EXCESS OF SAVINGS OVER NEW INVESTMENT

Mr. HENDERSON. I want, however, to pay a little bit of attention to this question of the excess of savings over new investment and capacity to produce, because it seems to me that is the nexus of the problem with which we are confronted.

There are several ways of measuring this thing we call investment and savings. Sometimes you can measure it in physical goods, which is your capital formation side; sometimes you can measure it in terms of dollars. Unfortunately the dollar measurements are nowhere near as good as the physical measurements at the present 'time. Somewhere between 15 and 20 billion dollars of the national income, when we were around 70 to 80 billion dollars, was available for savings of some kind.

Now, in the days when we were expanding, in the days when it was considered necessary to get European loans, in the days prior to the war, when there was a tremendous amount of demand for expansion of capital, we had no difficulty with this thing known as savings. They do constitute a difficulty now, and I am not going to try at this time to indicate how that problem may be solved.

I do want to point out that their very presence constitutes a problem. That is, the fact that year in and year out savings go on and must find some outlet is really important. Now, we have tended to magnify the importance of the durable goods, and properly so. But in durable goods I think we ought to note that so far as the ordinary use of savings is concerned, it was customary in the 1920's to spend about 38 percent of our savings on producers' goods, that consumers' durable goods in the way of houses and automobiles took about 52 percent of that, and public works took about 10.

Of course, another thing that has been overemphasized, which needs to be recorded as a fact for consideration, is that during the whole of 1923 to 1929 period, in every $3 of investment in plant and equipment about $2 was produced by the savings corporations themselves, either through their depreciation account or through their own surpluses; about $1 out of every $3 came from the outside.

In other words, the capital market was being tapped something like this: There would be, say, $6,000,000,000 each year which would be spent by industry itself, and $3,000,000,000 which would be secured as new capital from savers entirely outside of that group.

In 1937, when we had reached this kind of thing,' 90 percent of the financing of the production of durable goods, so far as it related to machinery, equipment and things like that, was coming from either depreciation account or was coming from the retained earnings of the corporations that had been accumulating over a period of time.

That question of the rate of savings invites a very, very real question that I am going to discuss and I am going to draw a little bit on the English experience for it. The English have, I expect, a little better estimate of what the savings in relation to national income is than our own. They show that around 1907 they were saving maybe 12 percent of their national income; in 1924 that had dropped to 8.1 in 1929 it was 7.2; in 1935 it was 6.9 percent. The significance lies in the fact that since 1924, and since 1929, the amount of savings which the English system was making was considerably less than our own and was considerably less than had been the situation in earlier times, and

1 See exhibit No. 86, supra, p. 151.

yet England, we know, has had a kind of recovery that we have not experienced here, and which few other countries have experienced. Now, the financing of that did not come from their national savings, and I want to read one observation in order that I may have it absolutely correct, of the outstanding observer of that particular phenomenon, a phenomenon whereby England had recovery with a diminishing savings.

*

Colin Clark, in his recent book,' says:

* I believe the facts have destroyed the view up till now generally prevalent, i. e. that the rate of economic growth was primarily dependent upon the rate at which capital could be accumulated. The very rapid expansion in productivity at the present time is taking place at a time of heavily diminishing capital accumulation. What is more remarkable, practically none of the capital which is being saved is being put into productive industry proper.

In other words, what seems to be taking place so far as England is concerned is that they are not having the tremendous unbalance between the amount of purchasing power that is produced through the producing organization and the amount which is being expressed as consumer claims to those goods. In the setting up of the idea of derivation of purchasing power it is evident that the final price that is paid is made up of payments that have been made in wages to salaried people, payments that have been made for materials, and a part which is retained as depreciation or as retained earnings of the corporation.

To the extent that all purchasing power produced does not get into the market, we are likely to have difficulty. In earlier days there was no difficulty because any amount saved seemed to be automatically required, and that was one of the assumptions upon which this fast, vigorously expanding competitive system of ours rested. There has been this shift to the extent, as I say, that we have fifteen or twenty billion dollars of savings here, a much higher rate than the English, without the demand for so many billions. We always had the assumption that high rates of saving were necessary, that the rate of progress was determined by the rate of savings, but in recent years we have had the dilemma of a seeming surplus of savings.

