ECONOMIC DIVISION The economic division is organized primarily to conduct general inquiries called for by the President, by either house of Congress, or by the commission, under section 6 of the Federal Trade Commission act. This may be found on page 86 of this report. This was to be the sole function of the commission according to the bill first prepared for this purpose by the Committee on Interstate and Foreign Commerce in 1914, and this bill was passed in that form by the House of Representatives. In other words, the commission as first contemplated was to be a continuation of the Bureau of Corporations and the original bill as well as the final law provided that it should take over the personnel, records, and unfinished work of the said bureau. Hence the economic division is practically a continuation of the Bureau of Corporations and has had similar work, especially general inquiries relating to restraints of trade, monopolies, unfair business practices, business methods, and business organization. The results of these inquiries have been published in printed reports, often with suggestions of remedial legislation or for the constructive self-correction of abuses by the business interests concerned. During the fiscal year ended June 30, 1926, inquiries were conducted relating to the following subjects: Grain trade. Inquiry initiated by the direction of the President and continued by the commission. National wealth and income.-Inquiry directed by Senate Resolution 451 (67th Cong., 4th sess.), February 28, 1923. Bread and flour industries.-Inquiry directed by Senate Resolution 163 (68th Cong., 1st sess.), February 16, 1924. Electric power industry.-Inquiry directed by Senate Resolution 329 (68th Cong., 2d sess.), February 3, 1925. Open price associations.-Inquiry directed by Senate Resolution 28 (69th Cong., special sess.), March 10, 1925. Petroleum prices.-Inquiry directed by Senate Resolution 31 (69th Cong., 1st sess.), June 8, 1926. Lumber trade associations.-Inquiry directed by the commission, January 4, 1926. At the close of the year the first two inquiries had been completed; the report on national wealth and income was submitted to the Senate on May 25, 1926, while the report on the grain trade was sent to the Congress and made public after the close of the fiscal year. Just before the closing of the preceding fiscal year, on account of doubt as to the construction of certain new limitations on the expenditure of its appropriation for the fiscal years 1925-26, with respect to the inquiries then being conducted under the direction of the Senate, the commission requested an opinion thereon by the Attorney General. The opinion in this matter, which was favorable to the prosecution of the work, was rendered on October 24, 1925. Pending the receipt of this opinion, work was suspended on the inquiry into bread and flour, namely, from July 1, 1925, to November 11, 1925. The initiation of the inquiry into open-price associations was postponed to the latter date also. As there was no serious doubt regarding the electric-power inquiry, it was conducted without interruption. The legal questions involved in this matter and some of the pertinent documents, including the opinion of the Attorney General, were printed in the annual report for the preceding year. NATIONAL WEALTH AND INCOME Near the close of the fiscal year the commission issued a report on national wealth and income. This report was made in response to Senate Resolution 451, adopted February 28, 1923, which directed the commission to make an inquiry into and to compile data concerning the total amount of the chief kinds of wealth in the United States, the ownership thereof, and the encumbrances thereon, including both public and private indebtedness, to determine for recent years the amount of the annual increase in the wealth of this country in the various lines of economic activity and by different classes of the population; and also to obtain information respecting the amount and ownership of income exempt from Federal taxation and to report upon the various phases of the inquiry as soon as practicable. An amendment to the resolution instructed the commission to ascertain the aggregate taxes levied by States, counties, municipalities, and other taxing bodies for the last fiscal year and for the corresponding period of five years previous. On June 6, 1924, in partial response to this resolution, the commission submitted to the Senate a report on taxation and tax-exempt income. Work on the remaining phases of the inquiry relating to wealth and income was brought to a hurried close on June 30, 1925, on account of a new provision in the appropriation act for the fiscal year 1925-26 which restricted the general purposes for which the appropriation could be used. The volume on national wealth and income is in two parts, one devoted to data on wealth and the other to data on income. The national wealth is estimated in 1922 at 353 billion dollars and the national income in 1923 at 70 billion dollars. The increase in national wealth from 1912 to 1922, as measured in dollars, is reckoned in the report at about 72 per cent, but if allowance is made for changes in the purchasing power of the dollar the real increase for the 10-year period was nearer 13 per cent as compared with about 15 per cent increase in population. For the year 1922 the report estimates that the national wealth consisted of 122 billions of land values, exclusive of improvements, or 35 per cent of the total; 108 billions is the estimate for improvements on the land, and 123 billions for movable goods of all kinds. Of the total real-estate value of 230 billions, about 42 billions is tax-exempt, and belongs chiefly to the government-Federal, State, and local. The wealth of nonprofit institutions-religious, benevolent, and educational-is estimated in the report at 14.5 billion dollars. The report also estimates the amount of wealth according to various uses-wealth in agriculture, for example, comprised about 18 per cent of the total, in manufacturing and mining about 14 per cent, and in railroads and other public utilities about 13 per cent. The largest share consists of dwellings and other goods used for personal necessities and enjoyment-reckoned at over one-fourth of the total. The wealth of corporations is developed in the report on the basis of special statistics obtained from the Treasury Department, and an aggregate amount of 102 billion dollars is shown for book values. in 1922. Manufacturing corporations had the largest amount, estimated at nearly 34 billion dollars, among which the producers of various