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January 30, 1940
Chairman Eccles
:&aile Despres

M r . Curri© asked me t o go over a summary prepared
by a member of the T . N . E . C . s t a f f of the hearings on savings
and investment before the T . N . E . C , l a s t May.

We have r e w r i t t e n

th© i n t r o d u c t o r y sections of the summary and suggested a number
of r e v i s i o n s of the remainder.

I have had t o r e t u r n the summery

to Mr. C u r r i e , and I don*t t h i n k you w i l l be i n t e r e s t e d i n going
over what I have prepared.
you informed.




I am sending i t

to you merely to keep

OF

C2 L/VIBOS ;£D IgV&>S£ST

D - ^ r i n r ^ p ^ r ra-- s s c g K i m s m

^.CEAIICI: e a m i t t i c ^ t^ium

TSJlsc^T

c ^ m ,

B.'.TIOKAL actgcmc
m

-m:

16-25> 1939

The process o f ssYiag and invectnsofc ha* bees taken as
the subject f o r t h i r test!taoxy because i t i t looked upon as being
I n a c e r t a i n sense s t r a t e g i c f o r the

o p e r a t i o n o f the economic

President l:ocsevelt i n a l e t t e r t o Cheiman O'Mahcaey has

syste:;*
w r i t tern

n

I t i s a matter o f ccnacsa knowledge t h a t the d o l l firs which

the Jaerieea people save each year are not y e t finding-, t h e i r way
back i n t o p r o d u c t i v e e n t e r p r i s e i n s u f f i c i e n t volurw t o keep our
eeoaCRste meohitts t u r n i n g over at the r a t e r e q u i r e d t o b r i n g about
f u l l esploysseat, • • . • I n the c u r i e s o f hearings which the
S e c u r i t i e s end Ixxchan^e C « o t i s c i o n i s t o h o l d before t h i s Cswnittee,
I take i t t h a t a m i or problsss o f your C c a s i t t e e w i l l be t o asc e r t a i n why a Ir.r^e p e r t of our v a s t r e s e r v o i r of wensy and
savings hssvo m u d m d I d l e I n stagnant p o o l s * "

Before c o n t i n u i n g

w i t h our sussaary i t M ^ h t be wise t o e x p l a i n e x a c t l y why and i n
what sense s a v i n s end investment ere a r j a j o r l e t e r a i n a n t of t h e f l o w
o f incosae*
I t should be sade c l e a r at the out r o t t h a t

investment*

as used i n t h i s t e s t loony does not seen the purchase o f s e c u r i ties*

Heal

investsaent occurs only when v&w goods not designed

f o r c u r r e n t eonsuMptlea — p l a n t , jsiachinery, automobiles, e t c * —




are brought i n t o being.

2he purchase of already e x i s t i n g stock*

and bonds joay, t o sosse decree, f a c i l i t a t e t h i s process, w h i l e the
purchase o f newly issued s e c u r i t i e s c e r t a i n l y w i l l , but no fena
of f i n a n c i a l t r a n s i t i o n l r i n i t c a l f investaent r.s we are t o
understand the t e r n *
fhe n a t i o n a l income i s generated by the o u t l a y o f
i n d i v i d u a l s , c o r p o r a t i o n s , and the agencies o f govensasnt f o r
r e v goods and services*

Such o u t l s y s must, o f course, represent

c i t h e r c u r r e n t coasurspiion or lnvestssent.

f.lnee both consumption

end investment c t l m l r t c Inccsic, and t h e r e f o r e esplcyaent, why
i s the l a t t e r considered t o be of s t r a t e g i c importance?
3nploy«eafe i n the c a p i t a l goods i n d u s t r i e s f l u c t u a t e s
f a r jaore w i d e l y than t h a t i n t h e i n d u s t r i e s producing foods f o r
current coiniUKsption.

The volume o f c u r r e n t consur<or o u t l a y say

be p r e d i c t e d w i t h a f a i r degree o f accuracy i f Uio n a t i o n a l Inccra
i s knosn.

I t depends i n the r a i n upon incests d i s t r i b u t i o n and

the t a s t e s of i n d i v i d u a l s .

Both these elements, of course, change

over tisse, but the changes arc l i k e l y t o be continuous end of
U n i t e d degree i n any short p e r i o d .

