of the various parts of the economy. He also discussed the meaning of this record in terms of economic loss for different classes of people. Now comes the question of what the economic structure is, the machinery through which and by which these processes operate. Such an analysis is basic because that is where economic problems come from. Our failure to maintain the past rate of advance in the standard of living is certainly not due to any lack of management ability, capital, labor, or natural resources. There is no such simple

answer.

My task today is to examine the organization and processes of operation of the factors in business enterprises and industries. No analysis would be necessary if this were a simple machine with many like parts. The fact is that it is exceedingly complicated with units varying from the roadside stand run by the farmer's daughter to the giant railway system. Variations appear because of differences in product, process, location, market, habits, and practices which have become the custom in this or that industry or trade.

Furthermore, these basic sources of differences within the structure are continually changing. As we have carried specialization further and further, the amount of dependence of the parts upon each other has increased. Lack of adjustment in individual parts of the economy to changing conditions can therefore affect areas far wider than that of the original difficulty, and may even spoil the rhythm of the whole machine.

The character of the economic structure which I am to describe is continually changing. Advances in technology, for example, may create new industries and destroy long-established ones. The initiative of businessmen, individually and collectively, is itself a constant creator of change, while too much inertia, on the other hand, may also cause a maladjustment. Some situations have sufficient public importance to warrant government intervention of one kind or another. Under forces such as those, our economic pattern has changed greatly in recent years, both within the structure itself and in the relationship of government to industry.

It is of course impossible for me to present a complete picture of our economic machinery. Not only is there the time limitation, but at many points, authoritative information is lacking. Many of the research projects now under way will aid greatly in understanding the nature and location of our economic problems.

It is not my purpose, in describing the economic structure, to offer any judgments. This is a blue print, only partially developed, of a very complicated machine. The plan of presentation moves from the specific to the general. That means starting with individual business enterprises, considering them in terms of their legal form of organization, their relative size, and their functional characteristics. Next will follow a discussion of industries and trades, their different patterns and problems, the extent of concentration and other alternative. forms of collective action, and interindustry relationships. Finally, we shall consider various broad factors which may also create problems of adjustment.

THE BUSINESS POPULATION

Dr. THORP. So we start with the individual business enterprise, the basic unit in the system. Dr. Lubin started yesterday with the record of population. I want to start with the record of business population.

His problem was much easier because when you are counting people, you have no question about what unit to use, but when you are trying to count business enterprises you have an entirely different problem. I could perfectly well and honestly say that there are 500,000 business enterprises in the country, or I could say there are 30,000,000 business enterprises in the country. If I said 500,000, I would be considering the corporations, the active corporations which are units established specifically for business purposes.

If I said 30,000,000, I would be regarding each family in the United States as a business unit, and, of course, if one wanted to compare the development of economic activity today with the development 50 years ago, he would have to take the family into account because the family 50 years ago was the producer of bread, for example, and of clothing and of many things which now have been transferred into what we more normally think of as the business system.

We can find many different possible definitions in between; for instance, we could limit it to families which had employees. There are about 2,000,000 families which have domestic servants, so they in a sense are perhaps more properly business units than the others. There are 700,000 individual professional persons, lawyers, doctors, dentists, and people of that sort. Shall we regard them as units or not? Even if we arrive at some clear-cut definition we still have a number of problems that remain. Take, for example, the field of construction; in construction a large number of the operators move in and out; one month the man will be doing work on a subcontract in which he is the businessman, the next month he will be working as an employed carpenter under some other contractor, so that you have a continual shift back and forth of the business population. Or, another question, What shall we do about subsidiaries? They are separate corporations. Are they to be regarded as separate members of the business population or not?

Well, I am sorry to say that there are no Government figures available with regard to the number of business enterprises. Our censuses, as for example, the census of manufactures, are taken on the basis of plants-rather the term they use is "establishments"and not in terms of enterprises or companies. And so in order to give you something of a consistent picture I will have to present a record compiled by Dun & Bradstreet, United States Business Population, over a period of years. This first chart is on United States business population.

(The chart referred to was marked "Exhibit No. 52" and appears on p. 84. The statistical data on which this chart is based are included in the appendix on p. 227.)

Dr. THORP. The line which I want you to look at for the moment is this top line, the total number of listed concerns. That includes the enterprises which would ordinarily be thought of as coming in the fields of mining, manufacturing, wholesale trade, retail trade, and most of the service industries. It does not include financial organizations, railroads, professional persons, or farmers. It includes utilities, but the utilities constitute a relatively small number of enterprises. Of course we have some 6,000,000 farmers, or farms, and if one included them they would dominate our picture of business enterprises.

The basis of this chart is sufficiently consistent for the period for our purposes. The country has been covered with about the same degree of uniformity. It is possible that in any given year there may be some minor errors, but the chances are that the errors are fairly constant, so that the picture of what has happened to our business population over time is, I think, an accurate one.

One other point perhaps I should add as it occurs to me, and that is that an enterprise such as a chain-store system would count as one enterprise. These are business units, they are not operating units.

BUSINESS POPULATION GROWTH

Dr. THORP. If we go back to 1900, you notice that there are about 1,200,000 enterprises. There is a steady increase in the business population, halted temporarily in 1919, but rising to a peak in 1929 when there were 2,213,000 enterprises in this list.

From 1929 there is a drop of about a quarter of a million in the business population, and then the advance is resumed. The latest figure, which is July 1938, is 2,102,000-all these figures for each year are for July.

