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III

The Growth Trend in Our Basic Industries

To draw the trend lines that Pearl uses in such population charts as were reproduced in the foregoing pages, we need to deal with equations, of which the smooth curve is the graph.* Such a method is too complicated for the average businessman who wants to explore trends. It is not only that he may lack the training in mathematics. Even more important, he will probably not recognize the fact that he is dealing with a logistic curve when he puts figures down on a chart.

[*Thus the equation of the logistic curve for France which Pearl employed was: Y = 6.604 + 35.975 / (1 + 0.808 e-0.0197 X )]

A man who charted the growth of his infant son in pounds, every week from the day the boy was born, would ordinarily know that the rapidly rising line would eventually level out. (He can get weight charts that will tell him just when the “bend-over” in the line is due.) But when he charts his corporate sales he seldom realizes — as he sees the line go steeply up — that something like a logistic curve is being worked out here, too, and that the line will eventually bend over suddenly. Further, when it does eventually bend, he will usually regard this as a temporary slump that will be remedied by a resumption of progress in due course.

It is possible to avoid the dangers leading from such fallacious judgments by charting figures on semilogarithmic, or ratio, scale. That is, instead of using the Pearl type of graph, we can use a ratio scale, then get a curve which, by its changing shape, automatically reveals the falling off in the rate of growth. With such a scale the elongated italic S of Pearl usually becomes a smooth elongated italic parenthesis (.

Let us turn back for a moment to the Pearl chart showing the population growth of the United States, on page 15. Now if we stood at 1920 on this chart, and no dotted line indicating the future were there to warn us, we might well assume that the upward sweep of the line would continue indefinitely. We might assume this, at least, if our knowledge were limited to that of the average American, and if our emotions were geared to the prevailing American sentiment that progress has always existed in this nation and therefore always must — if not at the same rate as in the past, then at a still better one. Only specialized knowledge and training could warn us that this chart (as of 1920) could not justify such expectation.

Fig. 1 on the next page is a chart of our population’s growth on ratio, not arithmetic, scale. Standing at 1920 on this chart, we could have looked back and have been readily aware that we were almost at the top of a long slope that was already slowly leveling out. The steady decline in the rate of growth at this point is clearly evident, and the approximate point at which growth will peter out entirely is clearly indicated by the nature of this simple curve itself. Taking our place on this curve at 1920, we could have projected it into today without vast margin of error, even if we had merely worked freehand with a pencil. This kind of chart, which shows us the rate of growth at a quick glance, is preferable for our purposes on many grounds.

Pearl has taught us something very valuable — that a law of growth exists, and that it operates consistently. In using hereafter a form of chart somewhat different from Pearl’s, the authors are merely charting the operation of that law in a manner they believe the average reader will find more readily useful and applicable to his immediate problems.

It is in this form that the growth of America’s basic industries will be graphed. The reader who then wishes to apply the method to his own business may easily come up with a comparable chart. All he need do is to chart his own figures on a similar grid. He can then know immediately where his business stands, in comparison with other broader national developments, without having recourse to any special mathematical knowledge.

Fig. 1. Population of Continental U. S., 1830-1940

Decennial data. A trend is shown, projected tentatively to 1960. Ratio scale. (For a full explanation of ratio scale, see Appendix I.)

The charts shown in connection with this chapter are rather striking in the uniformity of the story they tell. Consider first our total manufactures, which are shown in Fig. 2 in terms of their growth since 1830, in dollars compensated for changing purchasing power.* The rate of growth of our manufactures has been steadily declining since around 1900. By 1920, as can be seen from the chart, it had become a fraction of the rate prevailing in the late 1800's. In at least one sense we may completely ignore the peak established during World War II. Notice that it reaches far above the trend line, and surpasses all other peaks attained previously.

[*All dollar charts in this chapter and the one next following are so compensated. That is, the values for each year have been divided by the index o£ the average wholesale prices for that year, 1926 being considered as unity.]

Fig. 2. U. S. Manufactures, 1830-1945

Data decennial 1830-1899; quinquennial 1899-1919 with estimates for war years; biennial 1919-1939; annual estimates thereafter. The data have been adjusted for the purchasing power of the dollar, 1926 = 100.

A trend is shown projected tentatively to 1960. The war years, as the text explains, have been ignored in determining trend in this and in all other charts portraying growth. Ratio scale.

Unfortunately — for the purposes of our society — it represents production for purposes of destruction. Being a wartime phenomenon, it tells us nothing beyond the fact that under the centralized compulsion of a war economy we had an enormous capacity to produce.

