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66

STATEMENT SUBMITS? > 1 TO THE T^KPORART NATIONAL ECONOMIC COMMITTEE
3

Laucffflin Currie»
Assistant Director, Division of Research and Statistics,
Board of Governors of the Federal Reserve System,
I have been asked to present information relating to the magnitude
of the various outlets for saving since 1921 and the relation of the
total to the national income#

Tip data which I shall present have

been worked up in the Division of Research and Statistics of the
Board of Governors of the Federal Reserve System, of which Dr# E. A#
Goidenweiser is the Director*

Being mostly of a preliminary nature,

the data have not as yet been published in the present forn^
It may make it easier to folloy* th*3 charts and figures presented
and to appraise their significance if they are prefaced by a brief
description of the conception of the way our economy works which underlies the choice of charts and figures placed before you.
If we think of the national income as a stream of goods and
services, all represented by their dollar equivalents, we can take
the next step and consider the factors that tend to keep the stream
going uuinte2^uptedly, and the factors that tend to obstruct and
divert the stream. Ihen a person earns wages and spends them for
living expenses as rapidly as he receives them, there is no interruption in the stream* Iben n corporation takes in money in exchange




for the goods it produces, and disburses it at the same rate for
wages, materials, power, and dividends, there is no interruption.
Mien, however, a part of the wages received or of money
realized for sales is not disbursed but is retained by the recipient~
either in the form of cash or of deposits- or is used to pay off
debts, or even if it is invested in securities, there may be an
interruption in the even flow of the money stream*

TJhcther there

is or is not depends on Aether the money thus withdrawn is kept
idle, or hoarded, or whether it is returned to the stream through
disbursement for new plant and equipment, or for renovation or enlargement of existing plant, or offset by the expenditure of an
equal amount^

The money thus restored continues to be a saving by

the individual, but it is no longer a withdrawal from the income
stream*
The analysis underlying the charts and tables here presented,
in other words, separates the act of saving, which v/hen taken by
itself represents a withdrawal from the income stream, from the
act of expenditure which restores the money to the stream*

Such

a separation is necessary for a clear analysis and is logical be~
cause in most cases offsetting expenditures are ma.de by groups
different from the original savers#

The principal exception is

industrial capital expenditures financed out of corporate income
and depreciation allowances, and even there the act of saving and
the actual capital expenditure may be quite unrelated to oach otherf




The selling price of all goods produced covers not only the
current expenses of -wages and materials but also depreciation and
depletion charges, taxes, interest and profits.

Some of these

funds are retained by business; others are paid out to individuals
and some of these, especially interest and dividends, are likely
to be saved.

Hence, only a portion of the gross national income

is available for consumption

If the stream of money payments is

not to decline, an amount equivalent to the portion of the gross
national income not spent on. consumption must be spent on plant and
equipment, etc#

It is proper, therefore, to speak not only of out-

lets for saving but of offsets to saving*
It is not implied in this analysis, as is sometimes believed,
that there is something uneconomic or anti-social in the act of
saving.

From the point of view of an individual it is a natural

and prudent act, and from the point of view of the economy as a
whole it is necessaiy in order to provide a source of funds for the
replacement and expansion of our plant and equipment.

The point

is simply that if money is withdrawn from the income stream by saving,
it has to be offset by an equal expenditure on plant, etc#, if the
flow of money payments and the total demand for goods of all kinds
is not to be interrupted.
The most commonly accepted definition of saving, as applied to
the nation as a whole, is that it is the difference between the
national income and the amount spent out of that income on consumption.




Since the national income is the value of all goods and

services produced in a period, the total volume of saving is also
the differcnco between the value of goods and services produced
in a period and the value of goods and services consumed*

In other

•words* the volume of expenditures on plant and equipment, construction* etc#, may not only be regarded as an offset to or outlet for
current saving, but it is also a measure of saving as just defined.
It is obvious that the larger the portion of a given national
income that is withheld from consumption, the larger must be the
expenditures that represent offsets to saving, if the national
income is not to decline,

To state the reverse of this proposition,

the larger the portion of income that is spent on consumption, the
smaller n^cd be the volume of capital expenditures to sustain a
given national income^

Hoit

much income will result from a given

increase in capital expenditures depends on tho proportion of the
additional income that will be consumed and the proportion that
will be saved.
Still another inference may be drawn from this line of reasoning,

If it can be established what proportion of an assumed nat-

ional income will be saved, or withhold from current consumption*
it is also established how large tho outlets for, or offsets to
saving will have to be to attain and sustain that national income.
Hence tho problem of maintaining full employment is the problem of
securing sufficient outlets for the saving that will accompainy full
employment#




The following types of expenditures are generally considered
to represent the major outlets for or offsets to gross saving:
1.

