American Heritage Education Foundation, Inc.

"Under this Constitution the boundaries of freedom have been enlarged, the foundations of order and peace have been strengthened, and the growth of our people in all the better elements of national life has indicated the wisdom of the founders and given a new hope to their descendants."

James Garfield

"Without continual growth and progress, such words as improvement, achievement, and success have no meaning."

Benjamin Franklin

Staff Biographies

and Essays by Dr. Richard Gonzalez

The Establishment of the United States of America
What Makes America Great?
What Enabled Americans to Achieve Great Progress?
Power for Progress
Increasing Importance of Economic Education
Federal Spending and Deficits Must Be Controlled to Stop Inflation

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Staff Biographies

Dr. Richard Gonzalez
1912-1998
Co-Founder, American Heritage Education Foundation, Inc.

Richard J. Gonzalez was an authority on petroleum economics and on depletion for mineral industries. Born in San Antonio, Texas, he earned his B.A. in Mathematics, M.A. in Economics, and Ph.D. in Economics from the University of Texas. Dr. Gonzalez held several university level teaching positions before joining Humble Oil and Refining as an Economic Advisor. After twenty-eight years with Humble, he began his own practice consulting in government, business and industry. He testified as a petroleum industry expert before Congressional committees and federal agencies and served in leadership capacities with several national organizations. Additionally, Dr. Gonzalez authored numerous papers. The following is representative of Dr. Gonzalez's specific experience in the fields of education, business, industry, and government.

Dr. Gonzalez taught Economics at the University of Texas and at the University of New Mexico, returning later to the University of Texas as assistant professor of economics. In the mid-1970s, he served as a visiting professor of energy economics at Stanford University and then as a visiting professor at the University of Houston. He delivered many lectures in advanced management studies at the University of Texas, Northwestern University, and the University of Houston. From 1983-1991, Dr. Gonzalez was a Senior Research Fellow at the University of Texas IC2 Institute (Innovation, Creativity and Capital).
He began his career in the petroleum industry as an economic advisor for Humble Oil and Refining Company. He served on the Board of Directors, responsible for economics and finance, and also as Treasurer of Humble. Dr. Gonzalez's articles "What Makes America Great?" and "Power for Progress" were printed in Humble publications. Dr. Gonzalez left Humble to work as an energy economist, serving as a consulting economist to many companies. Most notably, he was a consultant to the Petroleum Administration for Defense and to the Office of Defense Mobilization.
In 1970, he was appointed by the U. S. Secretary of the Interior as a member of the National Energy Study. He also chaired and directed many petroleum industry groups and committees, including several appointed by the National Petroleum Council. His leadership positions included: director, National Industrial Conference Board (nine years); chairman, Economics Advisory Committee, Interstate Oil Compact Commission (three years); and chairman, National Petroleum Council, Drafting Committee on National Oil Policy (one year). In addition, Dr. Gonzalez was a member of professional organizations including National Petroleum Council, Technical Consultants to the Business Council, American Economic Association, American Statistical Association, American Petroleum Institute, Independent Petroleum Association of America, and Phi Beta Kappa.
Dr. Gonzalez authored many articles and papers on topics ranging from energy economics to the role of religion in American history and culture. Some of his published articles include:

"Economics of the Mineral Industry" (1976)
"Energy and the Environment: A Risk Benefit Approach" (1976)
"Exploration and Economics of the Petroleum Industry" (1976)
"Exploration for U. S. Oil and Gas" (1977)
"National Energy Security" (1978)
"How Can U.S. Energy Production Be Increased? (1979).
In January, 1995, Dr. Gonzalez co-founded The American Heritage Education Foundation, Inc., a non-profit (501.c.3) corporation dedicated to the understanding and teaching of our nation's factual and philosophical heritage to promote freedom, unity, progress, and responsibility among our students and citizens.

Mrs. Jeannie Sampson Gonzalez, Co-Founder

Co-Founder, American Heritage Education Foundation, Inc.
Elected Board Member, Houston Independent School District
Board Member or Former Board Member, Houston Grand Jury Association, Houston Parks Department, Houston Tennis Patrons
Member or Former Member, Houston Area Forum, Houston League of Women Voters, Houston Mayor's Charter Study Committee, St. Luke's United Methodist Church, Houston
Choir Member, St. Luke's United Methodist Church, Houston
Volunteer, M. D. Anderson Cancer Hospital

Mr. Jack Kamrath, Co-Founder and President

Co-Founder and President, American Heritage Education Foundation, Inc.
Senior Project Director, AHEF
Senior Research Director, AHEF
Senior Marketing Director, AHEF
Senior Development Officer, AHEF
Founder and Owner, Various Real Estate Operating Companies
Manager, Various Real Estate Properties and Development Projects
Founder and Owner, Kamrath Construction Company
Founding and Managing Partner, Tennis Planning Consultants, Inc.
Assistant Budget Director, RMK-BRJ, Vietnam Construction, U. S. Navy Contract, Saigon
Auditor, RMK-BRJ, Vietnam Construction, U. S. Navy Contract, Saigon
Member, St. Luke's United Methodist Church, Houston
B.B.A., University of Texas, 1964

Dr. Michael Owens, Director of Education

Director of Education, American Heritage Education Foundation, Inc.
Superintendent, Dripping Springs (TX) ISD
Assistant Superintendent, Friendswood (TX) ISD
Associate Executive Director of Instructional Services, Region IV
Education Service Center, Houston
Director of Exemplary Programs, Texas Education Agency
Director of Curriculum and Instruction, College Station (TX) ISD
Director of Elementary and Secondary Education, College Station (TX) ISD
Teacher, Biology, Nacogdoches (TX) ISD
Teacher, Earth Sciences, Mesquite (TX) ISD
Special Technology Systems Specialist for business, network, and educational learning systems/distance learning, Novell/Apple networks, and microcomputers in schools for Texas A&M University
Presenter, Numerous professional growth and development workshops for Texas School Boards Association, Texas Assessment, and others
Presenter/Trainer, Numerous AHEF Teacher Training Workshops
Presenter/Trainer, Curriculum and Instruction Training
Presenter/Trainer, Professional Development for school board members, administrators, and teachers
Committee member, Various education/professional development/review committees for Texas Education Agency
Member or Former Member, National Council of Teachers of Mathematics, National Science Teachers Association, National Council on Staff Development, Texas Associaton of School Administrators, Phi Delta Kappa, Science Teachers Association of Texas, Texas Association for Supervision and Curriculum Development, Association for Supervision and Curriculum Development
Superintendent Certificate, Texas A&M University
Ed.D, University of North Texas
M.Ed, Stephen F. Austin State
B.S., Stephen F. Austin State, 1969

Miss Angela Kamrath, Vice-President / Project Director

Vice-President, American Heritage Education Foundation, Inc.
Project Director, Programs, Research, Composition, AHEF
Web Editor/Webmaster, AHEF; Children's Ministries, St. Luke's United Methodist Church; various projects
Lecturer/Faculty Writing Consultant, University of Houston
Academic Advisor, University of Houston
Lecturer, Belhaven College
Lecturer, Houston Baptist University
Teacher, English, Galena Park ISD
Teacher Assistant, St. Ann School, Houston
Chapel Leader and Office Assistant, Children's Ministries, St. Luke's United Methodist Church, Houston
Vacation Bible School Leader, Children's Ministries, St. Luke's UMC
Volunteer Coordinator, FotoFest, Houston
Editorial Intern, U. S. French Embassy, Washington DC
Research Assistant Intern, Office of National Service, White House, Washington DC
Various publications and awards, poetry, article, essay, curriculum design
Member or Former Member, Modern Language Association, Academy of American Poets, National Council of Teachers of English/College Composition and Communication affiliate, various writing associations
Certificate, Georgetown University Public Affairs Seminar, St. Thomas University/Galena Park ISD Writing Institute, Harris County Department of Education Reading Institute, Region IV Assessment Institute
M.Ed., University of Houston
Teacher Certificate
M.A., Regent University
B.A., University of Texas, 1993

Miss Claudine Kamrath, Assistant Project Director

Ms. Glenda Stokes, Administrative Assistant

Administrative Assistant, American Heritage Education Foundation, Inc., 1995-present
Administrative Assistant, Mackie & Kamrath Architects, 1964-1988
Administrative Assistant, Kamrath Construction Company, 1975-present
Administrative Assistant, Tennis Planning Consultants, Inc., 1970-present

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Essays By Dr. Richard Gonzalez

The Establishment of the United States of America
by Richard J. Gonzalez, Ph. D.
October 6, 1991

The United States of America was established by Founders who believed that God endows all people with equal rights and is the Supreme Judge of the world.

