Hi THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES GIFT OF Hilde Dietzgen Charlton In Memory of Her Mother , library- Institute of Industrial Relations University of California Los Angeles 24, California , Publications of the National Bureau of Economic Research, Incorporated NO. 2 INCOME IN THE UNITED STATES ITS AMOUNT AND DISTRIBUTION 1909-1919 , INCOME IN THE UNITED STATES ITS AMOUNT AND DISTRIBUTION 1909 1919 BY THE STAFF OF THE NATIONAL BUREAU OF ECONOMIC RESEARCH, INCORPORATED WILLFORD I. KING OSWALD W. KNAUTH FREDERICK R. MACAULAY EDITED BY WESLEY C. MITCHELL VOLUME II DETAILED REPORT NEW YORK NATIONAL BUREAU OF ECONOMIC RESEARCH 1922 COPYRIGHT, 1922, BV NATIONAL BUREAU OP ECONOMIC RESEARCH, IXC. Printed in the U. £. A. , PREFATORY NOTE Income in the United States is published in two volumes. The first volume, which has already appeared, is a summary of the findings, intended for readers who are primarily interested in the results. The present vol- ume gives in full the methods and estimates on which the results shown in the first volume are based. In addition, it goes into many details concern- ing particular industries. While the Summary Volume was a joint product of the Staff of the Na- tional Bureau of Economic Research, the detailed estimates now pre- sented are primarily the work of three individuals. Mr. King is responsi- ble for the estimate of the National Income based on the value product of different industries; Mr. Knauth made the estimate based on incomes received by individuals; and Mr. Macaulay undertook the discussion of the problem of the distribution of income by income-classes. Unity was preserved by means of many consultations, and the whole book was edited by Mr. Mitchell. Like all the Bureau's publications, the manuscript of the present volume was submitted to the Directors and approved by them; though not before many changes of detail and many suggestions had been incorporated. The Directors have made a construc- tive as well as a critical contribution to the book as it now stands. At some points, where the manuscript was not changed to accord with individ- ual suggestions, the Directors have inserted footnotes to indicate their points of view. The present Board of Directors is constituted as follows: — Directors-at-Large T. S. Adams, Advisor to the U. S. Treasury Department. John R. Commons, Professor of Political Economy, University of Wisconsin. John P. Frey, Editor of the International Mohters' Journal. Edwin F. Gay, President of the New Yorl; Evening Post. Harry W. Laidler, Secretary of the League for Industrial Democraey. Elwood Mead, Professor of Rural Institutions, University of California. Wesley C. Mitchell, Professor of Economics, Columbia University. J. E. Sterrett, Member of the firm of Price, Waterhouse and Co. N. I. Stone, Labor Manager, Hickey-Freeman Company. Allyn A. Young, Professor of Economics, Harvard University. V .3 vi PREFATORY NOTE Directors-by-Appointment Hugh Frayne, The American Federation of Labor. David Friday, The American Economic Association. W. R. Ingalls, American Engineering Council. J. M. Larkin, National Personnel Association. W. H. Nichols, Jr., National Industrial Conference Board. George E. Roberts, The American Bankers' Association. Malcolm C. Rorty, The American Statistical Association. A. W. Shaw, The Periodical Publishers Association. Gray Silver, The American Federation of Farm Bureaus. . TABLE OF CONTENTS Page Prefatory Note PART I THE ESTIMATE BY SOURCES OF PRODUCTION Chapter 1. Principles and Methods 1 § la Basis of Estimates 3 § lb Business Savings Counted as Income 3 § lc Net Versus Gross Disbursements 3 § Id What the Net Value Product Includes 4 § le Estimating Individual Income from a Study of the Product of Industries 4 § If Impossibility of Measuring Value of Government Service to Business 5 § lg Are Corporate Surpluses Accurately Reported? b' § lh Minor Errors and Irregularities in the Tables 7 § li Possible and Probable Errors of Estimates 7 § lj General Plan of Presenting Estimates 10 § Ik Reduction of Values to Money of Constant Purchasing Power 10 § 11 Average Annual Earnings Versus Wage Rates 12 § lm Interest Payments on Consumption Loans not Deducted from Income 12 2. Preliminary Studies 14 § 2a An Estimate of the Population of the United States for the Intercensal Years 14 § 2b An Index of the Prices of Consumption Goods Used by Manual and Clerical Workers' Families 17 § 2c Price Indices of Consumption Goods Used by the Well- to-do-Classes 24 § 2d An Estimate of the Industrial Distribution of the Gain- fully Employed Persons in the Continental United States 31 3. Agriculture 40 § 3a Sources of Information 40 § 3b Methods of Procedure 40 vii viii TABLE OF CONTENTS Chapter Page § 3c The Value of Animal Products 41 § 3d The Value of Crops Not Fed to Live Stock 50 § 3e Payments by Agriculture for the Products of Other Indus- tries 51 § 3f The Net Value Product of Agriculture 54 § 3g The Share of the Employees 55 § 3h The Share of the Entrepreneurs and Other Property Own- ers 59 § 3i The Physical Output of Agricultural Produce 59 § 3j The Relative Position of Agriculture Among the Industries 62 § 3k Returns for the Efforts of Farm Operators 62 4. Mines, Quarries, and Oil Wells 65 § 4a Sources of Information 65 § 4b The Share of the Entrepreneurs and Other Property Own- ers 65 § 4c Total Wages and Salaries 70 § 4d Number of Employees and Average Earnings 73 § 4e Total Net Value Product and Share of Employees 74 § 4f The Mineral Output Compared to Earnings and Population 75 5. Factory Production 78 (Covering that part of the private Manufacturing Industry in- cluded in the totals presented by the United States Census of 1914.) § 5a Importance of the Industry 78 § 5b The Gross Value of the Products 78 § 5c The Division of the Net Value Product in the Census Years 84 § 5d Mode of Estimating the Net Value Product for Intercensal Years 86 § 5e The Share of the Employees 87 § 5f The Share of the Entrepreneurs and Other Property Own- ers 91 § 5g The Fraction of the Net Value Product Paid Out as Wages or Salaries 98 6. Summary of the Hand Trades 99 § 6a Introduction 99 § 6b Analysis 101 7. The Construction Industry 103 (Shipbuilding Excluded) § 7a Introduction 103 TABLE OF CONTENTS ix Chapter Page § 7b Sources of Data 103 § 7c The Volume of Construction 103 § 7d The Aggregate of Wages and Salaries 105 § 7e The Share of the Entrepreneurs and Other Property Own- ers: First Estimate 107 § 7f The Share of the Entrepreneurs and Other Property Own- ers: Second Estimate 110 § 7g Purchasing Power of Share of Entrepreneurs and Other Property Owners Ill § 7h The Total Value of Construction 114 8. Summary of Transportation 116 9. Steam Railway, Switching and Terminal Companies 119 § 9a Nature of Available Information 119 § 9b Method of Utilizing Data 119 § 9c The Net Value Product and Its Distribution 124 § 9d The Physical Output per Employee 124 § 9e Growths of Railway Service and of Population Compared 129 § 9f The Purchasing Power of the Shares in the Net Value Product 130 10. Pullman Car Transportation 133 § 10a Available Information 133 § 10b The Share of the Stockholders 133 § 10c Share of the Employees in the Net Value Product 135 § lOd Average Annual Earnings of Employees 137 § lOe The Annual Output per Employee 138 § lOf Relative Growths of Pullman Service and Population. . . . 139 11. Express Companies 141 § 11a Introduction 141 § lib Disbursements to Security Holders and Building Owners. 141 § lie Total Share of Security Holders and Building Owners. ... Ill § lid The Share of the Employees 143 § lie The Total Net Value Product and Its Distribution 144 § 1 If The Number of Employees 140 12. Street and Electric Railways II s - § 12a Census Data Available 148 § 12b Share of Security Holders and Other Property Owners. . . 148 § 12c Share of the Employees 150 § 12d Corporate Savings 151 x TABLE OF CONTENTS Chapter Page § 12e Average Annual Earnings of Employees 152 § 12f Purchasing Power of Share of Security Holders and Prop- erty Owners 153 § 12g The Average Output per Employee 155 § 12h Relative Growths of Street Car Service and National Popu- lation 15b' 13. Private Electric Light and Power Companies 157 § 13a The Census Data 157 § 13b The Net Value Product and Its Distribution 159 14. Telegraphs 168 § 14a The Census Figures 168 § 14b Disbursements to Stock and Bond Holders 168 § 14c Corporate Savings 173 § 14d Purchasing Power of Share of Property Owners and Entre- preneurs 174 § 14e The Number of Employees and Their Share in the Value Product 175 § 14f Average Annual Earnings of Employees 177 15. Telephones 179 § 15a Introduction 179 § 15b Share of Entrepreneurs and Other Property Owners 179 § 15c The Net Value Product and Its Distribution 183 § 15d The Number of Employees 184 § 15e Average Annual Earnings of Employees 185 § 15f The Efficiency of the Employees 186 § 15g Telephone Revenue Compared for Residence and Business Telephones 189 § 15h Relative Growth of Telephone Service and Population. . . . 189 16. Transportation by Water 191 § 16a Sources of Information 191 § 16b Assumption Made 192 § 16c Mode of Estimating Gross Earnings 192 § 16d The Share of the Owners and Investors 193 § 16e The Share of the Employees 195 § 16f The Net Value Product and Its Division 199 § 16g The Average Annual Earnings of Employees 199 § 16h The Tonnage of the American Merchant Marine 201 17. Banking 202 § 17a Sources of Information 202 TABLE OF CONTEXTS xi Chapter Page § 17b The Composition of the Net Value Product 202 § 17c Net Versus ( Jross Dividends 202 § 17d Undivided Profits 202 § 17e The Purchasing Power of Dividends and [nteresl 204 § 17f Employees, Salaries, and Wages 205 § 17g The Share of Salaries and Wages in the Value Product.. . 206 § 17h Banking Facilities Compared to Population and Income.. 207 § 17i Changes in the Volume of Business per Bank 209 18. All Braxches of Government 210 § 18a The Components of the Net Value Product 210 § 18b The Number of Employees 210 § 18c The Amount Paid in Wages or Salaries 212 § 18d The Average Annual Earnings of Employees 213 § 18e Pensions 215 § 18f Interest on Public Debts 216 § 18g The Net Value Product and Its Division 219 § 18h The Per Capita Net Value Product 220 § 18i The Share of Government in the National Value Product. . 221 19. Unclassified Industries axd Miscellaneous Income 223 § 19a The Field Covered 223 § 19b Number of Persons Occupied in Unclassified Industries.. . 223 § 19c The Earnings of Employees 223 § 19d The Effect of the War on the Number of Employees 224 § 19e The Profits of Entrepreneurs 225 § 19f Rents and Royalties 225 § 19g The Total Share of Enterprise and Property 226 § 19h Other Classes of Miscellaneous Income 227 § 19i The Net Rental Value of Owned Homes 228 § 19j Interest on the Value of Direct Goods 228 § 19k Profits from Cow-Keeping 22! » § 191 Profits from Raising Poultry and ( rardens 230 § 19m The Division of the Net Value Product 231 20. Summary of Part 1 233 § 20a The Average Income per Ammain 233 § 20b Business Savings 23 1 § 20c Miscellaneous Summary Tables Not Appearing in Vol- ume 1 235 xii TABLE OF CONTENTS PART II THE ESTIMATE BY INCOMES RECEIVED Chapter Page 21. Introduction 249 § 21a The Problem 249 § 21b The Method and Data 250 22. Total Amount of Income Received by Persons Having Over $2,000 Per Year 253 § 22a Introduction 253 § 22b Estimate from Income Tax Data 253 § 22c Tax-Exempt Income 260 23. Total Amount of Income Received by Persons Having Under $2,000 269 § 23a Introduction 269 § 23b Personal Earnings 269 § 23c The Earnings of Farm Laborers 289 § 23d Pensions 291 § 23e The Rental Value of Homes Owned by Their Occupants. . 291 § 23f Income from Investments 294 24. Farmer's Income 298 § 24a Introduction 298 § 24b First Estimate — Based on Total Production and Expenses 300 § 24c Second Method — Based on Average Ratio of Expenses to Total Product 305 § 24d Third Estimate — Based on Sample Incomes 308 § 24e Final Estimate of Farmers' Incomes 310 § 24f Comparison with Other Estimates 310 § 24g Farmers Having Incomes Over and Under $2,000 312 25. Corporate Surplus 314 § 25a Definition of Corporate Surplus 314 § 25b The Propriety of Counting Surplus as Part of the National Income 314 § 25c The Genuineness of Reported Surplus Accounts 315 § 25d The Data 321 § 25e Conclusions 328 26. Summary of Part II . . 330 § 26a The Total Income of the United States, 1910 to 1919 330 . TABLE OF CONTENTS xiii Chapter Page § 26b The Degree of Error in the Estimate 330 § 20c Percentage Division of Number of Persons Having Over $2,000 and Under $2,000 Income per Year 332 § 26d The Percentage of the Total Income Obtained by the High- est 5 Per Cent of Income Receivers : 333 § 26e The Position of the Farmer 333 § 26f Income in Each Year in Terms of Constant Purchasing Power 333 § 20g The Average Income per ( !apita in Each Year 337 PART III THE PERSONAL DISTRIBUTION OF INCOME IN THE UNITED STATES 27. The Problem 341 Practical and theoretical difficulties connected with formulation of the problem. Relation of personal distribution to factorial distribution. 28. Pareto's Law and the Problem of Mathematically Describ- ing the Frequency Distribution of Income 344 Pareto's Law. Improbability that any simple mathematical ex- pression adequately describing the frequency distribution of in- come can ever be formulated. Heterogeneity of the data. 29. Official Income Censuses 395 The Australian income census of 1915. 30. American Income Tax Returns 401 Peculiarities of the tax returns from year to year. Irregularities and fluctuations in the distribution of non-reporting and under- statement. The undcr-$5,0()() and over-$5,000 groups. Waives and total income. 31. Income Distributions from Other Sources Than Income Tax Returns 415 Purposes for which existing distributions have been collected make them extremely ill adapted to our use — picked data. 32. Wage Distribution 418 Relations between rates and earnings, earnings and income. Earn- ings per hour, per day, and per week. Distribution of hours xiv TABLE OF CONTENTS Chapter Page worked in a week, and weeks worked in a year. Federal returns of income by sources. The problem of deriving one regression line from the other. 33. The Construction of a Frequency Curve for All Income Recipients 424 An income census the direct and adequate method of solving the problem. Piecing together the existing data. Checking them for internal consistency and agreement with collateral informa- tion. Conjectural nature of final results. PART I THE ESTIMATE BY SOURCES OF PRODUCTION By WILLFORD I. KING ASSISTED BY VIRGINIA SANDMEYER DOROTHY J. ORCHARD KATE E. HUNTLEY , CHAPTER 1 PRINCIPLES AND METHODS § la. Basis of Estimates The object of this study is to ascertain the total annual income which the people of the United States derive from each of the leading industrial fields. The method used for ascertaining this total for each industry is first to find out how much income is withdrawn from the industry for indi- vidual use and then to add to this amount the total savings made during the year and retained in their business by all the enterprises engaged in the industry in question. § lb. Business Savings Counted as Income That business savings really constitute a part of the national income for the year in which they are made has been denied by some students of the subject. The ground for their contention is that such savings merely make possible an increase in the income of future years and hence should be ignored in the income report of the year when the saving is done. This method of treating business savings, though plausible, is open to grave objections. The income with which we are dealing throughout this study is book income, that is the amount shown as net gain by an accurate accounting system and is radically different from psychic income which accrues only when the goods render service to the consumer. In the accounts of practically every business, the net income as recorded includes the annual surplus as well as all disbursements to stockholders or owners. This uniform policy shows that a consensus of opinion exists among accountants that savings are a form of income. If the accountants are wrong, we are driven to the conclusion that the amount of the annual income of a corporation may be altered greatly by a vote of the director-, concern- ing the disposition of earnings ! Furthermore, when a corporation reports increased net earnings, even if no dividends are declared, the stock tends to rise sharply in value, and any stockholder may ;it once realize personal income by selling his shares at the enhanced price. For the reasons stated, it seems best to include business savings in the income for the currenf year. § lc. Net Versus Gross Disbursements A number of the great industrial fields of the United States are domi- nated by corporations and, in such cases, a study of the income created by 3 4 THE ESTIMATE BY SOURCES OF PRODUCTION the industry is mainly an analysis of corporation reports. This is emphat- ically true in the case of the various branches of transportation. Now corporations do not show in their published reports the amounts of interest and dividends disbursed to private individuals as contrasted with sums of similar nature paid to other business enterprises. But in making up a total of income for the country, these inter-business payments must be elimi- nated to prevent duplication. The method adopted for accomplishing this result is to deduct from the sum of interest and dividends paid out by a corporation all bond interest and dividends received from other corpora- tions. This plan rests upon the principle that the corporation making the final payment is, in this instance, merely an intermediary between the original corporation and the private investor. This principle seems to be logical although its application occasionally gives rise to certain difficulties in differentiating between disbursements and business savings. § Id. What the Net Value Product Includes The net value product of each industry is assumed, for the purposes of this study, to include the returns for the services of all persons engaged in the industry, whether these persons are proprietors or employees, and of all property aiding in the productivity of the industry. It has, for example, been assumed that the stockholder or other entrepreneur owning an equity in a plant, the holder of the mortgage on the plant, and the lessor of prop- erty utilized by the business are all alike dependent upon the gains of the enterprise for at least part of their income, and hence may all be classed together as being owners of property devoted to the undertaking. § le. Estimating Individual Income from a Study of the Product of Industries Owing to the form in which the data for some industries are available, it is impossible to estimate directly the amounts of income derived from them by individuals or saved by the business enterprises in the industry. In such instances, one naturally has recourse to the alternative method of subtracting from the gross output of the industry in question all payments made to other industries for the materials or services which they have con- tributed. In following this method, the ideal course of procedure, in the case of any industry, is to deduct from the gross value of its products not only the cost of materials used but also such payments as freight and insurance charges, bank interest, and those taxes which represent the value of government aid and protection, furnished to the industry. The amount remaining after these deductions have been made represents the net income — a quantity which may be either saved or distributed to individuals. In general, every industry is credited with all goods sold to dealers, consumers, PRINCIPLES AND METHODS 5 or other industries, and debited with all indirect or production goods received from other industries. Government, like any other industry, ought to be credited with the value of its services and debited with the indirect or production goods received from other industries. An indus- try can never be debited with charges for direct or consumption goods, 1 for these are not used to further its business or add to its output. Just as industries pay freight charges for the services of railways, so they also pay taxes to meet the cosl of government. In so far as the tax money buys from government indirect (production) goods or secures ser- vices in the form of protection or assistance to the industry, the industry in question evidently ought to be debited with the tax just as it is debited with freight charges. In so far, however, as the tax money paid by an industry goes not to pay for aid to the industry but instead to buy direct government services to individuals, the industry cannot justly be debited with such taxes; for, in such cases, the services of government are not busi- ness aids but are forming part of the consumable income of individuals and therefore fall into the category of direct services — a class which, according to the principles enunciated above, are never to be charged against an industry. This line, however, between the taxes that theoretically should and theoretically should not be deducted from the gross value of an industry's output is impossible to draw in practice. Statistically, the only feasible course is to deduct all of the taxes levied on the business. 2 Such a deduc- tion inevitably gives rise in most instances to an error in the final results — unfortunately only one of several types of unavoidable error to which it is necessary to call attention at this point. § If. Impossibility of Measuring Value of Government Service to Business One of the most serious of these errors arises from the impossibility of dividing all services rendered by the various blanches of government into two classes, namely: — 1. Those rendered to business. 2. Those serving the people directly. This impossibility has compelled us to act on the basis of the assumption that the taxes levied against each field of business are equivalent to the value of the service rendered t<> thai industry by government. This as- sumption is, however, likely to be far from the truth. In 1918, for example, manufacturing corporations paid to the Federal Government $2,112,044,- 1 Expenses for welfare work, for example, are not deductions from the value product of an industry. * See Volume I, Chapter'-', Sec. IV for a further discussion of this point. 6 THE ESTIMATE BY SOURCES OF PRODUCTION 810 as income tax, war profits tax, and excess profits tax, and considerable additional amounts were paid by individual manufacturers and partner- ships operating in this field. Exact statistics are not available, but the indications are that the entire agricultural industry did not pay to the United States Government over $100,000,000 in these classes of taxes. 1 It seems highly improbable that in 1918 the Federal Government ren- dered to the manufacturing industry service valued at more than twenty times that furnished to agriculture. It may well be that the aid of the National Government to the farmers' business was worth more than $100,- 000,000 but it scarcely appears credible that the manufacturers received service worth over two billions. According to the plan followed in this study, however, the two billions have been considered as an expense to the manufacturing industry and deducted. Any part of this amount which is in excess of the value of the services of the Federal Government to the manufacturers, represents a forced contribution to the general wel- fare and should, in order to obtain the correct figures for 1918, be added to the net value product of manufacturing recorded in this study. If this type of error results in an underestimate of the income arising from manufacturing, it may, on the other hand, show too high value prod- ucts for some other fields; for industries may exist which government has served much but taxed little. Unfortunately it is not at all certain that the errors arising from this source cancel out, for we cannot measure even approximately the total value of the service rendered to business by government. It seems likely, however, that, since 1917, business taxes have been more than sufficient to pay for the services rendered to business by all branches of government. If so, this excess should be added to the total income as reported in this study in order to obtain the correct total for the nation. § lg. Are Corporate Surpluses Accurately Reported? Another possible source of grave errors is found in the estimates of the business savings of the various industries. In most instances these esti- mates have been based upon reported surpluses of corporations operating in that field. It, therefore, becomes a question of prime importance to know whether the reported size of such surpluses is reasonably close to the truth or whether the stated amounts are far too large because of failure to allow sufficient amounts for depreciation, or are entirely too small, because many improvements have been charged to operating expenses. Mani- festly it is impossible to go behind the returns of the reporting concerns, but it is nevertheless possible to ascertain by indirect methods something about the validity of the accounting systems used by the average corpora- 1 See I . S. Bureau of Internal Revenue, Statistics of Income, 1918, pp. 11 to 16. PRINCIPLES AND METHODS 7 tions. If reported surpluses are genuine, they should add to the earning power of the companies accumulating them in proportion to the ratio which these surpluses hear to the total of previous investments. An inves- tigation by Mr. Knauth indicates that, in practice, earnings have increased in just about this proportion. It appears, therefore, that no greal error is likely to arise from the practice of accepting as accurate the amount- of surpluses reported; hence this practice has been adhered to throughout this study. § lh. Minor Errors and Irregularities in the Tables It is perhaps wise at this point to mention certain mathematical details connected with the presentation of data in the accompanying tables. The basic figures in most instances have such a margin of error that errors in multiplication or division arising from the use of a 12 inch slide rule are of negligible importance, hence this instrument has been frequently used. The result is that a computation by more accurate means will occasionally reveal errors in the fourth significant figure. In numbers of instances, original computations have been carried to more places than are shown in the quantities entered in the tables here presented, hence it follows that an item in a total column may differ slightly from the nominal sum of the items in the columns from which the total is derived. Owing to the inherent characteristics of the decimal system, when all of the percentages composing a whole are read to any given decimal place, the recorded items may not add up to exactly 100. The same principle applies to decimal fractions. The quantities have been correctly entered, no attempt being made to obtain a total of 100 (or of 1, as the case may by distorting the component parts. § li. Possible and Probable Errors of EstLnatss It is, of course, impracticable to esti n tte with a iz • of tn ■ po ible or probable error in each of the items entering into the total. However, it is clear that the likelihood of error is far greater in some in- stance than in others. An attempt has been made, therefore, to record for each of the principal items two estimates of error: namely, the probable, and 'he maximum reasonable. The probable error is denned as being such that the chances are even that the error is greater or less than the amount stated. The maximum reasonable error \< defined as being so large thai the chances are ten to one that it will not be exceeded. The 1918 estimates for these errors of the various items follow: 8 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 1A ESTIMATED ERRORS IN THE ITEMS OF THE NATIONAL VALUE PRODUCT IN 1918 Industry i I tt u Mineral Prod tt uction tt it a a a Factory Prod uction tt a tt Construction tt Automobile Repairing Laundrv .... Custom Grist Mills. a it .. Custom Saw Mills.. Shoe Repairing. Tailoring, Dyeing & Cleaning Repair of Machines. Blacksmithing Custom Dressmaking. Railways, Switching & Terminal ( !ompanies. Railways, Switching & Terminal Companies. Pullman Co Division Crops New Land Animal Products Deductions Wages and Salaries Rent Savings Remainder Wages and Salaries Kent Remainder Wages and Salaries Remainder Total Wages and Salaries Remainder Wages and Salaries Remainder Wages and Salaries Remainder Total Total Total Total Total Wages and Salaries Remainder Wages and Salaries Remainder Millions of dollars Size of item 7,119 405 6,189 -1,031 1,422 214 79 298 12,378 137 3,503 964 317 367 106 84 2 13 2 3 111 661 61 210 83 2,763 807 24 10 Probable error a 500 200 500 200 70 40 20 30 200 70 300 150 100 90 15 15 1 8 1 1 50 150 40 SO 70 10 50 3 1 Maximum reasonable error b 1,500 COO 1,200 400 250 80 70 100 600 200 800 400 250 180 35 70 2 15 2 3 110 500 75 300 120 100 250 7 4 a Even chances. '- Ten chances to one that the error is not larger than this amount. , PRINCIPLES AND METHODS TA RLE 1 A — C'nnlin lit '_' 1,017 4,601 263 11)0 101) 700 80 1 ,200 100 1,000 100 Miscellaneous Income a a it a Urban Agriculture Hume Rental Value Interest on ( Jon- sumpt ion ( roods 364 1,237 1 ,27o 80 200 200 240 600 600 Total 60, v. 1 5,194 14,900 1,266 Maximum Reasonable Error of Total. 3,566 The estimated probable error of the total, as computed by the usual formula from the items given, amounts to 1.3 billions. The maximum reasonable error of the total as shown by an experimental test with the items given appears to be about 3.6 billions of dollars. The evidence 10 THE ESTIMATE BY SOURCES OF PRODUCTION indicates, therefore, that the total is close enough to the truth to meet the needs of most students of the subject, the error presumably being not greater than six per cent and perhaps very much less. Since the errors for the other years of the decade are presumably sim- ilar in proportionate size to those in 1918, no separate computations have been made therefor. § lj. General Plan of Presenting Estimates The general plan of exposition determined upon is to attempt to show for each of the leading industrial fields covered by the Census: — 1. The net value product. 2. The share of the employees in the value product. 3. The average annual earnings derived from the industry by each employee. 4. The share of the entrepreneurs and other property owners in the net value product. 5. The purchasing power of each of the above items at prices of 1913. 6. Changes in the physical output per employee. 7. Changes in the physical output per inhabitant of the United States. 8. The average number of employees actually at work 9. The average number of employees attached to the industry. Frequently it has been possible to determine from the available figures other facts of interest and these facts have been worked out to a limited extent. In some cases, however, since it has not been feasible to cover even the standard list of inquiries, results have been presented which are not en- tirely complete. While an effort has been made to outline the general modus operandi in most instances, it has been found impracticable to present all of the details. Those especially interested in the procedure followed may through personal or written inquiry obtain such additional information as the records of the Bureau afford. § Ik. Reduction of Values to Money of Constant Purchasing Power The plan of attack decided upon has required that, in most instance!, amounts be first estimated in money of current purchasing power, or, i a other words, in terms of book income. The juice changes during the latter part of the decade have, however, been so large that comparisons of money values for different years tell practically nothing about the variations that have occurred either in the physical volume of business or in the quantity of goods that the income will buy. It has been necessary, therefore, to convert many items into figures representing values in money of constant ■ PRINCIPLES AND METHODS 11 purchasing power. For tins purpose, prices of the year 1913 have com- monly been taken as standard, this year being the base used by the United States Bureau of Labor Statistics and by numerous other organizations. The accuracy of the results obtained by such conversions evidently varies in proportion to the correctness of the price indices used as divisors. The United Stat''- Bureau of Labor Statistics "cost of living" index ha- been assumed to be satisfactory for the purpose of reducing wages and salaries to a comparable basis. Since this index has not been computed for the years preceding 1913, it has been necessary to extend it back by means of a special investigation. As a test, this Bureau computed the index for the years 1909 to 1918 and compared the figures for the six oxer- lapping years (1913 to 1918) with the Government figures just mentioned.' The fact that the correspondence between the two index scries proved very close leads to the belief that errors arising from the faultiness of this index series are not of major importance. While the general principle to be followed in correcting the income of the working classes is quite obvious, the best method of converting the income from property and enterprise to the 1913 base is not so easy to determine. Since a considerable fraction of personal income of large prop- erty owners is invested rather than immediately consumed, the propriety of using an index of prices of consumption goods as a correcting factor for this type of income may well be questioned. Careful consideration has been given to this point, and the conclusion has been reached that no other price index can as legitimately be used for this purpose. Investments are so heterogeneous in their nature that it is difficult to say jusl what type should be considered and what weighl should be assigned to each. Prices of indirect goods, whether stocks of corporations or commodities at whole- sale are certainly to a large degree, merely reflections of prevailing opinions of what prices of direct (consumption) goods are expected to be at a later date. In so far as this is true, it appears more logical to base a collecting factor for the present date upon prices having their origin in expenditure-; for present consumption than upon those reflecting anticipated future needs. After all, expenditures for consumption goods form no mean pro- portion of the total income of all except the very wealthiest families. It is believed, therefore, that the procedure followed is more logical than any other that can be practically applied. It might seem reasonable to deal with business savings by using the same method applied to the personal income of the property owner-. However, it is evident that the immediate function of the first mentioned type of income is to strengthen the business rather than to purchase consumption goods. Normally such savings are invested in new plants or equipment. i Sec Section 2b. 12 THE ESTIMATE BY SOURCES OF PRODUCTION For this reason, the policy has been followed of dividing the business sav- ings in each field of industry by an index believed to approximate the changes in construction costs in that branch of industry for the same year. § 11. Average Annual Earnings Versus Wage Rates While average annual earnings do not always give a good picture of the absolute economic condition of the employees in an industry at a given time, the3 r are usually distinctly valuable as indices of change in welfare from 3 r ear to year. The wide difference in nature between wage rates and earnings should not be overlooked. Wage rates measure the price of a specific amount of labor; earnings are connected more closely with the economic welfare of the employee and his family. Earnings may be mater- ially reduced by a shortening of hours or an increase in unemployment at the same time that wage rates are stationary. The United States Census Bureau commonly reports for various indus- tries the total amount of wages paid and the average number of wage earners emplo3 r ed. If the first quantity is divided by the second, the quotient represents approximately the average earnings of a full time worker, 1 rather than the average earnings of the workers who normally make their living in this field of endeavor. To obtain average annual earnings, it is necessary first to estimate for each year the average number of workers attached to the industry and then to divide thereby the aggre- gate of wages paid. Such an estimate has been made for each industry. The mode of estimating the number of employees attached to, or in other words, normally making their living in a given industry, is discussed in Chapter 2. § lm. Interest Payments on Consumption Loans Not Deducted from Income One of the most puzzling theoretical problems encountered daring the investigation has to do with interest on loans made for the purpose of pur- chasing goods for direct consumption. Does sound logic require the deduc- tion of such interest pajmients from the gross income of the borrower, when calculating his net income? The practical bearing of the question is principally in connection with the Liberty Loans which represent billions borrowed from the bond buyers by the citizens in general in order to obtain such immediately consumable war supplies as powder and shells. The bonds were originally held by persons advancing money to relieve others from paying at that time their respective proportions of the cost of the war. This advance of money did not necessarily add anything to the aggregate 1 A full time worker is one who works the number of hours designated by the employer as "full time." For a fuller discussion, see § 2d. PRINCIPLES AND METHODS 13 of the actual physical product. It merely meant that potential tax- payers retained too large an income during war lime on the understanding that they pay a bonus, known as interest, for the privilege of meeting, from later income, their full share of the burden. It may be contended, therefore, that if interest receipts are included in the total income of the people, it is only fair to deduct these amounts from the incomes of the taxpayers. The opposite point of view which has led to the inclusion of these interest payments in the net value product is that the advantage to the taxpayers of being allowed to postpone the time of payment was evidently felt to be real enough to make them willing to pay money for the privilege. Further- more, if the taxpayers feel that the privilege of postponing the assumption of their respective shares of the burden is not worth the interest charge, they always have the option of paying off the debt. According to the defi- nition followed in this study, an advantage of the type just mentioned is a service which constitutes income, and such income must be added to the actual physical product in order to arrive at the net value product, or in other words, at the total income of the country. Similar reasoning applies with equal force to interest on all sums borrowed for the purpose of obtaining consumption goods, whether the borrowing is done by government or by private individuals. While the arguments just stated have seemed to be weightier than any on the opposite side, it must nevertheless be admitted that a strong case can be presented for pursuing the opposite course in this computation and for this reason, government interest payments have been segregated so that those who prefer may subtract them from the estimates of aggre- gate national income for the various years (as presented in Volume I), in order to secure totals according with their beliefs. CHAPTER 2 PRELIMINARY STUDIES § 2a. An Estimate of the Population of the United States for the Intercensal Years In the course of the present investigation, it has been found essential to have a reasonably accurate estimate of the population of the United States for each of the intercensal years. The method of interpolation used in obtaining the estimates presented in the Statistical Abstract of the United States consists in taking one-tenth of the arithmetic increase since the preceding Census and adding this amount to the Census figure to find the population for the next year; similarly the population for each of the succeeding years is calculated by adding this same number to the estimate for the year previous. This process is a straight line extrapolation and has nothing but simplicity to commend it, for, when applied, errors of consid- erable size gradually accumulate as changing conditions affect population growth. For example, the Census shows a population on January 1, 1920, nearly two millions less than that given by following the method just described. Is there a more accurate way of estimating the population in advance of the Census? If so, what is it? In the hope of answering these questions, the following study has been made. For recent years, the Census Bureau has compiled figures showing the birth rate and the death rate for the registration area and this registration area has been steadily growing larger until it now appears to be fairly rep- resentative of the country as a whole. The Commissioner of Immigration presents annual statistics showing the number of aliens admitted and departed. It seemed to the Staff of this Bureau that these figures might readily be used as a basis for estimating the population, year by year. This view was later endorsed by officials of the United States Census Bureau. The mode of procedure followed has been relatively simple. The birth rate and the death rate are given for the calendar year while immigration is reported for the fiscal year. By aid of smoothed curves, the birth and death rates have been estimated for the fiscal years and the excess of the birth rate over the death rate has been calculated. The population for June 30, 1910, has been estimated according to the method employed in the Statistical Abstract. The estimated excess of the birth rate over the 14 PRELIMINARY STUDIES 15 death rate has been applied to this population to find the increase dm the excess of births over deaths during the fiscal year ending June 30, L911. This amount plus the excess of immigration over emigration has been added to the population estimate for June 30, 1910. and the resulting sum has been assumed to be the population for June 30, 1911. This number has been taken as a new base and the process has been repeated for the next year — and so on up to t ho ( Jensus of 1920. The estimate thus arrived at for January 1, 1920, is in error by approximately half a million, or only about one-fourth of the corresponding error resulting from the method of estimate used in the Statistical Abstract, ft has been assumed that the error was equally distributed among all intercensal years and. by cor- recting in accordance with this assumption, a revised preliminary estimate of the population for each year has been secured. Since the Census estimates of birth and death rates for the various years are based upon population estimates which are considerably too high for the last years of the decade, it seems probable that these reported birth and death rates are both somewhat too low for the period just mentioned. Following this assumption, these rates have been increased in the same ratio that the Census estimate of population bear- to the revised prelim- inary estimate made according to the procedure described above. These revised rates have been applied to the revised preUminary estimates of population and the products have been taken as the net additions to the population arising from the excess of births over death-. By use of these increments and those due to the excess of immigration over emigration, the population has been again built up year by year on the basis of the L910 Census. The estimate obtained in this manner for January 1, 1920. differs by only 414,000 from the Census count at that date. This difference has been apportioned equally among the various years of the decade giving as a final estimate the figures shown in the accom- 1 anying table. 16 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 2A AN ESTIMATE OF THE POPULATION OF THE UNITED STATES FOR THE INTERCENSAL YEARS Estimated number per thousand inhabitants Estimated thousands added during the fis- cal year '' to the popu- lation of the U. S. by excess of Estimated popula- tion of the Con- Date Calendar year Excess of births over deaths tinental U. S. (Thousands) Births/ Deaths '< Cal- endar year Fisca 1 year o,c Births over deaths J Immigration over emigration k June 30 ' Jan. 1 m 1909. 20 . 2 9 25. 8o 25 . 6 9 25 .4 9 25.2 9 25.0 9 24.9 24.8 24.0 24.4 24.2 14.4 15.0 14.2 13.9 14.1 13.6 13.5 14.0 14.2 17 7 12.9 » 11.8 10.8 11.4 11.5 11.1 11.4 11.4 10.8 10.4 6.7 11.3 12.0 11.3 11.1 11.5 11.3 11.3 11.5 11.2 10.6 10.3 5 S 14.6& 1,078 1,033 1,033 1 088 1 ,088 1,110 1,147 1,131 1,084 1,067 607 7716 544 818 512 402 815 769 50 126 216 19 21 716 90,370 (91,972d) 92,229 93,811 95,338 97,278 99,194 100,428 101,722 103,059 104,182 104,847 106,357 89,557 1910 1911 1912 1913 1914 1915 91,340 (91,97L'(/) 93,070 94,600 96,290 98,310 99,870 1916 1917 1918 1919. 101,080 102,410 1(13,660 104,310 1920. 105,709e (I Corrected to account for adjustments in population used as a base; quantities read from a curve. b This is an estimate for the last half of 1919 only. c Ending June 30 of the given year. d Census count for April 15, 1910. e Census count for January 1, 1920. /Census Bureau, Birth Statistics for the Birth Registration Area of i lie United States. Estimated from a smoothed curve produced. h Statistical Abstract of U. S. for 1919, p. SO. i Preliminary estimate by Census Bureau. J Rates in preceding column times the population calculated by the preliminary method described in the text. k From Statistical Abstracts of the U. S. 1 For mode of derivation, see text. m Derived from the immediately preceding column by aid of a smoothed curve. It is true that it would be impossible to obtain results of the degree of accuracy here presented were it not for the existence of a Census count at each extremity of the period studied. Nevertheless, by following practi- cally the same method, omitting only the adjustments used to make the data conform to the Census of 1920, it appears that the estimate for Jan- uary 1, 1920, would be in error by only about 495,000. It is not improbable that even this degree of error might be reduced somewhat if one used monthly instead of annual figures for immigration and the rales for births and deaths. Doubtless other refinements might be introduced. However, the residual error after applying the simple method just presented is unimportant for most practical purposes. It seems, therefore, that this plan of estimating the population of the United States for intercensal years is well worthy of the consideration of statis- ticians. An interesting by-product of this study is the light thrown upon the ultimate apparent effect of the influenza epidemic of 1918 upon the popu- lation of the country. The fatality caused by the disease was so great PRELIMINARY STUDIKS 17 that the population on January 1, 1919, was but little larger than on June 30, 1918. This fact is not at all surprising, but the remarkable feature is that the death rate during 1919 was so much reduced (despite the exten- sive recurrence of influenza in that year) that the population on January 1, 1920, was probably little if any less than it would have been had the influenza epidemic not occurred. These figures lead one to inquire whether influenza ought not to be regarded principally as a hastener rather than as a primary cause of the death of its victims. The only other reasonable explanations of the great fall in the death rate for 1919 would seem to be that influenza had a bene- ficent effect in stimulating the health of the survivors or that some un- known cause greatly interfered with the action of deadly diseases in 1919. Neither of these latter assumptions seems as probable as the hypothesis suggested in the original query. § 2b. An Index of the Prices of Consumption Goods Used by Manual and Clerical Workers' Families Data showing the average annual money wages or annual book income received by any class of workers have little meaning unless such wages or income are compared with the changes in the average prices of the goods usually bought by such workers. The recent wide variations in the price level have made this fact evident even to the most casual observer. It is, therefore, essential that a reliable index of prices paid for commodities consumed by the working classes be at hand. Recently, the United States Bureau of Labor has published such an index number covering the years 1913 to date, but it has presented none for the years 1909 to 1912. The index number worked out by the National Bureau of Economic Research is the result of an attempt to fill in this gap. Unfortunately, complete data are not available for all fields; hence it has been necessary to use estimates of doubtful value in place of actual figures for certain items. For example, no figures showing the trend of house rents for the earlier half of the decade have been discovered. Other missing items are, fortunately, mostly those of very minor importance. In constructing the price index, the classification made by the United States Bureau of Labor has been followed closely, all commodities being divided into six general classes: — namely, Food, Clothing, House Furnish- ings, Housing, Fuel and Light, and Miscellaneous. In the case of each group, the index has been constructed to cover the period 1909-1919. the year 1914 being used as the base year. In deriving the index number here- with presented, recourse has been had to two apparently distinct but actu- ally related methods of computation; first, the comparison of aggregates of actual' prices based upon the estimated quantities used in the base year; IS THE ESTIMATE BY SOURCES OF PRODUCTION second, the weighted arithmetic average of relatives, the weights used being likewise the quantities assumed to have been used in the base year. Since the same base year and the same weights have been used, the two methods necessarily give identical results — as can easily be demonstrated by simple arithmetic. The reason for varying the method lies in the fact that the original data were partly in the form of actual prices and partly in terms of relative numbers only. In the case of fuel and light, for example, the Bureau of Labor reports furnish relative numbers from 1909 to 1914 and actual prices from 1914 to date. Under such circumstances, convenience dictated the use of the particular method of computation that involved least labor. In the main, the procedure was as follows: Aggregates of prices were computed for the sub-groups; these aggregates were reduced to relative numbers; and these relatives were then weighted and combined to give the final index. Food. For the food group, the index number constructed by the Bureau of Labor and published in the Monthly Labor Review each month seems to be entirely satisfactory and hence has been used. In recent years, that index number is based upon the year 1913. For our purposes, it has been neces- sary to adjust it to the common 1914 base. This has been done by dividing each annual index by the index number given for 1914 and multiplying the results by 100. Clothing. The articles of clothing included in this group, and the weights used are based upon the list given by the Bureau of Labor in the Monthly Labor Review for November, 1919, pp. 2 to 14 — a list showing the actual appor- tionment of expenditures for clothing by working families of Northern and Southern Cities. Since it is not easy to find quotations of clothing prices which are comparable from year to year, it was decided to have recourse to figures quoted by some mail order house, for by use of the cata- logue, it is possible to identify with a fair degree of accuracy the same article in different years. Sears, Roebuck & Company were kind enough to place a series of their catalogues at our disposal. From these were selected forty-three articles of men's clothing and forty-four articles of women's wear, which seemed to be practically identical in quality through- out the decade under consideration. The price of each article was then multiplied by the average number of units purchased per family per year, as shown by the Bureau of Labor study above mentioned. As the figures are given for Northern and Southern cities separately, an average weight PRELIMINARY STUDIES 19 for the country was made by weighting the Northern cities two and the Southern cities one, the larger weighting being given to the North because that section is so much more populous. A total value for each article having been thus calculated, the values for the various articles were next summated in order to obtain an aggregate value for all articles in the given year. The aggregate value for 1914 was then taken as a base and called 100, and indices for other years were de- rived by a comparison of the relative sizes of the aggregate values. House Furnishings. As in the case of clothing, the weighting system is based upon a list pub- lished by the Bureau of Labor 1 showing the average annual expenditure by working families in the cities of the United States for various articles of furniture and the number of each item of furniture purchased each year by the average family. As in the case of clothing, the prices have been taken from the annual 2 catalogues of Scars, Roebuck & Company. The method of computation used is identical with that already described for clothing. Fuel and Light. In working up an average index of prices of fuel and light, it was possible to get satisfactory quotations for coal (anthracite and bituminous), man- ufactured gas, and electricity. The prices on January 15th and July loth of each year from 1914 to 1919 for coal in ton lots for household use are published in the Monthly Labor Review. 3 Separate quotations are given for bituminous coal and two kinds of anthracite, namely, stove and chestnut. The actual prices for the years 1914 to 1919 were reduced to relatives on the 1914 base. Relative prices for each of the three; items had already been computed by the Bureau of Labor Statistics for the years 1909-19 14, 4 and were simply transcribed as quoted. The mean of the relatives for stove and chestnut coal was used as representative for anthracite. The relative numbers for anthracite and for bituminous coal were then weighted by the respective annual costs per average family in the year 1919 for the two varieties of coal as shown by figures published in the Monthly Labor Review? Manufactured Gas: The average net price per 1000 cubic feet of gas 1 Monthly Labor Review, Jan. 1920, pp. 27 34. *Clothng prices were taken from the spring catalogue issued Jan. 1st, and furniture prices from the autumn catalogue issued Sept. 1. The indices fur each group have Keen adjusted to the middle of the year before computing the average price index for all commodities. 3 Monthly Labor Review, March, 1920, p. lY.i. 1 Statistical Abstract of the U. S., L915, p. 531, table .'500. ' Monthly Labor Review, Sept. 1920, pp. 92-99. 20 THE ESTIMATE BY SOURCES OF PRODUCTION was computed by taking quotations of the price of gas from a number of widely distributed cities x and getting the average of these quotations. These averages wore reduced to relatives on the 1914 base. The annual cost of gas per average family per year was ascertained from the Bureau of Labor Statistics report 2 and the relative prices of gas were weighted by this figure. Electricity: Estimates of the average price per kilowatt hour of elec- tricity used in residences in New York City were obtained from the New York Edison Company, and these were reduced to relative prices on the 1914 base. As in the case of coal and gas the average cost per family per year was derived from information published in the Monthly Labor Review 2 and the relative prices of electricity were weighted by this figure. The sum of the weighted relatives for these various items making up the fuel and light group, was divided by the sum of the weights used and the resulting figure was taken as the index for this group. Housing In their recent investigation into the cost of living, the National Indus- trial Conference Board made a study of changes in the cost of Shelter 3 during the period 1914-1919, using 1914 as the base year. The results of this study are charted in their report, and from this chart have been read the index numbers used in making up our average index. Careful search has failed to bring to light any information whatever concerning the course of house rents before 1914. As the years 1909 to 1914 were characterized by a relatively stable level of prices, it has seemed best to assume that house rents remained unchanged during this interval and hence to use 100 as the index for each year. Miscellaneous Expenditures. In constructing the index number for the miscellaneous group, again the weights were based upon the information given in the Monthly Labor Review.* After much difficult}', approximate price quotations were secured for thirteen items of this list, namely, railway passenger fares, telephone rates, street car fares, automobile repairs, automobile tires, gasoline, moving picture tickets, newspapers, magazines, college tuition, •' room and board at college/' hotel rates for lodging,"' and retail prices of tobacco, and these items were assumed to be fairly representative of the miscellaneous group. ' Statistical Abstract of the U. S., 1917, p. 5.",); 1919, p. 576. 2 Monthly Labor Review, Sept. 1920, pp. 92-99. 1 National Industrial Conference Board, Research Report, No. 28, May, 1920. ' Nov. 1919, pp. 15-19. 5 These items are of minor importance and hence are weighted lightly. PRELIMINARY STUDIES 21 The actual prices of each article were reduced to relatives on the base 1914. The relatives were then weighted by the average cost per family for each item as shown by the Bureau of Labor study for 1919. The sum of the products for each year was divided by the sum of the weights for the same year in order to arrive at the index number for that year. Average Index for all Expenditures for Consumption Goods. The average indices for the separate groups having been obtained for the various years by the methods above described, the next step was to combine them into an index representing the entire expenditures for con- sumption goods. This combination was effected by multiplying the indices by weights representing, for 22 cities in the United States in which the United States Bureau of Labor Statistics conducted investigations in 1919, the per cent of all expenditures, devoted to each class of items. 1 The actual numbers used as weights are as follows: Item of expenditure per cent of total expenditure All purposes 100 Food 38.2 Clothing 16.6 Housing 13.4 Fuel and Light 5.3 House Furnishings 5.1 Miscellaneous . . . 21.3 The sum of the products for each year was divided by the sum of the weights for the same year to obtain the average index for that year. The final results of the study are presented in the accompanying table. The fact that the indices from 1911 to 1919 correspond so closely to those computed by the Bureau of Labor Statistics makes it appear proba- ble that the indices for the years 1909 to 1913 are also not far from the truth. The only important reason for suspecting any greater margin of error in the earlier years is the absence of rent data for that period. How- ever, it is improbable that there were variations in this relatively small item sufficiently great to vitiate materially the average indices for the whole group. It seems safe, therefore, to use the figures presented as a representative index of the average 1 prices of those consumption goods pur- chased by the working classes of our population during the different years of the decade under consideration. 1 Monthly Labor lit vine, October, 1920, p. 65. « co 3 9 H ^H §H S3 H o *° w aw c£ est o PQ ^£ -;_ 2 1 ^^ Q ^ T o ^£ fa 2 SC >^ W- < (A V U •3 e i— i '35 o 8 q 8 IO O .-< iO IO 00 00 HrtrtrlHrt a 88 •— CO i> t-H © CO 00 © 00 © © © © O I— 1 Oir-i CO ■* CO © i-h ^ CO 00 1— 1 1— 1 T— 1 I— 1 O Q o c _o on o O < 3 PQ q © © o iOl>CO CO CO IO © 00 ^h CO CO *+ o © co ic t-- © 1— I l — 1 I— 1 I— 1 f— t CO ■2* PQ o© ©© © © 1—1 O C N iO (N O CO 00 t^ CO iO ^t 1 © O CO i-O t^ — ^^ i—i i— i i— i i— < CO pi H PQ CO US CC 1^ l> © © © © © © o CO **©© © GO ©© © © CO iO rH i— 1 ^1 © © ■— i co co Tt< © i— 4 r— < ^ ~* »— 1 © © © © © © io co r^ oo © © i— i i— ' <— i i—i — « CO 5 6 7_ O 03 ►4 o CQ B e 6 (0 C o pa w B CD q 2 b£ 13 a x o c c i ^ io c x C. O CO CO *o — — /. © © OONiCNC. •t O C h M O CO tfj lO "# CI CI ©O' so o ©.© iCOhX © © — o i "c g.2 fl ^2 CSS o SCO W X — t- — re t^- ci y. i—l i — CI CI -^CiCMCCN© cc »-c t- f ^o X r> r>. © d re © © <© i-< cc 00 00 © © © © i-H CO iC © © CI -f CO »C CI CO © © CI CO -!• CO ©© © © © CO co — >0 fH C © — co -r i~ CNiOMNO ©COcOCC* go go cc cc cj © r^ cs i-h © — © © © © © © © © — — CO © © — i care-* O — — — -— — < OS OS OS OS OS 03 lO CO r-- X © C ,-1 — — CI 05 © © © © © o o CI OS — ■ "-S I OS -5 C3a ■ga © s 'CO CO Si z CO c C) © o c si s e © s c i. — •g re : ~ = © ^f e © -^ — ga C Qj os 5 o '/. 2 c3 o iO CO s ft © CI © (-. o o o o -= c 03 ©~ © " •is ^> - — Is a ft i-3 s B cj © "3 93 o ! t r— c to 3 2 3 ^ " - S DO rC ^- £ . - - CC- - c; _c -2 a, T, OQ -O Tj S — a eu n r G - O o j; - V-h - o re 3 r> V — 3 - - a x ■ - X = g.g 8 -3 u "«3 - '~> 24 THE ESTIMATE BY SOURCES OF PRODUCTION Since the facilities of the United States Bureau of Labor Statistics are so much more extensive than any at the command of this Bureau, it seems fair to assume that their index number is the better one to follow for the period actually covered, and hence, in the practical application of the index number for the purpose of reducing the book income of the working classes to terms of purchasing power, the index number shown in Table 2C is the one which will actually be used. This is simply the Bureau of Labor Sta- tistics index carried backward to 1909 by assuming that, for the earlier years, it varies in the same ratio as the index for all consumption goods shown in the first column of Table 2B. TABLE 2C A COMPOSITE INDEX NUMBER SHOWING THE AVERAGE PRICES OF CONSUMPTION GOODS USED BY MANUAL AND CLERICAL WORKERS, THE INDEX BEING BASED UPON INVESTIGATIONS BY THE UNITED STATES BUREAU OF LABOR AND THE NATIONAL BUREAU OF ECO- NOMIC RESEARCH Middle of Year Index of Average Retail Prices Base 1913 1909. 95 . 5 a 1910. . . . 97. 8 a 1911 98. 4 « 1912 99.4 a 1913 100 . b 1914. . . . 101. b 1915 103. b 1916. . . 110. b 1917 129. b 1918. 158 . b 1919. ... 177.3c 1920 216.5c a National Bureau of Economic Research; derived from Table 2B. b U. S. Bureau of Labor, Monthly Labor Review, June, 1920, p. 79. r U. 8. Bureau of Labor, Monthly Labor Review, October, 1920, p. 65. The more complete data are presented in the hope that they may be of assistance to other workers in this field. § 2c. Price Indices of Consumption Goods Used by the Well-to-do Classes Many studies have been made of the changes that have occurred in the prices of consumption goods bought by the "working people," but this Bureau has not succeeded in discovering any index showing variations in the prices of those commodities consumed by the wealthier classes. Yet, , PRELIMINARY STUDIES 25 in any study of the changes in the relative welfare of the different sections of the population, it is, of course, imperative that such an index be avail- able, especially in times of rapidly shifting price levels when quantities shown in terms of money value are almost meaningless. With the hope of filling the gap in the available statistics along this line, the computation of an index of the above mentioned type was undertaken. It was found that the most feasible form of procedure was first to obtain relative prices for a number of specific classes of commodities and then to compute therefrom a weighted arithmetic average index number, using as constant weights the relative expenditures in a given year for each class of articles. The first problem, then, was to estimate the proportion of expenditures going for each purpose. Recently, the Federal Reserve Board made a study of the apportion- ment of income made by its employees. The relative distribution there shown differs somewhat from that known to exist for wage workers. It therefore seemed reasonable to suppose that the apportionment of their expenditures by persons having still higher incomes would diverge still more widely from that of the wage earners. With a view to obtaining a little more light on the question, a number of persons of means were re- quested by the present investigator to state their views as to the respec- tive shares of income which were, in general, spent by families having total expenditures solely for consumption goods amounting to 85,000, 810,000, 820,000, and 850,000, for 1. Food for themselves and servants. 2. Clothing. 3. Fuel and light, 4. Housing, including an estimated rent for a residence occupied by the owner. 5. Money wages of servants. 6. Automobiles and yachts, including maintenance and depreciation. 7. All other purposes. Only about a dozen of the replies received were in a form which answered the requirements. However, from even this limited number, it is possible to discern, as total expenditures change, certain rather definite trends in the percentages of income spent for the specified purposes. From these indications, curves were plotted for each of the various groups, and such adjustments were made as were necessary to bring the totals to unity. The final estimates appear in Table 2D. 26 THE ESTIMATE BY SOURCES OE PRODUCTION TABLE 2D \N ESTIMATE OF THE PERCENTAGES OF TOTAL EXPENDITURES FOR CONSUMPTION GOODS MADE FOR THE PURPOSES SPECIFIED Estimate based on Study by Federal Reserve Board of Expenditures of Its Employees and upon Replies to a Few Questionnaires Submitted by this Bureau Total ex- penditures annually for con- sumption goods Total of per cents Food for family, guests and servants Housing, including rent of homes owned Fuel and light Auto- mobiles, yachts and their mainte- nance Wages of servants Clothing Miscellan- eous, in- cluding house furnishings $ 5,000 100.0 27.2 18.0 3.3 9.2 4.5 14.3 23.5 10,000 100.0 19.2 18.3 3.2 9.8 9.5 11.9 28.1 15,000 100.0 15.8 18.6 3.0 10.0 11.5 10.3 30.8 20.000 100.0 13.7 18.9 2.8 10 12.3 9.3 33.0 25,000 100.0 12.0 19.2 2.6 10.0 12.7 8.7 34.8 30,000 100.0 10.4 19.5 2.4 10.0 12.9 8.1 36.7 35,000 100.0 9.1 19.8 2 2 10.0 13.1 7.6 38.2 40,000 100.0 7.9 20.1 2.1 10.0 13.3 7.1 39.5 45,000 100.0 6.9 20.4 1.9 10.0 13.5 6.7 40.6 50,000 100.0 6.1 20.7 1.8 10.0 13.7 6.4 41.3 Were the weights the most vital factor in determining the trend of the prices under consideration, it would be sheer folly to trust an estimate based upon such scanty data as those upon which the tables just presented rest. However, it is a well-known fact that prices of different classes of commodities do not move in entirely independent paths but fluctuate in somewhat similar ways at the same time. Since this is true, it follows that even a large change in the weights is likely to produce no radical effect upon the average index. Hence, if the above estimates are even approx- imately correct, there is no reason for believing that they will not serve well enough as weights for the purpose intended. Our particular needs require an index applicable to groups of persons who receive incomes from property. The industries of transportation, manu- facturing, and mining are largely operated by corporations and the own- ers receive their income therefrom mainly in the form of dividends or bond interest. It appears from the Statistics of Income for 1917, published by the Bureau of Internal Revenue, that the median net income of those re- ceiving corporate dividends is around 825,000. Since that date, prices and incomes have increased materially, and it appears probable that today a family of the same social class would receive enough more income to enable them to spend $25,000 for consumption goods in addition to what savings they would make. For these particular industries, it seems best, therefore, in computing an index for the purpose of reducing the money income of the propertied classes to a basis of constant purchasing power, to use the PRELIMINARY STUDIES 27 weights indicated in Table 2D as applicable to the $25,000 class. When, however, certain other industries are considered, it is evident that the average entrepreneur does not have an income in any way approximating that of the average owner of the stock of the corporations controlling the highly organized fields. Nevertheless, these people may be sufficiently wealthy to cause their expenditures to differ materially in their distribu- tion from those of the working classes. For the propertied classes deriving their livelihood from such industries, it seems probable that the weights based upon average expenditures of $5,000 per annum are more appropri- ate. The relative prices shown in Table 2E have therefore been multiplied by the weights representing the $5,000 class, and the weighted average index thus derived is shown in Table 2G. The division of expenditures shown in Table 2D is not carried far enough to furnish an appropriate weight for each of the relative prices actually available. It has been necessary, therefore, to subdivide some of the orig- inal groups of commodities in order to arrive at the weights used in Tables 2E and 2F. This process of subdivision has perforce been based upon rough estimates, as no accurate information on the subject has been dis- covered. Price data are available only for certain classes of expenditures, hence these classes have necessarily been used as typical of all articles or services purchased. The price estimates have been collected from a variety of sources and have been computed with considerable care except in the case of a few relatively unimportant items. In one or two items such as, for example, automobile repairing, the estimates are only moderately accurate, but they are the best obtainable. For the groups entitled "Food," "Clothing," "House Furnishings," "Fuel and Light," and "Housing," the same indices have been used that were computed for the same groups of goods used by the laboring classes. It is, of course, true that the articles purchased by the wealthy in the way of clothing, housing, and house furnishings, are of a very different quality than are those used by the poorer classes. No reason is apparent, however, why the higher priced articles should on the average, vary in a fashion much different from that characteristic of the cheaper goods. In the absence of any definite knowledge concerning this matter, and in view of the paucity of data, it was felt that it would be a useless expenditure of effort to attempt to make the indices specified fit more closely the prices of goods bought by the wealthier classes only. The data upon which several of the price indices for the minor groups are based are too heterogene< >us and irregular to give one great confidence in their accuracy. For the reasons just stated, it is clear that the final average index must w w GQ Q O o o o I— I H ^O 8^ °£ o£ So oo *< . 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OS OS OS O O O oi - / o *-H HlHH 1-H 1-H I-H H i— I Ol ooco o o ~ ~ ooo o - V. dodo oooo do'io CO o o o c o c c c CI — 1- _ 0) c a sS s a r°> O 2 ooco oooo 00 -*I^ ~v podd o d o d id cd — 1-H oooo o o o o c5 — ci 1-^ — — — ^^ ^H 1—4 O c-° Fh ti p oooo oooo ooo -r ooco oooo odd d "c • — oooo o o o o oi oi cc U p !-H 5.1 ooooo HHMH CO o o o CO o o o o o t^ o I-H -H ,-H (M *-* o o o o o -^ ^5 N T-H r-H T-H i-H T-H r-- ^ ^H 1-H i-H I-H CO 1 -H/l -ft lO lO (NOiOKJ i.o — cc 1-H O O CO CO ^h o o o -* 10 0) Q - ~_ OS OS OS cs O O OS OS O i— 01 ^ t ^ ^H 1-H 1-H T-H bpQQ oooo oooo ooo IC oooo dodo odd — i.O lO iO iO iO O ~ '~ C: "0 i-0 — o I-H 1 — 'i—i CN OI 01 g'S *— Sh gS O 1* on cr c i-H ,M CO — 1 5 - t^ co o p£h c rlHr 1-H i— — • — ^H ^1 — ht cr OS C~- O os os sa - cr. or. o O i-H I— < i — < 1 — r-* »— « t— « r— iHHH i'*" II i-* V. PC old '■ >. Z 03 it. w _ i. - CO -~ S 5= c, s a; — CO "0C - cu .-- o £ - 5 "C °o a -cs — cs -cc: o; -3 2 C to E I-H — ' _«*H ^ ~- £ tx. < - c - PC 2 - c: . - Oi - O "S _ °3 O C h Ph - - o - -: x biPP cd u c c • -.= — ^ « gg •-"•- o lO (h CD r co c- — T_ — - i— i X — 1- •- ^ S "5 c- . — - X — O .'- e3 V. 71. ™ c- x 2 • — ~ ^ - CCC; C ^ - rz X - o ^- S h Sh c C^ B x X. -r.C p o B co o co o ■ <^ Z' (55 C P 83 C X CJ -£ — "It ccc X SS - / C :- CO 5 p in t3 o x G £Q- 33 ~~ cr Z ~ - P- -_ i • = £x .. ■_ -^ Hi : -r ./• 33 bC Z | s o3 «— x ~ r B .2 o3 §5 •- p as C bO o S..S c B cc ■— < cr •- — — — ^ _ ^' c — ~ = - y, z.= '~.~~ or - - - - = 3 ~ —_ p y. - X - — ^ — - -r tx 33 __- g J3 = r- ^ ■PC b k. o - i, — • — c - - e X c - - .L w "C c cu jq > . ~ - — ~ i. ~ * — p - Ti - - - S r p S g' _, o -~ - ~ - "or Or — - '- lillll ^ w w P^ — C^ 8 o B. 3> t. c 7~ >. ■ o O K« 30 THE ESTIMATE BY SOURCES OF PRODUCTION be regarded as but a crude approximation to the truth. It seems to be established, however, that the prices of commodities bought by the wealth- ier classes did not rise quite as sharply during 1917, 1918, and 1919 as did the prices of those articles consumed by the poorer fraction of our popu- lation. It is believed that the indices shown in Table 2E will at least serve somewhat better in reducing the money income of the wealthy to terms of purchasing power than would the Bureau of Labor Statistics index of the "cost of living" of the working classes and distinctly better than would any index of wholesale prices. Of course neither of the latter types of indices have been devised for this purpose, and hence cannot be expected to give satisfactory results if thus misapplied. The tables on pp. 28 to 31 summarize the results obtained. TABLE 2F WEIGHTS USED IN COMPUTING THE INDEX OF PRICES OF COMMOD- ITIES CONSUMED BY PERSONS SPENDING $5,000 ANNUALLY FOR CONSUMPTION GOODS Automobiles 4.0 Automobile Repairs 2.1 Automobile Tires 2.0 Clothing 15.8 College Room and Board 1.1 College Tuition 0.4 Food 30.0 Fuel and Light 3.6 Gasoline 2.0 House Furnishings 6.1 Housing 19.9 Hotel Bills 0.7 Magazines 0.3 Moving Picture Shows 1.2 Newspapers 0.4 Railway Passenger Fares 2.2 Servants' Wages 5.0 Street Car Fares 0.8 Telephones 0.6 Theatre Seats 0.9 Tobacco 0.9 Total 100.0 , PRELIMINARY STUDIES :il TABLE 2G A COMPARISON OF THE ESTIMATED INDICES OF THE AVERAGE PRICES OF CONSUMPTION GOODS USED BY DIFFERENT CLASSES OF THE POPULATION OF THE CONTINENTAL UNITED STATES Indices c of Prices of Consumption Goods Used by Middle of the Year Manual and clerical workers' families a Families spending $5,000 per annum on consumption goods Families spending $25,000 per annum on consumption goods b 1909 .955 .978 .984 .994 1.00 1.01 1.03 1.10 1.29 1.58 1 . 773 2.165 .956 .977 .984 .999 1 . 000 1.013 1 . 002 1.088 1.252 1.448 1.669 .973 1910 1911 .988 .995 1912 1.000 1913 1914 1915 1916 1917 1918 1919 1920 1.000 1.010 .996 1 . 074 1.198 1 . 364 1.628 " See Table 2C; indices divided by 100. b See Table 2E; indices divided by index shown there for L913. c Prices of 1913 = 1 .000 § 2d. An Estimate of the Industrial Distribution of the Gainfully Employed Persons in the Continental United States I. The Total The total number of gainfully employed in the United States as reported by the Census of Occupations includes a large number of farmers' wives and children who do a certain amount of agricultural work on the home farm. Nearly all members of farmers' families do some work on the home farm or in the house and how many of them should be regarded as "gain- fully employed" is hard to say. The proportion so reported has varied from one census to the next with the wording of the instructions and from one district to another at every census with the interpretation put upon their instructions by different enumerators. Hence the figures for farmers' wives and children at work on the home farm have no consistent meaning, and this item in the classification of occupations has been excluded from all the following estimates. The ratio of the number of remaining male workers to the total popu- lation has been calculated for each Census year and the curve obtained by 32 THE ESTIMATE BY SOURCES OF PRODUCTION plotting these figures has been carried forward from 1910 to 1918, an allow- ance being made for the practical cessation of immigration during the war years and for the addition in 1918 of a considerable number of school boys to the list of gainfully employed. By using the ratios obtained from this curve as multipliers, products have been obtained which probably approxi- mate the numbers of males gainfully employed in each year. For a few industries, it has been possible to obtain annual ratios of the number of females to the number of male employees. These ratios have been adjusted to conform to the Census ratios for all industries in the Census years. In the intervening years the numbers of male workers have been multiplied by the adjusted ratios in order to obtain an estimate for each year of the number of females working for gain. The addition of the estimated number of females to the number of males, of course, gives the figures for the total number of persons gainfully employed. This number is evidently composed of entrepreneurs * and employees. The procedure adopted has been to estimate the number of the former and subtract it from the total in order to obtain the number working for wages or salaries. The final results appear in the three top lines of Table 2J. II. Entrepreneurs Any estimate of the number of entrepreneurs in the various industrial fields must be based primarily upon the reports of the United States Cen- sus since State Reports seldom throw any light upon the matter. The Census classifies the gainfully employed only by occupations but these figures have been used as the basis of careful though necessarily somewhat inaccurate estimates of the number of entrepreneurs in each industry. In most instances, the occupation of an entrepreneur indicates the indus- trial field to which he is to be assigned, hence the occupational classifica- tion is reasonably satisfactory for the purpose at hand. For a number of important industries such as mining, manufacturing, and agriculture, the reports for the separate industries record the number of entrepreneurs in each. The estimates for the other industrial fields have been based upon the Census of Occupations. The estimates thus made for the various occupations have been added to obtain the probable numbers engaged in all occupations in the Census years. The respective ratios of the number of entrepreneurs to the total population have been plotted for the various Census years and the curve thus obtained has been projected to 1920. By applying the ratios read from this projected curve to the estimated 1 The word "entrepreneur" is used in the customary sense — namely, as a person conduct- ing a business at his own risk. Lawyers, peddlers, merchants, farmers, and independent manufacturers are typical entrepreneurs. Managerial employees are not included under this term. PRELIMINARY S'lTDIES 33 populations for the other years, products have beeD obtained which are believed to represent with some approach to the truth the total number of entrepreneurs in each of the intercensal years. The estimates for the years since 1910 have been strengthened by the figures in the Censuses of Man- ufactures for 1914 and 1919, in the Censuses of the Electrical Industries for 1912 and 1917, and in the Census of Agriculture for 1919. Since the Census of Occupations for 1920 has not yet been published, it has been necessary to assume that the apportionment of the remaining number of entrepreneurs among the other industries has remained relatively the same as in 1909. TABLE 2H \X ESTIMATE OF THE NUMBER OF ENTREPRENEURS NORMALLY OCCUPIED IN THE PRINCIPAL INDUSTRIAL FIELDS Industry All industries . Agriculture. . . . Mining Laundry Construction. . Han 1 trades.. . 1 i itory Transportation Banking Unclassified industries. . . Thousands Attached to the Industry in the Year 1909 1910 9,550 6,330 35 16 175 228 273 29 1 2,460 9,617 6,362 34 20 171 230 272 29 4 2,492 1911 1912 1913 1914 1915 1910 L917 9 C4S 6,376 33 25 170 231 270 29 4 9,679 6,388 32 30 17(1 233 268 29 4 2.525 9,710 6,400 31 34 165 235 252 29 4 2.5(10 9,743 6,410 30 34 1 55 237 263 in 4 2,582 9,746 6,418 29 34 145 239 .'.id 28 4 2,589 9,737 6,425 ."I 35 135 2 !9 256 2 s 4 9.752 0.43-' 28 36 1 31 ) I'll 253 28 4 2.597 1918 •1.757 6,438 27 36 120 244 250 2s 1 2,610 1919 1920 9,760 6,443 26 36 130 254 246 2 s I 2,593 9,758 6,448 26 37 1211 263 212 28 4 2.590 III. Employees In estimating the number of employees in a given industry, it is neces- sary to distinguish sharply between the number of persons actually at work in the field and the number of persons attached to the industry. At all times, some of the persons normally making their living by any given line of effort are not at their usual tasks. Fortunately for the accuracy of our computations, the fraction of all employees not at work is usually too small to affect the results materially, but, in times of business depres- sion, the percentage may run very high and the effects then become of great moment. It is usually necessary to determine average annual earnings by dividing the total of wages paid by the total number of employees attached to the industry. It is sometimes only possible to estimate the average number of employees actually working in a given field by dividing the total wage bill by a reported average wage for the period. Evidently then, the ques- tions of wage rates and numbers of persons employed are so closely inter- locked that both must be studied together if an intelligent view of the entire situation is to be obtained. 34 THE ESTIMATE BY SOURCES OF PRODUCTION For each of several important fields of industry, the Census Bureau and the Interstate Commerce Commission state the average ! number of per- sons employed and the total amount paid to those persons in salaries and wages. At first thought, it might seem that the division of the amount paid by the average number of employees would show the actual amount paid each employee. A little computation will, however, make it clear that the quotient actually represents approximately the average wage received by an employee who worked constantly during the period designated by his employer as "full time." This rule is necessarily modified somewhat by the existence of fractional days of work and by overtime. If, for example, John Jones works in the forenoon and Win. Smith in the afternoon of a given day, the chances are that both will appear on the payroll and hence will be counted as two men. If each received $2.00 for his work, only $4.00 is paid out. But $4.00 divided between 2 men gives only $2.00 each which is only half the full- time daily wage. The only large industry in which the fractional day seems to be common enough to be of serious import is that of coal mining. In this field fractional time seems to be almost the rule; hence the average wage for miners ob- tained by dividing the total wage bill by the reported average number of workers gives a quotient representing the average wage for a day much shorter than the nominal full-time day in the mines. In most industries, the error due to the presence of workers employed for fractional days is probably offset almost entirely by the fact that many of the men work longer than the standard number of hours. If, for exam- ple, Richard Roe puts in three hours overtime and makes $6.00 instead of the regular $4.00 per day, he is still counted as one man and hence the quo- tient is distinctly larger than the normal full-time daily wage. The result obtained, therefore, by dividing the recorded amounts paid by the recorded number of workers usually represents the average amount received by a worker who appeared for work every regular work day but who missed the average number of fractional days and who put in the average amount of overtime. Since in most industries, as just stated, the amount of overtime probably about balances the time lost through ab- sences of a part of a day, the hypothetical average employee just referred to probably earns in the long run approximately the same amount 2 as the one who puts in the nominal full-time day. Nevertheless, owing to the nature^ of the data at hand, it follows that whenever a difference exists, it is the hypothetical average employee rather than the one conforming 'The Census computes the average number by adding together the totals actually re- ported for the 15th day of each month and dividing by twelve the sum thus obtained. - In busy times, he would put in overtime and earn more; in slack times the reverse would be true PRELIMINARY STUDIES 35 to the standard length of working day announced by the employer, who must, for the purposes of this investigation, be considered a full-time worker. It is evident, on the basis of the definition jusl stated, that although a minority of employees will earn more than the full-time wage because they miss fewer than the average number of fractional days or because they put in over-time, far greater numbers will earn less than the full-time wage because there will be many days when, on account of sickness, desire for leisure, personal business matter, or lack of available work, their names will not appear on the payroll. It follows then that the average wage, as shown by the quotient obtained by dividing the amount paid by the aver- age number of employees, is, as a rule, distinctly larger than the average received by the employees who normally obtain a livelihood by working in the given industry. From the point of view of production costs, the directly computed average, (which represents full-time earnings,) may be satisfactory, but it certainly will not answer if the aim is to picture the average labor income of the employees. In a year when many of the workers are idle for two or three months, there will occur a striking diminution in the total demand for necessities or customary luxuries even though the figures show that the average full-time wage has undergone no decline. 1 A necessary prerequi- site, therefore, to measuring the income from wages received by the aver- age person who normally is employed in an industry is the computation for each year of a fraction representing the ratio of the number of days actually worked by the average employee to the number of days put in by the hypothetical "full-time" worker. The computation of such a fraction or ratio is fraught with great diffi- culties, for practically no extensive data exist which show with any degree of reliability the amount of unemployment in the various industries for any year, to say nothing of the fact that there are available no records comparing the various years of the decade which we are studying. The LTnited States Census Bureau attempted in 1890 and again in 1900 to secure information in this connection, but the method used had two serious defects: First, inquiry was made as to the number of months or parts of months unemployed, and since it is an obvious fact that thousands of persons are absent from work during many days of the year, yet seldom consecutively for any considerable fraction of a month, it appears certain that many of those recorded as full-time workers were really unemployed for an aggregate of time not at all negligible; second, the period covered 1 If, for oxamplc, the Census wage total is divided by the Census average number employed the resulting quotients will show no decline as long as wage rates remain constant, even if half the workers are unemployed. 36 THE ESTIMATE BY SOURCE OF PRODUCTION by the inquiry was a whole year, and experience demonstrates that the ordinary informant's memory is too poor to enable him to give much infor- mation, even for himself, to say nothing of other members of the family, concerning brief periods of unemployment occurring several months before. Under these circumstances, it seems safe to use the Census figures only as relative and not as absolute measures of unemployment. The basic data upon which all the estimates are superimposed are the records of the number of workers employed in Massachusetts factories. 