Expenditures on plant and equipment charged to capital

account.
These are financed from such sources as depreciation allowances,
retaired earnings, borrowings and stock issues.
2.

Private housing expenditures.

Since the bulk of expenditures on new residential construction
is financed by borrowing, and little comes out of current income,
it is customary to consider such expenditures as outlets for saving.
3. Value of the change in inventories.
An increase in inventories represents an increased value of
goods produced but not purchased out of final consumer income.

The

monetary effect of a change, while it is taking place, is strictly
analogous to the effect of plant and equipment expenditures.
4. Net additions to disposable cash income attributable to
public bodies.
This category is chosen rather than expenditures on public
construction because we are here more interested in the dynamics
of the flow of income then in the measurement of the addition to
the durable goods of the community. Public expenditures that add
to disposable cash income more than tax receipts decrease disposable
cash income, constitute sn offset for an equivalent amount of
current saving.




wjfomm

5*

Not foreign balance on current accountt

This represents the excess of payments received by us from
foreigners over payments ma.de by us to foreigners on other than
capital movements*

An excess is a net addition to disposable

domestic cash income and hence may be regarded as an offset to
domestic saving*

It represents goods produced and not sold to

domestic consumers and hence, for present purposes, is analogous
to plant expenditures*
6*

Net change in consumer credits

An increase in this categoiy mitfht either be treated as negative saving or as an outlet for current saving*

The latter alterna-

tive is adopted here*
Ds,ta on the income-producing expenditures that offset saving,
for the period 1921-1938, listed above, are presented in Tables
I-A to I-E, and are plotted on Charts I-A to I-E*
The figures presented below differ in reliability and are
subject to revision*

They are believed, however, to give a reason-

ably accurate approximation of the total income-producing expenditures that offset saving and to give a more accurate approsxiraation
of the magnitude of current gross savings, i# e,, of gross income
not spent in consumption, than is now possible to obtain by direct
measurement*
basis*




Most of the series are available only on an annual




TABLE la
Income-Producing Expenditures that Offset Saving
(In millions of dollars)

Plant
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1S38

Equipment

Total Plant
and Equipment

2,344
2,536
3,137
3,183
3,456
4,031
3,960
3,942
4,365
3,683
2,166
1,183
874
1,102
1,245
1,628
2,175
1,816

2,751
3,130
4,628
4,359
4,613
4,903
4,649
4,807
5,680
4,624
2,979
1,646
1,559
2,357
3,145
4,367
5,341
3,646

5,095
5,666
7,765
7,542
8,069
8,934
8,609
8,749
10,045
8,307
5,145
2,834
2,433
3,459
4,390
5,995
7,516
5,462p

Note: for sources and methods, see appendix to
testimony of Lauchlin Currie.

CHART l-A

INCOME-PRODUCING EXPENDITURES THAT OFFSET SAVING
BILLIONS OF DOLLARS

BILLIONS OF DOLLARS

11

1 OTAl
«-\| A h
M4 D ECJUIPIS/ I E N T
P L A r JT
E: x p b M D I T l J R E S

/

FT)
FM 1
CM U I P N E.INT

<

A

•

\

\

/

Jft***,

/>

Pe
f

y
F' L A N '

w

>

A

//

\
^

4r

\
k

•

//

\A

w
\

\>

1922



1924

1926

1928

1930

^

v

1932

/

A

\
\
\

I
\

\

t

y

1934

1936

1938

1940

1942

Table I-A and Chart I-A brir^ out the interesting fact that by
1937 all equipment expenditures had recovered to 94 percent of the
1929 figure and were in excess of all previous years. This has a
direct bearing on the question as to what extent the industrialj
commercial and agricultural equipment of the country has been kept
up to date.

Plant expenditures, on the other hand, amounted in 1937

to only half of the 1929 total.
Another interesting fact tb&t emerges from these figures is the
comparative smallness of the increase in plant and equipment expenditures, especially equipment, that occurred from 1923 to 1928, despite
the considerable rise in production and consumption that occurred in
this period*

Yet, generally speaking, a comfortable reserve margin

of productive capacity was maintained throughout the period*

Table I-B and Chart I~B show the plant and equipment expenditures
in mining and manufacturing, utilities, railroads, and commercial
and miscellaneous0

It will be observed that in 1937, capital expends*

turos in mining and manufacturing exceeded the 192.8 level.

