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Talk given at luncheon in observance of "National Transportation Week" at the
Prom Ballroom, St. Paul, May 16, 1957
n. ■



This meeting today is held in observance of National Transportation

My title thus is chosen for one very obvious reason; it relates to


But I chose it for another, not so obvious but more compelling,

I want to talk mainly about the future and its prospects and implications.

This is a subject that naturally should be of interest to anyone interested in
Mr. Day, the local Chairman of National Transportation Week, has
furnished me with some pertinent facts concerning transportation activity
nationally and in the Twin City area.
had not thought about much.

Some of these facts I already knew but

Others were completely new to me.

Taken altogether

they point up the importance of the transportation industry in both nation and
metropolitan area.
Let me cite you a few figures here.

Last year, interstate transportation

of passengers and freight represented a total expenditure of more than $17 billion;
this, of course, does not include the intrastate or local transportation expenditures
More than 10 million people in the United States are directly employed in the
transportation and transportation equipment industries.

Total domestic freight

carried by rail, truck, airline, inland waterway and pipeline last year was
1.3 trillion ton miles.

Ten years from now this figure should be 1.8 trillion ton

The airlines alone flew more than 22 billion domestic passenger miles in
Almost half of the 22 million motor trucks in the world are used in the

United States.
These facts are most impressive, and as noted, they point up the
importance of transportation in the national economy.
are difficult to understand.

Figures that big, however,

Perhaps two local figures will bring home the

importance of transportation in the

Twin City area.

It is estimated that

transportation provides direct employment for about 36,000 families in this area




and that the annual payroll here for those families is about $170 million.
So much for a few facts about the transportation industry.
to consideration of the future - the long-run future.

I turn now

One of the factors that

has contributed to growth of the United States economy is the transportation

In turn, the economic growth of the country has benefitted those

engaged in transportation.

Thus the industry has both a responsibility for and

a stake in the future of America.
A couple of years ago Fortune magazine ran a series of articles on
what it called "The American Breakthrough", a series that called attention to
the growth of the American economy in the past quarter century and looked to the
potential growth over the next quarter century.
Fortune began its series with the following statement:
"The supreme economic story of the past twenty-five years can be
reduced to one simple, colossal fact:

today the average American, though

he works about 15 per cent fewer hours, has roughly 50 per cent more pur­
chasing power than he had a quarter-century ago.

This remarkable advance

in material welfare is almost entirely a result of the fact that national
productivity, which ma y be defined as average output per man-hour, has
shown an average annual increase, since 1930, of more than 2 per cent a year."
In the century from 1850 to 1950, the growth in American production
and wealth may be told in a few simple sentences:

1. The number of privately employed workers rose from 7 million to
56 million, an eight-fold increase.
2. The number of man-hours worked annually, however, rose only
five-fold, since the average work week dropped from about
70 hours to just over 40 hours.
3. But the national product turned out by these workers increased
thirty-fold, with per capita output increasing four-fold, even
with the shorter work week.




4. Productivity thus grew six-fold during the period and our
living standard increased about 500 per cent.

This is the

key fact in the whole story and I want to return to it later.
The result of this tremendous growth is that the United States, with
7 or 8 per cent of the world's people, produces about 40 per cent of the world's

Productivity in this country is about twice that of other industrialized

countries of the world and many times that of underdeveloped countries.


example, output per worker in the United States is about twice that in England
and Germany, about five times that in Italy, and about ten times that in the
bulk of the world.
One more significant fact should be noted here.

Over the past 100

years, the American worker has taken about half of the benefits of increased
productivity in the form of higher income and about half in the form of shorter

This is a major point to remember in thinking about the future.


movement has not been smooth over the past century; in some decades most of the
increase in productivity was reflected in shorter hours; in others most was
reflected in higher income.

The last decade showed more taken in higher income

than in shorter hours.
The really significant fact for the future, however, is expressed by
a particularly insignificant figure - 1/2 of one per cent.

Productivity rose

for the century from 1850 to 1950 at an average rate of about 2 per cent per
year compounded.

Recent experience seems to point to a higher rate for the

future - about 2.5 per cent.

And that 1/2 of one per cent is a potent fraction

when it is compounded year after year in an economy as big as the United States.
If this can be continued over the next 25 years, the average family
income, after taxes, will be about 50 per cent larger than it now is and the
work week will be about five hours shorter.

This assumes that Americans will

take their productivity gains, as in the past, half in income and half in leisure



Put into dollars, after tax




income for the average family now is about

Should the next 25 years hold up as noted above, after tax income per

family would be close to $7,000.

This makes no allowance for any price change

or any tax structure change.
Now the question is, of course, can this glowing potential future
really be attained.

