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Full text of "Investigation of concentration of economic power; monograph no. 1[-43]"

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Northeastern University 




School of Law 
Library 




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76th Congress^ SENATE COMMITTEE PRINT 
3a Session j 

INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



TEMPORARY NATIONAL ECONOMIC 
COMMITTEE 

A STUDY MADE FOR THE TEMPORARY NATIONAL 

ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS, 

THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION 

NO. 113 (SEVENTY-FIFTH CONGRESS), AUTHORIZING 

AND DIRECTING A SELECT COMMITTEE TO MAKE A 

FULL AND COMPLETE STUDY AND INVESTIGATION 

WITH RESPECT TO THE CONCENTRATION OF ECONOMIC 

POWER IN, AND FINANCIAL CONTROL OVER, 

PRODUCTION AND DISTRIBUTION 

OF GOODS AND SERVICES 



MONOGRAPH No. 12 

PROFITS, PRODUCTIVE ACTIVITIES 

AND NEW INVESTMENT 



Printed for the use of the 
Temporary National Economic Committee 




UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1941 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

JOSEPH C, O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vicp Chairman 

WILLIAM H. KINO, Senator from Utah 

WALLACE H. WHITE, Jr., Senator from Maine 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMaN W. ARNOLD, Assistant Attorney General 

•WENDELL BERQE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK. Chairman 

•SUMNER T. PIKE. Commissioner 

Representing the Securities and Exchance Commission 

GARLAND S. FERGUSON, Commissioner 

•EWIN L. DAVIS, Chairman 
Representing the Federal Trade Commission 
ISADOR LUBIN, Commissioner of Labor Statistics 
•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics- 
Representing the Department of Labor 
JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 
•CHARLES L. KADES, Special Assistant to the General Counsel. 
Representing the Department of the Treasury 



Repreienting the Department of Commerce 

« *. • 

LEON HENDERSON, Economic Coordinator 
DEWEY ANDERSON, Executive Secretary 
THEODORE J. KREPS, Economic Adviser 



Monograph No. 12 

PROFITS, PRODUCTIVE ACTIVITIES, AND NEW 
INVESTMENT 

MARTIN TAITEL 
•Alterostes. 
n 



ACKNOWLEDGEMENT 

This monograph was written by 
MARTIN TAITEL 

Senior Consulting Economist 
Work Projects Administration 

The Temporary National Economic Conmiittee is greatly indebted 
to the author for this contribution to the literature of the subject 
under review. 

The status of the materials in this volume is precisely the same as thai 
of other carefully prepared testimony when given by individual wiinesses; 
it is information submitted for Committee deliberation. No matter what 
the official capacity of the witness or author may be, the publication of hi» 
testimony, report, or monograph by the Committee in no way signifies nor 
implies assent to, or approval of, any of the facts, opinions, or recom- 
mendations, nor acceptance thereof in whole or in part by the members of 
the Temporary National Economic Committee, individually or collec- 
tively. Sole 'and undivided responsibility for every statement in such 
testimony, reports, or monographs rests entirely upon the respective 
authors. 

[Signed] Joseph C. O'Mahoney, 
Chairman, Temporary National Economic Committee.. 

m 



TABLE OF CONTENTS 



Paee- 

Letter of transmittal xr 

Preface xin 

-Summary xv 

A. Major findings xv 

B. Major implications ' :.. xvini 

PART I. PROFITS OF THE CORPORATE SYSTEM 
AS A WHOLE 

CHAPTER I 

Introduction $ 

A. The corporate system S 

B. The character of profit measurements - 4 

C. Note on the indeterminacy of profits . 7 

CHAPTER II 

Dollar Volume of Corporate Profits -_ 9> 

A. The historical record 9" 

B. Historical factors underlying high and low profits 12 

C. Consistency of corporate profits ^^ : 14 

CHAPTER III 

The Rate of. Return ^i , ' IT 

A. The character of book values of equity ^-- 17 

B. The historical record ■_ . 21 

C. Earning power and book values. -1 ^ 24 

D. Significance of the analysis of profit rates ^ 27 

CHAPTER IV 

The Profit Margin. '. ^ 29 

A. The nature of the data i 1 29 

B. The historical record...:- ^ hO 

C. Output and profits • ._ 33 

D. The break-even point., -_1 SS 

PART II 
THE DISPOSAL OF CORPORiATE PROFITS 

CHAPTER V 

Internal and External Disposal of Profits..! 43 

CHAPTER VI 

Dividends 47 

A. The distribution of dividend receipts 47 

B. The relative degree of dividend concentration.. ..i.. 51 

C. The effect of dividend concentration on the distribution of income. 52* 

D. Income levels (in 1935-36 dollars) of dividend recipients 5& 

CHAPTER VII 

Savings Out of Corporate Profits : -.---e 7 61 

A. The relation between the savings and the income level of indi- 

viduals ■ 61 

B. The measurement of savings out of dividends 62" 

C. Savings out of dividends 6$ 

D. Total savings out of profits .. 65 

E. Comparison of private income and total private savings With cor- 

porate profits p,nd savings out of corporate profits 67 

F. The effect of the concentration of savings out of corporate profits 

on the concentration of wealth '. TO 

V 



VI TABLE OF CONTENTS 

CHAPTER VIII 

Page 

Savings Created and Absorbed by the Ownership Accounts 73 

A. Savings created, savings absorbed, and investment expenditures. _ 73 

B. Net absorption of savings by corporate owfiferehip accounts 75 

C. Leakages between savings absorbed and investment expenditures. 78 

D. Dissavings and reductions of corporate equity capitaLl . 78 

PART III 

CORPORATE PROFIT RATES AND SAVINGS ABSORPTION 

RATES 

CHAPTER IX 

The Method of Measurement. ., 83 

A. Measurement of the rate of return 83 

B. Measurement of the rate of absorption of savings 84 

C. Consolidations, mergers, acquisitions, etc S5 

D. The technical bias arising from the use of book values. .^ 86 

CHAPTER X 

■Relation Between Profit and Asset Expansion Rates: Oil Producing and 
Refining Corporations 87 

A. The corporations .. 87 

B. Relative profit rates and relative asset-expansion rates within 

individual years •^., — 89 

C. Underlying conditions and the relation between the profit rate and 

the rate of asset expansion '^ 92 

D. The rate of asset expansion at a given profit rate 94 

E. Difference in the rate of asset expansion for a given difference in 

the profit rate : : . 96 

F. The long-term relation between profit rates and asset-expansion 

rates 98 

■G. The tendency toward concentration 100 

PART IV 

CORPORATE PROFIT RATES AND RATES OF 
INVESTMENT IN PROPERTY 

CHAPTER XI 

The Method of Measurement . 103 

A. Measurement of the rate of investment in property . 103 

B^ The nature of investment expenditures 104 

C» Data and methods 105 

CHAPTER XII 

Relation Between Profit and Property Expansion Rates: Oil Producing 
and Refining Corporations 107 

A. Relative profit rates and relative property' expansion rates 107 

B. The rate of property expansion at a given profit rate 110 

C. Difference in the rate of property expansion for a given difference 

in the profit rate . ^ 112 

CHAPTER XIII 

Relation Between Profit and Property-Expansion Rates: Steel Corpo- 
rations ■ " t 115 

A. The corporations -, 1 li5 

B. Underlying conditions 116 

C. Relative profit rates and relative property expansion rates 117 

D. The rate of property expansion at a given profit rate 121 

E. Difference in the rate of property expansion for a given difference 

in the profit rate : 122 



TABLE OF CONTENTS V'll 

CHAPTER XIV 

Page 
Relation Between Profit and Property-Expansion Rates : Corporations in 

Other Industries 123 

PART V 

CONCLUSION 

CHAPTER XV 

Income, Capital, and Investment 127 

A. Th^ flow of funds in the economy 127 

B. Major determinants of the income level 127 

C. The availability of funds 129 

CHAPTER Xyi 

Implications 131 

A. The importance of profits . . 131 

B. The importance of the concentration of wealth and income- 131 

C. Concentration and shortages of consumer purchasing power :_. 132 

D. Further effects of concentration 134 

APPENDIXES 

APPENDIX 1 

Notes on Data and Methods for Parts I and II 137 

A. Dollar profits of the corporate system i__ 137 

B. Net worth of corporations . 138 

C Stock issues - 142 

D. Income produced by the corporate sj'stem 143 

E. Dividend receipts reported bj" income taxpajers _' 145 

F. Dividend receipts reported by the 25,000 income taxpayers report- 

ing the greatest amounts of dividend receipts 148 

G. Approximate relation between gross income and dividend receipts 

of income taxpayers .' 150 

H. Savings out of dividends 160 

APPENDIX II 

Data for Parts III and IV 153 

A. Sources . ■. 153 

B. Data for selected oil producing and refining corporations 154 

C. Data for selected steel and iron corporations 168 

APPENDIX III 

■Collateral Data ... 175 

Index... ^ ^ 181 



SCHEDULE OF TABLES AND CHARTS 



Page 

I. Profit volume of the corporate system, 19U9-37 9 

II. Net worth and indicated book changes in valuation for the cor- 

■ porate system, 1909-37 18 

III. Profit rate on net vi^orth of the corporate system, 1909-37 23 

IV. Income produced by and net profit of the corporate system, 

1909-37 - -- 30 

V. Changes in net profit of and income produced by the corporate 

system during various cycle phases, 1909-37 _ 35 

VI. Retained profits apd net dividend outgo of the corporate system, 

1909-37 . ...-•- - 45 

VII. Dividend receipts reported by all income taxpayers, 1916-37 49 

VIII. Dividend receipts reported by income taxpayers with net incomes 

of $5,000 and over, 1916-S7__ . 49 

IX. Dividend receipts reported by 25,000 income taxpayers receiving 

the greatest amounts of dividends in each year, 1927-37 60 

X. Approximate relation between gross income and dividend receipts, 

1929, 1932, and 1936:-_--'_-- : . 53 

XI. Dividend receipts classified by the income leveil of the recipients, 

selected yearsy 1920-37 -_ 68 

XII. Average savings of famines and single individuals by income levels 

1935-36 • 61 

XIII. Estimated percent of income after taxes saved, by income level, 

1936-36 - ..- 62 

XIV. Savings out of dividends, selected years, 1920-37, Low estimates; 

income taxpayers with iiicomes of 5000 or more 1935-36 dollars, 63 
XV. Effective tax rates on statutory net income of individual income . 

taxpayers, 1916-37, Selected net income classes 64 

XVI. Sav^ngs.out of the net profits of the corporate system, 1909-37- :.- 65 

XVII. Corporate profits and savings out of corporate profits and tetal 

private income and savings, 1919-34-, _,-- 68 

XVIII. Savings .out of dividends, by the income level of dividend recip- 
ients, selected years, 1920-37, Low estimates; income taxpayers 

with incomes of $6000 or more 1936-36.. 71 

XIX. Indicated net absorption of savings by the equity accounts of the 

corporate system, 1909-37 75 

XX Changes in corporate net worth exclusive of indicated book 

changes in valuation, 1909-37 . v79 

XXI. Computed characteristics of the relation between-the rate of return 
and the rate of Efeset-expansion, by years and By groups of years, 

1927-38, Selected oil producing and refining corporations.. 90 

XXIL Production, efficiency, and prices, selected items, 1925-38, Oil 

producing and refining industry , : 93 

XXIII. Computed characteristics of the relation-between the rate of re- 

turn and the rate of property-expansion, by years and by groups 
of years, 1927-38, Selected oil producing and refining cor- 
porations 1__ ■. 109 

XXIV. Capacity, production and prices, selected Item'Sf 1925-38, Steel 

* and iron industry . 117 

XXV. Computed characteristics of the relation between the rate of return 
and the rate of property -expansion, by years and bv groups of 
years, 1927-38, Selected steel and iron corporations .._... 120 

VIII 



SCHEDULE OF TABLES AND CHARTS IX 

CHARTS 

Page 

1. Profit volume of the corporate system, 1909-18 10 

2. Net worth and indicated book changes in valuation of the corporate 

system, 1910-33 . . 20 

3. Profit rate on net worth of the corporate sj^stem, 1909-37.- 22 

4. Profit margin of the corporate system, 1909-37 , 31 

5. Change in profit of the corporate system per dollar of change in cor- 

porate income produced during various cycle phases, 1909-37 34 

6. Retained profits and net dividend outgo of the corporate system, 

1909-37 .: 44 

7. Percent distribution of the net dividend outgo of the corporate system, 

1916-37, By classes of income taxpayers 48 

8. Approximate relation between gross income and dividend receipts, 

1929, 1932, and 1936, Income taxpayers 54 

9. Percentage of difference between selected gross incomes accounted for 

by dividend receipts, 1929, 1932, and 1936, Income taxpayers 55 

10. Percent distribution of dividends by the income level of recipients, 

selected years, 1920-37. -_L . 57 

11. Savings out of the net profits of the corporate system, 1909-37 66 

12. Percent distribution of savings out of dividends, by the income level of 

dividend recipients, selected years, 1920-37, Low estimates; income 
taxpayers with incomes of 5,000 or more 1935-36 dollars 70 

13. Indicated net absorption of savings by the equity accounts of the 

corporate system, 1909-37 ■ 76 

14. Relation between rate of return and rate of noncash asset expansion, 

by years, 19^7-38, Selected oil producing and refining corporations, faces 89 

15. Relation between average rate of return and average rate of noncash 

asset expansion, by groups of years, 1928-37, Selected oil producing 

and refining corporations , faces 98 

16. Relation between rate of return and rate of net property expansion, 

by years, 1927-38, Selected oil producihg and refining corporations, faces 107 

17. Relation between average rate of return and average rate of net 

property expansion, by groups of years, 1928-37, Selected oil pro- 
ducing and refining corporations faces 108 

18. Relation between, rate of return and rate, of net property expansions, 

by years, 1927-38, Selected steel and iron corporations faces 117 

19. Relation between average rate of return and average rate of net prop- 

erty expansion, by groups of years, 1927-37, Selected steel and iroQ 
corporations , faces 1 19 

20. Selected features of the flow of funds, National income the same in two 

successive periods 128 

APPENDIX TABLES 

1. Computation of 1922 and 1925 net worth of corporations 139 

II. Computation of 1920, 1921, 1923, and 1924 net worth of cor- 
porations - -.'. 140 

III. Computation, of 1919 and 1920 net worth of corporations 141 

IV. Total new and refunding stock issues, 1909-38 142 

V. Estimates of total and corporate income produced, by industrial 

divisions, 1929 ---. 143 

VI. Estimates of income produced by all private enterprise and by 

the corporate system, 1909-38 ._ 144 

VII. Income produced by and net profit of the corporate system, 
1909^37, With Federal income and profits taxes included in 

income produced l45 

VIII. Individuals required to file Federal income tax returns, divi- 
dend receipts reported by income taxpayers, and national inr 
come paid out to all individuals, 1 91 6-37 146 

IX. Distribution of dividend receipts, by class of taxpayers, 1937.- 148 
X. Rate of return on invested capital, 1927-38, Selected oil priO- 

ducing and refining corporations -- 154 

XI. Percent change in total assets, exclusive of cash and equivalent 
(adjusted), 1927-38, Selected oil producing and refining 

corporations . 155 

XII. Percent change in net property (adjusted), 1927-38, Selected 

oil producing and refining corporations 156 



SCHEDULE OF TABLES AND CHARTS 



Page 

XIII. Book value of total assets, exclusive of cash and equivalent, 

as of the end of the year, 1926-38, Selected oil producing and 
refining corporations 157 

XIV. Book value of net property as of the end of the year, 1926-38, 

Selected oil producing and refining corporations. 158 

XV. Revaluations of property, 1927-38, Selected oil producing and 

refining corporations 159 

XVI. Revaluations of assets other than property, 1927-38, Selected 

oil producing and refining corporations 162 

XVII. Acquisitions, consolidations, mergers, sales, etc., 1927-38, 

Selected oil producing and refining corporations 164 

XVIII. Rate of return on invested capital, 1927-38, Selected steel and 

iron corporations 168 

XIX. Percent change in net property (adjusted), 1927-38, Selected 

steel and iron corporations 168 

XX. Book value of net property as of the end of the year, 1926-38, 

Selected steel and iron corporations . 169 

XXI. Revaluations of property, 1927-38; Selected iron and steel 

corporations 170 

XXII. Acquisitions, consohdations, mergers, sales, etc., 1927-38, 

Selected steel and iron corporations 172 

X'XIII. P»ofit rate on net worth, 1900-1914, Sele(^ted industrial corpo- 
rations; unweighted averages 175 

XXIV. Indexes of net profits of industrial, railroad and utility cor- 
porations, by quarters, 1924-39 . 17& 

XXV. Profits and losses of corporations, 1920-37 (intercorporate 

dividends included) 177 

XXVI. Profits of 951 industrial, utility, and railroad corporations and 

of all corporations, 1926-38 178 

XXVII. Profits of 463 industrial, utility, and railroad corporations and 

of all corporations, 1927-38 179 

XXVIII. Profits of 109 industrial and railroad corporations and of all 

corporations, 1914-26 180 

XXIX. Profit rate on net worth of 400 industrial and 2i utility cor- 
porations, 1927-38 ^ - 180 



LETTER OF TRANSMITTAL 

Hon. Joseph C. O'Mahoney, 

Chairman, Temporary National Economic Committee, 

Washin0on, D. C. 

My Dear Senator: I have the honor to transmit herewith a study 
on Profits, Productive Activities, and New Investment. The study 
deals mth one of the basic elements of our business economy, for 
profits are the ends which businesses are organized to attain. 

It has long been recognized that profit mcome is highly concentrated. 
But there has been no agreement concerning the precise nature of the 
effects of such concentration upon the use of resources. This study 
for the first time measures quantitatively the effects of the high degree 
of concentration of profit income upon the distribution of income and 
of wealth and, thence, upon sailings and investment, the prime factors 
determining the level of employment and of the national income. A 
major finding is that, at least so far as corporate enterprise is con- 
cerned, a retarding influence is almost contmuously imparted from 
corporate equity accounts to economic activity , This finding of fact 
throws in sharp relief a major area with which public policy must be 
concerned when directed toward the attainment of a satisfactory 
functioning of the economy. 

Likewise, while it has long been recognized that there is some rela- 
tion between the profits and the expansions of individual businesses, 
no effort has hitherto been made to measure what the relation is. 
While common experience shows that heavy losses result in bank- 
ruptcy, it is not so certain that high profits uniformly result in high 
rates of expansion. Furthermore, there Jias been no defuiitive show- 
ing as to the roles played by technological change, growth of demand 
whether based upon, population increases or upon increases in the 
standard of li^dng, capacities, price and production controls, and 
.similar factors in the process of business investment. 

It has become fashionable in man}'' quarters, including professional 
economists, to assert that profit is the controlling factor — the governor 
in the economy. Yet the author of this study fhids, just as other 
students ' of profits have found, that such assertions contradict the 
facts. While showing that profits do play a part in determining the 
rate of expansion, he is forced to conclude that "factors other than the 
amount or the rate of profit have been the major determinants of the 
level of capital expenditures of groups of companies in the same in- 
dustry and, hence, of business as a whole. Of these other factors, the 

' For example, a noted expert, after making an exhaustive survey published by the National Bureau of 
Economic Research, came to the conclusion that "the 'tendency' toward equalization of profit rates is not 
sufficiently strong to prevent differences exceeding 100 percent between average profit rates earned by 
considerable groups of corporations from appearing and maintaining themselves over a full decade." (Ral.ph 
C. Epstein, Industrial Profits in the United States, New York; 1934, p. 587.) 

According to another author, "When prices are maintained, profits no longer serve as an objective 6i^i/x 
for eliminating inefficient concerns. Nor do they guidfe investment away from industries earning a Ipw rajf. 
of return to those earning a high rate so a? to bring about an optimum distribtition of natural re$<"n-c*s, 
labor, and capital." (WUlard L. Thorp, Economif Problems in a Changins World, New ypi\<.' i939, 
p. 288.) 



XII LETTER OF TRANSMITTAL 

most important have been the level of output in relation to capacity 
and the pressure upon busmess for the introduction of available new- 
technologies. " Again, "concentration of income and wealth is the 
most important single factor leading to a volume of capital expendi- 
tures inadequate for the m.aintenance and expansion of the national 
income." 

The importance of these conclusions to a deterro,ination of the kind 
of public policy which is desirable will be recognized by all those who 
have given thought and consideration to the problem, of idle men and 
idle money. 

The staff of the Temporary National Economic Committee owes a 
debt of gratitude to the author of this monograph, Mr. Martin Taitel, 
not only for the energy and care devoted to the preparation of a 
pioneering study, but also for his generous response to our many calls 
for assistance on other m,atters. 

Respectfully submitted. 

Theodore J. Keeps, 

Economic Adviser. 

September 3^ 1940. 



PREFACE 

This study of "Profits, Productive Activities," and New Investment"^ 
represents the first major attempt to bring the body of factual material 
on profits to bear directly upon our problem of idle men and idle 
money. It is designed to focus attention upon some of the problems 
which must be faced and solved if our human and material resources 
are to be fully utilized. 

In presenting the study I wish to express my appreciation to the 
Temporary National Economic Committee for the services of Mr„ 
David Ryshpan, who critically reviewed the manuscript and assisted 
in preparing the final draft of the study, and for the services of Mr. 
James A. Carey, w^ho did much of the necessary exploratory reading 
in the extant literature on profits; to the Securities and Exchange Com- 
mission for the services of Mr. F. K. Bishop, who collected almost all 
of the material on revaluations, acquisitions, consolidations, and 
mergers; to the Work Projects Administration for clerical assistance 
and for the preparation of the charts. 

In addition, I wish to express m.y appreciation to Prof. Alvin H, 
Hansen of Harvard University; Prof. Theodore J. Kreps, Economic 
Adviser to the Temporary National Economic Committee, and to 
Dr. Dewey Anderson, Executive Secretary of the Temporary National 
Economic Committee for valuable comments and suggestions; and to 
all those who in discussion and otherwise have aided in the develop- 
ment and clarification of the presentation. 

I wish especially to thank Commissioner Leon Henderson for guid- 
ance and advice duriiig tdie course of the study. 

Full responsibility for the analysis and the conclusions is, of course^ 
mine alone. 

Respectfully submitted. 

Martin Taitel. 
Senior Consulting Economist, Work Projects Administration^ 

August 7, 1940. 

xni 



SUMMARY 



A. MAJOR FINDINGS 



1. Profit volume. — Substantial amounts or profits have consist- 
ently accrued to corporate stockholders. Since 1909 the corporate 
system has failed to break even in only 3 years and in only 2 other 
years was it near the break-even level. During the past 3 decades 
profits (after taxes) of the corporate system averaged at least 3.5 
bUlion dollars annually and probably averaged in excess of 4.5 billions 
annually. 

2. Profit rates. — Profits (after taxes) accruing to stockholders have 
provided a rate of return which, when based upon the contemporaneous 
book values of their equities, usually has been between 5 and 7 percent. 
During the Great Depression the rate was considerably below this 
range, but losses in the 3 loss years, 1931 to 1933, totaled less than 5 
percent of net worth. And in 1936 and 1937, even though there was a 
wide underuse of resources, the profit rate was only slightly below 
5 percent. 

Profit rates based upon contemporaneous book values appear to 
be moderate, because of the tendency for book values to be adjusted 
to current profits; that is, the profit rate tends to be not so much a 
measure of profitability as of the "fair" profit rate to which book values 
of the corporate system are adjusted. 

3. Profit margins. — Profits of the corporate system have consist- 
ently accounted for a substantial part of corporate income produced. 
During the New Era period, for example, profits averaged 15 cents 
out of every dollar of income produced. There has been no great 
change in the relation between corporate profits and income produced 
relative to capacities; that is, about the same profit margin has been 
associated with a given rate of capacity operation throughout the past 
3 decades. 

Differences in profit margins as between periods have been largely 
the result of differences in the level of output relative to capacity. 
For example, the difference between the profit margins in the 1936-37 
period and in the 1922-29 period is largely the result of differences in 
the rate of capacity utilization. 

Under existing conditions, it appears that the corporate system can 
break even with the national income between fifty-five and sixty 
bUlion dollars; reasonably full use of resources would probably cor- 
respond to an eighty-five to ninety-billion-dollar national income. 

Past experience indicates that, at an eighty-five t.o ninety-bUlion- 
dollar rmtional income, profits of the corporate system would amount 
to about ten billion dollars. 

4. Dividends. — Cash dividends have consistently amounted to at 
least 50 percent . of the reported profits of the corporate system. 
During the post 3 decades, the net dividend outgo has averaged in 
excess of 3 2 billion dollars awnually 

XV 



XVI SUMMARY 

. 5. Concentration of dividend receipts. — There is a high degree of 
concentration of dividend receipts. Most of the net dividend outgo 
of the corporate system is received by a small number of individuals. 
Over half of the net dividend outgo is received by no more than 
1,000,000 individuals. But the most striking evidence of concentra- 
tion is the fact that 25,000 individuals receive about 35 percent of 
the net dividend outgo of the corporate system. And it appears 
that there has been no substantial change in the degree of concentra- 
tion of dividend income during the past 15 or 20 years. 

Differences in dividend income account for the major part of the 
widespread between incomes of individuals. For example, over 50 
percent of the difference between the average 1936 incomes of $10,000 
and $100,000 was due to the difference in average dividend income, 
while 75 percent of the difference between the average 193^ incomes 
of $500,000 and $1,000,000 was due to the difference in average 
dividend income. 

6. Inco?ne level of dividend recipients. — Most dividends are received 
by individuals in the m.iddle and high income levels. Between 60 
and 75 percent of the net dividend outgo of the corporate system is 
received by individuals with incomes of 5,000 or more 1935-36 
dollars. And between 40 and 50 percent is received by individuals 
with incomes of 20,000 or more 1935-36 dollars. 

7. Savings out of dividends. — There is a high rate of savings out of 
dividends. Well over 40 percent of the dividend income received by 
individuals Math incomes of 5,000 or more 1935-36 dollars is saved. 
The savings of such individuals from dividends have rknged from 
around $700,000,000 in 1932 to no less than $2,000,000,000 in 1929 
and have amounted to at least 25-35 percent of the net dividend 
outgo of the corporate system. This latter rate has bden at least 
twice as large as the rate of savings from all privately originating 
income. 

8. Savings out of profits. — A large proportion of all savings are made 
from profit income. Savings out of corporate profits (retained 
profits plus savings out of dividends) have accounted for at least 40 
percent of all private savings in years of fairly. high activity, whereas 
corporate profits have not (except during the World War period) 
exceeded 11 percent of all privately originating income. With de- 
clines in activity, the proportion of savings accounted for by cor- 
porate profits declines. And, when corporate profit accounts are dis- 
saving, those dissavings may exceed any savings in the rest of the 
private sphere. 

9. Concentration of savings out of corporate profits. — A very large 
and disproportionate share of pri-fate savings are made by relatively 
few individuals. For example, probably more than 60 percent of 
the savings out of dividends have been made by individuals with 
incomes of 20,000 or more 1935-36 dollars. The consequence of the 
high concentration of savings is a tendency for an increasing concen- 
tration of the availabk wealth. Even when the corporate ecjuity 
accounts as such are dissaving, the burden falls less heavily upon 
dividend recipients in the higher income brackets because their very 
high rate of savings enables them to offset corporate losses to a greater 
extent^ than can dividend recipients in the middle and low income 
bracket?. 



SUMMARY KVII 

10. Net absorption oj savings by ownership accounts. — The equity 
accounts of the corporate system usually do not absorb all of the sav- 
ings they create. Only in the rare periods characterized by relatively 
full use of resources and a high rate of expansion has the volume of 
stock issues been sufficient to absorb the savings oUt of dividends. In 
other periods, the savings created but not absorbed by corporate equity 
accounts have acted to increase the volume of savings which must be 
absorbed in other areas or in other forms in order to prevent declines 
in the national income. 

11. Profit rates and asset-expansion rates. — Usually there is a definite 
association between the profit rates and the (noncash) asset-expansion 
rates of corporations carrying on similar activities. In the oil in- 
dustry, companies with the higher rates of return (on invested capital) 
have, on the average, expanded their assets at greater rates than com- 
panies with the lower rates of return. And the relation between profit 
and asset-expansion rates has been more marked over a period of years 
than in single years. 

Production and price controls appear to lower the effectiveness of 
the profit rate in determining differential expansion rates. In the oil 
industry, the effect of such controls, except during periods of rapid in- 
dustry expansion to new high levels of activity, has been to lower the 
amount of difference in asset-expansion rates as between companies 
for a given difference in the rate of return. 

12. Asset-expansion rates at a given profit rate. — A high profit. rate 
has not in itself been sufficient. to guarantee a high rate of asset expan- 
sion ; and a low profit rate has not prevented rapid expansions of assets. 
For example, during the period l@f27-193S, the rate of asset change for 
oil corporations with a 5 percent rate of return varied from, an aver- 
age asset contraction of about 1.4 percent in 1932 to an average asset- 
expansion rate of 4.5 percent in 1937 and of almost 6 percent in 1929 
Consequently, factors other than the profit rate are very important 
determinants of the volume of asset expansion. 

The volume of business, the relation of output to capacity, and prices 
appear to be the most important factors determining the rate of asset 
expansion at a given rate of return. At a given rate of return, oil cor- 
porations have shown greater asset-expansion rates, the greater the 
increase in the volume of business and the higher the ratio of output to 
capacity. In addition to their effects upon the volume of business, 
price changes have apparently operated to change the volume of cur- 
rent assets in the direction of a price change and the rate of introduc- 
tion of cost-reducing technologies in the direction opposite to that of 
the price change. 

13. Profit rates and property-expansion rates.— There is a tendency 
for the higher property (land, buildings, and equipment)-expansion 
rates to be associated with the higher rates of return (on invested 
capital). This tendency while only slight for single years is marked 
over a period of years. 

Underlying conditions determine the closeness and even the exist- 
ence of the relationship between property-expansion and profit rates. 
In the oil industry the relations between rates of return and property- 
expansion rates have been less marked during periods in which many 
companies have made major expansions than during other periods. 
The latter have been periods either of relatively high and stable activ- 
ity or of substantial under-use of capacity. In the steel industry there 

260751— 41— No. 12 2 



XVIII SUMMARY 

has been a definite positive relation between rates of return and prop- 
erty-expansion rates only during periods of relatively high and expand- 
ing activity. In other periods there has been a very strong tendency 
for the positive relation to disappear. 

The amount of difference in property-expansion rates per 1 point 
difference in the rate of return depends upon the underlying condi- 
tions. In the oil industry the effectiveness of the profit rate in deter- 
mining differential expansion rates has been lower during periods in 
•which a large amount of expansion was financed from external sources 
than in. other periods; within periods during which expansions have 
been financed from internal sources, the amount of difference in prop- 
erty-expansion rates per 1 point difference in the rate of return has 
been higher, the greater the need for new cap-^ cities and the greater 
the need for the introduction of new technologies. In the steel indus- 
try the level of output relative to capacity has been the major factor 
determining the effectiveness of the profit rate with regard to differen- 
tial expansion rates. 

14. Property-expansion rates at a given profit m^e.— High profit 
rates, in themselves, are not sufficient to guarantee high rates of 
property expansion; similarly, low profit rates do not necessarily entail 
low property-expansion rates. For example, the average- annual rate 
of property expansion for oil corporations with a 10-percent rate of 
return has varied from 3.6 percent in the 1932-34 period to 8.8 percent 
in the 1930-31 period; in the 1935-37 perio^ the average rate was 
6.3 percent and in the 1928-29 period 4.4 percent. Again, steel cor- 
porations with a 10-percent rate of return would have expanded their 
property at, an annual rate of 4.4- percent in the 1927-29 period and 
2.2 percent' in the 1935-37 period, but would have contracted their 
property at a 3.2-percent rate in the 1933-34 period. Cdnsequentjy, 
conditions other than the profit rate are very important factors in 
determining the volume of expenditures on land, buildings, and 
equipment. 

The rate of capacity operations and technology appear to be the 
most important determinants of the rate of property expansion at a 
given profit rate. In both the oil and steel industries, property-expan- 
sion rates have been higher, the greater the rate of capacity utilization 
and the greater the, need for introducing new technologies. 

B. MAJOR IMPLICATIONS 

1. Important effects^ of profit income.— The. most important effects 
of profit income are those with respect to its influence upon the flow 
of funds. For the character and the level of output are determined 
by the way in which funds flow through the economy. Chart 20 
(p. 128) presents the most fundamental aspects of the flow of funds in 
simplified diagrammatic foi-m. 

2. Availability of funds. — Expansion of the national income may be 
limited by the exhaustion of the possibilities for credit expansion. 
However, the evidence indicates that at no time since the inception 
of the Federal Reserve System in 1913 has expansion been limited by 
shortages of funds. 

A decline in the national income cannot result from a shortage of 
funds" in the capital pool. For, gross savings always provide a 
volume of funds sufficient to finance the capital expenditures necessary 



SUMMARY XIX 

to absorb those savings and so to maintain the level of the national 
income. 

3. The importance of profits. — The importance of profits lies in the 
fact that the recipients of profits play the dominaDt role in detennin- 
ing the level of the national income. This is a consequence of the 
fact that the recipients of profits own or control the bulk of the 
accumulated capital and current savings as well as the major share of 
the funds currently set aside for capital replacement — depreciation, 
depletion, and amortization. 

What, then, deters the recipients of profit income from always ex- 
pending from the capital pool in their control a volume of funds 
sufficient to expand or to maintain the national income? 

The findings of this study show that the answer t(i this question 
lies neither in the amount of profit income nor.in the rate of return on 
capital. Factors other than the amount or the rate of profit have 
been the major determinants of the level of capital expenditures of 
groups of companies in the same industiy, and, hence, of business as 
a whole. Of these other factors, the most important have been the 
level of output in relation to capacity and the pressure upon business 
for the introduction of available new technologies. 

Hence the fundamental question can be rephrased to read: What 
has restricted the volume of output and the rate of introduction of 
new technologies so that all too frequently they have been inadequate 
to draw forth the volume of capital expenditures required to expand 
or to maintain the national income? 

4. The importance of the concentraiion of income and wealth. — Con- 
centration of income and wealth is the most important single factor 
leading to a volume of capital expenditures inadequate for the main- 
tenance and expansion of the national income. The importance of 
concentration lies not in the fact that it leads to a high rate of savings. 
Rather the importance of concentration lies in the fact that savings 
are- made by individuals and groups who do not or will not them- 
selves consume the output of the capital goods which their savings 
can create. Consequently, if a decline in the national income is to 
be va voided, -such savings must be invested in facilities destined either 
(1)- to increase the consumption levels of others or (2) to take business 
a\^ay from existing facilities. The question,, then, is: What prevents 
current and accumulated savings from being used in these ways? 

5. Concentration and shortages of consumer purchasing power. — In 
order that the large volume of savings coi^centr^ted in the hands of 
individuals with high incomes be translated into capital expenditures, 
it is necessary that consumers obtain income sufficient to purchase the 
output of the expanded facilities. For, capital expenditures will not 
be made unless the output of existing facilities can be sold. 

A constant volume of capital expenditures cannot provide con- 
sumers with a volume of the means of payment sufficient to purchase 
the expanding output of an expanding g ipitgil plant. While such 
volumes of expenditures increase produc ive capacity, they do not 
automatically provide for an increase in the means of' payment to the 
consumers of the product. The consequence of this is that the level 
of the national income cannot be maintained unless (1) means of 
payment from sources other than the production of capital goods 
accrue to consumers- or (2) prices decline so that the means of payment 
derived from total current production are sufficient to pay for an in- 



XX SUMMARY 

creased output. But these have not always been of sufficient magni- 
tude to prevent decHnes in the national income. And, sooner or later, 
a constant volume of capital expenditures proves inadequate to 
sustain itself, and, hence, to sustain the national income. 

Thus, under actual operating conditions, the volume of capital 
expenditures must continuously increase if the national income is not 
to decline. And the evidence indicates that the rate of increase must 
be substantial. This means that the national income, must rise at a 
fairly rapid rate or decline. There are no intermediate positions 

Downward price movements may, of course, lower the rate of 
increase in capital expenditures required to prevent declines in 
activity. But in past periods of expanding activity prices have usually 
.increased. Consequently, itr has only been during periods in which 
very unusual factors, such as war, a high level of gold production, or 
a high favorable foreign-trade balance, have been operative that the 
national income has attained high levels. 

It appears that the expansions which do get started under existing 
and recent income, savings, and investment circumstances must sooner 
or later come to a halt. For under such circumstances the increase in 
output of existing and new productive plant seems to outstrip the 
increase in consumer purchasing power, unless an adeqijate com- 
pensatory program intervenes. 

Whether full use of resources will be attained under existing condi- 
tions before an expansion ends seems to depend upon special factors 
such as favorable foreign trade balances and domestic production of 
monetary metals. In the absence of such special factors or of an 
adequate- compensatory program, even a reasonably ,close approxima- 
tion to a full use of resources may not be attained, let alone maintained 
for any long period. 

6^ Further effects of concentration. — An increase in the degree of 
concentration of income and wealth raises the volume of capital 
expenditures requbed to prevent declines in the national income. 
This results from the fact that the volume of savings is less when losses 
and profits accrue to different groups than when they accrue to the 
same groups, even though profits net of losses are the same in both 
instances. 

Not only does an increase in concentration raise the volume of 
capital expenditures required to prevent declines in activity, but it 
also lowers the outlets for such expenditures. This latter is a con- 
sequence of the fact that concentration limits the extent to which 
capital expenditures can or will be made for capital goods to take 
business away from existing facilities.. 



PART I 

PROFITS OF THE CORPORATE SYSTEM 
AS A WHOLE 



CHAPTER I 
INTRODUCTION 

A. THE CORPORATE SYSTEM 

In this study, the corporate system is taken as a whole. No group 
of corporations is omitted. There appears to be no need for a detailed 
formal definition of the corporate system. In broad outline it is 
composed of all business functioning under corporate charters. The 
profit experience of practically aU such businesses is covered by the 
statistics compiled by the Bureau of Internal Revenue from corporate 
tax returns. The Bureau's data cover the returns of financial corpora- 
tions — banks, insurance companies, investment trusts, holding 
companies, etc. — as well as industrial, railroad, utihty, and other types 
of corporations. 

All empirical study of profits must of necessity be limited almost 
exclusively to the profits of corporations. Wliile the Bureau of 
Internal Revenue does require tax returns from both corporate and 
noncorporate enterprise, the noncorporate material tabulated by the 
Bureau is not of sufficient scope and quality to permit of any system- 
atic analysis. Furthermore, there is practically no information on 
the profits of noncorporate enterprise available from other sources. 

Restricting the study to corporate profits automatically omits 
presentation of material covering most' of the firms in the Nation. In 
recent years around 500,000 corporations have filed tax returns with 
the Bureau of Internal Revenue, while the number of firms listed by 
Dun & Bradstreet has averaged upward of 2,000,000.* Thus, the 
corporate system at the present time covers only about 25 percent of 
the firms of the country. But this figure does not provide a true 
indication of the importance of the corporate system in our economic 
life. 

The corporate system has, at least since the World War, produced 
60 percent or more of the net value of goods and services produced by 
all private enterprise. In most major hnes of private enterprise the 
bulk of the business is done by corporations. In only a few areas- 
agriculture, finance, service, and trade — is the noncorporate share in 
excess of or comparable to the corporate share. ^ 

The most acute problems of maintaining high levels of activity 
have arisen in connection with the corporate system, since fluctuations 
in the activit}^ of the corporate system have been greater than in tho 
noncorporate sphere of activity. The corporate share of income 
produced by private enterprise has been lower in years of depressed 
activity than in contiguous years of high activity.^ 

' Dun & Bradstreet release: Vital Statistics of Industry and Commerce. Data a? taken from Investiga- 
tion of Concentration of Economic Power, Eeariiuts before the Temporary National Kconomic Committee 
75th Cong., 3d sess., Part 1, exhibit No. 62, p. 2!>» 

' See appendix I, sec. D. 

' See appendix table VI. 



4 CONCENTRATION OF ECONOMIC POWER 

And the corporate system is important not only because of its 
volume of business and the greater instability of its operations, but 
also for another reason. It contains practically all of the giant 
enterprises in every line of business. While these giants are symbols 
of large-scale productive effort as developed to meet the large-scale 
needs of modern life, they are also symbols of the highly concentrated 
control over our economic life. It is clear even in the absence of 
exact figures that the number of control rooms per dollar of output 
and assets in the corporate system is very small in comparison with 
noncorporate business. And, in the half of the corporate system 
composed of the largest firms, the number of control rooms per dollar 
of output and assets is infinitesimal compared with the number in 
the rest of our economy. 

Finally, the corporate area is the one in which the institutionalized 
techniques of preserving capital values and of exacting the maximum 
profits have been most highly developed. In addition to the efficiency 
and risk-bearing factors, the bases upon which capital values and 
profits -are built are patent rights, price administration, advertising, 
statistics com.piled by the Bureau of Internal Revenue from corporate 
■control of raw m.aterials, etc. ; and these latter have been most exten- 
sively used and perfected by corporations, particularly by the larger 
ones. These specific techniques of attaining a preferred position. in 
the economy^ are covered elsewhere in the testimony and reports of the 
Temporary Na,tional Economic Committee. In this report, "the end 
■ results of the corporate system. — profits and losses — are examined 
in terms of their role in and effects on the economy.- 

B. THE CHARACTER OF PROFIT MEASUREMENTS 

Profit computations are designed to measure Some or all of the 
end results of business operations. The appropriate method of com- 
putation in any particular case depends upon the uses to which the 
measurements are to be put. 

In recognition of both the necessity and appropriateness of molding 
measurements to particular purposes, businessmen and others have 
designed their profit computations so that they will best serve their 
purposes. With variations in purpose, variations in the items of 
income and expense included or excluded occur as well as variations 
with regard to the accounting periods in which items are included. 
But, in spite of the fact that different companies, and even the same 
companies at different times, have used different methods of com- 
putation, all financial statements have been presented and handled, 
particularly in the available profit compilations, as if they were of the 
same type. The consequence of this is that the available measure- 
ments lack precision for almost any purpose other than the specific 
purposes for which they have been prepared. And of course the 
degree of comparability as between time periods for the same com- 
panies and "as between companies is not necessarily great. 

Revisions of the financial statements of individual companies based 
upon a detailed analysis of their records would be required ^o increase 
the precision and comparability of the available figures for the 
purposes for which they are needed in this study. Such revisions, 
of course, constitute an impossible task. It was necessary, therefore, 
to use the available materials in their existing forms, making only 



CONCEiNTRATION OF ECONOMIC POWER 5 

such refinements 9,nd adjustments as were required to attain enough 
precision and comparabihty for the purposes for which they have 
been used. 

It is the purpose of this section to present the general characteristics 
of the available profit measurements. More detailed comment will be 
introduced when such comment is germane to the substantive dis- 
cussion. Technical aspects of the data are covered in the appendixes. 

The all-inclusive measure of profit in terms of money for any 
accounting period is: 

net value of assets at the end of the period 

minus 

net value of assets at the beginning of the period 

plus 

dividends and other equity capital disbursements during the period 

minus 
equity capital received during the period 

all values being stated, of course, in money terms. But, as a practical 
matter, measurements of this kind are typically not made since (1) 
many of the money values required for the computations are indeter- 
minate and (2) even if made, they would not be the most useful 
measurements for the vast bulk of businesses. 

Most businesses want accounting data which will be useful to them 
in their current and future operations as "going concerns." For this 
purpose it would be meaningless to include in the annual statement 
of profit many of the items which would be included in a statement 
of profit prepared in accordance with the definition given in the 
preceding paragraph. To "going concerns," computations directed 
toward showing the annual operating profit or the more inclusive 
current income are far more useful than all-inclusive measurements 
and these are the computations which are made. As a consequence, 
it is from current income statements prepared in accordance with one 
set of accounting procedures or another that aD of the available profit 
measurements are obtained. 

Current income statements are based upon a distinction between 
capital and income. The attem.pt is made to show in the current 
income account only what has accrued to the owners of a business 
from current operations and to exclude any profits or losses resulting 
from changes in capital values. In other words, the current income 
statement as prepared in accordance ^th this principle is directed 
toward measuring the value of the addition to capital from current 
operations and not the total addition to the money value of capital. 

But, in practice, this principle is not rigorously followed. Varying 
amounts of certain items of addition to the money value of capital 
are included in the current income account. Some of the more obvious 
items of changes in capital values are generally omitted as such, 
although they may appear as current income or expense in other forms. 
Other items of this character wliich are difficult to measure are typi- 
cally included. The exact treatment in particular cases depends upon 
a host of practical considerations and is not uniform. For tliis reason, 



CONCENTRATION OF ECONOMIC POWER 

it is worth while considering the general effects of some of the more 
important accounting rules upon the available data. 

For instance, the effect of the procedures used in valuing current 
assets may be illustrated in terms of inventory accounting under the 
valuation rule of cost or market, whichever is the lower. Under this 
rule, realized gains are included in current income even though they 
result from changes in prices; but um*ealized gains are excluded. On 
the other hand, both realized and unrealized losses are included. Con- 
sequently, a price increase during an accounting period is reflected in 
the current income statement for that peripd only to the extent 
realized, and is also reflected in later periods as well, if the price in- 
crease is maintained; on the other hand, a price decline is fully reflected 
in the current income statement for the period in which it occurs. It 
is this type of accounting which explains in part the fact that the 
volume of profit tends to expand gradually during periods of rising 
prices and to contract sharply during periods of declining prices.* 

The extent to which changes in capital values of fixed assets are- 
excluded from the current income account is much greater than the 
extent to which such changes for current assets are excluded. Gen- 
erally unrealized capital value changes occurring during an accounting 
period are not recognized as current income and even when recognized 
enter into the accounts as surplus adjustments. As a consequence, 
many changes m values of depreciable assets are never entered into 
the current income account as such, although they may be reflected 
in the current income statements for various periods during the life 
of the assets. In another manner of speaking, the tendency is to 
enter in the current income account gains (other than those entered 
directly to surplus) from changes in capital values only when they are 
deemed to have been realized. For nondepreciable assets, unrealized 
•changes in capital values- are typically not reflected in the current 
income account either because they are. not recognized or because when 
recognized they are shown as surplus adjustments. 