Equip-

ment expenditures alone (not shown in the table) approximated the
peak 1929 volume. The wide gap between 1929 and 1937 in commorcial
and miscellaneous was almost entirely attributable to expenditures
on commercial buildings, which aggregated $1.2 billion in 1929 as
contrasted with $370 million in 1937#




TABLE la
Income-Producing Expenditures that Offset Saving

(continued)

(In millions of dollars)

Mining and
Manufa c turi ng

All
Public Utility

Railroad

Commercial and
Miscellaneous

1921
1922
1923
1924
1925
1S26
1927
1928
1929

1,951
2,073
2,581
2,265
2,625
3,045
2,757
2,962
3,490

755
1,061
1,483
1,718
1,597
1,621
1,694
1,644
1,917

550
434
1,077
901
728
883
751
673
840

1,351
1,559
1,929
1,993
2,361
2,625
2,509
2,601
2,836

1930
1931
1932
1933
1934
1935
1936
1937
1936

2,449
1,402
921
993
1,445
1,810
2,483
3,039
2,013p

1,893
1,340
722
405
472
533
748
1,024
925

865
360
164
101
218
166
306
525
238

£133<3
1,596
801
645
915
1,194
1,668
1,958
1,468

Note: for sources and methods, see appendix to testimony
of Lauchlin Currie*




CHART

l-B

INCOME PRODUCING EXPENDITURES THAT OFFSET SAVING -

1922




1924

1926

1928

1930

1932

1934

1936

1938

CONTINUED

1940

1942




-10-

TABLE Ic
Income-Producing Expenditures that Offset Saving
(In millions of dollars)

Agriculture

1921
1922
1923
1924
1925
1926
1927
1928
1929

488
539
695
665
758
759
810
869
962

1930
1931
1932
1933
1934
1935
1936
1937
1938

765
446
225
2Q9
409
637
786
1,000
820

Change in
Inventories

Fore i gn-Current
Account Balance

47
514
2,964;
-1,056
1,523
1,246
308
102
2,146

+1,414
+450
+167
+712
+386
+156
+507
+725
+447

-631
-1,190
-2,327
-1,114
-1,748
1,145
2,300
4,196
-l,250p

+629
-160
+131
+215
+461
+183
-153
-24
+965

Note: for sources and methods, see appendix to
testimony of Lauchlin Currie.

(continued)

CHART 1-C

INCOME PRODUCING EXPENDITURES THAT OFFSET SAVING-CONTINUED




Table I~C and Chart I-C show agricultural plant and equipment
expenditures, the value of the yearly chance in inventories, and
the net amount due us on current international account*

By 1937*

agricultural capital expenditures approximated the 1929 level*

The

net excess of exports of goods and services in the Twenties was
associated with foreign loansj in 1938, with the drastic decline
in imports relative to exports attributable to the business recession
here*

The increase in inventories in 1937 was the largest annual

increase in the postwar period*

Table I~D and Chart I~D show annual expenditures on private
housing, on construction by private non-profit institutions such
as churches, -universities, etc#, and the change in consumer e:q?endi~
turcs attributable to consumer credit*

The chart brings out the

drastic slump in housing expenditures and the modest degree of recovery* relative to the Twenties, to date*

The- recovery has been

even less for non-profit construction, which, at its peak in 1927*
provided an outlet for $700 million of savings*

The preliminaiy

figures on the net extension of consumer credit indicate a totrl
exp ansion from 1921 to 1929 of $6*5 billion* and an expansion from
1933 to 1937 of $3*5 billion*

It; is estimated that the expansion

in 1937 and the net volume outstanding in that year were in excess
of the corresponding 1929 figures*




TABLE

la

Income-Producing Expenditures that Offset Saving (continued)
(In millions of dollars)

Private
Housing

Noil-Profit
Institutions

1,970
3,280
4,170
4,420
4,940
4,500
4,250
4,000
2,810
1,600
1,110
330
270
290
680
1,250
1,450
1,500

297
387
426
457
610
692
712
664
568
467
356
194
96

1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938

D6
114

134
190
190

Change in
Consunier
Credit*
340
1,040
1,180
440
900
690
240
800
860
-630
-1,130
-1,400
-140
370
830
1,290
1,000
-1,400

* Subjoct to revision.
Note:

For sources and methods, see appendix to testimony of Lauchlin Currie#




CHART 1-C

INCOME-PRODUCING EXPENDITURES THAT OFFSET SAVING-CONTINUED




TABLE

la

(continued)
INCOME-PRODUCING EXPENDITURES THAT OFFSET SAVING
m i H i o n s 0 f dollars)

