Kenneth E. Boulding’s research while affiliated with University of Colorado Boulder and other places

We should now have some image in our minds of the patterns and behaviour of the United States economy since 1929, at least in terms of its major components. We still lack a good deal of detail, partly because of deficiencies in the official statistics, but also because the details are more than any mind can manage. We cannot possibly have knowledge of the economic history of every one of the 300 million or so Americans who have lived during this period. It would be even more difficult to visualise the households, firms and other organisations that have existed, and still less could we visualise all the commodities that have been produced and consumed during this period. Nevertheless we do have some image of the aggregates and at least a rough idea of some significant proportions of the economy.

The role of government in the United States economy has two major aspects: (1) quantitative — taxes collected, borrowing, government expenditure, purchases, sales and so on, and (2) qualitative — the laws and regulations which affect economic behaviour. There is even a subtle psychological aspect of trust, respect, hope for the future and so on, which government can create or destroy as the case may be. The impact of regulation and deregulation is something that cannot be estimated from simple statistics. The transition from one president to the next (Figure 3.4) seems to make surprisingly little difference to the quantitative aspects of the economy, with perhaps two exceptions: the transition from Hoover to Roosevelt in 1933, which marked the beginning of the ‘New Deal’ and an increase in gross private domestic investment, which brought the United States part of the way out of the Great Depression; and the transition from Carter to Reagan in 1980, which seems to have stimulated a steady rise in personal consumption expenditure as a proportion of the economy.

The rise in the labour force from about 50 million to over 120 million between 1929 and 1989 is certainly one indicator of the increase in the United States economy. The aggregate size of the economy is perhaps better measured by what the labour force — or perhaps we should say the whole population — has actually produced, consumed, accumulated or received as income. There are four standard aggregates in the national income statistics, and their history is shown in Figure 3.1. The most familiar of the aggregates is GNP. This is a concept which has been subject to some severe criticism.1 It does not include household production, and since 1929 there has been a considerable shift from household production to market production, reflected for instance in the increase in the proportion of women in the labour force, and in some other changes, which would suggest that the GNP of earlier years may have been underestimated relative to the GNP of later years, so that some of the growth is illusory. The concept of GNP also identifies household purchases with household consumption. Many household purchases are durable goods which may be consumed over a long period of time, or may even appreciate like antique furniture or paintings. Household capital is almost completely neglected in the national accounts.

Information concerning the capital structures of the United States economy, and indeed of all economies, is surprisingly inadequate. Perhaps this is because of the obsession of economists with income rather than with capital, even though the two are intimately related. We do not really have an aggregate balance sheet for society in the way that we have aggregate income figures, although we do have a good deal of scattered information. Figure 5.1 provides a balance sheet — for the total United States economy — for non-financial corporate business, which is of course an important sector of the economy. As can be seen, the proportions of various items have not changed very much over the years. There was a surprising discontinuity in 1974 and 1975 in consumer and trade credits, coinciding as it did with the formation of OPEC and the rise in the price of oil. This trend was also reflected in trade debt. Foreign direct investment grew somewhat, but it was still very small. The proportion of liquid assets declined a little, perhaps as a result of the long period of inflation which gave a negative real rate of return to holding stocks of non-interest-bearing money. Structures, plant and equipment grew but the general change was not large.

Any economy is a segment or subset of a larger system. The United States economy is a segment of the world economy, the world economy is a segment of the total system of Planet Earth. Any system, however large or however small, has two aspects involved in its description: one, its structure in space at a moment of time; the other, its structure in space and time. First we have to describe the system at a moment of time. This might be called a flashlight photograph or a single frame of a movie. The world globe provides a good example. The globe will show coastlines and oceans. It may also show national boundaries, mountains, plains, rivers, lakes and so on. Obviously what can be put on a globe a foot in diameter is a very small part of the reality of the world. Nevertheless it is a place to begin. Even on a small globe we can plot the density of the human population, the broad classification of the uses of land — forests, agriculture and so on — and perhaps give some indication of where the major industries are located. On a one-foot globe we obviously cannot plot the position of every one of the world’s 5.2 billion human inhabitants. To do that we would have to have a globe about a mile high, on which each human being could be plotted as a point about one-thousandth of an inch in diameter, a house about one-tenth of an inch in diameter.

The graphs in the following chapters show the patterns of change in the United States economy revealed by official statistics from (mostly) 1929 to 1989. They give us a picture of the economy over time that would have been impossible to produce earlier. I remember my old teacher, Professor Joseph Schumpeter, once saying, ‘How nice economics was before anybody knew anything’. This was so even back in the 1930s. Herbert Hoover certainly had very little idea of what was going on around him. And Franklin Roosevelt was almost as ignorant, although much more successful. Now we do at least have a partial picture of what has gone on and what is going on. There are a good many deficiencies, but there is still enough information to make an important difference to our image of the world and, one hopes, to public policy. There was no Council of Economic Advisors or Economic Report of the President in 1929. What we now know about the economy may be very rough and incomplete, but it is a great improvement on the ignorance that prevailed prior to 1929.

We now have a fairly clear picture of the structure of the United States economy since 1929, even if the brushstrokes are broad and important details are missing. We certainly have a much more accurate and detailed picture than we have for the 60 years before 1929. The question arises therefore of whether this picture of the United States economy gives any insights into its possible future. We have no experience of the future. Our images of it can only be derived from our images of the past, but it is on images of the future that all our decisions depend. We cannot make decisions about the past, although we can improve our images of it. It is the decisions that we make now that are going to affect the future, and if these are unrealistic they are likely to make the future worse than it otherwise might have been. Our images of the future are more likely to be realistic if our images of the past are accurate and if we become skilled in the art of deducing our images of the future from our images of the past. Images of the past will be the more accurate the more accurate and well sampled the records, and also the better we are able to interpret and understand these records in terms of perceived patterns, relationships, necessary connections and structures that are likely to go forward into the future.

A very important property of any economy over time is the degree to which it has experienced inflation or deflation of prices, including money wages. Any monetary unit like the dollar is subject to fluctuations in its general purchasing power because of changes in money prices. We try to measure these fluctuations by constructing a price level index or a price deflator (or inflator), of which there are many varieties. There is some dispute among economists that has never quite been resolved as to what the ideal price index should be. One index is calculated by estimating how much money it would take to buy a ‘market basket’ of relevant commodities, corresponding more or less to the relative quantities that are produced or consumed. Other measures have been proposed, but this seems to be the simplest and perhaps the most meaningful. A difficulty arises, however, when deciding which market basket is significant when the relative quantities of commodities actually purchased change over time. The price level index will be different if we take the market basket at the beginning or at the end of the period. When there is a change in the quality of commodities, and when new commodities appear, the task of defining a price level in an exact form becomes virtually impossible and we have to be content with rough measures (Chapter 1).

The United States, like all other countries, lives in a world environment of international trade, with imports and exports, investments, grants and migrations that cross national boundaries. There is also a world environment of international political and military relations, with diplomacy, treaties, trade agreements, war industries, threats and occasionally wars.