1923

1924

1925

1926.

1927

1928.

1929

1930.

1931.

1932

1933

1934

1935

1936

1937.

1938.

1939.

TABLE 48.-Calculation of gross savings by business enterprises, 1923-39

Department of Commerce calculations. Data from 1929 to date computed from Survey of Current Business, June 1940. Data before 1929 are unpublished.

Hearings before the Temporary National Economic Committee, Part 9, p. 4041, being the_calculations of S. Fabricant, Capital Consumption and Adjustment, National Bureau of Economic Research, New York, 1938, pp. 32, 33, 38. Dr. Fabricant supplied preliminary material for 1936 and 1937. Data for 1938 and 1939 are estimates.

3 Gross savings computed in this way must necessarily be understated. These data do not include adjustments for contingency and similar charges to income; revaluation charges to income for inventories and accounts receivable, etc.; and charges of capital items to the income account. The understatement is particularly serious in years of depression and sharply falling prices, e. g., 1930-32. See Hearings before the Temporary National Economic Committee, Part 8, pp. 3687–3690,

4 Estimated.

TABLE 49.-Composition of gross saving by governments, 1921–39

1 The net governmental contribution to or subtraction from purchasing power. "This series attempts to measure the difference between the outlays of public bodies that add to the community's disposable cash income and the receipts that represent drafts upon disposable cash income." Hearings before the Temporary National Economic Committee, Part 9, p. 4017. Data from p. 4011, corrected and brought up to date by later material.

Hearings before the Temporary National Economic Committee, Part 9, p. 4140, brought up to date with Survey of Current Business, June 1940. Does not include outlays for machinery and equipment, which represent a use of savings. Includes that part of relief outlays estimated to result in construction. Source: Temporary National Economic Committee Monograph 37, appendix II, p. 111.

300282-41--15

TABLE 50.-Gross savings by individuals and others, 1925-29 and 1935-39

Source and method: Gross savings by individuals and others represent total gross savings (table 47) minus gross savings by business enterprises (table 48) and governments (table 49). For the reasons given in table 48, footnote 3, the estimates made by this method are particularly inaccurate in depression years. Other estimates of individual savings are not precisely comparable with this one.

The estimate in Leven, Moulton, and Warburton, America's Capacity to Consume, Brookings Institution, Washington, 1934, is $17.8 billion for 1929. Excluding their $6.2 billion of capital gains, their estimate is $11.6 billion (pp. 96, 260, 261, 265).

The estimate by the National Resources Committee was $6 billion in 1935-36. (Consumer Expenditures in the United States, Washington, 1939, p. 51.)

The estimates by Lough were (in billions): 1923, $7.8; 1924, $8.7; 1925, $10.6; 1926, $10.6; 1927, $10.4; 1928, $8.5; 1929, $9.3; 1930, $8.5; 1931, $4.1. ( High Level Consumption, Macmillan, New York, 1935, p. 306.) Lough's method would tend to eliminate capital gains.

As pointed out in the last chapter, a fraction of the American people receives the bulk of the dividends from American corporations; and this fraction is roughly identical with that group responsible for the bulk of savings by individuals. The same fraction, by reason of stockholdings in American corporations, is ultimately responsible for, or is the beneficiary of, gross savings by business enterprises." Concentration of Business Savings.

Corporations are responsible for the bulk of business gross savings, and the large corporations contribute the lion's share. In 1937, the latest year for which data are available, the Statistics of Income indicate that 318,000 nonfinancial corporations showed gross savings of $2,869,000,000. The 210 corporations with assets of more than $100,000,000 contributed 30 percent of these total gross savings; the 2,900 corporations with assets of more than $5,000,000 contributed 70 percent. The 4.2 percent of all nonfinancial corporations with assets over $1,000,000 contributed 88 percent of all these gross savings. There were 189,000 nonfinancial corporations with assets of less than $50,000 in 1937. These small corporations constituted 59 percent of the total number); their contribution to gross savings was negative (−2.4 percent).

In bad years the concentration is even greater. In 1933, for example, of 288,000 nonfinancial corporations, 375 (0.13 percent) with assets in excess of $50,000,000 reported 74 percent of the total gross savings.9

Again, if only those corporations that had net income (which in 1937 were 139,440 out of a total of 318,464) are considered, those with

7 See Temporary National Economic Committee Monograph No. 12, Profits, Productivity, and New Investment, ch. VI; Monograph No. 29, Distribution of Ownership in 200 Largest Nonfinancial Corporations; and Hearings before the Temporary National Economic Committee, Part 14-A, pp. 7713-7714, 8003-8042. In no case did the 100 largest stockholders of record of the major oil companies own less than 21 percent of the total number of outstanding common shares. The 100 largest stockholders of record owned 24 percent of the Texas Corporation, 47.3 percent of Standard Oil Co. (N. J.), and 84.9 percent of Sun Oil Co. (ibid., p. 7713). Temporary National Economic Committee Monograph No. 29 indicates that going behind the stockholders of record to the beneficial owners shows increased con centration within any corporation. Furthermore, a consolidation of beneficial interests in all corporations shows yet higher concentrations. This is what one would expect. The Mellon interests were found in many corporations, with aggregate holdings of $500.000,000 out of the $30,000,000,000 of stock in the sample of corporations. (Cf. E. D. Kennedy, Dividends to Pay, Reynal & Hitchcock, New York, 1939.)