All citizens of the United States must understand that our basic national documents--the Declaration of Independence, the Constitution, and the Bill of Rights--established a new order of the ages based on belief of the Founding Fathers that God has endowed all people with equal rights to life, liberty, and religious freedom.

God-Given Freedoms in Key Historical Documents of the United States

The Declaration of Independence and the Constitution outline the rights of the people which the Founding Fathers viewed as inherent and God-given. In the Old Order, kings had complete control over all their people, including power to give land to aristocrats for whom common people had to work as serfs and to establish a church that they supported and controlled. The Declaration of Independence of 1776 refers to nature's God, the Creator who endows all people with unalienable rights, especially life and liberty, the Supreme Judge of the world, and the protection of Divine Providence. It states that governments derive their just powers from consent of the governed to protect the equal rights with which people are endowed by their Creator. Our Constitution provides that no title of nobility may be granted and that no religious test shall be required for public office although all government officials must agree to support the Constitution by oath or by affirmation. The faith in God expressed by those elected as presidents of the United States led Congress to add the words "So help me God" to that oath of office in 1862.

The Constitution was established by the people to form a more perfect union of the thirteen states and to assure justice and the blessings of liberty and to themselves and their posterity. It defines the very limited powers of the national government and guarantees every state a republican form of government in which its officials have only the powers granted in a Constitution approved by its citizens. Some states approved the Constitution only after their leaders promised that the first Congress would submit a Bill of Rights reserving all powers not delegated to the national government to the states and the people. The First Amendment of the Bill of Rights states that Congress shall make no law establishing a religion or prohibiting the free exercise thereof. At that time the states included people of different denominations--including Anglicans, Baptists, Catholics, Puritans, and Quakers--and nine states had established churches which they supported. The states did not want the national government to establish one church to be supported by all the people. Some state-supported churches were not terminated until several decades after the Constitution.

Faith in God of the Founding Fathers of the United States

Many of the key Founding Fathers of this nation held a strong belief in God and His precepts. Belief in God of the Founding Fathers is reported in the book In God We Trust by well-known author Norman Cousins. That book begins with chapters on what Benjamin Franklin and the first four presidents of the United States had to say about God. These men had important roles in the formation of the Declaration of Independence and the Constitution. Their views about liberty had been expressed by God's word and inscribed on the Liberty Bell installed at Philadelphia in 1753: "Proclaim liberty throughout all the land to all the inhabitants thereof" (Leviticus 25:10).

Franklin's interpretation of the Lord's Prayer was that the laws of our heavenly Father be obeyed on earth as perfectly as they are in heaven. At the Constitutional Convention, Franklin proposed that their meetings start every morning with prayers "imploring the assistance of Heaven and its blessings on our deliberation." He also said, "The longer I live, the more convincing proof I see of this truth--that God governs in the affairs of men." Franklin wrote that the soul of man is immortal and that God will certainly reward virtue and punish vice either here or hereafter. A few weeks before he died at age 84, Franklin wrote his creed: "I believe in one God, creator of the Universe. That He governs it by His providence. That He ought to be worshipped. That the most acceptable service we render Him is doing good to His other children."

George Washington expressed "fervent supplication to that Almighty Being who rules over the Universe" in his 1789 Inaugural Address. He also said that the people of the United States are bound to acknowledge and adore the invisible hand which conducts the affairs of men. In his 1789 Thanksgiving Proclamation, Washington said, "It is the duty of all nations to acknowledge the providence of Almighty God, to obey His will, to be grateful for His benefits, and humbly to implore His protection and favor." In his 1796 Farewell Address, he said that "reason and experience both forbid us to expect that national morality can prevail in exclusion of religious principles."

John Adams, the first Vice President and second President of the United States, wrote in 1791 that as God has produced all of us we should be friendly to each other. He wrote: "Let the rich and the poor unite in the bands of mutual affection, be mutually sensible to each other's ignorance, weakness and error, and united in concerting measures for their mutual defense against each other's vices and follies." In 1796, he wrote in his diary that "one great advantages of the Christian religion is that it brings the great principle of the law of nature and nations--love your neighbor as yourself and do unto others as you would that others should do to you--to the knowledge, belief, and veneration of the whole people." In a letter written in 1811, Adams agreed that "religion and virtue are the only foundations, not only of republicanism and of all free government, but of social felicity under all governments and in all the combinations of human society."

Thomas Jefferson, the principal author of the Declaration of Independence, was the third president of the United States. He had written in 1774 that "the God who gave us life gave us liberty at the same time." His 1786 Virginia Act of Religious Freedom states that "Almighty God, Holy author of our religion, being Lord of both body and mind chose not to propagate our religion by coercion on people, as was His Almighty power to do." In 1802 Jefferson told the Danbury Baptist Association that the First Amendment providing that Congress could not establish a religion or prohibit the free exercise thereof built "a wall of separation between Church and State." Correct meaning of his statement about separation of church and state is that the United States cannot establish and support one religion, as was done in England and other countries and in nine of the States in 1787. Jefferson wrote in 1809 that he was convinced that the interests of society require keeping the moral precepts on which all religions agree, "for all forbid us to murder, steal, plunder, or bear false witness." Jefferson wrote in 1816 that the material he had arranged of statements in the Bible by Jesus, which he called the Philosophy of Jesus, proved that he was a real Christian, "a disciple of the doctrines of Jesus." Congress had Jefferson's material about Christ published for its members in 1904. It is now available as the Jefferson Bible at libraries. Jefferson's statements about God include the following: "Can the liberties of a nation be thought secure when we have removed their only firm basis, a conviction in the minds of the people that these liberties are the gift of God?" "My God, how little do my countrymen know what precious blessing they are in possession of and which no other people on earth enjoy, but will they keep it, or will they in the enjoyment of plenty lose the memory of freedom. Material abundance without character is the surest way to destruction."

James Madison, the fourth president of the United States, had written a full account of the 1787 Constitutional Convention of which he was a member. Many historians regard him as the father of the Constitution. He sponsored Jefferson's Act of Religious Freedom in Virginia and the Bill of Rights in Congress. The ten amendments of the Bill of Rights were added to the Constitution on December 15, 1791, when approval by the Virginia legislature raised the number of ratifying states to three-fourths, as required by the Constitution. Madison wrote several of the Federalist papers published while the states were considering approval of the Constitution that had been authorized on September 17, 1787, by delegates from 12 states. In Federalist Paper 51, Madison wrote that "if men were angels, no government would be necessary." Madison's reference to angels means messengers of God, as defined in the dictionary. In a statement to the Virginia Assembly in 1785, Madison said that "the duty which we owe to our Creator and the manner of discharging it can be directed only by reason and conviction, not by force or violence." He added, "What is here a right towards men is a duty towards the Creator, an exercise of his religion according to the dictates of his conscience." In a letter he wrote in 1825, Madison said, "Belief in a God all powerful, wise and good is essential to the moral order of the world and to the happiness of man."