They arc a f f e c t e d i r r e g u l a r l y

by such t h i n g s as stock nerket boom (ns l'r« O n i r i c ' s testiiacKiy
indicated).
action,

They also nay be c o n s c i o u s l y modified by government

nonetheless w i t h i n l i r & t s they «re p r e d i c t a b l e .
Outlays on c a p i t a l equipment on t h e o t h e r head v a r y w i t h

the a n t i c i p a t e d o p p o r t u n i t i e s f o r p u t t i n g t h e new equipnent t o
work.




Thus they are influenced by such f a c t o r s ae the e f f i c i e n c y

o I c&pitfel cqidpcifimt, otfetir tecr>n©lo|;ic&l c o n d i t i o n s , the r a t e o f
p o p u l a t i o n growth, the cost end a v a i l a b i l i t y of f i n a n c i n g
ties, etc.

facili-

t h i s Oonsittee h&s therefor© set i t s e l f the task o f

esar.lnia^ the f o r c e s t h a t determine t h l r comparatively u n p r e d i c t able f a c t o r o f eeontis&c l i f e *
l or the purposes o f d i s c u s s i o n t h i s £eneral prohlen w i l l
be broken down i n t o 10 s p e c i f i c

1.

questions.

uh&t arc the sources o f th® uoney used to purchase

the annual output o f goods arid services?
2*

Eow sn&eh o f t h e nations.1 inccst* i s saved, assd by

WfeSB?
A r o a g h what channels do i n d i v i d u a l savings flow;
Eovt are

t h e y used f o r t h e purchase of c & p i t & l equipment?

v.hat i s

the- function of the c a p i t a l narkets?
U
m ~?kat happens t o th«> s a v i n g s o f corporations?

How

stitch of the investment in plnr:t and e$ulj3i»nt i s financed iron
i n t e r n a l sources r a t h e r than through the c a p i t a l oarkots?

"hat

hfes been the t r e n d i n recent years?
5«

3hat i s the t o t a l volts&e o f invoctsswnt f o r the

cconcsiy as a a h c l e , and i n wbat types of c a p i t a l goods i c

it

esabodied?
6*

Hhy i s the r a t e of c a p i t a l outlay declining?

I r e the causes temporary or ponRaaent?

has the United States

entered a isore nature phase, i n which a h i g h e r l e v e l of consumpt i o n nay be accessary?




7.

1 as tho great depression brought en by a decline

I n imrestsssnt o u t l e t s ?
acccrapanied
£#

! as the reccvory trim

193; t o 1937

an expansion o f c a p i t a l e^ulpreafc?
Ecwr c t n o p p o r t u n i t i e s f o r p r i v a t e C f t i i t a l expansion

be strengthened t
9*

V.ew can o p p o r t u n i t i e s f o r p u b l i c Isvestiasnt be

strengthened t
10.

liow can th© p r o p o r t i o n o f the n a t i o n a l income used

f o r purposes of consumption be increased?
Let us tur;< t o t h e c o n s i d e r a t i o n o f these coastion* i n d i vidually*

>here does the ssoney cor^c f're&t
the n a t i o n a l in&om
and services*

t a k e s th® torn

The aosasy incomes p a i d out as

of a fleer o f goods
salaries,

i n t e r e s t , and dividoxx!*, plus the accumulated p r o f i t s o f busirsesa
(which Bay appear e i t h e r se surplus or ae earned but unexpended
d e p r e c i a t i o n allawaneaa), mist be e x a c t l y equal t o t h e t o t a l value
o f goods and serviaas produced*

Thus s u f f i c i e n t ssoney iccosae i s

always a v a i l a b l e t o take o f i t h s market the e n t i r e stresm o f goods
end cervices ss i t coi.es forward*

I t i s a v a i l a b l e , but there i s

no guarantee t h a t i t w i l l be used*

I f a l l r e c i p i e n t s o f insane,

whether c o r p o r a t i o n s o r I n d i v i d u a l s , immediately spent i t

sgcin,

the output o f r e a l £oods and services would be sustained at a
stable l e v e l .