Government-Federal
1921
1922
1923
1924
1925
1926
1927
1928
1929
1S30
1931
1932
1933
1934
1935
1936
1937
1938

Note:




-250
- 54
-301
-319
-295
-509
-459
- 78
-235
+386
2,419
1,8.80
1,928
3,428
3,730
4,337
1,092
2,377

Government-State and Local
899
799
664
934
822
754
825
810
928
1,U4
1,365
807
-690
-1,159
-493
-398
-291
-

For sources and methods, see appendix to testimony of
Lauchlin Currie.

CHART 1-C

INCOME-PRODUCING EXPENDITURES THAT OFFSET SAVING-CONTINUED




-14-

Table I—E and Chart I-E show the estimated annual net addition
to, or deduction from, the disposable cash income of the community
arising from an excess (or deficit of government cash expenditures
giving rise to personal or business income over tax collections out
of current income. It m i l be noted that local governments provided
an offset to savings of nearly $1 billion a year in the Twenties
and that the relative position of federal and local governments in
this connection since 1933 has been completely changed#
The Committee may be interested in the relation of capital
expenditures to output in three important fields, mining and manufacturing, electric power, and railroads.

(Tables II, III, and IV)#

The broad relationships are presented graphically in Charts II, III
and I

Table II suggests that there is a close relationship between
the volume of plant and equipment expenditures in mining and manufacturing and industrial production

It should be remembered, how^

ever, that the comparison is between a physical and a value series
and since prices per unit of capacity were lower in 1937 than in 1929*
an equal volume of capital expenditures should presumably represent
more additional productive capacity in the latter yoar#
In the case of electric power, Table III, figures for the power
output in January of each year, ordinarily a peak month, and for







Table II
MINING AND MANUFACTURING EXPENDITURES FOR
PLANT AND EQUIPMENT AND INDEX OF INDUSTRIAL PRODUCTION
Plant and Equipment
expenditures
(looo.ooo)

1

Index of
production

1921
1922
1923
1924
1925
1926
1927
1928
1929

1,951
2,073
2,581
2,265
2,625
3,0#
2,757
2,962
3,490

67
85
101
95
104
108
106
111
119

1930
1931
1932
1933
1934
1935
1936
1937
1938

2,449
1,402
921
993
1,445
1,810
2,483
3,039
2,013

96
81
64
76
79
90
105
110
86

Nots: for sources see appendix to testimony of
Lauohlin Currie.

CHAR"* JH

MINING & MANUFACTURING EXPENDITURES FOR PLANT & EQUIPMENT
& INDEX OF INDUSTRIAL PRODUCTION

INDEX
1 9 2 3 - 2 5 AV. = 100

BILLIONS OF DOLLARS

j

A

/

/ /m
m

# /

A

i

/

* V
r
/ 1

f/
/
PR<DDU(: t i o N / f
/#

I

1
1
1
1

\\

>

J j

ll

mw

//

P
\\
U

1922




1924

1926

1928

1930

1

7
/ 4' e x PENID1TUIRES
jf >

1932

1934

1936

1938

1940

1942

~16~
TABLE III

ELECTRIC POWER EXPENDITURES FOR PLANT
AND EQUIPMENT, tOTAL INSTALLED CAPACITY, AMD PEAK OUTPUT

Index of Total
Output in January
1926-30 Av - 100
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938

Not©:

48 ,0
51,7
64*3
70.5
75,7
83.7
92.0
97.4
110.5
116.3
107.1
10* .0
94.1
103.8
113.0
124.2
138.9
132.0

Index of Total
Installed Capacity
as of January 1
1926-30 Av = 100
52.4
55.7
58.1
63.5
71,0
85.6
92.5
98,4
108.2
115.2
124.1
128.8
131.1
132.0
130.4
131.4
133.2
135.2

Plant and E
Expondituro
288
408
738
844
787
718
738
7fcl
793
855
555
265
120
137
179
269
424
403

For souroos seo appendix to testimony of Lauchlin Currio.