Importance of God and Religion Recognized by the Continental Congress

The Great Seal of the United States approved in 1782 by the Congress of the Articles of Confederation also demonstrates the faith upon which the nation was founded. It displays an unfinished pyramid with the eye of God at its top. That design expresses the statement in Psalm 33:18 that "the eye of God is upon them that fear Him, upon them that hope in His mercy." The Latin motto "ANNUIT COEPTIS" at the top of the Great Seal means that "he favors our undertakings," which must refer to God as supporting creation of a new form of government. The Latin words "NOVUS ORDO SECLORUM" at the bottom of the Great Seal mean "New Order of the Ages" in which government has only the just powers granted to it by its people. The new order denies government power to deprive citizens of life and liberty, as some dictatorial rulers have done even in this century. Latin numbers at the bottom of the pyramid stand for 1776, year of the Declaration of Independence, stating that our Creator endows us with equal rights to life and liberty.

The other side of the Great Seal shows an eagle holding an olive branch in one talon and arrows in the other, related to peace and common defense. The Latin words on the scroll by the eagle's head, "E PLURIBUS UNUM," mean "From many, one." This phrase refers to the thirteen states and the many different people of the United States. The thirteen states are represented by the stars above the eagle's head and by the bars and stripes on the escutcheon that covers the eagle's breast.

The Congress of the Confederation passed the Northwest Ordinance in 1787 concerning moral issues for the land west of the thirteen states granted to them by the peace treaty with Great Britain. Article III of the Ordinance states that "Religion, morality, and knowledge being necessary for good government and the happiness of mankind, schools and the means of education shall forever be encouraged." Article VI states that there should be no slavery or involuntary servitude in the Northwest Territory except as punishment of crimes for which a person was convicted. This decision against slavery and earlier abolition of slavery north of the Ohio River reflected opposition to slavery by several great leaders. At the 1787 Constitutional Convention, Washingon, Madison, and many other members favored abolishing slavery in the United States but had to allow continuation of slavery in Southern states in order to secure approval of the Constitution by at least nine of the thirteen states. Many probably hoped that the Southern states would also act to abolish slavery as had been done in Northern states. Unfortunately, slavery continued until the Southern states lost the Civil War in 1865 after they had seceded from the United States in their effort to continue slavery.

Education About God and Religion in the Nineteenth Century

The 122 million copies of McGuffey school books published in 1836-57 had good influence on Americans in the first century of the United States. These books included the following statements about God and religion:

"It was God, my child, who made the sun, moon, and stars." --Primer, p. 57.

"Oh my God! Do not allow me to sin. Help me to do as I am told. Let me do unto others as I would have them do unto me. God can see all we do. Do not sin, for God can see you." --Pictorial Primer, p. 54.

"God makes the sun shine and sends rain upon the earth that we may have food." --First Reader, p. 17.

"I hope you have said your prayers and thanked your Father in Heaven for all His goodness. Never forget to thank God for His goodness." --Second Reader, p. 3.

"Next to the fear of God implanted in the heart, nothing is a better safeguard to character than the love of good books. They are handmaids of virtue and religion." --Third Reader, p. 171.

"What will become of the West if her prosperity rushes up to such a majesty of power, while those great institutions linger which are necessary to form the mind, conscience and heart of that vast world. The mighty resources of the West are worse than useless without the supervening influence of the government of God. To balance the temptation of such unrivalled abundance, the capacity of the West for self-destruction without religious and moral culture will be as terrific as her capacity for self-preservation with it will be glorious." --Fourth Reader, p. 60.

Horace Mann, a well-known educator, made the following statement in a 1845 Report on Education: "Knowing as we do that the foundation of national greatness can be laid only in the industry, the integrity, and the spiritual elevation of the people, are we equally sure that schools are forming the character of the rising generation upon the everlasting principles of duty and humanity? Are children so educated that when they grow up they will make better philanthropists and Christians, or only grandeur savages? However loftily the intellect of man may have been gifted, however skillfully it may have been trained, if it be not guided by a sense of justice, a love of mankind, and devotion to duty, its possessor is only a more splendid, more dangerous barbarian."

Statements About God and Religion by Well-Known Leaders in the United States

President Lincoln said at the close of his 1863 Gettysburg Address that "this Nation, under God, shall have a new birth of freedom; and that government of the people, by the people, for the people shall not perish from the earth." In his Second Inaugural Address in 1865, Lincoln said that slavery is an offense in the providence of God that He now wills to remove.

President Franklin Roosevelt said that the right of every person to worship God in his own way is an essential freedom. In 1939, Roosevelt named three institutions indispensable to Americans: "The first is religion. It is the source of the other two--democracy and international goodwill."

President Eisenhower said, "Recognition of the Supreme Being is the first, most basic expression of Americanism. Without God, there could be no American form of government nor any American way of life." He also said, "Men grow in stature only as they daily rededicate themselves to a noble faith. The spirit of man is more important than physical strength, and the spiritual fiber of the nation than its wealth."

President Kennedy said at the close of his 1961 Inaugural Address: "Let us go forth to lead the land we love, asking His blessing and help, but knowing that here on earth God's work must truly be our own."

Martin Luther King, Jr., said, "I still believe that standing up for the truth of God is the greatest thing in the world. The end of life is to do the will of God, come what may."

Members of the Supreme Court have made the following statements about religion and education. Justice Douglas in 1952 in Zorach v. Clauson said: "We are a religious people whose institutions presuppose a Supreme Being. When the state encourages religious instruction it follows the best of our tradition." In Abington v. Schemp in 1964, Justice Clark said, "Education is not complete without a study of the history of religion and its relationship to the advancement of civilization." Justice Goldberg said, "The Court would recognize the propriety of teaching about religion, as distinguished from the teaching of religion in the public schools."

In a 1981 book, Freedom and Federalism, about powers reserved to the states by the Bill of Rights, Felix Morley said that the Constitution reflects the fundamental natural law of enduring moral values without which civilization would be impossible. He considers maintenance of our Federal Republic a moral issue which depends as much on churches and synagogues as on legislatures and law courts.

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What Makes America Great?
An Address before the Dallas Chapter Society for the Advancement of Management
May 9, 1951
by Richard J. Gonzalez, Ph.D.

The average American today lives better than a king in 1851. He enjoys greater comfort and a wider variety of food, clothing, and shelter. He takes for granted marvelous systems of transportation, communication, and other things that could not be bought with any amount of money a century ago. Even compared with most people in the rest of the world today, he has far more comforts and material things of life. What accounts for this remarkable achievement? Three keys to economic progress have been used to bring about our high standard of living. Capital, energy, and freedom are the secret to progress at all times and anywhere.

Capital

Productive capital is the first key to economic progress. In the form of machines, it is the magic multiplier of man's efforts to produce goods.

With such simple tools as an ax and a wheel, primitive man first began the upward climb along the path of progress. For many centuries man was limited to tools which he could operate by himself or with the use of animals. Then, within the past two hundred years, by applying mechanical power to productive machines, vast new possibilities were opened up. One new machine suggested others. Invention followed invention.

