Knowledge that Transforms

IT is today rather generally accepted that the gloomy future which Malthus predicted as a result of the application of an increasing population to a fixed quantity of resources can be warded off by increases in the quantity of capital and improvements in the techniques of production. This will undoubtedly be true for a century or so; but it cannot be true for periods which are, after all, fairly short in terms of human history. Specifically, at the present time world population is probably increasing at an annual rate of about one and one-half per cent, which means that population is doubling every fifty years. If this rate of increase were to be maintained until 4250 A.D., the population of the world would weigh six sextillion, six hundred quintillion short tons, which is also the estimated weight of the world. Given the law of conservation of matter, it follows that there is nothing that science will be able to do even in an atomic age to increase output sufficiently to maintain the present rate of population growth until 4250 A.D.; sometime well before that date the increase must come to an end. Note that only the timing depends on the one and one-half per cent rate of population increase that has been used. If the correct rate were three per cent, only half the time would be required; if it were 34 per cent, twice as much time would be needed. It follows that if the time period is long enough, diminishing returns are always with us despite improvements in techniques and increases in capital.

8OCIAL security transfer payments have become an important segment of the income paid to individuals.' Primarily, the payments are designed to provide income continuity to those persons who have retired from the labor force because of age or are either unable to work or to find employment. Given this objective, the payments should flow to persons in the lower income groups.2 This paper attempts to measure the effects of the social security transfer payments on the differences in per capita incomes among the 48 states. Do the government programs which result in a set of payments designed to flow to the lower income groups also tend to equalize the geographic distribution of income? The use of the state distribution of income as a policy determinant and as a tool of economic analysis requires a thorough understanding of the forces with which the per capita income differences are associated. The present article isolates a specific type of payment for study and will add to the growing body of knowledge concerning the forces underlying the geographic income aggregates.3 I

STATISTICS as a scientific method goes back to the seventeenth century when William Petty and others computed mortality ratios on the basis of church records of births and deaths. This arithmetic as it was then called became a method for discovering statistical regularities in human affairs. It was used for such practical purposes as the computation of life annuity tables. It was also used by theologians, as Peter Suessmilch, to prove the wisdom of God by demonstrating the astonishing regularities in the creation. Statistics as a scientific method and academic discipline has spread in these two hundred or two hundred and fifty years of history from application to political and social affairs to all fields of human endeavor. There is today no field of inquiry or art in which statistics as a method does not find some use or some occasional misuse. Every use of statistics assumes that certain magnitudes or relationships, found to exist at the time when the counting took place, will continue to exist. Therefore, the use of statistics is based on the assumption of some continuing regularity in human affairs. But how can we assume that any magnitudes or relationships ascertained for the past have any validity for the present or the future in a world in which explosive changes appear to drown out what regularity there may be? Rapid change and political turmoil appear to make questionable any conclusions for the future drawn from measurements of the past. In this paper I will deal with this problem in the field of economic statistics and, more specifically, in the field of business cycle statistics. Here is a question of great importance for modern life. Next to problems of individual freedom and responsibility and foreign policy there is hardly a question more important than that of maintaining the continued growth and stability of the economy with a minimum of government regulation. The importance of these objectives was officially recognized in the Employment Act of I946. The determination of policies designed to promote economic growth and stability depends largely on our ability to appraise the economic outlook. The economic outlook cannot be appraised simply by looking at the most recent statistics alone. Recent statistics show, for instance, that business activity has been contracting, and that the contraction has slowed down in April or May of this year (I954). These facts themselves do not tell us whether, henceforth, economic activity is likely to expand again or to continue to move sidewise or whether the contraction has only slowed down temporarily and is likely to continue later this year or next. The question is: How can we derive from statistics of the past conclusions for the future? Inventory oscillations of a few months' periodicity move around a cyclical curve of several years' periodicity which in turn moves along a secular trend line. For an effective anti-cyclical policy we need to know where we stand in the cycle and on the trend. We look to business cycle analysis and business cycle statistics for an appraisal of probabilities in economic development this is the minimum we need to have as guidance for a policy of economic stabilization.