The underlying trend line tells us much more. What that line says is this: Under the economic system prevailing before the war — to which we are presumably returning — we were closely approaching the upper limit of our ability toproduce and distribute within the frame of that system. Following its wartime peak, our volume of manufactures is bound to fall back toward the trend line, and perhaps well below it, before again stabilizing itself around the trend. Rather than a matter for philosophical argument, this assumption seems supported by the evidence of the pattern that has been established in our economy since the very beginnings of our nation — a pattern that can be approximately determined and, consequently, approximately projected.

Fig. 3. U. S. Merchandise Exports 1830-1945

Data decennial 1830-1910; annual 1910-1945. Data are adjusted for the purchasing power of the dollar, 1926 = 100. A trend is shown projected tentatively to 1960. Ratio scale.

When we compare the chart for manufactures with the charts that show rate of growth in our exports and imports (see Figs. 3 and 4), we meet a consistency that we should now be prepared to expect. Both exports and imports are measured here in dollars that are compensated for varying purchasing power, like the value of manufactured goods charted previously. Let us look first at Fig. 3 showing exports. The basic pattern established by the trend is undeniable, and it tells us something for the future. The export levels we established during World War II, by giving away almost unlimited volumes of goods via lend-lease, mean nothing — except that we did give these huge volumes of material away. In peacetime, our export volume should tend to return toward the true trend line — and perhaps sink below it for a while — unless we continue giving goods away in much the same fashion. Or unless a new trend is to be established, one we cannot now calculate.

Fig. 4. U. S. Merchandise Imports, 1830-1945

Data decennial 1830-1910; annual 1910-1945. Data are adjusted for the purchasing power of the dollar, 1926 = 100. A trend is shown, projected tentatively to 1960. Ratio scale.

Devices like the Bretton Woods Economic agreement, or Treasury grants made as political “loans” to foreign nations, may tend for temporary periods to mask this truism — much as the working of the Federal Reserve Act tends to conceal from the general public the fact that we print dollars to meet government deficits. But our chart says forthrightly, in statistical language, that on the basis of the long-established trend, and in terms of foreign trade handled at a real profit, we should not be too optimistic in looking for such trade to be increased over the prewar volume.

In other words, the pattern here shows what we have seen in other charts: We are approaching an upper limit of action, within the frame of our economy as it has long existed. If we now continue giving our goods away as in World War II — either as goods or in the form of uncollectible loans exchangeable for our goods — then of course we might presumably maintain any chosen volume of exports. But that method of exporting, if used in peacetime trade over any long period of time, will itself be a kind of revolution. All our chart can tell us is that, failing a revolution of some sort, the pattern as established will presumably prevail.

Merchandise imports, similarly charted for rate of growth in compensated dollars, tell us much the same story. Here, as in exports, (barring the period of World War II) the peak was reached in the decade that followed 1920. There seems no evidence to suggest that in our time, or in the frame of our economy as we know it, the peak of the twenties will ever be importantly exceeded. Certainly in a world where economic facilities outside the United States have been so extensively wrecked, and where the United States itself has an unprecedented volume of production facilities of its own, we hardly need a chart to tell us that levels of useful imports in the future will certainly not exceed, for any considerable period, those already established in the past. Not, that is, within the frame of familiar economic relationships.

Probably no industry so accurately mirrors progress in our industrialized economy — and, in turn, is mirrored in that progress — as does our iron and steel industry. Iron and steel are truly basic products in the machine age that has been with us for the last century and a quarter. They are tools in almost every “civilized” activity. That is why iron and steel production reflects both the physical and the psychological drives of a nation like the United States.

Fortunately for statistical purposes, the records for iron and steel production go back further, and are more nearly exact, than those for most of the other great American industries. By using pig iron production before 1913, and measuring steel output by steel ingot production after that date, we can trace the history of the industry’s activity back almost to its beginning.

Fig. 5. U. S. Iron and Steel Production

Shown in gross tons of 2240 lbs. each. Pig iron production 1830-1913 (decennial 1830-1850, annual 1854-1913). Steel ingot production 1914-1945. A trend is shown, projected tentatively to 1960. Ratio scale.

The steel industry has been an old industry since 1914. Note the curve showing its growth, in Fig. 5. The relapse it had around 1914 was normal in extent, as compared to all previous depressions that followed peaks in activity. But the next depression that came along, following World War I, carried steel production to lower levels than were reached in the 1914 relapse. The depression of the early thirties carried it to still lower levels. Such a series of sinking spells, each more serious than the last, would indicate in a human organism a slowly declining vitality. In the steel industry we may see, over a long period, a slowly declining rate of profit, and a rapid decline in the rate of growth, until as of 1939 that rate for the underlying growth trend was probably near zero.