1 At first thought, it seems absurd to place such a large superstructure upon such a narrow foundation, but a careful study of such other employment records as are available indicates that variations in Massachusetts employ- ment are distinctly typical of those in manufacturing throughout the United States and that these cyclical fluctuations in employment in man- ufacturing are similar in a large measure to those characterizing conditions in other industrial fields. The Massachusetts records have been compiled for many years and have all the earmarks of statistical accuracy, two characteristics which make them unique in this field as far as the United States is concerned. The fundamental assumption in the present study is that workers do not tend to shift rapidly from one branch of industry to another. If this assumption is true it follows that a curve representing the number of employees depending for a living upon a great industry like manufacturing will show no sharp breaks or irregularities. A further hypothesis which accords with the views of Mr. Hornell Hart as expressed in his monograph on "Fluctuations in Unemployment in Cities of the United States" is that in times when wages in any line of enterprise are very high, that industry may attract to itself a number of persons not normally working for wages; for example, school boys and girls, women and girls normally performing only household duties, and casual independent workers such as agents, peddlers, shop keepers and mechanics. The addition of such persons tends to produce bumps on the curve representing the total number of employees attached to all industries, a curve which would otherwise be nearly smooth. For example, during 1917 and 1918, the aggregate number of persons receiving salaries and wages was doubtless noticeably increased by the addition of boys who left school to join the army and of women and girls who, for patriotic reasons, sought employment which they believed would help win the war. The Census Bureau in 1890 and also 1900 enumerated on the basis of family statements the number of persons who were unemployed in the 1 It is impossible to calculate from these figures the absolute numbers unemployed for we 'lo not know how many have found work outside the manufacturing field. The data arc then useful only as measures of relative employment. PRELIMINARY STUDIES 37 preceding year and classified the unemployment into the periods one to three months, four to six months, and seven to twelve months. The ratio of the per cent of the workers in each industry unemployed for each of these periods to the per cent of Massachusetts factory workers shown by the Census to be unemployed for the same length of time was computed by this Bureau. For each industry, six ratios were thus obtained, three for each of the two Censuses. The six ratios were then averaged and these averages were recorded. The next step was to multiply the actual per cent of unemployment in Massachusetts factories as estimated from the State Statistics of Manu- factures for the various years by the average ratios just described. The resulting products were the preliminary estimates of the per cents of unem- ployment in each of the different industries in the various years of the decade. The remainders obtained by subtracting each of these per cents from 100 were assumed to represent the ratio of the number of those actu- ally at work to the number of persons attached to the industry — that is, normally making their living in this field of endeavor. The records most commonly available show the average number actually working in a specified industry. The procedure followed here is to divide these average numbers by the tentative ratios just mentioned in order to obtain a preliminary estimate of the number of employees attached to each of the respective industries. Since it has been assumed that the number attached to any large industry as a rule varies slowly and regularly, the original figures have been plotted as historigrams and these curves have been smoothed. From the smooth curves thus obtained, numbers have been read which are assumed to represent approximately the number of employees attached to each industry in each year. The resulting numbers and the ratios derived by dividing the number actually at work by the estimated number attached to the industry are shown in Tables 21, 2J, and 2K. After the numbers of employees had been computed for each of the industries in which records are available these numbers were summated for each of the various years. The total number of employees had already been calculated by a method described on a previous page. It was, then. only necessary to subtract the total number of employees in the recorded industries from the total number in all industries in order to arrive at the estimated number in the unclassified industries, an estimate shown in the next to the last line of Table 2.J. This step completed the classification of the gainfully employed in so far as necessary for this study. 38 rHE ESTIMATE BY SOURCES OF PRODUCTION TABLE 21 AN ESTIMATE OF THE AVERAGE NUMBER OF EMPLOYEES ACTUALLY AT WORK IN CERTAIN OF THE PRINCIPAL INDUSTRIAL FIELDS OF THE CONTINENTAL UNITED STATES Indn.st ry Laundry Construction Hand trades a. . .. Factory b Steam railway r . . Pullman Express Transportation by water Street railways. Telephone Telegraph Thousands at Work in he 'i eai 1909 1910 1911 1912 1913 1914 1915 1910 140 1,510 3S9 7,40.5 155 1,456 395 7,370 159 1,368 411 7,500 169 1,459 409 7. 930 1S5 1,538 IDS 8,000 175 1,110 176 8,001 173 1,054 471 7,993 179 1,147 428 9,457 1,641 It 57 1,742 15 62 1,750 15 64 1,81.8 15 68 1,815 L'l OS 1,005 20 04 1,575 19 64 1,744 20 72 208 212 210 224 230 225 232 237 252 143 31 266 159 33 274 180 35 282 191 38 284 214 39 278 215 39 276 20S 41 292 237 46 1917 168 1,000 4S7 10,140 1,834 19 84 239 295 203 52 1918 1 55 726 558 ID. ISO 1,937 19 88 254 292 27* 56 a Includes automobile repairing, blacksmithing, tailoring, dressmaking, millinery, shoe repairing, custom grist and saw mills, and other similar minor industries. b Includes lumbering and gas manufacture. c Includes switching and terminal companies. TABLE 2J AN ESTIMATE OF THE TOTAL NUMBER OF GAINFULLY EMPLOYED. 9 AND OF THE AVERAGE NUMBER OF EMPLOYEES ATTACHED TO EACH OF THE PRINCIPAL IN- DUSTRIES OF THE CONTINENTAL UNITED STATES Industry Total Gainfully Em ployed 9 Total Eentrepren'rsy Total Employee- 9 Employees by Indus tries, Agriculture f Mining Laundry Construction Hand trades Factory*? Commercial electric light & power Steam railway*. . . . Pullman Express Transportation by- water Street railway Telephone Telegraph Banking Unclassified indus- tries & professions Government d Thousanc s of employees in the year 1909 1910 1911 1912 1913 37,101 9,710 27,391 1914 37.252 9.743 27,509 1915 37,522 9,746 27,776 1910 1917 33,910 9,551) 24.300 34,858 9,617 25,211 35,581 9.04S 25,933 36,282 9,679 26,603 38,101 9.737 28,364 38,681 9752 28,929 2,370 1,073 2,379 1,106 2,3ss 1 , 1 32 2,390 1,150 2,394 1,159 2,393 1,163 2,382 1,163 2,373 1,154 2,288 1,141 1.50 1,58.5 410 7,730 161 1,600 421 7,810 172 1,619 425 7,970 1S1 1.017 432 8.190 194 1,008 446 8,430 193 1,427 487 8,790 190 1.292 190 9,102 185 1,194 481 9,757 174 1,026 495 10,395 55 1,705 14 59 61 1,77.5 15 63 67 l.sis 16 00 73 1,834 16 69 79 1,836 21 71 84 1,838 22 72 89 1,840 21 73 94 1,842 20 76 98 1,856 20 85 224 260 150 32 231 272 163 34 239 282 1 85 37 243 289 205 10 248 293 218 41 250 295 226 42 252 297 230 44 253 298 242 47 256 299 267 53 150 151 102 168 173 178 180 183 186 6,823 1,565 7,376 1.620 7,685 1.671 7.9S0 1,727 s.397 1,785 8,183 1,866 8,175 1,955 S.122 2,037 7,000 2,691 1918 39.981 9.757 30.224 2,121 1.108 161 757 572 109 5 102 1,958 19 89 275 300 285 58 193 6,194 5,129 a Includes automobile repairing, blacksmithing, tailoring, dressmaking, millinery, shoe repairing, custom grist and saw mills, and other similar minor industries. b Includes switching and terminal companies. <" Includes lumbering and gas manufacture. 'I Federal, state, and local, including the army and navy, public schools and government owned in- dustries. ' Includes stock raising, market gardening, etc. ' See Table 211. <7 Members of the family assisting their parents on the home farms are not included among the gain- fully employed for purposes of this study. PRELIMINARY STUDIES 39 TABLE 2K AN ESTIMATE OF THE RATIO OF THE AVERAGE NUMBER OF EMPLOYEES AT WORK TO THE AVERAGE NUMBER OF EMPLOYEES VTTACHED TO EACH OF CERTAIN LEADING INDUSTRIAL FIELDS IN THE CONTINENTAL UNITED SI Ml - Industry Automobile repair. . Laundry Construction Other hand trades a . Factory 6 Steam railway? Pullman Express Transportation by water Street railways Telephones . . . Telegraphs. . . . 1999 962 935 .957 .947 958 .962 962 .963 927 . 968 . 957 964 l'JIO 980 .963 910 .931 944 981 985 .917 .977 .974 .964 1911 932 924 845 971 911 963 969 963 906 970 97(1 967 L! 1.' .911 .931 . 992 947 .968 .990 953 .985 .919 97s 949 .968 191.1 .927 958 .956 912 .919 988 979 968 .971 983 191 I . 977, 905 .782 978 910 873 985 sn7 899 .943 .952 943 191! 978 911 816 97.7 .878 856 922 929 994 .933 1916 939 9 10 v7:; 9 17 977. 948 936 982 980 977) 1917 973 971 '.,77 918 975 .988 979 989 934 986 982 979 191 s 9M) .970 97.9 977 .961 .989 984 989 977 977. 971 a Includes blacksmithimr, tailoring, dressmaking, millinery, shoe repairing, custom grist and sav; mills, and other similar minor industries. ft Includes lumbering and gas manufacture. e Includes switching and terminal companies. CHAPTER 3 AGRICULTURE x § 3a. Sources of Information The statistics utilized in this field are derived mainly from the Census and from the reports of the Department of Agriculture. As this is one of the largest of the nation 's industries, it is fortunate that the data avail- able are both abundant and reasonably reliable. Since, unfortunately, the returns for the Census of 1920 are not yet complete in some respects, it has been necessary in such instances to use the preliminary estimates for about half the States as bases for the 1919 statistics. In certain lines, the Census figures for the volume of production for 1919 are materially lower than are those of the Agricultural Department for the same year. Since the Census estimates are probably the more accurate, they have been relied upon in so far as possible. Even with the Census reports, for twenty-three States still unavailable in some fields, it nevertheless appears probable that the percentage of error in the figures for this industry is lower than the like percentages for many of the other fields. § 3b. Method of Procedure The method adopted in order to arrive at the net value product of the industry has been to deduct from the gross value product all payments to other industries for their goods or services used in agricultural production. The remainder represents the amount left as a reward for the services of persons or property devoted to the agricultural field. The general plan of procedure is illustrated by the following examples. Nearly half of the total crop yield is fed to livestock. The remainder is either sold to outside purchasers or consumed by the farmers themselves. Both sales and consumption evidently form part of the net income of agriculture. In addition to crops, the agricultural industry turns out a great quantity of livestock products in the form of draft animals, milk cows, milk, butter, meat, eggs, honey, wool, and mohair. Farmers also contribute each year to the national income by bringing into a state of cultivation a large area of previously unimproved land. Manifestly, however, this output cannot all be ascribed to the labors of agriculturalists alone; for, in order to keep up production, farmers must i Drs. L. C. Gray and O. C. Stine of the l*. S. Department of Agriculture have given very helpful suggestions which have been utilized in this chapter. 40 AGRICULTURE 41 buy from other industries fertilizers, tools, machinery, automobiles, gaso- line, harness, and saddles, and also a certain amount of bank credit and fire insurance. Payments for these articles and services must, therefore, be estimated and subtracted. In certain years, farmers dispose of their livestock in large numbers, thus bringing in an increased money income, but at the expense of reduced inventories. Evidently, then, accuracy requires that account be taken of the diminution in inventories in figuring up actual production for the year. § 3c. The Value of Animal Products With these fundamentals in mind, we can now proceed to anatyze some of the more important items entering into the accounts of this field. Ani- mal products may well be considered first. By combining the reports of the United States Department of Agriculture and the Food Administra- tion, we are able to secure a complete estimate of the value of all meat obtained from the larger animals. This record appears in Table 3A. 42 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 3A THE VALUE OF THE LARGER DOMESTIC ANIMALS GROWN AND SLAl GHTEKED IN THE CONTINENTAL UNITED STATES A B C D E F G Year Estimated production in millions of pounds Index of average meat prices to farmers Index of total value meat pro- duced (Millions) B XC 100 Estimated total value to farmers of all animals slaughtered (Thousands) Ratio of EtoD Estimated total value to farmers of all animals slaughtered (Millions) FXD 1909 1910 1911 1912 1913 1914 1915. . . 1916 1917 1918 1919 1920 19,7.52 a 17,390c 19,1316 18,249* 18,4746 17,7066 19,5406 21,0306 18,6926 22,3376 22,564 « 21,000 a 6.05^ O.SSrf .5.74'' 6.24* 7.03e 7.23« 6.64* 7.79^ 11.52" 13.54* 13.87'' 11.84-' 1,195 1,196 1,098 1,138 1,299 1,280 1,298 1,638 2,154 3,02.5 3,130 2,487 a $1,381,303/ 1.156 $1,381 1,382 1,269 1,314 1,501 1,480 1,500 1,892 2,489 3,497 3,618 2,874 a a U. S. Dept. cf Agriculture, Monthly Crop Reporter, March, 1919, p. 30, and March, 1920, p. 27. 6 U. S. Food Administration, Stephen Chase, Production of Meat in the United Stairs, p. 80. c 0.91 of the 1911 amount, this being the ratio of the 1910 to the 1911 quantity of livestock shipped on railways as shown by the Statistics of Railways, published by the Interstate Commerce Commission. '' Extended back from 1912 and forward from 1918 on the basis of the tables in the Monthly Crop Reporters for March, 1920, p. 28, and February, 1921, p. 11. e Monthly Crop Reporter, February, 1919, p. 19. /From data in the Census of Manufactures for 1910, Vol. VIII, p. 380, and from the Abstract of the Census for 1910, pp. 356 and 478, it is possible to calculate that, in 1909, retail slaughter houses killed 4,088,000 beeves, 2,880,000 calves, 1,940,000 sheep and lambs, 3,970,000 hogs and 135,000 goats and miscellaneous animals. If the animals in each of these classes were on the average worth the same as the animals slaughtered on farms, their value was $178,636,000. Wholesale slaughterhouses paid farmers $960,726,000. From this amount should be deducted the $28,298,000, which is shown by the Statistics of Railways to have been paid as freight on livestock, leaving $932,428,000 as returns to farmers. In addition, the Census shows that farmers slaughtered animals worth some $270,239,000. The total value of meat animals to farmers therefore amounted to $1,381,303,000 in 1909. No allowance is made for profits to dealers and shippers, for it is assumed that the larger part of this class are themselves included by the Census under the heading of agriculture. o Rough preliminary estimate. Dairy products also form an important part of the output of American farms. In 1909, according to estimates based upon the Abstract of the Census of 1910, p. 344, the butter made on farms reporting dairy cows but , AGRICULTURE 43 no dairy products amounted probably to about $16,530,000, in addition to the butter valued at $122,483,000, reported as used on farms. The Census also indicates that milk amounting in value to -5158,700,000, was consumed on the farm as human food, making a total of 8297,713,000, in dairy products used for sustenance by farmers and their families. This amount added to the $473, 769,000, value of dairy products reported as sold by farmers gives $771,482,000, as the total value of dairy products consumed or sold off the farm by farmers in the year 1909. The method of making estimates for the intercensal years is outlined in Tables 3B and 3C. TABLE 3B AN ESTIMATE OF THE VALUE OF DAIRY PRODUCTS CONSUMED BY FARM FAMILIES IN THE CONTINENTAL UNITED STATES A B C D E F Index of Estimated total value Dairy products dairy Year Index of price of dairy number (if farms in the U. S.'< of dairy products consumed by farm families product - consumed by products" consumed by in 1909« farm faun lies farmers (Thousands) (Millions) B X C D X E 1900.. . . 1.000 1.000 1.000 §297,713 $298 1910.. . . 1 . 063 1 005 1 .038 318 1911.. . . 1 . (KM) 1.007 1 . 007 300 1912.. . . 1.07(1 1.009 1.086 323 1913.... 1.088 1.011 1 100 327 1914.. . . 1 . 065 1.013 1.079 321 1915.. . 1.064 1.01 1 1.079 321 1916.. . . 1.118 1.015 1.135 338 1917.. . . 1.433 1.016 1 156 131 1918.... 1.783 1 017 1.813 .Ml) 1919... . 2.024 1.018 2.060 613 1920. . 2.197 1.019 2 239 007 a A simple arithmetic average of the index for butter prices, (derived from the Year- books of the Dept. of Agriculture,) and the respective indices of retail and wholesale prices of milk as reported by the IJ. S. Bureau of Labor Statistics. '- Based on the U. S. Census reports for 1910 and 1920, numbers for the intermediate years being interpolated along a smooth curve. c For mode of derivation, see the text. o eo W m < CO W i—i *z <1 PQ Q O co co H o p o Oh >-< c» CM iO © CO iO CO ■— I iO © oo oo i-^ t~~ i— i co > — < 00 CM iO © CO © iQ -* M Value of dairy products sold by farmers in census years (Thousands) OS so co~ © © CO ©~ © I— 1 i— r O Estimated value of whole milk and cream purchased by factories (Millions) D XF hh cc «o © CM CM CM CM CD «0 t» »0 © 1^ © -fi CM CM CM CO "* CM ^h CO oo Tt< r^ i>- -*©I>00 PB, S o o a ^h 00 CM © ONOM © O i-h CM CM CM CM CI >-i © 0-1 t> •— © oo oo co co Tf io CI CM CM CM oo © i— ' *— i © t^ © o CM CM CM CO H Value of whole milk and cream purchased by factories in census years (Thousands) "a CM © co~ CM 6^ CM co CM w" CM CM © ©" Q Preliminary index of total value of dairy products soldc © LQ -^ CM 00 CO CM hh CO --^©©_ O •— i © i— ' r— 1 1— 1 ,— ,— CM © © >0 co oo -r <— i o ^©_co_ 1— 1 ,— ^H ,— O© t-^iO i— ' t— © »o ©^© TT © oo'cm"©"©" i-i CM CM CM O Estimated number of cows whose products arc marketed b (Thousands) O 00-h CM 00 LO CM © ©~©~©"o~ OlONO OOOCl^ © t^ CM © cfoV-r»-r 00 b- t~--+< © oo -t cm IQ 00 © CM CM*"cM"eo~ccr « Estimated number of cows kept principally for milk a (Thousands) 17,010 17,120 17,300 17,180 © LO lO LO © © •* co O^i-H_cq^eo t^t^tCoo" r-H ^H ^H ^H © iO © CM © CM © t^ ©__C0_^O__ ©~©~of©~ < Si 03 V 3 C r © i — *— r CM © 3 iO © T— ^H © © 3 f © — c c J 3 S 0) -a o a o 3 o c3 X! J3 /« co a^ co rt 03 S S3 o5 Si »« 03 03 += af- & b 3.3 co os S--C O^ '53 X! c O rj O — • I'C £ 3^ 3 bt Sh c3 o3^ g 3 CS O co *^ . ft 4> . OQ^Cog Sh ^- « ft , Pi 03 J5 co o 3© o^-'PQO .2 c3 0) U_ C c fe O § -o £ r o r ° 2 57-s CO . O C3 co co O ej co 0J OJ ^ 8 cJ-S-S ? +j 03 +j CO IO CM Sh o o CM © t^ O 3 "" ' G "1 ' >; co O ft 4) Sh STATES A B C D E Year Value reported by (lie Census (Thousands J Value of wool as estimated by the De- partment of Agricull ure c (Thousand- 1 Ratio of B to (' Probable value of product (Millions) C X D 1909. . $66,374 « 129,000'' $ 65 72 52 55 51 53 65 80 133 173 162 125 1.021 d 958 e .942* .909* .902* 887 « .862* 850 e 827 ■ 809 « 796'' 7X4 « S 66 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 69 19 50 46 47 56 68 110 140 129 98 a Abstract of Census of 1910, p. 352. b Estimated on basis of preliminary bulletin of Census, issued April 11, 1921; allow- ance made for mohair. c From Desk Sheet of Bureau of Crop Estimates. d Computed by division. ' Interpolated along a straight line. The preliminary estimates of the Census indicate a clip of only 240,000,- 000 pounds of wool in 1919 as against 289,000,000 pounds in 1909, showing a rather sharp decrease in the physical production of this commodity. Most business plants have bookkeeping systems and make annual inventories, the changes in which affed the accounts of profit and loss. The Department of Agriculture estimates one very large item in the agri- cultural inventory at the beginning of each year, namely, the value of live stock on hand. The changes in this item are so large that it seems advis- able to take them into account in making up the net totals for the agri- cultural industry. Since many fluctuations in the total money value of live stock arise solely from changes in prices and hence represent no real variations in the numbers or weights of animals, it has been necessary to use a rather devious plan of computation in order to secure figures which show the magnitude of the chanties in the physical quantity on hand, which have occurred between the respective inventory periods. This computation is recorded in Table 3G. 48 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 3G AN ESTIMATE OF THE VARIATIONS IN THE VALUE OF THE AGGREGATE OF LIVE STOCK ON THE FARMS OF THE UNITED STATES A B C D E F G H I J Agricul- Census tural De- Value of estimate partment Probable Tnclex of all live- Gain in Index of Gain in of value estimate value of prices of stock at inventory prices of inventory ^ oar of all live- of value of Ratio of all live- farm 1913 of animals farm at current stock on domestic B to C stock animals prices at prices animals A prices farms animals'' (Millions) Janu- Jan. of 1913 (Average (Millions) Jan. l a on farms C X D ary 15 7> (Millions) (Millions) for vear) H X I (.Millions) Jan. 1 E (Millions) F 1909 $4,525 1.004 $4,543 .845 $5,375 -$587 .890 — $523 1910. . . . $4,925 b 4,911 1.003/ 4,925 1.029 4,788 + 430 1.001 + 430 1911. .. . 5,276 .995(7 5,250 1 . 006 5,218 + 382 .882 + 337 1912 5,008 .990(7 4,960 .886 5,600 - 188 .925 - 174 1913.... 5,502 . 984 <7 5,412 1.000 5,412 + 50 1.000 + 50 1914.... 5,891 .977(7 5,755 1 . 053 5,462 + 408 1.002 + 409 1915.... 5,969 .971(7 5,800 .988 5,870 + 109 .938 + 102 1916. .. . 6,021 .965(7 5,810 .972 5,979 — 544 1.047 - 569 1917. .. . 6,736 .958(7 6,454 1 . 187 5,435 - 525 1.412 - 742 1918.... 8,284 .953(7 7,896 1.608 4,910 4- 60 1 . 593 + 96 1919. . . . 8,828 .946(7 8,352 1.681 4,970 + 410 1.577 + 646 1920 $7,996 e 8,507 .940/ 7,996 1.486 5,380 85 1 . 398 - 119 a Census of 1910 was taken April 15. b Abstract of U. S. Census of 1910, p. 312. c Estimated from U. S. Census reports for 25 States. d Includes horses, mules, cattle, sheep, and swine. « Moittlrfy Crop Reporter and Yearbooks of Dept. of Agriculture. / Computed by division. a Interpolated along a straight line. h Average of indices for meat animals and for horses, weighting the former 2 and the latter 1. Data from Monthly Crop Reporters. In Table 3H, the values of the various animal products are summarized. The figures used in the derivation of the estimates for honey and wax produced and for horses sold off farms are not shown, as these are relatively minor items and no first class data are available as a basis for interpolation. The value of horses sold off the farms has been computed on the assump- tion that one-fourteenth of the city supply is replaced annually. The number of horses in cities is estimated from the Census by aid of a smooth curve. The values per head are those stated in the Census with interpola- tions for intercensal years based upon the Department of Agriculture reports of farm prices for horses and mules. The numbers multiplied by these average values are used as estimates of the total values of horses and mules sold to supply city needs. To these totals have been added quan- tities representing 90 per cent of the excess in the value of exports over , AGRICULTURE 49 imports, it being assumed that the fanners would receive 10 per cent less than the export value. The estimated amounts representing the production of honey and wax have been roughly interpolated between the values recorded by the Cen- sus in 1909 and 1919, the "Desk Sheet" furnished by the Bureau of Crop Estimates being used as an approximate guide. Since the value of wax produced in 1919 has not yet been reported by the Census, a slight adjust- ment has been made in the reported honey value in order to take both into account. TABLE 3H AN ESTIMATE OF THE AGGREGATE FARM VALUE OF ANIMAL PRODUCTS PRODUCED ON THE FARMS AND RANGES OF THE CONTINENTAL UNITED STATES (Values in Millions of Dollars) All ani- Larger animals slaugh- tered a Dairy Poultry Wool Honey Horses ( lains in Year mal prod- ucts prod- ucts b and eggsc and mohair < l and wax e sold for city use e live- stock in- ventory/ 1909.. . . $2,218 $1,381 $ 771 $ 484 $ 66 $ 6 $ 31 -S523 1910.. . . 3,277 1,382 829 526 69 6 35 + 430 1911.. . . 2,968 1,269 790 lv_> 49 6 35 + 337 1912.. . . 2,585 1,314 845 509 50 6 35 - 171 1913.. . . 2,989 1,501 847 504 46 6 34 + 50 1914.. . . 3,359 1,480 840 512 47 6 c»5 -f- 109 1915.. . . 3,166 1,500 861 535 56 6 105 + L02 1916.. . . 3,041 1,892 943 591 68 7 108 — 569 1917.. . . 3,902 2,489 1,250 713 110 9 73 - 712 19 IS.. . . 6,189 3,497 1,581 829 140 12 34 4- 96 1919.. . . 7,228 3,6 IS 1,813 9S4 129 13 25 + 646 1920. . . . 5,882 a 2,874 1,974 1,020 98 15 20 119 a See Table 3A, Column G. '' Sum of items in Table 3B, Column F and Table 3C, Column J. c See Table 3E, Column F. d See Table 3F, Column E. e For description of derivation, see the text. /See Table 3G, Column J. Rough preliminary figures. The value of all animal products showed an upward trend throughout the period until 1919. In 1920, however, there was a sharp diminution in the total value, this being mainly occasioned by a fall in the value of meat animals. Because of variations in the value of money, the apparent changers in total values must, of course, not be construed to indicate cor- responding changes in the physical output of livestock products. 50 THE ESTIMATE BY SOURCES OF PRODUCTION § 3d. The Value of Crops Not Fed to Live Stock In addition to livestock products, farmers and their families consume large quantities of fruits and vegetables, bum fuel from the farm, and sell great amounts of gram and other vegetable products for use by other per- sons. To calculate the net value of crops thus consumed or sold is not a simple matter. It is first necessary to subtract the amount used for seed. This amount has been calculated by multiplying the normal seed require- ments per acre of each crop by the acreage in each year and deducting the resulting amount from the crop of the year previous, since it was from this supply that the farmer reserved his seed. Estimates of grain fed to livestock have been based upon the 1910 Census and carried forward by aid of the reports in the Monthly Crop Reporter 1 showing the quantities in each year not shipped outside the county where grown. The Census enumerators failed to secure complete reports for farm gar- dens, hence an estimated item has been added to fill in the omission. In 1910, there were reported 707,763 gardens for which no value of products was assigned. W. C. Funk in Farmers' Bulletin 635, published by the Department of Agriculture, shows that the average farm garden produced for home consumption fruit and vegetables worth $52. If the non-reported gardens produced half as much, or $26 each, the total would be $18,624,000 for 1909. This amount has been varied in other years in proportion to the combined value of the reported crops of beans and white and sweet potatoes. 1 Published by the Bureau of Crop Estimates. , AGRICn/ITl;i: 51 TABLE 31 AN ESTIMATE OF THE VALUE OF CROPS SOLD OFT THE FARMS OR CONST' MED DIRECTLY BY FARM FAMILIES A B C I) E F G H 1 J Value Net Agricul- Value of crops fed to of value Census . estimate of value Of all recorded tural Prob- Value seeds Of all Depart- ment estimate Ratio able value of all of non- re- Total value of all t-ut - i ings and crops con- sumed Year of value of all of B to C record- ed crops corded gar- crops (Mil- live- stock plants for on or sold off crops (Mil- recorded crops c -.Mil- lions) dens/ (Mil- lions E + F on farms/ (Mil- lions) next year's farms (Mil- ( Mil- C X D lions) crop.' lions) lions) (Mil- G— lions) (H + I) 1909 . . $ 5,487" $ 5,487 1 . 000 d 8 5,487 819 8 5,506 $2,601 SI 43 82,762 1910. . 5,486 .995" 5,461 17 5.17s 2,645 138 2,696 1911. . 5,562 .991 e 5,511 20 5,531 2,793 153 2.5X5 1912. . 5,842 .986* 5,762 18 5,780 2,826 139 L'.Slli 1913. . 6,133 .982« 6,020 20 6,040 2,924 1 15 2,971 1914. . 6,112 .977* 5.971 is 5,989 2,985 LS4 2,820 1915. . 0,907 .972e 6,717 20 6,737 3, 1 82 21 17 3.347 1916.. 9,054 .968* 8,763 35 s.798 3,926 331 1.5 11 1917. . 13,479 . 963 e 12,983 50 13,033 6,209 395 6,429 1918. . 14,094 .959* 13,511 47 13,558 5,989 450 7,119 1919. . $15,295 6 16,035 .954^ 15.295 52 15,:; 17 6,550 434 S,3f)2 1920 10,465 .949" 9,935 45 9,980 4,ii(ll 2 g2 ■ 5,094 ° Statistical Abstract for 1916, pp. 155 156. b Calculated from data in Press Summary of April 1 1, 1921, furnished by the Census. r Monthly Crop Reporter for December and Yearbooks of the Department of Agricul- ture. '' Computed by division. e Interpolated along a straight line. / For mode of estimation, see text. 9 Rough preliminary estimate. Table 31 indicates that between 1914 and 1919 there was an enormous increase in the book income of agriculturalists from the sale or consump- tion of crops and that this book income diminished very sharply from 1919 to 1920. These fluctuations were doubtless due far more to price changes than to variations in physical out put. § 3e. Payments by Agriculture for the Products of Other Industries In computing the net value product of agriculture, it is, as before ex- plained, necessary to deduct from the gross output amounts paid to other recorded industries for their services. The chief deductions made are those 52 THE ESTIMATE BY SOURCES OF PRODUCTION for the cost of agricultural implements, fertilizers, automobiles used in farm business, harness and saddles, fire insurance, and interest paid to banks. The estimates of these quantities have been recorded in Table 3J. The value of agricultural implements purchased by farmers has been estimated for the Census years by subtracting from the values of those reported as manufactured the excess values of exports over imports, and multiplying the remainder by L20 1 in order to allow for the profits made by retailers. The interpolation for the intercensal years has been based upon an index representing the product of the tons of agricultural imple- ments shipped on the railways (as reported by the Interstate Commerce Commission), and the prices of agricultural implements (as compiled from the records of the United States Department of Agriculture and the Inter- national Harvester Company). That not all of the implements purchased are used up in the year when bought is evidenced by the Census report indicating an increase in the physical supply between 1910 and 1920 amounting to about 41 per cent of all purchases during the decade. The remaining 59 per cent has therefore been assumed to represent the current cost to the industry. The Census records the amount paid by farmers for fertilizer in the Census years. For the intervening years, the amounts have been esti- mated on the basis of the figures in the American Fertilizer Handbook, a publication which reports for each year the approximate number of tons of fertilizer used in the United States and also the prices of leading vari- eties. The average price per ton has been estimated therefrom and multi- plied by the tons used in order to obtain an estimate of the total value. This estimate has been corrected by comparing with the amount reported in the Census years and the interpolation has been carried out according to the usual ratio method, using a smooth curve for estimating the ratios in the intercensal years. It is, of course, impossible to say just what share of the expense of auto- mobiles used on farms should be allowed as a business cost and how much should be charged against pleasure; nevertheless, some rough apportion- ment must be made. According to the National Automobile Chamber of Commerce, 2 farmers in 1919 operated 32.6 per cent of all cars. These cars are perhaps somewhat smaller than city cars on the average but probably make up at least one-fourth of the automobile value of the coun- try. By combining this figure with others arrived at in the study of the industry of repairing automobiles, one is led to the conclusion that if 40 per cent of total costs be charged to business uses, the figures presented 1 Ratio based upon a study of the Federal Trade Commission report on the Agricultural Implement Industry. - Fads and Figures of tl>< Automobile Industry, 1920, p. 13. AGRICULTURE 53 in Table 3J, may represent a rough approximation to the business expense to fanners of the automobiles which they operate. The amount expended for harness and saddles has been estimated by a rather complex process which presumably gives results not very far from the truth. The gist of the plan is as follows: For the Census years 1909, 1914, and 1919, the quantity of harness and saddlery manufactured is recorded. From this amount in each case the value of exports has been subtracted, there being no imports recorded. It has been assumed that, of the remainder, farmers use the same proportion as farm horses and mules constitute of all horses and mules. The interpolations for the intercensal years have been made on the basis of an index representing the product of the number of horses and mules on farms and the price of harness to farmers, both figures being taken from the Monthly Crop Reporter pub- lished by the Agricultural Department. The customary ratio method has been used, the ratio for the intercensal years being interpolated along a smooth curve. Farmers pay a considerable amount annually for fire insurance and for interest on loans from banks, but there is no information available throw- ing any definite light on the size of either of these quantities. The assump- tion has been made that the excess of interest paid to banks over interesl received therefrom amounts to 1 per cent of the total crops and animal products sold or consumed. A study of the reports of the Comptroller of the Currency for the smaller banks indicates that it is improbable that the amount is much larger than this, but it may be somewhat smaller. The cost of fire and tornado insurance has been assumed to be one- tenth of one per cent of the value of all farm buildings. The value of the buildings is given by the Census of 1910 and has been estimated for 1920 on the basis of the preliminary States reports already published. The interpolation has been made along a smooth curve. An important deduction which is omitted from the li1)UCT OF AGRICULTURE IN THE CONTINENTAL UNITED STATES A B C D E F Calendar year Value of animal products " (Millions) Nit value of crops consumed or sold off farm c (Millions) Increase in land value due to im- provements by farmers d (Millions Business ex- penditure for products of other in- dustries ' (Millions) Net Value product of agriculture Mil liens) B+C+D-E 1909 . . $2,218 3,277 2,968 2,585 2,989 ;;,:;.59 3,166 3,041 :;.902 6. lv.) 7,228 5,882 b $2,762 2,696 2,5-.") 2,816 2,971 2,820 3,347 4,541 6,429 7,119 8,362 5,094 $ 25 139 219 290 376 328 310 218 174 105 520 177 S 319 384 lot 405 149 167 146 551 785 1,031 1,276 1,300 $ 4,686 5,728 5,368 5,286 5,887 6,040 6,376 7,249 9 720 1910 1911 1912 1914 1915 1916 1917 1918 12,682 1919 1 L835 1920 « See Table 3H. b Rough preliminary figures only. e See Table 31, Column J. d For mode of derivation, see text. « See Table 3J. The net value product of agriculture evidently increased very rapidly between 1915 and 1919, but suffered a sharp decline in 1920. § 3g. The Share of the Employees It is desirable next to learn what share of this net value product is paid out in the form of wages or salaries (including under these heads, board and lodging furnished to employees), and also the average. wage paid per employee. The mode of estimation used is shown in Tables 3L, 3M, and 3 N. 56 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 3L AN ESTIMATE OF THE AGGREGATE OF WAGES AND SALARIES PAID BY FARMERS TO EMPLOYEES A B (' D E F Calendar year Wages of farm hands (Census years) (Thousands) Index of total payments to farm labor c (Thousands) Ratio of B toC Estimated total wage of farm hands (Millions) C X D Estimated total wages paid to em- ployees on farms/ (Millions) He 10 1909. . 1910 1911. . . 1912. . . 1913 1914 1915 1916 1917 1918 1919 1920 $651,611" $1,363,454 & 7,918 8,000 8,546 8,710 9,100 8,980 9,330 10,170 12,890 15,390 18,720 22,000 82.29^ 81.37 e 80.42 e 79.47 ' 78 . 52 e 77 . 67 e 76 . 62 e 75 . 77 e 74. 72* 73. 87* 72 . 83 d 71.97* $ 652 651 687 692 715 697 715 771 963 1,137 1,363 1,583 $ 717 716 756 761 786 767 786 848 1,059 1,251 1,500 1,742 a Census of Agriculture, 1910, Vol. V., p. 563. Includes board and lodging. b Preliminary bulletin of the Census, June 29, 1921. c The product of the acreage of leading crops, and the average monthly wage of farm hands without board, as reported by the Bureau of Crop Estimates of the De- partment of Agriculture. d Computed by division. e Interpolated along a straight line. /Assumed that domestics receive one-tenth the total wages paid farm hands. The allowance here is for only that share of domestic labor required to facilitate the pro- ductive work of the farm. , AGRICULTURE 01 TABLE 3M AN ESTIMATE OF THE NUMBER OF EMPLOYEES ON THE FARMS OF THE CONTINENTAL UNITED STATES A B C D E F G Year Total wages paid to farm hands ° (Millions) Estimated average full- time wage for farm hands d Estimated number of full-time hands re- quired (Thousands) B C Estimated fraction of workers ac- tually employed c Number of farm hands attached to t In' industry (Thousands i D E Number of employees at tached to the industry e Thousands) 1909 1910 1911. . . . 1912 1913 1914 1915 1916 1917 1918 1919 1920. . . . S 652 651 687 692 715 697 715 771 963 1,137 1,363 1,583 $363 352 367 378 389 38(5 389 422 526 & 652 767 846 1,794 1,849 1 ,S73 1,831 1 ,837 1,809 1,838 1,825 1,832 1,744 1,778 1,872 .881 .907 .915 .894 .89.1 .882 .900 .897 .934 .959 .934 .923 2,037 2,039 2,047 2,04 S 2,052 2,051 2,042 2,034 1,961 1,818 1,903 2,028 2,376 2,379 2,388 2,390 2,394 2,393 2,382 2.373 2,288 2,121 2,220 '-'.366 a See Table 3L, Column E. b A weighted average of summer and winter wages and of wages of different classes of laborers. Data from the 1918 Annual Report of the Iowa Bureau of Labor, p. 139, and from the Agricultural Department Crop Report, March, 191s, p. 24. c A rough estimate. d Includes value of any food and lodging furnished. e Includes the estimated number of domestic servants required to facilitate the productive work of the farm. 58 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 3N AN ESTIMATE OF THE AYERAOE ANNUAL EARNINGS OF FARM EM- PLOYEES" IN THE CONTINENTAL UNITED STATES AND THEIR SHARE IN THE NET VALUE PRODUCT OF AGRICULTURE A B C D E F G H Year Total money wages h (Millions) Number of em- ployees attached to the in- dustry <- (Thou- sands) Average annual earnings per em- ployee B C Index cf prices of goods con- sumed by manual and clerical workers d Purchasing power of average an- nual earn- ings at prices of 1913 D E Xci value product of agri- culture* (Millions) Per cent of value prod- uct paid out in " wages and salaries B G 1909 1910.. . . 1911.. . . 191? 1913.. . . 1914.. . . 1915 1916.. . . 1917.. . . 1918.. . . 1919 1920.. . . S 717 716 756 761 786 767 786 848 1,059 1,251 1,500 1,742 2,376 2,379 2,388 2,390 2,394 2,393 2.382 2,373 2,288 2,121 2,220 2,366 $302 301 317 319 328 321 330 357 46:; 590 675 736 955 . 978 . 984 .994 1.000 1.01 1.03 1.10 1.29 1 . 58 1.773 2.165 $316 308 322 321 328 317 320 325 359 373 381 340 $ 4,686 5,728 5,368 5,286 5,887 6,040 6,376 7,249 9,720 12,682 14,835 9,853 15.3 12.5 14.1 14.4 13.4 12.7 12.3 11.7 10.9 9.9 10.1 17.7 and domestic servants. b See Table 3L, Column F. c See Table 3M, Column G. d Bureau of Labor index carried back by means cf a special study. e See Table 3K, Column F. The preceding tables indicate that the number of employees attached to the industry has increased but slightly during the decade, a conclusion which accords with the almost .stationary number of farms shown by the Census. Average wages, when measured in terms of purchasing power, were just a little higher in 1920 than in 1909, though the years 1917 to 1919 were marked by a noticeable increase in the prosperity of the farm laborer. In all years, the wages of farm laborers are much lower than are those of employees in most other lines even when an allowance is made for board and lod»in16 5.215 5,464 5,835 l r )17 1918 1919 1920 6,766 7,390 7,634 3,819' a Includes owners of rented farms and owners of farm mortgages. 6 See Table 3K, Column F. c See Table 3L, Column F. d An average of the indices for the working classes and for families spending $5,000 on consumption goods, the weights used being 3 and 1 respectively. e Rough preliminary estimate. § 3i. The Physical Output of Agricultural Produce It is also of interest to see whether the output of the industry is increasing or diminishing. This point is covered by the figures in Table 3P. GO THE ESTIMATE BY SOURCES OE PRODUCTION TABLE 3P AN ESTIMATE OF THE VALUE AT PRICES OF 1913 OF ALL PRODUCTS CONSUMED BY FARMERS OR SOLD OPT THE FARMS OF THE CON- TINENTAL UNITED STATES A B C D E F G H Crops Animals and animal products All products Value at Value at Value at Index of prices at December 1st prices of Value at average Value at Year prices of December average Index of prices of 1913 December 1st, 1913 prices of average 1913 prices 1st « (Millions) year b prices of (Millions) (Millions) (Millions) B C (Millions) year e E F D + G 1909. . $2,762 .957^ $2,886 $2,218 .891 $2,489 $5,375 1910. 2,696 .887^ 3,039 3,277 .987 3,320 6,359 1911. 2,585 .997 c 2,593 2,968 .850 3,492 6,085 1912. . 2,816 .879 c 3,204 2,585 .925 2,795 5,999 1913. . 2,971 1.000c 2,971 2,989 1.000 2,389 5,960 1914. . 2,820 .883 c 3,194 3,359 1 . 022 3,287 6,481 1915.. 3,347 .969 c 3,454 3,166 .963 3,287 6,741 1916. . 4,541 1.610c 2,821 3,041 1.098 2,769 5,590 1917.. 6,429 2.050c 3,136 3,902 1.557 2,506 5,642 1918.. 7,119 2.101c 3,389 6,189 1.851 3,344 6,733 1919. . 8,362 2.436c 3,433 7/22S 1 . 962 3,684 7,117 1920. . 5,094 1.401c 3,636 5,882/ 1.833 3,209 6,845 " See Table 31. b See Table 3H. c Computed from table in Monthly Crop Reporter, Dec. 1920, p. 150, weighting crops in proportion to importance of sales or home consumption. d Estimated on basis of index of all crops. See Yearbook of Department of Agricul- ture, 1918, p. 701. - Average of prices of meat animals, poultry, eggs, and dairy products weighted in proportion to the sales of each in 1919. Data from Monthly Crop Reporter. f Rough estimate only. Table 3P makes it clear that the physical volume of agricultural prod- ucts has t ended to increase slowly during the decade, 1919 being the banner year. It is however, of greater interest to learn whether the output per person engaged in agriculture is increasing or diminishing and also whether the output is or is not keeping pace with the growth of population in the United States. The facts in this connection are shown in Table 3Q. AGRICULTURE 61 TABLE 3Q AN ESTIMATE FOR THE CONTINENTAL UNITED STATES OF THE OUT PUT OF AGRICULTURAL PRODUCTS PER INHABITANT AND PER PERSON ENGAGED IN AGRICULTURE A B C D E F G H Thousands of Persons Engaged Estimated Value of Output at Prices of in Agriculture Popula- tion of United 1913 Year Per person Per inhab- itant of the United Sta1 F-5-E Farmers Em- ployees d Total States/ June 30 (Millions) Total/ (Million engaged in agriculture F -r D 1909 . . . 6,330 c 2,376 8,706 90.4 $5,375 $617 $59 1910. . . 6,362 o 2,379 8,741 92 2 6,359 727 69 1911. . . 6,376 e 2,388 8,764 93.8 6,084 694 65 1912. . . 6,388 c 2,390 8,778 95.3 5,999 .is:; 63 1913. . . 6,400 c 2,394 8,794 97 3 5,960 678 til 1914. . . 6,410c 2,393 8,803 99.2 6,481 736 65 1915. . . 6,418 c 2,382 s.sOO 100.4 6,741 766 67 1916. . . 6,425 c 2,373 8,798 101.7 5,590 635 55 1917. . . 6,432 c 2,288 8,720 103.1 5,642 647 55 1918. . . 6,438 c 2,121 8,559 104.2 6,733 786 65 1919. . . 6,443 c 2,220 8,663 104.8 7.117 821 68 1920. . . 6,448 b 2,366 8,814 106. 6,845o i , < 64 ° Abstract of Census of U. S. 1910, p. 265. Number of farms is identical with num- ber of farmers. b Press bulletin of Bureau of Census, June 22, 1921. c Interpolated along a smooth curve. d See Table 3M, Column G. e Interpolated between Census estimates by means of a special study elsewhere re- corded. / See Table 3P, Column H. o Rough estimate only. The figures in Column G show that the gross value of the output per person engaged in agriculture is about the same as the average annual earnings of factory or railway employees. From this gross output, how- ever, the agriculturalist must subtract payments for interest, insurance, fertilizers, machinery, etc., before arriving at his net income and this nel income includes not only payment for his services but also for the use of any property which he may possess and for any farm work performed by his wife or children. It seems clear then that when farm laborers and farmers are considered as a joint group, their economic condition, if meas- ured in monetary terms, compares unfavorably with that of the employees of railways or of manufacturing concerns. The last column of the table shows that gross agricultural output is just G2 THE ESTIMATE BY SOURCES OF PRODUCTION about keeping pace with the population of the nation, no marked trend being discernible. § 3j. The Relative Position of Agriculture Among the Industries The final question to be considered is: "Is agriculture playing an in- creasing or diminishing role in the industry of the country?" This query is answered by Table 3R which shows that the proportion of the total value product of all industries produced by agriculture remained nearly constant until 1917 and then rose very sharply. The probabilities are, however, that the percentage will fall very materially in 1920. TABLE 3R THE PER CENT OF THE NET VALUE PRODUCT OF ALL INDUSTRIES IN THE CONTINENTAL UNITED STATES PRODUCED BY AGRICULTURE Year Total net value product of all industries c (Millions) Net value product of agriculture 6 (Millions) Per cent of the net value product originat- ing in agriculture 1909 $28,775 31,766 31,188 33,554 35,580 33,936 36,109 45,418 53,860 60,:;t paid by 2~> typical mining corporal ions h (Thousands Ratio of n to c in 1918 1 Ssl imated total interest on investments (Millions) C X D 1909 1910 $68,400" $5,496 r,.974 6,7.",:; 6,876 6,689 7,392 8,051 7.S09 7,566 8,306 8 234 145 49 1911 56 1912 1913 1914 1915 57 55 61 66 L916 ill 1917 1918 62 68 a For derivation, see the text. b From Poor's and Moody's Manuals <■/ Corjumilion Securities. 1918, corporations had come to control 95 per cent of the value of mineral products. If so, the total net income of the mining industry may be estimated as about .$321,000,000, in L918. The reports of 110 mining and oil producing corporations cited in Moody's Analyses of Industrial Investments show that 71.72 per cent of net earnings after the deduction of interesl charges were paid out as dividends. If this percentage i assumed to hold for all enterprises, the conclusion is that the total disbursed profits in 1918 amounted to 0.7172 X $321,000,000, or about $230,100,000. In earlier years, these disbursed profits have been estimated upon the basis of the aggregate reported div- idends of the metal mining companies reported in the Engineering and Mining Journal and of a few coal and iron corporations for which con- tinuous reports are given in Poor's or Moody's Manuals. These dividends, as reported, contain many duplications due to the existence of holding and interlocking companies and they also include payments made by some concerns engaged largely in manufacturing. The result is that their sum is decidedly larger than the net amount indicated by the reports of the ( oimcissioner of Internal Revenue. The mode of reduction is indicated in Table 4C. Not all of the profits of mining concerns are withdrawn from the busi- ness by the owners, a very considerable fraction being saved. In the case (>8 THE ESTIMATE BY SOURCES OF PRODUCTION of the 25 corporations studied, the records show the fraction of the total profits carried to surplus. The assumption is made that this fraction applies to all mineral producing enterprises. The estimates based upon this premise also appear in Table 4C. The reduction of these sums to a basis of purchasing power at the price level of 1913 is shown in Table 4D. TABLE 4C AN ESTIMATE OF THE DISTRIBUTED PROFITS AND BUSINESS SAVINGS OF ALL MINING CONCERNS IN THE CONTINENTAL UNITED STATES A B C D E F G H Cal- endar year Distributed profits as indicated by reports of income tax a (Thousands) Gross divi- dends of selected mining and oil produc- ing cor- porations b (Millions) Ratio of B toC in 1918 Estimated distributed profits of all con- cerns (Millions) C XD Ratio of annual sur- plus to divi- dends in selected corporations Estimated business savings of all concerns (Millions) E X F Estimated total profits in- cluding savings e (Millions) E +G 1909.. 1910. . 1911. . 1912. . 1913.. 1914. . 1915.. 1916. 1917. . 1918. $230,100 $141 147 151 172 200 170 187 306 449 366 .6280 $ 88 92 95 108 125 107 117 192 282 230 . 6236 c .3646c . 5954 e .3364c .3200c .7996c 1.0878c . 5229 c . 3436 d $ 55 35 35 64 42 34 94 209 147 79 $144 127 130 173 168 141 211 402 429 309 a For derivation, see text . b These items are the respective sums cf the total dividends reported in the January numbers of The Engineering and Mining Journal for mines of metals other than iron and of the dividends of eight important coal and iron producing corporations as re- ported in Moody's Manual of Corporal ion Securities. c Calculated from the records of 25 typical mining corporations as reported in Moody's Manual of Corporation Securities. >' Calculated from the records cf 110 selected mining and oil corporations reported in Moody's Analyses of Industrial Investments, 1920. This ratio corresponds quite closely to one calculated from the reports F THE TOTAL REVENUES DERIVED BY ENTREPRENEURS AND PROPERTY OWNERS FROM MINES, QUARRIES, AND OIL WELLS A B C D E F G Cal- endar year Profits with- drawn n (Millions) Total rents and royalties '' (Millions) Interest •' (except on bank loans) (Millions) Total revenues withdrawn by entrepreneurs and other prop- erty owners (Millions) B + C+D Indices of prices of con- sumption goods used by well- to-do classes'' Value of revenues with- drawn at price of 1913 (Millions) E -i- F 1909. . 1910. 1911. . 1912. 1913. . 1914. 1915. . 1916. . 1917 1918. . $ 88 92 95 108 125 107 117 192 2S2 230 $ 73 77 74 87 94 82 93 136 193 214 $45 49 56 57 55 61 66 64 62 68 $207 219 225 251 275 249 276 392 537 512 .965 .983 .990 1.000 1.000 1.011 .999 1.081 1 . 225 1.406 $214 222 227 251 275 247 276 363 438 364 a See Table 4C, Column E. b See Table 4 A, Column E. <• See Table 4B, Column E. d Simple arithmetic average of indices for classes spending respectively $5,000 and $25,000 per annum. occurred. There is also, of course, a question as to whether in calculating the profits reported, sufficient allowances were made for exhaustion of the properties. A failure to make such deductions would necessarily exagger- ate the nominal profits to an equal amount. § 4c. Total Wages and Salaries The share of the value product which requires the greatest amount of labor to estimate is that going to the employees. To arrive at figures hav- ing any validity whatever, it was necessary to depend mostly upon State reports and many of these are very incomplete. The process followed is summarized in Tables 4F and 4G for the coal mining industry while all other mines are dealt with in Table 4H. , MIXES, QUARRIES, AND OIL WELLS 71 TABLE 4F AX ESTIMATE OF TOTAL WAGES AND SALARIES PAID IN THE BITUMINOUS COAL INDUSTRY* OF THE CONTINENTAL UNITED STATES (Values in Millions of Dollars) A B C D E F G H Estimated total payments to employees based upon reports from Index cf total wages paid B+C+D 2 Total wages and salaries paid in Census years Ratio of F to E Total Cal- endar year Pennsyl- vania De- partment of Internal Affairs a Kansas and West Vir- ginia Bureau of Mines, and Ohioc estimates h Michigan Department of Labor'/ salaries and wages paid EXG 1909. . 1910. . 1911. . 1912. . 1913. . 1914. . 1915. . 1916. . 1917. . 1918. . $277 337 328 370 398 355 319 434 613 865 $319 348 338 365 409 359 357 416 547 634 $ 457 538 561 593 681 630 634 723 889 1,211 $ 825 954 '.117 1,032 1,148 1,029 993 1,212 1,604 2,104 $290/ .3515 $290 335 333 363 101 362 349 426 564 711) o Product of the total value of bituminous c< al produced in the U. S. (as shown by the Statistical Abstract), and the ratio of wage and salary payments to the value of the coal produced (as indicated by the Pennsylvania reports for each year). ''Obtained by calculating an average full time annual wage for miners in each of the three States, computing the mean of the three averages and multiplying it by the estimated number of full time employees in the United States as reported by the U. S. Bureau of Mines. ''Wages in the Hocking Valley field estimated from data in the Monthly Labor lui ivw for December, 1919, pp. 225-226. d The product of the number of tons mined (as reported by the V. S. Geological Survey) times the cost per ton cf mining coal in Michigan. Since Michigan rates are apparently abnormally high, and that state is a relatively small producer, this estimate is only given one-half the weight of the other two. '• Includes the small fiel Is in the West producing anthracite. /To the $315,997,000 in \va1< >yees per long ton mined $1,240" 1.254« 1.250a 1.345 « 1.340«» 1.340& 1.330c 1.548<* 1.468'' 1.919<* C Total long tons mined e (Thousands) 72,38 [ 75,433 80,771 75,323 81,719 81,090 79,400 78,195 88,939 88,238 D Total wages and salaries in the anthracite industry (Millions) B XC E $ 90 95 101 101 109 109 106 121 131 169 Total wages and salaries in the bitu- minous in- dustry/ (Millions) S2!)0 335 333 363 404 362 349 426 564 740 Total wages and salaries in the coal mining industry (Millions) D + E $380 430 434 464 513 470 455 548 695 909 a Annual Report, of Pa. Secretary of Internal Affairs, Part III. b Interpolated. c Annual Report of Pa. Commissioner of Labor and Industry, Part I. '' Pa. Depart incut of Internal Affairs, Report, on Productive industries. r Statistical Abstract of United Slates. f See Table 4F, Column H. Statistics pertaining to the mines of stone, metals, and miscellaneous minerals are very scattered and disjointed; hence the estimates presented in Table 4H represent a combination pieced together from various sources. The fundamental assumption involved is that wages are roughly propor- tional to the value of output. MINES, QUARRIES, AND OIL WELLS 73 TABLE 4H AX ESTIMATE OF TOTAL WAGES AND SALARIES FOR ALL EMPLOYEES OF MINES, QUARRIES, AND OIL WELLS EXCEPT COAL MINES A B C D E F G H Calen- dar year Index of daily wages a Days of labor per- formed in metal mines and quarries oftheU.S.6 (Thousands Ratio of Value of min- eral products (except COal) to value of metal and quarry products'* Index of total wages paid in metal mines and quarries BXCX D Estimated wages and salaries in ( !ensus year (Thousands Ratio of 1 bo 1. Total wages and salaries paid (Million,) E XO 1,000 1,000 1909 . . . 1910 .. . 1911 .. . 1912 . . . 1913 . . . 1914 . . . 1915 . . . 1916 . . . 1917 . . . 1918 . . . .905 .910 .951 .980 1.000 .953 .998 1.153 1.387 1 . 568 67,680 c 71,000 c 71,1526 76,650«» 81,2206 63,242 6 67,3336 80,6736 79,0836 72,0886 1.330 1 334 1 . 369 1.341 1.378 1.447 1.418 1.307 1 . 333 1 382 81 ' 86 93 101 112 s? 95 122 1 16 156 $232,148/ 2.851 $232 246 264 287 319 249 272 347 117 1 15 ° Estimated on the basis of wages in the iron minesof Itasca and St. Louis Counties Minn. (Biennial Reports of Minn. Bureau of Labor), in miscellaneous mines in Pa. (Reports of Secretary of Internal Affairs and of Commissioner of Labor and [ndustrj . in the gold mines of the U. S. (U. S. Bureau of Mine-;, Bulletin 144, p. 62), and in Tenn. metal mines and quarries (Annual Reports of Tenn. Mining Department). 6 See U. S. Bureau of Mines, Technical Papers 245 and 252. r Estimated as being proportional to the value of metal and quarry products. d Based upon reports of the U. S. Geological Survey and the U. S. Census of M (mil Quarries. ■ si thousands equals the product of B, C, and I) in 1909. f% 13,7 16,537, duplicated in the Census of Mfg., (see Census of Mints and Quarries, 1909, p. 17) has been added to $379,720,000, the total wages in coal mining (see Table 4G), and the sum has been deducted from $655,584,467, the amount reported in the Census of Mines and Quarries for 1909. § 4d. Number of Employees and Average Earnings Wo are interested not only in the total wages and salaries paid, but also in the total number of persons required to operate the mines, quarries, and oil wells of the United States. The United States Bureau of Mines in connection with its statistics of mine accident:; shows the number of men at work in the principal classes of mines and quarries each year. These numbers have been compared with the numbers in 1909 working in the maximum month in each industry as shown by the United States Census of Mines and Quarries. Alter con- sidering these quantities and making allowances for the number of workers in miscellaneous industries not covered by the reports of the Bureau of 74 THE ESTIMATE BY SOURCES OF PRODUCTION Alines, the figures entered in Table 41 have been arrived at. regarded merely as rough approximations to the truth. They must bv TABLE 41 TOTAL NUMBER OF EMPLOYEES ATTACHED TO THE INDUSTRY AND TOTAL AND AVERAGE WAGES PAID IN THE MINES, QUARRIES, AND OIL WELLS OF THE CONTINENTAL UNITED STATES A B C 1) E V G H I J Employees attached Ratio of Total Average Wage s and sal anes to industry c total share annual Calen- ( Millions, (Thousands) share of of em- compen- dar employees ployees sation year Of coal Of other Of all Coal Other All to total (Mil- per em- miners" miners b miners B + C $ 612 mines 725 mines mines E+ F 1,073 wages and salaries il lions) 1.050XD ployee I -G 1909 . . $380 $232 348 1.050 $ 643 $ 599 1910 . 430 246 676 740 366 1,106 711 642 1911 . 434 264 698 751 381 1,132 733 647 1912 . . 464 287 752 759 391 1,150 790 687 1913 . . 5.13 319 832 764 395 1,159 874 755 1914 . . 470 249 719 767 396 1,103 755 649 1915 . . 455 272 727 771 392 1,163 764 656 1916 . . 548 347 894 774 380 1,154 939 814 1917 . . 695 417 1,112 776 365 1,141 1,169 1,025 19 IS . . 909 445 1,354 779 329 1,108 1,422 1,283 a Table 4G, Column F. b Table 4H, Column H. c For derivation, see text. d Part of mining is done under contract, the Census of Mines and Quarries, for 1909, p. 21, showing $30,690,000 for contract work, being 5 per cent of the wage bill of 612 millions. The total pay of employees evidently amounts therefore to 105 per cent of the wages and salaries paid. § 4e. Total Net Value Product and Share of Employees We are now in a position to estimate the total net value product of the industry, and the estimates thereof for the various years are recorded in Table 4 J. The results indicate that the share of the value product going to the emplo3^ees tends to be a little less than three-fourths of the whole and that their relative share diminished materially in 191(3 and 1917, but showed signs of recovery in 1918. To some of the employees, however, the average purchasing power of their annual earnings is a matter of as much interest as is the relative size of their share of the value product,. 1 The employers' direct interest, on 1 Dr. H. W. Laidler, a Director of the Bureau says: " An increasing number of progressive employees feel that the question of the proportion of the return to employees is of greater importance than the actual size of that return." S MINES, QUARRIES, AND OIL WELLS 75 TABLE 4 J AN ESTIMATE OF THE NET VALEE PRODUCT OF THE MIXES, QCARRIES, AND OIL WELLS OF THE CONTINENTAL UNITED STATES AND THE PER CENT THEREOF GOING TO THE EMPLOYEES Millions of dollars A B C D E F Calen- Total net Per cent of dar Profits'' Interest Compensa- value \ alue prod- year Rents and (including on funded tion of product uct going to royalties ° savings) debt* employees '' A + B + C + D employees 101)1) E " 1909.. . . $ 73 $144 $45 $ 643 $ 904 71.0 1910.. . . 77 127 49 711 964 73.7 1911.. . . 74 130 56 733 993 73.8 1912... . 87 173 57 790 1,108 71.4 1913.... 94 168 55 874 1,191 73.4 1914.... 82 141 61 755 1,039 72.7 1915. . . . 93 211 66 764 1,133 67.4 1916.. . 136 402 64 939 1,541 60.9 1917.. . . 193 429 62 1,169 1.S53 63 . 1 1918... . 214 309 68 1,422 2,013 70 . 6 « See Table 4A, Column E. b See Table 4C, Column H. c See Table 4B, Column E. d See Table 41, Column I. the other hand, centers mainly upon questions pertaining to the efficiency of the workers in producing output. Table 4K throws light upon the situ- ation in both these connections. § 4f. The Mineral Output Compared to Earnings and Population As a measure of the output of the mining industry, the index of physical production prepared by Professor Edmund E. Day has been used, as it is presumably the best criterion available. It i-; possible that it exaggerates a trifle the expansion of the mining industry during the war years, for it is based upon data concerning the production of leading minerals, and some of the minor industries producing materials for building apparently declined while the larger fields were expanding. However, the minerals covered include such a large proportion of the total that it is improbable that any error from this source is large enough to be a matter of serious moment and, at any rate, its effect would not be either continuous or cumulative; hence, it seems that the figures are amply accurate for the purposes at hand. 70 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 4K AN ESTIMATE OF THE PURCHASING POWER OF THE EARNINGS OF THE AVERAGE EMPLOYEE COMPARED WITH THE AVERAGE OUTPUT PER EMPLOYEE A B C D E F G Calen- dar year Average annual earnings per em- ployee" Index of prices of goods purchased by workers'' Average earnings at prices of 1913 B C Index of physical production of minerals d Total num- ber of em- ployees attached to industry (Millions) Index of output per employee E F 1909 1910. .. . 1911 1912 1913. ... 1914. ... 1915. ... 1916. .. . 1917 1918. . $ 599 642 647 687 755 649 656 814 1,025 1,283 .955 .978 .984 .994 1.000 1.01 1.03 1.10 1.29 1.58 $627 656 658 691 755 643 637 740 795 812 675 717 692 771 809 721 810 950 986 995 1.073 1.106 1 . 132 1 . 150 1.159 1 . 163 1.163 1 . 154 1.141 1 108 629 648 611 670 698 620 696 823 864 898 « See Table 41, Column J. b Bureau of Labor Statistics index extended back by special investigation. c See Table 41, Column G. d Day, Edmund E., Review of Economic Statistics, 1921. An Index of the Physical Volume of Production, p. 22; multiplied by a suitable factor to make comparison easy. Table 4K shows a sharp gain in the purchasing power of the average miner's wage beginning with the year 1916. At the same time, a marked increase in physical output is noticeable; in fact the production appears to have increased to a considerably greater extent than the earnings. Fur- ther investigation would be necessary in order to determine whether the larger output was the result mainly of a smaller number of days lost per year, more strenuous effort put forth, or an improvement in mining machinery. Another subject of general interest is the relation between the output of minerals and the population of the country. According to Professor Day's index, our mineral output increased dur- ing the decade far more rapidly than population. This fact is brought out in Table 4L. Table 4L indicates that the exploitation of our mineral resources is proceeding more rapidly than is our growth in population. The large increase in output in 1916, 1917, and 1918 presumably was called forth mostly in response to war requirements and hence may have added little or nothing to the permanent national industrial equipment. , MIXES, QUARRIES, AND OIL WELLS 77 TABLE 4L THE RELATIVE CHANCES IN THE PER CAPITA PRODUCTION OF MINERALS IN THE CONTINENTAL UNITED STATES A B C D E Calendar year Population of the United States Day's index of physical produc- tion of minerals & Index of per capita physical production of minerals 100D Thousands ° Index C 1909 1910 90,370 92,229 93)811 95,338 97,278 99,194 100,428 101,722 103.059 101,182 100.0 102.1 103.8 105.4 107.7 109.8 111.1 112.5 114.1 115.3 100.0 106.4 102.6 114.4 119.9 107.0 120.1 110.9 1 16.4 1 17.6 100.0 104.2 1911 1912 98.8 108.4 1913 1914 1915 111.3 97.4 108 1 1916. . 125.2 1917 128.3 1918 128.0 a See Sec. 2a. 6 Adjusted from the figures on p. 22 of Edmund E. Day's. An Index of the Physical Volume of Production, Harvard Committee on Economic Research, 1921. It is well to keep in mind that while an increase in mineral output is a necessary concomitant of industrial progress, it nevertheless is far from representing a clear gain since it necessarily involves a diminution in the inventory of resources upon which the nation must depend in the future. CHAPTER 5 FACTORY PRODUCTION (Covering that part of the private Manufacturing Industry included in the totals presented by the United States Census of 1914.) § 5a. Importance of the Industry This field covered in 1900 more than 90 per cent 1 of the entire manu- facturing industry, 2 and in 1914 the operations carried on therein increased by nearly ten billions of dollars, the value of the materials worked upon. This, then, is a division of the first magnitude, and it is highly important that all estimates therefor be made with the highest practicable degree of accuracy. Fortunately, statistics of manufacture of different types are abundant. While it is, of course, impossible to obtain an analysis from year to year of the data for the United States as a whole, it seems feasible to make a fairly close estimate of the value of the total output of the factories of the nation for each year since 1909. § 5b. The Gross Value of the Products The distinction between the gross value of the output and the net value product of the manufacturing industry is both theoretically sharp and practically important. The gross value consists merely of the summation of the values of the respective outputs of all the different factories. This evidently includes a great amount of duplication, for one factory ordi- narily works on the materials turned out by another plant. The net value product, on the other hand, is the added value resulting from the services of persons and material things employed in the manufacturing industry. The plan adopted for estimating the gross annual value of the output is as follows: — 1. Forty-four indicators have been selected, each believed to represent fairly well the course of production in some particular branch of the man- ufacturing industry. Except in two cases, only those indicators have been used for which annual figures are available for each year from 1909 to 1 Compare with the Census of Manufactures for 1900, Volume 7, Part I, page xxxvii. - The hand trades arc included in the general field of manufacturing but are not enu- merated by the Census. 78 FACTORY PRODUCTION" 79 1918 inclusive. In these two instances, adjustments have been made for the years for which informal ion is lacking. 2. Every indicator has been reduced to the form of an index number based upon the output for 1909. 3. Each index number has been multiplied by a weight representing the value of the output in 1914 in the field which the indicator represents. By summating the products and dividing by the sum of the weights, an average index number has been obtained for cadi year. These average index numbers presumably portray with reasonable accuracy the changes in production taking place from year to year in the manufacturing field. While the indicators chosen seem to give a correct picture of the cyclical fluctuations in manufacturing, their trend diverges slightly from that indi- cated by the Censuses of 1909, 1914, and 1919 — in other words, the rate of growth of the manufacturing industry of the country as a whole seem- to be a trifle greater than the rate of growth of the -ample industries chosen. While the divergence is so small as to be relatively unimportant, the accu- racy can presumably be improved by making the trend conform to that indicated by the Census figures. This aim has been accomplished in the following manner: — The respective ratios of the Census figures to the estimated indices have been ascertained for 1909, 1914, and 1919, and these ratio- have been con- sidered the determining points of a smooth curve. A ratio has been read from this smooth curve for each year from 1909 to 1918. The estimated average 1 indices for the various years have been multiplied by the corre- sponding ratios, and the products thus obtained are believed to represent close approximations to the gross values, on the Census basis, of manu- factured products turned out for the various years. The operations described are indicated in Table 5B. In the computation of the average index of output mentioned in para- graph 3, the indicators listed in Table 5A were used with the weights there stated. The general source of the information is cited in each case. In some instances, the quantity rather than the value of the product is given in the report cited. In such cases, the quantity has been multiplied by the best obtainable price figure for the same year, and the product thus derived has been used to represent the fluctuations in the average value of the gross output. The citations in Table 5A -how the origin of both price and quantity data when both are used. Volume and page references have not been given because it seems unnecessary to burden this report with such a mass of detail. Each field of manufacture has been weighted in proportion to the gross "Value of Products" as shown in the Abstract of the Census of Manufac- tures for 1914. This general weight has been apportioned among the 80 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 5A THE SOURCES OF INFORMATION, THE INDICATORS USED, AND THE WEIGHTS ASSIGNED IN COMPUTING AN AVERAGE INDEX OF GROSS OUTPUT Source of Information Food and Kindred Products. Yearbook of U. S. Department of Agriculture. Chase, Stephen, Production of Meat in U. S.; Food Administration, Bureau of Animal Industry Re- ports; Yearbooks of Department of Agriculture; and Statistical Ab- stract of U. S. Statistical Abstract of U. S. Statistical Abstract of U. S. Statistical Abstract of U. S. Statistical Abstract of U. S. Statistical Abstract of U. S. and Yearbook of Dept. of Agriculture. Textiles and their Products. Statistical Abstract of U. S. Statistical Abstract of U. S. Statistical Abstract of U. S. and Bul- letin 200, U. S. Bureau of Labor. Massachusetts Statistics of Manu- factures. Massachusetts Statistics of Manu- factures. Iron and Steel and their Products. Statistical Report of American Iron & Steel Institute. Lumber and ns Remanupactures. U. S. Census, Statistical Abstract of U. S.; Bulletins 673 and 768 of Department of Agriculture. U. S. Census Massachusetts Statistics of Manufac- tures. Weight G75 1,293 770 193 48 1,639 289 444 1,434 649 444 444 3,223 1,184 256 160 Indicator VALUE OF Animal Products. Meat Produced. Sugar Consumed. Coffee Consumed. Crude Chocolate Imported. Wheat Retained for Consumption. Butter Receipts at five large cities. Unmanufactured Silk Imported. Cotton Manufactures. Woolen Manufactures. Men's Clothing Manufactured in Massachusetts. Women's Clothing Manufactured in Massachusetts. Pig Iron Consumed plus Crude Steel and Finished Rolled Prod- ucts produced. Lumber Product of All Mills- Lumber not Used in Building. Furniture Produced in Massachu- setts. FACTORY PRODUCTION* 81 TABLE 5A— Continued Source of Information Weight Indicator Leather and its Finished Products. Massachusetts Statistics of Manu- factures. ."u.-, VALUE OF Boots and Shoes Produced in Mass. Massachusetts Statistics of Manu- factures. Massachusetts Statistics of Manu- factures. 298 155 Leather Produced in Massachu- setts. Cut Stock and Findings Produced in Mass. Massachusetts Statistics of Manu- factures. 77 Bolting Leather Produced in Mas- sachusetts. Paper and Printing. Mass. Statistics of Manufactures. 99 Paper Boxes Produced. Mass. Statistics of Manufactures. 15 Envelopes Produced. Mass. Statistics of Manufactures. 204 Paper and Wood Pulp. Mass. Statistics of Manufactures. 44 Miscellaneous Paper Goods. Mass. Statistics of Manufactures. 525 Newspaper and Periodical Publish- ing. Annual Report of South Carolina Commissioner of Agriculture; Commerce & Industries. 146 Printing & Publishing. Bulletin 758, Department of Agri- culture; U. S. Census Bulletins on Forest Products; Statistical Ab- stract of U. S. 423 Pulp W'ood Consumption of U. S. Liquors and Beverages. Statistical Abstract of U. S. 23 Domestic Wine Consumed. Statistical Abstract of U. S. 509 Fermented Liquors Produced. Statistical Abstract of U. S. 124 Whiskey Produced. Statistical Abstract of U. S. 116 ( Jommercial Alcohol Produced. Chemicals, Stove, Clay, and Glass. Statistical Abstract of U. S. 1,778 Mineral Products other than Coal and Metals. Statistical Abstract of U. S. 262 Alcohol Produced. Statistical Abstract of U. S. 157 Sulphuric Acid Produced. Statistical Abstract of U. S. 261 Cottonseed Oil and Cake Produced. Moody's Analyses of Investments, 1919. 157 Gross Revenues, Dupont Pou 'ei Company. 82 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 5A— Continued Source of Information Weight Indicator Metals Other tfian Iron. Statistical Abstract of U. S. 1,417 VALUE OF Metallic Products other than Pig Iron. Tobacco Manufactures. Statistical Abstract of U. S. and Year- book, Dept. of Agriculture. 490 Estimated Value of Tobacco Man- ufactures. Vehicles for Land Transportation. National Auto. Chamber of Com- merce, — Facts & Figures of the Automobile Industry Manual of Statistics, 1918. 23S Gross Earnings American Car & Foundry Company. Poor's Manual of Industrials; Moody's Analyses of Investments. 10 Gross Sales, Brill & Company. Railroad Repair Shops. Interstate Commerce Commission. Statistics of Railways. 55.3 Total Maintenance of Railroad Equipment. Private Shipbuilding. Mass. Statistics of Manufactures. 186 Shipbuilding in Massachusetts. Paving Materials. Geological Survey — Mineral Re- sources of U. S. 36 Asnhalt Produced in the U. S. various indicators in accordance with the share of the total industry that appears to be best typified by the indicator in question. Thus, the manu- facturing of "Food and Kindred Products" is given a weight of 4,817 because products of that type in the United States in 1914 were valued at that many millions of dollars. This entire weight is divided among seven indicators. Although the seven indicators combined manifestly represent directly but a fraction of the food manufacturing field, the sum of their weights is, nevertheless, made to total 4,817, so that each of the great divisions of manufacturing may be represented in proportion to its impor- tance in making up the average index. There is ground for contending that the weighting should be based upon the "Value Added by Manufacture" rather than upon the "Value of Products." Since, however, the available indicators nearly all represent the gross value of output, and since an index of gross output is the end in view, it has been decided to use this gross value as a basis of weighting. Obviously, no two investigators would choose weights according to exactly the same standard but, as Bowley demonstrates in his Elements of Statistics, when the number of variables to be averaged is rather large, the exact size FACTORY PRODUCTION 83 of the weights is a matter of secondary importance. It seems probable, therefore, that the weights chosen answer the purpose sufficiently well. Evidently many of the criteria used measure the output of the manu- facturing industry only indirectly. For example, the value of meat pro- duced is used to measure the magnitude of the slaughtering and meat packing industry; the amount of coffee imported indicates the extent of coffee roasting and grinding; and the imports of raw silks give an index of the activity of the silk factories. It is doubtful if direct records of meal packing, coffee grinding, and silk weaving would give much more repre- sentative indices of the value of the output. Their superiority would pre- sumably be but slight at best. The final steps in the computation of the index of gross output for the Continental United States are shown in Table 5B. TABLE 5B THE ESTIMATED GROSS VALUE OF THE GOODS TURNED OUT BY FACTORIES COVERED BY THE PRINCIPAL REPORT OF THE CENSUS OF 1914 For the Continental United States A B C D E F Date Indices of annual output computed from forty- four indica- tors d Value of gross output as shown by the census (Millions) Ratio of census output to estimated index of output C 4- B Estimated ratio of actual output to indices of output (Hundreds) Estimated value of gross output (Millions) B XE 1909 .... 1910 1911 1912 1913. . .. 1914 1915. . .. 1916. ... 1917. ... 1918. . .. 1919. . .. 100.0 105 . 102.5 115.2 123.2 115.0 133.7 202.8 261.7 284.2 278.1 $20,6726 24,2466 62,588 « 206,721 210,830 225,100 2067 c 2072 a 2078 a 2088 a 2095 a 2108 c 2126" 2149a 2181a 22 1 7 a 2251c §20,672 6 21,770 21,300 21.050 25,810 24,246 6 28,430 43,580 57,080 63,000 62.5XN' a Interpolated along a smooth curve. 6 Abstract of United Stales Census of Manufactures, 1914, p. 16. c See Column D. d For list of indicators, see Table 5A. e Preliminary bulletin of Census of Manufactures for 1919, May 24, 1921. The representative character of the average index computed from the forty-four indicators is reasonably well established by the entries in Col- umn D, which show that the ratios of the Census totals to the index are nearly the same in 1909 and 1914 and not greatly different in 1919. If 84 THE ESTIMATE BY SOURCES OF PRODUCTIOK they were fairly reliable criteria for that ten-year period, there is every reason to suppose? that they are equally dependable for the intervening years. It seems safe to assume, therefore, that the figures presented in Column F show rather accurately for each year the gross value of the out- put of that part of the manufacturing industry of the United States covered by the quinquennial Census. § 5c. The Division of the Net Value Product in the Census Years Since, for reasons previously stated, the size of the gross output does not measure accurately the productiveness of the manufacturing industry itself, this last quantity must be arrived at by ascertaining the increase in value brought about by the operations of manufacture. This increase in value is eventually divided among the entrepreneurs, employees, and outside investors in the industry. From the Census, it seems possible to estimate, with a moderate degree of accuracy, the shares of each of the classes just mentioned. The share of the entrepreneurs is assumed to equal the value of the gross product less all expenses and an allowance for depreciation. The Census Bureau has made no estimates of the depreciation occurring in the factories of the country. Some writers contend that a depreciation allowance has no basis of fact; in other words, that it is a mere bookkeeping device used to conceal accumulated profits. According to this point of view, manufactur- ing plants do not depreciate but, as a rule, continually improve in quality, owing to the replacement of obsolete machinery by modern equipment, and hence, not only should there be no depreciation account, but large sums that have been charged to repairs ought to have been carried to surplus. Opponents of this view may admit the physical improvement of the plant but nevertheless believe that depreciation accounts are necessary to cover the large losses which occur through bad investments. A little consideration will force one to the conclusion that this issue resolves itself into the question as to whether surplus accounts as reported are too large or too small. Since manufacturing concerns usually make depreciation allowances in their accounts before computing their annual surpluses, and since the surpluses arrived at by their accounting systems seem, on the average, to be correctly reported, 1 it follows that correspond- ing depreciation allowances should be applied to the Census figures in order to obtain the correct amounts for profits. In order to obtain a reasonable basis for estimating depreciation, the allowances for this purpose made by a large number of manufacturing corporations (as reported in Moody's Manual) were summated for 1914, and the sums were compared with the aggregate total nominal investment 1 For discussion of this point see § lg of this volume. FACTORY PRODUCTION 85 in the selected concerns. The depreciation allowance amounted in 1914 to 2.927 per cent. A separate estimate for 1909 was not calculated for the TABLE 5C THE APPROXIMATE DISTRIBUTION OF THE VALUE PRODUCT OF THAT PART OF THE MANUFACTURING INDUSTRY INCLUDED BY THE CENSUS BUREAU IN THE TOTALS FOR 190'.) AND 1914 Millions of dollars Item Census of 1909 1914 Value of Gross Output $20,672" $ 939 « 3,427 a 52 ^ 12,143a 1,946 a 539 c $24,246 & $ 1,288 b 4,078^ Expenses: Services: Salaries Wages Interest Paid to Banks 47/, Materials 14,368* 2,344/ Miscellaneous Depreciation 667 d Share of Entrepreneurs and Interest on Funded Debt 19,046 $ 1,626 22,792 $ 1,454 Distribution of Value of Product: Share of Employees: Wages and Salaries $4,366* 44 a $4,410 1,626 107 9 106 i $5,366 * Payments to Workers for Contract Work e 50 b Total Share of Employees. $5,416 1,454 140'' Share of Entrepreneurs and Other In- vestors: Gross Profits and Bond Interest Rent of Factories Other Rent and Royalties 141 > Total 1,839 $ 6,249 1,735 Total Value Product of Manufacturing Industry $ 7,151 a Abstract of the U. S. Census for 1910, p. 438. b Abstract of the U. S. Census of Manufactures, 1914, pp. 516-519. e 2.927 per cent of the capital of $18,428,270,000. d 2.927 per cent of the capital of 822,790,979,937. e One-fourth of amount paid for contract work. /Includes $1,563,000,000 estimated "Other Miscellaneous" expenses not recorded by the Census of 1914. Missing item assumed to constitute same ratio to other ex- penses as in 1909, namely 7.03 per cent; total expenses reported by 1914 Census equal $20,515,000,000. a U. S. Census of Manufactures for 1910, Vol. VIII. pp. 518 Y20. '' Estimated from a study of the reports (recorded in Moody's Manual) of sixty-one representat ive manufacturing corporations. * Arbitrarily assumed thai other rents and royalties paid to private parties are just as large as the reported rent of factories. 86 THE ESTIMATE BY SOURCES OF PRODUCTION reason that it was felt that, at that date, the custom of reporting depreci- ation in the published accounts had not developed sufficiently to make the data reliable. For this reason, the same percentage was used for 1909 as for 1914, and in each case, 2.927 per cent of the total capitalization, as reported by the Census, has been deducted from gross receipts as a depre- ciation allowance. It is evident that the entries in Table 5C are not exact but are subject to a considerable degree of error. The depreciation allowance, as has already been explained, is only an approximation. The assumption that 25 per cent of the payments for contract work are virtually wages has been made after going through the list of industries given in the 1914 Census and selecting those like the clothing industry in which the payments are presumably made for work done at home by members of the working class. Such a rough method of estimate is perhaps amply good when one con- siders the relatively small size of the items involved. Nevertheless, an appreciable amount of error is likely to creep in at this point. The items for rent and royalties are included in the items making up the value product ascribed to the industry on the assumption that these payments are made to property owners not represented in any other sec- tion of this estimate. It has been assumed, for example, that few of the buildings leased for factory purposes are owned by other manufacturing concerns. Concrete evidence along this line is lacking; hence, guesses are substituted. The size of the item entitled "Other Rents and Royalties" in 1914, is also unknown and the figure inserted may be far from the truth. The doubtful items just discussed are not large enough to make any con- siderable relative change in the product, even if the errors in these minor items are a maximum and all in the same direction. Such errors might, however, vitiate to some extent the accuracy of the figures purporting to show the divisions of the net product between employees and other claim- ants. As a matter of fact, the errors probably cancel each other to some extent; hence, it is hoped that, for the Census years, the apportionment of the value product between employees and the other claimants thereto is exact enough to answer the needs of most students of the subject. Cen- sus figures exist, however, only for three years in the period. What changes took place between those dates? § 5d. Mode of Estimating the Net Value Product for Intercensal Years Data upon which one can base estimates as to the changes occurring from year to year in the apportionment of the value product between the different classes of claimants are by no means abundant. Iowa issues statistics concerning its manufacturing industries, but only biennially. Since that State is devoted primarily to agriculture and only incidentally FACTORY PRODUCTION 87 to manufacturing, and since half the years are missing, its reports have not been utilized. South Carolina and Pennsylvania publish annual reports. In both of these States, a considerable share of the smaller estab- lishments apparently did not report hi the earlier years. Nevertheless, the data from these States are valuable, since South Carolina well repre- sents the extensive textile business of the South, while Pennsylvania stands for the iron and steel industry, the products of which played such an important part in the recent war. It is Massachusetts, however, which furnishes the most complete and probably the most accurate statistics of manufactures compiled by any State in the Union. Unfortunately, its manufactures, while extremely varied, consist to a disproportionate degree of shoes and textiles, the latter being already represented by the South Carolina data. In order, therefore, to secure the maximum advan- tage from the existence of such a useful body of data, it was deemed best to re-weight the Massachusetts figures in a manner which makes the dif- ferent industries for that State have the same relative rank as the like indus- tries in the nation as a whole. The actual process used is as follows: — Those Massachusetts industries have been chosen which best repre- sent the given field of production. All the items in the data for the speci- fied Massachusetts industry have been multiplied by the ratio of the 1914 value of the output in the United States to the value of the output in the chosen Massachusetts industry in the same year. The sums of the result- ing products are thus made comparable in size to the corresponding aggre- gates for the country as a whole. The totals obtained in this way from the Massachusetts data show the relative changes that would have occurred from year to year in the gross value of output, in the stock of materials used, and in the amount of wages paid during the year, if each of these items in each of the great fields of the manufacturing industry in the United States as a whole had changed at the same rate as did the corre- sponding fields in Massachusetts. Owing to the less detailed nature of the information from Pennsylvania and South Carolina, it was not deemed worth while to re-weight the figures for those states in the same manner. For the reasons just stated, in those instances in which the figures for the three States have been combined, th<> Massachusetts figures have been weighted somewhat more heavily thai the relative size of its manufacturing industries would apparently warrant. In this manner, indices and ratios have been derived which have been used as a basis for estimating figures for intercensal years. § 5e. The Share of the Employees In attempting to estimate the amount paid to employees in the form of salaries and wages the assumption has been made that variations in the Q 10 W i-l Q W i— i o p H O P HO g D-t fcPn -J tfpH <« PQ Pi° m 3 03 ^ g .. o3 — '"'m^T US ^£ - 4i 100 O OOlOl O O CO OOOh O O O ■* CO I-H 1^ co t^ 00 co 00 co 00 "+< lO-^Ol -f -f ■* 10 lO iO Hi 00 O 0-1 CO 1— 1 1— < 1-H ee 0) 03 ^S Q. 3 ° "3 3 co O o3 t—> += "3 a °^ ° 01000 t> t> O iO cot-coo^ ©~i-Tth\iH' CN Ol (M Ol OOOO ".o"-*"oo~co~ C-l Ol Ol rr< OOOO 000 00 ©o_o r~-~co"oT ° Si "3 Cg 3 M« -<-- a> 'h C +* flJ N o3 fcc 03 uS^.k is "3 c flOOCO HOiOO -< Ol Ol Ol Ol oi oi Ol MMNN 00 1— 1 1^ co M N O O Ol Ol 01 -H UJOrl -+ t— Ol 00 O i-i t— 1 1 — 1 (01 3 ft > en co O — c3 OH .2 o += -h> OHCN to I> b- 00 OOOO 00 co OOOO 0^-00 ■* 00 00 w co • to 13^3 03'C 01 I— I I— I Ol CO Ol Ol 43 C V *- a» -J3 4- be oj Q3Q ^0J 03 0J -J- 01 Ol -+ -H Ol (/iLOOCO OOOO i-H Ol Ol Ol 00 1^ co 01 t^ O f o o o t^ 01 Ol i-l i-H o o OOO o 00 CO co' CU CO bO =3 O-COO 01 -+ 1^ ^H OOOO 01 01 Ol Ol taoo "* 00 t^ ^H OOOO Ol 1— 1 1— 1 i— 1 000 O •— 1 i^- 00 £0 hcooc) ococoo 00 00 "* O IO Ol Ol CO t< CO O 00 co 00 NOOOO "if CO 1— 1 1— t 1— t i-H r-H 1— 1 i-H ^H 1— 1 r— I c.S & CO 05 O J 03 CO fe s e e o CO "* Ol Ol CO -h CD O0 O — ' -h O -h Ol 01 Ol tO -o ^ o IO ^H 01 01 o »o o o HOMK5 01 01 -H H CO t>. "* co 1- s t-l a c o hi - OOHIN O ^ H 1— ' 1— ' O"- G^ Oi G^> CO "^ 'O CO OOOO N00O t— 1 ^H 1— H OOO .2 ■> O Si H-5 CO 03 CO c c 03 aT o hi 03 s s o o c3 - a fl Ph > ' — X O ■^ c/l 2 '3 CO a — C4— 1 a > Si co a a O >> 03 u hi H 03 03 71 - 3 M 03 a 03 °3 - 33 5C a 03 O - = < ^ CO i-H IO O0T3 »0 o3 O O —Ol Kg —3 , 5 J^ 03 P O < O £$£ 3^ — ' s ■— < -^ 0^ -^ <-> S rf >?e §.° o h, 1 — I C ~^C4 J, 2 ^ C 5 03 - p S ^^ [?S^ 03 __. 03 i-H u O O .«j C <5 05" ^> >> - oi C ^^ £ 5 COO » C g S co ^-1 t^-i ^ K 3T---^ '^ o ^3 -^ § ^ -g -°? «^ 03 S^,~ 3 03 O o o 3 co 2 03 CO 3 bC S 3 3 O O 1—1 o hi O til co CO s- S f S c 05 K 03 Si hi o Oh 03 hi >5 hi o3 3 o hi 03 ,3 P.S >> ~~ ~~P^. c «^ s 03 . S "3 ^ g3 °S ©''oj-ej 03^ S S 2- -3 ■303^ . S c .0 O ^ -^ (^ co 05 po "^ O 03^; K •+^ 43 S 03 hHCC 3 13 u , FACTORY PRODUCTION S'.l ratio of wage payments to gross value of output are satisfactory as criteria to be used in interpolation. Only preliminary figures for the 1919 Census are as yet available. When this Census is complete, it will be possible to secure a slightly higher degree of accuracy in all estimates after 1914, but it is believed that the present indices for these last few years are approxi- mately correct. The procedure is recorded in Table 5D. Work done at home under the contract system, a procedure frequently followed in the clothing industry for example, is often akin to piece work in a factory. The contractors in such instances, furnish no property of moment and are virtually wage earners. As previously stated, the basic estimates as to the extent of such work are very crude. Table 5E is con- structed on the principle that contract work has formed a very slowly but steadily varying ratio to payments for wages and salaries. Since the amounts dealt with are relatively very small, errors in the results are of little consequence. TABLE 5E AN ESTIMATE OF THE TOTAL SHARE OF THE EMPLOYEES IX THE NET VALUE PRODUCT OF THAT PART OF THE MANUFACTURING FIELD COVERED BY THE CENSUS OF 1914 A B C D E Year Estimated total of wages and salaries" (Millions) Estimated payments for labor done under contract (Millions) (One-fourth of census items) Estimated ratio of all payments for labor to sum of wages and salaries B + C B Estimated sum of all payments for labor (Millions) B X D 1909 $ 4,366 4,790 4,805 5,310 5,890 5,306 5,892 8,442 10,530 12,410 13,273 $44.76 49.7 c 1.0102d 1.0100c 1.00! 