8 See Temporary National Economic Committee Monograph No. 37, pp. 22-23 and appendix VI, p. 114, for detailed figures and sources of data.

Hearings before the Temporary National Economic Committee, Part 9, p. 4049.

assets of more than $1,000,000 (61/2 percent of the total number) did 80 percent of the saving.

Concentration of Government Savings.

All governments, Federal, State, and local, saved during the 1920's, but during the 1930's, with the exception of 3 years, they dissaved or had negligible savings. This reversal of pattern is easily misunderstood unless it is remembered that savings, governmental as well as individual, are the difference between current income and current expenditure, or, alternatively, the net change in assets or liabilities, exclusive of gains or losses from the revaluation of assets. If a government collects $10,000,000 in taxes, builds a water supply system costing $1,000,000, and spends the balance for operating expenses, it has saved $1,000,000. If it spends $500,000 for the water system, $500,000 for debt retirement, and $9,000,000 for operating expenses, it has still saved $1,000,000. But suppose it raised only $9,000,000 from taxes, and borrowed $1,000,000 to meet its plant outlay and debt retirement. In this case current income and current expenditure were $9,000,000, and nothing was saved. Governmental gross savings, therefore, equal capital outlays plus decrease in debt (or minus increase in debt).10

During the 1920's the Federal Government invested-spent for the construction of buildings, roads, harbors, and so forth-an average of $250,000,000 per year. This figure does not include investments for machinery and equipment, for which data are not available. This $250,000,000 per year was derived from taxes. At the same time the Federal Government was reducing its debt. The difference between cash income and outlay is the best measure of savings so far as concerns the effect of Federal activity upon the savings-investment stream.11 From 1921 to 1929, Federal net cash income averaged $280,000,000 more than net cash outlay. On this conservative basis, therefore, gross savings averaged $530,000,000 per year during the period.

State and local governments from 1921 through 1929 spent an average of $1,800,000,000 per year for construction. Of these funds, 40 percent, or $725,000,000, were borrowed; in fact, it has been estimated that all State and local bond issues during the 1920's were for "productive" purposes. purposes.12 On balance, therefore, States and local governments had average gross savings of $1,000,000,000 per year.

Federal, State, and local gross savings during 1921-29 averaged $1,500,000,000 per year, of which the Federal Government accounted for a third. The concentration of savings among the remaining 180,000 governments in the United States has never been determined, although it is substantial.

10 In computing savings each government must be treated on a consolidated basis: transfers to trust funds, etc., must be adjusted for. Goldsmith and Salant ("Volume and Components of Saving in the United States," Studies in Income and Wealth, National Bureau of Economic Research, New York, 1939, vol. III, p. 290), use the following formula for Federal gross savings, 1933-37: (a) current receipts equal total receipts minus (1) capital receipts and (II) seigniorage; (b) current expenditures equal total expenditures minus (1) public works, including grants for public works, (11) loans, (III) subscriptions to capital stock and paid in surplus, (IV) debt retirements, (v) capital outlay of W. P. A., C. W. A., and C. C. C., (VI) saving under trust accounts, increments on gold, etc.

This

Calculation of savings on this basis, instead of on the basis of gross, net, or otherwise adjusted debt, allows for transfers to trust and pension funds, and other noncash outlays. 12 Moody's Investors Service has prepared a series of "productive" capital issues.. series contains all capital issues which were used for "productive" purposes for investment. Moody's tabulations for the 1920's indicate that all issues by State and local governments were productive issues. (See the convenient summary of these results in Moulton, Edwards, Magee, and Lewis, Capital Expansion, Employment, and Economic Stability, Brookings Institution, Washington, 1940, pp. 27-29 and 349–354.)

Since the depression the distribution and character of governmental savings have changed. The States and localities continued to save each year (generally with the aid of Federal funds), but the Federal Government did not. State and local gross savings ranged from $700,000,000 in 1932 to $2,000,000,000 in 1934; in 1939 they were $1,500,000,000. The Federal Government saved only in 1937 (a year marked, incidentally, by one of the sharpest business recessions on record). The decline of Federal savings has decreased the concentration of governmental saving, both because the greatest concentration existed in the Federal sector, and because much of the Federal deficit has gone to bolster up the finances of the weaker governmental units.

Concentration of Individual Gross Savings.

The concentration of individual savings within the higher income brackets is so striking that it requires no emphasis here.13 Some 27,000,000 families at the bottom of the income scale, taken as a group, are unable to do any saving at all; but the 110,000 families and individuals in the group receiving more than $20,000 a year accumulated 40 percent of the total of $6,000,000,000 saved.14 And the 927,000 families and individuals (2.4 percent of the total) with incomes of over $5,000 accumulated 79 percent.

In fact, those who benefit by trust funds save about as much as 37 million of the 3912 million families and individuals. The adoption of a separate income-tax schedule for fiduciaries for 1937,15 coupled with separate tabulations in the Statistics of Income for 1937, for the first time permits a fairly accurate analysis of savings by trusts.16 The Bureau does not, however, tabulate the amount of wholly and partially tax-exempt income for balance deficit trusts, or for trusts with balance incomes below $5,000. A conservative estimate of the wholly and partially tax-exempt income so excluded is $20,000,000.17 With these corrections, trusts in 1937 appear to have saved 26 percent of their balance income, as follows:

[000,000 omitted]

1. Gross taxable income (excluding partially taxable income) 2. Partially and wholly tax-exempt income--.

13 For full discussion, see ch. VIII.

14 The sample of cases above the $20,000 level was so small, however, that the result must be accepted with caution.

15 Form 1041.

16 A more accurate analysis will be made possible by the data for 1938. Many trusts in 1937 filed on the old Form 1040, which masked distribution to beneficiaries.

The Bureau of Internal Revenue announced that some 1938 returns were made on Form 1040, but that it "adjusted" the majority of these for distributions (Bureau of Internal Revenue Press Release, No. 21-79, August 7, 1940).

17 Temporary National Economic Committee Monograph No. 37, p. 19, footnote 20. For full account of methods, see pp. 19-20, appendixes 3 and 4, pp. 111-112.

18 After an estimated division of the deductions on Form 1040 between distributions and other deductions. This division does not affect the final estimate of savings.

Thus the 182,973 families apparently saved $352,000,000 in 1937.10 This was approximately equal to the amount saved in 1935-36 by the 37,000,000 American families with incomes up to $3,000, who constituted 93 percent of all families.

REASONS FOR SAVING

It is clear that the amount of individual savings depends primarily on the amount of income. Savings are not "saved," they are accumulated. They are not induced by the interest rate, they are the surpluses above consumption of those with high incomes. Even the declining interest rates of the last few years, at relatively stable levels of national income, have been unable to effect any decline in the rate of saving.

Even with any given national income, concentration of income, and tax structure, it must not be assumed that savings increase as rates of interest increase. For individuals who have contracted to save through life insurance and other contractual plans may find themselves saving more, unexpectedly and unintentionally. As dividends on life insurance policies decrease, premium payments increase, entailing increased saving. It is unlikely that these increases in premium payments are offset in full by decreases in other forms of saving. The larger the stake in such contractual forms of saving, the harder it is to decrease saving when rates of interest fall.

So far as life insurance is concerned, there is every pressure upon the policyholder to maintain his policy in force at its full value, for all attempts by the policyholder to do otherwise involve expense or loss of savings. Those whose policies are of several years' standing have a vested interest in continuing to save, even though interest rates decline and the cost of saving increases, for the decline in interest rates appears not to have affected all policyholders equally. One indication is the relative increase in the net premiums on old policies (of, say, 10 or 15 years' standing) compared with that on new policies. Following the drop in interest rates since 1933, net premiums (premium rate minus dividend payments) have been adjusted at an average between the old and new costs, so that new policyholders pay relatively less for their insurance than do older ones whose stake in their policies is larger. Another indication is that the branches of the life insurance business which have grown most rapidly in the past decade are those where the savings element is greatest-annuities and investment of balances despite the fall of interest rates.

If, and insofar as saving does vary directly with its reward, it is essential to note that there is no one interest rate throughout the community. Saving takes place at many different interest rates. The market for savings is discontinuous and disparate.20 Those with small incomes, who find it hardest to save, receive the smallest net returns upon their savings, because the cost of the savings methods open to them is relatively the greatest. Any comparison of the cost of indus

19 Indicated on both Form 1040 and Form 1041. Does not include any adjustment in the trusts for capital gains and losses, since these are shown "net" for all returns. Adjustment on this score would reduce current savings to approximately $250,000,000. (Cf. Temporary National Economic Committee Monograph No. 37, p. 19.)

20 Even in life insurance the discounted net cost for 10 years of a $1.000 whole life policy, age 25, varied among the 26 largest companies from $55.93 to $87.04, i. e., by more than 50 percent. (See Hearings before the Temporary National Economic Committee, Part 10-A, pp. 300 ff.