The peak in steel production that occurred during World War II may be ignored, for purposes of significance in a creative and solvent economy. That fantastic peak did not represent creative construction to serve the purpose of man as an economic creature, but rather represented an explosion like that of aerial bombs which destroy themselves when they reach their target.

Steel production in whatever peace we enjoy hereafter promises ultimately to return to somewhere around the trend levels already established in the long history of the steel industry; it may even sink temporarily well below these levels — once it has supplied whatever pent-up needs consumers feel as they emerge from the war years, and assuming we avoid both armament races and gifts of free steel to other nations. Failing the introduction of a new series of economic or social forces in our national life — forces that would overturn its old patterns of economic growth — an average annual production of approximately 40 million gross tons is the mean about which future fluctuations will probably oscillate. (A gross ton is 2240 pounds; in terms of net tons of 2000 pounds the figure would be 45 millions.)

Many of our other great industries have also reached their maturity. Note, in Fig. 6, the chart for the growth of steam railroads (miles of road operated). The maximum was reached between 1910 and 1914; since then there has been an actual decline. The railroad industry as such will have no more real expansion under economic conditions as we know them. Just as significant as the maturity reached in mileage operated is the fact that the tons of freight originated have actually shown a decline on the per capita of population basis, even during the years of World War II.

Fig. 6. Steam Railways

Miles of road operated (first track) in continental United States, 1830-1940. Decennial data. A trend is shown, projected tentatively to 1960. Ratio scale.

Much was made of the unprecedented volume of freight traffic carried by the railroads in the recent wartime period, and of the record of freight-miles built up. Such figures largely reflect long hauls and the fact that the usual unit of measurement is the ton-mile. But by 1943, when our war effort was in full swing, total tonnage originated was still only about 9 per cent more than it had been in 1929. On the per capita basis it was actually less, because the population had increased. General Leonard P. Ayres of the Cleveland Trust Company, one of the country’s foremost statisticians, could only call it “astonishing” that our railroads in 1943 actually originated less freight per capita of the population than they did in most of the years from 1911 through 1929, and far less than in the war years of 1917-1918.

Fig. 7. U. S. Shipbuilding, 1830-1945

For 1894-1939 the gross tonnage is shown of merchant vessels launched (100 tons or over). Prior to 1894 the chart shows tonnage of vessels built, adjusted to conform to the average tonnage launched from 1894-1907 and set back one year. From 1939-1945 the gross tonnage is shown of merchant vessels built (1000 tons or over).

Two trends are indicated, the present one projected to 1960. Ratio scale.

The shipbuilding industry, which reached fantastic peaks of construction under the war impact, will doubtless go right back to the levels it came from (see Fig. 7). Even continued subsidies to operators can hardly save it from such deflation; these existed, thanks to the Merchant Marine Act, long before the war began. There is nothing in the long-time growth pattern of the shipping industry to suggest that continued subsidies, of whatever probable volume, will change the pattern to any appreciable degree. World War I raised shipbuilding twentyfold — from about 200,000 to about 4 million gross tons a year. Thereafter the trend prevailing since around 1907, when a decline had set in, was resumed. This peacetime trend will probably be resumed once more as the axis around which yearly shipbuilding volume will fluctuate.

Fig. 8. U. S. Automobile Production, 1900-1944

Factory sales of motor vehicles, with a trend projected tentatively to 1960. Ratio scale.

The automobile industry in early 1946 had a huge volume of new orders, but there was no evidence that these would create a new trend line. The industry’s rate of growth was declining sharply well before 1940, and was closely approaching maturity, as shown in Fig. 8. Whatever temporary postwar splurge the industry may enjoy, the trends revealed in the chart suggested it had already attained, prewar, the bulk of the mature maximum of output. A Fortune estimate of mid-1944, for instance, concluded that a production of 4½ million cars annually from mid-1945 on would completely saturate the market by 1950; a production of 6½ million cars would saturate it by the end of 1947. Actually, of course, all early forecasts of automobile production for the months immediately following the war were vitiated by the occurrence of a strike wave; even 1946 production fell much below the manufacturers’ earlier hopes. While failure to produce more cars in 1946 came from inability to manufacture, and not from the lack of a market, subsequent years should be watched for an answer to an apposite question: Will even “deferred demand,” so called, enable the automobile industry hereafter to get very far above its prewar average production levels?

