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Happy Birthday What better time is there than the nation's 200th birthday to measure the growth of this now thoroughly adult society? Americans may lag by some standards, but by the eco nomic measuring rod, they have put together an exceedingly im pressive achievement. Surely they've done something right over the past two centuries to develop this $1.6-trillion economy. The beginnings provided few hints of the final achievement. There were of course some noteworthy developments before the Revolu tion, marked by a rise in the coloni al population from about 300,000 in 1700 to more than 3 million in the early days of the Republic. Substan tial settlements arose along the At lantic coast, and even a few in the interior, as a modest agricultureand shipping-based economy be gan to develop. But overall, in to day's terms, the U.S. was strictly a Third World type of country when it gained its independence. The new nation utilized 80 percent of its labor force in agriculture, but it also exported raw materials and some processed foodstuffs in ex change for imported manufactured goods. The U.S. in the late 18th century had as many farmers as England, despite a much smaller population, but only onefourteenth as many nonfarm work ers. In fact, a British consul reported back to London in 1789 that many centuries would elapse before the Americans got into large-scale manufacturing. Like many other contemporary British views of the 1 U.S., this forecast turned out to be somewhat wide of the mark. How we’ve grown Indeed, a number of pronounced changes have occurred with the passage of time. The very size of the country has increased dramatically, with the population rising more than 50-fold since the first census in 1790. Heavy migration and an even larger natural increase have con tributed to this population growth, aided by a persistent drop in the death rate, which led to a 75percent increase in life expectancy within the last century alone. There have been equally dramatic changes in the location, type and quantity of work. Over the nation's history, Americans have moved from rural to urban areas, and then on to suburbia. They have shifted from farming to manufacturing, and then increasingly to trade and professional services. Moreover, they have accepted ever-larger shares of their compensation in the form of leisure time, with the aver age workweek declining from 67 hours to 38 hours within the past hundred years. Above all, American development has been characterized by a massive increase in the nation's total out put, in both aggregate and per capita terms. Population growth has slowed down over time, leading to a slower growth of total output, but output per capita has risen at a relatively steady pace since the be ginnings of industrialization. This persistent per capita increase— (continued on page 2) .«gardh Oepairtmmit Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, nor of the Board of Governors of the Federal Reserve System. averaging 1.7 percent annually— has brought Americans the highest standard of living ever recorded. The annual increase may appear small, but over a century's time it translates into a five-fold increase in per capita output. Why we’ve grown Several major factors help account for this unprecedented record of growth: • A vast amount of capital accumulation—at first primarily from abroad, but then increasingly from domestic sources—which re sulted in a persistent increase in the amount of capital per worker; • The growth of a continent-size market, aided by a transportation network which unified the country and initiated regional development on a major scale; • The development of a nation wide banking system, which mobi lized resources and allocated them to a series of rising industries; • The process of technological change, which stemmed initially from the English Industrial Revolu tion but developed later on the basis of heavy investment in re search and worker education. With the persistent growth in out put, GNP today has reached $1.6 trillion a year. Indeed, more than three-fourths of the entire increase in the nation’s annual output has 2 been achieved in the relatively brief period since 1929. Edward Denison, in the study Accounting for United States Economic Growth, provides a measure of the major sources of this generation's growth. The most important was the ad vance in technological, managerial and organizational knowledge, ac counting for 31 percent of the na tion's growth over the 1929-69 peri od. Next was the increase in the number of workers, accounting for almost 29 percent of total growth. Increasing capital inputs—in the form of plant, equipment, invento ry and housing—accounted for nearly 16 percent of growth, while the increased level of education of the workers employed in the busi ness sector contributed 14 percent more. Finally, improved resource allocation, mostly from shifts of farm labor to nonfarm pursuits, accounted