Investment Outlets Research Articles

Some Notes on Terborgh's "The Bogey of Economic Maturity"

i. The notion seems to run through Terborgh's book 1 (and indeed in part through Wright's review) 2 that the economy3 thesis holds that economic stagnation is unavoidable. In fact, the bulk of my writing has been devoted to an analysis of economic policies which would give us an expanding economy and full employment. The question really is: Would a policy of mid-nineteenth-century laissez faire, now, give us that degree of expansion and full employment which we experienced in that century? 2. The essential issue is: Are the automatic forces making for investment outlets as strong in our world today as in the century preceding World War I? From the classicals on, (a) the discovery and development of new territory and new resources, (b) population growth, and (c) inventions, have always been recognized as leading factors underlying investment opportunities. In the century preceding World War I the existence of a vast unexploited continent with rich natural resources, together with the phenomenal growth of population, everywhere gave rise to optimistic expectations with respect to investment. Invention, new products, and new industries were equally important. Undeveloped resources and population growth may be described as extensive expansionist factors, while invention may be termed an intensive expansionist factor. No one denies that the extensive factors play in the current world a relatively smaller role. The argument of the critics seems to be: Well, why worry? -The intensive factors are still present. If one member of a team drops out the other can pull the full load. This may indeed be so, but at least the probabilities are the other way. I do not think that anyone will deny that if we should wake up tomorrow and find that a vast new rich continent had suddenly emerged in the Pacific or in the Atlantic, equal in resources to the North American continent, the investment opportunities for private capital in the next few decades would be enormously improved. 3. With respect to population growth, let anyone consider (as Goeffrey Crowther did in a recent article in Foreign Affairs) the probable volume of capital formation in the United States in the year 2000 compared with that in Great Britain. In making such an estimate, one would surely want to take cognizance of the larger probable growth of population in this country. That capital formation is related to volume of output is, so far as I know, not questioned. Nor is it questioned that increase in volume of output is related to: (a) growth of labor force and (b) increase in per capita productivity. The relation of capital formation (investment outlets) to population growth is now, it should be stressed, fully recognized by Terborgh in his new book. He argues that population growth has accounted for about one-third of capital formation. This figure is in fact somewhat higher than my 50-60 per cent of net capital formation.4 4. While admitting the major role of popu'George Terborgh, The Bogey of Economic Maturity (Chicago, Chemical and Allied Products Institute, I945). 2Pp. I8-22, below. 'The term secular stagnation, it should be noted, is not applicable alone to mature economies. It is perhaps the best English rendition of Spiethoff's phrase Stockung-Spanne. Even in the nineteenth century, we had prolonged periods of stagnation in which there was a preponderance of hard times, recovery and prosperity being short-lived and depressions long and severe. (See Fiscal Policy and Business Cycles, Chapter I.) 4 Terborgh is in doubt whether I meant gross or net, though the context and the language used by me should have made that quite clear. No one else as far as I know has assumed that I meant gross. I do use the term new investment, but I am not aware that the word total has ever meant gross. I used total because I was analyzing two component parts of net investment: (a) that related to population growth and the development of new territory and (b) that related to invention and technological progress.

Economic Implications of Aircraft

I. Impact of transport technology upon the United States economy, 145. — II. Costs of air transport, 149. — The rôle of aircraft in the future transport web, 153. — Private aircraft, 156. — Cargo movement, 157. — III. Implications of the foregoing: urban-metropolitan patterns, 161; investment outlets, 163; trade channels and commercial centers, 164; capital exports, 166; government aid, 166. — Appendix: the case of Brazil, 168.

Income Creation by Means of Income Taxation

I. Conditions under which taxation is income creating, 265. — Influence of expenditures, 268. — II. Under-employment equilibrium with consumption 100 per cent of income, 269. — III. Under-employment equilibrium with net investment and the average propensity to consume less than 100 per cent, 275. — IV. Full employment and a sudden closing of investment outlets, 280. — V. Application of the foregoing analysis in a practical program, 285. — Effectiveness of the income tax as an instrument of policy, 286.