Treatment of realized changes in capital values of fixed assets varies 
a good deal. The general practice appears to be to show them as 
current income, particularly in tax returns, but frequently they are 
carried to surplus directly. Furtherrnore, similar to the case of cur- 
rent assets, downward changes in capital assets are frequently recog- 
nized as such, but in this case they are carried directly to surplus. 

• That the amount of inventory rcvuluatlocs included in the current inrorce acrounts of a!l business baa 
at times been extremely large is indicated by the following.estimates for 1929-35: 



IMillions of dollars! 










Inventory 
revaluations 


Profits and ios.ses 


Year 


Including Excluding 

inventory inventory 

revaluations revaluations 


1935 


785 

2.131 

2,440 

-1,520 

-3.308 

-4,331 

-712 


3,3S2 

1, 257 

-881 

-6. 193 

-3.718 

912 

8. 5.12 


2 597 


1934 


—874 


1933 


-3,321 
—4 tJ73 


1932 


1931 •. 


-■410 


1930 , " ■ 


5,243 
9,264 


1929 



_ Source: The Conference on Research in National Income and Wealth, Studies in Income and 
wealth, National Bureau of Economic RMp»fch, New York: 1937, vol. I. pt. 4, Kuznets, Simon, 
"Changing Inventory Valuations • * '"^ p. 152. 



CONCENTRATION OF ECONOMIC POWER 7 

The practical reasons why businessmen handle their fixed asset 
accounts as they do are twofold: First, to avoid including in the 
current income account nonrecurrent items which would disturb the 
year-to-year comparability of the account as reflecting normal opera- 
tions; and second, to avoid placing in the current income account 
changes in value of the "permanent" assets of a business which in 
any case do not appear to have anj pertinence to "current operations." 

The effects of the rules underlymg current income accounting are, in 
the end, to provide measurements which tend to lie between the ideal 
all-inclusive profit measurements and the ideal current income profit 
measurements since changes in capital values reflect current output and 
the prices for which that output is sold. But the extent to which the 
actual measurements include the capital value changes must vary 
widely from period to period, since, for example, the extent of realiza- 
tion in particular periods depends upon a number of factors other 
than the change in capital values. It is necessary, therefore, in inter- 
preting the available data to look closely at the economic activities 
out of which book entries in various years have arisen. 

Compared with the ideal current income measurements, the avail- 
able data tend obviously to exaggerate the extent of movements in 
profits. And this is particularly true during periods of decline, when 
the general attitude of conservatism leads to a charging off of un- 
realized as well as realized changes in values. 

Because of the basis upon which the available data have been pre- 
pared, they do not provide, either for the short or long run, accurate 
measurements of profits. In spite of this, however, they can be used. 
to show the general course of profit income, provided qualitative 
allowances are made and the figures are not interp^'eted as accurate 
measurements. But it is necessary at all times to avoid conclusions 
about the volume and movements of profits, the validity of which 
depend upon a high degree of precision in the figures. 

For some purpose^ the current income statement computations tend 
to approximate the ideal measurements. For example, for the purpose 
of showing the flows of funds into and out of a business — and it must 
be recognized that such Hows measure the direct impact of the opera- 
tions of a business upon the economy — the entries in the current 
income account provide some ideal basic data. Of course, current 
income does not measure the net flow of funds, not only because of 
flows through the debt, capital, and cash accounts, but also because of 
the book charges to costs and income contained in the current income 
account. But if those book charges can be segregated, current incoine 
accounts do provide a major portion of the data necessary for deter- 
mining flows of funds. And even when the book charges cannot be 
segregated, it is frequently possible to attain the major objective by 
supplementing the current income figures with data from as^et and 
liability accounts. 

C. NOTE ON THE INDETERMINACY OF PROFITS 

In order to obtain measurements at all, it is necessary to have a 
measuring rod. In a money economy, the measuring rod used by 
business to measure profits and the underlying receipts and dis- 
bursements, is money value. There are, of course, other measuring 
rods which may be used, such as a "real" income or a "social" income 
rod. But to go beyond the money figures poses the problem either 
of converting money profit measurements into, for exHm|>le, "real"' 



g CONCENTRATION OF ECONOMIC POWER 

profit measurements or of making independent measurements of 
"real" profits And this will not be attempted in this report except 
in a few instances. 

A precise measurement of the money value of a good or a service 
can only result from a voluntary exchange between independent 
bargaining agents. And this money value applies only to the time 
at which the exchange of the good or service for money takes place. 
At 'Other times, unless the money value of the good or service is 
fixed, it is an indeterminate quantity. That is, money value can be 
known only as a quantity which falls between the extremes of the 
various possible values. 

Thus, the very nature of the environment in which business trans- 
actions take place, as well as the very nature of those transactions 
themselves, gives rise to the situation in which the vast bulk of busi- 
ness assets at any particular time and in which many items of expen- 
ditures and receipts during an accounting period do not have deter- 
minate money values. While many of the values" required for profit 
computations are definitely determinate, many others cannot be 
rneasured precisefy. As a consequence, profits, no matter what 
types of computation are dictated by their purposes, are not quantities 
which can be measured precisely. 

This does not imply that profits are absolutely nondeterminate. 
Rather, the import is that, at best, only the limits between which 
an amount of profits falls can be accurately determined. The dif- 
ference between the limits in any particular case depends, of course, 
upon the relative extent of the indeterminate values involved and 
upon the size of the ranges for those values. But within those limits, 
profits are. indeterminate quantities. 

The available financial statements do not provide the data necessary 
to compute or even to approximate the accurately measurable limits 
between which amounts of profit fall. They provide no complete 
segregation of the money values — not to mention descriptions of the 
transactions or procedures by which they are determined — required 
for profit computations into the three categories of (1) determinate 
money values based upon exchanges between independent bargaining 
agents; (2) interim approximations of portions of money values 
determinate only in the long run, such as those for depreciable and 
d'epletable property; and (3) arbitrary money values set in transac- 
tions between nonindependent bargaining agents such as those between 
a corporation and its controlling stockholder or in transactions which 
do not involve cash. In place of information of this type, the avail- 
able records either ignore indeterminate money values or assign more 
or less arbitrary amounts to values for which only upper and lower 
limits can be known. 

Unless the measurable limits can be computed, it is impossible to 
deterrnine the validity of a specific profit calculation of the kind which 
is available. For, in that case, not only is it impossible to say what 
the limits are, but it is also impossible to say whether or not the 
specific calculation falls between those hmits. And, in fact, there is 
every reason to. believe that the available accounting records as 
summarized in tax returns and in reports to stockholders do not pro- 
vide profit measurements which bear any consistent relation from 
year to year to the precisely measurable limits. Consequently, such 
measurements can only purport to be crude approximations of the 
money profits of corporations or of the corporate system. 



CHAPTER II 
DOLLAR VOLUME OF CO IPORATE PROFITS 

A. THE HISTORICAL RECORD 



Historically, changes in the volume of profits, in the national income, 
and in business activity have been in the same direction. This is 
shown by the figures in table I, which are plotted on chart I. Thus, 
the profit figures reflect the recessions in business activity in the years 
1909, 1911, 1914, 1924, and 1927, the greater depression of 1929-32, 
the World War boom and ensuing 1920-21 collapse, the expansion of 
the twenties, and the expansion during 1932-37. However, while 
profits, national income, and business activity have moved in the 
same direction, fluctuations in business activity and in the national 
income have been much smaller than the corresponding fluctuations 
in profits. 

Table I. — Profit volume of the corporate system, 1909-37 
[Millions of dollars] 



Year 



Compiled 
net profit 



Intercor- 
porate 
dividends 
received 



Net profit 

after 
intercor- 
porate 
dividends 



Federal 
income 

and 
profits 
taxes 1 



Net profit 

after 
intercor- 
porate ' 
dividends 
and taxes 



1937 
1936 

1935 
1934 
1933 
1932 
1931 

1930 
1929. 
1928 
1927 
1926 

1925 
1924. 
1923. 
1922 
1921 

1920 
1919 
1918 
1917 
1916 

1915 
1914 
1913 
1912 
1911 

1910 
1909 



7,830 
7,771 

5,423 

2,970 

-930 

-3, 829 

— 777 

4,649 
U. 870 
10, 667 
8,669 
9,510 

9,316 
6,795 
7,634 
5,967 
1, 235 

6,499 
8, 858 
8,133 
10, 084 
8,080 

4,500 
2.760 
3,770 
3,800 
2,88f 

3,2f , 
2,8' J 



2,682 
2,677 

3,014 
2. 217 
1,026 

1, 260 
1,969 

2, 571 
2, 593 
1,917 
1, 058 
1,506 

1,175 
915 
870 
803 
509 

531 
370 
421 
600 
500 

360 
350 
380 
340 
320 

320 
270 



5,148 
5,094 

2,409 
753 
-1,9,50 
-5.089 
-2, 746 

2,078 
9,277 
?, 750 
7,011 
8,004 

8,141 

5, 880 

6,764 

5, 164 

726 

5, 968 
8.482 
7,712 
y, 484 
7,580 

4, 140 
2,410 
3,390 
3,460 
2,560 

2,940 
2,620 



1,276 
1,191 

735 
596 
423 
286 
399 

712 
1,193 
1, 184 
1,131 
1,230 

.1, 170 

882 
937 
784 
702 

■ 1,625 
2,175 
3, 159 
2,142 
172 

57 
39 
43 
35 
29 

34 
21 



3, 872 
3,903 

1,674 

157 

-2,379 

-5, 375 

-3, 145 

1.360 
8,084 
7,566 
5,880 
6,774 

6.971 
4,998 
5,827 
4,380 
24 

4,343 
6,307 
4, 553 
7,342 
7,408 

4,083 
2,371 
3,347 
3.425 
2,531 

2,906 
2.599 



' Including war, excels and undistributed-profits f , xi !. 

Sources and methods: Based largely upon U. S T iasury Department, Bureau of Internal Re-enue. 
Statistics of Income, annual vojumes. For other so rr s and details as to methods, see appendix, 1, sec. A. 



10 



CONCE.NTRATION OF ECONOMIC POWER 



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CONCEJS'TRATION OF ECONOMIC POWER H 

The corporate system attained its largest profit volume during the 
4 years 1916-19 and the 5 years 1925-29. These were the periods of 
greatest economic activity our economy has ever known. They were 
the periods in which the fullest use of resources was attained. During 
the World War period, profits before Federal income and profits taxes 
averaged 8.2 billion dollars; during the New Era period, 8.3 bUlion 
dollars. But while dollar profits before Federal income and profits 
taxes were approximately the same in both periods, dollar profits 
after taxes were lower during the World War peripd. This was due 
to the higher taxes levied on corporate profits during the war period. 
Profits after taxes averaged 7 billion dollars during 1925-29 as 
against 6.4 billion dollars during 1916-19. In no year outside these 
two periods have the profits of the corporate system approached the 
8 billion dollar level before taxes or the 6.4 billion dollar level after 
taxes. 

During the entire period since 1909 the corporate system has shown 
losses for only 3 years. These were the years 1931-33, when the 
corporate system showed an average loss of 3.3 billion dollars before 
taxes and 3.6 billion dollars after taxes. And these were the years 
of greatest unemployment our economy has ever known. In only 2 
other years, 1921 and 1934, during the period covered did the cor- 
porate system come close to zero profits. In 1921 profits after taxes 
were about 25 million dollars and in 1934 about 160 million dollars; 
profits before taxes in those 2 years were 730 and 750 milUon dollars, 
respectively.' 

One of the anomalies of our economy has been that years of high 
profits have not invariably been followed by years of high levels of 
national income, of employment, or of profits. This indicates that 
large profits, in and of themselves, are not sufficient for the contin- 
uance of a high level of national income. High profits had been at- 
tained in the periods 1912-13, 1919, 1923, 1925-26, 1928-29, and 
1936-37 after expansion from the low levels of the preceding periods 
of recession or depression. Yet each of these high profit periods was 
followed by a decline in the national income. Furthermore, each of 
the two periods of greatest corporate profits, 1916-19 and 1925-29, 
was followed by an unprecedented decline in business activity. 

Similarly, years of low profits have not invariably been followed by 
years of low levels of activity and of profits. This indicates that low 
profits, in and of themselves, cannot be responsible for a continuance 
of a low level of national income. Each of the low profit periods, 1909, 
1911, 1914, 1921, and 1930-34, was followed by a rise in business 
activity. 

All this implies neither that high profits retard and low profits stimu- 
late business activity nor that the volume of profits has no influence 
on the national income. But it does mean that factors other than the 
volume of profits are at least at some times the major determinants 
of the level of the national income. 

' This does not mean, of course, that Federal income and profits taxes absorbed almost all of the net profits 
of corporations paying such taxes. Corporations subject to such taxes reported net profits (Including tax- 
exempt income) of 4.8 billion of dollars in 1934, and probably of about 4 billion dollars In 1921. See apperdiz 
table XXV. 



J2 CONCEiNTRATION OF ECONOMIC POWEH 

B. HISTORICAL FACTORS UNDERLYING HIGH AND LOW PROFITS 

The unprecedented profits of 1916-19 were associated with the ac- 
tivity growing out of the World War. Corporate profits before 
Federal income and profits taxes increased from an average of 3 billion 
dollars during the 5 pre-war years, 1910-14, to an average of 8.2 billion 
dollars during the war period. This forward surge of profits was, of 
course, the direct result of the huge demand of the Allied powers and 
of our own Federal Government for war materials. 

War purchases by both governmental and private parties were 
largely independent of their current incomes. They were financed 
largely by means of an expansion of both Government and private 
debt. In this country the banking system handled the Federal 
Government's borrowing as well as private borrowing through the 
prr'viously created Federal Reserve System's mechanism of credit 
creation or, more appropriately, of converting latent to spendable 
purchasing power. As a consequence, as full employment was ap- 
proached and the creation of spendable purchasing power continued, 
there were rapid price rises. These price increases not only were 
heavily reflected in current income accounts, but also gave rise to a 
huge volume of capital gains. When realized, such capital gains were 
spendable just as if they were current income derived from the current 
production of goods and services and not merely derived from the 
current production of money values. 

Following the close of the war, Government purchasing tapered off 
and by 1921 had been reduced to "normalcy." Business activity, and 
with it, net profits of the corporate system dropped sharply, the latter 
being almost completely wiped out in 1921. The structure of values 
based upon wartime spending collapsed with the termination of war- 
time spending. The process of converting latent to spendable pur- 
chasing power ceased, and a large part of the purchasing power 
previously created was wiped out. 

. As in the war period the high profits of the New Era were the result 
of a huge demand which was created independently of income arising 
out of current production. But the New Era period differed from the 
war period in that the sources of such demand were more varied. 
While in the war period the overwhelmingly important source was 
the spending of the Allied Powers and of our own Federal Government, 
in the New Era period the major sources of demand independent of 
current income were: 

1. Residential housing construction. 

2. Outlays of State and local governments (partially offset by the 
debt retirements of the Federal Government). 

3. Favorable foreign trade balances. 

4. Consumer credit expansion. 

5. Capital outlays required for the expansion of the electric light 
and power, telephone, and railroad industries (and to a lesser extent 
other industries). 

6. Capital gains which wore realized oil a large scale in the real 
estate and securities markets. 

The mechanism by which the debt expansion and the conversion 
of latent into spendable purchasing powei; was carried out was, of 
course, the same in the New Era and the war periods. But the impor- 
tant point is that in both periods large segment^of the economy were 
willing to spend not only over and above their current incplRP but also 



CONCEiNTRATION OP ECONOMIC POWER 13 

over and above all of their available liquid funds. The financial 
mechanism made it possible for these segments to spend amounts in 
excess of what other segments were saving out of their current 
income. 

The end of the New Era profits was ushered m when the sources of 
spending in excess of current income began to dry up. Residential 
construction reached a peak in 1925; railroad construction in 1926. 
Industrial expansions which had been completed by 1929 found no 
corresponding demand for their products and additional expansions 
were not undertaken. The collapse of the speculative security 
markets in late 1929 not only destroyed capital gains but converted 
them into heavy losses so that consumption spending out of current 
income was deemed by many to be spending out of accumulated sav- 
ings and hence to be curtailed as much as possible. Liquidation of 
inventories previously accumulated began and with it the inevitable 
increase in unemployment. With declining consumer incomes, con- 
sumer credit not only ceased expanding but began to be liquidated. 
Later the favorable foreign trade balance dropped to very low levels 
and the capital outlays of public utilities began to decline. Govern- 
ment spending in excess of current revenue increased, but not enough 
to offset the declining volumes of such spending from other sources. 
Business activity and profits spiraled to the deep depression levels of 
1932. 

In 1931 the corporate system for the first time since the inception 
of the tax on corporate incomes showed not only a loss but a large 
loss. In the 3 years 1931-33 the corporate system showed total losses 
of almost 1 1 billion dollars in contrast with total profits after taxes of 
21.5 billion dollars in the 3 years 1927-29. Net profits after taxes 
declined from 8 billion dollars in 1929 to minus 5.4 billion dollars in 
1932— a decline of 13.4 billion dollars.^ 

The unprecedented 13.4 billion-dollar decline in profits between 
1929 and 1932 was followed by an unprecedented expansion in profits 
between 1932 and 1937. With the rising national income, profits 
after taxes increased from a net loss of 5.4 billion dollars in 1932 to a 
net gain of 3.9 billion dollars in 1937. This 9.3 billion-dollar increase 
represents the greatest expansion in net profit which has ever occurred 
over any comparable number of years, not excepting the expansion 
from the 1921 depression to the 1929 boom level. 

During the recovery following 1932 the Federal Government was 
by far the most important source of spending in excess of current 
income. (Such spending by the Federal Government was partially 
offset bj" debt retirements of State and local governments.) A 
second major source of such spending was the expansion of consumer 
credit at an accelerating rate throughout the period. Business 
capital outlays and inventory accumulations, while they increased 
tremendously during the recovery, do not appear to have involved 
increases in business debt except possibly for a brief period in 1936-37. 
And while outlays on residential housing increased, they remained 
far below the level of the twenty's and do not appear on balance to 
have been in excess of the amounts necessary to provide the equivalent 
of sinking fund accumulations for capital replacements. 

' In interpreting the profit data in table I, it should be remembered that the losses of corporations with 
losses have been deducted from the profits of corporations with profits to obtain the profits of the corporate 
5j'stem net of losses. Consequently, the large losses for the 3 years 1931-33, do not mean that every corpora- 
tion sustained a loss. Even In 1932, profits (including tax-exempt income) of corporations with profits 
totaled between 2.5 and 3.7 billion dollars. See appendix table XXV. 

260751— 41— No. 12 3 



24 conceln'tration of economic power 

C. CONSISTENCY OF CORPORATE PROFITS 

The data in table I indicate clearly that the corporate system has 
consistently reported substantial profits to its stockholders. In only 
3 years — 1931, 1932, and 1933 — did the corporate system report net 
losses; the net losses of these 3 years totaled almost $11,000,000,000. 
And only in 2 other years — 1921 and 1934 — were corporate profits 
near the break-even level— $25,000,000 in 1921 and $160,000,000 in 
1934. In all other years the corporate system reported net profits 
well above the break-even point.^ 

Net profits reported by the corporate system for the whole 29-year 
period, 1909-37, after deducting intercorporate dividends and taxes and 
after deducting the losses of 1931-33, totaled ahnost $102,000,000,000. 
Thus, corporate profits averaged about 3.5 billion d611ars per year 
during this 29' year period. 

But these figures under^state the volume of profits. Not only do 
they take full account of losses occurring through bankruptcy and 
liquidation but they also include some double counting of such losses. 
This occurs when a corporation loses more than its net worth since, 
in that case, not only does it report the full deficit but creditor cor- 
porations report the bad debt losses incurred as expenses. And, of 
course, the figures tend to understate profits because they were 
originally prepared for tax purposes. 

There is an alternative computation of profits which, although 
necessarily based upon very crude figures, confirms the conjecture 
that the annual profit figures understate the total profits for the 
period. Such a computation requires data on dividend payments, 
net worth at the beginning and end of the period, and the issue and 
retirement of equity capital; of these only the dividend figures are 
reasonably adequate, while the remaining figures are extremely crude. 

The net dividend outgo of the corporate system * during the period 
1909-37 was $93,000,000,000. As the corporate system reported 
$102,000,000,000 of net profits, this indicates that retained profits 
were only $9,000,000,000. But other data indicate that the $9,000,- 
000,000 figure for total retained profits is much too low. 

An examination of the balance sheet djita reveals that the net worth 
of corporations reporting to the Bureau of Internal Revenue increased 
by about $94,000,000,000 * during the 29 year period. Increases in 
net worth must come from either (1) net equity capital contributions 
or (2) retained profits, including capital gains. Stock issues, both new 
and refunding, reported during the -1909-?7 period totaled $28,000,- 
000,000.*' Even if it is assumed that the whole of this $28,000,000,000 

' Certain segments of the corporate system— particularly the larger corporations — of cou:;,e, show far 
greater consistency in reporting profits than does the corporate system as a whole. For example, during 
the 3 years, 1931 to 1933, when the corporate system as a whole reported losses, 951 industrial, utility, and 
railroad corporations tabulated by the Standard Statistics Co., Inc., reported profits netof lossos; e^en in 
1932 these 951 corporation.s reported a total of .$375,000,000 of profits net of losses. During the years 1926 to 
1929, inclusive, they accounted for around 45 percent or mote of all corporate profits; in 1930, around 75 per- 
cent or more; and in 1937 around 50 percent or more. Data showing not only the gipater stability of profits 
of the larger corporations but also the large and disproportionate share of all profits accounted for by rela- 
tively few corporations are contained in appendix tables XXVI, XXVH, an<j XXVIII. 

« See table VI, infra. 

' See table II, infra. The 1909 figure is on an unconsolidated basis and the 1937 figure largely on an un- 
consolidated basis. The latter, however, includes capital reserves, whereas the extent to which the former 
does is not known (see appendix I, sec. B). For this discrepancy and possible undercoverage in the 1909 
figure, an adjustment of almost $3,000,000,000 was made in the 1909 figure. 

« See appendix, table IV. 



CONCENTRATION OF ECONOMIC POWEiR 15 

represents additional equity, net of retirements/ created through the 
sale of stock to individuals, there still remains an indicated increase 
in net worth of $66,000,000,000 to be accounted for. Included in this 
$66,000,000,000 residual are the unreported additions to equity capital 
represented by (1) the private distribution of new stocks in exchange 
for unincorporated businesses and assets and in exchange for services 
and (2) intercorporate exchanges of new stock for assets of one kind or 
another. Since the corporate system held such a large share of the 
total business assets in 1909, it is inconceivable that any large propor- 
tion of the $66,000,000,000 represents increases in net worth resulting 
from the private distribution of new stocks to in,dividuals. And, in 
view of the relatively small amount of intercorporate ownership of 
equities, it does not appear that intercorporate exchanges of new stock 
for assets could account for any major share of the $66,000,000,000.* 

On the basis of the available data, it is, of course, impossible to 
obtain any precise estimates of the unreported additions to equities. 
But if they totaled as much as the 28 billion dollars of the reported 
stock issues, this would still indicate retained profits after all losses 
of more than 35 billion dollars in place of the 9 billion dollars indi- 
cated by the annual net profit figures.' And this would imply a 4.5- 
billion-dollar rather than a 3.5-billion-dollar annual average of net 
corporate profits during the 29-year period. 

On the whole, therefore, it may be concluded that the 3.5-billion- 
dollar figure for the average annual net profit of the corporate system 
derived from the reported annual net profit figures is a minimum 
figure. The alternative computation shows that the average annual 
net profit for the period, over and above all losses, was probably in 
excess of 4.5 billion dollars during the past three decades. 

' Retirements, as the term is used here, include only stock purchases by corporations which are shown 
on their books as reductions of net worth. 

' At the end of 1937, invostments other .than Government obligations reported by all corporations totaled 
$85,000,000,000. These investments include bonds, mortgages, loans, real estate, etc., as well as stocks. 
Investments other than stocks held by banks, insurance companies, and building-and-loan associations 
would account for at least $40,000,000,000 of the $85,000,000,000 of investments, leaving at the very most 
$45,000,000,000 of intercorporate holdings of equities. This is obviously a grossly exaggerated figure. Fur- 
thermore, it should be noted that some of the intercorporate holdings of equities are included in the 
$28,000,000,000 stock issue figure. 



CHAPTER III 
THE RATE OF RETURN 

A. THE CHARACTER OF BOOK VALUES OF EQUITY 

To measure the profit rate it is necessary to obtain two figures: 
The amount of profits and the amount of capital employed. The 
capital base which will be used in this discussion is net worth or the 
equity of stockholders. The only figures available measuring the net 
worth of the corporate system as a whole are those of the book value 
of net worth reported to the Bureau of Internal Revenue. These 
figures were not prepared on the same basis by all reporting corpora- 
tions; but, as there is no method of adjusting for the heterogeneity of 
the book data to bring them to a common base, the book figures must 
be taken as they stand. 

Net worth, as recorded on corporate books, bears very little, if any, 
consistent relation, as one might expect, to cost, whether cost be 
defined as actual cost to the current owner, original cost, or replace- 
ment cost. In other words, net worth figures taken from corporate 
books bear no consistent relation to what a corporation actually 
received from investors (including retained profits) or to what a 
predecessor company received from investors or to what a new cor- 
poration would have to receive to duplicate the existing corpara- 
tion. In addition, the book values are based to an unknown extent 
upon money values set in exchanges between nonindependent bar- 
gaining agents; 

A book net worth figure is, by and large, what a corporation (or 
rather the particular individual or group of individuals controlling 
policy in this regard) finds it necessary, convenient, or desirable to 
have as a net worth figure. While small deviations from the desirable 
figure may be tolerated, large ones usually are not. For this reason,, 
surplus adjustments, reorganizations, intercorporate trading of assets 
leading to changed valuations, inconsistencies in classifying expendi- 
tures as capital or expense items, changes in depreciation charges, 
etc., are constantly occurring. 

Table II shows estimates of net worth based upon ofiicial tabula- 
tions of the Bureau of Internal Revenue. These estimates include 
duplications as a result of the failure to eliminate the equity holdings 
of one corporation in another. It would have been preferable to 
obtain net worth exclusive of intercorporate equities but this could 
not be done. The next best thing was net. worth estimates cor- 
responding to net profits before intercorporate dividends. The 
profit figures to be used in computing profit rates are, therefore, those 
shown in table I before the elimination of intercorporate dividends. 

17 



18 



CONCENTRATION OF ECONOMIC POWER 



Table II. — Net worth and indicated book changes in valuation for the corporate 

system, 1909-37 

(Millions of dollars] 





Net worth 
end of year 
(end of year 
valuation) 


Net worth beginning of year 


Indicated book change 
in valuation 


Year 


End of year 
valuation 


Beginning 

of year 

valuation 


End of 1923 
valuation 


During year 


To begin- 
ning of year 
from end of 
1923 


1937 


1 147, 563 
141. 363 

151, 577 
148, 147 
134, 738 
139, 476 
151, 245 

166,449 
164,609 
146, 741 
135, 425 
122,088 

118, 146 
113,553 
103, 907 
100, 720 
98. 430 

96, 975 
88,280 
75, 711 


1 147, 763 
141.609 

152. 679 
150. 597 
139. 065 
147. 453 
158.229 

169. 169 
156, 695 
140, 850 
132. 572 
118. 533 

113,942 
111,113 
100,643 
98,354 
100, 761 

94,494 
83, 026 
73, 480 


(?) 
0) 

(') 

(2) 

139, 476 
151, 245 
166,449 

164,609 
146, 741 
135, 425 
122,088 
118. 146 
113,553 
103, 907 
100,720 
98, 430 
96,975 

88,280 
75, 711 


(?) 
(') 

(2) 

(?) 

114,083 
122,060 
129,044 

131,764 
122, 850 
116, 959 
114, 106 
110, 551 

106, 347 
103, 907 
100,643 
98, 277 
100.608 

98, 127 
92. 873 
90.642 
85. 870 
80,180 

77.827 
77,222 
75,590 
73, 211 
72,194 

70,711 
69,068 


(?) 
(?) 

(?) 

(?) 

-411 
-3,792 
-8, 220 

4,560 
8,954 
5,425 
10, 484 
387 

389 

7,206 

-77 

-76 

3,7$6 

6,214 
7,315 


(') 


1936 


(') 


1935 


(') 


1934 


24, 982 


^933 


25, 393 


1932 


29,185 


1931 


37. 405 


1930... 


32,845 


1929 


23,891 


1928 


18,466 


1927 


7,982 


1926 


7,595 


1925 


7,206 


1924 





1923 


77 


1922 


153 


1921 


-3,633 


1920 


-9.847 


1919 


- 17, 162 


1918 




1917 




















1915 


















64, 071 
61,738 
60,067 
57,886 

52, 371 




-13.151 


1913 3 .. 


64,071 
61.738 
60.067 

57,886 
52. 371 


62, 439 
59, 359 
59,050 
56, 403 
50,728 


701 

708 

1,164 

4,032 


-13.852 


1912' ■ 


-13.144 


19113.. 


-14,308 


19103 


-18,340 


1909.3 . 













> Includes capital reserves not included for earlier years. 

' Available figures omitted because of lack of comparability with other data. 

3 Reliability less than for later years. 

Sources and methods: Based largely upon U. S. Treasury Department. Bureau of Internal Revenue, 
Statistics of Income, annual volumes. For other sources and details as to methods see appendix I, sees. 
A.B.andC. 

Intercorporate equities included in the data expanded greatly in 
the mid and late twenties, probably to a lesser extent in prior years, 
and probably remained fairly stable from 1930-33. The large in- 
crease in the equities reported as of the end of 1935 over the .amounts 
reported as of the end of 1933 is largely the result of the provision in 
the Revenue Act of 1934 which withdrew the privilege of filing con- 
solidated returns from all corporations other than railroads. This 
increase indicates that, exclusive of railroads, there was between 
$15,000,000,000 and $20,000,000,000 of intercorporate equities re- 
flected in the figures for 1934 and 1935 but not reflected in the figures 
for the early thirties. Since 1935, the volume of such duplications has 
been reduced. Such a reduction is indicated by the $10,000,000,000 
difference between the figures reported for the end of 1935 and the 
end of 1936. The major reason for this reduction was the desire of 
corporations to avoid the tax imposed upon intercorporate dividends 
by the revenue acts of 1934 and subsequent years. The increase be- 
tween 1936 and 1937 shown by the figures is due mainly to the 
inclusion of capital reserves as a part of surplus in 1937. 



CONCENTRATION OF ECONOMIC POWER J^9 

The net worth as of the end of the year figures shown in table 1.1 
are the basic estimates. They are the figures reported (after adjust- 
ments explained in appendix I) as of the end of the year. To obtain 
figures for tlie beginning of year net worth on an end of _vear vahiation 
basis, retained profits and stock issues were subtracted from the basic 
estimates. To obtain figures for the beginning of year net worth on 
a begmning of year valuation basis, the basic estimates were moved 
forward 1 year. Thus, the difference between the beginning of year 
net worth on a beginning and an end of year valuation basis, provides 
a rough figure for book changes in net worth durnig the year not 
accounted for by stock issues and -retained profits figures. Figures 
on an end of 1923 valuation basis were obtained by cumulative addi- 
tion (or subtraction) of retained profits and stock issues forward (or 
backward) from the reported end of 1923 book net worth. Thus, the 
difference between this series and the others provides a rough measure 
of the cumulated book changes in net worth over a period of years 
which are not accounted for by stock issue and retained profit figures. 
The data are plotted in chart 2. 

The terms "book changes in valuation" and "revaluation" are used 
here to denote changes in net worth occurring upon corporate books 
for reasons other than the reinvestment of profits and the issue or 
retirement of stock for cash or property. 

The indicated changes in valuation as shown in table II and chart 
2 are only rough approximations for four main reasons. First, the 
retained profits figures are based upon net profits reported for tax 
purposes which are generally recognized as being biased downward. 
Second, the stock issue series does not include all stock issues for 
cash or property. For the Commercial and Financial Chronicle 
series, such exclusions, exclusive of intercorporate purchases of new 
issues, have been estimated as runnirig about 20 percent of those 
publicly offered for cash;' for the Journal of Commerce series, the 
extent of the exclusions is not known. Third, no allowance was 
made for stock issues retired during each year. This omission off- 
sets to some extent the biases in the preceding two items. And, 
fourth, the figures include duplications resulting from double reporting 
when new corporations replace old ones such as in consolidations and 
reorganizations. 

Rough as the estimates are, they indicate, after due allowance is 
made for errors, that substantial revaluations have occurred. Valua- 
tion changes of as much as $5,000,000,000 or more in a single year 
have apparently not been unusual. It must be pointed out, however, 
that these changes, though large in dollar terms, were never as much 
as 10 percent of the contemporaneous net worth figure. It is for 
this reason that comparability of profit rates over the short run is 
not entirely destroyed. 

More important than the valuation changes made during any one 
year are the cumulated changes over a period of years. Cumulation 
of the changes indicates an upward valuation change between the 
end of 1923 and the end of 1930 of $37,000,000,000, and a downward' 
valuation change of about $12,000,000,000 in 1931 and 1932. Be- 
tween the end of 1912 and the end of 1923, there was an indicated 
upward valuation change of $14,000,000,000. These are large not 

' Nerlove, S. H., A Decade of Corporate Incomes, 1920-29. The University of Chicago Tress. 1932. 
p. 72, last footnote to table B. 



20 



CONCEiNTRATION OF ECONOMIC POWER 



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OONCEJ>JTRATION OF ECONOMIC FOWEE 21 

only absolutely but also percentagewise. Between 1923 and 1930, 
the indicated valuation change was about 35 percent and between 
1912 and 1923, almost 25 percent of the intitial book net worth. In 
contrast with these large upward revaluations, the downward revalua- 
tion during the 3 years 1931-33 was less than 10 percent of the end of 
1930 net worth. For recent years, no estimates can be made since the 
elimination of consolidated returns (except for railroads) and the tax 
on intercorporate dividends under the Revenue Acts of 1934 and 
subsequent years has wrought marked changes in the way the figures 
are reported. 

The magnitude of the cumulated revaluations makes it clear that 
over a relatively long period the cumulated book changes in valuation 
may leave practically no significance to be attached to fairly large 
differences in or to a relative stability of profit rates. For example, 
if all of the indicated book changes' in valuation are attributed to 
revaluations and making a substantial allowance for error, there is an 
indication that from the pre-war period to the end of the New Era well 
over half of the change in book value of corporate net worth was the 
result of book changes in valuations. This, of course, introduces a 
substantial downward bias in the rate of return figures during the 
war and New Era periods. 

B. THE HISTORICAL RECORD 

Technically, the most valid profit rate computation from the 
figures developed in this report is one based upon net worth on the 
end of year valuation basis. This is so because both balance-sheet 
and income account data cover the same corporations and are prepared 
in accordance %vith the same accounting procedures. For the begin- 
ning of year valuation figures this is not true since a given corporation 
may change accounting procedures from one year to the next and 
since the same corporations do not report in each year. But the 
error resulting in the net worth figures is likely to be small. Net 
worth figures on the end of 1923 valuation basis are, of course, subject 
to much greater error; still it is believed that they do provide a valid 
basis for indicating the course of net worth exclusive of revaluation 
changes. 

Profit rates computed from data previously discussed are shown in 
table III and plotted in chart 3. In order to obtain a closer approxi- 
mation to the equity capital used during the year, one-half the stock 
issues were added to the figures for each year for the purpose of com- 
puting the profit rates. N adjustments were made for the returns 
covering less than a full year's operations but they appear to be of 
relatively minor importance. The absence of such adjustments tends 
to bias the rate of return figures downward. 



n 



CONCENTRATION OF ECONOMIC POWER 





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CONCENTRATION OF ECONOMIC POWER 



23 



Table III. — Profit rate on net worth of the corporate system, 1909-37 ' 
[Percent of beginning of year net worth] 





Net profit before taxes ' 


Net profit after taxes ' 


Year 


End of 
year valua- 
tion of net 

worth 


Beginning 
of year val- 
uation of 
net worth 


End-f 
1923 vf a- 
tion of .let 

worth 


End of 
year valua- 
tion of net 

worth 


Beginning 
cf year val- 
uation of 
net worth 


End of 
1923 valua- 
tion of net 

worth 


1937 


3 5.29 
5.48 

3.55 
1.97 

-.67 
-2.60 

-.49 

2.74 
7.46 
7.48 
6.50 
7.98 

8.13 
6.09 
7.56 
6.05 
1.22 

6.84 
10.57 
11.05 






3 4.42 
4.64 

3.07 
1.58 
-.97 
-2.79 
-.74 

2.32 
6.71 
6.65 
5.65 
6.95 

7.11 
5.30 
6.63 
5.25 
.53 

5.13 
7.97 
6.76 






1936 










1935 










1934 










1933 


-.67 
-2.53- 
-.47 

2.81 
7.91 
7.74 
7.05 
8.01 

8.16 
6.51 
7.55 
6.04 
1.27 

7.32 
11.58 


-.81 

-3.14 

-.60 

3.51 
9.40 
8.99 
7.54 
8.56 

8.71 
6.51 
7.56 
6.05 
1.23 

6.59 
9.46 
8.96 
11.71 
10.03 

5.77 
3.57 
4.97 
5.16 
3.98 

4.60 
4.17 


-.97 

-2.72 

-.71 

2.38 
7.11 
6.91 
6.13 
6.97 

7.13 
5.67 
6.62 
5.25 
.55 

5.49 
8.74 


-1.18 


1932 

1931 - 


-3.37 
-.91 


1930 


2.97 


1929 

1928 .. 


8.46 
7.99 


1927.. -- 

1926 


6.56 
7.45 


1925 


7.62 


1924 -- 


5.67 


1923 


6.63 


1922 - 


5.26 


1921 


.53 


1920 


4.94 


1919 


7.14 


1918 


5.48 


1917 






9.22 


1916 










9.81 


1915 










5.7a 


1914 * 




4.30 
6.08 
6.28 
4.96 

6.20 




4.24 
6.01 
6.22 
4.91 

6.14 


3.52' 


1913* 


6.02 
6.35 
4.86 

5.76 
5.66 


5.95 
6.29 
4.81 

5.70 
5.62 


4.92 


1912 < 


5.11 


1911 ' 


3.94 


1910* 


4.55 


1909' 


4.14 











• Net profit includes intercorporate dividends and net worth includes intercorporate equities. 

2 Federal income and war, excess, and undistributed profits taxes. 

3 Net worth figure includes capital reserves not included in net worth for other years. 
'Reliability less than for later years. 

Sources and methods: Based largely upon U. S. Treasury Department, Bureau of Internal Revenue, 
Statistics of Income, annual volumes. For other sources and details as to methods see appendix I, sees. 
A, B, and C. 

Judofino: fi-om the profit rates based upon year end book values, tlie 
corporate system has usually earned a moderate rate of return or better 
for stockholders. Since the war the profit rate after Federal mcome 
and profits taxes has, except in 1925, been under 7 percent.^ During 
the war period, of course, the profit rate was considerably above this 
figure. While the data are neither as reliable nor as extensive for the 
pre-war years, they do indicate that profit rates prior to the World 
War were roughly comparable to the New Era level.^ Thus, through 
trust making, trust busting, aiid the turmoil of war inflation and de- 
flation the corporate profit rate based upon contemporaneous valua- 
tions of equities tended to remain within the 5 to 7 percent range. 
And in 1936 and 1937, after recession, i' pression, and recovery, the 
profit rate again approached the same ,e,'el. But all these rates are 
based upon book values adapted to t) e current corporate situation. 

Using the beginning of year valuatic.i of net worth as the basis for 
the profit rate computation does not c'u nge the picture much. Over 

2 Certain segments of the corfwrate system, of course, 6r, .istently report much higher rates of return 
than does the Cflrporate system as a whole. For example ih < industrial corporations tabulated by Stand- 
ard Statistics Co., Inc., averaged about 11. .5 percent on t'luir contempor,.neous net worth in 1928 and 192d 
and over 10 percent in 1937. See appendix table XXIX. 

3 See nnni^nd'y tnhle XXIII. 



24 CONCEJS'TRATION OF ECONOMIC POWER 

the period for which comparable data are available, i. e., through 1933, 
profit rates have tended to be somewhat higher and loss rates some- 
what lower on the beginning of year than on the end of year valuation 
basis. But the fluctuations have been of about the same character. 

Profit rates based upon the end of 1923 valuation show a movement 
entirely different from those based upon either the beginning or the 
end of year valuations. Instead of holding witliin the 5 to 7 percent 
range, by and large, during periods of moderate business activity or 
better, they show a generally rising movement between the pre-war 
period and the New Era periods. Prior to the World War, profit rates 
after Federal income and nrofits taxes based upon the end of 1923 
valuation of equity fiucluj- id around a 4.5 percent level; in the New 
Era period, around a 7.5 percent level. 

It is clear that book changes in valuation over fairly long periods 
have marked effects upon profit rates. Because of this, it is difficult, 
if not impossible, to determine the significance of a particular level or 
movement of profit rates as measured from the Bureau of Internal 
Revenue data. ■ 

In spite of these valuation difficulties, however, the data are useful, 
provided the inherent nature of book value data is not neglected. The 
usefulness arises in terms of the factors and accounting mechanism 
which lead "to particular profit volumes and rates being shown by 
corporate books. And this is largely a question of the factors which 
make particular net worth figures necessary, convenient, or desirable 
for corporations and which determine whether particular items of 
income and cost are carried tlirough the income account to net worth. 

C. EARNING POWER AND BOOK VALUES 

The reasons for book changes of net worth figures are complex. In 
general, it appears that such changes in net worth result largely from 
changes in earning power of corporations or in what certain individuals 
believe the changes in earning power to be. There are, of course, 
certain accounting practices that are generally adhered to by most 
corporations. Cost less depreciation, depletion, and obsolescence, 
with regfard to capital assets, and cost or market, whichever is the lower 
with regard to inventories, are among those practices most generally 
followed. But, when desired, even the effects of these strongly 
entrenched customs can be overcome — by the appraisal method, if 
necessary. And, even an appraisal is not entirely independent of the 
earning power believed to exist in assets. Furthermore, for some 
types of assets there are no cost figures which are independent of 
ideas about earning power. On what, for example, are the book 
values of land, patents, and copyrights based? or the price paid by 
one corporation for the business of another? In all such cases, the 
guiding criteria are tied to opinions as to earning power. 

^ The specific factors leading to revaluations via their effects on 
money earning power, and their relative importance, are difficult to 
determine. In the case of an individual company there are many — 
price changes, demand changes, changes in technology, changes in 
monopolistic position, changes in accounting procedures (voluntarily 
adopted or prescribed by governmental bodies), management changes, 
changes in financial control, and so forth. For the system as a whole, 
it appears that marked changes in price level — particularly in prices 



CONCENTRATION OP ECONOMIC POWER 25 

of capital goods, including land and other natural resources — which 
are maintained over fairly long periods are the major factors account- 
ing for book changes in valuation. When the new price level persists 
over a fairly long period, significant net revaluations of the assets of 
the corporate system tend to occur either as book write-ups or write- 
downs or as a result of intercorporate transfers of assets. 

Only small differences between profit rates on the beginning and on the 
end of year valuations arise, because the volume of revaluation for the 
corporate system in any one year is small relative to total net worth. 
Significant revaluations by any one corporation occur very infre- 
quently — certainly not at a greater rate than once every few years or 
even a decade.^ Furthermore, revaluations of major magnitude are 
generally not made in terms of the short-run environment of a cor- 
poration, but rather after a fairly long history of operations inconsistent 
with book values. Custom appears to endow figures once put on the 
books with a large amount of sanctity. Consequently, a backlog of 
contradictions between the entrenched book figures and the operating 
results must be built up before revaluations occur. And since different 
corporations have different histories and different individuals have 
different sensitivities, revaluations tend to be sporadic for individual 
corporations (whether internal or as a result of intercorporate asset 
transfers) and spread out over long periods in the mass. 

Thus, it is between the profit rates based on the end of 1923 valua- 
tion and the profit rates based upon either the beginning or the end 
of year valuation that the major differences occur. Conditions con-: 
ducive to revaluations in one direction must exist for a relatively long 
period before the cumulated revaluations begin to have a significant 
effect upon corporate profit rates. Sharp price changes, for example, 
would not lead to revaluations until after a new level had been main- 
tained for some time or prices continued to move in the same direction 
as the original movement for some time. 

The necessary conditions for mass revaluations existed from some 
time during the World War period through 1933 or 1934. Since 1933 
the picture has not been clear. But it is doubtful that conditions 
have been of a type conclucive to large net revaluations for the system 
as a whole. For example, there probably was a backlog of write- 
downs growing out of changes from the depression and New Era con- 
ditions; at the same time there was a growing force for .write-ups as 
a result of price and profit increases between 1932 and 1937. 

Prior to 1921 profit rates computed on the end of 1923 valuation 
basis were less than those computed on a beginning or end of year 
basis. ^ Upward revaluation on a substantial scale began sometime 
during the war period. The lag behind the rapid price and profit 
rises was probably shortened by the excess-profits tax enacted in 1917 
and the war-profits tax enacted in 1919. While the profits taxes, 
because based upon invested capital, tended to stimulate early reval- 
uation, they also probably acted to limit the extent of revaluation 
through restricting dollar profits after taxes. Other elements limiting 
the magnitude of revaluation, which might have been expected from 
a 100 percent increase in capital goods prices and an even greater 
increase in profits, were doubts as to the amount of price and profit 

' There arc some few corporations which have independent appraisals made annually, but this is rare. 
' General information indicates this must have been true for the war period for which overall data are 
not available. ' 



26 CONCENTRATION OF ECONOMIC POWER 

increases to be permanently retained and the relative shortness of 
the period available to digest the changes in the position of capital. 