17 < 1.0096c 1.0095c 1.0093 d 1.0090c 1.0089< 1 0086 ' 1 ,0085« I. 0083 < $ 4,410 1910 1911 1,838 4,852 1912. . 5,361 1913. . 5,946 1914 5,416 L915 5,945 1916. . 8,517 1917. 10.621 1919 12,515 13,383 a See Table 51). b U. S. Census of Manufactures, 1910, Vol. VIII, pp. 518-519. c Abstract of the Census of Manufactures, 1914, pp. 516-517. 571 (320 609 655 71 15 616 (353 873 1,022 1,148 E Index of prices of goods con- sumed by manual and clerical workers c Purchasing I lower of aver- age annual compensation at prices of 1913 D ~ E .955 978 .984 .994 1.00 1.01 1.03 1.10 1.29 1 58 $597 634 619 659 705 610 634 794 792 726 a See Table 5E. b See Table 5F. e See Table 2C. § 5f. The Share of the Entrepreneurs and Other Property Owners The first item dealt with in the share of the propertied classes is the rela- tively unimportant one of rents and royalties paid to private parties for leased property. The assumption that the net amounts were two-thirds ' of the totals reported by the Census as being paid for the rent of factories gives an estimate for 1909 of $71,050,000, and for 1914 of 893,800,000. It seems reasonable that rents and royalties should vary in proportion to the number of employees and the general rent level. Xo figures for business rents are available; hence, it has been necessary to fall back on the index of residence rents compiled by the United States Bureau of Labor Statistics. Since it was a period of nearly stationary prices, it is assumed that rents remained unchanged from 1909 to 1913. Table 5H shows the rough estimates of rent paid arrived at by the appli- cation of these decidedly tenuous assumptions. It is much more difficult to estimate correctly the share of the net value product going to the entrepreneurs and investors than it is to find the amount going to labor. Table 5C indicates thai it' we include business savings as part of the income of the entrepreneurs that they and the bond- 1 Assumed that one-third of the gross rent goes to pay for taxes, repairs, and maintenai 92 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 5H A ROUGH ESTIMATE OF THE PAYMENTS MADE TO PRIVATE INDIVID- UALS IN THE FORM OF RENTS AND ROYALTIES BY THE MANUFAC- TURING INDUSTRIES COVERED BY THE MAIN REPORT OF THE CENSUS OF 1914 (For the Continental United States) A B C D E F G Estimated Rent, paid to Thousands total rents individuals of Index of Composite Ratio of B toE and royal- Year for the use employees residence index ties paid of factories attached to rents C X D (Millions) (Thousands) industry c E X F 1,000 1909 $71,050« 7,730 l.OOrf 7,730 9.18/ $ 71 1910 7,810 1 . 00 d 7,810 9.48(7 74 1911 7,970 1.00'/ 7,970 9.79(7 78 1912 8,190 1 . 00 d 8,190 9.89<7 81 1913 8,430 1 . 00 ■ 8,430 10.44(7 88 1914 93,8006 8,790 1.00<= 8,790 10.69/ 94 1915 9,102 l.Ole 9,193 10.66(7 98 1916 9,757 1.02« 9,952 11.05o 110 1917 10,395 l.Ole 10,499 11.33ff 119 1918 10,905 1 . 05 • 11,450 11.969 137 . a U. S. Census of Manufactures for 1910, Vol. VIII, p. 129; estimated that two-thirds of rent was paid to individuals. b Abstract of Census of Manufactures of V. S. in 1914, p. 517; estimated that two- thirds of rent was paid to individuals. c See Table 5F. d No data; therefore assumed. e U. S. Bureau of Labor Statistics, Monthly Labor Review, various numbers in 1920- 1921. / Computed by division. a Interpolated along a straight line. holders together received $1,626,000,000 in 1909 and $1,454,000,000, in 1914. In 1918, the first year in which the Income Tax Bureau presents for manufacturing corporations figures answering our needs, these corporations showed, after paying taxes, net earnings of $2,422,074,926. If we estimate the interest on the funded debt as being 80 per cent of all interest paid, it constitutes an addition of about $430,500,000, making a total of approx- imately $2,852,575,000.' By means of a smooth curve based upon the fractions for 1904, 1909, and 1914, it is estimated that, in 1918, corpora- tions produced 84.7 per cent of all value added by the factories in this field. If we divide by 0.847, we arrive at a figure of about $3,366,000,000, as representing the share going in 1918 to both private and corporate entre- i U. S. Bureau of Internal Revenue Statistics of Income, 1918, p. 16, FACTORY PRODUCTION 93 preneurs and to holders of the funded debt. The gross output of the fac- tories, in this year, has been estimated a1 ^il.olo.OOO.OOO. 1 If this figure is correct, the ratio of the share of the classes mentioned to the gross value of output is about 0.0551. TABLE 51 RETURNS TO ENTREPRENEURS AND HOLDERS OF THE FUNDED DEBT IN THAT PART OF THE MANUFACTURING FIELD COVERED BY THE MAIN REPORT OF THE CENSUS OF 1914 INTERPOLATED UPON THE BASIS OF THE AVERAGE NET EARNINGS OF SIXTY-SIX TYPICAL MANUFACTURING CORPORATIONS (In the Continental United States) A B C D E Year Returns to ent repreneurs and In (Mors of the funded debt (Millions) Index repre- senting net earnings plus bond interest of 66 typical corporations b Ratio of B to (' (Millions) First approxima- tion to the share of entrepreneurs and private cred- itors in the value product (Millions) C X D 1909 1910 $1,626° 1,454 a 3,366 e 100.0 118.7 90.7 117.4 132.5 106.4 131.2 253 . 9 304.9 228.6 16.26c 15.40-/ 14. 70^ 14.16d 13.80d 13.67c 13.79a 1 14.00 a - 14.43 d 14.72* 81.626 1,828 1,333 1,663 1,829 1,454 1,810 3,555 1,399 3,366 1911 1912 1913 1914 1915 1916 1917 1918 a See Table 5C. b Computed from data in Poor's and Moody's Manuals of Statistics. Corporations were classified according to size and both totals and a set of indices were obtained for each group. The index series here given is composed of the respective medians for the specified years of the indices for the various groups. c Computed by division. d Interpolated along a smooth curve. e For origin of this figure, see text. The difference between the items in the second and third columns of Table 5J casts suspicion upon the accuracy of the Census figures. Why should a group of typical corporations show from 1 1 to 13 per cent of their gross output going to profits when the Census data for the same years indicate only (i to 8 per cent for the same? Most of the discrepancy pre- sumably arises from the fact that the gross output as reported by the ( )en- sus contains much more duplication than does that reported by corpora- tions. The Census is taken factory by factory, each plant stat ing the value ' Sec Table 5B. 94 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 5J RETURNS TO ENTREPRENEURS AND HOLDERS OF THE FUNDED DEBT IN THAT PART OF THE MANUFACTURING FIELD COVERED BY THE TOTALS FOR THE CENSUS OF 1914 INTERPOLATED UPON THE BASIS OF THE AVERAGE RATIO OF EARNINGS" TO GROSS OUTPUT IN THE CASE OF 31 TYPICAL CORPORATIONS A B C D E F G Ratio of share of entre- Estimated Second ap- preneurs and bond- ratio of proximation holders to gross value share of en- to the share Year of output Ratio of trepreneurs and bond- Estimated gross output/ of entrepre- neurs and BtoC According As shown holders to (Millions) holders of to U. S. by cor- gross output funded debt Government porate C XD (Millions) figures reports c E X F 1909 .0787& .133 .592d .0787 $20,672 $1,626 1910 .145 .589" .0854 21,770 1,859 1911 .121 .585e .0708 21,300 1,507 1912 .135 . 567 e .0765 24,050 1,839 1913 .143 .557 c .0797 25,810 2,056 1914 .0600^ .109 .550d .0600 24,246 1,454 1915 .124 .527 * .0654 28,430 1,860 1916 .182 .503' .0916 43,580 3,994 1917 .162 .480<- .0778 57,080 4,444 1918 .0534ff .117 . 456 d .0534 63,000 3,366 a Earnings equal total of bond interest, dividends, and amount carried to surplus. b See Table 5C for figures from which ratios are derived. e The ratio was computed from reports in Poor's and Moody's Manuals for each corporation for each year. The median of the ratios for each year was ascertained and is here recorded. d Computed by division. e Interpolated along a smooth curve. / See Table 5B. a For derivation, see text. of its output. The large corporations of today, are highly integrated. Thus, a steel company, in reporting its gross sales, does not duplicate the value of the gross outputs of the iron mines, blast furnaces, etc., operated as separate units. But, though the values of outputs of subsidiary plants are not combined to give a grand total of output, the net earnings of all the parts of a corporation may be totaled to arrive at the reported net earnings. The following example may serve to illustrate the situation. Holding Company A operates a series of four factories. Plant 2 uses the output of Plant 1; Plant 3 takes the output of Plant 2; and Plant 4 is the only one selling any final product to outsiders. From the following table, a computation by the Census method would show the ratio of profit to gross value of output to be ^V or .105. FACTORY PRODUCTION 95 Plant Operating expenses Gross value of output Profits 1 9 11 14 17 10 12 16 19 1 2 1 :i 2 4 2 Total 51 57 6 In the report of Corporation A, however, the gross sales would be re- ported as only the amount sold to outsiders from the finishing plant, No. 4, or 19; while the net profit would still be reckoned as 6. This would give a ratio of ^ or .316, approximately three times that indicated by the Census method. There is no way of knowing whether the discrepancy between the ratios derived from the Census and from corporation reports does or does not arise wholly from this difference in accounting, but it is not improbable that this is the chief cause for the dissimilarity of the ratios. In Tables 51 and 5J, there are derived two distinct estimates of the share in the income from manufacturing going to the entrepreneurs and holders of the funded debt. An average of these two estimates, equal weight being given to each, appears in Column B of Table 5K. This table also shows the distribution of the share of the entrepreneurs and holders of the funded debt, divided into three parts, these parts being estimated from the annual reports of forty-six typical corporations. The evidence in Table 5K indicates that, as might be expected, the funded debt has consumed a relatively fixed quantity of the net earnings while distributed profits and savings have varied greatly. A better pic- ture of the significant facts is shown in Table 5L in which the nominal amounts have been converted into purchasing power at the prices of 1913. The reasons for choosing the particular price indices used for converting purposes are as follows: stockholders in factories probably possess about the same average income as stockholders in general, and the income tax reports indicate that, in 1919, about as much in dividends went to persons with income above $40,000 per annum as to all below that figure; therefore the $25,000 average expenditure seems a reasonable criterion. Surpluses of manufacturing concerns normally are put into new plant ; hence an index of construction costs appears to be the logical correcting factor to apply to business savings in this field. to W 9 i— 1 1— i Qph fH o r =Q H <> mo ^« Qp Wh QO HO bQ ^b o£ BB^ kSo jr cs g^ OOh ££° ■"So. MHH X Eh /. 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"s3 %j 3 2 =5 S •_ b£ 5 3 --= /-' 3 -4 3 3 Z rC DC _3 3 1 3 M S 0) = — c s il 3 98 THE ESTIMATE BY SOURCES OF PRODUCTION Table 5L indicates that the purchasing power of the actual disburse- ments to the propertied classes has shown a somewhat upward tendency throughout the decade and that the savings made by the business enter- prises in this field increased to very unusual proportions during the years 1916 to 1917 and remained moderately high even in 1918. § 5g. The Fraction of the Net Value Product Paid Out as Wages or Salaries Table 5M measures the fraction of the net value product of the industry going to the employees. TABLE 5M THE ESTIMATED NET VALUE PRODUCT AND THE SHARE THEREOF GOING TO THE EMPLOYEES For that Part of the Manufacturing Industry Included in the Principal Tables of the 1914 Census A B C D E F Amounts Per cent of distributed to Compensa- Total net net value Calendar entrepreneurs Business tion paid to value prod- product year and other savings" employees b uct going to property (Millions) (Millions) (Millions) the em- owners a B + C + D ployees (Millions) D + E 1909 $1,185 $ 512 $ 4,410 $ 6,107 72.2 71.6 1910 1,319 599 4,838 6,756 1911 1,222 276 4,852 6,350 76.4 1912. 1,309 525 5,361 7,195 74.5 1913 1,455 575 5,946 7,976 74.5 1914 1,410 137 5,416 6,964 77.8 1915 1,197 739 5,945 7,881 75.4 1916 1,567 2,320 8,517 12,403 68.7 1917 2,220 2,116 10,621 14,957 71.0 1918 2,078 1,424 12,515 16,018 78.1 a See Table 5L, Column E. b See Table 5E, Column E. The last column of Table 5M makes it clear that the employees have been receiving from two-thirds to three-fourths of the net value product of manufacturing. While their relative share was low in 1916 and 1917, it reached a higher limit in 1918 than at any previous time in the decade. Questions concerning changes in the efficiency of the employees cannot be answered without further research. , CHAPTER 6 SIM MARY OF THE HAND TRADES § 6a. Introduction Prior to and including the census of 1900, the reports of the Census Bureau covered the activities of "the hand trades." Since that date, the study of industries of this type has been omitted because of the large expense per establishment involved in the collection of data. A< a result, it has been necessary to base most of the estimates for this study upon the 1900 Census figures. Exceptions to this rule are the power laundries, and custom grist and saw mills (trades for which later census reports have given information), and the construction industry and automobile repair indus- try, the estimates for which have been made largely from other sources than the Census. The problem of estimating the net value products of the hand trades has been disproportionately laborious, but because of the paucity of reliable information available, has, nevertheless, not produced results of any high degree of reliability. On the contrary, the totals presented in the accom- panying tables must be regarded merely as very rough approximations to the actual quantities which they are supposed to represent. Laundries, perhaps, form an exception to this general rule, the information concern- ing them being so much more complete that the figures presented here may be regarded as moderately reliable.- Since it is felt that the estimates for the individual trades are so inaccu- rate, and since theinteresl in the facts concerning most of them is presum- ably not very widespread, it seems that the expense of publishing a de- scription of the special procedure used for each trade or group of trades is scarcely warranted; hence a summary only is given except in the case of the construction industry. Suffice it to say that the estimates for the separate fields have, in every instance, been made with as great a degree of care as the nature of the data available seems to justify. The figures for the construction industry are published in detail in Chapter VII, not because the estimates for that field are of a quality superior to the others, but because construction is the largesl of the hand trades and is at present a subject attracting wide attention. 99 100 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 6A A ROUGH ESTIMATE OF THE TOTAL OF WAGES AND SALARIES RECEIVED BY EMPLOYEES IN THE HAND TRADES OF THE CONTINENTAL UNITED STATES Millions of Dollars Black- Repair of sewing C ustom smithing, machines, All Con- tailoring, Repair bicycle Laun- Shoe Custom type- Custom Custom Year hand struc- millinery, of auto- repairing, dries repair- dress- writers, grist saw trades tion dyeing and cleaning mobiles cabinet making and taxi- dermy ing making locks, clocks and jewelry mills mills 1909 $1,487 $1,192 $ 87 $ 34 $51 $ 63 $13 $33 $10 $1 $2 1910 1,472 1,146 93 48 54 71 13 34 11 1 2 1911 1,443 1,104 93 55 54 74 14 35 11 1 1 1912 1,580 1,218 96 67 55 80 15 35 11 1 1 1913 1,667 1,270 102 75 57 91 16 36 11 1 1 1914 1,336 932 103 90 58 86 15 38 11 1 1 1915 1,352 927 108 102 58 90 15 37 12 2 1 1916 1,545 1,066 141 106 60 96 20 38 14 1 2 1917 1,575 973 204 153 61 98 23 41 18 3 2 1918 1,744 964 276 220 86 106 27 41 20 2 2 1919 306 91 34 47 25 TABLE 6B A ROUGH ESTIMATE OF THE TOTAL SHARE OF THE EMPLOYEES IN THE NET VALUE PRODUCT OF THE HAND TRADES OF THE CONTINENTAL UNITED STATES (Wages and Salaries, Plus Payments for Contract Work) Millions of Dollars Black- Repair of sewing Custom smithing, machines. All Con- tailoring. Repair bicycle Laun- Shoe Custom type- Custom Custom \ ear hand struc- millinery, of auto- repairing, dries repair- dress- writers, grist saw trades tion dyeing and cleaning mobiles cabinet making, and taxi- dermy ing making locks, clocks and jewelry mills mills 1909 $1,498 $1,192 $ 97 $ 34 $52 $ 63 $13 $33 $11 $1 $2 1910 1,485 1,146 104 48 55 72 14 34 11 1 2 1911 1,455 1,104 103 55 55 71 14 35 11 1 1 1912 1,593 1,218 107 67 56 SO 15 36 11 1 1 1913 1,681 1,276 114 75 58 91 16 36 11 1 1 1914 1,350 932 115 90 59 86 15 39 11 1 1 1915 1,366 927 120 102 59 91 15 38 12 2 1 1916 1,563 1,066 157 106 61 97 20 3S 14 1 2 1917 1,601 973 227 153 62 99 24 41 IS 3 2 191S 1,77s 9(14 307 220 88 106 28 41 20 2 2 1919 340 92 34 47 26 , SUMMARY OF THE HAND TRADES 101 TABLE 6C ROUGH ESTIMATE OF THE NET VALUE PRODUCT O] THE HAND TRADES IN CONTINENTAL UNITED STATES THE Millions of Dollars Custom Black- smithing, Repair of sewing machines, All Con- tailoring, Repair bicycle Laun- Shoe Custom t\ pe- Custom Custom Year hand struc- millinery, of auto- repairing, dries repair- dress- writers, grist saw trades tion dyeing, mobiles cabinet making, ing making locks. mills mills and clocks, cleaning and taxi- dermy and jewelry 1909 $2,615 S 1.959 $209 S 59 $124 $98 S 53 $68 $33 S f building is dune by individuals that it seems impracticable to obtain from these Qgures totals re] n senting the entire industry. in:; 104 THE ESTIMATE BY SOURCES OF PRODUCTION of the United States for various years, an estimate has been made of the building permits issued by the list of cities cited in the 1916 number. The population of these cities in 1910 and 1920 can be ascertained from the Census reports and the fraction of the population of the entire United States residing in these cities in the various years has been closely approx- imated by aid of a smooth curve. The tentative assumption has been made that the amount of building per capita in these cities is typical of the coun- try as a whole, and an estimate for the entire nation has been made upon this basis. However, these building-permit records do not include the construction contracts awarded by the Federal Government, hence it is necessary to add estimates for this source. A careful study has been made of the records of the Federal Departments and certain information for recent years has also been secured through the courtesy of Mr. Homer Hoyt, formerly with the Building Materials Division of the War Industries Board. The esti- mates derived from these sources are shown in Table 7A and are there con- verted to indices based upon the value for 1918. The method just described gives an estimated gross construction value in 1918 of $2,979,000,000. The F. W. Dodge Company reports contracts in 1918 aggregating $1,655,099,000, for that part of the United States, east of the Missouri and north of the Ohio. The wealth of the whole nation is estimated from the Census of Wealth, Debt, and Taxation to have been in 1918 about 1.685 times as great as that of the reporting ter- ritory. If construction is in proportion to wealth, then the total contracts let in the United States should have been about $2,786,000,000, in 1918. It seems probable that the rural population does not build quite as much in proportion as do the inhabitants of great cities, and because of the difficul- ties involved it also appears unlikely that the F. W. Dodge Company gets a record of every building contract made. Furthermore, many buildings are constructed without any contract. Under the circumstances, therefore, it seems well to average the estimate for 1918 made on the basis of build- ing permits with that of the F. W. Dodge Company. The resulting aver- age is $2,766,000,000. This figure has been multiplied by the construction index previously described in order to approximate the amount of construc- tion in the United States for each year. The results appear in Table 7 A. , THE CONSTRUCTION INDUSTRY KC, TABLE 7A THE VALUE OF CONSTRUCTION WORK IN THE CONTINENTAL UNITED STATES AS ESTIMATED FROM THE F. W. DODGE COMPANY'S RE- PORTS ON CONTRACTS LET AND THE BUILDING PERMITS ISSUED IN LEADING CITIES Building F. W. permits Ratio of Private Federal Con- Sum of Dodge Esti- issued in popula- building govern- preced- Co.'s est i- mated Year a selected tion of in L. S.; ment con- si met ion work by ing three Iliate nt value of list a of given estimated struct inn columns total consl ruc- large cities to from in U. S.<* railways-/ (Millions) (Mil- construc- tion work cities that of permits' - (Millions) lions) tion in U.S./ (Millions) U. S.6 (Millions) (Millions) (Millions) 1909. . $772 .2181 $3,540 $ 123 $16 $3,679 $3,708 1910. 726 .2193 3,311 122 38 3,471 :;.!98 1911. . 701 .2210 3,172 143 41 3,356 3,383 1912. . 754 .2231 3,380 139 29 3.5 is 3,576 1913.. 686 .2242 3,060 153 44 3.257 3,283 1914. . 631 . 2257 2,796 154 26 2,976 3,000 1915. . 654 .2279 2,870 131 20 3,021 3,045 1916.. 840 .2298 3,656 90 53 3,799 3,829 1917. . 603 .2315 2,605 419 63 3,087 3.111 1918.. 363 .2333 1,556 1,161 28 2,745 $2,786 '-'.7()6e a For list, see the Statistical Abstract of the U. S. for 1916; figures partly estimated. b Calculated by aid of smooth curves. c Calculated by dividing items in the second column by those in the third. d Compiled from records of various Departments; shipbuilding and railway work excluded. e Average of figures in two preceding columns. /The ratio of 2,766 to 2,745 is 1.008. The items in the second column piece ling have been multiplied by 1.008 to obtain the items in this column. 9 Equals two-thirds of amounts appropriated by railways for "Additions to Physical Property." See Statistics of Railways by Interstate Commerce Commission. § 7d. The Aggregate of Wages and Salaries Although the information concerning the volume of construction is scanty and unreliable enough, that pertaining to the division of the gross receipts between employees, entrepreneurs and other property owners in this field, and other industries contributing materials or supplies to this industry, is still less adequate. Contractors in this field do not care to make public either their profits or an itemized list of their expenses. Only one concern has been discovered which publishes annual reports, and even these reports do not extend over the period desired. This concern, the United Stales Realty Co., is fortu- nately a large operator and carries on building enterprises of different types in various parts of the United Slab's. It is possible, therefore, that its financial history may be rather typical of that of construction companies 106 THE ESTIMATE BY SOURCES OF PRODUCTION in general. However, this is an assumption resting upon decidedly slender foundations. The Department of Internal Affairs of Pennsylvania shows in its annual report the relationship between the amount paid for wages and salaries and the gross value of construction for each year. Although fluctuations from year to year doubtless are not uniform in the various sections of the country, it seems probable that the trend of the Pennsylvania ratios does not differ widely from that of the country as a whole. In the absence of more complete data, it has been necessary to rely solely upon these figures in calculating the amount of the payments for wages and salaries. Under these circumstances, it is clear that estimates of the various shares in the net value product of the building industry are necessarily very crude. The method of deriving such estimates as are possible from the fragmentary information available is described in the following pages. Table 7B furnishes an estimate of the amount paid by the industry to employees in the form of wages and salaries. It is based wholly upon the assumption that the Pennsylvania ratio of this amount to the gross value of construction is the same as the average ratio for the entire United States. TABLE 7B AN ESTIMATE OF THE TOTAL AMOUNT RECEIVED IN THE FORM OF WAGES AND SALARIES BY EMPLOYEES ENGAGED IN THE CON- STRUCTION INDUSTRY Calendar year Gross value i f construction in the Continental United States a (Millions) Fraction of gross value going to em- ployees Total payments for wages and salaries e (Millions) 1909 1910. . $3,708 3,498 3,383 3,576 3,283 3,000 3,015 3,829 3,111 2,766 .321.V/ .3276<* .3263 d .3406a . 3888 b .3107'' .30436 . 2785 c .31276 .34846 SI, 192 1,146 1,104 1,218 1,276 932 1911 1912 1913 1914 1915 1916 927 1,086 973 964 1917 1918 a See Table 7 A. b Assumed to be same as in Pennsylvania; see Reports of Pa. Commissioner of Labor and Industry and Report on Productive Industries for 1919 by the Pa. Dept. of In- ternal Affairs. c Based on ratio of wages in 1916 to those in 1915 in State of Pennsylvania. d Interpolated between fraet ion of gross out put going to employees in the U. S. according to the < Vnsus of 1900 (.2685) and the Pa. figures for 1913. Changes in the hourly wage rate for building labor were used as aids in the interpolation. For wage rates, see Table 7C. « Product of two preceding columns. S THE CONSTRUCTION INDUSTRY 107 § 7e. The Share of the Entrepreneurs and Other Property Owners: First Estimate The next step necessary was the computation of the share going to entrepreneurs and other property owners. The starting point was the partial census of the building industry in 1900. In Volume 7, Part 1, page ccxlvi, of the Manufactures Census for that year, there is given a summary of the findings. It shows a payment of $1 00,898,680, for wages and $321,- 339,847, for materials. Depreciation was assumed to have been high and has been estimated at 10' ( annually on the capital invested. This would give a depreciation allowance of 819, 372,504. By adding this amount to the reported expenses of production and deducting the sum from the gros- value of the products, the amount received by the entrepreneurs for their services and for the use of their invested resources was estimated at $119,767,815. A foundation having thus been laid, the next essential was to estimate the relative shares of the leading productive agents for the different years. The steps in order were as follows: — First, a weighted index of wages per hour in the building trades was computed from the data furnished in Bulletins 131 and 259 of the United States Bureau of Labor. The weights used for the different occupations correspond to the number of men engaged in each trade in 1910 as esti- mated from the data in the Census of Occupations. They are as follows: — Bricklayers 156 Building Laborers 686 Carpenters 696 Hod Carriers 170 Inside Wiremen 50 Painters 278 Plasterers 50 Plumbers & Gasfitters 105 Steam Fitters 35 Stone Masons 39 Structural Iron Workers II StoneCutters 10 The indices for each trade were reduced to a common base, then multi- plied by the weights specified, and an average of the indices obtained. This average index appeals in 'Fable 7C. Average index numbers for the price of building materials were taken from page 179 of Bulletin 149 of the Bureau of Labor Statistics and from 108 THE ESTIMATE BY SOURCES OF PRODUCTION the Statistical Abstracts of the United States for 1918 and 1919 on pages 578 and 568 respectively. These indices were converted by division to the common base 1913. The profits from construction are shown in the annual reports of the United States Realty Company. This company also derives a large income from rentals. General expenses were divided in proportion to the respec- tive receipts from these two sources and the fraction apportioned to con- struction was subtracted from the profits from that field. Unfortunately, the operations of the United States Realty Company only go back to 1904, hence it was necessary to manufacture a figure to represent 1899. This quantity was assumed to bear the same ratio to the actual profits for 1909 as the average index of the prices of wages and materials in 1899 bears to the corresponding average in 1909. The imaginary quantity thus com- puted for 1899 was $903,000. An estimate of net profits having been thus arrived at for each year, the actual amounts were next converted to an index number based upon the year 1913. Table 7C shows the net results of the operations just described. TABLE 7C AN ESTIMATE OF THE RELATIVE VARIATIONS IN PAYMENTS GOING TO SOME OF THE LEADING AGENTS OF PRODUCTION IN THE CON- STRUCTION INDUSTRY (For the Continental United States) Estimated net profits of the United States Realty Company derived from construction & Indices of comparative change (Base 1913) Year Profits of U. S. Realty Company Wages per hour of building workers c Prices of materials c 1899 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 $ 903,000 a 1,215,000 1,102,000 931,000 1,113,000 1,038,000 892,000 796,000 392,000 947,000 1,485,000 .870 1.171 1 . 062 .897 1.072 1.000 .859 .767 .378 .912 1.431 .663 .918 .949 .960 .973 1.000 1.017 1.024 1.065 1.147 1.288 .696 .911 1.010 .996 .976 1.000 .97 .94 1.01 1.24 1.506 a Assumed; see text for basis. b Calculated from Annual Reports. c From U. S. Bureau of Labor Statistics data; for description, see text. An effort was next made to use the data just presented to ascertain the fraction of the gross value of the output of the industry going to entre- S THE CONSTRUCTION INDUSTRY 109 preneurs and other property owners. As a first step, the actual values representing each productive agent in 1899 were multiplied by the indices shown in Table 7C. The next step was to reduce the resulting products to percentages of the gross output for each year. In 1899, 85.40 per cent of the gross value of the product went to the three factors, wages, materials and the entrepreneur. 1 For want of better evidence, this percentage was assumed to have remained constant. The calculated percentages for each year were therefore made to total 85.40. The results derived appeal' in Table 7D. TABLE 7D ESTIMATES OF THE PERCENTAGE OF THE GROSS VALUE OF CON- STRUCTION GOING TO EACH OF THREE IMPORTANT AGENTS IN THE VARIOUS YEARS (For the Continental United States) Year Relative amounts b in millions of dollars Percentage of gross value of construction e Profits Wages Mate- rials Total Profits Wages Mate- rials Total 1899 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 104.2 140.3 127.2 107.4 128 . 4 119.8a 102.9 91.9 45.3 109.2 171.4 126.6 175.2 181.2 183.3 185 . 7 190.9a 194.1 195.5 203.3 219.0 245.9 223.6 292.7 324.5 320.0 313.6 321.3a 311.7 302 . 324.5 398.4 483.9 454.4 COS. 2 632 . 9 610.7 627.7 632.0a 608.7 589 . 4 573.1 726.6 901.2 19.58 19.71 17.18 15.03 17.51 16.20 14.44 13.34 6.58 12. S3 16.23 23.78 24.61 24.41 25.62 25 . 28 25.76 27.20 28 29 30 '31 25.72 23 30 42.04 11 OS 43.81 11 75 42.61 43.44 43.76 43.77 48.51 46 85 15 87 85.40 85.40 85 40 85 . 40 85 40 85.40 85 40 85 . 40 85 40 85 40 85 40 a Amounts as shown in Census of 1900; here used as liases. li Derived by multiplying the bases by the indices recorded in Table 7( '. c The mode of deriving these percentages is illustrated by the following proportion representing profits in 1899:— 1.042: 4.544:: 19.58: 85.40. From data furnished on pages ccxlvi and 50 of Volume 7, Part 1, of the Census of Manufactures for 1900, the following estimates have been de- rived for the construction industry: — i The entrepreneurs' share includes not only net profits but also all gains due to resources of any sort invested in the construction industry. 110 THE ESTIMATE BY SOURCES OF PRODUCTION Item Thousands Wages $190,899 Salaries 8,652 Land rent a 966 Building renta 1,098 Interest paid to private parties (assumed to be two- thirds of all interest) 5,064 Profits 119,768 Total Value Product in 1899 $326,447 a Assumed to be five per cent of the value of this type of assets devoted to the industry. From the above estimates, it appears that the total share of entrepre- neurs and investors is about 1.054 times that of entrepreneurs alone. The percentages shown in the sixth column of Table 7D have therefore been multiplied by this factor to obtain estimates of the proportion of the gross value of construction going to the propertied classes. TABLE 7E FIRST ESTIMATE OF THE TOTAL SHARE OF ENTREPRENEURS AND OTHER PROPERTY OWNERS; BASED UPON THE CENSUS OF 1900 AND THE PROFITS OF THE UNITED STATES REALTY COMPANY A B C D E Calendar year Fraction of gross value constituting profits a Fraction of gross value going to entrepreneurs and other property owners 1.054 X B6 Gross value of construction c (Millions) Share of entre- preneurs and other property owners C X D 1909 1910 1911 .1971 .1718 . 1503 . 1751 .1620 .1444 . 1334 . 0ii5S .1283 . 1623 .2077 .1811 . 15S4 . 1S46 . 1708 . 1522 .1408 .0iJ94 .1352 .1711 $3,708 3,498 3,383 3,576 3,283 3,000 3,015 3,829 3,111 2,766 $770 633 536 1912 1913 660 561 1914 1915 1916 1917 1318 456 428 266 421 473 a See Table 7D. b For explanation of ratio, see text. c See Table 7A. § 7f. The Share of the Entrepreneurs and Other Property Owners: Second Estimate Because of the unreliability of the basis for the fractions recorded in Column C of Table 7E, it seems desirable to make another and independent THE CONSTRUCTION INDUSTRY 111 estimate of the share of the entrepreneurs and other possessors of property. This has been done by first estimating certain expenses incurred by the builders and subtracting the amounts thus arrived at from the gross value of the output. Table 7F illustrates the modus operandi. TABLE 7F SECOND ESTIMATE OF THE SHARE OF THE ENTREPRENEURS AND OTHER PROPERTY OWNERS; DERIVED BY SUBTRACTING CERTAIN EXPENSES FROM THE GROSS VALUE OF CONSTRUCTION (Millions of Dollars) A B C D E F G Payments not going to entrepreneurs or property owners Gross value of construc- tion d Share of Calen- dar year Cost of materials a Wages and salaries paid b Miscel- laneous expenses 0.16 (B + C) c Total B + C + D entrepre- neurs and property owners F — E 1909 . . . 1910. . . 1911. . . 1912. . . 1913 . 1914. 1915. . . 1916. . . 1917. . . L918. . . $1,346 1,277 1,187 1,284 1,360 1,219 1,229 1,462 1,565 1,283 SI, 192 1,146 1,104 1,218 1,276 932 927 1,066 973 964 $406 387 367 400 422 344 345 401 405 359 $2,944 2,810 2,658 2,902 3,058 2,495 2,501 2,932 2,9 11 2,606 $3,708 3,498 3,383 3,576 3,283 3,000 3,045 3,829 3,111 2,766 -764 688 725 674 225 505 544 897 167 160 a Excludes those used in shipbuilding; calculate 1 from data given in the Census reports on manufactures, the Government bulletins on forestry, the reports of the Geological Survey on The Mineral Resources of the United States, various numbers of The Statistical Abstract, and the Annual Reports of the Secretary of the Navy. b See Table 7B. c Ratio in 1899 according to the Census of 1900. d Sec Table 7A. It is improbable that the actual fluctuations in the share of the entre- preneurs and property owners were as violent as those shown in Column ( I of Table 7F. However, since I here seems to be no better criterion by which to adjust the estimates, the best course seems to be to leave them as they stand, remembering meanwhile that they are not accurate enough to por- tray anything more than general tendencies. § 7g. Purchasing Power of Share of Entrepreneurs and Other Property Owners In Table 7G, the two estimates of the share of property and entrepre- neurial effort have been averaged and reduced to a basis of constant pur- 112 THE ESTIMATE BY SOURCES OF PRODUCTION chasing power by dividing by a price index representing estimated changes in expenditures of families having annual total expenses of $5,000. The estimate of the fraction of the net value product received by the employees appears in Table 7H. TABLE 7G FINAL ESTIMATE OF THE SHARE OF THE ENTREPRENEURS AND PROPERTY OWNERS IN THE NET VALUE PRODUCT OF THE CON- STRUCTION INDUSTRY Index of Purchasing Estimate based on Estimate obtained bv Average c of two prices of goods con- sumed by families spending $5,000 per power oi share of entrepreneurs Calendar profits of the deduction of preceding and property year U. S. Realty Co .a (Millions) expenses b (Millions) estimates/ (Millions) owners at prices of 1913* annum d (Millions) 1909 $770 $764 $767 .956 $802 1910 633 688 661 .977 677 1911 536 725 631 .984 641 1912 660 674 667 .999 668 1913 561 225 393 1.000 393 1914 456 505 481 1.013 475 1915 428 544 486 1.002 485 1916 266 897 581 1.088 534 1917 421 167 294 1.252 235 1918 473 160 317 1.448 219 a See Table 7E. b See Table 7F. c Simple arithmetic average. d See Table 2G. e Money value divided by price index. /In the opinion of Col. M. C. Rorty (a director of this Bureau), these figures are too high. <* THE CONSTRUCTION INDUSTRY 113 TABLE 7H THE ESTIMATED NET VALUE PRODUCT OF THE CONSTRUCTION INDUSTRY AND THE SHARE THEREOF GOING TO THE EMPLOYEES Calendar year Share of entre- preneurs and other property owners a (Millions) Share of em- ployees b (Millions) Total net value product (Millions) Per cent of net value product going to the employees 1909 .... $767 661 631 667 393 481 486 581 294 317 $1,192 1,146 1,104 1,218 1,276 932 927 1,066 973 964 $1,959 1,806 1,734 1,885 1,669 1,413 1,413 1,647 1,267 1,280 60 8 1910 63 4 1911 63 6 1912 64 6 1913 1914 1915 1916 1917 1918 76.5 66.0 65.6 64.7 76.8 75.2 a See Table 7G. b See Table 7B. The last column of Table 7H indicates that the employees receive from three-fifths to four-fifths of the net value product and that this proportion has been an increasing one during the decade under consideration. From the standpoint of the average employee, it is a matter of much moment to know whether he is able to buy more or less with his wages than he could have done a decade ago. The data are too unreliable to be de- pended upon to give more than a broad outline of the changes that have occurred. The estimates appear in Table 71. 114 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 71 THE PURCHASING POWER OF THE ESTIMATED COMPENSATION RE- CEIVED BY THE AVERAGE EMPLOYEE IN THE CONSTRUCTION INDUSTRY A B C D E F G H I Average number Fraction Number Average Index of Purchas- Total salaries and wages paid a (Millions) Average full time annual of em- of attached pay per prices of ing power Cal- endar ployees number to employee goods pur- of annual actually working attached to industry (Thou- attached to chased by manual earnings at prices year compen- sation b (Thou- industry sands) industry and of 1913 sands) actually D B clerical G B working c E F workers H C 1,585 1909 $1,192 $ 7S6 1,516 .957 $ 752 .955 c $787 1910 1,146 787 1.456 .910 1,600 716 .978 c 732 1911 1,104 807 1,368 .845 1,619 682 .984 c 693 1912 1,218 835 1,458 .902 1,617 753 .994 c 758 1913 1,276 830 1,537 .956 1,608 793 1 . 000 d 793 1914 932 835 1.116 . 782 1,427 653 1.01'/ 647 1915 927 879 1,054 .816 1,292 717 1.03'<* 696 1916 1,066 930 1,146 .960 1,194 893 1 . 10 d 812 1917 973 973 1,000 .975 1,026 948 1.29'' 735 1918 964 1,328 726 .959 757 1,273 1.58<* 806 a See Table 7B. b Based on average wages in construction industry in Pa., average pay of carpenti rx employed by railways, and the union scale of wages as shown by the records of the U. S. Bureau of Labor Statistics. c Method of calculation described in a separate report. d U. S. Bureau of Labor Statistics index. So far as can be judged by the rather crude estimates just presented, the economic condition of the building workers has grown neither better nor worse during the decade under consideration. § 7h. The Total Value of Construction It is a matter of interest to compare the gross amount of construction taking place in the United States with the growth in the population. A comparison with total population is of less significance than one with the increase in the number of inhabitants; for one of the prime reasons for new construction is the need of transportation, business buildings, housing and other accommodations for the additional members of the population. The fact should be kept in mind that no inconsiderable share of the con- struction work during 1917 and 1918 went to meet the temporary needs of war and hence added little to the total permanent improvements in the S THE CONSTRUCTION INDUSTRY 115 country. Table 7J compares the gross figures only, as it is impracticable to segregate that part of the work which was transitory in nature. TABLE 7J THE RELATION OF CONSTRUCTION TO POPULATION AND POPULATION GROWTH IN TIIK CONTINENTAL UNITED STATES Calen- dar year 1901). mm. mn. 1912. 1913. 1914. 1915. 191G.. 1917.. L918. B Gross value of con- st motion « (Millions) S3. 70S 3,498 3,383 3,576 3,283 3,000 3.04.", 3,829 3,111 2,700 C Index of construc- tion costs b 939 .970 .960 .987 1.000 .969 .980 1.126 371 481 D ( 1 1 OSS value of const mo- tion at . prices of 1913 (Millions) _B C $3,948 3,000 3,502 3,623 3,283 3.096 3,107 3,401 2,209 1,868 E Population of Conti- nental U. S. in thousands c 90,370 92,220 93,811 95,338 97,278 90,191 100,12s 101,722 103,059 104,182 F G Value of per capita Incn construc- in popula- tion at tion since prices of preceding 1913 year** D (Thou- E sands) $44 1,783 39 1.730 37 1.530 38 1,690 37 2.020 31 1,560 31 1.210 33 1,330 22 1,250 18 050 II 'ruc- tion per additional person at prices of 1913 D G 82,214 2,084 2.2S!) 2. 1 1 1 1,625 1.985 2,5' N 2.557 1,815 2,874 a See Table 7 A. b Derived by averaging indices representing respectively the hourly wages of building labor, the prices of lumber and building materi lis, and the prices of metals and metal products, using weights 2, 2, and 1 respectively. For data, see Table 7C of this re- port, and Bulletin 269 of the U. S. Bureau of Labor Statistics. c Derivation described in Sec. 2a. d See the lasl column of Table 2A for data from which this is derived. The indications are quite clear thai the volume of construction per capita has declined almost steadily throughout the decade and, wore the temporary war construction for 1917 and 1918 omitted from consideration, the building shortage in those years might be found to be considerable. However, the amount of construction work per additional member of the population has not fallen off. It is unfortunate that the paucity of data concerning the construction industry does not permit of more accurate estimates but it is hoped that even these rough approximations may give a general idea of the situation in this important field. CHAPTER 8 SUMMARY OF TRANSPORTATION The tables which follow combine the data for the various reported branches of transportation and give totals for the whole field. It is believed that such totals may be of interest to those persons who desire to view the situation from its broader aspects. The totals are all obtained by com- bining the similar items in the corresponding tables in the separate reports. TABLE 8A THE SHARE OF THE ENTREPRENEURS AND OTHER PROPERTY OWNERS IN THE NET VALUE PRODUCT OF THE TRANSPORTATION INDUSTRY a A B C D E F G Net dis- bursements to entre- preneurs and other property owners 6 (Millions) Business savings & (Millions) Total share of entre- preneurs and other property owners (Millions) B + C Purchasing power in millions at prices of 1913 of Year Net dis- bursements to entre- preneurs and other property owners & Business savings b Total share of entre- preneurs and other property owners E + F 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 $879 974 1,013 1,054 1,107 1,107 1,097 1,157 1,192 1.120 $244 257 167 170 91 24 261 453 363 157 $1,124 1.231 Liso 1,224 1,198 1,131 1 ,359 1,611 1 ,555 1,277 $904 987 1,019 1,054 1,107 1,095 1,102 1,077 991 SI 7 $265 271 178 173 91 24 262 380 250 107 $1,170 1,258 1,196 1,227 1,198 1,119 1,363 1,456 1,241 924 a Includes Railways, Switching and Terminal Cos., Express Cos., Street and Electric Railways, Electric Light and Power Plants, Telegraphs, Telephones, Transportation by Water, and the Pullman Co. b Aggregate of similar items in separate industrial reports. A study of Tables 8A, 8B, and 8C makes it clear that while, for the owners of transportation enterprises, 1915 and 1916 were relatively prosperous years, 1917 showed a marked falling off in their gains and 1918 was dis- 116 SUM M A R Y OF TRA N S 1 'ORTATIOX 117 TABLE 8B THE SHAKE OF THE EMPLOYEES IX THE NET VALUE PRODUCT OF THE TRANSP< >RTATII ).\ 1 X DUSTRY " A B C D Year The total ne1 value product b (Millions) Total share of the employees '> (Millions) Per cent of net value product paid to employees as compensation for services 100 c B 1909 $2,765 3,029 3,069 3,249 3,336 3.170 3,428 4,028 4,539 5,232 $1,611 1.798 l.ss'.l 2,025 2,138 2,040 2,069 2.117 2. '.is. - . 59.3 1910 59.4 1911 1912 . 61.5 62 . 3 1913 1914. 64.1 61.4 1915 1916 1917 1918 1919 60. 1 60.0 65.8 75.6 a For industries included see Table 8A, note (a). b Aggregate of similar items in separate industrial reports. tinctly the worst year of the decade. Currency inflation, coupled with rate regulation, was presumably largely responsible for this state of affairs. On the other hand, in 1915 the percentage of the net value product going to the employees fell below normal while the purchasing power of their average annual earnings did likewise. By 1918, however, this per- centage had risen far above the average level for the decade and the pur- chasing power of the average earnings had also increased to a figure dis- tinctly higher than that for any preceding year of the period. 118 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 8C THE AVERAGE ANNUAL EARNINGS PER EMPLOYEE ATTACHED TO THE TRANSPORT ATK )N INDUSTRY c A B C D Average an- nual earnings per employee B -=- C E F Year Total share of the em- ployees" 6 (Millions) Number of employees normally at- tached to the transporta- tion field & (Thousands) Index of prices of goods bought by manual and clerical workers .955 .978 .984 .994 1.00 1.01 1.03 1.10 1.29 1.58 Purchasing power of aver- age annual earnings per employee D ^E 1909 . . . 1910 . . . 1911 . . . 1912 . . . 1913 . . . 1914 .. . 1915 . . . 1916 . . . 1917 .. . 1918 . . $1,641 1,798 1,889 2,025 2,138 2,040 2,069 2,417 2,985 3,956 2,499 2,614 2,709 2,768 2,805 2,828 2,846 2,S72 2,933 3,075 S 657 CSS 697 731 762 721 727 842 1,017 1.286 $688 703 709 736 762 714 706 765 789 814 a See Table 8B, Column C. b Aggregate of similar items in separate industrial reports. c For industries included see Table 8 A, note (a). CHAPTER 9 STEAM RAILWAY, SWITCHING AND TERMINAL COMPANIES § 9a. Nature of Available Information The Interstate Commerce Commission, for a number of years, has required the railways of the country to render annual statements of their business. While the accounts for the large roads (designated as ( 'lass I), are fairly complete for each year, the form of the summary reports for "all roads considered as one system" has changed materially from time to time, making it somewhat difficult to obtain strictly comparable figures. Many of the minor items have been grouped together in these condense 1 summaries and, in such instances, it cannot be determined to which cate- gories they should be assigned. The data for the switching and terminal companies are not recorded until recent years. Here and there, items are omitted. Owing to these shortcomings of the data, it is certain that the figures presented herewith contain many inaccuracies. Fortunately, however, the major items of interest, namely those record- ing the funded debt, dividends, compensation to employees, additions to physical property, and amounts carried to surplus have been reported each year and presumably the figures are fairly comparable throughout. These items combined apparently constitute at least 95 per cent of the value dealt with. Under these circumstance-, one feels safe in saying that, outside of definite errors ! which may exist in the statistics furnished to the Interstate Commerce Commission, the figures herewith presented are sufficiently accurate to show the main facts desired. A computation, in which an entirely distinct method of approach was used, showed a value product differing by not over two or three per cent from that obtained by the process finally determined upon except in 1909 and L910, years in which the classification of the data was less complete than at later periods. § 9b. Method of Utilizing Data The theory underlying the selection of the data chosen to represenl the value product of the industry is as follows: The amount carried to surplus is the joint property of the stockholders and constitutes part of the saving made from current earnings. Other items which similarly enter into sav- 1 The place where error is most Likely is in the amounts recorded as representing the annual surplus. Errors in depreciation accounts give rise to equally large errors in the annual sur- plus. It is impossible to say whether the depreciation allowances are too Large or too small. 119 120 THE ESTIMATE BY SOURCES OF PRODUCTION ings are funds set aside to compensate for the original sale of stock below par, and additions made to the sinking fund. These are offset to some extent by bond premiums written off and by receipts from sinking funds accumulated in earlier years. These receipts evidently represent the productivity of the past rather than of the present. The fact that the dis- counts now written off were, in the past, losses to the corporation, does not alter the fact that the assets now cancelling these discounts are part of the current earnings and represent savings for the stockholders which might be paid out in dividends if the directors thought that policy advisable. Sums set aside from earnings for additions and betterments to the physical property have also been included in the share of the stockholders because they likewise represent savings from current income. Items classified merely as "Miscellaneous Appropriations from Income" have not been included in the current income for it is assumed that most of this account represents funds set aside to cover losses of one sort or another, due perhaps to depreciation, obsolescence, or bad investments. Changes in the designations and classification of various appropriations make it impossible to allocate them correctly. A careful endeavor has been made to include or exclude corresponding items in each year and it is be- lieved that this task has been accomplished with a fair degree of success. The amounts in doubt are too small to invalidate any of the main conclu- sions of this report, even if some of the items have been misplaced. The income distributed by the railways in the form of interest and divi- dends is partly derived from inter-corporate payments and partly derived from bond interest and dividends received on the stock of corporations out- side the railway field. Payments from one railway to another should evi- dently be deducted and since, in dealing with other industries, it has been assumed that their dividends and bonds interest have been paid to individ- uals, it would evidently be a duplication again to include this income here. For this reason, all bond interest and dividends received from stocks owned have been deducted from the similar items paid out by the rail- ways. The remainders represent only payments made possible by the operation of railways and do not include returns from the investments of railways in other industries. Salaries and wages paid are evidently individ- ual gains made possible by railway activity and hence must be included. A trivial item appearing in the later accounts is entitled "Uncollectible Revenues." This quantity, in each case, has been assumed to constitute a part of the net value product of the railway field, for it represents a valu- able service received by someone, and this condition is not altered by the fact that the railway company has not been paid therefor. Since the year 1915, the Interstate Commerce Commission has included in the Statistics of Railways a summary of the reports of switching and ter- STEAM RY., SWITCHING AND TERMINAL COS. 121 TABLE 9A ESTIMATES' OF THE AMOUNTS SAVED FROM CURRENT REVENUES BY THE ST] \M RAILWAY, SWITCHING AND TERMINAL COMPANIES OF THE CONTINENTAL DNITED STATES (Millions of Dollars) Net reduction Additions and Net addition Balance :arried of security betterments to to sinking Total savings discounts « physical property funds'* Year Switch- Switch- Switch- Switch- Switch- Rail- ing and Rail- ing and Rail- ing and Rail- ing and Rail- ing and ways termi- nal COS. ways termi- nal cos. « ays termi- nal i ways termi- nal cos. ways termi- Ending June 30 1909. . . 20. 3'/ c LM 9* c 7.2o c 79* !•'■ c 131.6 1910. . . 26. 7d c 57 Si c 9 . 5 To c 122.0' c 216 1911. . . 18. 7 d c 62 3« c l:;. '.'•/■ c 23 •"•■ c 1 Is 1 191-' 17. 6 c c 44. 2e c 11.'/' c ii 0< c 7'i 5 1913. . . 32.1/ c 66 1 ' c 30.6/ c 32 7/ c 161 8 1914 15 5/ c tn 5/ c 11 5/ c -■121.1/ c :,<\ 6 1915. . . 17 9fl 0.07 30.7(7 0.2»» 10 1.7 3 m 36 7 7 I 2 m 21 7 1 8 1910. . . 25. 9h 0.22 76 5* 0.2n is 0* 7 n 191.4» 6. 0« 311.8 7 1 Calendar 1916 21.7 i O.oi 84 1 i 3> H 8 « ii 8' 188. 1» 3 2i 309 n 4.8 1917. . . 19.8* 0.5« 95 1- 1 0« 10 8 V (is 151 , "' —1.6 s 280 t II 5 1918*. G.8t O.Gf 43.1.; 0.3» 9 7.'/ 6t> 53 5 " 2 1i' 113 1 :; 8 R = Interstate Commerce Commission — Statistics of Railwa ""Amortization of Discount" plus "Stork and Debt Discount Extinguished" minus "l: Premium on Funded Del it." 6 "Appropriation to Sinking and Other Reserve Fun Is" minus "Income from Sinking and Other Re- serve Funds." c Item not given in reports of Interstate Commerce Commission. d Assumed to hear the .same ratio as in 1912 (viz. .0642) to the sum of "Surplus" and "Dividends Paid." e R. 1912, pp. 51-52. /R. 1914. p. 52. a R. 1915, p. 49. h R. 1916 (fiscal year), p. 51. * R. 1910 (calendar year), p. 53; figures for switching and terminal companies arrived at by deducting railway data from combined figures. i Item for Class I Operating and Non-Operating roads multiplied by 1.013, the ratio for 1910 of the total to Class I for this item. ft R. 1909, ]>. 72. ' R. 1910, p. 69. m H. 1915, p. 58. " R. 1916 (fiscal year), p. 00. o Assumed to vary in same proportion from year 1910 as does the sum of "Surplus" and "Dividi nds Paid." /' Equals "Sinking and redemption funds chargeable to income" plus ^ppri priati ins for other re- serves." 9 R. 1911, p. 53. r Includes "Advances to weak lines to cover deficits." s R. 1917, pp. 36-37. ' "Corporate" statistics for roads under Federal control combined with figures I mtrolled road-. « Item for Class I Operating and N'on » Operating roads multiplied bj 0.97, the ratio in 1916; see Note « . v R. 191.S, pp. in 17. i" 97% of 159.3 the increase in "Balance" during the year of Class 1 Operating Operating roads. This is the ratio in 1916: Classes n and III both showing decreases in assets. x Net corporate income total appropriations for year; after 1910, equals the balance at the end of the year less the balance at the beginning of the yi V The ratio of this item for all roads to the same item for ( llass I < (perating and Non-( Operating roads was 1.028 in 1916. The Item for this year has been multiplied by that ratio to obtain the amount here entered. 2 The item for this year is that for Class I Operating and N'on ' Ipi rating road-. No adjustment has been made, for the 1916 records show the appropriations by other classes of road- to have been negligible * The ratio in 1916 of this item for all to the same item for Class I Operating and Non-Operating roads was 1.051; hence the item for this year for Class I road- has been multiplied by this ratio. t Item for Class I Operating and Non-Operating roads multiplied by 1.003, the ratio for 1910 of the total to Class I for this item. m CC W >-) W H JH a;" i— i KG W H JO Sec (— < <^ oo E co co s- 'o Q Q •£ IS" go - * CO Estim; total : railw witchin termi compa CM QO OO I>- •^ CM GO "0 CO Tf GO r-~ i-h go cc O t^ C. O CM GO CC CO GO I> t^- CC CO CO o_ r— 1 o_cci> 1-H co — ~ ^o,2 § ^ K ^ k. »-. ^ C51 CU O O" *. -»- *- CO HHHi — i Ht — 1 r-H r— 1 lO *-< CO C) C-1 CI CN CM CM CM CM CM Ol CM cooo COOO OOO T— 1 1— 1 1-H T— 1 1-H H i—l i — 1 1-H i — 1 ^H w « -8 g li Ui CO 1 i's S •* CM oc* oc o CO CM -H O -H **— -*— ' > fee 3 "73 i-h CM CM CM CM C-- x • S "" c >— « bC c3 g c -a CO H s l> •* i— i iO C: CM GO GO lOOrf 2 & GO i-i CM CM t^ GO «-■ CM CO'* CO Q r^ LOONCS 00 »o GO GO CC CO t^- ri C/.l-h I> CC ' u CC CC t> en PS A ""0 ' 'vi >> '3 7} Switcl ing an termi nal co S £ s S 00^ s s _j ■ GC «C CO ■* o co o CO [/) > o3 K^i CO^lO GO CO 1> GO 0-«#l-H o co - ~- -r- rj° •_£ I— 1 'CO ^^ T-* O O CO 1/3 TO — < ^ 1- CC l^ CM ^ O X i-H '3 rH CM i-H ■H I CO CO CM i-i nj ^> -^ C/3 C • ^H •o -a A "— 1 B3 •r^ ^ C35 -r- ^ co T3 £'3 w i ^ ^ 3 i'g s 5 S £ 5 SgOllfl CM CC ^0 u oft> H Cc '5 be T" "-; *" <— i co -f -f LC O i — i »— 1— 1 i— 1 1— 1 o *•" C CO e— c i d "£ -O. 8? O TR r> . 2 ?* CO CO m'y c h cu "~ l >1 c3 e s u o tj "O » N-, Co - = n H rt 5 rf k o S c J3 > c K* LO CO C72 t^ CO X CC CO t-C C o p" O -h CO CM l£2 CM CM rC CO CO t» a r* CT> C35 GO 1> CC O CM CM CM CM —i Ph CM CM CO CO co ^ •* -^ Tf "^t 1 ^^ ■- = 5 a "" C G JJ & 02 SJ S U OS g g a S S S CM —I X O X lO iO CM > C c *" R *^ r^ T* -* — ' IS 9 1) •>. 03 X • - *" £ 7" 3 >v5t3 fl 03 C* -^ «J o ■8TS « "~, oj^'C g — CC X X M ■X O '" l~ coo co ►— CC CO CC CO ONN'* CM l>CO ~ JO 03 CC 1 ~ CO iHC3rf CC 'O -fi tf CM CM CM CM CM CO CM CM CI CM CM S 5f co o> <=> ,_l n CO *+ i.O CC l CO t^ GO 0) C o <-< <-i >-i ^^ ^^ -— F-H C H 1— 1 i—l x o — 5 ci o o OS c^ o~- c~. CU cc cc CC a c i— i t— < >— 1 1— ( i—< i — 1 ^H r-H ~ I* r—< i-H i-H _w 03 W^ U'a as &c c S o O cu o 53 a a o O dJ CM cu ^r jS cc -£05 , It « • ° ° 8 £ £* 2 3 C 'C P CD I— I |_| — O T^ — i - 1 1^ K tf ra a c o _o o x. g -£ ~ o -2 CO CO ^ * §§ -a B q 19 £ 3 a ° *3 | 3 2- 'o •£ .2 o ,_r "s ■*-* to — — T3 Z .£ a O rt 71 J? 1= eg -u o3 to £ to c C ~ ~ 03 "*" += •- £ ^ O CO CD r S "C -■ CD s3 03 O ,- a ^ ,_ S3 a 5 h ?-=t- e3 CO CD ^— '2 H e3 *«-" _c Cj .S to to Q, m "^ h- - ^ CD ^ I g g § § •£ ^ «sE ^ ,; U u £ -^ _ P. " £ 1£ -^ =x tc C oj 02 «*- "-3 C T? — . e ,£5 3 2 §?„?-• ^-^ -£ ^ s s '*. a .a 3.* 8*! o >S 0-2 a^^-o 5 > bo M * 5£ £^-^h:f=-£ c£ o o I S IS lo« £~^£'i-i: t ^S^ : r£ C^ I .4. . . '-■% zz £ ^c- s S^s a a S^i § 3 5 c-o.ac^o S «^ c-Sc-^'c -.£"S- c o ~^ ^o m -r. o c; os a-. OS * «« o> os os £ a £.2 ~ = — ~;r; °i ^ ^ ^^^^^^^h n,OrtHHgg H 'B j.Es g o) z;o ^-....~£--d>^-' /: - c, ~;-* ^"- , H QfQf 02 03o2Qf . E-i -s aJ of ^ ^ « " « G O < ^ O ^ ' ! 220 1916. . 1,4016 36 46 11259'/ 36 1.440' 1 1,458 Calendar 1910. . 1.507 c 39.8c . 02 , ' 10 1,547 1 1 -■ 1.500 1917. . 1,917 k 0264 e 51 1,9 18 16a: i V 1.990 19 IS. . 2,0702 ,0264e 70 2,740 15 8 2.703 R ■= Interstate Commerce Commission — S • a R. 1915, I). 31. b R. 1916, p. lo. c R. 1910, pp. 32-34. <1 Computed. e Assumed to vary along a smooth curve. /Compensation to railway employees multiplie 1 by assume 1 ratios. 9 R. 1912, p. 29. ft R. 1914, p. 29. Data adjusted for absence of Class III roads on basis o p iportion of v* by i hose roads in 1914. i R. 1914, p. 29. 5 R. 1915, p. 31; wages adjusted by assuming that tin' missing Class III wages are of the same relative importance as Class III operating expenses. k 1918 Report of Railway Wage Commission, p. 102. I Last figure correol — original data carried to more decimals. m ]{. 1909, pp. 75-79. " R. 1910, pp. 73-70. o iv ; of total paid fur all injuries to persons; assumed that employees get this amount, persons 25% and attorneys 30%. The last amount is not i he pro lucl ol tic- railway in lustry, according to our classification. P H. 1911, pp. 5S-00. 1912, pp. 56-58. 1913, pp. 51 57. {. 1911. ,ip. 59-61. 1 R. '■ R. » R. ' R. 1915, pp. 05-70. ■ti R. 1916, fiscal year, pp. 07 89 v R. 1910 (Calendar year), pp. 66 70. "' Data for Class I roads only— others do not rep >rt; amounts doubtless negligible. X R. 1017, pp. 10-43; figures lor Cla Estimated total net annual value product d LO 01 / © rH of — — . 1—1 — DC Tl — — ~ i N CO - CO cr. -. — IO of c i 2,984 3,570 1,702 2,010 2,049 2,045 2,246 2,117 1,925 2,470 Share of employees c o -* H CM t^ cc 01 M — f -.-. -ri — co to T. -~ CO ~ co >-o os .: 03 I- pH i—l rH O — CO o • O oi co co co CC CO — — C DC •M — H cellaneous items o CO t- t^ X C5 GO X X cr. cr. i eo t^ t^ 00 00 cs t^ X P CO 1* 0) "o .4 >> 3 o V CO 0) ,3 Receipts and savings combined B + C iO CO -r O l> 00 CO O CO 1^ 00 i- co /- t^ CO 852 e 1,023 — A / r cr. i- CO X' t^ — CO X CO 00 oo co T}< Ol O t^ 00 — X 'O T. Q Net dividends and bond interest 00 CO CO CO Ui CO -r o CO O CO - "O Tl / O as O O y_ o '"a :: Ti ~ f- rj -a -a GO 00 co os -a -a t- © CO CO SO CO o -a C. O co co CO t^ ca aj >0> CO 1- X CO O •H o 4) 03 ffl Corporate savings - o © n iC i- 1 i~ . a> — — e> as — i- ^: — Tl — -a -o HH O CO oi --1 CM JO o — oo — -a -i O 00 CO lO ^ 1 as a> — M — < co < 5h cs c O i— Cl 05 i— i i—i — Ol — — ~ O! CO — OS c i—i rH i—l rH c cr. r— 1—1 i - r r— 1 r— OS OS - — 1 — i I o -- M S o ".£ 3 w -i "-9 - o o '-i os os — OI 1—1 — 1 cr- © CO -* 1— c — OS 3! iT CO — 1—1 os r. + - + p "S ci it c= c -3 Sj if X ~' u _ — ^ _ :- - +J rrj >. r~ c3 'C 93 ,5 u o ;; - s ■ w - c ~ i. F - b c - - -. — T. 09 .- z ' ■- z E /. c: PmrJ 2;fO o - - -. ~ g . | . d _r ^ _i I - • 3 ^ ^ ^ TC "= — ' r - S oS 03 5 2jJ JS -- - ~ -- - I - c ^ = " = =- - - - -- =. .- - f. I. f. — C3 ^ « "53 V **n ai L28 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 9F MEASURES OF ACTIVITY OF STEAM RAILWAY, SWITCHING, AND TERMINAL COMPANIES ESTIMATED FOR THE CALENDAR YEARS (Data for the Adjoining Fiscal Years a Averaged) Wages and salaries paid Number of em- ployees = actually Revenue freight carried Passenger traffic (Billions of employees at work (Billions of Year (Mil ions) (Thousands) ton miles) passeng er nines; Year Calen- dar year Year Calen- dar year Year Calen- Year Calen- ending June 30 b ending June 30 ending June 30 219/ dar year 237 ' ending June 30 dar year 1!);)'.). $1,012 $1,092 1,540 d 1,641 29 . 1 / 30.7' 1910. 1,172 1,205 1,742-/ 1,742 255/ 25 U 32 . 3 i 32.8' 1911. . 1,238 1,261 1,742 « 1,750 254/ 259' 3 5.2/ 33.2' 1912. . 1 ,284 1,350 1,759'/ 1,817 264/ 234' 33.1/ 34.1' 1913 1,416 1,410 1,876/ 1,814 301/ 297 ' 31.6/ 35.4' 1914. 1,416 1,310 1,753'' 1,604 288/ 233 ' 35.3/ 34.0' 1915. 1,203 1,322 1,456/ 1.575 274 * 309 ' 31.8* 33.2' 1916. 1,440 1,547 1> l,695ff 1,744'' 340 * 385 '■ 33 . 6 * 35 . * 1917. . 1,9686 1,834 i 397^' 40.0^ 1918. . 2,741'' L.937™ 409 * 43. 2k R. = Interstate Commerce Commission — Statistics of Railways. a Years ending June 30. 6 See Table 9C. f In 1915 and 1916, the switching and terminal companies employed about 2.4',', as many men as the railways; hence for other years the number of railway employees has been multiplied by 1.024. -/ Statistical Abstract of U. S. for 1919, p. 34 I. « R. 1911, p. 26. / R. 1913, p. 23 and 1915, p. 26. Adjusted to include Class III roads on the basis of the 1912 ratio. a R. 1916 (fiscal year), pp. 25-26. h R. 1916 (calendar year), pp. 25-26. » R. 1917, p. 19. / Statistical Abstract of U. S. for 1919, p. 797. * R. 1918, p. 37. ' Average of figures for two overlapping fiscal years. m R. 1918, pp. 20-22. There has been much discussion concerning the growing efficiency or inefficiency of railway labor during the last decade. Certain facts concern- ing this issue have been brought out by our investigation and are presented in Table 9G. This Table shows a very marked growth in the output per employee, especially in the amount of freight transported, the increase being just about fifty per cent from 1909 to 1917. Whether this change was the result of inventive genius, a better supply of equipment, more effective manage- ment, or greater diligence on the part of the employees, is a subject still open for investigation. The fact is clear, however, that in, 1917, the aver- , STEAM RY., SWITCHING AND TERMINAL COS. 129 TABLE 9G THE AVERAGE OUTFIT PER EMPLOYEE ACTUALLY AT WORK FOR STEAM RAILWAY, SWITCHING, AND TERMINAL COMPANIES COM BINEDa (Estimates for ( lalendar Yi Calen- dar year 1909. 1910. 1911. 1912. 1913. 1914. 1915. 1916. 1917. 1918. Number of ton miles of freight per employee 144,400 140,000 147,91)1) 156,100 103.500 176,300 1911,01)0 209,100 216,600 211,000 Passenger miles pet- employee IS, 720 18,810 18,950 18,750 19,500 21, ISO 21,050 20,090 21,810 22,310 Value product per employee at prices current in given year $1,131 1,165 1,169 1,181 1,202 1,260 1,396 1,490 1,627 1,843 [ndex of prices of rail- service '< Base, 191 1 102.3 102.2 102.0 100.7 100.0 100.0 99.3 98 5c 99 7c 117.9c Value product per employee at prices of 1914'^ $1,106 l.l 1) l.l 11 1,173 1,202 1,260 1,406 1,513 1,632 1,563 a For sources of data, see Tables 9E and 9F. The figures here given are obtained by division of the other items by those in the fifth column of Table 9F. 6 The price index here given is proportional to the combined value of 10 freight ton miles and 1 passenger mile. This ratio represents the approximate proportion of eac i factor in the output of 1917, and is fairly representative for all years. Data for pairs of fiscal years have been averaged to obtain estimates for calendar years. See Statistical Abstract' of U. S. for 1919, p. 332. c Interstate Commerce Commission, Statistics of Railways, 19 IS, p. 37. d Value product at current prices divided by the index of prices of railway service. age railway employee moved much more traffic and obtained a materially larger value product for the industry than he did in 1909, and the increase in the value product was real and not merely a reflection of increase I prices for the service furnished. § 9e. Growths of Railway Service and of Population Compared Another interesting comparison is that of the relative growths of railway service and of population. There has been great complaint concerning a shortage of railway equipment and service. Is this complaint due to the fact that we have less service per capita than formerly or does it mean thai our demand has increased? 'Fable 9H gives a fairly definite answer to this query. It is clear that, from 1009 to 1014, the growth of railway service jusl about kept pace with population but that, since 1915, the supply of rail- way service has far outstripped the growth in numbers of people, with the result that, in 1017, the output was nearly fifty per cent larger than in 130 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 9H THE PER CAPITA SERVICE RENDERED TO THE PEOPLE OF THE CON- TINENTAL UNITED STATES BY THE RAILWAY, SWITCHING, AND TERMINAL COMPANIES a Calendar year Estimated population of the Continental United States (Thousands) b Freight carried; Ton miles per capita Passenger miles traveled per capita Net value produced per capita by railway industry At prices current in given year $20.54 22.00 21.82 22.51 22.42 20.38 21.89 25.54 28 . 96 34.27 At prices of 1914 c 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 90,370 92,229 93,811 95,338 97,278 99,194 100,428 101,722 103,059 104,182 2,621 2,758 2,760 2,976 3,050 • 2,851 3,075 3,585 3,853 3.924 340 355 354 357 364 343 330 344 :;ss 415 $20 . 08 21.53 21.39 22.35 22.42 20.38 21.93 25.93 29.05 29.07 " For origin of data, see Tables 9E and 9F. b Read from a smooth curve based upon Census figures. c Figures in preceding column divided by price index shown in Table 9G. 1914. If the supply of railway service is inadequate, it appears, therefore, that this condition arises from an increasing demand and not from a diminishing supply. § 9f. The Purchasing Power of the Shares in the Net Value Product Table 9E showed how the net value product has been divided among the principal classes of claimants thereto, but the absolute amounts there recorded have relatively little significance, because of the radical changes in the purchasing power of money which have taken place during the last decade. In order to give meaning to these figures, it is necessary to divide them by appropriate price indices. In Table 91, this process has been applied to the compensation of the employees and in Table 9J, the share of the security holders and other property owners is similarly dealt with. The price indices employed for this purpose are those described in §§ 2b and 2c. The reasons for their use have been stated in § Ik and need not be repeated here. S STEAM RY, SWITCHING AND TERMINAL COS TABLE SI 131 THE NUMBER OF EMPLOYEES AND THE AVERAGE COMPENSATION RECEIVED BY THEM FROM RAILWAYS, SWITCHING, AND TERMINAL COMPANIES A B C D E F G H Estimated Estimated Estimated Average Average in- Average number of fraction of number of Total com- dex of prices annual Calen- employees full time employees pensation annual of goods compen- dar actually that attached to paid to <■< )!ii[ nata- tion per employee E 4-D boughl by - :t ion at year at work a average industry employees* manual and the prices (Thou- worker was (Thousands) (Millions) clerical of 1913 sands) employed b B -f- C workers d F -^-G 1909. . 1,641 .962 1,705 $1,105 S 648 .955 $679 1910. . 1,742 .981 1,77.'» 1,219 687 .978 702 1911. . 1,750 .963 1,818 1.277 7D2 .984 713 1912. . 1,817 .990 1,834 1,367 745 .994 750 1913.. 1,814 .988 1,836 1,434 781 1 . 000 781 1914. . 1,604 .873 1,838 1,328 723 1 01 716 1915 1,575 . 856 1,840 1,339 72s 1 03 707 1916. . 1,744 .947 1,842 1,566 850 1.10 77:-! 1917. . 1,834 .988 1,856 1,990 1,072 1.29 831 1918. . 1 ,937 .989 1,958 2,763 1,411 1.58 893 a See Table 9F. b See § 2d. c See Table 9E. d See Table 2C. The figures in Table 91 show that the average annual compensation paid by railways to their employees has risen materially since 1909, the increase up to 1918, when measured in purchasing power, amounting to something over thirty per cent. During this period, therefore, the increase in money earnings more than kept pace with the rise in the value of com- modities consumed by the working classes. The facts brought out do not show, however, whether this increase in earning power has resulted from a monopolistic organization of wage earners, from increased efficiency of the wage earners, from an increase in the supply of railway equipmenl as compared to railway laborers, from a general increase in the wage level, or from some entirely different cause. The purchasing power of the total share of the security holders increased rather steadily up to 1914, but, since that date has fallen materially, until in 1918, it was smaller than in 1909. This change in the total tells nothing concerning the income per dollar invested. Since, however, it is believed that the total investment in the railway business has been increasing-, it appears that the recent decline in the total income of the security holders must have been accompanied by a considerably greater fall in the returns per unit of investment. 132 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 9J THE PURCHASING POWER OF THE ESTIMATED SHARE OF THE SECURITY HOLDERS IN THE VALUE PRODUCT OF STEAM RAILWAYS, SWITCH- ING, AND TERMINAL COMPANIES IN THE CONTINENTAL UNITED STATES Disbursements to security holders Corporate savings Calendar year Amount in dollars d Index of prices of articles consumed by wealthy classes" Purchas- ing power in terms of prices of 1913 c Amount in dollars** Index of construc- tion costs b Value of construc- tion pur- chasable at prices of 1913 c 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 $568 633 664 650 685 702 680 709 704 682 .973 .988 . 995 1.009 1.000 1.010 .996 1.074 1.198 1.364 $584 640 667 650 685 695 683 661 587 500 $177 171 100 88 20 —17 172 314 281 117 .927 .953 .945 .983 1.000 ■ 960 .992 1.194 1 473 1.499 $191 179 105 90 20 —18 173 263 191 78 a See Table 2E, based upon families spending $25,000, each annually. b For derivation see Table 5L, note g. c Amount in dollars divided by the price index. d See Table 9E. , CHAPTER 10 PULLMAN CAR TRANSPORTATION § 10a. Available Information This adjunct of the railway industry has been covered in moderate detail by the Interstate Commerce Commission in its statistics for each year since 1910. The reports for dates preceding 1916 are for fiscal years; hence, in order to reduce the information to a calendar year basis, the sim- ple, though somewhat inaccurate, expedient of averaging the items for the two overlapping fiscal years has been adopted. For 101(5 and later periods, the accounts have been kept for the calendar years, and therefore require no adjustment in this respect. No complete information for years preceding 1911 is available, but the rough estimates shown in the accom- panying tables have been based upon the annual financial reports of the Pullman Company as they are quoted in Moody's Manual of Industrials for 1919. § 10b. The Share of the Stockholders Following the customary procedure, the first step is to ascertain the total disbursements to investors of income arising from the operations of this industry. To arrive at this figure, the receipts from other corporations in the form of dividends or interest on funded debt have been subtracted from the dividends paid by the Pullman Company. The amounts shown by the reports of the Interstate Commerce Commission to have been "carried forward to the credit of profit and loss" are regarded as net cor- porate savings for the year. These savings, plus the net amounts dis- bursed in the form of dividends, are assumed to represent the (Mil ire share of the stockholders in this industry. Table 10A sets forth the tacts in this connection. In Table 10R the same items have been adjusted to -how the purchasing power of the income of the stockholders if prices had remained stationary at the level of 1913. This method gives a far clearer picture of the changes which have actually occurred in the share under consideration, than does a comparison of the crude money income for the various years. A study of the two following tables shows that, while the nominal share of the stockholders has been diminishing to a moderate degree, the fall in the purchasing power of this share has been very marked. Although 133 134 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 10A THE ESTIMATED a SHARE OF THE STOCKHOLDERS IN THE VALUE PROD- UCT OF PULLMAN TRANSPORTATION IN THE CONTINENTAL UNITED STATES (Values in Thousands of Dollars) A B C D . ^et dividends paid B — C E F Year Gross dividends paid $8,100'"' 8,875 ac 9,442 ab 9,440 «b 9,440 °-b 9,468 ab 9,501 «b 9,529 b 9,544 b 9,511'' Received from other companies as dividends or interest on funded debt $190 d 190 d 191 ab 196 ab 190"'- 188 ab 189 ab ISO b 217 b 337 b Corporate savings e Total share of stockhold- ers D + E 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 $7,910 8,685 9,251 9,244 9,250 9,280 9,312 9,349 9,297 9,207 $9,500"/ 7,850 af 2,414 «b 3,126 ab 3,308 ab 2,486 «b 2,607 ab 2,174 b 3,862 b 787 b $17,410 16,535 11,665 12,370 12,558 11,766 11,919 11,533 13,159 9,994 a Averages of the quantities for the two calendar years overlapping on the fiscal year. b Data taken from last page of each of the respective annual Preliminary Abstracts of Statistics of Common Carriers, Compiled by the Interstate Commerce Commission. c Dividends as shown by Moody's Manual of Industrials multiplied by 0.965, this being the ratio thereto, in 1911, of the amounts reported to the Interstate Commerce Commission as paid in dividends. d A guess based on the records for the succeeding six years. e Entitled by the Interstate Commerce Commission "Balance Carried Forward to Credit of Profit and Loss." /The average surplus for 1911, 1912, and 1913 shown by the Interstate Commerce Commission reports was 2.349 times as great as that shown by the report in Moody's Manual of Statistics. The items in the latter report for 1909 and 1910 have therefore been multiplied by 2.349. It is not unlikely that the results thus obtained are consider- ably in error. figures showing the actual investments have not been compiled, it appears that the total amount invested in the industry has been constantly grow- ing larger through accumulations of surplus or savings, hence the decline in income per unit of invested resources is, necessarily, steeper than the fall indicated by the figures recorded in the last column of Table 10B. <* PULLMAN CAR TRANSPORTATION 135 TABLE 10B THE PURCHASING POWER OF THE STOCKHOLDERS' SHARE OF THE INCOME OF THE IMLLMAN COMPANY A B C D E F Index of consl ruc- i ion COStS c G Cal- en- dar year Net divi- dends paid by Pullman Company a (Thousands) Index of prices of consumption goods pur- chased by families spend- ing $25,000 annually therefor & Purchasing power of dividends at prices of 1913 (Thousands) B C Corpora savings of Pullman ( Jompany ■< (Thousands Purchasing power of cor- porate savings at price- (if ^ 1913 (Thousands) E F 1909 1910 1911 1912 1913 1914 1915 1916 1917 19 IS $7,910 8,685 9,251 9,244 9,250 9,280 9,312 9,349 9,297 9,207 .973 .988 .995 1.000 1.000 1.010 .996 1.074 1 . 198 1.364 $8,129 8,790 9,297 9,244 9,250 9,188 9,349 8,705 7,760 6,750 $9,500 7,850 2, 1 14 3,126 3,308 2,4 sr, 2,607 2,174 3,862 7s7 .920 .962 .941 .9 17 1.000 .939 .998 1.200 1.453 1 550 S 1 1 ».326 vl 60 3,233 3,308 2,566 2,612 1.S12 2,658 .-, IS « See Table 10 A. b Computed by means of a special study; see Table 21']. ''Arithmetic average of indices; wages of building laborers (see § 7e), weighted 9 and the Bureau of Labor Statistics indices shown in Bulletin 269 weighted as follows: Metals and metal products 5, Doors, Small plate glass, Window-glass, Maple (hard . Oak (white quartered), and Lead Carbonate, each 1. § 10c. Share of the Employees in the Net Value Product The next problem is to ascertain the number of the employees and the share of the total value product which they receive. Part of the pay of Pullman employees comes in the form of lips directly from the passengers and hence does not appear on the records of the company. This is, never- theless, quite evidently part of the value product of the industry, for it is considered by everyone as part of bis expenses of travel. An estimate for tips is therefore included here as part of the share of the employees. The figures appear in Table IOC. 130 Till: ESTIMATE BY SOURCES OF PRODUCTION TABLE IOC THE ESTIMATED SHARE OF THE EMPLOYEES IN THE VALUE PRODUCT ARISING FROM PULLMAN TRANSPORTATION Number of Average Total wages Total tips employees at rate of pay paid to em- paid to Total share ^ ear work on per day for ployees porters h of employees » June 30th employees (Thousands) (Thousands) (Thousands) 1909. . . . 13,800 a $1.65 d $ 7,910 ffe $2,352 ae $10,262 1910.. . . 14,770a 1.68 d 8,820 ge 2,520 ae 11,340 1911.. . . 15,024 b 1 . 73 be 9,175/ 2,563 « 11,738 1912.. . . 15,129 b 1 . 84 be 9,827/ 2,724 e 12,551 1913.. . . 20,812 b 1.96 be 14,399 / 2,854 e 17,253 1914.. . . 20,1106 1.96 ^ 13,914/ 2,823 e 16,737 1915.. . . 19,106 b 1.94 be 13,084/ 2,926 e 16,010 1916.. . . 19,894 b 2.04b 14,326/ 3,053 17,379 1917.. . 19,276 be 2 . 23 b 15,174/ 3,802 18.976 1918. . . . 18,985 be 3.05b 20,440/ 3,883 24,323 a Assumed to vary in proportion to total revenues, using the quantities in 1911 as a base. b Taken from last page of each of the annual Preliminary Abstracts of Statistics of Common Carriers, published by the Interstate Commerce Commission. c Average of the numbers reported employed at the beginning and at the end of the year. d Total wages divided by total number of employees. e Averages of the quantities for the two fiscal years overlapping on the calendar year. / Product of the items in the two preceding columns multiplied by 353, this figure being the estimated number of days per year for which an employee is paid. Most of the employees work by the month, but a minority are employed by the day. o Assumed to vary in proportion to operating expenses, using the quantities in 1911 as a base. h Assumed to equal 20 cents per berth passenger; number of berth passengers as recorded in the Annual Preliminary Abstracts of Statistics of Common Carriers pub- lished by the Interstate Commerce Commission. » Sum of items in two preceding columns. Table 10D combines the data of Tables 10 A and 10C and shows the relative shares of the value products of this industry going respectively to the employees and to the stockholders. The figures in the last column show a rapid increase in the fraction of the value product which the em- ployees receive as their share, the increase in 1918 being very striking. , PULLMAN CAR TRANSPORTATION 137 TABLE 10D THE ESTIMATED VALUE PRODUCT ARISING FROM PULLMAN TRANS PORTATION AND THE DIVISION OF THIS PRODUCT BETWEEN THE EMPLOYEES AND THE STOCKHOLDERS Thousands of dollars Per rent of the Year Share of stockholders a Share of employees b Total value product of i lii- iiidustry value product wing to the employees 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 $17,410 16,535 11,665 12,370 12,558 11,766 11,919 11,533 13,159 9,994 $10,262 11,340 11,738 12,551 17,253 16,737 16,010 17,379 18,976 24,323 $27,672 27,875 23,403 21,921 29,811 28,503 27,92!) 28,912 32,135 31,317 37.1 40.7 50.2 50.4 58.0 53 . 7 57.3 60.1 59.1 70 . 9 a See Table 10A. b See Table IOC. § 10d. Average Annual Earnings of Employees An increase in the relative share of the product does not necessarily indicate an absolute gain in the average well being of the workers. Table 10E represents an effort to show whether the economic condition of the employees in the Pullman industry has improved or grown worse during the decade under consideration. 138 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 10E THE ESTIMATED NUMBER OF EMPLOYEES ATTACHED TO THE PULL- MAX INDUSTRY AND THE PURCHASING POWER OF THE AVERAGE INCOME WHICH THEY DERIVE THEREFROM A B C D E F G H Index of Estimated prices of Average Number Estimated number of Total Average goods earnings of em- fraction of employees earnings of earnings con- in pur- Year ployees employees attached employees a per em- sumed by chasing actually actually to indus- (Thou- ployee manual power working a working b try BtC sands) E ■*■ D and clerical workers c F + G 1909 13,800 .962 14,340 $10,262 $ 716 . 955 $749 1910 14.770 .982 15,040 11,340 754 .978 771 1911 15,024 .969 15,500 11,738 757 .984 770 1912 15,129 .953 15,880 12,551 790 .994 795 1913 20,812 .979 21,250 17,253 812 1.00 812 1914 20,110 .935 21,500 16,737 778 1.01 771 1915 19,100 .904 21,130 16,010 758 1.03 736 1916 19,894 .975 20,400 17,379 852 1.10 774 1917 19,276 .979 19,680 18,976 964 1.29 747 1918 18,985 .984 19,300 24,323 1,260 1.58 798 a See Table IOC. b A rough estimate derived by means of a special study; see § 2d. c The U. S. Bureau of Labor Statistics index carried back by means of a special study; see Table 2C. Table 10E makes it clear that while the Pullman employees received a much higher average money compensation in 1918 than in 1909, the purchasing power of their income from labor was but slightly higher at that date than in the first year mentioned. § lOe. The Annual Output per Employee Average earnings are of great importance from the standpoint of the employees. The employer, on the other hand, is likely to view labor largely in its relationship to production. He is interested in the amount of work accomplished per employee hired. Apparently the best measure of this ratio obtainable from the records of the Pullman industry is the number of car days in proportion to the number of employees. Car days are used instead of car miles because the Pullman employees have little to do with moving the cars in which they work. The number of employees actually working rather than the number attached to the industry is chosen as a divisor, not only because the figures for the former are more PULLMAN CAR TRANSPORTATION 139 TABLE 10F THE RELATION OF THE NUMBER OF CAR DAYS TO THE NUMBER OF EMPLOYEES ACTUALLY AT WORK IN THE PULLMAN INDUSTRY a Averages of the quantities for the two fiscal years overlapping on the calendar year. b Data incomplete, hence no significant ratios can be computed for these years. c Taken from the last page of each of the annual Preliminary Abstracts of Statistics of Common Carriers, published by the Interstate Commerce Commission. d See Table IOC. accurate, but also because the employer pays wages only to those actually at work. While the output per employee varies greatly from year to year, there appears to be no definite trend either upward or downward. One is not justified, therefore, in concluding that the output per Pullman employee has either increased or diminished during the eight years covered by this study. § lOf. Relative Growths of Pullman Service and Population The final inquiry in this investigation has as its end an attempt to answer the question, "Is the Pullman service keeping pace with the growth of population?" Table 10G throws light upon this matter. For this purpose, car miles have been compared to population; for, apparently, the car mile is the factor in which the public is most interested. The fact should be noted, however, that any changes in the per capita volume of service measured on this basis are to be ascribed as much to the railways as to the Pullman companies, since the cooperation of both is necessary to produce Pullman car mileage. 140 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 10G PULLMAN CAR MILEAGE PER CAPITA IN THE CONTINENTAL UNITED STATES Year Number of ear miles (Thousands) Population of the United States d (Thousands) Car miles per capita 1909. a a 641,723 6c 674,375 6c 704,341 be 700,623 6c 708,323 6c 714,9166 775,407 6 697,213 6 93,811 95,338 97,278 99,194 100,428 101,722 103,059 104,182 1910 1911. 6 84 1912. 7 07 1913 1914 1915 7.24 7.06 7 05 1916. . 7 03 1917 7 52 1918 6.69 a Information lacking; hence, no significant ratios can be computed for these years. 6 Taken from the last page of each of the annual Preliminary Abstracts of Statistics of Common Carriers, published by the Interstate Commerce Commission. c Averages of the quantities for the two fiscal years overlapping on the calendar year. d Estimated by means of a special study; see § 2a. Table 10G shows that Pullman service varies with demand and fluctu- ates to a considerable degree. The years 1917 and 1918 showed large oscil- lations, presumably due to war conditions. The figures as a whole, scarcely indicate either an upward or downward trend in the amount of service furnished per capita. , CHAPTER 11 EXPRESS COMPANIES § 11a. Introduction A very good annual report entitled "Statistics of Express Companies" is published by the Interstate Commerce Commission. This report makes it possible to obtain a fairly complete and accurate statement of the amount and distribution of the value product of this branch of industry. § lib. Disbursements to Security Holders and Building Owners The withdrawals from the Express business by entrepreneurs and inves- tors consist of dividends and bond interest. Owners of buildings obtain a considerable revenue from the rent of those buildings which are devoted to the Express business. These items together constitute the value with- drawals going to entrepreneurs and other property owners. The dividends and interest received by security holders in Express Com- panies originate to no small degree in dividends and interest on bonds paid to the Express Companies by other corporations. For the reasons set forth in § 9b, the Express Companies must be thought of merely as agents who pass this income along to the final recipients. Table 11A has been constructed on this basis. It reveals the great irregularity in the amounts paid as bond interest or dividends and shows the rapid decline during the decade in the total disbursements to the security holders. § lie. Total Share of Security Holders and Building Owners The share of the security holders and other property owners in the cur- rent income consists of receipts in hand plus corporate savings. Table 1 1 B shows that, during seven years out of the ten, the corporations diminished their assets, — in other words, part or all of the dividends declared wen 4 paid out of past savings rather than from current earnings. In 101S, the deficit became far larger than the total withdrawals, the propertied classes losing during the year on their Express Company interests ^14,003,000. In order to make the magnitude of the various sums show the change-; in the ability of the propertied classes to buy consumption goods with that part of their income received from Express Companies in the various years, each item has been divided by a price index representing the approximate HI 142 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 11A DISBURSEMENTS TO ENTREPRENEURS AND OTHER PROPERTY OWNERS OF VALUE PRODUCT ORIGINATING IN THE EXPRESS INDUSTRY Values in Thousands of Dollars Year Total dividends « and bond interest paid by Express Companies Dividends and bond interest received by Express Com- panies from other cor- porations $3,417 c 4,233 d 4,689 <- 4,522/ 4,095 a 3,203 h 3,134 i 3,677/ 3,722/ 1,405 k Dividends and bond interest originating in Express industry " $17,101 20,132 7,027 3,938 3,403 2,244 3,456 12,387 1,254 747 Rents paid for use of offices b Total with- drawals by entrepreneurs and other property owners 1909'" 1910'" 1911 w. . . . 1912"'. . . . 1913'" 1914'". .. . 1915'". .. . 1916 1917 1918 $20,518 e 24,365 d 11,716 r 8,460/ 7,501 g 5,452 h 6,590 i 16,064/ 4,976/ 2,152 A- $1,567 c 1,641 d 1,771 « 1,949/ 2,066 a 2,093 h 2,080 i 2,127/ 2,264/ 2,435 * $18,668 21,773 8,798 5,887 5,472 4,337 5,536 14,514 3,518 3,182 a Paid either from current income or surplus. 1> The amount here entered is 70 per cent of the amount paid by the Express Com- panies, the assumption being that only this fraction accrues as net rent to the owners of the offices, the rest being necessary to cover depreciation, repairs, etc. E. = Annual Report on the Statistics of Express Companies, by the Interstate Com- merce Commission. c E. for 1910, pp. 15 and 26. h E. for 1914, pp. 13 and 21. 13 and 23. * E. for 1915-16, pp. 11, 12 and 17. 13 and 23. i E. for 1916-17, pp. 11, 12 and 17. 13 and 23. *= E. for 1918, pp. 11, 13, and 15. 13 and 21. m Each of the quantities stated is half of the sum for the two fiscal years which overlap on the given calendar year. " Excess of items in second column over those in third. d E. for 1911, pp. e E. for 1912, pp. /E. for 1913, pp. o E. for 1914, pp. average relative prices of consumption goods purchased at each date by the wealthier classes of the population of the United States. S EXPRESS COMPANIES 143 TABLE 11B TOTAL SHARE OF ENTREPRENEURS AND OTHER PROPERTY OWNERS IN THE VALUE PRODUCT OF THE EXPRESS INDUSTRY (AMOUNTS WITHDRAWN, PLUS CORPORATE SAVINGS A B C 1) E F G H Value in thousands of dollars Values in thousands at die given date Index of prices of Index of at prices of 1913 'i Amounts Year Amounts goods whole- dis- disbursed Cor- consumed sale bursed Corporate Total to porate by prices' to savings share property savings 6 wealthy families property D -J- F owners a owners C +■ E 1909 c . . $15,698 $18,668 —$2,970 . 