The development of mass production machines and techniques was a landmark in human progress. It resulted in production of such quantities and at such low cost that goods and comforts undreamed of before became available to the great mass of people.

Mass production requires an enormous amount of capital. In some industries the equipment required for the average worker costs more than $100,000, and for all manufacturing the cost of productive tools now approaches $10,000 per worker. How is an average worker to be provided with these tools which cost from three to thirty times as much as he can produce in a year? Unless means exist to encourage creation of this capital equipment, to replace it as it wears out, and to add new equipment constantly, our productive capacity will decline.

Capital has been created in the Western world by individuals rather than by government. It has been created under the incentive of the profit motive. The individual who wanted to improve his standard of living devoted part of his effort to creating productive equipment which would enable him to have more in the future. Families worked hard to give their children an opportunity to start out with a better education and more resources than their parents had. Without planning or central direction, these efforts led to the creation of more machines. As these machines increased production and raised standards of living, it became easier for people to spare part of current production to make more tools.

The widespread use of machines raises an important question: How should production be divided between those who provide capital equipment and those who run that equipment? The worker believes his contribution is the greater because machines could not produce without him. On the other hand, without the machines the worker could not produce enough to pay his wages. But since machines already exist, cannot workers gain by appropriating for themselves all of the production made possible by the machines? The answer to this is an emphatic "No," even though it might appear that a gain could be made temporarily. It is the continuous creation of new capital which brings about economic progress, not merely the use of the capital existing today. Regardless of ownership, there must be enough incentive for someone to do without something today so that work may be applied to building new machines which will support future productive capacity. That incentive is the price paid for the use of capital in the form of interest and profits, for without that price future capital would not be forthcoming. Actually, the price paid to the creators of capital is a very small one, especially when we consider the additional production made possible by that capital.

For economic progress, we must have productive capital and the incentive to create more of it.

Mechanical Energy

The productive machines of the modern world are not operated by human energy. They would stand idle but for the availability of enormous quantities of mechanical energy at low cost. Machines and energy together really turn out the goods of the world today. Our second key to economic progress is mechanical energy.

Mechanical energy is a modern Aladdin's Lamp. It literally performs miracles. It carries us through the air faster and more comfortably than any magic carpet. It transports people and goods all over the face of the world. It freezes and cooks our foods, cools us in the summer, and warms us in the winter. It powers the machines which make parts, and runs the assembly lines on which those parts are made into the millions of products we use. It drives our automobiles, lawn mowers, electric razors, and hundreds of other gadgets from clocks to washing machines.

Our standard of living is peculiarly dependent upon mechanical power. The more machines we have, the more power we need to operate them. The more power and machines, the less work individuals have to do. Thus, we can enjoy today both a much higher standard of living than did our fathers and grandfathers in 1900 and more leisure. This is truly the age of energy. We must have increasing supplies of such energy at reasonable cost if we are to continue our economic progress.

Energy consumption at a high rate is especially characteristic of the United States. In this country we use ten times as much mechanical energy per capita as the people of the rest of the world. Motors with ten horsepower would be required per person, operating constantly every minute of the day and night, everyday of the year, to equal the energy we use. It would take fifty servants of every man, woman, and child in the United States to produce that much energy! Even if we could hire and support that many servants, they would not be able to do some work that mechanical energy can do, such as lighting, heating, and cooling our homes and offices.

By what good fortune does the United States enjoy such an abundance of fuels to provide this mechanical energy? First, the fact that our country was well endowed and natural resources of coal, oil, and gas certainly have been important in our economic progress. But these resources were merely inert substances until man exercised initiative in discovering them and converting them to useful ends. Our enterprise has developed potential resources more effectively in the United States than elsewhere in the world.

Our advantage in energy over the rest of the world has come particularly from a great development of oil and gas production under a system of competitive search. There has been found to date as much oil in the United States as in the rest of the world, and the United States has produced to date about two-thirds of all the oil produced in the world, although the potential resources here are much less than those in the rest of the world. The availability of liquid fuel in large quantities has been a major factor in the revolution brought about in American living by widespread use of the automobile. We have become a nation on wheels dependent for the transportation of goods as well as ourselves to a large extent on the internal combustion engine, including the Diesel locomotive.

Many of us think of power largely in the terms of electricity because that is so widely used in our homes and factories, but basically petroleum and coal really supply the power used in this country. Hydroelectric power actually accounts for only about five per cent of the total energy used in the United States. Most of the electric power we use is generated from coal, oil, and gas. In recent years, oil and gas have come to supply much more energy than coal.

Can we continue to have enough energy or are we doomed to a falling standard of living when we exhaust our natural resources of mineral fuels? The prophets of gloom are convinced that we will run out of oil soon and all mineral energy eventually, with the result that our production based on machines will decrease. There is little basis for such fears so long as we encourage technological progress. Our entire experience demonstrates the enormous potentialities of new technology. We would have run out of oil long ago if we had depended merely on the technology available at the beginning of the twentieth century. It is the invention of new and better methods of searching for oil, of drilling, and of producing oil which has supplied us with such vast quantities of liquid fuels at low cost. Similarly, the pressure of competition from oil has led to improvements in use of coal and better machinery for mining coal. Our technology is not static. On the contrary, it is highly dynamic, always improving. Under the spur of competition, it is bound to advance still further. In that case, we can count on improvement in technology to provide the mechanical energy we need for an expanding economy.

The known resources, proved and potential, of oil, gas, and coal are sufficient to last for a very long time in the future. How many years such supplies will last cannot be predicted with certainty. It is reasonable to say, however, that these supplies will last long enough for technology to open up new sources of power and energy. Power from the rays of the sun, or from nuclear fission, may ultimately supplant power from coal and oil and gas as the prime mover in our productive effort.

Human Freedom

Productive machines and mechanical energy are the prime movers in economic progress, but their effective development depends upon a proper climate of ideas. Ideas are ultimately man's distinguishing characteristic and most powerful force. Of man's ideas, human freedom stands out as the third key to economic progress.

The traditional, customary relations of people in the Middle Ages were a chain to the past and a barrier to progress. So long as an individual's occupation and status in life depended on his birth, regardless of ability, there was little opportunity or incentive for improvement. Only when such traditional bonds were broken by the concept of individual quality and freedom did society begin to advance rapidly.

Modern concepts of a free society were formulated less than two hundred years ago. Economically, they were expressed by Adam Smith in his famous "inquiry into the Nature and Causes of the Wealth of Nations" published in 1776. Politically, their clearest expression was in the Declaration of Independence of the same year. The founders of this country held these truths to be self-evident: "That all men are created equal; that they are endowed by their Creator with certain unalienable rights; that among these are life, liberty, and the pursuit of happiness." The history of the United States represents the logical development of this simple, fundamental thesis.

There is great significance in the use of the phrase, "the pursuit of happiness," in the Declaration of Independence. Happiness itself was not listed as an unalienable right. Instead, our right is to work and search for happiness. In that pursuit, our predecessors conquered a continent and built a nation.

Because individuals are free to enjoy the results of their effort, they have been encouraged to increase production and to create capital equipment. In the pursuit of happiness they have added enormously to the prosperity of the entire population. Some few have made fortunes as a result of their inventions and enterprise, but the principal benefits have been for all of us in the form of automobiles, plumbing, central heating, electricity, and countless conveniences unknown in 1850. Thus, freedom has contributed to prosperity and happiness for all.

