Where Are We Heading?

By Leonard E. Read \Western Division Manager, United States Chamber of Commerce

Retail Lumbermen's 6efore the Annual Associotion at Del Convention of the California Monte, November 5,1937

Address delivered

This is an interesting subject, as likewise are the two questions appearing under it in the pro-gr?.T, "'Where are Competition-and I-egislation Leading-Us?"

One might assume from reading thesg questions that competition and legislation are twin villains, but my contention is that tegi-slation is the villain leading Our Nell, competition, into the evil by-ways. In other words,- comqetitioir is a benefit, not an Lvil, to commerce' but it is the unhealthy legislative things that have been done to the competitive processes that are causing us to think of comoetifion as a commercial evil. '

You people her'e tbday are discussing ways and means of making each of your individual businesses profitable endeavor-s. That is a laudable purPose' but let us remind ourselves that such a program blcomes increasingly impossibleas the national iniome is diminished. In other words, if we as trade association and chambers of commerce are to approach this broad problem correctly, we will .see to it tfral the economy in which we operate our individual businesses is in good working'order and that it is-producing a sufficient inco-me so that ill of us who are efficient producers and distributors may have what seemingly is a fair share.

Because we are headed in the rvrong direction, becauSe real national income is diminishing, and because legislative circumstances are forcing a conditioh of less profitable business, it behooves us, if wJ are to approach the problem intelligently. to fix our attention on the national economy in i"ttici we each exist, and to see what can be done to remedy it.

In America today we are witnessing a portentous and threatening discontLnt. This discontent, if it continues or if it increaies, stands to alter seriously our form of government and to overthrow completely the American economic svstem. which. in spite of all of its faults, has done more for mote people thin any system \-t9*" in all history.

This distontent is evidencing itself in a multiplicity of labor disputes-disputes between , factions of labor as though these factions of labor had no common purpose; dispites between labor and business as though labor and buiiness had no common purpose-and this discontent is evidencing itself in all sorti of perfectly silly political animosities ind vindictiveness, as though we as citizens had no common pufpose.

This disco-ntent is born of a different cause than has characterized discontent in previous eras of history. For instance, it is not like the discontent in England some centuries ago born of a religious issue, where there was a fight on betwlen the church and the state' nor is this discontent born of a moral issue, strictly speaking. Rather, it is born of a material and economic issue' It is born of a dissatisfaction on the part of millions of people who are dissatisfied with their material condition in a countrv which they believed to be so bountiful. They do not like their po.itiott when they compare it to others of us who are better Drovlsloneo.

Nbw then. if this discontent is born of this economic issue and if the discontent is a threatening and portentous thing, is the challenge not before us to see if something senJble cannot be ddne about it? Does it not behoove us to determine a way of relieving this paradox of impoverishment in the midst of plenty? Should we not see if we cannot create a greater national plenty, or putting it another way, should rie not determine the feasibility of developing a gieater general prosperity. I should like to define a "gieater gJneral piosperity" as -a condition consisting of ai abundince of goods and services widely distributed'-

If we will attaih ourselves to that problem for a few minutes, we will readily see that we have no lack of physical facilities for its solution. For instance, we admit of no shortage of natural resources. Our p-r9s-ent unemployment wouldtindicate that we have no lack of labor resources. We have friendly climates and we have fertile soils. All of the physical elements for the solution of-the.problem are at hind and all that we can possibly lack then is the knowledge of how to cause these ptrysical facilities to create this .of,dition of an abundance-of goods and services widely distributed.

Is there then a factor which can be definited and which, if it were promoted would tend to bring about this condition?

I contend that there is, and without going into the elaborate detail necessary for its explanation, this factor is a combination of three things:

1. The ability to reduce costs.

2. The ability to organize idle land,,labor, capital and manage to produce additional goods and services'

3. "fhe fiee play of economii forces that will compel an exercise of these first two abilities.