for 10 percent of the growth rate over this remarkable period. Stability along growth path In the present generation, contin ued growth has been accompanied by an increasing stability along the growth path. (The record of the past few years might seem to con tradict that thesis, but in historical perspective, the recent recession was mild.) In business-cycle downswings, disposable personal income has remained high in the face of sometimes severe produc- tion cutbacks, reflecting the impact of such stabilizers as a graduated tax structure and rising unemployment compensation. Moreover, the greatest increase in employment has occurred in services and statelocal government, which generally provide more stability of employ ment than such blue-collar occupa tions as manufacturing and con struction. With incomes increasingly stable, consumption has become less sen sitive to cyclical changes and, over time, an increasingly larger part of aggregate income. This develop ment has helped to retard reces sions and to hasten recoveries. In addition, financial institutions have become less susceptible to liquidity crises in the past generation, espe cially with the Federal Reserve serv ing as the economy's lender of last resort. For public and private sec tors alike, stability is now an ever more important goal of policy. Yet above all, growth has been the hallmark of the American experi ence throughout the recent past and, indeed, throughout the past two centuries. Given the strength of the factors measured by Denison, there is no reason why growth should not continue at a relatively strong pace for some time to come. But this gives rise to the question whether we can live with the costs of growth, in the form of pollution, resource depletion, and other evils. 3 Growth vs. no-growth Economists' views on growth may be predictable; they have been labelled the gurus of growth, since their frame of reference involves promoting growth and guiding it in profitable directions. Still, their contributions to the growth/no growth controversy can be very useful, because they help us ana lyze the costs and benefits—as well as the causes—of economic growth. Writing in the Fall 1973 issue of Daedalus, Kenneth Boulding com pares some of the consequences of growth and no-growth societies. “ In a no-growth state, there is no escape from the rigors of scarcity, and exploitation becomes the norm of society." In the extreme case, the government acts primarily as an institution for redistributing in come towards the powerful and away from the weak. But in a growth economy, social conflicts are diminished; the poor can be come richer without the rich be coming poorer. Exploitation is un necessary in such societies, since increases in productivity almost al ways pay better than attempts to force redistribution. “ One can get ten dollars out of nature for every dollar one can squeeze out of your fellow man." In these terms, then, growth is a useful objective for the nation's future as well as an envi able record of past achievement. William Burke uojSinqse/VV. M EM EH • q e i f l • uoSaJO • epEAON . onEpi E jU J O p |E 3 • EUOZUV • E>|SE|V BANKING DATA—TWELFTH FEDERAL RESERVE DISTRICT (Dollar amounts in millions) Selected Assets and Liabilities Large Commercial Banks Amount Outstanding 6/16/76 Loans (gross, adjusted) and investments* Loans (gross, adjusted)— total Security loans Commercial and industrial Real estate Consumer instalment U.S. Treasury securities Other securities Deposits (less cash items)—total* Demand deposits (adjusted) U.S. Government deposits Time deposits—total* States and political subdivisions Savings deposits Other time deposits! Large negotiable C D ’s 88,535 66,885 1,571 22,223 19,999 11,127 9,441 12,209 89,027 24,586 1,028 61,785 6,279 25,866 27,339 12,118 Weekly Averages of Daily Figures Week ended 6/16/76 Member Bank Reserve Position Excess Reserves Borrowings Net free(+)/Net borrowed (-) Federal Funds—Seven Large Banks Interbank Federal fund transactions Net purchases (+)/Net sales (-) Transactions of U.S. security dealers Net loans (+)/Net borrowings (-) Change from 6/09/76 Change from year ago Dollar Percent + + + + + + + + + + + + + - - + + - + + - + + - + + 298 425 22 36 50 39 377 250 882 472 760 374 95 79 426 493 + + + + + + + + + + - 1,880 1,813 121 959 329 1,211 329 262 2,729 906 55 1,699 728 5,539 1,829 3,579 Week ended 6/09/76 2.17 2.79 8.34 4.14 1.67 12.21 3.61 2.10 3.16 3.83 5.08 2.83 10.39 27.25 6.27 22.80 Comparable year-ago period 66 0 66 + 76 0 76 49 1 50 + 707 + 1,110 + 2,375 + 401 + + 737 + 941 •Includes items not shown separately, individuals, partnerships and corporations. Editorial comments may be addressed to the editor (William Burke) or to the author. . . . Information on this and other publications can be obtained by calling or writing the Public Information Section, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120. Phone (415) 544-2184.
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