But sc«e income r e c e i v e r s c u s t o m a r i l y decide t o

withhold frees current consumption expenditure a part of t h e i r
inoot^t

(Corporations, of course, a u t o m a t i c a l l y withheld incoano

i>cra consumption whenever they accumulate surpluses or reserves*}
The n a t i o n a l inccne, we hmve seen, i s generated b;*
c o n j u r a t i o n and isvestesent*

She lower t h e l e v e l of expenditure*

f o r cenewaer goods and s e r v i c e r , t h e r e f o r e , the g r e a t e r the
volume c f c a p i t a l goods o u t l a y necessary t o a t a l n t o i n a given
l e v e l o f Incosae*

. l;cn i n d i v i d u a l s or c o r p o r a t i o n s w i t h h o l d funds

f r e e c u r r e n t censoxption, they nay themselves spend the e s s
funds d i r e c t l y cn investrient ~oods*
pressure i s e x e r t e d on t o t a l incarso*
tiae that

sokio

I f t h i s happens, no dovrr^rard
L i k e w i s e , i f a t the sam

incone r e c i p i e n t s ere deciding, t o r e f r a i n f r e a

expenditures on consumption^ others are d e c i d i n g t c increaeo
t h e i r c a p i t a l expenditure c o n c u r r e n t l y by the aasae aaouat, no
pressure i s exerted on the n a t i o n a l lncogae*

Since, hewever,

decision? t o seve and decisions t o i n v e s t ere u s u a l l y r.ad©
independently and are seldcn detarainod
t i o n s , they need not balance,

the sene considera-

>hen savers, a t any l e v e l o f

n a t i o n a l inecrsa, attempt t c save core than i n v e s t o r s are w i l l i n g
t o i n v e s t , t h e n a t i o n a l income oust decrease u n t i l the unbalance
i s remedied*

(For as incomes f a l l , the amount t h a t incorto r e -

ceivers f i n d i t p o s s i b l e or d e s i r a b l e t o save I s , o f course,
decreased*)




January 30, 1940

TISTIMaHX B£FQRg T T . K . Z . C .

Pa,v;e 10, li,nes lS-^g
T h e funds a v a i l a b l e f o r investment** i s not a measure of
saving under any d e f i n i t i o n .
Pa^ge 1 0 . l i n e s 16-20
The wording o f the sentence d e f i n i n g th© second method
gives the reader t h e impression t h a t t h i s quantity i s something which
n i g h t be c a l l e d savings but r e a l l y i s n f t .

The second .-md t h i r d methods

are not r e a l l y d i s t i n c t , and the wording of the sentence d e f i n i n g the
t h i r d actboc s i g h t lead the reader to i n f e r t h a t o f f s e t s to saving
are d i f f e r e n t froin. saving.
Page 10

T h i s i n t r o d u c t o r y paragraph should be replaced by a paragraph .rhich s t a t e s t h a t ( l ) saving i s income not spent on consumption,
(2) since a l l noney spent i n the purchase o f goods and services i s
received by the s e l l e r a o f such goods and s e r v i c e s , the n a t i o n * a i n come, represented by wages and s a l a r i e s , i n t e r e s t , r e n t s , dividends
and u n d i s t r i b u t e d p r o f i t s , i s n e c e s s a r i l y equal t o the value o f t h e
n a t i o n a l output o f goods and s e r v i c e s , and (3) the a&ount o f income
saved i s t h e r e f o r e equal t o the excess o f the v a l u e of goods and
s e r v i c e s produced over goods and services taken o f f the s a r k e t toy
consumers.




-2-

The tersr. "gross savings" should be used to denote savings
plus depreciation charges.

Gross n a t i o n a l income should be defined

as net inoeeae p l u t f i n a n c i a l provision f o r depreciation.

The sentence

should read " I n good t i s e s around 20 percent of the gross national
income? i s represented by savings plus depreciation charges."
Page 11. l i n e s 1 0 - U
D r . C u r r i e ' s f i g u r e s have been revised since the p r e s e n t a t i o n
o f h i s testimony.

On t h e b a s i c o f t h e s e revised f i g u r e s , t h e r a t i o of

o f f s e t s t o savings t o gross n a t i o n a l inccsie was 1 7 . 8 percent i n 1937
and averaged 1 9 . 6 percent i n 1923-29.

