehendwhysomuchofourunprecedentedhuman andindustrialcapacityliesunemployedwhentheworldisteeteringonthe brinkofeconomiccollapse. Thesearenotthetypeofquestionsthatexperteconomistsask.They arethetypeofquestionsthatoccurtoaneducatedlaymanwhoseesdeep contradictionsinthefundamentalstructureofourcivilization. Theyare questionsthatareincreasinglyonthemindofthinkingpeopleeverywhere today. Yetinthisbook,Ihaveattemptedtogobeyondsimplyasking questionsandhaveproposedsomesolutions.Idonotclaimthatmy solutionsaretheonlypossibleones,oreventhebest.Idobelievetheyarea stepintherightdirection.Certainlywhatisproposedhereneedsmuchmore studyandresearchbeforeitcouldbeimplemented.Manyofthebasic conceptsareincompletelyformulated.Theproposednewinstitutionsare presentedonlyinoutlineform,andadditionalsupportingdocumentationis neededatmanypoints.Allofthebasichypothesesneedtobetestedand verifiedbymathematicalanalysis,byeconometricmodeling,bypilot demonstrations,andfinally,byintensivediscussionanddebateinthecourt ofpublicopinion. Hopefully,you,thereader,cancontributetothatdebate.Ifthisbook shouldmanagetostimulateaseriousdiscussionofalternativemethodsof capitalfinancing andincomedistribution,Iwouldliketopublishan expandedandmorecomprehensiveversionofthesebasicideas.Ifyou wouldbeinterestedincontributingyourideasoryourtimeinresearching andcompilingafollowontothisbook,orifyouwouldsimplybeinterested intakingpartinamoreextensivediscussionoftheseideas,pleasecontact meattheaddressbelow. Ipersonallybelievethatoneofthefundamentaldefectsinthissociety

isthattherearesofewmeansbywhichideasofthiskindcanbeairedand discussed.Hopefully,futureeditionsofthisbookwillserveasonesuch vehicle.Idontbelieveanyplansuchasisoutlinedinthepagesaheadcan succeedinpracticeunlessitincorporatesthehopesandaspirations,needs, anddesiresofallthepeopleinvolved.Ihopethisbookwillbecomepartofa dialogue.Ineedyoursuggestionsandamopentoyourideas. JamesS.Albus james.albus@gmail.com james.albus@nist.gov http://www.jamesalbus.org http://www.peoplescapitalism.org

Contents PrefaceEPILOGUETOSCARCITY ChapterI THEAFFLUENTSOCIETY? TheInadequacyofConventionalEconomics ChapterIITHEPARADOXOFPOVERTYAMIDSTPLENTY ChapterIIIHOWWEDISTRIBUTEWEALTH PressuresforFullEmployment PressuresforUnemployment HandcraftsmanshipandPersonalServices. WomensLiberation TheImportanceofOurCulturalHeritage ChapterIVTHETHREATOFPRODUCTIVITY. ProductivityandtheStandardofLiving.. TheThreattoJobs AutomationandPower:EconomicandPolitical TheConcentrationofOwnership ChapterVTHEADVENTOFSUPERAUTOMATION ComputerAidedManufacturing. ComputersandRobots ChapterVIANALTERNATIVE TheEmployeeSociety TheNationalMutualFund TheAmountofNMFInvestment NMFDividends ThePoliticalPoweroftheNMF ABetterSelectionProcess AdditionalChecksandBalances TheNMFandFreeEnterprise IncentivesforDiversity. ChapterVIIPEOPLESCAPITALISMANDTHEINDIVIDUAL FinancialSecurityandPersonalFreedom TheNMFandIndividualIncentive TheEffectonPoliticalFreedom

ABiggerPiewithBiggerSlices ChapterVIIITHEQUESTFORSTABLEPRICES ProductivityandPrices ADifferentStrategy InvestmentPaybackDelay MonetaryPolicy TaxPolicy BudgetaryPolicy PriceGuidelinesand/orControls. TimeforaChange ChapterIXAFORMULAFORPRICESTABILITY Part1:DealingwithExcessDemand Part2:DealingwithInsufficientDemand AdministrationoftheDemandRegulationPolicy TheDRPandNMFWorkingTogether ChapterXADEPARTMENTOFSCIENCEANDTECHNOLOGY ARolefortheFederalGovernment. ScienceattheCabinetLevel ChapterXIPEOPLESCAPITALISMINAFINITEWORLD TheNMFandLimitstoGrowth AnAlternativetoUrbanization ContinuedGrowthandtheEnvironment TheNMFandInternationalRelations TheNMFandOverpopulation ChapterXIIFROMTHROUGHPUTTOSTOREHOUSEECONOMICS TheNMFandStorehouseEconomics REFERENCES

America:TheAffluentSociety?
Theresafunnythingaboutthiscountry.Ourstreetsarent safe,ourparksarentsafe,oursubwaysarentsafe,but underourarmswehavecompleteprotection. Unknown

Americaisfrequentlyreferredtoastheaffluentsociety,andbymost conventionaleconomicmeasuresweareverywealthyindeed.Neverbefore inhistoryhavesomanypeopleexperiencedsomuchluxury.Theaverage Americancitizentodayhasmorepersonalcomforts,enjoysawidervariety ofexperiences,andliveslongerandinbetterhealththanevenkingsand popesofcenturiespast.ThemassesinAmericaarebetterfed,clothed, housed,andeducatedthaninanypreviousgeneration.Thesocalled AmericanDreamhasbecomerealityforaverylargepercentageofthe totalpopulation.Americanshavemoresuburbanhomes,automobiles,TV sets,andautomaticdishwashersthananypeoplewhohaveeverlived. AmericasGrossNationalProduct(GNP)isthelargestinhistory.We producemore,consumemore,andthrowawaymorethananynationever has.Certainlybyallthestandardsoftraditionaleconomics,Americais wealthybeyondallcomparison. Yet,inspiteofthisunprecedentedwealth,affluencewouldappearto beapoordescriptorfortheeconomicstateofAmericansociety.Affluence impliesacertainfreedomfromneed,adegreeofcarelesssecurityandsocial wellbeingthatiscertainlynottrueofcontemporaryAmerica.Behindathin facadeofwealthborderingonopulence,thereexistinthiscountry anumber ofdeeprooted,persistent,almostcanceroussocialproblems.Wehaveabject poverty,pollutionoftheenvironment,andasystemofprioritiessodistorted thattheverystabilityoftheexistingsociopoliticalsystemisperiodically threatenedbyriotsandcivilunrest. Ourtechnologicalindustrialcapacitytoproducegoodsandservicesis trulyaweinspiring.Wecanflingribbonsofconcretefromcoasttocoastwe canbuildtowersofsteelandglasswecanspreadhousingdevelopments overthousandsofsquaremilesofwhatwasoncewildernesswecanevengo tothemoonbutweseemincapableofdirectingandchannelingour enormousproductivecapacitysoastosatisfyourmostbasichumanneeds. Weproducefantasticquantitiesofalmosteverythingimaginableandare clearlycapableofproducingmuchmore,butwedistributethisoutputso

poorlythatalmosttwentypercentofourpopulationliveseithernearor belowthepovertyline.MillionsofAmericansareundernourishedand withoutadequatemedicalcare.Millionsmoreliveindilapidatedhomesand slumtenements.Ourcitiesaredyingfromneglectanddecay.Public transportationisinadequateornonexistent.Streetsarelinedwithabandoned buildingsinhabitedonlybydopeaddictsandalcoholics.Urban neighborhoodsareterrorizedbymuggersandracketeers.Garbagefills streetsandalleyways.Babiesareattackedbyrats. Suchconditionswouldbedistressingeveninapoorandbackward land.ForthemtoexistinacountrywithAmericaswealthproducing capacityispositivelydisgraceful.Surelynocountrywithpovertyofthese dimensionshasanyrighttocallitselfaffluent,regardlessofhowlargea GNPitmayboast. Eveninourapparentlywelltodosuburbs,thereisonlythethinnest veneerofaffluence.TheaverageAmericanfamilycanbarelymakehouse andcarpayments,paytaxes,andsendtheirchildrentocollege.Veryfew peoplefeelthattheyhaveanysignificantmarginoffinancialsecurity.The lifestyleoftheaveragemiddleclassfamilycouldmostaccuratelybe describedasaffluentpoverty.Mostfamiliesareheavilyindebt,notjustfor majorinvestmentssuchashomes,butforconsumerproductssuchas appliances,clothing,andevenvacations.Thesuburbsarenorefugefrom risingpricesanddecliningservices.Inmanyhouseholdsboththehusband andwifeareforcedtowork,insomecasesatmorethanonejob,inorderto makeendsmeet.FinancialnecessitytrapsmanymiddleAmericansinjobs theydislike.ThissuggeststhatsuburbanAmerica,thoughapparentlywellto do,islivingperilouslyclosetothelimitsofitsfinancialcapacity.Thereis preciouslittlesurplus.Thereisnothingthatcanaccuratelybetermed affluence. Thepollutionproblemisfrequentlyblamedonourhighstandardof living.Butinmostcases,pollutioncouldbecontrolledifwewerewilling and/orabletobearthecostofpreventativemeasures.Waterpollutionisa seriousproblemprimarilybecausewehavenotallocatedsufficientresources toeliminateorpreventit.Rawsewage,farmdrainage,andindustrialwaste aredumpedintostreamsandlakesbecausethatisthecheapestwayto disposeofthem.Airpollutionresultsbecauseweuseonlythecheapest kindsoffuelandtheleastexpensivetypesofcombustionprocesses. Automobilesandindustriesspewtoxicgassesintotheairbecausewecannot affordcleaner,moreexpensivefuelsoralternativemodesoftransportation andmanufacturingthatdonotpollutetheenvironment. Tertiarywatertreatmenttechnologyexiststhatcanturnsewageinto

drinkablewater.Pollutionfreeenginesusinghydrogenbasedfuelsand primaryenergysourcesbasedongeothermalorsolarenergyor thermonuclearfusionarealltechnicallypossible.Thepollutionproblemis notprimarilytechnicalitiseconomic.Pollutionisnottheresultofafflu enceitistheresultofcuttingcornersoncost.Wepollute,notbecausewe aresowealthy,butbecausewecannotorwillnotaffordthepriceofaclean environment. TheInadequacyofConventionalEconomics Theparadoxofpovertybehindafacadeofplentyisindicativeof fundamentalinadequaciesinthewaywemanageoureconomicsystem. Surelywecoulduseourenormousindustrialandtechnologicalresourcesto betteradvantage.Wepossesstheagriculturalcapacitytofeedourhungry childrenmanytimesover.Wehaveaconstructionindustryeasilycapableof rebuildingourcities.Wehavethetechnologicalandintellectualresourcesto improvemedicalcare,reducepollution,andmakeourcommunitiessafe, clean,andlivable.Furthermore,evenifourpresentcapacitieswere insufficient,wearestandingonthethresholdofanageofsuperautomation wherecomputercontrolledfactoriesandindustrieswillbecapableof producingunimaginablequantitiesofgoodsandservicesatunbelievably lowprices. Humansocietyhasenteredanagewhereuniversalaffluenceis physicallyandtechnicallypossible.Modernindustryandtechnologyhave thepotentialcapabilitytoeradicatepovertyandcreateaworldofgenuine affluence.Butthispotentialcannotberealizedundertheexistingeconomic systemforatleastthreereasons: First,theexistingsystemhasnoadequatemechanismfordistributing theamountofwealththatourscientificindustrialsocietyiscapableof producing.Ifweweretofullyexploitthewealthproducingpotentialof moderntechnologyfortheneedsofthecivilianeconomy,therewouldbe morethanenoughmaterialgoodsforeveryone.Weeitheralreadyhaveor withinafewyearscoulddevelopthetechnologicalknowledgerequiredto buildtotallynewindustries,includingautomaticfactoriesandservice industriescapableoffloodingthecountrywithmaterialwealthbeyond 2,3 imagination. Theproblemisthatincometotheaveragefamilyisdistributed primarilythroughwagesandsalaries.Iftechnologicallyefficientmethods andautomaticfactorieswereusedtocreatewealthwithlittleornohuman intervention,ordinarypeoplewouldnotreceiveenoughadditionalincometo

purchasewhatwasproduced.TheincomedistributionsysteminAmerica, andindeedintheentireindustrializedworld,isbasedonjobemployment, notonindustrialoutput.Ifthe productivityofourexistingindustrialsystemwereupgradedtothe maximumlevelthatisphysicallyandtechnicallypossible,unemployment wouldbecomeunmanageable. Conceptually,thisisnotanewproblemithaspresentedadilemma eversincetheinventionoftheSpinningJenny.Butquantitatively,ithas achievednewdimensionsbecauseofthebreathtakingadvancesinmodern technologicalknowledge.Thewealthproducingpotentialinherentin modernphysics,electronics,chemistry,nuclearengineering,semiconductor technology,andcomputerbasedautomationareawesomeandtotally unprecedented.Unfortunately,theycannotbefullyexploitedforthebenefit ofalluntilsomemeansotherthanwagesandsalariesisfoundfor distributingtheadditionalwealththeycouldcreatetotheaveragecitizen. Second,theexistingsystemhasnoadequatemechanismfor organizingorfinancingareallyseriouseffortateliminatingthewretched conditionsunderwhichalargenumberofAmericancitizensstilllive.The eliminationofpovertyintheforeseeablefutureinAmericawouldrequire enormousamountsofinvestmentspendingfornewcities,newtransportation facilities,newsourcesofenergy,healthcare,lowercosthousing,prison reform,pollutioncontrol,andmanyotherurgentneeds.Underthepresent system,investmentcapitalisnotavailableforproblemsofthismagnitude, norarethepresentmechanismsforcontrollinginflationcapableofdealing withtheinflationaryeffectsofinvestmentspendingonascalesufficientto adequatelyattacksuchabroadrangeofmassivesocialproblems.The currentlyavailablepeacetimetechniquesfordealingwithinflationare inadequateforcontrollingpricesevenunderthepresentrelativelystagnant economicconditions.Unlesssomefundamentallynewinstitutionsare establishedforgeneratingtherequiredcapitalresourcesandunlessnew measurescanbedevisedthatwillbemanytimesmoreeffectiveindealing withthebasiccausesofinflation,anincreaseininvestmentspendinglarge enoughtoeliminatepovertyinthiscenturyisimpossible. Third,theexistingeconomicsystemdependsonmassconsumptionto sustainprosperity.Itisextremelydoubtfulthattheplanetearthcouldsustain theenormousdrainonnaturalresourcesandincreasedlevelsofpollution thatwouldresultiftheentirepopulationweretoadoptthewasteful consumptionpracticesofthepresentlyaffluentminority.Ifpovertyistobe eliminated,somenewsystemmustbedevisedwhereintheemphasiscould beplacedonconservationratherthanconsumptionsothatprosperitycould

bemaintainedintheabsenceofplannedobsolescence,makework,waste, anddepletionofnaturalresources. Conventionaleconomicswasdevelopedinanagewhenpovertywas inevitable,humanlaborwasindispensabletoindustrialproduction,and naturalresourcesseemedinexhaustible.Noneoftheseconditionsistrueany longer.Industrialcapacityhasgrowntothepointwherepovertycouldbe eradicatedtechnologyisrapidlyerodingtheeconomicvalueofhuman laborandtheearthhasfinallybeenrecognizedtobeafinitebody.Weare livinginaradicallydifferentworldthanexistedamerecenturyago.Wedo notfacethesameproblemsaspreviousgenerationsneitherarewelimited bythesameconstraints. Todaymankindpossessesthetechnicalknowhowtofeedthehungry, tocurethesick,toclotheandhousethehomeless.Weknowhowtoreduce pollution,andcontrolpopulation,andwepossesstheindustrialcapacityto eliminatematerialneed.Butwehavenotyetdevelopedthesocialor politicalmechanismscapableofmobilizingthesecapabilitiesorofequitably distributingthepotentialbenefits. Manypeoplehavesaid,Ifwecangotothemoon,whycantwe solveourproblemshereonearth.Thereasonisthatwehavenever organizedourselvesforsuchapurpose.Oureconomicsystemisnot structuredtodealwithgenuineaffluence.Ourinstitutionsarenotadequate tofinanceit,andourpoliciesarenotdirectedtowardachievingit.Ifthey were,wecoulddowhateverwewanted.

II

TheParadoxofPovertyAmidstPlenty
Tragically,utopiandreamswentoutofstylejustatthetimeinhistory whenscienceandtechnologyhadreachedalevelwheretheeliminationof physicalpovertyhadbecomearealpossibility.Oursisanageofcynicism,if notdespair.Thereispreciouslittleoptimismorconfidenceforthefuture. Mostpeopletodaynolongerconsideraworldwithoutmaterialneedtobea practicalgoal. Unfortunately,thecurrentpessimismseemswellfounded,especially inregardstothefutureoftheworldspoor.The1974UnitedNationsWorld FoodConferenceproducednoinformationtosupportoptimisticpredictions. Infact,themainreportoftheUnitedNationsWorldFoodandAgriculture Organizationsaid,Itisdoubtfulwhethersuchacriticalfoodsituationhas 1 everbeensoworldwide. Manifestly,wearenotyetclosetoeliminatingpovertybyany definition.Infact,duetotherapidpopulationgrowthinthedeveloping nations,thereareprobablymorepoorpeopleintheworldtodaythanever before.If,ashasbeensuggested,theeliminationofpovertyistechnically feasible,thenthepersistenceofpovertyonsuchamassivescaleisa phenomenonthatrequiresexplanation.Howcouldwehavesoseriously mismanagedourresourcesthatalmostonehalfof theworldspopulationsuffersfrommalnutrition,andtensofmillionsof Americansareofficiallyclassifiedaspoor,unlessthesituationisbeyond humanremedy? Manypeoplefeelthatthecauseofpovertyisfundamentallyrootedin humannatureoratleastinhumansociety.Theconventionalwisdomisthat thepooraredifferentfromothermembersofsocietyandthatthisdifference isthebasiccauseoftheirpoverty.Inotherwords,thefaultisgenerally believedtoliewiththepoorthemselves.Mostpeoplewilladmitthat,atleast tosomeextent,thepoorarevictimsoftheirenvironment.Poorpeopleare oftendeprivedofimportantadvantages.Theyfrequentlyareexcludedfrom opportunitiesavailabletothenonpoor,butin thefinalanalysis,most observerswhetherlaymenorsociologists,fromliberalorconservative backgroundshaveascribedtheblameforpovertytothepersonal deficienciesofthepoorthemselves. Thisbasicanalysisofthecauseforpovertyhasformedthe philosophicalfoundationofpublicreliefandwelfareprogramsinWestern 2 countriessincetheirearliestinceptioninthesixteenthcentury. Itcertainly hasbeentheguidingprincipleoftheAmericanwelfaresystemfromthe

NewDealthroughtheGreatSociety.BookslikeGalbraithsTHEAF FLUENTSOCIETYandHarringtonsTHEOTHERAMERICAthat providedtherationaleforthe1960swaronpovertywerecarefullyreasoned anddocumentedessaysontheculturaldeprivationofthepoor.Thepoor werepicturedasisolated,ignorant,andpreventedbytheirownimpotence frombreakingoutoftheviciouscircleofpoverty.Thistraditionalviewof thepoorhassocompletelydominatedsociologicalthinkinginAmericathat throughouttheentirecourseofthewaronpovertythequestionofincome distributionwentvirtuallyunnoticed.Occasionallysomeoneraisedthe possibilitythatthebasiccauseofpovertywasthatpoorpeoplehadno money,butsuchsuggestionswerealmostunanimouslyrejectedas hopelesslynaiveandsimplistic.Harringtonrelatesthefamousexchange betweenHemingwayandFitzgeraldwhereFitzgeraldisreportedtohave remarked,Thericharedifferent,towhichHemingwayreplied,Yes,they havemoney.HarringtonrejectstheHemingwaycommentasculturally biased.Hegoesontoarguethroughouthisentirebookthatthepoorare different,thateverythingaboutthem,fromtheconditionoftheirteethto thewaytheymakeloveissuffusedandpermeatedbythefactoftheir 3 poverty. Itis,ofcourse,rathereasytodemonstratethatthepooraredifferent andthattheylackthingsbesidesmoney.Itisoftendifficult,however,to establishthedirectionalityofthecauseeffectrelationshipbetweencultural deprivationandlackofincome.Thetraditionalview,exemplifiedby HarringtonandGalbraith,isthatculturaldeprivationisthecauseandlackof theincometheeffect.Logically,however,itisjustasreasonabletoconclude thatlackofincomeisthecauseandculturaldeprivationtheeffect.Inother words,itmakesjustasmuchsensetoarguethatthereasonthepoorare differentisbecausetheyhavenomoney,asitistoarguethattheyhaveno moneybecausetheyaredifferent. Assumingthatlackofincomeisthebasiccauseofpovertywould drasticallyalterthestrategyofanyfuturewaronpoverty.Iflackofincome istherootcauseandculturaldeprivationmerelyabyproduct,thentheentire socialwelfareprogramoftheUnitedStatesoverthepastfortyyearshas beenmisdirected!Insteadofconcentratingoneducation,jobtraining,and neighborhooddevelopment,theemphasisshouldhavebeenonbroadening thebasicstructureofthenationsincomedistributionsystem. Recentstudiesofantipovertyprogressduringthe1960sseemto suggestthattheattempttorelievepovertybyculturalenrichmentprograms hasbeenspectacularlyunsuccessful.Forexample,BennetHarrison,anMIT economisthasfoundonlyminimalbenefitsfrommanpowertraining

programsforblacks.Hesuggestsinsteadofconcentratinggovernment moneyonsocalleddefectsinthepoorpeople,itwouldbemoreprofitable 4 tofocusfirstondefectsinthelabormarket. BradleySchiller,aUniversity ofMarylandeconomist,statesthatpublicantipovertyactivityhas,forthe mostpart,beenabreadandcircuskindofaffair.Antipovertyeducation programssuchasHeadStart,compensatoryeducation,andmanpower traininghaveallfailedunderscrutinytodemonstrateanysignificantpositive 5 results. ChristopherJenksandassociatesatHarvardhaveshownthatthere islittleifanycorrelationbetweendifferencesinschoolspendingand differencesinperformanceofstudentsinthebasicskills.Jenksclaimsthat thereislittletosuggestthatcognitiveskillshavemuchtodowitheconomic success.Hehasshownthatthereisasmucheconomicinequalityamong personswhoscorehighonstandardizedtestsasinthegeneralpopulation. Hespeculatesthatequalizingeveryonesreadingscoreswouldnot appreciably reducethenumberofeconomicfailures,andsuggeststhatthe onlywaytodealrealisticallywithpovertyistochangetheincome 6 distributionsystemsoastonarrowtheextremesofincomeinequality. Theentirenotionthatpovertystemsfromtheculturaldeficienciesof thepoorthemselveshascomeunderseriousquestionassociological evaluationsofGreatSocietyprogramshavebecomeavailable.Theresults, assummedupbyGriedenandKotz,seemtoindicatethatPoorpeopleare moreorlessliketherestofus.Theonlyimportantdifferenceisthatthey havelessmoney.Thecauseoftheirpovertyisnotprimarilytheparticular handicapsofthepoorpeople,butthelopsidedwayinwhichincomeis 7 distributedinAmerica. LeonardGoodwinoftheBrookingsInstitutecites studiesshowingthattheattitudesofwelfarerecipientsareremarkablylike thoseofthemiddleclasssuburbanhousewivesandtheiraspirationsfortheir 8 childrenscareersareremarkablyhigh,consideringtheirownlowestate. Shillerstatesthat70percentofpooradultsareworkersandamongfamilies headedbymenthefigureis84percent.Mostofthepoorfamilieswhereno oneworksareelderlyorheadedbyawoman,althoughalmosthalfofthese womenwork.Morethanonethirdofpoorfamilieshavetwoormore 5 workingmembers. Lampmansays,ThepoorarelikeotherAmericans, 9 onlymoreso. EvidencefromrecentstudiesbyLampmanonthechanging populationofthoseclassifiedaspoorstronglysupportsthenewlyemerging notion thatpovertyismoreamatterofincomedistributionthancultural deprivation.Lampmanobservedthatinjustoneyear,from1962to1963, 10 aboutonefourthofthepeopleinpovertygotout. However,inthatsame interval,analmostequalnumberofpeoplebecamenewlypoor.Thiskindof

mobilitysuggeststhatthepoorarenottrappedatall,orevenpeculiarly 11 isolated.Manyescapeesfrompovertyarealiveandwelltoday. Infact,one reasonwhypersonsfrompoorbackgroundssooftenhavevoicedstrong skepticismconcerninggovernmentprogramsdesignedtoassistpersons lockedinpovertyisthattheythemselvesarepovertyescapees.Theyknow itcanbedoneandfrequentlywithoutgovernmenthelp.Thisisnottodeny thatthereexistsomepersonswhoaregenuinelylockedintopovertybyage orparticularlyunfortunatecircumstances.Butcertainlynotall,orevenmost, ofthepooraretrapped.Escapecanbemadebygainingaccesstothe traditionalsourcesofincome.Unfortunately,whilesomeareescapingfrom poverty,theranksofthepoorarereplenishedbyothersmovinginthe oppositedirection.FormillionsofAmericanslivingjustabovethepoverty line,aplungeintodestitutionismerelyamatterofafewmonthssickness, anaccident,afamilybreakup,orinsomecasessimplythelossofajob. Thisstronglysuggeststhatpovertyhasitsrootsnotincultural deprivation,butinanincomedistributionsystemthatisnotbroadenoughto includeeveryoneatthesametime.Theexistingsystemhabituallyexcludesa sizeablepercentageofthepopulationandmaintainsanevenlargernumber ofpersonsonlymarginallyabovethepovertyline,readytobecomepoorat 12 thebriefestmisfortune. Theexistingincomedistributionsystemmightbelikeneduntoa crowdedraftafloatinaseafullofstrugglingswimmers.Oncethereisno moreroomontheraft,someonemustfalloffforeverynewpersonwho managestoclimbaboard.Ofcourse,insuchsituationsthereareusually personsofgoodwillwhogiveencouragementandassistancetothoseinthe water.Somemightevenhelpparticularlycourageousswimmerstoclimb aboard.Unfortunately,solongastheraftistoosmall,suchactsofmercy onlyresultinsomeoneelse,perhapsontheotherside,beingcrowdedoff. Duringthe1960s,agreatdealofselfcongratulatoryenthusiasm amongpovertywarriorswasgeneratedbyanapparentsteadydeclineinthe povertyindex.Statisticsshowedthatthenumberofpoorpeoplefellfrom22 percentofthepopulationin1960toonly12percentin1970.However,in retrospectthisdeclineappearstobelittlemorethanastatisticalslightof handattributablealmostwhollytoinadequateaccountingforinflation. Duringthe60s,thedefinitionofpovertywasincreasedapproximately25 percent,buttheconsumerpriceindexrosealmost35percentinthesame period.Whatlittlerealdecreaseinpovertythatdidoccurduringthe60s appearsmoreattributabletodeclinesinunemploymentthantospecificGreat 13 Societyantipovertymeasures. Asunemploymentfell,lesspeoplewere excludedfromsourcesofincomeandtherefore,naturally,lesspeoplewere

poor.Beginningin1969,eventheappearanceofadeclineinpoverty vanished.Unemploymentbegantoriseandalongwithitpoverty. TherearefewsocialproblemsinAmericatodaythatarenotrelatedin onewayoranothertopoverty,andtherearefewissuesthatareaspolitically divisive.Formostofuswhohavebeensparedthegriefandfrustrationof poverty,itisemotionallycomfortabletobelievethatthepoorhaveonly themselvestoblame.Butthefactsindicateotherwise.Thefactsindicatethat thepoorarenotverydifferentfromthenonpoorintheirneeds,aspirations, orgoals.Ingeneral,theyworkjustashardasotherAmericans,ifnotharder. Themaindifferenceisthattheyarepaidverylittle,ifanything,forwhat 12 theydo. Povertyismuchmorecloselycorrelatedwiththeavailabilityof incomethanwithanyothersocialfactor.Ifapersonisexcludedfroma sourceofincome,heorsheisalmostcertaintobepoor.Thisseemsan obviousthingtosay,butitsimplicationsarefarreaching.Forunlessitcan bedemonstratedthatthepoorarepersonallydeficientinsomefundamental sense,theonlyconclusionleftisthattheincomedistributionsystemisitself defective.Ifthatistrue,thenpovertyismerelyasymptomofamuch broaderandmorefundamentalproblem.

III

HowWeDistributeWealth
Thewayinwhichincomeisdistributedinfluencesthemost fundamentalrelationshipswithinasocietyandlargelydeterminesthevery natureofthesocialstructureitself.Theincomedistributionsystem determineswhowillberichandwhopoorwhopowerfulandwhoweak.It influenceswherepeoplelive,wheretheywork,andwhattheyworkon.It determineswhattypeofendeavorsareconsideredimportantandwhatare not.Itembodiesasystemofeconomicrewardsandpunishmentsthatdirects and,inlargemeasure,controlsthebehaviorpatternsofthesocietyasa whole,aswellasindividualsandgroupswithinthesociety.Theincome distributionsystempervadeseveryaspectofdailylifesodeeplyandso thoroughlythatitsinfluenceisfeltinvirtuallyeveryactthatpeopleperform. Certainlytheincomedistributionsystemissobasictothestructureof relationshipswithinasocietythatnoefforttosignificantlyimprovesociety islikelytosucceedunlessitaddressesthequestionofincomedistribution, and,conversely,nosignificantchangein theincomedistributionsystemis likelytoproduceanythinglessthanprofoundchangesinthefundamental characterofthesocietyatlarge. InAmerica,theexistingincomedistributionsystemisalmost universallyacceptedwithoutquestion,evenamong politicalliberals,in muchthesamewayaspeopleaccepttherisingofthesunortheforceof gravity.ToevenquestionthefundamentalpremisesoftheAmerican incomedistributionsystemseemsdownrightheretical,somewhatakinto questioningthewisdomoftheConstitutionortheexistenceofGod. Evenamongsocialreformers,littleattentionhasbeenpaidtothe fundamentalquestionofincomedistribution.Aswaspointedoutinthe previouschapter,thewholetraditionofactionprogramsin thiscountry, includingtheNewDealandallitssubsequentvariations,hasbeenbasedon thephilosophyofhelpingtheunfortunatetomakeitwithintheexisting system.Seldom(exceptperhapsfortheincometaxandsocialsecurity)has anyfundamentalchangeeverbeenmadeintheincomedistributionsystem itself. OnereasonwhyincomedistributioninAmericahasseldombeena targetofsocialreformisthatitisimpersonalandimpartial.Western politicalthoughttendstoequateimpartialitywithindefectibility.Ifeveryone hasanequalchance,asystemisusuallyregardedasidealeventhoughitbe fullofabsurditiesandincongruities.Itmaypunishsomeindividualswith

inordinateharshnessandrewardothersbeyondreason,butitwillnotbe questionedsolongasitisimpartial.Theincomedistributionsystem establishesthoseactivitiesthatarerewardedandthosethatarepunished. Individualsarethenlefttofightitoutamongthemselvesastowhofills whichpositions. Societyhasestablishedvariousfilteringmechanismsfordetermining 1 justwhereeachpersonshallfitinthesystem. Thefirst(thoughbyno meansonly)filterisaccidentofbirth.Thisselectionmechanismiscertainly themostancient,and,althoughinrecenttimesithasdiminishedsomewhat inimportance,itstillisoneofthemostcriticalfactorsindeterminingwhata humanbeingspositionwillbeontheincomeladder.Otherfiltering mechanismsareschools,examinations,fraternities,unions,andcorporate hiringandpromotion policies.Thosewhoaremoreaggressive,more intelligent,orsimplyluckiergetthebetterpositions.Thecompetitivenature ofthesefilteringprocessesgivesthefinalresultanairofequity,particularly ifthecompetitionitselfisnotgrosslyunfair.Mostsocialandpolitical reformsoverthepastcenturyhavecenteredonincreasingthefairnessofthe competitionandtheequalityofopportunity.Unfortunately,theemphasison fairnessandequalityhaslargelyobscuredthefactthattheincome distributionsystemitselfisgrosslydistorted,inefficient,andoften counterproductive. IntheUnitedStates,asinvirtuallyeveryindustriallyadvanced countryintheworld,theoverwhelmingpercentageofincomeisdistributed throughearningspaidtolabor.Wagesandsalariesaccountforaboutthree 2 fourthsofallpersonalincome. Evenmoreimportant,fouroutofeveryfive Americanfamiliesdependoncompensationforlabororwelfareforover80 3 percentoftheirtotalincome. Thesestatisticsclearlyindicatehow completelythepresentincomedistributionsystemisdominatedbywages andsalaries.Theconsequencesandimplicationsofthisfactarefarreaching indeed.Thereareanumberofreasonstobelievethattheoverwhelming dependenceonwagesandsalariesisamajorcauseofwaste,makework, pollution,unemployment,poverty,discriminationagainstminoritiesand women,declineinpersonalservices,anddisincentivestoefficientmethods ofproduction. PressuresforFullEmployment Oneoftheinevitableeffectsofdistributingincomealmostexclusively throughwagesisthatitgeneratesoverwhelmingpressuresforfull employment.Forallpracticalpurposes,theonlyrespectablewayfora

personofaveragemeanstoobtainincomeinamodernindustrialorpost industrialsocietyistoholdajob.Ifonehasnojob,then,exceptfor unemploymentcompensationorwelfare,onehasnoincome.Ifonelosesa job,allincomestopsoratleastissharplyreducedtowhateveriscurrently obtainablethroughunemploymentcompensation.Thisgeneratesenormous incentivestogetandholdajobanyjobandthepressuresofthese incentivesaretransmittedthroughthepoliticalprocessintogovernmental 4 andprivatepoliciesdesignedtocreateorpreservejobsatanycost. Theresultsarethatmakeworkprojectsofeverytypeanddescription arecreated,someofwhicharenotonlyuseless,butpositivelyharmful.For example,oneoftheprincipleargumentsadvancedbyproponentsofthe AntiBallisticMissileSystemwastheneedtokeepthemissileindustry employed.AmajorfactorinthegovernmentsdecisiontogranttheLock heedCorporationaloanwasthatwidespreadunemploymentwouldresult fromthebankruptcyofsuchalargecorporation.Mostofthesupportforthe SuperSonicTransportrevolvedaroundtheneedtocreatejobsinthe depressedaircraftindustry.TheprincipleargumentsoflobbyistsfortheBl bomberrevolvearoundthenumberofjobstobecreatedinthe 5 Congressionaldistrictswherethisplaneistobebuilt. Politicalpressureto maintainemploymentisoneoftheprimaryreasonsfortheperpetuationof thesocalledmilitaryindustrialcomplex.Itisvirtuallyinevitablethat CongressmenandSenatorswillopposeanyattemptbytheDefenseDe partmenttocloseobsoletemilitaryinstallationsortoterminatemajor militarycontractsintheirdistrictssimplybecausesuchactionsthrowlarge numbersofpeopleoutofwork. Eveninstrictlycivilianindustries,pressuresforthecreationand maintenanceofjobsoftenoverrideconsiderationsofconvenienceand health.Forexample,proposalstoplacemoreemphasisonmasstransitand lessontheautomobilearewidelyopposedbythosewhoseincomeisderived fromtheautomobile,trucking,orhighwayconstructionindustries. Restrictionsoncigaretteadvertisingaretypicallyopposedbypoliticians whoseconstituentsdependonthetobaccoindustryforemployment. Foryearswehaveespousedthephilosophythatgrowthmeansjobs, andwehavewrittentaxlawsandzoningordinancestoencourageandfoster growth.Theurbansprawlthatscarssomuchofourlandscapeisadirect resultofpoliciesdesignedtogenerategrowthsoastocreatejobs. Throughouttheentireeconomicsystem,policiesofgovernmentand privateindustryalikearedesignedtoensurethatemploymentremainshigh andlayoffsareunnecessarywheneverpossible.Marketingandadvertising programsarepromulgatedtocreatedemandforabsurdortrivialproducts.

Goodsaredeliberatelydesignedtoquicklybecomeobsolete,eitherthrough normalwearorchangesinstyle.Asaresult,Americahasbecomea 6 throwawaycultureasVancePackardputsit,asocietyofWasteMakers. Ourindustryisheavilybiasedtowarddisposableproductsthatcannotbe repairedorreused.Atleastpartofthisbiascanbedirectlytracedtoefforts tomaintainproductionand,hence,employmentatahighlevel. Pressuresformaintainingandcreatingjobsarealsoclearlyevidentin unionpoliciesandinlabornegotiatingdemands.Featherbeddingand restrictiveworkrulesservenootherpurposethantopreserveobsoleteor unnecessaryjobs.Seniorityrulesandrestrictiveapprenticeshipadmissionre quirementsareprimarilyintendedtoinsulateandprotectexistingjobholders fromcompetitionandpossiblereplacementbyequalorbetterqualifiedjob candidatesclamoringtogainaccesstothelimitedsupplyofemployment positions. Evenattheexecutivelevel,pressuresforjobemploymentarestrong. Muchof thememowriting,papershuffling,andredtapethatgoesonboth inprivateindustryandingovernmentservesnootherpurposethanto provideworkforotherwiseunnecessarymanagersandbureaucrats.Itis impossibletoestimatejusthowmuchofwhatpeoplegetpaidforevery weekinfactoriesandofficesacrossthislandisreallynecessaryworkand howmuchmightjustaswellnotbedone.Onegetsthefeeling,however, thatmorethanalittleofwhatgoesonduringtheaverageAmericanwork dayiseithermakeworkinandofitselforactivitymadenecessarybymake worksomewhereelseinthesystem.Theoverwhelmingimportanceofjobs, broughtaboutbythefactthatvirtuallytheonlywaytogetincomeistohave ajob,hascreatedasystemthatisenormouslywastefulbothintermsof naturalresourcesandhumancreativity.