Freedom is the crucial issue in the world today. Every economic system must use productive capital and mechanical energy if it is to be successful, so the basic distinction between systems is whether they accept or reject freedom as a principle for organizing human activity. The only alternative to free choice is compulsory force. In our system, the individual decides what he wants to do or buy and the government helps maintain the greatest freedom for all of us. The alternative is for government to force people to do what it wishes. One system takes advantage of all the ideas developed by a free people in a competitive society under the stimulus of private enterprise; the other subjects everyone to the ideas of a few men in charge of planning.

Progress Through Education

Man's future advance depends upon capital, energy, and freedom. But only education can teach the world to know and use the keys to economic progress. Education throughout the world, as well as in this country, is needed to create an understanding of these factors in raising standards of living.

Education has been a catalyst in economic progress. Education has taught us to understand and use productive capital, mechanical energy, and freedom. In schools and through experience we have learned how to build and operate machines, how to develop energy resources, and how to organize human activity to best advantage. We have learned not merely to apply what we are taught, but to develop new ideas, machines, and processes.

Education has also contributed profoundly to equality of opportunity. Such equality is essentially that contemplated in the Declaration of Independence, for the differences between individuals are too great to believe that the phrase "all men are created equal" was intended to mean that all mean are equal in a literal sense. Opportunity to progress as far as ability and effort permit has inspired the people of this country to self-improvement on a remarkable scale. It has led to a rapid economic advance that allows each new generation to start at a higher level than the one before.

In science and material progress we have used education to great advantage, but in helping us to find happiness, we have not used it quite so well. Education increases our knowledge and wants so much that sometimes we are more inclined to look at the things we want but do not have rather than at all the goods we do enjoy. By such strange reasoning we can make ourselves unhappy even in the midst of great economic prosperity. Even the keys to economic progress will fail to make us happy unless we learn that there are other values in life beyond material goods.

Our economic system cannot be transplanted successfully in its material aspects alone. If it is to thrive elsewhere, freedom and education must go with it. Machines and energy are the material resources basic to production, but it takes free men of intelligence, education, and good will to create from these resources a dynamic economy capable of further progress. Therein lies one of the greatest problems in improving economic conditions abroad, for it is not enough merely to provide others with machines and fuels. With these commodities must go the principles of a free society. For millions of people of this world who have never known real freedom, it will not be easy to grasp or apply the essentials of economic progress. Still, we must strive to help them understand what it takes to improve their lot, for if we fail they may pull us down along with them.

U. S. Economy: 1951 Model

The standard of living delivered by our economy in 1951 is as far superior to that of 1900 as is the automobile of today to the first gasoline buggy. In terms of output, quality, and price the achievements of the twentieth century are convincing proof of the efficiency of a free economy. Why, then, should there be any debate over the best system for achieving economic progress? Why should anyone seek to change our 1951 model of the free economy?

Characteristically, Americans seek better things, no matter how good the "current model" may be. We are not satisfied that this year's automobiles are better than those preceding them but instead look forward with impatience for next year's models which will be better. The same attitude prevails with respect to our economy: We know it is good, but we would like to make it still better.

Only a free economy can achieve economic progress without coercion and central direction. The capital and energy which make the United States prosperous have been created by individual initiative and private enterprise, not by government action. A democratic government cannot be a successful creator of productive capital because the majority of the voters prefer to have tax money spent for present benefits rather than for projects productive only in the future. For a government to be a major factor in building capital equipment, it must be a dictatorship indifferent to the wishes of the people, but then there are lost the individual initiative and private enterprise most effective in developing the productive capacities of people. A free economy provides the greatest development of machines and fuels, and no other system can remotely approach it.

In the process of improving our economic system, many changes have been made from the free economy visualized in the classical economic theory. Some of these changes have involved government regulation of economic activity, largely in the form of definition of the rules of fair play. Some controls of this kind can contribute to the effective functioning of an economy without destroying its fundamental principle, but that does not mean that an indefinite extension of economic regulation or planning by government would be good. Beyond a certain point government action hinders rather than helps production. There is a vast difference between maintaining freedom and competition and smothering them in excess regulation. Laws which go beyond the principles of a free economy into the field of government direction or operation of business destroy freedom and decrease production.

Business leaders of the United States have devoted their energies so fully to creating a technically productive system that they have not always given enough attention to the human aspects which must be taken into account if the system is actually to operate efficiently. Experience proves, however, that social maladjustments can act as limiting factors on technical progress. Therefore, business men must evaluate anew their role in production as involving social as well as economic aspects. Then they will again have a positive program for progress to offer. Businessmen must provide such a program if they are to receive popular support; for leadership must be positive and can never be merely negative.

Let us plan to improve the 1951 model of the free economy, but let us not make the fatal mistake of forgetting the fundamental forces of that system as we design the new model.

Toward a Better World

The marvelous economic progress of the Western World has been built upon productive capital, mechanical energy, and human freedom with the assistance of education. The system has been so successful that it has aroused the envy of the rest of the world. Millions of people on the edge of starvation in other countries are eager to improve their life and to attain even part of what we have. They would like overnight to achieve more than they have in two thousand years, as much as the United States has accomplished in a century of amazing progress. Since they do not understand how we have reached our present position, it is not strange that they fall victim to Communist doctrines which offer them the promise of sharing all that we have created. For most of these people, these empty promises outweigh fears of dictatorship, for few of them have known freedom such as we enjoy. The tragic error is that we have not made the rest of the world see that freedom promotes economic progress, in addition to being a priceless right in itself.

It is the task of Western civilization to demonstrate to the rest of the world that the road to economic progress is not one of dividing existing wealth, but rather of creating more new wealth by the processes of a free economy. Our great asset is our ability to produce more and better goods, not our present possessions. We have a responsibility to help the rest of the world improve its standards of living by means of an understanding of the basic forces of a productive economy. If we can make clear that machines, energy, and freedom are the indispensable ingredients necessary for economic progress, then we will have done all we can to lead the world along the road to future prosperity and peace.

The world is confronted with a choice between rival economic systems. The appeal of our rival is necessarily emotional, for its system has not proved as productive as ours. Emotion frequently is more appealing than logic, but it does not solve practical economic problems. Our superb economic system offers the practical advantage of superior productions, which is of primary concern to the rest of the world. As a bonus of the greatest value, it also provides freedom. Surely, any good American salesman should be able to sell such a system on practical or emotional grounds. Perhaps our trouble is that we have been too busy improving our system at home to bother about exporting it to foreign markets! It is essential, however, that we concern ourselves with the relation between the progress of the rest of the world and our own, for failure to do so may destroy us. A positive role of leadership on our part must surely convince other people that they too can enjoy economic progress and freedom together.

If we have the understanding and courage to use the keys to economic progress which have brought us so far and so fast in man's upward climb, we can--and will--build a better world than we can dream of today.

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What Enabled Americans to Achieve Great Progress?
Keys to Remarkable Economic Progress of the United States of America
October 17, 1989
by Richard J. Gonzalez, Ph.D.

This more recent supplement to Dr. Gonzalez's original essay, What Makes America Great? (1951), summarizes and recaptures key factors for economic progress.

The people of the United States of America achieved remarkable progress in the two centuries since approval of the Constitution in 1789 while billions of people in many other countries remain very poor. An understanding of the reasons for this great difference is essential for creation of conditions that will enable people in other countries to improve living standards at a good rate.

Four key factors determine the rate of economic progress that the people of a country can achieve. They are freedom, capital investment, energy, and education. These factors are the keys to increased output of goods and services necessary for each generation to do as much as possible in raising living standards to the level required for human progress in all aspects of a good civilization.