The process of revaluation growing directly out of the war period 
price, profit, and tax conditions apparently ended in 1920. With 
rapid deflation in progress in late 1920 and 1921, it was natural to call 
a halt to book changes until the new price and profit situation had 
been clarified. While revaluations by 1920 totaled about 15 percent 
of the pre-war net worth, the}'^ were apparently incomplete with 
reference to post-war prices and profits. It is to be presumed that 
the book values at the end of 1923 incorporated the residual war 
effects on values only in terms of the collective profit anticipations 
of the corporate system. 

After 1923, however, an expanding profit volume developed while 
prices of capital goods remained at almost twice the pre-war level. 
The stage was set for the surge of revaluations which began in 1924 
and continued through 1930. Net worth at the end, of 1930 contained 
a revaluation itenl of over $35,000,000,000 cumulated from the end of 
1923. This amounted to about 35 percent of the end of 1923 net 
worth. 

Year by year, revaluations were just enough to keep the profit rate 
within the 5 to 7 percent range. But on the basis of the 1923 valua- 
tion, the profit rate increased from an average of less than 6 percent 
in 1922 and 1923 to an average of almost Sji percent in 1928 and 1929— 
an increase of almost 40 percent. 

The dift'erences between the profit rates on the end of 1923 valuation 
basis and those on a current valuation basis indicate that the difference 
between the post-war and pre-war price levels was a major factor 
behind the' profit showing of the twenties. In spite of revaluations 
through 1920, the valuation base underlying a considerable proportion 
of capital assets was far below the valuation base current in the 
twenties. As a consequence, owners of capital assets — particularly 
corporate owners — were placed in a strategic position to capitalize the 
changes in the price level of capital assets, except so far as technology 
made their holdings obsolete. And even rapid technological change 
cannot make any large portion of the capital assets obsolete during a 
short span of years. For no more than a fraction of the corporate 
productive plant can be replaced in the course of a decade.^ In es- 
sence, propert}^ owners as a group were able to extract the "unearned 
increment" from the change in the valuation base for capital assets. 
On the books of the corporate system, this was reflected in part by 
net upward revaluations of capital assets and in part by higher dollar 
profits. For individuals, it was reflected in high capital gains and 
high dividend receipts. 

During the Great Depression downward revaluation started in 1931 
and continued at least through 1933. The operation of the profit 
and price factors are* evident. Capital goods prices declined about 
20 percent while profits were turned into losses. About a third of the 
1923-30 revaluations was written off by the end. of 1933. As a 
result the loss rates in 1931, 1932, and 1933 were 5 to 10 percent 

« DurinR the 7 years, 1923 to 1929, business gross and net business capital formation totaled $67,000,000,000 
and $24,0(K1,000,0(X), respectively (Kuznets, Simon, National Income and Capital Formation, 1919-35. 
National IJureau of Economic Research, Inc., New York, pp. 40 and 48). The.se figures covering both cor- 
porate and noncorporate ent<Tprise may be compared to about $120,000,000,000 of corporate capital assets, 
after reserves, at the end of 1929. Certainly no more than a half of the capital assets ol the corporate system 
existing at the end of 1929 could have been valued on an original cost based upon the late war and New Era 
price levels. 



CONCENTRATION OF ECONOMIC POWER 27 

higher on the revahied basis than upon the end of 1930 valuation 
basis. Even so, the maximum loss rate — occurring in 1932 — -was less 
than 3 percent after taxes. And for the 3 loss years (1931-33) com- 
bined, only about 4.5 percent of the net worth of the corporate sys- 
tem disappeared. In view of conditions during those years, this is a 
striking illustration of the ability of the corporate system to conserve 
its capital, both in money value terms and in terms of its ability to 
function. 

By 1936-37, the profit rate based upon current book values was near 
the 5 to 7 percent range of the twenties, running around 4.6 percent 
after taxes.^ Revaluations apparently played a very small role in 
the profit record of 1934-37. First, a great part of the depression 
inconsistency between profits and book values had disappeared by 
1935. Second, the current price level of capital good^was com- 
parable to the prices upon which the book values of coital goods 
purchased in earlier years were based. In view of the under use of 
resources and the lack of a tremendous disparity betAveen current 
prices and values underlying capital assets the 4.6 percent profit rate 
in 1936-37 compares favorably with the rates of the twenties. There 
is no indication that the profit potentials of the corporate system 
have been impaired. In fact, there is every indication that, given an 
adequate volume of business, the profitability of the corporate sys- 
tem would be as great as it has ever been. 

There is little evidence of any long-term change in the profitability 
of the corporate system. Aside from the war period, the New Era 
appears to have been more profitable than both the pre-war and the 
recent recovery period. However, a good part of the profit rate dur- 
ing the twenties can be attributed to the price upheaval engendered 
by the World War. Had both net worth and costs been based upon 
New Era prices, the general level of the profit rate would have been 
lower than that shown by the data. 

D. SIGNIFICANCE OF THE ANALYSIS OF PROFIT RATES 

There are four conclusions indicated by the analysis of this chapter. 

1. The interdependence between earning power and asset values 
makes rate of return figures unreliable as measures of profitability. 
It is this interdependence between earning power and asset values 
which account for the comparative stability of profit rate figures for 
the New Era when the computations are based upon contemporaneous 
book values of assets.^ And probably the declining profit rate figures 
shown by a recent study ^ for the first decade and a half of the century 
are the result of the same element of dependence. As a consequence, 
the profit level indicated by computations based upon contemporan- 
eous book values in periods such as 1910-14 and 1922-29 tend to be a 
measure not so much of profitability as of the "fair" profit rate to which 
book values of the corporate system are adjusted. And tliis "fair" 
level seems to fall in the 5 to 7 percent range. 

' The 1937 figure shown by the data is 4.4 percent. The difference between the 1936 and 1937 figures arises 
largely because of the inclusion of capital reserves in net worth for 1937. 

» See, for e.xample, Nerlove, op. cit., ch. VII; Epstein, Ralph C, Industrial Profits in the United States, 
National Bureau of Economic Research, 1934; and Crum, W. L., "Cyclical Changes in Corporate Profits," 
The Review of Economic Statistics, vol. XXI, No. 2 CMay 1939), table 2, p. 54. 

•Epstein, E. I., and R, A. Gordon, "Profits of Selected American Industrial Coroprations, 1900-1914," 
The Review of Economic Statistics, vol. XXI, No. 3 (August 1939) table I, p. 125. A portion of the table is 
shown in appendix III. 



2g CONCEOSfTRATION OF BOONOMIC POWER 

2. As measurements of the all-inclusive money profit income of the 
corporate system, the data in table I for 1909-32 are warped roughly in 
accordance with the indicated change in valuation figures shown in 
table II. For the New Era and World War periods, the under- 
statements of such profits. were substantial; for the period of Great 
Decline between 1929 and 1932, the overstatements of profits and the 
understatements of losses were substantial. And it is probable that 
such profits since 1932 have been grossly understated. In short, the 
accounting practices designed to omit profits not of a "current income" 
nature from the profit account eliminate a good share of the fluctua- 
tiong of such profits from the available data. 

3. As measurements of the profits of the corporate system, exclusive 
of changes in capital values, the data in table I for 1909-32 are warped 
roughly inversely with the indicated change in valuation figures 
shown in table II. For the New Era and World War periods, the 
overstatement of such profits is great while for the 1930-32 period the 
reverse is true. Since 1932, the picture is not clear, but it seems 
probable that the data understate the amount of current income. *'' 

4. In terms of the purchasing power of the profits accruing to 
stockholders, it is difficult to draw any definite conclusions for all 
periods. From the viewpoint of "real" gains, the mass revaluations of 
the twenties definitely indicate that the corporate stockholders had 
gaiiied as a result of the World War activities far more wealth than 
even the high profit figures of the World War and New Era periods 
indicate. Tliis'is so because they were able to maintain the money 
values resulting from the price upheavals engendered by the World 
War by reason of the high level of capital goods prices relative to other 
prices during the New Era. What the "real" profits of the corporate 
system were during the post New Era deflation is far from clear. 
Had stockholders found it necessary to liquidate the system in 1932, 
it is certain that their losses would have been far greater than those 
indicated by the profit figures. But this did not have to be done and, 
since 1932, much of the capital value which had disappeared by 1932 
has been validated. 

i» The reason for this lies in the fact that the changes in capital values between 1929 and 1932 were not 
fully entered upon corporate books by 1932. So far as the unrecognized changes were not validated later, 
charges to costs would tend, because on balance the unrecognized changes appear to have been downward, 
to be based upon higher than current capital values. 



CHAPTER IV 
THE PROFIT MARGIN 

A. THE NATURE OB THE DATA 

Business ordinarily computes its profit margin as the ratio of profit 
to gross receipts. But a more appropriate and significant computation 
and the one used in this study is the percentage which profits bear to 
the net product of business. The net product of, or income produced 
by, business is a better measure of the contribution which it makes to 
the national output than is the sum of the gross receipts of individual 
businesses. This is so because such a sum includes a large volume of 
duplications. 

The net product of (or income produced by) the corporate sj^stem is 
usually taken as the net value of commodities produced and services 
rendered ; or the gross value of goods and services produced minus the 
value of raw materials and of capital equipment consumed; or the 
total of an incomes accruing to employees and owners of equity and 
borrowed capital. Omitted from the net product are realized and 
unreahzed gains or losses from the sale of capital assets. This concept 
of income produced is the same as the one upon which the official 
estimates of the national income, prepared by the United States 
Department of Commerce, are based. ^ 

No accurate measurement of the net product of, or the income 
produced by,_^he corporate system has as yet been made. Conse- 
quently, the estimates presented in table IV can be considered only in 
the nature of first approximations. In spite of the crudeness of the 
estimates, however, they do provide a measure of the general level and 
of the direction of the movements of the net product.^ 

The two most serious inadequacies of the estimates are: (1) they 
probably underestimate the growth of corporate enterprise; and 
(2) the figures for 1909-18 are not strictly comparable with those for 
the later years. 

A comment with regard to the treatment of taxes is pertinent. In 
the measurement of national income produced, all taxes are considered 
as payments for services received by business-and not as part of the net 
product of business. This treatment of taxes assumes either that 
taxes are payments for services rendered by government, or that 
business functions merely as the tax collecting agency for govern- 
ment, or both. This treatment, of course, oversimplifies the situation 
and dodges the important question of the incidence of taxes. For 
the purpose of measuring the share of the net product which is profits, 
some refinement technically should be introduced. But in view of 
the crudeness of the existing estimates of corporate income produced, 
no such refinement was considered worth while. The estimates in 

I Nathan, Robert R., Income in the United States, 1929-37, U. S. Department of Commerce, Bureau of 
Foreign and Domestic Commerce: Washington, D. O., November 1938. pp. 3-7. 

260751— 41— No. 12 4 29 



30 



CONCKiXTltATION OF ECONOMIC l^OWER 



table IV are, therefore, exclusive of taxes. In appendix I, section D, 
computations, inclusive of Federal income and profits taxes, are 
shown as well as details concerning the derivations of the estimates. 
With regard to the validity of comparisons between the income 
produced and the profit series, it may be noted that both are based 
upon the same type of "current income" concepts. However, the 
profit series include certain realized capital gain and loss items which 
the income ])roduced figures exclude for 1929 and subsequent years, 
although both series exclude, by and large, the so-called unrealized 
capital gains and losses. The effect of this is, of course, to introduce 
small relative biases in the profit margin figures in terms of the 
relative differences in the volume of realized capital gains excluded 
from the income produced figures. 

Table IV. — Income ■produced by and net profit of the corporate system, 1909-37 
[Money figures in millions of dollars] 



Year 


Income 
produced 
by the cor- 
porate 

system ' 


Net profit 
of the cor- 
porate 
system 2 


Net profit 
as percent 
of income 
produced 


Year 


Income 
produced 
by the cor- 
porate 
system 


Net poflt 
of the cor- 
porate 
system 


Net profit 
as percent 
of income 
produced 


1938 


33,0.57 
39, 450 
34, .590 
29, 186 
20,146 
21,822 
20, 230 
29, 434 
39, 054 
48, 350 
45, 735 
43, 328 
14, 522 
42, .S38 
39, 715 






1923. .._ - 


41,111 
34, 242 
28,039 
40.915 
38, 042 
31,381 
30, 352 
27, 025 
20, 884 
18. .5.51 
•10.794 
19,0.53 
17, 1.52 
17, 128 
10,038 


5,827 
4,380 
24 
4,343 
0, 307 
4, 5.53 
7,342 
7. 408 
4,083 
2,371 
3,347 
3, 425 
2, ,53! 
2, 900 
2, 599 


14.17 


1937 


3,872 

3,903 

1, 074 

157 

-2.379 

-5,375 

-3, 145 

1,306 

8,084 

7, 560 

5, 880 

0,774 

0,971 

4,998 


9.81 

11.28 

5.74 

.00 

-10.90 

-20. .57 

-10.08 

3. .50 

16. 72 

10. .54 

13. .57 

1,5.22 

10. 27 

12. ,58 


1922 

1921 

1920 

1919 

1918... . 

1917 


12.79 


1936 


.09 


1935 


10. 01 


1934 


10. 58 


1933 


11.51 


1932 


24.19 


1931 . 


1916 


20 82 


1930 

1929 


1915 

1914 

1913.... 

1912.. 

1911 

1910 


19. 55 
12.78 


1928 

1927 


10.91 
17.98 


1920 . . . 


14. 70 


1925.. 


10.97 


1924 . 


1909 -. 


16. 21 







• Excludes taxes. 

2 Excluding intercorporate dividends and Federal income and war, excess, and undistributed profits 
taxes. 

Sources ami methods: See appendix I, sees. A and D. 



B. THE HISTORICAL RECORD 

During the period for which data are available, the profits of the 
corporate system have consistently accounted for a substantial part 
of corporate income produced. This is shown by the data in table 
IV and plotted in chart 4. In years of moderate activity or better, 
exclusive of the war period, profits have ranged between 10 and 18 
percent of the net product of the corporate system. During the 
New Era period, 1922-29, profits averaged about 15 cents out of 
every dollar of income produced by the corporate system. During 
the war period, 1915-19, the profit margin ranged between 14 and 
27 percent of income produced. 

Only in years of extremely low activity, such as 1921 and 1931 
through 1934, did the profit margin fade away or disappear. In 1921 
the profit margin practically disappeared, amounting to less than 0.1 
percent. At the very low levels of the national hicom'e in the 3 years 
of deepest depression, 1931-33, corporations reported net losse^ equal 
to tFj cents for every dollar of hicome produced by them. In 1932, 
the worst depression year, the corporate system produced only 



CONCENTRATION OF KCOxXOMIC POWER 



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32 CONCEJs'TBATION OF ECONOMIC POWER 

$20;000,000,000 of national income and reported a loss of over 
$5,000,000,000 as a result; the book cost of the output of that year 
was over $25,000,000,000.^ But it should be noted, however, that 
the corporate plant, during this period, was operating at the lowest 
level relative to capacity of any period for which records are available. 

There has been a direct relationship between the profit margin and 
the volume of output relative to capacity of the corporate system. 
Corporations have obtained much more than a proportionate share of 
increases in corporate income produced during periods of rising 
activity; they have absorbed much more than a proportionate share of 
decreases in corporate income produced on the decline. This is a 
well recognized relation.^ . 

For the shorter periods 6i rising or falling activity, the data in 
table IV bear ample testimony to the relation between volume and 
profit margins. The explanation lies partly in the lowering of unit 
costs as output expands and the increasing of unit costs as output 
contracts attributable to efficiency and overhead cost factors. This 
is particularly true when capacities are relatively fixed as they are for 
the corporate system as a whole during the short run. But of equal 
importance in the rise and decline of the volume of profit are the 
typical expanding and contracting margins between costs and prices 
resulting from differential price movements during periods of rising 
and declining business activity. The effects of such price movements 
upon the volume of profits are s\iperimposed upon the effects of 
technical efficiency and the scale of output. 

For the longer run, the evidence of definite trends in the. profit 
margin is not so clear. Even so, it appears possible that at times 
there rnay have been a discernible tendency for the profit margin to 
rise over fairly long periods. During the 8 years of sustained activity 
of the twenties — 1922-29 — there was an increase of over 20 percent in 
the profit margin — from 13.5 percent in 1922-23 to 16.6 percent in 
1928-29. This shift seems to be more than can possibly be attributed 
to defects in the estimates of corporate income produced. 

On the basis of the data, no accurate comparison can be made 
between the New Era and pre-war profit margins. The figures in 
table IV would indicate a slightly higher profit margin during 1909-14 
than in 1922-29.* However, the underlying figures are not prepared 
on a sufficiently similar basis to warrant such a conclusion. About all 
that can be concluded from the data is that profit margins were 
roughly of about the same order of magnitude in the two periods. 

In spite of the large increase in corporate profits during the re- 
covery movement, the 1936 and 1937 profit m.argins remained con- 
siderably below the level of the twenties. The most im.portant factor 
accounting for this difference in profit margins was the m.uch lower 
rate of capacity use during 1936-37 relative to the twenties. Even 
tlae depressed years of the New Era did not have as low a use of ca- 
pacity as the peak m.onths of 1936-37. For this reason, the m.ore 
appropriate "comparison is not with the New Era as a whole but with 

' If the net realized capital losses included in the profit figures had been included in the income-produced 
figures, the profit margin figure would be even lower. 

3 For example, in commenting upon the profit increase between the first three quarters of 1939 and the 
corresponding 1938 period, the National Industrial Conference Board said, "A more rapid recovery in 
earnings than in production is normal * * *." The Conference Board Economic Record, vol. I, No. 16 
(November 21, 1939). 

< The reverse is true for profits 'lefore Federal income and profits taxes as a percentage of income produced 
plus those taxes. See appendix table VII for data. 



CONCEQSTTRATION OF ECONOMIC POWER 33 

1922 and 1924 in which the margin averaged 12.7 percent. For 1936, 
the profit margin was 11.3 percent; but in the -latter half of 1936 
and the first half of 1937, the margin must have been considerably- 
higher judging from quarterly indexes of profits.* Thus, taking into 
account the rate of capacity operations, profit margins in 1936-37 
were comparable to those in the twenties.^ 

C. OUTPUT AND PROFITS 

The income produced figures do not, of course, provide measure- 
ments of changes in the physical output of goods and services. But 
a. ratio between a change in profits and a change in income produced 
does give a measure of the proportion of a change in output which 
accrues to corporations since such a ratio is invariant with respect to 
price level and relatively invariant with respect to price changes. 
Such ratios, therefore, do indicate the marginal relation between profits 
and the level of output on the assumption that capacity is fixed and 
in the short-run the capacity of the corporate system is in fact 
relatively fixed. 

For the purpose of determining the relation between profit volume 
and the level of output, the ratios of annual profit changes to annual 
income changes should be classified by the percent of capacity uti- 
lized in the first year and then further classified by the percent of 
capacity utilized in the second year. No data are available for mak- 
ing such a cross-classification. In place of a classification of year-to- 
year changes in terms of capacity utilized in each of the 2 years, a 
classification based upon the "cycle phase" has been used as an ap- 
proximation which, while undoubtedly crude, is nevertheless fimda- 
mentaily sound. The results are shown in table V and plotted in 
chart 5. 

The constancy of the profit change ratios within each "cycle phase" 
group shows that the quantitative relation between corporate profits 
and output" has not changed substantially during the past 25 or 30 
years. This appears surprising in view of the many and marked 
changes in technology, structure, and governmental intervention 
during the period. But, nevertheless, the functioning and results of 
the corporate system have remained of the same nature. During 
each phase of recovery and recession, the relation between year-to- 
year changes in income produced and in profits has been about the 
same. 

The data show that the ability of the corporate system to increase 
its share of increased output is at its height during the early stages of 
recovery from a relatively deep depression. The profit margin 
expands very greatly and the bulk of the increased corporate income 
produced goes into the corporate profit account. The three most 
comparable periods for this phase of recovery are 1914-15, 1921-22, 
and 1932-34. In the first two, around 70 cents out oi every doMr 
increase in corporate income produced went into the corporate profit 
account. In the 1932-34 period, the corporate profit account absorbed 
10 percent more than the difference between the average 1933-34 and 

» See appendix III for the quarterly indexes of profits. 

« Cf. Davidson, Clinton, Jr., "The Myth of Profitless Prosperity," a speech delivered on April 8, 1940 
and reprinted in the Verbatim Record of the proceedings of Temporary National Economic Committee 
the Bureau of National Affairs, Inc., Washington, D. 0., 1940, vol. 13, •'Exhlljlt No. 2438," pp. 57-61. 



34 



CONCEuXTRATION OF ECONOMIC POWER 



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CONCEiNTRATION OP ECONOMIC POWER 



35 



Table V.- — Changes .in net profit of and income produced by the corporate system 
during various cycle phases, 1^09-37 



Years 



(1932+1933)-(1934+1935) . 

193^-33 

1933-34 

1921-22 

1914-15 



(1934+1935)-1936. 

1934-35 

1935-36 

1927-28 

1924-25 

191S-191 

1915-16 

1911-1912 « 



Net cbange (millions 
of dollars) 



Income 
produced 



Net profit 



Profit 
change per 

dollar of 
change in 

income 
produced 

(dollars) 



Early recovery 



6,640 


4,793 


1,592 


2,996 


4,324 


2. 536 


6,203 


4,356 


2,333 


1.712 



.722 
1.882 
.586 
.702 
.7.34 



Intermediate recovery 



1936-37... 
1928-29... 
192.5-26... 
1922-23... 
1919-20... 
1916-17... 
1917-18..^ 
1912-13 '. 
1909-10 >. 



1929-30... 
1926-27... 
1923-24... 
1920-21... 
1913-14... 
1910-11 ». 



1931-32. 
1930-31. 



6,924 


2,987 


3,040 


1,517 


5,404 


2,229 


2,407 


1,686 


3,123 


1,973 


6,661 


1,754 


6,741 


3,325 


1,901 


894 



.431 
.499' 
.412 
.700 
.632 
.263 
.493 
.470 



Peak recovery 



4,866 


-31 


2,615 


518 


1,684 


-197 


6,869 


1,447 


2,873 


-1,964 


2,727 


-66 


741 


-78 


1,029 


-2,789 


1,090 


307 



-.006 

.198 

-.117 

.211 

-.684 

-.024 

-.105 

-2. 710 

.282 





Early decline 


-9,296 


-6, 718 


-1,194 


-894 


-1,396 


-829 


-12,876 


-4,319 


-1,243 


-976 


24 


-375 



.723 
.749 
. .594 
.335 
.785 
-15.625 



Late decline ' 




- ' Income produced data for the 2 years are not strictly comparable; see appendix I. 
' Overlapping of recovery phases greater than in other periods because of shorter period of fluctuations. 

Sources and methods: Computed from data in table IV. . 

the 1932 income produced. But the more appropriate comparison 
appears to be between the average for 1934-35 and the average for 
1932-33 because the average rates of capacity operations in those 
periods appear to have been more comparaole with those in the 1914- 
15 and 1921-22 periods. This indicates that about 70 cents of each 
dollar of expansion of income produced became corporate profits — 
about the same relation as during the earlier periods. 



36 CONCEiNTRATieN OP ECONOMIC POWER 

With respect to the intermediate stages of recovery, the data show 
that the profit margin increases less rapidly than in early recovery 
and roughly half of the increased corporate income produced goes 
into the profit account. It is during such periods that the savings 
from the spreading of overhead costs begin to be offset by the addi- 
tions to overhead costs resulting from the installation of new capaci- 
ties. Some output increases have to bear their proportionate share 
of the current overhead cost burden in contrast with the early recovery 
situation in which most of the output increases do not involve in- 
creases in overhead costs. Furthermore, the differential price and 
wage movements begin to narrow down. And, finally, inventory- 
accumulations represent some of the output increases on which only 
realized profit increases are entered on corporate books, so that on 
this account alone the profit margin as shown by the figures tends to 
decline. 

As an intermediate stage of recovery develops, the profit margin 
apparently continues to advance but at a declining rate. During . 
such a development, only small savings are possible through spread- 
ing overhead costs ; more and more of the increases in output have to 
bear their proportionate share of overhead costs; and the lowering 
effects of inventory accumulations on the profit margin figures tend 
to increase. In addition, participants in production attain greater 
and greater equality in bargaining or competitive position. As a 
result earlier gains in the profit margin made through diflferential 
price and wage movements are partially lost while anv currently 
developed are of relatively small magnitude. 

Thus, the corporate system reaches a position during the course 
of expansion where the profit margin on increments of business is 
smaller' than on the total business. At this point, the profit margin 
on total business is about- 15 percent, or perhaps somewhat greater. 
Fifteen percent seems to be the figure above which the profit margin 
cannot rise except during unusual periods of demand and sustained 
operations near full capacity such as occurred during the World War 
period and perhaps during 1928-29. It appears to represent a level 
of profit which the economy cannot maintain for any long period in 
the absence of unusual demand, and whenever attained has presaged 
a decline in activity. 

Whether attempts to continue expanding the profit margin after 
high levels of profits and activity have been attained, or whether high 
profit margins in themselves ^ have been the stumbling blocks in the 
way of sustained high rates of activity, is a moot question difficult to 
answer. It is clear, however, that by the time reasonably full use 
of resources has been attained, the profit margin has also attained a 
high level and that, in spite of high profit margins, business activity 
and profits have started to decline. 

The behavior of profits and output during periods of expanding 
activity points to the inability of the business system to adjust its 
activities in such a way jas to maintain a high level of national income. 
During early and intermediate recovery, the business system is in a 
relatively passive role; profit accounts are fattened largely as a con- 
sequence of increases in demand which lead to increases in output. 
During such periods, the volume of capacity expansion, while moder- 
ate, apparently involves a volume of investment expenditures sufficient 

'Via their effects on savings, Wfth regard to which see ch. VII, infra. 



CONCENTRATION OF ECONOMIC POWER ^'J 

Xcf fulfill the necessities of such periods. But as high levels of output 
are attained the necessities for maintaining or expanding the national 
income are either (1) to increase the rate of capacity expansion so that 
investment expenditures are adequate for a high national income, or 
(2) to adjust prices, profits and other elements so that a high national 
income can be maintained with only a moderate rate of Capacity ex- 
pansion, or (3) both. And the business system has been unable to 
fulfill such requirements with the result that business declines of 
greater or less magnitude have occurred all too frequently. 

The 1936-37 experience is particularly worth while examining in 
this connection. It is the one occasion during which recovery did not 
attain relatively full dimensions in terms of the available resources. 
In spite of the fact that there was a considerable underuse of resources 
in 1936, the profit margin had approached the level typically associated 
with a much higher level of resource use — as, for example, in 1927, 
1924, and 1922. . And the reason high profit margins became associated 
with a low level of use of capacity lay largely in the rapid price increases 
of the latter part of 1936. 

In spite of the imbalance in late 1936 and early 1937, prices con- 
tinued to advance as the attempt was made to raise the profit margin 
to full recovery levels. For a few brief months, profit margins un- 
doubtedly advanced, intrasystem profits on inventory accumula- 
tions, which were later canceled, being an important factor. But 
the burden on purchasing power was too great and as in earlier periods 
the system was unable to sustain itself for more than a few months. 
In effect, the drive for higher profits had negated itself by arbitrarily 
placing a limit upon the extent to which existing capacities could be 
used. The resulting behavior of the profit margin between 1936 and 
1937 was the same as at full recovery levels in earlier years. 

During the early stages of recession, there is a decline of about 
70-75 cents in corporate profits for each dollar of reduction in cor- 
porate income produced. This is shown by the figures for the periods, 
1913-14, 1923-24, 1926-27, and 1929-30. The 1920-21 figures indi- 
cate a much smaller proportionate decline in the profit account but 
this is probably the result of the inclusion of both the early and late 
stages of decline in that period. A large share of the decline in profits 
relative to income produced is accounted for by the practice of record- 
ing both realized and unrealized" inventory losses during periods of 
declining prices. Another portion arises because of the effects of 
inventory liquidation upon the profit margin figures since the income 
produced figures exclude the decline in inventories while the profit 
figures include any profit or loss upon them. Finally, overhead costs 
must be spread over smaller outputs. 

When the decline in activitj^ is more than of moderate extent, profits 
continue to decline more rapidly than income produced. Under such 
conditions smaller and smaller portions of the decreases in net output 
are absorbed by the profit account as the volume of inventory hquida- 
tion decreases and as the effects of price changes become smaller. 
Furthermore, there are limits upon the extent to which the volume of 
profit will decline for individual companies although there are no such 
limits for the income produced by such companies. For individual 
companies the limit of profit adjustment tends to be determined by 
the level of fixed costs; once the profit account shows a deficit equal 
to fixed costs no further declines in profits, except as a result of asset' 



3g CONCEiNTKATKIN OF EOONO.MIC POWER 

liquidation, tend to occur. Although further declines may occur in 
the income produced by individual companies, they are partially or 
completely offset by a shift of business to other companies which, as a 
consequence, tend to show larger profits or smaller losses. 

The relation between output and profits derived from the over-all 
corporate income produced and profit data should not be interpreted 
as indicative of the nature of the effect of changes in output upon 
profits or vice versa when the changes in output are attained exclu- 
sively as a result of changes in capacity. Rather it shows the 
associated increases (decreases) in output and profits which occur in^ 
circumstances under which output changes while capacity, though 
relatively fixed, is being increased at an expanding (contracting) rate. 
Relations between output and profits would be much different were 
changes in output the result of changes in capacity rather than of 
variation in the percent of capacity utilized. Both types of relations 
are of importance in connection with monopolistic practices. The 
former would bear upon the question of the extent to which monopo- 
listic practices limited capacities; the latter upon the extent to which 
such practices limited the use of capacities. 

D. THE BREAK-EVEN POINT 

The level of money income produced at which the corporate system 
can break even during a period depends largely upon the price level, 
changes in the price level during the period, and the capacity of the 
system. With a stable price level, the break-even point would fluc- 
tuate directly with capacity. With the same capacity, the break-even 
point \yould be higher the higher the price level when comparisons are 
made between different periods of stable price .levels. But with 
capacity the same — and over the short-run over-all capacity is in fact 
relatively stable^and with prices moving from one level to another, 
<the break-even point declines with rising prices and rises with declining 
prices. And the extent of the rise or decline in the break-even point 
unider these conditions depends directly upon the extent of the price 
mcivement relevant to the activities upon which the particular profit 
CQmputatibns are based. 

With existing capacities, with cost-price relations similar to those 
in recent years, and with a stable price level at a level roughly indi- 
cated by the 75-80 range on the Bureau of Labor Statistics index of 
wholesale prices (1926=100), the break-even point for the corporate 
system ^may be roughly estimated at around 30 billion dollars of 
income produced. This corresponds roughly with a national income 
between "55 and 60 billion dollars while a national income of at least 
. 85 to 90 billion dollars would probably correspond to a reasonably full 
tise of resources. Thus, the corporate system can break even with the 
national income level at least 30 to 35 percent below the level required 
for reasonably full use of resources. 

In 1934, the corporate system just about broke even with a net 
product of $26,000,000,000 and with the national income at $50,000,- 
000,000. But not only were capacities and prices lower than at the 
present time, but prices had increased considerably over the 1933 
level and to a lesser extent during the year. In 1935, the corporate 
system did better than break even with a net product of $29,000,- 
000.000 and with the national income at $55,000,000,000. But, 



CONCEiNTRATION OF ECONOMIC POWER 39 

while prices were at about the present level, capacity was lower than 
at the present time and prices had increased substantially over the 
1934 level and to a lesser extent during the year. 

The 1935 situation may be contrasted with that of 1931. For 
both years the net product of the corporate system and the national 
income were at approximately tb^ same level. But, whereas the 
price movements affecting the 1931 profit results were downward, 
those for 1935 were upward; the 1931 profit accounts included sub- 
stantial capital and inventory losses while the 1935 profit accounts 
included substantial capital and inventory gains. As a consequence, 
the profit results differ widely for the 2 years; after taxes, the cor- 
porate system lost over 3 billion dollars in 1931 and made almost 1.7 
billion dollars in 1935.^ 



» Certain segments of the corporate system— particularly the larger corporations — can, of course, break 
even at much lower levels of capacity operations and of the national income than can the corporate system 
as a whole. For example, 951 industrial, utility, and railroad corporations tabulated by the Standard 
Statistics Co., Inc., did better than break even in ]9.f2 when the national income even measured in terms 
of the recent price level totaled far less than $55,000,000,000. See appendix tables XXVr, XXVH, and 
XXVni. Another example is the well-known ability of the steel industry to break even at no more than 
65 percent of capacity operations, whereas the corporate system as a whole does not appear to be able to 
break even at less than 65 percent of capacity operations. 



PART II 

THE DISPOSAL OF CORPORATE PROFITS 



41 



CHAPTER V 
INTERNAL AND EXTERNAL DISPOSAL OF PROFITS 

Corporate profits are either retained within the corporate system 
or disbursed to individuals and organizations outside that system. 
Profits which are retained may be used either to expand assets or to 
retire debt. Such features of the internal use or disposal of retained 
profits as are considered at all in this study are discussed in other 
parts. This part of the study pertains in the main to the extent to 
which profits are disbursed and to the manner in which dividend 
payments are used by the outside recipients. 

Profits not retained are typically disbursed as dividends. But 
some portions of items, such as salaries, bonuses, and other types of 
expense items, shown on the books of corporations as expenses should 
properly be shown as profits and disbursements of profits. Even 
rough estimates of the amounts so disbursed, however, cannot be 
obtained. Consequently, dividend payments represent the only form 
of dis"bursements of profits to individuals for which quantitative 
information is available for study. 

Retained profits and cash dividends for each of the years 1909 to 
1937 as shown by the available records are contained in table VI and 
plotted in chart 6. Most of the consequences of the accounting "pro- 
cedures used in preparing current income statements are reflected, of 
course, in the retained profit figures. Thus, while the dividend figures 
are reasonably accurate measurements of the net cash dividends paid 
during each year, the retained profit figures are subject to even greater 
errors, percentagewise, than the total profit figures. For this reason, 
the percentage computations shown are not very reliable indicators 
of the proportions which the net dividend outgo have been of profits 
in various years. In general, those shown for the percentage which 
cash dividends is of profits are probably too high since profit figures 
reported for tax purposes tend to be understatements.' 

It appears from the figures in table VI that dividends paid out by 
the corporate system have consistently amounted to at least 50 per- 
cent of the profits of the corporate system as computed on a "current 
income" basis. During the World War period, the indicated propor- 
tion was below the 50 percent mark. But it is probable that a con- 
siderable amount of valuation changes entered the profit computa- 
tions as a result of the war period price upheaval so that the profits of 
that period are not on a "current income" basis strictly comparable 
with that of other periods.^ Thus, the 50 percent mark may be 
accepted as a rough lower limit for the amount which current cash 
dividends have been of current income.^ 

' See ch. I, sec. B and ch. U, sec. C. 

2 Also, it may be note<l that dividend figures are not as reliable for the earlier years of the period as for 
the later yerrs. Sec appendix I, sec. A. 

^ If profits disbursed as other than dividends were included in the profit figures, the percentage might 
be lower. And, of course, the total external disbursements would constitute a greater percentage of such 
profit figures. 

43 



44 



CONCENTRATION OF ECONOMIC POWER 



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CONCENTRATION OF ECONOMIC POWER 



45 



Table VI. — Retained profits and net dividend outgo of the corporate system, 1909-37 
[Money figures in millions of dollars] 





Compiled 
net profit ' 


Net dividend outgo 


Retained profits 


Year 


Amount 


Percent of 
net profit 


Amount 


Percent of 
net profit 


1937 


3,872 
3,903 

1,674 

157 

-2, 379 

-5,375 

-3. 145 

1,3C6 
8,084 
7,566 
5.8?0 
6. 774 

6, 971 
4,998 
5,827 
4,380 
24 

4,343 
6.307 
4, 553 
'7,342 
7,408 

4. 083 
2, 37) 
3,347 
3,425 
2,531 

2,906 
2,599 


4,832 
4,702 

2,927 
2,642 
2.101 
2,626 

4, 182 

5, 613 
5.927 
5, ir,6 
4,765 
4,439 

4,014 
3,424 
3,299 
2,634 
2, 630 

2,900 
2,600 
2,620 
3,025 
2,500 

2, OS-s 
2,028 
2, lf.7 
1,9.50 
1, 866 

1,828 
1,5«7 


124.8 
120.5 

174.9 

1, 682. 8 

3-88. 3 

3-48 9 

3-133.0 

410.9 
73.3 
68.3 
81.0 
65.5 

.57.6 
68.5 
56.6 
60.1- 
10, 958. 3 

66.3 
41.2 
57.5 
41.2 
33.7 

50.3 
85.5 
64.7 
56.9 
73.7 

62.9 
60.3 


-960 
-799 

-1,253 
-2,485 
-4,480 
-8,001 
-7,327 

-4,247 
2,157 
2,400 
1,115 
2,335 

2, 957 

1,574 

'2.528 

1,746 

-2.600 

1,443 
3,707 
1,9.33 
4,317 
4, 908 

2,028 

343 

1,180 

1,175 

665 

1,078 
1.032 


>-24.8 


1936.- 


"-20. 5 


1935 - 


«-74.9 


1934 


'-1,682.8 


1933 


< 188.3 


1932 


< 149. 9 


1931 


« 233.0 


1930 


s-310.9 


1929 


26.7 


1928 


31.7 


1927 . 


19.0 


1926 


34.6 


1925 


42.4 


1924 


31.5 


1923 


4,3.4 


1922 


39.9 


1921 


'-10,858.3 




33.2 


1919 


58.8 




42.5 


1917 


58.8 


191C 


66.3 




49.7 


1914 


11.5 




35.3 


1912 


43.1 




26.3 




37.1 


1909 


39.7 







' E.Ncludes intercorporate dividends and Federal income and war, excess, and undistributed profits taxes. 

2 Percentage p.xcpss of dividends over net profit. 

3 Percentage of net loss. 

• Percentage net loss plus dividends of net loss. 

Sources and methods: Based largely upon U. S. Treasury Department, Bureau of Internal Revenue, 
Statistics of Income, annual volumes. For other sources and details as to methods, see appendix I,^c. A. 

During periods of recession and depression and at other times when 
substantial segments of the corporate system are not in need of funds, 
dividend disbursements have amounted to considerably more than 50 
percent of current income. At times, dividends have totaled almost 
as much and even more than profits. And dividends have been paid 
in substantial amounts even when the corporate system was suffering 
deficits. 



260751— 41— No. 15 



CHAPTEll VI 
DIVIDENDS 

What happens to the dividends paid out by the corporate system 
depends upon the spending and saving habits of those who receive 
them. One of the most important, if not the most important, char- 
acteristic of dividend recipients bearing upon the manner in which 
they dispose of dividends is the total amount of income received. 
This is particularly true in connection with the critical division be- 
tween consumption expenditures and savings, since the proportion of 
income saved by individuals increases sharply with the total income 
received. It is with this critical division that this study is mainly 
concerned. The present chapter is directed toward showing (1) the 
importance of dividend income in determining the size of the incomes 
of dividend recipients and (2) the size of the incomes of those recipients. 

A. THE DISTRIBUTION OF DIVIDEND REC^PTS 

A small number of individuals receive most of the dividend outgo 
of the corporate system. As the data contained in table VII and 
plotted in chart 7 show. Federal income taxpayers have received 
around 70 percent or more of the net dividend outgo of the corporate 
system. The number of tax returns since 1917 has varied between 
3.2 milHon in 1931 and 7.7 million in 1923. Even if every income 
taxpayer were a dividend recipient, no large segment of the popula- 
tion would be covered. For example, ip 1936 there were 5.4 million 
tax returns, and, even if each one had reported dividend receipts, it 
would indicate that the bulk of the dividends go to less than 15' per- 
cent of the total of about 29 million families and 10 million single 
individuals composing the income receiving group. But, of course, 
not all income taxpayers receive dividends so that the number of 
individuals receiving most of the dividends is grossly understated by 
such a comparison. A special tabulation of the 1928 tax returns * 
shows that 792,000 returns or less than 20 percent of the 4,071,000 
tax returns for that year reported all but $149,000,000 or 3.4 percent 
of the dividend receipts reported by income taxpayers in that year. 
The tabulations for 1937, which included for the first time estimates 
of the total number of taxpayers reporting dividend income, showed 
that 1,694,000 or about 27 percent of the 6,350,000 tax returns for 
that year accounted for all the dividend receipts reported. 

1 TT. S. Treasury Department, Bureau of Internal Revenue, Statistics of Income for 1928, Government 
Printing OflQce: Washington, D. C, 1930, pp. 11-12. 

47 



48 



CONCEJs'TRATION OF ECONOMIC POWER 



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CONCEOS'TRATION OF ECONOMIC POWEK 

Table VII. — Dividend receipts reported by all income taxpayers, 1916-37 
[Money figures in millions of dollars] 



49 





Net divi- 
dend 
outgo of 
the cor- 
porate 
system 


Number 

of in- 
come tax- 
payers 
(thou- 
sands) 


Dividend receipts 


Year 


Net divi- 
dend 
outgo of 
the cor- 
porate 
system 


Number 

of in- 
come tax- 
payers 
(thou- 
sands) 


Dividend receipts 


Year 


Amount 


Percent of 
net divi- 
dend 
• outgo 


Amount 


Percent 
of net 

dividend 
outgo 


1937 

1936 

1935 

1934 

1933 

1932 

1931 

1930 

1929 

1928 

1927 


4,832 
4,702 
2,927 
2,642 
2,101 
2,626 
4,182 
5,613 
5,927 
5, 166 
4,765 


6,350 
5,413 
4,575 
4,094 
3,724 
3,877 
3,226 
3,708 
4,044 
4,071 
4,102 


3,514 
3,174 
2,235 
1,966 
1,559 
1,972 
3,114 
4, lfi7 
4,783 
4, 351 
4,255 


1 72. 72 
167.50 
76.36 
74.41 
74.20 
75.10 
74. '46 
74.77 
80.70 
84.22 
89.30 


1926 

1925 

1924 

1923 

1922 

1921 

1920 

1919 

1918 

1917 

1916 


4,439 
4,014 
3,424 
3,299 
2, 634 
2,630 
2,900 
2,600 
2,020 
3,025 
2,500 


4,138 
4,171 
7,370 
7,698 
6,787 
G, 662 
7,260 
5,333 
4,425 
3,473 
429 


4,012 
3,465 
3,351 
3,120 
2,664 
2,177 
2,736 
2, 454 
2,469 
2,849 
2,136 


90.38 
86.32 
94.95 
94.57 
101. 14 
94. 18 
94.34 
94. 38 
94.24 
94.18 
85.44 



' Tabulating procedure changed in 1936. ^e appendix I, sec. E. 

Sources: U.S. Treasury Department, Bureau of Internal llevenue, Statistics of Income, annual volumes, 
except the net dividend outgo figures for 1916-21, the sources for which are given in appendix I, sec. A. 

Further indications of the pattern of the dividend distributions are 
contained in table \^III. Dividend receipts of iiicome taxpayers with 
net incomes' (subject toHax) of $5^00 and over have amounted to 
around 55 percent or more of the net dividend outgo of the corporate 
system. The number of tax returns by this group has never numbered 
much more than 1,000,000. But only about 60 percent of these have 
shown dividend receipts. Thus, no more than 2 percent of the total 
number of families and single individuals of the nation have received 
around \55 percent or more of the dividends. 

Table VIII. — Dividend receipts reported by income taxpayers with net incomes of 

$5,000 and over, 1916-37 
[Moiiey figures in millions of dollars] 





Net divi- 
dend outgo 

of the 

corporate 

system 


Number of taxpayers 
(thousands) 


Dividend receipts 


Year 


Total 


Reporting 
dividend 
receipts 


Amount 


Percent of 
net divi- 
dend outgo 


1937 . '. 


4,832 
4,702 

2,927 
2,642 
2,101 
2,626 
4,182 

5,613 
5,927 
5,166 
4,765 
4,439 

4,014 
3,424 
3,299 
2,634 
2,630 

2,900 
2,600 
2,620 
3,025 
2,500 


705 
677 

500 
423 
332 


447 
433 

311 
265 
211 


2,781 
2,584 

1,814 
1,585 
1,200 
1,541 

2,584 
3,709 
4,247 
4,010 
3,762 

3,581 
3,045 
2,618 
2,435 
2,173 
1,915 

2,364 
2,128 
2,133 
2,648 
2,098 


'57.65 


1936 - 


1 54.96 


1935- 


61.97 


1934 .. 


59.99 


1933.-- --- 


57.12 


1932 


356 240 


58.68 


1931 - 


591 

810 
1,032 
1,011 

914 

895" 
831 
697 
626 
594 
526 

682 
658 
479 
433 
272 


371 

495 
597 
569 
516 




1930 


61.79 
66.08 


1929 - 


71.66 


1928 ... . 


77.62 


1927 - 


78.95 


1926 








1925... » 




75.86 


1924 -- - - - 




76. 46 


1923.- 


■^ 


73.81 


1922 ,..._ _ 


• 


82.50 


1921 




72.81 


1920 — — '. 




81.52 


1919 




81.85 


1918 




81.41 


1917 




87.54 


1916 




83.92 









' Tabulating procedure changed in 1936. See appendix I, sec. E. -, 

Sources: U. S. Treasury Department, Bureau of Internal Revenue, Statistics of Income, annua! volumes, 
except the net dividend outgo figures for 1916-21, the sources for which are given in appendix I, Sec. A. i 



50 



CONCENTRATION OF ECONOMIC POWER 



Still more striking evidence of the character of the distribution is 
the amount of dividends received by the 25,000 taxpayers reporting 
the greatest amoimts of dividend receipts (table IX and chart 7). 
For the years from 1927 to 1935, these 25,000 taxpayers, who represent 
much less than one-tenth of 1 percent of all families and single indi- 
viduals, reported dividend receipts totaling from 37 to 42 percent 
of the net dividend outgo of the corporate system. In 1936 and 1937, 
the dividend receipts reported by the 25,000 taxpayers totaled about 
30 percent of the net dividend outgo. The difference between the 
2 periods is largely the result of a change in tabulating procedure 
which, on the one hand, eliminated duplicate reporting of some of the 
dividends received by fiduciaries which had occurred in the earlier 
period, and, on the other hand, eliminated aU other dividends received 
by taxpayers through partnerships and fiduciaries from the dividend 
receipts category.^ The latter elimination appears to have been the 
more important reason for the difference between the percentages for 
the 2 periods. Thus, it may be concluded that roughly 35 percent 
of the net dividend outgo of the corporate system has been received 
by 25,000 taxpayers.^ 

Table IX. — Dividend receipts reported by 25,000 income taxpayers receiving the 
greatest amounts of dividends in each year, 1927-37 

[Money figures in millions of dollars] 





Net divi- 
dend outgo 

of the 

■ corporate 

system 


Dividend receipts 


Year 


. Net divi- 
dend outgo 

of the 

corporate 

system 


Dividend receipts 


Year . 


