Über die Autorin bzw. den Autor

PETER L. BERNSTEIN is founder and President of Peter L. Bernstein, Inc., established in 1973 as publishers of Economics & Portfolio Strategy and consultants to institutional investors around the world. He is also the author of ten books, including three recent volumes from Wiley―Against the Gods: The Remarkable Story of Risk, The Power of Gold: The History of an Obsession, and Capital Ideas Evolving.

Von der hinteren Coverseite

The Price of Properity
A Peter L. Bernstein Finance Classic

One of the foremost financial writers of his generation, Peter Bernstein has the unique ability to synthesize intellectual history and economics with the theory and practice of investment management. Now, with classic titles such as Economist on Wall Street, A Primer on Money, Banking, and Gold, and The Price of Prosperity—which have forewords by financial luminaries and new introductions by the author—you can enjoy some of the best of Bernstein in his earlier Wall Street days.

First published in 1962, The Price of Prosperity speaks to today's uncertainties as clearly as to those of the past. With chapters like "The Burden of Government" and "The Economics of Democracy," Bernstein probes the future of an economy during rapidly changing times and the appropriate role of government in determining the ultimate outcome.

The questions have not changed over time, but Bernstein's answers help us understand these issues from today's perspective. How much government control is too much control? How much can government spend? How can government influence the level of unemployment?

As Bernstein shows how to navigate an ever-changing economic landscape, his timeless insights throughout these pages make The Price of Prosperity as vital and important today as when it appeared in an environment fundamentally different from our own.

Aus dem Klappentext

The Price of Properity
A Peter L. Bernstein Finance Classic

One of the foremost financial writers of his generation, Peter Bernstein has the unique ability to synthesize intellectual history and economics with the theory and practice of investment management. Now, with classic titles such as Economist on Wall Street, A Primer on Money, Banking, and Gold, and The Price of Prosperity--which have forewords by financial luminaries and new introductions by the author--you can enjoy some of the best of Bernstein in his earlier Wall Street days.

First published in 1962, The Price of Prosperity speaks to today's uncertainties as clearly as to those of the past. With chapters like The Burden of Government and The Economics of Democracy, Bernstein probes the future of an economy during rapidly changing times and the appropriate role of government in determining the ultimate outcome.

The questions have not changed over time, but Bernstein's answers help us understand these issues from today's perspective. How much government control is too much control? How much can government spend? How can government influence the level of unemployment?

As Bernstein shows how to navigate an ever-changing economic landscape, his timeless insights throughout these pages make The Price of Prosperity as vital and important today as when it appeared in an environment fundamentally different from our own.

Auszug. © Genehmigter Nachdruck. Alle Rechte vorbehalten.

The Price of Prosperity)

John Wiley & Sons

Chapter One

In real life, you have first of all to find the question; to learn to identify, almost as if by instinct, the one forgery amongst a mass of genuine signatures, or to spot the googly amongst a string of innocent leg breaks. -Speech by Mr. Anthony Tuke Chairman of Barclays Bank, London

1.

While it is far easier to describe Heaven than it is to provide a map showing how to get there, the man who undertakes the first without considering the second has done us little service. Yet the economists who purvey the glowing and finely detailed descriptions of the prosperity of the years ahead may have failed us on just this count.

Of course we face a dazzling opportunity. Our labor force is on the verge of an enormous expansion. Automation is rapidly increasing our ability to produce more goods with less work. Our economic history has been characterized by the happy combination of bold businessmen and ingenious engineers. Within the entire scope of our economy, from private houses to public works, we stand a real chance of stamping out want in the United States during the decade of the 1970s.

But we lack the directions to find our way to this economic paradise. Output and employment do not rise simply because men are looking for jobs or hungry mouths want to be filled. If this were so, we would never have unemployment, and poverty might long since have disappeared. This is, in fact, the central question to which this book is addressed: since the number of Americans seeking work in the decade ahead is going to increase more than half again as rapidly as during the years since the end of World War II, can we in fact make the adjustments necessary to create so many additional jobs? And what happens if we fail?

We must therefore begin with the recognition that the exciting forecasts of the late 1960s and the 1970s are not forecasts at all, even though they have every outward appearance of things to come. They are nothing more than real estate brochures about Heaven, based upon the assumption that somehow we will wind up there. They are economic arithmetic, which is not yet a substitute for economic analysis. As a presentation of goals or potentials, they are useful; as indications of what will be, they are positively dangerous.

They are dangerous because they are based on the assumption that what has been will continue to be. Yet the ocean floors of history are littered with the hulks of economic predictions that never made the far shore-floating hopes that foundered because they were navigated under this false assumption. Belief in an everlasting prosperity contributed to the smash that hit us at the end of the 1920s. Assurance of a never-ending stagnation prolonged the depression-and then led to the erroneous expectation that the end of World War II would signify the immediate return of the deeply depressed conditions of the 1930s. It is difficult to remember now, but the inflationary avalanche of 1946 to 1948 was in large part intensified by policies that were based upon this incorrect extrapolation into the future.