CHART H I

ELECTRIC POWER EXPENDITURES FOR PLANT & EQUIPMENT, & INDEXES OF
TOTAL INSTALLED CAPACITY & TOTAL OUTPUT

INDEX

1922



1924

1926

1928

1930

1932

1934

1936

1938

1940

1942

generating capacity as of the same month, were converted into
index numbers with the January averages for 1926-30 equal to
100#

It should be kept in mind that this procedure shows only

the relative movements of output and capacity and not their
absolute relationshipt

Capacity was actually well above output

throughout the period*

Capital expenditures, in dollars, are shown

on the same chart,

In general, it appears that whenever the index

of output exceeds the index of capacity, expenditures tend to rise
or remain at a high level, and vice versa#

Because of the increase

in generating capacity in the years 1929-1932, and the decline in
peak power output, it was not until 1936—1937 that output got back
to the 1929 relationship to generating capacity for the industry
as a whole#
For the railroads, Table IV, expenditures for equipment alone
are contrasted -with total and serviceable freight cars owned, with
yearly peak car loadings and yearly minimum surplus cars, The
acute car shortage of the early Twenties gave rise to a heavy volume
of equipment expenditures,

It will be observed that despite the

steady and drastic decline in serviceable cars through retirements
since 1929, peak car loadings fell off to such an extent that it
was not until 193^f that the surplus cars at the yearly peak of
loadings were reduced to the level prevailing in the late twenties*




TABLE la

RAILROAD EQUIPMENT EXPENDITURES,
AVAILABLE FREIGHT CARS, AND CARLO-frDINGS

Average
Freight
Cars Owned
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938

Notes

m
2,304
2,303
2,331
2,355
2,345
2,329
2,298
2,267
2,270
2,229
2,160
2,072
1,969
1,863
1,770
1,723
1,713

Average
Serviceable Cars
(000)
2,008
1,993
2,113
2,146
2,168
2,190
2,191
2,154
2,132
2,128
2,053
1,922
1,779
1,674
1,584
1,526
1,543
1,496

Surplus Cars
Lowest Reported
(00

gi

4
14
99
112
81
135
104
119
393
535
545
380
318
208
112
104
139

Carloadings
Highest Week
(
0

9°e°i

1,000
1,098
1,113
1,124
1,209
1,129
1,197
1,202
$85
775
651
6B7
646
734
826
547
726

Equipment
Expenditure
'&000-000)
311
246
682
494
|538
572
289
224
321
328
73
36
15
92
79
159
323
115

For sources and methods, see appendix to testimony of Lauchlin Currie




CHART 1-C

RAILROAD EQUIPMENT EXPENDITURES
AVAILABLE FREIGHT CARS AND CAR LOADINGS
THOUSANDS OF CARS

EQUIPMENT
EXPENDITURES

MILLIONS OF
DOLLARS

1922



1924

1926

1928

1930

1932

1934

1936

1938

1940

1942

~19~
Equipment expenditures in that year approximated the 1929 level#
Despite increasing efficiency, it would seem obvious that any substantial gain in car loadings -would necessitate heavy now equipment
expenditures.
Table V and Chart V show the percentage composition of incomeproducing expenditures that offset saving in 1925 and 1937, "when
the national income was roughly the same, and in 1929, the peak year
for expenditures and incomet
It will be observed, in comparing 1937 with 1925, that the
most marked differences were in inventories and housing,

In the

former year the incroase in inventories amounted to 9 percent of the
total, and housing 33 percent.

In the latter year, the increase

in inventories amounted to 28 pcrcont of the total, and housing
only to 11 pcrcont.

Plant and equipment expenditures bore nearly

the same relationship to the total in both years.

The composition

of the income-producing expenditures has obviously a most important
bearing on the stability of the income level. An increase of
billion in inventories in one year is a highly unstable offset to
saving in comparison with an equal volume of housing expenditures.
In 1929 inventories were increased more than in 1925 $ and housing
expenditures were lower. The share of plant and equipment expenditures was unusually high.




-20TABLE V

COMPOSITION OF INCOME-PRODUCING EXPENDITURES
THAT OFFSET SAVltift, 'l9<25, 19&6, AND 1937~"

1925
Millions
of Dollars

Total

1929
Millions
of Dollars

% of
Total

1937
Millions
of Dollars

% of
Total

Mining & Manufact.
Railroads & Util.
Other
Housing & Non-profit
Institutions
Foreign Bal.
Change in Consumer Credit
Change in Inventories

Total

527
8,069

3.1
4.7,5

693
10,045

3.9
57.1

801
7,516

5,3
49,6

2,625
2,325
3,119

15.4
13.7
18.4

3,490
2,757
3,798

19,8
15.7
21.6

3,039
1,549
2,928

20.0
10.3
19.3

5,585
386
900
1,523

32,9
2.3
5.3
8.9

3,409
447
860
2,146

19.4
2.5
4.9
12.2

1,670
24
1,000
4,196

11.0
- 0.2
6.6
27.7

16,990

Government
Plant & Equipment

Notes

%ot

100,0

17,600

100.0

15,159

100.0

-

For sources soe appendix to testimony of Lauohlin Currie.