Amount 


Percent 
of net 

dividend 
outgo 


Amount 


Percent 

of net 

dividend 

outgo 


1937 


4,832 
4,702 
2.927 
2,642 
2,101 
2,626 


1,497 
1,389 
1,131 
1,018 
846 
1,007 


130.08 
129.54 
38.64 
38.53 
40.27 
38.35 


1931 .... .. 


4,182 
5,613 
5,927 
5,166 
4,765 


1,563 
2,060 
2,222 
>2,084 
1,978 


37.37 


1936 


1930....: :.- 


36.70 


1935 


1929 


37.49 


1934 . 


1928 


40.34 


1933 


1927 


41.61 


1932 







• Tabulating procedure changed in 1936. See appendix I, sec. E. 

2 This figure was obtained from a tabulatiog comparable to those used for the other years. A corresspond- 
ing figure of $2,089,000,000 was obtained from a special tabulation which included 222,000 returns in addition 
to the 569,000 in the tabulation on which the figure in the table is based. 

Sources and methods: Based upon U. S. Treasury Department, Bureau of Internal Revenue, Statistics 
of Income, annual voluines. For methods, see appendix I, sec. F. 

In summary, the distribution of dividends disbm'sed in each year 
of recent decades appears to have been roughly as follows : 

1. Forty percent of the dividends were received by less than 0.1 per- 
cent of the famiUes and single individuals. 

2. Another 20 percent of the dividends were received by less than 
1.0 percent of the famihes and single individuals. 

3. Another 20 percent of the dividends were received by less than 
2.0 percent of the families and single individuals. 

4. The remaining 20 percent of the dividends were received by 
the remaining 96 percent or more of the families and single individuals 
with most of them receiving no dividends. Most of the dividends, it 
is clear, were received in relatively large amounts by a small section 
of the population while the remainder was spread over a much larger 

> See appendix I. sec. E. 
.< See appendix I, sec. F. 



CONCENTRATION OF ECONOMIC POWEH 5^ 

section of the population in relatively small amounts. Briefly, there 
has been a high degree of concentration of dividends. 

Variations in the percentage of dividends going to income tax- 
payers over the period are not reliable indicators of changes in the 
distribution of dividend receipts. Changes in revenue acts have 
affected both the reported dividend outgo and dividend receipts 
figures to a substantial extent, and, in addition, changes in tabulating 
procedure have also affected the figures. The most important of 
these changes are noted in appendix I, section E. Also noted in 
appendix I, section E, are the substantial effects of fluctuations in the 
national income upon the proportioh of -dividends received by income 
taxpayers. A m.uch more detailed analysis than can be given here 
would be required to establish changes in the distribution of dividends 
among their recipients. All that the present analysis pm*ports to 
establish is the general nature of that distribution. 

However, it rnay be noted that the relative stability of the propor- 
tion of dividends received by the 25,000 largest recipients between 
1927 and 1935 indicates no great change in the relative distribution 
of dividends during that period. ' That is to say, about the same 
proportion of the population received about the same proportion of 
the dividends in the late twenties as in the early and mid thirties. 
Actually, with an increasing population, the proportion of dividends 
received by the highest 25,000 recipients would decline were the 
relative distribution to remain the same. The data, however are 
too crude to show whether or not this has occmTcd. They do, how- 
ever, show the bias — or rather the unreliability — of the year-to-year 
and long-term changes in the proportion of dividends going to all 
income taxpayers and to those with net incomes of $5,000 or more 
as a measure of changing distribution. 

B. THE RELATIVE DEGREE OF DIVIDEND CONCENTRATION 

It is not possible in this study to present all the available evidence 
bearing upon the extent of dividend concentration relative to the 
concentration in other forms of income. The material presented is 
only illustrative. More complete information is contained in the 
annual volumes of the Statistics of Income, in the report of the 
National Resources Board on Consumer Incomes, and ia other 
sources. 

This evidence shows that not only are dividend receipts highly 
concentrated, but that the degree of concentration of dividend income 
is far greater than the degree of concentration of total mcome receipts 
of individuals. For example, in 1935-36, 0.1 percent of all families 
and single individuals received about 5 percent of consumer income,* 
while a much smaller number of families and single individuals received 
around 35 percent of all dividends. Even the distribution of dividends 
among dividend recipients is more cdhcentrated than the distribution 
of all income among all income recipients; in 1935-36 far less than 
2.5 percent of all dividend recipients received about 40 percent of all 
dividends, while 2.5 percent of all families and single individuals 
received about 20 percent of all consumer income.^ And that the 

« National Resources Committee, Consumer Incomes in the United States, U. S. Government Printing 
Office: Washington, D. C, 1938, table II, p. 6. 
•Ibtd. ■ 



52 CONCENTRATION OF ECONOMIC POWER 

same disparities occur in other years is shown by the data in the 
annual volumes of the Statistics of Income. 

Another way of showing the concentration of dividends relative to 
other income is in terms of the average size of dividend and of total 
income receipts. On the average, most dividends are received in 
relatively large amounts by a small section of the population. Thus 
for example, in 1935-36, 60 percent of the dividends were received 
in amounts averaging $6,000. Contrasted with this is the fact that in 
the same period about 60 percent of all consumer income was received 
in amounts averaging about $2,800.* . Data for 1928 and 1929 provide 
another illustration of this disparity. In 1928 — the year of the 
New Era period for which the best information on dividend distribution 
is available — 4.2 billion dollars or over 80 percent of the dividends 
were received by 792,000 income taxpayers, so that on the average 
they received over $5,300 of dividend income. There is no directly 
comparable figure for 80 percent of all 1928 income; for 1929, an 
average of $4,000 is indicated by the Brookings study,^ but this figure 
is probably considerably too high for comparison with 1928 dividend 
receipts. 

The disparity between the concentration of wages . (employees' 
compensation) and dividends is tremendous.- Salaries, wages, comr 
missions, etc. reported in 1929, for example, by the 150,000 income 
taxpayers receiving the greatest amounts of such income totaled about 
$2,666,000,000^ or about 5 percent of the total employees' compen- 
sation as estimated by the United States Department of Commerce.® 
The comparable figure for the same number of dividend recipients is 
about 60 percent. In terms of the size of the amounts in which 
dividend and wage incomes have been received, the same differences in 
concentration are indicated. In 1929, for example, salaries, wages, 
commissions, etc. reported by income taxpayers as received in amounts 
of $10,000 or more totaled about 5 percent of all employees' compen- 
sation while over 50 percent of all dividends were received in amounts 
of $10,000 or more. The average sizes of these wage and dividend 
receipts were about $19,000 and $38,000, respectively. 

C. THE EFFECT OF DIVIDEND CONCENTRATION ON THE DISTRIBUTION 

OF INCOME 

The concentration of dividend income accounts for the major part 
of the wide spread between the incomes of individuals. For example, 
the major share of the difference between the average $50,000 income 
and the average $1,000,000 mcome is due to the difference between 
the average amount of dividends included in those incomes. On the 
average, individuals attain the higher incomes largely because they 
receive large amounts of dividends. The spread between the average 
high income (highest 0.2 percent, for example) and the average income 
would be considerably reduced were dividend receipts less concen- 
trated. This is the import of the data contained in table X and plotted 
iYi charts 8 and 9. 

»Ibiil. 

' T,fiven. Moulton, and Warburton, America's Capacity to Consume, The Brookings Institution: Wash- 
.^pgton, D. C, 1934, pp. 152-153, 227-230. 

• U. S. Treasury Department, Bureau of Internal Revenue, Statistics of Income for 1929, Government 
Printing Office: Washington, D. C, 1931, p. U. 

• Nathan, Robert R., Income in the United States, 192ft-37, U. S. Department of Commerce, Bureau of 
Foreign and Domestic Commerce, November 1938, p. 22. 



CONCENTRATION OF ECONOMIC POWER 



53 



Table X. — Approximate relation between gross income and dividend receipts, 1929, 

19S2, and 19S6 

INCOME TAXPAYERS 
[Money figures in dollars] 



Year and average gross income 



Dividend receipts 



DifforfDce between suc- 
cessive average gross 
incomes 



1936: 1 

$2,411.... 

6,000.... 

10,000... 

25,000... 

50,000... 

100,000.. 

150,000.. 

300,000 . - 

600.000.. 

1,000,000 
1932: 

$2,532.,.. 

5,000.... 

10.000... 

25.000... 

60,000... 

100.000.. 

150,000.. 

300,000.. 

500,000.. 

1,000,000. 
1929: 

$3,301 

5,000 

10,000... 

25,000... 

50,000... 

ICO.OOO.. 

1. '50,000.. 

300,000.. 

500,000.. 

1,000,000. 



Appro\i- 

mate 
average 



$125 

551 

1,826 

7,843 

20,306 

49, 402 

79, 997 

181,984 

328,915 

704, 117 

123 

"^oe 

1,890 

7,948 

20, 707 

54, 096 

90, 363 

218, 431 

397, 340 

867, 133 

179 

419 

1,608 

7,827 

20, 992 

49,835 

76, 435 

167, 709 

299,428 

626, 278 



Percent of 

gross 

income 



5.2 
11.0 
18.3 
31.4 
40.6 
49.4 
.53.3 
60.7 
65.8 
70.4 

4.8 
12.1 
18. fl 
31.8 
41.4 
54.1 
6a2 
72.8 
79.5 
86.7 

5.4 
8.4 
16.1 
31.3 
42.0 
49.9 
61.0 
55.9 
69.9 
62.6 



Amount 



$2,589 

5,000 

15,000 

25.000 

50,000 

50,000 

150,000 

200,000 

500,000 



2,468 

5,000 

15,000 

25.000 

50,000 

60,000 

150,000 

200,000 

500,000 



1.699 

5,000 

1.5,000 

25,000 

50,000 

50,000 

150.000 

200. 00() 

.■iOO.OOO 



Percent 
acmynted 

for by 
dividend 

receipts 



16.5 
25.5 
40.1 
49.9 
.58.2 
01.2 
(18.0 
73.5 
75.0 



19.6 
25.7 
40.4 
51.0 
66.8 
72.5 
85.4 
89.5 
94.0 



14.1 
23.8 
41.5 
52.7 
67.7 
53.2 
60.9 
65.9 
64.7 



1 Tabulating procedure chaneed in 1936. See appendix I, sec. E. 

Sources and methods' Based upon U. S. Treasury Department, Bureau of Internal Revenue, Statistics 
of Income, annual volumes. For methods, see appendix I, sec. Q. 

Differences between incomes of less^than $10,000 have, on the 
average, been primarily due to differences in income receipts other 
than dividends. For example, in 1936 only about one-sixth of the 
difference between the average $2,500 and the average $5,000 income 
was due to dividends. And, in that year, dividends accounted for 
about 25 percent, or $1,300, of the difference between the average 
$iO,000 income and the average $5,000 income. The average income 
of $10,000 included about $1,800 of dividends. 

For incomes above $10,000, dividends have played a much more 
important role. Over 50 percent, or alm.ost $48,000, of the difference 
between the average 1936 income of $100,000 and the average 1936 
incom.e of $10,000 was the result of the difference in average dividend 
income. The com.parable figures for the difference between a $100,000 
income and a $1,000,000 income, on the average, are 73 percent and 
$655,000, of the incom.e difference. In general, greater and greater 
proportions of successive increm.cnts of incom.e are accounted for by 
increases in dividend receipts. .And the figures for 1936 understate 
the effect of dividends .on the distribution of incom.e because some 
dividend receipts were reported as partnership and fiduciary income. 



54 



CONCEOSfTRATION OF ECONOMIC POWER 



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CONCENTRATION OF ECONOMIC TOWER 



55 



Chart 9 

PERCENTAGE OF DIFFERENCE BETWEEN SELECTED GR$§5 

• NCOMES ACCOUNTED FOR BY DIVIDEND RECEIPTS 

1929, 1932, and 1936 

INCOME TAXPAYERS 



DIFFERENCE BETWEEN 

AN AVERAGE AND AN AVERAGE 



GROSS INCOME 
OF 

1 .000,000 


CROSS INCOME 
OF 

500,000 


500,000 


300,000 


300,000 


150.000 


150,000 
100,000 


100,000 
50,000 


50,000 


25,000 


25,000 


10,000 


10.000 


5.000 


5,000 


2,411 



1,000,000 
500,000 
300,000 
150,000 
100,000 

50,000 

25.000 

' 10,000 

5,000 



,000,000 
500.000 
300,000 
150,000 
100,000 

50,000 

25.000 

10.000 
5,000 



500.000) 
300,000 j 
1 50,000 j 
1 00,000 j 
50,000 

25,000 



10,000 
5.000 
2,532 



500,000 
300.000 
150.000 
100.000 
50.000 

25,000 

10,000 

5,000 
3.3 I 



1936 



20 



40 er. 

1932 



i.ooo 

500 

too 

50 

10 
5 

2 



80 



100 



u 



20 



40 ec 



1,000*^ 

500 « 

o 

T3 

^tOQ ^ 

50 I' 
o 

jC 
C 
4> 

10 I 

C 

5 <A 

in 
O 

2 ^ 



80 



•100 



J.OOO 
500 

100 
50 



20 40 6b - -80 100 

ercent of difference between speci'iec" jv toge ^oss mconf^es 
jccounted^r by diffe-'ence be'ween o\' n le dividend receipts 



Sources ond Me'thods Bosed upon STATISTICS OF INCOME 
For detoils, see Append. x I , Sectio'-' G 



55 CONCEiNTRATION OF ECONOMIC POWER 

The broad picture of the relation between dividends and total 
income has not changed in recent decades — not even with m.ajor 
changes in business activity. Table X and charts 8 and 9 show that 
the same general relation existed in 1929 and 1932 as in 1936. The 
1932 data show somewhat higher and the 1929 somewhat lower pro- 
portions of dividends for various — particularly the high — income 
levels than in 1936. In part, these differences are the result of the 
income scales being in terms of current dollars rather than of ''real" 
income. But perhaps of greater importance are capital gains. These 
(and capital losses} were exclu'led from the total incom.es on which 
figures in this re.joio are based, out were included (but not wholly) 
in the computations of net income upon which the underlying income 
distribution was based. The consequence of this is to bias the per- 
centages downward inversely with the net capital gains excluded — 
the greater the net gains excluded the larger the downward bias. For 
1929, 3.8 million dollars of net gains were excluded; in 1932, only 
$200,000,000 of net losses; and in 1936, about $850,000,000 of net 
gains, so that relative to 1936, 1929 is biased downward to a marked 
extent and 1932 upward to some extent. 

Other factors also are reflected in the differences between the 3 years 
but they do not appear to loom as large as the two mentioned. Of 
these other factors, the greater stability of dividend payments than of 
other forms of income during the depression appears to have been the 
most im.portant in accounting for the higher proportions of dividend 
income in 1932 than in 1936 and 1929. 

D. INCOME LEVELS (IN 1935-36 DOLLARS) OF DIVIDEND RECIPIENTS 

On the basis of available information, it is not possible to determ.ine 
how all dividends are distributed iiccording to the incom.e level of the 
recipients. But approxim.ations for most dividends can be obtained 
from the official tabulations of tax returns. For 7 of the years from 
1920 to 1937 such approxim.ations are shown in table XI and chart 10. 

Most dividends have been received by individuals in the middle 
and high income levels. Between 40 and 50 percent of all dividends 
have been received by individuals with incomes (exclusive of capital 
gains and losses) of 20,000 or more 1935-36 dollars. Another 20-25 
percent, approximately, have been received by individuals with 
incomes between 5,000 and 20,000 1935-36 dollars. All told, between 
60 and 75 percent of all dividends have been received by individuals 
with incomes of 5,000 or more 1935-36 dollars. The exact proportion 
tends to vary with business activity, particulnily for the "20,000 and 
over" income level. 

At first sight, the figures in table XI seem to indicate long-term 
changes in the relative volume of dividends going to individuals at 
various income levels with the proportion going to the "under 5,000" 
level gradually increasing since 1920. Yet a closer examination of the 
data indicates such a conclusion to be of extremely doubtful validity. 
In fact, the more appropriate ^conclusion seems to be that there has 
been no marked change in the relative distribution of dividends 
according to the income level of recipients during the past two decades. 



CONCENTRATION OF ECONOMIC POWER 



57 



Chart 10 

PERCENT DISTRIBUTION OF DIVIDENDS BY THE INCOME LEVEL 

OF RECIPIENTS, SELECTED YEARS, 1920-1937 

•.Income levels in 1935-36 doliors 
H 20,000. and over BH 1 5,000 - 20,000 E23 1 0,000 - 1 5,000 

CZD 5,000 - 10,000 EH Unclassified* 



Percent of net dividend outgo of tfie corporate system 
20 40 60 80 




100 



Percent of totol dividend receipts reported by income toxpoyers 

witfi incomes of 5,000 or more 1935-36 doHors 

20 40 60 80 



100 




* Includes dividends not reported o? dividends by income topoyefs. 

t Tobuloting procedure chonged in 1936 See Appendix 1, Section E. 

Sources ond Methods Based lorcjely upon STATISTICS OF INCOME. 
For details, see Appendix I, Sections A,E,andH 



58 



CONCENTRATION OF ECONOMIC POWER 



Table XI. — Dividend receipts classified by the income level of the recipients, selected 

years, 1920-37 



Year 



Net divi- 
dend 
ontpo of 
the cor- 
porate 
sjstem 



Unclassi- 
fied 1 



Income level.in thousands of 1935-36 dollars 



Total, 5 
and over 



20 and 
over 



Amount in millions of current dollars 



1937 '. 

1936 2 
1935- . 
1932.. 
1929.. 
1925.. 
1920.. 

1937 2. 
1936 K 
1935.. 
1932.. 
1929.. 
1925„ 
1920.. 



1937 2. 
1936 '. 
1935... 
1932... 
1929... 
1925... 
1920... 



4,832 


2,008 


2,824 


4,702 


2,092 


2,610 


2, 927 


1,079 


1,848 


2,626 


1,010 


1,616 


5,927 


1,720 


4,207 


4,014 


1,014 


3,000 


2,900 


670 


2,230 



466 
425 
274 
246 
572 
400 
400 



301 


231 


258 


211 


197 


148 


195 


136 


426 


334 


329 


263 


268 


202 



1,82& 
1,716 
1,229 
1,039 
2,875 
2,008 
1,360 



Percent of net dividend outgo 



100.0 


41.6 


58.4 


9.6 


6.2 


4.8 


100.0 


44.5 


55.5 


9.0 


5.5 


4.5 


100.0 


36.8 


03.2 


9.4 


6.7 


5.1 


100.0 


38.5 


61.5 


9.4 


7.4 


5.2 


100.0 


29.0 


71.0 


9.7 


7.2 


5.6 


100.0 


25.3 


74.7 


9.9 


8.2 


6.6 


100.0 


23.1 


76.9 


13.8 


9.2 


7.0 



37.8 
36.5 
42.0 
39.5 
48.5 
50.0 
46.9 



Percent of dividend receipts reported by income taxpayers with 
incomes of 5,000 or more 1935-36 dollars 



100.0 
ICO.O 
100.0 
100.0 
100.0 
100.0 
100.0 



16.5 
16.3 
14.8 
15.2 
13.6 
13.3 
17.9 



10.7 
9.9 
10.7 
12.1 
10.1 
11.0 
12.0 



8.2 
8.1 
8.0 
8.4 
7.9 



64.6 
65.7 
66.5 
64.3 
68.4 
66.9 
61.0 



' Includes dividends not reported as dividends by income taxpayers. 

2 Xabulating procedure for individual tax returns changed in 1936. See appendix I, sec. E. 

Sources and methods: Based largely upon U. S. Treasury Department, Bureau of Internal Revenue, 
Statistics of Income, annual volumes. For other sources and details as to methods, see appendix I, sees. 
A, E, and H. 

Fi2;ures in table XI for the "unclassified" categoiy only show a 
largely spurious relative growth. Under this category are included, 
not only dividends received by individuals estimated to fall below the 
''5.000" income level, but also dividends received (a) by nonprofit 
institutions and other corporations not required to file tax returns, 
lb) by income taxpay. .'s estimated to fall above the "5,000" income 
level, but not reported as such, and {c) by non-income-taxpayers falling 
above the "5,000" income level. While exact figures are not available, 
it is known that the scope of nonprofit institutions has increased over 
the period. From the point of view of the way in which they dispose of 
dividends, they should be classified with the "20,000 and over" 
income level. The inclusion of dividends of income taxpayers not 
reported as dividends afi'ects mainly the comparability of the 1936 
and 1937 figures with those for other years. For 1936 and 1937 
dividends received through partnerships and fiduciaries were not re- 
ported as dividends and this appears to account for the bulk of the 
shift in the relative distribution of dividends between 1935 and 1936.'" 

'« See appendix I, sees. E and F. 



CUNCENTRATION OF ECONOMIC POWER 59 

Also, in part spurious, is the difference shown by the figures between 
the New Era and post New Era percentages of dividends received by- 
individuals in the "20,000 jind over" income level. On the basis of 
available information, distributions based upon statutory net income 
could not be fully recast into distributions based upon total income 
exclusive of capital gains and losses. Hence, largely because of the 
different volumes of capital gains a'nd losses in the two periods, the 
New Era figures are biased upward while those for the thirties are 
biased do\^'nward. For 1920, errors arising on this account do not 
appear to be as great as for other years. 

But parts of the differences between years shown by the figures for 
the "20,000 and over" income level are real. Dividend income is 
more stable than nondividend income. Consequently, dividend 
recipients whose major'income is dividends tend to have their income 
level relative to other income recipients raised during periods of falling 
activity and declining prices and vice versa. For dividend recipients 
whose major income is not from dividends, the reverse tends to be 
true. On balance, however, it appears that, in spite of the greater 
stability of dividend income, there is, on the average, a downward 
drift of the income levels of dividend recipients during periods of 
declining activity and vice versa. But, of course, these movements 
are not as great as for the population as a whole. 



CHAPTER VII 

SAVINGS OUT OF CORPORATE PROFITS 

All retained profits are, of course, savings. But savings are also 
made out of dividends and other forms of profit disbursements. Thus, 
the total volume of savings out of profits would be the sum of the re- 
tained profits and of the savings out of the external disbursements of 
profits. Since the volume of profits disbursed in forms other than 
dividends is not known, the savings out of such disbursements cannot 
be estimated. The estimates of savings from corporate profits must, 
therefore, be restricted to the sum of retained profits and savings out 
of dividends. 

A. THE RELATION BETWEEN THE SAVINGS AND THE INCOME LEVEL OF 

INDIVIDUALS 

The consequence of the concentration of dividend receipts in the 
middle and high income brackets — or, alternatively, of the concentra- 
tion of wealth — is a high rate of savings out of dividends. This is so 
because the proportion of income saved by individuals increases, very 
rapidly as the amount of income received increases. 



Table XII. 



-Average savings of families and single individuals by income level, 
1935-36 



Income level 



Number of 
families and 
single indi- 
viduals 



Average 
income 



Savings 



Average 
amount 



Percent of 
income 



Under $500 

$500 to $750 

$750 to $1,000...-. 

$1,000 to $1,250... 
$1,250 to $1,500... 
$1,500 to $1,750. _. 
$1,750 to $2,000... 

$2,000 to $2,500... 
$2,500 to $3,000... 
$:i,000 to $4.000... 
$4,000 to $5,000... 

$5,tX)0 to $10,000 . . 
$10,000 to $15,000. 
$15,000 to $20,000. 
$20,000 and over.. 



fi, 710,911 
5, 771, 960 
5, 876, 078 

4, 990, 995 
3, 743, 428 
2, 889, 904 
2, 296, 022 

2, 958, 61 1 

1,475,474 

1,354,078 

464. 191 

595, 908 
152, 682 
67, 923 
110,135 



$307 
626 

873 

1,120 
1,365 
1,613 
1,835 

2,221 
2,714 
3,390 
4,405 

6,867 
11,442 
17, 293 
42, 175 



-$119 
-66 
-43 

-19 
25 
08 
107 

198 
326 
548 
934 

2,044 
4.440 
6, 953 
21,432 



Alllevels... 39,458,300 



1,502 



151 



-38.8 
-10.5 
-4.9 

-1.7 
1.9 
4.2 
5.8 

8.9 
12.0 
16.1 
21.2 

29.8 
38.9 
40.2 
50.8 



10.1 



Source: National Resources Committee, Consumer Expenditures in the United States. 
emment Printing Office: Washington, D. C, 1939. Table 19A, p. 83. 



U. S. Gov- 



A recent report ^ of the National Resources Committee shows that 
in 1935-36 about 50 percent of gross income (before taxes) was on the 
average saved by families and single individuals with incomes of 
$20,000 and over; for the $5,000-$10,000 income level, about 30 

'Consumer Expenditures in the United States: Estimates for 1935-36, U. S. Government Printing Oflice: 
Washington, D. C, 1939. 



SO.OTni— 41— No. 12 



61 



62 



CONCE.NTRATION OF ECONOMIC POWER 



percent was saved; for the $l,500-$2,000 level about 5 percent; and 
below the $1,250 level there were, on the average, dissavings. Com- 
plete figures from the report are shown in table XII. The spread 
between the percentages of income saved would be even greater had 
the computations been made on the basis of gross income after income 
taxes rather than before such taxes. 

Figures for the percentages of incom.e saved at various income 
levels shown in table XII were not the ones used in preparing the esti- 
mates of savings out of dividends presented in this stud^" In order 
to take partial account of the changing tax rates, tfiey were converted 
to an income after taxes base. The adjusted percentages are showTi 
in table XIII. Comparison of the adjusted percentages with the 
corresponding figures in table XII shows that there is only one major 
difference; on an income after taxes base the percentage, saved by the 
"$20,000 and over" income level is 57.7, whereas the figure on an 
income before taxes base was 50.8 percent. In both cases, the same 
income level classification is maintained. 



Table XIII. — Estimated percent of income after taxes saved, by income level, 

1935-36 1 





Savings out 
of income 
after taxes 
(percent) 


Income level: 

$0,000 to $10,000 


30.28 
40.18 
41.90 
67.69 


$10,000 to $1.5.000 - 


$1,'),000 to $20,000 


$20,000 and over 





1 Taxes include only personal income taxes, poll taxes and certain personal property taxes. 

Source' Ba.sed upon National Resources Committee, Consumer Expenditures in the United Statas. 
U. S. Government Printing Office: Washington, D. C, 1939. Table 19A, p. 83. For methods see appendix 
I, sec. H. 

B. THE MEASUREMENT OF SAVINGS OUT OF DIVIDENDS 

The amount saved out of dividends depends- only in part upon the 
size of the amounts in which they are received. Not only will the 
proportion saved from dividends be greater, on the average, the larger 
the amount of dividends received, but the proportion of other income 
saved will, also be greater, the greater the amount of dividends 
received. This dependence of savings from dividends upon both the 
amount of dividend income and upon the amount of other income 
makes it practically impossible to determine the exact volume of 
savings out of dividends. 

A maximum limit for savings attributable to dividends can be 
obtained by considering dividends as the final increment of income 
and attributing the increment of total savings based upon such an 
increment to dividends. On the other hand, a minimum limit can be 
obtained by considering dividends as if they were the only income. 
The difference between the two figures thus obtained represents the 
range of indeterminancy for the volume of savings out of dividends. 

Both limits could have been estim.ated, though with considerable 
labor and possibly with substantial error for the maxim.um.. Instead 
an arbitrary assumption was introduced in order to obtain an inter- 
mediate estim.ate. This assum.ption was that the proportion of snv- 



CONCEOSfTKATION OF ECONOMIC POWER g3 

ings attributable to dividends was the same as the proportion of gross 
income accounted for by dividends. While valuable information con- 
tained in the spread between the upper and lower limits was lost, a 
substantial am.ount of com.puting was avoided. At any rate, the in- 
term.ediate estimates actually computed arc sufficient indications of 
the division between consum.ption expenditures and savings for the 
purposes of this report. And, in fact, for various reasons to be dis- 
cussed later, the estim.ates actually m,ade tend to be very close to the 
m.inim.um. lim.its. 

C. SAVINGS OUT OF DIVIDENDS 

. Well over 40 percent of the dividends received by incom.e taxpayers 
with incom.es of 5,000 or more 1935-36 dollars have been saved. 
These savings out of dividends have am.ounted to at least 25-35 per- 
cent of all dividend disbursem.ents of the corporate system.. In the 
years since 1920 such savings have ranged from, a total of around 
$700,000,000 in 1932 to a total of no less than $2,000,000,000 in 1929. 

Estim.ates for 7 of the years from. 1920 to 1937 shouTi in table XIV 
are crude figures which substantially understate the total volume 
of savings out of all dividends. As estim.ates for dividends reported 
as dividends by incom.e taxpayers with incom.es of 5,000 or m.ore 
1935-36 dollars, the low estim,ates sho\vn in table XIV are m.uch closer 
to the m.inim.um. than to the maxim.um. lim.it of savings attributable 
to dividends. This is indicated by the fact that test calculations of 
the m.inim.um. lim.its for 1929, 1935, and 1937 were only about 17 per- 
cent below the low estim.ates. That there should be a close corre- 
spondence follows from, the fact that so great a proportion of dividends 
are received by persons for whom, dividends are a major, if not the 
m.ajor, source of incom.e. 

Table XIV. — Savings out of dividends, selected years, 1930-37 — Low estimates; 
income taxpayers with incomes of 5,000 or more 1935-36 dollars 

[Money figures in millions of dollars] 





Net divi- 
dend outgo 

of the cor- 
porate 
system 


Dividend receipts re- 
ported 


Low estimate of savings" 


Year 


Amount 


Percent of 
net divi- 
dend outgo 


Percent of 
Amount dividend 
receipts 


Percent of 
net divi- 
dend outgo 


19371 _. 

1936' 


4,832 
4,702 

2,927 
2,642 
2,101 
2,626 
4,182 

5,613 
5,927 
5, 166 
4,765 
4,439 

4,014 
3,424 
3,299 
2,634 
2,630 

2; 900 


2,824 
2,610 

1.848 


58.4 
55.5 

63.1 


1,192 
1,075 

806 


42.2 
41.2 

43.6 


24.7 
22.9 


1935 


27.5 


1934 




1933 












1932 


1,616 


61.5 


735 


45.5 


28 


1931 — . 




1930 


. 










1929 


4,208 


71.0 


1, 973 


46.9 


33 3 


1928 




1927.... 












1926 






* 






1925 


3,000 


74.8 


1.396 


46.5 


34.8 


1924 




1923 












1922 












1921 












1920 


2,230 


76.9 


940 


42.2 


32.4 







> Tabulating procedure for individual tax returns changed in 1936. See appendix I, sec. E. 
Sources and methods: See appendix I, sees. A, E, and H. 



64 



CONCENTRATION OF ECONOMIC POWER 



Furthermore, for the twenties, the estimates are considerable 
miderstatements of even the low estimates, particularly during the 
low- tax-rate years 1925 to 1929. It is practically impossible to measure 
the extent of. the bias. An indication of the bias arising because of 
inadequate adjustments for the changing tax rates over the period is 
provided by the summary of the effective tax rates on statutory net 
income shown in table XV. The lower the tax rate relative to the 
1935-36 rates, the greater the downward bias on this account in the 
estimates shown in table XIV as estimates of the savings put of 
dividends by income taxpayers with incomes of 5,000 or more 1935-36 
dollars. 



Table XV. — Effective tax rates (Pn statutory net income of individual income tax- 
payers, 1916-37 — Selected net income classes 

[Percent of net income] 





Net income classes (thousands of 
dollars) 


Year 


Net income classes (thotisands of 
dollars) 


Year 


10-25 


50-100 


150-300 


50O- 
1,000 


1,000 
and 
over 


10-25 


50-100 


150-300 


500- 
1,000 


1,000 
and 
over 


1937.... 


6.66 
6.68 
5.69 
5.55 
4.94 
4.32 
1.59 
1.70 
> 1.49 
2.05 
1.98 


23.60 
23.65 
21.06 
20.89 
14.34 
11.99 
8.48 
9.51 
9.77 
10.47 
10.20 


48. 06 
47.86 
41.15 
41.14 
29.03 
27.04 
13.58 
14.91 
14.64 
15.77 
15. 72 


64.82 
64.31 
51.92 
51.70 
37.43 
32.86 
15. U 
16.20 
15.86 
17.35 
16.99 


71.95 
71.66 
56.36 
55.75 
31.96 
46.75 
16.19 
16.98 
15.76 
16.70 
16.42 


1926 


1.98 
2.09 
2.73 
4.06 
5.48 
6.48 
6.76 
6.83 
8.20 
4.78 
.94 


10.14 
10.42 
12.81 
13.06 
17. 89 
19.87 
20.20 
20.79 
21.69 
10 04 
2.25 


15.72 
15.73 
24.69 
23.83 
37.03 
42.14 
43.04 
43.94 
44.64 
18.27 
4.75 


10.88 
16.39 
26.87 
26.81 
35.81 
■58.70 
57.08 
59.42 
58.65 
27.63 
8.14 


16 56 


1936 


1925 


15 83 


1935- ... 


1924 


30 27 


1934 


1923 


23 53 


1933.... 


1922 


35 02 


1932 


1921 


63.59 


1931 


1920 


63 81 


1930 


1919- 

1918 

1917 


64 87 


1929 


64 65 


1928 


35 65 


1927 ..^ 


1916 .... 


11.09 



Source: U. 
pp. 40-41. 



S. Treasury Department, Bureau of Internal Revenue, Statistics of Income for 1937, pt. I, 



As estimates of total savings out of all dividends the figures in 
table XIV are undoubtedly very low estimates. Savings out of from 
25 to 45 percent of all dividends are not included because of the 
shortcomings in the underlying data on dividends indicated in the 
preceding chapter. While the rate of 'savings for the dividends not 
covered is much lower than for that for the dividends covered by 
the estimates, except possibly in 1936 and 1937, yet the amount of 
savings is not negligible. This is particularly true for 1936 and 1937 
when a substantial volume of dividends accruing to income taxpayers 
above the "5,000" income level were not reported as dividends. In 
other years, the volume of savings out of the dividends not covered, 
of course, is relatively much less than in 1936 and 1937. Nevertheless, 
at least 50-100 million dollars of savings are not included in the 
figures with the greatest omissions occurring for the years after 1929. 
This, of course, tends to offset in part the warping of estimates arising 
out of the changing tax rates. 

On the whole it is clear that the estimates in table XIV substantially 
understate the volume of savings out of all dividends. Furthermore, 
the understatement is very likely greater for 1925, 1929, 1936, and 
1937 than for the other years for which data are shown. 

As much as 40 percent of the net dividend outgo of the corporate 
system was probably saved in the years of relatively high dividend 
disbursements during the twenties. In other years of the t\venties 



CONCEJNTRATION OF ECONOMIC POWER 



65 



probably around 35 percent was saved. And during the depressed 
years of the thirties savings out of dividends may have amounted to 
as Httle as 30 percent of the net dividend outgo of the corporate 
system. 

D. TOTAL SAVI^f1S OUT OF PROFITS 

Reiamed profits plus the low estimates of savings out of dividends 
provide low estimates of total savings out of profits reported as such 
by the corporate system. Such estimates of total savings out of 
profits are shown in table XVI and plotted in chart 1 1 . For 7 of the 
years, the estimates were computed from basic data; for the remaining 
years they were based upon the seven computed estimates. 

Table XVT. — Savings out of the net profits of the corporate system, 1909-37 
[Money figures in millions of dollars] 





Net profit 

of the 
corporate 
system ' 


Savings out of profits 


Year 


Total 


Retained 
profits 


Out of divi- 
dends 2 




Amount 


Percent of 
net profit 


19373 : 


3,872 
3,903 

1,674 

1.57 

-2, 379 

-5,375 

-3, 145 

1,366 
8,084 
7,566 
6,880 
6,774 

6,971 
4,998 
5,827 
4,380 
24 

4,343 
6, 307 
4,553 

7,342 
7,408 

4,083 
2,371 
3,347 
3,425 
2,531 

2,906 
2,599 


232 
27 

-447 
-1,746 
-3,868 
-7, 266 
-6,075 

-2, 586 
4,130 
4,135 
2,715 
3,825 

4,353 
2,722 
3,634 
2,628 
-1, 726 

2,383 
4,507 
^2,739 
5,238 
5,744 

2,714 
1,020 
1,904 
2,126 
1,288 

1,688 
1, 554 


6.0 
7.1 

-26.7 
-1,112.1 
162.6 
135.2 
193.2 

-189.3 

. 51.1 

54.7 

46.2 

66.6 

62.4 
64.5 
62.4 
60.0 
-7,191.7 

54.9 
71.5 
60.2 
71.3 
77.5 

06.5 
43 
56.9 
62.1 
50.9 

58.1 
69.8 


-960 
-799 

-1,253 
-2.485 
-4, 480 
-8,001 
-7, 327 

-4, 247 
2, 1.57 
2,400 
1,115 
2,335 

2,957 
1,574 
2, .528 
1,746 
-2,606 

i,443 
3,707 
1,933 
4.317 
4.908 

•2.028 

343 

1,180 

1,475 

665 

1,678 
1,032 


1,192 


1936 3 . 


1,075 


1035 


806 


1934 . 


739 


1933 -. 


612 


1932 . - 


735 


1931..' 


1,252 


1930 :.. _ 

1929 


1.661 
1,973 


1928.--- 


r, 735 


1927 " 


1,600 


1926 


1,490 


1925 - ..'.. 


1,396 


1924 . '. ■ 


1,148 


1923... 


1,106 


1922 ..-■: 


882 


1921 


880 


1926 


940 


1919 . . . 1- 


800 


1918 - 

1917 ■.■. ,.. 


806 
921 


1916 

1915 .' 


836 
686 


1914 

1913 . 


677 
724 


1912 


651 


1911. _- 


623 


1910 .., 


' 610 


1909 . . ^ . 


.522 







' Exdudine intercorporate dividends and Federal income and war, excp^s, and undistributed profits taxes, 
'' Figures tor 1920, 1925, 1929, 1932, 1935, 1936, and 1937, computed low estimates; others based upon those 
computed estimates. 
3 Tabulating procedure for individual tax returns changed in 1936. See appe '.dix T, sec. E. 

Sources and methods: See afipendix I, sees. A, E, and H. 

The volume of savings has varied with the volume of profits and 
the proportion of profits retained in the corporate system. That the 
volume of savings depends upon the volume of profits is illustrated 
by a comparison between 1920 and 1928. With about the s^me 
proportion of profits retained in both years, savings and profits were 
about 75 percent higher in 1928 than in 1920. That the proportion 
of profits retained has a marked effect on the volume of savings is 



66 



CONCENTRATION OF EX^ONOMIC POWER 



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CONCEflyTRATION OF ECONOMIC POWEJR gy 

illustrated by a comparison between 1925 ,and 1929. Total savings 
out of profits in 1929 were less than in 1925 although profits were over 
$1,000,000,000 greater in 1929 than in 1925. This was largely the 
consequence of the fact that 42 percent of 1925 profits were retained 
while only 27 percent of 1929 profits were retained. Thus, in the final 
analysis, the volume of savings out of a given volumfe of profits 
depends, in addition to the distribution of dividends among the various 
income classes, upon the forces determining the proportion of profits 
retained. In general, this is a matter of the need of the corporate 
system for funds and of the relative advantages of obtaining them by 
retaining profits. 

Potential savings out of profits amount, of course, to 100 percent 
of profits since no profits might be disbursed. As a matter of actual 
experience, however, it seems that about 80 percent represents an 
upper limit for the proportion of profits saved. Such a high percent- 
age occurred under the extreme inflationary conditions of the World 
War when the need for money capital was great. Under more normal 
conditions, it seems that 65-70 percent represents an upper limit as 
is indicated by the 62 percent figure for 1912, 1923, and 1925. And, 
m general, during periods when the corporate system has been in 
need of funds, and even at times when it has not needed funds, the 
proportion of profits sav,ed has been well over 50 percent as is indicated 
by the figures for 1909-29. 

From 1930-38, the corporate system as such was actually dissaving. 
This is shown by the negative retained profit figures in table XVI. 
Between 1930 and 1935, the amount of savings out of dividends was 
not sufficient to offset the internal dissavings so that for those 6 years 
the corporate equity accounts gave rise to dissavings, i. e., either 
creating potential consumption out o£ past savings or actually con- 
suming savings accumulated in the past.^ The greatest volum.e of 
this apparently occurred in 1932 when the total dissavings created 
by the profit account am.ounted to about $7,300,000,000. In 1936 
and 1937, the amount of savings out of dividends more than offset 
the internal dissavings so that on balance the corporate equity 
accounts gave rise to savings. The volume, hoAvever, was small. 

E. COMPARISON OF PRIVATE INCOME AND TOTAL PRIVATE SAVINGS WITH 
CORPORATE PROFITS AND SAVINGS OUT oi^ CORPORATE PROFITS 

Table XVII contains figures indicating the proportions of noij- 
governmental income and savings accounted for by corporate 
profits.' With the exception of 1932, when corporate losses amounted 
to 18 percent of the income originating in nongovernmental activities, 
corporate profits or losses since 1919 have never arnounted to m.ore 
than 11 percent of such income. But the savings or dissavings 
created by the corporate equity accounts have accounted for much 
greater percentages of the total savings or dissavings out of privately 
originating income. 

' The amount of corporate.dissavlngs Is not an accurate measure of the net contribution of the corporate 
system in the sense of stimulating activity. OiTscts, sucJi as cash accumulations and debt retirements, 
have to be taken into account. 

' The nongovernmental income and savings figures include income realized by busines'ses /rom the 
various valuation changes — such as capital gains — which is ordinnrily passed throuph currpnt income 
accounts of businesses, but do not include such income ■which accrues to individuals. Ilcnce they are not 
strictly comparable with the profit <»nd savings out of profits figures. This lack of coraparabilitji is much 
more serious tor the savings comparisons than for the income comparisons. • 



68 



OONCEiNTRATION OF BOONOMIC POWER 



Table XVII. — Corporate profits and savings out of corporate profits and total 
private. income arid savings, 1919-34 

(Money figures in millions of dollars] 





Privately originating 


income 


Savings-out of-pffvately 
originating income 


Year 


National 
total 


Corporate profits 


National 
total 


Out of corporate profits 




Amount 


Percent of 

national 

total 


Amount 


Percent of 

national 

total 


1937.. 




3,872 
3.003 

1,674 

167 

-2, 379 

-5,375 

-3, 145 

1,360 
8,084 
7,566 
5,880 
6,774 

6,971 
4,998 
6,827 
4,380 
24 

4,343 
. 6, 307 






232 
276 

-447 
-1,746 
-3,868 
-7.266 
-6,075 

-2, 586 
4,130 
4,135 
2, 715 
3,825 

4,353 
■2,722 
3,634 
2,628 
-1,726 

2,383 
4,607 




1036...... .i 










1936 i ^ 










1934 r 


41, 795 
32, 744 

30, 185 
44,641 

60,445 
75,680 
72, 4W 
68,752 
70, 261 

63,387 
63,722 
63,864 
64,670 
46, 489 

63,863 
6.3,017 


0.4 

-7.3 

-17.8 

-7.1 

2.3 

10.7 
10.4 
8.5 
9.6 

10.2 
7.8 
9.1 
8.0 
0.05 

6.8 
10.0 


790 
-2,207 
-6,691 
-4,406 

-1,407 
9,366 
6,929 
8,696 
6,785 

10,242 
6,072 
9, 577 
6,319 
-2,680 

8,426 
18,810 


-221.0 


1933 


175.3 


1932 


108.6 


1931 _ 

1930 


137.8 
183. 8 


1929 


44.1 


1928 


69.7 


1927 ; 


40.5 


1926 .; , 


66.4 


1026 


42.6 


1924 .. 


44.8 


1923 


37.9 


1922 


41.6 


1921...: 


64.4 


1920 


28.3 


1919 


24.0 







Sources; Privately originating income and total savings out of privately originating incomer-Kuznets, 
Simon, National Income and Capital Formation, 1919-35, National Bureau of Economic Research; New 
York, 1938, and "Commodity Flow and Capital Formation * * *, 1932-38," Bulletin 74 of National 
Bureau of Economic Research; New York, June 25, 1939. 

Savings out of corporate profits— see table XVI. 

During the' period 1922-29, savings out of profits ranged upward 
of 40 percent of all savings out of income originating in nongovern- 
mental activities although corporate profits totaled less than 1 1 per- 
cent of such income. Any allowance which should be made in the 
figures for total private savings because of the exclusion of income 
realized outside the business system from changes in capital would 
-not involve any substantial reduction in the figures for the percentage 
of private savings accounted for by profits. 

In both 1919 and 1920, the proportion of private savings accounted 
for by corporate profits was only 25 percent — still high relative to 
the 10 and 7 percent, respectively, of privately originating income 
accounted for by corporate profits, but low relative to the New Era 
period. The explanation of this probably lies in the peculiar price 
and inventory situation during the immediate post-war period. The 
sharp price decline of late 1920 was heavily reflected in corporate 
profit and loss statements, particularly in the form of inventory losses, 
while losses outside the business system resulting from changes in 
values of assets were not (at least not as fully) reflected in the income 
originating figures:. In 1919 it appears that the effects, of price 
changes were more heavily reflected outside than within tJie corporate 
sphere.* 

During the pe'riod 1930-35 and in 1921, the corporate equity ac- 
counts gave rise to dissavings. ' These dissavings appear to have 
I 

* The 1919 percentage is probably too low as a consequence »f shortages in the tabulation of tax returns. 
See appendix I, see. A. 