PressuresforUnemployment Paradoxically,thedistributionofwealthprimarilythroughwagesand salaries,whilegeneratingtremendouspoliticalpressuresforfull employment,hasatthesametimecreatedconditionsthatvirtuallyguarantee seriousunemployment.Theincreasingratioofcapitaltolaborinmodern industryhasbroughtcontinuouslyrisingoutputpermanhourofwork.In somecases,thisincreasedoutputmightbeattributedtoincreasedskillor increasedphysicaleffortonthepartofworkers,but,intheoverwhelming majorityofcases,theincreasedoutputhasbeenwhollyduetomore sophisticatedmachinesormoreefficientprocesstechnology.Ineithercase,

theresultisthesame.Morehasbeenproducedandthusmoremustbe distributed.Sincewagesarevirtuallytheonlymeansavailableforplacing purchasingpowerinthehandsofconsumers,wageshavehadtorisealong withrisingoutputinordertoinsuresufficientconsumerdemandtoprevent surplusesfromdeveloping.Thepresentincomedistributionsystem encourages,infactrequires,thatwagesspiralupwardwitheachnew advanceinproductiontechnology.Otherwise,theeconomycouldnot consumetheincreasedproduction. Toanemployer,risingwagesrepresentrisingcosts.Aswagesrise, themarginalbenefitofhiringeachnewemployeedeclines.Highlaborcosts areaproductionfactorthatmustbeminimizedifabusinessistosurvive.An employermuststrivetohireasfewpersonsaspossible,notbecausehehas nothingforadditionalemployeestodo,butsimplybecauselaborissucha significantcostfactorthateveryeffortmustbemadetokeepthepayrollata minimum.Increasesinthecostofhumanlaborforceemployerstoreduce thenumberofemployeestoasfewaspossible.Employeesarehiredonlyfor thetimeperiodwhentheirservicesareneeded.Productioncutbacksresultin immediatelayoffs.Jobapplicantsarecarefullyscreenedsoastoweedout allbutthemostcapableandproductive.Wheneverpossible,humanworkers arereplacedbylessexpensivemachines. Distributionofmostincomethroughwagesandsalariesforceslabor costssohighthatmanyusefultasksaresimplytooexpensivetobedone. Streetsneedcleaning,buildingsneedrepair,communityhealthand recreationfacilitiesneedtobemaintained,butthecostoflaboristoohigh. Eveninfactories,universities,andresearchlaboratoriesimportantworkthat needstobedonecannotbepursuedbecauseofthesalariesthatmustbepaid toeventhelowestgradetechnicians.Asaresultwehaveanabundanceof usefulworkthatneedsdoingandasurplusofpeoplewillingandabletodo it.Yetnothingcanbeaccomplishedbecauseemployerscannotaffordtohire peopleforjobsthatarenotabsolutelynecessary.Undersuchcircumstances itisvirtuallyguaranteedthatasizeablepercentageofthepopulationwillbe jobless. Thisisparticularlytrueinthecaseofpersonswithnomarketable skills.Anyonewithoutcapabilitiesforwhichemployersarewillingtopay theminimumwagesimplywillnotbehired.Ifaworkercannot,evenwith machineassistance,produceenoughoutputpermanhourtomakeit profitableforanemployertohirehim,hebecomeseffectively unemployable.Distributingthewealthproducingoutputofmachinesand hightechnologyprocessesprimarilythroughwagesandsalariesartificially inflatesthecostofhumanlabortothepointwherehardcoreunemployment

7 becomesinevitable. MiltonFriedman,theconservativeeconomistwho,amonghisother notableaccomplishments,waseconomicadvisortoSenatorGoldwater duringthe1964presidentialcampaign,hasforyearsarguedagainstthe minimumwagelaws,notonthebasisthattheyareideologicallyrepulsiveto aconservativebutbecausetheyvirtuallyguaranteeahighlevelof unemploymentamonglowskilledpersons.Ifaworkerslaborisnotworth theminimumwagerate,itsimplyisnotgoodbusinesstohirehim. Presumably,itispossibletotrainsomeunemployedpersonssothat theirlaborbecomesworthmorethantheminimumwage.However,in 8 practice,jobtrainingprogramshavenotprovenverysuccessful. Inagreat manycases,hardcoreunemployableshavephysicalormentaldefectsthat makeitvirtuallyimpossibletoeverincreasetheirskillstothepointwhere 9 theirlaborwouldbeworthpresentdaywages. Moreover,inmany instances,jobtrainingorthelackofitisnotevenrelevanttotheissueof unemployment.Theproblemfrequentlyisnotalackoftrainingatall,buta lackofavailablejobs.Thesocietyhasonlyalimitednumberofjobsin whichpersonsofaveragementalcapacitycanproduceenoughwealthto justifypresentdayinflatedwagerates.Inordertoscreenalargenumberof applicantsforasmallnumberofavailablejobs,employersrequire 10,11 credentialssuchashighschooldiplomasorcollegedegrees. Thisisdone evenforjobsrequiringnoeducationbeyondgradeschool.Thepurposeis 12 simplytolimitthenumberofapplicantstothenumberofavailablejobs. Insuchcases,jobtrainingprogramsdonothingbutincreasecompetitionfor analreadyinsufficientsupplyofjobs.Thesuccessofsomeindividualsin acquiringsufficientcredentialstoqualifyforajobmerelymeansthat someoneelsewhereinthesocietywillbelaidofforfindthemselvesunable toqualifyforapromotion.Risingwagesand,inparticular,arising minimumwagesrepresentamovingemploymentthreshold.Evenifafew unemployedpersonsmanagetoovertakeandpassthisthreshold,inevitably someoneelsewillfallbehind.

HandcraftsmanshipandPersonalServices Thedistributionofmostofthenationsincomethroughwagesand salariesnotonlygeneratesexcessivepressuresforjobemployment,butit distortsthenationsproductionprioritiesbyconstrictingtheflowofincome toaverynarrowfieldofemployment,namelycapitalintensivelabor.Most oftheoutputofgoodsandservicesinamoderntechnological societyresults

fromscientificknowledgeembodiedinmachinesandcomplexproductive 13 processes. Thefactthatthiswealthmustbedistributedprimarilythrough wagesandsalariesdictatesthattheonlywayforpersonswithordinaryskills andtalentstoobtainadecentincomeistoworkforindustrieswithahigh capitaltolaborratio.Exceptforpersonswithspecialtalentsorrareskills, workersinvolvedinpersonalserviceindustriesorintheproductionof handcraftedgoodsfinditvirtuallyimpossibletocompeteinaneconomic systemdominatedbycapitalintensivelabor. Theunaidedhumancraftsmanorservicepersonsimplycannotcreate wealthasfastasacomplexpieceofautomatedmachinery.Therefore,ifthe noncapitalintensivejobsarepaidsolelyonthebasisofwhatindividuals canproducealoneandthecapitalintensivejobsarepaidonthebasisof whatpeopleandmachinescancreatetogether,itisinevitablethatnon capitalintensivejobswilldieout.Theeconomywillbecomestructuredso thatvirtuallyallattractivejobsareconcentratedincapitalintensive industriesorindustriessupportiveofcapitalintensiveindustries.Severe shortageswilldevelopintheskilledhandcraftsandpersonalservices.This, ofcourse,isexactlywhathashappened.Handcraftedgoodsandpersonal serviceshavevirtuallydisappearedfromalltechnologicallyadvanced societies.Wearetoldthattheyarevictimsofprogressandthatitis inevitablethatthemoreefficientmustforceoutthelessefficient,evenatthe expenseofconvenienceandcivility. Butisthisreallyprogress?Isitevenefficient?Whereistheefficiency inunemployment?Whatisaccomplishedbydrivingthehandcraftsmanand thesmallfarmeroutofbusiness?Whereisthegaininforcingpeopleoutof nearlyselfsufficientlifestylesinruralareasandsmalltownsandcrowding themtogetherinurbanghettoswhereunemploymentisepidemicand welfareistheprincipalsourceofincome?Ifthereisnogainandifsociety receivesnonetbenefitfromthesesocialdislocations,thentheremustbe somethingbasicallywrongwiththesystemthatproducestheseresults. Thepresentincomedistributionsystemoperatesasiftheoutputof automaticmachinesandhightechnologyprocesseswereexclusively attributabletothosepersonsinsocietywhoaredirectlyorindirectly involvedinhightechnologyindustries.Inessence,thesalariesofworkersin capitalintensiveindustriesaresubsidizedbythewealthproducing capabilitiesresidentincomplexmachineryandhightechnologyprocesses. Asaresult,anentirelydisproportionatenumberofpeoplearedrawninto jobssupportiveof,orsupportedby,capitalintensivelabor.Servicesthatthe societydesperatelyneedsarenotperformedsimplybecausethewagesare toolow.Atthesametimethatmillionsofpeoplearedoingmakeworkjobs

incapitalintensiveindustriesandothermillionsaredesperatelytryingto gainentrancetothisbloatedsegmentoftheeconomy,thesocietyis seriouslyinconveniencedbythefactthatthereareinsufficientservice personnelforeverythingfromautoandtelevisionrepairtoyardandhouse care.Serviceispoor,workmanshipsloppy,andpricesareexorbitant. Handmadegoodsareeithershoddilymadeorincrediblyexpensive. Aslongastheincomedistributionsystemisstructuredsothat virtuallyallincometothelowerandmiddleclassesisderivedfromwages andsalaries,personalservicesandhandcraftsmanshipcanneverbeaviable employmentalternativeforasignificantnumberofpeople.Hightechnology industryiswheremostofthewealthiscreated.Distributionofwealth throughwagesbindsthelaborforceinexorablytotheseindustries.Only whensocietysneedsforpersonalservicesrisetothepointwhereemployers areforcedtopaywagescomparabletothosepaidbycapitalintensive industriescanworkersbefoundtoperformtheneededservices.

WomensLiberation Thedistortionofsocialprioritiesresultingfromconstrictingtheflow ofincometothecapitalintensivesectorisnotlimitedtotheeffectson handcraftsandpersonalserviceindustries.Ithasalsocreatedasituationof discriminationandinjusticetowardagreatmanycitizenswhothroughone reasonoranotherdonotfitintothecapitalintensivesectoroftheeconomy. Oneofthemostglaringexamplesofthisphenomenonistheeconomic discriminationfeltbywomen,particularlyhousewives.Certainlyagreat dealofthewealththatthissociety(indeedeverysociety)enjoysiscreated bythelaborofhousewiveswhoclean,shop,cook,chauffer,carefor children,andperformnumerousvolunteercommunityservices.Ithasbeen estimatedthattheaveragehousewifeperforms$13,364worthofsuchwork eachyear(at1970wagerates).Thisamountstoroughlyonefourthofthe 14 GrossNationalProduct. Yettheeconomicsystemdoesnotpaywagesfor theseservices(unless,ofcourse,theyareperformedoutsideofthewomans ownhousehold).Housewivesareexpectedtoliveoffthemoneythattheir husbandsbringhomefromthecapitalintensivesector.Theyarethuskept economicallydependentuponthegenerosityoftheirhusbands.Theyshare noneoftheprestigeofhavingearnedtheirmoney,eventhoughtheymay workjustashard,orharder,athomethantheirhusbandsdoattheofficeor plant.Womensworkcarriesaderogatoryconnotationthatimpliesalack

ofimportance.Yetwomensworkiscriticaltothestabilityofthesocial orderandiscertainlymoreimportantthanmuchofthepapershufflingand pettyofficepoliticsthatpassesforworkinofficesandexecutivesuites throughoutAmerica. Preachersandpoliticiansoftenwaxeloquentabouthowthehandthat rocksthecradlerulestheworld,butthepresenteconomicsystemworksto keepwomenintheirplace.Aslongasvirtuallyallwealthischanneled throughwagespaidbycapitalintensiveindustries,itisinevitablethatmost ofthesocialprestigeandpowerwillresidetheretoo. TheImportanceofOurCulturalHeritage Modernsocietyiscomplexandreliesonmanyinterdependent activities.Insuchasystem,almosteverythingdependsoneverythingelse, anditisvirtuallyimpossibletodeterminepreciselywhatactivitiesare criticaltotheproductionof wealthorwhicharethemostimportant. Certainlycapitalintensiveindustryiswheremostmaterialgoodsareformed outofrawmaterials.Butthereisagreatdealofsocialoverheadthatis prerequisitetotheveryexistenceofahighlyindustrializedeconomyinthe firstplace.Theentireindustrialtechnologicaleconomicsystemrestsupona foundationofsocialstabilitythatisnourishedbyaculturalheritage developedovercenturiesofhardandpatientlaborbyfreemenandwomen alikeand,inAmericascase,byblackslavesalso.Itiscompletelyarbitrary todistributewealththroughwagesandsalariesasifthepresentlyemployed laborforceweresolelyresponsibleforallthewealthcreatedbythe Americaneconomy.Theoutputofpresentfactoriesandbusinessesisno moresolelyduetothecurrentsalariedworkforcethanthereturnofthe Apollomoonrockswassolelyduetotheeffortsofthreehumanastronauts. FigureIII1suggeststhatmostoftheincreaseineconomicoutput comesfromproductivitygains,notincreasedlaborinput.

FigureIII1. Increasedoutputisprimarilytheresultofincreased
productivity.Ourrisingstandardoflivingisbasedonbettertoolsand moreefficientmachines,notonharderworkorlongerhours.

Astrongcasecanbemadethatmostoftheoutputofmodernindustry isnotduetothepresentlyemployedlaborforceatall,butrathertothe capitalstock,thescientific,technical,andmanagerialknowledge,the educationaltraining,andthesocialandculturalbehaviorpatternsthathave accumulatedanddevelopedoverthepastthreecenturiesormore.15 Forexample,theoutputofironandsteeltonnagepermanhourof 16 laborincreased273percentduringthe19231950period. Wheredidthis increasecomefrom?Judgingfromthefactthatrealwagespaidtosteel workersincreasedbyaboutthesameamountinthesametimeperiod,one mightsupposethattheincreasederivedfromthesteelworkersthemselves. Butdidit?Didsteelworkersin1950work273percentharderthantheir counterpartsof1923?Thisseemshighlydoubtful.Wastheincreasethendue tobettereducationonthepartofthemillhands?Perhapsinpart.However, thereseemstobenoreasontobelievethatafewyearsinschoolcouldhave hadsuchaphenomenalimpactonasteelworkersoutput.Ifthatwerethe case,thensurelysteelmillownersinthe1920swouldhavefoundit

economicaltohireonlycollegegraduatestomantheirfurnaces.Someofthe increasewasundoubtedlyduetothefactthatwhattheworkersweretaught in1950,inschooloronthejob,madethemmoreefficient.Surely,also, somebettermanagementtechniqueswereemployed.Butthiswaspartofthe culturaldevelopmentofsocietyanddueonlymarginally,ifatall,toany effortsbytheworkforce.Thesimplefactisthatmostoftheincreasein productivityinsteelmills,aswellasinothersectorsoftheindustrial economy,arealmostalwaysduetoincreasesintheamountofcapital equipmentandthesophisticationofthemachineryandtechniquesusedin themanufacturingprocess.Theyarehardlyevertheresultofanyspecific effortsofthecurrentlyemployedlaborforce. TheeconomistSolowcalculatesthatlessthanhalfoftheincreasein Americasproductivitypercapita...canbeaccountedforbytheincreasein capitalitself.Considerablymorethanhalfoftheincreaseinproductivity seemsattributabletotechnicalchangetoscientificandengineeringad vance,toindustrialimprovements,andtoknowhowofmanagementand educationaltrainingoflabor.17 Andwheredoestechnicalchangecomefrom?Asdefinedabove, technicalchangeistheproductofbroadculturaldevelopmentsnot attributabletoanysinglepersonorgroup.Noteventheentirecongregation oflivingscientistsandinventorscanclaimsolecreditfortechnicalchange. Asanyscientistorinventorknows,thepersonwhoiscreditedwitha particulardiscoveryorinventionmakesonlyatinyincrementalcontribution tothetotalityofhumanknowledgeonanysubjectorinanymachineor device.Forexample,anewelectricalmachineforwhichaninventor receivesapatentowesmuchofitswealthproducingcapabilitiestotheenor mousbacklogofhumanknowledgeconcerningthepropertiesofelectricity andmagnetism.Thisinformationhasbeenaccumulatedoverhundredsof yearsbyscientistsfrommanydifferentcountries.Thus,themajorpartofthe wealthproducingknowledgeembodiedinanymachineisderivedfromthe cultureitself,ratherthanfromanysinglepersonorgroupofpersons.As IsaacNewtononcesaid,IfIhaveseenfurtherthanothermen,itisbecause Istoodontheshouldersofgiants. Thewealthproducingcapacityofamoderneconomyistheresultof hundredsofyearsofdiscoveryandinvention,ofbuildingandeducating,of rearingchildrenanddevelopingcommunities.Surelybothwomenandmen shareinbuildingthesocialstabilityandculturaldevelopmentthatmakesour presentindustrialsocietyproductive.Todistributethewealththatthis societyproducesalmostexclusivelythroughwagesandsalariesunjustly ignoresthecontributionofmillionsofpersonswhoworkoutsideofthe

formallyrecognizedlaborforceandgrosslydistortsthesystemofvaluesthat societyplacesonvarioustypesofculturallybeneficialactivity. Thepresentincomedistributionsystemshouldberecognizedasa basiccontributingfactorinthefailureofthenationaleconomytorealizeits fullpotentialineliminatingpovertyandprogressingtowardastateof universalaffluence.Thenarrowdependenceonwagesandsalariesvirtually guaranteeshighlevelsofunemploymentandmakespovertyinevitable.It wastesalargepercentageofouravailableresourcesandproductivecapacity onmakeworkandunnecessarytrivia.Itleadstothedemiseof handcraftsmanshipandpersonalservicesanddiscriminatesagainstthose whoworkoutsidetheregularlaborforce.Itisnotsurprisingthatan economicsystemwithsuchfundamentaldefectsshouldfailtoproduceupto itspotentialcapacity.

IV

TheThreatofProductivity
Eventhoughthedistributionofmostofthenationalincomethrough wagesandsalariestendstoperpetuatethelonglistofsocialproblems describedinthepreviouschapter,overthelongrunthemostseriouscostto societymaybethelossofwealththatcanneverbeproducedbecauseofthe threattojobsposedbyincreasingproductivitythroughtechnological innovation. Productivityisameasureofhowmuchwealthcanbeproducedfroma givenamountoflabor,capital,andrawmaterials.Increasingproductivity meansgettingmoreoutputfromlessinput.Sincewagesarepaidonthebasis oflaborinputandnotproductoutput,increasedproductivityiswidely perceivedasathreattojobs.Insomecasesthisthreatisrealinothercasesit 1 canbeshowntobeanillusion. Nevertheless,thebeliefinathreatisvery real.IthaspersistedamongtheworkingclassessincetheLudditeriots againsttheSpinningJennyin1768,andtodayitrepresentsapowerfulpo liticaldeterrentthateffectivelyinhibitsanynationalpolicydirectedtoward 2 majorproductivityincreases. Yet,theabilityofmoderntechnologytoproducelargeamountsof goodsandservicesatlowcostisthebackboneofmoderncivilization.The historyoftheindustrialrevolutionisachronologyofthedevelopmentof betterandmoreproductivemachinesforincreasingtheamountofgoodsand servicesthatcanbeproducedfromagiveninputoflabor,capital,andraw materials.Duringthe18thand19thcenturies,bothinEnglandandAmerica, thesubstitutionofmachinesforhandlaborbroughttotheaveragecitizena degreeofmaterialprosperity,andevenrelativeluxurythatwaspreviously undreamedof.Coalstovesforheatingandcooking,glassforthewindows, cottonunderwear,avarietyoffood,earthenwaredishes,soap,cleansheets onironbedsteadstheseweretheearlybenefitsofincreasedproductivity 3 throughmassproduction. ShortlyaftertheAmericanRevolution,itwastheincreased productivityofthecottonginandtheriversteamboatthattransformedthe southernUnitedStatesintoamajoragriculturalpower.Slavery,ofcourse, playedapart,butslaverydidnotmakecottonking.Theefficientmechanical meansofprocessingandtransportingtherawcottoncropdidthat.The northernstatesgrewrichandstrongfromtheincreasedproductivityof automatedspinningandweavingmachines,steelmills,andlateroil refineries.TheAmericanWestprosperedasaresultoftheinventionofthe telegraph,therailroad,andautomatedfarmmachinery.

Asearlyas1853theuseofmassproduction,interchangeableparts, 4 andautomaticmachinesbecameknownastheAmericanSystem. The primaryobjectiveofAmericanindustrywasnotsomuchtomakeluxury itemsfortherich,buttosatisfythedemandsoftheaverageworkerfor materialpleasuresthatindeedwouldhavebeenconsideredluxuriousin 5 otherlands. Theepitomeofthisphilosophywasreachedintheproduction linesofHenryFord.EarlyautomobilesproducedinEuropewerehandmade andexpensive.Fordsucceededinincreasingproductivityinautomotive manufacturingtothepointwherecarscouldbemadeinexpensiveenough forworkingpeopletoafford. Today,increasedproductivityhasbecomemoreofanecessitythana luxury.Thehighproductivityofmodernagricultureisallthatstands betweentheearthsexplodingpopulationandmassstarvation.Newhybrid seeds,modernfertilizers,pesticides,andadvancedfarmingtechniqueshave enabledarelativelysmallnumberoffarmerstoproducelargequantitiesof highqualityfoodonalimitedamountofarableland.Ifitwerenotforhigh productivityinagriculture,virtuallytheentireworldspopulationwouldbe reducedtomalnutritionandstarvation. Onehasonlytoobservethedesperatepovertyofprimitive agriculturalcommunitiesinremoteregionsofAfricaorAsia,orrecallthe terriblehardshipsoftheearlyAmericanprairiefarmers,torealizehowclose wearetothethresholdofsurvival,andhowmuchwedependuponmodern agriculturaltechnology.Asthepopulationdoublesoverthenextfourorfive decades,therewillbealargerincreaseinthenumberofpeoplethaninallof previoushistory.Undertheseconditions,higherproductivityinagriculture willbeabsolutelynecessaryinordertoavertcatastrophicshortagesand 6 famine. Highproductivityinthemanufacturingandserviceindustriesisalso essentialforadequatehousing,transportation,sanitation,education,and medicalcare.Moderntoolsandfactoriesandefficientmethodsfor processingrawmaterialsiswhatproducesenoughwealthoverandabove meresubsistencesothattheaveragepersoncanenjoyadecentstandardof living.Futureproductivityincreaseswillberequiredjustinorderto maintainthepresentstandardoflivinginthefaceofrisingpopulationand dwindlingnaturalresources.Ifweeverhopetoadvancebeyondourpresent qualityoflifetowardanyofthecostlybutsociallydesirablegoalssuchas betterhealthcare,morelivablecities,andacleanerenvironment,majornew increasesinproductivitywillbeneeded.Inaworldwherepopulation demandsareincreasingandnaturalresourcesarerunningshort,increased productivityistheonlywaythatasubstantialdeclineinthequalityoflife

canbeavoided.Theoccurrenceofworldwideshortagesandrampant inflationisonlytheleadingedgeofmuchmoreseriouseconomicproblems thatwillinevitablyresultifproductivityisnotincreasedrapidlyenoughto meettherisingdemandsofemergingnationsandaburgeoningworld population. Itonlystandstoreasonthattheincomeanysocietyenjoyscannot exceedtherateatwhichitcreateswealth.Ifthepeopleandmachinesina societyareinefficientandcreatewealthslowly,thenthatsocietywill inevitablybepoor.Conversely,ifasocietydirectsitsworkefforts productivelyandifmachinesandtechnologicalinnovationsaredeveloped thatincreasetherateatwhich wealthiscreated,thenthatsocietywillbe affluent.Relativewealthandpovertywithinasocietydependontheequity withwhichtheincomepieissliced,butthetotalsizeofthepieitself dependsonthewealthcreatingcapacityoftheproductiveprocesses employedbythesociety.

ProductivityandtheStandardofLiving TherelativelylargeincomeenjoyedbytheaverageAmericanworker andthehighstandardoflivingofthemajorityoftheUnitedStates populationresultdirectlyfromthefactthatproductivityinAmerican 7 industryhasfordecadesbeenthehighestintheworld. FigureIV1shows therelationshipbetweenproductivityandgrowthinrealincome(i.e., incomethatisleftaftertheeffectsofinflationhavebeensubtracted)in Americasince1950.Ascanbeseen,thereisaveryclosecorrelation 8 betweenthetwocurvesoverthepastquartercentury.DatafromSamuelson showsnearlythesamedegreeofcorrelationgoingallthewaybacktothe year1900.

FigureIV1. Realincome(incomethatisleftoveraftertheeffectsof
inflationhavebeensubtracted)iscloselycorrelatedwithproductivity. Thisresultsfromthefactthatrealincomeisbasedonrealoutput.

FigureIV2showsthesamerelationshipforsevenindustrialized nationsoftheworld.Clearly,growthinrealincomeisdependentongrowth inproductivity.

FigureIV2. Growthinrealincometracksgrowthinproductivityinall
industrializedcountries.Onlyifmoreisproducedcanmorebeconsumed.

TherecenteconomicdifficultiesoftheUnitedStates(thatevenbefore themideastoilembargohadgivenrisetobalanceoftradedeficits,two devaluationsofthedollar,sporadicshortagesofcriticalitems,andrising prices)havebeendueinlargeparttothefactthatoverthepasttenyear periodproductivitygainsinAmericanindustrieshavefallenofffromtheir 9 previousonehundredyearsaverage. DuringthisdecadeAmerican productivityincreasestrailedmostoftheindustrialnationsoftheworld, causingourinternationaleconomicpositiontodeterioratemarkedly. ThereisnoquestionthatAmericantechnologyandproductivityisstill thehighestintheworld.However,datainFiguresIV2andIV3,showing therateofUnitedStatesproductivitygrowthrelativetootherindustrialized nations,indicatesasituationthat,ifcontinued,willsooneradicateour presentlead.DepartmentofCommerceeconomistMichaelBoretsky calculatesthatduringthe19651971periodtheUnitedStateswaslosingits productivityadvantageatarate2timesasfastasitachieveditspre eminentpositionintheyearspriorto1950.In1970,theUnitedStatesoutput percapitarelativetotheaggregateofothercountrieshadalreadydeclinedto 10 thelevelithadbeenattheturnofthecentury.

FigureIV3. ProductivityintheUnitedStatesisstillthehighestinthe
world.However,U.S.productivitygrowthhastrailedmostofthein

dustrializednationsoftheworldforwelloveradecade.

BoretskyarguesthattheriseoftheUnitedStatestobecomethe dominanteconomicpowerintheworld,whilecertainlyinfluencedbythe devastationofothercountriesinWorldWarII,wasprimarilyduetothefact thatproductivitygrowthintheUnitedStatesfrom1870to1950averageda 11 mere0.9percenthigherthantherestoftheworld. Thedramaticreversal ofthissituationtowheretodaywetrailtheworldaveragebyafull3.0 percent,andJapanbymorethantwicethatamount,revealsadisturbing weaknessintheAmericaneconomy. ForeignbusinesseshavealreadybeguntoviewAmericaasafuture sourceofcheaplabor.VolvoandVolkswagenarenowbuildingassembly plantsintheUnitedStatesbecauseofchangesintherelativesalariespaidto 12 workersinSweden,Germany,andAmerica. Thisisaturnofeventsthat wouldhavebeeninconceivableonlytenyearsago.Ifpresenttrends continue,thisphenomenonmaygrowincreasinglycommonplaceinthe yearsahead.Unlessproductivityisincreasedoverthecomingdecades,the Americanstandardoflivingiscertaintodeclinerelativetotherestofthe worldand,quitelikely,inabsolutetermsaswell.

TheEffectofInvestment Intheshortterm,productivitytendstofluctuatewiththebusiness cycle.Whenplantcapacityisfullyutilizedandemploymentislow,as duringtheearlyphaseofarecoveryperiod,productivitytendstorise. Similarly,atthebeginningofarecession,productivitytendstofall. Inthelongterm,however,productivityincreasesderivefrommuch morefundamentalcauses.ThreestudiesbyDenison,Thurow,andKendrick attributethevastmajority(76.7percent,69.8percent,and90.7percent respectively)oflongtermproductivityincreasestomorecapital,economies 13 ofscale,orimprovedtechnology. Investment,ofcourse,isthesourceofall ofthese.Investmentspendinginsomecasesfinancesthereplacementof obsoleteequipmentorthemodernizationofexistingplantsandfacilities.In othercases,investmentmoneypurchasesnewmachineryforworkerswho hadpreviouslyusedlessefficientmethods.Investmentspendingalso financesresearchanddevelopmentofnewtechnologythatleadstobetter machines,lessexpensivematerials,andmoreeffectivemethodsof

production.Overthelongrun,investmentinnewtechnologyisthe fundamentalsourceofallproductiveoutputoverandabovethatwhichis possiblebyunassistedhandlabor. ThedatainFiguresIV4andIV5indicateastrongcorrelationbe tweenproductivityincreasesandtheinvestmentrateonanationalscale. Thosecountriesthatinvestedahighpercentageoftheiroutputinnew factories,modernizedequipment,andnewtechnologyshowedalarge growthinoutputpermanhourthosethatinvestedlessshowedslower productivitygrowth. Thisrelationshipisstrongevidenceforthetheorythatproductivityis ultimatelyderivedfromnewtechnology.Investmentspendingisthemeans bywhichasocietychannelsitsresourcesintoresearchanddevelopmentand bywhichitstimulatesthediffusionofnewtechnologythroughthebuilding ofnewplantsandmodernizedequipment.Weproducemoreandbettercars, ships,planes,dishwashers,computers,andtelevisionsetstodaythanfifty yearsagonotbecauseweworkharderorbecauserawmaterialsaremore plentifulorlessexpensive,butbecauseweknowmoreandweuseour knowledgetobuildmachinesandfactoriesthatproducemoreoutputwith lessinput.Itisoftensaidthattheydontbuildthingsliketheyusedtoand thatistrue.Iftheydid,eithermostworkerswouldhavetotakea90percent paycut,ormostgoodswouldcosttentimeswhattheydotoday.

FigureIV4.Whatcausesanationsproductivitytogrow?Thischart
showsthatcountrieswithahighrateofinvestmenthavehighproductivity growth,andviceversa.Thisimpliesthatproductivitygrowthisnot serendipitousorbeyondhumancontrol.Instead,itisthedirectresultof economicpoliciesthatpromoteinvestmentsinnewtechnologyandin moreefficientplantsandequipment.

IthassometimesbeenarguedthatthehigherproductivitygrowthofEurope andJapanisatransitoryphenomenonresultingfromtheinstallationof modernizedequipmentafterthedestructionofWorldWarII.Thedatain FigureIV4,however,doesnotsupportthatcontention.Countriestotally destroyedbythewarshowessentiallythesamerelationshipbetween investmentandproductivitygrowthasthoselargely,orcompletely,spared. Furthermore,ithasbeenmorethanaquartercenturysincethewarended, and,exceptfortherecentworldwiderecession,therehasbeennoslackening inthegrowthratesofeitherEuropeorJapan.Thereis,infact,goodreason toexpectthattheUnitedStatesproductivitygrowthwillcontinuetotrail othercountriessimplybecausewehavefailedtomodernizeourcapital equipment.InJapan70percentofallmachinetoolsarelessthan10years old.InWestGermanythefigureis63percent,intheSovietUnion57 14 percent,andintheUnitedStatesonly33percent. Thisimpliesthatthe Japanesehavereplacednearlytheirentirestockofmachinetoolsthreetimes oversincetheendofthewar.

FigureIV5.Productivity(i.e.,outputpermanhour)isclosely
correlatedwiththeamountof sophisticatedtoolsandcapitalequipment perworker.Thedatashownhere,togetherwiththatinFigureIV4 stronglyimplythatU.S.productivitycouldbeincreasedbyincreasingthe capitalinvestmentrate.

Thesimplefactisthatotherindustrializednationsareinvestingata muchhigherratethanwe.Theresult,unsurprisingly,isthattheyhavea muchhigherrateofproductivitygrowth.Theobviousimplicationsarethata nationcancontrolitsproductivitygrowthratethroughitsinvestmentpolicy. Forexample,onemightsuggestfromthedatainFigureIV4that,ifthe UnitedStatesweretodoubleitsinvestmentrate,productivitygrowthwould morethantriplefromitspresentrateofabout3percenttoover10percent peryear. Overthepast25years,3percentannualgrowthinproductivityhas doubledtherealGNP.Ifthepresentrateiscontinueduntiltheturnofthe century,realGNPwillapproximatelydoubleagain.However,ifthe investmentrateweredoubled,leadingtoatenpercentproductivitygrowth asshowninFigureIV6,realGNPwouldincreasebymorethantenbythe year2000.PresentGNPisapproximately$1.5trillion.Continuingthepres entrateofproductivitygrowthwillyieldaGNPof$3trillionby2000. However,tenpercentproductivitygrowthwouldleadtoarealGNIofmore than$16trillionin1975dollars.Thedifferencealoneismorethantriplethe 16 entireworldGNPin1970.

FigurelV6.Productivitygrowthistheprinciplefactorcausingreal
growthintheGrossNationalProduct(GNP).Increasingproductivity growththroughahigherrateofcapitalinvestmentwouldhaveaprofound impactontheGNPoverthenextquartercentury.

