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estimates that land rents absorb about 8 per cent of the total of all incomes. It is however uncertain just what part of this is to be regarded as interest on investment in land and what part as producers' surplus on land, or economic rent. Gross interest and gross rent combined amount, therefore, to about 24 per cent of the total national income. It would be conservative to conclude that from one-sixth to one-quarter of the annual income of the nation is disbursed as interest. Consequently, if in a given year the income of the United States were $65,000,000,000, the share of this sum going to interest would at the least be upwards of $11,000,000,000 and would probably be substantially above that sum. Some such amount as this is the cost to the country of the services of those who have saved and accumulated. The owners of the capital supply of the country have a standing claim to this important share of the national income. This fact is fundamental to any understanding of problems of distribution.

Share of the National Income Saved Annually.—The measurement of the annual savings of the country is a comparatively recent achievement. The stimulus to the use of statistics for this purpose is largely the result of wartime interest in thrift and saving. It is possible to estimate savings from two standpoints, namely, gross savings, and net savings. Gross savings refer to the amount of income not devoted to immediate consumption. Net savings refer to the actual addition to permanent capital. The difference between the two represents such items as the amount of savings devoted to war costs, or the amount used to replace old and worn out capital. The table given below is derived from esti- . mates of net savings by W. I. King 14 and of gross savings by David Friday.15 The statistical methods used in making these estimates may not be in all respects strictly accurate. However, the estimates are the most reliable that have been made, and although statistical method needs to be perfected, present estimates are nevertheless sufficiently close approximations to be highly significant and to serve many practical purposes.

The years for which data have been omitted are those for which statistical studies are not yet available. However, the available data are sufficient to indicate clearly that normally the nation saves about one-seventh of its total income. In 1916 the ratio rose exceptionally high, being one-fourth the national income, aydin 1918 fell exceptionally low, representing a deficit or depreciation of capital of about 3 per cent of the national income. These ratios refer to net saving. As to gross savings, it is found that in 1918 the nation saved for war expenditures as much as one-third of its income. But war expenditures meant loss of permanent capital, and the stock of national wealth actually declined during the year.

It is interesting to compare the share of national income paid out as interest to investors with the share of national income saved. The two are much the same in amount. For every dollar disbursed as an interest payment to a property owner, there is, roughly and approximately speaking, a dollar saved anew out of current income. The nation reinvests its interest income each year. It does not follow of course that each individual reinvests each dollar of interest income received, but the statement does apply to the average interest receipts and volume of savings of the nation as a whole. New savings approximately equal interest on old savings. In passing judgment on the justice, wisdom, or advantage of allowing so large a part of national income to be distributed as a reward for ownership, it is not without significance that an equivalent of the amount so distributed is, for the nation as a whole, turned back into productive industry.

14 See Journal of the American Statistical Association, Volume 18, p. 467.

15 See Profits, Wages and Prices, p. 91; also New Republic, Volume 33, p. 271, and Volume 37, p. 304.

INCOME AND SAVINGS OF THE UNITED STATES

Year

Total Na- Total Na

Total National Savings, tional Savings, Net Saving,

Net Saving,

tional Income, in Dollars of in Dollars of Dollars of

Fraction of

Dollars of
Current Year, Current Year, 1913 Value

National

Current Year
Net
Gross (millions)

Income

(millions) (millions) (millions)

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(a) See W. R. Ingalls, Wealth and Income of the American People, p. 203.
(b) See above, page 46.
(c) Gross saving, fraction of national income.

BIBLIOGRAPHY

BURGESS, W. R., Management and Administration, Volume VI, p. 4 ff.
CASSEL, GUSTAV, A Theory of Social Economy, pp. 224-248.

- The Nature and Necessity of Interest.
FRIDAY, DAVID, Profits, Wages, and Prices.
INGALLS, W. R., Wealth and Income of the American People.

Current Economic Affairs.

KING, W. I., Journal of the American Statistical Association, Volume XVIII,

p. 164 ff. and p. 322 ff.

The Wealth and Income of the People of the United States. RORTY, M. C., Some Problems in Current Economics. SNYDER, CARL, Interest and the Business Cycle, American Economic Review,

Volume XV, pp. 684-700. UNITED STATES BUREAU OF THE Census, Estimates of the National Wealth,

1912, 1922. VANDERBLUE, H. B., Problems in Business Economics.

