is
a painting done in acrylics by the author. It is a composite of symbols
representing the philosophical origins of the ideas embodied in Peoples’
Capitalism.
The
first symbol underlying all the others is the Star of David that represents the
basic concepts of economic justice and individual human worth set down in the
Law of Moses and elaborated throughout the prophetic tradition. Among the
Mosaic statutes is an ordinance establishing a Year of Jubilee, a period to be
celebrated once every half century by the cancellation of debts, the liberation
of slaves, and the return of land rights to the original owners (Lev 25:10-55).
The deep concern for human welfare that is expressed in this and other Hebrew
laws reaches its climax in the prophecies of Isaiah concerning a time when the
Lord’s Messiah shall bring justice to the poor and equity to the meek (Is
11:1-9).
Also
on the frontpiece is a cross, symbolizing the teachings of Jesus of Nazareth.
This son of a simple carpenter saw in himself the fulfillment of the Messianic
prophecy: “The Spirit of the Lord has anointed me to bring good news to the
poor, to proclaim release to the captives, recovery of sight to the blind,
liberty to the oppressed, and to announce the year of recompense of our Lord [A
reference to the Year of Jubilee] (Lu 4:18-21). Jesus promised the meek that
they should inherit the earth, and admonished his followers to love their
enemies and pray for their tormentors (Mt. 5:5, 45), yet he castigated the
political, academic, and religious establishment, calling the priests and
professors hypocrites and vipers for using the power inherent in their
positions of honor and trust to cheat the simple and steal from the helpless
(Mt 23:14-23).
The
frontpiece also contains the five-pointed Star of Revolution. This star
represents the body of ideas that has arisen from the three great Western
revolutions: the American, the French, and the Industrial. This is the
ideology that inspired men to overthrow the Divine Right of Kings, to declare
the political equality of all human beings, and to perceive the inseparable
relationship between personal liberty and the secure ownership of
income-producing property.
Lastly, there is the four-pointed star, a symbol chosen to represent an ideology for the coming Second Industrial Revolution — the Robot Revolution — the revolution in industrial production that will eventually result from the invention of the computer. The four points of this star correspond to the four fundamental axioms of Peoples’ Capitalism, and to its four practical operational elements: technological innovation, rational investment, adequate savings, and equitable distribution of wealth and income. [**At the time of the first edition, the author was unaware that the four-pointed star was also the symbol of the North Atlantic Treaty Organization (NATO).**]
The
entire painting conveys a sense of hope and reverence appropriate to the
profound nature of the events that are now taking place. We are living in a
historical moment of creation. Within the past three decades there have emerged
the fundamental building blocks of what can only be termed a new life form,
based not on the carbon atom and the double helix of DNA, but on the semiconductor
crystal and the mathematics of symbolic logic and numerical computation. There
is now evolving a new kind of self-regulating, even self-reproducing, organism
that will have the power to end physical poverty and make every human being
economically secure and self-sufficient.
Peoples’
Capitalism is a political program that attempts to anticipate the scope of the
coming robot revolution and to subject its enormous productive power to the
influence of the ancient Judeo-Christian precepts. Peoples’ Capitalism is a
message of hope, a plan of escape from the present worldwide economic dilemma,
and a program for a new world order in which material prosperity will be
commonplace and the full potential of human knowledge will be directed toward
the fulfillment of mankind’s most majestic imaginations.
**************
Notable
quotes from the book:
“The
central concept of Jeffersonian Democracy was that ownership of the means of
production should be widely distributed among the electorate. Peoples’
Capitalism is a means by which the Jeffersonian ideal could be achieved in a post-industrial society.”
“Peoples’
Capitalism would place a comfortable income floor under everyone, but more
important, it would impose no ceiling on anyone. It would distribute dividends
from high technology robot factories on an equal per capita basis, and the rest
of the economy would be fair game for competition.”
**************
Basic axioms of Peoples’ Capitalism
1.
All
else being equal, it is better to be wealthy than poor.
2.
The
individual is the best judge of what constitutes his (or her) own betterment.
3.
Human
benefit is the ultimate measure of goodness for any social or economic system.
Theorems to be proved
The existing economic system is far from optimum in its production and distribution of what people need and want.
America
is not a capitalist society – it is an employee society. We are a nation of
wage earners, and in a very real sense, “wage-slaves”.
The
labor theory of value and the work ethic may now constitute the most important
impediment to technological advances that could eliminate both poverty and
pollution, not only in the United States, but throughout the entire world.
Questions to be addressed
·
If
robots eventually do most of the economically productive work, how will people
receive an income?
·
Who
will own these machines?
·
Who
will control the powerful economic and political forces they will represent?
Preface
Epilogue to Scarcity
These are revolutionary times. Changes as profound
as those resulting from the invention of agriculture or the domestication of
wild animals are rushing us toward a new world. The human race is now poised on
the brink of a new industrial revolution that will at least equal, if not far
exceed, the first industrial revolution in its impact on mankind. The first
industrial revolution was based on the substitution of mechanical energy for
muscle power. The next industrial revolution will be based on the substitution
of electronic computers for the human brain in the control of machines and
industrial processes.
From the beginning of human existence, mankind has
lived under the ancient biblical curse: “By the sweat of thy face shalt thou
eat bread, till thou return unto the ground.” Before the invention of the steam
engine, virtually all economic wealth was created by the physical labor of
human beings, assisted only by their domestic animals.
The first industrial revolution only partially
lifted the ancient curse. Yet, even this partial reprieve had profound
consequences. In all the thousands of centuries prior to the first industrial
revolution, the human race existed near the threshold of survival, and every
major civilization was based on some form of slavery or serfdom. Yet a mere two
centuries after the introduction of steam power into the manufacturing
process, slavery has become little more than a distant memory for the citizens
of every major country. Today, a large percentage of the population of the
world lives in a manner that far surpasses the wildest utopian fantasies of
former generations.
There is good reason to believe that the next
industrial revolution will change the history of the world every bit as
profoundly as the first. The application of computers to the control of
industrial processes will bring into being a new generation of machines;
machines that can not only create wealth unassisted by human beings, but can
even reproduce themselves at continuously decreasing costs. The potential
long-run effects of this event are twofold: First, it will allow the human race
to free itself from the dehumanizing demands of mechanization. The
self-regulating capacity of computer-controlled industries will render it
unnecessary for people to structure their lives around daily employment in
factories and offices. The first industrial revolution drew people away from the
land and concentrated them in urban industrial communities. The robot
revolution will free human beings from the pressures and congestion of
urbanization and allow them to choose their own lifestyles from a much wider
variety of possibilities.
The introduction of the computer into manufacturing
has the potential for removing material scarcity from the agenda of critical
human problems. The technical feasibility of factories and industries that can
operate unattended and reproduce their own essential components implies that
manufactured goods may eventually become as inexpensive and unlimited by
process complexity as the products of biochemical mechanisms in living
organisms. Increased efficiency and flexibility of substitution between
materials and processes could render currently projected shortages of fuel and
materials largely irrelevant to the 21st century.