Clearly,thisisamatterofenormousconsequence.AGNPsurplusof $13trillionoverwhatwouldotherwisebeconsiderednormalwouldmean thateventhemostexoticsolutionstotheproblemsoftheenvironment wouldbecomeeconomicallyfeasible.Wecouldaffordtocollectsolar energyordigforgeothermalpoweranywhereonearth.Wecouldaffordto convertallindustry,homes,andtransportationtohydrogenfuel.Wecould processallsewageandfarmdrainagetothepurityofrainwater.Atthesame time,wecouldaffordtoremakeourcities,providethebestinhealthcarefor everyone,andguaranteeadequateretirementincometoall. Ofcourse,manyeconomistswoulddisagreethatsimplydoublingthe investmentratewouldtripleproductivitygrowth.Theburdenofproof, however,isonthosewhosayitwouldnot.Itisdifficulttointerpretthedata inFigureIV4inanyotherway. Itmightbearguedthatrecentchangesinworldconditions, particularlyinregardstotheavailabilityofnaturalresources,willrenderthe dataofFigureIV4irrelevanttopredictionsconcerningthenexttwentyfive years.However,asyetthereisnoevidencetoindicatethattheeffectof

investmentontechnologicalinnovationsandhenceonproductivityhas lessened.Infact,quitetothecontrary,therearenumerousreasons(tobe outlinedinthenextchapter)forbelievingthatoverthenexttwodecades newtechnologyinthefieldofcomputersandrobotswillmakeproductivity evenmoresensitivetotherateofinvestmentthanwasthecaseduringthe 19601972period. ItalsomightbearguedthattheUnitedStateshasnomechanismby whichtheinvestmentratecouldbedoubled.Atthepresent,thisistrue. However,iftheeffectswouldbeasprofoundassuggestedabove,thenit wouldseemthatthecreationofsuchamechanismshouldbemadeanumber onenationalpriority. TheThreattoJobs Inthefinalanalysis,theprincipalargumentagainstamajorshiftinnational policytowardsincreasingproductivityliesinthethreattoemployment. Increasedproductivityimpliesgreateroutputfromthesameorlessinput. Fromtheverybeginningoftheindustrialrevolution,increasedproductivity hasderivedprincipallyfromthesubstitutionofmachinesandmechanical energyforhumanlaborintheproductionprocess. Automaticmachinesincreasetheamountofoutputthatthelaborforce canproduce.Machinesareessentiallyhelpersorservantsthatworkfor nothingoverandabovethepriceoftheirownpurchaseandmaintenance. Themodernindustrialworkerissurroundedbythesehelpers,and,asa result,outputpermanhourislargeandwagesarehigh. Unfortunately,thecapabilitiesofmechanicalhelpersarenotan unmixedblessing.Thepracticeofdistributingalmostallincomethrough wagesandsalariesvirtuallyassuresthatautomaticmachineswillsooneror laterchangerolesfromhelperstocompetitors.Humanworkerstypically ownnopartofthemachineswithwhichtheywork.Themachinesbelongto thecompanythatpaystheworkerswages.Therefore,humanworkers benefitfromthewealthproducingcapabilitiesofautomaticmachinesonly solongastheyremainemployed.Asmachinesgrowmoreefficient,they producemorewealth,andthehumanworkerswagesriseaccordingly. Eventually,however,themachinesbecomeproficientenoughtofunction withouthumanassistance.Atthatpoint,humanworkersservenofurther function,andtheirinflatedsalariesmakethemacostlyliability. Toanemployerwhosesurvivaldependsonquestionsofprofitand loss,itmatterslittlewhetherafactoryemployspeopleormachines.Infact, inmanywaysmachinesarepreferabletopeople.Machines,unlikehuman

workers,donotcreatepersonnelproblemsorgeneratelabordisputes.Ma chinesarewillingtoworktwentyfourhoursaday,sevendaysaweek,fifty twoweeksayear,withoutcoffeebreaks,lunchperiods,orvacationtime. Machinesnevergetboredorsufferfromhangovers.Oncetheyareadjusted properly,theyrepeatedlyproduceproductsthatarefreefromdefects. Furthermore,machinesneverpilfermaterialfromthecompanystoreroom. Thus,whenanemployerfindsasituationwhereamachinecandoajob moreprofitablythanahumanworker,itisalmostinevitablethatthe machinewillwinout. Itisnowonderthatlaborunionsandthepublicingeneralare ambivalenttowardsautomation.Automaticmachinesareclearlyessentialto theproductionofthewealthuponwhichourcurrenthighwages,andindeed ourentirewayoflife,isbased.However,theaveragepersonbenefitsfrom thesemachinesonlysolongasheremainsemployed.Ifthemachinesthata workeroperatesbecometoosophisticated,theycangetalongwithouthim. Theythenbecomeathreattotheverywagesthattheymadepossibleinthe firstplace.Asaresult,wehavetheparadoxicalsituationwhereautomation isgenerallyconcededtobeamajorsourceofournationalwealth,yetnew advancesinautomationarewidelyfearedandoftenactivelyopposedbya largesegmentofthepopulation.Theaverageworkerperceiveshisown personalfinancialfuturetobemuchmoreimmediatelydeterminedbyjob securitythanbythegenerallevelofproductivityinindustryasawhole,and rightlyso.Afterall,itissmallconsolationtoknowthatproductivityhas risenafractionofapercentagepointifyouhavejustlostyourjob. AutomationandPower:EconomicandPolitical Thereareotherfactorsbesidessimplefearoflosingincomethat contributetopublicantipathytowardsautomation.Oneoftheseisa widespreadfeelingthatthecurrenttrendtowardsmachinestakingover importantfunctionsinbusiness,industry,andevengovernmentispolitically dangerous.Unfortunately,thepresentincomedistributionsystemmakesthis fearverywellgrounded,althoughnotforthereasonsmostusually expressed.Popularsciencefictionliteratureandmoviestypicallydepict futurehordesofrobotsrebellingordevelopingpsychosesthatleadthemto threatentheirhumanmasters.Thefactis,however,thatalthoughsuchscare thrillershavedramaticimpact,theycompletelymissthepointofthereal danger,andthusserveonlytoobscuretheissue. Therealthreatimplicitinsocalledsuperautomationderivesnotfrom anypotentialneurosesofthemachinesthemselves,butfromthe

concentrationofeconomicandpoliticalpowerthatwillfallintothehandsof machineowners.Underthepresentincomedistributionsystem,theprofit resultingfrommachineproductivityaccruesdirectlytotheownersofthe machinesfirst,andonlybythemisitdistributedviatheavenueofwages andsalariestotheworkers.Thismeansthateachincreaseinautomation leadstoanenhancementofthepowerofmachineownersandtoagreater degreeofdependencyonthepartoftheaverageworker.Asmachines becomemoreandmorecapableofoperatingwithouthumanassistance,the humanworkersbecomelessandlessessentialtotheactualproductionof wealth.Ahighlypaidbutfunctionallysuperfluousworkforceisvulnerable topressuresfromtheemployerestablishment.Suchaworkforce,even thoughprosperous,ispoliticallyimpotent,foritsprosperityexistssolelyat thepleasureofthemachineowners. TheConcentrationofOwnership AccordingtotheDepartmentofCommerceSurveyofCurrent 17 Business onepercentofthefamiliesintheUnitedStatespresentlyown over50percentbyvalueofallcorporatestock.Lessthanfivepercentof Americanfamiliesownmorethantwothirdsofallstock.Thus,lessthan fivepercentofthepeopleinthiscountrycontrolalmostallcorporateassets, includingvirtuallyallexistingindustrialmachineryandcapitalequipment. Thisconcentrationofeconomicpowerinthehandsofatinysuperrichelite 18 showsnosignificanttendencytowardsdecreasing. Theprevailingpractice amonglargecorporationsistofinancenewcapitalinvestmentfrominternal cashflow(i.e.,withheldearnings,depreciation,depletion,amortization allowances,andinvestmentcreditsagainstcorporatetaxes)ratherthan throughissuanceofnewstock.Forexample,from1955to1965,lessthan 0.5percentofaggregatenewcapitalformationcamefromnewlyissued stockwhile99.5percentwasfinancedthroughinternalsourcesorthrough 19 debtsecuritiesthatwouldeventuallyberepaidthroughinternalsources. Itisunderstandablethattheaverageworkerfeelsuneasyatthe prospectofrobotsandsuperautomationtechnology.Thegreatmajorityof automaticmachinesinAmericanindustryareownedandcontrolledbya relativelysmallgroupofmenandwomenwhoareaccountabletohardly anyonebutthemselves.Unlesssomechangesaremadeinthepresentsystem ofownershipandincomedistribution,thenextgenerationofautomation couldreducetheentireeconomicsystemtocompletedominationbyfew superrichfamilies. UnderthesecircumstancesitisinconceivablethattheAmerican

peoplecouldbepersuadedtosupportanylargeprogramofcorporatetax cutsorinvestmentincentivesdesignedtoincreasecapitalinvestment, despitetheneedsforincreasedproductivity.Thebenefitsofincreased productivityaretoogeneralanddiffuse.Thefearofunemploymentandthe concernoveragrowingconcentrationofeconomicpoweraretooclearand specific.Theaveragecitizensimplydoesnotseehimselfasthebeneficiary 20 ofmassivecapitalinvestmentsinbigbusiness. Themultinational corporationsandthebigconglomeratesareperceivedmoreasthreatsthanas benefactors. Insuchanatmosphere,reallymajoreffortstoincreaseproductivity arepoliticallyimpossible.Aslongasincomeisdistributedalmost exclusivelyascompensationforlabor,massivenewinvestmentsin automationtechnologywouldthreatenthesecurityofvirtuallyevery Americanfamily.

TheAdventofSuperautomation
Surelythedevelopmentoftheelectroniccomputerwillbeviewedby futurehistoriansasoneofthegreatmilestonesinhumanhistory.The introductionofthecomputerintothemanufacturingprocesscarriesthe potentialforchangesasprofoundasthoseresultingfromthedevelopmentof thesteamengineorthediscoveryofelectricity. Thecomputerisqualitativelydifferentfromallothermachinesin severalimportantrespects.First,itsfundamentalmechanismsareelectronic ratherthanmechanical.Asaresult,acomputercanoperatemanyordersof magnitudefasterthanotherdevices.Typically,itcanperformabouta millionseparateanddiscreteoperationseverysecond. Second,acomputerdoesnotwearoutinanynormalsenseofthe word.Althoughsemiconductorcomponentsdodeteriorateasafunctionof ageandtemperature,thisdeteriorationisnotappreciablyaffectedbyuse.A computerdoesnotageanyfasterwhenbeingoperatedattopspeedthanit doeswhensittingcompletelyidle. Thirdandmostimportant,acomputercanstoreandmanipulatelarge quantitiesofinformation.Acomputercanstoreinstructions,makedecisions, calculateformulae,andexecuteprocedures.Asaresultcomputersareable tomanagebusinesses,schedulefactories,maintaininventories,andcontrol manytypesofmechanicalsystemsintheperformanceofcomplicated operations.Intheory,ifnotyetinfact,computersarecapableofperforming almostallofthedecisionandcontrolfunctionscurrentlydonebyhumansin 1 thebasicmanufacturingindustries.

ComputerAidedManufacturing Computercontrolledmachinesandautomaticfactoriesarenolonger sciencefictionfantasy.Manyhundredsofcomputercontrolledmachine toolsarealreadyinoperationthroughouttheUnitedStatesandtheworld, 27 andseveralcomputercontrolledfactorieshaverecentlybegunproduction. AtechnologyforecastconductedbytheUniversityofMichiganpredictsthat by1980computersystemsforfullautomationwillbeusedinthe manufactureofatleastonefourthofallparts,andby 1985approximately60 8 percentofallmachineloadingandschedulingwillbedonebycomputers. Recentadvancesincomputeraideddesignrevealjustthemeresthint ofwhatwillsoonbenotonlypossiblebutroutine.Engineers,architects,and

scientistsarenowabletousethecomputerasadesigntooltosketchobjects inthreedimensions,tovisualizehowpartsandstructuresfittogether,andto 9 analyzetheperformanceofelectroniccircuits. Adesignercancommunicate withthecomputerthroughakeyboard,adraftingmachine,oracomputer 10 controlleddisplaydevicesimilartoahometelevisionscreen. Present computeraideddesigntechniquesoftenreduceengineeringanddrafting 11 costsbyafactorofthreeormore. Inthefutureitwillbepossibletoconnecttogethercomputeraided designequipmentwithcomputercontrolledmachinetools.Thiswillmakeit possibleforanengineertodesignapartatacomputerterminalinhisoffice. Whenheissatisfiedwiththedesign,hewillbeabletopush abuttonand causecomputergeneratedcontrolsignalstobetransmittedtoanautomatic machinetool,perhapsmanyhundredsofmilesaway,wherethepartwill actuallybeproducedwithoutfurtherhumanintervention. Computerapplicationsinmanufacturingpromiseevenmoredramatic results.Overthepasttwodecadesenormouscostreductionsinmetalcutting, particularlyintheaerospaceindustry,havebeenachievedbytherather simpleexpedientofoperatingmachinetoolsundercontrolofamagneticor 12 papertaperatherthanhumanoperators. Numericallycontrolledmachine toolsroutinelyresultinproductivityincreasesof150to400percentin 13 presentjobshopenvironments. Recently,directcomputercontrolhasbeen added.Since1970,lowcostminicomputershavebecomeavailablethat makeiteconomicaltodedicateanentirecomputertocontrollingasingle machinetool.Preliminaryresultsshowthatdirectcomputercontrolcan produceincreasesof3to10timesinmachineproductivity,andevenmore 14 dramaticimprovementsseemlikelyinthefuture. Computersalsohavepotentialapplicationsincontrollingautomatic assemblymachines,automaticpartshandlingrobots,automatic 15 warehousingandinventorysystems, andfinally,computerbased managementandfactoryschedulingsystems.TheRandCorporationhas estimatedthat,ifcomputerswereemployedincontrollingallthesesteps,ov erallreductionsintotalmanufacturingcostsoftwotofourtimesare 16 achievable. Therearetwoimportantfactorsconcerningcostreductionsobtainable throughtheuseofcomputersinmanufacturingthattendtomakethebenefits extendfarbeyondtheindustrialsectoroftheeconomy.Thefirstisthatthe basicmanufacturingindustriesarethefoundationstoneupon whichthe entiresocioeconomicsystemrests.Thecostofmanufacturedgoodsaffects agricultureandtheserviceindustriesasmuchasitaffectsthemanufacturing industriesthemselves.Thecostoftractors,combines,milkingmachines,

irrigationequipment,fertilizer,fencing,andfarmbuildingsalldependonthe costofmanufacturedgoods.Thesameistrueintheservices.Thecostof telephones,trucks,planes,railroads,typewriters,schools,books,hospitals, medicalequipment,furniture,houses,even thecostofchurches,vacation resorts,andsportinggoodsdependsontheefficiencyofthebasic manufacturingindustries.Ofcourse,thecostofallrawmaterialssuchas steel,aluminum,concrete,oil,andnuclearpower,aswellasfuturecostsof solarandgeothermalenergy,dependsonthecostofmanufacturedmaterials. Thus,anysignificantreductionincostinthemanufacturingindustrieshasa multipliereffectthatripplesthroughtheentireeconomy. Asecond,evenmoreimportantfeature,ofcostreductionsin manufacturingisthattheyareregenerative.Forexample,ifthecostofa machinetoolisreduced,thenthecostofanothermachinetoolproducedby thelessexpensivetoolwillbelessexpensivestill. Today,machinesareusedtomakemachines.Anybasicimprovement intechnologythatincreasesproductivityatthispointintheeconomyhasa regenerativeeffect.Ittendstomakethecostofwealthproducingcapital equipmentspiraldownwardexponentially.Studiespredictthatevenfirst generationcomputercontrolledfactorieswillbenomoreexpensivethan conventiona1plantsdespitetheirgreatercomplexity.Theymay,infact,be cheaperbyasmuchastwotoone.Secondandthirdgenerationautomatic factoriesmaybefiveortentimescheaper. Thefactthatthisregenerativeeffectdoesindeedoccurinbasic manufacturingindustriesisdramaticallyillustratedbythehistoryofthe computerindustry.Computeraideddesignandcomputeraided manufacturingtechniqueshavebeenusedmostextensivelyinthedesignand constructionofcomputersthemselves.Computersarebuiltfrom semiconductordevicesofastoundingcomplexityetchedonincrediblytiny chipsofsilicon.Theprocessesinvolvedindesigning,manufacturing,and testingthesedeviceswouldbeentirelyimpractical,ifnotimpossible, withoutcomputerassistance.Yetbyusingcomputers,theseprocessesare quiteroutineand,moreimportantly,inexpensive.Thetechniqueofusing computerstomakecomponentsforothercomputershasbeenamajorfactor inproducingspectacularcostreductionsinthesemiconductorindustry. Basicelectroniccircuitssuchasflipflops,thattwodecadesagocost$10to $100apiece,todayareavailablebythethousandsforonlyafractionofa centeach. Computersarealsousedintheassembly,wiring,andcheckoutof othercomputers.Itisquitecommontoseeacomputerbeingusedtocontrol theverymachinerybywhichititselfwasassembled.

Theeffectofthisregenerative,almostreproductive,interaction betweenproductandprocesscanbeseenintheperformanceversuscost characteristicsofcomputersoverthepasttwodecades.Thecostof computingpowerhasdroppeddramaticallyeversincetheinventionofthe firstcomputer.Inthe1950s,thecostoflargescalecomputingmachines waswellover$1million.In1970,thesamecomputingcapacitywas obtainableforlessthan$50,000,adecreaseincostof2000percentin15 years.FigureV1showsthedownwardtrendinthecostofminicomputers overthepastdecade.Thepriceofnewminicomputershasdroppedatarate ofover20percentperyear,andthereseemstobenoindicationthatthe trendisnearinganend.Infact,itmaybeaccelerating.

FigureV1.Thepriceofminicomputershasdroppedatarateof20
percentannuallyforoveradecade,andthereisnoindicationthatthetrend isnearinganend.

Between1965and1975,thecostofcomputingpowerintermsofbitsper 18 secondperdollardroppedbyapproximately5000percent. During thepastfewyears,ithasbecomepossibletoputentire computersubsystemsonasinglechipofsilicon.Thistechnologicalfeathas givenrisetoawholenewbreedofdevicesknownasmicrocomputers. Recentlymicrocomputershavebecomecommerciallyavailableforless 19 thanonehundreddollars, andpredictionsarethatby1978thesedevices willcostlessthantendollars.

Theimpactofthisspectacularreductioninthecostofcomputershas beenenormous.First,ithasrevolutionizedentireindustriessuchasbanking andinsurance.Second,ithasmadepossibletechnologicalachievementsin spaceexploration,nuclearresearch,andelectronicsdevelopment,including homestereoandtelevisionequipmentandpocketcalculatorsthatwould havebeeninconceivableotherwise.Butbyfar,themostimportantlong rangeeffectshaveyettoberealized.Thesewilloccurwhenthedecision makingandcontrolcapabilitiesofcomputersarefullyappliedtothebasic manufacturingprocessessuchassteelmaking,toolanddiedesign,metal cutting,assembly,andinspection. Todaythecostbenefitsofmassproductionareachievableprincipally foritemsthatareproducedinquantitiesofmanythousandsperyear.Thisis becauseexpensiveandcomplexmachineryisprofitableonlywhenitiskept busy.Massproductionmachinesarehighlyspecializedandcapableof manufacturingonlyoneproductor,atbest,afewdifferentproductsof nearlythesametype. Computerbasedautomation,however,isflexible.Theinformation concerninghowpartsshouldbeshaped,whereholesshouldbedrilled,and howpiecesshouldfittogetherarestorednotinthemechanicalstructureof theproductionline,butintheeasilychangedmemoryofthecomputer. Computerbasedautomationcanbeswitchedfromthemanufactureofone itemtoanotheralmostinstantaneously.Machinerycanbekeptbusyby manufacturingsmallamountsofmanydifferentitemsaswellaslarge amountsofonlyoneitem.Theprospectforthenearfutureisthatcomputer controlledautomationwillmakesmalllotmanufacturingaseconomicalas massproductionistoday.NathanCookofMITpredictsthatcomputersand robotsmayreduceoverallcostsinsmalllotmanufacturingby80to90 20 percent. Theimplicationsofthisforsocietyarefarreaching,notsomuch becauseofthedirectimpactonconsumerproducts,sincemostoftheseare massproduced,butbecauseoftheregenerativeeffectsonthemanufacturing process.Themachinesusedformassproductionareexpensiveprimarily becausetheythemselvesareproducedinsmalllotquantities.Ifcomputer basedautomationweretoreducethepriceofsmalllotmanufacturingtothe levelofpresentdaymassproduction,thenthepriceofthemachinesusedfor massproductionmightdropbyafactoroftenormore.Sincethecapitalcost ofmachinery,togetherwithmaterialcosts,almostentirelydeterminesthe priceofmassproduceditems,reducedcostsinsmalllotproductionwould eventuallybereflectedinmassproduceditemsaswell. Therevolutionaryfeatureofthisprocessisthatitfeedsonitself.Less

expensivemachinerymakestheproductionofnewmachineryless expensive.Whenautomaticfactoriesbegintomanufactureautomatic factories,costreductionswillpropagateexponentiallyfromgenerationto generation.Theintroductionofcomputersintothemanufacturingprocess thushasthepotentialforincreasingproductivityonascaleneverbefore conceivable.Eventuallythecostoffinishedmanufacturedgoodsmayfallto onlyslightlyabovethecostofunprocessedrawmaterials.Uthisever occurs,theexpenseofproductionwillbecomevirtuallyindependentofthe complexityofthemanufacturingprocesses. Theself regenerativepropertiesofautomaticfactoriesare unprecedentedinnonbiologicalsystems.Theirpotentialimpactisso overwhelmingthattheentireconcepthasanairofunreality.Tosomeitmay evensuggestthenotionofperpetualmotion.Itmightbeuseful,therefore,to digressforamomenttopointoutthedistinctionbetweensellregeneration andperpetualmotion. Sellregenerationisthephenomenonthatresultswhenacomplex organismlikealivingcell(oranautomaticfactory)usesenergyand informationtoassemblerawmaterialsintootherorganismslikeitself.The secretofregenerationistheinformationthatdirectsandcontrolsthevarious stepsinthemanufacturingprocess.Themostimportantofthesestepsisthe duplicationoftheinformationitselfsothatsucceedinggenerationscancarry outthesameprocedures.Ofcourse,theactofselfregenerationcanalso produceusefulbyproductssuchasthefoodandoxygenthatareproduced byplantsintheirselfregenerativeactivities. Inbiologicalorganisms,itistheabilityoftheDNAmoleculetostore informationandcontrolbiochemicalprocessesthatenabletheliving organismtofunctionandreproduce.Inasimilarfashion,itistheabilityof computerstostoreinformationandcontrolmanufacturingprocessesthat raisestheseriouspossibilityofselfregulatingselfreproducingfactoriesand industries. Thecriticaldistinctionbetweensellregenerationandperpetual motionisinthesupplyofenergy.Selfregenerationrequiresanetinputof energyfromthesunorsomeotherexternalsource.Perpetualmotion proposesthatusefulworkcanbeproducedwithnonetinputenergy. Perpetualmotionhasneverbeenobservedtooccurinnatureandis consideredtobetheoreticallyimpossible.Selfregeneration,insharp contrast,notonlyispossible,butiscommonlyobservedinnatureandis,in fact,theprocessbywhichweallgothereinthefirstplace. Thefundamentalscientificknowledgenecessarytocreatesell 21 regulatingsellreproducingfactoriesisalreadyknown. Thatisnottosay,

however,thatmajorengineeringadvancesarenotstillneededinorderto 22 actuallybuildandoperatesuchplants. Thesituationissimilarinmany respectstothatwhichexistedin1960inregardstosendingamantothe moon.Now,asthen,thebasicscientificknowledgeisavailable.Thereare notheoreticalreasonswhysuchfactoriescannotbebuilt.Allthatisneeded isalargescalecommitmentofresourcesandmanpowertoaclearand 23 certaingoal. Aswasmentionedearlier,therehavebeenanumberof studiesand reportsthatconcludethatcomputercontrolledmanufacturingsystemsare notonlytechnicallyfeasiblebuteconomicallypractical.Insomeareas automaticfactorieshavealreadybegunproduction,andothersareinthe processofplanning,orconstruction.Noneoftheavailablestudiessuggest thatthecostofdevelopingthistechnologyforwidespreadusewouldbe anywherenearasexpensiveastheApollomoonexpedition. Amongthecriticalitemsthatstillneedfurtherdevelopmentarethe computerprogramsforoverallplanningandscheduling,andthematerials handlingsystems,orindustrialrobotsforloadingandunloadingparts, changingtools,performingassemblyoperations,andinspectingfordefects.
24

ComputersandRobots Atpresent,mostindustrialrobotsarenotcomputercontrolled. Instead,theyuseplugboards,potentiometers,orplatedwirememory systemsthatrestricttheircapabilitiestopreprogrammedoperationsofavery 25 simplenature. Industrialrobotstodayaretypicallyusedonlyforsuchtasks asunloadingdiepresses,spotweldingautobodies,andpickingupparts fromonepredeterminedpointandplacingtheminanother.However, researchisnowbeingconductedinseverallaboratoriesintheUnitedStates andabroadintotechniqueswherebyindustrialrobotsundercomputercontrol cansenseconditionsintheexternalenvironmentandadjusttheirown 26 programstocompensateformisalignmentsandvariationsindimensions. Computercontroltechniquesaredevelopedthataresimilartothemuscle controlcircuitryinthehumanbrain.Thesetechniqueswillallowrobotsto betaughtbehaviorpatternsmuchinthesamewaythatachildlearnstouse 27 itsownhands. Computerprogramshavealsobeendevelopedbywhich robotscan sensetheenvironment,makelogicaldeductions,andplantheir 28 owncourseofactionbasedontheirsensoryinput. Withinaveryfewyears,thisresearchcouldleadtoindustrialrobots capableofperformingmany,ifnotmost,ofthemanipulativeandassembly

tasksthatpresentlyrequirehumanworkers.Oncethesetypesofrobot operationsbecomepracticalinafactoryenvironment,theprimaryfunction ofhumanworkerswillbetosetupproductionruns,programtherobots,and thenallowthemachinestorunundercomputercontrol.Itwillthenbe possibleforfactoriestooperatefourshiftsperweekwithonlyoneshiftof humanlabor.Thisfactalonewouldproduceanalmostinstantaneous productivityincreaseof300percent. Onceindustrialrobotsarecapableofperformingsophisticated machining,assembly,andinspectionoperationsautomatically,itisperfectly feasibleforthemtobeusedtoconstructotherindustrialrobotsjustlike themselves.Thisstepwouldinitiatearegenerative,orreproductive,process similartothatwhichexistsinthecomputerindustry.Theresultwouldbean exponentialdeclineinthecostofindustrialrobots. Today,thebestindustrialrobotscostbetween$20,000and$60,000 29 each. Theadditionofcomputercontrolsystemstypicallybooststhiscost byanother$10,000to$30,000.Thisisfartooexpensivetojustify investmentformostpresentdayapplications,particularlyiftherobotsare operatedforonlyoneshiftperweek.However,oncethesemachinesare installedinanenvironmentwheretheycanoperatetwo,orthree,orfour shiftsperweektheeconomicpicturechangesdramatically.Presentday industrialrobotsoftenshowmorethan50percentperyearreturnon 30 investmentfortwoshiftoperation. Iftheregenerativeeffectofrobotsproducingotherrobotswouldresult inanythinglikethe20percentperyearreductionincostexperiencedbythe computerindustry,thepriceofevensophisticatedcomputercontrolled robotsmightfalltoseveralhundreddollarswithintwodecades.Suchacost, whenproratedfora168hourweek,wouldamounttoaneffectiverobot laborrateofonlypenniesperhour.Returnoninvestmentmightexceed100 percentoreven1000percentperyear. Thesearefactsthatareeitherterriblyfrighteningortremendously exciting,dependinguponwhethercomputercontrolledrobotsandautomatic factoriesareviewedasathreattotheeconomicvalueofhumanlabororasa potentialsourceofwealthforeveryone.Almostsurely,ifcomputersand robotsarecastintheroleofcompetitorstohumanlabor,thenhuman workerswilllosejustassurelyasJohnHenrywaseventuallyreplacedby thesteamdrill.However,iftheownershipoffutureautomaticfactoriesis sharedbyalargepercentageofthepopulationandifthewealthcreatedby automatedindustriesisdistributedsoastoincreasetheincomeofeveryone, thenthebenefitsofautomaticmanufacturingmaycompletelyeliminate poverty,notonlyintheUnitedStates,butthroughouttheentireworld.

Therangeofpossibilitiesisenormous.Itstretchesallthewayfrom widespreadhardshiptounprecedentedaffluence.Unfortunately,theexisting incomedistributionsystemcontainsnomechanismsdesignedtoprevent directcompetitionbetweenrobotandhumanlabor.Itisthusnotsurprising thatthereexistsnopublicsupportforamajornationalefforttoaccelerate thepaceofrobotdevelopment.Theproductivitygainsthatcouldstrengthen ournationeconomicallyandsolvemanyofourproblemsof risingcostsand dwindlingresourcessimplycannotbevigorouslypursuedinasocietywhere incomeissooverwhelminglydependentonwagesandsalaries. Lackofpublicsupport,ofcourse,willnotindefinitelydelaytherobot revolution.Thetechnologywilleventuallydevelopduetosimplemarket 31 pressures. Asecondindustrialrevolutioniscertainlycomingwhetherthe averageAmericanwantsitornot.Theworldeconomicsystemisstructured suchthatautomaticfactoriesareinevitable.Othernationsaremakingserious effortstoavailthemselvesoftheunprecedentedwealthcreatingcapabilities 32 ofsuperautomationregardlessofwhatwedo. Japan,forexample,has alreadycommittedmorethanonequarterbilliondollarstoresearchand 33 developmentincomputeraidedmanufacturingandrobottechnology. CurrentJapaneseplanscallfortheconstructionofaprototypeautomatic factoryforthemanufactureofmachinetoolstobecompletedby1980.This plantisofasizethatwouldordinarilyemploy700to800workers,butwill 34 requireonly10personstooperate. Ifthisprototypeplantissuccessful, otherautomaticplantswillbeconstructedimmediately.Itisentirelypossible thatwithintwodecadesJapanesemachinetoolswilldominateworld 35 marketsthewayJapanesecamerasandelectronicproductsdotoday. Othercountriesarealsoawareofthepotentialeconomicbenefitsofrobot development.Norway,Sweden,WestGermany,andtheSovietUnionall havevigorousresearchprogramsinrobottechnologyandcomputerbased 36 manufacturing. TheUnitedStatesisnolongertheonlytechnologically sophisticatedcountryintheworld.TheRussiansprovedthatwithSputnik.If weignorethisnewtechnologyorifwesimplyallowmarketforcesinthis country toprovidealltheincentivesforitsdevelopment,wedosoatgreat peril. Robottechnology,likecomputertechnology,hasmilitaryaswellas economicimplications.Anycountrythatdevelopsthecapacitytorunits factoriesaroundtheclocksevendaysperweekwithonlyafewhuman workerswillhaveatremendousadvantagebotheconomicallyandmilitarily. Ifnothingelse,thiscapabilitywouldallowmilitaryweaponstobeproduced invirtuallyunlimitedquantitiesatextremelylowcosts.But,evenassuming thatsuchplantswereneverusedformilitaryproduction,thecountrythat

possessedsuchalargesurplusofefficientproductionfacilitiescouldeasily dominatetheworldeconomicallysimplybysellingmanufacturingcapacity atratesfarbelowwhatcountriesusinglessefficientmethodscouldhopeto 37 match. Inmanydifferentways,thedevelopmentofmachinesthatcancreate wealthunattendedbyhumanworkersand,inasenseevenreproduce themselves,haspotentialhistoricalsignificancethatisdifficulttoproject.It isalmostasifanewraceofcreaturesweretovisittheearthandofferto workatsubstantiallyzerowagesandproduceoffspringinperpetuity.Such aneventwouldbeboundtohaveprofoundeffectsonhumanhistoryatleast asgreatasanyscientificdiscoveryorpoliticalrevolutionthathasevertaken place. Whetherthiseventresultsinunprecedentedbenefitsoreconomic chaosdependslargelyonwhetherwecandevisesatisfactoryanswerstothe questions:Whoownsthesemachines?Whocontrolsthem,andwhogets thewealththeycreate? Thesearequestionsthatgototheveryheartoftheincomedistribution system.Aslongaswehaveasysteminwhichonlyatinyminorityofthe peopleownorcontrolvirtuallyallofthewealthcreatingcapitalstock,and therestofthepopulationmustrelyonsellingtheirlaborforincome,wewill haveasituationwhereautomaticmachinesandadvancedtechnologywill inevitablythreatenthesecurityandpersonaldignityoftheaverageperson. Onlyifwecandeviseameansbywhicheveryonecanshareinthecontrolof moderntechnology,aswellasinthewealththatitcreates,willthefantastic capacitiesofthecominggenerationofsuperautomationbereleasedtoassist mankindinsolvingtheurgentproblemsofoursociety.

VI

PeoplesCapitalism:AnAlternative
Wherethestimulustoinvestmentisconcerned,thesystemis somewhatinthelapofthegods. PaulSamuelson Thegreattragedyofthepresenteconomiccrisisisthatitisphysically andtechnologicallyavoidable.TheUnitedStates,andindeedtheworld,has morewealthandpoweratitsdisposaltodaythanatanyprevioustimein history.Theworldsstockofcapitalgoodsislargerthanithaseverbeen. Thereexistsmoremanagerialexpertiseandalarger,morehighlytrained laborforcethaneverbefore.Therearemoremachines,computers,scientific andtechnicalknowledgeavailableforcreatingwealththanhaseverexisted duringthelifetimeoftheplanetearth.Wehavethephysicalcapacityto producemanymoregoodsthanarenowproducedatmuchlowerpricesthan nowexist.Wehavemanymorejobsthatneeddoingthanthereare unemployedpersonsseekingwork. Fewpersonswhoexperiencedthedramaticeventsoftheearly1940s wouldquestionthat,ifAmericaweretomobilizeforanothermajorwar,the 1 presenteconomicslumpwouldendabruptly. Peoplewouldbeputtowork newfactorieswouldbebuilt,oldfactorieswouldbemodernizedand operatedaroundtheclock.Manufacturedgoodswouldpourofftheassembly linesinsuchhugequantitiesthatwewouldhavetorevitalizeourrailroads andmodernizeourshippinginordertotransportit.WorldWarIIputa dramaticendtotenyearsofeconomicdepressionandstagnation.Workers prospered.Women,blacks,andthechronicallyunemployedwereputto work.Americamademoreprogressagainstpovertybetween1941and1945 thaneverbeforeorsince,includingtheKennedyyears,theEisenhower 2 Administration,andtheJohnsonGreatSociety. Yetmostofthegoodsthatflowedoutofthosedefenseplants benefitednoone.Theywereeitherconsumedinthefightingordestroyedas soonasthewarwasoverinordertopreventfloodingthecivilianmarket. Thisisaphenomenonthatdemandsexplanation.Isthereanyreasonthat buildingtanksandbombersmakesworkersmoreprosperousthanbuilding homesandsubways?Ifworkersprosperduringwartimedespitethefactthat mostofwhattheyproduceisdestroyed,thencertainlytheyshouldprosper evenmoreifthefruitsoftheirlaborsweredistributedsoastobenefit themselvesandsociety.Clearly,ifourindustrialcapacityweremobilizedfor thebenefitofmankindinthewaythatweknowitcanbeforwar,the problemsof poverty,pollution,andeconomicstagnationwouldceaseto

exist. Whyisitthat,whilehundredsofthousandsofhumanbeingsare starvingandhundredsofmillionsarelivingnearthethresholdof subsistence,wehavefactoriessittingidleforthousandsofhourseveryyear, andmillionsofablebodied,skilledworkersarelookingforjobs.Thereis somethingdesperatelywrongwiththefundamentalprinciplesofaneco nomicsystemthatallowssuchoverwhelmingneedtopersistwhileunused capacitysitsidle.Establishmenteconomistshaveahundredreasonsfor everythingthattakentogetherexplainnothing.Theycanbeataboutthebush endlesslyaboutinterestrates,capitalearnings,anddepreciatedratesof return,buttheycannotanswerthecentraleconomicquestionofthe industrialera.Whycantweusewhatwehavetoproducewhatweneed? Thesimplefactisthatmostofthetrulyfantasticcapacitiesofmodern technologyandindustrialpowerhaveneverbeenfocusedonthereally importantproblemsofhunger,pollution,andhumansuffering.Wehave wastedourresourcesontriviaandallowedthetalentsofmillionstolanguish inunderemploymentwhilesocialproblemsofextraordinarymagnitudecon sistentlygounattendedforlackofworkers.Wehavetheknowledgeandthe industrialcapabilitytoeliminatepovertyfromthespectrumofhuman problems.Thereare,infact,noeconomicproblems,includingthose resultingfromtheworldsexplodingpopulation,thatarebeyondourpresent physicalandtechnical capacitytosolve. Whatarelackingarethesocialandpoliticalinstitutionsthatcan mobilizeourcapabilitiesandbringthemtobearonthetrulycriticalproblem areasofoursociety.Ifwearetoeverrealizeourtruepotential,wemust somehowreorganizeoursystemofrewards,incentives,andmethodsof wealthdistributionsothattheyencourageindividualbehaviorthatis beneficialtosocietyandsocietalbehaviorbeneficialtotheindividual.

TheEmployeeSociety Thegeniusoffreemarketcapitalism,atleastinitsearlydays,was,in thewordsofAdamSmith,thateveryindividual...bypursuinghisown interestfrequentlypromotedthatofsocietymoreeffectuallythanwhenhe 3 reallyintendedtopromoteit. Thissymbiosisbetweenprivateandpublic intereststhatAdamSmithcalledanInvisibleHandhaslargelydis appearedfromthepresenteconomicsystem.Todayoureconomyisabattle groundofcompetingpressuregroups.Whatevereconomicjusticeexists derivesfromatenuousbalanceofpower.Whatisgoodfortheindividual

seldombenefitsthewhole,andviceversa. Afirststepinrestoringsymbioticharmonytooureconomicsystem wouldbetomakeourinstitutionsforcapitalfinancingandincome distributioncorrespondmorecloselywithreality.Weclaimtobeacapitalist societyi.e.,asocietybasedontheconceptthatprivateownershipofwealth producingcapitalisalegitimatesourceofpersonalincome.Yetthe overwhelmingmajorityofAmericans,eveninthemiddleanduppermiddle incomebracketsaresimplyemployees,dependentfrompayperiodtopay periodonwageandsalarychecksforincome.Inactualfact,Americaisnot acapitalistsocietyatallitisanemployeesociety. Weareanationofemployees.Wederiveourincomefromwhatwe do,notfromwhatweown.Wearenotcapitalistswearewageearnersand, inaveryrealsense,wageslaves. Thereisnowonderthattheworkethicispervasiveandthat unemploymentisadarkspecter.Thereisnowonderthatoureconomyis chokedwithmakework,featherbedding,massadvertisingoftrivia,and wastefuluseofnaturalresourcesandhumantalent.Thisistheinevitable resultofdistributingmostincomethroughwagesandsalariesinaneconomy wheremostwealthiscreatedbycapital. Ifwewerereallycapitalistsderivingthemajorityofourpersonal incomefromtheownershipofcapital,thenthebenefitsofproductivity increaseswouldbedistributedprimarilythroughdividendsinsteadof throughwagesandsalaries.Industrialrobots,automaticfactories,and computerizedofficeswouldthenbenothreattojobs.Increasedefficiency wouldbenefiteveryone.Technologicalinnovationwouldbesimplyameans forcreatingincome,eliminatingpollution,andprovidingthebasisforthe goodlife. Clearly,suchisnotthecase.Instead,weclingdogmaticallytothe workethicandthelabortheoryofvaluedespitethetransparentfactthatthe overwhelmingpercentageofproductivityincreasesarenotattributableto laboratall.Peopledonotworkanyhardernowthantheydidathousand yearsagoandtheyarenotinherentlyanymoreintelligent.Theproductivity oftheexistinglaborforcetodayisduetomodernequipment,improved knowledge,andmoreefficientprocesstechnology.Thetruthisthatlabor hasbecomearelativelysmallandrapidlydiminishingfactorinthe productionofmaterialwealth. ThereisnodoubtthatthePuritanworkethiconceservedAmerica well.Dedicationtotheprinciplethateveryoneshouldpullhisownweight throughhardworkmadeitpossibleforapowerfulindustrialnationtorise fromaprimevalwildernessinlessthanfourcenturies.Likewise,thelabor

theoryofvaluebroughtenormousbenefitstotheaverageworker.It providedthephilosophicalbasisfororganizedlaborsdemandsthatthe wealthcreatedinAmericasfactoriesandmillsbedistributedtotheworkers. Unfortunately,cherishedideascultivatedovercenturiesliveonlong aftertheyceasetobetrueorevenuseful.Humanlaborhaslongsinceceased tobethemostimportantingredientintheindustrialprocessindeed,inmany industries,humanworkersaretheprincipalcauseofproductiondefects. Today,thefirstindustrialrevolutioniscomplete.Thelabortheoryofvalue andtheworkethicarenolongerusefulconcepts,andinfactmaynow constitutethemostimportantimpedimenttotheimplementationof technologicaladvancesthatcouldeliminatebothpovertyandpollution,not onlyintheUnitedStatesbutthroughouttheentireworld. Weareatthebeginningofanageofrobotsandautomaticfactories.If wecouldadmittoourselvestherealitythatmachinescanrunindustriesjust aswell,ifnotbetterthan,people,thenwecoulddeviseanincome distributionsystembasedonsomethingotherthanemployment.Wewould thenhaveasocietywheremachinesprovidethefundamentaleconomicbase andpeoplearefreetodeveloptheircreativetalentstothefullest. Itmustbeemphasized,however,thattherewillalwaysbesome necessaryworkrequiringhumanefforteveninthemostautomatedsociety. Medicalcare,teaching,counseling,entertainment,andpersonalservicescan neverbesatisfactorilyautomatedintheirentirety.Furthermore,therewill probablyalwaysbelargenumbersofpeoplewhoreceivegreatsatisfaction fromregularemployment.Certainlymanywillcontinuetodesire opportunitiesforachievementandrecognitionofferedbythecompetitionof careeremployment.Thus,thedistributionofsomeincomethroughwages andsalarieswillcontinuetobenecessaryanddesirableevenwhenmost goodsandservicesareproducedbyautomaticfactoriesandrobots. Nevertheless,itisquitepossibletohaveahybrideconomicsystem whereabasicminimumincomewouldaccruetoeveryoneoutoftheprofits fromautomaticindustrieswhile,atthesametime,thosewhowishedtowork couldsupplementtheirbasicincomewithasalary.Thereisnoreasonthat wagesandsalariesshouldnotcoexistnicelywithpublicdividendsfrom automaticindustriesinanincomedistributionsystemofthefuture. Howcouldsuchasystembepractical?Whatnewinstitutionswould benecessarytoimplementthedistributionofincomethroughpublic dividends?Themechanismsoutlinedinthefollowingparagraphsareone possibleapproachtohowsuchasystemcouldbeorganizedwithinthe frameworkofourpresentconstitutionalgovernmentandfreeenterprise economy.

