have now, as you will remember from one of the charts that was here, a number extending upward beyond 20,000,000 people who are deriving their livelihood partially or entirely from Government sources, and that does constitute a demand; that is, the demand is equivalent to an introduction at one level of an additional population. Representative REECE. Referring to the 1929 production, it doesn't seem to me any more significant than referring to the 1919 production, or 1909 production. In those years our economic machinery was geared so as to in a reasonable degree meet the demand for goods, the demand arising from the population as it was at that time. Almost 10 years have passed since 1929. Our population has increased, our demand for goods presumably has increased, and to make a comparison of production itself to the mere production of goods in a decade previously doesn't seem to me to paint a very vivid picture. Mr. HENDERSON. My estimate of seven or eight million unemployed on 1929 levels and later my estimate of 140 in the index of production takes into account the increase in the population that has taken place. That has been given weight. I have a very extended study of that from which I have only abstracted and I think that we can well afford to have a separate hearing on that question.

Senator KING. Before you conclude your testimony, today or when you came to the stand again, I should be very glad if you would break down that 54,000,000 which you say may be gainfully employed, and indicate how you have divided the 129,000,000 population into the employed and unemployed, how many of them are women and how many of them are children under 15 and over; a breakdown so that we may know just how many there are.1

Mr. HENDERSON. And where the problem lies.

Senator KING. How many are susceptible of employment under a proper economic system?

BASIC ASSUMPTIONS OF AMERICAN COMPETITIVE CAPITALISTIC

SYSTEM

Mr. HENDERSON. You have spoken and we have spoken many times of the system, and people are always asking, What is this system? It is not easy to define a system, but it is fairly easy to recognize one through identifying characteristics. The American system has had certain characteristics in common with other systems of capitalistic production, but it also has had special traits which distinguish it from all others. This thing we call a system which I find difficult to define and merely try to identify, comprises something more than just an economic program. It includes a basic philosophy, a set of legal and political institutions, and a cluster of business institutional operating policies, and all are usually as closely related to the community's ideas about the future as they are tied to past experience.

I have undertaken to set down basic assumptions as I see them of the American system of competitive capitalism. In the first place, the American system has emphasized the dignity of the individual, his resourcefulness, and has had essential reliance on the ability of individuals, in free association, to design affirmatively the main forms and directions of life.

1 See tables containing this data, appendix, p. 251.

124491-39-pt. 1-12

Its basic legal institutions have included private property and freedom of contract, with the collateral assumption of approximate equality of bargaining power.

It has assumed acceptance of minimum but workable rules of law, democratically determined, under which each individual, in pursuing his personal self-interest, would also serve the logical interest of the community.

It has rested on a belief that there should be no long-term restriction of the international flow of goods, or the freedom of the individual to make economic decisions at his own risk.

It has placed its faith in the function of price and the market mechanism as the best possible forces for the allocation of the resources and the determination of distributive shares to worker, investor, owner, and risk-taker alike. It has had a concept of the free market as one which no buyer or seller could dominate.

Implicit, but less well defined, have been assumptions of mobility of labor and capital, almost unlimited land and natural resources, that the economy and its population would expand indefinitely, and that all possible savings could be readily employed in natural expansion of facilities for serving consumers.

Government, it has been thought, should intervene mainly to compel observance of working rules.

Taken together, these assumptions, as I read them, have constituted the American competitive capitalistic system.

EFFECT OF CHANGE ON BASIC ASSUMPTIONS

Mr. HENDERSON. Throughout these last 2 days the charts, as Dr. Lubin and Dr. Thorp presented them, have vividly recorded and emphasized change. Change-Change Change. That has been the keynote right along.

Outstanding change, and one which is of greatest importance, is the significant departure, since 1929, from our historical line of growth. This is most apparent from the course of industrial production since 1929. No observer can overlook it, nor believe other than that as things now stand our growth has stopped. In terms of per capita production we are failing to hold our own, though the rate of technological change holds its steady course. Some hold firmly to the belief that our economic ills are due to too rapid a rate of change, and the lag in social adaptation.