It is amazing how frequently we have to learn-and how frequently we forget-that each age has its own peculiarities, its unique character. But that is probably because men hate change and are reluctant to accept its inevitability.

2.

Those who merely multiply the greatly increased number of potential workers by another greatly increased estimate for output per man-hour can indeed come up with some dazzling possibilities for the years ahead.

But these arithmetic optimists have fallen into this tempting thought: because the number of potential workers will rise at an increasingly rapid rate in the coming decade and beyond, employment and incomes will expand; because employment and incomes will be high, demand will run strong; because demand will run strong, employment and income will be high. But in such circular logic, there is only one behavioral term: demand. Hence, we must first question how and why demand will rise. Without expanding demand, businessmen will refuse to raise their production schedules or to hire new workers; without rising production and employment, we have no economic growth. Demand, therefore, is the keystone of the whole structure upon which our projections of the future must be built.

In finding the path to full employment during a period when the number of workers is expanding more rapidly than in the past, we must begin with the recognition that economic analysis is meaningless if it ignores the dynamics of demand. Economics is more flesh and blood than mere arithmetic calculations, more a study of society than of technology. Physical facts-even those of the greatest economic importance, such as population structure, raw material supplies, and the character of technological progress-have meaning to the economist only as a backdrop against which human desires and decisions perform.

Economic growth, in short, is never guaranteed. Even if the capacity to produce expands, we have no assurance that demand will rise fast enough to absorb the additional output that can be produced. Indeed, expansion is usually undertaken only in response to signs of rising demand. But this means, in turn, that, if the demands of consumers and businessmen fail to increase fast enough to keep step with our productive capacities, the only way slow growth and unemployment can be avoided is through an accelerated increase in the quantity of our output that is purchased by the government.

This suggests that, under certain conditions, an increase in governmental activities might actually stimulate growth; this is a fundamental difference in emphasis from the widely held idea that they may be a burden more easily met if supported by an economy with a rising level of production. We might in fact test the proposition that government would have to be the support rather than the burden of an expanding economy, that our living standards might be higher with it than without it. We shall examine this possibility extensively in the chapters that follow.

3.

While our analysis of the future cannot avoid taking off from an understanding of the past, a tedious review of our postwar economic history would serve little purpose at this point. Yet we would do well to remember that the past twenty-odd years have been marked by persistent change, usually in unexpected directions or in magnitudes that came as a surprise to most of us. The wide variety of economic experience we have known since the war is, then, a warning that the past is a most treacherous basis upon which to predict the future.

Nevertheless, if we study carefully all of the statistics, all of the events, all of the forces at work in the postwar years, we do find one strategic factor that was relatively constant during the 1940s and 1950s, that began to change only in the mid-1960s, and that will be entirely different in the 1970s. Furthermore, this factor emerged from a set of paradoxes. Although something new, its origin reached back to the period after World War I. Although man-made, it was inevitable. Although its ultimate influence was to create highly stimulating expectations, this new factor was itself the consequence of a less buoyant view of what the future might hold.

The factor to which I refer is the relative shortage of labor that characterized the postwar years and was in turn the consequence of the downward plunge in American birth rates that began at the end of World War I and deepened dramatically during the depression. Coming at the same time as the postwar boom, this strange quirk in our population structure had a critical impact on wage levels, business investment, and consumer behavior.

The figures are striking. During the 1930s, the number of children and teenagers actually declined. But during the decade of the 1940s, they increased by 6.2 million and then by another 18.4 million during the 1950s. Meanwhile, the 20 to 24 age group showed virtually no change at all from 1940 to 1960 and the 25 to 34 group registered only a nominal rise. If we assume that the labor force is drawn from those people aged 14 to 64, we find that this group rose by less than ten million during the first ten years after the war and shrank from 66.5 percent of the total population to less than 61 percent.

But now this situation is changing rapidly. The increase in the number of people of working age from 1965 to 1970 will be as great as the entire increase from 1947 to 1957; the growth after 1970 will be at an even faster rate than during the 1960s. This means that, while we have become adjusted to the dearth of young workers that resulted from the post-World War I birthrate patterns, we must now seek an entirely new set of adjustments as we move into the years that will be influenced by the reversal of these patterns after World War II.

These figures also raise some other intriguing questions about the impact of population trends on the level of business activity. For example, the arithmetic optimists point to the increasingly rapid growth in the labor force as their key argument for a booming prosperity; they sweeten their case further by predicting that the growth in the number of young adults will swell the number of marriages and household formations and thereby greatly stimulate the demand for goods and services.