TheNationalMutualFund Asemiprivateinvestmentcorporation,theNationalMutualFund (NMF),couldbeformed.Likeanymutualfund,theNMFwouldearna profitbyinvestingmoneyinstocks.TheNMF,however,woulddifferfrom anordinarymutualfundinfourimportantrespects. Firstofall,itwouldbeinclusiveoftheentireadultpopulation.Every citizenwouldbeashareholderbyvirtueofhisorhercitizenship. Second,theNMFwouldnotobtainitsinvestmentfundsdirectlyfrom itsshareholders,butinsteaditwouldborrowthenecessaryinvestment capitalfromtheFederalReserveBank.EachyeartheNMFwouldbe authorizedbyanactofCongresstoborrowaspecifiedamountforits investmentoperations. Third,theNMFwouldconcentrateitsinvestmentsinareasoflong termproductivitygrowth.Itwouldattempttopromotethediffusionof advancedtechnologyintocivilianindustriessoastoachievethemost efficientuseofresourcespossible.TheNMFwouldfinancethe modernizationoftechnicallybackwardindustriesandthebuildingofnew automatedfactories.Itwouldprovidesupplementalworkerscompensation andretrainingincentiveswherethesewouldbenecessaryorusefulin accomplishingitsgoals. Fourth,theNMFwoulddistributetheprofitsfromitsinvestments directlytothepubliconabiweeklybasis.Everyperson,uponreachingthe ageof18years,wouldbeginreceivingregularNMFdividendchecksand wouldcontinuetodosoforlife.NMFprofitswouldrepresentwealthcreated bypubliccapitalinvestedinprivatefirmsthatowemostoftheirproductivity tothetechnologicalknowledgeandculturalorganizationexistinginthe nationasawhole.Assuch,thesedividendswouldbelongtonosingle individualorexclusivegroupofindividuals.Theywouldproperlybelongto everyoneandthereforeshouldbedistributedequally.Theonlyexception wouldbethatpaymentswouldnotbemadetominorssoastoprevent generatingnewincentivesforlargefamilies. TheamountofNMFdividendcheckswoulddependentirelyonthe profitsdevelopedbyNMFinvestments.Iftheseprofitsincreased,public dividendswouldalsoincrease.IfNMFprofitsdeclined,sowouldpublic dividends.TheNMFwouldthusmakeeverycitizenacapitalist.

TheAmountofNMFInvestment ItissuggestedthattheNationalMutualFundbebegunonavery modestscale,perhapswithalimitonborrowingauthorityforthefirstyear of$10million,risingto$30millionthesecondyear,and$100millioninthe thirdyearofoperation.Thesefirstthreeyearswouldconstituteatrialperiod duringwhichastaff couldberecruitedandpoliciesandprocedurescouldbe evaluatedandformalized.Followingthisinitialtestperiod,legislative authorityforNMFborrowingwouldberoughlytripledeveryyearforabout tenyears,oruntiltheinvestmentratefortheNMF approximatelyequaled thegrossprivateinvestmentratefortheentirenation. Duringthe196870period,thegrossinvestmentrateintheUnited Stateswasapproximately18percentoftheGNP,orabout$180billionper year.Thiswasquitelowincomparisonwithotherindustrializednations.For example,WestGermanyinvestedabout27percentofitsGNPandJapan invested39percent,orroughlytwicetheUnitedStatesinvestmentrate 5 duringthesameperiod. AdditionalinvestmentbytheNMFequaltothe privateinvestmentratewouldsimplydoublethetotalinvestmentrate.This iscertainlynotanexcessiveincrease,particularlyinlightofthecurrent performanceoftheUnitedStateseconomyrelativetotheother industrializednationsoftheworld.

FigureVI1.ThegrossinvestmentrateoftheUnitedStatesisthelowest
oftheninecountrieslistedinthischart.Unfortunately,thisisnotanaber

rationbutrepresentsatrendthathasbeengoingonsince1950.Infor mationinthischartistakenfromreferenceVI5.

Therearemanyindicationsthatincreasedavailabilityofinvestment capitalwouldbehighlybeneficialtotheAmericaneconomy.Thereis presentlyasevereshortageoffundsforlongterminvestment.James Needham,Presidentof theNewYorkStockExchange,estimatesthatover thenextdecadetheneedforinvestmentcapitalwillexceedthesupplyby 6 $650billion. Chaseeconomistsestimatetheshortfallat$1.5trillionforthe 7 sameperiod. Ifthesepredictionsareevenclosetobeingaccurate,United Statesindustrywillbeindesperateneedofadditionalsourcesofinvestment capitalformanyyearstocome. Ashortageofinvestmentcapital,particularlywhencoupledwith inflationandhighinterestrates,hasaruinouseffectonlongterm productivitygrowth.Firmstendtoconcentratealmostentirelyonshortterm 8 quickpaybackinvestments. Thesearetypicallylimitedtosuperficial innovationssuchasstylechangesandmarketinggimmicks.Longterm investmentsthatproducefundamentalproductivitygainssimplyarenot goodbusinesswheninterestratesarehighandstockholdersaredemanding largeendofyearreturnoninvestmentfigures. TheNMFwouldprovideanidealmechanismforcreatingtherequired additionallongterm capital.ThebroadscopeoftheNMF,bothinits investmentactivitiesandinitscommitmenttothefinancialsecurityof stockholderscomprisingtheentirepopulation,wouldtendtogiveitalong termperspective.Quickpayoffinvestmentswouldbemuchlessappealingto theNMFthanfundamentalimprovementsinbasictechnologyforthelong termbenefittotheentirenation. AnimportantfeatureofsolvingthecapitalshortagethroughtheNMF isthatitwouldtendtodecrease,ratherthanincrease,theexisting concentrationofeconomicpowerinthehandsofatinyminority.Equity financingthroughtheNMFwouldavoidtheimmensepoliticaldifficulties inherentinmoretraditionalmethodsofraisinginvestmentcapital,suchas cuttingcorporateincometaxesorgrantingcapitalgainsbenefitstobig investorsattheexpenseoftheaveragetaxpayer. Ofcourse,thecreationofinvestmentcapitalthroughNMFborrowing fromtheFederalReserveSystemraisesseriousproblemsconcerning inflation.Amethodforincreasingsavingsbyasufficientamountto compensateforthisincreaseinthemoneysupplywillbediscussedinalater chapter.

NMFDividends IftheNMFwereinstitutedin1976,thegrossinvestmentratewould doublebyabout1989.Asaresult,therateofgrowthinproductivity,and hencerealGNP,wouldsubstantiallyincrease.DatafromFigureIV4 suggeststhatdoublingtheinvestmentratewouldraiseproductivitygrowth toapproximately10percentperyear.Ifthisweretooccurby1989,real GNPbytheyear2001wouldbeabout4.9timesits1976level,andNational MutualFundinvestmentwouldtotal$10.4trillion1975dollars. ItisestimatedthattheNMFcouldexpecttopayatleast13percent returnoninvestedcapital.Thisisbasedonthefactthatthemarginalreturn oncapitalforallbusinessinAmericahasnotfallenbelow16percentsince 1943.Totalreturnoncapitalhasremainedabove25percentduringthesame 9 period. Evenso,itmightbearguedthat13percentisoverlyoptimisticsince realreturnonordinarystockinvestmentsoverthe19471965periodwas 10 onlyabout11percent,andhasaveragedconsiderablylesssince1965. However,thesereturnswererealizedinaneconomywheretheinvestment ratewaslowandrealeconomicgrowthwasapproximately3percentper year.Inaneconomywhererealgrowthwas10percent,stockscouldbe expectedtoreturnconsiderablyhigherdividends.Thus,13percentdoesnot seemanunreasonableexpectation. Ifpresentpopulationtrendscontinue,13%returnoninvestment wouldproduceNMFpublicdividendsintheyear.2000ofabout$6000per personperyearinconstant1975dollars.Tosome,thismayseemarather modestamountofincome,especiallyifitwouldnotoccuruntil25years aftertheNMFwasinstituted.However,thereareseveralfactorsthatwould makethisamountverysignificantindeed.First,NMFpublicdividends wouldbecompletelyindependentofallothersourcesofincomesuchas wagesandsalariesorsocialsecurity.Thus,eachfamilywithtwoadults wouldreceiveNMFincomein theamountof$12,000peryearoverand aboveallwagesandsalariesotherwiseearned.Secondly,theestimateof $6000perpersonbytheyear2000isquitepossiblyconservative.IfNMF investmentswereusedtofinancemajoradvancesincomputeraided manufacturing,itseemsquitepossiblethathigherratesofreturnmightbe realized.Inanycase,theyear2000couldbeconsideredjustthestarting pointforthefullscaleoperationoftheNMFasamajorsourceof independentincome.Anadditionalfifteenyearscouldeasilyquadruple publicdividends.

ThePoliticalPoweroftheNMF AnyinstitutionsuchastheNationalMutualFundwithdiscretionary authorityoverhundredsofbillionsofdollarsofinvestmentcapitalwould wieldenormouseconomicandpoliticalpower.Itspolicydecisionswould influencethestructureoftheentiresocioeconomicsystemandaffectthe livesandfortunesofmillionsoffamilies.Suchdecisionswould,by definition,bepoliticalinnature.Suchapowerfulinstitutionwouldbe extremelydangerousunlessitweresubjecttoeffectivechecksandbalances byotherequallypowerfulinstitutions.Itisthusimperativethatthe administrationoftheNMFbesubjecttothepoliticalprocess. TheNationalMutualFundwouldbeadministeredbyapublicly electedBoardofDirectorsconsistingofninepersons.Eachdirectorwould beelectedtoaneightyeartermandthesetermswouldbestaggeredsothat twodirectorswouldstandforelectioneverytwoyears,exceptfortheeighth yearwhenthreedirectorswouldbeelected.Thisarrangementwouldgive thepublicanopportunitytoexpressanopiniononNMFpolicyeverytwo years,yeteightyeartermswouldgiveeachdirectorampletimetoexecute longtermpolicydecisionsbeforestandingforreelection.Fivedirectors mightbeelectedbyregionsofthecountry(i.e.,theNortheast,theSoutheast, theMidwest,theSouthwest,andtheNorthwest),whiletheremainingfour wouldbeelectedatlarge. ABetterSelectionProcess Unfortunately,aswasdemonstratedbytheWatergatescandal,public electionsdonotnecessarilyresultintheselectionofpersonsofintegrity.It isthereforecrucialthatadditionalmeasuresbedevisedtoassurethatonly thebestqualifiedpersonsareselectedasNMFdirectorsandthat,after selection,theirpowerbeadequatelycircumscribedbyeffectivechecksand balances. Therecentlyimplementedprovisionsofthe25thAmendmenttothe ConstitutionsuggestapossibleprocessforelectingNMFDirectorsthat wouldalmostcertainlybelesssubjecttoabusethanmoretraditional methods.TheCongressionalhearingspursuanttotheconfirmationoftwo VicePresidentsdemonstratedacommendableabilityoflegislative investigatorstolaybeforethepublicthequalifications,philosophicalbeliefs, andsusceptibilitytoconflictofinterestofcandidatesforhighoffice. ItisthereforesuggestedthatforeachvacantpositionontheNMF BoardofDirectorsthePresidentoftheUnitedStatesnominateasingle

candidate.Thesecandidateswouldthenbesubjectedtoinvestigationbya committeeoftheCongress.Thatcommitteewouldhavetheauthoritytotake testimonyunderoath,tosubpoenawitnessesandevidence,andtoconducta thoroughpublicinquiryintoeachcandidatescredentials.Atthecompletion oftheseproceedings,thepublicwouldvotefororagainstconfirmation. Thisprocedurewouldcompletelyeliminatethefranticcampaigning andvacuoussloganeering thatissocostlyandshedslittlelightonthereal issues.Eachcandidatewouldbesubjecttoindepthquestioningbyfriendly, aswellashostile,interrogators.Therewouldbeathoroughbutlegally boundedinvestigationofeachcandidatesbackgroundandqualifications, andthepublicwouldhavetheinformationitneededtomakeitsdecision. Equallyimportant,thevoterswouldnotbepresentedwithachoice betweentwoundesirablecandidates.Afterhearingtheevidence,thevoters wouldeitherconfirmorrejecteachcandidate.Ifacandidateisrejected,that positionwouldremainvacantuntilanothercandidatecouldbenominated andprocessedthroughtheconfirmationproceedings. AdditionalChecksandBalances Evenafteracandidatehadbeenconfirmed,abadchoicewouldnotbe irrevocable.EachyeartheNMFwouldneedtoobtainlegislativeauthority foritsinvestmentborrowing.ThiswouldmeanthatNMFpolicywouldbe thesubjectofpublichearingsonanannualbasis.Businessesorconsumer groupsthatdisagreedwithNMFpolicywouldhaveampleopportunityto expresstheirpositionsatthosehearings.TheCongresswould,ofcourse, havetheauthoritytopasslegislativeregulationstoassurethatNMFpolicy wasalwaysdirectedtowardsthelongtermpublicgood. Sincethebiweeklyincomeofeveryadultcitizeninthecountrywould dependintimatelyontheefficiencyandintegrityoftheNMF,therewould beasustainedhighdegreeofpublicinterestinitsdaytodayoperations. NMFrecordswouldbeopentothepublicandsubjecttoscrutinybythe press.ItisthusdifficulttoimaginehowabusesoftheNMFcouldcontinue uncorrectedforlong. Nevertheless,ifitweredeemednecessarytofurtherlimitthepowerof theNMF,theNationalMutualFundcouldbeestablishedasaloose confederationofregionalmutualfundswhoseinvestmentactivitieswouldbe independentand,tosomeextent,incompetitionwitheachother.Dividends paidtothepublicwouldreflectthecombinedtotaloftheprofitsfrom allof theregionalmutualfunds.Theadvantageofthisarrangementwouldbethat nosingleinvestmentphilosophywouldbecomedominantoverallothers,

andbusinessescouldshoparoundforfavorabletermsoninvestmentcapital. Theincreasedcomplexity ofpublicelectionsandannualhearingsforan NMFwithseveralindependentbranchesmightbeasmallpricetopayfor thebenefitsofincreaseddiversityandseparationofpowers. Inanycase,themonopolypoweroftheNMFwouldalwaysbe limitedbyvirtueofthefactthatitwouldundernocircumstancesbeallowed toexceedprivateinvestmentspending.ThiswouldpreventtheNMFfrom everbecomingthesoleownerofamajorityofthenationsproductive capacity.TheNMFshould,infact,notbeallowedtofinanciallycontrol morethanasmallfractionofthenationsfirms.Thismightberegulatedby requiringthatnomorethan20percentbyvalueofNMFstockholdings couldbeinfirmsinwhichitownedacontrollinginterest. Itisfeltthattheserestrictionsandchecksandbalanceswouldbemore thanadequatetoassurethattheNMFwouldnotabusethepowervestedinit bythepublic. TheNMFandFreeEnterprise Itmustbeemphasizedthat,althoughNMFDirectorswouldbeelected officials,theNationalMutualFundwouldnotbeabranchofgovernment neitherwoulditsinvestmentholdingsconstitutenationalizationofprivate industryortheinstitutionofsocialismbyanypresentlyaccepteddefinition ofthatterm.TheNMFwouldbeaprofitmakingbusinessinstitutionoper atedfortheprimarypurposeofearningdividendsforitsstockholders.It wouldnotinvolvetheexpenditureofanytaxmoneywhatsoever. Also,theNationalMutualFundwouldnotbeareplacementforany existingeconomicinstitutionorpolicy.Itwouldinsteadbeasupplemental organizationoperatinginadditiontoallthepresentlyfunctioninginstitutions andorganizationsmakinguptheexistingeconomicsystem.Forexample, theNMFwouldnotreplaceanyofthemethodspresentlyusedforcapital financing.Itwouldmerelycreateanimportantadditionalpoolofinvestment capitaloverandabovepresentlyavailablesources.Specifically,the institutionoftheNMFwouldnotreplacetheexistingstockmarket.Infact, duringitsearlyyearsofoperation,theNMFwouldaffectthestockmarket littlemorethananyotherlargeinstitutionalinvestor.However,asthe legislativeauthorityforNMFborrowingfromtheFederalReserveBankwas increased,theNMFmighttendtodominateWall Streetunlessitwere prohibitedfrombuyingandsellingontheopenmarket.TheNMFmight thereforeberestrictedexclusivelytopurchasesofnewstockissuesmadeby companiesinneedofinvestmentcapital.NMFsales,ifany,wouldbemade

solelytothecompaniesthathadoriginallyissuedstocktotheNMF.The resultwouldbethatNMFoperationswouldhaveonlyasecondaryeffecton theexistingstockmarket. Inasimilarway,theNMVwouldnotinanywaydestroytheprofit motiveordilutetherequirementforefficiencyimposedbyamarket economy.Infact,thedistributionofNMFprofitstothepublicwould actuallyincreaseincentivesforbusinessestoweedoutsloppymanagement andpoorservice.TheNMFDirectorswouldeffectivelybeproxy stockholdersinbusinessesfinancedbystocksalestotheNMF.Theywould participateintheelectionofcorporateboardsandwouldexertconsiderable influenceovertheoperationalphilosophyofclientbusinesses.TheNMF boardwouldtherebybeinastrongpositiontoinsistonefficientbusiness practices,and,ifforanyreasontheywerenoteffectiveinthisendeavor, theywouldbesubjecttopubliccensureattheballotbox. Thisisasituationthatisvastlydifferentfromthatexistinginsocialist economieswherestateownedandoperatedbusinesseshavefewincentives tobeefficientortoprovideconvenientservices.Insocialisteconomies,the publichaslittlecontroloverindustryeitherthroughmarketpressuresor throughexecutivepolicydecisions.TheNMF,incontrast,wouldincrease thepowerofthepublicininfluencingbusinessesandindustriesbothinthe marketplaceandintheboardroom.NMFcontrolledindustrieswouldbe moreresponsivetothepublicinterestthanindustriesundersocialistsystems becauseoftheneedtowinconsumerapprovalinthemarketplacesoasto returnalargeprofit.Theywouldatthesametimebemoreresponsivetothe publicinterestthanordinaryindustriesinourpresentcapitalistsystem becauseoftheneedtorespondtopublicsentimentreflectedthroughelected membersoftheNMFboard.Thus,industriesfinancedbyNMFcapital wouldhavedoubleincentivestobebothefficientandresponsive.TheNMF wouldnotconvertprivateindustriesintopublic,butwouldmerelybroaden theownershipofprivateindustriessoastomaketheinterestsofprivate industrymoresynonymouswiththepublicinterestandviceversa.Inshort, theNMFwouldnotbeasteptowardsocialism,butratherabroadeningof privateenterprisecapitalismtoincludeeveryone.Theresultwouldbea healthytensionbetweentheneedtoreturnaprofitandtheneedtoprotect thepublicinterestinallotherareas,suchaspreservingtheecologyand conservingnaturalresources. TheimportanceoftheprofitmotiveintheoperationoftheNMFcan scarcelybeoveremphasized.ThefactthattheNMFwouldbeano nonsenseprofitmakinginstitutionwouldnotonlyprovidestrongincentives forbusinessestooperateefficiently,butitwouldalsoforcethemtoutilize

NMFprovidedcapitalinthemosteffectiveway.Inordertoensuretheeffi cientuseofNMFcapital,stockboughtbytheNMFmightcarrycertain obligationsnotcommontoordinarystocksoldontheopenmarket.For example,companiessellingstocktotheNMFmightberequiredtopay dividendsatsomefixedratetobeagreeduponbynegotiationbetweenthe NMFandthecompany,onallprofitsresultingfromNMFfinanced investments.Thisrateagreementwouldbetheresultofnegotiationsin whichtheNMFgovernors,representingaprofitmakinginstitutionwith profitmindedstockholders(thepublic),wouldattempttosettherateashigh aswouldbeprofitableinthelongrunforitsstockholders.Therefore,the NMFwouldforcetheaskingrateforinvestmentcapitaltothemaximum valuebeneficialtoitsstockholdingpublic.This,ofcourse,wouldincrease thecostofNMFcapitalsufficientlytoassurethatthosebusinessesobtaining NMFfinancingwouldputittothemostprofitableuse. BusinesseswouldnotbeforcedtoacceptNMFtermsforfinancing. Thetraditionalsourcesofcapital(i.e.,theprivatestockmarket,commercial banks,retainedearnings,andvariousothersourcesofprivatefinancing) wouldstillbeavailable.TheNMFwouldthusbesubjecttotherestraintsof competitioninafreemarket.IftheNMFgovernorsweretodemandtoohigh areturnoncapitalprovidedbytheNMF,businesseswouldsimplyseek capitalfromothersources.If,however,theNMFBoardofDirectorswereto betoogenerouswiththefundsitdispersedthroughstockpurchases,thenits stockholders,thepublic,wouldreplacethosedirectorswithotherdirectors moreconsciousofthepublicsdesireforhighdividendpayments.Thefact thattheNMFstockholderswouldincludetheentireadultpopulationandnot merelysomesubsetofthepopulationwouldcreateastrongmotivationfor theNMFtopursuepoliciesgenerallybeneficialtotheentirecountry, includingtheprivatebusinesssector,andnotmerelytopromotethewelfare ofanotherspecialinterestgroup.Anyconflictthatmightdevelopbetween theNMFandprivateindustrywouldessentiallybeaconflictbetween privateindustryandthepeopleofthenation.Insuchacase,thereislittle needtoworryabouttheinterestofthemajoritybeingsubverted.Theneedis rathertoprotecttheindividual(inthiscase,theindividualbusinessmanor corporation)fromtyrannyofthemajority.This,ofcourse,istheproper functionofthelaw,thecourts,andfinallytheConstitution.TheNMFandits directorswouldbesubjecttoregulationbylawspassedbybothfederaland statelegislatures,aswellastoregulatoryactionbytheExecutiveBranch andjudicialrestraintbythecourts.Thus,theNMFwouldnot,indeedcould not,gobeyondthewillofthefinalsourceofpowerandrestraintthe peoplethemselves.ThepeoplewouldhavedirectcontrolovertheNMF

throughtheelectoralprocessaswellasindirectcontrolthroughvarious legislative,executive,andjudicialauthorities.Theultimatepowerofthe NMFwould,ofcourse,lieinitsaccesstofundsborrowedfromtheFederal ReserveBank.Theauthoritytoborrowfromthissourcewouldrestwiththe CongressandPresident. IncentivesforDiversity TheNMFwouldnotputtheprivateenterprisesystemundera monolithicsystemofgovernmentcontrol.Infact,theexistenceofNMF financingwouldactuallyincreasediversityandcompetitionwithinthe privatesectorand,intheprocess,wouldprovideapowerfulcounterforce againstthepresenttrendtowardconcentrationofeconomicpowerinthe handsofafewenormouscorporations.ThepresentpracticeinAmerican businessoffinancingmostcapitalinvestmentthroughretainedcashearnings giveslarge,establishedcorporationsanenormouscompetitiveadvantage oversmallerfirms.Furthermore,theuseofretainedearningsascollateralfor obtainingpreferredcreditratingsenableslargecorporationstooperatewith flexiblefinancialreservesthatsimplycannotbematchedbysmallerfirms. TheexistenceofNMFfinancingwould,tosomeextent,reducethe advantageofsimplybeingbig.TheNMFwouldbeareadysourceof investmentcapitalequallyavailabletosmallfirmsaswellaslarge.NMF financingthuswouldactasanequalizer,enablingsmallbusinessestooper atewithmore.oftheflexibilitypresentlyenjoyedonlybylargecorporations withhugefinancialreserves. TheavailabilityoftheNMFasasourceofinvestmentcapitalmight alsomakeitfeasibletoconsidermajortaxreformswithrespecttocorporate profitsandcapitalgains.Taxlawsmightbechangedtoencourage corporationstopayoutmoreoftheirprofitsasdividendstostockholders ratherthanretainingthemforinvestmentpurposes.Ifthereweresufficient incentiveforindustriestofinancemostoftheircapitalinvestmentsfrom externalsourcessuchasnewstockissues,eitherontheprivatemarketorto theNMF,thenallindustries,bigaswellassmall,wouldhaveamoreequal opportunity tosurviveandprosperinafreemarketeconomy.Theeffectof theNMFindecreasingtheadvantageofsimplybeingbigmighthavea greatereffectinpromotingcompetitionanddiscouragingconglomerate mergersthanalloftheantitrustlegislationandcourtlitigationthatthe federalgovernmentcouldconceivablybringtobear.Furthermore,the antitrustanticonglomerateeffectsoftheNMFwouldbemuchlesssubject tocorruptionandpoliticalabusethanthepresentsystemofregulationby

law.TheNMFwouldcombatthetrendtowardmergersbyremovingthe economicincentivesforbignessratherthanbyattemptingtopreventbylaw whatisnowfinanciallyattractiveforbigcompaniestodo. TheNMF,however,wouldnotespeciallyfavorsmallbusinessesover large.TheeffectoftheNMFwouldsimplybetoputallfirms,bigaswellas small,onamoreequalfinancialfooting.Thebenefitinthelongrunwould beneithertothebiggestnortothesmallest,buttothemostefficientand productive. ThefactthattheNMFdirectorswouldbeunderconsiderablepressure todeliverhighdividendstothestockholderswouldtendtocauseNMF investmentstobeconcentratedinindustrieswhereinvestmentcouldbe expectedtoearnhighprofitsoverthelongrun.NMFfinancingwouldthus beapowerfulforceforinducingallindustries,bigaswellassmall,to modernizetheirplantsandproductiontechniques.Itwouldencourage innovationbytwomethods:first,byprovidingriskcapitalforpromising newtechnologies,andsecond,bypursuingsuccessfulnewdevelopments withmassivefinancingforrapidmodernizationofentireindustries.The NMFwouldverylikelyinvestincompletelyautomaticfactories,mines,and mills,thatwouldresultinenormoussavingsinlaborcosts.Incomewould notbelosttoworkers,butwouldinsteadbedistributedthroughNMFpublic dividendsratherthanthroughwages. Incertaincases,theNMFdirectorsmightdeemitnecessarytofinance supplementalworkerretrainingand/orcompensationprogramsinorderto makepossibletheintroductionofmajortechnologicalinnovationsaffecting existingjobs.SuchmeasureswouldbeatthediscretionoftheNMFdirectors andwouldbesetupthroughnegotiationsbetweentheNMF,thecompanies, andtheworkersinvolvedineachindividualcase.Theuseofsuchmeasures mightmakeitpossibletorevolutionizeentireindustriessuchasthehome constructionindustrysoastoreducethecostandimprovethequalityof newlyconstructedhouses.Masstransitequipmentandfacilitiesmightbe madefinanciallyprofitableandproducedonamassivescale.Newenergy sourcesmightbedevelopedandexploited.Majornewenvironmental protectionindustriesmightbestarted. Insummary,theprofitmotiveworkingthrough theNMFwouldcause ittopursuepoliciesthatwouldbebeneficialtothefreeenterprisesystemin manydifferentways.TheNMFwouldencourageefficientmanagementand effectiveperformanceinthemarketplace.Itwouldprovideareadily availablesourceofcapitalforinvestmentpurposesandwouldforcethemost efficientutilizationofthatcapital.Itwouldenhancecompetitionbetween smallandlargeindustriesandwouldfosterextensiveutilizationofthemost

modernandefficienttechnologicalinnovations.Theneteffectofthe NationalMutualFundwouldthusbetherevitalizationoffreeenterprise capitalismbymakingitworkforthebenefitofallinapostindustrialworld.

VII

PeoplesCapitalismandtheIndividual
Althoughtheincreasedavailabilityofinvestmentcapitalthroughthe NationalMutualFund(NMF)wouldundoubtedlycontributetothevitality ofthefreeenterprisesystem,themostimportanteffectoftheNMFwould betoincreasethepersonalfreedomoftheindividualcitizen.Inthissociety, asineverysociety,therearethreemajorfactorsthatshapethedaytoday lifeofvirtuallyeveryone: 1) 1) thephysicalenvironmentinwhichtheindividualexists, 2) 2) theamountofwealththateachcitizenhasathisorher disposal, 3) 3) themeansbywhichthiswealthisobtained. InAmerica,thephysicalenvironmentisdeterminedtoalargeandever increasingdegreebythemajorcorporations.Whatweeat,whatwewear, whatwelistento,whatwesee,whatwelivein,whatweworkat,whatwe usetogetfromoneplacetoanother,inshort,asignificantpercentageofour totalenvironmentismanmadeandnotjustmanmade,butmanufactured bythetop100corporations.Thepoweroftheindividualcitizentoinfluence thisprocessisvirtuallynil.Mostoftenthechoiceissimplytoeithergo alongordropout. Tosomedegree,theNMFwouldreversethistrend.TheNMFwould givetotheindividualanincreasedsayinthepolicyofthenations corporations.TheaccumulationofNMFstockownershipinprivate businessesandindustrieswouldeffectivelybroadentheownershipofthe meansofproduction.Everycitizen,throughtheNMF,wouldbecomea stockholderintheprivateenterprisesystem.BusinessesownedbytheNMF wouldbelongtothepeopleandthuswouldbesensitivetopressurefrom publicopinion.Theprofitmotivewouldremainasanessentialingredientin daytodaycorporatedecisions,butprofitpersewouldnolongerbethesole criterionforcompanypolicy.Corporatemanagementwouldbeultimately responsibletothepublic,andthereforethepublicinterestwouldbecomean importantfactortobeconsideredinmakinglongtermdecisions. Broadeningtheeffectiveownershipofthecorporateenterprisesystem wouldundoubtedlyalsoaffectpublicattitudestowardbusiness.Thefactthat businessprofits,andthereforeNMFpublicdividends,wouldbeinfluenced byNMFpolicywouldtendtomaketheaveragecitizenmuchmoreawareof theimportanceofefficientbusinesspractices.ThegrowthoftheNMF wouldcausemanyaveragecitizenstoappreciatetheproblemsand responsibilitiesofbusinessownershipforthefirsttime.Millhands,

secretaries,clerks,andhousewiveswouldbegintobeconcernedwithprofit andlossstatementsbecause,throughtheNMF,thesewoulddirectlyaffect theirincomes.Tosomeextent,thismightcreateanatmospheremore conducivetocooperationbetweenlaborandmanagementor,atleast,reduce somewhattheintensityoftheadversaryrelationshipthatnowcharacterizes labornegotiations.TheroleoftheNMFinmakingtheinterestsofbusiness moresynonymouswiththepublicinterest,andviceversa,wouldthus undoubtedlyresultinmanybenefitsbothtobusinessandtothepublic. Fortheindividualcitizen,however,thesebenefitswouldbefar overshadowedbythefactthattheNMFwouldenormouslyincreasethe poweroftheaveragevotertodeterminethetypeofenvironmentinwhich wealllive.TheNMFwouldprovideamechanismbywhichtheimmense wealthandpowerofthemajorcorporationswouldgraduallybebrought underdemocraticcontrol.Themoderncorporationiscertainlythemost importantelementinAmericansocietytohaveeffectivelyresistedeffortsto bringsocialinstitutionsunderdemocraticcontrol.Thisisnottosaythat corporationsareundemocraticinthesensethattheyfailtoconductpublic stockholdermeetingswithallthesuperficialtrappingsofNewEnglandtown meetings.However,theyarebynomeansdemocraticinamodernoneman onevotesense,duetotheconcentrationofcorporatestockownershipthat placeseffectivecontrolofindustryinthehandsofsuchatinyminorityof thepopulation.Democratizationofownershipofthemeansofproduction, throughamechanismsuchastheNMF,wouldbeamajorsteptowardthe principleofgovernment(i.e.,controlofsocialinstitutions)ofthepeople,by thepeople,andforthepeople. Undoubtedly,therearemanytowhomtheconceptofsubjecting corporatepowertodemocraticcontrolseemsradical,perhapseven revolutionary.Thisperhapsisinevitable,eventhoughtheNMFwould accomplishthedemocratizationofindustrythroughthefreeresponseofthe markettoanewsourceofinvestmentcapital,andnotthrough nationalizationorexpropriation.Nevertheless,changeisfearedbymost peopleandvestedinterestsarequicktoexploitthisfearinordertoprotect thestatusquo.Itshouldbenoted,however,thatonlytwohundredyearsago theconceptofsubjectinggovernmentalpowertodemocraticcontrolwas consideredbymostpeopleinthiscountrytoberevolutionary.Fortunately forus,ourforefathershadthecouragetomakewhatforthemwasarevolu tionaryleapinthedark.Theyhadenoughconfidenceintheaveragecitizen toentrusttheenormouspowerofthenationalgovernmenttothedemocratic process.Theexperienceofthepasttwocenturieshasbeenthattheaverage personisnotonlycapableofselfgovernmentbutthatdemocraticcontrolof

governmentisabsolutelyessentialtotheconceptofindividualfreedomas wenowknowit.Itdoesnotseemunreasonablethatfuturegenerationsmay regarddemocraticcontrolofindustrialpowertobeasessentialtotheir freedomsaswebelievedemocraticcontrolof thegovernmenttobetoours today.

