to obtain, even in the boom period, all of the cotton, iron ore, copper, coal, and other raw materials required.

2. Manufacturing capacity has always been considerably in excess of production.

3. The amount of excess capacity in the field of transportation has tended to be even greater than in other lines. Except during the war, our railways, ships, and highways could have carried a much larger volume of goods than was actually produced.

4. Retail and wholesale merchandising establishments have been more than adequate for storing and distributing goods to the consumer.

5. There has been no shortage of coal, oil or other forms of fuel. In fact, the development of new forms of power in recent years has tended to create a much greater capacity for power production than is likely to be needed.

6. Our supply of labor, while not as well distributed as it might be, has always tended to be larger than was required.

7. With the exception of a few weeks in 1920, the volume of money and credit has always been more than sufficient for the needs of business.

It is evident, then, that there is no bottle-neck on which we can blame our failure to make use of our full productive possibilities. Every part of our productive machine would be able to carry a much heavier load than is normally placed upon it. The question then arises whether our inability to create this potential wealth is not due to the inevitable friction associated with economic growth. Does not the very process of technological advance, with its continuous scrapping of out-of-date machinery, necessarily involve lost motion?

Lack of Markets

These factors are undoubtedly important, but they were taken fully into consideration in the estimate of productive capacity. We are forced to conclude, therefore, that the failure to operate at full capacity is not due to any discernible weakness in our productive machine as such. The plant, the raw materials, the transportation and distribution facilities, and the labor supply are adequate for a much larger output than we have been obtaining. No technical flaws exist either in the productive process or in the financial system which prevents us from enjoying a much higher standard of living. Moreover, business men would like nothing better than to expand their production, but they encounter extreme difficulty in disposing of their present output. The vast amount of money which is spent on advertising, the growth of high-pressure salesmanship, the emphasis on installment buying, and the energy which is consumed in the search for new markets, all indicate that the big problem of American business is not how to increase output but how to sell that which has already been produced.

Division of the Output

We have not gone so far as to state that America's farms and factories can produce enough to satisfy all of the needs of our population, but we have indicated that they are capable of turning out far more than they have in the past fifteen years. It would be useless, therefore, for us to turn to an engineer for a solution of our problem. Our job is to find some way of bringing into operation what the engineer has already created. Since the flaw is not to be found in the process of production, let us examine

the way in which the goods and services that have been produced are divided up among the population. It is possible that we shall find here not only the cause for the distress of certain groups, but also the key to the problem of unused capacity.

The second of the Brookings Institution's studiesAmerica's Capacity to Consume-is an analysis of our national income. In 1929 we produced as a nation goods and services valued at approximately 81 billion dollars. If divided evenly among the entire population, this would have given each man, woman, and child in the United States an income of about $625. The 77 billion dollars received by the 27,500,000 family groups in the country would have given an average of $2,800 to each family. Actually, however, the great majority of American families did not have anything like so large an income. As will be seen by the chart on page 12, 6 million-or 21.5 per cent-of our families received less than $1,000 in 1929; 12 million had incomes under $1,500; over 16 million had less than $2,000; and more than 19 million, or 71 per cent of the total, were below $2,500. Only about one family out of twelve received as much as $5,000. At the other end of the income scale we find that 220,000 families, approximately eight-tenths of one per cent of the entire population, got over 20 per cent of the total national income. The 36,000 families at the extreme pinnacle of the income pyramid received in the aggregate an amount equal to that obtained by the 12 million families with incomes less than $1,500-or over 300 times as much per family.

At 1925 prices, a family income of $2,000 was sufficient to furnish only the basic necessities of life, and yet we find that 60 per cent of the total number of families

were below this level. If we accept the model diets worked out by the Bureau of Home Economics of the Department of Agriculture as standards, we find that 74 per cent of America's urban and village families lacked sufficient income in 1929 to provide an adequate diet at moderate cost. Only one family out of ten could enjoy a liberal diet without denying itself the comforts which are normally associated with this standard of living.

From this we may conclude that the basic wants of the American people were by no means satisfied even during the period of greatest prosperity. The failure of our economic system to operate at full capacity was not due to the fact that people did not want to buy goods, but was the result of their inability to obtain enough money to purchase the things which they desired. If the incomes of the 19 million families receiving less than $2,500 in 1929 had been raised to the $2,500 level, the United States would have had to increase its total production by 16 billion dol

lars in order to meet the new demands of these families. An increase of $1,000 in the income of every family receiving less than $5,000 would have required an expansion in output of over 25 billion dollars. To give all families an adequate standard of living as defined by the Bureau of Home Economics would have necessitated an output 75 per cent greater than was actually produced in 1929. Since we fell short of the full use of our capacity in 1929 by only 15 billion dollars, it is evident that there is not the slightest danger of overproduction. On the contrary, the wants of the American people are far greater than could be satisfied by the full use of our productive resources, tremendous though they are.

Income and Savings

This brings us back to our fundamental problem. In order to obtain an adequate standard of living, the American people need a vast increase in all kinds of goods and services. To furnish these we should have to expand production by at least 75 per cent over that of 1929. Business men are eager to try to meet this challenge. But they are balked by the stubborn fact that millions of families do not have enough money to buy what they want. This lack of purchasing-power should not be taken to indicate, as some writers contend, that the market price of commodities exceeds the amount of money distributed in the process of production. This is impossible, since every dollar which is spent for an article goes to some one-whether as wages, rent, interest, or profits-and may be re-spent by him. If consumers do not buy all the goods on the market, it can mean only one thing: someone does not wish to spend his money, preferring to lay it aside for a "rainy day."