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Speech by Darryl R. Francis, President
Federal Reserve Bank of St. Louis
Before the Midwest Agribusiness I n s t i t u t e
S h e r a t o n - J e f f e r s o n Hotel, St. Louis, M i s s o u r i
September 5, 1968
In t h i s discussion I s h a l l go beyond the specific
area of agribusiness and review some aspects of the
overall problem of economic g r o w t h .
There seems to be no simple s o l u t i o n to the orderly
accomplishment of economic g r o w t h .

Our efforts to

enhance the welfare of other less developed nations have
met w i t h only moderate success in most cases.

In some

instances we admit almost total f a i l u r e despite the expensive
programs u n d e r t a k e n .

Nevertheless, we are reasonably

sure of some factors which are associated with economic

Those w h i c h are very general and of l i t t l e

application to specific conditions in M i s s o u r i I s h a l l
b r i e f l y enumerate and dwell more completely w i t h growth
factors that f a l l d i r e c t l y w i t h i n the scope of your general
discussion and w h i c h are not so well recognized by the
general p u b l i c .
Generally recognized conditions for growth include
such well-known factors as (I) the maintenance of law
and order, (2) the assurance of property r i g h t s to

- 2 e n t r e p r e n e u r s and prospective e n t r e p r e n e u r s , (3) the
provision of incentive for e n t e r p r i s e , and (4) health and
energy of the people.

These growth requirements .are so

obvious that no f u r t h e r comment is necessary.
There are many less obvious factors c o n t r i b u t i n g
to growth, and education and t r a i n i n g head the l i s t .


refer to education in its broadest sense including education
in our school systems, o n - t h e - j o b and apprentice t r a i n i n g ,
t r a i n i n g through adult education programs, general
education of the public through the news media,
demonstrations of more efficient practices, and the
dissemination of printed i n f o r m a t i o n .
It is the capacities of the human agent of production
that explain the rapid recovery of Germany and Japan
following World War I I .

A large portion of the physical

capital in each nation had been destroyed.

In fact, they

had little more left than some of the so-called u n d e r developed n a t i o n s .

Yet, w i t h i n a decade of the close of the

war, both nations were quite prosperous.

The factor

which war could not destroy and which permitted rapid
recovery was the t r a i n i n g and "know-how" of the people
of Japan and Germany.

With some aid toward r e p l e n i s h i n g

- 3 t h e i r physical capital stock, both were shortly back in
production and w i t h i n a few years were exceeding pre-war
levels of output.
Our own production revolution in a g r i c u l t u r e can
be largely explained by new technology rather than t h r o u g h
new capital inputs.

Farm employment in the nation declined,

from 10 m i l l i o n workers in 1930 to, less than 4 m i l l i o n in

The physical volume of farm production,


increased sharply during this period. . In fact, farm
output almost doubled, rising from 60 per cent of the
1957-59 base in 1930 to 118 per cent last year.

The physical

volume of farm output per worker rose fivefold d u r i n g the

Some new capital was added to a g r i c u l t u r e .

in farms rose 7 per cent.


The number of livestock on

farms rose about 75 per cent and the number of tractors

The gains from new c a p i t a l , however, were less

than the gains in farm output per worker.

The worker

productivity gains can be attributed largely to t e c h n i c a l
t r a i n i n g , which is the result of research both on and
off the f a r m .
It is in the area of manpower t r a i n i n g for the
nation as a whole that I believe we have been least

We have been especially lax in the t r a i n i n g

- 4 of inner city y o u t h .

Our early school courses are designed

p r i m a r i l y to prepare students for f u r t h e r education.


pattern leads on t h r o u g h college and ultimately to graduate

Those who don't fit into the p a t t e r n , and

especially those who do not f i n i s h high school, are known
as " d r o p - o u t s . "

U n f o r t u n a t e l y , we know very little about

our "drop-out" population except for the fact that it is
quite large in the inner core of our large c i t i e s .

With this

small amount of knowledge, or lack of knowledge,


we have organized major drives to prevent drop-outs and
get the drop-outs back in school.