FinancialSecurityandPersonalFreedom Importantasthedemocratizationofindustrymightbe,however,it seemscertainthatthemostsignificantcontributionsoftheNMFtothecause ofindividuallibertywouldderivefromthepaymentofasecureand independentincometoeveryadultcitizenregardlessofallotherpersonal circumstances.NMFdividendswouldgivetoeveryindividualadegreeof personalindependenceandfreedomfromeconomicconstraintsthatcanbe derivedonlyfromthesecurepossessionofwealthproducingproperty. PersonsreceivingNMFdividendswouldhaveafinancialcushion.They wouldbeabletobemoreselectivethanotherwiseinchoosingtheiremploy mentandmoreindependentinpursuingopportunitiesforadvancement. Theywouldhavemorefreedomtoseekadditionaleducationandmore latitudetochosewheretheywishtolive.SupplementalincomefromNMF dividendswouldgivetoeveryoneadegreeofthefinancialsecurityand personalindependencethattodayisenjoyedonlybythewealthy.Ordinary citizenswouldfindtheirfreedomtostructuretheirownlivesaccordingto theirowntastesincreasedenormously. NMFincomewould,forexample,makeitpossibleformany individualstogointobusinessforthemselves.TheNMFwouldmake investmentcapitalmuchmorereadilyavailable,andtheexistenceofregular NMFdividendpaymentswouldfreewouldbeentrepreneursfromthe imperativeofproducinganearlypositivecashflow.Forotherindividuals, theexistenceofNMFincomewouldmakeitpossibletochoosefromamuch broaderrangeofrewardingoccupations.Peoplecouldaffordtobemore selectiveinseekingoutjobsthatofferapersonalsenseofaccomplishment andfulfillment.Recentstudieshaveshownthataverylargepercentageof 1 Americansaredissatisfiedwiththeirpresentoccupations. Theexistenceof NMFincomewouldmakeitpossibleformanypersonstoquittheirjobsand searchforotherworkmoretotheirliking.Thatthiswouldinfactbethe resultofNMFpaymentscanbeinferredfromnumerousexamplesinrecent yearsofmenandwomenwho,oncehavingachievedamodestlevelof

financialsecurity,haveabandonedhighpaying,prestigiousjobsinorderto takeupmorepersonallysatisfyingoccupations,evenatreducedpay amountingtoalossofmanythousandsofdollarsperyearinsalary.Once NMFpaymentsgrewtosomethingapproachingacomfortablemiddleclass income,itseemsreasonabletoexpectmanypeopletofollowthispattern. Quitelikely,therewouldbearevivalofsuchpersonallysatisfying occupationsashandcraftsmanship.Thereasonwhy theskilledartisan disappearedwasnotthatpeopledevelopedadistasteforworkingwiththeir hands.Thisisobviousfromthefactthatmanypersonstodaypursue handcraftsasahobby.Handcraftsmanshipasasourceofincomewas effectivelydestroyedbytheadventofmachinemadegoodsthatmadeit impossibletoearnanadequatelivingbyhandlabor.Handcraftsmanship simply couldnotsurviveinaneconomywherecapitalintensivelaborwas subsidizedbymachinecreatedwealthandcraftsmenwerenot. TheNMFwoulddistributemachinecreatedwealthtoeveryoneto thehandcraftsmanaswellastothemachineoperator.Thus,peoplewho weresoinclinedcouldprofitablypursuehandtrades,andtheirincomes wouldbesupplementedbyNMFpayments. Thereis,andalwayshasbeen,amarketforhandmadegoods, particularlywhensuchproductsareavailableatreasonableprices.Inthe presenteconomy,handmadegoodsareeitherenormouslyexpensive,orthe craftsmanisforcedtoliveonpovertywages.SupplementalNMFincome wouldallowcraftsmentoselltheirworkatareasonablepriceandstill maintainadecentstandardofliving.Theresultwouldalmostsurelybea greatrevivalinhandcraftsmanshipandacorrespondingincreaseinthe quantityandqualityofreasonablypricedhandcraftedgoods. Familyfarmingisanotherexampleofanoccupationthatverylikely wouldexhibitastrongresurgenceiftheNMFwereputintoeffect.Thesmall farmerwasforcedoutofexistencebytheindustrializationoffarming. Many,ifnotmost,familyfarmswereabandonedreluctantlyandonlyasthe resultofanirresistibleeconomicsqueezebroughtaboutbytheintrusionof hightechnologymechanizationintothefieldofagriculture.Thesmall farmerwasleftoutofthepartofaneconomicsystemthatdistributes machinecreatedwealth.Thus,thefamilyfarm,likehandcraftsmanship,has allbutdisappearedfromthemainstreamofAmericanlife. NMFsupplementalincomewouldprovideachannelbywhicha singlefamilycouldsuccessfullyoperateasmallfarmwithoutanenormous investmentinfarmequipment.TheNMFwouldbeamechanismbywhich thesmallfarmercouldshareinthewealthcreatedbymodernmachines. Althoughthelureofthelandhaslittleornoappealformanypersons,there

aremillionsofworkersinairconditionedofficesandbusyfactorieswho wouldlikenothingbetterthantofarmafewacresinMissouri.Incomefrom NMFpaymentswouldmakesuchdreamsapracticalpossibility. Sociologistsfordecadeshavedeploredtheurbanmigrationthathas ledtoovercrowdedcityslums,aswellastodepopulatedanddepressedrural communities.Ifthecitizensofremoteruralareashadsomesourceofincome fromthetechnological/industrialsector,theseregionswouldeasilybeself supporting.Inmanycaseswhatarenowpocketsofruralpovertycouldbe turnedintoidyllicregionsofremoteserenityby NMFincomepayments. ItalsoseemsquitepossiblethatNMFincomemightstimulatean increasedinterestintheartsandinscienceforitsownsake.IfNMFincome wereavailableasaminimumguarantee,seriouspursuitofanartisticcareer wouldbemuchlessriskyfromafinancialstandpoint.Itmightbearguedthat thiswouldonlyproduceagreatmassofmediocrepainters,musicians,and actors.Thereare,however,goodreasonstobelieveotherwise.Oneofthe mostprevalentreasonsforbadartiscommercializationi.e.,cateringtothe commontasteinordertosurvivefinancially.NMFincomewouldfree aspiringbutunrecognizedartistsfromtheneedtocompromisetheirworkin ordertoeat.Whenanartistisfinanciallyindependent,heorshecanbetrue tohisorherowntastes.Suchapersoncanthenconcentrateonbecoming recognizedasanartistratherthanworryingaboutfinancialproblems.Great artissometimesbornofadversity,butitismoreoftenaproductof affluence. Thesameholdstrueof scientificendeavors.Intheearlydaysofthe scientificera,thepursuitofknowledgeforitsownsakewasahighly respectedconceptandaprimarymotivatingforceforscientists.Muchofthe currentdisreputeinwhichsciencefindsitselftodaystemsfromthefactthat atpresentmostscientistsaresalariedemployeesandderivetheirincomes 2 eitherfrombigbusinessorfrommilitaryprojects. Asaresult,scienceinthe pastfewdecadeshasbeenlargelyconfinedeithertocommercialtriviasuch asspraydeodorantsandfreezedriedfoods,ortomilitaryhorrorssuchasthe hydrogenbomb,intercontinentalmissiles,andbiologicalweaponsofmass annihilation.NMFincomewouldallowthereturnofthegentlemanscientist whopursuestheintriguesofsciencepurelyfortheirestheticvalue. TheNMFcouldalsobeexpectedtocauseagreatupsurgeinvolunteer workofallkinds.Itisevenconceivablethatextremelyinterestingwork, suchasspaceexploration,andcertaintypesofscientificresearchmightbe openeduptoselectgroupsofamateursandvolunteers.Afterall,ifa particularendeavorisinterestingenough,peoplewilldoitfornothing, providing,ofcourse,theyhavesomemeansforfinanciallysupporting

themselvesandtheirfamilies.NMFincomecouldprovidesuchsupport. Themodernindustrialsystemofsalariedemploymentis anthropologicallyaveryrecentphenomenon.Thehumanracesurvivedand prosperedforhundredsofcenturiesbeforethefirstfactoryorofficewas everbuilt.Thereisnophysiologicalorpsychologicalreasontosuspectthat thehumanspeciesisparticularlywelladaptedformodernemploymentin factoriesandoffices.Infact,thereisconsiderablemedicalevidenceto suggestthatthepresentdayjobenvironmentsubjectsthehumanbodyto manystresses(orlackofstresses)forwhichitisnotparticularlywell adaptedeitherphysicallyormentally.IfsupplementalNMFincomewere available,thereiseveryreasontobelievethatpeoplewouldpursue occupationsthatwouldbemuchmoreconducivetomentalandphysical healththanarepresentjobs. TheNMFandIndividualIncentive ItmightbearguedthatthepaymentofNMFincomeoverandaboveall othersourcesofincomewouldcauseasignificantpercentageofthe populationtoquitworkingandsimplyatrophy.Thereis,however,strong evidencetothecontrary.Amajorfouryeargovernmentsponsoredstudy carriedoutbytheUniversityofWisconsinindicatesthattherecipientsof unrestrictedcashsubsidiesworkedasoftenandearnedasmuchasothers 3 whodidnotreceivethemoney. Thestudydidindicatethatwomenshowed atendencytoquittheirjobsandreturntotheirhomes.Also,elderlymen oftenchangedtolessdemandingjobsrequiringfewerhoursofwork,and personsinpoorhealthwereinclinedtostopworkingaltogether.However, thesewereoffsetbyevidenceofincreasedworkincentivesamongother groups,particularlytheyoungandrelativelywelleducated.Theseshoweda markedtendencytoabandonlowpayingjobsandseekbetterones.The incomesubsidiesevidentlygaveindividualsenoughfinancialsecuritytoquit workingforawhileinordertosearchforbetterjobs. Theresultsofthisstudy,aswellassimpleobservationsofeveryday life,donotsuggestthatmoney,intheformofwagesandsalaries,istheonly incentive,oreventheprincipleincentive,thatcausespeopletopursue productivelives.Anonuniformscaleofsalariesmaycauseworkersto chooseonetypeofjobinfavorofanother,butthereislittletoindicatethat moneyaloneistheprinciplefactorthatinducespeopletoseekemployment ratherthansimplysitinidleness.TheWisconsinstudywasconductedwith personsintheverylowestincomebracket,butthereisnoreasontosuggest thattheresultswouldbesubstantiallydifferentifthecashrecipientshad

beenfromthemiddleclassorhighincomelevels.Theprincipalfactorthat causespeopletoworkwouldappeartospringmorefromapsychological needtofeelusefulandachievesuccessthanfromasimpledesireformoney. Ofcourse,inourpresentsystem,moneyiscloselyassociatedwithsuccess butanyoneintimatelyawareofwhatgoesonintheaveragefactoryoroffice knowsthatincreasedrecognitionorresponsibility,orevensotriviala rewardashavinganofficewithawindowandacarpet,isoftenagreater incentiveforhardworkthansimplythesalarydifferentialinvolved.Even wheremoneyisanimportantincentive,thetotalamountofmoneyreceived isnotnearlysoimportantastheamountofmoneyrelativetowhatother peopleinthesamefactoryoroffice,oreveninthesocietyatlarge,arebeing paid.Thereislittlereasontosuspectthatasupplementalsourceofincome paidequallytoeveryonewouldperceptiblyaffectinonewayoranotherthe systemofpracticalincentivesthatcausepeopletoleavetheirhomesinthe morningandgotowork.Afterall,thosepersonsinoursocietywhowork thehardestandlongestarenottypicallythosewhoareonejumpaheadof thebillcollectors.Thosewhoworkeveningsandweekendsandtakework homefromtheofficeseldomdosobecauseofabsolutefinancialnecessity. Thecompulsiveworkersamongusaremotivatedbysomethingmuchdeeper thanaweeklypaycheck.Thereisnoreasontobelievethatmany,ifnot most,ofuswouldnotcontinuetoworkjustashard,ifnotharder,evenifa substantialportionofourincomewereprovidedregardlessofwhetherwe workedornot.IftheNMFwereineffect,itseemsquitelikelythatthe primaryincentivesforworkwouldremainwhattheyaretodayi.e.,theneed tosocialize,tocompete,toachieve,andtoescapeboredom.Mostjobs wouldstillpaywagesandsalaries,andonlyafewpersonswouldfeelno needforadditionalmoney.Furthermore,theurgetofeelproductive,tomake acontribution,andtoattractpeerrecognitionwouldnotdisappearfromthe society. ManywealthyAmericanswithindependentincomestodayhold regularjobs.ThereisnoreasontobelievethatpersonswithNMFincome wouldbehavedifferently.TheNMFwouldcertainlynotpreventanyone fromworkingwhodesiredtowork.Infact,itwouldnotimposeanythingon anyone.Itwouldenlargeoptions,notnarrowthem.Itwouldenable everyonetostructurehisorherownlifemoreaccordingtoindividual choice. TheNMFwouldextendtheconceptofindividuallibertyfarbeyond whatanysocietyhaseverexperiencedbefore.Humanbeingswouldhavethe freedomtopursuewhateverinterestedthem.Jobswouldbereadilyavailable foreveryonewhowantedworkandthevarietyofoccupationswouldbe

vastlyexpanded.Peoplecouldaffordtopursueinteresting,butnot necessarilyeconomicallyrewarding,occupationsbecauseofsupplemental NMFincome.Noonestalentwouldgoundevelopedforlackof opportunity.TheNMFwouldgivetotheindividualhumanbeingadegreeof freedomforindependentexpressionandcreativitythattodayisalmost inconceivable. TheEffectonPoliticalFreedom Inmanyways,theincreasedpersonalfreedomsresultingfromNMF incomewouldbeindistinguishablefrompoliticalfreedoms.Ifpeoplecannot livewheretheywish,cannottravelwheretheywanttogo,andareprevented fromprovidingtheirfamilieswithproperfoodandclothing,theyarenot free,andtosomedegreeitisacademicwhethersuchrestrictionsare economicorpolitical.However,incomefromtheNMFwouldhaveafar moredirectandlonglastingeffectontheissueofpoliticalfreedomthan simplyincreasingtheabilityoftheaveragecitizentoaffordamore personallysatisfyinglifestyle.NMFpublicdividendswouldprovideto everyindividualasecurebaseofeconomicpower. Thereisadirectrelationshipbetweenpersonaleconomicsecurityand politicalfreedom.Whereapopulationiseconomicallypowerless,political freedomisalmostmeaningless,ifitexistsatall.Tothedegreethata personslivelihoodisunderthearbitrarycontrolofeitherthestateorprivate power,thatpersonisnotfree.Economicpowerhasbeenusedinthepastjust asoftenandjustaseffectivelytosubjugatepeopleashaspoliticalpower. Whenthewealthofanationiscontrolledbyanysmallminorityofthe population,whetherthatgroupbemadeupoffeudalbarons,aruling politburo,ortheboardsofdirectorsofthemajorcorporations,true democraticgovernmentisimpossible.Wealthispower,andpoliticalpower cannotbeseparatedfromeconomicpower.Genuinepoliticaldemocracyis possibleonlywherethereisgenuineeconomicdemocracy.Wherethe averagecitizenhasasecuresourceofincomerepresentinganequitable shareofthesocietyswealthproducingcapacity,politicalfreedomis virtuallyassured. ThehistoryoftheAmericanRevolutionisaclassicexampleofthe criticallinkbetweenfinancialsecurityandpoliticalfreedom.Itisno accidentthatthewellreasonedprinciplesofpersonallibertyandsocial justicethatwerethefoundationofAmericanrevolutionarythoughtsprang fromthepensofsuchmenasJefferson,Franklin,Madison,Hamilton,and

Adams.Thesemenwerefinanciallysecurepropertyownerslivinginarich andfertileland.Theywereselfsufficientand,asaresult,sellconfident enoughsothattheydaredtodefytheBritishthroneandtrusttheirown wisdomoverthatoflongestablishedtraditions.Alargepercentageofthe Americancoloniststowhomthefoundingfathersdirectedtheirwritings weretheownersofprosperousfarmsandshops.Thiswasacommunityof physicallyandfinanciallysecurecitizenswhofeltnocompulsiontotolerate theimpositionofarbitraryauthorityfromanyone,eventheKingofEngland. TheAmericanexperiencehasbeenthatpeoplewhoarefinanciallysecure, especiallythroughtheownershipofthemeansofproduction,donotreadily submittopoliticalpressureorlightlyforfeittheirpersonalliberty. ItisreadilyunderstandablethatmostAmericansofwealthandpower todaybelongtothatpoliticalpartythatemphasizestheimportanceof individuallibertyandpersonalfreedom.Almostinvariablyitisthosewho feelpersonallysecurewhomostappreciateandpromotethevirtuesof individualism.Thosewhoaredependentfromdaytodayonthesaleoftheir laborforincomecannotaffordtheluxuryofverymuchindependentthought orindividualaction. NMFincomewouldgiveeverycitizentheeconomicsecuritytothink independentlyandthepowertomakehisorherviewsfelt.Nocitizenwould needtotolerateexploitation,andtherewouldbelittleneedformass movementstoprotectminoritiesfromoppression.TheNMFwouldgiveto individualsthepowertoprotectthemselves. ABiggerPiewithBiggerSlices IthassometimesbeensuggestedthatallthebenefitsthattheNMF wouldgivetoindividualscouldbeachievedequallywellbysimply extendingthewelfaresystemorinstitutinganegativeincometax.Tothe extentthatthesemeasureswouldredistributethenationsincomeandraise benefitstothepoor,thismaybetrue.Butwelfare,socialsecurity,and negativeincometaxproposalsonlyredistributewealth.Theydonotcreate it.TheNMFismuchmorethanjustanotherschemetotakefromtherich andgivetothepoor.TheNMFisameansforincreasingtheproductive efficiencyofthenationsindustriessothatmorewealthcanbeproducedat lowercost.Publicdividendsarepaidontheincrease,andtheybenefit everyone,richaswellaspoor. Redistributionofincomethroughthetaxsystemmerelychangesthe waythepieissliceditdoesnotincreaseitssize.Infact,highertaxesonthe richmayevenreducethesizeofthepie,becauseofdisincentivestorisk

takingandtoindividualinitiative.Increasesinthewelfarestateorthe institutionofanegativeincometaxdiscourageinnovationandretardin dividualexcellence.Theytendtohomogenizesociety,toholdback achieversinordertoassistthepoor.Thisvirtuallyassuresthatinorderfor sometobenefit,othersmustlose.Sinceitistherichandpowerfulwhostand tolosethemost,thepracticaldifficultiesinherentinsuchmeasuresare large. TheNMFincontrastwouldbenefiteveryonesimultaneously,richand pooralike.NMFinvestmentwouldincreaseproductivityandencourage innovation.Thetotalpiewouldgetlargerandeveryonewouldshareinthe increase.NMFdividendswouldplaceacomfortableincomefloorunder everyone,butmoreimportant,theywouldimposenoceilingonanyone.An economybasedontheNMFwoulddistributemostincomefromhigh technologyindustriesequally,buttherestoftheeconomywouldbefair gameforcompetition.Therewouldbenoneedtolimitrewardsto outstandingindividuals,becauseeveryonewouldbefinanciallysecureand thereforenotvulnerabletoexploitation. Unfortunately,Westerncultureissosteepedinthetraditionof competition,thattheconceptofeveryonebenefitingtogethersoundsalien, almostsubversive.Manypeoplesimplydonotbelievethatitispossiblefor someonetohavemorewithoutsomeoneelsehavingless.Manyothers believethateveryonebenefitingequallyisequivalenttonoonebenefitingat all.This,ofcourse,ispurenonsense.Noonestarvingissurelynotthesame aseveryonestarving.Anentirenationwelleducated,housed,andmedically caredforiscertainlynotthesameasawholecountrywithnoneofthese benefits.TheUnitedStateshastheknowledgeandindustrialcapacityto provideadecentanddignifiedlifeforeveryone.Theindustrialrevolution hasmadeitsothatmaterialprosperityforsomenolongerdependsonthe deprivationofothers.Todaypovertyistechnologicallyunnecessary. TheNMFwouldguaranteeaminimumincometoeveryone,butit woulddomuchmorethanthat.Itwouldprovideincentivesforinnovation andgeneratetheinvestmentcapitalnecessarytosupportmaterialprosperity forall.Increasedwealthwouldaccruetoeveryonenoonewouldbenefitat anothersexpense.

VIII

TheQuestforStablePrices
Westilldonotknowhowtofindthatperfectincomepolicythatwillspare ustheneedtochoosebetweenthealternativesoffullemploymentand pricestability. PaulSamuelson

Ineconomics,aswellasinthephysicalsciences,therearebasiclaws ofconservationofmassandenergy.Asocietycannotconsumemorethanit produceswithoutdrawing downitsstockofexistingwealth.Consumptionis theusinguporthewearingoutofgoodsandservices.Itisregulatedbythe amountofmoneythatisavailabletoindividuals,businesses,and governmentforspending.Production,ontheotherhand,isregulatedbythe levelofinvestment,bytheavailabilityoflaborandrawmaterials,andbythe efficiencyorproductivityofthetechniquesandmethodsusedinthe productiveprocess. Presumably,ifincomewerestrictlydeterminedbytheamountof goodsandservicesproduced,thendemandwouldalwaysequalsupply,and priceswouldremainconstant.Inthepresenteconomicsystem,however, incomeisonlylooselyrelatedtohowmuchisbeingproduced.Wagesand salariesareprimarilytheresultofpoliticalnegotiationsbetweenlaborand management,orofmarketdemandforspecificjobskills.Onlysecondarily arewagesrelatedtovalueaddedinproduction.Wagesincreasescan,andin 1 factmostoftendo,exceedproductivityincreases. Asaresult,consumer incometendstorisefasterthanproductiveoutput.Thisleadsinevitablyto inflation. Inflationisnatureswayofmaintainingabalancebetween consumptionandproduction.Ifconsumersreceivemoreincomethanis producedinoutput,pricessimplyriseuntilthepurchasingpowerofincome isreducedtoequalthevalueoftheoutput. Moderneconomistsclassifythecausesforinflationintotwo categoriesdemandpull andcostpush.Demandpullinflationisthe classicalformcausedbytoomuchmoneychasingtoofewgoods.Excess moneycausesdemandtoexceedsupply,andpricesrise.Theoretically, demandpullinflationcanbecuredbymonetaryandfiscalrestraint.Ifthe FederalReserverestrictsthemoneysupplyandgovernmentspendingis reduced,theamountofmoneyincirculationfalls,andinflationisbrought undercontrol.

Inrecentyears,however,moreandmoreofthepressuresforinflation appeartobeofthecostpushvarietythatis,increasingcostsinthe 2 productionprocessitselfforcesthepriceofgoodsandservicesupward. If thecostofobtainingrawmaterialsrisesorifwagecontractsarenegotiated thatraisethecostoflaborfasterthanproductivityincreases,thenprices mustrise.Costpushinflationrespondspoorly,ifatall,totheclassical remediesofmonetaryandfiscalrestraint.Infact,forreasonsthatwillbe discussedshortly,monetaryandfiscalrestraintmayactuallyexacerbate costpushinflationbecausethesemeasurestendtoreduceproductivityand thusactuallyincreaseunitproductioncosts. Itisamatterofmuchdisagreementamongeconomistsastoexactly whatiscausingthepresentworldwideinflationarycrisis.Almostcertainly, recentinflationisnotpurelyofthedemandpullvariety.Ifitwere,the classicalremedieswouldlongagohaveshownsomedesirablebeneficial 3 effects. Instead,thepastdecadehasproducedaseriousrecession,soaring unemployment,andunprecedentedinflationsimultaneously. ProductivityandPrices Clearly,sinceproductivityisafundamentalfactorinthecostof production,itmustbeintimatelyrelatedtoprices.Evidenceofthe relationshipbetweenproductivityandpricescanbeseeninFigureVIIIl. Thischartshowsthatin

FigureVIII1.Statisticaldataclearlyindicatesaninverserelationship
betweenproductivityandprices.Inindustrieswhereproductivitygains werehigh,priceincreasestendedtobelow,andviceversa.Inindustries whereproductivitygainsexceededtheaverageannualwageincreaseof 5.6percent,pricestendedtofall.

industrieswhereproductivitygainswerehigh,priceincreasestendedtobe low,andviceversa.Inindustrieswhereproductivityincreasesexceededthe averageannualincreaseinwages(thatwas5.5percentfortheperiodfor whichthefigurewasprepared),pricestendedtofallratherthanincrease. Thistendstosupportthetheorythatinflationistheresultofwageincreases thatexceedproductivityincreases. ItmightbesuggestedonthebasisofFigureIV4thatiftheUnited Statesinvestmentrateduringthe19601970periodhadbeenat21percentof theoutputofallindustryinsteadof14percent,thenUnitedStates productivitywouldhaveincreasedat6percentinsteadof3.5percent.Ifthis hadoccurred,thenFigureVIII1impliesthattheUnitedStateswouldhave enjoyedanentiredecadewithoutinflationdespitethe5.5percentannual increaseinwagesthatoccurredduringthatperiod. Certainlyagreatdealoftheoverallbehaviorofpricesoverthepast quartercenturycanbeexplainedsimplybyexaminingthedifference betweenwagesandproductivity.FigureVIII2isaplotoftheamountby whichwageincreaseshaveexceededproductivitygainssince1950.

Superimposedonthisgraphisaplotoftheconsumerpriceindexoverthe sametimeperiod.Exceptforthefactthatpricesdidnotfluctuateasquickly oraswidelyaswagesandproductivity,thetwocurvescorrespondvery closelythroughouttheentireperiod.

FigureVIII2.Thedifferencebetweenwageincreasesandproductivity
increasesisstronglycorrelatedwiththeinflationrateoverthepastquarter century.Thisstronglysuggeststhataprimarycauseofinflationiswage increasesthatexceedproductivityincreases.

Itisinterestingtonotethatthiscorrespondenceholdstrueoveratime spanthatincludestheKoreanWar,Vietnam,severalrecessions,along periodofstablegrowth,periodsofhighinterestratesandlow,tightmoney, expansionistmonetarypolicy,taxcuts,taxincreases,oilembargos,and soaringoilprices.Throughoutallofthis,theconsumerpriceindexfollowed thedifferencebetweenwagesandproductivityveryclosely.Thecorrelation ofthedatainFigureVIII2contrastssharplywiththecompletelackof correlationbetweeninflationandfederalbudgetdeficitsshowninFigure VIII3.Contrarytopopularpoliticalrhetoric,budgetdeficitsseemtohave noclearrelationshiptoinflationatall.Thereappearstobeaslighttendency forinflationtoprecedebudgetdeficits,indicatingthatdeficitsmaybe causedbyrisingprices,butthereiscertainlynoevidenceforthereverse.

FigureVIII3.Contrarytopopularpoliticalrhetoric,thereislittle
correlationbetweeninflationanddeficitspendingbythefederal government.

Thesedatastronglysuggestthatthefundamentalcauseofinflationis wageincreasesthatexceedproductivitygains.Theimplicationisthatthe onlyhopeforapermanentcuretoinflationistoclosethegapbetween wagesandproductivity,eitherbyreducingwageincreasesproductivityorby increasingproductivitygains. Asofthiswriting,virtuallyalleffortsatclosingthewageproductivity gaphavebeendirectedtowardholdingwagesincheck,eitherthroughwage pricecontrolsorbydeliberatelycreatingunemployment.Thislatterstrategy isbasedonthetheorythatwageincreasesareafunctionofthe unemploymentrate.Everymoderneconomicstextbookcontainsa discussionofthesocalledPhillipscurve,thatpretendstoshowhowmuch wagescanbeexpectedtoriseeachyearforanygivenrateofunemployment. SamuelsonshowsaPhillipscurvethatrequiresfivepercentunemployment 4 toholdwageincreasestoanoninflationarythreepercentperyear. Three percentis,of course,theprevailinglongtermproductivitygrowthrate. However,unemploymentintheUnitedStateshasbeennearorabovefive percentforoverfiveyearsandthereisnoapparenttendencyforwage 5 increasestodecline. Since1966wageshaveincreasedatasteadyseven 6 percentperyearwithonlyminorfluctuations. Theprincipalresultof policiesdesignedtocreateunemploymenthasbeensimplythatun employment.Verylittleeffecthasbeenapparentinthewagesofthosestill holdingjobs.IfthePhillipsrelationshiphasanyvalidity,itisclearthatthe amountofunemploymentrequiredtoholdwagesincheckismuchhigher

thanhasbeenpreviouslyadmitted.

ADifferentStrategy Underthepresentcircumstancesadifferentstrategywouldseem tobe inorder.Ifwageincreasescannotbeheldincheckeitherbycontrolsorby unemployment,whynottryraisingproductivityinstead?Raising productivitytoequalwageincreaseswouldhavethesameeffecton inflationasreducingwageincreasestoequalproductivitygains.The principaldifferencewouldbethattheunpleasantsideeffectsofunem ploymentandrecessionwouldnotoccur. SuchtacticswereactuallyproposedbyPresidentNixoninhis economicreporttoCongressonJanuary27,1972,butasidefromthe establishmentofaNationalCommissiononProductivitytogatherstatistics, littleoftangiblesignificancehasbeendone.Recently,therehasbeensome 7 activityinCongressconcernedwithmeasurestoincreaseproductivity, but therehascertainlybeennomajorshiftawayfromarelianceonfiscaland monetarypoliciestowardsanoveralleconomicstrategybasedon productivitygrowthastheprimaryeconomicstabilizer.Yetthereare numerousreasonsforbelievingthatsuchastrategywouldbemuchmore successfulthanwhatisnowbeingpursued. Firstofall,increasedproductivitywouldattacktherootcausesof costpushinflation.Increasedproductivityinallareasoftheeconomy,but especiallyinthemanufacturing,transportation,andconstructionindustries, couldmorethanoffsetrisingcostsofrawmaterialsandenergyandcouldre ducepollutionwithoutincreasingprices.Forexample,reducingthecostof diesandmoldswouldoffsettheincreasedpriceofbasicmetalsandplastic resins.Moreefficientconstructiontechniqueswouldoffsetrisingcostsof cementandsteel.Modernizedrailroadsandmoreefficientcargohandling techniquescouldoffsettherisingcostsoffuel.Improvedmethodsof smeltingandforgingcouldoffsettheincreasedcostofpollutioncontroland safetystandards.Increasedproductivityreducescosts,cutswaste,and 8 producesmoreoutputforlessinput. Thisistheonlysolutiontocostpush inflation. Productivityisalsorelevanttothefundamentalcausesofdemandpull inflation.Shortages(i.e.,insufficientsupplytomeetprevailingdemand)are thebasicsourcesofdemandpullinflation.TheUnitedStatesandtheworld arethreatenedbyshortagesofeverydescription.Theonlyhopeofever meetingrisingdemandsforparticipationinthegoodlifeistoproducemore

forless.Thiscanonlybedonethroughincreasedproductivity indeed,it istheverydefinitionofincreasedproductivity. Ofcourse,aninflationfightingstrategybasedonincreasing productivitywouldhavemanyotherbenefitsbesidesstabilizingprices.The increaseininvestmentrequiredtoimproveproductivitywouldreduce unemploymentandendrecession.Theconstructionofnewplants,machines, andtransportationfacilitieswouldcreatejobsandstimulatebusiness. Throughincreasedinvestmentwecouldmobilizeournationtoovercome shortages,feedthehungry,housethepoor,and,ingeneral,makethislanda delightfulplaceinwhichtolive.Byincreasingproductivitythrough increasedinvestment,wecoulddefeatinflationwhilesolvingmanyother problemsatthesametime. Thereisagreatdealofevidencetoindicatethatproductivityinthe UnitedStatescouldbesignificantlyincreasedoverwhatitistoday.Thedata inFiguresIV4andIV5,aswellassimilardatafromothersources,strongly suggeststhatthelowrateofUnitedStatesproductivitygrowthisadirect 9 resultofourlowrateofcapitalinvestment. FigureIV4demonstratesthatproductivitygrowthratesofsix,eight, andeventenpercentaresustainableinmatureindustrializedeconomiesfor periodsofadecadeormore.Thereisagreatdealofpentuptechnology todaythatisunexploitedsimplyduetoalackofriskcapital.Highinterest ratesandtightmoneypoliciesoverthepasttenyearshavevirtually eliminatedthetypeoflongterminvestmentsthatfinanceimprovementsin basictechnologyandyieldmajorproductivitygainsoveraperiodofmany 10 years. TheinstitutionalmechanismprovidedbytheNMFwouldnotonly supplythenecessaryinvestmentcapital,butwoulddosoinawaythat wouldensurethatthebenefitsweredistributedinanequitablemanner. IncreasedinvestmentthroughtheNMFwouldnotmerelymaketherich richer,butwouldmakeusallrichertogether. Intheneartermwhennewplants,newmachines,andnewfacilities arebeingconstructed,NMFinvestmentwouldstimulatebusinessandreduce unemployment.Assoonasnewtechnologyembodiedinmodernizedcapital equipmentcameintouse,productivitywouldriseandinflationwouldbe broughtundercontrol.Overthelongrun,aftertheseinvestmentsbeginto payback,theNMFdistributionofprofitsthroughpublicdividendswould createastable,longlastingprosperitybasedonincreasedconsumerincome deriveddirectlyfromprofitsonincreasedproductiveoutput. InvestmentPaybackDelay

Thisoptimisticscenario,unfortunately,containsonemajorproblem thatmustbesolvedbeforeapolicyoffightinginflationthroughincreased investmentcouldbeputintopractice.Thatproblemistheinvestment paybackdelay.Withanyinvestment,thereisanunavoidabledelaybetween thetimewhentheinvestmentismadeandthetimewhentheeffectsof increasedefficiencybegintobefelt.Duringthisinterimperiod,investment spendingtendstocreateshorttermdemandpullinflationarypressures. Investmentspending,likeallothertypesofspending,createsdemand. Demand,inturn,increasesemployment,andstimulatesbusinessactivity however,italsotendstocausepricestorise.Investmentspendingisunique inthat,oncetheinvestmentsbegintopayoff,supplyalsorisesandprices levelofforevendecline.However,thedelaybetweeninvestmentand paybackcancausepricestofluctuatewidely. Thereasonsforinflationduringthistimedelayareeasily understandable.Forexample,whilebuildingnewfactories,construction workersarepaidfortheirworkimmediately,whilemonthsorevenyears maypassbeforeproductsfromthesenewfactoriesappearforsaleonthe retailmarket.Manymoreyearsmaypassbeforethetotalvalueofthenew productsequalsorexceedsthecostoftheoriginalinvestment.Thus, investmentspendingstimulatesdemandlongbeforeitincreasessupplyto meetthatdemand.Wheneverdemandexceedssupply,pricestendtorise. Onlyafterincreasedproductionpaysbackthecostoftheoriginalinvestment doessupplycatchupwithdemandandpricesstabilizeordecline. Thefactthatinvestmentspendinginfluencesdemandimmediatelybut doesnotaffectsupplyuntilalatertimetendstocauseeconomicinstability inthefaceoflargeratesofinvestment.Theeconomyisamassivesystem withmanyinteractingfeedbackloops.Itischaracteristicofsuchsystems thattheybecomeunstablewhensignificanttimedelaysareintroducedin criticalplaces. Inatypicalbusinessinvestment,asmuchasfiveyearsormoremay passbeforeincreasedproductionrepaysthecostoftheinvestment.Thistime lagbetweeninvestmentcreateddemandandinvestmentcreatedsupplyhas historicallybeenresponsiblefortheclassicaloscillationsineconomic activityknownasbusinesscycles,oralternatingperiodsofboomandbust. Duringperiodsofboom,expectationsarehighandbusinessestendto borrowheavilyandinvestatahighrate.Thiscausesdemandtoincrease fasterthansupply,andpricesrise.Highpricesclassicallymeanhighprofits leadingtoevenmoreoptimisticexpectationsandstillhigherinvestment rates.Afteraboomperiodofseveralyears,however,investmentsbeginto payoffandsupplybeginstoovertakedemand.Thisleadstothebustpartof

thecycle.Oversupplycausespricestodecline,andprofitsarereduced. Fallingprofitsdampenbusinessoptimismandinvestmentspendingbegins todeclineaswell.Thus,whilesupplyisrising,demandisfalling.Theresult isthatpricesfalldramaticallyandlossesorbankruptcyoccurtoany businessthatborrowedtooheavilyduringtheboomperiod. Thisclassiccycleofboomandbustwascharacteristicoftheearly daysofcapitalismandforalongtimewasacceptedasinevitable.However, theseverityofthebustin1929leadingtotheGreatDepressionofthe1930s finallyconvincedworldeconomiststhatsomethinghadtobedoneto prevent,oratleast,smoothoutthepeaksandvalleysofthebusinesscycle. SincethetimeoftheGreatDepression,anumberofpolicieshavebeen developedthattendtokeepeconomicgrowthmoreorlessundercontrol. Unfortunately,allofthetechniquesthatarepresentlyusedforprice stabilizationoperateonthebasicprincipleofreducingdemandbylimiting investment.IftheNMFweretoembarkonapolicyofdrasticallyincreasing investmentspending,especiallythroughmoneyborrowedfrom theFederal ReserveBank,itwouldbeworkingatcompletecrosspurposeswithallof theexistingpricestabilizationmechanisms.Thisisundoubtedlyoneofthe reasonswhythestrategyoffightinginflationbyincreasingproductivityhas neverbeentried.Itiscertainlyareasonwhysomenewmechanismsfor limitingshorttermdemandwillberequiredbeforeeffortstoincrease productivitycanbeseriouslyconsideredasapracticalmethodforfighting inflation. Inthenextchapter,justsuchanewmechanismwillbeproposed.It involvesasystemofmandatorysavingsforcontrollingshorttermconsumer demandwhileNMFinvestmentspendingisbeingincreased.Thissavings programwouldallowmajorincreasesintheinvestmentratewhile preventingsubstantialinflationarypressuresfrombeinggeneratedduringthe timeintervalbetweeninvestmentandpayback.First,however,thecurrently usedmethodsforinflationcontrolwillbereviewedsothatthereasons(at leastinthisauthorsopinion)fortheircurrentineffectivenesscanbepointed out,andtheprovisionsintheproposeddemandcontroltechniquecanbe moreeasilyexplained. MonetaryPolicy Ofallthecurrentlyusedmethodsforeconomicstabilization, monetarypolicyhasthelongesthistoryandisregardedasthetraditional,or 11 classic,solutiontopriceinstability. Simplystated,monetarypolicyisthe regulationbythenationsbanksoftheamountofmoneyincirculation.