Fiscal Policy and Business Cycles.

Full Recovery or Stagnation? By ALVIN H. HANSEN. New York: W.H. Norton and Company, Inc. 1938. Pp. 350. ($4.00) Fiscal Policy and Business Cycles. By ALVIN H. HANSEN. New York: W. H. Norton and Company, Inc. 1941. Pp. ix, 462. ($3.60) Full Recovery or Stagnation? has been largely put together book reviews and other papers which have appeared time to time elsewhere. To a lesser extent this is also true of Fiscal Policy and Business Cycles. Both books in a general way focus about the problem of how to maintain full employment having regard to the rhythm of business activity. Possibly owing partly to the way these volumes have been built up, the material in neither appears to have been reduced to a unity. The author's viewpoint seems to vary as he passes the consideration of one topic to another. In the earlier volume Hansen appears to be very distrustful of the ability of democratic processes to cope with modern economic problems. He stresses the unlikelihood of democracy pursuing for long a consistent monetary policy and points out that modern democracies have so often demonstrated a lack of capacity in self-control. In the later volume he puts forward the idea of a dual economy that will provide an escape from a highly regimented private industrial system on the one side and an equally highly regimented collectivist system on the other. This, one gathers, he thinks might be worked out on a basis of compromise that would enable democracy to survive. Professor Hansen has been enormously impressed by the 1923-9 boom in the United States and the appalling amount of unemployment and suffering which arose in the succeeding depression. He urges that a course of public policy be pursued that will ensure the maintenance of full employment and prevent the recurrence of depressions. His proposition is large expenditures by the government to maintain income until private investment develops again to high levels.' The basis of Professor Hansen's position is his view that such a large proportion of income is saved annually that time to time consumption does not absorb the flow of consumption goods currently produced. In the then existing state of public tastes and production costs every effective demand is satisfied. There are no outlets for new investment.

Fiscal Policy and Business Cycles

Full Recovery or Stagnation? By ALVIN H. HANSEN. New York: W.H. Norton and Company, Inc. 1938. Pp. 350. ($4.00) Fiscal Policy and Business Cycles. By ALVIN H. HANSEN. New York: W. H. Norton and Company, Inc. 1941. Pp. ix, 462. ($3.60) Full Recovery or Stagnation? has been largely put together from book reviews and other papers which have appeared from time to time elsewhere. To a lesser extent this is also true of Fiscal Policy and Business Cycles. Both books in a general way focus about the problem of how to maintain full employment having regard to the rhythm of business activity. Possibly owing partly to the way these volumes have been built up, the material in neither appears to have been reduced to a unity. The author's viewpoint seems to vary as he passes from the consideration of one topic to another. In the earlier volume Hansen appears to be very distrustful of the ability of democratic processes to cope with modern economic problems. He stresses the unlikelihood of democracy pursuing for long a consistent monetary policy and points out that modern democracies have "so often demonstrated a lack of capacity in self-control." In the later volume he puts forward the idea of a dual economy that will provide an escape "from a highly regimented private industrial system on the one side and an equally highly regimented collectivist system on the other." This, one gathers, he thinks might be worked out on a basis of compromise that would enable democracy to survive. Professor Hansen has been enormously impressed by the 1923-9 boom in the United States and the appalling amount of unemployment and suffering which arose in the succeeding depression. He urges that a course of public policy be pursued that will ensure the maintenance of full employment and prevent the recurrence of depressions. His proposition is large expenditures by the government to maintain income until private investment develops again to high levels.' The basis of Professor Hansen's position is his view that such a large proportion of income is saved annually that from time to time consumption does not absorb the flow of consumption goods currently produced. In the then existing state of public tastes and production costs every effective demand is satisfied. There are no outlets for new investment.