973 07 $19,186 —83,062 1910c . . 14,895 21,773 — 6,s;s .988 .99 22,(137 — 6,947 1911c . . 11,054 8,798 2,256 995 95 8,842 2,375 1912c . . 7,983 5,887 2,096 1 000 1.01 5,887 2.075 1913 c . . 4,816 5,472 — 656 1.000 1.00 5,172 — 656 1914c . . 3,830 4,337 — 507 1.010 1.00 1,294 — 1,507 1915 c . . 8,692 5,536 3,156 .996 1.01 5,558 3,125 1916.... 10,957 I 1.514 — 3,557 1 071 121 13, 514 — 2,869 1917... 2,162 3,518 — 1,356 1 198 1 . 76 2.937 — 770 1918.... -14,003 3,182 -17,185 1 364 1.96 2,333 — 8,768 a See Table 11 A, last column. b Includes "Income appropriations for investment in physical property" plus " Bal- ance transferred to profit and loss" minus "Dividend appropriations of surplus." For data, see the "Income" and "Profit and Loss" accounts in the various Annual Re- ports by the Interstate Commerce Commission, on The Statistic* <>f Express Compa c Each of the quantities stated is half of the sum for the two fiscal years which overlap on the given calendar year. d Money values divided by the respective price indices. e U. S. Bureau of Labor Statistics, Bulletin 269, on Wholesale Prices, p. 15. § lid. The Share of the Employees Table 11C indicates the amount of the value product of each year going to employees. This consists largely of wages and salaries, but there is included an important item entitled "Commissions." The auditor of tin- American Railway Express Company states that practically all of this amount is paid to railway agents at small stations as compensation for their efforts in handling Express business. It has been arbitrarily assumed that 70 per cent of the amount paid by Express Companies for "Injuries to Persons" reaches the pockets of employees. The amount is too -mall to be of moment. Similarly, there is included the trivial item of "Pen- sions." The combination of the above items gives the estimated total share of the employees. 144 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 11C THE SHARE OF THE EMPLOYEES IN THE TOTAL VALUE PRODUCT OF THE EXPRESS INDUSTRY (Values in Thousands of Dollars) A B C D E F G H I Total Index of prices of goods bought by manual and clerical workers d Share of Indem- compen- Total employ- Year Wages and salaries a nity for person- al in- Pen- sions a sation to full time em- Com- mis- sions a share of em- ployees ees at price level of juries ob ployees E+F 1913 B+C+D $6,922 G - H 1909 C $36,230 $104 $125 $36,459 $43,381 .955 $45,425 1910 c 39,238 134 135 39,507 7,489 46,996 .978 48,053 1911 c 42,445 146 151 42,742 7,906 50,648 .984 51,472 1912 c 45,710 151 164 46,025 8,173 54,198 .994 54,525 1913 c 46,774 172 181 47,127 7,988 55,115 1.000 55,115 1914c 43,926 190 209 44,325 7,320 51,645 1.01 51,134 1915 c 44,510 200 245 44,955 7,421 52,376 1.03 50,850 1916 52,345 238 275 52,858 8,502 61,360 1.10 55,796 1917 64,356 312 310 64,978 . 9,382 74,360 1.29 57,643 1918 82,437 449 317 83,203 10,240 93,443 1.58 59,141 a All data taken from the "Analyses of Operating Expenses" in the Annual Reports by the Interstate Commerce Commission on The Statistics of Express Companies. b 70 per cent of payments made by Express Companies. c Each of the quantities stated is half of the sum for the two fiscal years which over- lap on the given calendar year. d U. S. Bureau of Labor Statistics index carried back by this Bureau. For details see Table 2C. Table 11C shows that, while the share of the property owners has been diminishing, labor has been getting an increasing absolute share in the product of the Express industry. Since the number of employees is not recorded, there is no way of determining accurately whether the compen- sation per employee has increased or diminished during the decade. § lie. The Total Net Value Product and Its Distribution In Table 11D appears an estimate of the entire value product of the Express industry. To the shares of the propertied classes and of the em- ployees has been added a small item entitled "Uncollectible Revenue from Transportation." This has been done because the value received by the shipper in such cases is evidently a part of his income and also a part of the product of the Express industry; although it does not accrue to either the Express Companies or their employees. However, the amount is too small to be of consequence. EXPRESS COMPANIES TABLE 11D 145 THE ESTIMATED NET VALUE PRODUCT PER CAPITA OF THE EXPRESS INDUSTRY IN THE CONTINENTAL EXITED STATES AND THE PER CENT OF THE NET PRODUCT GOING TO THE EMPLOYEES A B C D E F G II I J (A mounts in .housands) Per capita Uncol- of value Population Value product Share of lectible Total product of United product Index of at prices entrepre- Share of charges value going to States/ per prices of of Express neurs and employees^ for product of em- (Thou- capita Express service other trans- industry ployees sands) E-f-G service in 1913 property porta- B+C+D C-^E 100 H owners b tion I 1909« $15,698 $43,381 $20 e $59,099 73.4 90,370 $0.65 100.0 $0.65 1910« 14,895 46,996 20 * 61,911 75.9 92,229 .67 100.0 .67 1911a 11,054 50,648 20 ' 61,722 82 1 93,811 .66 100.0 .66 1912a 7,983 54,198 20 e 62,201 S7.1 95,338 .65 100.0 .65 1913a 4,816 55,115 20 « 59,951 91.9 97,278 .62 100.0 .62 1914a 3,830 51,645 20 d 55,495 93.1 99,194 .56 100.0 .56 1915a 8,692 52,376 28 d 61,096 85.7 100,428 .61 89.5 us 1916 10,957 61,360 11 d 72,358 84.8 101,722 .71 89 5 .79 1917 2,162 74,360 71 d 76,593 97.1 103,059 .74 89.5 .83 1918 -14,003 93,443 76 d 79,516 117.5 104,182 .76 98.6 .77 a Each of the quantities stated is half of the sum for those two fiscal years which overlap on the given calendar year. & See Table 11B. e See Table 11C. d From Income Accounts in Annual Reports of the Interstate Commerce Commis- sion on the Statistics of Express Companies. e Assumed same as in 1914. / See Table 2A. a Roughlv estimated from the Reports of the Interstate Commerce Commission, Vol. XXXV, p. 6, and Vol. L, p. 385. The conclusion to be drawn from Table 11D is that during the decade the amount of service rendered by the Express Companies has more than kept pace with the growth of population. The index of prices of Express service is based on very poor data and hence the figures in the last column of Table 11D are not accurate. However, it seems probable that the broad conclusion just stated accords with the facts. Column F of the table shows that the relative share of labor in the value product of the industry increased greatly, until, in 1918, it absorbed not only the entire value product but also fourteen millions of dollars from the assets which the companies had accumulated in past years. This means that it was necessary to draw upon the value products of other industries in order to obtain sufficient income to pay the employees for the work done in carrying on the Express business. This draft on other industries was possible because the Express Companies had in former years accumu- lated large surpluses mainly in the form of investments, or, in other words, 146 THE ESTIMATE BY SOURCES OF PRODUCTION claims to assets employed in other fields. Stocks and bonds of outside cor- porations are examples of such claims. Such securities can, of course, be readily sold and the money thus obtained may be used to meet current- expenses. § llf. The Number of Employees As previously mentioned, no record has been found of the number of employees engaged in this field of work, yet it is essential for the general purposes of this study that the number be estimated. The United States Bureau of Labor Statistics in its bulletins on The Union Scales of Wages and Hours of Labor gives rates for teamsters in all sections of the country. The Interstate Commerce Commission, in its Statistics of Railways, presents figures which enable one to compute the average salaries for office workers from year to year. It has been assumed that a combination of the rates for teamsters and office workers, 1 giving the former twice the weight of the latter, might represent fairly well the average earnings of Express employees for full time work. Before 1913, only the railway data are available, hence the average has been carried back for earlier years in proportion to the variations in those figures only. The results of this computation are presented in Table HE. The average fraction of those employees attached to the industry who were at work in the various years has been assumed to be very similar to that calculated as representing the railway workers. Certain adjustments have been made in order to make the fractions conform to the idea that the number of persons attached to any industry normally tends to vary along a smooth curve rather than in an irregular fashion. Table HE shows the estimates which have been arrived at. This completes the usual list of inquiries in so far as the nature of the available data will permit. 1 Office workers include division officers, clerks, and station agents, masters, and employees. , express companies 147 TABLE HE AN ESTIMATE OF THE NUMBER OK PERSONS NORMALLY DEPENDENT FOR A LIVIN( I UP< )N EM PLOYM ENT WITH THE ENPK 1 ■:>> COM PA N I ES OF THE CONTINENTAL UNITED STATES A B C D E F Calendar year Total wages and salaries paid« (Thousands) Estimated average an- nual full-time money wa Estimated average number of employees actually at work B - C Estimated fraction of those attached to industry actually at \vi >rk c Estimated number of employees attached to industrv D -i- E 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 $36,230 39,238 42,445 45.710 46,774 43,926 44,510 52,345 64,356 82,437 $640 635 663 670 6S4 698 699 728 770 938 56,609 61,900 64,020 68,224 68,383 (53,648 63,678 71,902 v;.579 87,sm-> .963 .985 .963 .9S5 .968 .887 .869 .94S .989 . 989 5S,7S4 62,800 66,430 69,263 70,611 71,756 73,277 75,845 si. 509 88,863 a See Table 11C, Column B. b For mode of derivation, see text. c Derived by a special study described in Sec. 2d. CHAPTER 12 STREET AND ELECTRIC RAILWAYS § 12a. Census Data Available The task of estimating the value product of the street and electric rail- ways of the country is made relatively easy by the existence of three Cen- suses taken in 1907, 1912, and 1917 respectively. These Censuses seem very complete and give most of the information in the form necessary for this study. § 12b. Share of Security Holders and Other Property Owners In the Census of Electric Railways, the term "gross income" means the amount remaining from the entire income after operating expenses and taxes have been paid. Since it is evident that practically all the value product of this industry must arise from the activities of operating com- panies only, the gross income of this class of companies is taken as a start- ing point. From this sum, however, must be deducted a number of items before arriving at the amounts available for disbursement to security holders or as payment for leased property. These items may be enumer- ated as follows: — 1. Income received as dividends or interest on the bonds of other corpo- rations. Such amounts must be deducted because, under the plan of pro- cedure determined upon, they are counted in the value product of the industry in which the paying corporation is engaged. 2. Taxes and expenses of lessor street railway companies. These amounts are deducted because they do not go to investors in street rail- ways. 3. Interest on unfunded debt, This is presumably paid mostly to banks and will be considered in their income when dealing with that field. 4. Miscellaneous debits. Items under this head are stated by the Cen- sus to consist mainly of taxes on securities, losses incurred, etc. These items evidently are deductions from the amounts going to investors in the street railway field. Table 12A shows the net results of these calculations for the Census years. 148 STREET AND ELECTRIC RAILWAYS 149 TABLE 12A THE SHARE OF SECURITY AND PROPERTY OWNERS IX THE NET VALUE PRODUCT OF THE STREET AND ELECTRIC RAILWAYS OF THE CON TINENTAL UNITED STATES IN Till. CENSUS YEARS (Values in Thousands of Dollars ) a See text for description. b U. S. Census of Street and Electric Railways for 1917, pp. 13-14. c U. S. Census of Street and Electric Railways for 1907, pp. 123-125; 142. d U. S. Census of Street and Electric Railways for 1912, pp. 236; 245; 250. « U. S. Census of Street and Electric Railways for 1917, pp. 1 I; 7s; 83. /The interest on the unfunded debt was estimated at 9.9' ' of all interest, this being an average of the percentages for 1907 and 1917. The estimated amount for 1912 was 9,710 thousands of dollars. The interpolation of the share of entrepreneurs and other property owners for the intercensal years is shown in Table 12B. It is based upon the assumption that changes in the net share are proportionate to changes in the net operating revenue of the companies. Since the two quantities are so nearly identical, the error from this assumption is certain to be slight. The figures for net operating revenue for intercensal years since 1913 are taken from the estimates made by the Deputy Public Service Com- missioner of New York. These estimates are said to have been made after extensive investigation. For the years 1909 to 1913 inclusive, he presents no information; hence use has been made of a compilation of the data shown in the annual reports of a number of the leading street railways of the United States. It is believed that the final estimates derived in the manner just stated are close to the truth and are sufficiently accurate for all practical pur- poses. The figures appear in Table 12B. 150 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 12B THE ESTIMATED AGGREGATE OF THE INTEREST, RENT, DIVIDENDS, AND SAVINGS OF THE STREET AND ELECTRIC RAILWAYS OF THE CONTINENTAL UNITED STATES (Values in Thousands of Dollars) A B C Interest, divi- dends. and sur- plus of 28 typi- cal com- panies b $45,855 52,189 55,310 58,150 61,430 D E F G Ratio of F toE H Year Net operating revenue of all com- panies; census figures a Ratio of B toC Estimated net operating revenue BX D Sum of interest dividends rent and surplus; Census years / Estimated sum of in- terest dividends rent and surplus EX G 1907. . . . 1909. . . . 1910.. . . 1911.. .. 1912. . . . 1913.. .. 1914.. . . 1916.. . . 1917.. . . 1918. . . . $166,879 234,615 257,230 3.639c 3.71.V 3.748d 3 . 785 d 3.819c $166,879 a 193,900 207,300 220,100 234,615 « 239,138 c 243,661 e 248,185 « 252,707 c 257,230 a 155,669* $132,138 188,885 2)5,159 .792 c .799? .801? .8049 .805 c .805fl .804ff .802(7 .803!/ .793 c .791'/ $132,138/ 154,800 166,100 177,000 18S.885/ 192,400 195,900 199,100 202,100 205,159/ 123,630 a U. S. Census of Street and Electric Railways, for 1917, pp. 13-14. b Computed from data appearing in Poor's and Moody's Manual of Statistics. c Computed. d Interpolated along a straight line. e Estimated by Alfred M. Barrett, Public Service Commissioner of New York. See Annalist, Jan. 5, 1920, p. 22. /See Table 12 A. g Read from a smooth curve. § 12c. Share of the Employees The Census reports separately wages and salaries for the different Census years, but it is stated that the distinctions between the two have perhaps changed somewhat and hence are of little value. For this reason, both are here combined. Since data for the intercensal years 1909, 1910, and 1911 are unavailable, estimates for those years have been made on the assumption that wages have varied along a smooth curve. In an indus- try as stable as that of street railways, and in a period characterized by no radical changes, this method should be fairly accurate. For the later years, the estimates of wages used are those furnished by Public Service Commissioner Barrett, and by the statistician of the American Electric Railway Association. Table 12C sets forth the evidence as it appears. STREET AND ELECTRIC RAILWAYS 151 TABLE 12C THE ESTIMATED DIVISION OF THE VALUE PRODUCT OF THE STREET AND ELECTRIC RAILWAYS OF THE CONTINENTAL EXITED STATES (Values in Thousands of Dollars) Per cent of Wages and salaries paid Rents, interest, Total value value product Year dividends, and surplus A product of industry » going to employees, as wages and salaries 1907 $150,991 a $132,138 283,129 53.3 1909 170,900/ 154,800 325,700 52.5 1910 180,960/ 166,100 347,060 52.1 1911 191,400/ 177,001) 368,400 52 . 1912 200,891 a 188,885 3S9.776 51.5 1913 213,950 a 192,400 406,350 52.7 1914 223,930 cb 195,900 419,830 53.3 1915 222,220 cb 199,100 421,320 52.7 1916 242,250* 202,100 444,350 54.5 1917 267,240 a 205,159 172,399 56.6 1918 313,749 c 123,600 137,349 71.7 a U. S. Census of Street ami Ehclrir Railu-n/s for 1917, p. 13. b Estimated from Aera, on basis of percentage change in cost of conducting trans- portation. c Aera, Mar. 1917, p. 925. d Aera, Mar. 1918, p. 795. e Estimated. in Aera, Aug. 1919, pp. 47-52. / Interpolated along a smooth curve a Assumed to varv in proportion to operating expenses: see Barrett, Alfred M., Annalist, Jan. 5, 1920, p. 22. h See Table 12B. * Sum of two preceding columns. § 12d. Corporate Savings Table 12C shows that, at the close of the period studied, there was a great increase in the share of the employees as contra ited with ;i sharp contraction in the share of property. As a rule, the corporate owners reserve a certain proportion of earnings as savings or "surplus." In l'.HS. however, the surplus disappeared and part of the distribution to stock and bond holders was made out of previous savings. The estimates of the surplus for other years than those covered by the Census are interpolated on the basis of the reported surpluses of the twenty-eight representative companies previously mentioned and of the estimates of Public Service Commissioner Barrett. The figures appear in Table 12D. They show that the percentage of corporate 1 earnings saved fell sharply after 1911, but that about one-twentieth of the income was saved up to 152 THE ESTIMATE BY SOURCES OF PRODUCTION 1918, when a deficit occurred about equal to the savings of a normal year in the decade. TABLE 12D THE ESTIMATED CORPORATE SAVINGS OF THE STREET AND ELECTRIC RAILWAY COMPANIES OF THE CONTINENTAL UNITED STATES (Values in Thousands of Dollars) A B C D E F G Year Surplus of all com- panies in census years a Surplus of 28 typical companies b Ratio of B toC Estimated savings of all com- panies CXD Total share of entre- preneurs and property / Per cent of share of en- trepreneurs and prop- erty owners saved by corpo- rations, as surplus E -S--F 1907 . . . 1909 . . . 1910 1911. . . 1912. . . 1913. . . 1914. . . 1915. . . 1916. . . 1917. . . 1918. . . $14,303 16,663 8,506 $7,038 7,261 8,968 9,117 9,550 6,392 2.032c 1 . 920 d 1 861 d 1.801d 1 745 c 1.686** 814,303 a 13,940 16,690 16.420 16,663 a 10,770 13,300 e 11,700 « 10,000 e 8,506 o -12,100 « $132,138 154,800 166,100 177,000 iss.ssr, 192,403 195,900 199,100 202,100 2D5.159 123,600 10.8 9.0 10.0 9.3 8.8 5.6 6.8 5.9 4.9 4.1 —9.8 a U. S. Census of Street and Electric Railways, 1917, p. 14. b Compiled from Poor's and Moody's Manuals. c Computed. d Interpolated along a straight line. f Adjusted slightly to include surplus of lessor companies, but primarily the estimates of Alfred M. Barrett, in the Annalist, Jan. 5, 1920, p. 22. / See Table 12B. § 12e. Average Annual Earning of Employees The next question of interest is whether the average annual earnings of the employees attached to the industry are, in general, growing larger or smaller as the years pass. Since the purchasing power of the dollar has changed so greatly during the decade, it is also essential that the nominal money wage received by the average employee attached to the industry be divided by a suitable price index in order to ascertain the relative amount^ which the various money payments would purchase on the dates when they were made. These two processes have been carried out in Table 12E. S STREET AND ELECTRIC RAILWAYS 153 TABLE 12E THE AVERAGE NUMBER OF KLECTRIC RAILWAY EMPLOYEES AND THE AVERAGE ANNUAL PAY WHICH THEY RECEIVE FROM THE EMPLOY- ING COMPANIES A B C D E F G II Year Estimated average number of employees actually at work/ 1 Istimated fraction of full time worked on the average'' Estimated number of employees at taehed to industry B-HC Estimated total wa ■ ami salaries " (Thousands) Average money earnings per year '' EvD Average price index of goods consumed by manual and clerical workers e Purchasing power of annual earnings at prices oi 1913 F-hG 1907 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 221,429(7 251,800/ 266,100/ 273,600/ 282,461 a 284,100/ 278,200 / 276,000 / 292,300 / 294,826 o 292,400/ .987 .968 .977 .970 .978 .971 . 942 .929 .982 .986 .977 224,300 b 260,000 c 272,200 e 282,000 e 289,000 6 292,500 c 295,000 e 296,700 c 298,000 c 299,0006 299,700 c SI 70,900 180,960 1! 11, 400 200,891 213,950 223,930 222,220 242,250 2i '.7, 2 J n 313,749 S657 665 679 695 731 759 749 813 VI 1 1047 95 5 97 8 98 1 99 1 100. 101. 103. 110. 129. i:.s $688 680 690 699 731 751 727 739 693 663 a See Table 12C. b Equals B -=- C. c Read from a smooth curve. d Derived by means of a special study; se s § 2d. e Bureau of Labor index for middle of year, c intinued back from 1913 to 1999 by special investigation by this Bureau; see Table 2C. / Equals C X D. o U. S. Census of Electric Railways, 1917, p. 13. The fractions which have been estimated as representing the propor- tions of those normally employed, who are at work, are based upon rather slender evidence. Probably, however, they do not diverge far from the truth. Their derivation is described in Chapter 2. The results of the computations recorded in Table 12E show a distinct increase in the purchasing power of earnings during the first half of the decade and an equally distinct decline from 1914 to 1918. The conclu- sion must be that, during the latter period, either the employee- grew worse off economically, or else there was a lowering in the grade of labor employed. § 12f. Purchasing Power of Share of Security Holders and Property Owners It seems probable, then, that the employees were not quite as well off in 1918 as in 1909, but how about the investors? Owing to the variations in 154 THE ESTIMATE BY SOURCES OF PRODUCTION the price level, a mere statement of the number of dollars which the latter received throws but little light upon the question. It is essential that the amounts in money be reduced to a basis of purchasing power, if an intelli- gent answer is to be given. This has been done in Table 12F. The price index used for the correction represents approximately the changes in the value of consumption goods used by the wealthy, since the majority of the stock in most corporations is held by persons having large incomes. TABLE 12F THE PURCHASING POWER OF THE BUSINESS SAVINGS AND OF THE DISBURSEMENTS MADE TO THE PROPERTY OWNERS FROM THE NET VALUE PRODUCT OF THE STREET AND ELECTRIC RAILWAY INDUSTRY (Values in Thousands of Dollars) Corporate savings Bond interest, dividends, and rent Year Actual value b Index of construc- tion costs a Value at prices of 1913 « Actual amount paidc Index of prices of articles used by families spending $25,000 annually d Value at prices of 1913 e 1909 . . 1910 . . 1911 . 1912 . . 1913 . 1914 . . 1915 . . 1916 .. 1917 .. 1918 . . $13,940 16,690 16,420 16,663 10,770 13,300 11,700 10,000 8,506 —12,100 .927 .953 .945 .983 1.000 .960 .992 1.194 1.473 1.499 $15,038 17,513 17,376 16,951 10,770 13,852 11,794 8,375 5,775 -8,067 $140,860 149,410 160,580 172,222 181,630 182,600 187,400 192,100 196,653 135,700 .973 .988 .995 1.000 1.000 1.010 .996 1.074 1.198 1.364 $144,769 151,225 161,387 172,222 181,630 ISO, 792 188,152 178,864 164,151 99,487 a Data derived from reports of the United States Bureau of Labor Statistics. Weights used: Building labor 3, metals and implements 2, building materials 1. b See Table 12D. c Entire share of propertied classes less corporate savings; see Table 12B. d Derived by a special study; see Table 2E. e Obtained by dividing the money values by the price index. Table 12F shows how very sharp has been the fall in the purchasing power of the income of the investors in street railways. Much more calcu- lation is necessary to ascertain the decline in the real earnings per dollar invested. However, it seems quite certain that the investment has been all the time increasing rather than diminishing; hence it is evident, that from 1910 to 1918, street railway securities were constantly giving poorer and poorer returns on the investment. STREET AND ELECTRIC RAILWAYS 155 § 12g. The Average Output per Employee Another query of interest is whether the output per employee has been increasing or diminishing during the decade under discussion. An increase in output might he due either to greater efficiency in management, better equipment, or greater skill or effort on the part of the employees. At present, only the facts and not the causes will be considered. The best measure of output is believed to be the car mile, which also seems to repre- sent the best criterion of service rendered by the company. Cars have changed only moderately in size during the decade under discussion but there has apparently been some increase in capacity and it is not certain that the number of passengers crowded into a car may not have varied greatly. No record of seat miles is obtainable; hence the car mile is used as the nearest approximation to this ideal measure of service rendered. Table 12G shows roughly the facts both as to service per employee and service rendered per capita for the population of the Continental United States. TABLE 12G THE ESTIMATED NUMBER OF REVENUE CAR MILES PER EMPLOYEE AND PER CAPITA FOR THE STREET AND ELECTRIC RAILWAYS OF THE CONTINENTAL UNITED STATES Year Revenue car miles (Thousands) 1,617,731a Number of employees actually at work/ Revenue car miles per employee Population of Continental Unit <-i 1 States ■> (Thousands) 87,321 « Revenue car miles per inhabitant of the United States 1907 221,429 7,303 IS. 53 1909 1,725,000 b 251,800 6,851 90,370 19.09 1910 1,785,0006 266,100 6,708 92,229 19.35 1911 1,845,000 6 273,600 6,743 93,811 19.67 1912 1,921,620 a 282,461 6,803 95,338 20.16 1913 _'.il()0,0006 28 1.100 7,040 97,278 20.56 1914 2,068,000 c 278,200 7.!:'.! 99,194 20.85 1915 2,022,00 1 276,000 7,326 100,428 20 13 1916 2,1 10,000 d 292,300 7,219 101,722 20 7 1 1917 2,139,802 a 294,826 7,258 103,059 20 76 1918 2,051,356 ' 292,400 7,013 104,182 r.i 69 a Census of Electric Railways, 1017, pp. 12-13. 6 Roughly estimated by aid of a smooth curve. c Estimated from tallies in Aera, March, 1917, p. 925. d Estimated from tables in Aera, March, 1918, p. 796. e Estimated from records of 345 companies; see Aera, Aug 1919, p. 17. /See Table L2E. g Figures derived from a special study; see § 2a. ' Statistical Abstract of the U. S., 1918, p. 776. 156 THE ESTIMATE BY SOURCES OF PRODUCTION Tabic 12G indicates that the output per employee declined noticeably from 1907 to 1910, that, after that date, it varied irregularly, but in most years did not differ greatly from the 1907 rate. Since cars have probably increased somewhat in size it is not unlikely that the passenger miles per employee were greater in number in 1918 than in 1907. As to the effort involved in moving a car a mile, it may be noted that it has been affected by several varying forces. Larger cars require more work in collecting fares but improved devices lessen the physical work of manipu- lating the machinery. The car mile may then perhaps be a fairly satis- factory gauge of work performed, even though conditions have changed somewhat during the period studied. § 12h. Relative Growths of Street Car Service and National Population The last column of the table shows that up to 1914 street railway ser- vice was growing faster than population but that since that date the two rates of growth have been about equal, with an actual decline occurring in 1918 in the car mileage per capita. This change in the amount of service per person in the United States has doubtless been the result of several independent forces acting simultaneously. The chief force tending to send the per capita amount of service upward is the relatively rapid growth of the urban as compared to the rural population. This tends to increase the average street car patronage among the general population, for, as cities grow larger, not only must a larger percentage of their inhabitants ride to work, but also each person who rides must, on the average, travel more miles to reach the business district. Two forces acting in the opposite direction which have been especially potent in restricting traffic since 1914 are the increase in the automobile- owning percentage of the population and the competition of automobile busses with the street railways. During the period since 1917, the growth of street railway traffic has been further hampered by the fact that exten- sions could not readily be financed because of low net income arising from fixed rates of fare and higher costs of operation. In 1918, a further re- stricting factor of some moment was the difficulty of obtaining sufficient employees to keep the service in full operation. Despite the decline in service occurring at the close of the recorded period, it seems probable that the car mileage per capita may again increase at a rate similar to that prevailing before 1915. The actual in- crease during the decade in service is probably slightly greater than the figures show, for it is presumably true that the average seating capacity of cars has grown somewhat in the interim. S CHAPTER 13 PRIVATE ELECTRIC LIGHT AND POWER COMPANIES § 13a. The Census Data The Census Bureau secures records from electric light and power com- panies at five year intervals. Censuses were taken in 1907, 1912, and 1917. l This spacing of time is such that estimates for each year of the period under consideration can be made with a reasonable degree of accuracy. The Census data, of course, were not collect ed with a view to answering the questions brought forward in our particular inquiry and hence are not entirely adapted to our needs. It is believed, however, that the official figures afford a basis for estimates that serve the present purpose fairly well. The methods of interpolation used, of course, give only approximation-: but, owing to the advantageous location of the Census dates, it is not likely that they have given rise to errors of any moment. There are doubtless certain inaccuracies in the amounts recorded for the Census years themselves. For example, some rent and some interest on short time loans are doubtless paid to individuals, and employees receive some recompense for injuries. Presumably, however, all of these amounts are quite small. On the whole, it is believed that the figures shown in the study approximate the facts rather closely. The way in which the Census figures have been used is shown in Tabic 13 A. Certain explanations are necessary concerning the nature of some of the items in Table 13A. For the reasons stated in Section 9b, income received as interest or dividends from other companies is not included in the value product of this industry. The income from operations less expense's should give the gain which is to be distributed among the owners of the plants. Interest paid to bondholders is included among "Expenses." To arrive at the gains of all investors, this item should be added to the dividends paid from operating receipts. The Census records small payments for damages and legal expenses. Evidently, money paid for land- flooded or property destroyed represents 'Professor Edniond E. Lincoln of Harvard University, who has turn in charge of this part of the Census, has kindly criticised the results here presented. While he cannot be held responsible for the estimates given, bis suggestions were must helpful and the report has been materially improved by their incorporation. 157 158 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 13A THE CENSUS FIGURES FOR THE ITEMS COMPOSING THE NET VALUE PRODUCT OF PRIVATE ELECTRIC LIGHT AND POWER PLANTS IN THE CONTINENTAL UNITED STATES Millions of dollars Item Census of 1907 1912 1917 Gross Income from Operation Total Expenses d $159.7 a 123.0* $274 . b 216.0/ $477 . 8 c 391. Off Net Profits from Operation $ 36.7 $ 58.0 $ 86.8" Payments to Employees:' $21.2'' 10.7'' $33 . '' 22 . 6 >* $52 0^ 34.4'' Total Payments to Investors : i Interest on Funded Debt. . $31.9 26.8* $55.6 $58.0 40.5' $86.4 $86.9 61.0 m Total $63 . 5 $98 . 5 $147.9 Total Value Product of Industry. . . . $95.4 $154.1 $234.3 Per cent of Value Product Received by Employees 33.4 36.1 36.9 « U. S. Census of Central Electric Light, and Power Stations, 1907, p. 159. In 1912 33.4 per cent of "All Other Income" was from investments. The same percentage (or $1,880,000), has been deducted in 1907. b U. S. Census of Central Elec. Light and Power Stations, 1912, p. 89. c U. S. Census of Central Elec. Light and Power Stations, 1917, p. 155; interest and dividends from investments excluded. d Excludes sinking and reserve funds. « In 1912, sinking and reserve funds constituted 1.69 per cent of miscellaneous ex- penses, hence 1.69 per cent of the 1907 miscellaneous expenses, or $834,000 have been deducted. / U. S. Census of Central Elec. Light and Power Stations, 1912, p. 95. o U. S. Census of Central Elec. Light and Power Stations, 1917, pp. 160-161. h U. S. Census of Central Elec. Light and Power Stations, 1917, p. 120. * There should be included here any amounts paid to employees as compensation for injuries. Professor Edmond E. Lincoln, special statistician for the Census Bureau in this line, assures us that this amount is less than $100,000; hence no entry has been made. i No item is entered under this head for rents because Professor Lincoln states that the amount of rent going to individuals is "wholly negligible" practically all being paid "for stations, equipment of various kinds, use of lines and conduits, water privilege, etc." k United Slates Census of Elec. Light and Power Stations, 1907, p. 61. '4.5% on funded debt, the rate being estimated from the U. S. Census of Central Electric Light and Power Stations for 1917, pp. 103 and 115. m 4.7% on funded debt, the rate being estimated from the references cited under " Fraction over A. <* PRIVATE ELECTRIC LIGHT AND POWER COMPANIES 159 no net gain and therefore adds nothing to private revenues. Some dam- ages doubtless are paid to injured employees, but the amount is stated by authority to be negligible. By the process just described, it is believed that, for the Census years, the respective shares of the value product of the industry going to the persons working for hire and to the persons who take the risk and expect to secure remuneration for the investment of their efforts or property from the residuum of the net receipts have been fairly well differentiated. If the share of the employees is divided by the total value product of the industry and the quotient is multiplied by 100, the resulting product repre- sents the approximate percentage of the value product going to the em- ployees, — a group that, by contract, holds the primary claim against the net product of the enterprise. § 13b. The Net Value Product and Its Distribution Table 13A completes the inquiry for the Census years, but, under the plan of campaign determined upon, it is necessary to estimate the value product and its distribution for each year from 1909 to 1918. Some basis of interpolation is therefore essential. The criteria depended upon for this purpose are derived from the annual reports of 19 typical electric light and power companies as quoted in Moody's Manual. The respec- tive totals of net earnings, operating expenses, interest on funded debt, dividends, and corporate surplus have been calculated for each year from 1907 to 1918 for the entire group of corporations and are recorded in Tables 13B and 13C. It is assumed that the ratio of profits of all concerns to the net earnings of the 19 typical corporations is a relatively stable quantity and that its changes can therefore, be well depicted by a smooth curve determined by the ratios for 1907, 1912 and 1917. Similarly it is assumed that the respec- tive ratios of salaries and wages paid by all plants to the total operating expenses of the 19 selected corporations are relatively fixed, varying along a smooth curve rather than oscillating violently, and that the same holds true of the ratio of bond interest paid by all concerns to the interest on the funded debt reported by the -ample corporations. The treatment of the data according to these assumptions yields the results set forth in Tables 13B, 13C, and 13D. 160 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 13B AN ESTIMATE OF THE TOTAL NET PROFITS OF PRIVATE ELECTRIC LIGHT AND POWER PLANTS IN THE CONTINENTAL UNITED STATES A B C D Ratio of total E Total net Total net profit Estimated d net earnings of 19 of all private net profits to profit of all Year typical electric plants as shown net earnings of private plants companies <* by Census d typical BX D (Thousands) (Thousands) companies (Thousands) 1907 $15,652 $36,704 2 . 345 b $35,704 1909 18,438 2.310c 42,600 1910 21,422 2.303c 49,330 1911 23,023 2 . 300 c 52,950 1912 25,293 58,046 2.2956 58,046 1913 26,884 2.322c 62,420 1914 27,747 2 . 362 c 65,550 1915 31,154 2.420c 75,400 1916 34,585 2.489 c 86,100 1917 33,798 86,857 2.570 6 86,857 1918 33,898 2 . 655 c 90,000 a Compiled from various numbers of Moody's Manual of Corporation Securities. b Computed by division. c Interpolated along a smooth curve. d For references, see Table 13A. ^ PRIVATE ELECTRIC LIGHT AND POWER COMPANIES 1(31 TABLE 13C AN ESTIMATE OF SALARIES AND WAGES PAID BY PRIVATE ELECTRIC LIGHT AND POWER COMPANIES IN THE INTERCENSAL YEARS Total op- Salaries Ratio of Estimated Wages Ratio of Estimated erating ex- paid by salaries total paid by wages total penses of all plants paid by salaries all plan! - paid by all wages Year 19 typical (Census all plants paid by .-ill (Census plants to paid by electric figures d) to expenses plants e figures d) expenses all plants '■ companies "■ (Thou- of typical (Thou- (Thou- of typical (Thou- (Thousands) sands) companies sands) sands) companies sands) 1937. . . $23,571 $10,739 . 456 b $10,739 ^ $21,19o .899 6 $21,196^ 1939. .. 27,740 .541c 15,000 893 c 24,850 1910. . . 31,734 .574 c 18,220 892 c 28,300 1911. . . 33,571 .596 c 20,000 .883 c 29,800 1912. . . 37,338 22,637 .606 6 2_\f>37<' 33,021 .8846 33,021 d 1913. 39,804 .602 c 23,980 .878 c 31,940 1914... 42,458 .593<- 25,190 . S 17 e :; »,800 1915. . . 44,078 .582 c 25,660 .858c 37,800 1916... 50,615 .562 c 28,460 842« 12,600 1917.. . 62,825 34,439 .548 6 34,439 d 52,035 s 1 > b 52,035 d 1918... 72,220 525 c 37,970 .811c 58,550 a Compiled from various numbers of Moody's Manu d of Corporation S • iriti ■ 6 Computed. c Interpolated along a smooth curve. d See Table 13A for references. e Operating expenses of typical companies multiplied by the appropriate ratio. 162 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 13D AN ESTIMATE OF THE PAYMENTS OF BOND INTEREST MADE BY PRIVATE ELECTRIC LIGHT AND POWER COMPANIES IN THE IN- TERCENSAL YEARS A B C D E Year Index of interest on funded debt paid by 15 re- porting cor- porations a Bond interest paid by all plants. (Census figures b) (Thousands) Ratio of C to B Estimated bond interest paid by all plants (Thousands) BXD 1907 1909. . . 20,692 20,038 22,096 23,965 24,520 25,415 24,675 27,055 29,350 30,000 33,382 $26,842 40,450 01,000 1 . 297 e 1.432d 1.503^ 1 . 575 d 1.650c 1 . 724 d 1.800 d 1 . 880 d 1 . 957 d 2.033c 2.108^ $26,842 28,705 33,218 37,757 40,450 43,816 44,415 50,861 57,453 61,000 1910 1911. . . . 1912. . 1913. 1914 1915 1916.. . 1917.. 1918 70,368 a Compiled from various numbers of Poor's and Moody's Manual of Public Utilities. b For references, see Table 13A. c Computed by division. d Read from a smooth curve. It is of interest to note the fact that the industry shows an unusually steady increase in all lines throughout the decade. Profits, wages, and bond interest have each nearly trebled. No violent fluctuation appeared anywhere. The next step in the usual procedure followed in these studies is to divide the total share of entrepreneurs and property owners into two parts ; namely, disbursements, and business savings. This apportionment has been based upon the proportionate division of the net gain of the previously mentioned reporting corporations between dividends and corporate savings. The corporations were separated into three classes based upon size. Ratios were separately computed from the totals of each class and the arith- metic average of these three ratios is the quantity here presented. This method prevents the domination of the results by the large corporations which probably form a much larger proportion of the sample than of the industry as a whole. ** PRIVATE ELECTRIC LIGHT AND POWER COMPANIES 163 TABLE 13E AN ESTIMATE OF THE TOTAL DISBURSEMENTS MADE TO THE STOCK AXD BOND HOLDERS BY PRIVATE ELECTRIC LIGHT AND POWER PLANTS A B C D E F , G Calendar year Xct profits of all com- panies « (Thou- sands) Fracl ion of uel profits saved by sample cor- porations Savings of all concerns (Thou- sands) CXB Dividends of all concerns (Thou- sands) B — D Bond interest paid by all concerns b (Thou- sands) Total dis- bursements ments to stock and bond holders (Thou- sands) E + F 1907 1909 1910 1911 1912 1913 1914 1915 1916 1917. 1918 $36,704 42,000 49,330 52,950 58,040 62,420 65,550 75,400 86,100 86,857 90,000 .5346 .3072 .3634 3251 .2974 .3208 . 1939 .3064 .3691 . 2888 .225:; $19,622 13,087 17,925 17,215 17,203 20, 021 12,710 23,104 31,784 25. 088 20,282 $17,082 29.51:; 31,405 35,735 40,783 42,396 52,840 52.290 54,316 61,769 69,71s $26,842 28,705 33,218 37,757 40,450 43,816 11.115 50,861 57,453 61,000 70,368 $43,924 58,21s 64,623 73,492 81.233 86,212 97.255 103,157 111,769 122,769 HO.OSli a See last column of Table 13B. b See Table 13D, Column E. It is now in order to measure the purchasing power of that share of the total value product of the industry which was paid to the stock and bond holders. This is done in Table 13F. 164 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 13F THE PURCHASING POWER OF THE SHARE OF THE STOCK AND BOND HOLDERS IN THE VALUE PRODUCT OF PRIVATE ELECTRIC LIGHT AND POWER PLANTS A . B C D E F G Corporate savings Interest and dividends paid Calendar year Thousands of dollars o Index of construc- tion costs b Value at prices of 1913 (Thou- sands) B C Thousands of dollars c Index of prices of goods used by the wealthier classes d Value at prices of 1913 (Thou- sands) E F 1909 .... 1910. . . . 1911 1912 1913. . . . 1914 1915 1916 1917 1918 $13,087 17,925 17,215 17,263 20,024 12,710 23,104 31,784 25,088 20,282 .927 .953 .945 .983 1.000 1.013 1 . 002 1 . 088 1 . 252 1.448 $14,118 18,809 18,217 17,562 20,024 12,547 23,058 29,213 20,038 14,007 $58,218 64,623 73,492 81,233 86,212 97,255 103,157 111,769 122,769 140,086 .965 .983 .990 1.000 1.000 1.011 0.999 1.081 1.225 1.406 $60,330 65,741 74,234 81,233 86,212 96,197 103,260 103,394 100,220 99,634 a See Table 13E, Column D. b Indices derived from Bureau of Labor Statistics combined, with weights assigned as follows: Building labor 3, Metals and metal products 2, Building materials 1. c See Table 13E, Column G. d An average of the indices for those classes spending respectively $5,000 and $25,000 annually for consumption goods. See § 2c. Table 13F indicates that when price variations are eliminated corpo- rate savings show little difference at the beginning and end of the decade ; but that the disbursements to investors rose sharply during the first half of the period and then became nearly stationary, presumably because of the prevalence of relatively fixed rates in the face of rising costs of operation. Table 13G is devoted to showing the fraction of the net value product going to the employees. S PRIVATE ELECTRIC LIGHT AND POWER COMPANIES 165 TABLE 13G THE ESTIMATED TOTAL VALUE PRODUCT OF PRIVATE ELECTRIC LIGHT AND POWER PLANTS AND ITS DISTRIBUTION (Continental United States, 1909-1918) (Values all in thousands of dollars) Share of stock and bond holders Share of employees. Salaries and wages e Total value product of industry d Per cent Year Retained in business a (Savings) Amounts withdrawn from business b Total of value product going to employees 1907 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 $19,622 13,087 17,925 17,215 17,263 20,024 12,710 23,104 31,784 25,088 20,282 $43,924 58,218 64,623 73,492 81,233 86,212 97,255 103,157 111,769 122,769 140,086 $63,546 71,305 82,548 90,707 98,496 106,236 109,965 120,261 143,553 147,857 160,368 $31,935 39,850 46,520 49,800 55,658 58,920 61,990 63,460 71,060 86,474 96,520 $95,431 111,155 129,068 140,507 15 1.1 51 165,156 171,955 189,721 214,613 234,331 256,888 33.5 35 . 8 36.0 35.4 36.1 35 . 7 36.0 33.4 33.1 36.9 37.6 a See Table 13E, Column D. b See Table 13E, Column G. c Derived from Table 13C by combining wages and salaries. d Sum of two preceding columns. It is clear that the employees receive a smaller share of the value product in this industry than in most other fields. This may be due to the large amount of investment per employee, the small amount of labor required per unit of output, or perhaps to some other reason. That it is not pri- marily the result of paving much lower average wages than other industries is indicated by the entries in Table 13H. 166 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 13H AN ESTIMATE OF THE AVERAGE ANNUAL EARNINGS OF EMPLOYEES OF PRIVATE ELECTRIC LIGHT AND POWER COMPANIES A B C D E F G H Call n- dar year Average number of em- ployees actually at work Fraction of those attached to in- dustry actually working Number attached to in- dustry B C Total wages and sal- aries paid c (Thou- sands) Average annual earnings per em- ployee 6 at- tached to industry E D Index of prices of goods con- sumed by manual and clerical workers / .955 .978 .984 .994 1.000 1.01 1.03 1 10 1.29 1.58 Annual average earnings at prices of 1913 F G 1907. . .. 1909. .. . 1910 .. . 1911. .. . 1912. . . . 1913. . . . 1914. ... 1915. ... 1916. . . . 1917. . . . 1918. . . . 42,066 a 71,395 a 94,679 a .96 6 .98 6 .97'' 43,920^ 55,000 d 60,500'/ 67,000'/ 72,830 e 78,500 d 84,100'/ N'.t.OOO'/ 94,000'/ 97,700'- 101,500'/ $31,935 39,850 46,520 49,800 55,658 58,920 61,990 63,460 71,060 86,47 t 96,520 $727 725 769 743 764 751 737 713 756 8S5 951 $759 786 755 769 751 730 692 687 686 602 a U. S. Census of Electric Light and Power Stations, p. 120. 6 Roughly estimated. c Computed by division. d Interpolated' along a smooth curve. ' See Table 13G. / Bureau of Labor Statistics index carried back by means of a special study; see Table 2C. It is evident that the purchasing power of the average earnings has failed to keep pace with the rising price level. Whether this is due to the substitution of a poorer grade of employees or a failure to raise wage rates in proportion to the increase in the price level is not indicated by the data at hand. It seems impracticable to measure with any degree of accuracy the output per employee or per capita for other periods than the Census years. Those years are so spaced, however, that a comparison based thereon answers many of the essential queries. The data appear in Table 131. S PRIVATE ELECTRIC LIGHT AND POWER COMPANIES 167 TABLE 131 NUMBER OF KILOWATT HOURS PRODUCED PER EMPLOYEE AND PER CAPITA BY PRIVATE ELECTRIC LIGHT AND POWER PLANTS a U. S. Census of Central Electric Light and Power Stations, 1917, pp. 7~> and 120. 6 Estimated by means of a special study; sec § 2a. c Census estimate quoted in Statistical Abstract of U. S., 1910, p. 076. A glance at the table shows a remarkable increase in the amount of cur- rent generated for each employee at work, and also for each person in the country. Whether any part or all of the increased production per employee is due to greater diligence on the part of the average worker could only be determined by further investigation. It is clear that electrical energy produced by commercial plants is playing a rapidly increasing role in meeting the power requirements of our industries. CHAPTER 14 TELEGRAPHS 1 § 14a. The Census Figures The Telegraph industry was covered by the Census in 1907, 1912, and 1917, years admirably located so far as the period 1909 to 1918 is concerned and the figures are in a form so well adapted to the needs of this investiga- tion that estimates for the Census years may be made with reasonable accuracy. The Census presents the figures for wireless telegraphs in a cat- egory separate from that dealing with land telegraphs and ocean cables, but all have been combined in the study here presented. Table 14A covers the Census data. § 14b. Disbursements to Stock and Bond Holders The entries in Table 14A are presumably fairly close to the truth. The next problem is to interpolate estimates for the intercensal years. Most of the telegraph industry is in the hands of the Western Union and the Mackay Companies; hence it would seem an exceedingly simple matter to use their records for the purpose mentioned. As a matter of fact, accurate interpolation by this method is impossible. Some of the obstacles are as follows: 1 . The Mackay Company is a holding company and it does not present a consolidated account or reports for most of its subsidiaries. 2. Much of the recorded business of both companies has apparently been excluded from the Census, the reason for the exclusion not being ascertainable, but presumably duplication in accounts has been discovered. 3. The accounts of the Mackay subsidiaries are not presented in suffi- cient detail to answer our purposes. 4. The fiscal years of the corporations do not correspond with the calen- dar years. The net result is that the corporation reports and Census figures for the same years show no resemblance to each other. It has, however, been felt that the use of the corporation statistics, unsatisfactory as they are, will give slightly better results than would direct interpolations along smooth curves — hence the usual procedure has been followed, the criteria chosen being indicated in the tables. The reader is warned, however, against 1 Mr. William A. Countryman of the Census Bureau has been kind enough to read over this report and offer valuable suggestions, most of which have been adopted. 168 TELEGRAPHS TABLE 14A 1G9 THE ESTIMATED VALUE PRODUCT IN THE CENSUS YEARS OF THE TELEGRAPH INDUSTRY IN THE CONTINENTAL UNITED STATES Year 1907 1912 1917 Dividend Payment s.« (Thousands) $ 7,477 2,653 $ 6,180 2,769 S 9,928 2,584 Total Payments for Interest and Dividends (Thousands Receipts of Interest and Dividends from Other Corpo- $10,130 1,415 $ 8,949 780 $12,512 2,547 Interest and Dividend Payments Originating in the Telegraph Industrv. (Thousands) $ 8,715 1,221 S 8,169 1,686 S 9,965 _'. I9S Rent of Offices and Real Estate.** (Thousands) Total Disbursements to Property Owners. (Thousands) Savings e of All Companies/* (Thousands) $ 9,936 2,173 $ 9,855 209 $12,463 8,625 $12 109 $10,064 $21, OSS $17 890 $25,609 50* $40,105 330* Estimated Other Compensation to Employees^ (Thou- sands) 10'< $ 1 7 900 $25,659 $40,435 Average Number of Emplovees Actually at Work Average Pull-time Annual Compensation per Employee 28,210 $635 38,253 s< 171 52,160 $775 SUMMARY, Total Share of Property. (Thousands) Total Share of Employees. (Thousands) $12,109 17,900 $10,064 L'."»,659 $2 LOSS 40 435 Total Value Product of Industrv. (Thousands) Per Cent of Value Product Going to Employees $30,009 59.6 $35,723 71.8 $61,523 65 6 T. = United States Census of Telegraphs. a T. 1917, pp. 16, 23, and 25. 6 T. 1917, pp. 16, 23, and 25; a study of the income statements of the Western Union and Mackay Companies shows thai practically the entire amount recorded by the Census as "Interest" must be bond interest. The items here given fail to include the mortgage interest paid by the wireless companies. The exact amounts are unknown but they are too small to be of moment. c T. 1917, pp. 16, and 25. The consolidated balance sheet shows such large holdings fif securities that apparently the Census item "Income from other sources" must con- sist primarily of bond interest and dividends; see T. 1!U7, pp. 22 23. This item is not reported for wireless companies; hence it is assumed to be* negligible and is omitted from consideration. d T. 1917, pp. 17 and 23. A small item was added in each year for estimated rent paid by wireless stations. The estimates were tit), 56, and 63 thousands of dollars for the respective Census years beginning with 1907. The estimates were based on as- sumed annual rents per station of 8500 in 1007, §750 in 1912, and $1,000 in 1917. The final estimate of total gross rents was multiplied by 0.7 in order to obtain a figure for net rents, the 0.3 being allowed for repairs, depreciation, etc. c Commonly called "Corporate surplus." /T. 1917, pp. 14, 22, and 25. 170 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 14A NOTES— Continued^ g Pensions, compensation for injuries, etc. /( Pure guesses. » An organized system of benefits was initiated by the Western Union Co. in 1916; for amount, see Standard Corporation Record card for 1920, No. VV1. attaching too great importance to apparent fluctuations from year to year as, in some instances, such variations in the figures are doubtless due wholly to purely accidental errors. Were it not that the data are all tied TABLE 14B THE ESTIMATED GROSS DISBURSEMENTS IN THE FORM OF DIVIDENDS AND INTEREST ON THE FUNDED DEBT MADE BY ALL TELEGRAPH CORPORATIONS IN THE CONTINENTAL UNITED STATES Dividend payments in thousands Interest payments in thousands of dollars of dollars A B C D E F G II I Divi- Interest Esti- plus Combined Esti- paid by mated interest Census dividends mated Census Western interest (Thou- Cal- figures, of West- Ratio divi- figures, Union Ratio on sands of endar all ern Union of dends of all and the of funded dollars) year com- and B toC all com- com- Com- F to G debt of E + I panies a Mack ay CosM panies DXC panies a mercial ( lablec all com- panies CosM GXH 1907 7,477 6,947 1 . 070 d 7,477 a 2,653 9,576 .2770-/ 2,653 a 10,130 1909 6,62:1 ,933<" 6,180 9,710 .2861 « 2,778 8,958 1910 7,05!) . 894 e 6,310 9,711 . 2887 « 2,804 9,114 1911 7,060 . 88 1 ' 6,240 9,700 .2901e 2,814 9,054 1912 6,1X0 7,061 S75 d 6,180a 2,769 9,503 .2914d 2,769 a 8,949 1913 7,061 .872« 6,160 9,337 . 2900 e 2,708 8,868 1914 8,058 . 872 e 7,026 9,337 . 2870 e 2,680 9,706 1915 9,055 .871* 7,887 9,336 2823 e 2,636 10,523 1916 10,054 . 870 e 8,747 9,332 ■2775 <■ 2,590 11,337 1917 9,928 11,407 .870d 9,928 a 2,584 9,332 .2769d 2,584 a 12,512 1918 11,371 . 868 e 9,865 9,332 . 2760 e 2,576 12,441 1919 11,338 867 « 9,835 9,332 . 2754 e 2,570 12,405 a See Table 14A. The Census apparently excludes interest charges on bonds secured by foreign cable lines and dividends paid to foreign investors. b Figures for fiscal years 1907 to 1912 inclusive adjusted to calendar years by aver- aging. Data from Poor's and Moody's Manuals of Public Utilities. c The Commercial Cable Co. is a subsidiary of the Mackay Cos. d Computed. e Read from a smooth curve. to the Census at five year intervals, the whole study might well be regarded as practically worthless. As it is, it cannot well go far astray in the rela- tively brief spaces of time intervening between Census years. Not all of the payments to stock and bond holders are made from income ^ TELEGRAPHS 171 originating in the Telegraph field, for Telegraph Companies hold many income bearing securities of outside concerns. Income derived from these securities must be deducted, .since, according to our plan of operation, it is assigned to the field in which it originates and must not be duplicated. Some of these receipts may represent merely intercorporate payments TABLE 14C THE ESTIMATED NET DISBURSEMENTS OF DIVIDENDS VXD INTEREST OX THE FUNDED DEBT MADE BY ALL TELEGRAPH CORPORATIONS IN THE COXTIXEXTAL UNITED STATES A B c D E F o ( lalendar year Receipts from dividends and bond interest of other corpora- tions in Census years a (Thou- sands) $1,415 780 2,517 Income of WCstern Union ( 'o. from loans and invest- ments (Thou- sands) Hat LO of BtoC Estimated income of all com- panies from divi lends and bond interest (Thou- sands) CXD ( rross divi- dends and interesl on funded debt paid/ (Thou- sands Payments of dividends and interest on funded debt originating in telegraph industry (Thousands) F — E 1907 1909 1910 1911 L912 1913 Kill 1915 L916 1917 litis 1919 $1,460 e 1,640 c 1,408 6 1,5036 1,1826 1,116 6 1,0236 1,3046 1.702 6 1,4856 1,3916 1,607 6 .97 d .NO' . 75 ■ .70* .66 ' .73« 93 e 1.30« 1 DO-' 1 72'/ 1.80 1 86 « •81,415 1,311 1,055 1,051 780 815 952 1,697 2.725 2,5 17 2,510 2,993 810,130 8,958 9,11 1 9,054 8,949 8,8uS !>.706 10,523 1 1 .337 12,512 12.111 12,405 $8,715 7,647 8,059 8,003 8,169 8,053 8,754 8,826 8,612 9,965 9,931 9,412 a See Table 14 A. 6 Moody's Manual of Public Utilities for 1920, pp. 1130 1 L32. c Assumed that ratio of this income to that of 1910 is the same as the ratio of net earnings for the same years — data are missing. d Computed. e Read from a smooth curve. /See Table 14B. within the industry. Such payments, of course, must be eliminated. Table 14C represents an attempt to get rid of all duplication and arrive at the actual net disbursements made in the form of interest and dividends. To the net disbursements in the form of dividends and interest must be added the rents paid for offices and real estate if we are to arrive at the 172 THE ESTIMATE BY SOURCES OF PRODUCTION total net payments going to individuals who have property claims against the industry. Rents have been assumed to vary roughly in proportion to the gross revenues of the Western Union Company, the theory being that more business requires more office space and that gross revenues measure TABLE 14D THE ESTIMATED TOTAL DISBURSEMENTS TO ENTREPRENEURS AND OTHER PROPERTY OWNERS MADE BY THE TELEGRAPH INDUSTRY OF THE CONTINENTAL UNITED STATES A B C D E F G Total dis- Net pay- bursements Rent of Gross earn- Estimated rent paid for offices (Thousands) CX D ments of to entre- Cal- offices and ings of dividends preneurs endar real estate Western Ratio of and interest and other year in Census years a Union Company & B toC on funded debt g property owners (Thousands) (Thousands) (Thou- (Thou- sands) sands) E + F 1907.. $1,221 $30,719 .0397d $1,221/ $8,715 $ 9,936 1909. . 31,647 .0393e 1,244 7,647 8,891 1910.. 34,116 . 0390 e 1,331 8,059 9,390 1911. . 38,570 . 0387 « 1,493 8,003 9,496 1912. . 1,686 44,024 . 0383 d 1,686 / 8,169 9,855 1913.. 45,784 . 0374 « 1,712 8,053 9,765 1914.. 46,21 i5 . 0360 <■ 1,666 8,754 10,420 1915.. 51,172 . 0345 « 1,765 8,826 10,591 1916. . 61,919 . 0334 « 2,068 8,612 10,680 1917. . 2,498 76,996 . 0324 d 2,498 / 9,965 12,463 1918. . 86,702 h .0319" 2,766 9,931 12,697 1919. . 103,756 c .0315 «■ 3,268 9,412 12,6S0 a See Table 14A. b Amounts for fiscal years 1907-1912 averaged to obtain estimates for calendar years. Data derived from Poor's and Moody's Manuals of Public Utilities. c Data from card issued Jan. 17, 1921, by Standard Corporation Service. d Computed. e Read from smooth curve. / Census figures — see Table 14A. o See Table 14C. * Other income of $1,391,128 subtracted from gross income as reported in Statistical Abstract of U. S. for 1919, p. 321. "Other Income" reported in Moody's Manual of Public Utilities for 1920, p. 1161. the value of business done. It has also been assumed that 30 per cent of the gross rent is necessary to cover expenses of operating the buildings and allowances for depreciation, leaving only 70 per cent as net income from the investment in the buildings and land. The final estimates appear in Table 14D. ^ TELEGRAPHS 173 § 14c. Corporate Savings The estimates presented in the preceding tables, while probably inac- curate, nevertheless presumably approach the truth. No estimate is, however, complete if the corporate savings are left out. It may be true that these companies have saved much in addition to their normal surplus by charging improvements to operating expenses. Whether this possi- TABLE HE THE ESTIMATED TOTAL SHARE OF THE ENTREPRENEURS AND OTHER PROPERTY OWNERS IN THE VALUE PR< >DUCT ( >F TELEGRAPH ( '< >M PANIES IN THE CONTINENTAL UNITED STATES, A CRUDE APPROXI- MATION TO THE CORPORATE SAVINGS OF THESE COMPANIES BEING INCLUDED Amounts in Thousands of Dollars Total disburse- Reported Total dis- ments to Calen- Corporate surplus of Estimated bursements propertied dar savings, as Marconi, corporate of interest on classes and cor- year reported by Mackay, and savings of all funded debt, porate surplus the Census a Western Union companies dividends (Sum of two Companies b and rent e preceding columns) 1907. . $2,173 $ 111 12,173 c S 9,936 §12,109 1909 . 2,758 5,000 d 8,891 13,891 1910. . 2,507 4,200 d 9,390 13,590 1911. . . 1,728 2,500<* 9,496 11,996 1912. . . 209 820 209 c 9,855 10,064 1913. . 540 300 d 9,765 10,065 1914. . . 649 1,000'/ 10,420 11,420 1915. . . 5,508 7,000'/ 10,591 17,591 1916. . . 6,228 8,100'/ 10,680 18,780 1917. . . 8,625 7,383/ 8,625 '• 12,463 21,088 1918. . . 4,637/ 5,410-/ 12,697 is, 107 1919. . . 6,101/ 7,130 / 12,680 19,810 a See Table 14 A. b Compiled from the annual reports represented in Poor's and Moody's Manuals of Public Utilities. Amounts for fiscal years adjusted by averaging to obtain estimates for the calendar years. c Census figures — see Table 1 1 A. d Crudely estimated bv aid of a smooth curve. « See Table 14D. / Surplus of Western Union Co. only. bility has been duly considered and guarded against in compiling the Cen- sus reports, is not known. It is certain, however, that the published cor- poration reports of surplus show no resemblance to the ones given by the Census. It has proved impossible, therefore, to interpolate the estimates 174 THE ESTIMATE BY SOURCES OF PRODUCTION for the surplus according to the usual rules. The best that can be done with the data at hand is to adjust the figures roughly so that the principal fluctuations shown by the corporation reports are given consideration. These crude results appear in Table 14E. § 14d. Purchasing Power of Share of Property Owners and Entrepreneurs The purchasing power of the income received by property owners is arrived at by dividing the number of dollars by an index of the average TABLE 14F THE PURCHASING POWER OF THAT PART OF THE INCOME DERIVED FROM THE TELEGRAPH INDUSTRY OF THE CONTINENTAL UNITED STATES DISBURSED TO ENTREPRENEURS AND OTHER PROPERTY OWNERS OR SAVED BY THE CORPORATIONS (Amounts in Thousands of Dollars) A B C D E F G Calen- dar year Disburse- ments to en- trepreneurs and other property owners a Index of prices of goods con- sumed by wealthy classes c Purchasing power at prices of 1913 B -h C Corporate savings b Index of construction costs d < '< instructive power of corporate savings at prices of 1913 E -=- F 1907 . . . L909 .. . 1910 . . . 1911 . . . 1912 ... 1913 . . . 1914 .. . 1915 . . . 1916 . . . 1917 .. . 1918 . . . 1919 .. . $ 9,936 8,891 9,390 9,496 9,855 9,765 10,420 10,591 10,680 12,463 12,697 12,680 .973 .988 .995 1.000 1.000 1.010 .996 1.074 1.198 1.364 1.628 $ 9,138 9,504 9,544 9,855 9,765 10,317 10,634 9,944 10,403 9,309 7,789 $2,173 5,000 4,200 2,500 209 300 1,000 7,000 8,100 8,625 5,410 7,130 1.023 .881 .903 .903 .982 1.000 .968 1.059 1.336 1.495 1.525 1.607 82,124 5,675 4,651 2,769 213 300 1,033 6,610 6,063 5,769 3,548 4,437 a See Table 14D; includes interest, dividends, and rents. b See Table 14E. c See Table 2E; represents families spending on the average, $25,000 per annum. d Worked out by the statistical department of the American Telephone and Tele- graph Co. prices of commodities consumed by the well-to-do classes. This opera- tion has been carried out and the results appear in Table 14F. A glance at Table 14F makes it evident that the lean period for the owners of the telegraph industry was in 1912 and 1913. This was followed by a period of prosperity; although, in 1918, the share of the property owners again declined slightly, only to recover again in 1919. <* TELEGRAPHS 175 § 14e. The Number of Employees and Their Share in the Value Product The corporate reports of the telegraph companies do not show either the number of employees or the amounts paid in wages. They do not even tell how many messages have been sent. It is, therefore, impossible to inter- polate these quantities between the years in which we have Census data TABLE 14G THE ESTIMATED SHARE OF THE EMPLOYEES IN THE VALUE PRODUCT OF THE TELEGRAPH INDUSTRY OF THE CONTINENTAL UNITED STATES A B C D E F G Calendar year Wages and salaries paid in Census years a (Thousands) Total operat- ing expenses of the West- ern Union Co.W (Thousands) Ratio of Bto C Esl imated total wages and salaries (Thousands) CX D Estimated benefits paid to employees/ (Thou- sands) Total com- pensation of employees Thou- sands) E + F 1907 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 $17,890 25,609 40,105 $18,641 21,904 28,334 33,063 39,521 42,327 10.579 10,973 18,728 62,783 76,713 78,6 16 .960 c .706'/ .673^/ . 657 d .648c . 647 d .615'/ .643'/ .612'/ . 639 e .639'/ 638 d $ 17,890 « 17,580 19,070 21.710 25,609 « 27,390 26,200 26,320 31,260 40,105 ■ 49,000 50,160 $ 10 20 30 40 50 60 70 80 330 330 330 330 §17,900 17,600 19,100 21,750 25,659 27,450 26,270 26,400 3 1.5'. »0 40,435 1H.330 50,490 a See Table 11 A. b Figures for fiscal years 1907 to 1912 averaged to obtain estimates for calendar years; for data see Poor's and Moody's Manuals of Public Utilities. c Computed. d Head from a smooth curve. e Census figures - sec Table 1 IA. /The Western Union Co. established a system of benefits in 1916. See Cards \Y1 and 2, of Standard Corporation Record Service. Before that date, payments were probably rather insignificant. The amounts entered for years previous to 1916 are pure guesses. with any degree of precision. Since, however, an estimate must be made, recourse has been had to the assumptions that the wages are proportional to total operating expenses and that the number of employees varies in proportion to a combination of the total volume of business done, and the number of offices operated. This index is chosen because it is evident that the number of offices is a matter of fundamental moment in this con- 176 THE ESTIMATE BY SOURCES OF PRODUCTION nection, and it seems reasonable to suppose that, in times of flush business, the companies would find it imperative to increase somewhat the average number of employees per office. The fact that the index maintains a fairly constant ratio to the Census figures seems to show that it has some merit. The attempt is made to measure the volume of business by dividing the gross revenues by an index representing the price of messages. No record has been found showing any changes in the rates for messages until March 31, 1919; hence, during the period 1909 to 1918, this price index has been assumed to be constant. The application of these assumptions appears in Tables 14G and 14H. TABLE 14H THE ESTIMATED TOTAL ANNUAL VALUE PRODUCT OF THE TELEGRAPH INDUSTRY OF THE CONTINENTAL UNITED STATES AND THE PRI- MARY DIVISION OF THIS PRODUCT Values in thousands of dollars Calendar year Total value product Total compensa- tion of employees a Disbursements to property owners and corporate surplus b Per cent of value product going to employees 1907 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 $30,009 31,491 32,690 33,746 35,723 37,515 37,690 43,991 50,370 61,523 67,437 70,300 $17,900 17,600 19,100 21,750 25,659 27,450 26,270 26,400 31,590 40,435 49,330 50,490 $12,109 13,891 13,590 11,996 10,064 10,065 11,420 17,591 18,780 21,088 18,107 19,810 59.6 55.9 58.4 64.5 71.8 73.2 69.7 60.0 62.7 65.7 73.1 71.8 a See Table 14G, Column G. b See Table 14E, last column. The compilation of Table 14G makes it possible to ascertain what frac- tion of the total value product of the telegraph industry goes to compen- sate the employees for their efforts. The facts in this connection appear in Table 14H. The general conclusion must be that, while the percentages have fluctu- ated violently, the employees since 1911, have tended to receive a greater and the property owners, a lesser share of the total value product than was the case during the period 1907 to 1911. ,* TELEGRAPHS 177 § 14f. Average Annual Earnings of Employees Tables 141 and 14J throw light on the changes that have occurred in the size of the average reward of employees in the telegraph industry. TABLE 141 THE ESTIMATED NUMBER OF PERSONS AT WORK FOR OR NORMALLY EMPLOYEE BY THE TELEGRAPH ( '< >MPANIES OF THE CONTINENTAL UNITED STATES A B C D E F G H I J K Cal- endar year Average number employed in Census years <* Gross operating revenues of Western Union Company'' (Thou- sands) Index of tele- graph rates c Index of physical volume of business C D Twice the number of \Wstern Union Tele- graph offices/ Adjust- ment index for number of employees E + F Ratio of B to G Esti- mated number of em- ploy ees actually at work G X II of number attached to industry who were actually working? Estimated number of em- ployees attached to industry I-f-J 1907 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 28,210 38,253 52,160 $30,719 31,647 34,116 38,570 44,024 45,784 46,265 51,172 61,919 76,996 86,702 103,756 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.15 30,719 31,647 34,116 38,570 44,024 45,784 46,265 51,172 61,919 76,996 86,702 90,223 48,613 49,156 49,751 50,318 51,392 50,120 51,568 50,284 50,468 50,932 50,904 50,318 79,332 S0.803 83,867 88,888 95,416 95,904 97,833 101,456 112,387 127,928 137,606 140,511 .3556c . 382 1 d .3913'' .3971d . 4009 c .4025^ . 4031 d .4061 d A072d .4077 c .4083 d .4087 d 28,210 30,900 32,SL > () 35,300 38,253 38,600 39,470 41.200 15,760 52, 160 56,185 57,440 .976 964 964 .967 '.Mis .950 943 .933 975 979 .971 .980'' 28,800 32,050 34,050 36,500 39,500 40,650 41,850 44.150 46,920 53,300 57,870 58,600* a Census figures — see Table 14A. b See Table 14D, Column C. c Computed. d Read from a smooth curve. > For origin, see text. Hates were raised 20 per cent on March 31, 1919. f Statistical Abstract of the U. S. and Moody's Manual of Public Utilities. o Estimated by means of a special study recorded in Table 2K. h Tentative estimate only. It is evident that among the regular employees of every industry, there are, at any given time, a considerable number who are not at work. This being true, the average number at work is necessarily always consider- ably less than the number who depend on the industry for a livelihood. The Census records only the number actually at work. In the last col- umns of Table 141, this item has been adjusted in a way intended to give an approximation to the number attached to the industry. The mode of adjustment used is described in § 2d. 178 THE ESTIMATE BY SOURCES OF PRODUCTION Table 14J is devoted to an estimate of the average amount received annually by each employee commonly employed by telegraph companies and the purchasing power of that amount on the basis of prices of 1913. TABLE 14J THE ESTIMATED AVERAGE ANNUAL COMPENSATION OF WORKERS NORMALLY EMPLOYED IN THE TELEGRAPH INDUSTRY OF THE CONTINENTAL UNITED STATES A B C D E F Year Estimated total compensa- tion paid to employees « (Thousands) Estimated number of employees normally attached to this industry & Average money com- pensation per employee B -=-C Average index of prices of com- modities bought by manual and clerical workers Annual com- pensation of the average employee in dollars of 1913 value D -=-E 1909 1910 1911 1912 1913 1914 1916 1917 1918 1919 $17,600 19,100 21,750 25,659 27,450 26,270 26,400 31,590 40,435 49,330 50,490 32,050 34,050 36,500 39,500 40,650 41,850 44,150 46,920 53,300 57,870 58,600 c 8549 561 5'. Mi 650 675 628 598 673 759 852 862 c . 955 .978 . 984 ,994 1 . 000 1.01 1.03 1.10 1.29 1.58 1.773 S575 574 606 654 675 622 581 612 588 539 486 a See Table 14G. b See Table 141. c Tentative estimate only. The errors in the data are too great to permit of drawing any conclu- sions from the minor fluctuations in the recorded wage, but apparently the purchasing power of the average employee's compensation tended somewhat downward after 1913, and in 1919 was no higher than it was in 1909. It is then evident that a gain in the percentage of the value product received does not necessarily mean an improvement in the general eco- nomic welfare of those employed in an industry. <* CHAPTER 15 TELEPHONES § 15a. Introduction Census Bureau reports on the telephone industry in 1907, 1912, and 1917 appear to be fairly complete, covering most facts of importance for all enterprises of any considerable size, and collecting a few facts concerning practically all telephone plants in the United States. This study is ba upon the Census reports for those years. The American Telephone and Telegraph Company controls about four-fifths of the telephone business of the country, hence most interpolations have been made upon the basis of the reports of its operations as given in Poor's or Moody's Manuals of Public Utilities. § 15b. Share of Entrepreneurs and Other Property Owners In this, as in other similar fields, the value product is estimated by ascer- taining those sums which have originated through the activities of this particular industry and which have been disbursed to individuals or secured by the corporations engaged in the telephone business. To ascer- tain the amounts actually originating in the telephone industry, it is nec- essary first to deduct from gross payments of bond interest and dividends items of the same nature received from other corporations, since such items are accounted for in the field in which they originated. Following our standard plan of procedure, it is next necessary to esti- mate the share of the entrepreneurs and other property owners in t he value product for the intercensal years. Since the Bell system practically dom- inates the field, interpolations have been made on the basis of the consoli- dated financial statistics of the Bell companies as presented in Poor's and Moody's Manuals of Public Utilities. The computations are shown in Table 15B. Table 15B shows that disbursements and surplus as measured in money both increased from 1907 to 1916 but that, since that date, although dis- bursements have continued to grow, less has been saved. However, these figures need to be corrected for changes in the price level. Table l.">( ' has been constructed to show the approximate equivalent in consumption goods which the property owners could buy with their share of the prod- uct for each of the various years. 179 180 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 15A THE ESTIMATED SHARE OF THE VALUE PRODUCT OF THE TELEPHONE INDUSTRY OF THE CONTINENTAL UNITED STATES IN THE CENSUS YEARS DISBURSED TO THE PROPERTY OWNERS OR SAVED BY THE OWNING CORPORATIONS 1. Interest on Funded Debt a plus Dividends paid by Larger n Companies. (In Thousands) 2. Interest on Funded Debt plus Dividends Re- ceived by Larger Companies. (In Thousands). 3. Payments by larger Companies of Dividends and Interest Originating in the Telephone Industry.'' (In Thousands) 4. Net < Rent Paid by Larger Companies to Individ- uals. (In Thousands) Dividends, Rent, and Interest on the Funded Debt Arising from the Operations of the Larger Companies.*' (In Thousands) C. Estimated Ratio of Dividend, Rent, and Interest Payments of All Companies to Those of Larger Companies only 7. Estimated Dividends, Rent, and Interest on the Funded Debt Originating in the Entire Tele phone Industry. (In Thousands) 1907 116 b $ 1,025 b $35,091 $ 1,092(7 $30,183 1 . 009 i $36,500 1912 8. Savings or Corporate Surplus of the Larger Com- panies. (In Thousands) 9. Estimated Savings of All Companies. v (In Thou- sands) 10. Estimated Total Savings plus Disbursements to the Property Owners.Q (In Thousands) $19,926 b $20,120 $56,620 $51,361 cd $ 4,365<* $46,996 $ 1,597 <** $48,593 1 . 0577 ! >n $51,500 $17,206 d $18,210 $69,710 1917 $66,561 « $ 4,496 «/ $62,065 $ 1,413 m $63,478 1.050* $66,580 $14,127 e $14,840 $81,420 T. = U. S. Census of Telephones. a Includes beside bond interest, small amount paid as interest on real estate mort- gages, b T. 1907, p. 65. c In 1907, 76.7 per cent of all interest was interest on the funded debt and mortgages; in 1917 the percentage had increased to 94.4. The percentage in 1912 was assumed to be an average of these two, or 85.55 per cent. This percentage amounts to 17,240 thousands of dollars. d T. 1912, p. 45. e T. 1917, p. 42. /Telephone officials state that the item of "Interest from Other Sources" includes but very small amounts of interest on bonds. It is assumed therefore that only 5 per cent, or 160 thousands of dollars, has been accounted for in the reports of other industries. o The item of "Rent of Offices and Real Estate," as given in T. 1912, p. 46, cannot be used here, for it includes a large estimate for the rent of real estate owned by the telephone companies; hence actual rent paid is assumed to equal 0.684 X Rent in 1912, this being the ratio of the total operating expenses of 1907 to those of 1912. h "Rent of Offices and Other Real Estate." * Estimated on the basis of information obtained from telephone officials as being 47 per cent of all rentals. J Assumed to vary in proportion to income; see T. 1907, p. 14. k Assumed to vary as total revenue; see T. 1917, p. 10. S TELEPHONES 181 TABLE 15A NOTES —Continued 1 Ratio obtained by following process: Ratio of wire mileage of small companies to large was .0646 in 1912 and .0560 in 1917. Ratio of revenue of small to Large com- panies was .050 in 1917. Then X : .050 :: .0648 : .0560. Therefore X = .0577. The ratio sought is 1 + X, or 1.0577. m T. 1912, p. 12. " Based on Census classification. Product of items in the two preceding line.-.; equivalent to all net disbursements to the propertied classes. v Assumed that savings vary in the same proportion as do disbursements to property owners; hence the items in line 9 are the products of those in lines and 8. In general this item may be too large because some small companies may have failed and their losses escaped the Census records or because some companies have not allowed enough for depreciation, or it may be too small because they charged new construction to op- erating expenses. Col. M. C. Rorty believes the recorded decline in savings is largely the result of erroneous accounting. Complete evidence being lacking, however, it seems best to accept the Census figures. i Equals receipts as dividends, interest, and rent plus their claims to an ultimate division of the corporate savings; in other words the sum of the items in lines 7 and 9. T Difference of items in two preceding lines. « Sum of items in two preceding lines. 1 The net rent is estimated as 70 per cent of the gross on the ground that 30 per cent is required to cover maintenance and depreciation. TABLE 15B THE CORPORATE SAVINGS AND THE AMOUNTS PAID TO ENTRE- PRENEURS AND OTHER PROPERTY OWNERS FROM THE VALUE PRODUCT OF THE TELEPHONE INDUSTRY OF THE CONTINENTAL UNITED STATES ESTIMATED FOR EACH YEAR A B C D E F <; H I Bstimated total dis- Bond in- total dis- iated Estimated bursements terest and bursemi nts savings 1 >1 Surplus savings oi to dividends in all com- of Bell all com- \ear propertied paid by Hill BtC propertied panies m ( 'ompanies c F ~ G panies classes in Companies * classes ( ensus (Thousands (Thou- Census years <* (Thousands i (Thousan Is) C X D years •' (Thousan Is) san G X 11 (Thousands) 1907 $36,500 .$28,317 b 1.289<* $36,500 $20,120 $12,5246 1.607'/ $20,120 1909 34,132 1.233< 42,085 14,236 1.515' 21,624 1910 36,718 1.211* 44,465 1 1,277 1.470* 211.' is? 1911 39,578 1.191' 47,2:1'', 12,009 1.425 « 17,113 1912 51,500 43,665 1.179*/ 51,500 18,210 13,221 l.377d 18,210 1913 46,955 1.165' 5 1.70:; 11,735 1.303< 15,291 1914 49,215 1.155 56,878 10,002 1.213- 12,432 1915 50,99: 1 1.115- 5S.100 15,189 1.100' 17,619 1916 53,539 1.139* 60,981 22,079 1 090* 24,066 1917 66,580 58,683 1 135 d 66,580 14,840 13,852 1.07!'/ 14,840 1918 62,846 1. 128 « 70,x<)() 12,213 1.070/ 13.06S 1919 67,533 1.123* 75,840 12,118 1.069/ 12,954 a See Table 15A. b Poor's Manual of Public Utilities, 1914, pp. 1092, 1096. e See Moody's Manual of Public Utilities, 1920, p. 1363. d Computed by division. ■ Read from a smooth curve. /Computed by study of surpluses of non-Bell companies as recorded in Moody's Manuals. See Table 15A; also note p attached to that table. 182 THE ESTIMATE BY SOURCES OF PRODUCTION The price index used in reducing corporate savings to a basis of pur- chasing power is one intended approximately to represent construction costs. It is a composite of indices representing hourly wages of labor and prices of the commodities used in the construction of telephone plants, weighted in proportion to the amount of each commodity used. The index was worked out by the statistical department of the American Telephone and Telegraph Company. TABLE 15C THE PURCHASING POWER OF THE CORPORATE SAVINGS AND THE DISBURSEMENTS MADE TO ENTREPRENEURS AND OTHER PROP- ERTY OWNERS FROM THE NET VALUE PRODUCT OF THE TELE- PHONE INDUSTRY Disbursements to entrepreneurs and other property owners Corporate savings A B C D E F G Year Rent, dividends, and bond interest « (Thou- sands Index of prices of consump- tion goods purchased by wealthy classes b Base, 1913 Value at prices of 1913 (Thou- sands) B -r C Corporate savings a (Thou- sands) Index of construc- tion costs c Value at prices of 1913 (Thou- sands) E + F 1907. . . 1909. . . 1910.. . 1911.. 1912.. . 1913.. . 1914.. . 1915.. . 1916.. . 1917.. . 1918.. . 1919.. . $36,500 42,085 44,465 47,256 51,500 54,703 56,878 58,400 60,981 66,580 70,890 75,840 .973 .988 .995 1.000 1.000 1.010 .996 1.074 1.198 1.364 1.628 $43,253 45,005 47,493 51,500 54,703 56,315 58,635 56,779 55,576 51,972 46,585 $20,120 21,624 20,987 17,113 18,210 15,291 12,432 17,619 24,066 14,840 13,068 12,954 1 . 023 .881 .903 .903 .982 1.000 .968 1 . 059 1.336 1.495 1 525 1 . 607 $19,668 24,545 23,241 18,951 18,544 15,291 12,843 16,637 18.013 9,926 8,569 8,061 a See Table 15B. b See Table 2E; applies to families spending on the average $25,000 annually for consumption goods. c Calculated by the statistical department, of the American Telephone and Telegraph Co., and furnished to the Bureau through the kindness of Col. M. C. Rorty. A study of Table 15C shows that corporate savings have declined to half their former money value and to only a little over one-third of the purchasing power which they had at the beginning of the decade. This decline in savings has been going on at the same time that dividends have TELEPHONES ]-:; been increasing somewhat. The purchasing power of the disbursements to the investors and property owners tended to increase until 1916, but, since that date, has fallen off sharply. § 15c. The Net Value Product and Its Distribution The estimated net value product of the telephone industry is made up of four parts: namely, the corporate 1 savings, the disbursements to entre- TABLE 15D AN ESTIMATE OF THE VALUE PRODUCT OF THE TELEPHONE INDUS- TRY IN THE CONTINENTAL UNITED STATES AND THE SHARE OF THE EMPLOYEES THEREIN Total pay- Total share Total salaries ments to of entrepre- and wages paid to employees as esti- neurs and other own- Uncollect- Total net Per *•< -lit of total value product going to employees Year employees mated from ers oi prop- ible value as estimated reports of erty used revenues*/ product from Census telephone in the (Thousands (Thousands reports companies/ industry e (Thousands) (Thou- (Thou- sands) sands 1907 . . . $68,279 a 871,737 S56,620 S 784 8129,141 55 5 1909. 81,160 63,709 912 145,811 .-,.-) 7 1910. . . 91,677 65,452 1.020 158,1 19 58 1911 . . . 103,140 64,369 1.104 L68.613 61.2 1912. . . 101,400 cb 112,653 69,710 1,188 183,.-).-, 1 61.4 1913. . . 126,027 69,994 1,285 197,306 63.9 1914. . . 129,255 69,310 1,380 199. Mi:, 64 6 1915. . . 127,598 76,019 1 . 180 20.-,. 097 62.2 1916. . . 153,526 85,047 1,590 210,163 63.9 1917. . . 175,670 d 172,740 81,420 1,731 255,891 07 :, 1918. . . 191,169 83,958 1,900 280,027 69 3 1919. . . 245,420 88,794 2,080 336,294 73.0 a U. S. Census of Telephones, 1907, p. 16. i> 101,400 = 90,011 (the number employed by large systems), X 1.0577. The ratio 1.0577 is used because it is the best comparison at hand. Its computation is described in Note 1, Table 15A. c U. S. Census of Telephones, 1912, p. 48. d U. S. Census of Telephones, 1917, p. 10. « See Table 15B, Column E, plus Column I. / For derivation, see text. o Based on U. S. Census, interpolations for intercensal years male by aid of a smooth curve. * Sum of items in three columns immediately preceding. preneurs and other property owners already discussed, the share of the employees, and the uncollectible revenues, the last mentioned item repre- senting valuable services received by consumers for which the recipients 184 THE ESTIMATE BY SOURCES OF PRODUCTION have failed to make recompense. These four shares have been added and the sum appears in Table 15D. The largest share in the value product of the telephone industry con- sists of the payments made to employees. These payments consist mainly of wages and salaries, but the employees also receive a considerable sum in the form of benefits and pensions. The totals as presented in Table 15D have been derived from reports of the important telephone compa- nies. The closeness of these results to the Census figures makes it highly probable that both sets are approximately accurate. The reason for using these data rather than the Census figures themselves, is that the figures presented here are largely secured from a compilation of actual payments for each year, while the Census data are based upon estimates only. The last column of Table 15D shows that the employees have been get- ting a steadily increasing share of the value product until, in 1919, their share absorbed nearly three-fourths of the net income arising from the industry. But to know the share of the total product received does not tell whether each employee is better or worse off than before. This depends upon the number of employees as well as upon the total amount paid to em- ployees. § 15d. The Number of Employees Table 15E represents an estimate of the average number of employees attached to the telephone industry in each year. The estimate of the fraction of workers actually employed is based upon assumptions none too well established. 1 However, the internal evidence of the data apparently tends to substantiate the approximate correctness of the fraction presented. It is believed, therefore, that the figures shown in Table 15E are not very far from the truth. 3 See § 2d. S TELEPHONES L85 TABLE 15E THE ESTIMATED NUMBER OF EMPLOYEES ATTACHED TO THE TELEPHONE 1XDISTRY OF THE CONTINENTAL UNITED STATES A B c D E F G Number of employees of all telephone systems actually Estimated Estimated Estimated number ol fraction Est imated number of employees of number number of Year employees B -7-C actually attached employees of Bell at work to industry attached Telephone in all who are to industry Companies'/ systems actually EtF CX D employed 1907. . . . 144.169 a 102,100 1.412" 144,169 .982 146,800 1909 . . . 101,300 1.412/ 143, 0(10 .957 149,500 1910 112,500 1.413 ' 159,000 .974 103.200 1911. . . . 127,200 1.414/ 179,800 .970 185,300 1912. .. . 194,000 6 137,100 1.415< 194,000 .949 204,500 1913 151,200 1114 / 213.mii) . 983 217.500 1914. . . . 152.000 1.413/ 214,800 .952 225,000 1915. . . . 147,200 1.412/ 2D7.900 .901 230,000 1916 168,100 1.411/ 237,200 .980 212,000 1917 262,629 c 1 si 1,100 1.411- 202,029 9S2 207,400 1918 197,000 1.411/ 278,000 .975 285,200 1919. .. 204,100 1.411/ 288,000 982o 293,000 9 " U. S. Census of Telephones, 1907, p. 16. b U. S. Census of Telephones, 1912, p. 48, .-hows larger companies to have 90.011 employees. This number has been multiplied by 1.0577, the ratio obtained in Table 1. note 1. c U. S. Census of Telephones, 1917, p. 10. d Read from smooth curve based on recorded number of employees on December 31st, of each year, as shown in Poor's and Moody's Manuals. e Computed. /Interpolated along a smooth curve. a Tentative estimate only. § 15e. Average Annual Earnings of Employees With estimates available of the total amount paid to employees by telephone companies and of 1 ho total number of employees attached to the industry, it is only necessary to divide the first item by the second in order to arrive at the average amount paid to each employee This average, however, means little until it is divided by an index of the prices of such consumption goods as are purchased by employees. The results of com- putations along these lines are shown in Table 15F. Column D of this table makes it evident that the average employee is a1 present receiving many more dollars per annum than was formerly the case. However, each of these dollars has bought so much less in recent 186 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 15F THE PURCHASING POWER OF THE COMPENSATION OF THE AVERAGE EMPLOYEE ATTACHED TO THE TELEPHONE INDUSTRY IN THE CONTINENTAL UNITED STATES A B C D E F Year Estimated total of payments to employees a (Thousands) Estimated number of employees attached to industry b Estimated amount paid to average employee attached to industry e B -r- C Index of prices of consumption goods bought by manual and clerical workers c Estimated purchasing power of compensa- tion paid to average employee e DvE 1907 1909 $71,737 81,160 91,677 103,140 112,653 126,027 129,255 127,598 153,526 172,740 194,169 245,420 146,800 149,500 163,200 185,300 204,500 217,500 225,600 230,000 242,000 267,400 285,200 293,000-/ $489 543 562 557 551 579 573 555 634 646 6S1 838 d .955 .978 .984 .994 1.000 1.01 1.03 1.10 1.29 1.58 1 773 $569 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919. . . 