Knowledge that Transforms

THIS paper will show how the method of correlation analysis can be applied to specific wage-price problems as they relate to an individual corporation or to whole industry, and how it can be of use in the fact finding phase of negotiations seeking to solve the problems. The corporation considered is the United States Steel Corporation. The industry used as an example is the automotive industry.2 Fact finding alone will not solve the economic conundrum of how to divide a common possession in such manner as to give one partner more without giving the other less. I John Bates Clark pointed that out 50 years ago. But he hoped then, as he observed the collision of the massed forces of capital and labor, for plan of division obviously as to settle once and for all the question of proportionate -shares, and to concentrate the energies of all on the securing of large product. 4 President Truman in the fall of I945 hoped that his Fact Finding Boards would, by uncovering the facts underlying wage disputes, hit upon the plan obviously just that the force of public opinion would compel agreement. Beginning with the General Motors Fact Finding Board and going right down the line, these high hopes have not been fulfilled. Without principles of adjudication agreed to by all parties, facts alone cannot settle disputes. If, for example, the to pay principle were eliminated as criterion in wage-price disputes, the facts on the profits of an industry or firm would be considered irrelevant. Similarly, if the engendering of inflationary forces were of no concern to the government, the magnitude of price increases would be of little consequence, and facts on costs and profits would become unnecessary. It is sometimes thought that the intervention of the government in wage and price negotiations makes necessary the employment of complicated statistical procedures involving many assumptions. Such position implies that if there were no wage and price control and prices and wages were determined by the market and free collective bargaining, the use of such techniques and assumptions would become unnecessary. Perhaps the use of correlation techniques by the OPA in the Little Steel formula negotiations of I944, and by the Fact Finding Board in the General Motors case in I945, is responsible for this view. In actual fact, any firm contemplating price or wage change must have some notion of the effects of its action on its revenues, costs, and profits. If wage agreements are arrived at by bargaining without the intervention of government, the firm must implicitly assume some productivity level for the period of the wage contract, some level of production, of prices which it will probably pay, and of prices which it will probably charge. If the wage contract is for one year, then in effect the firm is predicting these variables for the next year. Whether or not it does so by methods of correlation analysis is largely accidental. What is argued here is that objective statistical analysis can be extremely useful in answering the questions which must be answered, whether or not there is government participation in wage negotiations or government control of prices. To be sure when there is no price control, the ability to change prices within the scope of competitive market allows for the relatively The opinions expressed in this paper are purely personal and do not necessarily reflect the views of the Antitrust Division of the Department of Justice or of any other agency of the federal government. 2The data used for the United States Steel Corporation are published in the annual report of the corporation to its stockholders. The analysis and methods follow that of the OPA report entitled Steel Industry: Prices, Profits and Costs (August, I944) prepared by the author. The analysis for the automobile industry is based on non-confidential data published by various government agencies. The data and methods used in analyzing the automobile industry were worked up by J. Harvey Edmonston and the author and presented by the Department of Commerce to the General Motors Fact Finding Board. A summary of the conclusions of the automotive report appeared in the Weekly Report to the Secretary of Commerce of October 24, I945. 'John Bates Clark, The Philosophy of Wealth (I894), p. I83. 4bid.

a whole rose 32 per cent.4 The smallest increase shown by any one of these industries was I4 per cent, and the maximum 49 per cent. The rise for the entire group was only 40 per cent of that for manufacturing workers. The increase for public school teachers was but io per cent from I939-40 to I942-43; for white collar employees in federal executive service, I5 per cent from I939 to 1943; for white collar employees of other governments, 9 per cent from I94I to I943.

THE course of commodity prices during World War II and the first postwar year has been generally inverse to the course of stock market prices, especially if each is considered in relation to its trend. A similar inverse relationship developed during and after World War I. The commodity price movements of i9i6-20 and I940-46 show roughly the same general pattern, and there is a general similarity between the broad movements of stock prices for the two periods. In each postwar year, i9i8-i9 and I945-46, stock prices advanced sharply, but turned down as commodity prices started rising sharply, and in each case commodity prices remained high several months after the peak in stock prices. These observations are based on the two sets of records in Charts i and 2. Chart i presents the monthly record of wholesale commodity prices from I940 to the fall of I946, and a similar record of industrial stock prices. In order to emphasize the differences in the rate of change in prices, trend lines have been drawn in. They, of course, have no particular significance beyond their aid to

N rilsappearing in this REFVIEW, EdwadAmes and David Durand have each described a technique by means of which relative inequality of an income distribution for a given level of aggregate income, as measured by Lorenz curve, can be applied to a different aggregate income without altering income size classes of original distribution.' Mr. Ames states in conclusion to his article that his procedure should prove useful in exploring effect of income variations upon demand, sa'vings, tax yields, and so on.) Both Ames and Durand base their illustrations on income distribution for families and single individuals as given by National Resources Com'mittee study for I93 5-36,2 and they derive a hypothetical distribution for same number of families and single individuals with an aggregate income that is 33 per cent above aggregate income during I935-36. A minor shortcoming of Durand's method is fact that, for data on which illustration is based, one income class of original distribution is lost in process. However, Durand obtains, as he claims, the same practical results as Ames. Since two techniques are basically same, what is said about one in this note will apply with equal force to other. Both Ames and Durand fail to mention an important difference between I93 5-36 income distribution and income distribution derived by methods they develop. When either of their methods is used, average income within each income class of new distribution will be different from average income within corresponding class of I935-36 distribution. This difference is readily apparent from an examination of Chart i, which is an upward cumulative frequency distribution. The points along horizontal axis are on a