Unfortunately, the present economic system is not
structured to deal with the implications of a robot revolution. There
presently exists no means by which average people can benefit from the
unprecedented potentials of the next generation of industrial technology. Quite
to the contrary, under the present economic system, the widespread deployment
of automatic factories would threaten jobs and undermine the financial security
of virtually every American family.
[**Author’s update** In the 28 years since the last
statement was originally written, this conventional wisdom has not been borne
out by experience. Although advances in
manufacturing technology have reduced the number of workers in some craft
unions, and productivity gains have reduced the percentage of the work force
engaged directly in manufacturing processes, there is no evidence that
automation has increased unemployment in the overall economy. In fact, the evidence is quite the
opposite. The correlation between
automation and unemployment is strongly negative. Those areas of the world where automation is most prevalent have
the lowest overall unemployment, and those areas where automation is
least prevalent is where unemployment is the highest. Automation is positively correlated with low
unemployment and high living standards.
Furthermore, economic theory predicts that rapid productivity growth creates more job opportunities, not less. Jobs are not created by work that needs to be done, but by profitable enterprises that can afford to hire workers. Productivity growth increases profits, reduces costs, and causes markets to expand. This generates demand for labor, and reduces, not increases unemployment.
Nevertheless, the popular myth that automation threatens jobs remains a powerful influence in politics and at least indirectly effects funding decisions regarding government support for automation research. Almost everyone fears that a robot might someday take over their jobs, even though very few people have ever experienced this happening.**]
This book is an attempt to address some of the
fundamental problems of income distribution and capital ownership in a society
where most of the goods and services either are, or could be, produced by
machines rather than people. It questions the adequacy of conventional
economics for the present, as well as for the future. It argues that the
primary cause of the recent economic crisis is not a lack of resources or insufficient
wealth-producing capacity but an unrealistic view of how wealth is created and
an outmoded system of incentives that does not make use of what is available to
produce what is needed.
This book claims that, if we properly utilized our
scientific knowledge and our industrial capacity, we could not only overcome
the present economic crisis, but we could go on to eliminate poverty altogether
and guarantee personal financial security to every individual. Furthermore,
this could be done in a manner compatible with a clean environment and an ecologically
balanced world.
The great challenge of the coming industrial
revolution will be the development of an economic system wherein prosperity
can be achieved without waste, affluence can be made compatible with the limits
to growth, and personal freedom can be preserved and enhanced in a world where
most wealth is created by automatic machines. This book is an attempt to
formulate a plan by which this could be accomplished. The proposals contained
in the following chapters might best be described as a formula for PEOPLES’
CAPITALISM, or as a blueprint for Jeffersonian Democracy in a modern technological
society.
Specifically three new institutions are proposed:
1. A National Mutual Fund (NMF) is suggested to finance capital investment for increasing productivity in socially beneficial industries. The NMF would be a semiprivate profit - making investment corporation that would be authorized by Congress to borrow money from the Federal Reserve System. It would use this money to purchase stock from private industry for the modernization of plants and machinery and the introduction of advanced computer -based automation. Profits from these investments would be paid by the NMF to the general public in the form of dividends. By this means, the average citizen would receive income from the industrial sector of the economy quite independently of employment in factories and offices. Every adult citizen would become a capitalist in the sense of deriving a substantial percentage of his or her income from dividends paid on invested capital.
2. A Demand Regulation Policy (DRP) would be
instituted in parallel with the NMF in order to provide sufficient savings to
offset NMF investment spending. This would prevent short -term demand-pull
inflation. The DRP would withhold income from consumers by mandatory payroll
deductions and convert it into high-interest five-year savings bonds.
Deductions would be graduated according to income (low-income persons would
have little withheld, high-income more) and would be adjusted monthly according
to a formula based on the best available indicators for inflation. The DRP
would allow high rates of investment and the accompanying high employment and
high production while preventing excess demand from forcing prices upward.
3. A Federal
Department of Science and Technology is also suggested to focus modern
technology more directly on problems relevant to human needs.
It
is argued that, if implemented, these proposals would lead within three decades
to:
1. A society
where every adult citizen would derive a significant fraction of his or her
income from invested capital.
2. A society
where industrial ownership and economic power would be distributed widely enough
so that every citizen would be financially independent.
3. A society where people would work primarily for
pleasure or for supplemental monetary benefits. There would continue to be many
incentives for working and many jobs available, but no one would be forced to
work out of economic necessity.
4. A society
where a diversity of lifestyles would flourish and rewards for achievement
would be high.
5. A society
in which prices would be stable and prosperity could be maintained without
planned obsolescence, make-work, waste, pollution, or continually increasing
economic growth.
In short, this book is a plan whereby PEOPLES’
CAPITALISM could be achieved in the United States by the turn of the century
without any significant changes in our constitutional form of government. In
fact, far from altering any of the fundamental principles upon which this
country was founded, this plan would revitalize the free-enterprise system. In
the process, it would mobilize the full creative resources of our scientific and
industrial capacity in a national effort to solve our most pressing human
problems.
A Personal Note
As
you read this book, it will quickly become evident that it was not written by a
professional economist. My expertise lies in the field of science, not
economics. If I am an expert in anything, it is in the theory of cerebellar
mechanisms [**more recently, intelligent systems**] and its potential
application to robot control. As a scientist, I tend to ask what is possible,
not what is customary. I have been trained to ask simple questions and to
distrust complicated answers. I wonder why, for example, human need should coexist
with unused productive capacity. I fail to grasp why fiscal and monetary
restraint are the proper policies when inflation is caused by shortages. I
cannot comprehend why so much of our unprecedented human and industrial
capacity lies unemployed when the world is teetering on the brink of economic
collapse.
These are not the type of questions that expert
economists ask. They are the type of questions that occur to an educated
layman who sees deep contradictions in the fundamental structure of our
civilization. They
are questions that are increasingly on the mind of thinking people everywhere
today.
Yet in this book, I have attempted to go beyond
simply asking questions and have proposed some solutions. I do not claim that
my solutions are the only possible ones, or even the best. I do believe they
are a step in the right direction. Certainly what is proposed here needs much
more study and research before it could be implemented. Many of the basic
concepts are incompletely formulated. The proposed new institutions are
presented only in outline form, and additional supporting documentation is
needed at many points. All of the basic hypotheses need to be tested and
verified by mathematical analysis, by econometric modeling, by pilot demonstrations,
and finally, by intensive discussion and debate in the court of public opinion.
Hopefully, you, the reader, can contribute to that
debate. If this book should manage to stimulate a serious discussion of
alternative methods of capital financing and income distribution, I would like
to publish an expanded and more comprehensive version of these basic ideas. If
you would be interested in contributing your ideas or your time in researching
and compiling a follow-on to this book, or if you would simply be interested
in taking part in a more extensive discussion of these ideas, please contact me
at the address below.
I personally believe that one of the fundamental
defects in this society is that there are so few means by which ideas of this
kind can be aired and discussed. Hopefully, future editions of this book will
serve as one such vehicle. I don’t believe any plan such as is outlined in the
pages ahead can succeed in practice unless it incorporates the hopes and
aspirations, needs, and desires of all the people involved. I hope this book
will become part of a dialogue. I need your suggestions and am open to your
ideas.
James
S. Albus
http://www.peoplescapitalism.org
Contents
Preface EPILOGUE TO SCARCITY
Chapter
I THE AFFLUENT SOCIETY?
The
Inadequacy of Conventional Economics
Chapter
II THE PARADOX OF POVERTY AMIDST PLENTY
Chapter
III HOW WE DISTRIBUTE WEALTH
Handcraftsmanship
and Personal Services.
The
Importance of Our Cultural Heritage
Chapter
IV THE THREAT OF PRODUCTIVITY.
Productivity
and the Standard of Living . .
Automation
and Power: Economic and Political
The
Concentration of Ownership
Chapter
V THE ADVENT OF SUPER-AUTOMATION
Chapter
VI AN ALTERNATIVE
The
Political Power of the NMF
Additional
Checks and Balances
Chapter
VII PEOPLES’ CAPITALISM AND THE
INDIVIDUAL
Financial
Security and Personal Freedom
The
NMF and Individual Incentive
The
Effect on Political Freedom
A
Bigger Pie with Bigger Slices
Chapter
VIII THE QUEST FOR STABLE PRICES
Price
Guidelines and/or Controls
Chapter
IX A FORMULA FOR PRICE STABILITY
Part
1: Dealing with Excess Demand
Part
2: Dealing with Insufficient Demand
Administration
of the Demand Regulation Policy
The
DRP and NMF Working Together
Chapter
X A DEPARTMENT OF SCIENCE AND
TECHNOLOGY
A
Role for the Federal Government
Chapter
XI PEOPLES’ CAPITALISM IN A FINITE
WORLD
An
Alternative to Urbanization
Continued
Growth and the Environment
The
NMF and International Relations
Chapter
XII FROM THROUGHPUT TO STOREHOUSE
ECONOMICS
The
NMF and Storehouse Economics
America: The
Affluent Society?
"There’s a funny thing about this
country. Our streets aren’t safe, our parks aren’t safe, our subways aren’t
safe, but under our arms we have complete protection." - Unknown
America is frequently referred to as the affluent
society, and by most conventional economic measures we are very wealthy indeed.
Never before in history have so many people experienced so much luxury. The
average American citizen today has more personal comforts, enjoys a wider
variety of experiences, and lives longer and in better health than even kings
and popes of centuries past. The masses in America are better fed, clothed,
housed, and educated than in any previous generation. The so-called “American
Dream” has become reality for a very large percentage of the total population.
Americans have more suburban homes, automobiles, TV sets, and automatic
dishwashers than any people who have ever lived. America’s Gross National Product
(GNP) is the largest in history. We produce more, consume more, and throw away
more than any nation ever has. Certainly by all the standards of traditional
economics, America is wealthy beyond all comparison.
Yet, in spite of this unprecedented wealth, affluence
would appear to be a poor descriptor for the economic state of American
society. Affluence implies a certain freedom from need, a degree of careless
security and social well-being that is certainly not true of contemporary
America. Behind a thin facade of wealth bordering on opulence, there exist in
this country a number of deep-rooted, persistent, almost cancerous social
problems. We have abject poverty, pollution of the environment, and a system of
priorities so distorted that the very stability of the existing sociopolitical
system is periodically threatened by riots and civil unrest.
Our technological industrial capacity to produce
goods and services is truly awe inspiring. We can fling ribbons of concrete
from coast to coast; we can build towers of steel and glass; we can spread
housing developments over thousands of square miles of what was once
wilderness; we can even go to the moon; but we seem incapable of directing and
channeling our enormous productive capacity so as to satisfy our most basic
human needs. We produce fantastic quantities of almost everything imaginable
and are clearly capable of producing much more, but we distribute this output
so poorly that almost twenty percent of our population lives either near or
below the poverty line.’ Millions of Americans are undernourished and without
adequate medical care. Millions more live in dilapidated homes and slum
tenements. Our cities are dying from neglect and decay. Public transportation
is inadequate or nonexistent. Streets are lined with abandoned buildings
inhabited only by dope addicts and alcoholics. Urban neighborhoods are
terrorized by muggers and racketeers. Garbage fills streets and alleyways.
Babies are attacked by rats.
Such conditions would be distressing even in a poor
and backward land. For them to exist in a country with America ‘s
wealth-producing capacity is positively disgraceful. Surely no country with
poverty of these dimensions has any right to call itself affluent, regardless
of how large a GNP it may boast.
Even in our apparently well-to-do suburbs, there is
only the thinnest veneer of affluence. The average American family can barely
make house and car payments, pay taxes, and send their children to college.
Very few people feel that they have any significant margin of financial
security. The lifestyle of the average middle-class family could most
accurately be described as affluent poverty. Most families are heavily in debt,
not just for major investments such as homes, but for consumer products such as
appliances, clothing, and even vacations. The suburbs are no refuge from rising
prices and declining services. In many households both the husband and wife are
forced to work, in some cases at more than one job, in order to make ends meet.
Financial necessity traps many middle Americans in jobs they dislike. This
suggests that suburban America, though apparently well to do, is living
perilously close to the limits of its financial capacity. There is precious
little surplus. There is nothing that can accurately be termed affluence.
The pollution problem is frequently blamed on our
high standard of living. But in most cases, pollution could be controlled if
we were willing and/or able to bear the cost of preventative measures. Water
pollution is a serious problem primarily because we have not allocated
sufficient resources to eliminate or prevent it. Raw sewage, farm drainage, and
industrial waste are dumped into streams and lakes because that is the cheapest
way to dispose of them. Air pollution results because we use only the cheapest
kinds of fuel and the least-expensive types of combustion processes.
Automobiles and industries spew toxic gasses into the air because we cannot
afford cleaner, more-expensive fuels or alternative modes of transportation and
manufacturing that do not pollute the environment.
Tertiary water treatment technology exists that can
turn sewage into drinkable water. Pollution free engines using hydrogen based
fuels and primary energy sources based on geothermal or solar energy or thermonuclear
fusion are all technically possible. The pollution problem is not primarily
technical; it is economic. Pollution is not the result of affluence; it is the
result of cutting corners on cost. We pollute, not because we are so wealthy,
but because we cannot or will not afford the price of a clean environment.
The Inadequacy of Conventional Economics
The paradox of poverty behind a facade of plenty is
indicative of fundamental inadequacies in the way we manage our economic
system. Surely we could use our enormous industrial and technological resources
to better advantage. We possess the agricultural capacity to feed our hungry
children many times over. We have a construction industry easily capable of
rebuilding our cities. We have the technological and intellectual resources to
improve medical care, reduce pollution, and make our communities safe, clean,
and livable. Furthermore, even if our present capacities were insufficient, we
are standing on the threshold of an age of super-automation where computer-controlled
factories and industries will be capable of producing unimaginable quantities
of goods and services at unbelievably low prices.
Human society has entered an age where universal
affluence is physically and technically possible. Modern industry and
technology have the potential capability to eradicate poverty and create a
world of genuine affluence. But this potential cannot be realized under the
existing economic system for at least three reasons:
First, the existing system has no adequate mechanism
for distributing the amount of wealth that our scientific industrial society is
capable of producing. If we were to fully exploit the wealth-producing
potential of modern technology for the needs of the civilian economy, there
would be more than enough material goods for everyone. We either already
have—or within a few years could develop—the technological knowledge required
to build totally new industries, including automatic factories and service
industries capable of flooding the country with material wealth beyond
imagination.2,3
The problem is that income to the average family is
distributed primarily through wages and salaries. If technologically
efficient methods and automatic factories were used to create wealth with
little or no human intervention, ordinary people would not receive enough
additional income to purchase what was produced. The income distribution system
in America, and indeed in the entire industrialized world, is based on job
employment, not on industrial output. If the
productivity
of our existing industrial system were upgraded to the maximum level that is
physically and technically possible, unemployment would become unmanageable.
Conceptually, this is not a new problem; it has
presented a dilemma ever since the invention of the Spinning Jenny. But
quantitatively, it has achieved new dimensions because of the breathtaking
advances in modern technological knowledge. The wealth-producing potential
inherent in modern physics, electronics, chemistry, nuclear engineering, semiconductor
technology, and computer-based automation are awesome and totally
unprecedented. Unfortunately, they cannot be fully exploited for the benefit of
all until some means other than wages and salaries is found for distributing
the additional wealth they could create to the average citizen.
Second, the existing system has no adequate
mechanism for organizing or financing a really serious effort at eliminating
the wretched conditions under which a large number of American citizens still
live. The elimination of poverty in the foreseeable future in America would
require enormous amounts of investment spending for new cities, new
transportation facilities, new sources of energy, health care, lower cost
housing, prison reform, pollution control, and many other urgent needs. Under
the present system, investment capital is not available for problems of this
magnitude, nor are the present mechanisms for controlling inflation capable of
dealing with the inflationary effects of investment spending on a scale
sufficient to adequately attack such a broad range of massive social problems.
The currently available peace-time techniques for dealing with inflation are
inadequate for controlling prices even under the present relatively stagnant
economic conditions. Unless some fundamentally new institutions are established
for generating the required capital resources and unless new measures can be
devised that will be many times more effective in dealing with the basic
causes of inflation, an increase in investment spending large enough to
eliminate poverty in this century is impossible.
Third, the existing economic system depends on mass
consumption to sustain prosperity. It is extremely doubtful that the planet
earth could sustain the enormous drain on natural resources and increased
levels of pollution that would result if the entire population were to adopt
the wasteful consumption practices of the presently affluent minority. If
poverty is to be eliminated, some new system must be devised wherein the
emphasis could be placed on conservation rather than consumption so that
prosperity could be maintained in the absence of planned obsolescence,
make-work, waste, and depletion of natural resources.
Conventional economics was developed in an age when
poverty was inevitable, human labor was indispensable to industrial production,
and natural resources seemed inexhaustible. None of these conditions is true
any longer. Industrial capacity has grown to the point where poverty could be
eradicated; technology is rapidly eroding the economic value of human labor;
and the earth has finally been recognized to be a finite body. We are living in
a radically different world than existed a mere century ago. We do not face the
same problems as previous generations; neither are we limited by the same
constraints.
Today mankind possesses the technical know-how to
feed the hungry, to cure the sick, to clothe and house the homeless. We know
how to reduce pollution, and control population, and we possess the industrial
capacity to eliminate material need. But we have not yet developed the social
or political mechanisms capable of mobilizing these capabilities or of
equitably distributing the potential benefits.
Many people have said, “If we can go to the moon,
why can’t we solve our problems here on earth.” The reason is that we have
never organized ourselves for such a purpose. Our economic system is not
structured to deal with genuine affluence. Our institutions are not adequate to
finance it, and our policies are not directed toward achieving it. If they
were, we could do whatever we wanted.
The Paradox of Poverty Amidst Plenty
Tragically, utopian dreams went out of style just at
the time in history when science and technology had reached a level where the
elimination of physical poverty had become a real possibility. Ours is an age
of cynicism, if not despair. There is precious little optimism or confidence
for the future. Most people today no longer consider a world without material
need to be a practical goal.
Unfortunately, the current pessimism seems well
founded, especially in regards to the future of the world’s poor. The 1974
United Nations World Food Conference produced no information to support
optimistic predictions. In fact, the main report of the United Nations World
Food and Agriculture Organization said, “It is doubtful whether such a critical
food situation has ever been so worldwide.”1
Manifestly, we are not yet close to eliminating poverty by any definition. In fact, due to the rapid population growth in the developing nations, there are probably more poor people in the world today than ever before. If, as has been suggested, the elimination of poverty is technically feasible, then the persistence of poverty on such a massive scale is a phenomenon that requires explanation. How could we have so seriously mismanaged our resources that almost one-half of
the
world’s population suffers from malnutrition, and tens of millions of Americans
are officially classified as poor, unless the situation is beyond human remedy?
Many people feel that the cause of poverty is fundamentally
rooted in human nature or at least in human society. The conventional wisdom is
that the poor are different from other members of society and that this
difference is the basic cause of their poverty. In other words, the fault is
generally believed to lie with the poor themselves. Most people will admit
that, at least to some extent, the poor are victims of their environment. Poor
people are often deprived of important advantages. They frequently are
excluded from opportunities available to the non-poor, but in the final analysis,
most observers—whether laymen or sociologists, from liberal or conservative
backgrounds—have ascribed the blame for poverty to the personal deficiencies of
the poor themselves.
This basic analysis of the cause for poverty has formed the philosophical foundation of public relief and welfare programs in Western countries since their earliest inception in the sixteenth century.2 It certainly has been the guiding principle of the American welfare system from the New Deal through the Great Society. Books like Galbraith’s THE AFFLUENT SOCIETY and Harrington’s THE OTHER AMERICA that provided the rationale for the 1960’s war on poverty were carefully reasoned and documented essays on the cultural deprivation of the poor. The poor were pictured as isolated, ignorant, and prevented by their own impotence from breaking out of the vicious circle of poverty. This traditional view of the poor has so completely dominated sociological thinking in America that throughout the entire course of the “war on poverty” the question of income distribution went virtually unnoticed. Occasionally someone raised the possibility that the basic cause of poverty was that poor people had no money, but such suggestions were almost unanimously rejected as hopelessly naive and simplistic. Harrington relates the famous exchange between Hemingway and Fitzgerald where Fitzgerald is reported to have remarked, “The rich are different,” to which Hemingway replied, “Yes, they have money.” Harrington rejects the Hemingway comment as culturally biased. He goes on to argue throughout his entire book that the poor are different, that “everything about them, from the condition of their teeth to the way they make love is suffused and permeated by the fact of their poverty.”3
It is, of course, rather easy to demonstrate that
the poor are different and that they lack things besides money. It is often
difficult, however, to establish the directionality of the cause-effect
relationship between cultural deprivation and lack of income. The traditional
view, exemplified by Harrington and Galbraith, is that cultural deprivation is
the cause and lack of the income the effect. Logically, however, it is just as
reasonable to conclude that lack of income is the cause and cultural
deprivation the effect. In other words, it makes just as much sense to argue
that the reason the poor are different is because they have no money, as it is
to argue that they have no money because they are different.
Assuming that lack of income is the basic cause of
poverty would drastically alter the strategy of any future war on poverty. If
lack of income is the root cause and cultural deprivation merely a by-product,
then the entire social welfare program of the United States over the past forty
years has been misdirected! Instead of concentrating on education, job
training, and neighborhood development, the emphasis should have been on
broadening the basic structure of the nation’s income distribution system.
Recent studies of anti-poverty progress during the
1960’s seem to suggest that the attempt to relieve poverty by cultural
enrichment programs has been spectacularly unsuccessful. For example, Bennet
Harrison, an MIT economist has found only minimal benefits from manpower
training programs for blacks. He suggests “instead of concentrating government
money on so-called ‘defects’ in the poor people, it would be more profitable to
focus first on defects in the labor market.”4 Bradley Schiller, a University of Maryland economist, states that
“public anti-poverty activity has, for the most part, been a bread-and-circus
kind of affair. Anti-poverty education programs such as Head Start,
compensatory education, and manpower training have all failed under scrutiny to
demonstrate any significant positive results.”5 Christopher Jenks and associates at Harvard
have shown that there is little if any correlation between differences in
school spending and differences in performance of students in the basic skills.
Jenks claims that there is little to suggest that cognitive skills have much to
do with economic success. He has shown that there is as much economic
inequality among persons who score high on standardized tests as in the general
population. He speculates that “equalizing everyone’s reading scores would not
appreciably reduce the number of economic failures,” and suggests that the only
way to deal realistically with poverty is to change the income distribution
system so as to narrow the extremes of income inequality.6
The entire notion that poverty stems from the
cultural deficiencies of the poor themselves has come under serious question as
sociological evaluations of Great Society programs have become available. The
results, as summed up by Grieden and Kotz, seem to indicate that “Poor people
are more or less like the rest of us. The only important difference is that
they have less money. The cause of their poverty is not primarily the
particular handicaps of the poor people, but the lopsided way in which income
is distributed in America.”7
Leonard Goodwin of the Brookings Institute cites studies showing that
the attitudes of welfare recipients are “remarkably like those of the
middle-class suburban housewives and their aspirations for their children’s
careers are remarkably high, considering their own low estate.”8 Shiller
states that 70 percent of poor adults are workers and among families headed by
men the figure is 84 percent. Most of the poor families where no one works are
elderly or headed by a woman, although almost half of these women work. More
than one third of poor families have two or more working members.5 Lampman
says, “The poor are like other Americans, only more so.”9
Evidence from recent studies by Lampman on the changing population of those classified as poor strongly supports the newly emerging notion that poverty is more a matter of income distribution than cultural deprivation. Lampman observed that in just one year, from 1962 to 1963, about one-fourth of the people in poverty got out.10 However, in that same interval, an almost equal number of people became newly poor. This kind of mobility suggests that the poor are not trapped at all, or even peculiarly isolated. Many escapees from poverty are alive and well today.11 In fact, one reason why persons from poor backgrounds so often have voiced strong skepticism concerning government programs designed to assist persons “locked” in poverty is that they themselves are poverty escapees. They know it can be done and frequently without government help. This is not to deny that there exist some persons who are genuinely locked into poverty by age or particularly unfortunate circumstances. But certainly not all, or even most, of the poor are trapped. Escape can be made by gaining access to the traditional sources of income. Unfortunately, while some are escaping from poverty, the ranks of the poor are replenished by others moving in the opposite direction. For millions of Americans living just above the poverty line, a plunge into destitution is merely a matter of a few months sickness, an accident, a family breakup, or in some cases simply the loss of a job.
This strongly suggests that poverty has its roots
not in cultural deprivation, but in an income distribution system that is not
broad enough to include everyone at the same time. The existing system
habitually excludes a sizeable percentage of the population and maintains an
even larger number of persons only marginally above the poverty line, ready to
become poor at the briefest misfortune.12
The existing income distribution system might be
likened unto a crowded raft afloat in a sea full of struggling swimmers. Once
there is no more room on the raft, someone must fall off for every new person
who manages to climb aboard. Of course, in such situations there are usually
persons of goodwill who give encouragement and assistance to those in the
water. Some might even help particularly courageous swimmers to climb aboard.
Unfortunately, so long as the raft is too small, such acts of mercy only result
in someone else, perhaps on the other side, being crowded off.
During the 1960’s, a great deal of
self-congratulatory enthusiasm among poverty warriors was generated by an apparent
steady decline in the poverty index. Statistics showed that the number of poor
people fell from 22 percent of the population in 1960 to only 12 percent in
1970. However, in retrospect this decline appears to be little more than a
“statistical slight of hand” attributable almost wholly to inadequate accounting
for inflation. During the 60’s,the definition of poverty was increased
approximately 25 percent, but the consumer price index rose almost 35 percent
in the same period. What little real decrease in poverty that did occur during
the ‘60’s appears more attributable to declines in unemployment than to
specific Great Society anti-poverty measures.13 As unemployment
fell, less people were excluded from sources of income and therefore,
naturally, less people were poor. Beginning in 1969, even the appearance of a
decline in poverty vanished. Unemployment began to rise and along with it
poverty.
There are few social problems in America today that
are not related in one way or another to poverty, and there are few issues that
are as politically divisive. For most of us who have been spared the grief and
frustration of poverty, it is emotionally comfortable to believe that the poor
have only themselves to blame. But the facts indicate otherwise. The facts
indicate that the poor are not very different from the non-poor in their needs,
aspirations, or goals. In general, they work just as hard as other Americans,
if not harder. The main difference is that they are paid very little, if anything,
for what they do.12
Poverty is much more closely correlated with the
availability of income than with any other social factor. If a person is
excluded from a source of income, he or she is almost certain to be poor. This
seems an obvious thing to say, but its implications are far-reaching. For
unless it can be demonstrated that the poor are personally deficient in some
fundamental sense, the only conclusion left is that the income distribution
system is itself defective. If that is true, then poverty is merely a symptom
of a much broader and more fundamental problem.
How We Distribute Wealth
The way in which income is distributed influences
the most fundamental relationships within a society and largely determines the
very nature of the social structure itself. The income distribution system
determines who will be rich and who poor; who powerful and who weak. It
influences where people live, where they work, and what they work on. It determines
what type of endeavors are considered important and what are not. It embodies a
system of economic rewards and punishments that directs and, in large measure,
controls the behavior patterns of the society as a whole, as well as individuals
and groups within the society. The income distribution system pervades every
aspect of daily life so deeply and so thoroughly that its influence is felt in
virtually every act that people perform.
Certainly the income distribution system is so basic
to the structure of relationships within a society that no effort to
significantly improve society is likely to succeed unless it addresses the
question of income distribution, and, conversely, no significant change in the
income-distribution system is likely to produce anything less than profound
changes in the fundamental character of the society at large.
In America, the existing income-distribution system
is almost universally accepted without question, even among political
liberals, in much the same way as people accept the rising of the sun or the
force of gravity. To even question the fundamental premises of the American
income-distribution system seems downright heretical, somewhat akin to
questioning the wisdom of the Constitution or the existence of God.
Even among social reformers, little attention has
been paid to the fundamental question of income distribution. As was pointed
out in the previous chapter, the whole tradition of action programs in this country, including the New Deal
and all its subsequent variations, has been based on the philosophy of helping
the unfortunate to make it within the existing system. Seldom (except perhaps
for the income tax and social security) has any fundamental change ever been
made in the income-distribution system itself.
One reason why income distribution in America has
seldom been a target of social reform is that it is impersonal and impartial.
Western political thought tends to equate impartiality with indefectibility. If
everyone has an equal chance, a system is usually regarded as ideal even
though it be full of absurdities and incongruities. It may punish some
individuals with inordinate harshness and reward others beyond reason, but it
will not be questioned so long as it is impartial. The income distribution
system establishes those activities that are rewarded and those that are
punished. Individuals are then left to fight it out among themselves as to who
fills which positions.
Society has established various filtering mechanisms
for determining just where each person shall fit in the system.1 The first (though by no means only) filter
is accident of birth. This selection mechanism is certainly the most ancient,
and, although in recent times it has diminished somewhat in importance, it
still is one of the most critical factors in determining what a human being’s
position will be on the income ladder. Other filtering mechanisms are schools,
examinations, fraternities, unions, and corporate hiring and promotion
policies. Those who are more aggressive, more intelligent, or simply luckier
get the better positions. The competitive nature of these filtering processes
gives the final result an air of equity, particularly if the competition itself
is not grossly unfair. Most social and political reforms over the past century
have centered on increasing the fairness of the competition and the equality of
opportunity. Unfortunately, the emphasis on
fairness
and equality has largely obscured the fact that the income-distribution system
itself is grossly distorted, inefficient, and often counterproductive.
In the United States, as in virtually every
industrially advanced country in the world, the overwhelming percentage of
income is distributed through earnings paid to labor. Wages and salaries
account for about three-fourths of all personal income.2 Even more
important, four out of every five American families depend on compensation for
labor or welfare for over 80 percent of their total income.3 These
statistics clearly indicate how completely the present income-distribution
system is dominated by wages and salaries. The consequences and implications of
this fact are far-reaching indeed. There are a number of reasons to believe
that the overwhelming dependence on wages and salaries is a major cause of
waste, make-work, pollution, unemployment, poverty, discrimination against
minorities and women, decline in personal services, and disincentives to
efficient methods of production.
Pressures for Full Employment
One of the inevitable effects of distributing income
almost exclusively through wages is that it generates overwhelming pressures
for full employment. For all practical purposes, the only respectable way for a
person of average means to obtain income in a modern industrial or
post-industrial society is to hold a job. If one has no job, then, except for
unemployment compensation or welfare, one has no income. If one loses a job,
all income stops or at least is sharply reduced to whatever is currently
obtainable through unemployment compensation. This generates enormous
incentives to get and hold a job—any job—and the pressures of these incentives
are transmitted through the political process into governmental and private
policies designed to create or preserve jobs at any cost.4
The results are that make-work projects of every
type and description are created, some of which are not only useless, but
positively harmful. For example, one of the principle arguments advanced by
proponents of the Anti-Ballistic Missile System was the need to keep the
missile industry employed. A major factor in the government’s decision to grant
the Lockheed Corporation a loan was that wide-spread unemployment would result
from the bankruptcy of such a large corporation. Most of the support for the
Super-Sonic Transport revolved around the need to create jobs in the depressed
aircraft industry. The principle arguments of lobbyists for the B-l bomber
revolve around the number of jobs to be created in the Congressional districts
where this plane is to be built.5 Political pressure to maintain
employment is one of the primary reasons for the perpetuation of the so-called
military-industrial complex. It is virtually inevitable that Congressmen and
Senators will oppose any attempt by the Defense Department to close obsolete
military installations or to terminate major military contracts in their
districts simply because such actions throw large numbers of people out of
work.
Even in strictly civilian industries, pressures for
the creation and maintenance of jobs often override considerations of
convenience and health. For example, proposals to place more emphasis on mass
transit and less on the automobile are widely opposed by those whose income is
derived from the automobile, trucking, or highway construction industries.
Restrictions on cigarette advertising are typically opposed by politicians
whose constituents depend on the tobacco industry for employment.
For years we have espoused the philosophy that
growth means jobs, and we have written tax laws and zoning ordinances to
encourage and foster growth. The urban sprawl that scars so much of our
landscape is a direct result of policies designed to generate growth so as to
create jobs.
Throughout the entire
economic system, policies of government and private industry alike are designed
to ensure that employment remains high and layoffs are unnecessary whenever
possible. Marketing and advertising programs are promulgated to create demand
for absurd or trivial products. Goods are deliberately designed to quickly
become obsolete, either through normal wear or changes in style. As a result,
America has become a throwaway culture; as Vance Packard puts it, a society of
“Waste Makers.”6 Our industry is heavily biased toward disposable
products that cannot be repaired or reused. At least part of this bias can be
directly traced to efforts to maintain production and, hence, employment at a
high level.
Pressures for maintaining and creating jobs are also
clearly evident in union policies and in labor negotiating demands.
Featherbedding and restrictive work rules serve no other purpose than to
preserve obsolete or unnecessary jobs. Seniority rules and restrictive
apprenticeship admission requirements are primarily intended to insulate and
protect existing job holders from competition and possible replacement by equal
or better qualified job candidates clamoring to gain access to the limited
supply of employment positions.
Even at the executive level, pressures for job
employment are strong. Much of the memo writing, paper shuffling, and red tape
that goes on both in private industry and in government serves no other
purpose than to provide work for otherwise unnecessary managers and bureaucrats.
It is impossible to estimate just how much of what people get paid for every
week in factories and offices across this land is really necessary work and
how much might just as well not be done. One gets the feeling, however, that
more than a little of what goes on during the average American work day is
either make-work in and of itself or activity made necessary by make-work somewhere
else in the system. The overwhelming importance of jobs, brought about by the
fact that virtually the only way to get income is to have a job, has created a
system that is enormously wasteful both in terms of natural resources and human
creativity.
Pressures for Unemployment
Paradoxically, the distribution of wealth primarily
through wages and salaries, while generating tremendous political pressures for
full employment, has at the same time created conditions that virtually
guarantee serious unemployment. The increasing ratio of capital to labor in
modern industry has brought continuously rising output per man-hour of work. In
some cases, this increased output might be attributed to increased skill or
increased physical effort on the part of workers, but, in the overwhelming
majority of cases, the increased output has been wholly due to more
sophisticated machines or more efficient process technology. In either case,
the result is the same. More has been produced and thus more must be
distributed. Since wages are virtually the only means available for placing
purchasing power in the hands of consumers, wages have had to rise along with
rising output in order to insure sufficient consumer demand to prevent surpluses
from developing. The present income-distribution system encourages, in fact
requires, that wages spiral upward with each new advance in production technology.
Otherwise, the economy could not consume the increased production.
To an employer, rising wages represent rising costs.
As wages rise, the marginal benefit of hiring each new employee declines. High
labor costs are a production factor that must be minimized if a business is to
survive. An employer must strive to hire as few persons as possible, not
because he has nothing for additional employees to do, but simply because labor
is such a significant cost factor that every effort must be made to keep the
payroll at a minimum. Increases in the cost of human labor force employers to
reduce the number of employees to as few as possible. Employees are hired only
for the time period when their services are needed. Production cutbacks result
in immediate layoffs. Job applicants are care -fully screened so as to weed out all but the most capable and
productive. Whenever possible, human workers are replaced by less expensive
machines.
Distribution
of most income through wages and salaries forces labor costs so high that many
useful tasks are simply too expensive to be done. Streets need cleaning,
buildings need repair, community health and recreation facilities need to be
maintained, but the cost of labor is too high. Even in factories, universities,
and research laboratories important work that needs to be done cannot be
pursued because of the salaries that must be paid to even the lowest grade
technicians. As a result we have an abundance of useful work that needs doing
and a surplus of people willing and able to do it. Yet nothing can be
accomplished because employers cannot afford to hire people for jobs that are
not absolutely necessary. Under such circumstances it is virtually guaranteed
that a sizeable percentage of the population will be jobless.
This is particularly true in the case of persons
with no marketable skills. Anyone without capabilities for which employers are
willing to pay the minimum wage simply will not be hired. If a worker cannot,
even with machine assistance, produce enough output per man-hour to make it
profitable for an employer to hire him, he becomes effectively unemployable.
Distributing the wealth-producing output of machines and high technology
processes primarily through wages and salaries artificially inflates the cost
of human labor to the point where hard-core unemployment becomes inevitable.7
Milton Friedman, the conservative economist who,
among his other notable accomplishments, was economic advisor to Senator
Goldwater during the 1964 presidential campaign, has for years argued against
the minimum wage laws, not on the basis that they are ideologically repulsive
to a conservative but because they virtually guarantee a high level of unemployment
among low-skilled persons. If a worker’s labor is not worth the minimum wage rate,
it simply is not good business to hire him.
Presumably, it is possible to train some unemployed
persons so that their labor becomes worth more than the minimum wage. However,
in practice, job-training programs have not proven very successful.8 In a great many cases, hard-core
unemployables have physical or mental defects that make it virtually impossible
to ever increase their skills to the point where their labor would be worth
present-day wages.9 Moreover,
in many instances, job training or the lack of it is not even relevant to the
issue of unemployment. The problem frequently is not a lack of training at
all, but a lack of available jobs. The society has only a limited number of
jobs in which persons of average mental capacity can produce enough wealth to
justify present-day inflated wage rates. In order to screen a large number of
applicants for a small number of available jobs, employers require credentials
such as high school diplomas or college degrees.10, 11 This is done
even for jobs requiring no education beyond grade school. The purpose is simply to limit the number
of applicants to the number of available jobs.12 In such cases, job
training programs do nothing but increase competition for an already
insufficient supply of jobs. The success of some individuals in acquiring
sufficient credentials to qualify for a job merely means that someone elsewhere
in the society will be laid off or find themselves unable to qualify for a
promotion. Rising wages and, in particular, a rising minimum wages represent a
moving employment threshold. Even if a few unemployed persons manage to
overtake and pass this threshold, inevitably someone else will fall behind.
Handcraftsmanship and Personal Services
The distribution of most of the nation’s income
through wages and salaries not only generates excessive pressures for job
employment, but it distorts the nation’s production priorities by constricting
the flow of income to a very narrow field of employment, namely
capital-intensive labor. Most of the output of goods and services in a modern
technological society results from scientific knowledge embodied in machines
and complex productive processes.13
The fact that this wealth must be distributed primarily through
wages and salaries dictates that the only way for persons with ordinary skills
and talents to obtain a decent income is to work for industries with a high
capital-to-labor ratio. Except for persons with special talents or rare skills,
workers involved in personal service industries or in the production of
handcrafted goods find it virtually impossible to compete in an economic system
dominated by capital-intensive labor.
The unaided human craftsman or service person simply
cannot create wealth as fast as a complex piece of automated machinery.
Therefore, if the non-capital intensive jobs are paid solely on the basis of
what individuals can produce alone and the capital-intensive jobs are paid on
the basis of what people and machines can create together, it is inevitable
that non-capital intensive jobs will die out. The economy will become
structured so that virtually all attractive jobs are concentrated in
capital-intensive industries or industries supportive of capital-intensive
industries. Severe shortages will develop in the skilled handcrafts and
personal services. This, of course, is exactly what has happened. Handcrafted
goods and personal services have virtually disappeared from all technologically
advanced societies. We are told that they are victims of progress and that it
is inevitable that the more efficient must force out the less efficient, even
at the expense of convenience and civility.
But is this really progress? Is it even efficient?
Where is the efficiency in unemployment? What is accomplished by driving the
handcraftsman and the small farmer out of business? Where is the gain in
forcing people out of nearly self-sufficient lifestyles in rural areas and
small towns and crowding them together in urban ghettos where unemployment is
epidemic and welfare is the principal source of income? If there is no gain and
if society receives no net benefit from these social dislocations, then there
must be something basically wrong with the system that produces these results.