Following the paragraph eumtiarising Dr. C u r r i e , s estimates,
a paragraph should be inserted s t a t i n g the f a c t o r s which have operated
to r e s t r i c t the proportion of income spent on consumption during recent
years.

During the l S £ 0 * s the growth i n i n s t a l l m e n t c r e d i t and the
gains

spending f o r current consumption o f a p a r t of stock market/caused
consumption outlays to bulk l a r g e r i n r e l a t i o n t o income than m>uld
otherwise ha?o been th© case.

During recent years the increased taxa-

t i o n of low incones through s o c i a l s e c u r i t y taxes, sales taxes, and
excise taxes has d i v e r t e d to the s t a t e income which would otherwise
have been spent f o r current consumption.

As a r e s u l t , the share o f

incone devoted to c u r r e n t consumption was only s l i g h t l y l a r g e r i n 1937
than i n the l a t a Twenties even though per c a p i t a incone was rtuch smaller




-3-

i n the l a t e r period.

Unless taxes bearing upon consumption are

s u b s t a n t i a l l y reduced and s o c i a l s e c u r i t y benefits increased, as
l a r g e a volume of expenditures which o f f s e t saving w i l l be required
i n order t o achieve and r a i n t a i n a n a t i o n a l income o f given size as
was t r u e I n the past.
Paso 12. l i n e s 1 - 2
Corporations save from t h e i r current income, j u s t as i n d i v i d u a l s do.

Their savings take the form of surpluses, e t c .

Pa^e j o
Following the t a b l e , reference should be made to the f a e t
that a l a r g e v o l m e of debts have gone i n t o d e f a u l t and have been w r i t t e n
o f f , so that today's balance sheet date, understate the volurie of savings
which have been embodied over the years i n p r i v a t e and public o b l i g a tions*
Savings are not Invested i n debts, but are merely represented
by thee,

( I t i s d i f f i c u l t enough to e s t a b l i s h the idea of investment

as the purchase of new c a p i t a l goodsi the problem should not be cosp l i c a t e d by using the word here i n the o l d f i n a n c i a l sense.)
l a e t sfftttftftcq
I t should be made c l e a r t h a t t h i s statement r e f e r s to savings
reaching the c a p i t a l market through I n s t i t u t i o n a l channels, not t o a l l
savings.
Pffffr H

l i n e s 17 and 18

I n the l a t e twenties cosaaercial loans were barely o n e - t h i r d
o f ise&ber bank loans and investments.



D a v e n p o r t s t a t e m e n t was t h a t

-4-

coEEiercial loans z>lu& loans on s e c u r i t i e s were t w o - t h i r d s of bank
assets.
••

Fa^e J.S, Ifo® fl
7
/
I n s e r t White's t i t l e s

Superintendent of Bank© of the State

of Sew York.
The p o r t i o n of insurance premiuns going to reserves can
scarcely be classed as forced savings.

Moreaver, i t i s probable t h a t

ssost premiums are no^ paid under group insurance p o l i c i e s , which are
term insurance and against which no reserves are accuemlated.
Pa^e £0,

Itev,

p

I t i s suggested t h a t " i n c r e a s i n g l y have no use* b© replaced
by "have less and less need",
l^nes

and 30

I*>n f t these f i g u r e s r e f e r to outlays f o r replacement and
improvement o f p l a n t and equipment?

Th© t a b l e a t t h e bottom of t h e page should be revised i n

accordance w i t h Dr. Currie*a revised f i g u r e s ,
ftra*

a and 5
Sxpen&itures which o f f s e t savings are not "expenditures not

f o r the purchase o f goods*.
Pftfle 25, I j n e 3,0
I t i s suggested t h a t "cumulative" or " m u l t i p l y i n g " be s u b s t i t u t e d
for "flywheel".



•5-

Pi^e 85 1

U

Change " c a p i t a l * to

n

incoaa-geaeratlag*.

?qc»e 25, tab^g
Change "Foreign Balances" t o "Foreign Assets".
" P r i v a t e P l a n t " to " P r i v a t e Plant and Equipment".
Plant".