Unfortunately, economic behavior is more complicated than that. We are just not able to set a crude equation between an expansion in the labor force and a rise in the level of production. Thus, the increase in the 20 to 34 age group during the 1930s was about the same as during the 1920s and much greater than during the 1950s. Can the arithmetic optimists tell us, then, why economic growth during the 1930s was so much slower than during the 1920s? Indeed, if we follow their reasoning to its logical conclusion and argue that prosperity depends primarily upon a high marriage and household formation rate, then we should have had a deep depression during the 1950s, when the number of young adults and the number of marriages were actually declining!

These observations tell us that we can find no simple link here between cause and effect. Thus, if the number of people of working age grows more slowly than the rest of the population, we can have no assurance that we will have a repetition of the great postwar business boom (any more than a rapidly expanding labor force can promise rapid economic growth). In fact, if the relative shortage of labor leads to wage increases that depress profit margins-as classical economic theory would lead us to expect-businessmen may become discouraged and unemployment and depression will result.

The interesting aspect of the postwar period is that the traditionally depressing effect of rising real wages was reversed during these years into a powerfully favorable influence on the economy, despite widespread and vocal complaints about the damage we were supposedly suffering from the wage-price spiral. On the one hand, business firms were induced to spend large sums on plant and equipment to economize on labor, the scarce and expensive factor of production. At the same time, the enjoyment of rising dollar incomes and the assurance that jobs were relatively easy to find created a free-spending and free-borrowing attitude among consumers; personal expenditures were a sturdy prop to the economy long after the first wave of pent-up postwar demands was satisfied and even though the typically highest-spending age groups lagged in number behind the rest of the population.

The powerful forward impetus of consumer spending is undoubtedly familiar; the impact of these trends on investment is worth spelling out. From 1947 to 1965, for example, modernization of plant and equipment and development of new products and new techniques of production led to an increase in total physical output that was nearly four times as fast as the increase in the number of people employed, while the number of hours worked declined at the same time. This is in contrast to the period from 1929 to 1947, when output increased only two and a half times as fast as employment.

These forces may be seen from another even more meaningful angle. One of the characteristic features of American economic history has been to increase the use of capital goods faster than we have expanded the use of labor: we are a capitalistic economy in a very real sense of the word. During the postwar years, however, this tendency was greatly accelerated to triple the long-term relationship between the increase in capital goods and the increase in labor.

4.

If we attempt to apply all of this to a forecast of what the level of output and employment will be in 1970 or 1975, we may fairly ask-as the arithmetic optimists fail to ask-whether the shift from labor shortage to a much more ample labor supply will in fact dampen or even eliminate the stimuli the economy enjoyed through the free-spending attitudes of consumers and the urgency of businessmen to substitute machines for workers.

Indeed, in making our forecast, we have only one sure fact on which to base our estimates: the number of people of working age is going to increase much more rapidly in the future than it has in the past. But what proportion of the people of working age will actually seek jobs? How many of those seeking work will find it? How many hours a week will they work? How much will each of them be able to produce in an hour's or a week's work? We have no answer to these questions-only guesses.

Nevertheless, because of the acceleration in the growth of the labor force, the increasing attractiveness of work to married women, and the technological advances that are becoming commonplace in our time, even conservative responses to these questions can yield dramatic results to the arithmetic they imply. Nothing extravagant in the way of assumptions is required to conclude that our total output between 1965 and 1975 could increase faster than during the great postwar upsurge of 1947 to 1957 or in the powerful boom years that followed 1960. Remember-these are potentials rather than predictions, but the potentials are indeed impressive. They indicate, in short, that by 1975 we could be producing three times as much as we were able to produce when World War II came to an end, which works out to a tripling of output in about thirty years during which the population rose by less than fifty percent. In plain English, this means that the affluent society is within reach of reality.

If we are to achieve this objective, however, our discussion up to this point suggests that we must find favorable answers to two basic questions:

First, will the environment be congenial to such a rapid rate of growth in our capacity to produce? That is, will the labor force grow as fast and will the improvement in productivity be as great as these projections assume? If the assumptions are too optimistic, the physical and technical conditions that permit major economic growth will fall short.

Second, even if the physical capacity for production expands rapidly, will the dynamics of the years in which labor was in short supply persist to such a degree that the demand for goods and services will increase just as rapidly or more rapidly when the supply of labor is expanding at an accelerated rate?

The answer to the first question is a hopeful one. History does show that the American economy is capable of achieving rapid rates of growth in output when called upon to do so by a burgeoning expansion in demand. Indeed, except for very brief periods of time-one or two years at the most-our capacity to produce typically outruns demand by enough of a margin so that it is unlikely to be a limiting factor: it accommodates itself adequately to the growth in demand.

(Continues...)

Excerpted from The Price of Prosperity)by Peter L. Bernstein Copyright © 2008 by Peter L. Bernstein. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.