CONCENTRATION OF ECONOMIC POWER 



€d 



accounted for a greater shaxe of the total private dissavings than 
profits or losses did of the total private income. In 1921, corporate 
equity accounts accounted for about 65 percent of all private dis- 
savings shown by the figures. During the period 1930-33, corporate 
profits accounted for all of the private dissavings shown by the 
figures and more. A closely similar situation existed in 1934 and 
1935 although the figures indicate the private economic sphere as a 
whole was saving. But the proportions of total private dissavings 
accounted for by profits during the 1930-35 period, and in 1921, are 
exaggerated |?y the figures since losses outside the corporate system 
realized from changes in asset values are not fully reflected in the 
data. 

Data on income and savings for years later than 1934 comparable 
to those shown in table XVII are not available. From such data as 
are available, it appears that in 1936 and 1937 the proportion of 
private savings accounted for by corporate profits was roughly of the 
same order of magnitude as the proportion of privately originating 
income accounted for by profits. In 1938, the corporate equity ac- 
counts appear to have given ris6 to a small volume of <lissavings 
although the rest of the private sphere probably was saving. And, 
since 1938, it appears that much more than a proportionate share of 
private savings has originated in the corporate equity accounts. 

Corporate profits account for a high proportion of savings durino; 
periods when activity is fairly high relative to capacity. At such 
levels of activity, profit margins are high on the average. In some 
areas, generally of broad scope, pressure on capacities creates not only 
high profits, but also a need for funds. Thus, a substantial porportion 
of profits is retained for expansion purposes, i. e., saved directly. 
In addition, dividends are at high levels and substantial proportions 
are saved. While other forms of income are also at high levels, the 
proportion saved on the average is considerably smaller, than for 
dividends and retained profits. 

Furthermore, it may be noted that the greater the pressure on 
capacity, the more favorable the profit situation. As a consequence, 
where funds are needed for expansion, the profit account acquires 
them and converts them into savings at the rate necessary. If this 
falls short of the funds needed for expansion, then recourse is had to 
the capital markets. ■ ^ 

As activity drops off, it is the profifaccount which absorbs a more 
than proportionate part of the decline in income. But as activity and 
profits decline, the need for funds also declines and it is not dividends 
but rather retained profits which are curtailed first, so that the pro- 
portion of profits saved drops rapidly, particularly in periods such as 
1930-33 when losses were retained. At the same time, individuals 
continue to save out of income even though on the average their 
income is declining. And, as a consequence of such a course of 
events, the proportion of savings accounted for by profits becomes 
small and, when the profit account is dissaving, the dissavings may 
exceed any savings in the rest of the private sphere. 

A low level of savings out of profits or even dissavings out of profits 
does not mean a shortage of funds in the corporate system. It might 
almost be said that such situations occur because there is no need for 
funds — that when funds for expansion are necessary (and even at other 
times) they appear in. the profit account.* 

» See ch. VHI, sec. D. 



70 



CONCENTRATION OF ECONOMIC POWER 



F. THE EFFECT OF THE CONCENTRATION OF SAVINGS OUT OF CORPORATE 
PROFITS ON THE CONCENTRATION OF WEALTH 

In good times and bad, the corporate equity accounts create a 
tendency" for an increasing concentration of the available wealth. 
This tendency arises because the bulk of the savings out of corporate 
profits, which account for a very large and disproportionate share of 
private savings, are niade by relatively few individuals. 

The concentration of savings out of profits is indicated by the 
distribution of savings out of dividends by income level of income 
taxpayers with incomes of 5,000 or .more 1935-36 dollars who received 
dividends. Data are shown in table XVIII and plotted in chart 12. 
Individuals with incomes of 20,000 or more 1935-36 dollars have 
accounted for the bulk of the satings out of dividends — probably 
upwards of 60 percent. Yet even in the years of high national mcome 
there were no more than 100,000 of such irdividuals. Proportionately, 
of course, they probably do not account tor as great a proportion of all 
savings out of profits. 

Chart 12 
PERCENT DISTRIBUTION OF SAVINGS OUT OF DIVIDENDS, BY THE 

INCOME LEVEL OF DIVIDEND RECIPIENTS, SELECTED YEARS, 1920-1937 

LOW ESTIMATES ; INCOIVIE TAXPAYERS WITH INCOMES OF 5 . 000 OR MORE 1935-36 DOLLARS 



20,000 and over 



Income levels m 1935-36 dollors 
mi 15,000-20,000 ^ 10,000-15,000 



^ 5,000-10,000 



Percent of total savings out of dividends by income toxpayers 

with Incomes of 5,000 or more 1935-36 dollars 

20 40 60 80 



100 




*Change in tabulating procedure for individual tax returns 
in 1936. See Appendix I, Section E 

Sources and Methods^ See Appendix I, Sections E and H. 



CONCENTRATION OF ECONOMIC POWER 



71 



Table XVIII. — Savings out of dividends, by the income level- of dividend recipients, 
selected years 1920-37 — Low estimates; income taxpayers with incomes of 5,000 
or more 1935-86 dollars 



Year 



Total 



Income level in thousands of 1935-36 
dollars 



5-10 



10-15 



15-20 



20 and 
over 



Estimated amount of savings in millions of current 
dollars 



1937 
1936 
1935 
1932 
1929 
1925 
1920 

1937 
1936 
1935 
1932 
1929 
1925 
1920 



1,192 


138 


116 


91 


1,075 


126 


99 


83 


806 


82 


77 


59 


735 


74 


77 


55 


1,973 


173 


169 


137 


1,396 


120 


130 


107 


940 


117 


102 


78 



846 

767 
-588 

529 
1,494 
1,039 

643 



Percent distribution 



100.0 


11.6 


9.7 


7.6 


100.0 


11.7 


9.2 


7.7 


100.0 


10.2 


9.6 


7.3 


100.0 


10,1 


10.5 


7.5 


100.0 


8.8 


8.6 


6.9 


100.0 


8.6 


9.3 


7.7 


100.0 


12.4 


10.9 


8.3 



71.0 
71.3 
73.0 
72.0 

75.7 
714 
68.4 



' Tabulating producure for individual tax returns changed in 1936. See appendix I, sec. E. 
Sources and Methods: See appendix I, sees. E and H. 

It is not possible from the available data to prepare any precise 
estimate of the proportion of total savings out of profits accounted 
for by the "20,000 and over" income group. During the twenties 
their savings out of dividends alone accounted for between a third 
and a fourth of all savings out of profits. This would indicate that of 
total savings out of profits the "20,000 and over" income group prob- 
ably accounted for upwp,rd of 50 percent of all savings out of profits. 
Thus, it seems likely that during the twenties the savings out of 
profits accruing to less than 100,000 individuals accounted for roughly 
around 25 percent of all private savings. And the inevitable conse- 
quence of such a high concentration of savings is, of course, an 
increasing concentration of wealth. 

Even when the corporate equity accounts as sach are dissaving, the 
.burden of this falls less heavily upon the dividend recipients in the 
higher income brackets than upon other stockholders. The high rate 
of" savings out of dividends by those in the higher income brackets 
enables them to offset the retained losses of the equity accounts. 
For example, in 1935, the equity accounts dissaved about $1,250,000,- 
000 while the "20,000 and over" income group saved almost $600,000,000, 
out of dividends and received about 40 percent of ^he dividends paid 
out. If they had a proportionate sliare o*" the regained losses, they 
would, on balance, have saved out of profits abou ')100,000,000, while 
all other stockholders would have dissaved ab v. t $550,000,000 on 
balance. And the consequences of this is also iin increasing concen- 
tration of wealth. 



CHAPTER VIII 

SAVINGS CREATED AND ABSORBED BY THE OWNERSHIP 

ACCOUNTS 

A. SAVINGS CREATED, SAVINGS ABSORBED, AND INVESTMENT 
EXPENDITURES 

Testimony before the committee has shown the necessity for a 
volume of investment equal to the savings made out of a given national 
income, if that national incoQxe is to^ be maintained,^ With fixed 
habits of saving, the national. ^come will decline when investment 
declines and rise when investment rises; under these conditions it is 
the national income and savings which adjust to the volume of invest- 
ment and not vice versa. With fixed investment t'endencies, the 
national income will decline with a rise in the propensity to save and 
rise with a decline in the propensity to save; it is under these condi- 
tions that the national income and volume of investment might be 
said to adjust to the volume of savings. But even here the mechanism 
of adjustment is not through the change in the volume of savings but 
rather through the change in the volume of consumption impinging 
upon the volume of investment and the volume of investment in turn, 
upon the national income. Tlius, particularly since savings habits 
are only subject to slow change, the volumes of savings and of national 
income, as a practical matter, adjust themselves to the volume of 
investment a^id not vice versa. This is for the economy as a whole. 

For a segment of the . economy — such as the corporate system — 
income produced, investment, and savings created are not necessarily 
related in the manner in which they are related for the economy as a 
whole. Discrepancies may appear which are offset by compensating' 
discrepancies for noncorporate enterprise and Government. In 
particular, the savings created by and the investment expenditures 
of the corporate system need not be equal; when they are nbt, compen- 
sating differences occur in the rest of the economy. And any changes 
in investment by the corporate system need not be followed by com- 
pensating changes in the income produced and in the savings created 
by corporations; the adjustment may be partially or completely made 
by Government and noncorporate enterprise. 

The relation between the savings created by and the inves*^ nent 
expenditures of the corporate system is a critical feature of the per- 
formance of the corporate system. When the investment expenditures 
of the corporate system exceed the savings it creates, then the system 
is operating to increase the total national income; when investment 
expenditures are less than savings created, the system is operating to 
reduce the national income; when investment expenditures and savings 
are equal, the corporate system is in a neutral position with respect 
to the national income. 

' See Investipation of Concentration of Economic Power, Hearings before the Temporary N,ati6nal Eco- 
nomic Committee, 76th Cong., 1st sess., Part 9, pp. 3495-3520, 3538-3559, 3837-3902. 

73 



74 CONCENTRATION OF ECONOMIC POWER 

To give a complete picture of the savings originating in and the 
investment expenditures of the corporate system would require tracing 
through the various streams of money income and outgo of the cor- 
porate system. It is not possible to provide such a complete analysis 
in this study, even were the necessary data available. But some 
aspects of investment and savings which are related to the profit and 
loss and net worth accounts can be covered. 

It is not possible, of course, to segregate investment expenditures 
in terms of the sources of funds from which they are made, in particu- 
lar the expenditures made from equity funds. Funds from all sources 
are merged into a whole and then held or used for various purposes. 
Consequently, it is not possible to draw a comparison between the 
savings created by and the investment expenditures made out of the 
ownership accounts. But p. comparison between the savings created 
by and the savings absorbed by the corporate equity accounts can be 
made. 

Savings absorbed or investment funds absorbed by a segment of the 
economy are not identical with the investment expenditures made by 
that segment. Whether particular investment funds, such as retained 
earnings, are equal or unequal in magnitude to investment expendi- 
tures depends upon the use of those funds. For example, investment 
funds spent for new equipment represent not only the absorption of 
savings but also investment expenditures. On the other hand, when 
funds are used to retire debt, they represent absorption of savings but 
not investment expenditures; similarly when funds are used to build 
up the cash account, and in some cases, when used to purchase exist- 
ing assets. Thus, there is no necessary equality between investment 
expenditures and savings or investment funds absorbed. And, con- 
sequently, a comparison between savings created and savings ab- 
sorbed does not measure the relation between savings created and 
investment expenditures. 

But the disparities between savings created and absorbed do meas- 
ure the minimum limit of the disparities which have occurred between 
the savings created by and investment expenditures from the equity 
accounts. This is so because the maximum amounts of investment 
expenditures are exactly equal to the savings absorbed or investment 
funds placed into those accounts. Amounts spent as investment 
expenditures from the equity accounts cannot exceed the amount of 
investment funds available from those accounts. 

A comparison between the savings created and absorbed by the 
ownership accounts implies neither that savings out of those accounts 
are the only source of corporate equity money nor that retained cor- 
porate profits and the sale of equity securities are the only sources of 
corporate investment expenditures. In practice this is certainly not 
so. Nor does it imply that the corporate system has a responsibility 
for maintaining at least a neutral position between savings created by 
the equity accounts and either savings absorbed by those accounts 
or investment expenditures from those accounts. The implication is 
simply that, depending upon the nature of the disparities, the owner- 
ship sphere as defined by corporate accounting imparts directly either 
a stimulating, neutral, or depressing effect upon the total national 
income. Other spheres, for example, interest payments and debt, 



CONCElNTRATION OF ECONOMIC POWER 



75 



salaries and wages, etc., should also be taken into account to deter- 
mine, not only the effects of transactions involving the equity accounts 
directly, but also to determine the net absorption or creation of savings 
originating in the corporate system. Furthermore, to determine the 
effect on the national income, it is necessary to go still further and 
study what the corporate system does with the savings it absorbs — 
the extent to which, for example, they become investment expenditures. 



B. NET ABSORPTION OF SAVINGS BY CORPORATE OWNERSHIP ACCOUNTS 

The difference between the net amount of funds taken into the 
corporate system from the outside through the sale and retirement of 
equity securities and the amount of savings made by owners of equity 
securities which may reasonably be attributed to dividend income from 
such securities represents the net amount of savings absorbed by the 
ownership accounts. This net absorption is equal to the difference 
between net stock issues and savings out of dividend^. Retained 
profits represent both a creation of savings and an absorption of 
savings. Thus, they need not^ be taken into account in obtaining net 
figures for savings absorbed. Similaily, valuation changes within 
the corporate system not carried through profit and loss accounts 
need not be taken into account since they also represent both a crea- 
tion and an absorption of savings. 

Only in the rare periods characterized by relatively full use of capac- 
ity and a high rate of expansion has the demand for new equity capital 
by the corporate system been sufficient to absorb all of the savings 
created ^y the equity accounts. In other periods, the corporate 
equity accounts have failed by a wide margin to absorb savings in 
amounts equal to the savings out of profits. 

Table XIX. — Indicated net absorption of savings by the equity, accounts oj the 
corporate system, 1909-37 









[Millions of dollars] 








Tear 


Indicated 
net absorp- 
tion of 
savings by 
corporate 

equity 
accounts ' 


Total stock 
issues 


Low esti- 
mate of 
savings out 
of divi- 
dends 2 


Year 


Indicated 
net absorp- 
tion of 
savings by 
corporate 
equity 
accounts ' 


Total stock 
issues 


Low esti- 
mate of 
savings out 
of divi- 
dends ' 


1937 


-432 
-522 
-655 
-704 
-459 
-711 


760 

553 

151 

35 

153 

24 

343 

1,527 

6,757 

3,491 

1, 738 

1,220 

1.247 


1,192 

1,075 

806 

739 

612 

735 

1,252 

1,661 

1, 973 

I, 735 

1,600 

1,490 

1,396 ! 

1,148 

1, 106 


1922 


-262 

-605 

98 

747 
-508 
-466 
-54 
-363 
-415 
-272 

253 
-271 
-205 


020 
275 
1,038 
1.547 
298 
455 
782 
325 
262 
452 
904 
352 
405 


882 


1936.. 

193.5 


1921. 

1920 


880 
940 


1934.... 

1933 

1932 


1919... 

1918 

1917 


800 
806 
921 


1931 


-909 
-134 

4,784 
1,756 
138 
-270 
-149 


1916 

1915 

1914. 

1913... 

1912.. 

1911 

UHO 


836 


1930 _.- 

1929 

1928 

1927 

192f. 

192.") 

1924 ... . 


686 
677 
724 
651 
623 
610 


— 2-(2 S6i> 


1909 


89 fif 1 


522 


1923 


-370 


736 











' Plock issues loss savliics out of dividends. 

2 Kiki-Tis for 1920, 102."., 102<^i, 10.''2 193.1, 1936, and 1937, computed estimates; others based iipon those ccn- 
piiteil ">;r'ma(t''s. 

>oiirrcs ,it)(l niiiiliod : .?ro nfipcndix I, sees. C and n. 



76 



CONCENTRATION OF ECONOMIC POWER 



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CONCEflSTTRATION OF ECONOMIC POWEE 77 

The data contained in table XIX and plotted in chart 13 show that 
in most of the past 30 years the equity accounts of the corporate 
system have not absorbed as much savings as they have given rise to.- 
For each of 'the years 1927, 1920, and 1909, the figures indicate net 
absorptions of about $100,000,000. But this figure is much smaller 
than the minimum overstatement involved in the figures. It is 
roughly around the magnitude of the understatement of savings out 
of dividends, (not to mention the overstatement of gross savings 
absorbed in the stock issues which appears to be the more important 
source of bias). 

For the years 1919 and 1912, however, the net absorptions indicated 
by the figures are in excess of the amounts which might be attributable 
to understatements in the volume of savings out of dividends. There 
is, however, the question of the volume of stock retirements. But, 
even after making allowances for biases, it seems likely that there were 
net absorptions of savings in those years. 

Indicated net absorptions in 1928 and 1929 are $1,80Q,000,000 and 
$4,800,000,000, respectively. But these figiu'es are obviously much 
too large. For, in those years a very large proportion of the funds 
obtained from stock issues were used to replace existing equities m 
the hands of the public. The exact volume of such substitutions is 
not known. But one indication that they were large is given by the 
estimates of Moody's Investor's Service that "Productive Issues" 
(stocks as well as other securities) totaled $1,500,000,000 in 1928, and 
$1,800,000,000 in 1929. Another indication is an estimate which has 
been made that only $2,000,000,000 of the $9,400,000,000 of new 
securities issued by domestic corporations in 1929 were used for 
investment purposes.^ Still another indication is the fact that over 
$2,000,000,000 of investment trust securities (practically all stocks) 
were issued in 1929 and $800,000,000 in 1928. Most of 'the proceeds 
of such issues were, of course, used to purchase existiiig corporate 
securities. This comment also applies to the considerable volume of 
holding company stock issues and stocks issued in coimection with 
mergers and consolidations. It would appear, therefore, that in 1928 
and 1929 there may have been net absorptions of savings by the equity 
accounts; but such net absorptions, if they occurred, could not have 
been of very great magnitude. 

Since, in most years, the corporate equity accounts do not absorb 
all of the savings they have created, it is necessary that the excess 
find outlets either in the debt accounts of the corporate system or in 
other sectors of the economy. And, unless they are so absorbed, they 
have a depressing effect upon the national income. This depressmg 
effect can be substantial since underabsorption has probably amomited 
to as much as $1,000,000,000 in some years. Even a much lower 
figure than this, however, is sufficient to depress the national income 
by at least $2,000,000,000 and possibly by as much as $5,000,000,000 

' Figures for the net absorption shown in table XIX considerably overstate the volume of savings absorbed 
by the ownership accounts of the corporate system. For, the estimates of savinirs out of dividends are low 
(ch. VII, sec. C), and the data on new stock issues, though they understate the gi'oss volume of equity 
issues, overstate the amount of net new equity contributions made to the corporate system because the 
ofTsetting figures on equities retired have not been deducted (ch. Ill, sec. A). 

' Eddy, George A.., "Security Issues and Real Investment in 1929," Review of Economic Statistics, vol. 
XIX, No. 2 (May 1937). 

260751— 41— No. 12 7 



7g CONCENTRATION OF ECONOMIC POWER 

C. 'LEAKAGES BETWEEN SAVINGS ABSORBED AND 
INVESTMENT EXPENDITURES 

As already indicated, gross savings absorbed by the ownership 
accounts represent the maximum Hmit for investment expenditures 
which can be financed from those accounts. Thus, any difference 
between the savings absorbed and the actual investment expenditures 
financed from equity accounts represent an additional influence upon 
the national income which must be taken into account. Measure- 
ment of this influence for the ownership accounts alone cannot be 
acconiplished because of the nonsegregability of investment expendi- 
tures by source of funds. But, it is clear that they exist, and, in part, 
are attributable to the ownership accounts. 

In the last analysis, the leakages are simply cash accuinulations. 
Debt retirements might also be considered as leakages but, since they 
do not definitely lock up investment funds within" the corporate 
system as in the case of hoarding, they are more appropriately con- 
sidered as of another character; similarly for purchases of existing 
assets. 

Analysis of hoarding leakages falls outside the scope of this study. 
But it appears worth while to note one very important consequence 
of those leakages. To offset them in the economy as a whole — cor- 
porate as well as noncorporate enterprise; — it is necessary to have an 
expanding volume of monetary media. The sources of these are: 

(a) Production of monetary metals. 

(b) Net foreign balance. 

(c) Credit creation or asset monetization. 

(d) Fiat currency issues. 

And it is clear that, during every period of expansion ojf money na- 
tional income, one or more of these has played an important role. 

It is possible as a result of dishoarding for the national income to 
be maintained or somewhat expanded during short periods, even in 
the absence of funds arising from the four sources listed above^ But, 
because of the lock-ups of savings in cash accounts, an expansion of 
monetary media is necessary in order to maintain a given level of 
the national income over any substantial period. And an even greater 
expansion -is, of course, required for any consistent long-term move- 
ment upward of the national income. 

D. DISSAVINGS AND REDUCTIONS OF CORPORATE EQUITY CAPITAL 

When the corporate system/ has deficits or disburses more in divi- 
dends than it makes in profits, it is dissaving. If the volume of such 
dissaving exceeds the net inflow of new equity funds (stock issues 
less retirements), then the net worth account is being reduced. Be- 
tween 1909 and 1929, such a reduction took place only in 1921; since 
1929, such reductions have been the rule, ranging from around 
$8,000,000,000 in 1932 to $200,000,000 in 1937. Data are shown in 
table XX. 



ooncelntration of boonomic powkr 



79 



Table XX. — Changes in corporate net worth exclusive of indicated book changes in 

valuation, 1909-37 

[Millions of dollars] 



Year 



1937. 
1936. 
1935. 
19S4. 
1933. 
193^. 
1931. 
1930. 

1^. 
1927. 
1926. 
1926. 
1924. 
19K. 



Total 


Retained 


Stock 


earnings 


is'!ues 
760 


-200 


-960 


-246 


-799 


553 


---1, 102 


-1,253 


151 


-2,450 


-2, 485 


35 


-4,327 


-4,480 


153 


-7,977 


-8, 001 


24 


-6,984 


-7, 327 


343 


-2,720 


-4, 247 


1,527 


8,914 


2,157 


6, 7.57 


5,891 


■2,400 


3,491 


2,853 


1,116 


1,738 


3,555 


2,335 


1,220 


4,204 


2,957 


1,247 


2,440 


1,574 


866 


3,264 


2,628 


736 



Year 


Total 


Retained 
earnings 


1922 


2,366 

-2, 331 

2,481 

5,254 

2,231 

4,772 

5,690 

- 2,353 

605 

1,632 

2,379 

1,017 

1,483 

1,643 


1,746 
-2, 606 
1,443 
3,707 
1,933 
4,317 
4,908 
2,028 

343 
1,180 
1,476 

665 
1,078 
1,032 


1921 


1920 


1919 


1918 


1917 


1916 


1915. 

1914 -- 


1913.... 


1912 


1911 


1910 


1909 -. 





Stock 
issues 



620 
275 
1,038 
1,547 
298 
466 
782 
325 
262 
452 
904 
352 
405 
611 



.=50urces and methods: See ajjpendix I, secs/ A and C. 

A reduction of equity capital (in money terms) does not neces- 
sarily hamper the functioning of the corporate system. In fact, it 
may only represent a changing efliciency of the money value capital 
in the system. Because of changing price levels and technical effi- 
ciency, different inoney capitals 'may be required to caiTy on the 
saTne physical volume of activity. And in answer to these changes, 
the net worth accounts fluctuate up and down. 

Since 1929, there has probably been a net money capital reduction 
in corporate net worth accounts arising out of the current income ac- 
counts, stock issues and stock retirements of between 25 and 30 bil- 
lion dollars, with most of it occurring prior to 1935. This impairment 
represents around 20 percent of the end of 1929 net worth of the 
corporate system. And, of course, it excludes net worth declines 
arising out of intra corporate system book changes in valuation since 
these obviously cannot hamper the operations of the corporate 
system. 

That the corporate system during recent years has not been ham- 
pered in its activities by. the reduction of its equity capital or, in 
other words, by a shortage of funds at its disposal can be indicated 
in a number of ways. 

First of all there has been a marked change in price level. The 
Bureau of Labor Statistics wholesale price index (1926= 100) averaged 
about "96 during the years .1927 to 1929. Since then it has never 
exceeded the 86 level of 1930 and 1936.; currently it is around 80. 
Thus, today, a much smaller volume of money capital is necessary 
than in the late twenties to carry on the same physical volume of 
business, simply because the price level is abqut 15 percent lower. 

Second, the increasing technical efficiency of capital goods and use 
of capital funds makes it possible to maintain and even expand 
productive capacities with a smaller and smaller volume of gross 
investment expenditures. Thus, for example, the expenditure of 
depreciation and depletion allowances alone is sufficient to maintain 
and even increase productive capacities. It is only when large in- 
creases of capacity are required that new savings must be drawn upoo^ 



gQ COiS'UiiJNTKATlON OF EC0^■OMIC POWER 

for invcstineiit expenditures. And under such condition!; the volume 
of profit expands so that the necessary investment funds are created 
within the corporate system. 

Third, the volume of the monetaiy media held by the corporate 
system, far from being less than in the late twenties, has been greater. 
For example, the official tax returns of the Bureau of Internal Revenue 
show that since 1935 the corporate system has held more cash (cash 
in till and bank deposits) than the $22,400,000,000 held in 1929 at the 
New Era peak of cash balances. Thus, in spite of the huge money 
capital reduction, the corporate system has been able to hoard cash. 
And,. of course, cash accounts are the easiest sources of investment 
expenditures to tap. 

Finally, the volume of debt of the corporate system has declined. 

All in all, the conclusion is that since 1935, at least, the reason for the 
reduction of money capital has not been an inabihty to obtain funds, 
but rather a lack of need for them.* 

During the period 1930-33, when most of the money capital reduc- 
tion occurred, it is possible that at times there niav have been a 
shortage of funds. Particularly, does this seem likely to have oc- 
curred during 1932 arid the first half of 1 933 — the period of the banking 
difficulties. But during the remainder of the period, the corporate 
system seems riot to have been hampered bv any shortage of fimds. 
There were large volumes of depreciation allowances which were not 
spent simply because there was little if any need for new capuciti(>s 
in vipw of dechning physical outputs. In addition, the docliiung price 
levels made smaller and smaller volumes of money capital necfssary 
to carry on a given volume of business. 

« Cf Eddy, George A., "The Present Status of New Security Issues,^' Review of F.c-mtmi': Statistics, 
vol. XXI, No. 3 (August 19S9). 



PART III 

CORPORATE PROFIT RATES AND 
SAVINGS ABSORPTION RATES 



CHAPTER IX 
THE METHOD OF MEASUREMENT 

In part 11 it was sliown that, on the whole, the volume of investment 
funds absorbed by the equity accounts hsis been substantially less than 
the volmne of savings created by those accounts. This part deals 
with two further questions: First, what has been the relation between 
the profit rates and the savings absorption rates of individual cor- 
])orations? Second, how has the relationship changed with changes 
in the conditions- under which the corporations have operated? 

This part is based upon an analysis of the oil producing and refining 
industry. Linxitations of time and personnel did not permit a shnilar 
intensive analysis of other industries. Preliminary studies of other 
industries, as well as the closely related studies in part IV, indicate 
that the findings with respect to oil producing and refining corporations 
apply in general to large corporations in other lines of enterprise. 

A. MEASUREMENT OF THE RATE OP RETURN 

The rates of return used in the subsequent discussion are rates on 
invested capital rather than profit rates on net worth alone. Invested 
capital is defined as net worth including capital reserves plus funded 
and long term debt. The income that corresponds to invested capital 
so defined is net profit plus interest on funded and long term debt. 

Differences in capital structure, as between corporations, may, of 
course, lead to differences in investment behavior. When a corpora- 
tion is making large profits, even a large volmne of long term debt 
would probably not affect its rate of asset expansion to any great 
extent. Rigidity in interest requirements may in such circumstances 
be largely, if not wholly, com.pensated by flexibility of the common 
dividend rate. But when profits are moderate or low, interest require- 
ments tend to restrict the freedom of action of that corporation relative 
to corporations not so limited. For these reasons, the technically 
preferable procedure in an analysis such as the present one would be 
to take differences in capital structure into account. But this pro- 
cedure could not be followed because of limitations of time and per- 
sonnel. 

Rates of return on invested capital rather than on net worth were 
selected for the following reasons: 

(1 ) A segment of investm.ent funds broader than the equity accounts 
is covered. As a consequence, differences in valuation practices have 
smaller effects upon rates of return on invested capital than they do 
upon rates of return on equity alone. 

(2) The use of rates of return on invested capital avoids the effects 
of purely financial changes and differences, such as might result from 
conversions of stocks to bonds and vice versa, upon rates of return on 
net worth. 

83 



84 CONCEiNTRATION OF ECONOMIC POWER 

(3) Exploratory studies indicated that differences in capital struc- 
ture had not been of critical in\portance in determining differences in 
investm.ent behavior for the corporations studied. 

(4) Finally, because of small funded and long term debts, differ- 
ences between rates of return on net worth and on invested capital for 
industrial corporations, such as those covered in this part, tend to be 
small. Hence, as a practical matter the relations between profit rates 
and expansion rates for such corporations tend to be about the same 
whichever set of rates is used. 

B. MEASUREMENT OF THE RATE OF ABSORPTION OF SAVINGS 

The change in the total liabilities (or assets) of a business during a 
period, after adjustment for book changes in valuation, represents the 
volume of investment funds or savings put into that business by owners 
and creditors during that period. These funds may originate within 
the business in the form of retained profits (or losses) or outside the 
business in the form of new equity capital and of changes in debt. 

For any business a change in total assets • (or liabilities) does not 
necessarily represent an absorption of the savings at its disposal during 
a period. A business absorbs or invests savings acquired during a 
period when those funds have been converted into assets other than 
cash. Thus, the amount of savings absorbed by a business is not 
measured by the change in total assets, but rather by the change in 
total assets exclusive of cash. An increase in the cash account repre- 
sents simply a lock up of savings within the business, even though it 
is an absorption of savings from owners and creditors into the business. 
And a decrease in the cash account or a release of locked up savings 
represents savings absorbed by the business, even though there has 
been no absorption of savings from owners and "creditors into the 
business. 

Cash includes currency, metallic money, bank deposits, and other 
forms of monetary media. Published balance sheets, however, usually 
provide figures for an account called "cash and equivalent." This 
account includes cash, securitieis held by corporations in lieu of cash, 
and, in some cases, other items as well. But, on the whole, the 
"cash and equivalent" account provides a reasonably good approxi- 
mation to the volume of cash held. In any case, since the amount 
of cash and equivalent, in comparison with total assets, is small, the 
discrepancies do not affect the results to any great extent. 

The rate of savings absorption for a year is, theii, the percentage 
change in noncash assets, after adjustment for revaluations during 
the year. Such percentage change figures should be based upon the 
same valuations as the rate of return figures. Consequently, since the 
rate of return figure used in the analysis for a year in which a revalua- 
tion occurred, say 1935, was based upon the end of year asset values, 
the percentage change in assets should also be based upon the same 
values. In order to do this, the asset values at the end of 1934 were 
adjusted for the asset revaluations during 1935, and the percentage 
change in assets during 1935 computed from the adjusted value for 
1934 and the reported value for 1935. 

Adjustments were applied only when revaluations or book changes 
in asset values had been carried through the accounts as debits or 



CONCENTRATION OF ECONOMIC POWES §5 

credits *b surplus.^ "Revaluation" entries carried through the in- 
come account were not included in the asset adjustments for the 
reason that these entries, though they may be only book changes, are 
deemed by corporations to be parts of the current flows of funds into 
and out of the equity accounts. 

An attempt was made to cover all revaluations carried' directly to 
surplus.2 While there is no certainty that all book changes in valua- 
tion were obtained, it would appear that the most important of them 
were. It is probable that the minor revaluations and any major ones 
which were not covered could hardly affect the results seriously. 

Detailed data on book changes in valuation are shown in appendix 
II, sections B and C. 

C. CONSOLIDATIONS, MERGERS, ACQUISITIONS, ETC. 

Much of the asset growth of large corporations has been accom- 
plished by means of mergers, consolidations, and acquisitions of all 
or part of the assets of existing businesses. These have been usual 
methods of corporate expansion ■ during periods of relatively high 
business activity. In other periods they have been employed less 
frequently, though still on a substantial scale. The material con- 
tained in appendix II, though necessarily incomplete, gives striking 
evidence of the extensive use of these methods. 

An increase in the assets of a corporation resulting from a merger, 
a consolidation, or an acquisition is on a different plane from an in- 
crease by other means. There is, of course, no sharp line of demarca- 
tion between the two general methods of asset expansion. Yet it is 
necessary to distinguish a difference of kind for the present analysis. 
To do so a pragmatic test was api3lied. Corporations whose assets 
increased sharply during a year as a result of a merger, consolidation 
or acquisition, were eliminated from the analysis for that year. In 
other words, whenever a corporation introduced into its accounts' a 
body of assets which previously was held by other independent, 
businesses and which was large relative to its own assets at that time, 
a merger, consolidation, or acquisition was deemed to have occur^. 
Similarly, in the rare cases when a corporation disposed of a large 
proportion of its assets, a separation of the corporation into two or 
more parts was deemed to have occurred. 

Acquisitions arrd disposals of smaller scope were treated as of the 
same nature $s new construction and equipment purchases. This is 
appropriate; to an individual corporation there is no difference be- 
tween acquiring the assets of existing businesses and purchasing 
assets not previously part of a business. Both constitute investments 
of funds. In fact, they are alternative means of attaining the same 
ends. 

Cases in which changes in accounting procedure occurred were 
treated in a manner similar to that for consolidations, mergers, and 
acquisitions. For example, when a corporation shifted from an un- 
consolidated to a consolidated basis of reporting (or vice versa) in 
any year, that corporation was eliminated from the analysis for that 
year only if the change in assets resulting from the shift was large. 

' And capital reserves included in invested capital. 
' Or to capital reserves included in invested capital. 



gg CONCEiNTRATION OF ECONOMIC POWER 

D. THE TECHNICAL BIAS ARISING FROM THE USE OF BOOK VALUES 

Rates of change in assets were based upon figures compiled by the 
Standard Statistics Co., Inc. ; rates of return for the years 1934 to 1938 
were computed from data compiled by Standard Statistics, Co., Inc., 
and, for the years 1927 to 1933, are those calculated by the Standard 
Statistics Co., Inc. Such figures, wliich are derived from the annual 
reports of corporations, are obviously affected by accounting and valu- 
ation practices. It is impossible to adjust the data published by the 
various corporations to reflect uniform accounting and valuation prac- 
tices. Even if it were possible to do so, it is doubtful whether such 
adjusted figures would have any greater validity tahn the published 
figures. Furthermore, it is desirable to use those book figures which 
the managers of business believe to be the m.ost appropriate as a basis 
for control and operation. By and large, book figures are presumably 
of this character, although there is no assurance that in some cases 
book figures may not be designed for other purposes. 

Variations in charges to costs among different companies automat- 
ically affect both the rates of asset change and the rates of retiu-n in 
the same direction. For example, an "excessive" depreciation charge 
lowers both the percentage change in, assets and the rate of return as 
compared with other companies. Book changes in valuation charged 
directly to surplus have a similar effect upon rates of asset change and 
rates of return; total assets and invested capital are changed in the 
same direction, so that both the rate of asset change and the rate of 
retm'n are changed in the same direction. Thus, 'such variations 
among companies in costing and valuation practices introduce a 
relation between the rates of return and the rates of asset change. 
This technical bias operates so as to show the higher rates of asset 
change associated with the higher rates of return and the lower rates 
of asset change associated with the lower rates of return. 

It appears, however, that the bias is, in general, not great enough to 
destroy the general validity of the results obtained when companies in 
the sfcmo industry are compared. The reasons for this are: (1) 
accounting practices tend to be similar for corporations in the same in- 
dustry ; (2) book changes in valuation of substantial magnitude tend to 
occur at the same time for different companies; and (3) the corpor- 
ations included are among the larger ones with relatively long histories 
80 that such arbitrary valuations as are included in the figures are 
merged with cost valuations to a considerable extent. All of these 
factoi-s tend to reduce the technical bias so that it tends to be small 
relative to any substantial real relation indicated by the book values. 



CHAPTEK X 

RELATION BETWEEN PROFIT AND ASSET EXPANSIQIi 
RATES: OIL PRODUCING AND REFINIf 1^ CORPORATIONS 

A. THE CORPORATIONS " 

The analysis covers 22 of the follo^\dng 25 corporations: 

1. Amerada Corporation, 

2. Atlantic Refining Co. (The). 

3. BarnsdaU Oil Co. 

4. Consolidated Oil Corporation. 

5. Gulf Oil Corporation. 

6. Houston Oil Co. of Texas. 

7. H\imble Oil & Refiaing Co. 

8. Indian Refining Co. 

9. Indiana Pipe Line Co. 

10. Mid-Continent Petroleum Corporation. 

11. Ohio Oil Co. 

12. Phillips Petroleum Corporation. 

13. Pure Oil Co. 

14. Shell Union Oil Corporation. 

15. Skelly Oil Co. 

li>. Socoiiy-Vacuum Oil Co., Inc. 

17. Standard Oil Co. of California. 

18. Standard Oil Co. (Indiana). 

19. Standard Oil Co. (Kentucky). 

20. Standard Oil Co. (New Jersey). 

21. Standard Oil Co. (Ohio). 

22. Sun Oil Co. ' 

23. Texas Corporation. 

24. Tide Water Associated Oil Co. 
2b. Union Oil Co. of California. 

The number preceding each company is used to identify it on the 
various charts. 

These corporations are classified as oil producing and refining com- 
panies by the Standard Statistics Co., Inc., in their compilations. 
They cover the bulk of the industry. Since the oil producing and 
refining industry is characterized by large producing units, most- of 
the companies are large having total assets of more than' $25,000,000 
each. 

Amerada (1), Indian Refining (8), and indiana Pipe Line (9) were 
omitted from the analysis. Amerada was omitted because it deals 
extensively in oil lands as a result of the oil-i >i ospecting character of its 
operations; apparently this accounts for the p Tatic behavior of its asset 
accoimts relative to the bulk of the other r o' porations. Indiana Pipe 
Line was omitted because its business is e.x'.usively that oi transport- 
ing oil by pipe line between two fixed poin r? and hence not comparable 

87 



88 



CONCENTRATION OF ECONOMIC POWER 



with the other companies studied. Indian Refining was omitted 
largely because control was acquired by the Texas Corporation in 1930, 
but also because of the restricted character of its operations. While 
not included in the analysis, data for the three corporations are plotted 
in the charts. They serve to indicate, particularly m the casff of 
Indiana Pipe Line, the effects of differences in operations upon the 
relation between rates of return and of noncash asset expansion. 

Most of the remainiftg 22 corporations are highly integrated, cov- 
ering all or most of t\e -vroductive activities from oil well drilling to 
the distribution of refi leu products to consumers. Various producing, 
transportation, and distributing operations loom larger in some of the 
corporations than in others. But, with some few exceptions, they 
have been carrying on about the same kind of activities. 

Three of the companies did have operations somewhat different from 
those of the other nineteen. Prior to 1 9-3 1 , Standard of Kentucky (19) 
was mainly a distributing company, though it did some refining; in 
1931, refinevy operations were discontinued so that, since then, it has 
been purely a ' distributing company. Standard of Ohio (21) is 
mainly a distributing company. After Barnsdall (3) disposed of its 
marketing and refining divisions by a stock dividend in 1935. it 
became a producing and pipe line company. These companies might 
well have been excluded in riew of the lack of relatively strict com- 
parability with other companies. However, it was believed that they 
were sufficiently similar to other companies to warrant; inclusion in the 
analysis. 

It may be noted that Humble Oil (7) is a consoUdated subsidiary of 
Standard of New Jersey (20) and ofi that account might have been 
omitted. However, in view of the fact that Humble accounts for 
only around 15 percent of Standard of New Jersey's assets and, for 
practical purposes, one division of the latter's business, it was believed 
worth while to include Humble as an independent item. The figures 
for Standard of New Jersey are, of course, not very much different 
from what they would have been had Humble been exclud-ed from its 
accounts. 

In computing the relation shown for 1928, Standard of Indiana (18) 
and Standard of Ohio (21) were eliminated on a somewhat ajbitrary 
basis; similarly, for 1929, Barnsdall (3) was eliminated. Diu-ing 1928, 
Standard of Indiana built up its cash account and reduced its current 
liabilities, apparently in preparation for the acquisition of Pan- 
American Petroleum in 1929 and th« purchase of the outstanding 
50 percent interest in the Sinclair Crude Oil Purchasing Co. in 1930. 
Figures for Standard of Ohio used in the analysis show a large increase 
in the cash and equivalent account in 1928. There is some question 
as to whether this represents an actual increase, since the figures show 
a roughly corresponding decline in receivables. It is possible that the 
cash and equivalent increase merely represented a transfer between 
accounts. It is also possible that the cash and equivalent account for 
1928 included some investment account items, since in 1931 certain 
investments were first reported by the Standard Statistics Co., Inc., 
as part of cash and equivalent and later, separately, as investments. 
In 1929, Barnsdall retired most of its long term debt, using for this 
purpose a sinking fund previously carried as an asset. This ap- 
parently explains the 9 percent decline in assets when other companies 
with approximately the same rate of return were expanding their 



1927 



Chart 14 
RELATION BETWEEN RATE OF RATURN AND RATE OF NON-CASH ASSET EXPANSION, BY YEARS, 1927-1938 
■ SELECTED OIL-PRODU CING AND RERl^ NG CO RP ORATIONS 

I Corporafions omilled for all yeors ' x Unweighted overoges for cofpOrations included ® Co'poroTions omitled for porliculof yeors only 

1928 ,„... 





•1 




r 


£ V 




' 


* J':. 1 















J,® a 








1929 






"> * 


.A, 




/V 


i 




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i i ' 


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1930 








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1931 








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1932 































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1933 




:' j,_ i ■ 


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1, 




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10 -5 O '5 



10 ♦IS t20 'lO 
Rote of return on invested copitol 





1934 






. — 


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: 




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i' 


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to -i' 


3 '5 . ♦ 


0'" ♦I 


5 »20 



1935 



1936 



1937 



1938 








■ -y 




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i 



-5 0- '5 



10 tlS +20 -10 
Rate of return on invested copital 



O »5 »I0 '15 tZO .-to -5 'S 'to 



:i.,.. 



15 ♦20 -10 -5 ♦& ♦10 ♦IS *2C 

Rote of return on invested copitol 



-^1 



^ 



■15 5 



Sources ond Methods See Chopler IX ond Appendix n. Section B. 
2C07ni— 41— No 12 (flirt p sm 



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1 



CONCENTRATION OP ECONOMIC POWER 89 

assets about 10 percent on the average. It is believed that the 
computations for 1928 and 1929, excluding these items, depict more 
accurate ly the underlying situation than similar computations includ- 
ing these items, 

Texas Corporation (23), formed in August 1926, was omitted from 
the 1927 calculations because the required end of 1926 balance sheet 
data had not been obtained by the time those calculations were started. 

B. RELATIVE PROFIT KATES AND RELATIVE ASSET-EXPANSION RATES 
WITHIN INDIVIDUAL YEARS 

Chart 14 shows the rates of return on invested capital plotted 
against the percentage changes in assets for each of the 12 years from 
1927 to 1938. For each year, each dot represents 1 of the 25 com- 
panies for which data were obtained. Those enclosed in squares have 
been excluded from the analysis for the reasons given in section A, 
supra ; tiiose enclosed in circles have been excluded for particular years 
because of consolidations, mergers, acquisitions, changes in accoimting 
proced\ire, etc. The line for each year represents a computed relation 
between the rate of return and the percentage change in assets for the 
corporations not enclosed in squares or circles for that year. Each 
line was fitted by the method of least squares with the rate of return 
as the independent variable and with the same weight assigned to each 
company regardless of its size. Basic data from which the chart was 
preparc.'d are contained in appendix II, section B, and the adjustments 
made to the basic data are described in chapter IX. 

The general level of the line for each year is determined by the 
ujnveiglited average peieentage change in assets for the corporations 
included in the analysis for that year. Similarly, the general hori^ 
zontal position of the line is determined by the unweighted average 
rate of return. An "X" has been placed upon the chart for each year 
to locate the position of these averages. The scatter (excluding dots 
enclosed in circles or squares) about the hne for each year measures 
the closeness of the association between the percentage changes in 
assets and the rates of return. The steepness of the slope of the line 
for each year measures the average amount by which the percentage 
change in .as&etshas differed as between companies for a given differ- 
ence in the rate of return. Table XXI contains the various computed 
averages, slopes, and measures of scatter. 



90 



CONCEiNTRATION OF ECONOMIC POWER 



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o 

Q 
a 

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Minimum 
required for 

technical 
significance ' 






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Actual 




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CONCENTRATION OF ECONOMIC POWER 91 

For most of the years, there is a clearly discernible relation between 
the rate of return and the rate at which assets were expanded. Cor- 
yjorations with the highest rates of return expanded their assets the 
luust while those with the lowest rates of return either expanded 
their assets the least or contracted them most, and, for the interme- 
diate rates of return, the greater the rate of return, the greater the 
rate of asset-expansion. This aspect of chart 14 will be discussed 
in this section. But it^s also clear from the chart that the character 
of the relation has varied a good deal from year to year. In particu- 
lar, the chart shows that, even on the average, the same rate of return 
has not always been associated with the same rate of asset expansion. 
This latter aspect of chart 14 will be discussed in succeeding sections. 

