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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be an interruption in the even flow of the money stream* TJhcther there is or is not depends on Aether the money thus withdrawn is kept idle, or hoarded, or whether it is returned to the stream through disbursement for new plant and equipment, or for renovation or enlargement of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