Freedom releases human ingenuity and allows people to use their initiative and work to improve life for themselves and their posterity. Economies in which people enjoy freedom have free enterprise and free markets as a result of strictly limited governments with only the powers granted to them by constitutions approved by the people. The 1776 Declaration of Independence stated that governments are instituted to protect the equal unalienable rights with which all people are endowed by their Creator, that governments derive "their just rights from the consent of the governed," and that whenever government becomes destructive of these ends "it is the right of the people to alter or to abolish it."

Throughout history many people have been slaves or serfs with nothing to gain from being innovative and more productive. The idea of limited government controlled by the vote of the people originated in Greece about 2,500 years ago but did not have much influence until recent centuries. Barons forced King John of England to sign a Magna Carta in 1215 to limit powers of the king, but it was not until 1689 that the British Bill of Rights, stating that Englishmen possessed certain inviolable civil and political rights, was accepted by William and Mary, who were named as sovereigns after King James II was forced to abdicate.

Concepts of political and economic freedom were expressed most clearly in the year 1776 by the Declaration of Independence and in Adam Smith's book, "Inquiry into the Nature and Causes of the Wealth of Nations." The constitution of the United States and the first ten Amendments approved in 1791, known as the Bill of Rights, imposed strict limits on the powers of the national government, required every state to have a constitution defining the powers and terms of its elected officials, and reserved all other powers to the States and to the people. (Article X)

The freedom of people to own property and choose what they want to do to support themselves and their family by their work led to greater production and to savings used for the education of children and for investment in homes and capital facilities to increase production. The happiness that comes from being productive and successful added greatly to the wealth of the nation and to living standards of all the people. Even poor people in the United States enjoy living standards higher than those of many poor people in countries that do not grant freedom to their citizens. Some individuals have made fortunes in the United States from their inventions and enterprise, but the principal benefits have been for the general public in the form of better homes, plumbing, electricity, central air conditioning, automobiles, and countless other conveniences not available even to the rich a century ago.

Freedom for private enterprise attracted millions of people to the United States and enabled them to improve their living standard enough to save money to invest in facilities to create a better future.

Capital Investment in mechanical equipment to improve the productivity of labor has been the basis of rapid economic progress. The upward climb along the path of progress began with the use of simple tools such as an ax and a wheel. For many centuries man was limited to tools which he could operate by himself or with the use of animals. Vast new possibilities opened up within the past few centuries by applying mechanical power to productive machines. Mass production techniques were a landmark in human progress. Increased production at low costs made available to the great mass of people goods and comforts undreamed of before mechanization and capital investment.

Investment in farm machinery made it possible to increase output of agricultural products with fewer workers on farms. Now the three percent of the labor force engaged in agriculture in the United States produces ample food supplies that enable our country to export large quantities of grains. Much higher productivity in agriculture has made it possible for most workers to add to the wealth of the nation by engaging in industrial and service occupations

Investment in productive capital facilities and in education served to accelerate economic progress in the United States. Parents have worked hard for many generations to give their children opportunity to start their productive life with a better education and more financial resources.

Continuation of economic progress requires that people focus on being productive and in saving a substantial part of their income to invest in productive capital facilities that will make it possible to create a better world. Extravagant spending should be avoided in order to increase availability of productive capital to add to the real income and wealth of the people in all countries with constitutions that limit the power of governments in order to guarantee both political and economic freedoms that enable people to improve living standards by allowing them to enjoy the rewards of their work and initiative.

Energy is also necessary for human progress. The productive machines of the modern world and many things that add to the comfort and quality of life require a lot of mechanical energy. Energy transports people and goods all over the world. It can carry us in airplanes at high speed. It freezes and cooks our food, cools us in summer, and warms us in winter. It powers the machines which make parts and the assembly lines on which these parts are made into the millions of products we use. It drives our automobiles, lawn mowers, and hundreds of other gadgets from clocks to washing machines.

Our standard of living is highly dependent on energy. The more machines we have, the more power we need to operate them. Machines and energy reduce the amount of work that individuals have to do. Energy enables us to enjoy both a higher standard of living and more leisure than our parents and grandparents. This is an age of energy that will require adequate supplies of energy to assure continuation of economic progress throughout the world. In addition to making human labor more productive, inanimate energy does many wonderful things that cannot be done by human workers and makes the cost of travel so reasonable that many people can afford trips in their own country and to other countries far from their homes.

Our use of energy per capita in the United States is equivalent to the energy of work done by scores of servants and much higher than in many other countries, especially the less developed countries. Private enterprise was the basis of the leadership of our nation in the production and use of energy although its energy resources are now known to be small relative to the known and potential resources of other countries.

Underground energy resources have existed for millions of years, but it required human ingenuity to discover and produce them and convert them into useful products, such as gasoline and fuel oils, in order to make them an important factor in improvement of living standards. Many small and large firms have been involved in development of the energy resources of this country by paying the owners of land for the right to search for and produce energy beneath the land. Competition was an important factor in the technological progress that led to increased production and very attractive prices for oil and natural gas relative to coal. Successful energy companies of the United States have been active in development of oil and gas resources in other countries, including many in which the government owns all mineral resources that were not available for development until concessions were granted to private companies.

Education is necessary to teach people in all countries to understand and use the keys to economic progress. In a dynamic and rapidly changing global economy, the rate of human progress will depend on learning in schools and through experience about the importance of freedom, capital investments, and energy in enabling people to become more productive in order to improve living standards. We must learn not merely to apply what we are taught in school but also to develop new ideas, machines, and processes to organize human work to best advantage.

Opportunity to progress as far as ability and work permit has inspired the people of the United States to achieve remarkable progress. We have used education to great advantage in scientific and material progress, but we have not used it quite as well in helping us to find happiness. In an affluent society, some people are inclined to think more about things that they want but do not have rather than about all the goods that they enjoy which were not available to prior generations. By such strange reasoning people can make themselves unhappy even when they are quite well off. Even the keys to economic progress will fail to make some people happy if they do not learn that there are important spiritual values in life as well as material goods. There can be more satisfaction from constructive work that provides goods and services to improve living standards than from making money in ways that do not improve living standards and create real wealth.

Schools must teach all their students that the remarkable progress achieved by the people of our nation is the result of our unique heritage. President Franklin Roosevelt said that a nation must "believe in the capacity of its people so to learn from the past that they can gain in judgment for the creation of the future."

Building a better world will require increased production of goods and services in all countries with poor living standards. The road to economic progress is in the creation of more goods and services, not in dividing existing wealth. We have a responsibility to help people in other countries improve living standards by understanding the basic keys of our productive economy. All people must learn that freedom promotes economic progress in addition to being a priceless right in our enjoyment of life. Capital investment and energy are the material resources basic to production, but it takes free people of intelligence, education, and good will to create from these resources a dynamic economy capable of good economic progress to improve living standards, especially for the poor people of this world.

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Power for Progress
by Richard J. Gonzalez, Ph.D.

This article was originally published in the September-October 1952 issue of Humble Way magazine. Dr. Gonzalez was a former Director of Humble Oil & Refining Company.

Progress in man's struggle to raise living standards above a subsistence level has been faster and greater in the United States within the past fifty years than in all the rest of recorded time. By comparison with the life in our own country in 1900 or in other countries today, our advance during this century has been remarkable.

Among the things we take for granted are electric lights, good plumbing, refrigeration, central heat, telephones, automobiles, airplanes, radio, television, and scores of useful appliances in the home. Our parents would have considered themselves fortunate to enjoy even a few of these comforts, but we expect to have all of them for the great mass of people.