We have deemed it

s u f f i c i e n t just to get the drop-outs back on the track from
which they have jumped and eventually get a diploma
into t h e i r hands on graduation day.
Few have considered the possibility that drop-outs
were not interested in a standard high school education,
and perhaps many did not have the capacity to complete
the regular c u r r i c u l u m in the f i r s t instance.

I want

to emphasize the fact that we are not all equally endowed
for educational achievement.
drop-outs back on the t r a c k ,

T h u s , instead of getting
I suggest greater use of

schools that do not necessarily point to four years and a
diploma, but point p r i m a r i l y to preparation for a job as
mechanic, plumber, c a r p e n t e r , e l e c t r i c i a n , office machine

- 5 operator, or any other job in which ordinary literacy
plus the specific job skills will meet the essential job
I recognize the possibility that some compulsion
may be necessary to get the job of t r a i n i n g in our inner
cities completed, because many do not c u r r e n t l y have
the necessary i n c e n t i v e .

Compulsory education,

is not an unknown t h i n g in the United States.


In fact,

that is the way u n i v e r s a l public education was o r i g i n a l l y
established in most c o u n t r i e s .

I would even go so far

as to suggest that students be required to continue t h e i r
t r a i n i n g u n t i l a job is found for t h e i r services.

It is

also possible to use such schools to r e - t r a i n older u n employed workers on a massive scale.

The t r a i n i n g

program w i l l probably work much better if success in
t r a i n i n g is linked to any unemployment compensation
a v a i l a b i l i t y to the student.

This massive t r a i n i n g program

would not only improve the t e c h n i c a l skills of our labor
force, but would in all probability reduce crime and the
cost of crime prevention and control measures.
It is d i f f i c u l t to quantify the gains to national
welfare r e s u l t i n g from education and t r a i n i n g .

While we

have much data on the gains in a g r i c u l t u r e , other segments
of the economy have likewise moved forward.

The gains

- 6 per worker in the nonfarm sector, plus the output from
new workers released from the farm sector, have greatly
increased total output per worker for all sectors.
Because a g r i c u l t u r e employs such a small portion of
the labor force, the rate of total growth r e s u l t i n g from
gains there w i l l be less in f u t u r e decades.

The nation's

c u r r e n t l y employ only about 5 per cent of all


F u r t h e r reductions in this area w i l l thus ac-

count for relatively small gains in the other 95 per cent
of the labor force.

Thus we may be approaching the end

of our major growth push r e s u l t i n g from the revolution
in f a r m i n g .

On the other hand, we are probably only

beginning a revolution in the nonfarm sector.

We already

have the urban "know-how" just as we did in a g r i c u l t u r e
in the 1920's and early 1930's.

Now our problem is to

organize producers and firms and to t r a i n urban people
so as to put the "know-how" into p r a c t i c e .

Now the job

lies with the educators, the motivators, and the market.
other words, we need the same type of job undertaken in
the nonfarm sector that was performed in the farm sector
during the past three decades.
The gains from a f u l l y productive labor force are
not only measured in dollars of increased product but in


- 7 reduced welfare rolls - an important end product.


person removed from the welfare rolls into a productive
job means lower t r a n s f e r payments by the government and
lower taxes to the working force.
The vision and willingness to let market forces work
in the allocation of resources as it did in a g r i c u l t u r e is a
prerequisite for maximum growth.

For example, a g r i c u l t u r e

would not have made its vast c o n t r i b u t i o n to economic
welfare had we not found employment in the nonfarm sector
for the released w o r k e r s .

It is possible that we may have

similar releases in offices, in t r a n s p o r t a t i o n , or in r e t a i l i n g
during the next few decades.

If we can send tons of

explosives around the world in unmanned v e h i c l e s , i see
no reason why we cannot find low-cost means of transporting
consumer goods between domestic cities with greatly reduced
human effort.

If benefits are to be gained, however, we

must let market forces adjust our labor force and other

This brings me to the next factor for growth,

namely, willingness to permit change.
To obtain maximum gains from new technology and
from job t r a i n i n g , we should keep to a minimum all obstacles
to resource adjustments.
are readily apparent.

Some of the obstacles


For example, the farm protectionist

policies of Western Europe which limit imports of our farm

- 8 products in order not to disturb t h e i r i n e f f i c i e n t farming
operations are readily observable.