575 566 554 579 567 539 576 501 431 473 d a See Table 15D 6 See Table 15E. includes wages, salaries, pensions, c< mpensation for injuries, etc. Bureau of Labor index extended back through special study by this Bureau. See Table 2C. d Tentative estimate only. e The decline in the average wage and its purchasing power is accounted for largely if not entirely by the large increase in the number of female as compared to male em- ployees, the former constituting only 54 per cent of the total in 1907, but 70 per cent in 1920. years that the actual purchasing power of the average employee's income from the telephone business was materially less in 1919 than it was in 1913. This decline in the average is, however, at least partly due to the fact that, during this decade, women have constituted a rapidly increasing fraction of the total number of telephone employees. § 15f. The Efficiency of the Employees The increase or diminution in the efficiency of the telephone worker as a producer cannot be measured exactly because we have no record of the changes in the amount of effort required to transmit a message and also because an increase or decrease in efficiency is as likely to be a result of TELEPHONES 187 better or worse equipment as of greater personal effort or effectiveness. For example, long telephone lines evidently take more effort to build and keep in repair than do short ones. It is more work to facilitate the passage of messages when several connections are necessary, than when only one is required. Nevertheless it seems worth while roughly to pic- ture the results obtained under conditions as they exisi . In the absence of any more accurate criterion, it seems that the m< -- sage mile might be used as a reasonable unit for measuring work accom- plished by the telephone force. However, the number of message miles is not given and must be computed. The fact that millions of messages do not pass through an exchange vitiates to a degree I he accuracy of the esti- mates presented. Nevertheless, it is not probable that this unknown item affects materially the relative comparison for different years, even though it undoubtedly prevents the possibility of obtaining an accurate measurement of the absolute number of message miles for any single year. The necessary assumptions in computing the number of message miles are based upon the fact that if every telephone were connected through an independent line directly with the central station, the average distance traveled by each message would approximately equal twice the number of miles of wire divided by the number of telephones. This quotient is used as a relative indicator of the distance that each message travels and is probably serviceable for that purpose even though its absolute value is of little significance. When the number of messages sent is multiplied by this index, the product gives some idea of the total distance through which telephone messages are transmitted; in other words, it is a crude approxi- mation to the physical product of the industry. The facts are presented in Table 15G. L88 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 15G A COMPARISON FOR DIFFERENT YEARS OF THE PHYSICAL OUTPUT PER EMPLOYEE IN THE TELEPHONE INDUSTRY A B. Total C D E F G H I J Daily Approximate messages sent; as ex- change Esti- mated Thou- Mes- Twice the number of message miles esti- mated sands of em- number of miles Year tions by B-C millions of per em- ployee (Thou- sands) E -F Thou- from Bell ployees of wire Total sand Census Com- messages actually per tele- in bil- per data (Mil- panies (Thou- CXD at work/ phone ; lions EX H em- ployee lions) sands) 690 d I -T- F 1907 12,500 a 18,130 12,500 a 141 86.7 4.25ff 53.1 368 1909 19,925 670 « 13,350 143 93.4 4.40 58.7 411 1910 21,681 662 • 14,o53 159 90.3 4.49 64.4 405 1911 2:;, 484 657 « 15,429 180 85 . 8 4.57 70.5 392 1912 16,753 b 25,572 655 d 16,753 6 194 86.4 4 . 64 * 77.7 401 1913 26,431 659 « 17.418 21 1 si.. 5 4.71 82 . 384 1914 27,049 669 « 18,09(1 215 84 . 2 4.77 86.3 402 1915 25,184 681 « 17,150 21 18 82 . 5 4.83 82.8 398 1916 28,530 695 e 19,828 237 83.6 4.88 96.8 408 1917 21,846 c 30,845 709 d 21,846 < 263 83.2 4 . 92 i 107 .5 409 1918 31,264 723 « 22.(104 278 81.3 4.97 112.3 404 1919 29,561 738 e 21,816 2SS 75 7 5.01 109.3 380 a Assumed that latio of messages to telephones was same for non-reporting as for reporting companies. Under this assumption, messages on non-reporting lines amounted to 1,127 millions. See U. S. Census of Telephones, 1907, p. 14. b Assumptions same as for 1907, making the estimated number of messages on non- reporting lines 3,018 millions. See U. S. Census of Telephones, 1912, p. 13. c U. S. Census of Telephones, 1917, p. 10. d Computed. ■ Mead from smooth curve. /See Table 15E. g U. S. Census of Telephones, 1907, p. 14. h U. S. Census of Telephones, 1912, p. 13. i U. S. Census of Telephones, 1917, p. 10. J If message travels to central office and to another station the number here recorded should represent the approximate distance traveled by the message. Although the number of messages per employee has declined materially, the trend of the number of message miles per employee has remained nearly constant. It does not appear, therefore, that there is any reason to believe that the efficiency of telephone employees shows any downward tendency. This statement is not controverted by the exceptionally low record in 1919 since this probably represents a temporary phenomenon rather than a permanent decline in output. TELEPHONES L89 § 15g. Telephone Revenue Compared for Residence and Business Telephones It is an interesting fact that, during I he earlier part of the decade, 1 here was little change in the proportion of revenue arising from residence and from business telephones respectively. Since L915, however, business telephones have slowly but steadily grown in relative importance as rev- enue producers. This change is indicated by the data in Table 15H. TABLE 15H PER CENT OF THE OPERATING REVENUE OF TELEPHONE COMPANIES DERIVED RESPECTIVELY FROM BUSINESS AND RESIDENCE STA TIONSa Per cent derived from Year Residence telephones Business telephones All telephones 1910 44.18 ■11 35 Ills 11 13 44.27 11 11 43 65 13 16 L-2 80 41.96 55.82 55.65 55 82 55 . 87 55 . 73 55.89 56 :;.". 56.84 57 20 58.04 inn nit 1911 101) 00 1912 1913 100 00 100 00 1914 inn 00 1915 1916 1917 100 1 101) ii I 100 00 1918 loo 00 1919 LOO 00 a Computed from reports furnished by telephone companies. The percentages are not exact, but are presumably approximately correct. § 15h. Relative Growth of Telephone Service and Population It is also of interest to know whet her telephone service is or is not keeping pace with the growth of our population. Table 151 shows the probable facts in this connection. 190 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 151 THE ESTIMATED RELATIVE AMOUNT OF SERVICE PER PERSON IN THE CONTINENTAL UNITED STATES RENDERED BY THE TELEPHONE INDUSTRY Year Billions of messages sent a Billions of message miles a Thousands of persons in the Continental United States c Messages per inhabitant Message miles per inhabitant 1907 12.5 53.1 87,321 b 143 608 1909 1910 1911 1912 13.4 14.4 15.4 16.8 58.7 64.4 70.5 77.7 90,370 92,229 93,811 95,338 148 156 164 176 650 699 752 815 1913 1914 1915 1916 17.4 18.1 17.1 19.8 82.0 86.3 82.8 96.8 97,278 99,194 100,428 101,722 179 182 171 195 843 870 825 951 1917 1918 1919 21.8 22 . 6 21.8 107.5 112.3 109.3 103,059 104,182 104,847 212 217 208 1,043 1,078 1,042 a See Table 15G. 6 Statistical Abstract of U. S. for 1918, p. 776. c See Table 2A. Table 151 makes it clear that telephone service, whether measured by messages or message-miles, is increasing very much faster than popula- tion — in other words, we are, as a nation, coming to depend more and more upon the telephone as a means of communication. ^ CHAPTER 16 TRANSPORTATION BY WATER § 16a. Sources of Information The Census Bureau covered this field in the years 1906 and 1916, but the financial statistics presented are far from having the degree of com- pleteness desired. The records of gross income, and of wages and sala- ries paid would, however, be of great assistance in solving our problems were it not that some of the totals presented are evidently very far from the truth. That serious errors really exist is clear if one compares the average wages paid to employees on land as shown by the Censuses of 1906 and 1916. The Census record indicates that this average wage declined, dur- ing the decade, from $665 to $450. All other sources agree, however, in showing that the period was characterized by sharply rising wages. An inquiiy concerning this peculiarity of the data was sent to the Census Bureau and elicited the reply that the Census of 1916 was taken under difficulties due to the rapid shift in the personnel of the employees in water transportation. The Census Bureau officials, however, felt confident that the amounts stated as paid for wages and salaries are approximately cor- rect, even though the number of employees may be materially in error. This belief, however, seems contrary to the facts for it involves the assump- tion that the number of employees diminished greatly during the decade. Overwhelming evidence including that in the Census report itself, proves that the number not only did not diminish but actually increased to a marked degree. As a matter of fact, it appears that the Census data, as regards the num- ber of employees, approximate the truth, but that the 1916 figures, because of the failure to include sufficient allowances for board and lodging, under- state the total pay of employees on vessels. For the reasons just stated, the assumption has been made that the Cen- sus figures for the average number of persons actually employed are, in each instance, reasonably accurate, and that the 1906 record is a correct picture of the average earnings of land workers at that date. It has also been assumed that the record of gross earnings is reasonably accurate for each of the Census years. These are the only Census figures which seem to be adapted to our particular needs. It has been necessary to supplement the data thus obtained by material 191 192 THE ESTIMATE BY SOURCES OF PRODUCTION derived from the reports of the Commissioner of Navigation and of the United States Shipping Board, and from the fragmentary information concerning steamship companies which appears in Poor's and Moody's Manuals of Corporation Securities. § 16b. Assumptions Made The assumption has been made that the share of entrepreneurs and other property owners in the income arising from transportation by water com- prises nothing but interest on bonds, dividends on stocks or distributed profits and business savings. There are doubtless other payments mack; directly to private parties, but of these we have no record, and they are probably not large enough materially to affect the totals. Similarly, the share of the employees is assumed to consist only of the money wages and salaries received plus an allowance for board and lodging furnished. Most of the figures are probably so inaccurate that further attempts at refine- ment in the assumptions made would be futile. § 16c. Mode of Estimating Gross Earnings In estimating gross earnings for the intercensal years, recourse has been had to the use of a sequence of ratios. For each shipping company, the reports of which are shown in Poor's Manual, the ratio of the gross earn- ings for the given year to the earnings for the preceding year has been cal- culated and recorded. Earnings for the year 1909 have, however, been compared with those of 1906, (the Census year), the years 1907 and 1908 being skipped because, in this study, there is no attempt to derive estimates for years preceding 1909. Few shipping concerns have pub- lished reports for each year since 1900, hence the derivation of an accurate index of gross earnings is impossible. Under these circumstances, we have been forced to take the median of all the ratios for a given year as repre- senting the proportionate change in gross earnings from the preceding period. These median ratios for the different years have been converted into an index on the base 190G by a continued process of multiplication beginning with the ratio of 1909 to 1906, next applying thereto the ratio of 1910 to 1909, and so on. It can be demonstrated mathematically that an index computed in this manner tends, in the course of time, to rise above the true index. This tendency has been corrected by tying the in- dices thus derived to the Census estimates of total gross earnings; a proc- ess by which the upward slope is diminished materially and the error of the type just mentioned is presumably thus eliminated. The final estimate of gross earnings appears in Table 16A. Having arrived at an approximate set of totals of gross earnings, the next step is to utilize these estimates as bases for computing the share of TRANSPORTATION BY WATER 193 TABLE 16A THE ESTIMATED GROSS EARNINGS OF ALL PRIVATE CONCERNS IN THE CONTINENTAL EXITED STATES ENGAGED IN TRANSPORTA- TION BY WATER A B C D E Gross income Index of Esi imated gross gross earnings earnings of all Year in thousands estimated fi Rati i "f as reported reports of about I', to C c mcerns (Thousands) CX D by the Census <* twenty corporations'' 1906 $294,855 1.00 294,855 c $294,855 a 1909 1.00 280,500 d 28 1.500 1910 1.10 27.V 700"' 303,300 1911 1.13 270,800 <* 306,0 10 1912 1.27 266,100 d 338,0 i i L913 1.39 261,200'' :;t;;,ooo 1914 1.29 256,600^ 331,000 1915 1.51 251,700 d 380,000 1916. . 563,736 2.28 247,300 c 563,73 i 1917 2 . 03 2(2. 100 d 192.0 1 1 1918 1 79 237,400 d 425,000 1919. . . . 3.05 232,500 d 709,00 i a Census of Transportation by Water, 1910, page 57. 6 Lor derivation, see text. c Gomputed by division. d Interpolated along a straight line. the entrepreneurs and property owners in the value product of each year. The mode of attack is as follows: § 16d. The Share of the Owners and Investors For each shipping corporation dealt with in Poor's or Moody's Mama! . the reports of which appear in such form as to make it possible, i hree ratios have been computed for each year; namely, the respective ratios of bond interest paid, dividends paid, and added surplus, to the gross earnings of the same year. In the case of bond interest, a weighted median of these ratios has been ascertained for each year, large companies like the Inter- national Mercantile Marine naturally having been given more weighl than small concerns like the Montauk Steamship Company. The same proce- dure has been followed in obtaining the yearly medians of the ratios of surplus to gross earnings. 1 In the case of dividends, however, it was neces- sary to compute a weighted arithmetic average instead of a weighted 1 The median was used because it eliminated die extreme variations in some of the samples. These extremes were not believed to lie representative. 194 THE ESTIMATE BY SOURCES OF PRODUCTION median of the ratios; for, in certain lean years, even though a few corpora- tions paid very considerable dividends, the median ratio was zero. The products obtained by multiplying the estimated gross earnings for the various years by the ratios obtained in the manner just described are believed to approximate the actual amounts falling into the respective categories. Table 16B shows the ratios and the estimated size of the vari- ous amounts which go to make up the share of the entrepreneurs and other property owners in the annual value product. TABLE 16B THE ESTIMATED SHARE OF ENTREPRENEURS AND OTHER PROPERTY OWNERS IN THE ANNUAL VALUE PRODUCT OF THE PRIVATE IN- DUSTRY OF TRANSPORTATION BY WATER Estimated gross earnings in thou- sands a $280,500 303,300 306,000 338,000 363,000 331,000 380,000 563,736 492,000 425,000 709,000 Average ratio & to gross earnings of Estimated share of entrepreneurs and other property owners c (Thousands) Calendar Bond in- terest paid Divi- dends paid Amounts carried to surplus year Interest on fund- ed debt Profits dis- bursed Busi- ness savings Total 1909 1910. . . . 1911. . . . 1912. . . . 1913 1914. . . . 1915. . . . 1916. . . . 1917. . . . 1918. . . . 1919. .. . .0691 . 0623 .0503 .0521 .0501 .0502 .0407 .0374 . 0304 .0293 .0259 . 0286 . 0550 . 0543 .0424 .0378 .0543 .0479 .0418 .1028 .1013 1124 .0246 .0835 .0307 .0725 .060S — .0021 .0649 .1189 .0463 .0699 .0166 $19,380 18,900 15,400 17,620 18,200 16,600 15,470 15,000 d 14,960 12,460 15,000 r, build- ing materials, and metals, the weights used being, in the order named, 3, 1, and 2. § 16e. The Share of the Employees The next step necessary is to ascertain the share of the product going to the employees in each year of the period. This end can apparently best be attained if the employees are first divided into the two classes used by the Census, namely those working on land and those employed on vessels. It seems clear that the number of men required about the docks must vary in proportion to the amount of shipping to be handled. The criterion which has suggested itself as being the besi adapted to measuring accu- rately shipping activity at our ports, is the tonnage of vessels entered and cleared. This tonnage is recorded for the foreign trade but not for the coastwise. In order to give some weight to the latter, the plan has been adopted of using a combination index constructed by adding to the sum of the tonnage in the foreign trade entered and cleared, one-fifth of the freight tonnage passing through the Sault Ste Marie Canal and five times 196 THE ESTIMATE BY SOURCES OF PRODUCTION the tonnage of the vessels engaged in the coastwise trade. The "Soo" * Janal traffic is weighted low because the handling of the grain and iron ore, which constitutes the bulk of the tonnage, requires relatively little labor. The weighting for coastwise vessels assumes that there are on the average five cargo handlings per year. However, the three indicators used vary so similarly that the relative size of the weights assigned is not a matter of great importance. The foreign trade figures for the period preceding 1918 TABLE 16D THE ESTIMATED NUMBER AND EARNINGS OF LAND EMPLOYEES ENGAGED IN THE INDUSTRY OF TRANSPORTATION BY WATER A B C D E F G Calendar year Number at work as reported by the Census Index of tonnage loaded and unloaded b Ratio of B toC Estimated number at work CX D Estimated average annual pay Estimated total wages and salaries EX F 1906 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 47,419 a 83,581 a 109.8 123.0 128.5 133.2 145 . 6 154.2 144.4 144.9 153.2 146.7 144.6 432 c 475 d 48S d 500 d 512 & 522 d 530'' 538 d 545 e 552 d 556 d 47,419 a 58,450 62,750 66,592 74,480 80,460 76,540 77,980 83,581 a 80,900 80,400 $ 663^ 664 e 665 « 666 « 698 e 732 e 732 e 731 « 808 e 840 e 1,012 « $31,456 a 38,800 41,720 44,360 52,000 58,900 56,050 57,030 67,560 67,940 81,400 a U. S. Census of Transportation by Water, 1916, p. 59. b For mode of derivation, see the text . c Computed by division. d Interpolated along a smooth curve. e Assumed to vary from the 1906 wage in the same proportion as did the daily wages for longshoremen. See text for explanation. are reported for years ending June 30, hence the pairs of fiscal years have been averaged in each case to give an estimate for the calendar year on which they overlap. These estimates for the calendar years have been combined with the other indicators in deriving the index used. It has been assumed that the employees on land received, on the aver- age in 1906, the $605, reported by the Census of Transportation by Water. This amount has been varied for the other years on the basis of the change in the daily rates of pay at New York City from 1906 to 1914 l and since ■ Estimated from data given on page 80 of The Longshoreman, by Charles B. Barnes. TRANSPORTATION BY WATER 197 that date, in the daily rate- for all sections of our coast. 1 The New York City rates have been weighted more heavily than the others because of the importance of this port . The next necessary step in the procedure is to estimate the wages of the employees on vessels. Now it seems probable that the Census figures, as to the number of men employed, are approximately correct. The inter- polation for the intercensal years has been on the basis of the reported tonnage of the American merchant marine, which seems to constitute a satisfactory criterion. In computing the wage payments, it was, for reasons previously stated, found necessary to ignore the Census figures. Fortunately, the Annua! Reports of the United States Commissioner of Navigation give detailed information each year concerning the wages paid to different classes of workers. From these reports, a median of monthly wages paid to able- bodied seamen on American steamships has been computed for each year. To this median wage has been added in each instance an allowance for board and lodging, this allowance having been made to vary in proportion to the food index computed by the United States Bureau of Labor Sta- tistics. On pages 188-9 and in Chapter IX of H. B. Drury's report on Marine and Dock Labor, statistics are given which enable one to compute, with a reasonable degree of accuracy, the ratio of the average pay of the entire ship's crew, including officers, to the average pay of able-bodied seamen. By applying this ratio, an estimate has been made of the average annual pay of workers on vessels. The final estimates appear in Table, ltd'. 1 From fhr report dated December 31, 1918, of The National Adjustment Commission of the l r . S. Shipping Board, p. 21, and from p 150 of Bulletin l'7 1 of the United States Bun au of Labor Statistics on The Union Scales of Wages and Hours »f Labor, May 15, 191!). 198 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 16E THE ESTIMATED NUMBER AND EARNINGS OF THE EMPLOYEES ON THE VESSELS OF THE AMERICAN MERCHANT MARINE A B C D E F G H I Number reported by U. S. Census Tonnage of mer- chant marine of the U. S.6 (Thou- sands) Ratio of B to C Esti- mated number of men actually at work CXD Monthly wages of able seamen on American steam vessels Esti- mated average annual earnings of all em- ployees'? Estimated total wages and Year Median money wage e Esti- mated wage in- cluding board and lodging salaries in thousands paid to employees on vessels EXH 1906 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 140,929" 153,301a 6,675 7,389 7,508 7,639 7,714 7,887 7,929 8,389 8,470 8,871 9,925 12,907 02111c . 02019 d .01990'/ . 01958 d . 01930 d .01900'/ 01X70'/ . 01839 d ,01810c . 01780 d .01752'/ .01722 d 140,929 149,200 149,400 149,600 148,900 149,900 148,300 154,300 153,301 157,900 173,900 222,200 $25.84 28.75 30 . 00 30.00 30 . 00 30.00 30.00 35.00 47.60 58.85 68.75 75.00/ $45.24 51.72 54.02 53 . 73 55.74 55 . 74 56.37 61.25 77.15 96.73 112.17 123.53/ $ 788 901 941 936 971 971 982 1,067 1,344 1,685 ' 1,954 2,152/ $111,000 134,400 140,600 140,000 144,520 145,500 145,700 164,600 203,100 263,000 339,800 478,200/ a U. S. Census of Transportation by Water, 1916, p. 59. 6 Statistical Abstract of U. S. for 1919, p. 361. c Computed by division. d Interpolated along a straight line. f Medians of wages for some 50 classes of able seamen. Data from Annual Reports of the U. S. Commissioner of Navigation. The items recorded are the averages of medians for the pairs of fiscal years overlapping on the calendar year. / Preliminary figures. o Items in column G multiplied by 17.42. For explanation, see text. <* TRANSPORTATION BY WATER L99 § 16f. The Net Value Product and Its Division We are now prepared to estimate the value producl of the industry of Transportation by Water. The figures appear in Table 16F. TABLE 16F THE ESTIMATED TOTAL VALUE PR< (DUCT OF THE INDUSTRY OF TR VXS PORTATION BY WATER AND THE PER CENT THEREOF GOING TO THE EMPLOYEES Calendar year Total value product a (Thousands) Total share of entrepreneurs and investors b (Thousands) Total wages and salaries paid <• (Thousands) Per cent of value product going to employees 1909 $207,505 243,220 225,780 252,970 258,390 235,635 279,960 379,240 422,290 506,430 $ 34,305 60/. 100 £1,420 56,450 53,990 33,885 58,330 105,580 88,350 85,230 $173,200 182,320 184,360 196,520 204,400 201,750 221,630 273,660 333,940 421,200 83 . 5 1910 1911 75 81.7 1912 1913 1914 77.7 79.1 85.6 1915 1916 1917 1918 79.2 72.2 79.1 83.2 a Sum of the two following columns. b See Table 16B. c Sum of the last column in Table 16D and the last column in Table 16E. It is clear that the employees in this line of work receive a high percent- age of the value product as compared to those in many of the other fields. No tendency is apparent for their relative share either to increase or dimin- ish as the years pass. § 16g. The Average Annual Earnings of Employees The usual estimates of the numbers of men attached to the industry. the fluctuations in the average money earnings, and the purchasing power of these earnings on the basis of the prices of 1913 appear in Table 16G. 200 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 16G THE PURCHASING POWER OF THE AVERAGE ANNUAL EARNINGS OF THE EMPLOYEES IN THE PRIVATE INDUSTRY OF TRANSPORTATION BY WATER A Calendar 3 ear 1900 . 1909. 1910. 1911. 1912 1913 . 1914 1915. 1916. 1917. 1918. B Estimated average number of employees actually at work c 188,348 a 207,650 212,150 216,192 223,380 230,360 224,840 232,280 236,882 a 238,800 254,300 C Estimated fraction of persons at- tached to industry actually at work 197,855 212.S5S 207,:; I 1 1 220,151 SS9.702 119,529 120,428 119,293 121,797 111,135 98,832 80,849 80,628 87,075 105.119 a Annual Report of the Comptroller of the Currency, 1919, Volume II, pp. 2.)2-303. b Average of pairs of fiscal years; Annual Report of the Comptroller of the Cur- rency, 1920, Volume I, p. 49. « This item has been estimated by a series of rather complex calculations from the various Annual Reports of the United States Comptroller of the Currency. Since 1915, the reports have been incomplete and the errors may therefore be considerable. DU< IT ARISING FROM BANKING A B C D E F G Calendar year Share of stock- holders a (Millions) Share of holders of savings accounts '> Millions) Share of Red Cross (Millions) Shire of employees d (Millions) Total nel value product (Millions) B+C+D+E Per cent of value product going to employees ion] : F 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 L919 $185 235 227 211 177 173 11 iS 204 233 281 439 $134 147 152 161 171 179 181 185 198 199 215 Ml 5 3 $115 123 137 149 161 164 183 214 230 281 362 S 434 501 516 521 509 515 532 604 661 767 1,018 ' 26.6 24.3 26.5 28.6 31.6 31.9 34.5 35.5 34.8 36 . 7 35 5 a Sea Column F of Table 17B. b See Column E of Table 17C. c Estimated from the Annual Reports of the U. S. Comptroller of the Currency; averages for pairs of fiscal years. d See Column B of Table 17D; comprises wages and salaries only. It is clear that not only did the value product of the industry nearly double during the decade, but apparently the per cent of that product going to the employees increased steadily throughout the period. Again, however, it must be kept in mind that information concerning the em- ployees is too scanty to justify laying much stress on this tentative con- clusion. It is certain, however, that the relative share of the employees in the net value product is much smaller than in the fields of manufacturing or transportation. § 17h. Banking Facilities Compared to Population and Income It is a matter of interest to note whether or not the people of the United States are becoming increasingly dependent upon banking facilities in the conduct of their business. Table 17F presents certain facts that bear upon this problem. w PQ < P 02 w H o ^o g£ P^ WO Oh PS p ►—I O u En o o « Ph O c3 o Q-5 "---^ 5 * 5 l_H u COS o 0 CD OP5*H 03"3M O 70 CO t>- CM CM or.3d h- CO co oo © © © © © co 00 00 o 4) "^ -»-> •" CO g ° °»2-2 .5. 2 o_ = 2 o S if c3 w 3 £ B.T3 a. o c3 5 rf W x SB T3 o i>. © oo io (x~,-r,-rco~ CM CO CO CO O© ©CO CO CO O >-l iO © ^h •<# co co co ■># O CD CD CD CO CO co"©" iO CD © *+ -f -H CO © CM CM cm coco co 9§ © ~H^t< CM CM -t< tH CM co co co co © © -t< >C"^CD CM CM CM © © © O o o ^"tf ©©©CM CD CD CM t- OS rH ^"O-O o-.a §-35 9 S * — - c o O ^h 00 rt* C/j ©©CM CM CO CO CO © i— I t^- OS CM 't^D coco co co io co t^ io oo »o •* -* IC O O o •— ' 1*3 CO " O OS ^ 00 1^ CM ^h CO CO^CM 00 co_ 0~CM~CO">0' OS OS OS OS OOrjn 00 CM l^ OS CM CM t>ToTo'-H C5CS © o ©CM t^ IO00 tJh O_r-H_00 C0"rtH~^" ©©© a CO 03 — • > .IS o ° c ?- 3-C3-OS- x 5 CO CM © © co Tf oo i— i co i-__cO©^ lfft^oc'©" CM CM , © © ~h CM O ^ H r ~ H 1 ~" © © © © CO TT 'C © © © © © t-^co © ^-* l-H r~* ©© © © co o > ©" • ©CM o "* . 2 ct"' « ^ :? +3 ^-^ -g.g u ■p >; to D. P--J3 q «^ 5 * '" O i * ° « v 3 ■_ t^ "3 ^a o ~ a •> 02 O ^CM BANKING 209 Column F of Table 17F makes it clear that batik accommodation is jusl about keeping pace with population, but that it is not growing quite as rapidly as the total income of the people of the nation. >j 17i. Changes in the Volume of Business per Bank It is also worth while to ascertain whether or not there is a tendency for banks to grow larger on the average. If so, it should be apparent in the average of loans and deposits per bank. The facts are set forth in Table 17G. TABLE 17G THE AVERAGE VOLUME OF COMBINED LOANS AND INDIVIDUAL DEPOSITS IN THE BANKS OF THE UNITED STATES A B C D E F Middle of year Sum of loans and individual deposits a (Millions) Number of banks a Loans and deposits per bank (Millions) B C Index of wholesale prices '> Purchasing power of loans and deposits per bank at prices of 1913 (Millions) D -=- E 1909 1910 1911 1912. . . . 1913 1914. . . . 1915 1916... . 1917... 1918. . . . 1919... $25,338 27,742 28,889 30,916 32,044 33,806 34,857 40,585 46,884 50,322 58,366 22,491 23,095 24,392 25,195 25,993 20,705 27,062 27,513 27,923 28,880 29,123 $1.13 1.20 1.18 1.23 1.23 1.26 1.29 1.48 1.68 1.74 2.00 .97 .99 .95 1.01 1.00 1.00 1.01 1.24 1.76 1.96 2.12 SI. 17 1.21 1.24 1.22 1.23 1.26 1.28 1.19 .95 so .94 a Annual Report of U. S. Comptroller of the Currency, 1919, Volume I, p. I so. b U. S. Bureau of Labor Statistics, Bulletin 269, p. 15. It is clear that, on the average, a bank could finance less business at the end of the decade than in the earlier years. If, as is sometimes asserted, there is increasing; concentration in the banking business, it must then lie in greater control of some banks by others and not in the growth in the size of the average bank, since this still remains a relatively small concern. CHAPTER 18 ALL BRANCHES OF GOVERNMENT § 18a. The Components of the Net Value Product In dealing with, the product of government, the same criterion is used that has been applied in the industrial fields previously studied; namely, what Look or money income do individuals, as such, derive therefrom? Evidently, governmental units expend great amounts for wages and sal- aries, but they pay no dividends. Large sums are, however, disbursed in interest, mostly to private individuals but to no inconsiderable extent to banks. The interest going to banks must not be included in the govern- mental value product since it is already accounted for as a receipt in the banking industry. In this study, the net value product of government will, then, he considered simply as the total of wages, salaries, pensions, gratuities, and interest paid to private individuals. Because of the nature of the available statistics government expendi- tures have been divided into four main classes: 1. Federal. 2. State and County. 3. City and Village. 4. School Districts. § 18b. The Number of Employees One of the most difficult parts of the study has been to estimate the number of employees engaged in each of these governmental fields. For the United States Government, the sources made use of are the Official Register, the Statistical Abstract, and the Annual Reports of the Secretary of War and of the Postmaster General. While the results are not highly accurate, it is almost certain that the errors in the estimates of the number of Federal employees are relatively small. It is difficult, however, to obtain any reasonably accurate figures con- cerning the numbers of State and County employees. The United States Census of Occupations gives practically no aid, for it records only offi- cials, * leaving out of account the army of clerks, stenographers, etc., who far outnumber those who are their superiors in rank. The desired num- ber has therefore been estimated by ascertaining from a study of The > Even these are doubtless often entered under their professions. 210 ALL BRANCHES OF GOVERNMENT 211 Census of Wealth, Debt and Taxation and of The Financial Statistics of States, the approximate total amounts paid as wages and salaries in the various years and then dividing these totals by the average compensa- tion for the services of State and County employees in New York as approx- imated from the reports of the State Civil Service Commission. While we have no reason for believing that New York salaries are especially non- representative, a much wider base would be necessary before one could feel confidence in the results. However, time was lacking to utilize fully the scanty and ill-assorted material scattered through some of the State reports, or to canvass thoroughly all of the State records in the hope of finding better organized results which perchance may there exist. Even the rather crude analysis here made represents the results of several weeks of search and calculation. The determination of the number of city and village employees offered a problem only slightly less difficult of solution. Using the United States Census reports and interpolating by aid of the police and fire department records of several large cities, it was found possible to approximate reason- ably well the number of policemen and firemen in all cities. It is believed therefore that the results in this field are satisfactory. The number of other city employees was estimated by first calculating the total wages and salaries paid to city employees, using for this purpose the reports of the auditors or comptrollers of various cities, and the Financial Statistics of Cities published by the United States Census Bureau. The total for each year was divided by an average wage estimated from the same sources in order to obtain the approximate number of employees attached to the industry. In this instance, a large quantity of usable data were found and the results are therefore somewhat more dependable than in the case of the States and Counties, although they are far from exact. Table ISA summarizes the estimates. In calculating the number of school employees, the reports of the United States Commissioner of Education were the chief sources relied upon. These reports give practically complete data for the common schools and fairly satisfactory information concerning more advanced institutions. The number of other school employees is, however, estimated from frag- mentary evidence. The results as a whole are, therefore, only moderately accurate. 212 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 18A \\ ESTIMATE b OF THE NUMBER OF PERSONS EMPLOYED BY THE VARIOUS BRANCHES OF GOVERNMENT IN THE CONTINENTAL UNITED STATES Thousands of employees attach sd to various branches of government Ml United States States Cities and villages Year Police School Army, Postal General and and fire Municipal General districts" navy and service govern- Coun- depart- utilities govern- marines ment ties a ments ment 1909 1,565 135 280 142 161 96 29 149 573 1910 1,620 133 283 144 173 97 30 169 591 1911 1,671 137 283 147 184 100 31 LSI 607 1912 1,727 145 287 148 195 102 32 192 626 1913 1,785 148 291 150 211 108 33 200 644 1914 1,866 159 293 160 231 108 34 212 669 1915 1,955 166 296 174 250 111 35 228 694 1916 2,037 200 298 190 255 112 36 232 714 1917 2,691 786 300 232 253 115 37 235 733 1918 5,129 3,038 290 433 254 114 39 238 724 a Teachers employed by States are included under ''School Districts." b For derivation of the items in this table see the text. § 18c. The Amount Paid in Wages or Salaries As previously stated, information is very incomplete concerning the amount of salaries paid by governmental units. The Departments of the Federal Government rarely give the complete totals anywhere in their reports and, in many instances, wages and other expenses are so confused that they cannot be separated. The results here given must, therefore, be regarded only as approximations to the truth, although the existence of reliable data for important payments made by the Department of Agri- culture, the army and navy, and the Post Office Department make it improbable that the errors in this field are unduly large. The estimates for States and Counties are made by assuming that the proportion of their total expenditures going as wages and salaries is the same as in the State of New York. The total expenditures are estimated from the Census reports on the Financial Statistics of States and on Wealth, Debt, and Taxation. The result cannot be deemed more than a reasonable approximation. The salary and wage payments to employees by the general government of cities and villages are computed on the basis of the records of the sample cities of Chicago, Cincinnati, Providence and San Francisco. The as- sumption has been made that wages and salaries absorb the same propor- tion of general governmental costs in other cities as in the average of these ,* ALL BRANCHES OF GOVERNMENT 213 four. The total general governmental costs are estimated from the figures appearing in The Financial Statistics of Cities. The results here stated must be considered as rather rough approximations to the truth. The estimates for the pay of employees of municipal utilities, being com- puted along somewhat similar lines, are only slightly more accurate. The figures for policemen and firemen are, however, believed to be much nearer the truth, being based upon the rather reasonable assumption that average wages in New York, Chicago, Boston, Charleston, and Wash- ington (the cities for which records are available), are fairly typical for the entire nation. The figures for school employees are greatly streng- thened by the fact that the United States Commissioner of Education presents nearly complete data for teachers in the public schools. The chief possibility of error arises from the lack of any but extremely fragmen- tary data concerning the amounts paid for the services of janitors and other non-teaching employees of school districts, colleges, and universities. The general results are summarized in Table 18B. TABLE 18B AN ESTIMATE 6 OF THE TOTAL AMOUNTS DISBURSED BY VARIOUS BRANCHES OF GOVERNMENT IN DIRECT PAYMENT FOR THE SERV ICES OF EMPLOYEES Millions of Dollars Paid by All branches of govern- Federal government States and Cities and villages Calen- dar Army, navy and Posl .Miscel- laneous Police and lire Municipal Miscella- neous civil | Schools year ment marine office De- civil de- counties depart- utilities depart- corps " partment partments ments ment s 1909. . $1,157 $ 113 $153 $148 $151 $113 $25 $158 $290 1910. 1,236 110 1G0 157 166 122 26 180 316 1911. . 1,300 112 166 156 181 126 26 196 337 1912. 1,378 119 174 156 199 132 27 210 362 1913. . 1,470 123 187 163 222 137 30 221 :;s: 1914. . 1 ,571 128 199 177 250 141 :;:; 229 11 1 1915. . 1.684 133 206 194 276 1 11 33 256 411 1916. 1,814 1 82 21 1 211 287 1 16 35 2iil 176 1917. . 2,530 769 220 271 293 151 37 268 52 1 1918. . 1,591 2,391 243 572 305 164 39 299 578 ii Includes allowance for board, lodging, clothing, etc., furnished. i> For derivation, see text. § 18d. The Average Annual Earnings of Employees The division of the items in Table 18B by the corresponding ones in Table 18A gives the figures appearing in Table 18C, these figures repre- senting tin' average annual pay per employee in each of the divisions considered. 214 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 18C AN ESTIMATE" OF THE AVERAGE ANNUAL PAY PER EMPLOYEE IN VARIOUS BRANCHES OF GOVERNMENTAL SERVICE IN THE CON- TINENTAL UNITED STATES All Federal Government States Cities and Villages Cal- Army, Post office Depart- en- Branches navy, Miscel- and Police Munic- Miscel- Schools dar of Gov- and laneous Coun- and fire ipal laneous Year ernment marine civil ties depart- utilities civil corps b ment $ 938 ments 1909 $739 $838 $547 $1,040 $1,176 $ 843 $1,058 $517 1910 763 830 565 1,090 958 1,249 845 1,066 535 1911 77S 818 585 1,061 9.S2 1,262 845 1,079 555 1912 798 819 608 1,055 1,018 1,289 855 1,091 578 1913 823 830 644 1,088 1,053 1,263 903 1,103 601 1914 842 SOS 678 1,108 1,083 1,314 951 1,077 619 1915 861 803 696 1,117 1,104 1,291 954 1,120 635 1916 891 912 718 1,113 1,125 1,302 964 1,138 666 1917 940 978 736 1,165 1,157 1,314 9S2 1,141 711 1918 895 787 839 1,320 1,203 1,441 1,014 1,257 798 a For mode of derivation, consult text. b Includes an allowance for board, lodging, clothing, etc., furnished. In Table 18D the average pay is reduced to purchasing power at a constant price level. S ALL BRANCHES OF GOVERNMENT 21; TABLE 18D AN ESTIMATE OF THE PURCHASING POWER AT PRICES OF 1913 OF THE PAY OF THE AVERAGE EMPLOYEE IN EACH OF THE LEADING BRANCHES OF GOVERNMENTAL SERVICE Index of prices of goods used by working classes Purchasing power of annual earnings of employees of <* Cal- All branches of gov- ernment Federal Government States and Counties Cities and Villages en- dar year Army, navy and marine corps 6 Post office Depart- ment Miscella- neous civil depart- ments Police and .fire depart- ments Munic- ipal utilities Miscella- neous civil depart- ments Sehi..]|, 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 .955 978 .9X1 .994 1.00 1.01 1.03 1.10 1.29 1.58 $774 780 791 803 823 833 836 810 729 567 $877 849 831 824 830 800 780 829 758 l!is $573 578 595 612 644 671 676 653 ."1 531 $1,089 1,115 1,078 1,061 1,088 1,097 1,084 1,012 903 835 $ 9S2 980 99S 1,024 1,053 1,073 1,072 1,023 897 761 $1,231 1,303 1,283 1 ,297 1,263 1,301 1,253 1,184 1,019 912 sss:; 864 859 860 903 942 926 S76 761 642 $1,108 1,090 1,097 1,098 1,103 1,066 1,087 1,035 884 796 $541 547 564 581 601 613 617 605 551 505 a Derived by dividing the respective items in Table 18C by the indices in the second column of this table. b Includes an allowance for subsistence. The figures in Table 18D indicate that from 1909 to 1915, the earnings of governmental employees were increasing steadily but that after that date, mainly because of the sharp rise in the price level, nearly every class suffered a loss in economic prosperity measured in terms of the amount of commodities that the salaries would buy. § 18e. Pensions In addition to the sums paid out as wages and salaries for present labor, governments expend large sums as pensions and annuities, payments which may best be thought of as payments for services rendered in the pasl by the employees of that day. The largest item in this list is, of course, the army pension list, and records for this line are complete. It is feasible also to obtain a general idea of the amounts paid by State and local gov- ernments for pensions and gratuities. The final results of a compilation of data on this subject are recorded in Table 18E. 21G THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 18E APPROXIMATE AMOUNT OF PENSIONS AND GRATUITIES PAID OUT BY THE VARIOUS BRANCHES OF GOVERNMENT IN THE CONTINENTAL UNITED STATES a Estimated from the Financial Statistics of Cities issued by the Census Bureau. b Estimated from the Financial Statistics of States published by the Census Bureau. c Statistical Abstract of the United States, 1919, p. 741. § 18f. Interest on Public Debts The principal payments x made by government as a return for the ser- vices of property consist of interest on the public debt. A considerable share of this interest is paid to banks and, being accounted for in their income, is therefore excluded from the net value product of government. It is impossible to measure with accuracy the total volume of such inter- est payments; but data are available indicating the approximate amount of domestic governmental securities held by banks and by applying to this total an estimated interest rate, one is enabled to approximate the amount of this kind of interest payments made each year. Table 18F indicates the procedure followed. Corporations other than banks receive no inconsiderable share of the bond interest paid by government, but since bond interest receipts are excluded from the value product of such corporations it follows that inter- est payments made to them must be treated just like those made to indi- viduals. They have therefore been counted as part of the value product of government. There is, however, strong ground for contending that most governmental interest payments, no matter to whom paid, should be excluded from the 1 Some money is expended for rent of leased buildings, but the amount is normally small and hence has been omitted in this study. S fa oo W 5 5 o w w H O H H X, fa *-< w > o o fa c x r. fa ^H W«1 OH X'-

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H . ^*-H z (1 *- i ci 1 i° t/3 03 73 U -a o o eo T3 — ■ b3 a o -O o ^_^ o CO o 0) a> 3 i. a CO > a> i-H a o o _o *~^ o c "o co 3 o a o S S o u cC-~ U — ; — cj U f to _^ ci SZ ** bxcc.ee; cc ^ "^ '— cC ™ « c ■ -"• co to =;2I t *- rf — ■— . 3 co o3 5 !_&> * 2 s o— tx— — ; w C - CC o S3 el > -0. — ** 5 - x co O D9 03 F d CO CO +. iiT- i; O - = c= = = O. o 5=- = = cr -^ ►= r- — — : O e o 242 THE ESTIMATE BY SOURCES OF PRODUCTION TABLE 20E AN ESTIMATE OF THE TOTAL AMOUNT OF WAGES AND SALARIES" PAID BY THE VARIOUS BRANCHES OF INDUSTRY IN THE CONTINENTAL UNITED STATES Industry All industries Agriculture. . . Mining 6 Factories c . . . Construction Other Hand Trades Railways d . . Pullman Co. Express Street and Electric Railways. . Electric Light and Power. . . . Telegraphs. . Telephones. . Transporta- tion by. . . water Banking Government e Unclassified industries . . Millions of dollars paid in the year 1909 14,960 717 612 4,366 1,192 295 1,092 s 36 171 40 IS SI 173 115 1,157 4,887 1910 10,265 716 676 4.790 1,146 327 1,205 9 39 181 47 19 91 182 123 1,236 5,478 1911 16,498 756 698 4,805 1,104 339 1,261 9 42 191 50 22 103 184 137 1,300 5,497 1911 is, 1)92 761 752 5,310 1,218 362 1,350 10 46 201 56 26 112 197 149 1,378 6,164 1913 19,450 786 832 5,890 1,276 391 1,416 14 47 214 59 27 125 204 161 1,470 6,538 1914 18,216 767 718 5.366 932 404 1,310 14 44 224 62 26 128 202 164 1,571 6,284 1915 19,019 786 727 5,892 927 425 1,322 13 45 222 63 26 126 222 183 1,684 6,356 1916 23,175 848 894 8,442 1,066 47S 1,547 14 52 242 71 31 145 274 214 1,814 7,043 1917 27,365 1.059 1,112 10,530 973 603 1,908 15 64 267 86 40 170 334 230 2,530 7,384 1918 32,076 1.251 1.354 12,410 964 780 2.741 20 82 314 97 49 190 421 281 4,591 6.531 a Includes subsistence furnished to employees, but excludes pensions, compensation for injuries, com- missions, tips, and payments for work done under contract. b Includes quarries and oil wells. c The field covered by the principal tables in the Census of Manufactures. d Includes switching and terminal companies. e Includes all branches of government — national, state and local. , SUMMARY OF PART I 243 TABLE 20F AN ESTIMATE OF THE TOTAL DISBURSEMENTS TO PAST <>R PRESENT EMPLOYEES IN THE FORM OF WAGES, a SALARIES,*" PENSIONS, COMPENSATION FOR INJURIES, AND PAYMENTS FOR WORK DONE UNDER CONTRACT Industry Millions of dollar? paid in the year 1909 1910 1911 ir,, so:, 1912 1913 1914 1915 1916 1917 27,795 1918 All industries 15,255 16,570 18,417 19,801 18,552 19,355 23,558 32,575 Agriculture. . . 717 7 ir, 756 761 786 707 786 Ms 1,059 1,251 Mining b 643 711 733 790 874 755 704 939 L.169 1.422 Factories c. . . . 4,410 l.s;is 1,852 5,361 5,946 5,410 5,945 8,517 10,621 12,515 Construction 1,192 1,146 1.101 1,218 1,270 932 927 1,066 973 '.Mil Other Hand Trades 306 339 351 375 404 418 439 496 628 SI 1 Railways d. . . 1,105 1,219 1,277 1,307 1,434 1,328 1,339 1,500 L.990 2.703 Pullman Co. . 10 11 12 13 17 17 16 17 19 21 Express 43 47 51 54 55 52 52 (il 71 93 Street and Electric Railways. . . 171 181 191 201 21 1 224 222 212 267 314 Electric Light and Power 40 47 50 56 59 62 63 71 86 97 Telegraphs. . . 18 19 22 26 27 26 26 32 to 49 Telephones. . . 81 92 103 113 126 129 12S 154 173 194 Transporta- tion hv Water 173 1S2 184 197 204 202 222 271 334 421 Banking 115 123 137 149 101 164 1 83 214 230 281 Government e 1,343 1,421 1,486 1,574 1,678 1,777 1,886 2,017 2.710 1,842 Unclassified industries. . 1,887 5,478 5,497 6,104 6.53S 6,284 6,356 7,043 7,384 6,531 a Includes subsistence furnished to employees. b Includes quarries and oil wells. c The field covered by the principal tables in the Cmsus of Manufactures. d Includes switching and terminal companies. e Includes all branches of government — national, state, and local. 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KNAUTH ASSISTED BY ELIZABETH W. PUTNAM MRS. EUSTACE SELIGMAN" ^ CHAPTER 21 INTRODUCTION § 21a. The Problem The estimate of the National Income on the basis of incomes received attempts to find and summate the money values of the incomes of all per- sons who are reported by the Census as "gainfully employed." The the- ory underlying this estimate is that all of the National Income in every year must be received by some person. An addition must, however, be made for the surplus incomes of corporations which are carried forward after the current distributions to stockholders have been made. Owing to the form in which our data are available, it has not been pos- sible to distribute these amounts among individuals, and it is therefore necessary to add them in a lump sum to the individual incomes in order to arrive at the total National Income. If the data were perfect and the methods impeccable in both cases the results of this estimate would agree with the results of the Estimate by Sources of Production presented in Part I. Needless to say, neither the data nor the methods are perfect in either case. The theory on which the two estimates are based is discussed in Section iv of Chapter II, Volume I, but it may save misunderstanding to note again the omission of certain items that contribute to the economic welfare of the community, and the intention to omit one item that counts as money income to individuals. It is not feasible to include items of income on which a money value is not commonly placed. For example, no allowance is made for the services rendered the community by such public works as roads and bridges, beyond the income received by those who work upon them. Nor is any attempt made here to set a money value upon the services rendered by housewives to their families. On the other hand, we do include two items which do not enter into exchange, but which may apparently be measured with reasonable accuracy. These are the rental values of homes owned by the persons who occupy them, and the produce of the farms directly consumed by farmers. In addition, we in- clude some spurious income nrisino- from accretions to the money value of property unchanged in quality and quantity. Such items as the rise in the prices of building lots do not increase the volume of serviceable goods at the disposal of the Nation and therefore such items should not be in- 24!) 250 THE ESTIMATE BY INCOMES RECEIVED eluded in ;i statement of the National Income. But the individuals who own these lots may get personal income from the rise in land values, and income resulting from sales of property at enhanced prices, is supposed to be included in the income-tax returns on which this estimate is largely based. During the period covered by the present investigation, however, it seems probable that the error arising from this source is not serious, for the high rates of taxation imposed at the time when prices were rising to their maximum discouraged the sale of property that had appreciated in value, and encouraged " loss-taking " sales of property that had fallen in value. § 21b. The Method and Data The method adopted in making the Estimate by Incomes Received was determined largely by the character of the data that were available. The largest and most accurate body of material is found in the income-tax returns. Here are definite figures regarding the number and aggregate amount of personal incomes above the exemption limits set by law — $3,000 from 1913 (when the present income tax was first levied) to 1916, and $2,000 from 1917 onwards. These returns have well-known defects, but defects which can be corrected in some measure. A second great body of material is the mass of wages data collected by federal, state and city governments. Such data make it possible to estimate the aggregate incomes of the millions of those wage-earners and others gainfully em- ployed who make no income-tax returns. The income-tax data have to be supplemented by estimates for income exempt by law from taxation — especially certain state salaries, interest on tax-free securities, and the rental value of houses occupied by their owners. More important and more speculative are the corrections that must be made for failure to report incomes subject to tax and for understatement of reported incomes. Similarly in the chapter deal- ing with incomes less than $2,000 per year, we cannot accept wages earned as equivalent to income received. Here the chief supplements include the rental value of owned homes, income from property and pensions. The character of these materials, it will be noted, makes it necessary to divide the Estimate by Incomes Received into two sections, persons re- ceiving more and persons receiving less than $2,000 per year. This division at the $2,000 line is probably as satisfactory as any other arbitrary division that could be selected. A little below this line we approach the minimum budget on which a family can maintain efficiency, while a little above $2,000 we enter the range of modest comfort. For an individual without dependents we have on the lower side sufficiency, on the upper side, ease. INTRODUCTION 251 Of course, any arbitrary line of division maintained through a period of such wild fluctuations in the cost of living as occurred during the war is open to the objection that the economic welfare represented by it was con- stantly changing. This defect we remedy so far as possible by computing the average per capita income of income-receivers, and by showing the fluctuations in the purchasing power of their current receipts. A third large body of data and, therefore, a third section of this estimate concerns the incomes of farmers. Relatively few farmers make income-tax returns, so that we can learn little about their affairs from the Internal Revenue Bureau's publications. Chief reliance must be placed upon the annual estimates of the "gross value of wealth produced on farms" made by the Department of Agriculture. But these estimates confessedly include a vast amount of duplication which must be corrected as well as may be by resort to various special studies of farm economics. Farmers are less accustomed to keep books than perhaps any other large class of business men; and to keep their books correctly is peculiarly difficult because the value of the food and fuel they produce for their own consump- tion must be estimated, as well as the rental value of their owned homes. What is difficult for the individual farmer to do accurately is impossible for the outside investigator to do accurately for six and a half millions of farmers. Hence the estimate of farmers' incomes and especially the number of farmers having incomes above the $ 2,000 line and con- sequently also of those below this line is subject to a considerable; margin of error. The last section of the estimate is concerned with a type of income about which there is much discussion — corporate surpluses. There are those who deny that these surpluses are to be regarded as in any true sense part of the National Income. For this reason, we keep this item separate and give totals both for all individual incomes and for individual incomes plus corporate surpluses. Our investigation of corporate finance inclines us to believe that some 80-90 per cent of corporate surpluses are genuine income, invested in the extension of plant and equipment in the same way as is fresh capital raised by stock or bond issues. Since the amount of income reported to the Bureau of Internal Revenue as due to sales of property is a negligible item, we conclude that these surpluses have not been shown in individual incomes during the prosper- ous years covered by this report. In years of depression, the surplus accounts of corporations suffer a great decline, and may turn into de- ficits. If we did not include this item in our estimates, we should make the National Income more stable than it actually is. After the manuscript of Volume 1 was sent to press, certain additional data have become available which have enabled us to make minor revis- 252 THE ESTIMATE BY INCOMES RECEIVED ions in the Estimate by Incomes Received. It is our hope to make further revisions of this sort in our published reports whenever materials and op- portunity permit. Even the present revised results for 1910-1919 are not final, but merely the best approximations which we can make from the data now at hand. S CHAPTER 22 TOTAL AMOUNT OF INCOME RECEIVED BY PERSONS HAVING OVER $2,000 PER YEAR § 22a. Introduction The estimate of the total income of persons receiving over $2,000 per year is based on income-tax returns, on data regarding tax-exempt income, and on incomes of farmers having over 82,000 per year. These three pa rl s of the estimate are discussed in detail in the following sections. Table 22A presents the final results. TABLE 22A ESTIMATED TOTAL NUMBER OF PERSON'S AND TOTAL AMOUNT OF INCOME FROM ALL SOURCES RECEIVED BY ALL PERSONS HAVING INCOMES OVER $2,000 1910 to 1920 Income in millions of dot ais Number of persons Year I Income tax data a (exclud- ing farmers) II Tax- exempt income '< III Farmers' incomes r over $2,000 IV Total V Number of persons (excluding farmei V] Number of farm VII Total number of pers ms 1910.. . 1911.. . 1912.. . S 8,800 d 8,600 <* 8,800^ 8 792 806 818 § 258 1 82 262 $ 9,850 9,588 9,880 1,300,000 L,300,000 1,300,000 111,000 70. 000 111,000 1,411,000 1,370,000 1,111.000 1913. . . 1914.. . 1915.. . 9,000 8,700 10,000 830 843 858 340 340 516 10,17(1 9,883 11,374 1,300,01 )() L,300,000 1,800,000 I 13,000 1 11,000 208,000 1,443,000 1,111.000 2,008,000 1916.. . 1917.. . 101S.. . 13,500 1(1,000 16,200 973 1,008 1,279 1,179 3,886 5,784 15,652 20,894 23,263 2.300,000 2,900,000 3,100,000 HS. 01 10 1,313,000 1,861,000 2,748,000 1,213,000 1,961,1 1919.. . 1920. . . 17,500 1,550 1,573 6,298 2,261 25,348 3,600,000 2,008,000 so 1,000 5,608 ,00 1 a See § 22b. c gee Table 24K. b See § 22c. ''Estimated. § 22b. Estimate from Income Tax Data Two questions must be answered before the income-tax data as reported by the Bureau of Internal Revenue can be utilized. How much are re- 253 254 THE ESTIMATE BY INCOMES RECEIVED ported incomes understated and what is the amount of incomes that should be, but are not reported? For brevity we shall call these two defects of the data "understatement" and "failure to report." Failure to report is frequent in the lower income ranges where the exemptions allowed by law would nearly or entirely cover income received; understatement is preva- lent in the higher income ranges where most elaborate methods are often resorted to in order to avoid payment of the tax. Changes in the law itself and in the methods of collecting the tax make comparison between different years difficult. In the years 1913 to 1916, incomes above $3,000 are reported and thereafter above $2,000. * Fur- ther, the deduction of losses incurred in transactions outside of the particu- lar business in which the tax payer was engaged was not permitted in the early years, but in 1917 this ruling was changed so as to permit the writing off of all losses. It should be noted that profits made from sales of investments or prop- erty are included as income under the income-tax law. In Volume I it is held that such profits are a part of individual, but not of National Income. 2 It may be thought that gains of this sort were enormously increased after 1916 by the rise of prices. If all property had actually been sold at current quotations the tax returns would include a vast volume of clearly fictitious income. The fact is, however, that the increased income taxes were an effective deterrent from making realizing sales, so that only a negligible portion of this fictitious income was included in the tax returns. And this portion is probably more than offset by the volume of "loss-taking" sales of property which had declined in price — sales made purposely to reduce the amount of taxable income. Another factor which must be considered in estimating both the amount of understatement and failure to report is the administration of the income- tax law. This has naturally improved with experience so that the returns are far more accurate for the later than for the earlier years. In particular, an attempt has been made since 1918 to reduce the amount of evasion by "intensive drives" in the $2,000 to $5,000 range. On the other hand, since the armistice technical means to reduce the income reported have been resorted to on a far larger scale than during the war. In particular, the practice of turning over a portion of income- bearing securities to members of the family in order to avoid or lessen taxation is more frequent. This practice may result only in dividing the same amount of income into smaller units; but it may also lessen total income because gifts are counted at their market value at the date of the gift and therefore do not include appreciation of value since their original i No use is made of the data for incomes between $1,000 and $2,000, as they apply only to single persons, and arc therefore only a part of all the incomes in these ranges. -' Sec Volume I, page 45. TOTAL INCOME PERSONS HAVING OVER $2,000 PER YEAR 255 purchase by the donor. This device makes it possible to sell securities without reporting appreciated value. This fact is not of much conse- quence, however, for the appreciation in the value of securities may in part represent the accumulation of corporate surplus which we include under a separate head, and in part an increase in the price of unchanged property, which we do not wish to include. In addition, the practice of forming investment corporations for the purpose of avoiding or lessening taxation has increased. By this means, surpluses above the current needs of the stockholders are retained by the corporation and hence are not reported as personal income. There is no way of ascertaining with exactness the extent of this practice. 1 With these general considerations in mind, the data may now be pre- sented. Careful study, year by year, of the figures appearing in the follow- ing tables and in the charts in Volume I should enable us to make an esti- mate allowing for evasion and understatement due to the differences in the methods of collecting the tax in different years, and to changes in the law itself. Concerning the failure to make returns and the inaccuracy of many of the returns made, we have little information bej'ond a surmise that the omissions are considerable. It is hoped that there will shortly be available the results of audits which will furnish a better basis for an estimate. The following table shows the total number of persons and amount of income reported by the Bureau of Internal Revenue. Figures are also given for the probable amount of income and number of persons having incomes over $2,000 in 1913 to 1916. This estimate 1 was made after com- parison between the average number of persons and amount of income in the S2,000 to $3,000 class in 1917, 1918, and 1919 with those having S3, 000 and over. It was found that about 30 per cent of the total income, and about 50 per cent of income-tax payers fell within this class. Thes percentages were accordingly usad in estimating the amount of income and number of persons having over 82,000 in the earlier years, 1913 to 1916, as shown in columns II and IV of Table 22B. Doubtless, some degree of error is involved in this estimate because of the rise in prices and the steeper slope of the curve in the later years than in the earlier; but after considerable study no better method has been found. In order to study the probable amount of failure to report and under- 1 Probably, 90 per cent of tho corporations in tin- United States represent merely individuals or a small group <>f individuals doing business through the medium of a corporation. In these cases, there is a strong tendency to withhold dividends. Additions to corporate sur- plus in such companies are certainly as much income as corresponding items of partnerships or sole traders. It is to be noted that the war additions to corporate surplus (after taxes) have been wiped out in large measure by (1) the 1920 to l'.i-'l depression and (2) by investments in planl facilities that are unrealizable through either operation or sale. — J. E. Sterrett. 256 THE ESTIMATE BY INCOMES RECEIVED TABLE 22B THE OFFICIAL INCOME TAX RETURNS ON THE BASIS OF A UNIFORM EXEMPTION LIMIT OF $2,000 (No correction for failure to report, understatement, or tax-exempt income) 1913 to 1920 a Annual Report of the Secretary of the Treasury, June 30, 1914, p. 628. Bureau of Internal Revenue, Statis„ics of Income, 1916, pp. 14, 23; 1917, pp. 28, 29; 1918, pp. 36, 37; Preliminary report for 1919, p. 8. b On the basis of 1917, 1918, and 1919, see text. ' For incomes over 83,000. d Actual number or amount reported for incomes over $2,000. < Preliminary figure including incomes over $1,000. statement of income for each year, the income-tax data were plotted on a logarithmic scale. These charts are reproduced on pages 120 and 121 of Volume I. A chart on a logarithmic scale emphasizes small arithmetic increments or decrements in the lower numbers and minimizes them in the larger numbers. A slight change, therefore, in the shape of the curve at the left hand (lower income) end is of great importance, since it in- volves a large number of incomes. The advantage of charting the data in this form for analysis is illustrated in Part III of this volume. It should be noted that the curves for each year show a general similar- ity in the direction and angle of slope. Reading toward the left from the right hand side of the chart, the curves for 1913 to 1916 fall off at the $5,000 point, whereas the curve for 1917 is almost a straight line. In 1918 and 1919 the curves turn sharply upward at this point. These observa- tions indicate (1) that the comparative number of incomes reported in the $2,000 to $5,000 ranges in the earlier years was less than in the later years; * 1 In order to discover tax delinquents in 1918, all employers were required to report the <* TOTAL INCOME PERSONS HAVING OVER $2,000 PER YEAR 257 and suggest (2) that the reporting of incomes in the $5,000 to, say, $50,000 ranges was less complete than in the higher ranges. To show more fully tin 1 situation in the lower income ranges in the years 1917 to 1919, the following table has been made. TABLE 22C COMPARISON OF REPORTED XET INCOME, INCOME FROM SALARIES, AND INCOME FROM BUSINESS OF PERSONS RECEIVING $2,000 TO $5,000 PER YEAR 1917 to 1919 Year Number of Persons Net income Income from salaries (Thousands of dollars) Income from business 1917a 1918 b 1919 c 1,399,470 2,429,214 2,750,229 $4,180,842 7,162,044 8,320,550 $1,853,648 4,389,992 5,445,578 $1,802,641 1,733,831 1,860,148 a Statistics of Income, 1917, pp. 40, 41. 6 Statistics of Income, 1918, p. 44. c Statistics of Income, 1919, Preliminary Report, pp. 8, 11. Income returns of less than $5,000 were checked in the field from 1918 on, 1 while those of over $5,000 were sent to Washington and checked by the central force. This system resulted in the greatest care being given to the smaller incomes and to the large ones of say $50,000 or more. The Washington force has in the past been inadequate to audit all the returns, and in addition has been so far in arrears that its findings have been made too late to affect the statistical data, which are of necessity computed from the returns as they are originally reported. The dip in the curve between $5,000 and $50,000 in these years may thus reflect understatement of incomes and be due largely to the technique of the Bureau of Internal Revenue. The figures for incomes above $50,000 are believed by com- petent authorities to be technically almost accurate, containing only such understatements as can be made within the letter of the law. The amount of such understatement is included in the estimate in § 22c on Tax-exempt Income. Further light is apparently thrown on the general problem of under- statement by a comparison of the average amounts of income reported in each year. amounts over $1,000 paid to any individual in wages. The result of this drive was that the amount of income reported between $2,000 and $5,000 as received from wages or salaries was greatly increased. No such simple method has been devised for detecting delinquents among men doing business in a small way on their own account, however, and in L918 the number of such persons riling income-tax returns actually declined. We cannot, therefore, believe that failure to report has yet been reduced within narrow limits. 1 Returns for the year 1917. 258 THE ESTIMATE BY INCOMES RECEIVED TABLE 22D AVERAGE INCOME OF PERSONS RECEIVING OVER $3,000 1913 to 1919 Year Number of persons (Thousands) 357 a 357 b 336 b 437 b 993 c 1,411 d 1,838 e Total income (Millions of dollars) $ 3,900 b 4,000 b 4,600 b 6,298 b 9,126 c 10,065 d 13,223 * Average income 1913. $10,906 11,188 13,664 14,415 9,187 1914 1915 1916 1917 1918 7,132 1919 7,194 a Annual Report of the Secretary of the Treasury, June 30, 1914, p. 628. b Statistics of Income, 1916, p. 14. c Statistics of Income, 1917, p. 28. d Statistics of Income, 1918, p. 36. e Statistics of Income, 1919, Preliminary Report, p. 8. According to this table the average income over $3,000 increased rapidly from 1913 to 1916, dropped violently in 1917, and declined still further in 1918. These changes are the net resultant of several factors. (1) Incomes already large doubtless grew rapidly larger with the recovery from the depression of 1913-14, and the sudden uprush of prices after the middle of 1915. (2) On the other hand, these large incomes were probably re- duced in 1917-19 by the encroachments made upon profits by increasing- costs of doing business. (3) The war-time rise of wages, salaries, profes- sional fees and of the gains of small business men carried many incomes for the first time in the lives of their recipients above the $3,000 line, and of course this rapid increase in the number of incomes in the $3,000-$5,000 intervals tended powerfully to reduce the average of all incomes above $3,000. (4) After the effect of these three factors has been allowed for the figures still suggest that a considerable role was played by fuller re- porting of small incomes. The reduction of the exemption limit from $3,000 to $2,000 in 1917, the patriotic spirit that made people more willing to pay taxes during the war and the "intensive drive" of 1918 all contrib- uted to this result. In so complex a situation it is impossible to attribute its due effect to each of the intermingled factors. Yet a rough series of corrections can be made to give approximations much closer to the whole truth than the official figures give. The method adopted is first to correct the official returns for 1918, and then to use these new estimates as a basis for cor- recting the figures for earlier years. <* TOTAL INCOME PERSONS HAVING OVER $2,000 PER YEAR 259 The probable amount of understatement and failure to report income in 1918 was estimated as follows: 1. The failure to report incomes from business in the $2,000 to $5,000 range was considerable. The doubling of incomes from salaries owing to the "drive" in 19 IS indicates that an equally successful effort to find small business incomes would have had large results. For our purposes, the best guess is to double the amount reported under this head — a cor- rection which adds $1,298 million to the total. 2. The understatement of income from salaries in 1918 was probably very much less. This item had been increased very largely over 1917, and the manner in which the work was conducted indicates that nearly all salaries were found. However, since this item showed a still further increase of over a billion dollars in 1919, it is probable that there was still some understatement in 1918. This amounted to perhaps one-tenth of the reported total, or $370 billion. 3. The understatement of the incomes between $5,000 and $50,000 is very difficult to estimate. In these ranges, there were reported in 1917, 415,000 incomes, totalling 84,560 million; in 1918, 465,000 incomes, total- ling $4,860 million; and in 1919, 640,000 incomes, totalling $6,645 million. It is known that this class escaped attention in 1918 to a greater degree than either the larger or smaller incomes, and this point is graphically illustrated by the "dip" shown in the preceding charts. It is noteworthy that in 1919 the "dip" was to some extent reduced. An elimination of the "dip" and a reading of the points on the redrawn curve for 1918 indicates a possible increase of from $1 to $3 billion; the points are so fine at this stage of a logarithmetic chart that the slightest variation causes an enormous difference in the readings. A flat increase of $2 billion for the understatement in these ranges in 1918, then, appears to be as close a correction as can be made. A summary of these corrections in tabular form follows: — TABLE 22E ESTIMATED AMOUNT OF INCOME SUBJECT TO TAXATION' IX 1918 (Excluding farmers) (Millions of dollars) Income reported ovor $2,000 S13,ti'.»J ' Less Farmers' Income 1,123 6 $12,569 Add Estimated Business delinquencies ($2,000 $5,000) 1,298 e Estimated Salary delinquencies ($2,000-$5,000) 370 Estimated General delinquencies ($5,000-$50,0()0) 2,000 c Total Estimated Income $16,237 a Statistics of Income, 191S, pp. 36, 37. b Statistics of Income, 1918, p. 11. c See text. 200 THE ESTIMATE BY INCOMES RECEIVED When the curve for 1918 is redrawn on the basis of $10.2 billion instead of $13.7 billion total income, it shows only a small "dip" in place of the very pronounced one shown in Chart 22B. If a similar computation is made for earlier years, based on the results for 1918, and if the general information contained in the preceding charts and tables is utilized, then the approximation to the income over $2,000 for each of these years is as follows: — TABLE 22F ESTIMATED TOTAL NUMBER OF PERSONS AND AMOUNT OF TAXABLE INCOME OF PERSONS RECEIVING INCOMES OVER $2,000 PER YEAR (Excluding farmers) 1913 to 1920 Number of persons (Millions) Total income (Billions) Minimum and maximum estimates (Billions) 1913 1914 1915 1916 1.3 1.3 1.8 2.3 2.9 3.1 3.6 $ 9.0 S.7 10 . 13.5 16.0 16.2 17.5 $ 7-10 7-10 8-12 12-15 1917 1918 L919 15-19 15-19 17-20 1920 Needless to say, any method of estimating money income that ought to be, but is not, reported to the taxing authorities yields merely rough ap- proximations. It cannot be pointed out too often that the exactness of the figures used is purely technical. However, they are the result of an ex- haustive scrutiny and analysis of the existing data, and a careful study of the best means of interpreting them. No final solution of the income dis- tribution problem can be reached until we have an accurate census of the incomes of all the people in the country, or at least of a large and well selected sample. § 22c. Tax-exempt Income In addition to the kind of incomes which are or should be reported by persons under the income-tax law, there are some forms of income which are not reported because they are exempt from taxation. Certain items of this tax-exempt income can be said with some assurance to accrue almost entirely to those having incomes over $2,000, for example, income from si ate or local bonds and Federal Farm Loan Bonds. Other types of income, such as the interest on Liberty Bonds, state and local salaries, and income , TOTAL INCOME PERSONS HAVING OVEE 12,000 PER YEAR 261 from homes owned by their occupants, are known to be divided between those having incomes over and tinder $2,000. Where no statistical infor- mation was obtainable, we have apportioned such incomes in the manner which seemed, all things considered, most probable. The following table is presented to show the amount of income which accrues to the persons falling under the income-tax law and for which they are not required to make any return. TABLE 22G ESTIMATED TAX-EXEMPT INCOME a 1910 to 1920 (Tax-exempt Agricultural Income Omitted) (Millions of dollars) Year I Interest on local debt II [uteres! on Libei t y Bonds 111 Interest on Federal Farm Loan Bonds IV Interest on obli- gations of p IS- sessions of U.S. t> V Income exempt through nature of oc- cupation c VI Rental value of homes owned VII Total 1910 1911 1912 1913 1914 1915 1910 1917 1918 1919 L920 $134 148 160 172 L85 200 215 228 236 259 282 $ 20 ISO 380 380 d $ 1 1 7 Id $3 3 3 3 3 3 3 4 4 1 1 $155 155 155 L55 155 1 .V) I.-.:, 1 55 1 55 2 10 203 $500 .-,1 1! 1 500 51 II i 500 500 6 ii 6 10 Tin 7i I 7 il S 792 8 16 818 83U 8 13 858 973 1,008 1,279 1,550 1,573 a See the following tables for references. '• And also U. S. bonds issued prior to 1917. c State, city and county salaries. d Estimated. The items of this table tire taken up in the following divisions. 1. Local Debts. The next table gives the amount of state, municipal and local debts in 1913. The security issues subsequent to 1913 are recorded by the Bond Buyer which has the most complete records available. An estimate of the amount of refunding may be obtained by comparing the total issues reported by the Bond Buyer with the actual increase as shown by successive Census reports. In 1902, the Census of Wealth, Debt and Taxation reported a 262 THE ESTIMATE BY INCOMES RECEIVED TABLE 22H TOTAL AMOUNT OF STATE, MUNICIPAL, COUNTY, AND LOCAL BONDS OUTSTANDING a 1913 State $ 345,942,305 Municipal 2,884,882,726 County 371,528,268 Specified Civil Divisions 100,672,758 School Districts 118,870,601 Total $3,821,896,658 a U. S. Department of Commerce, Bureau of the Census, Wealth, Debt, and Taxation, 1913. Sinking funds excluded. total of $1,865 million for debts of states, municipalities, and localities as compared with $3,822 million in 1913. This increase of $1,967 million compares with total issues of about $3,100 million reported during the same period in the Bond Buyer. Accordingly, the issues reported annually by the Bond Buyer have been reduced by one-third to represent the approx- imate net increase in indebtedness. The following table shows the new issues of securities for each year, the estimated increase of indebtedness, and the total estimated interest pay- ments. TABLE 221 ESTIMATED TOTAL DEBT AND INTEREST PAYMENTS OF STATES, MUNICIPALITIES, COUNTIES, AND LOCALITIES 1910 to 1920 (Millions of dollars) Year 1910. 1911 1912 1913. 1914. 1915. 1916. 1917. 1918. 1919. 1920. I II III IV Amount Estimated Estimated Total issued a net increase of debt total debt interest at 4.5% c $324 $216 $2,983 $134 452 301 3,284 148 399 266 3,550 160 408 272 3,822 b 172 446 297 4,119 185 493 329 4,448 200 497 331 4,779 215 445 297 5,076 228 263 175 5,251 236 770 513 5,764 259 745 497 6,261 282 a Bond Buyer, Jan. 3, 1920, p. 34, and Jan. 8, 1921, p. 32. b Bureau of the Census, Wealth, Debt and Taxation, 1913. c The average weighted rate of interest of samples of loans issued at various dates was 4.47 per cent. The increase in interest rates in 1919 affects only a small fraction of the total debt. , TOTAL INCOME PERSONS HAVING OVER $2,000 PER YEAR 263 2. Liberty Bonds. Liberty Bond issues outstanding at different dates were of ttie following amounts: TABLE 22 J APPROXIMATE VALUE OF LIBERTY BONDS OUTSTANDING 1917 to 1919 (Millions of dollars) a Report of the Secretary of the Treasury, L917, p. 56. b Report of the Secretary of the Treasury, 191S, p. 157. c Report of the Secretary of the Treasury, 1919, p. 214. d Report of the Secretary of the Treasury, 1920, p. 451. e 1919 figure carried forward. Of these issues, the First Liberty Loan and part of the Victory Loan are entirely tax-exempt. The others are exempt only within rather narrow limits. The income from these bonds is divided between banks, corporations and individuals. The following table shows the estimated amounts held by banks on the one hand and by corporations and individuals on the other. In order to estimate roughly the income from Liberty Bonds received by individuals having incomes over $2,000, estimates of the interest re- ceived by corporations, and by individuals having incomes under 82.000 must be made. An examination of corporation statements leads to the conclusion that about $40 millions of such interest was paid to corporations in 1918 and $90 millions in 1919. Subtracting these amounts from the figures shown in the last column of Table 22K, we get a total received by individuals of about $27 millions in 1917, $262 millions in 1918 and $683 millions in 1919. Seventy per cent of these amounts 1 may be considered 1 The original amounts of the bonds issued in the different denominations are as follows: — $10,000 $3,209,810,000 5,000 1,493.060,000 1,000 9,767,222,000 500 2,095,775,000 100 3,3s«).s()().0()() 50 2,81 1,924,850 {Annual Report of the Secretary of the Treasury, 1920, p. 435.) The amounts owned by 264 THE ESTIMATE BY INCOMES RECEIVED TABLE 22K ESTIMATED DIVISION OF THE INCOME FROM LIBERTY BONDS BETWEEN BANKS, CORPORATIONS AND INDIVIDUALS 1917 to 1919 (Millions of dollars) Bonds outstanding Income from bonds Year I Total amount outstand- ing II Amount held by banks a III Amount held by corpora- tions and individuals IV Estimated total income V Estimated income of banks VI Estimated income of corpora- tions and individuals 1917 1918 1919 $ 1,466 9,314 20,726 $ 703 1,374 1,450 $ 763 7,940 19,276 « 51 357 834 $24 55 61 $ 27 302 773 " Reports of Comptroller of the Currency, 1917, v. I, p. 11; 1918, v. I, p. 16; 1919, v. I, i). 40. a fair guess at the proportion held by individuals with incomes over $2,000; which suggests as the probable amount of tax-exempt personal income from this source, about $20 millions in 1917, $180 millions in 1918, and $480 millions in 1919. The later issues were more narrowly tax-exempt, so that a considerable portion of the interest received in 1919 had to be reported in the income-tax returns. The actual exemption in that year was then loss than $480 millions by perhaps $100 millions, or say $380 millions. No change of any moment from this amount is warranted for 1920, and the same figure is used for that year. 3. Federal Farm Loans. The following table gives the amount of Federal Farm Loan Bonds out- standing in recent years. The Farm Loan Board estimates that practically the entire issue is in the hands of the public and not in the hands of com- mercial banks. hanks and corporations must have been in the neighborhood of four billion dollars — probably for the most part in large denominations. Few people having incomes of less than $2,000 could lie expected to own bonds of s.500; and some of the persons having incomes of over s'_>,()(>() would own bonds of $50 or $100. The division of the bonds between persons having more th:m $2,00(1 and less than sj, (loo would be approximately as follows: To persons having over $2,000; $16,566 million, being the sum of the denominations of $500 to $10,000, plus one-tenth of the $50 and $100 ($620 million), a total of $17.3 billion; le $ 1 billion, the amount held bv banks and corporations, giving a final amount of $13.3 billion. To persons having less than $2,000; nine-tenths of the $50 and $100 bonds, or $5,584 million. This would give 70 per cent of the bond interest credited to individuals to persons having over $2,000. S TOTAL INCOME PERSONS HAVING OVER 82,000 PER YEAR 265 TABLE 22L FEDERAL FARM LOAN BONDS OUTSTANDING 1917 to 1919 (Thousands of dollars) 1917 1918 1919 Bonds outstanding** Bonds held by the Treasury b $2 1 . 147 $21,447 992 $140,122 56,865 $285,500 L36,885 Bonds held l>v the Public. . $83,257 3,851 $148,615 6,873 Income from Bonds held by the Public c . "On October 31. & Unpublished figures furnished by the Assistant Secretary of the Federal Farm Loan Bureau. c These loans pay from 4 l /2Per cent to 5 per cent and the interest rate is computed on the basis of 4 5 /s per cenl . 4. U. S. Bond Issues prior to 1917 and Bonds of V. S. Possessions. U. S. Bonds issued prior to the year 1017 consisted on June 30, 1919 of the following: TABLE 22 M U. S. BONDS ISSUED PRIOR TO 1917 a Consols of 1930 Loans of 1925 Panama ( Janal Loan Panama Canal Loan Conversion Bonds. . . Postal Savings Bonds. Rate of interest 4 2 3 3 2V 2 Amount $599,724,050 118,849, 74,901,. ".so 50,000,000 28,894,900 11,349,960 Principal holder Banks Banks Banks Public Banks Public ° Report of the Secretary of the Treasury, 1919, p. 113. With slight changes, reported annually by the Secretary of the Treasury, the interest on these amounts is about 822 million. A large number of these bonds are held by banks; the best estimates obtainable show that only the Panama 3 per end Bonds and the Postal Savings Bonds are to any extent in the hands of the public. 1 The annual income from the bond issues which are held largely by the public accordingly amounts to $1,784,- 000. To these issues must be added the interest on bonds of the posses- sions of the United Slates (Hawaii. Philippines and Porto Rico). The amounts involved are small. In 1910 the total debt was $22 million and mounted gradually to $41 million in 1020. The interest at the earlier date, therefore, was approximately 8880,000 and at the later dale, 1 Estimate made by Commission of Public Debt, August 25, 1920. 286 THE ESTIMATE BY INCOMES RECEIVED $1,040,000. These two amounts add up to about $3 million per year for the earlier years and $4 million per year for the later years. 5. State, City and County Salaries. The expenditures for salaries by states, cities and counties are not sub- ject to the Federal income tax, and such salaries as are above $2,000 should, therefore, be added to the income which is known to accrue to cer- tain individuals. The data arc mainly taken from the Census publica- tions, Financial Statistics of States, 1918, Financial Statistics of Cities, 1918, and County Revenues, Expenditures and Public Properties, 1913. From the data given in these reports, other expenses, such as payments for upkeep, interest, and general expenses, have been excluded in Column II of Table 22N, and the final estimate has been a rough paring-down of the remainder. A number of items included both salaries and upkeep, so that an itemized division is not practicable and no more elaborate method is warranted under the circumstances. A check on the salaries paid by states was, how- ever, possible. The reports of six States were scrutinized with great care, and an estimate for the entire country was made on the basis of each state. This estimate varied from $159 to $270 million, the average being $202 million. In view of this, the final estimate of $200 million for state sal- aries appears reasonable. City and county estimates are reduced in an approximately similar ratio. TABLE 22N ESTIMATED TOTAL SALARIES PAID TO STATE OFFICIALS 1918 State I Actual amount of total salaries paid II Estimated amount of total salaries paid III Per cent of population .of U.S. re- siding in State IV Estimated amount of salaries paid by all States on the basis of one State California a Imliana b Louisiana c New Yorkd Virginia e Wisconsin/ $10,092,581 $7,898,591 5,744,887 2,849,546 3,792,260 5,728,231 2.92 2.76 1.79 9.91 2.135 2.426 $270,499,690 208,148,000 159,192,510 159,477,477 177,623,410 236,118,340 Average of six precedinj imates $201,842,236 a California Biennial Report of the State Comptroller, 1917 to 1918. b Indiana Year Haul;, 1919. c Louisiana Biennial Report of Auditor, 1918. d New York Report of Comptroller, 1917, Part 3, p. 11. e Virginia Ann mil Report of Treasurer, August 3, 1918. /Wisconsin Report of Treasury, June 30, 1917. S TOTAL INCOME PERSONS HAVING OVER $2,000 PER YEAR 267 In order to determine the percentage of state salaries larger than $2,000, 1,500 samples were taken from the U. S. Official Register for 1911, 1917, and 1919 by choosing the top right hand amount on each page. These samples indicated that about 8 per cent of government employees receiv- ing about 20 per cent of the total salaries fell in the class having salaries of over $2,000, the percentage being about the same for each year. This percentage is used in Column III of Table 220. Since government sala- ries did not increase in any marked degree until 1919, when the average increase was about 30 per cent, the same total of $155 million is kept from 1913 to 1918, and $200 million is estimated for 1919 and 1920. TABLE 220 ESTIMATED TOTAL SALARIES PAID TO STATE, CITY VXD COUNTY OFFICIALS (Thousands of dollars) I Total expenses of general departments a II Estimated total salaries III Estimated salaries over •82,000 (20 per cent of Col. II) State (1918) $297,801 b 666,384 c 277,735 d $200,000 400,000 175,000 $ 40,000 Cities over 2,500 (1913) Counties (1913) 80,000 35,000 Total 8775,000 $155,000 "Expenses of General Departments include administrative and other expenses for (a) General Government, (b) Protection to Persons and Property, (c) Conservation of Health and Sanitation, (d) Highways, (e) Charities, Hospitals and Corrections, (f) Schools and Libraries, (g) Recreation, (In Miscellaneous. b Bureau of the Census, Financial Statist if* of States, 1918, Table 10. c Census of Municipal Pcrcnue-*, E.r/tenditures and Public Properties, 1913, p. 182, Table 5. d Bureau of the Census, Wealth, Debt and Taxation, 1913, v. II, Table 5, p. 210., 6. Rental Value of Homes Owned by their Occupants. To estimate the value of the rentals of homes owned by persons in the income class above S2,0()0, it is necessary to fall back on broad generaliza- tions. No definite body of data exists. The number of persons exclud- ing farmers falling into this group and their total incomes are shown in Table 22A. The Census of 1910 reports about- five and one-quarter million houses owned by occupiers, excluding farmers. This is about 40 per cent of the fourteen million families in the country. Since home ownership has in- creased among the wealthy, especially in recent years, because of the 268 THE ESTIMATE BY INCOMES RECEIVED income-tax exemption, it is not improbable that one-half of the income- tax payers own their homes. There does not appear to be any information in regard to the relation of income to rent for the higher class incomes. The Bureau of Labor Statis- tics finds 13.4 per cent to be the proportion of rent to income for working- class families. 