metals and metal products were the most important. The railroad corporations had a greater amount of wealth than any other single industry and much the largest average amount per company. The report states that the ownership of corporations, as shown by the number of shareholders, is generally widely distributed. Returns from 4,367 corporations, with a combined capital stock of more than 9 billion dollars and an aggregate of 1,074,851 holdings of common stock, give an average holding of common stock of $6,969 and of preferred of $5,211. Excluding corporations, trustees, brokers, and all foreign holders, over 90 per cent of the common stock was in the hands of individuals; corporations had only 1.1 per cent. The discussion of national income consists of two main partsfirst, an estimate of the total national income by branches of economic activity, and second, a special analysis of the income reported under the Federal income tax law. The amount of income reported by the Treasury in its preliminary report on statistics of income for 1923 was 31 billion dollars, based on the returns of those persons required to make reports. The total amount so reported was considerably less than one-half of the estimated total income of the entire population. The population receiving or participating in the enjoyment of this income was about one-sixth of the total of the country. Three-fourths of this amount of income was reported by persons with less than $10,000 income, and less than 4 per cent by persons with an income over $100,000. The income reported in the income-tax returns is classified into several groups, such as (1) wages and salaries; (2) business and partnership profits; (3) rents, royalties, interest, and dividends; and (4) profits from the sale of real estate, stocks, and bonds, etc. Of these, wages and salaries are the most important for the grand total of income reported and constituted the bulk of income for persons having less than $10,000 a year in 1920, 1921, and 1922. The total national income is estimated for the years 1918 to 1923. The amount for 1923 was about 70 billion dollars, as already noted; the lowest amount was about 53 billion dollars in 1921, and the highest amount was about 75 billion dollars in 1920. These marked variations are partly due to the marked fluctuations in prices, showing changes in the value of the dollar. If dollars of more nearly equal purchasing power are taken (using a cost of living index with. 1923 as a basis), the 70-billion-dollar income in 1923 should be compared with a 51-billion-dollar income in 1921 and 61 billion dollars in 1920. While there was an increase in national income between 1918 and 1923, on either basis of comparison, of nearly 10 billion dollars, or about 15 per cent, there was also an increase in population of about 6 per cent, which affects the net increase in the income per capita. Of the estimated income in 1923 of 70 billion dollars, 42 per cent is attributed to manufacturing, mining, and construction industries, nearly 14 per cent to agriculture, and about 12 per cent to merchandising. The division of the total national income between labor and capital, before deducting any taxes payable by either of them, is given as 55 per cent in wages and salaries and 45 per cent in profits, rent, and interest for 1923. Labor's proportion was lowest in 1918 and capital's proportion was lowest in 1921. These proportions are also shown for different branches of industry, and varied very widely. Thus in agriculture the share going as wages is quite small because most of the work is done by the farmer and his family, but the share of wages and salaries in the railroad business was nearly 70 per cent in 1923, and in the construction industry it was over 90 per cent. The report also analyzes the amount of corporation income as disclosed by the income-tax returns from 1916 to 1923, which ranged from over 10 billion dollars profit in 1917 to only a little more than a billion dollars in 1921. The rate of return of such corporation income, on the "fair value" of the outstanding corporation capital stock as computed by the Treasury, was 7.9 per cent in 1922, but varied widely among the various branches of business. In preparing this report the commission utilized the extensive and varied data published by the Departments of the Treasury, Agriculture, and Commerce and supplemented their data by such special inquiries as were seemed desirable in order to develop the particular information required. Great care was exercised to prevent any duplication of work. GRAIN TRADE The final volume of the commission's report on the grain trade was completed and sent to the Public Printer during the fiscal year. This volume (Vol. VII) contains conclusions and recommendations referring to the subject matter of the entire report, but especially such as relate to future trading methods and practices. Various uses of the futures markets, especially hedging, are described, and effects on prices of future trading in general, and of various types of such trading, especially possibilities of manipulation, are considered. Facts regarding quantities of future trades made through the several classes of clearing-house members for certain periods and of open trades are presented. Data for a large volume of individual trades are subjected to statistical analysis with reference to the length of time they are held open, the size per bushel gains and losses, etc. The direct cost of future trading (commissions, etc.) is estimated to amount to $20,000,000 a year or more for the Chicago Board of Trade alone. Costs incidental to the use of futures markets for gambling are believed to be very much more important. of The recommendations made take largely the form of suggestions intended to be concretely formulated and put into effect by the exchanges, either of their own initiative or through the exercise of the regulatory powers of the Secretary of Agriculture. It is believed that, although it is impossible to prevent all unwise speculation, a duty rests upon the exchanges and upon their members to keep out incompetent speculators so far as possible, as much because of the undesirable effects of their presence upon the market as because of the generally unfortunate consequences of their trading to themselves. Claims made on behalf of future trading that the practice stabilizes prices are not regarded as substantiated. It is suggested that the market will function better, and that especially there will be less meaningless price fluctuation, if the various "technical" factors are reduced in importance through more defi 15173-26- 5 |