What I have in mind about a departure from this line of growth I want to emphasize again. This line, of course, has been constructed from a number of lines that give little emphasis to other depressions, which give an emphasis to the fluctuations that have taken place in the past but you don't have to be a professional chart reader, you don't have to be a digit hound, to know that something has happened in order that this particular line of activity should be recorded this way. In present terms, in terms of the difficulties that the system is having in rising to full equilibrium, full employment, in terms of its possibilities, in terms of the violence of disturbance which takes place time after time, it is very evident that we are at a strategic place. Now it has become customary to talk about crossroads, and things like that. Emphasis, however, is sometimes dulled, but I think that in any consideration of whether or not we are in a really serious situa

1 See exhibit No. 5, supra, p. 5.

tion, we need to give some attention to this question as to whether or not we have reached the top of our growth, whether we are in for a period of stagnation or decline.

One of the very, very noticeable observations to be made as to the course of activity in recent years under our complex mechanism is the inability of the system to maintain itself at any level which it has attained; that is, we do not stop, there is a constant shifting all the time. This halt is of extraordinary importance not only because of the deficits we have been outlining, but because it represents for the first time a major departure from the growth line in American industry. Senator KING. May I interrupt you right there, Doctor? What year does that chart indicate is the beginning of your line?

Mr. HENDERSON. This chart, which is the chart of the United States national income, begins with 1850.

Senator KING. Do you think that you have fairly represented on that chart the abrupt and disastrous decline from 1889, 1890, 1891, 1892 and 1893, when we had hundreds of thousands and millions out of employment, and armies marching across the United States? Have you sufficiently indicated that on the chart?

Mr. HENDERSON. As I indicated when I started, those dips have been smoothed because that is based, as I gather, on estimates of level of activity at 10-year intervals.

Dr. LUBIN. It is true, therefore, that even after making allowance for those dips, the trend was continued upward. In other words, we more than made up the loss.

It

Mr. HENDERSON. That is the sweep, and if you had a projection of this curve it would be taking you in here, and that emphasizes all the more, as I indicated in my estimates, what the possible attainments of national income would have been had we kept on. emphasizes how far off we are. We are at 62 billion dollars now; we should if that line of growth had continued, have been at 94 billions. Dr. LUBIN. In other words, each 10 years more than made up the loss of the preceding 10 years.

The CHAIRMAN. Is that not illustrated by the lower line showing the per capita income, which indicates that at the depths of the recent depression in 1931, the per capita national income was slightly more than $300, which was in excess of the per capita income in 1900?

Mr. HENDERSON. That is right. On the other hand, we were back at this low point, to the average of about 1911.

I don't mean to linger too long on that, Mr. Chairman. What I would like to discuss is some of the changes that have taken place, rather to emphasize some of them that have taken place, on which our basic reliances were substantially rooted. The first one, of course, on which I will not linger long, is the passing of the frontier. There always seemed to the individual in his search for a means of livelihood to be the possibility of working free land. That has passed.

There always seemed to be the alternative of the production of natural resources of some kind. We know in terms of what the expense and losses are in the development of mining resources that this alternative is not available to the individual. We know, too, that as far as the natural resources of this country are concerned, they are already possessed, and largely under conditions of concentration of ownership.

1 Exhibit No. 5, supra, p. 51

Dr. Lubin emphasized the growth of population, and Congressman Reece was adverting to what had taken place in terms of population as creating new markets. Most assuredly there was a period in which after each one of these dips, to which you referred, Senator King, the growth in population did seem to mean there were new people to be housed, there was a pressure on the housing we had, there was a pressure on the food supply, there was a pressure for expansion of credit, and this helped to make up the deficit.

Now that has really in these terms disappeared. In fact, this thing we thought of as a competitive capitalistic system really had its greatest implementation by the growth in population. England's population quadrupled in the nineteenth century, that of the whole of Europe tripled, and the United States increased its population about fifteenfold. There were these increasing markets which enabled the individualistic system to make this growth.

Today, with the leveling off of population, there are, it is estimated, 1,000,000 empty desks in our primary schools and Dr. Lubin has given an indication of what the trend of population may be. I hope, at some later time, to submit some figures to indicate what has happened to immigration. I thought I would have them today.