Change

Change "Government

Currie's f i g u r e s r e f e r roughly to Government outlays financed

by borrowing.
PaPie 2fl. l i n e I
I t Is sur.rested t h a t "and healthy" be ossitted.
2Qt i j n e S
I s the i m p l i c a t i o n t h a t Governaaent outlays are not s o l i d
Investment i n t e n t i o n a l ?
Pa^e 3S, l i n e s 8-13
I n an expanding econoisy, i n v e n t o r i e s and I n s t a l l m e n t

financing

could go on i n c r e a s i n g i n d e f i n i t e l y , but not a t the r a t e o f 1936 end
1937.

N e i t h e r could p r i v a t e c a p i t a l o u t l a y s continue a t the r a t e of

the l a t e Twenties without a such l a r g e r volume of consumption expendi t u r e than then p r e v a i l e d ,

From 1931-33, i n v e n t o r i e s d i d d e c l i n e and

so d i d consumer c r e d i t , but net c a p i t a l o u t l a y s f o r p l a n t and equip-

ment were also negative; i . e . , new expenditure f e l l below depreciation
charges.

The r a t i o as revised was soaewfaat lower than i n tha Twenties.
I t nay not be s u f f i c i e n t t o spend 19 percent o f our income on c a p i t a l




-6-

o u t l a y s t o prevent the n a t i o n a l income f r o E c o l l a p s i n g ; 19 p e r c e n t
o f a low n a t i o n a l income would be a l o w volume of c a p i t a l o u t l a y s ,
and would not n e c e s s a r i l y provide any stimulus to higher n a t i o n a l
incosie.

M o r e o v e r , no account i s taken of the p o s s i b i l i t y of r a i s i n g

the p r o p o r t i o n o f income consumed.

T h i s would both reduce t h e need

f o r c a p i t a l o u t l a y s , and increase the stismlue to such o u t l a y s .

This

p o i n t i s neglected throughout the atns&ary.

imt

a
A paragraph should be i n s e r t e d a t the c l o a e of t h i s s e c t i o n

p o i n t i n g out that the c l o s i n g of the o l d frontiers for extensive expansion automatically opens up new f r o n t i e r s for intensive expansion and
t h a t we can now, i f we w i l l , make t h e t r a n s i t i o n t o an economy o f

abundance r e s t i n g upon more adequate cons\sner purchasing power.

It

is

only because o f the e x i s t i n g p a t t e r n o f income d i s t r i b u t i o n that a
high volume o f c a p i t a l outlays i s required t o sustain f u l l employment.
I f we can d i v e r t more Income frcar, saving t o consumption, we s h a l l not
only have f u l l ee\ployment but s h a l l be devoting a l a r g e r p r o p o r t i o n of
our huge productive power to Improving current w e l l being.

The s h r i n k -

age o f investment o u t l e t s need not be p e s s i m i s t i c a l l y i n t e r p r e t e d .

It

neans t h a t we can reap the harvest made possible by past accumulation.

The merchandise export surplus does not r e f l e c t our net
c a p i t a l export.

Our balance i n -merchandise and services, which does

r e f l e c t c a p i t a l e x p o r t , was considerably below 10 b i l l i o n d o l l a r s .




Par.e

l i n e s 10 and U
Savings did sot seeu&ttl&te a t s u b s t a n t i a l l y t h e i r o l d r a t e .

The shrintege i n investment outlays induced a contraction i n n a t i o n a l
incosse t o a p o i n t where savings were brought down t o conform to the
c u r t a i l n e n t i n investment o u t l e t s .
Page 34. l l a o e 10-16
I t should be e x p l i c i t l y stated t h a t these f i g u r e s r e s t on
the assumption t h a t the proportion of incoR© saved under prosperous
conditions w i l l be the same as i n the 1920*s.

The p o s s i b i l i t y o f

reducing t h i s p r o p o r t i o n through Government p o l i c i e s should always be
isentioned.
Pa&e 55. t a b l e
This t a b l e oasits (1) net exports o f goods and services,
(2} i n v e n t o r i e s , (5) consumer c r e d i t .
P ^ p 35, 3,ast paragraph to frige 57, U n e
This i s h i g h l y c o n t r o v e r s i a l and i s not a part o f the record,
so f a r as I can >hs«rve.
Pa^ee 4-1-46




Strengthen.