I hope, Mr. Chairman, that I have avoided as many controversial issues as possible, but I think that any concept of how we can get to 140 in the index of production, or get to 88 to 94 billions of dollars in national income, has got to take into account the flow of, incomes, it has to take into account what is the balance between purchasing power produced and the purchasing power spent at the receiving line, because somewhere in there is the nexus of a very, very real problem, and if you have the explanation of it, it would probably show why durable goods fall much more than do the nondurable, which are immediately consumed for the most part.

Mr. DAVIS. Mr. Henderson, can you give us the approximate latest figures during a normal year of the relative amount of the sales of durable and of nondurable goods?

Mr. HENDERSON. I can give it to you. I have charts for that." I haven't got it in dollar terms.

The CHAIRMAN. May I suggest that you put the answer to the question in at the conclusion? We will let him proceed, Judge Davis, if you please.

1 National Income and Outlay.

Exhibits Nos. 86 and 87, supra, pp. 151 and 153.

Mr. HENDERSON. Another factor which has been a dislocating factor and has affected our basic assumption, of course, is the rise of consumer debt. In 1923, at the end of the year, we had about $4,900,000,000 of consumer debt; at the end of 1929 we had $8,800,000,000; at the end of 1933 this had got down to about $5,500,000,000; by June 30 of 1937 it had risen above $8,700,000,000. That factor of new credit that is available, that is made available to consumers in such large amounts, is a factor which needs to be reckoned with in any consideration as to a competitive system. Its dislocating ability on the down side, its accelerating effect on the up side, is something which is only partially understood, and certainly a dislocation has taken place there of which we know very, very little. Senator KING. That is the utilization of capital, however?

Mr. HENDERSON. The utilization of savings. It is not always technically that, if you are able to create bank credit. It has to be supported, however, paid off by savings at some time. It has to be paid off by savings eventually, or else

The CHAIRMAN (interposing). There is a crash.

Mr. HENDERSON. "Repudiated," is the right word. I listed, Mr Chairman, among the things that have set aside, or moderated, the concepts of competitive capitalism, government intervention, and I don't believe that we need to go into an expanded definition of that. Certainly the assumptions that we have had in the early days as to the place of Government was that of the umpire and as of the enforcer of rules, and it was felt that the least amount of intervention consistent with the maintenance of order was the best possible thing for competitive enterprise.

A list of Government intervention here and abroad would reach higher than Dr. Thorp pointed to yesterday with that pointer of his, and I am not prepared to go into it, but I think you will see, when we come to the outline of study, that we are taking note of Government intervention of all kinds.

I would like to point out, however, that Government intervention is not a new thing. It began in the early days of the tariff, it was of particular assistance in the expansion of railroads and toll gates; it takes form in the peculiar kinds of grants that come under corporations and patents, the expansion of tariffs, licenses, franchises, and things like that.

There was constantly what might be called a translation of the community's own property in terms of something that could be converted into purchasing power. When there was a grant of land it was possible to convert that into purchasing power, and it was only by means of conversion of that into purchasing power, for the employment of men and purchase of materials, that you really got an expansion.

All these that I have listed would constitute a partial list only of what has been done in the way of setting aside the American system of competition.

PROBLEMS CONFRONTING T.N.E.C.

Mr. HENDERSON. Many questions keep bubbling up from even the most casual consideration of the task. A full set of questions adequately phrased would be an admirable basis for outline of study and investigation. I cannot say that such a full set of questions is avail

able. I can, however, state several which seem to indicate the greatest perplexity and in making this list I have not relied upon my own observation, though, of course, I am responsible for the selection.

The joint resolution which created the committee raised the basic interrogations. By specific direction, the resolution includes within the frame of references the President's message to Congress of last April, Senate Document No. 173, Seventy-fifth Congress, third session, which is entitled "Strengthening and Enforcement of Antitrust Laws.'

112

In directing an investigation Congress has seldom had such a specific outline of the matters of reference. A part of the list of questions flows naturally from the ideas of the 12 members of the committee and their alternates, as I have come to know them myself, as well as the observations of advisers and assistants who are counseling upon or directing various studies under assignment from the committee.