Senator KING. Will you permit a question? There are more than 1,300,000 of small shopkeepers, storekeepers in the country. Have you included those in that?'

Dr. THORP. Yes. As a matter of fact, they are the bulk of this picture. Most of these enterprises are small and in the retail trade. The CHAIRMAN. This includes both corporate and uncorporate? Dr. THORP. Yes. This includes all enterprises regardless of the form of organization.

Representative SUMNERS. Do you have the figures which would influence that line? If you had those-I am not asking my question

properly. The chain-store development has added a great many units under one organization. If they were listed as separate business organizations what effect do you think it would have on the line of your chart, after about 1925?

Dr. THORP. In 1929 it would increase the total number by an additional figure which is around 145,000. The 1935 figure is 127,000. In other words chain stores according to the census of 1935 had 125,000 stores. So that if you added these units it would increase the line by about that number. Of course, that would be a steady increase over the period.

I might point out that the increase in the number of concerns since 1933 has one important factor, and that is the opening of many new liquor stores. There are about 2,800 alcohol producing enterprises, about 10,000 wholesalers, about 70,000 drinking places, and 8,000 beer and liquor stores. Of course, we don't know how many of those wholesalers, for example, are wholesalers who already existed as wholesalers of groceries and have added alcohol distribution to their function. We have these figures because they are required under Federal statute to have a license.

So somewhere between 20,000 and 90,000 of this increase since 1933 is attributed to the increase as a result of the repeal.

Senator KING. I suppose it takes into account the fact that there are nearly 18 new industries and businesses developed this past year. Dr. THORP. Yes; all the way through, of course, that same thing has been happening. We have had new industries that have come into this picture, but the situation mentioned above is rather unusual. I don't believe any other industry ever came into existence, or shall we say was reincarnated quite so rapidly as that particular one.

Representative SUMNERS. You had a little body to start with. [Laughter.]

Dr. THORP. One other thing that is interesting to keep in mind in looking at this picture is the fact that this rise from 1900 to 1930, at any rate, was more rapid than the rise in population so that, whereas in 1900 there were about 65 people for every business enterprise, by 1930 we had 56 people for every business enterprise.

One aspect of this record that is particularly interesting

Representative SUMNERS (interposing). Dr. Thorp, would you make some explanation, if there is any explanation in your judgment, as to the decrease in the number of persons per enterprise during that period of increase?

Dr. THORP. I think the decrease in--or perhaps we should put it, the more rapid increase in the number of enterprises than in the population is probably due to certain new activities which have come in. A very large part of it is probably attributable to the automobile industry, and especially the development of filling stations. Then we have a good many specialized shops which never existed before, arising out of electric appliances and things of that kind.

Mr. OLIPHANT. Over how long a period did that relative increase take place?

Dr. THORP. From 1900 to 1930 this increase in business population shows a straight-line trend. The increase in personal population was flattening out, so it may be, if one took 1900 to 1910, they would be more closely together. Of course, during the period since 1930 it should be pointed out that personal population has kept on increasing while the business population is somewhat lower.

Representative SUMNERS. Doctor, there is one point in there that seems to me to have some importance, and that is the figures which you have given pursuing the relative decrease in number of persons connected with individual businesses. Would you account for that in the reduction of growing businesses or the relatively larger number of smaller businesses established in that period?

Dr. THORP. I don't believe I explained those figures clearly to you, because that is not a figure of the number of persons attached to a given enterprise, but a comparison of the number of enterprises with the total population in the country.

Representative SUMNERS. Oh, I beg your pardon; I didn't get the figures; I am sorry.

BUSINESS BIRTHS AND DEATHS

Dr. THORP. Now, I should like to call your attention to these two lines at the bottom of the chart, because in the process of keeping track of this population, it is possible to see how many new enterprises are formed and how many disappear from the record each year. According to the latest figures, those for 1937, 400,000 new enterprises were opened, and 351,000 discontinued their operation.

That means that for each working day in this country, 1,300 new enterprises open their doors, and 1,150 disappear. Of course those are, as you all know, very small enterprises, and very largely in the retail trade, but I do want to point out this extraordinary turn-over which takes place in the business population; as one follows it through the period of time each year about one-fifth of the business population disappears, but is replaced by an even larger number.

You will notice that except for one year, in 1917 and for the period 1930 to '33, we have had more new enterprises than we have had disappearing enterprises.

Senator KING. Did some of those disappearing enterprises merge with the new enterprises, or were they amalgamations?

Dr. THORP. The problem of deciding what is a new enterprise is an extremely interesting one. For instance, suppose that a partnership was in existence and one partner dropped out so that a new partnership was formed, is that or is it not a new enterprise? That is like the old logical problem of a new blade in a knife, is it a new knife or not?

For this purpose, an enterprise is not regarded as a new enterprise if it changes its name or it changes its location within the community, but this does include changes in the form of organization. For instance, when a partnership is incorporated, it is counted as a new enterprise. And it is really a new enterprise for certain purposes. For example, for purposes of taxation, it is shifted from one type of tax to another, or for the purpose of the extension of credit, its responsibility as a debtor is different when it becomes a corporation. Senator KING. Have you any figures indicating the number of those new organizations to which you have referred, whether they are partnerships or corporations?

Dr. THORP. I have those and plan to introduce them, Senator. But one thing about this, a rough estimate which I have made is that about two-fifths of these cases of new enterprises and discontinued enterprises represent mere replacements of one form or another. Mr.