are far greater in value than all the farm and factory machinery in the country. The capital directly required for the making of goods is only half as important, from the pecuniary standpoint, as the capital required for moving goods around from place to place.

From the standpoint of production of goods, the machines are paramount. But from the standpoint of ownership and property values, they are of minor account. This is the machine age, but the national wealth is mostly land, buildings, transport, materials, and property rights.

The Growth of Capital.-(1). Capital Values. Capital values are measured in the price levels prevailing in any given year. They are not a measure of growth of physical productive capacity unless they are adjusted to changes in the index of the general price level. But for the purpose of measuring the sum of property rights at any one time, the price measure of capital values is indispensable. Ownership is the basic concept of modern business, and ownership runs in terms of dollars of value. The following estimates by the Census Bureau run in terms of the price levels of the current years:

(2). Physical Capital. Physical capital is a mass of goods instead of a sum of values. The growth of the capacity of the nation to produce goods for human use is fundamental to social progress. The total real income of the whole people can advance no faster than the advance in the power to produce more wealth for human consumption.

King has estimated the total increase of physical capital from 1909 to 1918, a nine-year period, at 33 per cent.1 This would indicate that physical capital in the United States has had a rate of increase from year to year of between 3 and 4 per cent. This corresponds with E. E. Day's estimate of the annual increase of the volume of production at approximately 4 per cent.1 Volume of production evidently increases

1 Journal of the American Statistical Association, Volume 18, pp. 463-466. 1a The war period slowed up the process of capital accumulation. W. I. King estimates the physical growth of the capital wealth from 1912 to 1922 at 11 per cent, or barely more than 1 per cent each year. This modest increase in physical quantity of wealth contrasts with an increase of 72 per cent, or more than 7 per

at about the same rate as physical capital. This is but an expected correspondence, since capital goods are an index of productive capacity. If this rate of increase is converted to a per capita basis, it makes the annual per capita growth of capital about 2 per cent. This trend smooths out seasonal, cyclical or irregular fluctuations, and shows the long-time average. The significance of this statement of trend is the fact that productive capacity is increasing faster than population. Since productive capacity here refers to output of goods, and not merely to exchange values, it reflects our ability to raise the standard of living for the people as a whole.

Although this average trend is interrupted by many temporary deviations and fluctuations, it is indicative in the truest sense of the word of the long-time tendency of material progress. It applies chiefly to peace times, since peace times may broadly be considered normal times. We must consider, however, what are the effects of war upon capital accumulation. During a war, intense thrift is practiced and gross savings are enormous. But these savings are spent for war purposes and for the destruction of capital. The result is that a nation's physical capital tends to deteriorate during a war period. During the year 1918, the American people saved about $22,000,000,000 in the aggregate. Liberty loans, war taxes, private thrift, combined to create a huge total of gross savings. But, during the same year, estimates of the actual physical capital of the country show a decline of nearly $2,000,000,000. War savings are not productive savings. They leave the nation poorer in productive capital at the end of a war than at the start.2

For the other belligerents, the deterioration of capital was much more severe than for the United States. The capital wealth of Germany deteriorated more than 20 per cent during the war period. This deterioration does not include the loss of territory or foreign investment, but merely the impoverishment of domestic capital equipment. This impoverishment was further reflected in the fact that the per capita income in Germany after the War showed a falling off of more than one-fifth, as compared with a pre-war year.3 The other warring powers showed a capital impoverishment in varying degrees, but in all cases severe enough to have very damaging effects upon the post-war condition of their peoples.

(3). Capital in Principal Classes of Industry. Particular classes of economic activity show varying rates of capital growth. The following estimates, based upon the report of the Research Council of the National Transportation Institute, compare capital growth in our four basic industries for 1900 and 1920: 4

cent each year in money value of wealth. See Report by the Bureau of the Census on "Estimated National Wealth," in Wealth, Debt and Taxation, 1924, p. xiii. 2 See W. R. Ingalls, The Wealth and Income of the American People, especially Chapter 15.

3 H. G. Moulton, Germany's Capacity to Pay, pp. 191-196.

4 Report No. 1, February, 1924, The Place of Transportation in our Industrial Structure.

GROWTH OF CAPITAL

(1920 Index Listed in All Columns. 1900 = Base Index of 100.)