In phrasing the questions I have not ignored ideas expressed in significant studies relating to competition or the observations by commentators to whom the subject matter of this inquiry is naturally a fertile field.

The over-all question seems to be, Why have we not had full employment and full utilization of our magnificent resources? Specific questions, however, are more directly pointed at the target.

These would include, without limitation or invidiousness:

What is the present status of competition? Has it lessened? Is the lack of self-adjustment of the economy due, wholly or in part, to decline in competition?

Can this country rely in the future on competition as the mainspring of its economic system? If so, what changes are necessary in public and private policy to make competition effective? If not, what are the alternative organizing forces available? Is the choice necessarily between full competition and full planning?

To what degree and in what areas has competition as the regulating force been set aside?

Are prevailing price and production policies implicitly based on vigorous price competition? To what extent is competition through development of the product a satisfactory substitute for price competition?

What are the wastes in the distributive system?

What devices, mechanisms, policies and organizational forms have been consciously utilized to defeat competition?

In what particular are the antitrust laws inadequate?

Is the lack of competition always due to conscious efforts, or are impersonal elements and forces also responsible?

Can economic effort be divided into monopoly and competition? Are both sometimes present? Does overcompetition exist?

What part has concentration played in the decline of competition? What part has size played? Is concentration on the increase? Is concentration an inevitable consequence of a developing industrial organization? Of the corporate form? What are proper standards for corporations doing interstate business?

Does concentration affect adversely or favorably the distribution of income? The efficiency of output? Is economic activity affected by the character of income distribution?

1 See exhibit No. 2, appendix, p. 192. See exhibit No. 1, appendix, p. 185.

What results are expected to flow from competition? Can tests be constructed in terms of these expected results for measurement of accomplishment of industrial organizations? Could such tests be used to measure effectiveness of economic organization in cases where competition has legally been modified or set aside? Can these be applied to organizations of workers?

How flexible is the economy? Where is it inflexible? ards of desirability of flexibility can be framed?

What stand

Why has new investment lagged? Is this lag likely to continue? Has the forward drive of the American economy stopped? Have we witnessed the end of our dynamic mass production, lower price, more employment policy? Are we in for stagnation or decline? What is the proper function of government in periods of underinvestment? Is government debt different from personal debt? Under what set of economic conditions can savings be absorbed? What is the influence of the present rate of return on investment?

Are our liberties endangered by the growth of private control? Is there a relation between collectivism in private industry and collectivism in government? How can the dignity and importance of the individual be enhanced by choices of economic policies? Should the Government intervene to afford the individual businessman a better status in competition?

Which segments of the economy have managed their prices and production? In which have these possibilities meant fewer jobs? What effects have patents had upon expansion of production?

What has been the record of success of government intervention in the various economic processes here and abroad?

Out of those questions, as they resided in the resolution, as they resided in the members of this committee, of course, Mr. Chairman, there was a first assignment of jobs to six agencies. The committee at its second meeting made an assignment to the six agencies that came in, and said, "We believe in terms of this resolution we can do this kind of job better from our own experience or from assignment from you as to some specific thing on which we believe you will need information."

With that as a base, and for the purpose of giving the widest amount of circulation to what this committee has outlined so far, and what are some of the things which seem to be immediately over the horizon which need study, I have undertaken to set down, as the last part of my statement today, what I consider the main lines of study that are indicated by the resolution and by these questions which I have raised. I would say, offhand, that I do not need to read that.

The CHAIRMAN. I think that could very properly be put in the record. Without objection, this analysis of the main lines of study as indicated, will be inserted in the record at this point.

(Following is the material indicated for inclusion in the record.)

A. Concentration and control. Facts. Its causes. Over-all and specific industry studies. In natural resources, insurance, financial institutions, transportation, communications, distribution, etc. Patterns of control. Effect on competition, as shown by Government purchasing, price behavior, opportunities for entry by individuals and small enterprises, new investment and expansion. As related to costs, technical progress, labor policy, individual firm stability.

1 Not all by Temporary National Economic Committee.