Senator KING. Do those figures indicate whether those empty desks are in urban or suburban parts of the country?

Mr. HENDERSON. I think they are in both.

DECLINE OF COMPETITION

Mr. HENDERSON. One of the outstanding things, however, has been a decline in the vigor of competition. Certainly, no observer would undertake to say that competition within the original concepts is persistent today. In fact, I am going to read what three observers say about competition, just as a point of departure for other observations. F. C. Mills, in his book, "Prices in Recession and Recovery", which is the outstanding study of this movement of prices, said, "Our economic fortunes and our living standards depend upon the working of a system still essentially competitive, and in our appraisal of economic ills we must recognize this fact."

Then Arthur R. Burns, likewise, as is Dr. Mills, a professor at Columbia University, and author of the most outstanding book on this subject in recent years, "The Decline of Competition", begins on this note: "The rise of the 'heavy industries,' changes in methods of selling, and the widening use of corporate forms of business organization are bringing, if they have not already brought, the era of competitive capitalism to a close."

But another professor, an ex-head of the American Economic Association, John Maurice Clark, before the Academy of Political Science, within the month said, "I believe, though I cannot prove, that capital must in the future adjust itself to a lower rate of return than it now considers reasonable, and to degrees of competition which it now considers unduly severe, or paralysis will follow, and capital will suffer along with all other interests. To put it the other way around, I believe, though I cannot prove, that if business gains the power, through imperfect competition or otherwise, to protect what it sincerely regards by customary standards as a moderate and fair rate of return, and is not restrained from exercising that power, the result is very likely to be economic suicide."

I have chosen them because they are representative, as I have read them over a period of years, of the attitudes toward decline in competition.

Certainly one of the assumptions that we had as to competitionthat is, a number of small units-disappears in the terms of the material Dr. Thorp presented yesterday. Dr. Thorp did a careful, analytical job as to where concentration has taken place, the importance of size, and indicated, of course, that this thing which we had as an ancient idea about monopoly of a single producer having control of a market is no longer the thing. We have two, three, or four dominant corporations in an industry.

Now, so far as the effect on the system is concerned, so far as the effect of the lack of competition is concerned, the question as to whether there is conscious control of a market through illegal means or whether or not that control is exercised, diverted, or subverted, is relatively unimportant. In terms of what you do about it it is important, but if you are hit on the head with a hammer your hurt is just as bad whether it was an accident or whether somebody did it deliberately, or whether one person did it or three persons did it. You are likely to get even more of an impact if three persons are handling the hammer.

So far as the problem before this committee is concerned, the slowing up of competition certainly is of great importance to know where it is taking place, to know what you may do about it.

There are several ways of noting the disappearance of competition. Dr. Lubin showed the capacity for portland cement and showed that over a period of time that capacity had not been utilized.1 He also showed a rising tide of real wages, a tide that had continued in the face of the tremendous amount of unemployment that we have had." Under any assumption of a system operating under completely competitive characteristics, neither one of them would be able to happen. That is, neither on the side of a lack of utilization of capital could you have that kind of thing taking place; nor could you have with the tremendous labor supply an increase in the rate of real wages so long as that supply was pressing on the market.

Changes in selling practices, as Dr. Thorp emphasized, are some of the reasons why attention has been diverted recently to attempted controls and modification of the ruthlessness of competition in the distributive field. It is no accident, of course, that a lot of complaints which the Federal Trade Commission handles at the present time are in the distributive field, because we have perfected a mechanism for production. It is in the arena of the markets that the real battle is being fought out, and you find, of course, an increase in resale price maintenance, in the no-selling-below-cost laws, in the RobinsonPatman and Miller-Tyding kinds of acts. They reflect the diversion of the push that used to take place at the producing end of enterprise, and is now being focused on distribution.

15

Price leadership, something practically unknown in early days when these concepts were being formed, has come into existence. And these duopolies and triopolies and oligopolies, and all other kinds of things which are supposed to have substituted themselves in the market for monopolies, make it really tremendously easy for price leadership to

1 See exhibit No. 23, supra, p. 34. 'See exhibit No. 47, supra, p. 61.