We in America seldom realize how much better off we are than most of the people in the rest of the world. Occasionally newspaper accounts of famine and starvation in the Orient make us aware of the vast differences in our economic welfare. Even in normal times, however, life is hard for many people throughout the world. For example, the American Geographical Society describes the life of the poor Egyptian as follows:

"For the fellah, life is hard. His tools are those of his ancestors – the hoe, the wooden plow, the hand sickle, and the threshing board. His dwelling is a crude, fly-infested, two-room mud hut sheltering family, water buffalo, and chickens alike. He owns little clothing and knows few comforts. He depends on the Nile for both drinking water and sewage disposal, and his wife and children collect dung for fuel. Like three-fourths of his countrymen, he is afflicted with disease."

Life such as that described in Egypt is not far different from what is was two thousand years ago. Yet, Egypt had universities and a high civilization when this country was still a wilderness. From this fact we can only conclude that progress is not inevitable, as we sometimes are inclined to think.

How does it happen that we have progressed so rapidly and enjoy so much in this country? A large land area with free trade and common laws has been important, but other countries have had the same conditions, without similar progress. The frontier may have been a factor, but we have continued to make rapid progress since its passing about 1900. Natural resources have helped, but other areas more abundantly endowed with resources have lagged far behind us. If these apparent differences do not explain our success, what are the factors that account for our progress in the past and are indispensable to our continued progress for the future?

Freedom, education, machines, and energy have been the major forces responsible for the high standard of living we enjoy today. Freedom and education are of the utmost importance. Without them and their underlying spiritual philosophy, the powerful force of individual initiative is crushed and almost lost. But they are not enough. What man can do with his hands and muscles is limited. For economic progress we must have machines and energy to multiply man's productive efforts.

Machines do many things for us. On the farms they cultivate the land and harvest the crops. In industry they make goods in great quantities. They are our means of modern transportation for goods as well as the magic carpet of millions today. In our homes machines perform many tasks.

Productive machines are not operated by human energy. They would stand idle but for mineral energy available in great quantities at low cost. The more machines and energy we have, the less work individuals must do. Thus, we can enjoy today both a much higher standard of living than did our parents in 1900 and more leisure. This is truly the age of energy. We must have increasing supplies of energy at reasonable cost if we are to continue our economic progress.

We in the United States use an enormous amount of energy to do our work. We use ten times as much mechanical energy per capita as the people of the rest of the world. It would take two hundred servants to equal the work which machines do for the average family of four people. Machines and energy do more for us than servants could, and perform their work at a cost that most of us can afford.

Energy from Petroleum

We are even more fortunate with respect to liquid fuel than energy as a whole. In the United States we use daily two gallons of petroleum products per person, or twenty times as much per person as in the rest of the world. In 1951 our domestic petroleum consumption of nearly two and a half billion barrels represented about 60 per cent of the total for the world. The abundance of oil we use provides us with the mobile power indispensable to a productive economy, with automatic heat, and with much of the energy for industry and electric power.

Our great advantage in energy over the rest of the world has come particularly from the remarkable development of oil and gas production. The United States has produced to date about two-thirds of all the oil produced in the world. A large part of the oil and gas resources found elsewhere in the world has been discovered by Americans with the technology developed in this country.

Since 1920, oil and gas have supplied all of the increase in energy used in the United States, while the production of coal has actually decreased in amount. Consequently, oil and gas have displaced coal as the principal source of energy in the United States, and now supply about 60 per cent of our mineral energy. Expansion of oil and gas supplies has been a major factor in our extraordinary economic progress.

It is not a matter of chance or luck that the United States has experienced such a remarkable increase in supplies of oil and gas. Mineral resources have existed beneath the surface of the earth for millions of years, but only recently have they been developed and utilized through man's initiative and ingenuity. Our system of competitive enterprise, by the incentive it provides through permitting operators to realize and keep an adequate profit from their successful ventures, has encouraged the development of resources. Without such incentive, the expensive and hazardous search for oil would never have been carried on as aggressively as it must be to find the oil we need.

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Increasing Importance of Economic Education
by Richard J. Gonzalez, Ph.D.
April 10, 1953

An understanding of economics is of increasing importance to everyone. The decisions we make about our personal economics, and through our votes on government economics, affect us materially in a financial way and in terms of standards of living immediately and for the future.

All of us have a direct financial concern and incentive for understanding economics today. What we do, what various groups such as labor unions do, and what government does affects our economic life and welfare. We cannot assume that progress of standards of living will be orderly and continuous. The history of other nations shows that standards of living may fall as well as rise. How well we come to understand and manage our economic system in our lifetime will have a great bearing upon the standards of living and the freedom of our children and the generations following them. If we are willing to devote the effort to an analysis of these problems, we can no doubt come to the proper decisions needed to assure the continued progress of this nation. To ignore the problem and the challenge is to run a grave risk of sacrificing freedom as well as economic progress. It is well worthwhile for all of us to devote a small part of our leisure time to an analysis and better understanding of economics. The effort should be amply repaid in time, not only for us but for others in terms of real progress in material standards of living and in terms of those intangibles of freedom, education, and spiritual values which identify a truly great culture and civilization.

The 1952 article "Power for Progress" by Gonzalez, Economist and Director of Humble Oil & Refining Company, was published in the September-October Humble Way magazine. The article stated in its conclusion that "We must maintain free enterprise to keep our nation strong. Americans must maintain the competitive free enterprise system and fair tax principles that have proved successful for good economic progress in the past quarter century."

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Federal Spending and Deficits Must Be Controlled to Stop Inflation
by Richard J. Gonzalez, Ph.D.
March 22, 1978

Inflation is the primary problem that must be solved in order to restore effective functioning of the U. S. economy. It will not be solved until the public understands that inflation is caused by excessive government spending and large Federal deficits.

The Real Meaning and Cause of Inflation

Inflation reflects a fall in the purchasing power of money and a corresponding rise in the composite level of prices caused by an excessive expansion in the supply of money and credit. Control of the supply of money and credit is entirely in the hands of the Federal government through the actions of the Treasury and of the Federal Reserve System.

Inflation is caused not by a shortage of labor or goods but by a surplus of money and credit. Such surplus develops whenever government persists in spending much more than it collects in taxes. Such action creates artificial purchasing power to the extent that deficits are financed by government promises to pay in the future rather than by the savings of consumers. In the absence of surplus money, even a large rise in prices of a major class of commodities, such as food, would be offset by declines in other prices, with little change in the value of the currency.

Inflation interferes with normal economic processes by penalizing those who save and rewarding those who incur heavy debts. For example, individuals who bought government bonds during World War II found that the dollars received when the bonds matured bought much less than the dollars invested much earlier. In terms of real purchasing power, lenders experienced a loss instead of a reward for saving. Such experience discourages savings and also makes planning for the future difficult because of great uncertainty as to the value of the dollar in later years.

Inflation Impedes Economic Progress

Developments that discourage savings inevitably impair the rate of economic progress. Savings are essential to create the tools and facilities required for more and better jobs. The remarkable economic progress of the U.S. in the past has been based on the increasing amount of capital per worker that made possible an expanding output of goods and services per hour of work. So long as individuals can reap adequate rewards for their work and savings, they can be induced to promote the national economic welfare by their collective efforts.

It is widely recognized that more business investment will be needed to provide adequate employment opportunities. However, government officials do not seem to realize that current rates of inflation are the major obstacle to the necessary rate of expansion in employment, investment, and production required to improve average living standards for a growing population.

