The American economy is built around the manufacturing and construction industries, which in turn are dependent on mineral supplies.
Our economy has flourished under economic philosophy rooted in the free enterprise system, but both are changing radically. Our basic belief has been that competition, with an absolute minimum of government interference, is the best possible way to achieve lowest cost, highest quality, and the largest quantity of any particular goods for the consumer. This requires competition among laborers for jobs and competition among manufacturers for markets. Competition in labor means a permanent reservoir of temporarily unemployed and less security for the worker. To maintain competition for markets requires that the consumption of goods be less than the production of goods, and requires also that the purchasing capacity of the consumer be less than the potential productive output of the economy. Overproduction is a prime cause of business failures, but the more business failures per year the lower the cost to the consumer with a fixed income. To work successfully, the free enterprise system obviously requires a delicate adjustment of conflicting interests, an optimum percentage of business failure, an optimum percentage of unemployed, and an optimum relation of production to demand and purchasing power.
Government-controlled private enterprise became necessary during World War II in the United States, and prices, credit, purchases, and employment were all managed by government agencies, although the man above draft age was relatively free to choose his occupation or business. Government-controlled state enterprise ranges from relatively democratic socialism to the Communist police state. In contrast with free enterprise the latter fixes the quality, quantity, wages, profits, prices, kind of merchandise, and its distribution. In theory this type of economy permits planning for national objectives and utilization of the nation's resources to the best advantage for both short-and long-range needs. Against this is the difficulty of providing incentives to produce more, better, cheaper; the problem of getting efficiency in government controlled industry; the lack of freedom of labor to bargain with its employer; and the determination of kind, quality, and quantity of goods by bureaucrats rather than by consumer demand.
Our current industrial economies are all dynamic, and their industries show characteristic sigmoid growth curves when output is plotted against time. When industrial maturity is reached the percentage increase diminishes until it is no greater than the percentage increase of the population. This stage corresponds to a flattening of the sigmoid curve, and, as our industrial economies represent a summation of the industries of the country, it is evident that the percentage increase in production of the manufacturing segment of the economy as a whole must eventually drop. In an agriculturally self-sufficient nation the growth of production will closely parallel the growth rate of the population, if surpluses or deficiencies are avoided.
The products of industry are sold to four types of markets: domestic consumer market, the inter-industry or plant-expansion market, the government market, and the foreign market. The first two are of prime importance in the early stages of industrialization, but in time the consumer market tends to level off at a certain per-capita figure, determined in large part by the median wage paid to the industrial worker rather than by the satisfaction of his desire for goods. This reflects the multiplication of production by machinery and the fact that the labor force in general produces much more than it purchases, after the plant-expansion market has decreased in importance. This commonly leads to either unemployment or to the government subvention of industry through artificial markets supported by loans largely from the higher-income groups.
In the past the artificial market supported by our national government has fluctuated tremendously, but its varying importance is clearly shown by changes in the national debt which have a conspicuous correlation with wars and times of crisis. Each major war saw an increase in the national debt over that incurred in the preceding war by a factor of about 10. Artificial peace-time markets became an important factor in our national life in the 1920s, with private and government loans, later repudiated, to build up the devastated areas of Europe. During the 1930s the government began to subsidize the national economy on a large scale, and after the depression it continued to do much to bolster our economy by increased military expenditures.
It has become apparent gradually that the distribution of income is a political decision, and during the past half century both labor and the farmer have voted consistently in such a way as to bring strong pressure to bear on the Congress to redistribute income to their benefit. The organization of labor has been of immeasurable benefit to many lower-income groups, and the parity price-support program for the farmer similarly has helped their income tremendously. The change in our political, social, and economic philosophy has now reached the place where the government is charged with the responsibility of maintaining full employment, and to do this it spends large sums to maintain artificial markets. Loss of these markets supported by gigantic public funds would now cause a chaotic dislocation in our economy, and I am forced to the conclusion that we should expect changes but not diminution in our artificial markets.
The situation that we have reached is vividly shown by a chart indicating steel output (Fig. 8). The amount of per-capita steel output required to maintain full employment has increased constantly as the efficiency of industrial processes has increased, but the market dependent on unsubsidized consumer demand leveled off between 700 and 800 pounds per-capita years ago. There is a steadily growing spread between the curve representing per-capita consumer demand and the curve for per-capita steel consumption under full employment, which has tremendous economic, political, and social implications for the future. It emphasizes our major problem, the bald fact that our labor force can produce much more than its wages buy with the present distribution of income, and challenges our entire economic philosophy.
Drastic changes may be in the offing, but we will not return to an agricultural economy; the mineral industry on which our industrial plant is utterly dependent is seeing constant changes in its own economic position, with attendant social and political problems.
It is impossible to say when the mineral deposits supplying our industry will become depleted, but all mineral deposits are ultimately exhaustible. The tempo of exploration and development should be adjusted to current and future needs for raw materials by industry, and such problems should be studied by a mineral-appraisal group set up in government and co-operating with industry. Even though ultimately research on ore-finding techniques, together with the statistical studies of such a group, enables us to find ore bodies in areas that are now unprospected, the time lag between discovery and production is a neglected factor of vital importance in utilizing newly discovered deposits or reserves already known in mines temporarily shut down.
Under really free enterprise any source of raw materials unable to produce competitively with others should be ruled out, but the mining industry has been subsidized in one form or another for many decades, and it is inconceivable that we should ever again have a really free market. It is essential to the security of the Free World that domestic mining industries be maintained with a dependable labor force in active production. To this end I propose that the United States guarantee a price support for all the durable mineral raw materials essential to industry and accumulate reserve stocks of these raw materials for decades to come. There should be a continuing price support, guaranteed for at least three years in advance. I believe that this would reassure both capital and labor at home and abroad as to the stability of their mining industry. The reserve stocks should in no way be confused with buffer stocks, nor with our military stock piles which of course should be kept intact and separate from the reserves I propose. Such reserve stock should be built up continuously until at least equivalent to about five years' consumption. If the rate of accumulation averaged 20 per cent of our national consumption per year the present economy will not be materially disturbed. During periods of depression or business recession the reserves would be built up at a faster rate because of the price support and the diminished consumption of the industrial market. This plan would help bring venture capital back into the mineral industry at home as well as abroad, it would minimize labor troubles and preserve the skilled labor force which is essential to security, and should also remove pressure on both labor and management to ask for high tariffs.
This government-supported market would give dollars to foreign nations in exchange for raw materials and would tend to hold up their economies much as the Marshall plan has done in the past. These reserves would diminish rather than Increase international tensions, and its value in terms of security cannot be overestimated. Both its immediate and secondary effects will materially aid in safeguarding the industrial economy of the free world, and could be a vitally important factor for preserving peace and harmony among the family of nations.