I would like to express my appreciation to Ralph Andreano, Eugene Smolensky, Leonard Weiss, and especially Jeffrey Williamson for their encouragement and assistance during the formative stage of this paper. I would also like to thank my former colleagues at California State University, Long Beach for the opportunity to present an earlier version of this paper to the faculty-student seminar.

¹ Refer to the following authors: Schlesinger, Arthur M. Jr, The Crisis of the Old Order, 1919–1933 (Boston: Houghton Mifflin, 1964), pp. 159–60Google Scholar; Soule, George, Prosperity Decade (New York: Harper and Row, 1968), pp. 283, 332Google Scholar; Faulkner, Harold U., American Economic History (8th ed., New York: Harper and Row, 1960), p. 642Google Scholar; Hession, Charles and Sardy, Hyman, Ascent to Affluence: A History of American Economic Development (Boston: Allyn and Bacon, 1969), pp. 648–49Google Scholar; Robertson, Ross, History of the American Economy (2nd ed., New York: Harcourt, Brace and World, 1964), p. 630Google Scholar. For a non-traditional study that emphasizes a similar theme, refer to: Baran, Paul and Sweezy, Paul, Monopoly Capital: An Essay on the American Economic and Social Order (New York and London: Monthly Review Press, 1966)Google Scholar.

² This is a very interesting explanation of the Great Depression. However, there is not any necessary relationship between structural changes during the 1920's and the disaster of the 1930's. A different interpretation of this catastrophe can be found in Friedman, Milton and Schwartz, Anna, A Monetary History of the United States, 1867–1960 (Princeton: N.B.E.R., 1963)Google Scholar.

³ Economists have used factor income shares to examine a variety of structural changes. The following quote gives a general indication of the comprehensive influences affecting factor income shares. “Relative income shares are the resultant of all the forces that make up the motor of capitalism.” Brown, Murray, On the Theory and Measurement of Technological Change (Cambridge: Cambridge University Press, 1966), p. 180Google Scholar. Economic historians have not used factor income distribution for this purpose. They have used it to discuss the welfare of capitalists and workers, and/or as an indicator of tendencies towards underconsumption.

⁴ Economists usually employ some form of neoclassical production theory to analyze changes in factor income shares. Perfect competition is an important assumption of this theory, and it contrasts with the hypothesis of increasing monopoly power. These views may not be inconsistent. Neoclassical production theory has been applied to an analysis of long run changes in factor income shares, while the monopoly power hypothesis was applied to short run changes in factor income shares. It could be argued, as Schumpeter did, that the passage of time.is associated with successful challenges to old positions of power.

⁵ There are a number of legitimate reasons for some of these weaknesses. Most important, we should note that the wide scope of many of these works does not allow detailed coverage of specific topics.

⁶ “Through the decade, profits rose over 80 per cent as a whole, or twice as much as productivity.…” Schlesinger, Crisis …, p. 66.

⁷ “Between 1923 and 1929, productivity in the new manufacturing industries may have risen three times as fast as real wages.” Robertson, History…, p. 630.

⁸ Johnson, D. Gale, “Functional Distribution of Income in the United States, 1850–1952,” Review of Economics and Statistics, XXXVI (May, 1954)Google Scholar. Kravis, Irving B., “Relative Income Shares in Fact and Theory,” The American Economic Review, XLIX (December, 1959)Google Scholar. Grant, Arthur, “Issues in Distribution Theory: The Measurement of Labor's Relative Share, 1899–1929,” Review of Economics, and Statistics, XLV (August, 1963)Google Scholar.

⁹ Lebergott, Stanley, “Factor Shares in the Long Term: Some Theoretical and Statistical Aspects,” N.B.E.R., Studies in Income and Wealth, Vol. 27. The Behavior of Income Shares (Princeton, N.J.: Princeton University Press, 1964), p. 83Google Scholar.

¹⁰ Kravis, “Relative Income Shares …,” p. 918.

¹¹ The real estate sector contains only rent income, and not any other factor income shares. This occurs because rental income is not allocated to the industry where it originates but rather it is assigned to the real estate sector. See Kuznets, Simon, National Income and Its Composition (New York: N.B.E.R., 1941), p. 83Google Scholar. Income in the government sector is measured by the compensation of its employees and does not include capital income for government owned capital. Thus this sector contains only one factor income payment.

¹² Solow, Robert, “A Skeptical Note in the Constancy of Relative Shares,” The American Economic Review, XLVIII (September, 1958)Google Scholar.