The difficulty in expanding real capital investments in business can be illustrated by the experience of the past twelve years. In that period, the average cost of replacing business plants and equipment has doubled according to the government index. Because of that change, a facility built for $1,000,000 in 1966 will cost $2,000,000 to replace in 1978 merely to maintain the same capacity. The depreciation allowed under the tax laws will total only the original cost of $1,000,000. The current investment tax credit of 10% will provide $200,000 of the additional sum needed for replacement. The difference of $800,000 required to maintain the real value and capacity of the original investment has to be raised from revenues incorrectly taxed as income. As a result, the profit required in order to stay in business with the same capacity seems to provide a very high return on the original investment, but the appearance of high profits is false because it results from the lower value of the dollar.

The irony of the situation is that the 10% investment tax credit is called an incentive granted by government to encourage investment. In fact, in the circumstances of the past twelve years an investment tax credit of 50% would be required to avoid taxing as ordinary income some of the revenues needed to maintain the real capital of the business. Business has failed to make this point clear to the public although it should be readily understood by workers who insist that their real income be protected against the decline in value of the dollar.

Inflation also poses serious problems for the average family. If prices continue to increase at the average rate of the past five years, a typical family of four would need an increase in income of 125-150% over the next ten years to maintain the same purchasing power after Federal income and social security taxes. That advance would call for average annual increases in income of 8-9%. If rates of pay rise that rapidly, then the unit labor cost of goods and service will rise by 6-7% per year since productivity of labor is improving only about 2% per year over the course of the business cycle. This situation means that inflation creates a vicious circle that limits opportunity to improve living standards even with large increases in pay earned by hard work. If inflation were to continue at a rate requiring pay increases of 8.5% per year, a worker entering the labor force at age 20 earning $10,000 would have to receive about $390,000 a year upon retirement at age 65 just to maintain the same after-tax purchasing power as at the beginning without any reward for experience or merit.

Inflation Cannot Continue at a Steady Rate

Continuation of inflation at high rates over a long period of years would destroy our economy and our political system. If inflation is not checked soon, the inevitable consequence will be a steadily accelerating rise in prices. The final result would be a financial crisis wiping out the savings of the great middle income families that constitute the real strength of a democracy.

The road that the U. S. has been following since 1965 will lead to further drastic devaluation of the dollar. The end result could be to convert existing dollars into a new penny, as De Gaulle did in France after World War II by making 100 old francs equivalent to one new franc with a purchasing power equal to that of the old franc before the war.

It is not necessary, however, to continue following the present road to financial chaos. Experience demonstrates that inflation can be checked by taking decisive actions to control government spending and to restore the effective functioning of a market economy responsive to the realities of supply and demand.

Inflation Can Be Stopped

The U. S. has experienced previous periods of inflation from which it has recovered successfully. The major inflations before this one were caused by heavy spending for military operations during wars which were financed in large part by deficit spending. After the wars stable prices were achieved again when government spending was reduced and deficits were eliminated.

The experience after World War II provides a recent example of how inflation can be brought under control following a period of large deficits. The surplus money created during the war caused a sharp rise in prices when controls were removed in 1946, but the government reduced spending and operated with a surplus of revenue for 1946-51, which permitted reduction of the outstanding public debt. The cost of living stabilized in 1948-50, rose slightly at the time of our military action in Korea, and then stabilized again from 1952 through 1965 during the time that federal spending was kept in line with the real growth of national income. For 1952-65, the average annual increase in the consumer price index was only 1.5%, compared with 5% for 1939-52 and 5.5% for 1965-77. In both periods of inflation government spending increased much faster than the nation's real income and the federal debt rose very rapidly. At these high rates of inflation the purchasing power of the dollar dropped 50% in 12 to 15 years. By contrast, at 1.5% increase per year the same decline would take nearly 50 years.

The long term growth in the real national income of 3-4% reflects the combination of an increasing labor force and improved productivity made possible by greater investment per worker in better machines and tools. Whenever spending by government jumps sharply above that rate, the strong resistance of voters to sharply increased taxes leads to the deficit spending responsible for surplus money and a rapid rise in prices.

Federal spending has increased at a rate of 11% per year since 1965 and is scheduled to increase at the same rate through 1979. Revenue has fallen short of expenditures by a steadily widening margin. As a result, the federal debt increased as much between 1966 and 1976 as between 1936 and 1946. Inflation now is likely to be worse than after World War II because there was much less unused labor and productive capacity in 1966 than in 1936.

The lessons of the past are very clear as to the conditions required to achieve and maintain stable prices. First, government spending must be restrained to increase no faster than the long term growth in real national income of 3-4%. Second, federal deficits must be eliminated over the normal business cycle of four years, with deficits during a recession limited to the surplus accumulated during the preceding years of high economic activity. Third, the Federal Reserve System must follow policies that keep the supply of money and credit in line with the long term economic growth rate.

Government Spending Must Be Checked

The basis of inflation since 1965 has been an excessive increase in spending by all levels of government that has been completely out of line with the growth of only 1% a year in population and 3% a year in real national income. Inflation cannot be stopped until government spending is checked sharply for a number of years in order that the burden of taxes and public debt can be reduced back to reasonable levels similar to those of 1952-65 when prices were relatively stable.

Efforts to control spending must be made at all levels of government. We should start by impressing on local and state officials the need to keep spending in line with the real growth of income. The total cost of all local spending, including federal grants, must be taken into account in order to avoid extravagant outlays. The danger in federal sharing in the cost of local projects is that people will be deluded into believing that federal money does not cost them anything. In fact, the federal government must finally pay through taxes and inflation for everything that it spends. Any community with income at or above the national average should realize that what it spends in federal money will have to be paid for in full by its citizens plus all of the administrative costs of collecting and redistributing the funds through the U. S. Treasury.

The major step to check inflation will be to regain control of federal spending. Unfortunately, there are many pressures on congressmen to seek federal funds to take care of local needs that could be handled more efficiently and economically by local governments. The trouble with federal revenue sharing programs is that, as mentioned, they lead to extravagant outlays which would not be made if people realized that they finally have to pay for all the cost locally. If local governments have the support of taxpayers to shift some of the burden from property and sales taxes to income taxes that can be collected most efficiently by the federal government, the best economic solution would be to provide that a specified portion of income tax collections from each county or metropolitan area be returned to the appropriate local governments to be spent in accordance with the wishes of local voters rather than subject to the control of the Washington bureaucracy.

It seems clear that the majority of voters would like to see government spending checked and inflation stopped, but it will not be easy to bring these results about under our present system in which we vote on candidates rather than on issues. Unfortunately, there is little resemblance between what candidates promise while campaigning and what they do if elected. Perhaps what we need most is a law requiring truth in political campaigns, with the penalty of removal from office as soon as any campaign promise is violated.

Voters must find a way to reassert their control over the burden of taxes and the amount of public debt. Since the federal government relies so heavily on income taxes, the most important step will be to see that inflation does not automatically increase the burden on taxpayers for the benefit of the Treasury. The basic assumption in support of graduated income tax rates is that ability to pay taxes increases with income, but that assumption is not valid if the higher income is caused by the decline in the purchasing power of the dollar. Therefore, the tax laws must be changed to provide for automatic adjustments annually in all income tax brackets in relation to the change in the value of the dollar. Furthermore, deductions allowed in computing depreciation and capital gains must be changed to take into account real values measured in dollars of constant purchasing power. These major basic changes would mean that the burden of income taxes could not be increased without congressional approval of higher rates, contrary to the present situation in which the burden of taxes increases even though Congress seems to be making minor reductions in rates.

Ending inflation will not be easy and will take several years at best. Inflation must be stopped, however, in the interest of national economic progress and of limiting the power of government over personal income and wealth.


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