The above table affords many interesting comparisons for study, but there is space here for only brief mention of a few outstanding interpretations. In money value, manufacturing capital shows the greatest increase of any industry with its index of 495. In physical capital per employee, however, manufacturing shows only the same approximate increase as the other classes of industry. In physical output per worker, manufacturing shows only a 10 per cent increase, whereas both agriculture and mines show an increase of one-third. The physical capital per worker has increased at about the same rate in all four industries, but the physical output per worker shows wide differences of increase. In the latter respect, manufacturing output per worker has increased least of all, transportation next, agriculture next, and mines most of all. One explanation often given of the lower increase in manufacturing output is the introduction of the eight hour day during this general period of economic development. This explanation may be correct, although statistical evidence is insufficient either to affirm or deny it.

In 1921 Ingalls made a study of the value of plant and equipment per worker in various manufacturing industries, and calculated that two thousand dollars was the approximate amount of plant and equipment per worker. Certain industries, such as shoe manufacturing, showed a capital value per worker as high as five thousand dollars. Great variety exists from industry to industry in the value of capital per employee, and the suggestion of an average carries with it the caution that there are many and wide deviations above and below such an average.5

Relative Capital Wealth of Various Nations.-The United States has the greatest capital wealth of any nation. This position of leaderWealth and Income of the American People, pp. 122-128.

ship holds not merely for the total value of wealth but also for the amount per capita. Because of her leadership in this respect, the United States enjoys the greatest per capita income of any nation. The high standard of living possible in the United States is directly traceable to the fact that each producer uses more machinery, more mechanical power, more capital equipment, than does the producer in any other nation. The more capital available to assist the workman in production, the greater his output; and the greater his output, the greater the possibility of higher income and higher standards of living. The following table presents comparisons between seven nations at the beginning of 1914. That year is taken because it is the last year in which money units in the several countries were on a comparable gold parity. Relationships have probably changed in the subsequent decade, but not sufficiently to lessen the value of the comparisons. The estimates are based upon studies made by J. C. Stamp."

I, possible error of 10 per cent; II, of 20 per cent; III, of 30 per cent; IV, of 40 per cent.

The very low per capita income of Japan stands in sharp contrast to the figure for the United States. The density of population in the Orient is so great that the introduction of modern capital as an aid in production has not yet effected any marked elevation in the standard of living. From the figures given in the table, the outstanding conclusion is that the increase of capital equipment is the essential means to an increase of real income, but that if population grows at excessive rates, the per capita income will remain very low in spite of the use of modern productive capital. Economic progress is a race between increase of productive capital and increase of population. The United States has raised the standard of living because the rate of capital growth has been greater than the rate of population growth.

• Journal of the Royal Statistical Society, Volume 82, p. 491. The table at the bottom of page 273 brings comparisons as to total amounts of wealth per capita in various countries down to 1922.

Fundamental Causes of Fluctuations in Supply of Capital.-We have observed in the previous chapter that supply of capital does not respond very sensitively to changes in the interest rate. Fluctuations. in the rate of accumulation of capital must be traced primarily to other causes. The foremost of such causes is the volume of the nation's productive output. Capital accumulation is greatest when the country's productive plant is running to capacity. For example, when annual production increased 18 per cent between 1913 and 1916, savings increased 133 per cent. During 1920 and 1921 savings were low in volume largely because the state of depression meant a falling off in volume of national production. During 1922 and 1923, savings increased again because during those years the country increased its volume of production. It is to be noted, too, that a small per cent of increase in the index of production tends to be accompanied by a much larger per cent of increase in the index of savings. Every increase in production is likely to lead to a more than proportionate per cent of increase in capital accumulation. Every decrease in production is likely to lead to a more than proportionate per cent of decrease in capital accumulation. The basic method for increasing savings is to keep production to the maximum capacity.

Secondly, capital accumulation tends to be largest when business profits are largest. When business profits slightly more than doubled

Wealth of U. S. compared with other principal countries of the world in 1922, 1912, 1890, 1870; compiled from U. S. census reports and from estimates of statistical experts in the respective countries designated.

a, Official; b, Crammond; c, Stamp; d, Coates; e, estimate; f, Griffen; g, Moody; h, Knibbs; j, Helfferich; k, Neymark; m, Barthe; n, Théry; o, Mulhall; p, Bunge: q. Encyclopedia Americana; r. Pan American Union; s, Armament Conference; t, Based on Crammond's estimate in 1920; u, Banco Urquijo.

(Data compiled by National City Bank of New York.)