¹³ Lebergott, “Factor Shares …,” p. 85.

¹⁴ Payment of salaries to business executives may be a problem. Does part of this payment represent a return to entrepreneurship? Is entrepreneurship a separate factor input?

¹⁵ Schultze, Charles L., “Short Run Movements of Income Shares,” N.B.E.R. Studies in Income and Wealth, Vol. 27. The Behavior of Income Shares (Princeton, N.J.: Princeton University Press, 1964)Google Scholar.

¹⁶ N.B.E.R. reference cycle peaks are taken from Mitchell, Wesley C. and Burns, Arthur, What Happens During Business Cycles (New York: N.B.E.R., 1951), p. 12Google Scholar and from Fels, Rendigs and Hinshaw, C. Elton, Forecasting and Recognizing Business Cycle Turning Points (New York: N.B.E.R., 1968), p. 6Google Scholar. Unemployment data are taken from Lebergott, Stanley, Manpower in Economic Growth (New York: McGraw-Hill, 1964), p. 512Google Scholar.

¹⁷ Of course, the levels of and changes in capacity utilization for these periods are not identical. Between 1923 and 1929 capacity utilization declined, thus tending to understate the increase in profits. Between 1899 and 1907 capacity utilization increased, thus tending to overstate the increase in profits.

¹⁸ The data for this period are taken from Martin, Robert F., National Income in the United States, 1799–1938 (New York: National Industrial Conference Board, 1939). One criticism that has been levied against his data is that estimates of entrepreneurial income were not made independently of wages and salaries. The severity of this problem can be lessened if sectors with relatively small amounts of entrepreneurial income are usedGoogle Scholar.

¹⁹ The calculations are based on data from the following sectors: mining and quarrying, electricity, manufacturing, transportation, and communication—sectors with a small proportion of entrepreneurial income.

²⁰ Calculated from data presented in: U.S. Department of Commerce, The National Income and Product Accounts of the U.S., 1929–1965, Table 1.14. The decline in capital's share was affected by the accelerated amortization program and by different methods of depreciation allowed under the 1954 Revenue Act. Although it is important to consider tax policy when comparing the 1948–1957 period to die 1920's, my research does not indicate that tax policy had any significant impact on capital's share during the 1920's.

²¹ Another study, utilizing annual data from 1902 to 1955, also suggests that changes in factor income shares were unusual during the twenties. Morishima, Michio and Saito, Mitsho, “An Economic Test of Sir John Hick's Theory of Biased Induced Inventions,” in Wolfe, J. N., Ed., Value, Capital, and Growth (Chicago: Aldine Publishing Company, 1968)Google Scholar.

²² By capital intensity I am referring to the ratio of capital income to total income. If this ratio is relatively high, then a sector is said to be capital intensive.

²³ The same technique is used by Denison for the. post-1929 period. See Edward F. Denison, “Distribution of National Income,” Survey of Current Business, XXXII (June, 1952).

²⁴ Schumpeter says the growth of a number of these industries represents the working out of previous innovations. Schumpeter, Joseph, Business Cycles (New York: McGraw Hill, 1939)Google Scholar.

²⁵ The five subsectors where capital's share increased include electric utilities, railroads, metals, chemicals, and food and tobacco. Capital's share increased by 8.5, 5.7, 6.3, 19.2, and 6.5 percentage points respectively. Electric utilities, railroads, and metals are selected for further analysis because the decline in fuel expenditures was an important source of cost reduction for each subsector.

²⁶ Stigler, George and Friedland, Claire, “What Can the Regulators Regulate? The Case of Electricity,” The Journal of Law and Economics, V (October, 1962), p. 4Google Scholar.

²⁷ The Twentieth Century Fund, Electric Power and Government Policy (New York: 1949), pp. 117–62Google Scholar.

²⁸ Bauer, John and Gold, Nathaniel, Public Utility Valuation for Purposes of Rate Control (New York: Macmillan, 1934), p. 17Google Scholar.

²⁹ Ibid., p. 104.

³⁰ For documentation of rate investigations refer to The Twentieth Century Fund, pp. 143–6. Also the Railroad Commission of California, supposedly one of the strongest state commissions, adopted a resolution in May of 1929 requesting that a number of utilities show cause why rates should not be investigated in light of the fact that they were earning a 10 to 13 percent rate of return. Refer to Report of the Railroad Commission of California, 1929, pp. 27–8.