DURING the past twenty years considerable work has been done concerning the behavior of wage differentials and wage dispersion.' In many of these studies attention has been confined to a particular wage differential, e.g., the North-South wage differential, and an attempt has been made to ascertain the average change over time in that differential in several industries. mere description of this important structural aspect of our industrial economy has general interest. Moreover, changes in wage dispersion and differentials imply shifts in the personal distribution of income which, in turn, have an impact upon the consumption function and upon resource allocation.2 It has been observed that in the period subsequent to the mid-I930's the personal distribution of income has become more nearly equal.3 This shift toward greater equality may be attributed, in part at least, to the absorption of the unemployed and the fuller employment of the partially employed. But changes in wage differentials can either strengthen or tend to offset the movement toward greater equality of income. Some studies have led to the conclusion that fuller employment accompanied by changes in wage differentials that strengthen the shift toward greater equality. Dunlop, Lebergott, and Ober,4 for example, have provided some empirical basis for the hypothesis that has been a trend toward a narrowing of the percentage differential between skilled and unskilled workers during the past half-century, and that the trend accentuated in boom periods of full employment and reversed in depressions. 5 This hypothesis has not gone unchallenged. Bell concludes that there is no logical pattern for cyclical variations in the structure of occupational differentials. . . . These cycli* This paper based largely on an M. A. thesis on file in the Duke University Library. work was done under the direction of Professor Frank A. Hanna and benefited from the comments of Professor Frank T. de Vyver. 1 See, for example, J. Dunlop, Cyclical Variations in Structure, this REVIEW, XXI (February 1939), 3039; S. Lebergott, Wage Structures, this REVIEW, XXIX (November I947), 274-85; H. Ober, 1907-1947, Monthly Labor Review, LXVII (August I948), I27-34; P. Bell, Cyclical Variation and Trend in Occupational Differentials in American Industry since 19I4, this REVIEW, XXXIII (November 1951), 329-37; J. Bloch, Regional Differentials; I907-46, Readings in Labor Economics, ed. F. Doody (Cambridge, Mass., 1950), 8I-9I; R. Lester, Differentials: Developments, Analysis, and Implications, Southern Economic Journal, XIII (April I947) 38694; H. Ober and C. Glasser, Regional Differentials, Monthly Labor Review, LXIII (October 1946), 5II-25; D. Roberts. The Meaning of Recent Changes, Insights into Labor Issues, ed. J. Shister and R. Lester (New York, 1948), 226-37; F. Meyers, Notes on Changes in the Distribution of Manufacturing Earners by StraightTime Hourly Earnings, 194I-48, this REVIEW, XXXII (November I950), 352-55; D. Brady, Equal Pay for Women Workers, Annals of the American Academy of Political and Social Science, XXLI (May 1947), 53-60. 2 It should be noted that the wage structure considered here the structure of average hourly earnings. Since the accounting period only one hour, this structure not strictly comparable with the personal distribution of income, in which the accounting period typically one year. In order to render them comparable, factors such as the variation among workers in annual hours of work must be taken into account. Despite the discrepancy, a direct relationship between the wage structure of an industry and the personal distribution of income would seem to exist. It should also be noted that the portion of labor income emanating from an industry in the form of salaries not included in the wage structure. Since average hourly earnings are used, the subsequent analysis concerned actually with the dispersion of average hourly earnings rather than the dispersion of wage rates. See J. Dunlop, op. cit., for a discussion of differences between average hourly earnings and wage rates. Attention here confined to the basic monetary remuneration of workers. In order to include the effects of fringe benefits in the analysis, data on the value per hour of such benefits to each worker would be required. Such data would provide new frequency distributions which would show the dispersion of average hourly earnings and fringe benefits combined. No such data are available. With regard to the North-South wage differential in the cotton textile industry, it has been suggested that fringe benefits tend to increase differences between the North and South. See the Report on the New England Textile Industry (by Committee Appointed by the Conference of New England Governors, 1952), pp. I37-43. 'H. Miller, Factors Related to Recent Changes in Income Distribution in the United States, this REVIEW, XXXIII (August 95I), 214-I8. 4 Dunlop, op. cit.; Lebergott, op. cit.; Ober, op. cit. 'Paraphrased in Bell, op. cit., p. 329.