1 These data, which include incomes up to 82,500, show that the percentage decreases with a rise in the incomes; for incomes above $2,500 we have no data regarding the relation between rent and income. Without a complete Census, or at least a typical sample of incomes, rents, and ownership of homes of the different income classes of the country, any estimate must be mere conjecture. The proportion of 13.4 per cent above mentioned, when applied to one- half the total amount of income, estimated for the class above $2,000, yields results ranging from one-half billion to three-fourths billion dollars. In view of the increase in the number of income-tax payers between 1913 and 1919, together with the increase in the amount of income, it is con- cluded that the total value of rents increased from about one-half to three- fourths billion dollars. Because of the need of placing a definite amount in Table 22G, amounts varying from $500 to $700 million are inserted, but their accuracy is only nominal. 1 Monthly Labor Review, August, 1919, p. 118. ,* CHAPTER 23 TOTAL AMOUNT OF INCOME RECEIVED BY PERSONS HAVING UNDER $2,000 § 23a. Introduction By far the larger number of persons gainfully employed have incomes under $2,000; and of these incomes, the major portion conies from personal earnings received in the form of wages. Profits of small business men and earnings of professional men, when they are less than 82,000, are not re- ported to the Bureau of Internal Revenue, and it has been necessary to as- sume that these average amounts are substantially on the same level with wages under 82,000. This assumption in regard to the average may not be far from the truth, even though the distribution of wages is quite differ- ent from that of profits and professional earnings. The error involved can- not in any case be very large. A study of typical distributions of these three types of income would be a valuable 1 piece of work. It is on the information concerning wages, therefore, that the chief reliance must be placed in estimating incomes under 82,000. In order, however, to arrive at the total for this group, estimates must be added for the income received from other sources. These are income from pensions, from homes owned by those who occupy them, and from investments. Once more the condition of the data makes it necessary to treat agriculture apart from other industries, so that separate estimates have to be made for the incomes of farm laborers and of farmers. The amount of each of these items together with the final figure for all incomes under $2,000 is shown in Table 23A. § 23b. Personal Earnings 1 No wages Census has ever been taken in the United States. If there hail been, this estimate would have been less difficult to make, and the results would doubtless be more trustworthy. Under the circumstances, the best means of arriving at the total wages paid is to estimate the average amount per person from such samples as are obtainable for each occupational group, and multiply this average by the number of persons actually working in this group. An estimate 1 could also be made from the entire number of persons connected with an industry provided the aver- 1 Except those of farm Laborers ami farmers^ which arc taken up in §§ 23c and ~S.i£. 2G9 < eo W ►J 9 w 5* W PL. O o o of €»% Ph W 55 p CO W trjH o o T— I o 55 l-H > X CO 55 o CO a w Ph 5* « Q > i— i w o w P4 o i— i o H 55 P O § < Eh O H Q H H co CO - 23 CO Pi O 1 o 00 ^ ^O t-h Ci rt t-H CO CO^CM i> i>-__"0_ io a [ erf of i-TtiT oTco th CM CO CO €# e© S H f 1 O N O CO t-H 00 |>. O t-h CO CO CD 00 CD £cr NO_o l-H CM co co €# e© O "-H t-H GO t— 1 -H -H O t—i h- 1 H O tH N H t-H (M hS H O H O J) O oq_io k> T-H t-H T— I T— I -HH cT-hT CM oi co m a& M< iO N H * w CD CO . . o C! N CC th O M GO O l-H — t-H ,— ' CM^CO t-h CD C^CO l-H C^ >2 OO't-T t-ht-jT CO~-+~ r T-H T-H CM CO m s© N ffi tH fl M H^ C5 t> lO HNOC-tCC i-H O H^ NMthcOCStH OiOi_ >o io~t-T tjT of of T-H T-H OJ CO €© e© CM t-h CD O00O N- C —1 TfCNTHCOOCO 01_CD_ t-H C5 lo"h CO* of co? T-H T-H oj co €►% €© t-h oo co o oo oo GO OS CM l»- 01 t~ O Oi CO O C5 HrH Ci CM t-h CD 00 t> CD__C0__ ^2 -hTt-T co~ >-H~CO r— I t-H oj co €© 1 m th CO LO O ffl 00 CD CO T-H hCoNOiOh lO N HH-< CO t-h t-h CD GO »C I CD Oi ~ T* t-h CO O OJ 1 — 1 T-H OJ CO €>% ^ H M iO O CO N 1 co oq o h LO N O O) D 1 IC —I , T-H t~- T-H T— i O 00 CD 1 T-H T-fl ^O co~t-T co" 1 o"of T-H T-H oj co m ©& CO ■ ! o v: bC - P. . o "O .2 '2 ■% c g • co • CM Wl i- OI9I Oj H o o a anal ea borers ions . . e owne stment under : O CO CO S3 23 3 OJ co C U-t s-— c g > s- o o o» i-i cu O J-. oj p-c P*3.S 3 CO -^ Cu *-< J -1 o Si 2,2 2 2 2 3 Oj Q, 8 ° 3 o^ o o o **■« o CO Si **H Si U Si <*H *4_, giltlti Q .5 S3 CU CD CU CD CD CU 2 2 2 2 2 2 _-D C3 P o o o o o o O CJ o u o o O ^ c c = c c c E- 55 bC SB C fi -2 d ^2 CU CO +^> oj o CD O ^S ° °- "H.CM 1-8 G co Sh O Sh CJ a Ph 32 , '" ti_ cd Sh QJ -cog -3.20 Jaa 1 Si^ rt •*.S oj CO 'si CO cu si co Si rj 3 3 O O M co rrCT CO^H ^ 2 m CO ' OJ o "^ 4- _ 3 t 3-~ O ° > h-> c3 , TOTAL INCOME PERSONS HAVING UNDER 82,000 271 age wages were also estimated on that basis. But most of the average wages reported are based on the average number of workers actually employed at some one time. Hence, the first method is the more feasible. Generally speaking, the average number of persons employed in an industry is from 3 per cent to 10 per cent less than the number of persons attached to the industry. 1 About 3 per cent are constantly out of em- ployment because of sickness and other reasons and a certain additional per cent are irregularly out of work because of seasonal and cyclical fluctuations. The occupational groups are divided in general accord with the scheme used in the Census of Occupations of 1910. In Table 23D are shown the numbers of persons actually at work in each year. From these figures have been subtracted the number of persons receiving incomes of over 82,000 estimated on the basis of the preceding chapter. (Tables 23E and 23F) The next step has been to estimate the average wages in each occu- pational group (Table 23G), and by multiplication of average wages and average numbers (Table 23H), to obtain a figure for total wages paid. In some cases, the different samples from which the average wages pre- sented in Table 23G were made up, showed considerable variation. How- ever, in the most important groups, particularly in Manufacturing and Transportation, the results drawn from different sets of data checked against each other with a satisfactory degree of accuracy. After the table had been completed on the basis of independent estimates for each item, it was again studied to locate such inner discrepancies as might lead to the detection of errors, either in the relation of wages imputed to different years or to different occupations. Where discrepancies were found, addi- tional information was sought. The result is presented as the nearest practical approximation of the facts we could make from the existing data. It may be well to warn the reader against the attempt to estimate annual average earnings from hourly, daily or weekly rates of pay. While it is easy to multiply daily rates of pay by the number of working days in a year, this method involves some assumption as to the average number of days worked. Examples have been found of both annual average earnings and daily or weekly rates of wages, together with the number of days or weeks in operation, which show that the results found by multiplying average rates by days in operation give untrustworthy results. Wage rates, therefore, have been used only as indices and with the greatest possible care. This difficulty is most unfortunate because the great mass of the material to be had is in the form of hourly, daily or weekly rates of pay. 1 Cf. Chapter 2, § d. Also Honiell Hart, Fluctuations in Unemployment in Cities of the United States, 1002 to 1917. 272 THE ESTIMATE BY INCOMES RECEIVED Taken as a whole, the data on which these tables rest are numerous and fairly reliable. As said above, the average number of persons employed is based on the 1910 Census of Occupations. As the Census reports the total number of persons gainfully employed in each occupational group, these figures have to be adjusted to the average number actually employed. This adjustment has been made in the case of Manufactures by comparing the monthly average number at work in 1909, reported in Census of Man- ufactures, 1909, with the highest number employed, and assuming the same ratio for 1910. Similar methods of approximating the number actu- ally at work in 1910 have been applied to each occupation. 1 The average wages found in each occupational group have been ap- plied to the entire number of persons actually at work in that group. This plan involves a certain technical error, for some of those in every group work independently and hence, receive what is generally classified as "profits" and not "wages." No estimate that is more than a guess as to the total amount of these "profits" and as to the number who thus work independently is available. It has been found necessary, therefore, to assume that the average profits of those having an income under $2,000 is approximately the same as the average wages of employees engaged in the same industry. An exception is made in the case of "trade," where the large number of independent workers appears to indicate a rather higher income than one based strictly on wages. 2 Furthermore, a major difficulty in classification should be pointed out. There are many cases in which the same person might fall within either of two groups. Examples are clerks employed by railroads, engineers connected with a factory or mine, lawyers or doctors holding public ser- vice positions, horseshoers or field clerks in the army, etc. Classifications decided upon by the Census Bureau were of necessity more or less arbi- trary, but careful study has led to the conclusion that they are on the whole as satisfactory as any other set of arbitrary assignments. The only depar- tures from the Census classification which we have made are (1) to shift a certain number of those engaged in manufacturing connected with mining (reported under manufacturing in the Occupation Statistics of 1910) to mines, and (2) to change a certain number of persons who on account of occupation were listed under manufacturing, to the army and navy, for which a separate group was made. Both changes are of small importance, but they are desirable because actual figures from other sources for later years are based on the revised classifications. 1 The method here adopted makes probable a certain amount of understatement of an- nual income, owing to flic real and regular mobility of labor in shifting from one industry to another. This is especially the case in seasonal industries. — M. C. Rorty. - I question the assumption that business and professional earnings under $2,000 are com- parable to wages. Frequency curves are probably quite different. — M. C. Rorty. TOTAL INCOME PERSONS HAVING UNDER 82,000 273 There is a considerable chance of error in the numbers attributed to each occupational group. Each person is placed by the Census in that group which he considers his regular occupation. But there is of necessity a large amount of shifting, both from seasonal causes and from variations in the activity of different industries. Such shiftings, however, will affect the total wages of all the groups less than the wages assigned to each group. For the total will only be affected as the average amount of w 7 ages varies from group to group. This error is probably not of momentous im- portance, for it will tend to raise the total as often as to lower it. The main sources of information for each of the leading groups recog- nized in the estimate are as follows: — (1) Mining. The estimated number engaged in mining is based on actual figures for approximately 93 per cent l of all mines in 1911 to 1918 as reported by the Bureau of Mines. After careful comparison of the numbers reported in metal mines, coal mines and quarries by the Census of Mines and Quarries, 1909, by the Occupation Statistics of 1910, and by the Bureau of Mines, 1911 to 1918, an estimate was made for 1910. These figures repre- sent the number employed in mines during operation, which is unquestion- ably somewhat higher than the average number employed during the entire year. 2 It is believed that when these figures have been combined with average annual wages from sample states (Pennsjdvania, Kansas, Michigan, Illinois, West Virginia) based on the data for the whole country given by the Census of Mines and Quarries, 1909, the resulting total wage is higher than it should be. A slight reduction has accordingly been made on the basis of the number of days which mines were closed down. Figures for the number of days in operation are available for coal mines, and for some other fields, but fluctuations are so violent and so erratic that the data cannot be used as samples for all mines. Average wages in certain metal mining companies, which were made available to the Bureau, were also consulted for the purpose of checking the general accuracy of the results obtained. (2) Manufacturing. The data for the number employed, upon which the estimates in the manufacturing group are based, were obtained from the Census of Manufactures (1909, 1914 and 1919) and reports of the statistical bureaus or labor departments of five states: Massachusetts. New Jersey. Michigan, New York and Wisconsin. An index was made for these sam- ple states, checked by means of the Census of Manufactures in 1909, 191 I and 1919. This index number was used in interpolating the number of men at work in the non-census years. The same sources and in addition, the labor reports of Kansas, Ohio and Pennsylvania were consulted with "See note b, Table 23 D. 2 Several states report the average numbers of men employed in mines during the year, but these samples arc too small to be of much use. 274 THE ESTIMATE BY INCOMES RECEIVED regard to average wages. Wages of certain special groups, such as textile, steel, and shipyard workers, and mechanics and carpenters employed by railroads, were taken into consideration for the purpose of checking the general results. It will be seen that from the abundance of material given in the exact form desired — that of average annual wages and aver- age number employed — it was possible to construct a fairly adequate estimate of the trend of aggregate earnings in this field. (3) Transportation. In chapter 8, in Part I, Mr. King estimates the average number of persons employed by steam railroads, street and electric railways, express, telephone and telegraph companies. These fig- ures are based on data from the Interstate Commerce Commission and the Census, and comprehend a major part of those employed in transportation. An index number was made from the totals and applied to the number re- ported in the Occupation Statistics of 1910 after 6 per cent had been sub- tracted for unemployment. This per cent is a rough approximation, little material of adequate character being obtainable for an accurate estimate. Wages data also are given for the above classes of employees by the Inter- state Commerce Commission and Census. Average annual wages for teamsters and drivers in Ohio and Michigan, for railway mail clerks, and scattered data on rates of pay of employees in water transportation were studied with a view to covering those occupations not included by the Interstate Commerce Commission. It will be seen that the data available are varied and fairly comprehensive, so that the conclusions reached regarding total wages for transportation should contain a minimum amount of error. (4) Trade. Owing to the fact that there are no figures upon which to base an estimate of the numbers engaged in trade, this section is particu- larly unsatisfactory. The assumption was made that unemployment in 1910 would cover only the portion of those engaged who were earning wages (clerks in stores, etc.) and not those deriving their income from profits (retail dealers, etc.). Three per cent therefore was used to reduce the number attached to this group to the average number employed. The assumption was also made that in regard to the number employed, trade resembled manufactures more closely in its general movement than any other group, as the clerk in a store is more likely to become a factory worker than a farm hand, or railroad worker. However, the unprecedented increase in manufactures owing to the war was probably not paralleled closely in trade and therefore, a composite figure was used for the years after 1910. This figure was made by applying the ratio of persons engaged in trade to the total population in 1910 and to the population of succeeding years, with corrections for the business cycle and the war. The weighted average of all wages, with the exception of the army, has TOTAL INCOME PERSONS HAVING UNDER $2,000 275 been used as the average wage of this group. This figure seems to be reasonable, in that it is slightly above average earnings in manufacturing and below average earnings in mines and transportation. Reference to Table 27C will show that the manufacturing group contains about the same proportion of women as the commercial group; but the number of independ- ent workers is less, so that a somewhat lower average income appears justified. On the other hand, the mining and transportation groups con- tain only a small percentage of women, so that we may look for a rela- tively high average wage in these groups. (5) Public Service. In the public service group, the increase in the number employed was assumed to be at the same rate as that of the Fire and Police Departments of six cities (St. Louis, New York, Boston, Charles- ton, S. C, Washington, D. C, Chicago, and Baltimore). As unemploy- ment plays little or no part in this group, the offices being largely fixed in number and kept filled by election or appointment, the number reported by the Occupation Statistics for 1910 was used for that year without any reduction. An examination of Federal and state reports shows that there have been few increases in salaries during the decade in the case of officials, and as their salaries are for the most part over $2,000, they do not need to be considered in this section. The trend of annual average salaries of Fire and Police Department employees was considered to be representa- tive of the remaining occupations in this group. The actual figures, how- ever, have been somewhat reduced in order to take into consideration lower grade employees such as watchmen and laborers. Owing to the fact that Public Service employees are largely classified under a variety of heads (Clerical, Professional, etc), the total salaries paid to all Federal, state, county and city employees are useless for the present purpose. As separate data for the salaries paid in each occupation are difficult to segregate, the final figures for this group must necessarily be rough approx- imations. (6) Professional Service. The occupations included under professional service form a long list of heterogeneous professions, teachers being about one-third of the whole. Ministers, doctors, dentists, engineers, actors, musicians arc among the more important professions included. The average numbers so engaged have been estimated with the aid of the num- ber of teachers as reported by the Bureau of Education, the number of doctors published in the biennial register of (he American Academy of Physicians and Surgeons, and the number of ministers given in the Census of Religious Bodies, 1900 and 1910. The numbers of Federal judges and attorneys, 1 and of physicians in public health work or resident in prisons 'Letter from the Department of Justice and state Reports of Treasury and Labor De- partments. 270 THE ESTIMATE BY INCOMES RECEIVED and reformatories have remained approximately constant. Samples of salaries exist for several professions, although they cannot be taken as typical of the whole group without considerable adjustment. Those used in Table 23G are therefore approximations arrived at from careful study of teachers' and ministers' salaries as reported by the Federal Govern- ment and from smaller samples of the salaries of college professors, en- gineers and professional men in government employ. 1 (7) Personal Service. No data except those provided by the Census exist from which to estimate the average number employed in Domestic and Personal Service. The group includes about one million domestic servants, the other two and a half million being widely scattered among barbers, laundry workers, watchmen, bartenders, restaurant workers, hotel-keepers, and other minor occupations. The numbers reported in the Occupation Statistics of 1910 were reduced by 6 per cent to cover esti- mated unemployment; a preliminary estimate of the Census Bureau sup- plied the corresponding number in 1920. The intervening years were interpolated. In the years 1916, 1917, 1918 and 1919, adjustment was made for the number who enlisted or were drafted into the army and navy, and for shifts into manufacturing. This estimate was made on the basis of the per cent of domestics in Class I of men registered for military ser- vice to the total number of Class I, 2 given by the Provost Marshal Gen- eral for 1918 and applied to the average number in the army and navy in each of the war years. Annual average wages for some of the occupations of this group are given at odd intervals. Especially useful have been the data on laundry workers in Massachusetts each year, and in the District of Columbia for 1909, 1914 and 1919; and the data for restaurant workers in Michigan are reported from 1909 to 1918. Aside from this, the material available is in the form of rates of pay in isolated years for individuals or small groups, which are useful only as a check. While the data are meager and the method necessarily faulty, the evidence indicates that as a whole earnings of this group have increased more slowly than any other and that it is the lowest paid. (8) Clerical Occupations. Consecutive material for an adequate esti- mate of the average number engaged in clerical occupations is entirely lacking. The number as given in the Occupation Statistics of 1910 was therefore reduced by 6 per cent to account for unemployment in that year. A preliminary estimate from the Census Bureau supplied the num- ber in 1920. The intervening years were interpolated, and adjustments 1 This method is likely to give an underestimate. The newer business professions are likely to be unreported. For illustration — the income of accountants in practice on their own account or in the employ of larger firms and receiving under $2,000 each would probably total $10 to $20 million. There has been a rapid increase in the law and all professions closely associated with business. — J. E. Sterrett. 2 Second report of Provost Marshal General, 1918. TOTAL INCOME PERSONS HAVING UNDER 82,000 277 made for the war based on the reports of the Provost Marshal General. The per cent of unemployment is only an approximation, but has some basis in that it is the same as that used in transportation and manufac- turing where a large number of clerks are employed. However, the in- crease in the number of clerks in manufactures (Census of Manufactures) from 1909 to 1914 was somewhat high owing to a change in the grouping of manufacturing employees and hence could not be used as a check. The pay of clerks in railroads 1 and in shipbuilding, 2 although they could cover only a very small portion of the whole, were found to check with the figures used. The group has as its largest division a miscellaneous class of "Other Clerks," but it also includes bookkeepers, accountants, agents, stenog- raphers, and messengers. For the latter occupations, we find a consider- able amount of wages data of a scattered nature, including various govern- ment investigations, the figures for office clerks in factories in Michigan, for clerks in railroad transportation in all years, and in manufactures in 1909 and 1914. Other States report isolated average wages for particular years, which help to check the general accuracy of the results shown. A large proportion of comparatively skilled workers is included, so that the average wages should be relatively high in comparison with those in the other occupational groups. (9) Army and Navy. The Army and Navy is numerically of small importance with the exception of the years 1917, 1918 and 1919. For these years, monthly figures published by the War and Navy Departments, have been used to determine the average number employed during those years. The pay has been estimated from reports of the War and Navy Departments for enlisted men, with about $200 per year added for food, clothing and shelter. Nothing has been said as yet of the number of persons engaged in agri- culture. The number of farm laborers, including wives and children of farmers working on their home farms, is so uncertain that it is left for treatment under the separate section on farm laborers. Since the total number of persons having incomes over $2,000 has been estimated in the preceding chapter, it is necessary only to subtract the numbers there shown from the total gainfully employed in order to arrive at the number having incomes under $2,000. A rough classification of persons with incomes over $2,000 according to the groups used in this sec- tion may be made from certain tables shown in the official Statistics of Income. The tables are entitled Distribution of Incomes by Occupations 1 Interstate Commerce Commission, Statistics of Railroads, 1000 to litis. 2 Census of Manufactures, 190'J and Census of Shipbuilding, 1914, 11)16. 278 THE ESTIMATE BY INCOMES RECEIVED in 1916 and Income Reported from Business Pursuits by Industries, in 1917 and 1918. x While these tables are not strictly comparable, and consider- able adjustment has to be made in order to fit them into the classifica- tion here used, the general results obtained from the two sources are fairly consistent with each other. Again, it may be pointed out that the total is probably more accurate than the parts. These estimates are shown in Table 23E. Table 23F shows the numbers left after subtracting persons having incomes over $2,000 in each group from the total average number in that group. It will be noted that the number of persons having incomes of less than $2,000 shows decreases in the war years in some groups. These decreases arise from the fact that many persons in these years rose into the group having incomes over $2,000. In the summary (Chapter 26) these changes in the distribution of income will be considered. The final results have been subjected to a number of tests. The num- ber gainfully employed has been estimated for each year and checked by advance information for 1920 from the Census Bureau. The Provost Marshal General made a similar projection of the gain- fully employed in 1917, 2 arriving at a total of 28,751,419, excluding farmers and farm laborers, which checks well with the figure presented for that year (29,230,000). The number actually employed in 1917 as well as in 1918 and 1919, was larger than was indicated by the projection which the Provost Marshal used, owing (1) to a shift from agriculture into industry and the army; (2) the inclusion of college students and normally idle per- sons in the army ; and (3) the temporary employment, at wages, of house- wives and other women not usually counted among the gainfully employed. With regard to wage movements, the weighted average of wages was computed for each year, and converted into an index number on the base 1913 = 100. This series may be compared with the index number for wages published by the Bureau of Labor Statistics. In making this comparison, one should bear in mind what the Bureau of Labor Statistics has said about its own figures: "The Bureau has hesitated to attempt the prep- aration of such a wage index because of the incomplete and disconnected material available for its construction. However, an index number has been prepared by the Bureau from all sources accessible, and is here pre- sented." The agreement of the results arrived at in these independent investigations corroborates their general accuracy. (Table 23B) The division of the industrial groups according to age and sex is a vital factor in judging the relations among average wages ascribed to each. Table 23C has been prepared from the Census of Occupations of 1910 ^Statistics of Income: 1916, p. 31; 1917, p. Id; 1918, p. 11. - Second Report of the Provost Marshal General, December 20, 1918, p. 407. TOTAL INCOME PERSONS HAVING UNDER $2,000 279 TABLE 23B COMPARISON OF THE INDEX NUMBER OF WAGES MADE IX THIS STUDY WITH THAT OF THE BUREAU OF LABOR STATISTICS 1910 lo 1920 I II III IV V VI VII VIII IX X XI 1910 1911 1912 1913 1914 L915 1916 1917 191S 1919 1920 Weighted av- erage wage a (Dollars) . . . 595 607 623 637 643 666 708 807 1003 1 1 I.", 1321 Index number (1913 = 100) 93 95 98 100 101 105 111 127 157 180 207 Index number of Bureau of Labor Statistics b (1913 = 100) 93 95 97 100 102 103 111 128 162 184 a Computed by dividing total amount of earnings in Table 2311 by total numbers of persons, Table 23F, excluding Army and Navy. b Monthly Labor Review, February, 1921, p. 74; 1919 figure applies to the spring of 1919. and is presented to aid readers in canvassing the reasonableness of the results reached in this investigation. TABLE 23C PERCENTAGE DIVISIOX ACCORDIXO TO AGE AXD SEX OF THE NUMBER GAINFULLY EMPLOYED IX EACH INDUSTRIAL GROUP a IX 1910 (Clerical help included) I II Ill IV V ( '.roup Percentage of males Percentage of females Total Over 20 years of age 65.2 86.5 73.7 85.0 71.0 91.3 51.2 28 . s Under 20 years of age Over 20 years of age Under 20 years of age Agriculture 20.1 13. 4 11.1 10.1 112 l :; :; 3 3 ."» 8.6 0.1 10.6 3.0 12.0 :; .9 37.9 :.:; . 1 6.1 0.0 4.6 1.9 5 8 5 7.6 lit'. 100.0 Mines 1(11) Manufacturing Transportation Trade Public Service 100 kid ii 101) I) 100. Professional Service.. . . Persona] Service 101) 100 ^Occupation Statistics, 1910, Table VI, pp. 302 ff. With these explanations, the five tables described in the preceding text are now presented. The sources from which the data were taken are shown in the appended footnotes. 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The Earnings of Farm Laborers The Census for 1910 places the number of farm laborers at 6,390,000, 1 and estimates that $651,611,287 2 was expended by farmers for labor. These figures would yield the rather absurd average annual wage of $102 for each farm laborer. Inquiry has developed the fact that among farm laborers are included those wives and children of fanners who work only at irregular intervals, and often for only a few days. The ( Jensus uses the terms "home farm" and "working out" in subdividing farm laborers. There are reported under the title "home farm," 3,310,000 persons of whom 2,216,000 are under twenty years of age. Of those' over twenty years, 563,000 are women, leaving only 531,000 males over twenty years old in the home-farm group. These laborers appear to be mainly sons working with their fathers, and their earnings are probably included as part of the general income of the farm. There are left therefore, as independent income receivers 3,080,000, of whom 2,637,000 are laborers "working out," and 443,000 are under spe- cial classifications. Of the entire group, 274,000 are under sixteen years of age, and 350,000 are women. Even after the numbers are reduced in this way, when they are taken in conjunction with the $652 million paid out by farmers, we still have the low average wage of $212. The total amount paid by farmers for labor is generally accepted by qualified judges as approximately correct. It was compiled by asking each farmer what sum he paid out for labor. The number of farms and acreage under cultivation remained approximately the same throughout the decade, so that the assumption is made that the amount of hired help remained about the same. 3 The only item of change, then, is in the rate of monthly pay without board, which is taken as typical of the movement of wages. These reports give the average wages of a large number of report- ing districts and their accuracy is only approximate. While the amounts shown in Column III of table 231 are all that were paid by farmers, yet it is clear thai more than this must have been earned by those who were classed as agricultural laborers. The group of 3,080,000 who worked out probably earned at least an average of $400 per year. The best conjecture available is thai about one-quarter million laborers are hired by the year, some one and one-half million by the month for a period of three to seven months, and about a million more are employed by the day. Conditions in different parts of the country vary so greatly that estimates based on any locality must be accepted with reservations, and 'Bureau of the Census, Occupation Statistics, p. 302 IT. includes agricultural laborers, other agricultural pursuits and other occupations under forestry and animal husbandry. 2 Abstract of the Census, 1910, p. 372. 3 In 1920, this preliminary Occupation Statistics indicate slightly under three million inde- pendent income receivers, as against slightly over three million in 1910. 200 THE ESTIMATE BY INCOMES RECEIVED these numbers are given only as rough approximations. The month and day laborers ordinarily find some other occupation during the winter to supplement their wages from the farm. The total earning capacity of this group in 1010 must have been in the neighborhood of one to one and a quarter billions, of which only $652 mil- lion was received in money from farmers. It is not unreasonable, there- fore, to add $500 million for 1910 to the $652 million in order to arrive at total earnings. 1 This assumption imputes a lower earning power to farm laborers than to any other class, which is in accord with what seem to be the facts. A similar amount, increased in proportion to the general wage level, has therefore been added to the estimate of farm laborers' income for each subsequent year. The amount for 1920 has, however, been increased to allow for the return of 250,000 men from the army to farm labor, and their rate of pay is added. This increases the proportionate amounts shown for 1920 by 1/12 (3,080,000-^250,000). TABLE 231 ESTIMATED EARNINGS OF FARM LABORERS 1910 to 1920 (Millions of dollars) Year I Monthly wages with- out board a II Relative pay III Total wages from farm laboi b $ 652 682 701 718 708 714 778 958 1,157 1,334 d 1,668 IV Other earnings c V Total earnings of farm laborers 1910 $27.50 28.77 29.58 30.31 29.88 30.15 32. S3 40.43 48.80 56 . 29 64.95 100.0 104.6 107.6 110.2 108.7 109.6 119.4 147.0 177.5 204.7 236.2 $ 500 511 527 538 543 565 597 683 844 96S 1,110 SI, 152 1911 1912. 1913. . . 1914 1915 1916 . . . 1917 1918 1919 1,193 1,228 1,256 1.251 1,279 1,375 1,641 2,001 2,302 1920 . 2,778 e a St,:l 1st in, I Abstract, 1920, p. 303. b $651,61 1,2S7, Abstract of the C< nsus, 1910, p. 372, projected by index in Column II. • $500 million in 1910 projected by index of wages. ''The recently published Summary of the 1919 Census of Agriculture places the amount expended by farmers for labor at $ 1,356,403,452. e For explanation see text. i Duplication of wages actually earned in other industries, to which farm laborers turn in winter, is avoided because of the fact that they are not enumerated in those industries. There is no error in the total; but there is a certain amount of error in the manner in which the earnings are divided between industries. <* TOTAL INCOME PERSONS HAVING UNDER $2,000 291 § 23d. Pensions Pensions of the Federal, State, and City governments may be credited entirely to persons having incomes under $2,000. The Commissioner of Pensions reports annually the amounts paid for Federal pensions; state pensions are reported in the Financial Statistics of States; and city pen- sions are reported in the Financial Statistics of Cities. Both of these vol- umes are issued by the Census Bureau at irregular periods, so that figures for intermediate years have been interpolated. Other forms of pensions, received from corporations and lodges, are incapable of determination; but they appear to be so small a factor in the total that they may safely be disregarded. TABLE 23J FEDERAL, STATE AND CITY PENSIONS 1910 to 1920 ( Millions of dollars) I Federal « II State III City IV Total 1910 1911 1912 1913 1914. . 1915. $159.9 157.3 152.9 174.1 172.4 165.5 159.1 160. S 179.8 2122.2 S 8.4 6 9.76 11.06 12.3 6 13.6 b 14.9 c 16.1 c 17.3 6 18 6 20.2 c $ 6.8b 7.(1'' 8 5 I 9 2 6 9.9 6 10.6 d 11.6 6 12.7 d 13 •")'' I 1 3 6 $175.1 174.6 172 t 195 6 195.9 191.0 1916 1917 1918 1919. 186.8 190. 8 211.9 ':. i 7 1920' a Annual Reports of the Commissioner of Pensions. b Interpolated. cU. S. Census, Financial Statistics of States (1915, p. 90; 1916, p. 92; 1918, p. 90; 1919, p. 84). <*U. S. Census, Financial Statistics of Cities (1911, p. 191; 1912, p. 201; 1915, p. L93; 1917, p. 207; 1918, p. 191). « Data not available. § 23e. The Rental Value of Homes Owned by Their Occupants The Census of 1910 reports the number of homes, excluding farm homes (which are taken up in Chapter 24 under farmers' incomes), as 14,131 .'. , !■">.' Of these, 3,408, S~>1 were owned unencumbered, 1,701,002 were owned on- cumbered, and 135,404 were not reported in regard to the question of 1 Census of Population, 1910, p. 1294. 292 THE ESTIMATE BY INCOMES RECEIVED encumbrance. The remaining eight million homes were presumably rented, and the income accruing from these rentals is included under other head- ings. Owing to the lack of later information, it has been necessary to as- sume for purposes of computation, that the number of homes owned in- creased since 1910 in the same ratio as the general population. The amount of encumbrance has been placed at one-third the total value, an estimate arrived at after consultation with a number of real estate experts. The present estimate is concerned only with homes owned by those having incomes under $2,000, and it is therefore necessary to subtract from the total number those homes owned by persons having more than $2,000 per year. Here we enter the realm of pure conjecture, but it appears likely that the major portion of all homes were owned by persons with incomes under $2,000 — say 3 million of the homes owned unencumbered and one and a half million of the homes owned encumbered. The best that can be said of an estimate made by such a method is that the error is a constant one, and that the total is not a large factor in the entire national income. The question of deciding on an estimate for average rental is almost equally hazardous, but here there is some statistical basis for the estimate made. One method is to ascertain as nearly as we can the proportion of total income that is spent on house rent, and assume that the owner derives this proportion of his income from the use of his home. According to the results of the cost of living survey made by the Bureau of Labor in 1918 to 1919, 13.4 per cent of the total average yearly expenses per family or 12.6 per cent of total average family income, was paid for rent. 1 Other estimates of the proportion of expenditure for shelter to all expen- ses for consumption goods are as follows : — TABLE 23K PERCENTAGE OF INCOME EXPENDED FOR SHELTER <* Authority Date Number of families Place Percentage U. S. Bureau of Labor Statistics . . U. S. Bureau of Labor Statistics . . U. S. Bureau of Labor Statistics . . U. S. Railroad Wage Commission Dallas, Texas Wage Commission. . R. C. Chapin income $1000-$1099 1901 1917 1917 1915 1917 1907 11,156 60S 512 265 50 31 U.S. New York Phila., Pa. U.S. Dallas, Texas New York 18.12 12.91 12.04 20.00 14.51 18.01 Average, weighted according to number of families 17.65 a National Industrial Conference Board, Report No. 9, p. 4. 1 Monthly Labor Review, August, 1919, p. 118. This investigation covered 12,096 families in 92 industrial renters. ,* TOTAL INCOME PERSONS HAVING UNDER $2,000 293 The average, 17.G5 per cent, shown in table 23K, is the proportion which the National Industrial Conference Board accepts in its studies of the cost of living. It will be seen, however, that the system of weighting gives great prominence to the investigation of 1901 by the Bureau of Labor Statist ics, and that all but one of the later investigations, though more restricted in their scope, show a lower percentage of total income spent for rem . What probably happened was that the proportion of rent to the total income decreased during the decade; — at least until 1918. For the year 1910, therefore, the composite figure of the National Industrial Conference Board is perhaps preferable to the lower ratio of rent found in 1918 to 1919 by the Bureau of Labor Statistics. The average family income in 1910 was about S1200, 1 and 17.65 per cent of this gives $211.80. But a further reduction must be made; not all rent is to be considered as net income to the recipient. About 40 per cent of the rent goes for various expenses of upkeep, repair, taxes, etc., leaving perhaps 60 per cent as net return. This would leave $147.08 — or say, $150.00 as the average amount which home owners received as income from their homes in 1910, based on this method of computation. The average rentals in 91 localities paid by families having an income between $1200 and $1500 per year is reported in the Monthly Labor Review as $174 per year. 2 Since these families varied in income and size a further study was made of families of five having an income of $1300, and the average amount of rent was found to be $167 per year. The average rental paid in 1920 in 92 cities by laboring families is given in the Monthly Labor Review} It is stated that "families who live in houses or apartments owned by themselves, and families living in houses or apartments where either heat or light or both are included in the rent, have been omitted." This is therefore a selected sample from which the higher ranges of income are excluded. The average rent of $167.79 may accordingly be considered the low limit, for 1920. This figure should be compared with an indicated rent of $219 for 1920, which is found by apply- ing the average of the index numbers of the National Industrial Conference Board and the Bureau of Labor Statistics (Table 23L) to the basic average rent of $150 in 1910. If, then, $150 per year is accepted as an average figure in 1910 for the income received from homes by their owners, and this is combined with the conjectured number of homes, the total income in that year was about $600 million. This should be increased by an index number indicating changes in rents, and for this purpose the average of the indices computed i Estimated from total income under $2,000 and number of families. 2 Monthly Labor Rerinv, September, 1019, pages 9 to 30. This survey was made under the direction of Dr. W. F. Ogburn. s Monthly Labor Review, September, 1920, pages 84 to 91. 294 THE ESTIMATE BY INCOMES RECEIVED by the National Industrial Conference Board and the Bureau of Labor Statistics is used. The final results show a total income from this source varying from $600 to about .$900 million. TABLE 23L RENTAL VALUE OF HOMES OWNED BY OCCUPANTS HAVING INCOMES UNDER $2,000 1910 to 1920 I II III IV Year Index numbers of house rents Estimated Bureau of Labor Sta- tistics a National Industrial Conference Board b Average rental value of homes owned by occupants d 1910 Per cent 100 100 101 . 5 102.3 101 105 114 f 134.9c Per cent 100 100 100 101.5 105 115 128 158 Per cent 100 100 100.8 101.9 103 110 121 146.5 Million dollars $600 e 1911 600 e 1912 600 e 1913 600 1014 IKK) 1916 1917 1918 (ill.-, 611 618 660 1919 1920. 726 879 a Monthly Labor Review, October, 1920, p. 65. These studies are based on 18 cities from 1914 to December, 1917, and thereafter on 31 cities. Prior to 1919, the figures are given for December, and are interpolated for July. b Report No. 30, September, 1920. These studies are based on reports from 359 agencies in 158 cities. The figures are for July of each year. c Figures for June. d For estimate — $600 million — see text. This amount is projected by Column III. e Estimated. § 23f. Income from Investments The most obvious method of estimating income from investments is to find what proportion it normally bears to total income. This may be done in several ways and the results compared. The first method is to prolong the curve made from income-tax data to show the relation between income from investment and income from per- sonal ('Minings to include the lower ranges. This curve, however, is defect- ive in two ways: (1) It is necessary to class all "business income" as per- sonal earnings, on the ground that it is due to effort and only differs from personal earnings in its contractual nature. (2) This curve tells us what W TOTAL INCOME PERSONS HAVING UNDER 82,000 295 arc the probable personal earnings given any sized income, and not the probable income given any particular earnings. Were the correlation perfect, this form of statement would make no difference; but unfortu- nately the correlation is unknown, and the original data are not in such shape that they can be turned into a different form. This curve taken at its face value indicates that personal earnings should be increased as follows, in order to arrive at total incomes of indi- viduals: TABLE 23M RELATION BETWEEN PERSONAL EARNINGS AND TOTAL INCOME INDICATED BY INCOME-TAX DATA 1918 Average personal earnings Average total income 82,000 $2,215 1,800 1,960 1,600 1,713 1,400 1,480 1,200 1,245 1,000 1,023 800 811 600 603 100 401 200 200 It is clear that this curve cannot be projected more than a short distance, say to SI, 500, before it loses all semblance of reality. The most, therefore, that can be said, is that less than 13 per cent (the amount reported by the Bureau of Internal Revenue in its lowest range, 82, 000-83,000) and proba- bly not over 10 per cent of the incomes below 82,000 are due to invest- ments of one kind or another. Further light is cast on this question by a sample of 12,090 family incomes well scattered in regard to area which were collected by the Bu- reau of Labor Statistics in 1919. This summary shows the percentage relation of total income to total earnings for the entire range of incomes from "under 8900" to "over 82,500," thus considerably overlapping the income tax class. These relations are as shown on page 296. It will be seen that no definite trend is indicated towards a larger per- centage of income from investments with the rise in incomes. Such y family and not reported by Census (estimated) 260 Gross earnings of farm and farm family $7,862,123,111 $1,236 Expenditures: d Labor, fertilizers, feed, seed (estimated), threshing (estimated), animals purchased, taxes (estimated), and miscellaneous Maintenance charges (buildings, equipment, machin- ery, etc.) $2,750,344,281 505,979,322 $ 432 80 Total Expenditures . . $3,256,323,603 $512 Net earnings of farm and farm family $4,605,799,508 2,049,148,628 $724 Interest at 5 per cent on value of farm property (earnings of farm) 322 Earnings of farm family. ... $2,556,650,880 $402 a The Farmer's Income by E. A. Goldenwciser, American Economic Review, March, 1916, p. 42. b Exclusive of crops fed to live-stock on home farms. c Including dairy products (except milk and cream consumed on the farm) poultry, honey and wax, and wool and mohair. d Exclusive of value of unpaid family labor. million for animals purchased. In addition, seed and threshing are esti- mated at $290 million, taxes and maintenance of buildings and implements, and miscellaneous expenses at $1,061 million, making a total of $3,256 million or $512 per farm. No elaborate estimate is made of the interest on mortgages, but a probable amount of $34 per farm is ventured in the text. If the proportions which Dr. Goldenweiser found be accepted for the moment, and applied to the following years, and due allowance be made for the increase in the total number of farms and changes in prices and costs, then the approximation to incomes of farm families shown in Table 24D can be made. The total value of crops (Column I) is taken from the annual reports of the Department of Agriculture, and this amount has been reduced to 60 , Q w < /. ~- ~^ *-< < fa fa e0 n co" co eo~ tjT -^T tjT 10" 00" ©~ o co* T-l lH X « p. s _ ?n . ., H ~~~r;++ t»OOCOOi(»MCO(N')iHOiO tOlONI>HOHHt»t>OlO °i °i. °- , ~i °i. e " , _ ^ rH °i *"i °°_ *° com^^-&-&-&taO«O»OCOCOCOr-»t>-00G5'© , - S . ~ -i- Appro imatt interes on mortga c 1 — - /c:i-x x c:i •s t 1 : t — 10 cc x aOHwrifl rS i—i 1—1 . — 1 ^1 ^- . CI CI CI C 1 ~ 1 /. ■— 1 I- 1- tN -~ co rt< *v -- tN ■-. • — 3 w - e '- ■- CO x r X 1- CQ 1 - Ol > co C Cl Cl CO co" -~ — — — ' c CC CO CO CO - 1 -' 1 -' 1 c CO 00 ■8_ J - 1 — 000«0>«3MWOiOCOt"CO oieoTjoo w " T(it»lO05N{OC»00t-iOCNlO > " — P-33+ + 1 t-t-c-t>oooooooioooo5«o HHHrtH > ♦» §-5 « £ s — — -- C — 1^ CO vr- -~ ■- — Cl i.O 10 i~ >~ vc; ~. PC CO 71 to OS t^ cc co cc x> co i> o 1-1 »o 1 — /. •M ■* a-^ o c ■' ^ o 10 c-£-5 3 S B > " cc - 1 U3 Cl-Z 'C C35 O "* CO CO t~- CO I - : T ri -M ' - » CO CO <£) t^ CO «c co ■ ~ — ' ~ — _ ~_ 1 -_ ~ vr r i_ — c. <— Tt— 1 1-1 i--. •A' o! — z 1 ~. ' ~ 1 ~ 1 C "- © -T — ' CO* — ' — ' -' *c-:i::-i:ri- / o — — — — — ■ — — CI — . 05 ~ ~ ~ ~ ~ ~ — 35 35 ~ 304 THE ESTIMATE BY INCOMES RECEIVED per cent of its reported value (Column II), in order to eliminate that part of the crop which was fed to live stock, and which, therefore, appears under the heading "Value of Animals" (Column IV). The value of animal products (Column III) is reported in the Census of 1909, and certain items included have been reported in the Census of 1914 and the advance sheets of 1919. For the intercensal years, the amounts have been supplied by the Department of Agriculture. 1 These amounts, however, do not check closely in detail with the Census figures. For exam- ple, the Department figure for daily products in 1919 showed an increase of 360 per cent over 1909, while the Census figures indicated an increase of only about 300 per cent. The Department of Agriculture's figure for poultry and eggs shows an increase in 1919 over 1909 of 267 per cent, whereas the advance sheets of the Census indicate an increase of only about 200 or 210 per cent. Assuming that the Census figures are more accurate than the estimates of the Department of Agriculture, which are admittedly rough, it has been concluded from these indications that the Department's figures are from 12 to 22 per cent too high. They have accordingly been reduced by 17 per cent. The amount of correction to be applied for the value of animals is dubi- ous (Column IV). Some duplication exists in the valuation of animals, owing to re-sales of live stock. This has been placed rather arbitrarily at one-fourth the reported value of animals, an amount which is indicated by unpublished samples available in the Bureau of Farm Economics. Data on this head were collected for the Census of 1910, but some doubt was thrown on their accuracy, and they have not been published. The value of food, fuel, and house rent (Column VI) is based on the orig- inal amount of $260 per farm taken from Dr. Goldenweiser, and multi- plied by an index number. 2 This series is made up of the Bureau of Labor Statistics index number of wholesale prices of farm products and fuel, 3 weighted in the proportion of 7 to l. 4 The index number is further adjusted to take into account the increase in the number of farms. The total cost of production (Column VIII) is taken from Dr. Golden- weiser 's estimate for 1910 and extended over later years by an index num- ber constructed as follows: The figures for 1911, 1912, and 1913 are mul- tiplied by the Bureau of Labor Statistics' index number for wholesale prices, and by the variations in acreage. For 1914 to 1918, the index num- bers compiled by the War Industries Board in its History of Prices during the War were used for the separate items of expense, i. e., feed and forage, live stock, meats and fats, and fertilizers. These series ceased with 1918, 1 Office Table No. 423, Department of Agriculture. - No comparative data for rents of farm dwellings are available. 3 Monthly Labor Review, June, 1920, p. 69. * W. C. Funk, Farmers' Bulletin No. 635, p. 5. FARMERS' INCOME 305 and the 1919 and 1920 amounts are arrived at by applying the relative change in wholesale prices of the Bureau of Labor Statistics. An index number for farm labor was computed from the quotations of the Depart- ment of Agriculture; Miscellaneous and Maintenance, Expenses, Seed and Threshing were multiplied by the Bureau of Labor Statistics index number of wholesale prices, together with the variations in acreage. The total amount of farm mortgages (Column IX) in 1910 was reported at SI, 726, 172,851, l and as this is known to be but a partial return, an ap- proximation of $2 billion has been ventured. Interest is estimated at 6 per cent. For 1919, the total of farm mortgages is estimated at $3,598,985,000, by James B. Morman, 2 and 84 billion is used as a round sum. The amounts for the intervening years are interpolated. The amount of rent paid by tenant farmers (Column X) is found by the following method: 840.9 billion is taken as the value of all farm property in 1910. 3 Early returns of the Fourteenth Census indicate that the corre- sponding amount is about 877.9 billion in 1920. The amounts for inter- censal years have then been interpolated. The proportion of farm land worked by tenants in 1910 was 273^ per cent, having a total value of about $11 billion, 4 and this proportion was continued throughout. Finally, the income of this land which goes to persons outside of agriculture was estimated on a basis of 5 per cent of the reported value of the lands worked by tenants as given in the Census. § 24c. Second Method — Based on Average Ratio of Expenses to Total Product An unpublished study made by Professor G. P. Scoville, of Cornell University, covering 2,784 farms in eight counties in New York State, for the years 1908 to 1918, indicates that (a) the value of total crops raised on farms at the prices for which crops were sold, is roughly equal to (b) the total income from the sale of crops and live stock, including gains and losses in live stock inventory, and to (c) the total gross income, including gain or loss in farm capital and miscellaneous returns. The exact aver- ages for these three items are respectively 81,744, 81,770, and si.ss<), giving a grand average of $1,803. The average cash expenses per farm/' about $930, 6 were somewhat over one-half of the average amount < >f 81 ,s< ).'». ■ Census 1910, Vol. 5, p. 162, Table 6. 2 The Place of Agriculture in Reconstruction, p. 319. 3 Abstract of the Census, 1910, p. 281. 1 Abstract of the Census, 1910, p. 2S5, shows L'-'0, 000,000 acres worked by tenants as against 598,000,000 acres by owners. 5 Does not include unpaid family labor. 6 This relationship of expenses to gross sales is corroborated by the Statistics of Inc 1917, p. 10. These data refer to business incomes, from agriculture and animals, which "represent only such amounts reported by individuals as were derived from business opera- tions and do not necessarily indicate the principal occupations of, or the total incomes re- ported by, the persons making the returns." The number of returns is 251,838, the gross 306 THE ESTIMATE BY INCOMES RECEIVED or 513^ per cent. If a generalization of farmers' incomes be attempted on this basis, then the net income is in each case slightly less than one-half of the Department of Agriculture's figures for gross value of agricultural pro- duction. The data collected are too scattered to permit of any generaliza- tion in regard to variations of costs during any particular year of this period. That this relation of expenses to gross wealth produced is somewhat too low for the country at large is indicated by other samples. A study of 500 farms in Sumter County, Georgia, 1 indicates that the proportion of farm expenses to farm receipts on a cash basis ranges from 55 to 65 per cent. In the Indiana area, the expenses constitute from 40 to 50 per cent of the farm receipts not including the farmer's own labor. 1 A pamphlet entitled Farm Business in New Hampshire,- shows average" earnings for 303 farms in all parts of the State to be $3,290, and the average expenses to be $1,968, or 59 per cent. This, however, is not strictly comparable with Professor Scoville's estimate, since it does not include grain fed to animals among the expenses. A fair result will presumably be reached by deducting 55 per cent of the gross value produced for expenses. That the rise in costs has been somewhat less in proportion than the rise in the value of product is indicated by the following table. The first column is a statement of relative costs from data covering 185 farms in Wisconsin, Ohio, and Indiana collected by the United States Office of Farm Management. The second column is a similar statement of relative costs from data for two counties in Illinois, as ascertained by the Depart- ment of Farm Organization and Management of the University of Illi- nois. The third column is the index number of the United States Bureau of Labor Statistics for prices of farm products in cities. Since the price in cities is not the vital consideration with the farmer, an unweighted index number of 31 farm products on the farm is also shown in Column IV. We may therefore conclude that the results found by taking farm expen- ses at 55 per cent of the Department of Agriculture's estimate of wealth produced on farms will not tend to be relatively high for the latter half of the decade in comparison to the first half. This, however, will not hold true in all sections of the country, for prices of different classes of product increased in different ratios. Conditions in different parts of the country vary so greatly that every generalization must be taken with a grain of salt. sales are $1,622,907,759, the business expenses are $816,743,s()2, and the net income is $806,- 163,957. The two are thus approximately equal, bearing out the relationship in so far as the "total income from the sale of crops and live stock" is concerned. J Unpublished data of the Bureau of Farm Economics. 2 By A. B. Genung, Farm Management Demonstrator, 1920. S FARMERS' INCOME TABLE 24E 307 RELATIVE INCREASE OF FARM EXPENSES AND PRICKS OF FARM PRODUCTS I II III IV Yeai Relative cost of farming in Wisconsin, Ohio and Indiana a Relative cosl of farming in two counties in Illinois 6 Index number of market pi ices of farm producl Index number of prices of fann products on farm d 1913 1914 100 108 111 118 148 193 100 90 95 100 120 136 142 100 103 105 122 189 220 234 218 100 105 1915 1916 1917 1918 1919 1920 107 128 L95 210 213 216 a Unpublished data of the U. S. Bureau of Farm Management. t> Figures furnished by University of Illinois, Department of Farm Organization and Management. The comparability of these cost figures with those collected by the U. S. Department of Agriculture has been questioned. c Monthly Labor Review, February, 1921, p. 45, U. S. Bureau of Labor Statistics index number. ''These data were supplied by Professor G. F. Warren, and converted into index numbers. Application of the method suggested yields the following results for each year: TABLE 24F ESTIMATE OF FARMERS' INCOMES (Based on 45 per cent of the total value of farm production reported by the Department of Agriculture) (Millions of Dollars) Year Total value of farm production " 45 per cent of gross total value 1910 S 9,037 8,S19 9,343 9,850 9,895 10.771 13,406 19,331 22,479 24,961 19,856 S 4.0<»7 3,969 1911 1912 1,204 4,432 1913 1914 4,453 4,819 6,033 8,699 10 lltl 1915 1916 1917 1918 1919. . . . 11 232 1920 8,935 « Statistical Abstract of U. S., 1919, p. is;;. :;ns THE ESTIMATE BY INCOMES RECEIVED § 24d. Third Estimate — Based on Sample Incomes A third method of attack is suggested by unpublished data collected by the Bureau of Farm Economics, covering the distribution of labor income among 11,000 farms in widely scattered parts of the country. In this study, the years 1910 to 1915 were considered to represent substantially uniform conditions, and so were the years 1916 to 1918. Samples from different years in the first period were averaged together, and so also were samples from different years in the second period. What are shown, therefore, are rough averages covering these respective periods. For each period, the percentages of all farms studied are grouped under the follow- ing income ranges: TABLE 24G LABOR INCOME OF FARMERS a 1910 to 1915 Annual labor income in dollars $0-$500 . . . 500-1,000. . 1,000-1,500. 1,500-2,000. 2,000-2,500. 2,500-3,000. 3,000-4,000 . . 4,000-5,000 . . 5,000-10,000. Over $10,000 . Negative Income 0-500 500-1,000 1,000-1,500 1,500 and over. Net Labor Income of All Farmers Per cent of total farmers receiving in- come named 36.5 17.7 7.4 3.4 15 1.0 1.0 .3 .4 .0 23.9 4.7 1.2 1.0 100.0 Total number in each income range (based on 6,400,000 farmers) 2,336,000 1,132,800 473,600 217,600 96,000 64,000 64,000 19,200 25,600 1,529,600 300,800 76,800 64,000 6,400,000 Total labor income (Millions of dollars) $ 584 850 592 381 216 176 224 86 192 $3,301 Less 382 226 96 96 $800 $2,501 a This table is based on an unpublished distribution of 11,000 farmers' incomes made by the U. S. Bureau of Farm Economics. "Labor Income" is denned as the amount of income remaining after deducting all expenses including a 5 per cent return on the estimated invested capital. X FARMERS' INCOME 309 TABLE 24H LABOR INCOME OF FARMERS 1916 to 1918 Annual labor income in dollars $0-$500 500-1,000 1,000-1,500 1,500-2,000 2,000-2,500 2,500-3,000 3,000-4,000 4,000-5,000 5,000-10,000 Over 10,000 Negative Income 0-500 500-1,000 1,000-1,500 1,500 and over. . Net Labor Income of All Farmers Per cent of total fanners receiving in- come named 2s li 19.9 10.9 6.1 4.6 2.6 3.1 1.3 1.8 .8 13.9 4.1 1.0 1.3 100.0 Total number in each income range (based on 6,500,000 farmers ) 1,859,000 1,293,500 708,500 396,500 299,(101) 169,000 201,500 84,500 117,000 52,000 903,500 266,500 65,000 84,500 6,500,000 Total labor income Millions of dollars) 165 970 ssO 694 (17:-! 165 705 380 877 520 sti, (>:;.") Less 226 200 81 127 S 634 S6.001 a See Note a, Table 24G. When the percentages shown in each income group are applied to all the farmers in the country, the results show an average total income for the years 1910 to 1915 of $2y 2 billion and for the years 1916 to 1918 of $6 billion. The rental value of land owned by farmers, which is deducted by the Bureau of Farm Management before arriving at its figure for labor income, may be estimated from the following facts: In 1910, the total value of farms was $40 billion and of this operators owned 72^ per cent , or about $29 billion. 1 Five per cent of this amount is $1,450 million, which after deducting $200 million for interest on mortgages, leave- $1,250 million, which may be added as a rough total to the 1910 to 1915 estimate. The 1 It seems to be generally true that the most valuable farms in the North arc worked by tenants. This, however, is not true (if farms worked by negro tenants in the South. The percentage value of farms will not, therefore, coincide exactly with the percentage <>f acreage, though the amount of error is uncertain on account of the variation of conditions in different parts of the country. 310 THE ESTIMATE BY INCOMES RECEIVED 1916 to 1918 figure would be somewhat larger; perhaps $2 billion would not be out of the way. The estimate of the value of farm property for 1920 has not yet been published. 1 The total average annual farm production thus arrived at is therefore as follows: Period 1910 to 1915. 1916 to 1918. Average annual labor income Average annual income from property Total income of farmers (Billions of dollars) 82' 2 6 8 § 24e. Final Estimate of Farmers' Incomes When the three estimates are placed alongside of each other, they are seen to be fairly comparable in general trend. In order to compare the results of the first and second methods with those of the third method, the averages of the corresponding years have been computed. These averages have been weighted in accordance with the number of cases taken from each year in arriving at the results shown by the third method. The figures obtained by the three methods are thus made strictly comparable. It will be seen that this comparison confirms the general results found by the first and second methods. All three methods show a marked rise in monetary incomes between the periods 1910 to 1915 and 1916 to 1918. The final estimate of farmers' incomes, as shown in Table, 24J, is based on a combination of the results arrived at by the three methods. Where there is a considerable discrepancy, the figures found by the first method are given greater weight. In addition, from $200 to $300 million has been included to take care of the "outside income" which many farmers earn. The results are given in terms of billions of dollars, for they cannot claim to be more than a careful approximation. § 24f. Comparison with Other Estimates Mr. W. R. Ingalls, 2 arrives at $5,200 millions for farmers' incomes in 1916, but he has deducted $2,800 millions for farm laborers, a figure much larger than that used here. If the estimate for farm labor be added to the amount found as income of farmers in 1916, our result is about $7,300 millions as against Mr. Ingalls' $8 billions. It is believed his estimate of expenses other than cost of labor paid is somewhat too low. Mr. W. I. 'It has since been placed at $77.9 billion in an advance bulletin of the Census of 1920. "-Labor, the Holder of the Nation's Wealth and Income, New York Times Annalist, Septem- ber 13, 20, and 27, 1920. S FARMERS' INCOME 311 TABLE 241 COMPARISON OF TOTAL FARMERS' INC( >MES AS FOUND BY THE THREE METHODS EMPLOYED 1910 to 1920 (Billions of Dollars) I II III Year Fiist method a Weighted average Second method & Weighted average Third method <= 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 $ 3.772 3.517 3.770 4.029 4.020 4.485 5.758 8.811 10.407 10.497 6.931 ■ 3.93 • 7.69 4.067 3.969 4.204 4.432 4.453 4.849 6.033 8.699 10.116 11.232 8.935 1 4.33 ■ 7.72 3.75 8.00 a See Table 24D. Based on an estimate of gross income and expenses of farmers. b See Table 24F. Based on deduction of expenses (55 per cent of total produce) from the Department of Agriculture's estimate of gross wealth produced on farms. cSee Tables 24G and 2411 and text, p. 310. Based on 11,000 samples of the labor income of farmers plus property income. TABLE 24J FINAL ESTIMATE OF THE TOTAL INCOME OF FARMERS 1910 to 1920 (Billions of Dollars) 1910. . S3 . 95 1911 3 70 1912. . . 4 . 00 1913. , 4 . 20 191 1. 4.20 1915. , . "4.70 1916 5.80 1917. . . 8.80 1918 10.45 1919 ... 10 . 85 1920 . 7 20 312 THE ESTIMATE BY INCOMES RECEIVED King's estimate for 1910 given in the Wealth and Income of the People of I 'tiikd States 1 was $6,842 millions, and this included the income of farm laborers. Even when a deduction is made for the latter item, the esti- mate appears too high, and Mr. King's recent investigations, aided by more complete evidence, lead him to believe that the amount should be reduced. Mr. H. A. Wallace 2 has made a similar computation, based on the "ratio" method. This computation is based on the assumptions that crops are sold as crops, and not as live stock, and that live stock is taken into consideration solely as the form in which pasture is marketed. These assumptions make his results somewhat too low. But his relative increase in 1917, 1918, and 1919 is somewhat greater than ours, though the general trend of his figures is the same. He generously states in a letter : "I have dug into this matter sufficiently so that I think in the main your figures are accurate." The annual farmers' income, according to his figures, is as follows: (Millions of Dollars) 1909 1910 1911 1912 $3,570 3,070 3,140 3,440 1913. 1914. 1915. 1916. $3,585 3,600 4,000 5,700 1917 1918 1919 1920 $9,210 8,900 9 400 3,900 § 24g. Farmers Having Incomes Over and Under $2,000 Finally, how many farmers had incomes over and under $2,000, and what did their total incomes in each of these classes amount to? These figures must be found, in order that they may be carried back to complete the estimates of Chapters 22 and 23. The only basis for drawing the $2,000 line through our totals is a sample for 1918 of 401 farmers' incomes furnished by Professor G. P. Scoville of the New York State College of Agriculture. While this is a small sample, it is the only one that was found which gives actual income. The assump- tion implicit is not that these farmers' incomes are typical of the entire country, but that the distribution of income among them is typical. The average income of these 401 farmers in 1918 was $1,481, whereas the aver- age income of all farmers in the same year was $1,625. This fact, however, does not invalidate the hypothesis that the distribution shown by the sample was typical. Such comparisons as it has been possible to make with the larger number of 11,000 labor incomes, shown in Tables 24G and 24H, after making an allowance for farm income, tend to justify the use of this distribution. On this assumption, the probable division of number i Page 138. 2 Agricultural Prices, pp. 57-61. 1* FARMERS' INCOME 313 of farmers and amount of farmers' incomes by the 82,000 line for each year is as follows: TABLE 24K NUMBER OF FARMERS HAVING INCOMES OVER AND UNDER S2.000, AND THE TOTAL AMOUNT OF THESE INCOMES I II III IV V VI Year Total Over $2,000 Under §2,000 Number of farmers (Thou- sands) Total income (Billions) Number of farmers (Thou- sands) Amount of income (Billions) Number of farmers (Thou- sands) Amount of income (Billions) 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 6,362 6,371 6,380 6,388 6,396 6,405 6,414 6,423 6,432 6,441 6,450 $ 3.95 3.70 4.00 4.20 4.20 4.70 5.80 8.80 10.45 10.85 7.20 111 79 111 143 144 208 448 1,313 1,861 2,008 804 $ .258 .182 .262 .340 .340 .516 1.179 3.886 5.784 6.298 2.261 6,251 6,292 6,269 6,245 6,252 6.197 5,966 5,110 4,571 4,433 5,646 $3,692 3.518 3.738 3.860 3.860 4.184 4.621 4.914 4.666 4 . 552 4.939 CHAPTER 25 CORPORATE SURPLUS § 25a. Definition of Corporate Surplus Corporations do not generally pay out their entire earnings to their stockholders. Even after reserves for losses, depreciation, insurance, etc., have been made, it is still true that earnings ought to be in general greater than dividends. The excess of earnings over dividends after specific reserves have been set aside constitutes corporation surplus. Such retained earnings are generally put back into the business, though they may be invested otherwise. 1 § 25b. The Propriety of Counting Surplus as Part of the National Income Should these corporation surpluses be included as part of the National Income? It must be remembered that these surpluses are computed after the deduction of reserves for depreciation, taxes, bad debts, insurance and a variety of ascertained losses. To the corporations they are therefore a book income, and normally are used to ensure regularity in payment of dividends and for an expansion of their business. In the accounting practice of corporations, surplus may be used for scaling down the value of intangible assets, for conversion into stock which is distributed in the form of dividends, or it may simply be continued as a surplus account.- Indeed, it might be possible to distribute the entire earnings of a corporation and finance expansion by means of new stock issues. But the trend of American business policy is towards the main- tenance of dividends in years of low profits as well as high. 3 This attempt at maintenance of dividends demands a conservative policy in years of high profits and a daring distribution of cash in the lean years. Such a policy can be maintained, therefore, only when there is in good years a 1 The distinction between dividends and surplus is not necessary in treating private busi- ness and partnerships, for in the income-tax returns used here the entire earnings are in- cludi d in the incomes of the individuals owning the business. 2 The Income Tax decision in McCombe v. Eisner (252 U. S. 189), involved the question whether a stock dividend should be considered income. The basic assumption was that a corporation was an entity, and therefore the definition of income hinged on the legal separation of its assets and their ownership by individuals. From an economic point of view, income must be considered as far as possible to accrue at the time of its receipt by the party earning it — either corporation or individual. Owing to the form in which most of the data are pre- sented, income is regarded as accruing only when it is received by the individual, but the fact thai so much of our business enterprise is in corporate form makes it necessary to recog- nize corporate surplus as a separate item. English practice tends towards a larger and more varying distribution of corporate earn- ings in the form of dividends. 314 CORPORATE SURPLUS 315 considerable margin between earnings and dividends. In many cases dividends in lean years are paid wholly or partly out of surplus, which is the first shock-absorber (after reserves) of business adversity. The fact that dividends and other losses are taken out of surplus in years of depression means that this surplus was actually earned in years of pros- perity. An accurate accounting of the National Income year by year should bring out these real variations in corporate earnings. To take no cognizance of their rise and fall would create a false impression of the uni- formity of income over years of depression and years of expansion. During the years 1920 and 1921, we have seen in many corporations not only a lack of surplus but even a deficit which wiped out a part, or more than all, of the surplus accumulated in previous years. This devel- opment, however, does not mean that the surplus had not been real income in the years in which it was gathered. On the contrary, the later loss con- firms the reality of the surplus accumulated in preceding years. Clearly an accurate statement of the National Income year by year should take into consideration both the surpluses of prosperous years and the deficits of periods of depression. It might well happen that the accounting of "corporate surplus" in any year might yield a net "corporate deficit." § 25c. The Genuineness of Reported Surplus Accounts In some form, then, corporate surplus constitutes an element in the National Income. Whether it should be considered on an equal footing with the income actually distributed as dividends to individuals, or whether it should be shown as contingent income, is another question. If it were the general practice of corporations to carry adequate * reserves and if the entire net income were normally distributed as dividends, then there could be no question that the entire net incomes of corporations (including what is now generally carried as surplus) should be counted on the same basis as all other income. If, however, the general reserves of corporations are normally insufficient, and if surpluses are wholly or mainly absorbed in meeting unforeseen business losses, then they too should be treated as reserve, or at least contingent income, subject to later disposal. They could not be treated as actual income until the business situation had so developed as to make possible an approximation of the extent of these losses. 2 This brings up the question whether the surplus accounts of corpora- tions represent a true increase of assets or merely a reserve account against ■It is assumed that reserves are rarely too lar^c to meet current losses. Any excess of reserves above current losses manifestly makes the surplus as reported too small by a like amount. Broadly, the reserves of corporations are at least as adequate as those of individuals and partnerships engaged in business. Incidentally, I do not think sufficient weight has been given to the net losses, or negative income of the latter. J. E. Sterrett. 31G THE ESTIMATE BY INCOMES RECEIVED unexpected losses. 1 Individual examples of both kinds are common, and extraordinary changes in the price level further complicate the problem of bookkeeping values. If it could be shown that physical production did or did not normally increase with the increase of invested capital through the growth of the surplus account, the problem whether the surplus account represented an increase of assets or a reserve which is normally wiped out by losses could be answered. But the measurement of physical produc- tion presents the difficulty that very few business enterprises turn out a single standardized article over a series of years. One must therefore turn to the money value of the product, remembering however (a) that changes in money value do not represent changes in physical production during a period of price change, and (b) that money value is apt to misrepresent physical product if new assets are put into labor-saving devices. In the latter case it often happens that while the total product is not increased, the labor cost is decreased and the profit increased. If surplus is correctly reported, an increase in surplus should lead to a corresponding increase in physical production after these two factors have been allowed for. However, the increase in physical production should not be in proportion to the increase in surplus but in proportion to the in- crease in capital plus surplus. In other words, if surplus be bona fide, its effects upon production, when it is put into the business, should be similar to the effects of new capital. The question then is, whether physical productivity tends to vary di- rectly as the capital plus surplus shown on the books. An attempt has been made to answer this question. The corporations whose capital plus sur- plus and physical productivity were examined included all for which com- parable statistics were obtainable during the whole period chosen for investigation. The years 1905 to 1914 were chosen for several reasons, one of the most important of which was that no violent price movements occurred. The method used was to break the decade into two five-year periods, 1905 to 1909 and 1910 to 1914, and then compare changes in capital plus surplus from the average of the first five-year period to the average of the second five-year period, with corresponding changes in physical produc- tion from the first period to the second. 1 It is suggested that the real question is not whether surpluses are used as reserves or to expand the business or for some other purpose, but whether the inventories at the different dates correspond to actual market values or are merely fictitious figures. There is no known way of testing this correspondence other than to take a broad view of the actual results of business operations over a period of years. To attain such a view is the aim of the following discussion. With the conclusions drawn here compare the evidence adduced by Dr. David Friday (Profits, Wages, and Prices, p. 63) from a group of 4,508 corporations which were listed in Corporate Earnings and Government Revenues, Senate Document No. 259, 65th Congress, 2nd Session. His compilations show that their invested capital was 182 per cent of their capital stock. CORPORATE SURPLUS 317 Physical productivity not being directly measureable, money indices were used. The disturbing effect of price movements would seem to be small in this period. Average prices of 1910 to 191 t were about 9 per cenl above the average of 1905 to 1909. 1 The money indices of physical production used were net earnings, gross earnings, net profits, total sales. The corporations and the two variables examined in each case are as follows : — 2 1. Twenty-five public utilities, (a) capital plus surplus and (b) net earnings. 2. Twenty-six public utilities, (a) capital plus surplus and (b) gross earnings. 3. Twenty-four industrial companies, (a) capital plus surplus and (b) net profits. 4. Fifteen industrial companies, (a) capital plus surplus and (b) total sales. 5. Thirty-nine industrial companies, (a) capital plus surplus and (b) net profits. In each case a straight line was fitted to the widely-scattered points representing the two variables in the case of each company by the method of least squares, and the results are shown in the following diagram. If the volume of business had increased in exactly the same ratio as capital plus surplus, then on these diagrams the straight lines fitted to the points would all have an inclination of 45 degrees. To show how nearly the plot- ted lines correspond to this condition, a dotted 45 degree line has been inserted in the diagrams. Though no single example can be considered conclusive, the grouping of all the lines around the 45 degree line indicates a close relation between the growth of assets through reinvested surplus and the growth of production. A further test is suggested by the Census figures for primary horse- power and capital used in manufacturing. The data are for the years 1904 and 1914. 3 Both figures, especially the 1 amounts for capital, are faulty, and too great reliance should not be placed on them. Yet they suggest a close relation between the growth of capital (including surplus) and the growth of productive power. Moreover, the index of productive power is in this case not monetary. 4 1 Bulletin of U. S. Bureau of Labor Statistics, No. 181, p. 16. 2 These samples were taken from the reports in Moody's Manual and supplemented by the corporate records furnished by two large banks. There is some overlapping of samples, especially between items 1 and 2, anil .'5 and 1 3 The 191!) figures are not yet available, and when they do become available will be af- fected by price flueutations in such degree as to make them of little value for the present purpose. 4 The question is raised whether horsepower can be taken as a constant factor for purposes of this computation during the period covered. If the value product per horsepower remained constant, then it is a good criterion. ,318 THE ESTIMATE BY INCOMES RECEIVED 80 70 60" o O I o O o 50 40- 30 20 6 ■p VI o o CO a) s V o CHART 25 B RELATIVE CHANGES IN PRIMARY HORSEPOWER CORRESPONDING TO RELATIVE CHANGES IN INVESTED CAPITAL. (24 INDUSTRIES). THEORETICAL LINE 45 (y s x) (1) STRAIGHT LINE FITTED TO DATA (y z .842x) (2) STRAIGHT LINE FITTED TO DATA AFTER ADJUST- MENT FOR PRICE CHANGES. (y ; . ?62x) 1 100 200 Percentage Increase In Capital plus Surplus for 1914 over 1904. in the index used — namely, wholesale prices, there is no doubt that some adjustment is needed. The true relation lies between the two lines. While these results may be tentatively accepted for the pre-war period, the further question is raised as to their validity since 1914. Are we to include the large surplus accounts of recent years in the National Income? Several considerations must be taken into account: (1) The rise in prices which brought about a lessened physical product per dollar for the invested surpluses of these later years. (2) The increased replacement value of fixed capital assets and inven- tories. (3) The increased demand for certain products during the war. which demand fell off after its close. 320 THE ESTIMATE BY INCOMES RECEIVED (4) The increased income and excess profits taxes. These considerations affect our attitude toward the bookkeeping meth- ods employed. The actual amounts of expenses, reserves, surplus, and dividends shown in the books are subject to wide variation according to the judgment of accountants and business men. It follows from the pre- ceding argument that prior to 1914, the reserves set up against specific uncertainties were normally sufficient to cover the greater part of the un- foreseen losses which occurred in business, since in a broad sense the sur- plus financed a roughly proportionate increase in the volume of new busi- ness transacted. Did American business men, operating under the stress of all the forces of uncertainty after 1914, abandon their conservative policy of deducting reserves adequate to cover current losses and carry as surplus that which should really be considered a reserve account? The answer to this ques- tion cannot be found by mathematical treatment. The items are too complex and interwoven to permit of separation. There were, during 1920, many striking cases of writing off of surplus accounts owing to the unfore- seen large depreciation in values; but as already said, that fact does not invalidate the genuineness of the surpluses during the years when they were accumulated. On the other hand, there have been a large number of instances of stock dividends, which converted the surplus account into a capital account. These conversions suggest that the two accounts are generically similar and capable of being interchanged. When the enormous deterrent to the writing up of profits interposed by high taxes is considered, the burden of proof seems to lie upon those who would consider the reported surplus as fictitious at the time it is earned. That there have been certain unfortunate investments is clear, but the strength which has been shown by many corporations during the recent depression bears testimony to the general adequacy of reserve accounts. Moreover, capital values were not generally written up during the war owing to the higher replacement costs. In old enterprises inflated costs only affected new investments and inventories. The losses which were taken in 1921 by many corporations were commonly taken care of in the balance sheet by reducing surplus. This situation should be shown in the figures, when they are available, for that year. Opinions regarding the adequacy of reserves are affected in large meas- ure by personal environment. The experiences of individuals with those concerns about which they have special information influence their judg- ment in making wider generalizations, and individual experiences vary. After consultations with a number of men, whose positions are such as to give them a broad view of business policies, the conclusion has been reached that between 80 and 90 per cent of the reported CORPORATE SURPLUS 321 surplus constitutes a genuine saving, and hence is a part of the National Income. 1,2 § 25d. The Data The Bureau of Internal Revenue reports the total net earnings of cor- porations in the volumes entitled Statistics of Income for the years 1916, 1917, and 1918. For the years 1909 to 1913 total earnings are given in the annual reports of the Commissioner of Internal Revenue. For the years 1914 and 1915 they are not given but may be estimated from the amount of the tax. These data, however, are not comparable without adjustments. During the period 1909 to 1912, corporations paid taxes only on their actual earn- ings, not including such sums as they received from stock ownership in other corporations. This practice was changed in the period 1913 to 1917, when the tax was collected on all the net income of a corporation from whatever source it might come. In 1918 there was a reversion to the earlier practice. This change in practice, however, has made little apparent difference in the results. The percentage changes from year to year in the earnings of all corporations have been compared with the percentage changes of the earnings of the 205 sample corporations quoted elsewhere 3 and with the 251 corporations for which data were collected by Professor Friday. ' In both these samples, earnings are estimated from year to year on a strictly comparable basis. There is found to be no constant divergence from the earnings of all corporations on which to base a correction for the change in method of computing taxes. In 1913, compared with 1912, the net earnings of all corporations reported by the Bureau of Internal Revenue increased 13 per cent, the net earnings of the sample of 205 corporations increased 9 per cent, and the sample of 251 corporations increased 6 per cent. In 1914 the decreases from 1912 in the three sets of data were respectively 23 per cent, 18 per cent, and 19 per cent. In 1915 *In my paper in the Annalist (September 20, 1920), I expressed dissent from the hypothesis that corporate surplus is wholly income and urged that what concerns us in the study of the division of income is simply what is actually paid in dividends. Without any doubt corporate surplus is in part utilized for additions to plant, but in part it disappears, as experience has shown, simply in the maintenance of plant. Since the be- ginning of the war a large part of the corporate surplus went into the provision of new plant as a war measure, which plant must be thrown away and written off. During the war we deluded ourselves with the idea that corporations were accumulating great surpluses that were going to enable them to maintain their dividends indefinitely, but at the present time that illusion is being dispelled. W. It. Ingalls. 2 This is doubtless true of ordinary times. The war period is another story. The tendency throughout was to under rather than to overstate profits. The tax laws saw to that. The tax laws did not allow reserves for future losses and conservative business judgment did not anticipate a drop in price levels helow, say, that of 1914. Now, however, we have seen some commodities crash down below the 1N00 level, — hides, notably. .1. E. Sterrett. 3 See Table 25 A, note d. * David Friday, Profits, Wages and Prices, p. 17. 