In 9 of the 12 years, there was a definite association between the 
asset-expansion rates and the rates of return of the corporations 
covered. This is shown by the fact that, except for 1927, 1932, and 
1934, the correlation coefficients were at or above the minimum level 
required for technical significance. Those coefficients show that the 
amount of variation in the expansion rates accounted for by the 
variation in rates of return has been substantial in most of the years. 
Aside from 1927, 1932, and 1934, at least 18 percent of the variation 
in asset change for the corporations covered in each year has been 
accounted for by the variation in rates of return.^ The maximum of 
45 percent occurred in 1936. Such percentages are striking indica- 
tions of the relation which has existed between profit rates and 
expansion rates in most of the individual years. 

A relation between profit rates and expansion rates does not mean, 
of course, that the current profit rate places any rigid restrictions 
upon the amount of expansion which a corporation can make during 
tiie current year. In fact, a corporation has considerable leeway as 
to the amoimt of asset expansion or contraction it will show for a year 
at a given rate of return. 

A corporation has a choice as to the amount of profits it will retain 
or disburse as dividends; similarly, with respect to its cash balances. 
And should the funds available from the profit and cash accounts 
not be sufficient, a corporation may draw funds from other sources 
such as trade credit and seciuity issues. Taken together, these ele- 
ments in the situation only place an upper limit upon the rate of 
expansion for a corporation. It is difficult to determine the extent to 
which such a limit has restricted the expansion of the corporations 
included. But, on the whole, it appears that the upper limits must 
have been considerably outside the range of the actual data. That 
this must be so is indicated by the fact that corporations such as 
those included have had little if any difticulty, by and large, in ob- 
taining additional bank or trade credit when they have wanted it. 

Limits placed upon the amount of contraction are of a somewhat 
different nature. A "going concern" with a specified volume of busi- 
ness can contract its noncash assets only so far as (1) book charges to 
current costs, such as depreciation and depletion, do not have to be 
spent for replacements and (2) assets can be sold or liquidated with- 
out hampering operations. As a usual matter, these factors operate 
to place rather definite limits upon the rate of contraction. But 
even these limits apparently fall below the range of the data or in 
most cases below a decline of 10 percent in 1 year. 

' The sqiiares-of the correlation coefBcietits shown in table XXI give the proportions of the variation in 
the rates of asset change ancountefi for by variation in the rates of return. 



92 CONCENTRATION OF ECONOMIC POWER 

A corporation, then, may select any one of a number of different 
rates of asset change. The major factors which bear upon the action 
of corporations in this regard may best be seen in terms of a hypo- 
thetical case in which it is assumed that all corporations are in the 
same position at the beginning of the year. Durmg the year, those 
corporations with the greater expansions of business volume and the 
greater increases in efficiency would. tend to show. the greater rates 
of return. But an expansion of volume tends to involve an expansion 
of inventories and receivables directly, while increases in efficiency 
tend to involve capital expenditures. Furthermore, those corpora- 
tions with the greatest increases in volume would be the ones most 
likely to add new capacities. Thus, both the rate of return and the 
rate of asset expansion tend to be greater, the greater the expansion 
of the volume of business and the greater the efficiency increases. ^ 

In actual fact, of course, all corporations do not start each year in 
the same position. But this tends also to lead to a relation between 
asset expansion rates and profit rates, rather than to obscure such a 
relation. For example, among corporations with the same per- 
centage expansion of business volume, those with the greater unused 
capacity at the beginning of the year would tend to show the lower 
profit rates as well as the lower asset-expansion rates, partly because 
of the greater base upon which the rate of asset change is computed 
and partly because smaller expenditures on capital equipment would 
be required. 

Finally, it may be noted that the tendency of corporations to retain 
funds even though they are not needed for current operations also 
tends to lead to a relation between the rate of return and the asset- 
expansion rate. This is so because the corporations with the greater 
rates of return tend to be able to retain the greater voluines of "un- 
needed" funds. While such funds could, and at times, do remain in 
the cash account, there is a tendency to place them in earning assets. 
For example, "excess funds" are sometimes used to purchase securities 
in other corporations either in the same industry or in other industries.^ 

In brief summary, during each year each corporation of the group 
analyzed selected its rate of asset expansion from among a wide range 
of possibilities, so that, on the average, the greater its relative rate 
of return", the greater its relative rate of asset expansion.^ The 
selections have been made ui this way largely because the same 
factors tend to determine both the relative rate of return and the 
relative need for asset expansion. To some extent, also, the relative 
profit rate determines the relative ability to expand assets. 

C. UNDERLYING CONDITIONS AND THE RELATION BETWEEN THE PROFIT 
RATE AND THE RATE OF ASSET EXPANSION 

It was noted in the preceding section that the relation between 
asset expansion rates and profit rates had changed from year to 
year. The differences in the location and scatter of the dots shown 

2 Differences in prices received might also be a factor. Presuinahly for the oil producing and refining 
corpiirations covered in this part, such differences would be of relatively minor importance. But in any 
case, they would appear, in eeneral, to affect both a.ssets and i)rofits in the same direction. 

3 Data of the kind used in this analysis reflect the tendency to place "excess funds" in earnings assets 
only to the extent that the assets are not included in the cash and equivalent account. 

* Thi.s conclusion is applicable, of course, only to a group of corporations operating as "going concerns" 
in the same set of circumstances. It does not necess.irily apply to corporations in different industries nor to 
corporations in the same industry at difTerent times. For example, it does not imply that steel corporations 
with a 10 percent rate of return would have a greater rate of pssel expansion than oil corporations with a 
.""i percent rale of return. Again, it does not imply that oil corporations with a 10 percent rate of return in 
19S3 would have a greater rate of expansion than oil corporations with a a percent rate of return in 1M7. 



CONCENTRATION OF ECONOMIC POWER 



93 



by chart 14 are greater as between years than can reasonably be 
expected to result from chance fluctuations. Consequently, those 
differences must m large part be attributed to differences in the 
conditions under which the corporations cavered-have operated during 
the years 1927 to 1938. 

There are three measures of the effects of varying underlying con- 
ditions upon the relation between expansion rates and profit rates. 
These are the changes in (1) the average asset-expansi'on rate asso- 
ciated with a given profit rate, (2) the average difference as between 
corporations in the rates of asset expansion per 1 point difference in 
the rate of return, and (3) the amount of variation in asset-expansion 
rates accounted for by the variation m rates of return. Analysis of 
the latter will not be given in this study ; the first two will be discussed 
in the following sections. In this section, some of the changes in 
conditions to wliich the changes in the relation between profit and 
asset-expansion rates are to be attributed w^ill be briefly presented. 

In analyzing the effects of changing conditions, the study has been 
restricted to a few of the more fundamental factors affecting the 
operations of the corporations covered during the years 1927 to 1938. 
Limitations of time and personnel made this necessary. A more 
detailed and precise analysis is, of course, possible, but would require 
a variety of detailed measurements for the many aspects of underlying 
conditions as well as a series of extensive computations. 

T.'VBLE XXII. — Production, efficiency, and prices, selected items, 1925-38 — Oil 
'producing and refining industry 





Domestic production 
(millions of 42- 
gallon barrels) 


Measures of efficiency 


Prices 


Year 


Crude oil 


Gasoline 


Gasoline 
production 
from refiner- 
ies (percent 
of crude oil 
processed) 


B.t.u. con- 
sumed per 
barrel of oil 

refined 
(thousands) 


Oil and acid 
sludge used 
as fuel at 
refineries 
(percent of oil 
run to stills) 


Mid-Conti- 
nent crude 
oil (dollars 
per barrel; 


Regular grade 
gasoline at 
Oklahoma 
refineries 
(cents per 
gallon) 


1938 


1.213 

1,279 
1,099 

997 
908 
906 
785 
851 

898 
1.007 
901 
901 
771 

764 


556 
559 
505 

458 
417 
402 
393 
432 

432 
435 
377 
330 
300 

260 


44.28 
43. 92 
44.08 

44.19 
43.41 
43.69 
44.67 
44.31 

41. 95 
39. 35 
37.42 
35.99 
34.91 

32.43 






1.18 
1.21 
1.10 

1.00 
1.00 
.62 
.87 
.64 

1.24 
1.36 
1.32 
1.39 
2.13 

1.S7 


5 23 


1937 

1936 

1935 

1934 

1933. 

1932 

1931 - 

193Q 

1929 

1928 

1927 

1926 

1525 -. 


554 
597 

615 
638 
fiOO 
692 
6S2 

672 
639 
667 
721 
832 

829 


2.75. 
3.31 

3.80 
4.23 
4.44 
4.97 
4.99 

5.06 
5.22 
5.08 
5.00 
5.96 

6.82 


5.90 
.5.95 

5.37 
4.74 
3.93 
4.66 
3.77 

6.25 
7.72 
7.97 
0.86 
10.46 

10.65 



Sources: Data taken from Verbatim Record of the Proceedings of Temporary National Economic Com- 
mittee, the Bureau of National Affairs, Inc.: Wa.shington, p. C 1940, vol.6, pp. 271, 597, 601.608.613, and 
014. Original sources were given as follows: Prices-.\merican Petroleum Institute; other data-IT. S. 
Bureau of Mines. 

The production, price, and technical efficiency data in table XXIT 
indicate the broad changes in the underlying conditions for the oil 
producing and refining industry during the period 1927-38. From 
the production data it is clear that in the periods 1925-29 and 1935-37 
tlie output of the oil industry was reaching successive new high levels. 

2f)i»7.''>l— 41— No. 12 8 



94 OONCENTKATION OF ECONOMIC POWER 

It may be presumed that durmg those periods the industry was operr 
ating at liigh rates of an expanding capacity. Between 1931 and 
1932. production dropped sharply and did not recover to previous 
high levels until 1935. Thus, during the period 1932-34, the industry 
was operating substantially below capacity levels, though it may be 
noted that the imderuse of capacity was not so great as for the economy 
as a whole. 

New technologies were continuously introduced throughout the 
period. The most marked changes in technical efRciencv appear to 
have occurred around the 1926-28, 1932-33, and 1935-36 periods, so 
that .the availability of major new technologies may be presumed to 
have occurred prior to those dates. The availability of new tech- 
nologies is important because it provides opportunities for reducing 
costs, These opportunities can lead to capital expenditures"] ii periods 
of underuse of capacity as well as of high utilization of capacity, in 
periods of declining as well as of rising prices, and by corporations 
with loAv as well as high rates of return. In fact, in some oases, the 
pressures upon an individual corporation for action may he greater, 
the greater the underuse of capacity, the sharper the deciiue in the 
prices of its products, and the lower the rate of return. 

The price data taken in conjunction with the profit data indicate 
the riiarked effects of technological developments upon costs. While 
some of the price changes undoubtedly resulted from factoi-s other than 
technology, yet an important part of the difference between cun-ent 
and 1925 prices must be attributed to technology. 

D. THE RATE OF ASSET I2XPANSI0N AT A GIVEN PROFIT PATK 

High profit rates, in and of themselves, have not been sufFicient 
guaranties of high rates of asset expansion. Similarly, low profit rates, 
in and of themselves, have not placed rigid curbs upon rates of asset 
expansion. This is shown by the fact that the amount of asset expan- 
sion which has occurred, on the average, at a given rate of return has 
been different for different years during the period 1927 to 1938. 

The average rate of asset expansion at a 10 percent rate of return 
has varied from no more than 1 percent in 1932 to over 9 percent in 
1937 and over 10 percent in 1929. At a 5 percent rate of return, the 
range has been from an average asset-contraction rate of about 1.4 
percent in 1932 to an average asset-expansion rate of 4.5 percent in 
1937 and almost 6 percent in 1929. And at no return, the average 
asset change has varied from a contraction of about 5 percent in 1931 
to an expansion of about 1.4 percent in 1929. Complete figures for 
the zero. 5, and 10 percent rates of return are shown in table XXI.^ 

The variation in the rate of asset expansion associated with a given 
rate of return has been largely the result of the year-to-year changes 
in the volume of business, in the rate of capacity utihzed, and in prices. 
The mechanics by which these factors affect the rate of expansion may 
best be seen in terms of a few hypothetical instances as follows: Witli 
a constart physical volume of business, the money value of the current 
assets which a corporation has to hold tends to vary with the prices 
of its finished products and raw materials. With prices constant, the 

• The con;pninlion<; for a S percent r.ite of return arc, on the whole, the most reliable sine© this rate of 
return has be en within or not far outside the ranse of the data for every year. Figures for 1928 should not 
he given ns erent weight as ihose for other years because of the somewhat arbitrary evolusion of two cnrpo- 
rations, wiih n-gnrd to wliich see .section A, supra. 



COxNCENTRATION OF EOONOMIO POWER 95 

money value of inventories and other current assets tends to vary with 
changes in the volume of business. With a rising volume of business 
sufficient to involve a high use of existing capacity, the tendency is 
fii'st to spend for the improvement, repair, and maintenance of exist- 
ing plant, and then, with a continuance of the expansion of business 
volume, to add new capacities. 

During the years 1927 to 1929 and 193o to 1937 the volume of 
business available to the oil iudustn^-- was expanding rapidly. Current 
assets, particularlj^ inventories and receivables, had to expand to keep 
pace with the rising level of activity. The expansion of the physical 
volume of output to new liigh levels made it necessary during the 
early parts of each period to spend for plant improvements, repairs, 
maintenance, and minor additions, and, during the rest of the period, 
to install new capacities. In addition, a rapidly changing tech- 
nology made it necessary or advisable to replace or gieatly improve 
old capacities. This was particularly true in the years 1927 to 1929 
as a consequence of the pressure placed upon the industiy to increase 
ios efficiency by the sharp drop in prices between 1926 and 1927. In 
the years 1935 to 1937, there was no such pressure from prices; iji 
those years, there were price increases, particularly between 1934 and 
1936. It may be that the generally lower asset expansion rates shown 
by the data for the years 1935 to 1937 than for the years 1927 ta 1929 
is the consequence, in part, of the different price situations in the 2 
periods. 

In 1930 and 1938 the volume of business leveled off while prices 
declined slightly. For the industry as a whole it was unnecessary to 
expand either capacity or current assets. (For an individual corpora- 
tion, expansion was required only if that company could substantially 
increase its share of the industry's business; and this apparently did 
not occur to any /great extent.) The expansion which occurred* at a 
given rate of return in 1930 was far below the corresponding expansion 
in 1929; and similarly for 1938 compared with 4937. For a zero rate 
of return, the average decline in assets was about 2.8 percent in both 
1930 and 1938, in contrast with no decline in 1937 and an increase of 
more than 1 percent in 1929. For a 10 percent rate of return, the 
asset expansion rate was 3.3 percent in 1938 and 6.8 percent in 1930, 
in contrast with the 9.2- and 10.3 percent rates in 1937 and 1929, 
respectively. 

In 1931 whereas prices declined sharply, physical volume remained 
at approximately the same level as in 1930. As a consequence of the 
price decline' the money v^alue of current assets required also declined. 
Furthermore, with a declining volume of business there was no 
necessity for capacity increases for the industry as a whole. While 
price pressures, as well as redistributions of business, made expendi- 
tures upon plant necessary in order to increase efficiencies, these 
tended to be restricted to fimds easily available from internal sources. 
Thus, the rate of asset expansion for a given rate of return dropped 
sharply below the 1930 level. For a 5 percent rate of return, for 
instance, noncash assets on the average declined aboiit 0.5 percent in 
1931, compared with an expansion of 2 percent in 1930. 

In 1932, whereas prices increased, the output of the oil industry 
dropped sharply below the level of the preceding 3 years. With 
wide underuse of capacity and a shrinking volume of business, there 
was little need for asset expansions. Even at relatively high rates of 



96 CONCE.XTRATION OF ECONOMIC POWER 

return, there was on the average no expansion. This tendencj' 
appears to have been accentuated by the adoption of proration of 
production/ 

In 1933 tlie rates of asset expansion for the higher rates of return 
were not far below the rates in some of the years of high production. 
For example, for a 10 percent rate of return the indicated expansion 
rate was about 5 percent in 1933 compared with 6.8 percent in 191 ' 
and 6.9 percent in 1936. But for the lower rates of return, asset con- 
tractions were about the same as in 1932, The explanation of these 
results appears to be as follows: In the middle of 1933 there was a 
rapid expansion of output from the depression low to a level above the 
1930-31 average; sales and inventories also expanded rapidly. Thus, 
.there was a need for and a d'esire by the industry, to expand current 
assets and to make plant expenditures. But, as a consequence of the 
banking difficulties, funds were scarce. And, apparently, substantial 
asset expansions could only be financed (on the average) by those 
corporations with substantial sums currently passing through the 
current income account. 

In brief, then, the rate of asset expansion associated with a given 
rate of return has depended largely upon the rate of change in the 
volume of business, the relations of the volume of business to capacity, 
and prices. Prices have been important because of. (1) their effect 
upon the volume of business, (2) their effect upon the money value 
of assets necessary for a given physical volume of activity, and (3) 
their effect in stimulating the adoption of new cost-reducing tech- 
nologies. The role of technology, in turn, has affected (1) the extent 
to which the volume of business could be increased via prices, (2) the 
, extent tQ which profits could be increased by cost reductions, and (3) 
the rate of asset expansion in terms of money required to attain par- 
ticular capacities and improvements. 

E. DIFFERENCE IN THE RATE OF ASSET EXPANSION FOR A GIVEN 

DIFFERENCE IN THE PROFIT RATE 
\ 

The average difference in the rate of asset expansion per 1 point 
difference (for example, between 5 and 6 percent) in the rate of return 
has varied from no more than 0.40 points in 1932 and 1934 to 1.4 
points in 1928. The most significant feature of this variation is that 
it has been associated with the varying extent to- which production 
and price controls have been in effect in the oil industry. Except 
during periods of rapid industry expansion to new high levels of 
. activity, the amount of difference in asset-expansion rates for a given 
difference in the rate of return has been lowered by production and 
price controls. 

Differential asset-expansion rates among corporations in the same 
industry in the same year are largely the result of differential abilities 
of those corporations to expand their respective volumes of business. 
Changes in the differential asset-expansion rates from year to year 
must, therefore, result largely from changes in the differential abilities 
of corporations to expand their respective volumes of business. 

There are many methods which a corporation may use to expand 
its share of an industry's business. Measures (voluntarily adopted 
or otherwise) which limit the use' of one or more of these methods 

« See section E, Infrar^ 



CONCEiNTRATION OF ECONOMIC POWEK 97 

restrict the relative abilities of companies to expand. The intro- 
duction of production and price controls are severe restrictions upon 
the expansion of one company relative to another. Production pro- 
ration directly limits the size of the difference between expansion 
rates. Price control has the same effect by depriving each company 
of its most effective technique of expanding its share of the industry's 
business. Consequently, when production and price control measures 
are in force, differences in asset-expansion rates tend to be smaller 
than otherwise. 

Production and price controls place less important restrictions upon 
the ability of a corporation to obtain a larger share of an industry's 
business during periods of relatively great pressures upon productive 
capacities than during other periods. For, in periods of rapid ex- 
pansion, prices tend to be rather neutral factors; capacities tend to be 
rather fully utilized at such prices; and the major problem of a cor- 
poration tends to be one of expanding its capacity to keep pace with 
demand. But, in periods of stable or declining output, the possibility 
of a corporation expanding its volume rests solely upon its ability to 
take business from other companies, so that price and production 
controls place stringent limits upon its ability to do so. 

The data cover two periods, 1936 to 1937 and 1927 to 1929, during 
which the oil industry was expanding rapidly to new high levels of 
output. In both periods, the average difference in asset expansion 
rates per 1 point difference in the rate of return was around 0.90 
points.^ But the underlying price and production controls were 
different in the two periods. In the years 1927 to 1929, production 
proration was nOt in effect; in 1936 and 1937, proration was in effect. 
Furthermore, it appears that price control was greater in the later 
than in the earlier period.* Thus, the data show that such differences 
in price and production controls have not affected the amount of 
difference in asset-expansion rates for a given difference in the rate 
of return when the oil industry was rapidly expanding output to new 
high levels. 

The years 1932, 1933, and 1934 were years of relatively low activity 
in the oil industry. In 1932 and 1934, the average difference in 
asset-expansion rates was 0.40 point for a 1 point. difference in the 
rate of return. But, in 1933, the average difference was 0.84 point 
or almost as high as during the years 1927 to 1931 and 1936 to 1937. 
These results reflect the effects of production and price controls upon 
differential-expansion rates. 

During 1932 proration was in effect in the important Oklahoma 
and East Texas fields; furthermore, in June, a duty of $1.05 per 
barrel was placed upon gasoline imports, thus practically eliminating 
foreign gasoline from the domestic market. In 1D34 the industry 
was operating under the Code of Fair Competition of the Petroleum 
Industry,® under the National Industrial Recovery Act, designed t© 
place in effect a broad program of production control and pfice 
stabilization. In each of these years, prices were sharply above the 
immediately preceding year. The situation in 1933 was markedly 
different from that of 1932 and 1934 with respect to production and 

» The 1.4 point figure for 1928 does not have the weight of the other flRures. This is so because of the 
somewhat arbitrary exclusion of Standard of Indiana and Standard of Ohio. See sec. A, supra. 
' Cf. Ethyl Gasoline Corp. et al. v. United States, 309 U. S. 436 (March 2f>, 1940). 
• Effective September 2, 1933; minimum price schedule effective December 1, 1933. 



gg C0NCE2S-TRATI0X OF ECONOMIC POWER 

prico control. Prices in 1933 wore sharply below the 1932 level. 
And, except for the latter part of the year, when the N. I. R. A. 
Code was in effect, production control on a broad scale did not exist 
as a result of a United States Supreme Court decision.'" 

Thus, the data show that production and price controls have de- 
creased what mio-ht be termed the effectiveness of the profit rate in 
determininsr difFerential f,cpansion rates during the years of low 
activity in which such controls have been in effect. 

Diiring the years of relatively high activity and of no substantial 
pressures upon capacities, production and price controls have affected 
differential expansion rates but to a lesser extent than during periods 
of relativelv low activitv. This is shown by a comparison of the 
results for 1030 and 1931. on the one hand, and ]93.'5 and 1938, on 
the oth^r hand. The N. I. R. A. Code was legally in effect during 
the early na^-t of 1935 but adherence to its provisions tended to 
carry over itito most if not all of the remainder of the year. In 1938 
interstnte production proration compacts were in effect; furthermore, 
price controls were in effect either directly through the mechanism 
of forcing price agreements in exchange for licenses to use Tetraethyl 
Lead or indirectly tlirough the high fees charged for licenses to use 
patented cracking processes. But, except for the production curtail- 
ment and proration introduced in the latter part of 1931 in the 
Kansas, Oklahoma, and Ea^t Texas fields, there was no broad pro- 
duction control during 1930 and 1931. Furthermore, there were no 
tariffs on imports of petroleum products. And in 1930 and 1931, 
the averflge difference in asset-expansion rates was around 0.90 
points peT 1 point difference in the rate of return, while in 1935 and 
1938 the average difference was about 0.60 points. 

Thus it appears th.'it the effect of production and price controls 
has' been to lower the effectiveness of the profit rate in determining 
differential expansion rates in the oil industry, except during the 
periods of m.arked expansion to new high levels of output. The 
data also indicate that in the absence of production and price con- 
trols the eff'ectiveness of the profit rate with respect to differential 
asset-expansion rates has not changed with changes in the level of 
activity." 

F. THE LOXG TEBM BELATION BETWEEN PROFIT RATES AND 
ASSET-EXPANSION RATES 

At the bottom of table XXI are shown computed characteristics 
of the relation between the average rate of asset expansion and the 
average rate of return for two 3-year and two 2-year periods. And, 
in chart 15* the average rates of asset expansion for the various 
companies have been plotted against the corresponding average 
rates of return for each of the periods. 

During the years 1930 to 1937, the relations between average 
profit rates and average asset-expansion rates oyer a period of years 
were more marked than the relations for individual years. This is 

10 sterling v. Constantin, 287 T. S. 378 (December 12. 1932). 

11 It should be noted that all of the changes from year to year in the amount of difference in the asset-expan- 
sion rate for a given difference in the rate of return do not meet the usual tests of technical significance based 
on the assumption of random sampling from an infinite universe. On the basis of such tests, a conclusion 
might be reached that changes in underlying conditions during the period have uad no effects. But to 
draw such a conclusion would neglect the fact that the sample covers a large part of a finite universe. It 
wrmld also neglect the cogent reasons for believing there was a connection between the major shifts in the 
difference in asset-expansion rates for a given difference in the rate of return and the use of production and 
price-control measures. 



Chart 15 

RELATION BETWEEN AVERAGE RATE OF RETURN AND AVERAGE RATE 

OF NON-CASH ASSET EXPANSION, BY GROUPS OF YEARS, 1928-1937 

SELECTED OIL PRODUCING AND REFINING CORPORATIONS. 



El Corporations omitted for all years 



+ 15 



+ 10 



+ 5 



^ 



- -5 



•10 



o +15 



+ 10 



+ 5 



-10 





i 1 
•13 10. 1 > 


1 


i " x*] ■ 1 




y^\ •" ,- 


i 








10* 














Bi 





X Unweigtited averages for corporations included 

-'1930-31 



® Corporations omitted for particular years only 



1932-34 



+ 15 



♦ 10 



-/r.r*3« 




1935-37 







, 


' 








•J 




Q, 










,10 


T* 


y 






J> 


IS*? J *« " 

• *" 


• » 






^. 


X 


39 












T , 

















y 








«* 


• » 
J4i5, 


I* 








J' 


•i^^ 

•f**" 

r 




Qt 






/ 


"Ta. 



















-10 .E 



+ 15 



+ 10 Q. 



+ 5 < 



-10 



■10 



; +5 +10 +15 +20 -10 -5 

Average rote of return on invested capital 



+ 5 +10 +15 +20 



Sources ond Mettiods: See Chopter IX and Appendix n. Section B 



200751— 41— No. 12 (Face p. 98) 



98 

pri 
Ar 
Co 
as 

cr( 

(\e: 
acl 

pr( 
dif 
of 
res 
thf 
th( 
car 
int 
Drl 
of 
Loi 
pal 
me 
Ka 
du( 
tar 
the 
poi 
193 
1 
has 
diff 
per 
dat 
trol 
ass( 
acti 



CONCENTRATION OF ECONOMIC POWER . 99 

shown by the generally higher correlation coefficients for the longer 
periods. They are 0.63 for the 1930-31 and 1932-34 periods and 
0.77 for the 1935-37 period; for the individual vcars they ranged from 
0.30 to 0.80 with most of the coefficients below- 0.60. '^ 

The closeness of the relation between the averages of the 1928 
and 1929 rates was no greater than that for each of the 2 individual 
years. For the 2 years combined, the computed coefficient was 0.46 
while for each of the years 1928 and 1929 it was 0.55. But, because 
of the somewhat arbitrary exclusions of two companies " from the 
1928 computations, this difference should not be given much weight. 

The closer relations fOr the averages, for groups of years than for 
the rates for individual years in the period 1930-37 are consequences 
of (1) the fact that the corporations covered financed practically all 
of their expansions from internal sources,'* and (2) the interdependence 
of past activities, immediate current situations, and future plans. 

The interdependence of activities from year to year arises from the 
cumulative character of economic activities. What has been done 
(for example, an introduction of a new technology or an accumulation 
of inventories) in the past need not be done currently; what is done 
currently need not be done in the future; and what is not done cur- 
rently naay have to be done in the future. Thus, the amount of change 
in assets which a corporation might desire to make during a year in 
order to adjust itself to a current situation depends upon the assets 
it has accumulated in the past. The extent to which it actually 
makes the change during the current year depends, in part, upon the 
size of the desired or required change and, in part, upon the physical 
and financial limitations under which the change must be made. 
Small changes are typically made as a matter of course in a more or 
less continuous manner. But large changes tend to be discontinuous 
in character, partly because of the physical necessities (for example, 
with respect to plant), and, partly because of financial considerations 
(for example, favorable conditions for floating securities). 

If corporations limit themselves or are limited to expansions which 
can be financed from internal sources, then their relative asset expan- 
sions would tend to be closely related in the long run to their relative 
profit rates. Major differences as between corporations with the same 
profit rates would tend to result from differences in dividend policies 
and the extent to which debt is retired or expanded. But, in the 
very short nm, the closeness of the relation would tend to be less 
because superimposed upon such differences are the differences which 
usually occur as between companies in the timing of asset expansion 
and in the availability of fund§. Asset expansions destined to be 
financed from internal sources may be made before, after, or at the 
time funds become available from such sources. 

Thus, the measurements for the three groups of years from 1930 
to 1937 show that the amount of funds oil corporations have placed 
into assets has been very closely related to the profit rate during those 
periods in which expansions were in the main financed from internal 
sources. For the three groups of years, the proportion of the varia- 
tion in asset expansion rates accounted for by variation in rates of 
return was between 40 and 60 percent. 

'» A computation for the 6 ypsr period 1933-37 shows a correlation coefficient of 0.78 based upon 22 com- 
panies. In this period the coefficients for individual years ranged from 0.30 to 0.80. 

" See sec. A, supra. 

'< See InvestlKation of Concentration of Economic Power, Hearings before the Temporary National 
Economc Committee, 76th Cong., 1st sess., pt. 9, exhibit No. 592, p. 4046. 



100 



CONCEiNTRATlON OF ECONOMIC POWER 



If corporations do not limit themselves or are not limited to asset 
expansions which can be financed from internal sources, then their 
relative asset-expansions need not tend to be closely related either in 
the short or in the long run to their relative profit rates. This is so 
because the funds which can be obtained and which mi'ght be desired 
from external sources tend to be only loosely related to the profit rate. 
In fact, there is a tendency for corporations with the lower profit rates 
to be in greater need of external financing duiing periods of rapid 
industry expansion and great pressure for the introduction of cost- 
reducing technologies. For these reasons, the relation for the 1928- 
29 period in which substantial volumes of funds were obtained from 
external sources was not only not as close as the relations for later 
periods but also no greater than for the individual years. 



G. THE TENDENCY TOWARD CONCENTRATION 

There has been a tendency for relative differences in profit rates to. 
persist. from year to year. This is shown by the following correlation 
coefficients covering the relation between the relative profit rates of 
the oil corporations in different years : 





Correlation 
coefficient 


Rates of return correlated 


Correlation 
coefficient 


Rates of return correlated 


Actual 


Mini- 
mum re- 
quired for 
technical 
signifi- 
cance ' 


Actual 


Mini- 
mum re- 
quired for 
technical 
signifi- 
cance ' 


1937 and 1936 rates.... 


0.90 
.85 


0.43 
.43 


1936 and 1935 rates 


0. 82 1 0. 43 


1937 and 1935 rates •. 


1928 and 1927 ratos ....' 


62 .46 











> 6 percent point in the assumption of random sampling' from an infinite universe. 

These coefficients show that corporations tend to maintain their 
profit position relative to the average for the industry from one year 
to the next and to the next following. 

With differences in profit rates within an industry persisting over 
substantial periods and with a relation between profit rates and asset- 
expansion rates existing in both the short and the long run, there is a 
tendency for an industry's assets to become more and more concen- 
trated in the hands of relatively few concerns. However, the relation 
between year to year profit rates is not perfect and there is some 
shifting about in relative positions from year to year. And, in addi- 
tion, the rate of asset expansion is not perfectlv related to the rate of 
return. Both of these aspects of corporate behavior indicate sub- 
stantial offsets to the tendency toward concentration in the form of 
new firms, reconstruction of existing firms, and decay of old firms. 
On the other hand, there are other forces leading to concentration of 
assets. And, judging from the acquisitions, mergers, and so forth,^° 
and the rise of the major oil corporations other than the Standard Oil 
companies, the tendency toward concentration appears to have been 
the stronger force in the oil indusjtry.^^ 

>« See appendix 11, sec. B. 

" Cf. Verbatim Record of the Proceedings of Temporary National Economic Committee, The Bureau of 
National Affairs, Inc., Washington, D. C, 1940. Vol. 6, p. 303. 



PART IV 

CORPORATE PROFIT RATES AND RATES OF 
INVESTMENT IN PROPERTY 



101 



CHAPTER XI 
THE METHOD OF MEASUREMENT 

A. MEASUREMENT OF THE RATJE3 OF IN\ ESTMENT IN PROPERTY 

A corporation can invest the funds at its disposal in a variety of 
types of assets — land, equipment, receivables, inventories, patents, 
secmities, etc. A critical feature of the investment behavior of a 
corporation in this regard is the extent to which it invests in assets 
wliich are necessary to maintain or to expand its physical capacity to 
produce goods and services. For industrial corporations, such as 
those covered in this study, land, buildings, and equipment constitute 
the most basic category' of assets determining their physical capacities. 
And the present analysis relates to the behavior of corporations with 
respect to that category of assets. 

Other assets, such as inventories and receivables, are also essential 
for carrying on productive activities. But there is an important dis- 
tinction between such assets and land, buildings, and equipment in 
terms of the rapidity with which they can be converted into cash by a 
"going concern." Current assets can be converted into cash at much 
more rapid rates than can the fixed assets of a corporation. In fact, 
the rate for the latter type of assets tends to be limited by depreciation 
and depletion charges so that the depressing effect upon the national 
income of fixed asset liquidation tends to be limited to the amount of 
such charges. And the depressing effect tends to be further limited 
by the tendency in the economy to force such liquidation to be from 
capital accounts. This is accomplished by reducing the flow of cuiTent 
gross income into corporations which have to liquidate fixed assets, 
so that current income is less than the amount necessary to cover 
depreciation, depletion, and other book charges. Thus, investment 
in fixed assets tends to be a relatively permanent conversion of money 
savings into noncash assets. This is another reason why the most 
fundamental aspects of the investment behavior of corporations relate 
to their investments in fixed assets. 

Corporations generally carry their land, buildings, and equipment 
in property accounts. The rates of new investment used in this part 
of the study were based largely upon data from net property accoimts 
as reported by Standard Statistics Co., Inc., and in Poor's and Moody's 
Industrial Manuals. Net property is, of course, the gross value of 
property less depreciation, depletion, and other valuation reserves. 

Items other than land, buildings, and equipment were included in 
some of the net property accounts. For example, many oil corpora- 
tions carry intangibles in their propertj' uocounts. Such inclusions 
did not have any substantial effects upon 1 e analysis since the other 
than property items were small relative t > the total property. 

The change in the net property accom t during a period, after ad- 
justment for book changes in valuation c irried directly to surplus,^ 

' Or to capital reserves included in invested capital. 

103 



-]^Q4 CONCENTRATION OF ECONOMIC POWER 

represents the volume of investment fmids put into property during 
the period over and above current depreciation, depletion, and other 
book charges to costs credited to the property accounts or to valuation 
reserves against that account. If expenditures on property are greater 
than book charges to costs, the net property account increases; if less, 
-then'the net property account decreases. 

The rate of investment in property for a year is, then, the percentage 
chafige in the net property account after adjustment for revaluations 
during the year. The method of computation used -was the same as 
the one used for noncash assets and described in chapter IX, section A. 

Percentage changes in net property accounts are, of course, not 
necessarily the same as thi p( "centage changes in physical capacities. 
Price changes and changes in technology aifect seriously the amount 
of money required for given changes in capacity. However, during 
the same period, all corporations in a group, such as those covered 
in this study, would presumably have their facilities improved or ex- 
panded roughly by about the same amount for a given volume of 
expenditures. Differences in valuation practices might, of course, 
lead to different rates of change in property accounts as between 
corporations for the same rate of change in physical facilities. But 
such differences would be in thd same direction as the corresponding 
differences in rates of return resulting from differences in valuation 
practices. 

B. THE NATURE OF INVESTMENT EXPENDITTmES 

The net amount of new investment which a corporation makes in 
property and other assets is not the same as the net amount of invest- 
ment expehditures which that corporation is contributing to the 
national total of such expenditures. A business has invested the 
investment funds at its disposal when it has converted those funds 
into assets other than cash. But from the point of view of the 
economy as a whole, current savings are not current investment unless 
they are completely converted into current income. And it is this 
latter conversion which is the essential requirement for maintenance 
of the national income. 

An illustration will serve to sharpen the distinction. Wlien £v busi- 
ness uses retained *p2-o fits to purchase land, buildings, and equipment, 
it is currently investing its savings. But not all of such expendi^ires 
are necessarily converted into current income by the purchase ti'ans- 
actions. For example, part of the expenditines for a machine will 
bft used to cover the depreciation charges of the seller. As a result, 
some of the current savings of the purchaser out of his current income 
are converted into liquid capital funds of the seller. 

Thus, the effect of a particular expenditure by a busmess is only 
partially within the control of that business, even though from that 
business point of view, the expenditure is an investment. Whether or 
not the savings of a corporation out of current income are converted 
into current income depends, in part, upon the decisions of that cor- 
poration and, in part, upon the decisions of other businesses and 
mdividuals. Because of this, it is difficult, if not impossible, to meas- 
ure the effects of the asset purchases of a corporation — the precise 
amounts of current income resulting from the spending of investment 
funds by a corporation. And, consequently, the behavior of indi- 
vidual corporations not only cannot but should not be studied in 
terms of sno.h ftflPef^-s 



CONCENTRATION OF ECONOMIC POWER 105 

But the behavior of a corporation can be studied in terms of the 
kind of assets which it. purchases. And this is done in this part with 
respect to the basic assets determming the capacities of corporations 
in two basic industries — oil and steel. 

C. DATA AND .METHODS 

The methods and data used in this part of the report are the same- 
as those used in part III, except that in this part percentage changes 
in net property rather than percentage changes in total noncash assets 
are related to the rate of return. Comments on the data and methods 
contained in chapter IX also apply to this part. 

It should be noted that the technical bias arising from differences 
in accounting procedure tends to be less when only a portion of the 
assets are considered than w;hen total assets are considered. This is 
so because all the effects of differences in accounting procedures. for 
assets other than cash are reflected in the rate of return figures, 
whereas only the effects of differences in accounting procedures for 
property are reflected in the rate of property expansion figures. In 
fact, it is possible that differences in accounting procedures for assets 
other than property may more than offset the technical bias arising 
with regard to such differences for property. But, in any case, it is 
believed that the effects of such differences are relatively minor. 



CHAPTER XII 

RELATION BETWEEN PROFIT AND PROPERTY-EXPANSION 
RATES: OIL PRODUCING AND REFINING CORPORATIONS 

The corporations covered are the same as those listed and discussed 
in chapter X, section A. 

A. RELATIVE PROFIT RATES AND RELATIVE PROPERTY-EXPANSION RATES 

Chart 16 shows the percentage changes in net property of the 
various companies plotted against their rates of return for each of the 
years 1927 to 1938. Only for the yeai-s 1931 to 1933 And 1936 are 
there clearly discernible relations between the rate of return and the 
rate of property-expansion,' with the higher property-expansion 
rates associated with the higher rates of return. In the other years, 
the chart shows only a slight tendency for the profit rate to bo asso- 
ciated with the property-expansion rate.'' 

That the relation between property-expansion rates and rates of 
return should not necessarily be marked in each year follows from the 
discontinuous character of the larger capital, expenditures of individual 
companies, and from the differences, as between companies, in the 
timing of such expenditures. 

Large additions to property are generally made by "going concerns" 
either to expand capacity or to introduce new technologies on a major 
scale or both. Under conditions of large scale production such 
additions usually have to be undertaken in large lumps,^ since a large 
new production imit or a major change in an existing imit cannot be 
introduced gradually. Consequently, the expenditures required for 
major additions cannot be geared to the volume of funds currently 
available from book charges to costs and retained profits. Frequently 
major expansions have to be financed by security issues, from past and 
future retained profits, or from past and future depreciation and 
depletion allowances. Consequently, the current profit rate tends to 
be only loosely related to the current volume of expenditures for 
major expansions. 

Furthermore, the factors affecting major capacity expansions tend 
to be timed differently for different companies because of differences 
in the condition of plant, in pressure on existing capacities, in financing 

1 Thes* are the only years for which the correlation coefficient is above the level required for technical 
significance for a single year on the assumption of random sampling from an infinite universe. See table 
XX HI, infra. 

' The usual tests of technical significance (which are based upon the assumption of random samplinc 
from an infinite universe) when applied to the computed relations for most of the years taken separately for 
1 year at a time would appear to Indicate the conclusion that no relation existed in each of those years. 
But when the results for all of the years are considered as a whole they definitely show that a relation has 
existed on the average. The reason for this is that the magnitude of a correlation coefficitmt required for 
technical significance in one of the years is much greater than for the "average" coefficient over the 12 years. 
In addition it should be noted that the usual tc^ls do not talce into account the fact tliat tlie .sumple covers a 
large part of a finite universe. As a consequence of this fact alone, the correlation cocincicnt required for 
technieal significance is much lower than indicated by the usual tests. 

^ In the oil industry this is particularly true since a substantial sliareof property consists of oil lands which 
are frequently purrha.<H'd or sold in large lumps. 

107 



][Q3 CONCENTRATION OF ECONOMIC POWER 

procedures, etc. On corporate books these differences in timing are 
accentuated because of differences in accounting procedures.^ As a 
consequence of all these things, major expansions in any 1 year 
tend to be few in number while the expenditures for one particular 
company, particularly as recorded in property accounts, tend to be 
lumped in single years. And on a chart such as chart 16, the behavior 
of those corporations carrying on major expansions appear to depart 
widely from the "general run" in particular years. 
. Smaller additions and improvements to land, buildings, and equip- 
ment are made by "going concerns" as adaptations of relatively fixed 
facilities to a current situation. The amount of expenditures for such 
items can be rather closely adjusted to the volume of funds currently 
available from internal sources and, hence, to the current profit rate. 
Furthermore, it may be noted that the bulk of the smaller additions 
and improvements are undertaken, completed, and entered in the 
accounts in the same year, so that the amount of interlocking of be- 
havior and results from year to year tends to be relatively small. ■ 

The results for years of high activity are most affected by the major 
expansions since it is in those years that slich expansions tend to take 
place. For such years, the data tend to show a low degree of relation- 
ship between rates of returij and rates of property expansion. This 
is best illustrated by the 1937 results. Atlantic Refinmg (2), Humble 
Oil (7), Standard of New Jersey (20), and Standard of Ohio (21) had 
large property expansions in comparison with those of other compa- 
nies. Exclusive of these companies (and of the other four excluded 
from the computations for 1937) , there was a definite tendency for 
the relative rates of return and relative property-expansion rates to 
be related.^ In 1929 the situation was similar though large expansions 
seem to have been more widespread since nine of the companies in 
1929 and only four in 1937 had property expansions of more than 10 
percent. 

During periods either of relatively high and stable activity or of sub- 
stantial underuse of capacity, major expansions have tended not to 
occur in the oil industry and relations between rates of return and 
property-expansion rates have tended to be marked. This is shown 
by the data for the years 1931 to 1933. In those j^ears between 28 
and 52 percent of the variation in property-expansion rates was ac- 
counted for by variation in rates of return. 

By considering average expansion and profit rates over a period of 
years, the effects of the interlocking of behavior and residts of differ- 
ent years can be taken into account. This interlocking occurs for 
both major and minor expansions but tends to be much greater for 
the former. 

Data for two 2-year and two 3-year periods are plotted in chart 17 
and the computed characteristics of the relations between average 
property expansion and average rates of return are shown at the 
bottom of table XXIII. They show, in general, much more marked 
relations between property-expansion rates and rates of return than 
do the individual years. 

' Some corporations, for example, may enter the cost of "work undertaken" in the property accoant when 
contracts are let: others when contracts are fulfilled: and still others at various times during the period be- 
tween the letting of contracts and their fulfillment. 

' For the 17 companies, the correlation coefficient is 0.43 compared with a minimum of 0.4S required for 
technical significance on the assumption of random sampling from an infinite universe. 



Chart 17 

RELATION BETWEEN AVERAGE RATE OF RETURN AND AVERAGE RATE 

OF NET PROPERTY EXPANSION, BY GROUPS OF YEARS. 1928-1937 

SELECTED OIL PRODUCING AND REFINING CORPORATION 



(E Corporotions omitted for all years 



c +15 



+ 10 



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Sources and Mettiods: See Ctiopters IX and XI ond Appendix H, Section B 



200751—41 — No. 12 (Face p. 108) 



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IIQ CONCENTRATION OF ECONOMIC POWER 

Only in the two periods, 1928-29 and. 1935-37, were there any sub- 
stantial number of major property expansions " by the corporations 
covered, although some apparently occurred in 1930. The data for 
the 1928-29 period indicate little, if any, relation between profit ra^es 
and property-expansion rates; it was in that period that major expan- 
sions were most frequent. For the 1935-37 and 1930-31 periods, 
the volume of major expansions was much lower and a relation 
between property-expansion and profit rates is definitely shown. 
And the greatest degree of relationship is shown for the 1932-34 
period when major expansions were not recorded. In the 1930-31 
period, the variation in rates of return accounted for about 40 percent 
of the variation in property-expansion rates; in the 1935-37 period, 
about 34 percent. But, in the 1932-34 period, almost 60 percent 
of. the variation in property-expansion rates was accounted for by 
variation in rates of return. 

The results indicate that the corporations which spend relatively 
large amounts on propierty during one year of a 2- or 3-year period tend 
to spend smaller amounts on property in the other years than do the 
other companies with comparable profit rates during the whole period. 
In other words, over a period of years, there has tended to be an 
averaging out of the high and low expansion rates for individual 
corporations with comparable rates of return. 

The results also indicate that major expansions tend not to be 
related to the profit rate in the year in which they occur but may be 
related to the profit rate over a more extensive period. However, 
when there are a large number of major expansions during a period 
they tend to be only loosely related to the profit rate during that 
period. 

B. THE RATE OF PROPERTY EXPANSION AT A GIVEN PROFIT RATE 

High profit rates, in and of themselves, have not been sufliicient 
guaranties of .high rates of property expansion. This is shown by the 
fact that the rate of property expansion associated with a high rate of 
return has varied from peiiod to period. Thus, during the 1932-34 
period, corporations with an average annual rate of return of 10 
percent expanded their property at an average annual rate of about 
3.6 percent. But, in each of the other periods', corporations with a 
10 percent rate of return expanded their property on the average 
at a much higher rate — in the 1935-37 period at a 6.3 percent rate, in 
the 1930-31 period at an 8.8 percent rate, and in the 1928-29 period 
at a 4.4 percent rate. Further computed results are contained in 
table XXIII. 