CHART 1-C

COMPOSITION OF INCOME-PRODUCING EXPENDITURES
THAT OFFSET SAVING
BILLIONS OF DOLLARS

MINUS




0.2%

BILLIONS OF DOLLARS

M^lf*

It is interesting to note that in 1937, mainly because of
the sharp increase in federal tax collections, the offset to
saving provided by public bodies was little larger than in 1925
or 1929#

Plant and equipment expenditures in all of mining and

manufacturing comprise a relatively small proportion of the total
offsets to saving, amounting to 15 percent in 1925 and 20 percent
in 1929#

They comprised as large a proportion of the total in

1937 as in the peak year 192%
I turn now to the second part of the data requested of me$
the relation of incomes-producing expenditures that offset saving
to the national income*

Since the figures presented to this point

include gross capital expenditures on buildings, plant and equipment, it is proper to relate them to figures of national income
before deduction of depreciation allowances#

For our present pui>-

poses we may call this series the gross national income, as distinguished from the customary national income, which is netm

Also*

for present purposes, I have adjusted the income-producing expenditures series by adding 60 percent of the aggregate volume of the
current year to 40 percent of the preceding year#
Table VI presents the gross national income, and the total
of income—producing expenditures that offset saving, for the years
1921 to 1938t




The series are plotted on Chart VI#

TABLE la

NATIONAL INCOME AND TOTAL INCOMEPRODUCING EXPENDITURES THAT OFFSET SAVING
(In millions of dollars)

Gross
National
Income

Net
National
Income

63,751
64,295
74,784
75,161
79,686
84,813
82,708
86,167
89,984
79,764
63,901
47,446
46,217
55,839
61,681
69,800
78,200
70,900

57,683
58,704
68,281
68,904
73,275
77,600
75,412
78,633
81,917
71,965
56,709
41,034
40,101
49,290
55,137
63,105
70,727
63,550

1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938

Note:

Income-Producing Expenditures
Adjusted Total | % of Gross Natl. Income
mtmum

11,201
15,087
14,729
15,462
16,695
15,616
15,495
16,881
13,802
9,459
4,776
2,792
4,335
8,446
13,110
15,009
10,783

17.4
20.2
19.6
19.4
19.7
18.9
18.0
18.8
17.3
14.8
10.1
6.0
7.8
13.7
18.8
19.2
15.2

For sources and methods, see appendix to testimony of Lauchlin
Currie.




CHART V!

NATIONAL INCOME & TOTAL INCOME-PRODUCING EXPENDITURES




THAT OFFSET SAVING

$everal points of interest are suggested by relating the incomeproducing expenditures that offset saving to the gross national income.
In the first place there is apparent a tendency for the offsets to
current saving to increase faster than income in the recoveries of
1921-23 and 1933—37j and to decrease faster than the decline of income
from 1929-1933 and from 1937 to 1938.

In other words, as recovery

proceeds, every additional dollar of capital expenditure generates a
proportionately less increase in total income.

This is perfectly con-

sistent with the general impression that the proportion of income spent
on consumption decreases as income increases, and vice versa.
The data indicate one marked exception to this expectationf

In

the period from 1923 to 1929 the gross national income increased
relatively to saving*

A fairly stable level of incqme—producing expendi-

tures was accompanied by a fairly steady rise in income.

The explana-

tion for this period of increasing consumption relative to income may
possibly be found in the consumption expenditures stimulated by the
rising speculation in stocks. Not only was the incentive to save out
of current income diminished, but in addition many savings must have
been canal,ized back into consumption through the medium of brokers1
loans and cashing of paper profits.
The second important inference brought out by the chart is that
by 1937 as large a portion of the gross national income was saved as
in the Twenties, the percentages being 1902 for 1937 and an average of
19*2 for the years 1923-1929*




A further observation may be of interest*

If the same relation--

ship between income^)roducing expenditures that offset saving and
the gross national income prevails in periods of relative prosperity
in the future as in the past, a gross national income of $100 billion
(or a net income of around $90 billion) would be associated with a
figure of $19 billion of income^reducing expenditures*

If the potent

tial saving on a $90 billion net income should turn out to be higher
or lower in the future relative to the Twenties, a correspondingly
larger or smaller volume of offsets to saving than $19 billion will be
necessary*