Our local and national

obstacles are less noticeable, yet no less r e a l .


practices of businesses and professions which limit entry
can be just as brutal as i n t e r n a t i o n a l trade b a r r i e r s .
Trade union practices which discourage apprenticeship
t r a i n i n g through illegal racial practices and unduly d i f f i c u l t
or lengthy t r a i n i n g periods are equally i n e f f i c i e n t .


practices limit numbers employed to levels below those
warranted by supply and demand conditions.
are obstacles to growth,

These practices

i suggest that a major portion

of all apprenticeship t r a i n i n g be under the supervision of
public school officials so that freedom of entry is


and all prospective workers, regardless of race or other
c h a r a c t e r i s t i c s , can get an equal chance.
Some of our obstacles to a more workable market are
even imbedded in the legal framework of state and national

Included in this category are obstacles to the

free movement of goods and capital at market rates.


wage laws which set wages above marginal r e t u r n s for some
workers contribute to permanent unemployment.

I suggest

that it is better to have people working at lower than c u r r e n t
minimum ceilings than to have a large number unemployed
because they cannot earn the legal m i n i m u m .

- 9 Nonsensical health regulations often hamper the
free movement of dairy products and other foods from
low-cost to high-cost areas.

Excessive interest rate

restrictions have, in some instances, hindered normal
flows of capital and even now limit the sale of certain
government s e c u r i t i e s .
My last condition or route to maximum growth is stability
of values.

Although not more applicable to M i s s o u r i than

to any other state, a stable price level is important to a l l .
I don't have to dwell on the damage caused by recessions
and depressions.

Most of us know about the lost effort

caused by unemployment and idle resources in the 1930's.
Fortunately, we have had a relatively small amount of such
loss since World War I I .

Nevertheless, the possibility

of such loss should be constantly guarded against.

It is

to the danger and loss due to price i n f l a t i o n that I want
to direct most of my remaining remarks.

This is an area

not well understood by the public and one in which the
"experts" often disagree.

Yet excesses here may be just

as damaging to growth as recessions and depressions.


an approach to the problem, I might ask the q u e s t i o n ,
"What would you do with your savings if you knew that
we would have a price increase of 15 - 20 per cent
next y e a r ? "

(about the rate in Brazil last y e a r ) .

I think

that you would search for some opportunity to maintain

- 10 the purchasing power of your savings.

You would not

necessarily be interested in a n n u a l dividend payments
or c u r r e n t interest r e t u r n s .

You would be much more

interested in m a i n t a i n i n g the purchasing power of your
o r i g i n a l stock of money.

You would thus tend to bypass

our savings i n s t i t u t i o n s such as banks and savings and
loan associations and place your funds in areas where
capital gains are more likely to be achieved.
of the problems of i n f l a t i o n .

This is one

The usual sources of funds

tend to dry up, and we move back to i n e f f i c i e n t modes of
saving and i n v e s t i n g .

Yet savings and efficient savings

i n s t i t u t i o n s are important determinants to growth in some
industries such as home b u i l d i n g .

T h u s , growth is

hampered when savings i n s t i t u t i o n s fail to f u n c t i o n properly.
We all know of the damages to welfare from price

Such damages include loss of real income

to all fixed income participants such as pensioners, those
receiving Social S e c u r i t y benefits, disabled veterans and

In addition, all creditors are damaged while most

debtors benefit.

I find very few overall benefits from

i n f l a t i o n , and those that exist are greatly outweighed by
the disadvantages.

Studies at the Federal Reserve Bank

of St. Louis, which involved only moderate excesses in
total demand, indicate that in the long r u n increases in

- II total demand for goods and services do not lead to any
predictable increase in real output as some have suggested.
However, in all cases, such excess demand is reflected in
price increases.
Total demand is affected by both monetary and
fiscal policies.

In recent years both have tended to be

excessively expansive.

Thus prices have trended upward.

I believe that such price increases contribute to i n e f f i c i e n c y ,
especially in the f i n a n c i a l sector, and thereby retard growth.
T h u s , one means of achieving greater growth is to achieve
general price s t a b i l i t y .