³¹ Kolko, Gabriel, Railroads and Regulation, 1877–1916 (Princeton: Princeton University Press, 1965), pp. 231–9CrossRefGoogle Scholar.

³² Johnson, Emory R., Government Regulation of Transport (New York: Appleton Century, 1938), p. 71Google Scholar.

³³ Ibid., p. 71–2.

³⁴ Ibid., p. 72.

³⁵ Locklin, D. Phillip, Economics of Transportation (6th ed., Homewood: Richard D. Irwin, Inc., 1966), p. 347Google Scholar.

³⁶ The I. C. C. did not necessarily increase monopoly power by increasing the maximum rate of return. The structure of freight rates and passenger fares may have enhanced the position of two competing forms of transport—trucks and automobiles.

³⁷ Between 1947 and 1966, for example, seller concentration ratios did not change in the manufacturing sector while aggregate concentration’ ratios increased substantially. Refer to Adams, Walter, “Public Policy in a Free Enterprise Economy,” in Adams, Walter, ed., The Structure of American Industry (4th ed., New York: Macmillan, 1971), pp. 470–4Google Scholar.

³⁸ For example, the top eight steel manufacturers increased their share of steel ingot capacity from 57.7 percent in 1920 to 77.9 percent in 1930. The top three automobile corporations produced 68.4 percent of all passenger cars sold in 1921 and 71.8 percent in 1929. Clair Wilcox, Competition and Monopoly Power in American Industry, Temporary National Economic Committee; Monograph No. 21, Hearings, 76th. Congress, 1939–1940, Volume 78. Information on merger activity also supports the hypothesis of increasing monopoly power. Eis, Carl, “The 1919–1930 Merger Movement in American Industry,” Journal of Law and Economics, XI (October 1969)Google Scholar.

³⁹ The measure may overstate the amount of monopoly power because of competition from substitute products. Also, seller concentration ratios do not measure another important aspect of monopoly power—entry barriers into a particular industry. Refer to Bain, Joe, Industrial Organization (New York: John Wiley and Sons, 1969), pp: 439–46Google Scholar.

⁴⁰ Average labor productivity will increase if labor units have a larger quantity of other inputs at their disposal. Thus it is an incomplete measure of gains in the efficiency of all inputs.

⁴¹ Kendrick, John W., Productivity Trends in the United States (Princeton, N.J.: N.B.E.R., 1961). Note that he uses 1919–1929 base years rather than 1923–1929. However capacity utilization in 1919 and 1923 was about the sameGoogle Scholar.

⁴² Ibid., pp. 148–9. The individual productivity indexes, average labor productivity and average capital productivity, were also at their peak levels in the 1920's.

⁴³ Two of the more sophisticated studies are: Morishima and Saito, “An Economic Test …”; and Murray Brown and de Cani, John S., “Technological Change and the Distribution of Income,” International Economic Review, IV (September, 1963)Google Scholar.

⁴⁴ For a concise presentation of the definitions and measures of factor input prices as they apply to a Constant Elasticity of Substitution (CES) production function, refer to: Keller, Robert R., “An Analysis’ of Relative Income Shares in the United States During the 1920's,” (Unpublished Ph.D. dissertation, University of Wisconsin, 1971), pp. 55–69Google Scholar.

⁴⁵ The assumptions include: (1) two homogeneous inputs, capital and labor; (2) constant returns to scale; (3) perfect competition or a constant degree of monopoly power; (4) profit maximization; (5) an elasticity of substitution that is constant and less than one. The relationship between the price of capital and capital's share can be found in Ferguson, C. E., Microeconomic Theory (3rd ed., Homewood: Richard D. Irwin, Inc., 1972), pp. 414–23Google Scholar.

⁴⁶ Morishima and Saito, “An Economic Test …,” p. 420.

⁴⁷ This statement applies to economists as well as economic historians.

⁴⁸ Calculated from data presented in: Interstate Commerce Commission, Statistics of Railways in the United States (1923) p. LXXI and LXXII and (1929) p. LXXVIII.

⁴⁹ Ibid.

⁵⁰ Department of Commerce, Bureau of Mines, , Mineral Resources of the United States, 1930 (Part II, Washington D. C: G.P.O., 1932), p. 680Google Scholar.

⁵¹ In Schumpeter's view these sectors contained the industries that accounted for 90 percent of the change in the “industrial organism” during the 1920's. Schumpeter, Business Cycles, pp. 753–4.