APPENDIX ON SOURCES AND METHODS TO STATEMENT
SUBMITTED TO THE TEMPORARY NATIONAL ECONOMIC COMMITTEE

Lauchlin Currie

Table I-A
Plant and! Fguipment
Mining and manufacturing.
Plant expenditures consist of factory construction and mining
development outlays (exclusive of purchases of machinery, land, and
mineral reserves)*

The factory construction estimates are those of the

Department of Commerce, which are based on data compiled by the F. W.Dodge Corporation*

Those for mining development outlays have been

prepared by Mr. Terborgh, of the Division of Research and Statistics of
the Board i f Governors, of the Federal Reserve System, and are strictly
o
preliminary.

They include the cost of drilling oil and gas wells, and

such development costs in other branches of mining as are normally chargeable to capital account»

The estimates for mining and manufacturing equip-

ment have also been prepared by Mr. Terborgh. They were obtained by
(1 ) tabulating from the censuses of manufactures the output of machinery
and equipment going into this field (including estimated allocations of
a part of the output of items used also in other fields); (2) interpolating
for inter-censal years; (3) adjusting for exports and imports to get the
output going to domestic users; (4) raising the value thus derived to




-2-

allow for transportation costs end distributive margins between producer
and consumer; and (5) raising it further to allow for estimated undortabulation and for an cstimato of equipment produced within the establishments using it (hence not included in tho census data).

Only machinery

and equipment aro included which are customarily charged to capital account
by tho users*

Studies of capital formation by tho National Buroau of

Economic Rosoarch havo been used to facilitate some stops in tho procedure#
Commercial and miscellaneous•
Plant in this caso consists of commercial buildings, for the
construction of which Department of Commorco estimates have boon usod.
Those aro dorivod from data compiled by tho F« W . Dodge Corporation*

For

machinery and equipment, tho estimates havo boen prepared by Mr* Torborgh,
by a procedure identical with that just described in tho caso of mining and
manufacturing •
Railroads «
Estimates for both plant (way and structures) and equipment havo
boon basod on data compiled by tho Association of Amsrica n Railroads•

Tho

data as published by the association havo boen adjusted by the subtraction
of land purchases (from I # C # C# reports) and by tho addition of an estimate
for Class II and III carriers.
Public utilities«
This classification includes oloctric powor, telephones, transit,
gas, pipe lines, telegraphs, end cables.




Tho series usod, both for total

expenditures and for the breakdown between plant and equipment, are those
of the Department of Commerce, which are in turn based on tabulations bytrade associations and trade journals, as described in the Department's
publication, Construction Activity in the Phitod States.
Agriculture.
The figures are Department of Agriculture estimates for farm
capital expenditures, exclusive of passenger automobiles.

It should be

observed that these estimates are now undergoing a thorough revision, which
is expected to be completed shortly.

The new estimates will, of course,

supersede the ones used here.

Table I-B
See note above for Table I-A.

Table I-C
For agricultural plant and equipment expenditures see note above
for

Tablo I-A.
Tho foreign 4'bt»rrfcnt balance

is derived from The Balance of

International Payments of the United States, Department of Commerce.

Table I-C
Inventories.
Figures for 1921 to 1933 are derived from data published in
Commodity Flow and Capital Formation, by Simon Kuznets, of the National
Buroau of Eoonomic Research.




The published data represent tho value in

-4-

ourrent dollars of the change in physical inventories, (expressed as the
total value of all inventories in 1929 dollars).

From those totals were

deduotod the corresponding figures for inventories in the finance group.
Figures for 1934 to 1938 are estimates.

In general, methods similar to

those used by Kusnets wore adopted in making these estimates.

For 1934

and 1935, Statistics of Income data furnished the primary basis for the
estimates.

For 1936 to 1938, the Dun and Bradstreet Surveys provided the

primary source of data*

Table I-D
Housing
Non-farm,
The estimates used were prepared for the National Bureau of
Economic Research by D. L. Wickens and R. R. Foster.
started.

They relate to projects

The 1937 and 1938 estimates are by Mr. Foster.

Publicly financed

construction has been deducted.
Farm.
The series used has been derived from Department of Agriculture
estimates of the value of farm construction, on the assumption that residential construction constitutes about 47 percent of the total.

While this

percentage appears to be supported by the Departments latest findings, tho
estimates of total farm construction used here are undergoing revision, and
will shortly be superseded.




The series for farm residential construction

-5-

included in the above total for housing must be regarded, therefore, as
moroly provisional.
Consumer Credit
This series is preliminary and subject to revision.