This last point is a Yery important one-one that we cannot discuis here beyond-the slatement that the fact that you have the ability io reduce costs does not mean that vou will reduce cosis unless there are economic forces at ivork compelling you to do it. You won't do it-neither would t. ttrat ii iimpty human nature in operation

I can illustrate this factor briefly: Seven years ago r bought a car for which I paid $2,000. A few weeks ago I touitrt another car of the same make, ever so much better in ail respects, for which I paid $1,200. The economic practice of the automobile manufacturers to produce a constantlv better product for a constantly lower price has given *. not only a good but a better service than I had seven 'rn""r, "so lirt tri's left me $800 with which to purchase other Loods a'nd service which are the only things that compose wealth, other goods and services which perhaps. you produce oi distrib"ute. In other words, this economic practice has enhanced my capacity to acquire wealth to the tune of $800.

Needless to relate. a great number of American produc,ers and distributors are iot engaging in this e-conomic pracfi.". n"tner they are doing wtrat f term, "N.ra-ing"; -artinciattv freezing markets, piices and production sct'edules d;; undeveioped demand constantly creating -11:w.- impossibilities of tie goods which they produce and distribute reaching down into lorver and lower brackets of purchasing power.

If this factor is correctly defined, and if in fult operation it would cause a general prosperity, and if this in turn would tend to relieve discontent-the discontent which is so threatening-and if this relief would tend to put Americans to economically sound productive work again, does it not fall to our lot to organize to determine the practices and behaviors of ours that tend to subvert and that tend to promote the operation of this factor?

I contend that if we merely determine the practices and behaviors that promote this factor, even if we do nothing about it, that we would make a measurable gain. We would be less likely to do the wrong thing. WJ could, at least, lend encouragement to the promotive factors and discouragement to the destructive ones.

Let me give an illustration of how this factor can be destroyed: You manufacture brick. You run a reasonably efficient plant and are able to compete with your two types of competitors, other brick manufacturers and those who fabricate lumber, concrete and the twenty other building materials. Your ability to keep your costs down enablei you to engage in this lusty competition and therefore to maintain your employment.

Let us assume that you have one cost which makes up 5 per cent of your overhead, clerical help, for instance. Nbw because of sheer carelessness, business ineptitude or because you h-ave been politically sold the proposition that industry should increase employment whether that employment is neede9 or not, you permit this item of overhead to increase eight times. Absurd? Don't get ahead of the example, we shall examine that later.

Anyway, you let this item of your overhead increase 800 per cent. You do not require the extra help. How will this new, unnecessary cost react? Where will it find,its pavment? Out of surplus iapital? That won't last long. Out oi frofits? There are not enough in the first place and besides, no one will give of his best without some hope of legitimate reward. fn an increased price for your product? Eventually, it has to land there. Will you be able to compete against your efficient competitors? No, the market won't reward your'carelessness, your ineptitudes nor your fallacious theories. The consumer will not buy your bricks. You will go out of business. Your employees will lose their jobs. You will have subverted this factor !

By this time this speaker is sounding a little "cracked." "How," you might naturally ask, "could we do anything as foolish as this ?" Well, let us look at some other facts.

In 1890, all units of government, federal, state and local, took only 5 cents of each income dollar. By 1929 they were taking 16 cents of each income dollar. Political agents in 1936 spent 40 cents of each income dollar !

It is conceded that government has a legitimate claim to growth with the increases of population and wealth. An industry or a farm adds overhead as its business inereases, but business management never permits a disproportionate ratio of overhead to production. If it does it fails. Governments, however, have not only permitted but encouraged an overhead out of all proportion to necessities.

The national income was many times larger in 1936 than in 1890. Why should not government overhead be maintained, somewhat in that ratio?_ Why should governments today be taking much more than 5 cents for each income dollar? Why 40 cents ? Why this 800 per cent increase in political overhead?

A previous statement implied as an absurdity the example of any business letting an item of overhead increase 800 per cent when the business warranted no necessity for such increase. I't was demonstrated that any such practice would force that business to close it-s doors and to place its workers among the ranks of the unemployed.