The amount of expansion associated with a low profit rate has also 
varied from period to period. During the 1932-34 period, corpora- 
tions with no return contracted their property, on the average, at an 
annual rate dt about 3.6 percent. But in the 1935-37 and 1930-31 
periods, the average contraction rate associated with no return was 
much lower, 1.3 percent and 0.2 percent, respectively. And in the 
1928-29 period, it appears that corporations with no return expanded 
their property at an average annual rate of at least 1.9 percent. 

Conditions other than the profit rate have, therefore, been impor- 
tant factors in determining the rate of expansion. Of these other 

■ • other than consolidations, mergers, clc., of course. 



CONCENTRATION OF ECONOMIC POWER JH 

conditions, the most important appear to have been the rate of capacity 
utilization and technological change. How these factors have affected 
the expansion rate may best be seen in terms of the year by year 
historical development. 

, Prior to 1927, the output and capacity of the oil industry had 
expanded rapidly. In the face of the general business decline in 1927, 
the output of the oil industry continued to expand. Thus, there was 
some need for new capacities and some "carry-over" of expansions 
started in earlier years. And, as a consequence of the sharp price 
decline between 1926 and 1927, there was severe pressure upon the 
industry to introduce cost-reducing technologies. Thus, the amount 
of property expansion tended to be relatively high. For a 5 percent 
rate of return, for example, the rate of property expansion was about 
8 percent on the average. 

By 1928 the amount of expansion and the introduction of new 
techiiologies had apparently been sufficient to carry an expanded 
volume of business in 1928 on the basis of property expenditures which 
tended to approximate depreciation and depletion charges. As a 
consequence, there was little -expansion of property in 1928 even by 
corporations with liigh profit rates. In 1929, there was a marked 
expansion of demand above the earlier liigh levels; a need for new 
capacities developed; and the rate of property expansion was rela- 
tively high at all rates of return within the range of the data. For 
example, for a 10 percent rate of return, the indicated average rate 
of property expansion was in excess of 8 percent. 

In 1930 and 1931 demand leveled oft' and new capacities were not 
needed for the industiy as a whole. But, as a result of the severe 
price decline, particularly in 1931, there were pressures upon the 
industry to introduce new cost-reducing technologies. In 1930, 
property expansion, though on a somewhat lower level than in 1929, 
continued; to some extent, this must be attributed to a "carry-over" 
of 1929 expansion programs, but the major factor appears to have 
been the necessity for changes in technology. In 1931, the need for 
cost reductions continued. For moderate and low rates of return, the 
rate of property expansion dropped below the levels of the preceding 
years. But for the high rates of return, the rate was at least as great 
as during the preceding years. This would appear to indicate that the 
corporations with the lower rates of return were limited to a greater 
extent than in earher years in terms of the funds which were available 
to them. 

In 1932, output dropped sharply and, while there were increases in 
1933 and 1934, the high level of the years 1929 to 1931 was not exceeded 
until 1935. Thus, during the years 1932-34, and, to some extent in 
1935, there was little need for capacity expansions. At the lower 
profit rates, there were property contractions. And, even at high 
profit rates, the rat© of property expansion was small relative to pe- 
riods of high output. The expansions which did occur appear largely 
to have been the result of technological change* 

With the expansion of- output to new high levels in the 1935-37 
period, new capacities were required. The. amount of property 
expansion undertaken during that period at a given profit rate 
increased over the level of the period of substantial underuse of 
capacities. For a 5- percent rate of return, for example, the average 
rate of property expansion was about 2.5 percent in the 19.35-37 



112 CONCENTRATION OF ECONOMIC POWER 

period, compared with no expansion on the average at that rate of 
return in the 1932-34 period. 

With the leveling off of output in 1938, the rate of property expan- 
sion at a given rate of return dropped. For example, at a 5 percent 
rate of return, it was 2.2 percent on the average compared with 5.2 
percent in 1937. Some of the expansion in 1938 was undoubtedly a 
" carry-over" ■ from 1937, while another part was the result of the 
necessity for introducing new technologies. 

In brief, in the oil industry, the rate of property expansion at a 
given rate of return has been greater, the greater the utilization of 
capacity and the greater the necessity for introducing new tech- 
nologies. 

C. DIFFERENCE IN THE RATE OF PROPERTY EXPANSION FOR A GIVEN 
DIFFERENCE IN THE PROFIT RATE 

The computed average differences in the rate of property expansion 
per 1 point difference in the rate of return for both groups of years and 
for individual years are shown in table XXIII. The data for the indi- 
vidual years are graphically portrayed in chart 16 and those for the 
groups of years in chart 17. 

In the oil industry both the desire and ability to obtain funds from 
external sources have been only loosely related to the profit rate during 
periods of very rapid expansion to new high levels of output. This is 
shown by the fact that the average difference in property expansion 
rates per 1 point difference in the rate of return has been low during 
periods in which the Oil industry has been financing expansions to a 
considerable extent from external sources.^ 

Durin'g the 1928-29 period expansions were financed to a con- 
siderable extent by funds from external sources. On the other hand, 
during each of the three periods during the longer 1930-38 period for 
which data are shown in table XXIII, practically all of the expansions 
of the oil industry were financed from internal sources. In the early 
period the average difference in expansion rates per 1 point difference 
in the rate of return was 0.25 points; in the other periods the average 
difference ranged from 0.71 to 0.89 points. 

Analysis by individual years yields the same results. Expansions 
were financed from external sources to a substantial extent in the vears 
1927 to 1930 and to a lesser extent in 1937 and 1938; practically no 
funds were obtained from external sources during the -years 1931 to 
1936. The average difference in property expansion rates per 1 point 
difference in the rate of return ranged from — 0.60 to 0.41 points in the 
years 1927 to 1930 and was around 0.55 points in 1937 and 1938; in 
the 1931-36 period the range was from 0.41 to 1.04 points. . 

When the total property expansion over a period of years has been 
financed from internal sources the effectiveness of the profit rate has 
not changed materially with underlying conditions from period to 
period. This is shown by the relative stability of the average differ- 
ence in property-expansion rates for a given difference in the rate of 
return over the three gi'oups of years within the 1930-38 period. 
But the timing of expenditures within a period of years in which 
expansion is financed from internal sources has varied with the level 

' The financing of expansions of capital assets from external sources tends to involve relatively large 
blocks of capital. And, in the nature of the case, periods of substantial external financing are periods in 
which major expansions occur, cf. this section with sec. A, supra. 



CONCENTRATION OF ECONOMIC POWER H^ 

of output and with the necessities and opportunities for introducing 
new cost-reducing technologies. This may be seen from an analysis 
of the data for the individual years 1931 to 1936. 

During the years 1931 to 1933 there was, by and large, as a conse- 
quence of the lower prices relative to 1928-29, considerable pressure 
upon the industry to reduce costs. This pressure was greatest in 
1931; it was in that year that the average difference in the rate of 
property expansion per 1 point difference in the rate of return reached 
the peak of 1.04 points. With expansions dependent upon funds 
from internal sources the oil corporations apparently spent strictly 
in accordance with their means. With the priessure on costs somewhat 
reduced in 1932 and 1933 the effectiveness of the profit rate dropped 
40 percent to an average difference in property-expansion rates of 
about 0.63 point per 1 point difference in the rate of return. 

In 1934 and 1935 the oil industry was operating under the N. I. R. A. 
Code. Production proration tended to limit relative differences in 
expansion rates and the pressure on costs was relaxed as a result of 
price increases. Furthermore, the earUer introductions of cost reduc- 
ing technologies tended to reduce the scope of current introductions. 
The average difffirence in the profit rata, per 1 point difference in the 
rate of return continued to decline and reached the low figure of 0.41 
in 1935. 

The effectiveness of the profit rate increased sharply in 1936 to an 
average difference of 0.91 point in the property-expansion rate per 1 
point difference in the rate of return. This increase must be attributed 
to the expansion of output to new high levels which riiade it necessary 
for corporations to expand and improve capacities, since in 1936, as in 
the immediately preceding years, production and price control meas- 
ures were in effect. 

In brief, in the oO industry, the effectiveness of the profit rate in 
determining differential property-expansion rates over a period of 
years has depended upon the amount of expansion financed frona 
external sources. When expansions over a period of years have been 
financed from external sources, the influence of the profit rate has been 
relatively low, indicating a loose relation between the profit rate- and 
the desire and ability to obtain funds from external sources. Within 
periods during which property expansions have been financed from 
internal sources, the timing of expansions has depended upon the 
acuteness of the need for new capacities and for the introduction of 
new techniques. 



CHAPTER XIII 

RELATION BETWEEN PROFIT* AND PROPERTY-EXPANSION 
RATES: 17 STEEL CORPORATIONS 

A. THE CORPORATIONS 

The analysis covers the following 17 corporations: 

1. Acme SteerCo. 

2. American Rolling Mill Co. 

3. Betlilehem Steel Corporation (Delaware), (formerly sub- 

sidiary of Bethlehem Steel of New Jersey). 

4. A. M. Byers Co. 

5. A. M. Castle & Co. 

6. Crucible Steel Co. of America. 

7. Inland Steel Oe. 

8. Jones & Laughlin Steel Corporation. 

9. Keystone Steel & Wire Co. 

10. Otis Steel Co. 

11. Sloss-Sheffield Steel & Iron Co. 

12. Superior Steel Corporation. 

13. Truscon Steel Co. 

14. United States Pipe & Foundry Co. 

15. United States Steel Corporation. 

16. Warren Foundry & Pipe Corporation. 

17. Youngstown Sheet & Tube Co. 

Thesei corporations are classified as steel and iron companies by the . 
Standard Statistics Co., Inc., in their compilations. They have 
upward of 70 percent of the steeli ngot capacity of the industry. 
Since the steel industry is characterized by large producing units 
most of the companies are large, having net property accounts in 
•excess of $5,000,000 each. 

Of the 17 companies, three (Bethlehem (3), Jones & Laughlin (8), 
and United States Steel (15)) are integrated producers with capacities 
concentrated in the heavy steel product fields; two (Crucible (6) and 
Truscon (13)) are nonintegrated producers with capacities concen- 
trated in those fields. Sloss-Sheffield (11) is a pig iron producer. 
Three of the companies (American Rolling Mill (2), Inland (7), and 
Youngstown (17)) are integrated producers with capacities concen- 
trated in the light steel product fields. The remaining companies 
are nonintegrated producers of limited lines of light steel products. 

Castle (5) and Warren (16) had to be omitted from the computa- 
tions for 1927 since property account figures as of the end of 1926 
were not available. For these two companies the average rates of 
property change for the years 1928 and 1929 were used in the analysis 
of tlie 1927-29 period in place of the average rates for the 3 years. 

Superior Steel (12) was omitted from the 1938 computations. A 
xaajor property revaluation and other accounting adjustments during 

115 



115 CONCENTRATION OF ECONOMIC POWER 

that year made it impossible to obtain a reliable measure of the 
adjusted percentage change in the net property account. 

B. UNDERLYING CONDITIONS 

During the World War period , capacities for steel production were 
increased sharply; steel ingot capacity rose from 40,000,000 gross 
tons at the beginning of 1914 to 57,000,000 gross tons at the end of 
1919. Production slackened, however, after the war, and it was not 
until 1923 that the output of steel again attained the war period 
level. Between 1928 and 1927, consequently, expenditures on plant 
were largely for the purpose of increasing efficiency and for making 
minor additions to capacities, particularly for special types of steels. 
Following the slight recession of 1927, output increased sharply to new 
high levels in 1928 and 1929. During the same period, new cost- 
reducing technologies were developed; the most important of these 
new techniques were concentrated in the field of light steels ; and the 
most striking was the continuous strip mill. Sustained high output 
and the revolutionary changes in technology led the industry to plan 
and einbark upon a program for substantial additions to and replace- 
ments of capacities. As a result, steel ingot capacity increased from 
©0,000,000 gross tons at the beginning of 1^27 to 70,000,000 gross 
tbns at the end of 1931. 

Except for a brief period in 1937, however, the industry's output 
during the years 1930 to 1938 was not only considerably below the 
capacities available, but also was below the actual production of 
1928 and 1929. Output reached an unprecedented low level in 
relation to capacity in 1932 when the industry operated at less than 
20 peroent of capacity. Following 1932, output expanded slowly at 
first and then, more rapidly. By 1937, a level approximating that of 
1928-29 had been reached. But the relatively high level did not 
hold, and in 1938 output was again sharply below the 1928-29 level. 

Since 1932 there have been only minor increases in total steel ingot 
capacity, but as a consequence of the shift in demand from heavy to 
light steels, the advantages to be obtained from the new continuous 
strip mills, and the development of special steels, expansions on an 
increasing scale were undertaken from 1933 through 1937 to provide 
modern facilities for the production of sheets, strips, and special steels. 

Throughout practically the whole period covered by the present 
analysis, the price policy of the steel industry remained unchanged. 
Until June 1938 the industry operated under the basing point pricing 
system with relatively few basing points. In June 1938 the industry 
changed its pricing system to provide for a greater number of basing 
points. At the same time, quoted prices were reduced. 

The general course of prices has been as follows. Beginning in 
1930, prices declined from the comparatively stable levels of the 
1927-29 period to the depression low in 1933. There then followed 
step by step increases to 1937 when prices exceeded the 1929 peak. 
The prices of the various iron and steel products, however, did not 
ail follow an identical pattern. In general, the prices of the im- 
portant light steel. products for which new technologies of production 
had been developed drifted downward in the 1927-29 period and 
' then dropped sharply during the 1930-33 period; though they sub- 
sequently recovered, they did not reach- 1929 levels. The prices of 



Chart 18 
RELATION BETWEEN RATE OF RETURN AND RATE OF NET PROPERTY EXPANSION, BY YEARS, 1927- 

SELECTED STEEL AND IRON CORPORATIONS 

troges for corporotions included ® Corporati 



1938 







1927 






) 
















'e 












•• 


•.J 








..' 


i-x- 


•• 


- 




"^ 


' '•"" 















Unweighted ■ 

1928 



~4l — i — ®^1 

_L_ J I _i 



1929 









r^'. 




1 — ^ri 


— 








'" 








/;' 








/' 


." 






/ 


>' ,.• 

















1930 







1 if 

J® 






















■• 




-^ 






— 












." 


:•' 




■ 















omi'ted for porticulor yeors only 

1931 



1932 







*' 










.,. 












^J 


»■ 










•• 


".■;: — 1 








"• 


■A 


•« •• 


.,. 




























! 






















■ 


"T 


4« 


^^ 


«•■ ! 






---[ r-1 - 



! 






















] 


i 


.., 


.'• 


'""^t" " 




•• •' 


i 




..gSl 


■' 




- 






•• 



-10-6 »5 HO »I5 +20 -lO -5 O 

Rule of return on invested capital 

Sources ond Methods See Chopters IX ond a appendix n, Section 
260751— 41— No. 12 ( Face p. 117 ) 



I 



15 •>20 -10 -5 



j 1 1 







1937 






























i 


•• 




^ 


-- 




„• •• 



















„, 




1938 






4. 






































■• 




T* 


- 




•■• 


7^' 





















10 s 



♦ 10 fl5 +20 -10 -5 
Rote of return on invested copi 



t5 *I0 flS +20 -10 -5 



tiO tlS +20 
Rote of return i 



-10 -5 
1 invested 



♦ 10 'IS ♦20 



LqucntijK lecoverea, mey am not reach- 1929 levels. The prices of 



CONCENTRATION OF ECONOMIC POWER 



117 



the important heavy steel products, however, increased during the 
1927-29 period, dropped httle during the depression, and, by 1937, 
had risen above the 1929 levels. 

Selected series of statistical data on capacity, production, and 
prices are contained in table XXIV. 

Table XXIV. — Capacity, production and prices, selected items, 1925-38 — Steel 

and iron industry 





Steel ingot 


Production of hot-rolled iron 

and steel products (thousands 

of gross tons) 


Prices (cents per pound) 




Capacity, 
beginning 

of year 
(thousands 

of gross 
tons) 


Production 


Total 


Distributed to- 


Steel 
com- 
posite 


Struc- 
tural 
shapes 




irear 


Thousands 

of gross 

tons 


Percent 
of ca- 
pacity 


Automo- 
tive, con- 
tainer 
(light), and 
furniture 
and fur- 
nishings 
industries 


Railroad, 
construc- 
tion, and 
shipbuild- 
ing 
industries 


Cold- 
rolled 
strip 


1938 


1 71, 594 

1 69, 775 

> 69, 790 

I 70, 046 

I 69, 755 

70, 191 

70, 340 

68,980 

66,166 

63,784 

61, 465 

60,032 

67,813 

61,137 


1 28, 350 

1 50, 569 

1 47, 768 

' 34, 093 

I 26, 055 

23,232 

13, 681 

26,946 

40,699 

66, 433 

51,544 

44,935 

48, 294 

46,394 


39.6 
72.6 
68.4 
48.7 
37.4 
33.1 
19.4 
37.6 
62.5 
88.5 
83.9 
74.8 
83.5 
74.2 


20,986 
36, 766 
33, 801 
23,965 
18, 970 
16, 736 
10, 451 
19, 176 
29,513 
41,069 
37,663 
32, 879 
35, 496 
33, 387 


6,302 

11, 185 

10, 580 

9,185 

6,253 

6, 807 

3,068 

4,932 

6,650 

8,897 

9,086 

5 6,303 

»6,834 

} » 6, 313 


5,564 

9,924 

9,677 

5,789 

6,664 

4,*064 

3,645 

7,007 

11,577 

15,314 

13,359 

13, 576 

14,237 

« 13, 653. 


2.394 
2.464 
2.077 
2.058 
2.033 
1.879 
1.901 
1.957 
2.048 
2.209 
2.165 
2.202 
2.316 
2.334 


2.17 
2.21 
1.85 
1.80 
1.78 
1.68 
1.57 
1.62 
1.69 
■ 1.92 
1.87 
1.83 
1.96 
1.99 


3.31 


1937 


3.49 


1936 


3.02 


1935 


2.96 


1934 


2.96 


1933.„ 

1932.. 


2.48 
2.80 


1931 


3.13 


1930- 


3.64 


1929 


4.06 


1928 


4.03 


1927 ...:... 


4.17 


1926 


4.30 


1935 


4.39 



' Includes only that portion of capacity and production of steel for castings used by foundries operated by 
companies producing steel ingots. 

' Excludes distribution to furniture and furnishings industry for which datft are not available; peak 
distribution prior to 1935 was 625,000 gross tons. 

' Includes allocations of jobber shipments made by Iron Age. 

Sources: Taken from Investigation of Concentration of Economic Power, hearings before the Temporary 
National Economic Committee, 76th Cong., 1st sess., exhibits 1409 and 2180, presented to the committee 
by the United States Steel Corporation. Original sources were given as follows: Capacity and production- 
American Iron and Steel Institute; Distribution to Consuming Industries — Iron Age and American Iron 
and Steel Institute; Prices— Iron Age. 



C. RELATIVE PROFIT RATES AND RELATIVE PROPERTY-EXPANSION RATES 

Chart 18 shows the percentage changes in net property of the 
various companies plotted against their rates of return for each of 
the years 1927 to 1938. Only for the years 1928 and 1929 does the 
chart indicate any marked relation between the rate of property ex- 
pansion and the rate of return. In those 2 years, the greater proj&t 
rates were associated with the greater rates of return. In all other 
years the chart indicates that there has been little, if any, relation- 
ship between them. In most of these other years the chart indicates 
that a few companies had large expansions while the remaining com- 
panies either contracted their property accounts or expanded them 
shghtly. In some years, particularly 1932 and 1933, the chart in- 
dicates slight tendencies for the greater profit rates to be associated 
with the lower property-expansion rates. 



llg CONCENTRATION OF ECONOMIC POWER 

Thus, a positive relation between property-expansion rates and" 
profit rates has existed in the steel industry only in the individual 
years jn which the industry's volume of output was expanding to new 
high levels, the rate of utilization of capacity was high, and the ca- 
pacity of the industry was expanding. Under such conditions, re- 
gardless of differences in the product-mix of the various corporations 
included in the analysis, those with the higher profit rates tended to 
be those with the greater use of capacity, with the greater efficiency, 
with the greater amounts of funds available from internal sources, 
an(| with the greater abilities to obtain funds from external sources. 
But the corporations with the greater use of capacity tended also to 
be those requiring the greater expenditures for maintenance, repairs, 
and improvements as well as those with the greater needs for new 
capacities. The positive relation between profit rates and expansion 
rates in 1928 and 1929, therefore, reflects the dependence of both 
profit and expansion rates upon the same general factors — rate of 
capacity operations, efficiency, and availability of funds. 

During the years 1930 to 1934 the relative profit positions of steel 
companies depended upon the kind of products they were equipped 
to produce and upon the relative technological efficiency of their 
equipment. Marketwise, the major distinction was between com- 
panies with proportionately greater capacities for heavy steels and 
those with proportionately greater capacities for light steels. With 
regard to technology, the majar distinction was between companies 
with continuous strip mills and those with hand mills. Companies 
with the new type mills and with large proportions of their facilities 
in light steel capacities tended to be those with the greater profit rates. 
But those companies, because of the low level of output, were not in 
need of new capacities. Other companies, however, either had to- 
install the new type mills o-r to forego a share of the available business; 
some of them installed the new type of mill while others did not. 
But those companies wjiich did install new type mills in order to 
obtain a share of the available business tended to do so without regard 
to their current profit rate. As a consequence, there tended to be 
little or no relation between the current profit rate and the current 
expansion rate in the years 1930 to 1934. Such relationships as are 
indicated by the data 'were very slight and inverse.^ 

During the years 1935 to 1937, the output of light steels, particu- 
larly those produced by the new techniques, attained new high levels. 
The companies with the greater profit rates, therefore, tended to be 
those (for example. Inland (7), American Rolling Mill (2), and 
Acme (1)) with the proportionately greater capacities in light steel. 
And these companies tended to add to their capacities in line with 
the expanding demand. At the same time, however, other companies 
(for example. United States Steel (15), Bethlehem (3), and Jones & 
Laughlin (8)) with the lower profit rates but which had funds for- 
expansion, either accumulated from internal sources or drawn from 
external sources, also added capacities for light steels. But, heavy 
steel capacities were not needed and not installed, although plant 

' A slight tendency for inverse relations to appear in years of low output may only be the result of the 
tendency of corporations to vary depreciation and other book charges with the volume of output or profits. 
But It may also be the result of (1) the tendency (or corporations with the lower profit rates to be those- 
with the less efficient equipment and, hence, those requiring the greater expenditures for maiAtenance and' 
repairs, and (2) the greater necessity for corporations with the lower profit rates to adopt new technologies. 
The latter possibility applies prijH&rily to major expansions; the others to minor additions and improve- 
ments.and to maintenance an;! repairs. 



Chart 19 

RELATION BETWEEN AVERAGE RATE OF RETURN AND AVERAGE RATE 

OF NET PRQPERTY EXPANSION, BY GROUPS OF YEARS, 1927-1937 

SELECTED STEEL AND IRON CORPORATIONS 



♦ 15 



+ 10 



+ 5 



S. 



r -5' 



X, -10 



® Corporations omitted for porticuioryeors only 

1927- ^§^ 









®t .„ 












y 


i 


y 


y 






.It 












z "• 


• 14 



















« 






1933 


-34 




















c 














t' +10 

V 

a. 


























1 

< 


















, >\ 














Q_,'f 


•• •t 


'i« 






-5 
-10 






7"^ 


- 








— »■ 









X Unweighted overages tor corporations included 

s 1930-32 







I. 1 
.1 


' 








i 




IS* 10* •' 


^•9 








• It 


IT* 


•l. 












1.' r 









+ 15 



+ 10 



+ 5 



^ 



■5 r 







1935 


-37 






















,, 


•t 




i» 






^'•;> 




^^ 






<r 


•" 


" -'V 


•• 

















-10 



+ 15 5 



+ 10 



+ 5 



-10 



-10 -5 



+5 



+10 +15 +20 -10 -5 

Average rate of return on invested eapltal 



+5 +10 +15 +20 



Sources and Methods: See Chapters IX. and ZI and Appendix n, Section C 
260TM — tl— No 12 fFace p. 119) 



11 



pr< 
ye 

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pa 
ga. 
iii( 
be 
wi 
an 
Bi 
be 

an 

ca 

ra 

pr 

ca 

CO 

to 

eq 

m 

th 

re 

w 

w 

in 

B 

n< 

in 

sc 

B 

o1 

t( 

li 

e: 

ii 

li 

a 

t 

I 
I 
t 

( 
I 



CONCENTRATION OF ECONOMIC POWER HQ 

expenditures for maintenance, repairs, and improvements of such 
capacities probably did increase and most likely were related to rela- 
tive profit rates. The net result, as shown by the data, was a slight 
positive relation between current profit and current property-expan- 
sion rates in each year and a few large expansions of light steel 
capacities in each year. 

Analysis of average profit and property-expansion rates over a 
period of years confirms the analysis based upon the results for indi- 
vidual years. Computations are shown at the bottom of table XXV 
and the data are plotted in chart 19. 



120 



CONCEJNTRATION OF ECONOMIC POWER 



" 3 S S 



•^ -^ T*4 tt Tj« -Si lo 25 -^ »o *o lo -^ -^j* '"<*< as 



S^D^r-ocic^cocpocococ 



I I I I 



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jo § " P'S.^.S o 



&ti 



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II 

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5.€ 



o 



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■® ® u B d S- 

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& __* 



11 






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I* t^* »0 CO M ^ CO CO ' '^' 



rH c*30 COM 1-t o »o O© 1^ co*^ «-<<Scoio 



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1 I I 



) uo h- to O CO r* CO 



«Di-*ot*t^ 01 r-i a» M 



i-*C^C«C0.-*-^Tt<Oi^ 



MM 



I 1 



M 00 ^ ^H t^ e^ oa CO A CO a» CO c4C4cooi 



10 «!>;■<*' 00 i-i r* « ^ <5> w ifi Tj< d6eo»ot 
•-Ho6t~^'*eii"M 'irioioodt-^ «o>-i 



too-* ^ »-t *OOS"5^ 03 t^ 000 OOMOO^ 

I I I I I 






«o t~ t» r- r- ►- 1~ «o to r~ CD "5 ^ t-t-h-to 






<p»O-^t«C0C**i-tQg&OlQ0t- r«*^COQt* 

«coeoeocoeococ4?)(Nic^ 22coco55n 



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sr 



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CONCENTRATION OF ECONOMIC POWEE X21 

Durine: the 1927-29 period, when output was expanding to new high 
levels, the relation between average profit and property-expansion 
rates was very marked. In that period almost 50 percent of the vari- 
ation in property-expansion rates was accounted for by variation in 
rates of return. In the 1935-37 period, when output was expanding, 
but not to new high levels except in limited areas, and substantial 
amounts of funds were draw*n from external sources, the relation was 
not so close and only about 20 percent of the variation in property- 
expansion rates was accounted for by the variation in rates of return. 
The tendency for the positive relation to disappear or to become in- 
verse during periods of low activity is shown by the data for the 
1930-32 and 1933-34 periods. 

Thus, not only the characteristics of the relation between profit and 
property-expansion rates in the steel industry but also the very exist- 
ence of a relation has depended upon the underlying conditions. In 
the follo^\^ng sections the effects of underlying conditions are analyzed. 

D. THE RATE OF PROPERTY EXPANSION AT A GIVEN PROFIT RATE 

For steel corporations, the rate of property expansion at a given 
rate of return has been greater, the higher the level of output. This 
is shown by the data for the individual years 1932 to 1938, and for 
the groups of years other than the 1930-32 group. In 1932, when 
output was at an unprecedented low level, the data indicate that cor- 
porations with a 10 percent rate of return would have contracted their 
net property by about 4.5 percent on the average. With the expan- 
sion of output between 1932 and 1937, the data indicate that the 
average rate of property expansion at a 10 percent rate of return 
would have increased to almost 5 percent in 1937; and with the con- 
traction of output in 1938, the average rate of property expansion 
would have dropped to less than 1 percent. Similar changes in 
average expansion rates would have occurred for corporations with a 
5 percent and with a zero rate of return as the computations contained 
in table XXV show. 

For the groups of years, the data show that corporations with a 10 
percent rate of return would have expanded their net property ac- 
counts at an annual rate of 4.4 percent in the 1927-29 period; con- 
tracted them at a 3.2 percent rate in the 1933-34 period; and expanded 
them at a 2.2 percent rate in the 1935-37 period. Of the three periods, 
1927-29 had the greatest rate of operations and 1933-34 the lowest. 
Similar results are shown for corporations with a 5 percent rate of 
return. At a zero rate of return, however, the data indicate that the 
rate of contraction would have been greater in the 1927-29 period 
than in the 1933-34 period. This anomaly in the computations 
apparently is a reflection of the shift from heavy to light steels which 
was developing during the period. 

The results for the years 1930 and 1931 and for the 1930-32 period 
indicate property-expansion rates at some rates of return were higher 
than the corresponding expansion rates for years and periods of greater 
output. This is, in part, the result of the "carry-over" of expansions 
from. 1929 into 1930 and, in part, the result of the major expansions 
in 1930 and 1931 which were based upon technological developments. 
Consequently, the conclusion is that the rate of property expansion 
at a. given rate of return tends to be higher when new technologies 
are available than at other times. 



J22 CONCENTRATION OF ECONOMIC POWER 

Thus, in the steel industry, as in the oil industry, the amount of 
property expansion at a given rate of return has depended largely 
upon the volume of output relative to capacity and upon the neces- 
sities and opportunities for introducing new teclmologies.^ 

E. DIFFERENCE IN THE RATE OF PROPERTY EXPANSION FOR A GIVEN 
DIFFERENCE IN THE PROFIT RATE 

The amount of difference in property-expansion rates for a given 
difference in the rate of return has depended largely upon the level 
of output of the industry. This is shown by a comparison of the 
results for the 1930-32 and 1933-34 periods with those for the 1935-37 
and 1927-29 periods. 

During the 1930-32 period output was declining; during the 1933-34 
period output was at low levels although expanding. During both 
these periods, the profit rate had practically no effectiveness with 
respect to differential expansion or contraction rates. In fact, there 
appears to have been a slight tendency for the corporations with the 
greater profit rates to contract their property accounts at greater rates 
than corporations with the lower profit rates.^ 

During the 1927-29 period, output for the industry as a whole was 
expanding to new high levels; during the 1935-37 period, output was 
expanding but new high levels were attained only in certain limited 
segments of the industry, while the remaining segments were operat- 
ing at levels substantially below capacity. In the 1927-29 period, the 
average difference in rates of property expansion per 1 point difference 
in the rate of return was 0.76 points and in the 1935-37 period it was 
0.42 points. 

The timing of expenditures' within a period of years has depended 
upon the need for new capacities and upon pressures upon costs. For 
example, in 1937 and 1929 the need for new capacities was greater 
than in the immediately preceding years; in those years the average 
differences in property-expansion rates per 1 point difference in the 
rate of return were greater than in the immediately preceding years. 

Thus, it appears from the data that in the steel industry the level 
of output relative to capacity has been the major factor determining 
the effectiveness of the profit rate. The higher the level of output, 
the greater the effectiveness of that rate. Technology, in periods of 
high and expanding output, has functioned differently from the way 
it has functioned in periods of low output. In periods of declining 
and low output, new technical methods have been introduced regard- 
less of the profit rate but in periods of high or expanding output new 
technical methods have been introduced to a greater extent by the 
corporations with the higher profit rates.* 

- The effects of technology in the steel industry, however, have been quite diflferent from those in the oil 
industry, largely because of the quality of changes in demand in the steel industry and because of the larger 
differences in the timing, as between companies, of the introduction of new techniques. In the steel indus- 
try the volume of demand for light and spscial steels developed differently from that for heavy steels, whereis 
in the oil industry no such marked difference in demand developed as between lines of products. Also, in 
the steel industry there tended to be large differences in the timing of the introduction of new techniques, 
whereas in the oil industry technological changes tended to be introduced simultaneously by the various 
companies. 

' See footnote, sec. C, supra. 

* The extent to whicii this has been so may have been affected by the extent of external financing. The 
lower efToctiveness of the profit rate in 1935-37 tlian in 1927-29 may be a reflection of this since the amount 
of external financing was greater during the 1935-37 period than during the 1927-29 period. But the data 
are not clear on this point. 



CHAPTER XIV 

RELATION BETWEEN PROFIT AND PROPERTY-EXPANSION 
RATES: CORPORATIONS IN OTHER INDUSTRIES 

Analyses similar to those made for selected steel and oil corporations 
were undertaken for selected automobile parts and accessories cor- 
porations and for selected chemical corporations. However, it was 
not possible in the time available to complete these latter analyses. 

Preliminary results were obtained. They show that the relations 
between property-expansion rates and rates of return in the chemical 
and automobile parts and accessories industrial groups have been of 
the same general nature as those obtained for oil and steel. As in 
the oil and steel groups, output and technology have been of critical 
importance in determining (1) the rate of expansion associated with 
a given rate of return and (2) the average difference in expansion 
rates for a given difference in the rate of return. 

123 



PART V 

CONCLUSION 



260761— 41— No. 12 10 



CHAPTER XV 
INCOME, CAPITAL, AND INVESTMENT 

A. THE FLOW OF FUNDS IN THE ECONOMY 

The most important effects of profit income are those with respecx; 
to its influence upon the flow of funds. For, the character and the 
level of output are determined by the way in which funds flow through 
the economy. Consequently, before proceeding to assess the in- 
fluence of profits on the national income, it is worth while to call to 
mind some of the most fundamental aspects of the flow of funds. 
Chart 20 presents these aspects in simplified diagrammatic form. The 
diagram is based upon the premises that the level of the national 
income remains constant over the period covered. 

At the left the chart shows the gross national income. The gross 
national income represents the funds arising from the current gross 
output of goods and services. The chart then depicts the break-down 
of the gross national income into the amoimt set aside for capital 
replacement and the amount of net national income. The division 
of the net national income into the various categories of income is 
also indicated as is the occurrence of transfers of income between 
individuals and businesses. 

The income received by individuals and businesses is either spent 
for consumption or saved. The savings plus the amounts set aside 
for capital replacement represent the gross savings out of the gross 
national income. This carries the economic process through the stage 
of the division of the gross national income into (a) income used for 
eonsumption and (b) income and other funds set aside as gross saviiigs. 

The income spent for consumption is converted directly into expendi- 
tures for consumption. But gross savings may or may not be con- 
verted directly into expenditures from capital. Some of those 
savings undoubtedly are directly converted and this is indicated by the 
chart. Large portions of them, however, go into the capital pool to 
be hoarded, to purchase existing capital, to retire debt, to be loaned, etc. 

Within the capital pool, funds are transferred between individuals 
and businesses in connection with transactions of one kind or another; 
assets are monetized and demonetized; etc. In the end, a volume of 
funds emerges from the capital pool as expenditures (1) for con- 
sumption, (2) for new capital, and (3) for capital replacement. 
These expenditures plus the consumption expenditures coming 
directly from current income equal the new level of the gross national 
income. The process is th^n repeated over and over again. 

B. MAJOR DETERMINANTS OF THE INCOME LEVEL 

G.tven the amount of gross savings, the new level of the national 
income is detennined by the ajnount of. expenditures from the capital 
pool. And in dete: iiining the (new) national income, the current 

127 



128 



CONCENTRATION OF ECONOMIC POWER 



(/) 


in 


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to 


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llJ 


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£ 


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< 


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^ 


en 


2 




CONCENTRATION OF ECONOMIC POWER 129 

volume of expenditures from the capital pool determines the volume 
of savings out of that national income, and, hence, the volume of 
capital expenditures required to expand or to maintain the national 
income.' 

It is clear then that the important decisions and actions in the 
economy relate to the amount of gross savings and to the amount 
spent from the capital pool. If the expenditures from the capital 
pool are equal to the gross savings then the national income remains 
at the same level. This situation is depicted by the chart. If, 
however, those expenditures are less than gross savings, then the 
national income must decline,; and if greater, then .the national income 
must increase. 

C. THE AVAILABILITY OF FUNDS 

A decline in the national income cannot result from a shortage of 
funds in the capital pool. For, gross savings always provide a volume 
of funds suflScient to finance the capital expenditures necessary to 
maintain the level of the national income.^ 

Expansion of the national income may be limited by the exhaustion 
of the possibilities for credit expansion. An expansion of the national 
income is the result of current expenditures from the capital pool 
being in excess of the previous volume of gross savings. This excess 
may come from previously hoarded monetary media or from a moneti- 
zation of assets. In short, there must be dishoarding or credit creation 
if the national income is to expand. But dishoarding (in excess of 
hoarding) can only occur in limited volumes, so that financial barriers 
to expansion, if they exist at all, result from an inability to monetize 
a sufficient volume of assets. 

The volume of asset monetization was severely limited by the 
provisions of the National Banking Act prior to the inception of the 
Federal Reserve System in' 1913. This limitation is indicated by the 
fact that major expansions were halted, by financial difficulties such 
as high commercial, interest rates, the exhaustion of bank reserves, 
and financial panics. And, it may be noted that one of the major 
movements for economic reform was directed toward increasing the 
ability of business to monetize its assets. 

From the inception of the Federal Reserve System to the period 
of the banking difficulties, 1931-33, the financial mechanism was Such 
as to permit a much higher level of the national income than was ever 
attainable before. The amount of funds expended from the capital 
pool (except during the years 1915 to 1920) was less than could have 
been expended had full use of .the available credit mechanism been 
made. Thus, expansions during the period were limited by factors 
other than the availability of funds. 

During the period of the banking difficulties, 1931-33, much of 
the money values of assets which serve as the basis of credit creation 
were destroyed. However, even during this period, no real limitation 
was placed upon the expenditures from the capital pool as a result of 
the destruction of capital values. This is clearly indicated by the fact 

> See ch. Vni, sec. A for greater detail. 

' This Is an economic tautology since the amount of erpenditures from capital required to maintain the 
national Income is equal to gross savings. 



130 CONCENTRATION OF ECONOMIC POWER 

that successive amounts of gross expenditures from capital were con- 
s istentwTess thaTthe immediately preceding volumes of gross savmgs 
SatTon in 1933 and subsequent years, m addition to freeing the 
frozS funds tied up in financial institutions, provided a mechanism 
for aUaSg greater volumes of asset monetization than had ever 

'irbrl'f^xranstn has at no time .ince 1913, been limited by short- 
ages of funds. 



CHAPTER XVI 
IMPLICATIONS 

A. THE IMPORTANCE OF PROFITS 

The importance of profits lies iii the fact that the recipients of 
profits play the dominant role in determining the level of the national 
income. This is a consequence of the facts that (a) the bulk of the 
savings come from their incomes and (b) the bulk of the capital 
expenditures come from their current and accumulated savings. 
Thus, they stand at the two critical points in the flow of income. 

In most years, particularly in years of high activity, profits account 
for a disproportionately large share of net savings. In addition, 
the recipients of profits own or control the bulk of the accumulated 
capital as well as the major share of the funds currently set aside for 
capital replacement — depreciation, depletion, and amortization. 
Consequently, the bulk of investment funds whether from current 
income, from funds set aside for capital replacement, or from accumu- 
lated capital constitute a single pool owned or controlled by the 
recipients of profit income. And, since the level of national income 
depends upon the volume of expenditures from the capital pool, that 
level is largely dependent upon what the recipients of profit income do, 
not only with their profit income, but also with their accumulated 
capital and other income. 

What, then, deters the recipients of profit income from always 
. expending from the capital pool in their control a volume of funds 
sufficient to expand or to maintain the national income? 

The findings of this study show that the answer to this question 
lies neither in the amount of profit income nor in the rate of return on 
capital. Factors other than the amount or the rate of profit have 
been the major determinants of the level of capital expenditures of 
groups of companies in the same industry, and, hence, of business as. 
a whole. Of these other factors, the most important have been the 
level of output and the pressure upon business for the introduction of 
available new technologies. 

Hence the fundamental question can be rephrased to read: What 
has restricted the volume of output and the rate of teclmological 
advance so that all too frequently they have been inadequate to draw 
forth the volume of capital expenditures required to expand or to 
maintain the national income? 

e 
B. THE IMPORTANCE OF THE CONCENTRATION OF WEALTH AND INCOME 

Concentration of income and wealth is the most important single 
factor leading to a volumfe of capital expenditures inadequate for the 
maintenance and expansion of the national income. The importance 
of concentration lies not in the fact that it leads to a high rate of 

131 



132 CONCENTRATION OF ECONOMIC POWER 

savings. For a high rate of savings, m itself, is no barrier to a sus- 
tained high national mcome. Rather the importance of concentration 
lies in the fact that savings are made by individuals and groups who 
do not or wiU not themselves consume the output of the capital goods 
which their savings can create. 

Recipients of high incomes consume only a part of the current 
income accruing to them. The remainder, which is the larger part of 
their income, is saved (either in the foi^n of retained profits or in the 
form of personal savings). They use their savings only in part for 
capital expenditures destined to increase their own level of consump- 
tion. Consequently, if a decline in national income is not to occur, 
the remainder of their savings must be spent as capital expenditures 
destined either (1) to increase the consumption level of others or (2) to 
take business away from existing facilities. The following sections 
are directed toward answering the question: What prevents current 
and accumulated savings from being used in these ways? 

C. CONCENTRATION AND SHORTAGES OF CONSUMER PURCHASING POWER 

Concentration of income and of wealth leads to a considerable 
volume of savings acciunulating in the hand§ of individuals who must 
invest the larger part of their savings in capital facilities to be used 
not to increase their own consumption but rather to increase the 
consumption level of others. In order that their savings should be 
translated into capital expenditures of the required kind, it is neces- 
sary that those "others" — that is, consumers generally — obtain 
incomes sufficient to purchase the output of the new facilities. For 
capital expenditures are not continuously made for the expansion of 
capacities unless the output of the already existing facilities can be 
sold. 

A constant volume of capital expenditures cannot provide con- 
sumers with a volume of the means of payment sufficient to purchase 
the expanding output of an expanding capital plant. For, the capital 
expenditures made, even at a relatively low level of iiational income, 
create additional productive capacity in the economy. Yet, whereas 
they increase productive capacity, they do not automatically provide 
for an increase in the means of payment to the consumers of the 
product. The consequence of this is that the level. of the national 
income declines unless (1) means of payment from sources other than 
the production of capital goods accrue to consumers or (2) prices 
decline so that the n>eans of payment derived from total current 
production are sufficient to pay for an increased output. While both 
these necessary developments have occurred at times in the past, 
they have not been of sufficient magnitude to prevent declines in the 
national income. Rather, the typical development has been a decline 
in the rate of capacity operations or an accumulation of inventories 
or both. But, as has been shown, a decline in the rate of capacity 
operations leads to a curtailment of capital expenditures. The effect 
of inventory accumulations, of course, is only to delay temporarily 
the decline in the rate of capacity operations. Thus, sooner or later 
a constant volume of capital expenditures proves inadequate to 
sustain itself and hence inadequate to sustain the national income. 

The import of this — in view of the failure of adequate price declines 
to occur when new capacities are placed in operation — is that the 
volume of capital expenditures must increase if the national income is 



CONCENTRATION OF ECONOMIC POWER 133 

not to decline. It is by increasing the volupie of capital expenditures 
that the necessary increase in means of payment can be provided to 
consumers. And increasing the volume of capital expenditures, as 
was pointed out, results, of course, in a rising national income. 

The important point, however, is that, under the existing pattern 
of income and wealth distribution, the national income i^ust rise at 
a fairly rapid rate or decline. There are no intermediate positions. 
It is not possible to determine by how much capital expenditures 
must be increased in order that declines in the national income be 
avoided. Under conditions such as those of the past few decades, 
the required rate of increase would have to be large. That this is 
so may ba seen from the fact that gross business capital formation 
(excluding inventories) increased from $5,700,000,000 in 1922 to 
$10,000.000,000. in 1929, and from $3,500,000,000 in 1934 to $7,500,- 
000,000 in 1937s^ The important point, however, is that, under the 
existing pattern of income and wealth distribution, the national 
income must rise at a fairly rapid rate or decline. There are no 
intermediate positions. 

The rate of increase in capital expenditures required to prevent 
declines in activity may, of course, be lowered by downward price 
movements at the same time that capital expenditures are increased. 
But in past periods of expanding activity prices have usually increased, 
and this has operated to raise the rate of increase in capital expendi- 
tures required to prevent declines in the national income. Conse- 
quently, it has only been during periods in v/hich very unusual factors 
have been operative that the national income has ever attained high 
levels.^ 

Favorable foreign trade balances, domestic production of gold (and 
other monetary metals), Government, investment, and capital gains 
are factors which may lower the volume of capital expenditures re- 
quired to prevent declines in activity. 

Of these, capital gains are least important and are hardly independ- 
ent factors. Only capital gains which represent a transfer of funds 
from individuals considering them to be capital accumulated in the 
past to individuals considering them to be current income have the 
effect of lowering the volume of capital expenditures required to pre- 
vent declines in activity. Such capital gains operate to increase the 
volume of consumption expenditures but do not raise the productive 
capacity of the economy. However, under conditions of concentrated 
ownership of > wealth, the volume of capital gains flowing into con- 
sumption channels tends to be small since most of the gains are received 
by the recipients of high incomes. And, in any case, capital gains 
are in the nature of secondary effects which arise only when consumer 
purchasing power is already adequate for an expansion of the national 
income. 

The most important effect of domestic gold production of monetary 
metals and of favorable foreign trade balances is to provide a form of 
capital accumulation which does not raise the productive capacity of 
the domestic economy. Government investment, while it raises the 
productive capacity of the domestic economy, requires little or no 
increase in consumer purchasing power in order that the increases in 

' Investigation of Concentration of Economic Power, Hearings before the Temporary National Economic 
Committee. 76th ConK.. 1st sess.. Part 9, exhibit 676, p. 4036. (Estimates prepared by G. A. Terborgh, 
of the Federal Reserve Board.) 

• See ch. II, sec. B. 