322 THE ESTIMATE BY INCOMES RECEIVED the increases over 1912 were respectively 28 per cent, 52 per cent, and 36 per cent. In 1916 the new influence on bookkeeping methods exerted by the increase of the corporate tax rate to 2 per cent renders close com- parisons with earlier years hazardous. As between the 1917 and 1918 data, when the method of computing corporate earnings was changed again, the Internal Revenue figures for earnings fell about 22 per cent, as against a fall in the two samples of 24 per cent and 10 per cent. These comparisons lead one to believe that the inclusion or exclusion of intercorporate dividends was not a factor of major importance in net earn- ings. Other forces outweighed it to such an extent that its effect cannot be ascertained from the available data. Further, during the period 1909 to 1912, corporations having an income of less than $5,000 per year were exempted from the tax. The removal of this exemption in 1913 caused an increase in number of corporations pay- ing taxes, of about 125,000. From this increase the probable earnings of such corporations in the earlier years may be roughly approximated. Another complication is that each year back taxes have been collected after a field inspection of the books of selected corporations. The assess- ment of these taxes indicates a considerable degree of under-reporting of income, even in the years prior to 1916, when the tax rate was only 1 per cent. Back taxes as high as $3 to $4 million were assessed for each year, indicating an income of as many hundreds of millions or about 10 per cent of the reported total. Even these field inspections are reported to have been far from complete, owing to an inadequate staff. The final amounts of corporate income estimated for each year are shown in Column I of Table 25 A. 1 An independent check of the amounts reported in back taxes in the annual reports of the Commissioner of In- ternal Revenue 2 approximately verified these totals. A classification of corporate earnings into financial, commercial, manu- facturing, mining, public utility and railroad earnings has been given at various times in the annual reports of the Commissioner of Internal Rev- enue and in the Statistics of Income, and an effort has been made to com- plete these classifications. But so many discrepancies have been found in the amounts reported that a presentation of this material as if it were comparable would be misleading. The attempt, therefore, to show in detail the annual variations in the earnings of different classes of corpora- tions has been given up. From the reported net income are deducted taxes and deficits; these are, for the most part, exact amounts. Thereafter, an adjustment is made for known discrepancies in the reported net earnings, and these » Statistics of Income for 1916, p. 15; for 1917 and 1918. 2 Commissioner of Internal Revenue, Annual Rcjiort, 1913, p. 505; 1914, p. 624; 1915, p. 746; L916, p. 661; 1917, p. 773. CORPORATE SURPLUS 323 amounts are then divided between dividends and surplus. This division is made in accordance with the results of a study of 205 industrial corpora- tions, 15 commercial corporations, 62 public utility corporations, the bank- ing reports of the Comptroller of the Currency, and the railroad reports of the Interstate Commerce Commission. 1 The division between divi- dends and surplus as found in each of these samples has been weighted in accordance with the relative amounts of the net earnings, and a weighted average for each year has been applied to the estimated total earnings. The results of these computations are presented in the following table: — 1 See footnotes, Table 25A, for detailed references. ' < to w 1-5 < O i— i H O Ph o u hQ PQ Q W i— i < H W P hQ ce ima orat ilus to lO M O Ci co oo co io co >o M i-i 1^ 1^ CM i-i iO<*C^O(N ^ojcd cm^cd oq_io_o\C3\co__cM 1— ( +- 1 CL ^ 1— 1 r— I r-< t— 4 i-<~ tjT co" f-T cm" i-h W 3 g ©& •^ "8 ^ O i* 40 O ^h I> CJ O 00 1> «o H^ 03 ^3 ? (M 'ti -* 00 CO t^ 00 C3 CD CO t^ O^^t^t^i-^ ec^eo^CJ lO^o^e^ > • 3 O ^ -*- 1 -^ '5 W T3 tN~Cf 6© of co" co" of co" cm" « i— t iated of n ings een ends rplus CN Tfi i— I iO i— I 00 CO 00 i—i Ci o HM00ON CO t^ CI CO CD lO HH rfi CO CM CO C^ ^fi io tp ^ co co > g G C E=T3 3 1 1 1 I 1 1 1 1 1 1 1 • — o C-P'p x £5 -£•£ ci 33 > W > - a OOtOCliOO CMt^OICli-H© 00 CD i— i 05 t-~ CD Ol O CD CO iO ^3 IQ ^) t^ CO t^ •O ■* tti iO CD CD xi- t in- all ions awn ents u o o "8 T3 0:000 ON00MOO O 03 r5 "5 C C ft a ° g J3 B WHrfOO CO CO iO i— i t 1 O > ^CMoo^o^co Ol C2 C5 lO CM UO go; «S S ^ "5 co"co co~^of Tfi t^ t^ ■* CO CO -< « n Sh -u^7 S" 3 £ m CD OS OS OS "^ ON00MOO « o a 5 MhhcOCC WCOiOihtpO > 0_oq_Tf_^cD_ O0_ Ci_ Ci_ iO_ O^ iO -jr > cc ^ ' r; co"ofco"co~of tjT t-," t>." t}T co" co" ,« MO e@ £.S ° Deficits f corpor- ations aving no net in- comes & NOOCCN NNOOOO 00 'f 0> CD CD »0 CJ3 OJ_ 0_CO CO CD O 0_ i— i i— 1 1-H O ^5 S p 9, ■ g tf § co qo ci t^ -h N^OOCOCDO t— i (MCOO CD O lOOCOOMO 1- rfi i— i CD C2 C^l io «o C<) C g i— i co co Tt< Tf oo io co oo to r^ Th J5 „ J~ T3 TS rt e 00 iQ Ol t^ C3 xcise an income axes pai r corpor tions CO CM CM Ci lOO co co ^ 't 1 co lON'f'ONO >-H 1— 1 i— 1 i-H i-H CO 1—1 O) CO NM €^ W - _£> *™* otal orted me of oora- ons ing a ncome HMHlfO OOONhO C O 'O h Tf i— i CO CO CD i-i O 1— 1 i-- io -* r~ o_ co o^o^fo,"*.' - !. o « o ~ rt ~ io"oo"o"oo"cTt>r i— i i. c « ^ O c S3 43 O i-H CM CO Tfl uj co t^ CO' a o ^ ^^ ^H r-H ^ ^H rt rt H rt H M C5 Cj Ci OS C2 Ci C Ci Ci Ci COS CORPORATE SURPLUS 325 a Statistics of Income, 1916, p. 15. Originally reported in the Annual Reports of Commissioner of Internal Revenue, 1911, pp. 70-80, 1912, pp. 74-S5, 1913, pp. 91-102, 1914, pp. 98-109. These figures cover the years 1910, 1911, 1912 and 1913. For 191 1 and 1915, there are no data. The totals are based on the amount of the tax, 1915, pp. 188, 189, 1916, pp. 204, 205. The years 1909, 1910, 1911 and 1912 an; obtained from data collected under the excise tax, section 38 of the Act of August 5, 1909. This Acl permitted the deduction of income received as dividends from other corporations, and also excluded income of less than $5,000. The amounts for 1913 to 1917 are obtained from data collected under the income-tax law of October 3, 1913, and subsequent income-tax laws, and included all income of corporations, including specifically income received as dividends from other corporations. The income-tax law for 1918 again permitted the deduction of income received as dividends from other corporations. The tax rate was increased in 1916 from 1 per cent to 2 per cent. (Act of September X, 1916.) For the year 1917, the rate was again increased (War Revenue Act of < >ctober 3, 1917) to a normal tax of 4 per cent, plus war excess-profits taxes. For 1917, see Statis- tics of Income, 1917; for 1918, see Statistics of Income, 1918; for 1919, see Statistics of Income, 1919. b For the years 1916 to 1918, losses are reported in Statistics of Income. Prior to 1916 no such figures are given. A deduction for losses in the years prior to 1916 should therefore be made. A comparison of the deficits reported in 1916 and 1917 with the amounts of liabilities of enterprises that failed, reported in Dun's Review, suggests that the liabilities were about 3.4 times the deficits. If this ratio is applied, then the losses may be estimated as follows: ESTIMATED DEFICITS OF CORPORATIONS HAVING NO NET INCOME Year Number of commercial failures (Dun's) Amount of liabilities (Dun's) (Millions) Number of corporations reporting no income, or actual deficit Actual amount of deficit (Millions) Estimated amount of deficit (Millions) 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 12,652 13,441 15,452 16,037 18,280 22,156 16,993 13,885 9,982 6,451 8,881 $202 191 203 273 358 302 196 182 163 113 295 \"ot comparable 128,043 155,240 145,532 134,269 119,347 115,518 $ 657 630 690 996 $ 6S7 649 690 928 1,217 1,027 1,000 The total number of corporations reporting and the number reporting taxable income are as follows: 326 THE ESTIMATE BY INCOMES RECEIVED Total corporations Number of corporations reporting taxable income Over $5,000 only All corporations Excluding subsidiaries 1910 1911 1912 1913 270,202 288,352 305,336 316,909 329,445 336,443 341,253 351,426 317,579 320,198 54,040 55,129 61,116 188,886 174,205 190,911 206,984 232,079 1914 1915 1916 1917 1918 1919 1920 202,061 209,634 For the year 1915, it is reported (Statistics of Income, 1916, p. 15) that 30,000 corpora- tions showing a deficit were included which should have been reported in 1914. This correction is made in the Table above. The decrease in 1918 is due to consolidated returns, and for this reason is not included in computing the ratio between the losses reported for tax purposes and the failures reported by Dun's Review. c Raised by $400 million to account for earnings of corporations under $5,000 which were not repotted. d The following samples of net earnings of identical corporations were used for the purposes of comparison: EARNINGS OF IDENTICAL CORPORATIONS (Millions of Dollars) Professor Earnings of 205 industrial Friday's sample national banks Sample of 62 Year corporations of 251 corporations (Comptroller of Currency) public utilities 1910 $ 383 $ $154 $ 84 1911 347 459 157 81 1912 385 513 149 86 1913 420 542 161 86 1914 315 415 149 87 1915 585 699 127 103 1916 1,045 1,402 158 119 1917 1,032 1,774 194 101 1918 777 1,591 212 61 1919 671 240 55 1920 672 282 According to the samples of Industrials, the earnings for 1913 should be from 6 per cent to 9 per cent higher than in 1912. The earnings for 1914 should be about 25 per cent less than in 1913. There was a large increase in 1915 over 1914 — about 70 per cent to 80 per cent. These figures are not to be taken as entirely typical, for rail- roads and public utilities vary in different proportions. e The proportions into which net earnings are divided between dividends and surplus, according to samples, are as follows: '* CORPORATE SURPLUS 327 PROPORTIONS INTO WHICH NET EARNINGS ARE DIVIDED BETWEEN DIVIDENDS AND SURPLUS IN DIFFERENT INDUSTRIES (Per cents) (D = dividends; S = surplus) Year Finan- cial' Commer- cial 2 Manufac- turing and mining 8 Pub utiliti lie es ■ Pail- roads 5 Weighted average 6 D S D S D S D S D S D S 1910 69 73 31 27 55 63 45 37 55 45 63 37 61 68 39 32 62 72 38 28 58.8 41.2 1911 66 6 33.4 1912 81 19 67 33 67 33 73 27 82 Is 71.9 28.1 1913 74 26 67 33 67 33 74 26 73 27 69.5 30.5 1914 81 19 51 49 79 21 76 24 92 8 77.9 22.1 1915 89 11 44 56 45 55 67 33 86 14 56.2 43.8 1916 73 27 34 66 37 63 63 37 42 58 42.7 57.3 1917 65 35 41 59 47 53 75 25 52 Is 50.2 49.8 1918 61 39 49 51 55 45 87 13 65 35 56.9 43.1 1919 56 44 35 65 56 44 81 19 56 41 63.1 36.9 1920 52 48 64 36 74 26 46 54 65.0 35.0) 1 Based on National Banks. Reports of the Comptroller of the Currency. 2 Based on 15 commercial corporations reported in Moody's Manual from 1914 to 1919. Previous to 1914, reports are inadequate, and the manufacturing ratio is used. 3 Based on 200 corporations reported in Moody's Manual and supplied by certain banking institutions. 4 Based on 62 public utility corporations reported in Moody' '.s Manual. 5 Based on reports of Interstate Commerce Commission and reports in Moody's Manual covering practically all railroads. 6 In collecting the data on which Column VII is based, care has been taken to include in surplus only those amounts actually carried as such in the books. In conformity with this plan, special reserve accounts, reserves against bad debts, losses in inventory and depreciation have been excluded. This same method was followed in the earlier investigation of the genuineness of surplus accounts, so that the two computations have been made on the same basis. These percentages have been weighted according to the estimated importance of each class of institutions, and the weighted average for each year is applied to the net earnings. 1920 is an approximation, since complete data are lacking. /The New York Journal of Commerce reports the following amounts of dividends paid by industrial corporations each year. It does not explain how complete they are or whether they cover identical corporations. They are inserted for purposes of comparison. 328 THE ESTIMATE BY INCOMES RECEIVED Year Dividends (Millions of dollars) Index number 1911 $368 394 445 436 422 546 681 645 576 599 1 00 1912 1.07 1913. . . 1.21 1914 1.18 1915 1.14 1916 1.48 1917 1.85 1918 1.75 1919. 1.56 1920 1.63 These amounts are reported in the first issue of each year, giving three previous years. The amounts reported for the same year are not always identical and the latest figure reported has been taken. a Professor Friday has made a similar computation of surplus (Profits, Wages and Prices, p. 64) and it is of interest to compare his results with those given in this study: COMPARISON OF PROFESSOR FRIDAY'S RESULTS WITH THOSE OF THE BUREAU (Millions of Dollars) Year 1910 1911 1912. . . . 1913 1914 1915 1916. 1917 1918 1919. . . . Total net earnings Dividends Surplus Bureau Friday Bureau Friday Bureau Friday $3,436 3,219 3,819 4,000 $3,360 3,213 3,832 4,340 $2,020 2,144 2,746 2,780 $2,290 2,226 2,498 2,871 $1,416 1,075 1,073 1,220 $1,070 988 1,334 1,468 2,800 4,230 7,937 3,711 5,184 8,594 2,181 2,377 3,389 2,412 2,595 3,784 619 1,853 4,548 1,299 2,590 4,810 7,958 4,513 6,240 8,587 6,300 Est, 6,700 Est. 3,995 2,568 3,937 4,652 4,250 Est. 3,900 Est. 3,963 1,945 2,303 3,936 2,050 Est. 2,800 Est, The main discrepancies are as follows: Total net earnings differ, because Professor Friday has taken the published figures without the emendations made by the Bureau and for which the reasons have been discussed. This results in wide variations for 1913, although the percentages are quite close. For 1914, Professor Friday's total is higher than the Bureau's, as is also his esti- mate of surplus. The proportions are strikingly different, although the proportion which Professor Friday quotes for industrials (Profits, Wages and Prices, p. 62) is very close to that found in the sample of the Bureau. In the years 1916 and 1917, for which better data exist, the two estimates are in close agreement, and for 1918, Professor Friday made an advance estimate, whereas the Bureau has had the advantage of the recently published statistics. § 25e. Conclusions If the corporate surpluses for each year are taken at 85 per cent of their face value, which is about the amount justified by the considerations S CORPORA'!'!: SURPLUS 329 previously mentioned, then the final corporate surplus, which is to be eounted as part of the National Income, will stand as follows: TABLE 25B ESTIMATE OF ACTUAL SAVINGS IN THE FORM OF ( '< >RP( >RATE SURPLUS 1910 to 1920 (Millions of dollars) Year Corporate surplus" 1 Istimated actual savings 1910 1911 $1,416 1,075 1,073 1,220 619 1,853 4,548 3,963 1,945 2,303 1,225 $1,204 914 1912 1913 : 1914 912 1,037 1915 1,575 1916 1917 1918 3,st)ii 3,369 1,653 1919 1920 1,958 1,011 « Table 25A. CHAPTER 26 SUMMARY OF PART II § 26a. The Total Income of the United States, 19 10 to 1919 The total income of the United States, as computed in the preceding sections, may now be summarized on page 331. § 26b. The Degree of Error in the Estimate It is advisable to repeat the caution that these amounts are all esti- mates constructed from a large amount of data of varying reliability. Table 26B shows first the range within which the income for each year probably lies. This range was estimated in the same way that the math- ematical "probable error" is computed, but it was not possible to do this, in mathematical terms. It is, therefore, to be regarded simply as a guessed at " probable error." Next, is shown the greatest error that could be reasonably expected, on the assumption that each item varied according to the widest indications from the figures as given, and that all these variations were in the same direction. Thus is indicated the outside limits within which the National Income must fall, if all the errors judged possible by the Bureau have been committed, and committed with no offsetting of one error by another. Evidently, the chances that this has actually occurred are extremely small. 330 < to W m H Q - w o w 3 w o o l-H CQ W H H 5 o o rj w < H Q a H fa O W P- o P-, H o w o o o 35 O «* « i (N — TfH w r- oa t^- — O X S o o — — cm re cm ifl LC t M O £"■§! cc re re re re re tt «-e cc co ©& o rporati irplus lillions dollar* cm o o o >-e to o** t^oo — oo l-H O >— 1 re re — cm — U c ~?- . r.'r. -< 3 S S S ONiO >ccm re '/l-MX 03 T3 - ,3 r-'> 8§o Q O '"^ ei cm -+ 1 ™ » » ^*" *^, -^* ~y*. re re re -r ■- ~ cO ^* — ^ *** ^ ^'" Total umber of persons housands CO CM O x co "e -f re cm — CM 'C — r^ co — ■ e -^ ~] ei x re X O 00 OS — 1 - 33 ' ' MtC^ lO "* ■* 1- x o o re re re re re re re re ~t re o H ^_^ 'tc 03 "3 o (3 3 r- 1 '-" »— i i—t HO>H ce-* x x re — x O rt ,— (^ i— 1 -r -f o -r — c o v: /; Tt^re__'*_ ■^•■^o r^-CM-Cr:..-^ gti i-i l-H r-l — t-Tt-Tcm" Cm"^*"-*"lo" x. H ~— * — > o o 32 tt ^^ 2 S +3 X CD g > ~ tr t5 oooo CM O-* CO O CO CO lil C5KO CO — !-^ ; — -- i — i a — — — N CI CM O H rA ^ e© — o S 5 o cm re o tOC^J t^ CO O <— < CO cc o i-( t^ O re cm o o n c ^ i 1 - go 7 £ "*H O — CM re tj< ic c n ac cv c l-H *-H »— « ^H *-^ —* — — — — CM 3 OS O OS CT: ~ cv 35 c~. cr. - 332 THE ESTIMATE BY INCOMES RECEIVED TABLE 26B THE RANGE WITHIN WHICH THE INCOME OF THE PEOPLE OF THE UNITED STATES PROBABLY LIES 1910 to 1919 (Billions of dollars) Year Final estimate Probable range within which the actual income falls Estimated range beyond which actual income cannot reasonably lie 1910 31.2 31.1 32.4 33.5 32.7 35.9 45.7 54.1 62.0 66.8 30.0-32.4 29.8-32.4 31.1-33.7 32.2-34.8 31.4-34.0 34.6-37.2 44.3-47.1 52.5-55.6 60.1-63.5 64.2-68.5 25.9-36.5 191 1 25.9-36.3 1912 27.2-37.6 1913 27.9-39.1 1914 26.7-38.7 1915 29.7-42.1 1916. . 40.5-50.9 1917. 46.9-61.2 1918 53.5-70.2 1919 58.6-73.1 1920 § 26c. Percentage Division of Number of Persons Having over $2,000 and Under $2,000 Income per Year The percentage of persons having incomes over and under $2,000 and the percentage of the total income which they received is next shown: — TABLE 26C PERCENTAGE OF PERSONS HAVING INCOMES OVER AND UNDER $2,000 AND PERCENTAGE OF THE TOTAL INCOME WHICH THEY RECEIVED 1910 to 1919 Year Per cent of total persons having incomes Per cent of income received by persons having Over $2,000 Under $2,000 96% 96 96 96 96 94 93 89 88 86 Over $2,000 Under $2,000 1910 1911 1912 1913 1914 1915 4% 4 4 4 4 6 7 11 12 14 33% 32 31 31 31 33 37 41 39 39 67% 68 69 69 69 67 1916 63 1917. 59 1918 1919 1920 61 61 s SUMMARY OF PART II 333 It will be seen that while the percentage of persons having incomes over $2,000 increased from about 4 per cent in 1910 to 1914, to about 14 per cent in 1919, the percentage of the income which they received increased only from about 32 per cent to about 40 per cent during this period. The increase in the number of persons having incomes over §2,000 is doubtless closely connected with the rise in prices, and does not denote a corre- sponding improvement in their well-being. § 26d. The Percentage of the Total Income Obtained by the Highest 5 Per Cent of Income Receivers Using this table as a basis, and checking with the work in Part III, it is possible to make a conjectural estimate of the percentage of the total income which the highest 5 per cent of income receivers obtained. The method employed has been to subtract from the number of persons having incomes over $2,000 such a number as will reduce the remainder to 5 per cent of the gainfully employed. The average income of those who are subtracted is then computed in accordance with the distribution of the entire income as shown in Part III. While no claim to strict accuracy can be made for the results, the error is probably not sufficient to alter the trend shown. This percentage is shown including and excluding farmers because for many purposes farmers make a class apart from the remainder of the industrial community. Corporate surplus is left out of this computation for it is not possible to locate the recipients with any degree of accuracy (see Table 26D). § 26e. The Position of the Farmer The per cent of the National Income which was received by farmers each year is next shown. The number of farmers was reported in 1910 as 0,361,000 and in 1920 as 0,460,000 — a gain which is so small as to be practically negligible (see Table 26E). § 26f. Income in Each Year in Terms of Constant Purchasing Power Did the income of the country increase during the decade when meas- ured in terms of serviceable goods? In order to answer this question satis- factorily a rather elaborate computation has been found necessary. There is no satisfactory price index which can be applied indiscriminately to all products; indeed, the variations of price changes in different classes of commodities is a st liking feature of the decade. In order to meet this difficulty, the income of the country was divided into four classes: 1. Expenditures by persons having incomes over $2,000. 2. Expenditures by persons having incomes under $2,000. Q w fa n < m a fa > o fa fa o o fa o H fa o OS fa fa fa > H fa a o fa H fa Q fa I— I f income eivers cs co -* co OOOCN CO C5 •* co co ■"* 1— 1 1—1 T— 1 >— 1 rH s Est in rece high cent c rec J5 "o 6© 03 -3 M O _C CO ^ Total dividual ncome _o fa 3 co o co o co x o co Cit^X i— l C5 CO tN CM CM CO -tfi ■* IO * IO »0 t— < <— 1 T— 1 r— 1 T— 1 T— 1 1— 1 o 03 6© £ fa"" C.2--S ^ ^ M 3 T "o 03 ' ' ~ ' o %-H M o co ~0 c o o — i 3 ° 33 10 CM coco t^ CM 1^ i— i Tota divid neon fa CM -. § >H CO -f iO CO 05 C2 C5 C73 i-H r-i i— ( ^^ N00OO OS C5 05 C33 1— t 1— I 1— 1 1— t <* SUMMARY OF PART II 335 TABLE 26E PER CENT OF THE NATIONAL INCOME RECEIVED BY FARMERS Year Total national income Farmers' income Percentage of national income (Billions of dollars) received by farmers 1910 1911 1912 1913 1914 $31.2 31.1 32.4 33.5 32.7 35.9 45.7 54.1 62.0 66.8 $ 3.95 3.70 4.00 4.20 4.20 4.70 5.80 8.80 10.45 10.85 7.20 12.7 11.9 12.3 12.5 12 8 1915 1916 1917 1918 1919 13.1 12.7 16.3 16.9 16 2 1920 3. War expenditures. 4. Construction expenditures. For each of these divisions, the most plausible index number was found : 1. An index number of costs of living of persons having incomes over $2,000 was constructed by the Bureau. (Chap. 2, § 2c.) 2. For persons with incomes less than $2,000, the index number of the cost of living of the Bureau of Labor Statistics, Monthly Labor Renew, June, 1920, p. 79, was used. The figures used are for June of each year. The years 1910 to 1912 have been compiled by this Bureau on a basis comparable to that used by the Bureau of Labor Statistics. (Chap. 2, § 2b.) 3. An index number was constructed from selected items of materials used in war, as estimated by the War Industries Board. (History of Prices During the War, 1919.) 4. An index number of construction was obtained from the American Telephone and Telegraph Company. These index numbers cannot well be carried back of the year 1913. Prior to that year, the data are too uncertain to permit of even the crude methods employed for the later years. However, the general price level did not alter greatly during the years 1910 to 1913, so that an application of any legitimate index number of prices and any reasonable subdivision of the income would not alter the final result to any marked degree. Taking 1913 as the basic year, computation gives the National Income for each year in terms of dollars of constant purchasing power as shown in Table 26G. fa CM w fa PQ < W fa fa H i— i Q fa fa X fa fa o w Oh H a o «u w fa o fa XI fa fa O fa fa Q -si fa" o o HH fa «*! fa fa K H fa O fa fa fa fa fa fa fa X t^ r^ © © © CO © to CM -HCM o 003 00 © ©CM LO t^ © iO <~ d co O fa.S 1— 1 i— 1 r-< i-H i— 1 HHIM CU • — «i "i" 3 2 T3 *i c 2 cu s 5-S S 2 tOOOCC ■^TtH lO O l>»d 3 O G3 Kh" O fa T3 fa lO "O iO *0 ■*■<* CO CO 1—1 © Ph c3 fa.S o CO »-H LQ oo >o© o © © CO O0 ©© El O t— I 1— 1 i— I >-H t-i CM m 03 flu 3 -^> G CD 2 to G s- O »o it fa.S GCBOO i— 1 © © ^h M 1— 1 I— 1 1— i 1— 1 lONO iHHCN flu > (H si 03 «u 3 Sfl fa ro 3 C O to flu CO CU &S3S rG "S C5 © O ■— ' 00 >o t^ © r^oo © ■* w & 8 ^h CM CM CM CM CM CM CM co co .d fa T3 €^ 3 by ing 2,000 CU cu fa.S © © © © -h ©oo co e HKJH © © © © i— i i— I © © © CM ■* © © rH i— 1 rH OJ ►> ^ 3 2 H •S co > -ago 5» O co i CO cu £-* Si G * flu G J£ CO G >H 0©O^H 00 ©©© © lO _0 in 03 CO © CD © lONO-* lO© fa a 8 rG O fa ^ €^ 1—1 I— 1 I— 1 l-H 5 S 0 "O -f H O ^ CM CO rfi iO © I> 00© © i— 1 I— 1 i— 1 ^H Oi © © © © © © © © © © 1 1— ( !— 1 !— 1 1-H I— 1 r-H I-H 1— I — — Sm — oi cu (N >> e^ cu ^ d u T3 (H n - — g > —, O fa ^< r/> WU G JG m o — cu JG bli >. G fa cu CO JO CU ;- CU 3 G -i-i 3 73 »-9 H cu © Q.CM 5<© CU i— i (4 — ' o hi hO CI) S — cu o 0) Q o ■n — p. G c3 d fcn G t) cu d cu flu «*H o Q _ o *- s cu oS cu ■— E Cu 03 < ^ SUMMARY OF PART II 337 TABLE 26G NATIONAL INCOME AT PRICE LEVEL OF 1913 (Huso Year: L913) 1910 to 1919 Year Total income (Billions of dollars). Weighted index number <>f prices Income at price level of 1913 (Billions of dollars) 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 $31.2 31.1 32.4 33.5 32.7 35.9 45.7 54 . 1 62.0 66.8 98 . 98.0 99.] 100.0 100.6 102.3 113.7 136.1 160.7 177.7 $31.8 31.7 32.7 33.5 32.5 35.1 40.2 39.7 38.6 37.6 § 26g. The Average Income per Capita in Each Year The next table shows the average income per capita of the entire popu- pation and of the gainfully employed. The entire population has been interpolated according to a method devised by Mr. King, of which the details are shown in Chapter 2, § 2a. The number of the "gainfully employed'' is uncertain, owing to the divergent ways of counting the persons included under agricultural labor. It seems certain that different standards have been used by the Census enumerators in determining whether a housewife or member of the family who helps in the fields intermittently or only for a few days during the har- vest season should or should not be included. On account of this difficulty (and it appears to invalidate any close comparison between the totals of 1910 and the estimated totals of 1920), the number of farm laborers has been kept at a constant figure. In a measure, this comes nearer expressing the truth than any other arbitrary interpretation, for there is much evi- dence to indicate that during 1916 to 1919, when farm laborers were drafted into other industries, their places were taken by members of the family who are normally not included among the gainfully employed. This view was taken by Mr. Gray Silver in explaining the large increase of farmers' income in the years 1917 to 1919. ! The number of gainfully employed which is presented is the number actually employed in each year, as distinguished from the number attached ' See Vol. I, page 38. 338 THE ESTIMATE BY INCOMES RECEIVED to the industry. The former number is always smaller than the latter, and in times of depression is apt to be considerably smaller. It reflects in a broad way the changes in degree of unemployment. 1 The results are presented in several ways: (1) per capita income for the whole population, (2) per capita income for the gainfully employed, and (3) both sets of per capita figures are given first in money of current and second in money of constant purchasing power. Needless to say, changes in economic welfare are best approximated by the figures from which the price fluctuations have been eliminated. TABLE 26H PER CAPITA INCOME AND ITS PURCHASING POWER AT THE PRICE LEVEL OF 1913 Income per capita of the entire population Income per capita of the gainfully employed Year Number of persons Income per capita Purchasing power at 1913 price level Number of persons Income per capita Purchasing power at 1913 price level (Millions) (Dollars) (Millions) (Dollars) 1910 . . 1911 . . . 1912 . . . 1913 . .. 1914 ... 1915 . . . 1916 . . . 1917 . . . 1918 ... 1919 . . . 1920 . . . 92.23 93.81 95.34 97.28 99.19 100.43 101.72 103.06 104 . IS 104.85 $338 332 340 344 330 357 449 525 595 637 $345 338 343 344 328 349 395 385 371 359 33 . 82 34.35 34.81 35.08 34.87 34.91 37.65 38.73 40.92 39.52 $ 923 907 931 955 936 1,028 1,214 1,397 1,515 1,690 $ 940 923 939 955 932 1,005 1,068 1,025 943 951 1 In comparing it to the Census figures our figures for the number of gainfully employed for 1910 and in 1920, two items should be kept in mind: (1) The Census includes 3,100,000 farm laborers working on home farms, who are not included here. (2) The Census figures include all those attached to an industry, whereas only those actually at work are included here. We estimated that about 3 per cent are normally unemployed, that is to say, about one million persons. PART III THE PERSONAL DISTRIBUTION OF INCOME IN THE UNITED STATES By FREDERICK R. MACAULAY ASSISTED BY E. GAIL BENJAMIN <* CHAPTER 27 THE PROBLEM What is the frequency distribution of annual income among personal income recipients in the United States? Before we can give an intelligent answer to this question, we must formulate it more definitely by indicating certain connotations which logic or expediency leads us to attach to some of its terms. By income it seems desirable to mean actual money income, plus the estimated money value of the more important of those items of commodity or service income on which a money value is ordinarily placed. Two of the most important items which are thus included are the annual rental values of owned homes and the value of farm produce consumed by farmers' families. In line with the ordinary convention, we have excluded from our defini- tion of income, that income, whether monetary or non-monetary, which a wife receives from her husband or a child from its parents. 1 Not only is such exclusion practically expedient but it is also theoretically defensible and that quite apart from the fact that a money value is not ordinarily placed on the services of wife or child, wages of housekeepers to the con- trary notwithstanding. The frequency distribution resulting from the exclusion of such quasi incomes will be less heterogeneous and more significant and interpretable than the distribution which would result from inclusion. For the relation of the incomes of wives and children to the economic struggle is derived and secondary, while that of most other incomes is direct and primary. Now, though the distribution of income among persons is not synonymous with distribution among the factors of production, the two problems are very closely related. An individual's income may be thought of as made up of wages, rent, interest and dividends, profits, and gifts or allowances. If we omit this last type of income, the problem of factorial distribution proposes an investigation of how and why the individual received what remains. Even if gifts and allowances admitted of any such systematic and reasoned explanation as may be given of rent, wages, etc., the ex- planation would be of a totally different kind. Hence, for the purposes of this investigation, it seems undesirable to classify as income, the receipts, 1 That is, while such income has, of course, been counted in the first instance as income of the husband or parent it has not been re-counted as income of the wife or child. oil 342 PERSONAL DISTRIBUTION OF INCOME IN U. S. whether monetary or non-monetary, of those persons receiving merely allowances or gifts. 1 Similar considerations have led us to think of an income recipient as an individual rather than a family. Just as it is the husband and not the wife, the parent and not the child, so it is the individual and not the family who, as an income receiver, comes into direct economic relationship with the machinery of distribution. The chief argument in favor of family rather than individual treatment of the frequency distribution is based upon the idea that, though income accrues to the individual and not the family, the family is a more significant unit of economic need than the individual. But this is a different approach to the question and has, of course, no intimate relation to the problem of factorial distribution. Moreover, we must remember that if we are going to improve appreciably upon the individual, even as a need unit, we can- not stop with actual biological families with their great variation in size and constitution, but must introduce the concept of the theoretical family — father, mother and three children, for example. This last concept is, in its raw form, quite unusable. The population is not made up of such theoretical families. We may discuss what a family of five ought to get to maintain a decent standard of living, but we cannot divide the actual population into families of five and discuss what these non-existent hy- pothetical families actually do get. There remains the alternative of ex- pressing actual families in terms of some need unit such as the "ammain." 2 While this last procedure would probably yield an extremely interesting distribution based upon need units, it is impractical to attempt any such solution with the data available. 3 Though a distribution of income among actual biological families would appear to be somewhat less enlightening and interpretable than a dis- tribution by individuals or by ammains, it would have its own peculiar interest and we would have attempted its construction had the data been adequate for such a purpose. Most of the data bearing on income dis- tribution are in the individual form; wages distributions, for example, are 1 Of course if the wife or child has "independent" income, that income is no longer of the nature of a gift or allowance even though it may arise from property originally deeded by the husband or father. It is now explainable in terms of rent, interest, etc. If income be defined as above, the term personal income recipient will correspond closely to the census expression person gainfully employed. Perhaps the most important difference is that we do not and the Census does include as separate income recipients, farm laborers working on the home farm. -' Ammain is a word coined by W. I. King and E. Sydenstricker and defined by them, for any given class of people, as "a gross demand for articles of consumption having a total money value equal to that demanded by the average male in that class at the age when his total requirements for expense of maintenance reach a maximum." Measurement of Relative Economic Status of Families. Quarterly Publications of the American Statistical Association, Sept., 1921, p. 852. 1 It is of course quite possible to estimate the average per ammain income, as has been done !>y Mr. King; the total income of the people can he divided by the estimated number of ammains in the population. See pages 'l'.V,\ and 234. THE PROBLEM 343 almost without exception in that form. Now to estimate the frequency distribution of income among families from data which, in the first place, are in the individual form and, in the second place, are extremely inade- quate for estimating even the distribution among individuals, could only increase the degree of uncertainty in our results. A few words explaining the reason for introducing the next chapter at this point are not out of place here. The data upon which an estimate of even the individual distribution of income in the United States must be based impress one as being in such shape that it is impossible to arrive at more than the roughest sort of approximation by any mere direct adding process. Some more ingenious plan would seem almost necessary. For example, would it not be possible to formulate a general mathematical "law" for the distribution of incomes which law might then be used for "adjusting" the tentative and hypothetical results obtained from piecing together the existing scanty and inadequate material? The possibility and desirability of mathematically describing the fre- quency distribution of income would seem intimately tied up with the case for mathematically describing error distributions and statistical distribu- tions in general. The fact that, in our problem, the "law" would be largely derived from the same data as those which were to be "adjusted" need not greatly disturb us. The procedure of adjusting observations in the light of a mathematical expression derived from the same observation- is not novel. A number of attempts, one of which has become world-famous, have been made to demonstrate that the distribution of income follows a definite; mathematical law. However, the next chapter will show why we fear that no rational and useful mathematical law will soon be formu- lated. CHAPTER 28 PARETO'S LAW AND THE GENERAL PROBLEM OF MATHE- MATICALLY DESCRIBING THE FREQUENCY DISTRIBU- TION OF INCOME The problem of formulating a mathematical expression which shall de- scribe the frequency distribution of income in all places and at all times, not only closely, but also elegantly, and if possible rationally as opposed to empirically, has had great attractions for the mathematical economist and statistician. The most famous of all attempts at the solution of this fascinating problem are those which have been made by Vilfredo Pareto. Professor Pareto has been intensely interested in this subject for many years and the discussion of it runs through nearly all of his published work. The almost inevitable result is that "Pareto's Law" appears in a number of slightly different forms and Professor Pareto's feelings con- cerning the "law" run all the way from treating it as inevitable and im- mutable to speaking of it as "merely empirical." In its best known, most famous, and most dogmatic form, Pareto's Law runs about as follows: 1. In all countries and at all times the distribution of income is such that the upper (income-tax) ranges of the income frequency distribution curve may be described as follows: If the logarithms of income sizes be charted on a horizontal scale and the logarithms of the numbers of persons having an income of a particular size or over be charted on a vertical scale, then the resulting observational points will lie approximately along a straight line. In other words, if x = income size and y = number of persons having that income or larger then log y = log b -f- m log x ory = bx" 1 . 1 2. In all countries and at all recent times the slope of this straight line fitted to the cumulative distribution, that is, the constant m in the equa- tion y = bx" 1 , will bo approximately 1.5. 2 3. The rigidity and universality of the two preceding conclusions strongly 1 If the cumulative distribution (cumulating from the higher towards the lower incomes as Pareto does) on a double log scale could be exactly described by the equation y = bx m , the non-cumulative distribution could be described by the equation Y = — mbx m 1. 2 Strictly, minus 1.5, though Pareto neglects the sign. 344 PARETO'S LAW 345 suggest that the shape of the income frequency distribution curve on a double log scale is, for all countries and at all times, inevitably the same not only in the upper (income-tax) range but throughout its entire length. 4. If then the nature of the whole income frequency distribution is unchanging and unchangeable there is, of course, no possibility of economic welfare being increased through any change in the proportion of the total income going to the relatively poor. Economic welfare can be increased only through increased production. In other words, Panto's Law in this extreme form constitutes a modern substitute for the Wages Fund Doc- trine. This is the most dogmatic form in which the "law" appears. In his later work Professor Pareto drew further and further away from the con- fidence of his first position. He had early stated that the straight line did not seem adequate to describe distributions from all times and places and had proposed more complicated equations. 1 He has held more strongly to the significance of the similarity of slopes but he has wavered in his faith that the lower income portions of the curve (below the income-tax minimum) were necessarily similar for all countries and all times. He has given up the suggestion that existing distributions are inevitable though still speaking of the law as true within certain definite ranges. To translate from his Manuel (p. 391): "Some persons would deduce from it a general law as to the only way in which the inequality of incomes can be dimin- ished. But such a conclusion far transcends anything that can be derived from the premises. Empirical laws, like those with which we are here concerned, have little or no value outside the limits for which they were found experimentally to be true." Indeed Professor Pareto has himself drawn attention to so many difficulties inherent in the crude dogmatic form of the law that this chapter must not be taken as primarily a criticism of his work but rather as a note on the general problem of mathematically describing the frequency distribution of incomes. Almost as soon as he had formulated his law Professor Pareto recognized the impossibility of extrapolating the straight line formula into the lower income ranges (outside of the income-tax data which he had been using). The straight line formula involves the absurdity of an infinite number of individuals having approximately zero incomes. Professor Pareto felt that this zero mode with an infinite ordinate was absurd. He believed that the curve must have a definite mode at an income size well above zero 2 and with a finite number of income recipients in the modal group. 1 The inadequacy of these more complicated equations is discussed later. See pp. .'lis, 363 and 3(54. 2 This is, of course, not absolutely necessary. It depends upon our definitions of income and income recipient. If we include the negligible money receipts of young children living at home we might possibly have a mode close to zero. There are few children who do not really earn a few pennies each year. Compare Chart 31A page 41(3. 346 PERSONAL DISTRIBUTION OF INCOME IN U. S. Having come to the conclusion that the income frequency distribution curve must inevitably have a definite mode well above zero income and tail off in both directions from that mode, Professor Pareto was led to think of the possibilities of the simplest of all frequency curves, the normal curve of error. However, after examination and consideration, he felt strongly that the normal curve of error could not possibly be used. He became convinced that the normal curve was not the law of the data for the good and sufficient reason that the part of the data curve given by income-tax returns is of a radically different shape from any part of a normal curve. 1 Professor Pareto finds a further argument against using the normal curve in the irrationality of such a curve outside the range of the data. The mode of the complete frequency curve for income distribution is at least as low as the minimum taxable income. Income-tax data prove this. However, a normal curve is symmetrical. Hence, if a normal curve could describe the upper ranges of the income curve as given by income-tax data then in the lower ranges it would cut the y axis and pass into the second quadrant, in other words show a large number of negative incomes. Now, aside from the fact that this whole argument is unnecessary if the data themselves cannot be described even approximately by a normal curve, Professor Pareto's discussion reveals a curious change in his middle term. If he had said that a symmetrical curve on a natural scale with a mode at least as low as the income-tax minimum would show unbelievably large negative incomes we could follow him but when he states that not only can there be no zero incomes but that there can be no incomes below "the minimum of existence" we realize that he has unconsciously changed the meaning of his middle term. Having examined a mass of income-tax data, all of which were concerned with net money income and from these data having formulated a law, he now apparently without realizing it, changes the meaning of the word income from net money income to money value of commodities consumed, and assumes that those who receive a money income less than a certain minimum must inevitably die of starvation. 1 Though Pareto seems to have thoroughly understood this fact, his discussion is not al- together satisfactory. He states that the data for the higher incomes show a larger number of such incomes than the normal curve would indicate. This is hardly adequate. To have stated that the upper and lower ranges showed too many incomes as compared with tin middle range would have been better. An easy way to realize clearly the impossibility of describing income-tax data by a normal curve is to plot a portion of the non-cumulative data on a natural x log y basis. When so charted the data present a concave shaped curve. However, if the data were describable by any part of a normal curve of error, they would show a convex ap- pearance, or in the limiting case a straight line, as the equation of the normal curve of error — x- ' //.r = >.i„e " ~. - 1,000 ° a w ca 2 >j"-.. 100 ^O n *' -10 2 il 3 4 5 -l-X-i.— INCOME IN THOUSANDS OF DOLLARS 10 20 30 40 50 100 200 300 400 500 1,000 2,000 3.000 1 1 1 iii, | I 352 PERSONAL DISTRIBUTION OF INCOME IN U. S. - 100,000 CHART 28C 1,000,000 10,000 2 o as 1.000 g S se 100 10 UNITED 5TATE5 IMCOME TAX RETURNS 1915 CUMULATIVE FREQUENCY DISTRIBUTION AMD FITTED Ueast Squares) STRAIGHT LINE Scales Logarithmic INCOME IN THOUSANDS OF DOLLARS 2 3 4 5 10 20 30 40 50 100 200 300 400500 1,000 2.00U ' I ' I I | | | ' i.ii ,* PARETO'S LAW 353 (HART 2ND UNITED STATES INCOME TAX RETURNS 1916 CUMULATIVE FREQUENCY DISTRIBUTION AND -1,000,000 FITTED (Least Squares) STRAIGHT LINE Scales Logarithmic -100,000 ^ '•Nu - 10,000 g a. § o ^kN, OS ■ 1,000 w B3 z ^^S.^* -100 >/■-.. -10 INCOME IN THOUSANDS OF DOLLARS 2 3 4 5 10 20 30 40 50 11)0 200 300 400 500 1,000 2000 30004O005O00 354 PERSONAL DISTRIBUTION OF INCOME IN U. S. • 1,000,000 - 100,000 10,000 1,000 -100 -10 CHART 28 E UNITED 5TATE5 INCOME TAX RETURNS 1917 CUMULATIVE FREQUENCY DISTRIBUTION AND FITTED (Least Squares) STRAIGHT LINE Scales Logarithmic INCOME IN THOUSANDS OF DOLLARS 3 4 5 10 20 30 40 50 100 200 300 400 500 1,000 2,000 3,000 4,000 ' ' ' ' ' ' ' ' ' ,ii, i ■ i i . S PARETO'S LAW 355 CHART 28F - 1,000,000 - 100,000 - 10,000 s>» -10 o^/v ^% 2 3 4 5 10 INCOME IN THOUSANDS OF DOLLARS 20 30 40 50 100 200 300 400500 1,000 2,000 3,000 PARETO'S LAW 357 TABLE 28B (XITED STATES INCOME-TAX RETURNS, 1914 A B C Income class U. S. in- come-tax returns Least-squares straight line Straight line giving correct total returns and income Per cent A is of B Per cent \ is of C $ 3,000-$ 4,000 (82,754) 4,000- 5,000 66,525 101,241 84,683 65 . 7 78.6 5,000- 10,000 127,448 160,545 115,347 70.4 110.5 10,000- 15,000 34,141 38,630 32,716 ss.4 104.4 15,000- 20,000 15,790 15,853 14,102 99.6 112.0 20,000- 25,000 8,672 8,230 7,589 105 . 4 114.3 25,000- 30,000 5,483 4,879 4,631 112.4 118.4 30,000- 40,000 6,008 5,380 5,267 111.7 114.1 40,000- 50,000 3,185 2,793 2,835 114.0 112.3 50,000- 100,000 5,161 4,430 4,756 11(1.5 108.5 100,000- 150,000 1,189 1,065.5 1,241 lilt) 95.8 150,000- 200,000 406 437.3 535 92 . S 75 . 9 200,000- 250,000 233 227.1 288 . 1 102.6 80.9 250,000- 300,000 130 134.6 175.5 96.6 74.1 300,000- 400,000 147 14S.46 199.9 99.0 73.5 400,000- 500,000 69 77.06 107.6 89.5 64.1 500,000-1,000,000 114 122.20 180.4 93.3 63 . 2 1,000,000 and over 60 62.78 107.5 95.6 55.8 Total (over $4,000) 274,761 344,256.00 274,761.0 358 PERSONAL DISTRIBUTION OF INCOME IN U. S. TABLE 28C UNITED STATES INCOME-TAX RETURNS, 1915 A B C Income class U. S. in- come-tax Least- squares Straight line giving correct total Per cent A is of B Per cent. A is of C returns straight line returns and income $ 3,000- $ 4,000 (69,045) 4,000- .5,000 58,949 92,064 68,540 64.0 86.0 5,000- 10,000 120,402 154,507 119,634 77.9 100.6 10,000- 15,000 34,102 40,358 33,013 84.5 103.3 15,000- 20,000 16,475 17,406 14,724 94.7 111.9 20,000- 25,000 9,707 9,372 8,121 103.6 119.5 25,000- 30,000 6,196 5,716 5,050 108.4 122.7 30,000- 40,000 7,005 6,508 5,875 107.6 119.2 40,000- 50,000 4,100 : 1,503 3,241 117.0 126.5 50,000- 100,000 6,847 5,880 5,65:; 116.4 121.1 100,000- 150,000 1,793 1,536 1,560 116.7 114.9 150,000- 200,000 724 662.5 695.4 109.3 104.1 200,000- 250,000 386 356.6 383.8 10S.2 100.6 250,000- 300,000 216 217.5 23S . 6 99.3 90.5 300,000- 400,000 254 217.7 277 . 6 102.5 91.5 400,000- 500,000 122 133.3 153.2 91.5 79.6 500,000- 1,000,000 209 223. S 267.1 93.4 7S.2 1,000,000; uid over 120 133.6 177.3 89.8 67.7 Total (over $4,000) 267,607 338,825.0 267,607.0 y PARETO'S LAW 359 TABLE 28D UNITED STATES INCOME-TAX RETURNS, 1916 A B c U. S. in- come-tax returns - raighl line P« Pi 1 Income class Least-squares straight lirx- giving correct total returns at A is cent A i. and income of B of C 1 3,000-$ 4,000 (85,122 1,000 5,000 72,027 139,096 86,588 51.8 83 2 5,000 o.ooo 52,020 84,759 54,221 01 1 1 6,000 7,000 170 5:1.5.;:; 36,899 1 5 os 8 7,0! in 8,000 26, ! U 39,846 20,510 66 1 99.7 8,000- 0,000 19,9.7.1 2 '.202 19,801 68.1 100.8 9,000- 10,000 15,051 22.529 15,445 69.5 101.3 10,000- 15,000 45,309 60,668 12,879 71 7 105 7 15,000- 20,000 22.01S 26,120 19,311 86 6 117.1 20,000 25.000 12,05:; 11,011 10,726 92.2 120 s 25,000 30,000 s.055 8,558 0,705 01 1 120.1 30,000- 40,000 10,068 9,731 7,854 103 5 128 2 40,000- 50,000 5,611 5,202 1,362 107.2 128 6 50,000- 00,000 3,621 3,189 2,730 113 . 5 132.6 60,000 70,000 2.5 is 2.120 1,857 110 s 107 2 70,000 80,000 1,787 1,499 1,334.8 ll.l 2 133 o 80,000 90,000 1,422 1,102 ooo s 12:) o 1 12 7 90,000- 100,000 1,074 847 777 5 126 s 138.1 100,000- 150,000 2,900 2,282.1 2,158. 1 127 1 101 1 150,000- 200.000 1,284 982 972.1 130.7 132.1 200,000- 250,000 726 52S . 2 500.9 137 I 134.5 250,000- 300,000 127 321.9 337.6 1.12 126.5 300,000- 400,000 169 6.1 395.3 L23.1 lis 400,000- 500,000 215 196 s 219 o 124.5 111.6 500,000-1,000,000 376 329.6 :;s7 i 111 1 07 1 1,000,000 1.500.000 97 35 83 108.7 113.0 89 2 1.500,000-2,000,000 12 36.96 IS VS 110 6 85 o 2,000,000 3,000,000 .11 31 os 11 10 loo 3 76.9 3,000,000-4,000,000 14 13.77 19 91 0)1 7 70.3 4,000,000 5.0011.000 9 7 10 11.05 121 6 si 1 5.(100,000 and over 10 19.76 32 s7 50 30 1 Total (over $4,000 344,279 510,374.00 344,279.00 360 PERSONAL DISTRIBUTION OF INCOME IN U. S. TABLE 28E UNITE -D STATES 1 A NCOME-TAX : RETURNS, : n L917 TT S 13 Straight line Per Per Income class income-tax returns Least-squares straight line giving correct total returns cent A is cent A is and income of B of C S 1,000-$ 2,000 (1,640,758) 2,000- 2,500 480,486 618,069 517,512 77.7 92.8 2,500- 3,000 358,221 367,835 284,620 97.4 125.9 3,000- 4,000 374,958 407,366 376,117 92.0 99.7 4,000- 5,000 185,805 212,569 184,854 87.4 100.5 5,000- 6,000 105,988 126,507 111,097 83.8 95.4 6,000- 7,000 64,010 82,746 73,355 77.4 87.3 7,000- 8,000 44,363 57,357 51,285 77.3 86.5 8,000- 9,000 31,769 41,556 37,362 76.4 85.0 9,000- 10,000 24,536 31,551 28,551 77.8 85.9 10,000- 11,000 19,221 24,097 21,900 79.8 87.8 11,000- 12,000 15,035 19,412 17,747 77.5 84.7 12,000- 13,000 12,328 15,707 14,440 78.5 85.4 13,000- 14,000 10,427 12,751 11,761 81.8 88.7 14,000- 15,000 8,789 10,709 9,909 82.1 88.7 15,000- 20,000 29,896 34,161 31,891 87.5 93.7 20,000- 25,000 16,806 17,825 16,876 94.3 99.6 25,000- 30,000 10,571 10,609 10,159 99.6 104.1 30,000- 40,000 12,733 11,749 11,385 108.4 111.8 40,000- 50,000 7,087 6,130 6,021 115.6 117.7 50,000- 60,000 4,541 3,649 3,622 124.4 125.4 60,000- 70,000 2,954 2,387 2,391 123.8 123.5 70,000- 80,000 2,222 1,653.5 1,672 134.4 132.9 80,000- 90,000 1,539 1,198.5 1,217.9 128.4 126.4 90,000- 100,000 1,183 910.0 930.8 130.0 127.1 100,000- 150,000 3,302 2,384.4 2,469.5 138.5 133.7 150,000- 200,000 1,302 985.2 1,039.6 132.2 125.2 200,000- 250,000 703 514.1 550.5 136.7 127.7 250,000- 300,000 342 305.9 330.8 111.8 103.4 300,000- 400,000 380 338.9 371.2 112.1 102.4 400,000- 500,000 179 176.8 196.3 101.2 91.2 500,000- 750,000 225 199.96 225 . 56 112.5 99.8 750,000-1,000,000 90 82.61 94.97 108.9 94.8 1,000,000-1,500,000 67 68.77 80.51 97.4 83.2 1,500,000-2,000,000 33 28.42 33.90 116.1 97.3 2,000,000-3,000,000 24 23.65 28.71 101.5 83.6 3,000,000-4,000,000 5 9.77 12.10 51.2 41.3 4,000,000-5,000,000 8 5.10 6.40 156.9 125.0 5,000,000 and over 4 12.42 16.25 32.2 24.6 Total (over $2,000) 1,832,132 2,123,640.00 1,832,132.00 s PARETO'S LAW 361 TABLE 28F UNITED STATES INCOME-TAX RETURNS, 1918 A B C U.S. income-tax returns Straight line Per Per Income class Least-squares straight line giving correct total returns cent A is cent A is and income of B of C $ 1,000-8 2,000 (1,516,938) 2,000- 3,000 1,496,878 1,375,372 1,470,366 108.8 101.8 3,000- 4,000 610.095 537,892 566,044 113.4 107.8 4,000- 5,000 322,241 269,674 280.477 lit :, 114.9 5,000- 6,000 126,554 155,513 160,300 81 4 78.9 6,000- 7,000 79,152 99,102 101,389 79.9 78.1 7,000- 8,000 51,381 07,ls 1 0S.25S 76.5 75 3 8,000- 9,000 35,117 17,740 48,266 73.6 72.8 9,000- 10,000 27,152 35,628 35,795 70.2 75.9 10,000- 11,000 20,414 26,793 26,832 70.2 76.1 11,000- 12,000 16,371 21,283 21,231 76.9 77.1 12,000- 13,000 13,202 16,999 16,873 77.7 78.2 13,000- 14,000 10,882 13,638 13,515 79. s 80.5 14,000- 15,000 9,123 11,328 11,105 80 5 81.7 15,000- 20,000 30,227 35,214 34,4s0 85 8 87.7 20,000- 25,000 16,350 17,05 1 17,097 92.6 95.6 25,000- 30,000 10,206 10,181 9,762 100.2 101 5 30,000- 40,000 11,887 10,886 10,330 109.2 115 40,000- 50,000 6,449 5,458 5,121 lis 2 125 9 50,000- 60,000 3,720 3,147 2,928 US. 2 127.0 00,000- 70,000 2,441 2,000 1,852 121.7 131 s 70,000- 80,000 1,691 1,359.5 1,246 124.4 135.7 80,000- 90,000 1,210 000.2 SSI. 4 125.2 137.3 90,000- 100,000 934 721.0 053.7 12.1.5 142 .9 100,000- 150,000 2,358 1.S22 3 1,036.3 129.4 141 1 150,000- 200,000 866 712.7 629.8 121.5 137 5 200,000- 250,000 401 357 3 312.1 112.2 128 5 250,000 300, 000 217 200 . 17S.3 119.9 138. 5 300,000- 400,000 260 220.3 188.7 118.0 137.8 400,000- 500,000 122 110.5 93 . :^ 110.4 130.4 500,000- 750,000 132 119.28 99.70 110.7 132 4 750,000-1,000,000 40 46.66 38.30 98.6 119.9 1,000,000-1,500,000 33 36.88 29 ss S9.5 110.4 1,500,000-2,000,000 16 14.42 11.50 111.0 139.1 2,000,000-3,000,1 too 11 11.40 8.96 96.5 122.8 3,000,000-4,000,000 4 4.46 3.44 89 7 110 :\ 4,000,000-5,000,000 9 2.24 1.71 89.3 117.0 5,000,000 and over 1 4.86 3.60 20 6 27 s Total (over $2,000) 2,908,176 2,769,408.00 2,908,176.00 3G2 PERSONAL DISTRIBUTION OF INCOME IN U. S. TABLE 28G UNITED STATES INCOME-TAX RETURNS, 1919 A B C U. S. income-tax returns Straight line Per Per Income class Least-squares straight line giving correct total returns cent A is cent A is and income of B of C $ 1,000-$ 2,000 (1,924,872) 2,000- 3,000 1,569,741 1,984,285 1,673,688 79.1 93.8 3,000- 4,000 742,334 764,739 660,950 97.1 112.3 4,000- 5,000 438,154 379,330 333,645 115.5 131.3 5,000- 6,000 167,005 216,921 193,470 77.0 86.3 6,000- 7,000 109,674 137.278 123,953 79.9 88.5 7,000- 8,000 73,719 92,511 84,273 79.7 87.5 8,000- 9,000 50,486 65,403 60,066 77.2 84.1 9,000- 10,000 37,967 48,583 44,980 78 1 84.4 10,000- 11,000 28,499 36,386 33,887 78.3 84.1 11,000- 12,000 22,841 28,796 27,027 79.3 84.5 12,000- 13,000 18,423 22,921 21,600 80.4 85.3 13,000- 14,000 15,248 18,329 17,395 83.2 87.7 14,000- 15,000 12,841 15,181 14,459 84.6 88.8 15,000- 20,000 42,028 46,868 45,162 89.7 93.1 20,000- 25,000 22,605 23,249 22,797 97.2 99.2 25,000- 30,000 13,769 13,294 13,228 103.6 104.1 30,000- 40,000 15,410 14,084 14,219 109.4 108.4 40,000- 50,000 8,298 6,986 7,178 118.8 115.6 50,000- 60,000 5,213 3,994 4,162 130.5 125.3 60,000- 70,000 3,196 2,528 2,665 126 4 119.9 70,000- 80,000 2,237 1,704 1,813 131.3 123.4 80,000- 90,000 1,561 1,205 1,292 129.5 120.8 90,000- 100,000 1,113 894 968.3 124 . 5 114.9 100,000- 150,000 2,983 2,240 2,461.5 133.2 121.2 150,000- 200,000 1,092 863.2 971.6 126.5 112.4 200,000- 250,000 522 428.1 490.4 121.9 106.4 250,000- 300,000 250 245.0 284.4 102.0 87.9 300,000- 100,000 285 259 . 2 306.0 110.0 93.1 400,000- 500,000 140 128.6 154.4 108.9 90.7 500,000- 750,000 129 137.32 168 . 2 93 . 9 76.7 750,000- 1,000,000 60 52.89 66.4 113.4 90.4 1,000,000- 1,500.000 34 41 . 25 52.95 82.4 64.2 1,500,000- 2,000,000 13 15.89 20 . 90 81.8 02 . 2 2,000,000- 5,000,000 7 12.40 16.68 56.5 42.0 3,000,000 and over 11 12.15 17.27 90.5 63.7 Total (over $2,000) 3,407,888 3,929,905.00 3,407,888.00 s PARETO'S LAW 363 Why do the least-squares straight lines appear graphically such good fits to the cumulative distributions (for at least the later years) when a merely arithmetic analysis shows even this fit to the cumulative data to be so illusory? Because the percentage range in the number of persons is so extremely wide. The deviations of the cumulative data on a double log scale from the least-squares straight line are minute when compared with the percentage changes in the data from the smallest to the largest incomes. But this is not helpful. The fact that there are 100,000 times as many persons having incomes over $2,000 per annum as there are persons having incomes over 85,000,000 per annum, does not make a theoretical reading for a particular income interval of twenty or thirty per cent over or under the data reading an unimportant deviation. Charting data on a double log scale may thus become a fertile source of error unless ac- companied by careful interpretation. 1 This fact has long been recognized by engineers and others who have had much experience with similar prob- lems in curve fitting. Another matter of some importance must be noted here. The devia- tions of the data from the straight lines mighl be much less than they are and yet constitute extremely bad fits. The data points (even on a non- cumulative basis) do not flutter erratically from side to side of the fitted lines; they run smoothly, passing through the fitted line at small angles in the way that one curve cuts th< r. Now, in curve fitting, such a condition always strongly suggests that the particular mathematical curve used is not in any sense the "law" of the data. 2. Are the slopes of the straight lines fitted to income data from different times and places similar in any significant degree? 1 Tho dangers of fitting curves with such a combination as a cumulative distribution and a double log scale, withoul further analysis, is well illustrated by the results Professor Pareto obtained tor Oldenburg. To the Oldenburg data he fitted the rather complicated equation log N = log A — a log I x + a) — 8x and obtained the following results. (The value Pareto gives for ,1 namely .0000631, does not check with his calculated figures given below. |3 = .001)0271 is evidently what he intended.) X Logarithms of X marks (over) Observed Calculated A 300 600 900 1,500 3,000 6,000 9,000 15,300 30,000 5 1 .309 24,043 16,660 9,631 3,502 994 No 1 10 25 1 73 1'. > 4.3810 4.2217 3 9837 :; 54 13 2 9974 2.6484 2. 1461 L.3979 1. 7349 4.4368 4 . 231 1 1 3 9409 3 5008 2.9997 2.6671 2. 1838 1.3364 — .0558 —.0086 + .0428 + .0435 — .0023 -.0187 H377 + .0615 (From Coins d'Economie Politique, vol. II, p. 307.) The above table may give the reader a vague idea that the tit is rather g 1. However, from the above table the following table may he directly derived: (Note concluded page 364.) 364 PERSONAL DISTRIBUTION OF INCOME IN U. S. If income distributions charted on a double log scale not only cannot be approximately represented by straight lines, but also differ radically (Note 1 page 363 concluded.) Number of persons Income in marks Actual Computed of computed 300- 600 600- 900 900- 1,500 1,500- 3,000 3,000- 6,000 6,000- 9,000 9,000-15,300 15,300-30,000 Over 30,000 30,266 7,383 7,029 6,129 2,508 549 305 115 25 26,969 10,342 8,270 5,560 2,169 534 312 131 22 112.2 71.4 85.0 110.2 115.6 102.8 97.8 87.8 113.6 Total 54,309 54,309 100.0 The fit no longer impresses one as quite so good. See Chart 28H below. ■/OO, •70000 ■1000 I I 1 ■too 3 i CHART 28 H OLDENBURG INCOME TAX RETURNS 1890 CUMULATIVE FREQUENCY DISTRIBUTION WITH TWO FITTED CURVES (t) log y= 9.0077- I.63ZI log z (least squares straight line) ft) log y =3.72204 -1. 465 log (x+220) - . 0000274 x (Pareto's Seconal approx/rr?a//on.) Scales Logarithmic 6 i /rtCOME /// HUTiDFEDS OF MARKS 9 75 30 60 90 30 -J- 60 _l PARETO'S LAW 365 in shape, it is of course not of great importance whether the straight lines fitted to such data from different times and places have or have not ap- proximately constant slopes. For example, a comparison of Chart 28C showing the cumulative distribution of United States income-tax returns for 1915 on a double log scale and Chart 28 F showing similar data for 1918, makes it plain that, even were the slopes of the fitted straight lines for the two years identical, the data curves would still be so different as to make the similarity of slope of the fitted lines of almost no significance. 1 In considering slopes, let us examine further both the data and the fitted lines for these two years 1915 and 1918. Tables 281 and 28J give some numerical illustrations of the differences between the distributions for the two years. Table 281 gives the number of returns in each income interval each year and the percentages that the 1918 figures are of the 1915 figures. TABLE 281 COMPARISON OF UNITED STATES INCOME-TAX RETURNS FOB 1915 AND 1918 Income class Number of returns Ratio of 1918 1915 1918 to 1915 $ 4,000 a-$ 5,000 58,949 120,402 34,102 16,475 9,707 6,196 7,005 1,100 6,847 1,793 724 3X6 216 25 1 122 209 120 322,241 319,356 69,992 30,227 16,350 10,206 11,887 6,4 19 9,996 2,358 S66 401 247 260 122 ITS 67 5.4664 5,000- 10,000 2.6524 10,000- 15,000 15,000- 20,000 2.0524 1.8347 20,000- 25,000 1.6844 25,000- 30,000 1.6472 30,000- 40,000 1.6969 40,000- 50,000 1 . 5729 50,000- 100,000 1.45! 19 100,000- 150,000 1.3151 150,000- 200,000 1 . 1961 200,000- 250,000 1 . 0389 250,000- 300,000 1 1435 300 000- 400 OIK) 1 0236 400,000- 500,000 1 0000 500,000-1,000,000 8517 1,000,000 and over .5583 a The $3, 000-84, 000 class is not included, as in 1915 married persons in that class were exempted while in 1918 they were not. The change as we pass from the $4,000-$5,000 interval, where the 1918 figures are nearly five-and-a-half times the 1915 figures, to the intervals above $500,000, where the 1918 figures are actually less than the 1915 figures, illustrates the great and fundamental difference between the slopes of the two distributions. However, such a comparison of unadjusted 1 Compare also the deviations from the fitted lines as given in Tables 28< ' and 28F. 366 PERSONAL DISTRIBUTION OF INCOME IN U. S. money intervals, while it throws into relief the differences in slope of the two distributions, is by no means as enlightening for purposes of exhibiting their other essential dissimilarities as a comparison of the two sets of data after they have been adjusted for changes in average (per capita) income and changes in population. Table 28 J gives some comparisons between the data for the two years and between the fitted lines for the two years on such an adjusted basis. Two intervals, one in the relatively low income range and the other in the high income range, are used to illustrate the essentially different character of the distributions for the two years. TABLE 28J COMPARISONS OF UNITED STATES INCOME-TAX RETURNS FOR THE YEARS 1915 AND 1918 ADJUSTED FOR CHANGES IN AVERAGE (PER CAPITA) INCOME AND CHANGES IN POPULATION ACTUAL INCOME-TAX DATA Income intervals Number of returns (1) (2) Fraction of population (3) (4) Ratio of Column (4) to Column (3) 1915 1918 1915 191S Between 12 and 13 times average income 21,190 31,197 .00021099 .00029!)!."". 1.4193 Between 1,200 and 1,300 times average income 43.85 20 37 . 0000004366 OOOOOOl'.t:,:. .4478 Over 12 times average income 248,600 271,452 .002 17536 .00260561 1 0526 Amount in dollars Per cent of total income Over 12 times average income 1915 $4,283,010,735 1918 $5,312,832,516 1915 11.9% 191S 8.7% . 7311 LEAST-SQUARES STRAIGHT LINES Income intervals Number of returns (1) (2) Fraction of population (3) (4) Ratio of Column (4) to Column (3) 1915 1918 1915 1918 Between 12 and 13 times average income 32,886 41,730 .00032745 .00040056 1 . 2233 Between 1,200 and 1,300 times average income 47.63 17.10 .0000004743 .0000001641 .3460 STRAIGHT LINES FITTED TO GIVE THE SAME TOTAL NUMBER OF RETURNS AND THE SAME TOTAL INCOME AS THE INCOME-TAX DATA Income intervals Number of returns (1) (2) Fraction of population (3) (4) Ratio of Column (4) to Column (3) 1915 litis 42,460 1915 191S Between 12 and 13 times average income 24,510 . 00024405 . 00040756 1 . 6700 Between 1,200 and 1.300 times average income 54.73 14.15 . 0000005450 .0000001358 .2492 <* PARKTO'S LAW 367 NOTES TO TABLE 28J "Average Income" Intervals 1915 1918 ■" S 358 1,296 4.654 129,600 ■165, 400 586 12 times average income 13 " " " : i 132 7.618 1 200 " " " 703 200 l 300 " 761. MID Equations of Fitted Straight Lines on a Cumulative Double Log B hues Lines giving correct total number of returns and total income 1914 y y y y y y = 11.153322 — 1.559256 \ = 10 643299 1 -119579 \ = 10.839435 — 1 424638 \ = 11 . 111! .116 - 1 53 6 x = 12.033697— 1 .693823 x = 12.320963— 1.734802x y = 111 557242 — 1 420936 x 1915 v = 10 202382 — 1 32 1916 v = in 212702 - 1 .298088 \ v = 11.170980— 1 186817 \ v = 12 202452— 1 .738497 s y = 12 . 036155 — 1 . 6672 5 3 i 1917 1919 Tabic 28J needs little discussion. In the section treating actual income- tax data we notice that while the adjusted number of returns in the lower income interval ' increased 41.93 per cent from 1915 to 1918, the adjusted number of returns in the upper income interval 2 decreased 55.22 per cent. Moreover, while the adjusted total number of returns above 1 the " 12-times- average-income" point increased 5.20 per cent, the adjusted amount of income reported in these returns decreased 26.89 per cent. Such figures suggest a rather radical change in the distribution of in- come during this short three-year period. Similar conclusions may be drawn from the figures for 1 he two pairs of fitted lines, though we must of' course remember that these lines describe only very inadequately the actual data. The lines so fitted as to give each year the same total number of returns and total amount of income as the data for that year yield sensational results. While the adjusted number of returns in the lower income-interval increased 67 per cent, the adjusted number of returns in the upper income-interval decreased 75. OS per cent. Finally, it has been suggested that changes in the characteristics of the tax-income-distribution in the United States from L915 to 1918 may be accounted for as the results of the increase in the surtax rates with 1917. We do not believe any large part of these changes can be so accounted for. Notwithstanding the fact that the country entered the European war during the interval, the difference between the 1915 distribution and the 1918 distribution in the United States, extreme as it is. cannot be said to be unreasonably or unbelievably great. Even the changes in the slope of the least-squares line are not phenomenal. Pareto's Prussian figures contain fluctuations in slope from — 1.G0 to -1.89 while the slope of the least-squares straight line fitted to his Basle data is only — 1.25. The 1 Between 12 and L3 times the average income (per capita) each year. - Between 1,200 and 1,300 times the average income (per capita) each year. 368 PERSONAL DISTRIBUTION OF INCOME IN U. S. slopes of the least-squares straight lines fitted to the American data are —1.42 for 1915 and —1.69 for 1918. 3. If the upper income ranges (or "tails") of income distributions were, when charted on a double log scale, closely similar in shape, would that fact justify the assumption that the lower income ranges were likewise closely similar? Before attempting to answer the above question, let us summarize the case we have just made against believing the "tails" significantly similar. We can then discuss how much importance such similarity would have did it exist. We have found upon examination that the approximation to straight lines of the tails of income distributions plotted on double log scales is specious; that the slopes of the fitted straight lines differ sufficiently to produce extreme variations in the relative number of income recipients in the upper as compared with the lower income ranges of the tails; that the upper and lower income ranges of the actual data for different times or places tell a similar story of extreme variation; and that the irregularities in shape of the tails of the actual data, entirely aside from any question of approximating or not approximating straight lines of constant slope, vary greatly from year to year and from country to country, ranging all the way from the irregularities of such distributions as the Oldenburg data, through the American data for 1914, 1915 and 1916 to such an entirely different set of irregularities as those seen in the Amer- ican data for 1918 1 . At this stage of the discussion the reader may ask whether a general appearance of approximating straight lines on a double log scale, poor as the actual fit may be found to be under analysis, has not some meaning, some significance. The answer to this question must be that, if we were not deal- ing with a frequency distribution but with a correlation table showing a relationship between two variables, an approximation of the regression lines to linearity when charted on a double log scale might easily be the clue to a first approximation to a rational law; but that, on the other hand, ap- proximate linearity in the tail of a frequency distribution charted on a double log scale signifies relatively little because it is such a common charac- teristic of frequency distributions of many and varied types. The straight line on a double log scale or, in other words, the equation y = bx m , when used to express a relationship between two variables, is, to quote a well-known text on engineering mathematics, "one of the most useful classes of curves in engineering." 2 In deciding what type of equa- tion to use in fitting curves by the method of least squares to data con- 1 Compare Charts 28H, 28B, 28C, 28D and 28F. 2 P. Steinmetz, Engineering Mathematics, p. 216. PARETO'S LAW 369 cerning two variables the texts usually mention y = bx m as "a quite com- mon case." 1 A recent author writes, "simple curves which approximate a large number of empirical data are the parabolic and hyperbolic curves. The equation of such a curve is y = ax b [y = bx m ], parabolic for b positive and hyperbolic for b negative." 2 A widely used text on elementary mathematics speaks of the equation y = bx m as one of "the three funda- mental functions" in practical mathematics. 3 The market for "logarith- mic paper" shows what a large; number of two-variable relationships may be approximated by this equation. Moreover this equation is often a close first approximation to a rational law. Witness "Boyle's Law." In- deed, sufficient use has not been made of this curve in economic discus- sions of two-variable problems. The primary reason why approximation to linearity on a double log scale has no such significance in the case of the tail of a frequency distribu- tion as it often has in the case of a two-variable problem is because of the veiy fact that we are considering the tail of the distribution, in other words, a mere fraction of the data. While frequency distributions which can be described throughout their length by a curve of the type y = bx m are extremely rare, a large percentage of all frequency distributions have tails approximating straight lines on a double log scale. 4 It is astonishing how many homogeneous frequency distributions of all kinds may be described with a fair degree of adequacy by means of hyperbolas 5 fitted to the data on a double log scale. Along with this characteristic goes, of course, the possibility of fitting to the tails of such distributions straight lines approxi- mately parallel to the asymptotes of the fitted hyperbola. However we have by no means adequately described an hyperbola when we have stated the fact that one of its asymptotes is (of course) a straight line and that its slope is such and such. Had we even similar information con- cerning the other asymptote also, we should know little about the hyper- bola or the frequency distribution which it would describe on a double log scale. The hyperbola might coincide with its asymptotes and hence have an angle at the mode or it might have a very much rounded "top." Such a variation in the shape of the top of the hyperbola G would generally correspond to a very great variation in the scatter or "inequality" of the distribution as well as many other characteristics. 1 D. P. Bartlett, Method of Last S,/mirt s, p. 33. 2 J. Lipka, Graphical and Mechanical Computation, p. 128. 3 C. S. Sliehter, Elementary Mathematical Analysis, preface. 4 A very large percentage of the remainder have tails approximating straight lines on a natural x log y basis. 6 N. B. Not a straight line on tin (Inutile log scale, which is a so-called hyperbola on the natural scale, but a true conic section hyperbola on tin doutilt In,] sent, . Charts 28K and 28L (Earnings per Hour of 318,946 Male Employees in 1919) illustrate how excellent a fit may often be obtained by means of an hyperbola even though lifted only by selected points. A comparison of the least-squares parabola and the selected-points hyperbola on Chart 28K illustrates also the straight-tail effect. 6 Compare Karl Pearson's concept of "kurtosis." 370 PERSONAL DISTRIBUTION OF INCOME IN U. S. S PAKITOS LAW 371 Rough similarity in the tails of two distributions on a double log scale by no means proves even rough similarity in the remainder of the dis- tributions. Charts 28M, 28N, 280 and 28P illustrate both cumulatively 100,000 u 10.000J 1.000 © as 100 CHART 2S M CUMULATIVE FREOUEnCY DISTRIBUTION or RATES OF WAGES PER HOUR FOR 7?.23l MALE EMPLOYEES in rn E_ SLAUGHTERING & MEATPACKING INDUSTRY IM THE U.S. IM 1917. sovKt *w» ' i/iaonsunanasaiiTi/tai Scales Logarithmic 10 WAGES IN CENTS PER HOUR IS 20 25 30 40 50 60 1 .ii .ii .372 PERSONAL DISTRIBUTION OF INCOME IN U. S. CHART 28 N FREQUENCY DISTRIBUTION OF RATES OF WAGES PER HOUR FOR 7^,2^l MALE EMPLOYEES in THE SLAUGHTERING &MEAT-PACKI11G INDUSTRY IN THE U.S. IN 1917. soukc 8/£M0arine&smisrici. ffuuem&t Scales Logarithmic -10,000 a / X s / \f. a. / v\ -1,00( s w Ed J b. O « -100 oa s -10 • -] WAGES IN CENTS PER HOUR 10 15 20 25 30 40 50 60 I 1 1 11 ^^L^_ and non-cumulatively on a double log scale two wages distributions whose extreme tails appear roughly to approximate straight lines of about equal slope. 1 Charts 28M and 28N are from data concerning wages per hour of 72,291 male employees in the slaughtering and meat-packing industry in 1917; 2 Charts 280 and 28P are from data concerning wages per hour of 180,096 male employees in 32 manufacturing industries in the United States in 1900. 3 A mere glance at the two non-cumulative distributions will bring home the fact that while they show considerable similarity in the upper income range tails, they are quite dissimilar in the remainder 'The illustration shows only "rough similarity" in the extreme tails. However, there seems no good reason for believing that even great similarity in the tails proves similarity in the rest of the distribution. It certainly cannot do so in the case of essentially hetero- geneous distributions, such as income distributions. 2 Bureau of Labor Statistics, Bulletin No. 252. 3 Twelfth Census of the United States (1900), Special Report on Employees and Wages, Davis R. Dewey. , PARETO'S LAW 373 CHART 280 CUMULATIVE rRWUEHCY DISTRIBUTION OF RATES OF WAGES PER HOUR FOR IS0.096 MALE EMPLOYEES -100,000 32 MANUFACTURING INDUSTRIES IN THE US IN 1900 scutes Dittry ii"cr/au3 Scales logarithmic -10,000 pa » Eh O -1,000 OS W pa s 3 2 -100 WAGES IN CENTS PER HOUR 10 15 20 25 30 40 50 60 70 80 90 100 of the curves. Moreover, in spite of this similarity of tails, the slaughtering and meat-packing distribution has a coefficient of variation of 30.5 while the manufacturing distribution has a coefficient of 47.7. In other words, the relative scatter or "inequality of distribution" is more than one-and-a- half times as great in the manufacturing data as it is in the slaughtering and meat-packing data. Furthermore, no discussion and explanation of greater essential heterogeneity in the one distribution than in the other will offset the fact that the tails are similar but the distributions are dif- ferent. There seems indeed to be almost no correlation between the slope of the upper-range tail and the degree of scatter in wages distributions. Some distributions showing extremely great scatter have very steep tails, some have not. 1 The frequency curve for the distribution of income in Australia in 1915 is radically different from either the curve for the United States in 1910 constructed by Mr. \Y. I. King or the curve for the United States in 1918 constructed by the National Bureau of Economic Research. 1 The tails of wage distributions have in general much greater slopes than those of the upper (i. e., income-tax) range of income distributions. This is an outstanding difference between the two distributions. Pareto's conclusions with respect to the convex appearance of the curve for wages are consistent with curves showing number of dollars per income-tax interval traceable to wages but not with actual wage distributions showing number of recipients per wage interval. Distributions based upon income from effort and distributions based upon income from such sources (mostly profits and income from property) as yield the higher incomes seem to have tails the one as roughly straight as the other, indeed many wage distributions have tails more closely approximating straight lines than do income-tax data. 374 PERSONAL DISTRIBUTION OF INCOME IN U. S. CHART 28 P FREQUENCY DISTRIBUTION OF RATES OF WAGES PER HOUR FOR 180,096 MALE EMPLOYEES IN V 32 MANUFACTURING INDUSTRIES \^ IN THE U. S. IN 1900 \ 5cal&5 Loganlhmic A^ -10,009 -1,000 W w s -100 g < o O NUMBER -1 10 WAGES IN CENTS PER HOUR 15 20 25 30 40 50 60 70 80 90 100 Yet all three curves have tails on a double log scale quite as similar as is common with income-tax returns. 1 From this discussion we may draw the corollary that it is futile to at- tempt to measure changes in the inequality of distribution of income throughout its range by any function of the mere tail of the income fre- quency distribution. It seems unnecessary therefore to discuss Pareto's suggestions on this subject. 4. Is it probable that the distribution of income is similar enough from year to year in the same country to make the formulation of any useful general "law" possible? 1 As will be seen in Chapter 29, there seems reason for believing that the extreme difference between the distribution of incomes obtained by the Australian Census and the estimate made by the National Bureau of Economic Research is due largely to difference in definition of income, and income recipient. However, this does not alter the fact that we have here again two distributions with tails as similar as is usual with income-tax distributions and lower ranges about as different as it is possible to imagine. W PARETO'S LAW 375 Before answering this question we must decide what we should mean by the word similar. If income distributions for two years in the same country were such that each distribution included the same individ- uals and each individual's income was twice as large in the second year as it had been in the first year, it would seem reasonable to speak of the distributions as strictly similar. If in a third year (because of a doubling of population due to some hypothetical immigration) the number of per- sons receiving each specified income size was exactly twice what it was in the second year, it would .^t ill seem reasonable to -peak of the distribu- tions as strictly similar. Tested by any statistical criterion of dispersion which takes account of relative size (such as the coefficient of variation), the dispersion is precisely the same in each of the three years. Moreover the three distributions mentioned above x must necessarily have identically the same shape on a double log scale, and furthermore any two distribu- tions which have identically the same shape on a double log scale '-' must necessarily have the same relative dispersion as measured by such indices as the coefficient of variation, interquartile range divided by median, etc. Approximation to identity of shape on a double log scale seems then a useful concept of "similarity." It is the concept implicit in Pareto's work. 3 Now we have already found considerable evidence that income dis- tributions are not, to a significant degree, similar in shape on a double log scale. The income-tax tails of income distributions for different times and places neither approximate straight lines of constant slope nor approxi- mate one another; they are of distinctly different shapes. Moreover, such tails do not show in respect of their numbers of income recipients and 'Or, any distributions whose equations may be reduced to one another by substituting k\X for x and />•_>// for y. 2 The curve may be thought of as consisting of two parts, which before reduction to log- arithms, would be (1) the positive income section and (2) the negative income section with positive signs. •While approximate identity of shape on a natural scale a natural x and log . all re- turns was about -.til; the business and investment line was about 2.59 and the wages line about 3.21. In 1916, the only year in which returns are classified according to occupations, the distribution of income among capitalists shows a slope of only 2.08 while public S< employees (.civil) show a slope of 2.70 and skilled and unskilled laborers a slope of l'.71. 'Attention has already been drawn to the fact that this is a characteristic of many fre- quency distributions of various kinds. 4 A further difference between the upper range income distribution among capitalists and entrepreneurs and the upper range of the distribution among all persons seems to be, from the l'.llfi occupation distributions, that the distribution among all persons shows less of a roll, i. e., is straighter. 378 PERSONAL DISTRIBUTION OF INCOME IN U. S. to 3.0, the slopes of wages distributions tails commonly range between 4.0 and 6.0. They seldom run below about 4.5; they sometimes run as high as 10.0 and 11.0. A distribution of wages per hour for 26,183 male employees in iron and steel mills in the United States in 1900 1 shows a tail with a slope of about 3.35. However, the total of which this is a part, the distribution of wages per hour among 180,096 male employees in 32 manufacturing industries in 1900, shows a tail-slope of about 4.8. The estimated distribution of weekly earnings of 5,470,321 wage earners in the United States in 1905 2 shows a tail-slope of about 5.0. The distribution of earnings per hour among 318,946 male employees in 29 different industries in the United States in 1919 3 shows a tail-slope of about 5.86. The distribution of wages per month among 1,939,399 railroad employees in the United States in 1917 q shows a tail-slope of about 6.25. The distribution of wages per hour among 43,343 male employees in the foundries and metal working industry of the United States in 1900 5 shows a tail-slope of about 7.8. The distribution of earnings in a week among 9,633 male employees in the woodworking industry — agricultural implements — in the United States in 1900 6 shows a tail-slope of over 11.0. At the other extreme was the case of the wages-per-hour distribution among 26,183 male employees in Amer- ican iron and steel mills in 1900 with a slope of 3.35. Both 11.0 and 3.35 are exceptional, but the available data make it clear that wages distribu- tions of either earnings or rates have tail-slopes which are always much greater than the maximum tail-slope of income distributions. The illustrations in the preceding paragraph are illustrations of the tail- slopes of wages distributions among wage earners. However all the evi- dence points to frequency distributions of income among wage earners having tail-slopes only very slightly less steep than the tail-slopes of wages distributions. We have almost no usable data concerning the relation between individual wage distributions and income distributions for the same individuals, but we have a few samples showing the relation between family earnings distributions and family income distributions. 7 More- over, we can without great risk base certain extremely general conclusions i Twelfth Census of the United States (1900), Special Report on Employees and Wages, Davis R. Dewey. 2 1905 Census of Manufacturers, Part IV, p. 647. 3 Monthly Labor Review, Sept., 1919. 4 Report of the Railroad Wage Commission to the Director General of Railroads, 1919, p. 96. s Twelfth Census of the United States (1900), Special Report on Employees and Wages, Davis R. Dewey. e Twelfth Census of the United States (1900), Special Report on Employees and Wages, Davis R. Dewey. 7 The reader must not confuse the percentage of the income not derived from wages going to wage-earners in any particular income class with the percentage of the income not derived from wages going to all income recipients in any particular income class. Some of these last recipients are not wage earners at all, they receive no wages. Information concerning the second of these relations but not the first is given in the income tax reports. PARETO'S LAW 379 concerning individual wage-earners' income distributions on these family data. The upper tails of the family-wage distributions are the tails of the wage distributions for the individuals who are the heads of the families. This is apparent from an analysis of the samples. Now income from rents and investments belongs almost totally to heads of families. Such income is however so small in amount that it cannot alter appreciably the slope of the tail. 1 While income from other sources than rents and investments (lodgers, garden and poultry, gifts and miscellaneous) may not be so con- fidently placed to the credit of the head of the family, this item changes its percentage relation to the total income so slowly as to be negligible in its effect upon the tail-slope of the distribution. 2 Notwithstanding the danger of reasoning too assuredly about individuals from these picked family distributions, we seem justified in believing that the tail-slopes of income distributions among individual wage earners are not very different from the tail-slopes of wage distributions among the same individuals. 3 The upper tail-slopes of income distributions among typical wage earners 1 For example, in the report on the incomes of 12,096 white families published in the Monthly Labor Review for December, 1919, we find the income from rents and investments less than one ner cent of the total family income for each of the income intervals. Percentage income from Income group rents and investments is of total income Under S900 .079 $ 900-81,200 .176 1,200- 1,500 .410 1,500- 1,800 .551 1,800- 2,100 .606 2,100- 2,500 99.s 2,500 and over . 778 2 As a somewhat extreme example the Bureau of Labor investigation mentioned in the preceding note shows the following relations between total family earniqgs and total family income (including income from rents and investments, lodgers, garden and poultry, gifts and miscellaneous). Income group Percentage that total ^ earnings are of total income Under $900 96.2 $ 900-81,200 96.5 1,200- 1,500 96.3 1,500 1,800 96.0 1,800 2.100 96. 3 2,100 2.. '.00 95.1 2,500 and over '.Hi. 2 3 Further corroboratory evidence, of some slight importance, that the tail-slopes of wage distributions among wage earners are not very different from the tail-slopes of income dis- tributions among wage earners is yielded by the fact that the tail-slopes of income distribu- tions among families (which are virtually identical with the tail-slopes of both income and wage distributions among the heads of these families) have roughly the same range as the tail-slopes of wage distributions among individuals. The British investigation into the in- comes of 7,616 workingmen's families in the United States in 1909 shows a tail-slo] f about 3.5. (Report of the British Board of Trade on Cost of Living in American Towns, loll. [Cd. 5609], p. XLIV.) The Bureau of Labor's investigation into the income of 12.000 white fam- ilies in 1919 shows a tail-slope of about l.o. .Mr. Arthur T. Emery's extremely careful in- vestigation into the incomes of 2,000 Chicago households in 1918 shows a tail-slope of about 1.1. At the other extreme we find that the Bureau of Labor's investigation into the income of 11,156 families in 1903 ( Kiijhii < ///// Annual Report of the Commissioner of I.nhur, 1903, p. 558) shows a tail-slope of about 10.0, and that Mr. R. ('. Chapin's investigation into the income of 301 workingmen's families in New York City (Standard of Lit , . 1 >ntj Work- ingmen's Families in New York ('it;/, p. 44) also shows a slope of about 10.0. The tails of these last two cases are very irregular so that the slope itself is not determinable with much precision. 380 PERSONAL DISTRIBUTION OF INCOME IN U. S. may then be assumed to have much greater slopes than the upper tail- slopes of income distributions among capitalists and entrepreneurs. It does not seem possible to make any very definite statement concerning the body and lower tail of the capitalist and entrepreneurial distribution — even in so far as that term is a significant one. 1 All the evidence suggests that the. mode of what we have termed the capitalist-entrepreneurial dis- tribution is consistently higher than the wage-earners' mode. 2 Its lower income tail undoubtedly reaches out into the negative income range, which the tail of the wage-earners' distribution may, both a -priori and from evi- dence, be assumed not to do. It seems a not irrational conclusion then to speak of the capitalist-entrepreneurial distribution as having a lesser tail- slope than the wage- earners' distribution on the lower income side as well as on the upper income side, 3 and as a corollary almost certainly a much greater dispersion both actual and relative than the wage-earners' dis- tribution. Though the above generalizations concerning differences between the wage-earners' income distribution and the capitalist-entrepreneurial in- come distribution seem sound, they tell but a fraction of the story. Aside from the difficulty of classifying all income recipients in one or the other of these two classes, we are faced with the further fact that investigation suggests that our two component distributions are themselves exceedingly heterogeneous. 