The present income-distribution system operates as
if the output of automatic machines and high technology processes were
exclusively attributable to those persons in society who are directly or
indirectly involved in high technology industries. In essence, the salaries of
workers in capital-intensive industries are subsidized by the wealth-producing
capabilities resident in complex machinery and high technology processes. As a
result, an entirely disproportionate number of people are drawn into jobs
supportive of, or supported by, capital-intensive labor. Services that the
society desperately needs are not performed simply because the wages are too
low. At the same time that millions of people are doing make-work jobs in
capital-intensive industries and other millions are desperately trying to gain
entrance to this bloated segment of the economy, the society is seriously
inconvenienced by the fact that there are insufficient service personnel for
everything from auto and television repair to yard and house care. Service is
poor, workmanship sloppy, and prices are exorbitant. Handmade goods are either
shoddily made or incredibly expensive.
As long as the income-distribution system is
structured so that virtually all income to the lower and middle classes is
derived from wages and salaries, personal services and handcraftsmanship can
never be a viable employment alternative for a significant number of people.
High technology industry is where most of the wealth is created. Distribution
of wealth through wages binds the labor force inexorably to these industries.
Only when society’s needs for personal services rise to the point where
employers are forced to pay wages comparable to those paid by
capital-intensive industries can workers be found to perform the needed
services.
Women’s Liberation
The distortion of social priorities resulting from
constricting the flow of income to the capital-intensive sector is not limited
to the effects on handcrafts and personal service industries. It has also
created a situation of discrimination and injustice toward a great many citizens
who through one reason or another do not fit into the capital-intensive sector
of the economy. One of the most glaring examples of this phenomenon is the
economic discrimination felt by women, particularly housewives. Certainly a
great deal of the wealth that this society (indeed every society) enjoys is
created by the labor of housewives who clean, shop, cook, chauffer, care for
children, and perform numerous volunteer community services. It has been
estimated that the average housewife performs $13,364 worth of such work each
year (at 1970 wage rates). This amounts to roughly one-fourth of the Gross
National Product.14 Yet the economic system does not pay wages for
these services (unless, of course, they are performed outside of the woman’s
own household). Housewives are expected to live off the money that their
husbands bring home from the capital-intensive sector. They are thus kept
economically dependent upon the generosity of their husbands. They share none
of the prestige of having “earned” their money, even though they may work just
as hard, or harder, at home than their husbands do at the office or plant.
“Women’s work” carries a derogatory connotation that implies a lack of
importance. Yet “women’s work” is critical to the stability of the social order
and is certainly more important than much of the paper shuffling and petty
office politics that passes for work in offices and executive suites
throughout America.
Preachers and politicians often wax eloquent about
how the hand that rocks the cradle rules the world, but the present economic
system works to “keep women in their place.” As long as virtually all wealth is
channeled through wages paid by capital-intensive industries, it is inevitable
that most of the social prestige and power will reside there too.
The Importance of Our Cultural Heritage
Modern society is complex and relies on many interdependent
activities. In such a system, almost everything depends on everything else, and
it is virtually impossible to determine precisely what activities are critical
to the production of wealth or which are the most important. Certainly
capital-intensive industry is where most material goods are formed out of raw
materials. But there is a great deal of social overhead that is prerequisite to
the very existence of a highly industrialized economy in the first place. The
entire industrial-technological economic system rests upon a foundation of
social stability that is nourished by a cultural heritage developed over
centuries of hard and patient labor by free men and women alike and, in
America’s case, by black slaves also. It is completely arbitrary to distribute
wealth through wages and salaries as if the presently employed labor force were
solely responsible for all the wealth created by the American economy. The
output of present factories and businesses is no more solely due to the current
salaried work force than the return of the Apollo moon rocks was solely due to
the efforts of three human astronauts.
Figure III-1 suggests that most of the increase in
economic output comes from productivity gains, not increased labor input.
Figure III-1.
Increased output is primarily the result of increased
productivity. Our rising standard of
living is based on better tools and more efficient machines, not on harder work
or longer hours.
A strong case can be made that most of the output of
modern industry is not due to the presently employed labor force at all, but
rather to the capital stock, the scientific, technical, and managerial
knowledge, the educational training, and the social and cultural behavior
patterns that have accumulated and developed over the past three centuries or
more. 15
For example, the output of iron and steel tonnage
per man-hour of labor increased 273 percent during the 1923-1950 period.16
Where did this increase come from? Judging from the fact that real wages
paid to steel workers increased by about the same amount in the same time
period, one might suppose that the increase derived from the steel workers
themselves. But did it? Did steel workers in 1950 work 273 percent harder than
their counterparts of 1923? This seems highly doubtful. Was the increase then
due to better education on the part of the mill hands? Perhaps in part.
However, there seems to be no reason to believe that a few years in school
could have had such a phenomenal impact on a steel worker’s output. If that
were the case, then surely steel-mill owners in the 1920’s would have found it
economical to hire only college graduates to man their furnaces. Some of the
increase was undoubtedly due to the fact that what the workers were taught in
1950, in school or on the job, made them more efficient. Surely, also, some
better management techniques were employed. But this was part of the cultural
development of society and due only marginally, if at all, to any efforts by
the work force. The simple fact is that most of the increase in productivity in
steel mills, as well as in other sectors of the industrial economy, are almost
always due to increases in the amount of capital equipment and the
sophistication of the machinery and techniques used in the manufacturing
process. They are hardly ever the result of any specific efforts of the
currently employed labor force.
The economist Solow calculates that “less than half
of the increase in America’s productivity per capita . . . can be accounted
for by the increase in capital itself. Considerably more than half of the
increase in productivity seems attributable to technical change — to scientific and engineering advance,
to industrial improvements, and to “know-how” of management and educational training of labor.” 17
And where does technical change come from? As
defined above, technical change is the product of broad cultural developments
not attributable to any single person or group. Not even the entire
congregation of living scientists and inventors can claim sole credit for
technical change. As any scientist or inventor knows, the person who is
credited with a particular discovery or invention makes only a tiny incremental
contribution to the totality of human knowledge on any subject or in any
machine or device. For example, a new electrical machine for which an inventor
receives a patent owes much of its wealth-producing capabilities to the enormous
backlog of human knowledge concerning the properties of electricity and
magnetism. This information has been accumulated over hundreds of years by
scientists from many different countries. Thus, the major part of the
wealth-producing knowledge embodied in any machine is derived from the culture
itself, rather than from any single person or group of persons. As Isaac Newton
once said, “If I have seen further than other men, it is because I stood on the
shoulders of giants.”
The wealth-producing capacity of a modern economy is the result of hundreds of years of discovery and invention, of building and educating, of rearing children and developing communities. Surely both women and men share in building the social stability and cultural development that makes our present industrial society productive. To distribute the wealth that this society produces almost exclusively through wages and salaries unjustly ignores the contribution of millions of persons who work outside of the formally recognized labor force and grossly distorts the system of values that society places on various ty