CHAPTER XVI

PROBLEMS OF CAPITAL AND INTEREST

The Overhead Burden of Capital Equipment. It is an important problem to discover how much benefit accrues from modern capital. When one contemplates the many marvels of science and machinery, the sensational increases of productive capacity due to certain leading inventions and discoveries, it is a temptation to assume that society has benefited proportionally. This assumption would however go much beyond the facts. A typical illustration of this overdone assumption runs as follows: “In the steel industry, one or two men with unloaders replace twelve to twenty men unloading by hand. In men's clothing, in various processes, machines with a single operator replace six and eight workers. In the glass industry, one type of bottle-making machine replaces fifty-four workers. In coal mining, an automatic conveyor for pier unloading with twelve men replaces one hundred and fifty men.” 1 These dramatic achievements do not mean a proportional increase in our net capacity to produce goods for consumption. With each of these inventions more and more labor has to be given to the making of machinery, the construction of equipment, the preparation to make goods for final consumption. Less and less time is required to make goods for actual consumption, but more and more time is required to get ready to make goods for actual consumption. The indirect processes necessary to mine and factory, the preliminary stages of collecting materials and capital equipment, the transporting of goods farther and farther as production becomes more and more complicated, offset to a degree the dramatic increases of efficiency represented by individual machines. Machine after machine increases the productive capacity of the laborer often a hundred or a thousand fold, but the total real income of the nation advances by no such thrilling leaps and bounds. Advance there is, and increase of real income there is, but not faster than 2 per cent per capita each year.

This point is well illustrated by modem transportation. A ton of freight was transported 242 miles on the average in 1900, and 304 miles in 1920, an increase of 25 per cent. The mere fact that goods are moved farther and faster does not indicate an increase in national productive capacity. Carrying goods from place to place is not the same as making goods for consumption. What is happening is that more and more of society's energy goes into moving things from point to point, and into 1 American Economic Review Supplement, Volume 14, pp. 113-114.

roundabout processes of manufacture. The net result is a moderate increase in real income, but no such sensational increase as one might suppose from viewing the demonstrations of efficiency of individual machines, inventions, and discoveries.

The enormous growth of capital and of indirect processes employed in roundabout construction has brought about an overhead burden upon industrial society, a burden that has attained great dimensions. This overhead burden may best be studied from the standpoint of accountancy. The cost accountant distinguishes between direct costs and indirect costs. Direct costs, for instance, would include direct materials used in manufacturing and direct labor used in the particular process. Indirect costs are variously termed “overhead,” “constant,” or “supplementary” costs. Illustrations of indirect costs would be such as the following: insurance, interest, taxes, rent, depreciation, maintenance, and supervision. It is an outstanding characteristic of such costs that they cannot be assigned to particular units of the business. They are general costs, and cannot be definitely assigned to each pair of shoes or yard of cloth manufactured. It is a further outstanding characteristic of such costs that an increase or decrease in output is not accompanied by a proportionate increase or decrease in those costs. If machines are idle, interest and depreciation continue just the same. If plant is unused, rent, insurance, and depreciation continue just the same. Hence, the overhead burden in modern capital is the mass of costs which remain more or less fixed whether the capital is used or not. This burden is especially severe during seasonal slumps in production and during the depression stages of the business cycle. The unused productive capacity must nevertheless bear the burden of the continuing overhead costs.

The overhead burden bears down least heavily upon the cost of each unit of product when production is running to full capacity. Consequently the problem of overhead cost is mainly the problem of unused powers of production,—the problem of preventing idleness of plant.

In summary, the two phases of overhead which chiefly concern economics are: first, mild and fairly steady increase in productive power in spite of sensational inventions and discoveries, due to the fact that more and more of the mechanical process is devoted to roundabout and preliminary stages of production; second, the cost accounting problem of averting idleness of plant, and of meeting the overhead burden of those costs which do not decline materially no matter how many laborers are cut off the pay roll or how much of the plant is closed down. Whatever pride we may take in the marvels of modern science, we must temper it by a serious concern for the offsets to these marvels, as found in the phenomena of the growing overhead burden.

Effect of a Different Distribution of Income upon Savings.-One point of bitter controversy in the business and political field is the question of the extent to which capital accumulation depends upon inequality of income. It is firmly held by many authorities that a more democratic distribution of income would choke off the supply of new capital. It is

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