4 We have already noted that wage distributions for dif- ferent occupations and times are extremely dissimilar in shape and we suspect that the same applies to capitalist-entrepreneurial distributions. For example, what little data we possess suggest that the distribution of income among farmers has little in common with other entrepreneurial distributions. Moreover, the component distributions, into which it would seem nec- essary to break up the complete income distribution before any rational description would be possible, not only have different shapes and different positions on the income scale (i. e., different modes, arithmetic averages, etc.), but the relative position with respect to one another on the income scale of these different component distributions changes from year to year. 5 1 In the total income curve there is a broad twilight zone where individuals are often both wage or salary earners and capitalists or even entrepreneurs. - In the 1016 occupation distributions the only occupations showing more returns for the $4,00(1 $5,000 interval than the $3,000 $4,000 (that is the only occupations showing any suggestion of a mode) are of a capitalistic or entrepreneurial description — bankers; stock- brokers; insurance brokers; other brokers; hotel proprietors and restaurateurs; manufacturers; merchants; storekeepers; jobbers; commission merchants, etc.; mine owners and mine op- erators; saloon keepers; sportsmen and turfmen. :l ( )f course the very word slope is an ambiguous term to use concerning the tail of a curve which enters the second quadrant. i Evidence suggesting definite heterogeneity in the "wage and salary" figures of the income- tax returns is presented in Chapter .'50. 5 This fact is one of the simpler pieces of evidence against the existence of a "law." Of course, even though the income distribution were made up of heterogeneous material, if the PARETO'S LAW :;si Table 28Q l is interest ins as showing the changes in the relative positions of the arithmetic averages of different wage distributions in 1909, 1913 and 1918. TABLE 28Q CHANGES IX THK RELATIVE POSITIONS OF THE AVERAGE ANNUAL EARNINGS OF EMPLOYEES ENCACKD IN VARIOUS INDUSTRIES Industry All Industries Agriculture Production of Minerals Manufacturing: Factories Hand Trades All Transportation Railway, Express, Pullman, Switching ami Terminal ( los Street Railway, Electric Light and Power, Telegraph and Telephone Cos Transportation by Water Banking ( iovernment Unclassified Induct ries L909 100.0 48.2 95.7 91 111 101 104.0 99 L23 123 118 114 1913 100.0 15 ! 104.4 97 5 L03 5 L05 1 108 '_' 93.8 114.1 128.6 113.8 107.7 191S 100.0 54.7 119.0 103 ■". 110.8 119.3 129 :; ' si 1 147.5 135.5 83.0 97.8 The data are so inadequate that the construction of a similar table for capitalist-entrepreneurial distributions is not feasible. However, there are comparatively good figures for total income of farmers and total number of farmers year by year. 2 The average incomes of farmers, year by year, were the following percentages of the estimated average incomes of all persons gainfully employed in the country. 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 Percentages 75.19 69.13 72.41 74.88 76.33 80.45 82.85 104.51 109.68 103.95 63.88 This is a wide range. Exactly what effects have such internal movements of the component distributions upon the total income frequency distribution curve? This is a difficult question to answer as we have not sufficient data to break component parts remained constant in shape and in their relative positions with respect to one another on the income scale, these relations would of themselves constitute a "law." 1 Based upon Incomt in tht United States, Vol. I, pp. 102 and 103. 2 See Income in the United States, Vol. I, p. 112. 382 PERSONAL DISTRIBUTION OF INCOME IN U. S. down the total, composite, curve into its component parts with any de- gree of confidence. 1 However, the movements of wages in recent years would appear to give us a clue to the sort of phenomena we might expect to find if we had complete and adequate data. The slopes of the upper income tails of wages distributions are great, 4 to 5 or more. 2 Now the wage curve moved up strongly from 1917 to 1918 if we may judge by averages. The average wage of all wage earners in the United States 3 increased 15.6 per cent 4 from 1917 to 1918. During the same period the average income of farmers increased 19.1 per cent 5 and the average income of persons other than wage earners and farmers remained nearly constant. Total amounts of income by sources in millions of dollars were: 1917 1918 Percentage 1918 was of 1917 • Total Wages a Total Planners' Income All other Income $27,795 8,800 17,265 $32,575 10,500 17,291 117.20 119.32 100 15 Total Income $53,860 $60,366 112.08 a Includes pensions, etc., and includes soldiers, sailors, and marines. Stockholders in corporations saw income from that source actually decline from 1917 to 1918. 6 What happened to American income-tax returns during this time? 1 The processes by which the income distribution curve published in Income in the United States, Vol. I, pp. 132-135 was arrived at were such that to use that material here would practically amount to circular reasoning. The conclusions arrived at here were used in build- ing up that curve. - The slope of the tail of the wage and salary curve in the 1917 income tax returns is only about 3.21 (compare, note 2, p. 377). However we must remember that the individuals there classified are largely of an entirely different type of "wage-earner" from those in the lower groups. In this upper group occur the salaried entrepreneurs, professional men, etc., and those whose "salaries" are really profits or dividends. The evidence points to a rather dis- tinct and significant heterogeneity along this division in the wage and salary distribution. See Chapter 30. 3 Excluding soldiers, sailors, and marines, and professional classes but including officials and "salaried entrepreneurs." « From $945 per annum in 1917 to SI, 092 per annum in 191S. 5 From §1,370 per annum in 1917 to $1,632 per annum in 1918. « CORPORATION DIVIDENDS, SURPLUS AND EARNINGS (In millions of dollars) Dividends Surplus Net earnings 1917 1918 3,995 2,568 3,963 1,945 7,958 4,513 See page 324. . PARETO'S LAW 383 TOTAL AMOUNT OF NET INCOME RETl'liNED BY SOURCES (RETURNS REPORTING OVER $2,000 PER ANNUM NET INCOME;* (Millions of doll. Income class Over $2,000 . . 2,000- 4,000. 4,000- 5,000. 5,000-10,000 . Over 10,000. Wages and salaries 1917 $3,648 1,553 301 661 1,133 1918 $6,493 3,687 703 849 1,254 All other sources b 1917 $7,543 1,7'. I'.) 528 1,167 1.049 l'.ils >7.198 2,036 736 1,296 3,130 a Wages income from returns reporting between SI, 000 and $2,000 per annum is not avail- able for 1917. b "Other sources" are total net income minus wages and salaries, i. e., total general deduc- tions have been assumed as deductible from other sources (gross). All things considered, this seems proper here though it may easily be criticised. In connection with changes in the relation between net and gross income from 1917 to 1918 see Chapter 30, pp. 401 and 402. While reported income from all other sources than wages and salaries declined 4.6 per cent, 1 reported income from wages and salaries increased 78.0 per cent. 2 Moreover, the great increases in wages and salaries were in the lowest intervals. The wage curve with its steep tail-slope was moving over into the income tax ranges. 3 The effect upon the total curve is veiy pronounced, as may be seen from Table 28R. TABLE 28R AxMERICAN INCOME TAX RETURNS IN 1917 AND 1918 Total Number of Returns (In thousands) $2,000-$4,000 4,000- 5,000 5,000-10,000 Over 10,000. 1917 1,214 186 271 162 101S 2,107 :V22 319 160 Percentage L918 was of 1917 17:; 56 17.; 12 117.71 98 77 On a double log scale we see the curve changing its shape radically. While the 1917 curve is comparatively smooth and regular, the 1918 curve develops a distinct "bulge" in the lower ranges. 4 The preceding discussion has been concerned with equal dollar-income 1 Had "other sources" been taken gross instead of net, that item would have shown an increase of 5.3 per cent instead of a decrease of 4.6 per cent. 2 The actual spread is still greater than the figures show. Income from professions, which in 1917 was classed under wages, in l'.ils and 1919 was classed under business. 3 This seem.- to be a fact though it is not the whole story. The "intensive drive" of 1019 may easily account for some of the increase. See Chapter 30 for a discussion of the probable extent of this influence. 4 See Income in the United States, Vol. I, Charts 28 and 30. 384 PERSONAL DISTRIBUTION OF INCOME IN U. S. intervals. However, $2,000 income in 1918 was relatively less than $2,000 income in 1917. The average (per capita) income of the country was $523 in 1917 and $586 in 1918. 1 The adjustment is theoretically crude, but $2,241 2 in 1918 might be considered as in one sense equivalent to $2,000 in 1917. The results of comparisons of the two years upon this basis are given in Table 28S. 3 TABLE 28S INCOME RETURNED— BY SOURCES (Millions of dollars) 1917 Income class Wages and salaries Total net income Total net income minus wages and salaries Total gross income Total gross income minus wages and salaries $2,000-$4,000 4,000- 5,000 5,000-10,000. . .. Over 10,000 $1,553 301 661 1,133 $3,352 829 1,828 5,182 $1,799 528 1,167 4,049 $3,713 895 1,951 5,518 $2,161 594 1,290 4,384 1918 $2,241-$4,482. ... $3,236 $5,359 $2,123 $5,766 $2,530 4,482- 5,602. . . . 498 1,111 613 1,247 749 5,602-11,205 773 1,960 1,187 2,315 1,542 Over 11,205 1,153 4,129 2,976 4,842 3,689 £93 (Multiplied by — , that is reduced to "1917 dollars") 586 $2,241-34,482 $2,888 $4,783 $1,895 $5,146 $2,258 4.482- 5,602 445 992 547 1,113 668 5,602-11,205. ... 690 1,749 1,059 2,066 1,376 Over 11,205. . 1,029 3,685 2,656 4,321 3,292 (Percentages of Total Income of Country) 1917 $2,000-$4,000 2.88 6.22 3 . 34 6.89 4.01 4,000- 5,000 .56 1.54 .98 1.66 1.10 5,000-10,000. . . 1.23 3 . 39 2.16 3.62 2.39 Over 10,00 2.10 9.61 7.51 10.24 8.14 1918 $2,241-14,482 5.30 8.78 3.48 9.45 4.15 4,482- 5,602 .82 1.82 1.00 2.05 1.23 5,602-11,205. . . . 1.27 3.21 1.94 3. SO 2.53 Over 11,205... 1.89 6.77 4.88 7.94 6.05 1 Income in tin United States, Vol. I, p. 70. 2 $2,000 X |||- 3 The figures for the amounts of income in the irregular 1918 income intervals of that table ($2,241-$4,482, etc.) were calculated by straight line interpolation on a double log scale ap- plied to the even thousand dollar intervals of the income-tax returns. Though the total income curve does not approximate linearity it may be assumed linear within the small range of one income tax interval without serious error. S PARETO'S LAW 385 (Table 28S concluded.) NUMBER OF RETURNS (Thousands) Income class 1917 Income class L918 Percentage L918 was of 1917 $2,000-$4,000 4,000- 5,000 5.000-10,000 Over 10,000 1,214 186 271 162 $2,241-84,482 4,482- 5,602 5,602-11,205 Over 11,205 1,758 220 260 136 144.81 118.28 95.94 83 95 It is from this table once again apparent that the wage distribution moved independently up on the income scale and that the effecl of this movement was confined to the lowest income intervals. Charts 28T, 28U, 28V, 28W, 28X, 28Y, 28Z, and 28AA which show the number of dollars income per dollar-income interval, by sources, are enlightening as illustrating in still CHART 28T US INCOME TAX RETURNS 1916 NUMBER OF DOUARS !H EACH INCOME INTERVAL BY SOURCES -1 INCOME IN THOUSANDS OF DOLLARS 10 20 30 40 SO 100 200 I I ■ l i i I i 300 400 500 i i 1.000 2,000 386 PERSONAL DISTRIBUTION OF INCOME IN U. S. CHART 28 U U. 5. INCOME TAX RETURNS 1916 NUMBER OF DOLLARS IN EACH INCOME INTERVAL BY SOURCES. Scales Logarithmic. 4. INCOME OTHER THAN WAGES 4c ^~-^ OR BUSINESS 5o^^ ^^"^"""^ 5 RENTS 6. INTEREST 6. ^^^ "S./V- 7 DIVIDENDS. - -... ^^PTv, ^ ^*Jfe v -10,000 ^ o O o •ME INTERVAL ^8s>\ V \ ^K \\ as 3 o ^V^ s -100 ° x. % v '"^>»4 ^s. ^ v ^ >»7 Bn ^v V N^ g v.^ «* d ~*X o \ V°5 a -10 INCOME IN THOrSANDS OF DOLLARS ^-^^•6 3 4 5 10 20 30 40 50 100 200 300 400 500 1,000 2,000 PARETO'S LAW 387 CHART 2sY -100.000 -10,000 Ed • 1,000 S S z M as j o a BJ U 0- | J -100 U.S. INCOME TAX RETURNS 1317 NUMBER OF DOLLARS IN EACH INCOME INTERVAL BY SOURCES Scales Logarithmic 1 TOTAL INCOME. 8 WAGES. 3 BUSINESS. 4 OTHER INCOME. 4 5 I I INCOME IN THOUSANDS OF DOLLARS 10 20 30 40 50 100 200 111 I ' 300 400 500 1.000 2,00c 388 PERSONAL DISTRIBUTION OF INCOME IN U. S. CHART 28 W U 5 INCOME TAX RETURNS 1917 NUMBER OF D0LLAR5 IN EACH INCOME INTERVAL BY SOURCES 4o ( Scales Logarithmic 5 \ *\^^ 4 INCOME OTHER THAU WAGES OR BUSINESS ^N>^ 5 RENT5 ^^^ 6 INTEREST /* ^ --a... "o-^^ 7- DIVIDENDS X-.: *^**« -10,000 © 5 VIE INTERVAL s z M \. v ^ \\ < X. s «. '-^S^ J \^ *« "•vS>s. J ^S. v >- «X - 10U o >, x s. , sS4 Q \ V " D 7 M \ «^ U *>^ v ^ cu \ v. 3 X. »N n «e \ N >v * 6 -io § \ -1 *S INCOME IN THOUSANDS OF DOLLARS 3 4 5 10 20 30 40 50 100 200 300 400 500 1,000 2,000 , PARETO'S LAW 389 CHART 28 X 1 tr"""^ -1,000,000 V N \ U S INCOME TAX RETURNS 1918 "^K NUMBER OF DOLLARS IN EACH 3 INCOME INTERVAL BY SOURCES Scales Logarithmic 1 TOTAL income: -100,000 ^&*~ ^*\. 2 WAGES 3 BUSINESS >»3T^>^ ■n^ a other income; ^Sj-^-*^ - 10,000 i > -l.OOOg %>o N * — X s 8 z X v - X\ : 100 M \ N n>^ 5 o 5 \ v?x H -io g "N \ 3 \ o \ a \ -1 V ! \ \ \ \ \ V \ \ INCOME IN THOl'SANDS OF DOLLARS 2 3 4 5 10 20 30 40 50 100 200 300 400 500 1.000 Z.WU XOUO'^ 390 PERSONAL DISTRIBUTION OF INCOME IN U. S. , PA KIOTO'S LAW 391 -i.000.O0O iou.ooo CHART 2SZ [0,000 Id 1.000 § o a 10u e- U 5 INCOME. TAX RETURNS 1313 NUMBER OF DOLLARS IN EACK INCOME INTERVAL BY SOURCES Scales Logarithmic. 1. TOTAL INCOME 2 WAGES 3 BUSINESS A OTHER INCOME. t i 1 3 4 S i i i INCOME IN THOUSANDS OF DOLLARS 10 20 30 40 50 1UU 1 i i i i i 200 300 400 500 1.000 _ V -z 2.000 3.000 1 392 PERSONAL DISTRIBUTION OF INCOME IN U. S. CHART 28AA -10,000 -1.000 « -100 ■10 U S INCOME TAX RETURNS 1313 NUMBER OF DOLLARS IN EACH INCOME INTERVAL BY SOURCES 5cales Logarithmic A INCOME OTHER THAN WA6E5 OR BUSINESS 5 RENTS. 6 INTEREST. 7 DIVIDENDS. 4 5 INCOME IN THOUSANDS OF DOLLARS 10 20 30 40 50 100 200 I, ii I I 300 400 500 IOOO 2000 3000 — — — <* PARETO'S LAW 393 greater detail the changes in the constitution of the returns from year to year. Such material and the appearance of the "bulge" on the income-tax curve in the lowest income ranges 1 in the years 1918 and 191 ( .) when wages and salaries wore high and average (per capita) incomes also high - strongly suggest that the income curve, in so far as it shows any similarity from year to year, changes its general appearance and turns up (on a double log scale) as it approaches those ranges where wages and salaries are of predominant influence. 3 The great slopes of wage distributions are on this hypothesis not inconsistent with the smaller slope of the general income curve in its higher (income-tax) ranges. 4 Conclusions: (1) Pareto's Law is quite inadequate as a mathematical generalization, for the following reasons: (a) The tails of the distributions on a double log scale are not, in a significant degree, linear; (b) They could be much more nearly linear than they are without that condition being especially significant, as so many dis- tributions of various kinds have tails roughly approaching linearity; (c) The straight lines fitted to the tails do not show even approxi- mately constant slopes from year to year or between coun try and country; (d) The tails are not only not straight lines of constant slope but are not of the same shape from year to year or between country and country. (2) It seems unlikely that any useful mathematical law describing the entire distribution can ever be formulated, because: (a) Changes in the shape of the income curve from year to year seem traceable in considerable measure to the evident hetero- geneity of the data; (b) Because of such heterogeneity it seems useless to attempt to 1 See Chapter 30 for further discussion of this " bulge" in connection with an examination of how far it may he the result of irregularity in reporting. 2 Average (per capita) incomes being high means that a definite money income (such as $2,000) takes us relatively further down the income curve than it" average incomes were low. 3 It is difficult to say just where the " bulge" might have appeared in the 1917 distribution if as great efforts had been made to obtain correct returns in that year as were made under the "intensive drive" for 1918 returns. The wages line on the 1017 number of dollars income per dollar-income interval chart (Chart 28V) shows signs of turning up somewhere between $4,000 and So, 000 and the business line somewhere in the $5,000 S10.000 interval. However neither movement is larjie nor can their positions be accurately determined on account of the size of the reporting intervals. See also Chapter .'50, p. 412. 4 The "bulge" on the income from wages and salaries curve itself, as seen in the income- tax returns for 1918 and 1919 (see Charts 2sX and28Z), seems the result of heterogeneity in these wage and salary data themselves. This hypothesis is considered in Chapter 30. 394 PERSONAL DISTRIBUTION OF INCOME IN U. S. describe the whole distribution by any mathematical curve designed to describe homogeneous distributions (as any simple mathematical expression must almost necessarily be designed to do) ; (c) Furthermore, the existing data are not adequate to break up the income curve into its constituent elements; (d) If the data were complete and adequate we might still remain in our present position of knowing next to nothing of the nature of any "laws" describing the elements. 1 (3) Pareto's conclusion that economic welfare can be increased only through increased production is based upon erroneous premises. The income curve is not constant in shape. The internal movements of its elements strongly suggest the possibility of important changes in distribution. The radically different mortality curves for Roman Egypt and modern England, 2 and the decrease in infant mortality in the last fifty years illustrate well what may happen to heteroge- neous distributions. The next four chapters review the data from which any income frequency distribution for the United States must be constructed. 1 Though all the evidence points to hope of further progress lying in the analysis of the parts rather than in any direct attack upon the unbroken heterogeneous whole. * See Biometrika, Vol. I, pp. 261-264. S CHAPTER 29 OFFICIAL INCOME CENSUSES There has never been a complete income census of the American people. The Federal income-tax data cannot take the place of such a census. Re- specting the distribution of income among persons having incomes of less than $1,000 Federal income-tax data give us no information whatsoever. Furthermore, on account of the exemption of married persons, compara- tively little use can be made of the $1,000 to 82,000 interval. The number of persons reporting incomes over $2,000 in our best year, 1918, was only 7.3 per cent of the estimated total number of income-recipients in the country. Moreover, not only because of direct evasion and illegal non- reporting, but also because of "legal evasion" and the large amount of tax-exempt income which need not be reported at all, these income-tax data cannot give an approximately correct picture of even that part of the frequency curve which lies above $2,000. The adjustments of the income-tax data necessary to obtain such a picture are extremely large, as we shall presently see. Only one country in the world has ever taken an official income census which made any pretense of completeness. Under the War Census An the Commonwealth of Australia took an official income census of incomes received during the year ended June 30, 1915, by everyone, man, woman, or child, who was "possessed of property, or in receipt of income." x The results of that census are summarized by G. H. Knibbs, the Commonwealth Statistician, in The Private Wealth of Australia and its Growth. A Re- part of the War Census of 1915. (See Table 29A and Charts 29A, 29B and 29C.) Now while it would naturally be impossible to construct a complete frequency distribution for American incomes from Australian data, 2 we might perhaps hope to discover some characteristics of income-distribution 1 While the first clause of the Australian "Wealth and Income Card" stated merely that it was "to be filled in by all persons aged 18 or upwards possessed of property, or holding property on trust, or in receipt of income," etc. (p. 9), "a special instruction was issued that in the ease of all persons under the age of 18, possessed of property, or in receipt of income. a return must be furnished by the parent or guardian in respect of such property or income." (p. 10.) The income from such trust funds was not all, but only "in the main." allocated to individual beneficiaries, (p. 22.) G. H. Knibbs, The Private Wealth of Australia and its Growth. A R fthe War Casus of 1915. 2 Aside from the questionableness of such a procedure, the large size of the low income intervals in the Australian distribution and the lack of information concerning the amount of negative income make that distribution a difficult one to work with. A classification by such largo intervals tells very little. 395 rH C5 o co W 8° / o W ►J 9 02 w HO OS ^> hH H 03 « -~> bC do &W Tt*(MiMC.>OCOCOfOiO'-HCl03(rO o Aver; ncom Poun (NNCHONMNCOHiMCOINlZKO T— 1 HHHNMOCO - ^„" rt l.'*.* r ?. rH r-Ti-rc4'CQ , Tfdr CO 3 • ' O r- P tO d « nil's OioOHHdNOCOMOHO'tO CO l-t 00^cOj©^co^c3^co^cr5_c^ rH ° is " -i 3 s -

rTtr T jrof^H"t>r o~ "3 o rH COCO NNNH -H 0(M «* SoS rH rH rH CM CO CO 00 ^l^^ 1 -^.'*,'^ > O O rH"i-T(-^rCO"'TfH"~I>r CO 43 r— 1 sunt come irest sand nds) NCOOMHHCOMOOC3MHOOO rH HHi.OiOH-t ©HCONMNHOJNH 7—1 J3 HOOlO rH rH rH £ CMiOr>-C0l-«.©»O<— 'iMCOrHOJOO -* I-H rH rH (M CO O 00 Tt^rio~oo~c7rio~io"co Hf^HN 1—i ^5 CMIO ^-+J p 1 OMiOiOOO^MCOMnMNOJiOO 00 03 CDrHCOC7VCOlO(MOOJrHCOCOO l Ot^'* 1 o .£> -flOOOrHtOCOCOiHClCOO! rH^t^O CO t-- (M s 3 zOiOl^CCtDt^tOCliOzO •* CN rH o" CO ■* (N ^ •* lO O ■* rH 00 rH CO -HH rH rH CO £ 1—i ooooooooooooo O^O'^OOOlQOOOOOO hHHNCO'ONO io©_0_©__0_ to to o3 «fj T-Ti-Tc*'>o' 1 43 3 o 3 43 43 -Q o 3 3 43 ■ r-H > 43 43 > -3 43 -3 H c3 C3 (H 43 -3 4) r3 H « !l ^ o go "rt 43 ll £ 3 03 43 w .a 43 bC bjO E! o c -O s 03 .2 a, C3 43 AUSTRALIAN CENSUS OF INCOMES - 1915. r^ ™i L CHART 29 A NON-CUMULATIVE FREQUENCY DISTRIBUTION SCALES NATURAL ■Males and Females Males ■Females L SCALE 100.000 PER50N5 I ido 260 3oT) _ ~~m~ 500 INCOME IN POUNDS STERLING 600 700 ■ ! -..- ■> "1 - 1,000,000 a a a H CHART 29 B NON-CUMULATIVE FREQUENCY DISTRIBUTION SCALES LOGARITHMIC 100,000 ^ I 10,000 - 1,000 -100 Cu CO Z o CO Ed W Cm b O DS W ca s 2 1 I I I , I 50 "1,000,000' 100 INCOME IN POUNDS STERLING 200 300 500 1,000 2,000 3,000 5,000 CHART 29C CUMULATIVE FREQUENCY DISTRIBUTION SCffLES LOGflR/THM/C INCOME IN POUNDS STERLING 200 30,0 59O 1,0,00 2,000 3,0,00 , '',000 398 PERSONAL DISTRIBUTION OF INCOME IN U. S. curves in general from this, the only actual census ever taken. A knowl- edge of such general characteristics might then, quite imaginably, be a little helpful in the problem of describing the American or any other income distribution. However, when we come to examine the Australian figures, we find that they have certain pronounced peculiarities which would be extremely diffi- cult to read into the American material. For example, the Australian dis- tribution shows a flatness and lack of pronounced mode totally unlike the results we have built up from an analysis of American data. In the Aus- tralian distribution there are nearly the same number of persons having incomes between and £50, £50 and £100, and £100 and £150. 1 What are the causes of this rather startling peculiarity of the Australian frequency curve? 2 In the first place let us suggest a possibly minor but by no means necessarily negligible factor. We know little about the good- ness of the Australian reporting in this census. Income is, from its nature, a difficult subject to investigate. When the material is collected by means of schedules to be filled in by the informants, as was the case in the Aus- tralian census, the returns may easily be full of errors. The average in- dividual is surprisingly ignorant concerning the amount of his total income. The further fact that the census was taken in order to estimate possi- bilities of future taxation may well have been a powerful incentive towards great irregularities all along the line, but especially in the lower income groups. Persons whose income brought them distinctly into the upper groups (over £156) were, at the time of the income census, about to make returns under oath for income-tax purposes and would hardly care to show a radical discrepancy between the two returns. On the other hand, many persons, whose true incomes were around £156 and the modal income, might easily have "underestimated" with the idea of evading if possible future taxation based upon a lowering of the exemption limit. The result of such practices would tend to show up graphically in a flattening of the curve in the vicinity of the mode of the distribution and a raising of the numbers in the lowest groups. 3 However, poor reporting is probably only a secondary element ac- counting for the peculiarities of the Australian curve. It is most of all the > See Table 29 A and Chart 29 A. '-' Notwithstanding the fact that distributions for different times and for different countries probably vary greatly (see Chapter I'M, tin- difference between the Australian curve and the Bureau's American estimate seems too radical to explain upon this basis. 3 It is difficult to determine the extent of actual non-reporting. The number of males filling out income cards was 2,527,831. All males "possessed of property, or in receipt of income" are supposed to be included in this number. It amounted, however, to only 54.60 per cent of the total male population. Males "possessed of property, or in receipt of income" necessarily constitute a larger percentage of the total male population than do male "bread- winners," yet in the Australian census of 1911 male breadwinners constituted 69.4 per cent of the total male population, and male breadwinners 20 years of age or older 58.9 per cent. Even if we assume that the number of income returns for males under 18 was negligible we still are faced with a discrepancy difficult to account for. OFFICIAL INCOME CENSUSES 399 concentration of female returns in the lowest income groups which gives the flat and modeless appearance to the total curve. The Australian fre- quency distribution among males only, is much more like our estimated American distribution 1 than is the Australian distribution among males and females together. Now the concentration of female returns in the lower income intervals would seem to be the result of a large number of returns made by women and female children receiving petty incomes from property who would be classified, in the Australian Census of Population, as "dependents" and not as "breadwinners." 2 Of the total female population in 1915, 33.46 per cent made out income cards and 23.18 per cent reported positive incomes (10.28 per cent re- ported zero or negative incomes). But according to the Australian census of 1911, only 18.6 per cent of the total female population were classified as "breadwinners." Thus the women reporting positive incomes in L915 constituted a much larger percentage of the total female population than did female "breadwinners" in 1911 of the total female population in thai year. The discrepancy seems too great to be accounted for by the in- crease in the number of women "breadwinners" caused by the war. More than half of the 23.18 per cent of the female population reporting positive incomes in 1915 reported incomes under £50 per annum. Moreover, the average income of this group was only £22 per annum — under the arith- metic average of the interval. This strongly suggests petty incomes from property, and part time occupations such as keeping boarders, lodgers, chickens, etc., rather than any great increase in the number of female "breadwinners." The fact that over 30 per cent of the returns made by females reported zero or negative incomes is further evidence that the large number of extremely small incomes reported was largely the result of the schedule calling for income returns from all persons "possessed of property." Negative incomes arise in general from business or speculative losses. Bad as may be the condition of any laboring class, its members are seldom faced with negative incomes. It is unlikely that many of the 2 I'd. 176 females reporting "deficit and nil" were wage-earners. They were in general the owners of small investments which showed losses, such as town lots upon which taxes had been paid. 3 1 See Income in the United Stair* , Vol. I, pp. 12S, 129, L32 135. 2 All persons are classified as " breadwinners" or as "dependents" by the Australian cei Male "breadwinners" in Australia constituted in 1911, according to the census of that year, 69.4 per cent of the total male population, female "breadwinners" 18.6 per cent of the total female population, and total "breadwinners" 15.0 per cent of the total population. These figures compare with American census figures for 1910 showing males "gainfully employed" to constitute 63.6 per cenl of total males, females "gainfully employed" 18.1 per cen( o\ total females, and total "gainfully employed" 41.5 per cent of the total population. 'It is worth noting that in the Australian schedule "rah- and taxes paid" could be de- ducted before making an income return. This consideration may be of -"me importance in explaining the very large number of small, zero, and negative in 400 PERSONAL DISTRIBUTION OF INCOME IN U. S. While the frequency curve for Australian males is much more like the American distribution than the curve representing both male and female Australian income recipients, even it shows a much greater concentration in the lowest income intervals than does the American distribution. This can probably be accounted for to some extent by a large number of income returns for young male "dependents" "possessed of property." The essential difference in appearance between the American income- distribution curve which we presented in Volume I and the Australian curve of 1915 is, then, probably traceable to (1) Australian underreporting and (2) Australian inclusion of a large number of "dependents" who re- ceived petty incomes from property and who were in no important sense "breadwinners" or "gainfully employed." What shall we say about the desirability or undesirability of including in an income frequency distribution dependents receiving petty incomes from property? While it is true that their incomes, positive or negative, are in a way as real as any other incomes, we must remember that probably almost all individuals over six years of age not only receive but earn some money income during each year. Shall we then include the entire popu- lation over six years old in our distribution? As we approach this theo- retical limit it is seen that the concept becomes less and less practically or even theoretically interesting. Both practically and theoretically we are interested in the incomes of persons who, though they be minors, have "economically come of age" and have entered into certain definite rela- tions to the machinery of factorial distribution. They are "breadwinners" or "persons gainfully employed," and the concept back of such expres- sions, though like many economic concepts somewhat of a compromise, seems a good compromise for our purposes. Denning income recipient as we have, we cannot use the Australian material as an aid to the graduation or adjustment of the American income- distribution curve in its lower ranges. In the upper income ranges, the Australian distribution offers, as we shall see, an interesting illustration of the same double swing (letter S) appearance of the curve seen in some of the more recent American data. 1 1 When charted on a double log scale. <* CHAPTER 30 AMERICAN INCOME TAX RETURNS At the beginning of the preceding chapter attention was drawn to some reasons why income-tax returns cannot take the place of an adequate income census. Nevertheless tax returns are in many respects t he most important single source of information we have for estimating tin? fre- quency distribution of incomes. Were there neither tax returns nor in- come censuses for any country, it is difficult to see how we could make even an interesting guess as to the distribution of income in the upper ranges. American income-tax data go back to 1913. We have now at our dis- posal returns for the seven years, 1913 to 1919, inclusive. 1 However, the amount of information given in the official reports for the earlier years 1913, 1914 and 1915 is not great. Little is shown beyond the number of returns classified by large income intervals and the same returns classi- fied by districts. The 1916 tax report is the most voluminous and in one respect the most adequate report which has yet appeared. 2 It contains a set of tables which we are sorry to miss in the later reports, showing the frequency distribution of incomes by separate occupations. Other features of this report which have been retained in later years are tables showing both number of returns and amount of net income for each income class for the country as a whole, and the same by States; tables showing the sources of the income returned in each income interval, that is the amount from wages, business, property; distribution tables arranged by sex and conjugal condition; amounts of tax collected from each income class, etc. Changes in the Federal Income Tax Law during the period have not been such as greatly to affect any conclusions which we have drawn from the data. From the standpoint of this investigation, probably the mosl important changes in the law relate to general deductions, professions, and minimum taxable income. In the 1916 returns all deductions were classified as general deductions. 1 The Annual Reports of the Com?rn'ssit>in r of Fnttrnal ' are the sources for American income-tax data for the years L913 to r.tl.j. Since 1915 the data have appeared annually as a separate Treasury Department publication entitled Statistics of I 2 A peculiarity of the 1916 data is that the returns are tabulated as family rather tlian in- dividual returns. "The net incomes reported on separate returns made by husband and wife in 1916 are combined and included as one return in the figures for the several classes." Statis- tics of 1 ncoim. 1 "J 17, p. 22. 401 402 PERSONAL DISTRIBUTION OF INCOME IN U. S. In the 1917 returns the types of deductions classified as general deductions were greatly reduced; not even contributions were included. In 1918 the category was enlarged; contributions, for example, were again placed in the general deductions class. Now these changes affect greatly the rela- tions between net and total income from year to year. Reported net income was in 19 10 only 75.43 per cent of reported total income, in 1917 it was 92.67 per cent, in 1918 89.74 per cent, and in 1919 88.51 per cent. As it is the total and not the net income which in the Statistics of Income, is divided up according to source, such fluctuations as the above interfere with comparisons of different years. While income from professions was tabulated separately in 1916, in 1917 it was included in wages and salaries, and in 1918 and 1919 in business. In the 1913 to 1916 returns exemptions were $3,000 per annum for an unmarried person, or a married person not living with his wife (or her husband), and $4,000 per annum aggregate exemption for married persons living together. 1 In the 1917 and later returns these minima were reduced to $1,000 and $2,000 respectively. However, the increase in usefulness for our purposes of the 1917 and later returns was even greater than the lowered minima would suggest. Not only was the minimum taxable income lowered from $3,000 to $1,000, but this reduction occurred in the face of a rapidly rising general level of incomes. With the rise in incomes, $3,000 in 1918 or 1919 was relatively a much smaller income than $3,000 in 1913. In other words, we might logically expect $3,000 to be relatively further down the income distribution curve in 1918 than in 1916 or 1917. The accuracy of the reporting is, of course, a matter of great importance for this investigation. Now, while it does not seem possible to measure directly from the data changes in accuracy of reporting during the period, the rapid expansion of the income-tax organization and its increasing attention to the investigation and checking of returns establish the pre- sumption of greater statistical value in the reports for the later years. Offsetting this to an unknown degree is the apparently increasing amount of "legal evasion" in the higher income classes. The reporting for the years 1913, 1914, 1915 and 1916 appears to have been peculiarly bad in the lower income ranges. The distinct improvement in 1917 (compare the 1917 returns with those for earlier years in Tables 28B, 28C, 28D, 28E, and Charts 27 and 28 of Volume I) seems associated with the patriotic enthusiasm engendered by the war. Upon our entry into the war, not only did the Bureau of Internal Revenue make an increased effort to ob- 1 As the returns for 1913 were for income received for the ten months March 1 to December 31, 1913, the actual minima used for reporting purposes were $2,500 and $3,333.33 (i. e., \% of $3,000 and $4,000 respectively). AMERICAN INCOME TAX RETURNS 403 tain correct returns but individuals, under the spur of patriotism, seem to have made less effort to evade. 1 The remainder of this chapter is concerned largely with a discussioD of possible irregularities in the distribution of non-reporting and under- statement in the later years. While the total amount of non-reporting and understatement was almost certainly greater in the returns for 1917 than in those for 1918 and 1919, are we sure that the non-reporting and understatement of these later years are not possibly more irregularly dis- tributed along the frequency curve than was the case in 1917? Is it possible that the improvement in the accuracy of the published returns for 1918, as compared with those for 1917, was so much greater in the income intervals under $5,000 that the resulting change in the shape of the frequency curve may amount to something almost akin to an "over- adjustment"? Income returns by individuals are made on two types of blanks, a blank to be filled in by persons reporting incomes under S5,000 and another blank to be filled in by persons reporting incomes over that figure. Now, while the returns of incomes under 85,000 and made on "under 85,000" blanks are examined, investigated and audited in the field soon after their receipt, the investigation and audit of the returns for incomes over 85,000 are handled in Washington. If an individual has an actual income of $8,000 but reports $4,000 (on an "under 85,000" blank), as soon as a Field Collector discovers this discrepancy, he passes the matter over to the Revenue Agent in charge of the District for Field Investigation. The return, accompanied by the Agent's report, is forwarded to Washington for final audit. Thus the Field Collectors audit only returns thai are a made on "under $5,000" blanks and (b) believed, after investigation, to be for incomes which are actually under $5,000. While the Field Audit of returns of these incomes is well under way before the preparation of the statistical tables in the Statistics of Incorm and hence appears in that tabulation to an unknown extent, the Washing- ton audit of incomes over $5,000 has hardly begun and hence the amended figures for these higher incomes do not appear in the Statistics of Incorm . It is impossible to say exactly how much of the "bulge" - which appears in the $1,000 to 85,000 interval on the double log charts of the 1918 and 1919 tax income distributions is caused by a difference in the accuracy of the published figures for returns of incomes under and over $5,000. However, the Treasury Department states that "the Statistics of Inc 1 It must not, of course, be assumed that the increase in the number of returns in 1917 is traceable solely to increased goodness of reporting. 2 Described in Chapter 28. At many points in the following discussion the reader should refer back to the presentation of the case for heterogeneity in the income-tax data contained in Chapter 28. 404 PERSONAL DISTRIBUTION OF INCOME IN U. S. are compiled almost entirely from unaudited returns whether they be for 'under $5,000' or 'over $5,000."' It seems probable therefore that the sudden change in slope of the 1918 curve (on a double log scale) at about $5,000 can be explained only partially by a change in accuracy of the published returns at that point. Moreover, a considerable amount of evidence, some of which has already been presented in Chapter 28, suggests that the "bulge" on the income curves for the later years corresponds to a reality on the actual income curves. While it may be somewhat over-accented in the published figures for 1918 and 1919, and while the figures for 1917 might have shown more of such a "bulge" * had the reporting been better, we must not assume that the published figures for either 1917 or 1918 give a radically incorrect picture of the facts merely because the income curves for the two years are so different. The dogma of the similarity of the income curve from year to year has little evidence to support it. It is by no means certain that even the apparently definite and sharp angles on the curves in this $4,000 to $6,000 region give an unreal picture. While it is true that we find the same angles on the wages and salaries curve, that curve itself seems heterogeneous. An income distribution curve composed of wage and salary earners (in the ordinary sense of the terms) may well cut an income distribution curve composed of "salaried entrepreneurs," and business and financial experts somewhere in the lower income ranges. The angle on the composite curve may give a decidedly accurate picture of the facts. 2 Let us see what light the data throw on some of these problems. Table 30A showing the number of returns for the lower income intervals in 1917, 1918, and 1919 and the percentage movements from year to year illustrates the great increase in the number of returns in the under-$5,000 intervals between 1917 and the later years. Chart No. 28 of Volume I, on which are drawn the frequency distributions for each year from 1916 to 1919 on a double log scale, shows the difference in the appearance of the income curves for the three years. Examining that chart we notice that the 1918 data-points, which in the upper income ranges run nearly as smoothly as the 1917 points, in the $4,000 to $5,000 interval move abruptly upwards and from there on into the lowest income ranges are well above the 1917 points, showing on the chart an irregular, plateau-like effect in these lowest income ranges. No such "plateau" is apparent on the 1917 line. The year 1919 presents in that chart a 1 While the 1917 curve runs much more smoothly in the $3,000 to $6,000 range than either the 1918 or 1919 curves, it is not without the hint of a bulge beginning at about $4,500. See p. 412. 2 In constructing the complete income distribution curve for 1918, published in Volume I, the influence of changes in the accuracy of reporting around $5,000 income was probably overestimated. AMERICAN INCOME TAX RETURNS m TABLE 30A Number of returns Percentage increases Income intervals 1917 1918 1919 1918 over 1917 1919 over 1918 1919 over 1917 $2,000-$3,000 3,000- 4,000 4,000- 5,000 838,707 374,958 185,805 1,496,878 610,095 322,241 1,569,741 742,334 438,154 78.47 62.71 73.43 4.87 21.68 35.97 87.16 97.98 135.81 5,000- 6,000 6,000- 7,000 7,000- 8,000 8,000- 9,000 9,000-10,000 105,988 64,010 44,363 31,769 24,536 126,554 79,152 51,381 35,117 27,152 167,005 109,674 73,719 50,486 37,967 19.40 23.66 15.82 10.54 10.66 31.96 38.56 43.48 43.77 39. 83 57.57 71.34 66.17 58.92 54.74 similar appearance to 1918 though the absence of small intervals in the range immediately above $5,000 disguises the characteristics of the curve materially. 1 The change in the contour of the lower range of the tax income frequency curve from 1917 to 1918 and 1919, is, as we have mentioned, associated with a large increase in the relative amount of income from wages and salaries in the lower intervals. Tables 30B and 30C are interesting in this connection. 2 The 1916 figures in Table 30B are introduced simply because they are computable. 3 However, too much weight must not be attached to them. The 191G returns are undoubtedly extremely inadequate. The high percentages that year from $3,000 income (the 1916 minimum) up to about $10,000 may possibly be the result of the ease with which salary returns (as opposed to wage, business, or other returns) are obtainable. The $4,000 to $5,000 interval is the lowest comparable interval for the four years. 4 In that interval the numbers of returns by years were: 1916- 72,027 1917-185,805 1918-322,241 1919-438,154 1 When chart 28 was drawn for Volume I, only "preliminary" large interval data were available. Final small interval data show a "bulge" very similar to that seen in the 1918 line. 2 The 1917 official wages figures include income from professions. The 1018 and 191!) wages figures do not. This makes the increase in the percentages in 1918 still more striking. In- come from professions was tabulated separately in 1916, l>ut was included in the voagi s figures for that year in order that 1916 and 1917 might be comparable. 3 No data are available front which corresponding figures for 1913, 1914 or 1915 might be calculated. * The $3,000-84,000 interval did not in 191G, include married persons making a joint return. 406 PERSONAL DISTRIBUTION OF INCOME IN U. S. TABLE 30B PER CENT THAT INCOME FROM WAGES AND SALARIES IN EACH NET INCOME CLASS WAS OF TOTAL NET INCOME IN THAT CLASS Income class 1916 1917 1918 1919 $ 1,000-$ 2,000 2,000- 3,000 3,000- 4,000 . 2,000- 4,000 4,000- 5,000 76.98 66.86 46.32 36.30 79.45 69.75 55.21 (64 . 42) 48.85 83.49 74.53 61.86 (69.45) 52.48 5,000- 10,000 10,000- 20,000 20,000- 40,000 40,000- 60,000 60,000- 80,000 80,000- 100,000 100,000- 150,000 150,000- 200,000 200,000- 250,000 250,000- 300,000 300,000- 500,000 500,000-1,000,000 1,000,000-1,500,000 1,500,000-2,000,000 2,000,000 and over 53.31 36.38 24 . 60 17.23 16.20 13.37 13.34 9.39 9.14 7.87 6.59 5.21 4.84 3.23 .51 36.16 32.94 26.82 22.74 19.67 18.51 15.75 12.65 12.30 9.36 10.17 6.39 2 . 83 3.76 2.39 39.59 38.60 33.16 27.88 25.36 22 . 16 18.44 16.16 13.07 12.57 11.27 5.42 7.54 2.21 .85 43.24 38.11 33.38 27.57 24.01 22 . 70 18.75 15.42 13.62 11.92 10.18 6.80 1.60 10.00 4.02 The amounts of income from wages and salaries and from other net income in the $4,000-15,000 interval were year by year in millions of dollars: 1916 1917 1918 1919 Wages and salaries a . 216 107 301 528 703 736 1,029 < >ther net income 931 a Income from professions is included in the 1916 and 1917 wages and salaries figures. The percentage changes in these items from one year to the next were: 1917 1918 1919 1916 Wages and salaries 139 . 3 Other Net Income 493.0 1917 233.7 139.4 1918 146.4 126.6 It is plain that the great increase in the $4,000-15,000 interval 1 in 1917 was in income from other sources than wages and salaries. Table 30C shows the wage and salary figures compared with total income instead of net income as in Table 30B. It was, of course, necessary to re- tain the net income intervals as the data are not classified in total income 1 As may be seen from Tables 30B and 30C, the increase from 1916 to 1917 in income from other sources than wages and salaries was greater than the increase in income from wages and salaries not only in the $4,000-$5,000 interval but also in the $5,000-$ 1U.U00 interval. AMERICAN INCOME TAX RETURNS 407 intervals. Though the relations between years are different in this table from what they are in the net income table, 1 the distribution of the per- centages in each individual year shows much the same characteristics in both tables. TABLE 30C PER CENT THAT INCOME FROM WAGES AND SALARIES IX EACH NET INCOME CLASS WAS OF TOTAL INCOME IN THAT (LASS Income class (Net) 1910 1917 1918 1919 $ 1,000- $2,000 74.67 77.25 2,000- 3,000 65.42 lilt. 14 3,000- 4,000 47.74 51.14 56.71 2,000- 4,000 1 1 82 (60.15) 64 12) 4,000- 5,000 45.96 33.60 44. s2 17 12 5,000- 10,000 3G.38 33.87 33.55 36.60 10,000- 20,000 25.76 30. so 33 . 10 32 70 20,000- 40,000 18.81 25 . 20 28.76 28 36 40,000- 60,000 13.75 21.23 2:5.79 23 39 60,000- 80,000 12.76 IS. 56 21.51 20.33 80,000- 100,000 10 71 17.61 19.00 lit 25 100,000- 150,000 11.06 15.05 15.92 1 5 40 150,000- 200,000 7.68 12.01 13.10 12 11 200,000- 250,000 7.83 11.75 1 1 22 11 . 26 250,000- 300,000 6.64 8.71 10.73 9 SO 300,000- 500,000 5.50 9.59 9.62 8.19 500,000-1,000,000 4.35 5.88 4.37 5.38 1,000,000-1,500,000 4.12 2.62 6.29 1 . : ; 1 1,500,000-2,000,000 2.82 3 5 1 1.81 s 51 2,000,000 and over .47 2 . 18 .63 .32 The percentages in Tables 30B and 30C show each year a sudden increase (as we approach the lower income intervals) somewhere in the 84,000 t<> $5,000 or the $5,000 to $10,000 interval. At exactly what point each year do these sudden increases seem to occur? Charts 30D, 30E and 30F pre- sent the material in a slightly different form. They illustrate the relation- ship between the average income from wages and salaries in each net income interval and the average total income in the same net income in- terval for the years 1017, 1918 and 1019 on a double log scale. The 1918 and 1919 charts immediately suggest the improbability of being able to describe the data by a single simple mathematical expression. To the 1918 data-points have been applied two distinct mathematical curves, which fit the data remarkably well and intersect at about $6,700 total income. The curve fitted to the upper income ranges is a parabola, while that fitted to the lower income ranges is an hyperbola, one of whose asymp- totes is the 45° line which divides the chart into a "possible" and an "im- 1 Some reasons for the changes in relation of net to total income from year to year are mentioned on pages 401 and 102. 408 PERSONAL DISTRIBUTION OF INCOME IN U. S CHART 30 D US IMC0ME TAX RETURNS / 1917 / 3 < a o AVERAGE INCOME / FROM / WA6ES AND SALARIES / AMD / AVERA6E TOTAL INCOME / IN / EACH NET INCOME INTERVAL / Q O Scales Logarithmic / -100 g z < CO P -50 § -40 H s ° ^^"^ o -30 23 5 -20 j < CO o WAGES AND -5 S o -4 £ O -2 Z / ° / 4 TOTAL INCOME IN THOUSANDS OF DOLLARS i 3 4 5 10 20 30 40 50 100 200 800 400 500 1.000 2,000 3,0001000 X AMERICAN INCOME TAX RETURNS 409 410 PERSONAL DISTRIBUTION OF INCOME IN U. S. CHART 30F < -J j o Q U. 100C CO a z < 50 g 40 = US INCOME TAX RETURNS 1919 AVERAGE INCOME FROM WAGES AND SALARIES AVERAGE TOTAL INCOME IN EACH NET IMCOME INTERVAL Scales Logarithmic TOTAL INCOME IN THOUSANDS OF DOLLARS 10 20 30 40 50 100 200 300 400 500 ' , , i , , , 1,000 2,000 3,000 4,000 i AMERICAN INCOME TAX RETURNS 411 possible" area. The equations of the two (1918) curves on a double log scale are (I) y + 3.92945 — 2.744 x 4- .22 x - = (parabola) (II) y - — 3.981909 y-- .867240 xy 4- 3.981909 x — .132754 z 2 — .060262 = (hyperbola) As it is difficult to estimate accurately by eye the goodness of fit of a curve to data when charted on a log scale, Table 30E is introduced: TABLE 30E WAGES AND INCOME IN THE 1918 INCOME TAN RETURNS Net income intervals (1918) S 1,000-8 2,000- 3,000- 4,000- 5,000- 6,000- 7,000- 8,000- 9,000- 10.000- 1 1 .000- 12,000- 13,000- 14,000- 15.000- 20,000- 25,000- 30,000- 40.000- 50,000- ( ;o ooo- 7(1.000- 80,000- 90,000- 100.1)01) 150.000- 200,000- 250,000- 300.000- 400,000- .-,1)0,01)0 7 :,o.ooo-l 1.000.000-1 I..", 00. 000-2 •j. ooii ooo 3 3,000,000-4 2,000. 3.000. 4.000. 5,000. 6,000. 7.000. 8,000. 0,000 10,000. 11.000. 12,000 . 13.000. 14,000. 15,000. 20,000. 25,000. :;o.000. lo.OOO. 50,000. 60,000. 70.000. S0.000 90,000. 100.000. 150,000 200.000. 2.-0.000 300.000 400,000 . 500,000 . 7 r.o.OOO. .000.000 ..-,00,000. ,000,000 . 000,000. 000,000 Average total income 8 1,566 2,583 3,710 4,866 6,388 7,620 8,952 10,148 11,214 12.207 13,707 14,263 15,922 16.77s 20,167 25,859 31.704 39,644 52,319 64,327 74. sis 90.437 98,379 111,515 139.. -,20 2 11, 0.V.i 259,487 317,578 109,756 .',14,882 765,! K)5 1.013. sir, 1,426,182 2.0s 1.71.-, 3.203.07.; 1.515.732 Average income from wages and salaries Data 8 1,169 1.600 l.so7 2,181 2,192 2.537 2,963 3,341 3,747 4,171 4,555 4,806 5.520 5,801 6,375 7,891 9,196 10,711 12.039 14.963 10.570 is. 701 19,273 20,447 22 212 27J58 29,107 34,076 44,393 38,967 27,582 01.183 89,710 37,118 51 '. 17s 11,013 Mathematical curves 8 1.17s 1.052 1,955 2,117 2,216 2,555 3,012 3,407 3,760 4,07s 4,542 4,709 5,204 5, 155 6,400 7,860 9,211 10,872 13. 102 15.000 16,539 IS. 150 10.351 20,682 23,163 27,829 30 1s 32.220 3,1.7s.; 36.sl7 39,765 41.220 12,199 12.100 10.720 38,753 Percentages that data are of mathematical curves 99 2 102 3 97.0 103.0 98 9 99. OS 98. 99. 102 100. 102. .3 .4 1 .7 3 .3 1 106.2 106.3 99.6 1 s .5 100. gg 98 95.8 99.3 100.2 101.7 99.6 95.9 99 7 96.8 105 7 127 6 105.8 69. 1 148.4 212.6 ss 123 2 28 1 The data of table 30E move 1 rather erratically in the intervals above 8300,000 per annum income. This is natural in view of the small number 412 PERSONAL DISTRIBUTION OF INCOME IN U. S. of cases in these upper intervals. There were only 627 returns reporting net incomes of over $300,000 per annum; this is less than one seventieth of one per cent, of the total number of returns. In the 28 intervals under $300,000 per annum 14 of the percentages show the data within one and one half per cent, of the mathematical values. These mathematical curves have not been introduced as being in any sense the "law" of the data but merely to emphasize how smoothly the data curves run and yet how unmistakable a sensation they give us of two parts, one above about $6,700 total income and one below that figure. 1 It would, of course, be quite impossible to get any sort of approximation to the lower range data by producing the parabola fitted to the upper income ranges. How impossible may be seen from Table 30EE. TABLE 30EE WAGES AND INCOME IN THE 1918 INCOME TAX RETURNS Average total income Average income from wages and salaries Percentages that data are of intervals (1918) Data Hyper- bola Para- bola Hyper- bola Para- bola $4,000-$5,000 3,000- 4,000 2,000- 3,000 1,000- 2,000 $4,866 3,710 2,583 1,566 $2,181 1,897 1,690 1,169 $2,117 1,955 1,652 1,178 $1,574 1,152 745 391 103.0 97.0 102.3 99.2 138.6 164.7 226.8 299.0 The 1919 data show the same two-curve appearance as the 1918 data. This may be clearly seen from chart 30F. 2 The intersection of the two curves would be at about $7,100 instead of $6,700 as on the 1918 chart. Is there any sign of such a change from one curve to another on the 1917 data? There seems to be. Chart 30D shows the 1917 data with a parabola fitted to the observations above the first interval. This curve and Table 30D give us a strong impression that the first interval cannot be described by any simple curve which describes the remainder of the data. The same two-curve characteristics as the 1918 and 1919 data are strongly suggested. The equation of the 1917 parabola on a double log scale is y + 1.8417 — 1.8346 x + .124 x 2 = 0. The poorness of the fit to the first interval and the comparative goodness of the fit to the remainder of the data as high as $250,000 per annum may be seen from Table 30D. If the data were numerous enough to permit us fitting two curves they would probably intersect at about $4,500. 1 An alteration in the size of the intervals in which the data are quoted by the Income Tax Bureau would of course change the data curve to some extent. However, taking the intervals as they conic and fitting the curves to them we get the unmistakable impression of great regu- larity. It seemed scarcely worth while to fit the curves to areas rather than points. 2 The story told by Chart 30F is so plain it seemed hardly necessary to fit another set of curves. AMERICAN INCOME TAN RETURNS 413 TABLE 30D WAGES AND INCOME IN THE 1917 INCOME TAX RETURNS Average total income Average income from wages and salaries Percent a«es that data are of intervals (1917) Mathematical mathematical Data curve curve $ 2,000-$ 4,000 . . . $ 3,059 $1,280 $1,101 116.3 4,000- 5,000... 4,818 1,619 1,688 95.9 5,000- 10,000... 7,210 2,442 2,422 100.8 10,000- 20,000 . 14,61':; 4,517 1 374 103.3 20,000- 40,000 . 29,236 7.368 7,411 99.4 40,000- 60.000 . . . 51,940 11,024 11,03s 99.9 60.000- 80,000... 72,811 13,516 13,699 98.7 80,000- 100,000 . . . 93,742 16,510 15,992 103.2 100,000- 150,000. . . 126,'. 179 19,108 19,081 100.1 150,000- 200,000 . . . 181,156 21,758 23,147 94.0 200.000- 250,000 . . . 23:;. ssi) 27,501 26,388 104.2 250,000- 300,000 . . . 293,905 25,587 29,478 86.8 300,000- 500.000 . . . 398,.", 17 38,204 33,877 112.8 500,000-1,000,000. . . 740,769 43,558 43,632 99.8 1,000,000-1,500,000. . . 1.294,619 33,973 52,845 64.3 1,500,000-2,000,000. .. 1,812,388 64,201 58,358 110.0 2,000,000 and over. . . . 4,551,718 99,132 71,945 13.7.8 Both the regularity of the data curves and the positions of the inter- sections of the mathematical curves 1 might suggest that heterogeneity of the wages and salaries data was the primary cause of the irregularity in the total income curve. The position of the points of intersection of the mathematical curves might seem inconsistent with a sudden change in accuracy of reporting at exactly $5,000. However this argument does not appear so conclusive when we examine the actual amount of wages in each income interval. The constitution of the reported income each year may be seen rather plainly in ('harts 28T, 28U, 28V, 28W, 28X, 28Y, 28Z, and 28AA. 2 These chart - show the number of dollars per dollar income interval reported in each income interval by sources for the years 1910 to 1919. 3 They not only illustrate the facl that the constitution of the income curve changes radically as we move from small to large incomes but also picture the salient characteristics of these changes; each source curve, being charted on a double log scale, may be > Particularly the 1919 intersection which is above the s~>, ooo to so, not) m I income interval. « See pages 3S5 to 392. 3 The five lines representing wages, business, rents, interest, and dividends were found to interweave to such an extent when drawn on one chart that two charts were drawn for each year, one representing wages and business and the other incomes from property. Wages includes "salaries, wages and commissions" and in L916 and L917 "professions and vocations." Business includes "business." "partnerships, personal service corporations, estates, and trusts," and " profits from sales of real estate, stocks, bonds, etc.," and in 1918 and L919 "professions." Hints includes royalties. _ I nit n si includes unclassified investment income. 414 PERSONAL DISTRIBUTION OF INCOME IN U. S. seen at a glance in its entirety. We see from Charts 28X and 28Z that, though the ratio of the income from wages and salaries to total income may, when charted, show an angle above $5,000, the entire "bulge" on the wages and salaries curve itself occurs in the under-$5,000 intervals both in 1918 and 1919. Moreover, while "wages and salaries" is the larg- est item in these lowest income intervals, and hence is the controlling factor in determining the peculiar shape of the total curve in this region, it is not the only item showing irregularities and "bulges." Some of these move- ments are extremely difficult to explain. Why should a "bulge" appear on the lower income ranges of the "rent" curve in 1918 and by 1919 be- come pronounced? * The appearance of a bulge on the wage curves in 1918 and 1919 seems quite explicable on the basis of heterogeneity within the wage and salary data themselves but one feels a shade less confidence in any explanation of why that curve moved in this peculiar manner if the explanation does not seem also clearly applicable to the rents curve which moved in an apparently similar manner. 1 A mere increase in rents will not, of course, account for this unevenness in their distribu- tion. CHAPTER 31 INCOME DISTRIBUTIONS FROM OTHER SOURCES THAN INCOME TAX RETURNS Concerning the frequency distribution of incomes over $3,000 or $4,000 per annum we have almost no information aside from the income tax returns. Existing wage distributions and non-tax income distributions almost never reach higher than $2,500 or 83,000 per annum. Even in the lower income ranges (under say 82,500 or 83,000) most of the existing non-tax income distributions are of little use in our problem. In the first place there are less than half a dozen distributions of this sort which are not such small samples as to prevent us feeling much confidence in their representative nature. 1 An even more serious defect of every such distribution known to us, with one exception'- is that the purpose for which the data have been collected almost inevitably makes them extremely ill-adapted to our use. For example, one of the largest recent sample- is prefaced by almost a page of introduction explaining what types of re- cipients were purposely excluded. 3 This is rather typical. To base upon such distributions any wide generalizations with respect to the income curve for the country as a whole or even for the localities from which such data were collected would be unwarranted. Furthermore, almost without exception these studies in income distri- bution are on & family basis. While it is sometimes possible to make a 1 For example, Chapin's well-known investigation into the distribution of incomes includes only 391 workingmen's families, and the best distribution of farmers' incomes includes only 401 farmers from a single state. 2 Arthur T. Emery's distribution of income among I960 Chicago households. 3 "In studying the sources of income and the important i each source with relation to the total inc me of a family the following limitations to the type of family schedules should be kept in mind. No families were scheduled in which there wire children who lived as boarders, that is, paid a certain sum per week or per month for board and spent the remainder of their earnings or salary as they saw lit. X<> families were scheduled which kept any hoard- ers. The number oi lodgers to be kepi by a family was limited to three at any one time. No families wen- scheduled in which the total earnings of the family did not equal 75 per cent, or more of the total income. It will be seen thai these limitations excluded a large number >>f families and this materially affects the percentage of families having earnings from children and income from lodgers, and also results in showing a larger percentage of the total income as coming from the earnings <>f the husband than would lie the ease if the type of families named had not been excluded from tic study. It also reduces the actual amount per family earned by children and received from boarders or lodgers that would lie shown in case a cross section of a community including all the types mentioned were used. The object in making the exclusions named was to secure families dependent for support, as largely as possible, upon tin' earnings of the husband. < >f course, it was impracticable to secure a sufficient number of families in which the only source of income was the earnings <>f the husband, but in following the course named the percentage of families having an income from other sources has been very lamely reduced." "Cosl of Living in the United States — Family Incomes," Monthly Labor Bi view, Dec., 1919, p. 30. 415 416 PERSONAL DISTRIBUTION OF INCOME IN U. S. rough estimate of the individual incomes from the family data, such es- timates are not what are needed for our purposes. They can show nothing but the distribution of income among the individuals constituting these families and these families are almost inevitably so chosen as to make the individuals composing them not representative of income recipients at large. Analysis of the distribution of earnings among the individual mem- bers of such families discloses an heterogeneity so extreme as to result in a pronouncedly duomodal distribution curve. The fathers' incomes have one mode while the children's incomes have another. Chart 31A showing a natural scale frequency distribution of earnings among 2811 individuals in 2170 families in 1918 1 exhibits this duomodal appearance in a striking manner. The "families" had been so chosen as to exclude both young 400 3 < 300 9 > a I 110(1 III!) 200 FREQUENCY DISTRIBUTION OF ANNUAL EARNIN6S OF 2eil INDIVIDUALS IN 2170 FAMILIES IN THE U.S. IN 19)8. Jounce: Burepu of i ftaoR Statistics &cnu:s WaTURfrt. CUAIIT31A 400 600 800 -a— 1,000 ANNUAL EARNINGS 1,200 1,400 1,000 1,800 I 2.000 2,2ft -zm married couples having no children and unmarried but independent wage earners. Investigations planned to bring out the economic character- istics of such "typical families," while they may be extremely valuable for the purposes for which they were undertaken, are necessarily of but little use in the construction of a frequency distribution of all individual incomes in the community. Moreover, even if we were attempting to construct a family and not an individual distribution these data would not generally be particularly helpful for, in addition to the exclusions just mentioned, further narrow and rigid restrictions are usually, and for the purposes in view quite properly, imposed upon the definition of the " typical family." 1 This is a sample from the 12,090 white families referred to in note 3, page 415 The detailed figures of this sample were tabulated for us by the Bureau of Labor Statistics. They cover 15 cities chosen as representative of the whole list. Each one of the 15 cities shows the duomodal appearance referred to in the text. DATA FROM OTHER SOURCES THAN TAX RETURNS 417 As incidentally remarked above, there is one non-tax income frequency distribution to which many of the above criticisms do not apply. It is the distribution of income among 19G0 Chicago "households" in 1918 from an investigation made by Mr. Arthur T. Emery for the Chicago Daily News. 1 Instead of attempting to describe a "typical family" Mr. Emery attempted to discover the "household" income of each person whose name came at the top of a page in the Chicago city directory. Mr. Emery en- countered many difficulties in attempting to follow out this scheme and has himself pointed out sources of error. 2 Notwithstanding the inevitable difficulties, Mr. Emery seems to have made a real effort to obtain a scien- tific sample. While his distribution shows unmistakable irregularities, it is in many respects for our purposes the most interesting and suggestive recent non-tax income distribution available. Finally, it seems impossible to obtain from these distributions any but extremely general conclusions concerning the relation between income from effort and income from property. The data have almost always 3 been so chosen as to eliminate any families obtaining an appreciable frac- tion of their income from property. While they may give us some clues as to the shape of the upper range tail of the wage-earners' income distri- bution curve 4 they can tell us little about even the upper tail of the general income curve and almost nothing about the lower income tail of either the wage-earners' or the general income curve. 1 While the Bureau is not at liberty to publish this material we were permitted to make what use we could of it in constructing our income curve for the country. 2 In a letter to the Bureau he writes, "There was, however, one important source of error in this method — the poorer and middle class residents were willing to talk, and with the care- fully trained approach of the investigator, the upper class was also won over, but we found in the wealthy districts that the butler and 'not at home' caused a lar'■'>() .;.;_' Estimates of income from industrial products, I how made, 3 made from corporation reports, 4 plan of presenting, 10 Excess profits tax, 320 Excise taxes, corporate, 324 Expenses of farmers relative increase, 307 total, 302 303 Express companies, 111 117 Factory production see manufacturing industry Failures, commercial, 325 "Failure to report" incomes, 254-260 Farm emploj see agricultural laborers Farm labori see agricultural laborers Farmers distributed by income, 308-309 expenditures of, 302-307 families, :>,:>,! not "gainfully employed," 32, 289 income of, 2'.)N :;i:; percentages, 333-335 receiving over $2,000, 253, 313 receiving under $2,000, 270, 313 total, 307, 311-312 income tax, 299 "labor income" of, 308-310 number of, income over 82,000, 253 return- to, 02-64 tenant, 305 Farm property rental value of, 309 310 value of, ol 7.7,, 2'. 18-299 Farm loans, federal interesl on, 261 outstanding, total, 264 265 Farm products set agricultural products Farms, number of, 300 Federal Bureaus set bureaus Federal Government, 210 222 federal Reserve Hoard study of employees' income apportion- ment, 25 federal securities held by banks, 218 Pert ilizer, 7)2, 54 Finance proportion of dividends and surplus, .127 Financial Statistics of Cities, 21-"., 217), 217, 219, 291 Financial Statistics of States, 211. 212. 219, 291 hue depart nuiit see police ami fire departments Flux, A. W., 348 Food and kindred products, 80 82 see also agriculture 432 INDEX Freight carried by railways, 128-130 Frequency curves describing distribution of income by, 343 normal curve of error fitted to heights of men, 347 not applicable to income distribu- tions, 346-348 rejected by Pareto, 346 Pearson's system of, 348, 375 y = bx m , 368-369, see Pareto's Law see hyperbola Frequency distributions of heights of men, 347 of income, 339-425 among families, 341 among individuals, 341, 416 among wage-earners, tail-slope of, 379-380 by sources, 385-392 equations of straight lines fitted to, 367 factorial, 341 heterogeneity of data, 376-393 in U. S., 350-362, 365-368, 382-392, 400, 404^14, 424^25 tax returns 1914, 351, 357; 1915, 352, 358; 1916, 353, 359; 1917, 354, 360; 1918, 355, 361; 1919, 356, 362; 1915 and 1918 com- pared, 365-367; $5,000-line, 403- 404 in Oldenburg, 363-364 mathematically describing, 343 meaning of similarity in, 375 not describable by normal curve, 346-348 per ammain, 341 of wages, 369-374, 378, 416-423 and incomes, 380-392, 405-414 peculiarities of, 418-423 per hour, 370-374 rates and earnings in same industry, 419 rates in different industries, 421-422 similar tail-slopes of dissimilar, 371- 374 tail-slopes of various, 378 tail-slope not an index of scatter, 373 see hyperbola, Pareto's Law Friday, David, 316, 321, 326, 328 Funk, W. C, 301 Gainfully employed persons in U. S. age and sex of, 279 see also persons gainfully employed, employees, and occupational dis- tribution Gardens, 50-51 Gini, C., 349 Goldenweiser, E. A., 300, 302, 303, 304 Government in U. S. data concerning all branches of, 210-222 income from principles determining, 4-5 number of employees of, 212 Government service to business impossible to measure, 5 Government services, direct; indirect, 5 Grist mills, custom see hand trades Gross earnings see earnings, gross Gross income see earnings, gross also income, gross Gross value of products in agriculture, 299-301 manufacturing, 78-84 Gross wealth see wealth, gross Hand trades, 99-102 Harness and saddles, 52-54 Hart, Hornell N. Fluctuation in Unemployment in Cities of the United States, 36 Heterogeneity of income data, 376-393 see frequency distributions Hod carriers, 107 Homes owned, 291, 294 income from 270 rental value of, 228-229 tax exempt, 261, 267-268 Honey, value of, 49 Horses, value of, 48, 53 House rents index of, 294 value of, 302 Housewives value of services excluded, 249 Hoyt, Homer, 104 INDEX 433 Hyperbola fitted to earnings per hour, 370-371 logarithmic frequency curves describ- ableby, 3G9 Immigration annual statistics of, 14-16 Income amount subject to taxation, 259-260 book, 3 defined, 3, 341 failure to report, 254-260 from Government, how computed, 5-6 how estimated, 3, 250-252 interest on loans not deducted, 12 miscellaneous, 223-232 monetary vs. non-monetary, 341 non-monetary, 298 per ammain, 233-234, 342 psychic, defined, 3 reported for tax, 253 spurious, due to changing prices, 249- 250 total bank vs. bank loans, 209 understatement of, 254-260 Income average annual, per capita, 337 from wages and salaries, 408-414 per ammain, 233-23 1 persons receiving over $2,000, 258 persons receiving under $2,000, 285-288 Income, corporate total reported, 324 Income, farmers, 298-313 based on average ratio of expenses to total product, 305-308 based on sample incomes, 308-310 based on total production and ex- penses, 300-305 final estimates, 310-313 over $2,000, 313 percentage of total average incomes, 381 total, 382 under $2,000, 313 Income, gross electric light and power, 158 express companies, 143 farmers, 303, 307, 311-323 manufacturing, 85 of persons receiving over $2,000, 253, Income, gross (cont.) of persons receiving under $2,000, 270 related to personal earnings, 295-296, 382 street railways, 149-150 transportation by water, 192-193 Income, National distribution of expenditures, 336 percentage of, received by persons comprising the highest five per cent, 333-:;:; 1 farmers, 333, 335 receiving over 82,000, 332-333 receiving under $2,000, 332-333 purchasing power of, 333, 335, 337 range of, 330, 332 total, 331 Income, net all corporations, 324 all farmers, 303, 307 industrial, 4 personal by sources, 3S2-392 salaries vs. business, 257 surplus included in percentage going for shelter, 292 Income, personal defined, 341-343 from pensions, 270 negative, 347-348 returns by sources, 3S2-392 Income, personal distribution of, 339-425 see frequency distributions, heteroge- neity of income data, Pareto's Law Income, personal, over 82,000, 25:; 26S 331 average, 258 from business, 257 from salaries, 257 price index for, 330 total, 331 Income, personal, under $2,000, 269- 297 from investments, 201 297 occupations and industries, 271-286 personal earnings, 269-290 related to total income, 295 price index for, 336 total, 270-331 Income receivers, classes of, 25:; defined, 342 frequency curve for, 424-125 434 INDEX Income tax corporate, 324 data used to estimate income, 253-257, 295 law, administration of, 254 changes in, affecting comparison, 254-320 Income, tax exempt from, 260-268 Federal farm loans, 261, 264-265 Government bonds, 261, 265 Liberty bonds, 261, 263-264 obligations of possessions of U. S., 261 rental of owned houses, 261, 267-268 state and local debts, 261-262 through nature of occupation, 261, 266- 267 Income tax returns accuracy of reporting, 402-414, 424-425 and frequency distribution, 351-362, 365-368 " comparison for years 1915 and 1918, 365-369 farmers, 299 for different classes, 383-392 importance in estimating income dis- tribution, 401-414 number of, 385 on uniform exemption limit, 256 technique of, 401-403 Index of gross output in manufacturing, 80-83 Index of prices business savings, 11 construction, 334, 336 consumption goods used by well-to-do, 24-31, 333, 334,336 used by workers, 17-24, 31, 333, 334, 336 farm products on farm, 307 farm products at market, 307 house rents, 294 placed on 1913 basis, 11 war expenditures, 334, 336 Index of wages, 279 Industrial Conference Board, National, 293 indices of prices, 20-23 Industrial distribution of gainfully employed persons, 31-39 of persons receiving under $2,000, 271- 286 Influenza effect on population, 16-17 Information additional, available, 10 Ingalls, W. R., 68, 310, 321 Insurance, cost to farmers, 53-54 Inter-business payments, elimination of, 4 Interest fraction of total income received from, 386-392 on investments in agriculture, 52-54, 302 electric light and power, 162-164 express companies, 141-142 manufactures, 85, 93, 96-97 mining, etc., 66-67 railways, 123 street railways, 150, 151-154 telegraphs, 170-172 telephones, 1S0-182 transportation by water, 193-195 unclassified industries, 229-231 on local debt, 261-262 paid by Government, 216-219 payments on consumption loans not deducted from income, 12 tax exempt, 261 Investments, income from, 270 of persons receiving less than $2,000, 294-297 Iron and Steel, 80 Jewelry see hand trades Kansas Bureau of Mines, 71 Kapteyn, J. C., 349 Kilowatt hours produced by electric light and power companies, 167 Knibbs, G. H., 395 "Labor income" of farmers average. 310 defined, 30S estimated, 309 Laidler, H. W., 74 Laundries accuracy of data on, 99 see also hand trades Leather and its products, 81 Liabilities of failures, total, 325 INDEX 435 Liberty loans see loans, Liberty Lincoln, Professor Edmond E., 158 Lipka, J., 369 Liquors and beverages, 81 Live stock on farms, 47^9 value of, 302 Loans, bank average volume of, 209 compared with population, 207-209 made to farmers, 53-54 purchasing power of, 208-209 Loans, consumption interest payments on, 12 Loans, Federal farm see farm loans, Federal Loans, Liberty effect on Government interest pay- ments, 219 income computed from, 12 interest on, 261, 264 value of, 263 Loans of 1925, U. S., 265 Loans, Panama Canal, 265 Local debt interest on, 261, 262 Lock repairing hand trades Lumber, 80 Mackay telegraph companies, the, 168- 178 Manufacturing Industry, 78-98 approximate total business savings in, 236-237 gross value of output vs. net value product, 78-84 importance of industry, 78 number engaged in, 273-274, 280, 283, 284 age and sex percentages, 279 average annual incomes under $2,000, 285, 288 proportion of dividend and surplus, 327 -"iirces of information, 78- s -! statistics of Massachusetts, 36-37, 80-82, 87-88 Pennsylvania, 71, 87-88, 106 March, Lucien, 349 Marines sec Army, Navy and Marines Massachusetts Statistics of Manufactures, 36-37, SO 82 87-88 Meat supply of U. S., 42 Merchant Marine, American see transportation by water Metals other than iron, s _' see also mines, quarries, and oil wells Michigan Department of Labor, 71 Milk supply, 13-44 Millinery see hand trades Mines, quarries, and oil wells, 65-77 Mining entrepreneurs normally occupied in, 33 number engaged in, 273, 280, 283, 284 age and sex percentages, 27 ( .» average annual incomes under $2,000, 285, 288 sources of information, 65 Moore, Henry L., 349, 420 Morman, James B., 305 Mortgages on farms, 305 Municipal utilities, 211-218 National income .sec income, ual ional Navy see Army, Navy and Marines Need unit of income, 342 Net earnings see earnings, net Net value product see value product, net New York Journal of Commerce, 327 X. V. State < 'ivil Service < Jommission, 212 Non-monetary income, 298 ( >cean cables see telegraphs ( Occupational distribution of employees, 32-39 entrepreneurs, 33 persons receiving under 82,000, J7I 286 Oil wells see mines, quarries and oil wells Output see physical product Painters, 107 Panama Canal loan-, I S , see loans, Panama Canal 436 INDEX Paper and printing, 81 Pareto, Vilfredo, 344 non-mathematical conception of chance, 348 rejects negative incomes, 346 rejects normal curve, 346 Pareto's Law, 344-394 any general income "law" questionable, 374-392 conclusions concerning, 393-394 described, 344-345 impossibility of extrapolating, 345 lower income ranges and, 368-374 modern substitute for Wages Fund Doctrine, 345 non-rectilinear forms of, 348 straight line hypothesis, 349-363 uniformity of slope thesis, 363-368 zero mode with infinite ordinate, 345 see frequency distributions, heteroge- neity of income data, hyperbola, income, personal distribution of Passenger traffic on railways, 128-130 Paving materials, 82 Pearson, Karl, 348, 349, 369 Pennsylvania Department of Internal Affairs, 71,106 statistics of manufactures, 87, 88 Pensions, amount of express companies, 144 Government, 216-217, 220, 291 manufactures, 90 persons with incomes under $2,000, 291 railways, 126 telephones, 184 Pensions, income from, 270 Personal service average annual incomes under ,$2,000, 285 total earnings under $2,000, 288 average wages of, 279 number engaged in, 276, 280, 283, 284 age and sex percentages, 279 Persons gainfully employed in U. S. families of farmers excluded, 32 industrial distribution of, 32-39 numbers of, how computed, 32 see also employees Persons, number of having incomes over $3,000, 258 Persons, number of (cont.) having incomes (cont.) over $2,000, 253, 260, 331 by occupations, 283 under $2,000, 270, 331 reporting incomes, 256 Persons, percentage of having incomes over $2,000, 332-333 having incomes under $2,000, 332-333 Persons, Warren M., 350 Per capita see population of U. S. Physical products agriculture, output per person, 56-61 indices of, 301 banking, loans per person, 207-209 construction per capita of population 115 electric light and power kilowatt houra^ 167 Government, share of, 53, 222-223 measured in money, 317-320 mines, quarries, oil wells, per employee, 75-77 Pullman car-days, 139-140 railways, passenger miles, 128-130 relation to corporate surplus, 316-320 street railways, revenue car miles, 155- 156 telephones, average, per employee, 186- 188 tonnage of American Merchant Marine, 198," 201 transportation by water tonnage, 196 Plasterers, 107 Plumbers and gasfitters, 107 Police and fire departments, 211-218 Population, U. S. average per capita income, 337 distributed by residence, 229 effect of influenza on, 16-17 method of estimating, 14-16 Population, U. S. ompared with agricultural ouput, 61 banking facilities, 208-209 construction, 115 electric power service, growth of, 167 mineral output, 75-77 Pullman service, growth of, 139-140 railway service, growth of, 130-131 street railways, growth of, 156 INDEX 437 Population, U. S., compared with (cont.) telephone service, growth of, 189-190 tonnage of American Merchant Marine, 201 Postal service, U. S., 211-218 Poultry and eggs, 45-46 raisin-. 230 231 Power companies, private see electric light and power companies, private Price indices for business savings, 12 of consumption goods used by well-to-do, 21-31 used by workers, 17-24 placed on 1913 basis, 11 see also index of prii Price variations, how eliminated, 10-12 Printing, paper and, SI Produce see agricultural products Professional services number engaged in, 275, 280, 283-284 age and sex percentages, 27',) average annual incomes under $2,000, 285, 288 Profits see dividends also entrepreneurs, share of Profits, undivided see surplus also savings, business Property owners see entrepreneurs and properly owners Psychic income, defined, 3 Public servii number engaged in, 27."., 280, 2s:j-284 age and sex percentages, 279 average annual incomes under $2,000, 285, 288 Public utilities proportion of dividends and surplus, 327 Pullman car transportation, 133-1 10 Pullman porters, tips paid to, 135-136 Purchasing power comparison of price indices for different classes, 31 for workers, 22-23 how computed, 10-12 Purchasing power (cont.) index number for well-to-do, 2s 29 workers, 17-21 interest on savings deposit net value product of all industries, 245 Government, 221 -222 of hank loan- and deposits, 208 209 of income, :;:;;;, :;;;.",. ;;.;7 Purchasing power of business savings banking, 205 by industries, 237 electric light and power, ltll manufacturing, 07 mining etc., 69 Pullman transportation, L35 railways, 132 street railways, 153-154 telegraphs, 173-174 telephones, 1\2 transportation by water, 195 Purchasing power of employees' share agriculture, 58 banking, 206 construction, 1 1 I electric light and power, L66 express, 144 Government service, 215, 220 hand trades, 102 manufacturing, 91 mining, etc., 70 Pullman transportation, 137-138 railways, 131 street railway s, L53 telegraphs, L78 telephones, L86 transpoit.ii ion, 1 18 transportation by water, 200 unclassified industries, 224 Purchasing power of property's share agriculture, 59 banking, 205 206 by industries, 239, 241 construction, 1 12 electric light and power, 164 express, 1 13 government, 220 manufacturing, 97 mining, etc., 70 national income, 337 438 INDEX Purchasing power, etc. (cont.) Pullman transportation, 135 railways, 132 street railways, 153-154 telegraphs, 174 telephones, 183 transportation, 116 transportation by water, 195 unclassified industries, 227 Quarries see mines, quarries, and oil wells Railways, steam, and switching and ter- minal companies, 119-132 additions to physical property of, 122 lied Cross, contributions by banks, 202, 207 Rediscounts, bank, 203 Relief for employees see pensions Rent, 292-293 fraction of total income received from, 386-392 Rental value of farms, 309-310 Rental value of owned homes, 228, 229, 291-294 tax exempt, 261, 267-268 Rents, contract, in U. S., 225-227 Rents, index number for, 294 Rents and royalties from express companies, 141-142 manufacturing, 85, 86, 91, 92, 97 mines, etc., 66, 70, 75 street railways, 150-152, 154 telegraphs, 169, 172, 173 telephones, 180-182 unclassified industries, 225-229, 231-232 Reserves, corporate, 314-316, 320, 321 see also surplus, corporate Rorty, M. C, 28, 112, 182, 206, 228, 272 Royalties see rents and royalties Salaries see employees, share of, also wages and salaries Salaries, government, state, city and county officials, 266-267 Savings, actual in corporate surplus, 329 Savings, business all industries, 246 by industries, 234-237 included in income, 3 index of values for banking, 204 electric light and power, 103-165 express, 143 manufacturing, 95-93 mining, etc., 69 Pullman transportation, 134-135 railways, 122-124, 127, 132 street railways, 150-152, 154 telegraphs, 173, 174, 176, 179 telephones, 180-182 transportation by water, 194, 195 transportation, 115 Savorgnan, F., 349 Saw mills, custom see hand trades School districts, 211-218 Scoville, G. P., 305-306 Sears, Roebuck & Co. data used in price index, 18-19 Securities, corporate, total held by banks, 203 Security holders, share of banks, 203-204, 206-207 electric light and power company, 163- 164 express companies, 141-142 Government securities, 218-219 manufacturing, 90-97 Pullman transportation, 134-137 railways, 123, 127, 132 street railways, 148-149 telegraph companies, 170 what it includes, 4 Security holders, disbursements to from telegraph companies, 168 see also entrepreneurs and other prop- erty owners Seed used by farmers, 50-51 Sewing machine repairing see hand trades Shelter per cent of income paid for, 292-2'J'J Shipbuilding excluded from construction, 103 Shoe repairing see hand trades INDEX 439 Silver, Gray, 337 Similarity of distribution what constitutes, 375 Sinking funds, railway, 122 Slichter, C. S., 369 Slope of logarithmic income curves, 371- 392 South Carolina statistics of manufactures, 87, 88 Spillman, YV. J., 301 Standardization of purchasing power how obtained, 10 in terms of 1913 prices, 10 accuracy checked, 10 State and county government, 210-21.") Steam fitters, 107 Steam railways see railways Steel, iron and, 88 Sterrett, J. E., 255, 276, 315, 321 Stewart, W. W., 300 Stock dividends, 320 Stockholders average income of, 26 see also security holders, entrepreneurs Stone cutters, 107 Stone masons, 107 Street and electric railways, 148-156 Structural iron workers, 107 Summary of Part I, 233-246 Summary of Part II, :«0-339 Surplus, banking, 202-204 Surplus, corporate, 314-329 banking, 202-204 definition of, 314 general accuracy substantiated, 6, 84-86 genuineness of, 315-320 included in net income, 3, 314 proportion of, in earnings, 327 reports by corporations accepted, li total estimated, 324, 328, 329, 331, 382 see also savings, business Switching companies, 119 see also railways Sydenstricker, E., 342 Tailoring, custom see hand trades Tax-exempt income see income, tax exempt Taxes relation to national income, •"> charged against industry, 5, 6 see also income tax, etc. Taxidermy see hand trades Tax, income see income tax Teachers, income of, 296 Telegraphs, 168 i7s Telephone-, 17!) I '.Ml messages and message miles, 190 revenue: business vs. residence, 189 Terminal companies, 1 19 set also railways Textiles, 80 Tips to Pullman employees, 135-136 Tobacco manufactures, 82 Tonnage, American merchant marine, 198, 201 Topics covered, 10 Trade number engaged in. 274, 275, 280, 283, 284 age and sex percentages, 279 average annual income under $2,000, 285, 2S8 Transportation, 1 16-1 18 see also steam railways; switching and terminal companies; street and elec- tric railways; private electric lighl and power companies; transportation by wat ei- Transportation by water, 191-201 mode of estimating gross earnings, L92 L93 Typewriter repairing .sec hand trades Unclassified industries, 223 232 Uncollectible revenues, in express companies, ill 1 1"> railways, 126 telephone-. ls;l Understatement of income-. 254 260 increase since armistice, 254 '-'■">•"> Undivided profits sec surplus, business -ivm Unemployment, 271 estimated for I S 36 3 in Massachusetts factories, 36-38 440 INDEX United States Bureau of Mines data from, (55-77 United States Bureau of Labor Statis- tics see Bureau of Labor Statistics United States, government of, all branches of, data concerning, 210-222 U. S. Realty Company, 105-108, 112 Utilities, public see public utilities Value product, net (cont.) entrepreneurs and property, share of, see entrepreneurs, share of security holders share in see security holders Value product, total see value product, gross Vegetables, 50-51 Victory loans, 264 see loans, liberty Village government sec city and village government Value added by manufacture, 82 Value, gross see gross value Value product, gross in agriculture, 303, 306-307 in construction, 109-112 in manufactures, 83 Value product, net agriculture, 40, 54-55, 59, 62, 303 all industries, 244, 245 banking, 202, 206-207 construction, 113 electric light and power, 158-159, 164, 165 express, 144-145 government (all branches) components of, 210 distribution of, 217-219 per capita, 220-221 purchasing power of, 221 share, in national, 221-222 street railways, 154 telegraphs, 173-176 telephones, 180-184 transportation, 116-117 transportation by water, 194, 199 unclassified industries, 231-232 Value product, net employees' share in see employees' share of Wage rates vs. average annual earnings, 12, 34-38 see frequency distributions Wage distributions, 418-423 Wages and salaries in all industries, 242 relation to total income, 37(5, 392, 400- 414 see employees, share, also employees, average annual earnings Wages, index of, 279 Wallace, H. A., 312 War, affecting labor supply in unclassified industries, 224 War expenditures price index of, 336 War Industries Board, 304, 325 Warren, G. F., 307 Watch repairing see hand trades Wealth, gross agriculture, 300 Western Union Telegraph Company, 168- 178 West Virginia Bureau of Mines, 71 Wireless telegraphs see telegraphs Wiremen, inside, 107 Wire mileage, telephone, 187-188 Wool and mohair, 46-47, 49 UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. Form L9-Series 4939 UC SOUTHERN REGIONAL LIBRARY FACILITY AA 000 559 151 f PLEA e S DO NOT REMOVE THIS BOOK CARD 9 y _■ i £ ^/OJITVDJO^ University Research Library a * H a x s K K S £ « e c £ £ a « a i s HB 6cl N212i 1922 v.2 ions «ii::,3: