of their wares? They would like to expand their businesses,
put new men at work and create new wealth through in-
creased production. This is the way in which economic
progress has been promoted for hundreds of years. But
they dare not borrow money for expansion when they find

such difficulty in selling their present output. The people who want their goods, in most instances, have not the money with which to buy them.

In the last few years we have heard a great deal about the lack of consumer purchasing-power. Cranks and political charlatans have seized upon this obvious but superficial flaw in our economic mechanism as an argument for their pet nostrums. Every raid on the government treasury has been defended as adding to the buying-power of some particular group. Actually, of course, the solution is not as simple as these persons would make it appear. The economic well-being of any country depends on two factors: (1) the amount of real wealth-such as food, clothing, houses, and recreational facilities-which is produced and available for consumption; and (2) the manner in which · this total product is divided among the various classes which make up the population. If we seek to discover the source of our economic difficulties, it is necessary to examine both of these factors.

DIAGNOSIS

Can We Produce Enough?

Ο

UR first task is to investigate the productive capacity of the United States to see whether it is adequate to our demands upon it. Such a survey was the first of four studies recently undertaken by the Brookings Institution, and the results are incorporated in their publication, America's Capacity to Produce. This study does not attempt to predict what increase in production could be brought about by reform or reorganization of our eco

nomic system. Nor does it seek to forecast the effect of future scientific discoveries. It merely endeavors to find out what portion of our industrial and agricultural capacity was allowed to stand idle at the height of American prosperity.

20 Per Cent Unused Capacity

It shows, for instance, when business activity was at its peak in 1929 the total outpour of America's farms, mines, factories, and service industries was only about 80 per cent as large as it might have been had all our physical and human capacities been utilized. In individual industries the amount of idle plant varied from 15 to 30 per cent, with 20 per cent a very conservative estimate for our economic machine as a whole. For the five-year period 19251929, the amount of slack was approximately 22 per cent. A similar survey was made of the war years, when every effort was being made to speed up the nation's industrial machine, and it was found that under this stimulus production actually expanded 15 per cent without the addition of new plant. This seemed to confirm the accuracy of the 1929 estimate.

Until the beginning of the depression in 1929 there was no tendency for this unused capacity to increase. The problem was a chronic one, but there was no indication of a growing overproduction of industrial plant such as was alleged to have existed. During the depression, however, the amount of unused equipment became much greater, as can be seen from the chart on the following page. This chart is adjusted for changes in the price level, and therefore accurately reflects year to year changes in physical production. At the depth of the depression in

PRODUCTIVE CAPACITY AND

ACTUAL PRODUCTION (IN 1929 DOLLARS)

1932 the total amount of goods and services produced in the United States was approximately 31 per cent less than in 1929. Assuming that productive capacity had remained stationary since 1929, it will be seen that the actual output was only 55 per cent of the possible production. In 1933 and 1934 it rose to approximately 60 per cent of capacity.

248 Billion Dollar Loss!

We are dealing here with a loss, not of paper values, but of such products as wheat, cotton, coal, iron, lumber, automobiles, and homes, together with such services as transportation, electric power, education, and medical care. Had we made full use of our existing resources from 1922 to 1929, the real income of the American people would have been increased by 113 billion dollars, or approximately one thousand dollars for every man, woman, and child in the country. In the first four years of the depression an additional 135 billion dollars of potential income was lost through failure to make use of this productive capacity. This latter figure alone is four times as large as the value of the nation's farms, is six times the worth of its factories, and more than 25 times that of the 26,500,000 automobiles registered in 1929. With the 113 billion dollars lost earlier, this represents a sum more than half as large as the accumulated wealth of the United States.

Root of the Difficulty

Why have we failed to make use of this vast source of potential income? Is there some physical defect in our economic mechanism that prevents us from taking advantage of our surplus plant capacity? The complex process of production includes a whole series of operations. It is conceivable that a weakness in any one of these processes could seriously handicap production as a whole. We find, however, on examining each of these steps, the following to be the situation:

1. The United States is unusually rich in both agricultural and mineral raw materials. Our factories were able