Accordingtomonetarytheory,theamountofmoneyincirculationdeter minesaggregatedemand.Sincepricesarelargelygovernedbytheratioof supplytodemand,theproperregulationofthenationsmoneysupply theoreticallycancontroldemandandhenceproducepricestability. Theinflationaryimpactofinvestmentspendingisobviously minimizedifinvestmentcapitalisderivedfromsavingsratherthanfrom newmoneycreatedthroughborrowing.Savingsrepresentincomethatisnot spent.Thus,investmentspendingfromsavingsismerelyadiversionof demandfromtheconsumertotheinvestmentmarket.Totaldemandisunaf fected,andthereislittleinflationaryeffect.If,however,investmentcapital isderivedfromborrowinginsuchawaythatthetotalsupplyofmoneyis increased,theninflationislikelytobeaproblemduetoanincreasein aggregatedemandbeforeacommensurateincreaseoccursinsupply.The managementoftheamountofnewmoneyallowedtobecreatedthrough borrowingistheheartofmonetarypolicy. Themoneysupplyofthecountryiscontrolledbybanklending policiesandbyFederalReserveopenmarketactivities.TheFederalReserve Bankcaninfluencetheamountofnewmoneycreatedbybanksby regulatingtheprimeinterestrateandthereserverequirementsofitsmember banks.TheFederalReservecanalsoinfluencethemoneysupplybyopen 12 marketpurchasesorsalesofgovernmentsecurities. Thus,theoreticallyat least,themoneysupply,andhence,demandcanberegulatedbymonetary policy. Unfortunately,theclassicaltechniquesofmonetary policysuchas changesininterestratesandmanipulationsofthesecuritiesmarketdonot alwaysaffectpricesinapredictableway.Tightmoneytendstoreduce investmentspending,andthus,overalldemand.Butinthelongrun,reducing investmentiscounterproductiveintheextreme.Reducedinvestment spendingreducesfutureproductiveoutputandthusassuresthatfuture supplywillbereduced,aswellaspresentdemand.Inaddition,reducing demandbymonetaryrestraintsproducesbusinessslowdown,recession,and unemployment.Theseeffectscausecurrent,aswellasfuture,productive outputtofall.Thus,itisquitepossiblethatrestrictivemonetarypoliciesmay reducesupplyevenfasterthantheyreducedemand.Ifthishappens(thatit didinthe196970,andagaininthe197374period),monetaryrestraintwill producenotonlyrecessionandunemployment,butcontinuedoreven increasedinflation. Furthermore,thecontrolofinflationbymonetaryrestraint,evenwhen successful,exactsaterribleprice.Shorttermpricestabilityisachievedat thecostofalongtermdeclineintheproductionofwealth.

Monetarypolicyunderstandablytendstobepopularinconservative circles,particularlyamongbankersandestablishedbusinessmen.Monetary restrainttypicallyresultsinhighinterestratesandsloweconomicgrowth. Theseeffectsareseldominjuriousandoftenaredecidedlybeneficialto thosewhohavealreadyamassedsecurefortunes.Tightmoneyandslow growthmakeitdifficulttostartnewbusinessesandunprofitableto modernizeoldones,andleadtoincreasedlevelsofunemployment.Theseall workinfavorofestablishedwealth.Highunemploymenttendstoholdlabor demandsincheckandlowratesofinvestmentandmodernizationtendto minimizecompetitiontowellestablishedcorporations.Highinterestrates, ofcourse,alsobringlargeprofitstothoseinthebusinessoflendingmoney. Needlesstosay,monetaryrestraintislesspopularamongthenon wealthy.Thesocialcostsofhighinterestratesandhighunemploymentfall mostheavilyonthepoor.Thus,liberalpoliticianshavetraditionallysought othertechniquesforcontrollingpricesthatexactfewerhardshipsonmiddle andlowerincomegroups.Onetechniquepopularamongliberalsistax policy. TaxPolicy Theconceptofregulatingconsumerdemandthroughraisingor loweringtaxesistheheartofthesocalledNewEconomicsofKeynes. Thebasicideaisthat,sinceconsumerspendingisalargeandveryconstant percentageof disposableincomeandsinceconsumerdemandisthelargest singlefactorinaggregatedemand,pricescanbecontrolledbyregulating incometaxes.AccordingtoKeynesiantheory,taxesshouldbeloweredto stimulatedemandwhenoveralldemandissluggish andshouldberaisedto 13 reducedemandwhenoveralldemandisexcessive. Thefactthatatleasthailofthistheoryworkswasdemonstratedin 1964when,shortlyafterPresidentKennedysdeath,theJohnson Administrationloweredtaxes.Demand,indeed,increasedimpressively,and theeconomyquickened.Theothersideoftheformula,however,isfraught withpoliticaldifficulty.Itisunpopulartoraisetaxesatanytime,and particularlysowhenconsumersarefeelingthepinchofrisingprices.Thus, eventhoughthecorrectremedyforinflation(atleastfordemandpull inflation)maybetoraisetaxes,suchapolicyisalmostimpossibleto administersuccessfully.Inthelate1960s,ittooktheJohnson Administrationmorethantwoyearstoobtainataxsurchargeforcombating inflationcausedbytheVietnamwar,and,bythetimethetaxincreasefinally 14 tookplace,itwasmuchtoosmalltoproducethedesiredeffect.

Historically,itseemstobeeasytocuttaxesinordertostimulate demand,butithasprovenvirtuallyimpossibletoraisethemquicklyenough orbyasufficientamounttostopinflation. BudgetaryPolicy Athirdmethodusedinattemptingtostabilizepricesisbudgetary policyi.e.,theregulationofgovernmentexpenditures.Budgetaryandtax policyaresometimeslumpedtogetherunderasingleheadingentitledfiscal 15 policy. However,asapracticalfactintherealworld,budgetary appropriationsandtaxesareonlyverylooselydependentononeanother(as evidencedbyalonghistoryoffederalbudgetdeficits). Governmentspendingdoes,ofcourse,createdemand,but unfortunatelythemanipulationofgovernmentexpendituresforpurposesof pricestabilityislargelyimpractical.Althoughgovernmentspendingisthe secondlargestfactorinoveralldemand,onlyanegligiblefractionofthe federalbudgetissubjecttomanipulationforpurposesofpricestabilization. Governmentspendingisprimarilydictatedbysuchconsiderationsas defenseorsocialneedsorbyfixedexpensessuchassocialsecurity paymentsorinterestonthenationaldebt.Contrarytopopularpolitical rhetoric,verylittleofthefederalbudgetissubjecttopoliticalcontrolexcept inthemostgeneralsense.Veryfewbudgetaryexpenditurescanbeincreased ordecreasedforthepurposeofregulatingoveralldemand. Unfortunately,oneofthefewareasofthefederalbudgetthatis readilysubjecttobudgetarycontrolisresearchanddevelopment expenditures.Researchmoniesareusuallyamongthefirstcasualtiesofany seriousbudgetcuttingattempts.Thus,newtechnology,thatisthelongterm sourceofmostproductivitygains,istypicallycurtailedattheverybeginning ofanyprogramoffiscalrestraint.Thisisexactlywhathappenedatthe beginningoftheVietnaminflation.Researchanddevelopmentspendingwas 16 sharplycurtailedin1965. Theintention,ofcourse,wasforthereductions tobetemporarysincenooneexpectedthewartolastmorethanafew months.However,mostofthosecutshaveyettoberestored. Ofcourse,budgetarypolicy,likemonetarypolicy,affectsbothsupply anddemandsimultaneously.Governmentexpendituresnotonlycreate demand,buttheyalsoaffecttheproductionofgoodsandservices.Thisisa factfrequentlyoverlooked.Governmentspendingforschoolandhospital constructionaffectsthesupply,andhence,thepriceofeducationand medicalcare.Governmentspendingforhighways,airflightcontrol, subways,andshipbuildingaffectthecostoftransportationand,asaresult,

thepriceofpracticallyeverything. Thereductionofgovernmentexpendituresasamethodforcombating inflationisoftenselfdefeating.Reductionoffederalspendinginonearea frequentlyforcescorrespondingincreasesinretirementbenefits,social security,andunemploymentpayments.Ofcourse,thesepaymentsare smallerthansalarydollars,sothereisanetdecreaseinconsumerdemand. Butthereisalsoasimultaneousdecreaseintheproductionofgovernment services.Thus,theoveralleffectonpricesisambiguous.Cutbacksin governmentregulatoryagenciesoftenresultinlessprotectionforthe consumerandleadeitherdirectlyorindirectlytohigherpricesandless services.Cutsinpovertyprogramsoftenmeanthatpotentialtaxpayersare thrownintowelfareor,worse,intoalifeofcrime.Thus,inmanycases, reductionsingovernmentexpendituresmayactuallycontributemoretothe overallcauseofinflationthantoitsprevention. Finally,itmustbepointedoutthatthestatistical evidencepresentedin FigureVIII3doesnotsupportthecontentionthatbudgetarypolicyhasany appreciableeffectoninflationonewayortheother.Ifthatistrue,thenallof thepoliticalcrusadesagainstinflationbasedoncuttingfederalspending are almosttotallyirrelevant.Whatevereffectsmaybetraceabletobudgetary policyarelargelyoverwhelmedbyother,moreimportanteffectselsewhere intheeconomy. PriceGuidelinesand/orControls DuringtheJohnsonAdministration,wageandpriceguidelineswere employedinanattempttocontroltheinflationbroughtonbytheVietnam war.PresidentJohnsonusedhispersonalpowersofpersuasiontocajoleand threatenbusinessandlaborleadersintoholdingpriceandwageincreases withinprescribedguidelinesapracticethatcametobeknownas jawboning.Jawboningisbasedonthetheorythatinflationcanbe controlledbypersuadingunionsandmanagementtovoluntarilylimittheir wagesandprofitsbelowwhatthemarketwouldotherwiseallow.Themost remarkablethingaboutthisstrategyisthatanyonethoughtforaninstantthat itwouldwork. Duringthemid1960s,theincreaseinmilitaryspendingbrought aboutbytheVietnamescalationincreasedthedemandforlaborand manufacturedgoods.Atthesametime,cutsintheinvestmentratemade productivityincreasesdifficult.Theresultwasthatinflationarypressuresof boththedemandpullandcostpushvarietyweregenerated.Toexpectthat suchforcescouldbecontainedbyverbalexhortationswaslikewhistlinginto

ahurricane. Duringthelatterhalfofthe1960s,presidentialjawboningwas 17 notablyunsuccessfulasalongtermstabilizerofprices. Itperhapscouldbe creditedinafewcaseswithdelayingpriceincreasesbyseveralmonths,but, overthelongterm,theinexorablepressuresofinadequatesupplyand increaseddemandbroughtaboutbytheVietnamwarforcedpricesupward. DuringtheNixonera,inflationcontinued.Foraboutthreeyearsthe NixonAdministrationreliedontheclassictechniquesofmonetaryrestraint. Theresultwasapredictableriseinunemploymentandslowdownin business.Therewasalsoacontinueddeclineincapitalinvestmentthat predictablyledtoadeclineinproductivity.Unsurprisingly,inflation continuedtobeaseriousproblem,andfinallyinAugust1971thePresident imposedpriceandwagecontrols.Pricesstabilizedtemporarilybut eventuallybegantocreepupwardsagainsincetheimpositionofcontrolshad donenothingtoremedythebasicproblemoflowproductivityandexcessive demand.Manytypesandphasesofpriceandwagecontrolsweresub sequentlytriedanddiscarded,buttheresultwasalwaysthesame.Supply wasinsufficienttomeetdemand,andpricesroseirrespectiveofcontrols. TimeforaChange Outofallthisonelessonseemsclear.Noneofthecurrentinflation controltechniquesarecapableofdealingwithcostpushinflation.Theyall attempttoclosethegapbetweenwageincreasesandproductivityincreases byholdingdownwages.Butwagesnolongerrespondtosuchpressuresand, perhapsevenmoresignificantfortheyearsahead,neitherdorawmaterial costs.Thetimehascomeforanewstrategy.Wemustrealize,firstofall, thatproductivityiswithinourpowertocontroland,secondly,thatincreased productivityofferstheonlyhopeforadecentqualityoflifeinanover crowdedworld.Wenolongercanaffordtofightinflationbypolicies designedtoreduceinvestmentandcreateunemployment.Alreadypeopleare starving andshortagesaregrowingworse.Acontinuationofeconomic policiesthatdeliberatelyrestrainproductionandinducerecessionmayvery wellleadtodisaster. TodayWesterncivilizationisinastateofarrestedprogress,ifnot actualretreat.Wearebeingtested.Wehavenoguaranteesthatwerenot 18 giventoRome,orEgypt,orAssyria. Theworldhasneverbeenabenignor stagnantplaceandcertainlyisnottoday.IftheWesternnationscannotsolve thebasicproblemofstableeconomicprogress,othernations,perhapsinthe FarEast,themidEast,orAfrica,eventuallywill.

Theeconomicdogmathatinflationcanonlybecuredbybreakingthe backofrisingexpectationsmaybetheAchillesheelofAngloEuropean civilization.Anotherdecadeofmonetaryandfiscalstrangulationcould easilyleadtoashiftinthecenterofworldpowerfromtheWesttotheEast. Thetimehasclearlycomeforachangeinstrategy.Ourentire civilizationisthreatenedbyshortagesandbyrisingcostsofrawmaterials. Surelytheproperresponsetosuchathreatistogetpeopletowork,to increaseproduction,and,mostimportantofall,toincreaseefficiencyand reducewaste.Tosupposethatsuchactionsareincompatiblewithprice stabilityistototallymisunderstandthecentraldrivingfunctionoftheentire industrialrevolutionincreasedproductivity. Inflationwillrecedewheneverweproduceasmuchas,ormorethan, weconsume.Thatthiscanbedonebyincreasingproductivity,aswellasby reducingwages,seemsclear.Thesecretliesinincreasedinvestment.Capital investmentistrulythegoosethatlaysthegoldenegg.Itisthelifebloodofa technologicalcivilization.Increasedinvestmentforincreasedproductivityis theonlysolutiontoourcurrenteconomictroubles.Itmaybeouronlyhope forsurvival.

IX

AFormulaforPriceStability
Aswassuggestedinthepreviouschapter,oneofthereasonsthat increasingproductivitythroughinvestmentspendinghasneverbeen seriouslyconsideredasacureforinflationisbecauseoftheproblemof excessdemandduringtheinvestmentpaybackinterval.Intheshortterm, investmentspendingtendstoaggravateinflationarypressuresbyincreasing demand.Onlyinthelongrundoesincreasedefficiencyresultingfrom capitalinvestmenttendtoclosethewageproductivitygapandreduceprices. IfNMFinvestmentisevertobepracticalonalargescale,particularly duringperiodsofhighinflation,itwillbenecessarytocomplementNMF investmentwithasavingsprogramofsufficientmagnitudetoprevent increasedinvestmentfromproducinganynetincreaseindemand.Savingsis thekeytoincreasinginvestmentwithoutinflation.Savingstakesmoneyout ofcirculationandreducesbothdemandandconsumption. Savings,ofcourse,isonlydeferredspending.Atsomefuturetime, savingscanbeputbackintocirculationsoastorestoredemandand consumption.Thisimpliesthatanationwidesavingsprogram,ifproperly managedbothfromthestandpointofwithholdingmoneyfromcirculation duringperiodsofexcessdemandandofreturningmoneytocirculation duringperiodsofinsufficientdemand,couldmaintainpricestabilityeven duringperiodsofhighinvestmentspending.Aflexiblefastactingsavings programwouldbeamechanismbywhichsupplyanddemandcouldbe maintainedinequilibriumduringallphasesofNMFoperation duringthe earlystageswheninvestmentpredominates,aswellasduringlaterstages wheninvestmentsbegintopayoff.TheDemandRegulationPolicy(DRP) thatwillbeoutlinedinthischapterisdesignedtoaccomplishthispurpose. TheDRPconsistsoftwoparts: Partonedealswithexcessdemand,aproblemthathasplagued almostallmoderneconomiesforyearsandshowsnosignofbeing solvedinthenearfuture. Parttwodealswithinsufficientdemand,aphenomenonthathas occurredinthepastonlyduringperiodsofeconomicdownturnor depression,butthatcouldhappenagainifthefullpowerofa technologicaleconomywereeverreleasedtoproducewealthatthe maximumratephysicallypossible. Therearethreeprincipalcomponentstoaggregatedemand:consumer demand,investmentdemand,andgovernmentdemand.Governmentdemand

canbeaffectedbybudgetarypolicy,but,aswassuggestedinthepast chapter,attemptstocontrolinflationbybudgetarypolicyarelargely ineffectualandoftencounterproductive.Investmentdemandcanberegu latedbytheclassicaltightmoneytechniquesofmonetarypolicy,but restrictinginvestmentisexactlytheoppositeofapolicydesignedtoincrease productivitybyincreasinginvestment.Therefore,theonlysignificant componentofdemandthatcanbeeffectivelyusedinconjunctionwiththe NMFforcontrollinginflationisconsumerdemand. Consumerdemandisthelargestsinglecomponentofdemandandalso potentiallythemostcontrollable.Theaverageconsumerspendsabout93 percentofhisorherdisposableincome.Thisisaveryconstantpercentage 1 thathasremainedbetween91and96percentsincetheendofWorldWarII. Consumerdemandisthusaverypredictablefractionofdisposableincome. ThisfacthaslongbeenrecognizedandisthebasisfortheKeynesian conceptofcontrollinginflationthroughtaxpolicy.TheDemandRegulation Policy(DRP)suggestedhereisamethodforcontrollingconsumerdemand thatwouldhaveallthepowerofKeynesiantaxpolicy,butwouldavoidmost ofthepracticalpoliticaldifficulties. Part1:DealingwithExcessDemand TheDRPwouldreduceconsumerpurchasingpowerduringperiodsof inflationbydivertingsomefractionofconsumerincomeintosavingsbonds. Thissavingsbondmoneywouldbeheldinescrow,andthustheamountof moneyimmediatelyavailableforspendingwouldbereduced.Theeffect wouldbetoreducedemandanddecreaseinflationarypressures. TheDRPwouldeffectivelybalancethemoneyequationbytakingout ofcirculationaboutasmuchastheNMFputinthroughitsinvestment policies.TheDRPwouldwithholdmoneyandrestraindemanduntil increasedsupplyresultedfromincreasedproductivity.Oncethatbeganto occur,theDRPwouldreleasethesavingspreviouslywithheldsoasto maintainconsumerpurchasingpowerinequilibriumwithproductive capacity. TheDRPwouldproduceamuchmoredirecteffectonthelargest componentofdemandthaneitherfiscalormonetarypolicy,anditwould producenocounterproductiveeffectsonsupply.DRPwithholdingswould alsohaveastrongerdeflationaryeffectthanincreasingtaxesbythesame amount.Taxmoneyistakenawayfromconsumersbutthenisspentbythe government.Thisdoeslittletoreduceaggregatedemand,butmerely transfersdemandfromtheprivatetothepublicsector.DRPsavingsbond

moneywouldnotbespentatallandthereforewouldcauseanetreductionin demand. AnimportantfeatureoftheDRPisthatitwouldnotinterferewiththe availabilityofinvestmentcapitalorwithlongterminvestmentplanning. TheDRPwouldonlyaffectconsumerincome.Itwouldoperatecompletely independentofthecapitalmarkets.Investorswouldbeabletoplanforthe longtermfuturewiththeassurancethatpriceswouldremainstableand consumerswouldalwayshavesufficientpurchasingpowertoprevent oversupply. Thediversionofconsumerincomeintosavingsbondswouldmakeit possibletokeeptrackofhowmuchmoneywaswithheldandfromwhom,so thatwheninflationarypressuresreceded(duetoinvestmentpayback increasingsupplyfasterthandemand),thenthesavingsbondmoneycould bereturnedtothesameindividualsfromwhomitwaswithheld. Itseemsreasonablethatsavingsbondswouldbefarmorepalatableto thepublicthantaxincreasesbecauseincomewouldnotactuallybelost,but onlytemporarilyconvertedintosavings.Consumerpurchasingpowerwould thusbedeferredbutnotpermanentlyreduced. AnadditionalbenefitisthatDRPmandatorysavingswouldguarantee that,wheneverinflationneededtobechecked,thediscomfortwouldbe equitablydistributedtoeveryoneandnotconcentrateduponthe unemployed.DRPwithholdingswouldbeclearlyandsimplyrelatedto prices.Thepublicwouldhavenodifficultyinperceivingtherelationship and,hence,wouldalwaysbeabletounderstandtherationaleforincreased withholdings. Simplydeferring consumption,ofcourse,onlyinfluencesdemand pullinflation.Butthatisallthatisnecessary,sincecostpushinflationis overcomebyproductivityincreasesduetoNMFinvestmentpolicies.When consumptionisdeferred,demandfallsoffandsupplybuildsup,thuscausing demandpullpressurestorecede. Supply,however,mustnotbeallowedtosurpassdemandtothepoint whereprofitsbecomeuncertain.Ifthisweretohappen,businesseswould simplycutproductionandlayoffworkers.Theresultwouldberecessionor depression,togetherwithlongtermshortages.Thus,theDRPmustnot withholdtoomuchincomeonlyenoughtoreducedemandsothatit equalssupply,andnomore. Itisimportantthattheamountofconsumerincomewithheldbythe DRPbecarefullycomputedandadjustedfrequentlysothatthereisno tendencyfordemandtoeitherfallbehindorrunaheadofsupply.Theexact formulaforwithholdingsshouldbebasedonthebestavailableprice

indicatorsandpredictors.Moderncomputertechniqueshavebeen sufficientlysuccessfulatmakingquantitativeshorttermpredictionsthat suchaformulaseemswellwithinthecapabilitiesofpresentdayeconomic 2 science. Asimpleexampleofawithholdingformulabasedontheconsumer priceindexmightbethefollowing: W=4xExT(I+20xR) where W= theamountwithheldfromeachpersonsincomebiweekly E= theperannuminflationrateasmeasuredbytheconsumerpriceindex T=theindividualsincometaxrate I=theindividualsbiweeklyincome R= theincreaseinbiweeklyincomesincethesamedatetwoyearsearlier Ascanbeseen,theformulawouldtakeintoaccountnotonlythe inflationratebuttheincomeoftheindividual,hisorhertaxrate,andtherate ofincreaseintheindividualsincome.Theformulastatesthatthepercentage ofconsumerincomewithheldshouldroughlyequaltheannualrateofinfla tion.(Theassumptionisthatfourtimestheaveragefederalincometaxrate isapproximatelyequaltounity.) Asanillustration:Iftheinflationrateisthreepercentperyear,a personsincometaxrate25percent,andbiweeklyincome$500,savings bondwithholdingratewouldthenbe$15perpayperiod.Ifthatpersonhad receivedaraiseduringthepastyearof$25perpayperiod,withholding wouldbe$15additional,or$30perpayperiod,total. Theaboveformulawouldmakethewithholdingrateprogressive. Personswithlargeincomeswouldhavealargerpercentagewithheldthan personswithsmallincomes.Itwouldalsomeanthatpersonswhosewages wereincreasingwouldhavesignificantlymorewithheldthanpersonswith fixedincomes.Thewithholdingratewould,ofcourse,beproportionaltothe rateofinflation.Duringperiodsofhighinflation,morewouldbewithheld thanduringperiodsoflowerinflation.Theoverallresultwouldbetodefer consumerspendingduringperiodsofexcessdemandthroughmandatory

savingsandtoputthegreatestburdenonthosemostabletodeferspending i.e.,thosewithlargeincomesandthosewithrisingincomes. Theparticularlyheavywithholdingrateleviedonrisingincomesis especiallyimportantinpreventinginflationduringperiodsofhigh investmentspendingbytheNMF.OnceNMFinvestmentrosetoalevel approximatelyequal totheprivateinvestmentrate(i.e.,intheneighborhood of$200billionperyear),itmustbeexpectedthatpersonalincomewould risebyanequalamountsinceinvestmentspendingmusteventuallywindup aspersonalincome.Toalargeextent,thisincreaseinincomewouldbedue toreducedunemployment,toovertime,andtomanynewworkersentering thelaborforcewhowerepreviouslynotcountedasunemployed.Someof theincreasewouldalsogointohigherwagesforthosealreadyemployed,as wellasintolargerdividendsfortheownersofcapital.Ontheaverage,these increaseswouldamounttoabout$2000peryearperworker.Inthelongrun, higherincomeswouldbematchedbytheincreasedoutputofgoodsand servicesthatresultfromtheproductivityimprovementscausedby investment.ItmustberememberedthatNMFinvestmentwouldnotsimply beameansoftemporarilyincreasingemployment,althoughthatwould certainlybeoneofthesideeffects.NMFinvestmentwouldproducenew capitalequipment,newfactories,newmachines,newtransportation facilities,newpollutionabatementdevices,andnewtechnological innovationsofallkindsthatwouldpayareturnoninvestmentformany yearsintothefuture.Intheshortrun,however,duringtheinvestment paybackdelay,thelargeincreasesinpersonalincomeduetoNMF investmentactivitywouldbehighlyinflationary. Thus,theDRPsavingsformulaiscalculatedtowithholdahigh percentageoftheincreasedincomesoastodeferariseinconsumerdemand untilafteracommensurateincreaseoccurredinthesupplyofgoodsand services. DRPsavingsbondswouldberedeemableafteraperiodoffiveyears, whichisabouttheaveragepaybackdelayforsoundcapitalinvestments. Thus,theincreasedpersonalincomefromNMFinvestmentactivitywould beimpoundedduringtheinvestmentpaybackdelayonlytobereleased whentheincreasedsupplyofgoodsandservicesresultingfromthose investmentsbegantoflowontothemarket.Asaresult,demandwouldkeep pacewithsupply,andpriceswouldremainstabledespitearapidlyrising standardofliving. Inordertoassurethattherewouldbenolossofpurchasingpower experiencedbytheholdersofDRPsavingsbonds,theinterestratewouldbe indexedtotheinflationrate.Interestwouldbesetatfourpercentabove

currentinflation.Thiswouldmakethewithholdingofsavingsfrom consumerincomeduringperiodsofinflationmuchmorepalatabletothe averageperson.Consumerdemandwouldbedeferred,butnotlostoreven diminishedduetoinflation. Thetechniqueofindexinginterestratesonsavingstotheinflationrate 3 isnowbeingusedsuccessfullyinBrazil andforyearshasbeenadvocated foruseintheUnitedStatesbytheconservativeeconomistMilton 4 Friedman. DRPwithholdingswouldprovidenegativefeedbackstabilizationof consumerprices.Thistypeoffeedbackisknowntobemosteffectivewhen appliedwithaminimumoftimedelay.Thus,thesavingsbondwithholding rateandinterestratewouldbeadjustedmonthlyandwouldbebasedon predictionsforpricebehaviorduringthatmonth.Thiswouldmakethe negativefeedbackeffectsofthewithholdingprogramfastactingandableto copewithinflationinitsearlystages,beforeinflationarymomentumcould buildup.Asaresult,inflationrateswouldnevergrowverylarge,andhence, bondwithholdingswouldnevercauseanyseverehardshiponconsumers. Oncetheprogramwentintofullscaleoperation,itishighlyunlikelythatthe mandatorywithholdingratewouldeverexceedthreepercentforanyone withafixedincomebelow$10,000peryear.Thiswouldmeanthat,fora personwithafixedincomeof$800permonth,withholdingswouldhardly everexceedsixdollarsperweek.Variationsinthatwithholding ratefrom onemonthtothenextwouldordinarilybelessthanonedollarperweek. Duringperiodsofstableprices,theDRPformulaforsavingsbond withholdingswouldreducethewithholdingratetozero.Atthesametime, theinterestrateonDRPbondswouldbereducedtofourpercent.Stable priceswouldindicatethatdemandwasinequilibriumwithsupplyandno correctiveactionwasneeded.Whenpriceswerestable,theDRPwouldnot withholdanymoremoney,andthebondinterestratewouldroughlyequal normalinterestonsavingsaccounts. Part2:DealingwithInsufficientDemand Ifthereeverdevelopedanytendencyforaggregatepricestodecline duetoexcesssupplyorinsufficientdemand,theDRPwouldencourage redemptionofthespecialbonds.ThiscouldbedonebydeclaringDRP bondsmatureatanearlierdatethannormalandencouragingtheir redemptionbyreducingtheinterestratebelowfourpercent.This,ofcourse, wouldforcemoneyoutofsavingsandintocirculation,therebyincreasing demand.

Itisquitepossible,however,that,onceNMFinvestmentbegantopay off,supplymightcontinuetoincreasefasterthandemand,evenafterallthe DRPsavingsbondswithheldduringperiodsofexcessdemandhadbeen redeemed.Insuchanevent,theDRPcouldstillmaintaindemandin equilibriumwithsupplybydirectingtheFederalReserveBanktocreatenew moneyanddistributeitdirectlytothepublicintheformofbonuspayments addedontotheregularNMFpayments.Thesizeofthesebonuspayments wouldbecalculatedonthebasisofthemonthlypriceindex.Payments wouldbeadjustedsoastopreventanylongtermchangesinthepriceindex. Monthlybonuspaymentswouldbemadetoeveryadultcitizen,and everyonewouldreceiveexactlythesameamount.Areasonableformula mightbethefollowing: MP=PIDxMS/AP where PMD=PreviousMonthsDropinthepriceindex MS=MoneySupply AP=AdultPopulation
6 In1970,thenationsliquidmoneysupplywasabout$600billion. Thus,foranannualdeflationrateofthreepercent,themonthlybonus paymenttoeachadultcitizenwouldbeabout$11.30permonth. Tosome,thenotionofprintingmoneyanddistributingitdirectlyto thepublicseemsanimpossibleutopianfantasy.Toothers,itsimplysounds likefiscalirresponsibility.Itisneither.Maintainingdemandinequilibrium withsupplyensuresthatpriceswillremainstable.Thisisaneminently responsibleeconomicgoal.Stablepriceswithrapideconomicgrowthhas beenthegoal indeedthedream ofeconomistsevenbeforeAdam Smith.Ifdemandisinadequatetopreventfallingpricesandprintingmoney istheonlywaydemandcanreasonablybeincreased,thenthereisnothing irresponsibleinprintingmoney.IftheNMFweretomakeinvestmentcapital availableforthemodernizationofindustryandtheconstructionof computercontrolledfactoriesonthescalesuggestedinpreviouschapters,it seemsquitelikely,indeedprobablyinevitable,thatthesupplyofgoodsand servicesinfutureyearswouldriseatsucharapidratethatnothingshortof printingmoneycouldincreasedemandfastenoughtokeepupwithit.Inthat case,therewouldbenothingutopianorfantasticaboutDRPbonus payments.Theywouldconstituteasimplerecognitionofthefactthatthe

nationsrealwealthwasincreasing.Undersuchcircumstances,theywould beaneconomicnecessityinstitutedinordertoensurepricestability. Furthermore,thereisnothingparticularlyrevolutionary,oreven novel,aboutdistributingnewlycreatedmoneytothepublic.Inaroundabout waythatisexactlywhathappenswheneverthegovernmentshowsabudget deficit.Inordertofinancedeficitspending,thegovernmentborrowsmoney bysellingbonds.Printingbondsisnotessentiallydifferentfromprinting money.Theborrowedmoneycomeseitherdirectlyorindirectlyfromnew 7 moneycreatedbytheFederalReserveBank. Thismoneyfindsitswayinto thepocketsofconsumersintheformofsalarychecksfromgovernmentjobs orgovernmentcontracts.Thus,deficitgovernmentspendingisessentially equivalenttodirectpaymentsofnewlycreatedmoneytothepublic. Somepersonsmightarguethatmoneypassedoutthroughgovernment salariesandcontractsatleastcreatesjobs,whereasDRPbonuseswouldnot. However,thissimplyisnottrue.Tobeginwith,iftheNMFwerecreating wealthfastenoughthatitwerenecessaryfortheDRPtopaybonuses,thenit wouldbeextremelyunlikelyforunemploymenttobeaproblem. Furthermore,evenifitwere,thefactthatpeopletendtospendmorethan90 percentoftheirdisposableincomeongoodsandservicesmeansthatgiving moneytopeopletospendwouldcreatealmostexactlythesamenumberof jobsasgivingmoneytothegovernmenttospend.Thereisnoreasonto believethatjobscreatedinresponsetoconsumerspendingwouldbe essentiallydifferentfromjobscreatedbygovernmentspending.Besides,the fundamentaldrawbacktounemploymentislackofincomeandnot joblessnessperse. Asidefromthequestionofjobsandemployment,however,thereare severalreasonswhydistributingnewmoneybydirectcashbonuseswould havefarmorebeneficialresultsthanthepresentmethodofdeficit governmentspending. First,thedistributionofbenefitswouldbemoreequitable.Eachadult citizenwouldreceiveexactlythesameamount.Thosemostinneedof incomewouldnotbeleftout,asisoftenthecasewithgovernment employment. Second,fluctuationsintheamountofdirectcashpaymentswould affecteveryoneequally.IfDRPbonuseswereincreasedtopreventprices fromfalling,everyonewouldequallysharetheincreasedwealth.Ifthe bonuseswerereducedorifwithholdingswererequiredtopreventinflation, everyonewouldsharetheburdenequally.Cutbackswouldnotcausesome individualstolosetheirjobswhileothersfeltnohardshipwhatsoever. Third,directcashbonusescouldeasilybeadjustedonamonthlybasis

soastoprovideanimmediateresponsetochangesintheconsumerprice index.Thebonuseswouldfluctuateautomaticallyaccordingtothefixed formula.Therefore,politicalpressuresandspecialinterestgroupswouldnot beabletointerferewiththenecessarycorrectiveprocedures. Fourth,thefluctuationsindirectcashbonuseswouldbeclearlyand simplyrelatedtoconsumerprices.Thepublicwouldhavenodifficultyin understandingtherelationshipand,hence,wouldacceptcutsinbonuses whennecessary,aswellasenjoyincreaseswhenpossible. Fifth,fluctuationsinindividualbonuseswouldbequitesmall, probablylessthanonedollarperweek.Hence,noseverehardshipswouldbe experiencedwhencutsinbonuseswererequiredtopreventinflation. Sixth,therewouldbenoneedforcreatingmakeworkormarginally usefulgovernmentjobsthatdevelopintobureaucraticselfperpetuating empires. AninterestingfeatureoftheDemandRegulationPolicywouldbethatthese directcashbonuseswouldnotrepresentbudgetdeficits,norwouldtheyeven begovernmentexpenditures.Quitetothecontrary,theywouldbetaxable income.Thus,thegovernmentwouldactuallyrealizeincreasedtaxrevenue asaresultofDRPbonuses. Wherethendoesthemoneycomefrom?Itcomesfromthe governmentprintingpresses.Whydoesthisnotdestroythevalueof the dollar?Becausethemoneyisbeingprintedexactlyasfastasrealwealth (i.e.,netincreaseingoodsandservices)iscreatedbyindustry.Thevalueof thedollarismaintainedexactlyfixedbecausemoneyiscreatedanddistri butedataratecalculatedtomaintainpricesconstant. Therealbackingformoneyisnotgold,butthegoodsandservices thatmoneywillbuy.Golditselfwouldbeworthlessunlessitcouldbe exchangedforgoodsandservices.Thus,moneycreatedbytheDemand RegulationPolicywouldbeperfectlygoodsolongasitwouldalwaysbuy thesameamountofgoodsandservices.Thiswouldbeguaranteedsincethe DRPwouldmaintainthepriceindexconstant. AdministrationoftheDRP ItisproposedthattheadministrationoftheDemandRegulation PolicybeindependentfromthatoftheNationalMutualFund.TheNational MutualFundwouldbe(andshouldbe)apoliticallysensitiveorganization. TheDRP,ontheotherhand,shouldbeisolatedfromimmediatepolitical pressures.TheInternalRevenueServicemightbeasuitablebodyforad ministeringtheDRP.TheIRSalreadyhasthemechanismforwithholding

taxesfrombiweeklypaychecks.Thewithholdingofmandatorysavings bondscouldbeeasilyadded.Furthermore,theIRSissuitablynonpolitical. TheDRPwithholdingandbonusequationswouldbeformulatedbyexpert economistsandthenpassedintolawbytheCongressoftheUnitedStates, similartothewayinwhichtaxlegislationiscurrentlyhandled.Anychanges intheDRPformulawouldrequireanActofCongress.Theimplementation oftheactualwithholdingsorbonuseswouldbepurelyadministrative operationsnotsubjecttopoliticaljudgements.Thisisexactlythetypeof operationthattheInternalRevenueServiceisskilledinhandling. TheDRPandNMFWorkingTogether Itiscommonlybelievedamongeconomiststhatinvestmentmust comefromsavingsand,hence,investmentisdependentupon,ifnotstrictly equivalentto,deferredconsumption.Itis,ofcourse,truethattheamountof investmentmustbematchedbyanequivalentamountofsavingsinorderto preventinflation.ThatiswhytheDemandRegulationPolicyissuggestedas ameansforincreasingsavingssufficientlytocompensateforthe inflationaryimpactoffinancingNMFinvestmentsthroughnewlycreated money.However,theNMFdoesnotgetitsinvestmentcapitalfromDRP savings.Quitethereverse,theDRPsaveswhattheNMFinvests.Thus,the NMFandtheDRPreversetheclassicaldependenceofinvestmenton savings.Theyinsteadmakesavingsdependentoninvestment. Thisisnotaninsignificantdistinctionforitimpliesthatinvestmentis nowanindependentvariablethatcanbesettowhateverrateisjudgedtobe sociallydesirable.Savingsbecomesadependentvariabletobeadjustedso astopreventinflation.Thisisenormouslyimportant,foritimpliesthat wheneverexcessproductivepotentialexistswithinaneconomy,both investmentandsavingscanbeincreasedwithoutanydeferralorreductionof presentconsumption.Newmoneycanbecreatedbythecentralbankatan arbitraryrateandinvestedthroughanagencysuchastheNMF.Savingsare thenwithheldatanequivalentratebytheDRP.Noneofthemoney previouslyincirculationisremoved,andhencethereisnoreductioninthe existinglevelofconsumption.Theneteffectissimplytoemploypreviously idleresourcesinexchangeforpromissorynotesrepresentedbyDRPsavings bonds.These,ofcourse,havenoeffectondemanduntilafteratimeperiod duringwhichtheinvestmentspaybackintermsofincreasedrealwealth. Theclassicaleconomistmayarguethatthisviolatesthefreemarket. Classically,thecapitalmarketsetsinterestratesthatmakesavingsattractive andthatiswhatprovidesthecapitalforinvestment.Buthistorically,this

mechanismhasprovenitselfdisastrouslyinadequatetimeandtimeagain. Lackofinvestmentspendingiswhatletthiscountrywasteitsenormous productivecapacitiesfortenyearsduringtheGreatDepression,anditwas notuntiltheGovernment,formilitaryreasons,begantoinvestindefense plantsthattheDepressionwasended.Itisthelackofinvestmentspending todaythatmakesusunabletousewhatweclearlyhavetoproducewhatwe sodesperatelyneed.IntheUnitedStatesandtheworldtodaythereexist overwhelmingneedsofeverydescription,andyetalargepercentageofour potentialproductivecapacitysitsidle. CertainlyinthepresentUnitedStateseconomy,thereisenormous unusedcapacity.Capitalequipmentistypicallyoperatedonly40hoursper week,andrarelymorethan80hoursperweek.Thereareover7million personsactivelyseekingworkandmanymillionsmorewhowouldgladly workovertimeiftheopportunitieswereavailable.Furthermore,thereare endlessproductivityproducingtechnologicalinnovationsliterallyawaiting investmentcapitaltobringthemtofruition.TheUnitedStateseconomyis operatingnowherenearitsfullcapacitytoday,andprobablyneverhas exceptforafewyearsduringWorldWarII. Makinginvestmentindependentofthepropensitytosave(i.e.,making itpossibleforinvestmenttobeincreasedwithoutdeferringpresent consumption)isarevolutionineconomicthought.Itfreestheindustrial systemfromtheartificialconstraintsoftheclassicalcapitalmarketsand makesitpossibleforproductiontobeincreaseduptothemaximumrate physicallyandtechnologicallypossible. Workingtogether,theNMFandtheDRPwouldenablesocietyto investfreelyinwhateverenterprisesweredeemedtobebothprofitableand sociallybeneficial.Productioncouldbeexpandedorreducedtowhatever ratesthepeople,throughtheirelectedofficials,decidedweredesirable. Therewouldnolongerbeanyneedforshortagesorsurpluses.Working together,theNMFandtheDRPcouldreleasemoderntechnologytofulfill itspotentialforbenefitingmankind.

ADepartmentofScienceandTechnology
Knowledgeistheonlyinstrumentofproductionthatisnotsubjectto diminishingreturns. J.M.Clark

AlthoughtheNationalMutualFundwouldgreatlyincreasethe productionofwealththroughinvestmentsincapitalequipment,thereare manycriticalsegmentsoftheeconomythatrequiremuchmorethansimply increasedinvestmentcapital.Manyoftheareasoftheeconomythatare mostinneedofimprovementdonottypicallyproducehighprofitsoncapital investments.Ingeneral,suchthingsaspublictransportation,housing,and healthservicesarenotsectorsofhighgrowthbasedonautomation.Inthese areas,theNMFcouldnotbeexpectedtoreapearlyormassiveincomefor promotingthegeneralwelfare.Infact,publictransportationsystemsand lowcosthousingconstructiongenerallyproducelossesratherthanprofits. IncreasedcapitalinvestmentsintheseareasbytheNMFcouldreasonablybe expectedtoproduceevenlargerlosses.Presumably,theinvestorswho currentlyarefinancingtherailroadsandconstructioncompanieshave investedinthemostprofitable(ortheleastunprofitable)railroutesandthe mostpromisinghousingmarkets.Increasedinvestmentwouldalmost certainlybeforcedintoevenlesslucrativeareasthanthosethatarealready losingmoney.Thiswouldseemtobeastrongargumentagainstthe practicalityofupgradingthequalityoflifebymeansoftheNMF. However,thisargumentisvalidonlyinareasoftheeconomywhere technologyisstagnant.Itisbasedonthelawofdiminishingreturns,that holdstrueonly whennothingnewisinvented.Publictransportationand lowcosthousingaremoneylosingbusinessestodayandwillremainsoin thefutureonlysolongastheseareasremaintechnologicallybackward.If newtechnologywereintroducedintotheseareas,theywoulddevelopmany 1 profitableinvestmentopportunities. Inordertosupportthisassertion,weneedonlytoobservethat railroadshavenotalwaysteeteredontheedgeofbankruptcy.Intheearly daysofrailroading,whentechnologywasadvancingrapidly,rai1roadswere anextremelyprofitablebusiness.Railroadinvestmentsmademanymeninto multimillionaires.Butovertheyears,railroadmanagementhasbecome entrenchedinbureaucratictradition,andunionshaveerectedbarrierafter barriertomodernizationofequipmentandworkprocedures.Asaresult, technologicaladvancehasslowedtoasnailspace,andprofitsonrailroad investmentshavefallencorrespondingly.

Inthefieldofhomeconstruction,onemightobservethatlowcosthousing hasneverbeenaparticularlyprofitableinvestment.Thisservestofurther confirmtherelationshipbetweenprofitabilityandtechnology.Technology inthefieldofhousingconstructionhasbeenstagnantforseveralcenturies. AlvinToffler,inhisbookFUTURESHOCK,describeshousingasapre 2 industrialcraft. Thebasicstructureofthehousingindustryismodeledafter the16thcenturysystemofcraftguilds.Housesarestillbuiltbyitinerate artisanswhomigratefromonejobtothenext,muchastheydidinthetime ofShakespeare.Moderndayconstructionjobclassificationsdatebacktothe Renaissancei.e.,apprentice,journeyman,mastercraftsman,etc.Many unionsrefuseeventousesimplepowertoolsorprefabricatedcomponents. Massproductionwasdevelopedasanindustrialtechniqueoveracentury ago,butithasnotyetbeenadoptedtoanysignificantdegreebythehousing industry.Modernmethodsofcomputeraideddesignandautomated assemblyofhousesarestrictlyintherealmofEXPOexhibitsand experimentaldemonstrations. Highprofitsoninvestmentarecommonlyrealizedinindustrieswhere technologicaladvancementisrapid.ExamplesofthiscanbeseeninIBM computers,Xeroxphotocopiers,andPolaroidcameras.Theextraordinary successof thesecompaniesdoesnotimplythatthereisanythinginherently profitableinbuildingcomputers,photocopiers,andcameras.Itmerely suggeststhatprofitsaretobefoundingreaterproductiveefficiencyi.e.,in providingbetterproductsandmoreconvenientservicesatlowercosts. Likewise,thereisnoreasontoassumethatthereisanythinginherently unprofitableinbuildinghousesortransportingpeople.Butuntilthesein dustriesfindwaystoreducecostsandimprovetheirproductsandservices, additionalcapitalinvestmentwillsimplyproducemoreoverpricedhousing ofinferiorqualityandadditionaltrainsthatnoonewantstoride.When businessesaretechnologicallystagnant,increasedcapitalinvestmentmerely increasestheirsizeandenablesthemtolosemoneyfaster.Theonlyhopefor makingindustriessuchasrailpassengerserviceandlowcosthousing profitableistointroducemoreefficientprocedures,reducecosts,increase output,andimprovequality.Thiscannotbedonebysimplyinvestingmore moneyinmethodsandproceduresthatarealreadyoperatingataloss.Itcan onlybedonebynewtechnologicaldevelopmentsthatprovidegreater 3 efficiencyandproductivity. Whatisneededisabroad,longrangeprogram ofresearchtodiscovernewknowledgeinsociallybeneficialtechnologies. ARolefortheFederalGovernment

Conductingsucharesearchprogramistheproperroleofthefederal government.Thereareseveralreasonswhythisisso.First,muchofthe researchthatneedstobedoneisexpensiveandofahighrisknature.Itisnot thetypeofresearchthatpromisescertainorearlyreturnsoninvestments. Thus,itisnotattractivetoprivateindustryunlessheavilysubsidizedbythe 4 government. Second,manyofthesectorsthataremostinneedofresearcharenot areasinwhichinventionscanbekeptproprietaryorconvertedinto competitiveadvantagebyprivateindustry.Thus,thereisverylittleincentive forprivateindustrytopursuesuchresearchwithitsownfunds. Third,evenwhereinventionscanbekeptproprietary,thebenefits fromaninventiontosocietytypicallyexceedbymorethantwicetheprofits 5 receivedbythecompanythatproducedtheinventioninthefirstplace. For example,thebenefitstosociety ofthetransistor,orpenicillin,oreven Scotchtapefarexceedtheprofitstothecompaniesthatoriginallydeveloped theseproducts.Asaresult,privateindustrytendstoinvestfarlessin 6 researchthanissociallydesirable andfailstoinvestatallinareaswhere privatebenefitspromisetobesmall,eventhoughsocialbenefitsmaybe 7 potentiallyenormous. Fourth,manyofthesectorsoftheeconomythataremostinneedof technologicalinnovationaremadeupofsmallenterpriseswithnocentral fundingauthority.Individualhousingcontractors,smallserviceindustries, andlocaltowngovernmentstypicallyhaveinsufficientcapitalsurplusesfor 8 supportingbasicresearch. Modernresearchoftenexhibitsathresholdor criticalmassphenomenoni.e.,acertainminimumamountofmoneyis requiredtoperformanymeaningfulinvestigations.Thetypeofresearchthat canbedonebyafewindividualsforasmallcosthasalreadybeendoneoris beingdone.Thetypeofresearchbeingneglectedisthehighcosthighrisk researchthatrequireslargestaffsofhighlytrainedpersonnelandexpensive equipment.Thistypeofresearchissorelyneededintheciviliansociety today,butitispreciselythetypethatsmallserviceindustries,schoolboards, localmedicalassociations,andsmallcontractorscannotafford.Evenif smallenterprisesweresuppliedwithresearchmoniesthroughgovernment subsidies,diffusefragmentedgroupsarenotequippedtoinitiate,plan,and managemajorresearchefforts.Inordertobeeffective,aresearchprogram needstobecoordinatedandbalancedintermsoflongrangeandshortrange goals.Thisrequirescentralmanagement.Adiffusecollectionofsmall enterprisesisunabletomaintainacoherentprogramwithcontinuityand directionoveraperiodofyears. Fifth,thefederalgovernmentistheonlyorganizationwithsufficiently

broadintereststocarryoutanadequateresearchprograminthemany differentareasthatneeddevelopmentsimultaneously.Muchneedstobe donefromthesystemsstandpoint.Manynewtechnologiesneedtobe examinedastothewaystheyinteractwitheachotherandwithsocietyin ordertounderstandtheirproperties.Forexample,thebuildingofahighway affectstheneedforsewers,andtheinstitutionofajobtrainingprogram affectstheneedforhousing.Researchintosystemsproblemsofthesetypes isextremelycomplexandexpensive.Itisbeyondthescopeofinterestof mostindividualgroups.Systemsresearchimpactsmanydifferentsectors simultaneously,and,unfortunately,whatiseverybodysbusinessis frequentlynobodysbusiness.Thesocietyingeneralsuffersfromsystems problems,butnosinglegroupisindividuallyresponsible.Therefore, 9 systemsresearchmustbedonebythegovernment,oritnevergetsdone. Finally,thefederalgovernmentistheonlyauthoritythatwouldbe abletoadequatelycoordinatenewtechnologywiththepassageofregulatory lawsgoverningitsuse.Particularlyinthehousingindustry(butinmany otherindustriesaswell),archaiclawsandregulationsarethegreatest impedimenttotheimplementationofnewtechnology.Privateindustrycan notbeexpectedtoinvestmoneyindevelopingnewtechnologiesif antiquatedlawsandunionregulationsforbidtheiruse.Acriticalpartofany researchprograminsociallybeneficialtechnologywouldbethe modificationofexistinglegalbarrierstopermititsimplementationand, wherenecessary,toregulateitsusesoastopreventabuse. Theunregulateduseofnewtechnology,ofcourse,canoftenleadto worseconsequencesthanthelackofitsdevelopmentinthefirstplace.Many technologicaldevelopmentsinthefuturewillhavethecapacitytoaffect societyinwaysthatthemajorityofpeoplewouldconsiderundesirable.Such developments,therefore,shouldbesubjecttocontrolandregulationbyan agencythatispoliticallyresponsibletothepeople.Onewaytoprotectthe interestofthepeopleinsuchcaseswouldbetohavethefederalgovernment drawupandpassregulatorylegislationthatwouldbesubjecttomodification bystateandlocalgovernmentswhereverspecialcircumstancesorstrong localpreferenceswouldindicate. Ingeneral,themosteffectivewaytogetworkablelegislationin complextechnica1mattersistohaveregulationsdraftedbyexpertswho understandthepotentialshortcomings,aswellasthebenefits,ofnew technologies.Anoptimummeansofachievingthiswouldbetohavethe authorityforscientificresearch,aswellasregulatory action,coordinatedby thesameagency.Thistypeofcoordinationhasworkedquitewellinthe DepartmentofAgriculturewhere,forexample,farmresearchandmeat

inspectionarebothcontrolledbythesameagency. Oneoftheconstitutionalpurposesforwhichthefederalgovernment 10 wasestablishedwastopromotetheprogressofscienceandusefularts. Unfortunately,thefederalgovernmenthasneverhadaconsistentpolicyfor developingsociallybeneficialtechnology.Althoughthegovernmentdoes sponsoranadequateresearchprograminagricultureandmedicine,relatively littlemoneyisspentontechnologicaldevelopmentinotherareasofsocial 11 need. Thereallylargegovernmentsponsoredresearchprogramsare confinedtomilitaryandaerospaceresearchandtopurescience. Itmightbesaidthattechnologyistherootofcivilizationandartthe flower.Researchinsociallybeneficialtechnologyshouldbeaprimary functionofthegovernment.Thatitisnotisevidenceofagrotesquely distortedsenseofpriorities. ScienceattheCabinetLevel TheUnitedStatesGovernmentshouldceasetoignoreitsclear responsibilitytovigorouslypursuetechnologyforsociallybeneficial purposes.ItshouldestablishaDepartmentofScienceandTechnologywith 12 cabinetlevelstatus. Theroleofthisdepartmentshouldbetoconductand encourageresearchintoareasoftechnologybeneficialtothesocietyasa whole.Muchofthisresearchshouldbedoneundercontracttoprivate industry,butatleastsomeofitshouldbeconductedingovernment laboratoriesbygovernmentscientists.TheDepartmentofScienceand TechnologyshouldbesimilarinstructuretotheNationalAeronauticsand SpaceAdministration(NASA)duringthemid1960sinitsmixtureofin houseandoutofhouseresearchanddevelopmentprograms.NASA, incidentally,couldservenotonlyasamodelbutalsoasthenucleusforsuch adepartment. Therealreadyexistmanygovernmentdepartmentsandagenciesthat dobitsandpiecesofresearchhereandthereintheciviliansector.Thereis theNationalScienceFoundation,theNationalBureauofStandards,the EnergyResearchandDevelopmentAdministration,theNational AeronauticsandSpaceAdministration,theEnvironmentalProtection Agency,theNationalOceanographicandAtmosphericAdministration,the AgriculturalResearchCenters,andmanyothers.Therealsoexistmany panelsandcommitteesthatplanandrecommendscientificpolicysuchasthe NationalAcademyofSciencesandNationalAcademyofEngineers. However,theseadvisorypanelshavenoauthoritytodomorethan recommend,andthereisnoagencywiththepowertoputtheirrecommen

dationsintoaction.Forexample,ina1971meetingoftheNational 13 AcademyofEngineers, itwasconcludedthatsociallybeneficial technologywaswoefullyunderfundedinthiscountryandasaresult productivitywaslaggingfarbelowwhatcouldbeachieved.Unfortunately, suchrecommendationsarelargelyfruitless,sincethereexistsnoclearly definedagencythatcouldturnsuchrecommendationsintocoherentfunding requeststoCongress.Itismostdifficulttolaunchacoordinatedresearch programortogenerateeffectivemomentumtowardresearchgoalswhen authorityforconductingresearchisscatteredamongdozensofcompeting departments,agencies,andoffices.WithintheUnitedStatesGovernment thereexistsnosingleauthoritythatcanpresenttotheCongressaunified budgetaryrequestforabroad,comprehensive,andcoordinatedresearch programin thesociallybeneficialtechnologies.Neitherdoesthereexistany centralmechanismforsettinggoals,conductingresearch,lettingcontracts, monitoringperformance,andmanagingfundssoastoimplementacivilian researchprogram. ADepartmentofScienceandTechnologywouldremedythese shortcomings.Itwouldprovidecoordinatedplanning,budgeting,and programmanagement.ItwoulddoforciviliantechnologywhattheDefense DepartmenthasdoneformilitarytechnologyandtheNationalAeronautics andSpaceAdministrationhasdoneforspacetechnology.ADepartmentof ScienceandTechnologywouldpresenttotheCongressaunifiedprogram forbudgetaryappropriationsandwouldprovidefortheCongressasingle pointofaccountabilityandresponsibilityforresearchactivitiescarriedout. Nolongerwouldbudgetaryappropriationsbefragmentedtothepointof incoherence,andnolongerwouldhundredsofconflicting,overlapping,and inadequateresearchprogramsbefundedandbootleggedunderan incomprehensiblejumbleofdivergentauthorities. ADepartmentofScienceandTechnologywouldassurethatthefull potentialofmodernscienceandengineeringwasfocusedonrelevantsocial problemsbeforetheyreachthestageofcrisis.Oneoftheresultswouldbe thatsociallybeneficialindustries,thatpresentlyaretechnologicallystagnant, wouldbecomeprofitableinvestmentopportunities.Thesecouldthenbe exploitedbybothNMFandprivatecapital.Thus,theDepartmentofScience andTechnologywouldprovidetechnologicaldevelopment,theNMFwould providecapitalresources,andtheDRPeconomicstability.Working together,thesethreeagencieswouldproduceeconomicprosperityand humanwellbeingfarbeyondwhatisnowconsideredpossible.

XI

PeoplesCapitalisminaFiniteWorld
Withonlyminormodifications,PeoplesCapitalismcould realisticallybeimplementedinvirtuallyanydemocraticcountryinthe world.Acapitalfinancinginstitutionthatpaysdividendstothegeneral public,togetherwithanationwidemandatorysavingsplan,isnot irreconcilablewithanyformofgovernmentexcepttotalitariandictatorships. TheNMFandDRPcouldfunctioninasocialisteconomylikeSweden,or eveninacommunistcountrylikeYugoslavia,justaswellasinmore conservativecountrieslikeBritian,ortheUnitesStates,orWestGermany. EquallysignificantisthefactthatPeoplesCapitalismmightalsobe applicabletolessadvancedeconomieslikeEgypt,orIran,ormanyofthe nationsinAfricaandLatinAmerica. Whatkindofacountry(indeed,whatkindofaworld)wouldemerge iftheproposalsoutlinedinthisbookwereimplemented?Almostcertainly, materialprosperitywouldincrease.Theavailabilityofinvestmentcapital, theremovalofdisincentivestoincreasedefficiency,thestabilizationof pricesinspiteofheavyinvestmentspending,andthefocusingofmodern technologyoncriticalsocialproblemsallwouldworktogethersoasto increasetheproductionofwealth. Intheshortterm,NMFinvestmentspendingwouldcreate employment,encouragethemodernizationofindustry,andingeneral, promoteeconomicdevelopment.Meanwhile,theDRPwouldkeep disposableincomefromrising(andtherebycausinginflation)beforenewly constructedplantscouldbeginproducingmoregoods.Inthelongterm,the saleofgoodsproducedinnewlybuiltplantsbynewlypurchasedmachines wouldgenerateNMFdividends.Thesedividends,togetherwiththeredemp tionofDRPsavings,wouldgiveconsumerstheadditionalincometo purchasetheadditionaloutput.Overthelongertermstill,risingNMF dividendswouldinducemanypersonstovoluntarilyleavethelaborforce, thuseliminatingthethreatoflongtermunemploymentcausedbymajor advancesincomputerbasedautomation.Theoverallresultwouldbea degreeofpersonaleconomicfreedomandfinancialsecurityfarbeyondwhat theworldhaseverknown. TheNMFandLimitstoGrowth Unfortunately,thedevelopmentofnationwideorworldwideaffluence onsuchascalewouldinitselfconstituteaperiltohumanwellbeing.The

1 planetearthisclearlyfinite.Therearelimitstogrowth. Affluencehas historicallyledtoincreasedlevelsofcertainkindsofpollutionandwasteful consumptionofnaturalresources,manyofwhichexistinlimitedamounts.If theresultoftheNMFweretosimplyincreasethedisposableincomeofthe entirepopulationsothateveryonecouldengageinwastefulconsumptionon thescalepresentlypracticedbytheaffluentminority,thentheNMFwould quicklyleadtoworldwidecatastrophe. Thisisaproblemofconsiderablemagnitudesinceitpitstheinterests ofthehavenationsagainstthehavenots.Thosecountriesthathave alreadyachievedameasureofaffluencethroughindustrializationare becomingconcernedabouttheimplicationsofpollutionandthelimitsto growth.Yetmuchoftheworldspopulationstilllivesinunbelievable povertyandsqualor.Whoistotellthesepeoplethattheyshouldnotimprove theirdesperatecondition?Howcanpersonslivinginairconditionedhouses anddrivinggasguzzlingautomobilescommunicatetheirconcernaboutthe environmenttopeoplewhosechildrenarestarving. Thisproblemisvirtuallyinsolvablewithintheconstraintsofclassical economics.Theexistingneedsofthepresentworldpopulationhavealready madeusdependentonmassiveindustrialization.RuralpeasantsinIndia,for example,arenowdependentfortheirverysurvivalongrainraisedbyhighly mechanizedagriculturaltechniquesinSouthDakota.Industrialmachines mustaugmenthumanlaborifalargepercentageofthepresentworld populationisnottodieofstarvation.Furthermore,thereispresentlyno practicalmechanismforthegreatmassesofhumanitytoderiveany significantfractionoftheirincomefromindustrialmachinesotherthanas compensationforlabor.Neithersocialismnorcapitalismpresently incorporatesasystemofwealthdistributionthatoffersanyalternativetothe classicalscenarioofindustrialization.EveninChina,themajorportionof thenationalproductisdistributedascompensationtolabor.Thisimplies thattheonlyexistingroadtoaffluenceisthroughindustrializationinroughly thepatternlaiddownbyEurope,GreatBritain,andtheUnitedStates. Classicalindustrialization,ofcourse,requiresurbanization.Factories andmillscannotbeoperatedwithoutalarge,welltrainedlaborforce. Workersmustberecruitedfromruralareasandconcentratedincities.There theymustbehomogenizedintodisciplinedproductionworkers.Largely selfsufficientfarmersand,insomecases,nomadsandtribalhuntsmanmust bereducedtotenementdwellersandtaughttoaccepttheroutineof industrialworkonaregularschedule. Thisentireprocesscreatesenormousdemandsforenergyandother resourceswherelittleornoneexistedbefore.Newhousingmustbebuilt

foodmustbetransportedfromdistantareasandsanitation,education,and socialservicesmustbeprovided.Roadsandautomobilesbecomenecessary, alongwithfillingstations,oilrefineries,usedcarlots,andtheinevitable junkyards. Thepathofclassicalindustrializationisextremelycostlybothin termsofphysicalandhumanresources.Itseemsunlikelythattheearthcould sustainthelevelsofpollutionorthedrainonresourcesthatwouldresultif theentireworldweretofollowtheexampleoftheUnitedStatesand 2 WesternEurope. AnAlternativetoUrbanization PeoplesCapitalismmightprovideanalternativetotheclassical scenarioofindustrialization.IftheNMFwereaprimarysourceof investmentcapital,economicdevelopmentcouldbeaccomplishedthrough highlyautomatedindustrieswithouttheneedforsignificantincreasesin urbanization. Automaticrobotfactoriescouldbebuiltinunderdevelopedcountries nearsourcesofenergy,rawmaterials,andtransportationfacilities.These plantswouldnotrequirealargelaborforcesotherewouldbenoneedto uprootthepopulationfromthecountrysideandconcentrateitincities.This wouldalloweconomicdevelopmentwithoutthesocialupheavalthat ordinarilyaccompaniesindustrialization. NMFpublicdividendswoulddistributethebenefitsofindustrial technologytothepeoplewithoutrequiringthemtosignificantlychangetheir livingpatterns.Traditionalruralcustomscouldbepreserved,andvirtually selfsufficientlifestylesclosetonaturewouldnotbedisturbed.Industrialde velopmentandwealthdistributionthroughaninstrumentalityliketheNMF wouldenableeventribalandnomadicculturestoprosperwithoutsubstantial alteration.Mostofthepopulationcouldcontinueinthesamelivingpatterns thattheirancestorspracticedsuccessfullyforcenturies.Tribalchiefswould notneedtobecomeshopforemen.Farmersandvillagerswouldnotneedto adoptregularhoursasfactoryandmillhands.Nomadicherderswouldnot needtobecometenementdwellers.Inshort,theNMFwouldallownon industrializedculturestoshareinthewealthfrommodernindustrialtech nologywithoutbecomingurbanized. Furthermore,economicdevelopmentcouldbeachievedmuchmore rapidlythanbyconventionalmethods.Increasedeconomicwealthwould becomeavailableassoonasrobotindustriescouldbeginproduction.There wouldbenoneedtospendlongyearseducatingandtrainingagenerationof

workers.Educationwouldcome,ofcourse,butmoreasaresultof increasingaffluencethanasaprecondition. Someoftheoutputfromautomaticindustriesinadeveloping economywouldbeusedforforeignexchangetopayforthehightechnology equipmentthatwouldhavetobeimported.Therestcouldbedistributed throughpublicdividendsortaxedfordomesticneedssuchashealthcare, education,improvedagriculture,andpreservationoftheecology and wildlifeonwhichmanytribalandnomadicculturesdepend. Increasingaffluencebythismeanswouldnotsignificantlyincrease theworldsconsumptionofresourcesorthelevelofpollution.Infact,just thereverse.Primitiveculturesthathaveenduredunalteredforcenturiesare inherentlystableandresistanttochange.Inmostcases,socialinnovation occursonlyundergreatduresssuchasresultsfromwarorfaminedueto overpopulationordestructionoftraditionalhuntingorgrazinglandsby competingculturalgroups.Ifprimitivepeoplesweresuppliedwithsufficient incomefromhightechnologyindustriessothattheycouldpreserveand protecttheirnativehabitats,theyarequitelikelytocontinuetheirtraditional lifestylesandimprovetheirenvironmentsinsuchawayastoreduce pollutionandimprovetheecologicalbalance. PeoplesCapitalismthusoffersameansbywhichnonindustrialized countriesmightcompletelyleapfrogthefirstindustrialrevolution.NMF financingandincomedistributionwouldmakeitpossibleforanationto developfromatechnologicallyprimitivenonwageeconomytoapost industrialnonwageeconomywithouttheculturaldislocationsanden vironmentaldisasterscausedbyconventionalindustrialization. ContinuedGrowthandtheEnvironment PeoplesCapitalismcouldalsoreducetheenvironmentalimpactof continuedeconomicgrowthincountrieswhereindustrializationhasalready reachedanadvancedstage.Distributionofincomethroughpublicdividends wouldmakeincomefromhightechnologyindustriesavailabletorural residentsaswellasurban.Thiswouldreduceincentivesfortheruralpoorto migratetocityslumsinsearchofhighpayingemploymentor,asitoften turnsout,ofmoreliberalwelfarepayments.NMFdividendswouldbepaid equallytoeveryone,andtheresultingrealbenefitswouldbegreaterinareas wherethecostoflivingwaslow.Thus,notonlywouldruralresidentshave lessreasontoabandonselfsufficientnonresourceconsuminglifestylesin thecountry,butmanyurbanandsuburbanresidentswouldbeencouragedto movetoareaswherethecostoflivingwaslower.

Furthermore,theroleoftheNMFinprovidingincomeotherthan wagesandsalarieswouldreducetheabsolutenecessityforcreatingjobsat anycost.Muchofthemakework,featherbedding,anddeliberatelywasteful practicesthatarenowusedtopreventunemploymentwouldbecome unnecessary,andthepressuresforunplannedgrowthwouldbegreatly reduced. Thisdoesnotnecessarilyimplythateconomicgrowthwouldceaseor thatconsumerdemandformoreluxuriouslifestyleswoulddisappear.Itdoes mean,however,thatifpersonaleconomicsurvivalwerenolongerstrictly dependentonjobemployment,agreatdealofthepressureforenviron mentallydestructivegrowthwouldbealleviated. Equallyimportant,NMFfinancingofhighlyautomatedindustries wouldreleasesocietyfromtheabsolutenecessityofmassiveurbanization imposedbythelaborrequirementsofindustrialproduction.Asindustriesof thefuturebecomemoreautomated,therequirementsforahighlycentralized laborpoolwilldecline.Distributionofprofitsthroughamechanismsuchas theNMFwillthenallowpeopletofreethemselvesfromthedominanceof machines.Onceentireindustriesbecomecapableofoperatingthemselves, therewillbenoneedforpeopletostructuretheirlivesaroundtheneedsand requirementsofmachines.Factorieswillnotneedhumanworkers,andvice versa. NMFincomecouldfreepeoplefromthetyranniesofmechanization andallowthemtolivemorebytheirowninternalrhythms.Lifestylesquite likelywouldmoveclosertonature,aspeopledivorcedthemselvesandtheir familiesfromthecongestionandfrustrationsoftheindustrializedworld. Theimplicationisthat,iffutureeconomicdevelopmentwere accomplishedthroughaninstrumentalitysuchastheNMF,increased affluencewouldnotbeincompatiblewiththeenvironmentalconstraintsofa finiteplanet.PeoplesCapitalismthusoffershopeforaresolutionofthe fundamentalconflictbetweentheinterestsofthehaveandthehavenot peoplesthattodayrepresentssuchastrongpotentialthreattoworldstability. TheNMFandInternationalRelations Aproposalforaneconomicsystemthatpromisestobothincrease wealthanddistributethebenefitstoeveryoneinanequitablemannerhas profoundandfarreachingimplications.Itisanideologythatpromises somethingforeveryone.Itisameansforproducingabiggerpie,together withaguaranteethateveryonewillobtainalargershare.Itthusseems possiblethattheNMFmighthavebenefitsinsuchproblemareasas

internationalrelationsandoverpopulation. Withineverynationthatadoptedit,theNMFwouldprovideincreased financialsecurityfortheindividualandtherebyincreasedpersonalfreedom frompoliticalcoercion.Suchanevent,ifitweretooccuronaworldwide scale,wouldcertainlyhaveanimpactoninternationalaffairs. Tobeginwith,anycountrywhoseinternaleconomywasrapidly expandingwouldbecomepreoccupiedwithdomesticprosperity.The averagecitizenwouldbetoobusyimprovinghisownconditionandthatof hisfamilytobemesmerizedbyinflammatoryrhetoric.Bloodfeuds,like thoseintheMiddleEastorinNorthernIreland,thriveonlyinareaswhere economicconditionsappearhopelessorwhereprogressseemspossibleonly atanothersexpense.Whereprospectsforthefutureseembright,peopleare toobusyimprovingtheirfinancialconditiontowastemuchenergyon fighting.Thisistrueonaninternationalaswellaslocallevel.Mostwarsin recentyearshaveariseneitherdirectlyorindirectlyfromconditionsof economicdeprivation.J.Bronowskiinhisrecentbook,THEASCENTOF MAN,arguesthatwarisnotanaturalhumaninstinct,butinsteadisahighly organizedandcooperativeformoftheft.Heclaimsthatwaroriginatedonly abouttenthousandyearsagowhentheharvestersofwheataccumulateda surplusandthenomadsrodeoutofthedeserttorobthemofwhattheycould 3 notprovideforthemselves. RobotindustriesfinancedthroughtheNMFwouldmakethe acquisitionofwealthbyindustrialproductionfareasierandmorecertain thantheconquestofothercountries.Ontheotherhand,anynationwhose economicstrengthderivedfromrobotindustrieswouldhavethe technologicalcapacityforaveryeffectivemilitarydefense. Furthermore,equitabledistributionofwealthinternallywouldtendto easedomesticpoliticaltensionsandfrustrations.Thus,theprospectofa betterlifethroughpeacefuleconomicdevelopmentwouldmakeconflict seemunproductivetoallbutafewcrackpots.Eventhesewouldnotbe especiallydangerousiftherewerenodispossessedmassestobeenticedby promisesofretributionorconquest. TheNMFandOverpopulation Althoughitisnotgenerallyrecognized,overpopulationisinlargepartdue 4 toeconomicfactors. Averagepeoplethroughouttheworldhavegood reasontobelievethatalargefamilyistheirbestinsuranceagainstpovertyin oldage.Oldageisagrimprospectatbest,andthethoughtofhavingtoface thesicknessandinfirmityofdecliningyearsinlonelinesswithoutanyoneto

careorrenderassistanceisahorriblethingtocontemplate. TheNMF,ofcourse,couldnotprovidecompanionshipinoldage,but itcouldprovideasecuresourceofincomeforlife.TheNMFwouldnotonly makepeopleprosperousduringtheirworkingyears,butwouldcontinue providingafullincomeduringtheretirementyears.Thus,theNMFwould largelydispelfearsofpovertyinoldageandtherebydecreasemanyofthe personalanxietiesthatcreatesocialpressuresforlargefamilies. Asecondfactorthatisrelatedtohighfertilityratesistheinferior socialposition ofwomen.Ifawomansstatusisprimarilydeterminedbyher roleasachildbearer(asisthecaseinmostunderdevelopedcountries)then theincentivesforhavingalargefamilyaregreat.If,however,awomans statusisdeterminedbyotherfactors,thentheresponsibilitiesofcaringfor manychildrenmayberegardedassociallydisadvantageous.Thepaymentof NMFdividendstoeveryadult,maleandfemalealike,wouldstrongly upgradetheindependenceandsocialpositionofwomeninmostsocieties throughouttheworld,andespeciallyinunderdevelopedcountries.This couldnothelpbutreducetheincentivesforchildbearing. NMFdividendswould,ofcourse,onlybepaidtoadults.Thus,the NMFwouldnotgenerateincentivesofitsownforlargefamilies.Quiteto thecontrary,additionalchildrenwouldvisiblydilutethepercapitaincome ofafamilyunit.Incountrieswhereoverpopulationisanextremelyserious problem,thegovernmentmightactuallytaxtheNMFdividendsofany parentshavingmorethan twochildren.Thisisanextrememeasure,butit wouldbefairinthattheadditionalsocialoverheadincurredbylarge familieswouldbefeltbythosedirectlyresponsible.Theresultwouldbethat onlypersonsdesiringalargefamilywouldtendtohavethem.Thiswould servetoquicklysolvetheproblemsofoverturningtaboosandofeducating themassesinbirthcontroltechniques.TheprospectoflosingsomeNMF dividendswouldgeneratepowerfulincentivesforpeopletochangetheir customsandgetthemselveseducated. Unfortunately,overpopulationisoftenleastrecognizedasaproblem incountrieswherethesituationismostcritical.Inmanynations,alarge populationisviewedbygovernmentofficialsasasourceofnational security.Poornationstendtobemilitarilyweakandoftenconsideralarge populationtobetheirprincipalweaponinthestrugglefornationalsurvival. Forexample,theCommunistChinesegovernmentfrequentlyhasvoicedthe opinionthatChinasstrengthliesinherlargepopulation.Duringthecold waryears,Chineseleadersoftenarguedthat,ifwarbrokeoutwiththe UnitedStates,Chinamightloseeverybattlebutwouldeventuallywinthe warsimplybecausetheU.S.couldnotpossiblykillthemall.Thisbasic

argument,thoughusuallynotstatedinsuchexplicitterms,liesbehindthe reluctanceofmanypoorbutpopulouscountriestoinitiateseriouseffortsat birthcontrol.Peoplearetheprincipalresourceinmanycountries.Human bodiesaretheonethingtheycanproduceinlargequantities,andtheyview attemptsatpopulationcontrolasathreattotheirnationalsecurity. Insuchcases,theNMFwouldprovideamuchmoreattractivemeans ofachievingnationalsecurityandofenhancingnationalisticpride.The NMFwouldmakeitpossibleforeventhemostbackwardnationstoincrease theireconomicwealthandpowerthroughadvancedindustrialtechnology. Thisfactalonemightbringaboutagreaterchangeingovernmentalpolicy onpopulationmattersthanallofthemathematicalargumentsofMalthusand hislatterdaycounterparts.Ifthisistrue,thentheNMFwouldindeedhavea profoundimpactonwhatisperhapsthemostseriouslongrangethreatto humancivilization overpopulation.

XII

FromThroughputtoStorehouseEconomics
Thepurposeofaneconomicsystemshouldnotbemerelytoproduce clothing,food,andhouses,buttoclothe,feed,andhousepeople.Human beingsare,afterall,whattheeconomicsystemwascreatedtoserve,notvice versa.Ifhumanneedscouldbemetwithoutasinglecommercialtransaction (i.e.,ifwecoulddevelophousesandclothesthatneverworeoutandif everyoneraisedtheirownfood)humanneedswouldbemet.Noonewould bepoor,noonehungry.Butwhatwouldhappentotheeconomy?Our presentindustrialeconomy,whereincomeisdependentonjobemployment, wouldcollapse. Modernindustrializedeconomiesdonotmakethesatisfactionofhuman needsanumberonepriority.Theyareinsteaddesignedtostimulatebusiness andpromotecommerce.Industrializedeconomiesarebasedonthroughput. Theyprosperonlysolongasproductionandconsumptionremainhigh. Incomeisderivedfromwagesandsalariesand,asaresult,everyeffortmust bemadetoassurethatthereisneveranyshortageofjobs.Productsmust wearoutorbeconsumedsothattheymaybereplaced.Stylesmustbe changedsothatwhateverdoesnotwearoutisdiscardedanyway.People mustbedissatisfiedsothattheywantmore.Resourcesmustbeexploited. Growthisessential. KennethBouldingsuggeststhatanyeconomicsystembasedon throughputisappropriateonlyinacowboyworldwherethereareendless 1 frontiersofinexhaustiblenaturalresources. Onthespaceshipearth where welivetoday,resourcesarelimited,andpollutionisaseriousthreat.Under suchconditions,anappropriateeconomicsystemwouldbeonethat concentratedonthesatisfactionofhumanneedsratherthanontherateof productionandconsumption.Weshouldbeattemptingtomaximizethe accumulatedsupplyofutilitariangoods,notsimplythelevelofindustrial output. Todaythehumanracenumbersalmost4billionpersons.Thisismore thantwiceasmanypeopleaswerealiveatthebeginningofthiscenturyand onlyhalfasmanyaswillbealiveshortlyafterthestartofthenext.Today onehalfofallhumanbeingsaremalnourished,andmorethantwothirdsare 2 withoutadequatehousing,sanitation,ormedicalcare. Ifthematerialneeds ofthisgreatmassofunfortunatepersonsareevertobemet,wemustdevise aneconomicsystemthatcanfeed,house,clothe,andprovidebasichealth servicesinamuchlesswastefulmannerthanpresentlyseemspossiblefrom theexperienceoftheindustrializedcountries.

Wemustrecognizethefactthattherearenomorefrontiersleft.We nolongercanaffordtobehaveasifthiswereacowboyworld.Theearthisa spaceshipand,ifwearetoliveonitinpeaceandprosperity,wemustshift fromthroughputeconomicstostorehouseeconomicsbeforeitistoolate. Thekeytomakingsuchabasicshiftistheeliminationofthevirtually exclusiveroleofwagesandsalariesintheincomedistributionsystem.So longasjobemploymentisaprerequisitetoobtainingincome,any significantshiftfromthroughputtostorehouseeconomicswouldcreate chaos.Ifproductsweremademoredurable,ifmassadvertisingoftrivia wereeliminated,andifallunnecessaryjobswerediscontinued, unemploymentwouldsoar,recessionwouldoccur,andmillionswouldbe withoutincomealtogether. Throughputeconomicsdependsoncontinuousgrowthtocreate enoughjobstokeepeveryoneemployed.Storehouseeconomicswould eliminateunnecessaryjobsandseektosatisfyhumanneedswithaslittle effortandexpenditureofresourcesandenergyaspossible.Storehouse economicsisbasedontheprinciplethat,ifthingsdontwearout,theydont needtobereplaced. TheNMFandStorehouseEconomics TheNationalMutualFundwouldprovidethemechanismsnecessary tomaketheshiftfromthroughputeconomicstostorehouseeconomics.NMF incomewoulddecreasetheimportanceofjobemploymentasasourceof income.AsNMFdividendsgraduallyincreasedtothelevelwherethey couldprovideacomfortableliving,agreatmanypersonswouldvoluntarily leavethelaborforce.Thiswouldcreatejobvacanciesateverylevel.Persons wishingtocontinueworkingwouldhavenumerousopportunitiesfor advancementorfortransfertomoresatisfyingoccupations.Asaresult, unnecessaryjobscouldbeeliminatedwithnohardship.Makeworkand featherbeddingwouldbecomepasse. NMFinvestmentsinrobotfactoriesandautomaticindustrieswould furtheracceleratetheshifttostorehouseeconomics.Robotfactorieswould notrequirelargenumbersofemployeestobeconcentratedwithin commutingdistance.Thiswouldlessentheneedforcommutertrafficand substantiallyreducecongestionandpollution. Itwouldalsomeanthatsmalltowncommunitiesmightonceagain prosper.Peoplewouldbefreetolivewherevertheywishedandcouldadopt slowerpaced,lessresourceconsuminglifestyles. Theautomationofsomemajorindustrieswould,ofcourse,not

eliminatetheneedforhumanworkersaltogether.Notallindustrieswould, orevencould,beautomatedintheirentirety.Therewouldbemanysmall businessesandcommunityservicesthatwouldnotbeautomated.However, theexistenceofasubstantialincomefromtheNMF,togetherwiththetotal automationofamajorportionofheavyindustry,wouldconsiderablyreduce thepressurestowardurbancrowdingandtheinevitablecostsinpollution andcongestion. Anadditionalbenefitofrobotfactorieswouldbethattheycould easilycopewithfluctuatingproductionrequirementswithoutcausinglabor dislocationsorfinancialcrises.Inperiodsofhighconsumerdemand, automaticindustriescouldbeoperated24hoursperday7daysaweek. Therewouldbenorequirementsforovertimeorforimportingnewworkers toindustrialareas.HighproductionwouldleadtohighNMFprofits,and consumerswouldhaveplentyofincometomeettheirneeds.Furthermore, NMFdistributionofprofitsthroughdividendswouldassurethateveryone sharedinthebenefits. Alternatively,whenconsumerneedsweremetandmarketsbecome saturatedwithdurableproducts,productioncouldbecutback.Robot factoriescouldbeshutdowncompletelyorshiftedintoentirelydifferent productlineswithoutcreatinganyunemployment.Therewouldbenoneed toartificiallystimulateadditionalconsumption throughmassmedia advertising,stylechanges,orplannedobsolescence.Ofcourse,reducedpro ductionwoulddecreaseNMFprofitsandleadtolowerpublicdividend payments.Butifpeoplealreadyhadwhattheyneeded,theywouldspend lessandthereforewouldntneedasmuchincome. TheDemandRegulationPolicywouldpreventlackofincomefrom causingpersonalhardshipsorprecipitatingadeflationaryspiral.TheDRP wouldalwayssupplementNMFpaymentsbyreducedwithholdings, acceleratedredemption,ornewlycreatedmoneyinanamountsufficientto preventpricesfromfalling.Thus,anyreductionindemandduetoconsumer needsbeingmetwouldtriggerincreasedincomefromtheDRP.Thiswould assurethatanydecreaseinconsumerdemandwasnottheresultof insufficientpurchasingpower,butratheramanifestationofincreasedhuman contentment. TheDRPwouldguaranteethatNMFdividendpaymentswouldfall onlyaftertheneedforconsumergoodshaddeclined,andnottheotherway around.Forexample,if carsandappliancesweremademoredurable,then productionwouldfallbecausefewpeoplewouldneedtobuynewones.This wouldreduceNMFprofitsand,hence,publicdividends.Butitwouldatthe sametimeincreaseDRPpaymentsbywhateveramountwasrequiredto

preventadeclineinthepriceindex.Thus,anyreductioninNMFincome wouldbemorethancompensatedbythecombinationofincreasedDRP paymentstogetherwiththebenefitsofmoredurableproductsataconstant price. Asaresult,everyshiftinconsumerpreferencetomoredurable productsorlesswastefulserviceswouldberewardedbyincreasedpersonal wealthforeveryone!TheDRPwould,ineffect,payabonustosocietyfor everychangeintastethatledtomoreselfsufficient,lessresource consuminglifestyles. TheNMFandDRPwouldworktogethertoassurethatconsumers wouldalwayshavesufficientincometopurchasewhatevertheyneeded.At thesametime,therewouldbenoneedtoproduceunnecessarytriviaorto artificiallystimulateconsumptioninordertopreventunemployment.Free marketpressuresformaximizingNMFprofitswouldassurethatnothingwas producedthatwasnotneeded,yettheuniversaldistributionofincome throughtheNMFandDRPwouldassurethatproductionwasnevercurtailed whiletherewerestillhumanneedsunmet. TheoveralleffectoftheNMFandtheDRPwouldbetoencourage andrewardeverytendencywithinsocietytoshiftfromthroughput economicstostorehouseeconomics.Theeffectwouldbecomesignificantas soonasNMFdividendsbecamelargeenoughtorelievetheoverwhelming pressuresforfullemploymentthattodaydominatevirtuallyeverymajor economicdecision.AssoonasNMFdividendsandDRPbonusesbecamea substantialfractionoftheaveragefamilysincome,conservationwould becomeaseconomicallybeneficialasnewdevelopmentrestorationwould increaseincomesasmuchasnewconstruction. Thereisnoreasontobelievethatsuchabasicshiftineconomic valueswouldnotbejustassatisfactoryfortheaveragepersonasourpresent throughputorientedeconomy.Itistruethatmanypeopleenjoynewcars, newhouses,andnewclothingstyles.However,italsoseemslikelythatmost peoplewouldwelcomecarsthatoperatedtroublefree.Itiscertainlytruethat antiquefurnitureisoftenmoreprizedthannew,andfineoldrestoredhouses aremoreappealingtomanypeoplethanthecheapcrackerboxesthataresold ashousesinmanysuburbandevelopmentstoday. Storehouseeconomicswouldnotmeanthatnothingnewwouldever bebuilt.Itwouldsimplymeanthatnewdevelopmentforitsownsakewould nolongercompletelydominatetheeconomy.Peoplewouldhaveplentyof moneytobuywhatevertheywanted.Individualswouldbefinancially independentandfreetochooseforthemselveswhattheypreferred. Also,storehouseeconomicswouldnotmeanthateveryonewould

leavethebigcityinfavorofthesmalltown.However,itwouldmeanthat thosewhowantedto,could.Itwouldmeanthattheeconomicpressuresthat resultinurbancrowding,suburbansprawl,andthewastefulconsumptionof naturalresourcesfortheprimarypurposeofcreatingjobswouldbe substantiallyreduced,ifnoteliminatedaltogether. Theshiftwouldundoubtedlybegradual.Basicattitudesofanentire societydonotchangerapidly.However,inmanywaysattitudesarealready changing.Theecologymovementandtheeffortsofthosewhoare concernedabouttheenvironmenthavealreadybeguntoraiseour consciousnessconcerningthebeautiesofnatureandthevalueofwhatisold. Recentpollsandotherindexessuggestthatpeopleareembarkingona periodofnewrespectforoldvaluesandrestrainedlifestylesafterthe upheavalsofthepastdecades. Unfortunately,thisshiftinattitudesrunsdirectlycountertothebasic goalsofgrowthandexploitationthataresofundamentaltothepresent economicsystem.Itisdifficulttoseehowtheserecentattitudinalchanges, howeverdesirable,canprevailinthelongtermunlesstheyareaccompanied byinstitutionalchangesintheexistingsystemofcapitalfinancingand incomedistribution. TheNationalMutualFundandtheDemandRegulationPolicywould provideamechanismforafundamentalshiftineconomicgoalsawayfrom fullemploymentandtowardfullincome,awayfrommaximumproduction andtowardmaximumutilitarianwealth,andawayfromincreasinggrowth andtowardincreasedwellbeing. Bythemselves,theNMFandDRPcouldnotforceanationalshift fromthroughputtostorehouseeconomics.However,theycouldprovidethe institutionalframeworkunderwhichsuchashiftcouldoccurwithoutsevere economicdislocations.Andmorethanthat,theycouldprovidepositive reinforcementfortheshiftbylinkingeachsteptakeninthedirection of conservationtoincreasesinthepersonalfinancialsecurityofevery individual.BythismeanstheNMFandDRPcouldreconcilethe environmentalgoalsofconservationandpreservationwithlegitimatedesires ofhumanbeingseverywhereforparticipationinthegoodlife.

REFERENCES CHAPTERI 1. P.Samuelson,Economics9thEd.,McGrawHill,N.Y.,1973,p.83

2. J.Bernard,ReportofAutomationTechnologyWorkshop,Automation ResearchCouncil,SummaryDocument#3,Amer.AutomaticControl Council,January1974,p.9 3. ComputerControlledProduction,IndustrialEngineering,July1974

CHAPTERII 1. J.Tinker,TheGreenRevolutionIsOver,NewScientist,November7, 1974,p.388.SeealsoreferenceXII2. 2. F.Piven,R.Cloward,RegulatingthePoor,RandomHouse,1971

3. M.Harrington,TheOtherAmerica:PovertyinAmerica,MacMillian, NewYork,1962 4. B.Harrison,HumanCapital,BlackPovertyandRadicalEconomics, IndustrialRelations10,#3,October1971,pp.277386 5. B.Shiller,TheEconomicsofPovertyandDiscrimination,Prentice Hall,1972 6. C.Jenksetal., Inequality:AReassessmentoftheEffectsofFamily andSchoolinginAmerica,BasicBooks,NewYork,1972 7. W.Grieden,N.Kotz,StudyonPoverty,WashingtonPost,April815, 1973 8. L.Goodwin,HowSuburbanFamiliesViewtheWorkOrientationsof theWelfarePoor,SocialProblems19,#3Winter1972,pp.337348 _______.AStudyoftheWorkOrientationsofWelfare RecipientsParticipatingintheWorkIncentivesProgram,

BrookingsInstitute,August1971(DOLContractNo.51 096902) ________.DothePoorWanttoWork?BrookingsInstitute,June1972 9. R.Lampman,EndsandMeansofReducingIncomePoverty,Institute forResearchonPoverty,MonographSeries,Markham,Chicago,1971,p.57 10. R.Lampman,p.61

11. E.M.GlaserandH.L.Ross,AStudyofSuccessfulPersonsfrom SeriouslyDisadvantagedBackgrounds,March31,1970,(DOLContractNo. 82056803) 12. B.Bluestone,W.Murphy,andM.Stevenson,LowWagesandthe WorkingPoor,InstituteofLaborandIndustrialWages,October1971,(DOL ContractNo.51246903) 13. R.Parker,TheMythoftheMiddleClass

CHAPTERIII 1. B.R.Shiller,StratifiedOpportunities:EssenceoftheViciousCircle, AmericanJournalofSociology,November, 1970 2. H.Miller,IncomeDistributionintheUnitedStates,1960Census Monograph,U.S.BureauofCensus 3. R.J.Lampman,EndsandMeansofReducingIncomePoverty, InstituteforResearchonPoverty,MonographSeries,Markham,Chicago, 1971,p.46 4. N.Goldfinger,FullEmployment:TheNeglectedPolicy,AFLCIO AmericanFederationist,November1972 5. L.Aspen(CongressmanfromWisconsinsFirstDistrict),TheBi BomberasaFlyingPorkBarrel,WashingtonPost,December22,1974,p.Bi

6.

V.Packard,TheWasteMakers

7. InstituteofIndustrialRelations,U.C.L.A.,HardCoreUnemployment andPovertyinLosAngeles,AreaRedevelopmentAdministration,U.S. DepartmentofCommerce,1965 8. B.R.Shiller,TheLittleTrainingRobbery:PartI,inPacificTraining andTechnicalAssistanceCorporation,TheImpactofUrbanWINPrograms, June1972,U.S.DepartmentofLaborContract51097010 9. P.B.Doeringer(Ed.)ProgramstoEmploytheDisadvantaged, EnglandCliffs,NewJersey,PrenticeHall,1969 10. D.Diamond,H.Bedrosian,HiringStandardsandJobPerformance, ManpowerResearchMonograph#18,U.S.DepartmentofLabor 11. D.Diamond,H.Bedrosian,IndustryHiringRequirementsandthe EmploymentofDisadvantagedGroups,NewYorkUniversitySchoolof Commerce,NewYork,1970,DOLContract81346625 12. D.Roessner,G.Hamilton,EmploymentContextsandDisadvantaged Workers,BureauofSocialScienceResearch,November1971,DOL Contract51097002 13. E.Denison,ClassificationofSourcesofGrowth,ReviewofIncome andWealth,March1972,pp.125 14. A.Scott,TheValueofHousework:ForLoveorMoney,Ms. Magazine,July1972 15. ImpactofTechnologyonEconomicGrowthisDevelopedin:

S. H.Slichter,EconomicGrowthintheUnitedStates,LouisianaState UniversityPress,1961 A. E. S. Maddison,EconomicGrowthintheWest,Norton,1964 Mansfield,TechnologicalChange,Norton,1971 Kuznets,ModernEconomicGrowth,Rate StructureandSpread,Yale

UniversityPress,1966 16. W.E.G.Salter,ProductivityandTechnicalChange,Cambridge UniversityPress,1969,p.164 17. P.Samuelson,Economics,9thEdition,McGrawHill,1973,p.748

CHAPTERIV 1. R.Nelson,M.Peck,E.Kalachek,Technology,EconomicGrowth, andPublicPolicy,BrookingsInstitute,1967,p.140 2. J.Diebold,BeyondAutomation,McGrawHill,NewYork, 1964,p.209 3. J.Bronowski,TheAscentofMan,LittleBrown,Boston, 1973,p.279 4. R.Durkingcome,BackgroundsofPower,Schriebner,NewYork, 1949,p.144 5. 38 R.Parkman,TheCyberneticSociety,Pergamon,NewYork,1972,p.

6. InterviewwithL.Eisley,U.S.NewsandWorldReport,March3, 1975 7. M.Boretsky,U.S.Technology:TrendsandPolicyIssues,National TechnicalInformationService,PB227930,p.14 8. P.Samuelson,Economics,9thEdition,McGrawHill,NewYork, 1973,p.745 9. 10. 11. M.Boretsky,p.13 M.Boretsky,p.14 M.Boretsky,p.14

12.

ABCEveningNewsReport,April2,1975

13. ProductivityandtheEconomy,PreparedfortheNationalCommission onProductivitybytheBureauofLaborStatistics,Bulletin1779,p.47 14. U.S.DepartmentofCommerceCountryMarketSurvey,CMS74045

15. EleventhInventoryofMetalWorkingEquipment,American Machinist 16. P.Peterson,TheUnitedStatesintheChangingWorldEconomy, VolumeII,BriefingMaterialforthePresidentandtheCouncilon InternationalEconomicPolicy,U.S.GovernmentPrintingOffice4000 0271,1971,ChartI 17. M.Blume,J.Crockett,I.Friend,StockOwnershipintheUnited States:CharacteristicsandTrends,SurveyofCurrentBusiness,U.S. DepartmentofCommerce,November1974,p.27 18. J.Smith,S.Franklin,D.Wion,TheDistributionofFinancialAssets, 1973ConferenceonWealthDistribution,PeoplesPolicyCenter, Washington,D.C. 19. L.Kelso,P.Hetter,TwoFactorTheory:TheEconomicsofReality, RandomHouse,1967 20. UnionsCalltheCapitalCrisisJustPropaganda,BusinessWeek, September22,1975,p.109

CHAPTERV 1. N.Wiener,TheHumanUseofHumanBeings:Cyberneticsand Society,Discus/AvonBooks,1967 2. AirForceComputerAidedManufacturing(AFCAM) MasterPlan,ReportAFMLTR74104,Manufacturing TechnologyDivision,A.F.MaterialLaboratory,Wright PattersonAirForceBase,Ohio

3. D.Williamson,System24:ANewConceptofManufacture,Machine ToolResearchConference,UniversityofManchester,September1967, PergamonPress,NewYork,1967 4. TheRandCorporation,ComputerBasedAutomationofDiscrete ProductManufacture:APreliminaryDiscussionofFeasibilityandImpact, R1073ARPA,SantaMonica,California,July,1974 5. TheComputerIsaManufacturingTool,AmericanMachinist,Volume 114,June29,1970 6. G.Hutchinson,B.Wynne,AFlexibleManufacturingSystem, IndustrialEngineering,December1973,pp.1017 7. MinicomputersThatRunFactories,BusinessWeek,December8, 8 1973,p.6 8. L.Evans,ProductionTechnologyAdvancements: AForecastto1988, InstituteofScienceandTechnology,UniversityofMichigan,1973 9. D.Prince,InteractiveGraphicsforComputerAidedDesign,Addison Wesley,Reading,Massachusetts,1971 10. R.Parslow,R.Green(Eds.),AdvancedComputerGraphics,Plenam Press,1971 11. TheRandCorporation,p.24

12. E.Miller,TestimonyBeforetheSubcommitteeonScienceand TechnologyoftheSenateCommitteeonSmallBusiness,June24,1971,p.4 13. D.Smith,J.McCarroll,CurrentTrendsinNumericalControl, MachineDesign,September26,1968 14. N.Cook,ComputerManagedPartsManufacture,ScientificAmerican, February1975 15. G.Wilke,HandsOffWarehousingSystems,IndustrialEngineering, Volume5,No.5

16. 17.

TheRandCorporation,p.24,Table2 TheRandCorporation,p.25

18. D.House,R.Henzel,ProjectingthePrice/PerformanceFactor, Computer,Volume4,No.2,March/April1971,p.24 19. ManufacturersAdvertisedPrice,ElectronicDesign,Volume23,No. 2,January18,1975,pp.45 LiftOffTimeforMicrocomputers,BusinessWeek,Sept.22,1975,p.34 20. N.Cook,p.28

21. J.Bernard,ReportofAutomationTechnologyWorkships, AutomationResearchCouncilSummaryDocument#3,AmericanAutomatic ControlCouncil,January1973,p.9 22. AutomationResearchCouncil,ANationalResearchPlanfor Automation,AmericanAutomaticControlCouncil,May1974 23. 24. TheRandCorporation,p.40 TheRandCorporation,p.30

25. J.Evans,J.Albus,Robots:NowandIntheFuture,Dimensions, NationalBureauofStandards,November1970,p.246 26. J.Nevins,D.Whitney,etal.,ExploratoryResearchinIndustrial ModularAssembly,C.S.DraperLaboratoryReportR850,Cambridge, Massachusetts,December1974 C. Rosen,etal.,ExploratoryResearchinAdvanced Automation,StanfordResearchInstitute,Project2591 Report,December1973 27. J.Albus,ANewApproachtoManipulatorControl:TheCerebellar ModelArticulationController,JournalofDynamicSystems,Measurement, andControl,September,1975

28. B.Raphael,etal.,ResearchandApplicationsArtificial Intelligence,StanfordResearchLaboratory,Project8973,Report,April 1971 29. H.Warnecke,R.Schraft,StateoftheArtandExperienceswith IndustrialRobotsinGerman Industries,ProceedingsoftheSecond InternationalSymposiumonIndustrialRobots,Chicago,May1972 30. J.Engleberger,TheUnimateatWork,afilmproducedbyUnimation, Inc.,Danbury,Connecticut 31. L.Driscoll,BlueCollarRobots:AU.S.MarketEvaluation, ProceedingsFourthInternationalSymposiumonIndustrialRobots,Tokyo, Japan,1974,pp.121132 32. A.Ashburn,TheDevelopmentofNCAbroad,NCScene,November 1971 33. TherearetwomajorJapaneserobottechnologyprojects: a) PatternInformationProcessingSystems(PIPS),fundedat$180 million.DescribedinaSummaryReport,EngineeringFoundation Conference,PatternInformationProcessing,AirlieHouse,Warrenton, Virginia,February2427,1972.NationalScienceFoundationGrant GK319~5 b) MethodologyforUnmannedManufacturing(MUM)fundedat $13million.DescribedintheJapanEconomicJournal,June19,1973 Thetotalfundingforthesetwoprojectsamountsto$293millionwhich, allowingfordifferencesinlaborrates,wouldbetheequivalentofa$600 millionprojectintheUnitedStates. 34. J.Hollingum,JapansConfidenceShinesThroughItsGreatRobot Gamble,TheEngineer,December12,1974 35. B.Rooks,InternationalIndustrialRobotsandMaterialsHandling,The IndustrialRobot,December1974,pp.281283 36. U.S.DepartmentofCommerceReport,TechnologyEnhancement

ProgramsinFiveForeignCountries,NationalTechnicalInformation Service,Springfield,Virginia,December1972 M. Ignatzev,F.Kulakov,A.Pokrovsky,ProspectsfortheConstruction andUseofManipulatorsControlledbyComputers,Translatedforthe AtomicEnergyCommission,February1972 37. J.Diebold,BeyondAutomation,McGrawHill,NewYork, 1964,p.151

CHAPTERVI 1. N.Wiener,TheHumanUseofHumanBeings,AvonBooks, 1967,p.217 2. W.Grieden,N.Kotz,StudyonPoverty,WashingtonPost,April815, 1973 3. A.Smith,WealthofNations,1776

4. ManyoftheconceptsembodiedintheNationalMutualFundderive fromTheTwoFactorTheory:TheEconomicsofRealitybyL.KelsoandP. Hetter,RandomHouse,1967 5. P.Peterson,TheUnitedStatesintheChangingWorldEconomy,Vol. II,BriefingMaterialforthePresidentandtheCouncilonInternational Policy,U.S.GovernmentPrintingOffice40000271,1971,p.5 6. J.Needham,televisioninterviewonWallStreetWeek,Maryland CenterforPublicBroadcasting,January24,1975 7. ChaseadvertisementinWashingtonPost,April14,1975

8. R.Nelson,M.Peck,E.Kalachek,Technology,EconomicGrowth, andPublicPolicy,ARandCorporationandBrookingsInstituteStudy, BrookingsInstitute,Washington, D. C.,1967,p.54 9. L.Thurow,DisequilibriumandtheMarginalProductivityofCapital

andLabor,ReviewofEconomicsandStatistics,VolumeXLX,February 1968,p.15 10. 10. A.Ehrbar,L.Schiff,TheLongTermCaseforStocks, Fortune,December1974,p.100

CHAPTERVII 1. T.Prenting,N.Thomopoulos,HumanismandTechnologyin AssemblyLineSystems,Chapters2and3,SpartanBooks,NewJersey, 1974 2. NationalScienceFoundation:NationalPatternsofResearchand DevelopmentResourcesFundsandManpowerintheUnitedStates, 19531975,Annual 3. SummaryReport:NewJerseyGraduatedIncomeIncentive Experiment,OfficeofIncomeSecurityResearch,UnitedStatesDepartment ofHealth,Education,andWe1fare,December1973 4. W.Proxmire,Franklythereisalmostnosupportfortheguaranteed annualincomeinCongress.Idontsupport it.Idontknowanyoneelsewhodoes.CongressionalRecord,Volume113, Pt.6,90thCongress,1stSession,1967,p.7179

CHAPTERVIII 1. SeedatainFigureVIfl2

2. P.Samuelson,Economics,9thEdition,McGrawHill,NewYork, 1973,p.827 3. 4. 5. P.Samuelson,p.363 P.Samuelson,p.832 BusinessWeek,November9,1974,p.154

6. ProductivityandtheEconomy,PreparedfortheNationalCommission onProductivity,bytheBureauofLaborStatistics,Bulletin1779,p.21 7. BillstoestablishaNationalCenterforProductivityhavebeen introducedbySenatorsNunn(S.937)andPercy(S.765),1975 154 PEOPLESCAPITALISM 8. E.Mansfield,ContributionofResearchandDevelopmentto EconomicGrowthintheUnitedStates,Science,Volume175,February4, 1972,pp.477486

9. M.Boretsky,U.S.Technology:TrendsandPolicyIssues,National TechnicalInformationService,PB227930,October1973,p.67 10. R.Deans,Jr.,TheTemporalMismatch:InnovationsPacevs. ManagementsTimeHorizon,ResearchManagement,Volume17,May 1974,p.12 11. P.Samuelson,pp.334353

12. L.Chandler,TheEconomicsofMoneyandBanking,Harperand Row,1969 13. M.Friedman,W.Heller,Monetaryvs.FiscalPolicy:ADialogue, Norton,1969 14. 15. P.Samuelson,p.362 G.Ackley,MacroeconomicTheory,MacMillian,1967

16. R.Deans,Jr.,TechnologyLaginAmerica,EditorialResearch Reports,Volume1,January5,1972,p.14 U.S.NationalScienceFoundation,NationalPatternsofResearchand DevelopmentResourcesFundsandManpowerintheUnitedStates, 195374,Annual 17. P.Samuelson,p.834

18.

J.Bronowski,TheAscentofMan,LittleBrown,Boston,

1973,p.437

CHAPTERIX 1. P.Samuelson,Economics,9thEdition,McGrawHill, 1973,p.203 REFERENCES 155 2. D.Erickson,SensitivityConstrainedOptimalControl PoliciesforaDynamicModeloftheUnitedStatesNational Economy,UniversityofCaliforniaLosAngeles,UCLAENG7124,May 1971 3. Brazil:IndexationCreatesaConfidentClimate,BusinessWeek, September22,1975,p.100 4. M.Friedman,TheresNoSuchThingAsaFreeLunch,OpenCourt, LaSalle,Ill.,pp.142161 5. J.Truxal,AutomaticFeedbackControlSystemSynthesis,McGraw Hill,NewYork,1955 6. Inthisformulaliquidmoneysupplyisdefinedascurrencyplus demanddepositsplustimedepositsplusdepositsinnonbankthrift institutions.InMay1970,thistotaled$600.8billion.FederalReserve Bulletin,May1971 7. L.Chandler,TheEconomicsofMoneyandBanking,Harperand Row,1969

CHAPTERX 1. NationalCommissiononTechnology,AutomationandEco nomicProgress,TechnologyandtheAmericanEconomy, GovernmentPrintingOffice,Washington,D.C.,1966, p.87

2. 3. 1

A.Toffler,FutureShock,p.267 W.Feliner,AmericanEconomicReview,Volume60,March1970,p.

4. CouncilofEconomicAdvisors,AnnualReport(Transmittedto CongressJanuary1964),GovernmentPrintingOffice,1964,p.105 5. E.Mansfield,UnpublishedremarksfromaseminaronEconomic Aspectsof ResearchandDevelopmentInvestmentbyPrivateFirms~given attheNationalBureauofStandards,October7,1974 6. E.Mansfield,ContributionofResearchandDevelopmentto EconomicGrowthintheUnitedStates,Science,February4,1972,p.480 7. C.Freeman,M.R.Poignant,I.Svermilson,Science, EconomicGrowth,andGovernmentPolicy,Organization forEconomicCooperationandDevelopment,Paris,1963, p.43 8. J.Jewks,D.Sawers,R.Stillernian,TheSourcesofInvention,Norton, NewYork,1970 9. K.J.Arrow,TheRateandDirectionofInventiveActivity,National BureauofEconomicResearch,PrincetonUniversityPress,Princeton,New Jersey,1962,pp.210215 10. UnitedStatesConstitution,ArticleI,Section8

11. J.Goldman,TowardaNationalTechnologyPolicy,Science,177, September22,1972,pp.10781080 12. EssentiallythesameproposalismadebyR.R.Nelson, M.J.Peck,E.D.Kalachek,onp.177ofTechnology,EconomicGrowth,and PublicPolicy,BrookingsInstitute,WashingLon,D.C.,1967 A.Etzioni,AgencyforTechnologicalDevelopmentforDomesticPrograms, Science,164,April4,1969,p.43

13. NationalAcademyofEngineering,SymposiumandWorkshopon ApplicationofTechnologytoImproveProductivityintheServiceSectorof theNationalEconomy,November 12,1971

CHAPTERXI 1. D.Meadows,D.Meadows,J.Randers,W.Behrens,Limitsto Growth,PotomacBooks,1972 2. H.Hodson,TheDiseconomicsofGrowth,Ballentine, 1972 3. J.Bronowski,TheAscentofMan,LittleBrown,Boston, 1973,p.88 4. P.Hanser,WorldPopulationGrowth,InthePopulationDilemma(P. Hanser,ed.)PrenticeHall,1969,p.25 5. P.Demeny,ThePopulationsoftheUnderdevelopedCountries, ScientificAmerican,September1974,p.159

CHAPTERXII 1. K.Boulding,BeyondEconomics:EssaysonSociety,Religion,and Ethics,UniversityofMichiganPress,1968,p.281 2. C.Waterlow,ValuesandModelsforaGlobalCommunity,InThe Next25Years:CrisisandOpportunity,(A.A.Spekke,Ed.)WorldFuture Society,Washington,D.C.,1975,p.60

PostScript AswaspromisedinpageviofthePreface,feedbackfromreaderswill beincorporatedintofutureeditionsofthisbook.Thisinsertisanattemptto keepthatpromiseandmakethisbookagenuineandupdatetodatevehicle fordebate. MuchearlycriticalresponsetoPeoplesCapitalismhascentered aroundthefearattheNationalMutualFundwouldposeapotentialthreatto libertybecauseofitssizeandcentralizedauthority.Thisfear,Ipersonally believe,issomewhatexaggerated,perhapsinreactiontotherecenteventsof Watergate.Itseemstomethatthekeyissueisnotcentralizationofpowerso muchasaccountabilityandcontrolofpower.Assuggestedinthetext ChapterVI,thedealingsoftheNationalMutualFundwouldbeopento publicscrutiny,particularlybythepress,andunderthecontrolofeffective checksandbalances.Itisofteneasiertoassureequityandfairdealingina singlelargeagencythaninawidediversityofsmallerones.Awellknown exampleofthisisthatthefederalgovernmenttendstobemorehonestand freefromcorruptionthancityorcountygovernments(Watergatenot withstanding).Thereasonissimplythatscrutinybythepressismoreintense andsophisticatedandthereareusuallylargeandpowerfulblocksofdiverse opinionthatact,aschecksandbalancesoratleastaswatchdogs.Accounting procedurestendtobemoreexactingandthereisagreaterdependenceon rulebylawasopposedtodependenceonforceofpersonality.Itismy feelingthataNationalMutualFundwouldbemoreopentoscrutinyand publicpressurethanmorewidelydiffusemechanisms. Nevertheless,therearemanygoodreasonsformakingatleastalarge percentageofinvestmentdecisionsonalocalratherthananationalbasis.It iscertainlypossibletoconceiveoftheNationalMutualFundasmerelya conduitthroughwhichfundsarechanneledtolocalbanksandlending institutionswherethefinalinvestmentdecisionsaremade.TheNMFcould simplygrantcredittobankswiththeprovisionthatthemoneybeusedfor primarystockpurchaseswithgoodprospectsforlongtermreturnon investment.Itshouldbepossibletodevisesufficientlyrigorousaccounting mechanismstopreventcorruption,andtheamountofcreditgrantedtoeach institutioncouldbemadedependentonitsperformanceinproducingahigh rateofreturnonpreviousinvestments.Thiswouldassurebothhonestyand efficiencywithoutunnecessaryrestrictionsonlocaldecisionsmakers regardingspecificinvestments.RulessimilartothosesetupbytheSmall BusinessAdministrationcouldbeusedtodefinequalificationsforsmall businessseekingtosellstocktolocalNMFsponsoredbanks.Normal

accountingpracticesregularlyusedbyinvestmentbankerscoulddetermine qualificationsforlargercorporations.Businessesthatfeltdiscriminated againstcouldappealdecisionstotheNMForcouldseekredressthroughthe courts. Theoveralleffectwouldbetheequivalentofadramaticeasingof moneybytheFederalReservewiththeassurancethatallofthenewly createdmoneywouldbeusedonlyforcapitalinvestmentswithgood prospectsforlongtermpayback.Furthermore,thechannelingofthis investmentcapital throughtheNMFwouldassurethattheresultingprofits wouldbedirectlyconvertedintoincomeforeveryone. Theinflationaryimpactofthisneweasymoneypolicywouldbe mitigatedbythehighlyselectivenatureofwhatthemoneywasusedfor. Nonewouldbeusedtostimulateconsumerdemanddirectly.Allwouldbe usedtobuildnewcapitalstockandincreasetheefficiencyofproduction. Bothofthesearestronglydeflationary.Furthermore,theDemand RegulationPolicydescribedinChapterIXwouldacttotemporarilyremove thisnewlycreatedmoneyfromtheeconomybeforeitcouldindirectly stimulateconsumerdemand.

AbouttheAuthor TheAuthorwasborninLouisville,Kentucky,duringthedepthsoftheGreat Depression.HereceivedaB.S.inPhysicsfromWheatonCollege(Illinois), anM.S.andPh.D.inElectricalEngineeringfromOhioStateUniversityand theUniversityofMaryland.HejoinedtheUnitedStatesSpaceProgrambe foreSputnik,and,whilestillastudentatWheatonCollege,designedthe antennasandradiofrequencyfeednetworkfortheVanguardIGrapefruit satellitethatisstillinorbit.DuringfifteenyearswithNASA,Dr.Albus designedelectronicsystemsforover15spacecraft,conductedresearchin advancedcomputertechnology,directedtheNASAArtificialIntelligence Program,andstudiedtheinformationprocessingandcomputational capabilitiesofthatmostsophisticatedofallcomputers,thehumanbrain.He haspublishedmorethan20papersinvariousscholarlyjournals,themost notableofwhichareATheoryofCerebellarFunction(Mathematical Biosciences,10,1971)andANewMethodofManipulatorControlbased onthistheoryofthecerebellum(TransactionsofASME,September,1975). Inrecognitionofthiswork,hewaselectedaFellowoftheWashington AcademyofSciencesand,in1975,wasawardedtheDepartmentalSilver MedalbytheU.S.Government. Asascientist,Dr.Albusisconcernedabouttheeconomic,social,and politicalimpactoftherapidlyapproachingadventofsuperautomation.He hasrecentlycoauthoredareviewofworldwideadvancesinrobottechnology (ScientificAmerican,February,1976),andinthebook,Peoples Capitalism,hepresentshisvisionofhowtheseexcitingnewdevelopments couldbecomethemeansforliberatinghumankindfrompovertyand oppression. [**Morerecentinformationabouttheauthorcanbefoundat http://www.jamesalbus.org **]