The answer is that it is technologically possible, and

as a matter of fact, that the picture I have painted ma y be only a pale copy
of what actually can be attained.

Me seem to be advancing rapidly in technology.

There are whole new industries whose business it is to raise productivity.

many others whose whole future depends on rising productivity.


With increased

leisure and more income, people can be and are becoming better educated and better
trained and hence more productive.

We really are raising ourselves ever higher

by our bootstraps.
Not only are we increasing our capacity to produce, we are increasing
our capacity to consume even more rapidly.

As income rises, a smaller proportion

of that income has to go for the basic necessities of food, clothing and shelter.
More and more of it can be used for other things and for services.
arise every day to cater to these new demands.
and consumption is becoming less stereotyped.

New industries

Markets are becoming more fluid
New and improved products stand

a better chance of getting a share of the consumer’ dollar.

This is important

because it increases the rewards for successful new and improved products and
hence stimulates innovation.
As more and more industries come into being we get a wider and wider
diversification of industry.

This also is an important point, for greater

diversification tends to make the economy less susceptible to the swings of the
business cycle.

I do not mean to imply that we will never more have dips and

rises in business activity; I merely mean that diversification should lead to
more moderate swings than have taken place in the past.




Actually we have seen something of this over the past few years only
we have called it the process of rolling adjustment.

All that this means is

that when one industry, like autos or housing, loses its upward push, other
industries take up the slack and the economy keeps rolling along at a high

As we diversify( the chances of any one industry pulling the economy

into a sharp downturn lessen.

It will always be possible, of course, for down­

turns in many important lines to coincide and thus lead to a general downturn,
but I repeat, the more diversified we are, the less likely it is for this to
What can hold us back from this glowing future then.
war could knock all of our prospects into a cocked hat.

Well, a major

We have increased our

potential for destruction even more than we have increased our potential for
production and consumption.

This very fact makes war almost unthinkable, but

unfortunately even unthinkable things sometimes come about.

All we can do is

to continue to work hard to maintain peace.
Another development that could hinder seriously our movement toward
more production and consumption, toward higher income and living standards,
toward more leisure, is a steadily rising price level which would lead to erosion
of the value of our currency.

After being fairly stable for five years, prices

showed a tendency to increase about 3 or 4 per cent in 1956.

Actually, about

half of the dollar increase in our production last year was in the form of
higher pric e s .
A 3 or 4 per cent price increase each year is too much.
price increase each year for 25 years would double the price level.

A 3 per cent
To put it

in another way, a 3 per cent price increase each year for 25 years would cut
the purchasing power of a dollar in half.
1939, mainly because of World War II.
next 25 years, if we have peace.

Prices have just about doubled since

We cannot afford another doubling in the




The reason, I think, is obvious.
to destroy

A steadily rising price level tends

the incentive to save - on the part of both individuals and of business.

Unless we have saving, we cannot have adequate investment to make occur the
productivity rise that is technically possible.

And further, we cannot expect

people to hold on to income and advance credit to others if the dollars they
get in payment are depreciated dollars.

With a rising price level the incentive

is to spend and borrow rather than to save and invest.
There is a lot of talk nowadays about the inevitability of an annual
average price rise of 3 per cent.

Some people even seem to think that such an

increase not only is inevitable but is desirable.

I disagree with both points

of view.
The point about the desirability of steadily rising prices I think can
be dismissed quickly on the grounds already cited.

That view can be buttressed

by historical fact; it would be virtually impossible to keep price increases
within a 3 per cent limit for a long period of time.

People would find ever

increasing tendency for prices to rise faster, they would spend faster, and thus
intensify the price rise.

Creeping inflation would soon become galloping inflation.

I take it that no one really wants that to happen.
The point about inevitability seems to me to be a counsel of despair.
Stability of the dollar can be had along with growth in the economy.


wage-cost-price spiral is not inevitable if we can have two things - a sound
fiscal policy and a sound monetary policy on the one hand and public acceptance
of these on the other hand,

For the past several years we havi had a reasonable

amount of both of these; I hope we can continue to have a reasonable amount of
both for the future.
One of the members of the Board of Governors, Canby Balderston, made
a talk the other day and closed it with a statement I believe particularly
appropriate for concluding this talk.

He said;




"Our economy has a great capacity for growth.
technological and social progress.

Ours is an era of

In this climate, our monetary objectives

must be twofold: to foster continuance of economic growth and to prevent either
inflation or deflation.

The attainment of these goals depends on the courage

with which we pursue the good of the greater number rather than that of the few,
on the wisdom of governmental officials to control excesses through wise use
of the weapons at their disposal, and to no less degree, on the understanding
and cooperation of our private citizens."

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102