Fig. 9. Value of U. S. Horse-Drawn Vehicle Production, 1839-1939

Data decennial 1839-1899, quinquennial 1899-1919, biennial thereafter. Data are adjusted for the purchasing power of the dollar, 1926= 100. A trend is shown, projected in dashes tentatively to 1960. Ration scale.

We have here an example of an industry which, even before reaching maturity, was superseded by another. Without the advent of the dynamic automobile industry, which destroyed it, the horse-drawn vehicle industry would doubtless have reached maturity at the levels indicated by the dotted line at the top.

What happened to the earlier carriage industry is shown in Fig. 9.

Grouped together on pages 36-41 the reader will find charts showing the trend in a number of basic activities as various as cattle on farms, corn production, cotton production, wool production, wheat production, malt liquor consumption, lumber production, cotton spindles in operation, coal production, copper production, and lead production. These are shown not because any one of the series charted is particularly significant in itself, but because as a group the charts tell a consistent story, and — most important — because long series of figures are available.

They indicate that maturity has been or is being reached throughout our economic fabric as a whole. In the light of such charts, any talk of the unlimited frontiers that lie before us is a pure expression of faith and hope. The statistical evidence does not support it. Like goldfish nibbling at the glass of their bowl, we have demonstrably been reaching the circumference of our economic world-as-it-is.

This is not a tragic fact; it is merely a fact. We may adjust ourselves to it well or badly. Still more, we may decide as a society that we refuse to live in a world of such an established circumference, and try to break whatever bonds have been holding us there (if we can discover what they are, of what they are made, and how to break them), and then create a world with far wider horizons for ourselves. Some may suspect that this course will be the one that Americans will ultimately try to follow.

There are some newer industries in the nation which still have much of their growth ahead of them. We shall survey a few of these briefly in the following chapter. They should be of interest to investors who are concerned with the long-term outlook, and to young people who are intelligently choosing industrial careers.

There is no reason, however, to assume that the activity of any one of them, or of all of them put together, will change the near-term national outlook suggested by the charts discussed in this chapter.

Fig. 10. Cattle on U. S. Farms, January 1840-1944

Data decennial 1840-1910, annual thereafter. A trend is shown, projected tentatively to 1960. Ratio scale.

Fig.. 11. U. S. Corn Production, 1839-1945

Data decennial 1839-1870, quinquennial 1870-1895, annual 1898-1945. A trend is shown, projected tentatively to 1960. Ratio scale.

Fig. 12. U. S. Cotton Production, 1830-1945

Data decennial 1830-1850, annual thereafter. Two distinct trends are shown, one prior to and the other following the Civil War. The latter has been projected tentatively to 1960. Ratio scale.

Fig. 13. U. S. Wool Production, 1840-1943

Data decennial 1840-1860, annual thereafter. Two distinct trends are shown, one prior to and one following the Tariff Act of 1924. The latter has been projected tentatively to1960. Ratio scale.

Fig. 14. U. S. Wheat Production, 1839-1945

Data decennial 1839-1870, quinquennial 1870-1895, annual 1898—1945. A trend is shown, projected tentatively to 1960. Ratio scale.

Fig. 15. Malt Liquor in the United States

Consumption 1839-1920. Production 1921-1944. Data decennial 1839-1859, annual 1863-1944. The effect of prohibition is clearly indicated. A trend is shown, projected tentatively to 1960. Ratio scale.

Fig. 16. U. S. Lumber Production, 1839-1945

Data decennial 1839-1899 (1849 missing), annual 1904-1945. First two points are estimated from value data. A trend is shown, projected tentatively to 1960. Ratio scale.

Fig. 17. U. S. Cotton Spindles in Operation, 1839-1945

Data decennial 1839-1880, annual 1880-1945. A trend is shown, projected tentatively to 1960. Ratio scale.

Fig. 18. U. S. Coal Production, 1840-1943

Data decennial 1840-1850, quinquennial 1850-1870, annual thereafter. A trend is shown, projected tentatively to 1960. Ratio scale.

Fig. 19. U. S. Smelter Copper Production, 1850-1943

Data quinquennial 1850-1870, annual thereafter. A new cycle of growth, coinciding with the birth of the electrical industry, began in 1880. Two trends are shown, the present trend projected tentatively to 1960. Ratio scale.

Fig. 20. U. S. Refined Primary Lead Production, 1830-1943

Data decennial 1830-1850, quinquennial 1850-1870, annual thereafter. Here again two cycles of growth are in evidence. The beginning of the second cycle coincides with the junction of the Union Pacific and Central Pacific tracks at Utah in 1869, when western lead ores were made available to market. Two trends are shown, the present trend projected tentatively to 1960. Ratio scale.