It was

worked up by Ralph Nugent, Russell Sago Foundation.
Construction by Non-Profit Institutions
In this classification aro inoludod privately financed religious,
memorial, educational, social, recroational, medical, and other institutional
buildings not operated for profit.

Tho estimates are those of tho Department

of Commerce, and woro developed largely from data collected by the F. W .
Dodge Corporation,

Table I-E
Not Addition to Disposable Cash Income of the
Community Attributable to Government
This series attempts to measure tho difference between tho outlays! of public bodies that add to the community's disposable cash income
and tho rocoipts that represent drafts upon disposable cash income.
Tho serios for tho Federal Government was dorived by applying
adjustments diroctly to Treasury receipts and expenditures.

Tho major

adjustments wore tho oliminatlon of non-cash items, tho consolidation of
tho transactions of Government trust accounts, corporations and crodit
agencies with those of tho Treasury proper, tho elimination of recoipt
and expenditure items that loavo the cash income of the community un-




6-

affected, and tho distribution of lump-sum transactions over tho period
during which they influence cash income.

Tho sorios for State and local

governments was derived by tho indirect process of adjusting changes in
tho gross outstanding debt for changes in trust and sinking fund holdings
and in the cash balances of the so governmental units *

Table II
For mining and manufacturing plant and equipment expenditures see
note abovo for Table I-A,

The index of industrial production is that of the

Board of Governors of the Federal Reserve System,

Table III
For electric utility expenditures see note abovo for Table I-A,
Data on total installed capacity as of December 31, are published
in Electric Power Statistics of the Federal Power Commission.

These data

wore shifted to January 1 of tho following year and expressed in torms of
tho average for tho years 1926 to 1930 to obtain the index of capacity.
Data on total monthly production of electric energy aro compiled
by tho Federal Powor Commission,

Tho January totals of theso data woro

expressed in torms of tho average for 1926 to 1930 to obtain tho index of
output for comparison with tho above index of capacity.

The month of

January was used in constructing this index because it is most nearly
comparable to tho capacity figures in time and also because it corresponds
approximately to the seasonal high for the year.




Table IV
Equipment expenditures are for Class I railroads and are compiled by the Association of American Railroads.
The monthly average of total freight cars owned are also data
for Class I railroads and include leased freight cars, but not privately
owned cars.

For 1921-24, inclusive, data aro derived from later figures

by moans of statistics on freight cars installed and retired, as reported
by the Interstate Commerce Commission.

For all other years, data were

compiled by the Association of American Railroads.
Sorviceablo cars are the monthly average of the total nvimber of
cars owned less tho bad order oars.

This latter series includes all cars

undergoing or awaiting repairs, as reported by the Association of American
Railroads.

Data aro for Class I roads, which account for about 99 percent

of all equipment owned by the railroads.
Data on lowest numbor of surplus cars reported during the year are
obtained from material compilod by tho Association of American Railroads
(formerly tho Amorican Railway Association), Car Service Division.

Data

cover Class I railroads and roprosent a daily average for the last period
of the month (last wook through 1932, last half of month thereafter) f
Data on tho highest wook1 s oar loadings are obtained from material
compilod by tho Association of American Railroads (formerly the American
Railway Association), Car Service Division.




Table VI
Gross National Income
Figuros for 1921 to 1935 ore derived from data published in
National Inoomo and Capital Formation, by Simon Kuznots of the National
Bureau of Economic Research.

From the published figuros of gross national

product was doductod imputed rents and gross savings of Government, so as
to make them comparable with the

1
1

income-producing expenditures11 series.

Figures for 1936 to 1938, inclusive, are estimates based on the national
income data of the Department of Commerce.
Not National Inoomo
Figuros for 1921 to 1935 are dorivod from data published in
National Income and Capital Formation, by Simon Kuznots of the National
Bureau of Economic Research.
From the above series of gross national income was deducted (a) total
capital consumption in business use and (b) total capital consumption in
residential use less imputed rents.

For 1936 to 1938, these depreciation

figuros wore estimated from samples, and minor adjustments woro made in
Kuznots1 data for J.934 and 1935 on the same basis.




FEDERAL NET CONTRIBUTION TO BUYING POWER
AND INDEX OF INDUSTRIAL PRODUCTION
MILLIONS OF DOLLARS

INDEX
1923-25 AV. » 100

MONTHLY

700

140

600

120

500

100

400

80

300

60

200

40

100

20

1932



1933

1934

1935

1936

1937

1938

1939

1940