134 CONCENTRATION OF ECONOMIC POWER 

capacity shall be utilized. For these reasons, whenever serious 
declines in domestic activity have taken place, measures have been 
taken to increase either (1) the domestic output of monetary metals, 
(2) exports, or (3) the volume of Government spending or investment. 

Finally, it may be noted that increases in the rate of capital expendi- 
tures require — sooner or later— increases in the volume of debt 
outstanding. This follows from the necessity of monetizing assets in 
order to raise the volume of capital expenditures. And because of 
this it is necessary to have a financial mechanism capable of creating 
large volumes of credit in order that expansions may not end in 
financial panics. As lias already been indicated ^ such a mechanism 
exists largely as a result of the Federal Reserve Act of 1913 and of the 
banking and monetary legislation of 1933 and subsequent years. 

It appears from this analysis that expansions which do get started 
under the present pattern of income distribution, sawngs habits, and 
investment conditions must sooner or later come to a halt. For, 
under such 'circumstances, expansion rests upon adequate markets 
for an ever increasing output of expanding capital facilities. And 
past experience indicates that the rate of capital accumulation has 
always outstripped the rate of increase of consumer purchasing power. 
During the course of expansion the increments of consumer purchasing 
power seem to become smaller and smaller relative to the increments 
of capital facilities. In the end, a situation has always been reached 
in which the output of existing plant cannot be sold. ^Vlien this takes 
place, investment is reduced; the inevitable consequence is, of course, 
a reduction of consumer purchasing power with the result that expan- 
sion turns into decline. 

Whether, under the present circumstances, even the attainment of 
a full \lse of resources will occur before expansion ends depends upon 
such special factors as large favorable foreign trade" balances and large 
increases in the domestic production of monetary metals. Full use 
of resources — or even a reasonably close approximation — has never 
been attained in the absence of such special factors or of an adequate 
compensatory program. Thus, it appears that so long as a high degree 
of concentration of income and wealth exists, a full use of resources 
may not be attained let alone maintained for any long period. 

- D. FURTHER EFFECTS OF CONCENTRATION 

1. A little recognized result of a completed growth in concentration 
is that the volume of losses sustained by groups without profits against 
which to offset them becomes lower than it was before the inception 
of the growth in concentration. The consequence of this is that the 
volume of capital expenditures required to prevent declines in the 
national income becomes greater than it was before. For, the volume 
of savings is less when losses and profits accrue to different groups 

» Ch. XV. sec. C. 



CONCENTRATION OF ECONOMIC POWER 



135 



than when they accrue to the same groups, even though profits net 
of losses are the same in both instances.^ 

A temporary effect of a growth in concentration is to reduce the 
volurae of capital expenditures required to prevent declines in the 
national income. When concentration is going on, the losses of those 
whose wealth is decreasing partially offset the eFects of a high rate 
of savings by those individuals and businesses i en asing their pro- 
portion of the wealth. Furthermore, during the process of concen- 
tration there is a tendency for the volume of losses to increase at the 
same time that the volume of profits is increasing.^ But after the 
"losers" are eliminated (or absorbed by), the "profit makers," there 
are no offsets to the savings of the "profit makers" in the form of the 
losses of the "losers." And the full effects of concentration upon 
consumption and capital expenditures set forth in the preceding 
section are realized. 

2. Not only does an increase in concentration raise the volume of 
capital expenditures required to prevent declines in activity, but it 
also lowers the outlets for such expenditures. This latter is a con- 
sequence of the fact that concentration limits the extent to which 
capital expenditures can or will be made for capital goods to take 
business away from existing facilities. 

Under conditions in which ownership and control over particular 
kinds of capacities and control over prices are diffuse, individuals and 
businesses can make capital expenditures without regard to the 
losses which such expenditures may cause to others. But under con- 
ditions of monopoly or of concentrated ownership or control, capital 
expenditures are made with regard to the fact that any losses they 
may engender will fall largely or wholly upon the business making 
those expenditures. Thus, additions to capacities, technologically 
the same as existing capacities, are made under c nditions of monopoly 
or of concentrated ownership or control only when new capacities are 

' That a rlecrpflse in tjie ■volume of losses by proiips without profit olTsots does entail an increasp in the 
volume of c.pital expenditures required to prevent declines in the national income may best be seen in terms 
of a hvpothetical illustration bnsed upon corporate profit data for 1928 and 1920. 

Suppose that profits total $10.000<000.000 and losses $2,000,000,000 so that net profits are $8,000,000,000 
and that net savings from profits are $4,000,000,000. Then the results are as follows: 





Net profits 


Net savings 




Amount 


Percent of 
net profits 


Corporations with profits 


$10, 000, 000, 000 $6, 000, 000. 000 
-2,000,000,000 -2,000,000,000 


60 


Corporations with losses ., 


100 






Tolal 


8,000,000,000 4,000,000,000 


50 







tinder these conditions, capital expenditures of $4,000,000,000 are required to absorb the savings out of 
profits. 

Now suppose there was an increase in concentration so that loss and profit 'jorporations were combined in 
such a way that no corporation reported a loss and that total profits remain' d at .$8,000,000,000. The propor- 
tion saved out of this $8,000,000,000 would tend to be less than the 60 perci ni saved from the $10,000,000,000. 
Suppose, therefore, that H5 percent were saved. Savings out of profits \v< j' 1 then be $4,400,000,000 with d" 
offsets from los,scs. so that the capital expenditures required to absorb n t savings out of profits would bft/ 
$4,400,000,000 or 10 percent in excess of t.'ie $1,000,000,000 un<ler the first ' ef of conditions. (It may also be 
noted that under the existing tax structure a smaller volume of taxes w( iV have to he paid.) 

Thus, even thout;h the total profit income net of losses remains the s iT . the volume of capital expendi- 
tures re(|nired to prevent deelinps in the national income is greater, the ,r I'ler the volume of losses. And, 
if the total profit income is raised by the increase in concentration, as it t a' ; to be, then the volume of capital 
expenditures required is even creator. 

» The data in appendix tabic XX V should be stu ed in this conne< i(- .. 



136 CONCENTRATION OF ECONOMIC POWER 

needed to meet an expanded industry demand, whereas under diffuse- 
ownership and control additions are made for the purpose of obtain- 
ing a larger share of the existing volume of business. 

The effects of concentration upon the rate of introduction of new 
technologies are of the same character. Under conditions of con- 
centrated ownership or control, profits on the new capital goods are 
balanced against losses froni the premature retirement of old capital 
goods, whereas under conditions of diffuse ownership and control they 
are not so balanced. The net effect is that under concentrated owner- 
ship or control new technologies are mtroduced only (1) when capacity 
replacements or new capacities are needed and (2) when the profits 
on the technology ?8 y new capital goods are large enough to pay for 
the money still sank in the existing capital goods. 



APPENDIX I 
NOTES ON DATA AND METHODS FOR PARTS I AND II 

A. DOLLAR PROFITS OF THE CORPORATE SYSTEM 

Except as otherwise noted, all figures are from United States 
Treasury Department, Bureau of Internal Revenue, Statistics of 
Income, annual volumes. 

1. Compiled net profit before intercorporate dividends. — 1918-21 and 
1909-12 figures are the sum of intercorporate dividends (see 2, infra) 
and net profit after intercorporate dividends. 

1916 and 1917 figures are statutory net income (which included 
intercorporate dividends) with the following adjustments: 





Tax-exempt Special Insur- 
interest ance deductions 


1917 


$125,000,000 -$142,000,000 
100, 000, 000 - 129, 000, 000 


1916 





These are estimates from Ebersole, J. Franklin, Susan S. Burr, and 
George M. Peterson, "Income Forecasting by the Use of Statistics of 
Income Data," Review of Economic Statistics, vol. 11, (1929) pages 
180-181. 

1913-15 figures were obtained by multiplying statutory net income 
(which included dividends) of corporations with net income by the 
following factors: 1915, 0.85; 1914, 0.70; 1913, 0.80. 

2. Intercorporate dividends. — 1916-17 figures arcestimates of Eber- 
sole, Burr and Peterson,''op. cit. 

1909-15 figures are based upon the index of dividend pay^ients of 
the National Industrial Conference Board in National Income in the 
United States 1799-1938, 1939, page 23. 

3. Net profit after intercorporate ditldends. — 1918-21 'figures are 
statutory net income (which excluded intercorporate dividends) with 
the following adjustments in millions of dollars: 



1021 
1920 
1919 



Tax-exempt 
interest 



Personal Special 
service insurance 
corporations deductions 



189 
220 
179 



179 
196 
'75 



I -221 
1 -188 



Tax-exempt 
interest 



1918. 
1917. 
1916- 



146 
1 125 
1 100 



Personal 

service 

corporations 



50 



Special 
insurance 
deductions 



1 -156 
> -142 
1 -129 



1 Ebersole, Burr and Peterson, op. cit. 



191'8-17 figures are compiled net profit less intercorporate dividends. 
;_ 1909-12: Statutory net income of corporations with not income 
in excess of $5,000 exemption, plus $2,880 times the numb.T of such 
■corporations; all multiplied by the following factors: 1912, ().S(>; 1911, 



137 



138 



CONCENTRATION OF ECONOMIC POWER 



0.70; 1910, 0.75; 1909, 0.70. The $2,880 figure is based upon the 
estimates (a) that the average net income of corporations with less 
than $5,000 was $1,600 and (6) that the number of such corporations 
was 1.8 times the number reporting more than $5,000 of net income. 

4. Federal income and profits taxes. — Figures for 1916 and later 
years are amounts reported on income tax returns; for 1909-15 they 
are receipts for fiscal year ended June 30, immediately following, 
whi&h include fines, penalties, additional assessements, etc. 

5. Shortages in tabulation: 1917 and 1919. — Ebersole, Burr, and 
Peterson, op. cit. estimate shortages in tabulation as follows: 





1919 


1917 


Net income . . . . .. 


$842, 000. 000 
21S, OOC, 000 


.$505 000 COO 


Federal taxes - 


107, 000, OOf 





If these adjustrAents are applied the figures in the tables would be: 



1917 



Compiled net profit - .-. 

Dividends received 

Net profit after dividends 

Federal taxes - 

Met profits after dividends and taxes. 

■ / 



$9, 700, 000, 0(10 

4^,000,000 

9, 287, 000, 009 

2, 393, 000, 000 

6, 894, 000, 000 



$10, 589, 000, 000 

600, 000, 000 

9, 989. 000 000 

2, 249, 000, 000 

7, 740, 000, 000 



6. Net dividend outgo. — 1922-37: Total cash dividend disburse- 
ments less dividends received by corporations. The figures, therefore, 
include di^ursements to corporations not covered by Federal tax 
returns. 

Data for the years prior to 1928 do not include dividends paid by 
capita) stock life insurance companies. 

1916-21: Ebersole, Burr, and Peterson, op. cit., pp. 180-181. 

1909-15: National Industrial Conference Board, National Income 
in the United States 1799-1938, 1939, p. 21. 



B. NET WORTH OF CORPORATIONS 

Estimates of net worth comparable to the estimates of net 
profit before intercorporate dividends are desired. Such estimates 
are not the same as the net equity capital, i. e., the equity jcapital of 
individuals, in the corporate system. They include, in varying degrees, 
the intercorporate ownership of equity capital. 

Wliile it is possible to obtain the net profits accruing to individuals, 
it is not possible. to estimate the corresponding equity of individuals. 
Hence, to obtain rates of return it is necessary to deal with figures 
which include intercorporate profits and ownership. 

Except as otherwise noted, all figures are from United States 
Bureau of Internal Revenue, Statistics of Income, annual volumes. 

1926-37 — Capital account items (preferred and common stock, 
surplus and undivided profits, deficit, and, for 1937, capital reserves) 
for corporations submitting balance sheets were raised to represent 
all corporations. The adjustments were carried through separately 
with net income and with no net income corporations. The factors 
are given below, together with the computed correction for all cor- 
porations. 



CONCENTRATION OF ECONOMIC POWER 



139 





With net 
income 


With no 
net income 


All corpora- 
tions 
(computed) 




With net 
income 


With no 
net income 


All corpora- 

. tions 
(computed) 


1937 


1. 0256 
1.0404 
1.0204 
1.0190 
1.0173 
1. 0152 


1. 1058 
1. 1301 
1. 1768 
1.0735 
1.0847 
1. 0580 


1.0419 
1.0591 
1.0910 
1. 0463 
1. 0561 
1.0442 


1931 


1. 0237 
1. 0170 
1. 0160 
1.0160 
1.0150 
1.0170 


1. 0780 
1.0627 
1.0727 
1. 0797 
1.0512 
1.0525 


1.0550 


1936 


1930-.. 

1929 

1928...- 


1.0320 


1935 ..-. 

1934 


1.0264 
1.0270 


1933 ..- 


1927 

1926 


1.0228 


1932 


1.0237 









For 1931-37, the factors are the ratios of compiled net profit (or 
compiled deficit) of all corporations to the corresponding compiled net 
profit (or compiled deficit) of corporations submitting balance sheets. 
For 1926-30, the factors were obtained as follows: 

For corporations with net income, the correction factor was read 
from a chart with compiled net profit ratios for 1931-33 plotted against 
the corresponding number of corporations ratios. 

For corporations w^ith no net income, the ratio of the number of 
corporations not submitting balance sheets to the number sub- 
mitting balance sheets was multiplied by 0.422 and added to unity. 
The 0.422 figure is based upon the 1931-33 relation between the ratio 
derived from net deficits and the corresponding ratio derived from the 
number of corporations. For 1926, the number of corporations with 
no n^t income was estimated by subtracting 10 percent of all corpora- 
tions from the total of inactive corporations and corporations with no 
statutory net income. 

1922 and 1925.— To obtain an estimate for 1922, the 1921 figure was 
computed forward and the 1923 figure backward by adjusting for 
retained profits and stock issues. The two estimates were then 
averaged to give the final 1922 estimate. The same procedure was 
used to obtain the 1925 estimate. Computations are shown in 
appendix table I. 

Appendix Table I. — Compulation of 1922 and 1925 net worth of corporations 

[Money figures in millions] 



1925 



(1) Net worth preceding year.. 

(2) Reinvested earnings current year 

(3) Stock issues current year i _ 

(4) First estimate of net worth current year: (l)+(2)-f (3) 

(5) Net worth following year I. 

(6) Reinvested earnings following year 

(7) Stock is.sues following year ' t... 

(8) Second estimate of net worth current year: (5) — (6)— (7) 

(9) Final net worth estimate current year: }^(4)+!.H8) 



$98,430 


$113, 553 


1,746 


2,957 


620 


1,247 


100, 796 


117,757 


103,907 


122, 088 


2,528 


2,335 


736 


1,220 


100,643 


118,533 


100,720 


118, 146 



' See sec. C, infra. 



1920, 1921, 1923, and 1924.— Y'lgures are from the capital stock tax- 
returns for the years 1922, 1923, 1925, and 1926, as respectively 
reported in the 1920, 1922, 1924, and 1925 volumes of the Statistics of 
Income. Reports for the first two, however, required balance sheets 
as of June 30, 1921, and June 30, 1922, or an earlier date not before the 
preceding July 1 ; for the latter two the reporting dates were June 30, 
1924, and Jvuie 30, 1925, or an earlier date not before the pre -oding 
December 31. Consequently, there is little indication of the appro- 
priate date— Decem.ber 31 or the following June 30 — to be applied to 



140 



CONCENTRATION OF ECONOMIC POWER 



the figures. In view of (1) the fact that reports had to be made during 
July and (2) the relative smallness of adjustments, the preceding 
December 3 1 date was used. 

For the two later years, surplus (including book value of no-par 
stock) and deficit items were reported. For the other years only par 
value stock was reported. These were multiplied by r.4535, the 
average of the ratios of total stock, surplus and deficit to par value 
stock, for the 2 later years. 

Since the figures are on an unconsolidated basis, while the income 
tax data for the corresponding year are on a consolidated basis, some 
downward adjustment is necessaiy. A precise basis for the adjust- 
ment is not available. Judging from the 1933 and 1934 returns a 
considerable reduction is necessary — roughly about 10 percent. 
However, intercorporate ownership was not as marked in the early 
twenties as in later years. In order to provide a better approxima- 
tion to book value net worth than that given by the reported figures 5 
percent was deducted as a rough allowance for the difference between 
consolidated and unconsolidated reporting. 

Computations are shown in appendix table II. 

Appendix Table II. — Computation of 1920, 1921, 1923, and 1924 net worths of 

corporations 



1920 



1923 



1924 



Capital stock tax returns for. 
Balauce sheets as of June 30.. 
Or a date not earlier than 



1922 

1921 

July 1, 1920 



1923 

1922 

July 1, 1921 



1925 

1924 

Dec. 31,1923 



1926 

1925 

Dec. 31,1924 



(1) Total par value stock plus sufplu.s less 

deficit. 

(2) Par value stock 

(3) Surplus less deficit 

(4) Ratio: (l)-r(2) ..., 

(5) Estimated net worth: Unconsolidated 

(2)X(4). 

(6) Estimated net worth: Consolidated 

(5)X0.95. 



$70,230. 



$71,284. 



1.4535 1.. 
$102,079. 

$96,975.. 



1.4535'.. 
$103,611. 

$98,430-. 



$109,376 

$76,331. 
$33,045. 
1.4329.. 
$109,376 

$103,907 



$119,529. 

$81 ,090. 
$38,4,39. 
1.4740. 
$119,529. 

$113,553. 



> Average of figures in last 2 columns. 

1918-19. — "Invested capital" as defined by the Bureau of Internal 
Revenue for excess profits tax computations was based upon the 
beginning of year book value of (a) cash paid in for capital stock, (6) 
actual cash value of property, including intangibles, paid in for capital 
stock, with certain limitations upon the amount of intangibles, and 
(c) paid-up or earned surplus, including undivided profits. Three 
typos of adjustments were then applied to the total of these items. 

1. Adjustments were made for differences between book value and 
the valuation prescribed by law or by regulations of the Bureau of 
Internal Revenue. (Examples are differences between depreciation 
carried on the books and depreciation allowed for tax purposes and 
differences between par value of stock given in exchange for property 
and actual value of the property.) 

2. Changes in invested capital resulting from issue or retirement 
of stock, payment of Federal income and profits taxes for previous 
years, and dividends out of profits of prior years were taken into 
account after reduction to an average for the year. 



CONCENTRATION OF ECONOMIC POWER 



141 



3. Stocks, bonds, and other obligations, except obligations of the 
United States, the income from which is not taxable were excluded 
from total assets. Net worth after all other adjustments was reduced 
by a proportionate amount. 

There appears to be no way to reconstruct the published figures to 
obtain the book values of net worth reported but not tabulated. 
Approximate adjustments could be made for dividends, taxes, and 
new stock issues, (i. e., partially offsetting adjustments), but no basis 
exists for other types. In view of this it is believed most desirable 
to use the figures as adjusted for coverage alone. 

Two adjustments for coverage were made. The reported figure for 
invested capital was first multiplied by the ratio or net income of all 
corporations with nejt income to the net income of corporations report- 
ing invested capital. This estimate for corporations with net income 
was then multiplied by the ratio of total gross income to the gross 
income of corporations with net income to give the estimate for all 
corporations. 

Computations are shown in appendix table III. 

AppejNdix Table III. — Computation of 1919 and 1920 net worth of corporations 

(Money figures in millions] 



Taxable yoar... ■. 

Reporting invested capital: 

<!) Number - 

(2) Invested capital... 

(3) Not income 

.A.11 corpc-ations: 

(4'' Number (including inactive) 

(51 Gross income 

All corporations with net income: 

(6) Number '. 

(7) Net income 

(8) Gross income 

AH corporations with no net income: 

(9) Number (including inactive) 

(10) Net deficit 

(in Gross income 

Adjustment factors" 

(12) Ratio: (7)+(3)..... : 

ri3) Ratio: ('i) + (8) 

Invested capital, adjusted; 

(H) Corpoi^tions with net Income (2)X(12) 

(15) All corporations (14)X:(13)--. 



1918 



1919 

192, 037 

$66, 130 

$9,306 

320, 198 
$99, 919 

209,634 

$9 411 

$88; 261 

110, 564 

$996 

$11, 658 

1.0113 
1. 1321 

$66. 877 
$75, 711 



1919 



1920 

187, 833 
$68,427 
$7, 718 

345, 595 
$118, 206 

203,233 
$7,903 
$93,824 

. 142,362 

$2,029 

$24,381 

1. 0240 
1. 2599 

$70, 069 
$88,280 



1909-13. — Corporations were asked to report the "total amount of 
paid-up stock outstanding at close of year" and the heading "Capital 
Stock" was used to describe the tabulated figures in the Annual Report 
of the Commissioner of Internal Revenue for fiscal year ended June 30 
immediately following the year shown. Reports were on an uncon- 
solidated basis. Furthermore, the Annual Reports for 1911 and 1912 
mention the incompleteness of the returns, although for 1912 the 
Annual Report says there were not more than 5,000 delinquent, returns, 
and the 1914 Annual Report states that the income tax law has a 
broader coverage than the predecessor excise tax law. 

No precise definition can, therefore, be given to the figures. The 
major question resolves around the inclusion or exclusion of the sur- 
plus, capital reserve, and undivided profits items. In view of the limi- 
tation on the deduction of interest payments in terms of capital stock, 



2007.'>l— 41— No, 12- 



-11 



142 



CONCENTRATION OF ECONOMIC POWER 



there is a presumption (a) that capital deficits would not be deducted 
from the capital stock item and (6) that earned surplus, at least, 
would be included. 

It is believed that the figures provide an indication ol the order of 
magnitude of the book value of corporate net worth for 1909-13. 
They should not be used as precise measurements. 



C. STOCK ISSUES 

1919-38. — Figures are those compiled by the Commercial and 
Financial Chronicle ; they were taken from United States Department 
of Commerce, Survey of Current Business. 

"Included * * * are all capital issues which are publicly 
listed for sale * * *. Seciu-ities sold at private sale are included 
when the compilers are aware of such a sale. Domestic issues" — 
the ones used in this report — "include securities sold by all companies 
incorporated in the United States, regardless of where the funds may 
be spent" (Survey of Current Business, February 1938, p. 21, note). 
Refunding stock issues cover issues replacing stocks as weU as other 
forms of securities. 

1909-18. — Figures are those compiled by the New York Journal 
of Commerce; they were taken from United States Department of 
Commerce, Statistical Abstract of the United States, 1930. . 

Both new and refunding issues are included at ofi^ering prices. 
Real estate offerings, privileged stock subscriptions and issues of less 
than $100,000 are excluded; foreign issues are included. 

'General. — No adjustments were made for privately sold or other 
types of issues excluded from or included in the figures since there 
appears to be no adequate basis for doing so. The bearing of the in- 
complete coverage upon particular points is discussed in the text. 

Appendix table IV shows the total stock issue figures used in 
computations. 

Appendix Table IV. — Total new and refunding stock issues, 1909-38 
[Millions of dollars] 



Year 


Total 


New 


Refund- 
ing 


Year 


Total 


New 


Refund- 
ing 


1939 








1923 _ _ 

1922 

1921 

1920 .-,.... 

1919 


736 
620 
275 
1,038 
1,547 
298 
455 
782 
325 
262 
452 
904 
3.52 
405 
611 


659 

570 

265 

1,002 

1,436 


77 


193S 


96 

760 

553 

151 

35 

153 

24 

343 

1,527 

6, 757 

3,491 

■ 1,738 

1,220 

1,247 

866 


65 

408 

352 

fi9 

35 

120 

20 

311 

l,f>03 

5, 024 

2,961 

1,474 

1, 087 

1, 153 

829 


31 
352 
200 

81 

32 

4 
32 
23 
833 
.530 
264 
133- 
94 
36 


.50 


1937 


10 


1936 


36 


1935... 


110 


19341 


1918.... 

1917 

1916 




1933 






1932.. 






1931 _. 


1915 






193() 


1914 

1913 

1912 

1911.. 

1910 

1909 .... ... 






1929 . 






1928 






1927 






192fi 






1925 






1924 











8ource9: See appendix I, section C. 



CONCENTRATION OF ECONOMIC POWER 



143 



D. INCOME PRODUCED BY THE CORPORATE SYSTEM 

1. Underlying national income estimates. — 1929-38: United States 
Department of Commerce figures for national income produced. 

1919-28: National Bureau of Economic Research (Kuznets) series 
for income produced as adjusted by the United States Department 
of Commerce. The Department of Commerce first adjusted the 
N. B. E. R. series for comparability and then shifted them to the 
level of the Department of Commerce series. Eacl;i industrial divi- 
sion was adjusted separately, the shift in level being based upon the 
1929 relations between the two sets of figures. 

1909-18: The Brookings Institution (Leven, Moulton, and War- 
biuton, America's Capacity to Consume, 1934, pp. 152-153) revisions 
of estimates of realized income or income paid out by King, Willford 
I. (The National Income and Its Purchasing Power, National Bu- 
reau of Economic Research, Inc., 1930) as adjusted by the United 
States Department of Commerce. The adjustments consisted of 
splicing the Brookings series separately by industrial divisions to 
income paid out series comparable to the adjusted N. B. E. R. series 
for income produced previously mentioned on the basis of the 1919-21 
relations. 

2. Income produced by corporations. — The United Stat esDepartm.ent 
of Commerce provided the estimates shown in appendix table V for 
the amount of income produced by private corporate enterprise in 
1929. 



Appendix Table V. — Estimates of total and corporate income produced, by in- 
dustrial divisions, 1929 

[Money figures in billions of dollars] 



Industry 



Total 

A gricul ture 

Mining.--, 

Manufacturing -• - 

Contract construction 

Transportation and public utilities 

Transportation 

Electric light and power and manufactured gas 

Communication --- 

Trade - 

Finance .' - i 

Government 

Service and miscellaneous 

Service .- :. 

Miscellaneous - . 



Total 



82.7 



Corporate 



Amount Percent 



48.3 

1.6 
19.4 
3.1 
8.8 
6.5 
1.3 
1.0 
6.2 
3.9 



5.3 
3.0 
2.3 



58.4 

0) 
89.0 
95.6 
84.0 

, 93.6 
91.5 
100.0 
100.0 
55.0 
44.0 



38.0 
31.0 
57 n 



' Negligible. 

These percentages were applied to the total national income produced 
by industrial divisions to obtain the estimates of corporate income 
produced. For 1934-38, 82 percent of the social security contribu- 
tions of employers was included — the estimate of the Department of 
Commerce for 1938. Since the 1909-18 figures for national income 
were for income paid out, retained profits of corporations were added 
after the application of the percentages given in appendix table V. 
Retained profits were derived from data described in section A, supra. 



144 



CONCENTRATION OF ECONOMIC POWER 



Appendix table VI provides a comparison between all income 
produced by private enterprise and income produced by the corporate 
system. 

Appendix Table VI. — Estimates of income produced by all private enterprise and 
by the corporate system, 1909-38 

(Money figures in millions of dollars] 



Year 


Total 


Corporate 


Amount 


Percent 


1938 


64, 147 
62,720 
55, 779 
47, 875 
43,008 
35.940 
33, 740 
47, 797 
62, 670 
76,374 
73,041 
69, 298 
70, 712 
68,709 
63,921 


33, 057 
39, 456 
34,590 
29, 186 
26, 146 
21,822 
20, 230 
29, 434 
39, 054 
48, 350 
45, 735 
43, 328 
44, 522 
42,838 
39, 715 


. 61.05 
62.91 
62.01 
60. 9G 
60.79 
60.72 
59.96 
61.58 
62.31 
63.31 
62.62 
62.52 
62.96 
62. 35 
62.13 


1937 - 


1936 - 


1935 -. 


1934 


1933 


1932 - 


1931 


1930 


1929 


1928 -- - 


1927 


1926 


1925 


1924 





1923 
1922 
1921 
1920 
1919. 
1918 
1917. 
1916 
1915. 
1914. 
1913. 
1912. 
1911. 
1910. 
1909. 



Total 



64,252 
54,729 
46, 515 
64,694 
63,929 
49, 775 
44,668 
38, 136 
32,608 
31,323 
31,550 
30,050 
28, 173 
27,800 
26, 254 



Corporate 



Amount Percent 



41,111 
34, 242 
28, 039 
40,915 
38, 042 
29, 448 
26, 035 
22, 717 
18, 856 
18, 208 
18,614 
17, 578 
16, 487 
16, 050 
15, 006 



63.98 
62.57 
60.28 
63.24 
59.51 
59.16 
58. 29 
59.57 
.57.83 
58.13 
59.00 
.')8.50 
58.52 
57.73 
57. 16 



Sources and methods: See appendix I, section D. 
strictly comparable to those for the later years. 



Figures for 1909-18 are for income paid out and are not 



3. General. — The Department of Commerce also provided esti- 
mates of corporate income produced in 1938. The total was 
$33,000,000,000 compared with the $33,057,000,000 obtained by the 
application of the 1929 percentages for industrial divisions. 

An increase of about $6,500,000,000 in corporate income produced 
between 1918 and 1919 is shown by the estimates. (Even though the 
splicing were on the basis of 1919 rather than 1919-21 the difference 
would be only $1,000,000,000 less.) This appears large in view of 
the changes in production and prices between the 2 years. While the 
production and price series may not adequately reflect changes in 
income produced, the more likely possibility is some defect in the 
underlying income figures. The Brookings-King estimates show an 
increase of $5,000,000,000 in income paid out while retained corporate 
profits alone increased almost $2,000,000,000. 

The element of inconsistency in the 1918-19 change indicates that 
year-to-year changes are probably not very reliable for the earlier 
years covered, although the broad sweep is believed to be valid. 

Undoubtedly, there have been changes in the proportion of income 
produced by corporations in the various industrial divisions, particu- 
larly between the pre-war and post-war periods. No measurements are 
availableforgaging the extent of this. Changes of most importance 
would be in the trade and service fields. However, even though the 
estimated corporate shares in these fields were cut in half for 1913, for 
example, corporate income produced would be reduced by about 10 
percent, hardly enough to affect the broad sweep of the figures. 

Aside from the trade and service areas the major contributions to 
the corporate income produced are fronv manufacturing, transporta- 
tion, public utilities, and finance. The scope of corporate e^iiterprise 
in these fields can hardly be held to have changed materially enough 
to invalidate the estimates. 



CONCENTRATION OF ECONOMIC POWER 



145 



Finally, it should be remembered that the inconsistency in the 
1918-19 change indicates that for the 1909-18 period the figm-es are 
generally too low compared with the later years. This tends to 
offset any error introduced by the overestimate of the corporate share 
for those years. 

4. Treatment oj taxes. — In the text of chapter IV, it was pohited out 
that the income produced estimates excluded all taxes. Appendix 
table VII shows computations similar to those given in table IV based 
upon corp6r^te income produced figures which include Federal 
income and profits taxes. 

Appendix Tabi:e VII. — Income ■produced by and net profit of the corporate system^ 
1909-37 , with Federal income and 'profits taxes included in income produced 

[Money figures in millions of dollars] 





Income 
produced 

by the 
corporate 
system ' 


Net profit of corporate system 


Net profit as percent of income 
produced 


Year 


Before 

Federal 

taxes 


Federal 

income 

and profits 

taxes 


After 

Federal 

Jaxcs 


Before 

Federal 

taxes 


Federal 

income 

and profits 

taxes 


After 

Federal 

taxes 


1937 


40, 732 
35, 781 

29,921 
26,742 
22, 245 
20,516 
29,833 

39,766 
49, 513 
46,919 
44, 459 
45, 752 

44,008 
40, 597 
42,048 
35,026- 
" 28, 741 

- 42, 540 
40, 217 
34, 540 
32,494 
27, 797 

20,941 
18, 590 
19,837 
19,088 
17, 181 

17, 162 
'. 16, 059 


5,148 
5,094 

2,409 

753 

-1,956 

-5,089 

-2, 746 

2,078 
9,277 
8,750 
7, Oil 
8,004 

8,141 
5,880 
6,764 
5,164 
726 

5,968 
8,482 
7,712 
9,484 
7,580 

4,140 

2, no 

3,390 
3,460 
2,560 

2,940 

2,620 


1,276 
1,191 

735 
596 
423 
286 
399 

712 
1,193 
1,184 
1,131 
1,230 

1, 170 
882 
937 
784 
702 

1,625 
2, 175 
3,159 
2,142 
172 

57 
39 
43 
35 
29 

34 

21 


3,872 
3,903 

1,674 

157 

-2,379 

-5, 375 

-3, 145 

1,366 
8.084 
7,566 
5,880 
6.774 

6,971 
4,998 
6,827 
4,380 
24 

4, 343 
6,307 
4. 6.53 
7,342 
7,408 

4,083 
2.371 
3,347 
3,425 
2,531 

2,906 
2,599 


12.64 
14.24 

8.05 
2.82 

-8.79 
-24.81 

-9.21 

5.23 
18.73 
18. 65 
15.77 
17.49 

18.60 
14.49 
16.09 
14.74 
2.63 

- 14. 03 
21.09 
22.33 
29.19 
27.27 

19.77 
12.90 
17.09 
18.13 
14.90 

17.13 
16.31 


3.13 
3.33 

2.46 
2.23 
1.90 
1.39 
1.34 

1.79 
2.41 
2.52 
2.54 
2.69 

2.60 
2.17 
2.23 
2.24 
2.44 

3.82 
6.41 
9.15 
6.59 
.62 

.27 
.21 
.22 
■ .18 
.17 

.20 
.13 


9 51 


1936 


10 91 


1935 


5 59 


1934 


59 


1933 


—10 69 


1932 


—26 20 


1931 


— 10 54 


1930 


3 44 


1929 


16 32 


1928 


16 13 


1927 


13 23 


1926 


14 81 


1925 •. 

1924 .'.. 


15. 84 
12.31 


1923 


13 86 


1922 


12 50 


1921 


.09 


1920 ■-. 


10.21 


1919 


15.68 


1918 


13 18 


1917.. 


22 59 


1916... 

1916 : 


26.65 
19.50 


1914 


12.75 


1913 


16.87 


1912 . 


17.94 


1911 

1910 -. 


14.73 
16.93 


1909_ 


10.18 



' Including Federal income and profits taxes, but excluding other taxes. 
Sources and methods: See appendix I. sees. A and D. 



E. DIVIDEND. KECEIPTS REPORTED BY INCOME TAXPAYERS 

"Beginning 1936J amount includes dividends on stock of both 
domestic and foreign corporations, excepting dividends received by 
partnerships and fiduciaries. Prior to 1936, amount includes divi- 
dends on stock of domestic corporations subject to taxation under 
title I of the effective revenue laws, and until 1934, the dividends 
received on stock of foreign corporations deriving morfe than half 
their gross income from sources within the United States, whether or 
not received direct or by partnership and fiduciaries; also dividends 



146 



CONCENTRATION OF ECONOMIC POWER 



received through personal service corporations, 1918 through 1921; 
and stock dividends, 1916 through 1919." (U. S. Treasury Depart- 
ment, Bureau of Internal Revenue, Statistics of Income for 1937, 
pt. I, p. 46, note 10.) 

It is believed that the variations in coverage with regard to dividends 
from . foreign corporations, dividend? received through personal 
service corporations, and stock dividends have been relatively minor 
factors affecting the variations in the ratio of dividend receipts 
reported by income taxpayers to the net dividend outgo of the cor- 
porate system from year to year. 

Changes in the requirements for filing tax returns have se/riously 
affected the percentages which reported dividend receipts have been 
of the net dividend outgo. 'In general, the lower the net income for 
which individuals (and fiduciaries) must file returns relative to the 
national income, the greater the number of tax returns and hence 
the greater the volume of dividend receipts reported by income tax- 
payers. The basic net income levels at which individuals (and 
fiduciaries) have been required to file returns are shown in appendix 
table VIII, together with estimates of the income paid out to indi- 
viduals and with the percentages the dividend receipts reported by 
income taxpayers have been of the net dividend outgo of the cor- 
porate system. For a summary of the provisions of the various 
revenue acts with regard to requirements for filing returns see Sta- 
tistics of Income for 1937, part I, pages 188-191. 

Appendix Table VIII. — Individuals required to file Rederal income tax returns, 
dividend , receipts reported by income taxpayers, and national income paid out to 
all individuals, 1916-37 





Dividend re- 
ceipts reported 
by income tax- 
payers (percent 
of net dividend 
outgo of the cor- 
porate system) 


Individuals required to file 
returns 


Aggregate income 




Year 


Married and 
living with 
husband or 
wife: Net in- 
come of — 


Single or mar- 
ried and not 

living with hus- 
band or wife: 

Net income of — 


payments to in- 
dividuals includ- 
ing entrepreneu- 
rial income 


National- in- 
come paid out 


1937. ..„ 


$72. 72 
67.50 

76.36 
74.41 
74.20 
75. 10 
74.46 

74.77 
80.70 
84.22 
89.30 
90.38 

86.32 
94.95 
94.57 
101. 14 
94.18 

94.34 
94.38 
94.24 
94.18 
85.44 


$2,500 
2,500 

2.500 
2,500 
2,500 
2,500 
3.500 

3,500 
3,500 
3,500 
3,500 
3,500 

3,500 
2,500 
2,000 
2,000 
2,000 

2,000 
2,000 
2,000 
2.000 
3,000 


$1,000 
1,000 

1,000 
1,000 
1,000 
1,000 
1,506 

1, 500 
1,500 
1,500 
1,500 
1,500 

1,500 
1,000 
1,000 
1,000 
1,000 

1,000 
1,000 
1,000 
1,000 
3,000 




$70. 694, 000, 000 


1936 




64. 207, 000, 000 


1935 




55, 814, 000, 000 


1934 

1933 

1932 


$51,003,000,000 
44, 417, 000. 000 
46,054,000,000 
60, 354, 000. 000 

73, 304, 000, 000 
80, 737, 000, 000 
76, 990, 000, 000 
74, 522, 000, 000 
75, 042, 000, 000 

71,736.000,000 
68,322,000,000 
67, 403, 000, 000 
58. 400, 000, 000 
57, 186, 000, 000 

69. 393, 000, 000 
63, 852, 000, 000 


52, 057, 000, 000 
4.5,565,000,000 
49, 296, 000, 000 


1931 . 


62, 763, 000, 000 


1930 


74,414,000,000 


1929 

1928 


80, 243, 000, 000 


1927 




1926 




1925 




1924 




1923 




1922 




1921 




1920 




1919 ... . 




1918 


55,082,000,000 


1917 




47,241,000,000 


1916 




40, 077, 000, 000 









Sources: Individuals required to file returns U. S. .Treasury Department, Bureau of Internal Revenue, 
Statistics of Income for 1937, pt. I, p. 188; Aggregate Income Payments, Kuznets, Sirrion, National Income 
and Capital Formation, 1919-35, National Bureau of Economic Research, New York: 1938. p. 73 (income 
payments unadjusted for disparity between depreciation and depletion at book value and at reproduction 
prices); National Income Paid Out 1929-37, U. S. Department of Commerce (R. R. Nathan), Survey of 
Current Business, vol. 19, No. 6 (June 1939), p. 12; 1916-18, based upon Brookings-Kiug figures as indicated' 
in appendix I, sec. D; Dividend Receipts as a Percent of Net Dividend Outgo, see table VII. 



CONCENTRATION OF ECONOMIC POWER 147 

From appendix table VIII, it is clear that, except for 1936, major 
changes in the percentage which reported dividend receipts- are of the 
total net dividend outgo have occurred when major changes in the 
requirements for filing returns or in the level of the national income 
or both have taken place. This is evident for the changlss between 
1916 and 1917, for those between the 1917-24 and the 1925-29 
periods, and for the changes between the 1925-29 and the I9i0-35 
periods. The shift between the 1930-35 period and the 19:^6-37 is 
largely the result of a change in tabulating pfocedures for income 
from fiduciaries and partnerships and for the returns from estates 
and trusts. 

For the years prior to 1936, dividends received by fiduciaries from 
which individual income taxpayers in turn received income were re- 
ported as dividend receipts by those taxpayers. Since some fiduci- 
aries, are included as separate taxpayers, in the oflBcial tabulations of 
individual tax returns, some dividends were counted twice in the 
dividend receipt 'figures for tliose years. The extent of tlfe duplica- 
tion depends upon the volume of dividends reported by fiduciaries 
which are income taxpayers as such and the beneficiaries of which 
are also income taxpayers. No data are available as to the extent 
of such duplication. In 1937, the first year for which fiduciary re- 
turns were tabulated separately, the fiduciary returns included in the 
tabulation reported dividend receipts of $326,000,000 or less than 7 
percent of the net dividend outgo of corporations. The 1937 figures, 
Iiowever, are believed to provide an exaggerated indication of the 
amount of duplication in earlier years. First, the number of fiduci- 
aries has expanded over the period, particularly in recent y^ars; and, 
■second, not all beneficiaries of the fiduciaries included in the tabula- 
tions are necessarily income taxpayers. Consequently, a rough 
allowance of around 5 percent of the net dividend outgo has been used 
to modify the figures for all income taxpayers for the textual discus- 
sion. For income taxpayers with net incomes of $5,000 and over, 
the amount of duplication is, of course, even less — probably amoijnt- 
ing to onl}'" a few percent of the net dividend outgo. 

For 1936 and 1937, the tabulating procedure was changed. Bene- 
ficiaries of fiduciaries did not report the dividends received by those 
fiduciaries as their own dividend income. While this procedure has 
eliminated the duplications, which occurred in previous years^ it hQ,s 
also eliminated a great share of the dividend receipts of fiduciaries 
from the tabulations covering income taxpayers, since more fiduciaries 
in 1936 and 1937 were not included than were included in those 
tabulations. In 1937, the only year for which figures are available, 
only $326,000,000, or about 38 percent, of the $860,000,000 of divi- 
dends received by fiduciaries were covered by the figures for the 
dividend receipts of taxpayers. The shift in tabulating procedure in 
1936, therefore, accounts for a major share of the decline in dividend 
receipts reported by income taxpayers relative to the net dividend 
outgo between 1935 and 1936-37: 

Also, for years prior to 1936, dividends received by partnerships 
were reported by the partners as dividends and not as income from 
partnerships. But for 1936 and 1937 such dividends were not re- 
ported as dividends by the partners. Data on the volume of divi- 
dends received through partnerships are not available. But the shift 
in the method of tabulating them does account for part of the decline 



148 CONCENTRATION OF ECONOMIC POWER 

in the dividend receipts reported by "income taxpayers between 1935 
and 1936-37. 

That the bulk of the dividends received by those fiduciaries which 
are not tabulated as taxpayers accrue to individual taxpayers is 
indicated by the data for 1937. Total income from fiduciaries 
reported by taxpayers totaled $831,000,000, while the total amount 
of the income of fiduciaries distributable to beneficiaries appears to 
have been less than $1,000,000,000. Furthermore, in 1937, 
$127,000,000, or about 15 percent, of the $831,000,000 of the fiduciary 
income received by taxpayers was received by those with net incomes 
of less than $5,000. 

Appendix table IX indicates the distribution of dividend receipts 
reported to the Bureau of Internal Revenue among fiduciaries and 
taxpayers other than fiduciaries. 

Appendix Table IX. — Distribution of dividend receipts, hy class of taxpayers, 1937 



Item 



Dividend receipts 



Amoimt Percent 



Net dividend outgo of the corporate system 

Reported by income taxpayers and all fiduciaries. 

Taxpayers, other than fiduciaries - 

Fiduciaries - 

Taxpayers ■. 

Nontfixpayers j.. 

Residual (includes partnership receipts) 



$4, 832, 000, 000 
4, 047, 000, 000 
3, 188, 000, 000 
859, 000, 000 
326, 000, 000 
633, 000, 000 
786,000,000 



100. a 

83.8 
66.0 
17.7 
6.7 
11.0 
16.2 



Source: U. S. Treasury Department, Bureau of Internal Revenue, Statistics of Income for 1937, pt. I. 

It is" apparent from the data that had the 1937 tabulating pro- 
cedures been the same as those used in the twenties, the dividend 
receipts reported by income taxpayers would have been of a magnitude 
comparable to those of the twentiesin relation to the net dividend outgo 
of the corporate system. 

F. DIVIDEND RECEIPTS BEP6RTED BY THE 25,000 INCOME TAXPAYERS 
REPORTING THE GREATEST AMOUNTS OF DIVIDEND RECEIPTS 

It was necessary to assume that all 25,000 had net incomes of $5,000 
or more since returns with net incomes of less than $5,000 are not 
classified by amounts of dividends received, except partially for 1928. 
It is possible that some returns with net incomes of less than $5,000 
showed more dividends than some of those included in the highest 
,25,000 — particularly during the depression years when heavy net 
capital losses could be reported as deductions. That the error result- 
ing from this assumption is small, however, is shown bv data for 1928. 
An estimate for the highest 25,000 based upon a tabulation including 
792,000 returns and all but 3.4 percent of the dividends was only 
$5,000,000 -higher than the one based upon the 569,000 returns with 
|iet incomes of $5,000 and over. 

1935-37. — For these years, the number of tax returns was cross- 
classified by net income and by dividends received in the Statistics of 
Income while the amount of dividends received was classified only by 
net income classes. It was necessary, therefore, to estimate the 
_distribution of amounts of dividends received by the size of dividend 
receipts. This was done separately for each of 1 1 net income class 



CONCENTRATION OF ECONOMIC POWER 149 

intervals into which the more detailed daija were grouped. Initial 
estimates were obtained by multiplying the number of returns in each 
cell by the midpoint of the dividend receipts interval for that cell. 
These initial estimates ^^jere then scaled down so that the totals for 
each net income class was equal to the reported total for that class; 
For net income classes with tax returns falling In the open-end 
$1,000,000 and over dividend receipts class, the factor for scaling down 
was based upon the factors for contiguous net income classes as modi- 
fied by the condition that the dividends in the open-end class must 
average over $1,000,000. 

The procedure Df obtaining the estimate for 25,000 taxpayers from 
the estimated distribution of amounts of dividend receipts was the 
same as for earlier years. 

Final estimates are believed to be fairly accurate though not as 
accurate as those for the earlier years. 

1927-3Jf.. — For .these years, both the number of returns and total 
dividends are classified by amount of dividend receipts. Exact 
figures are therefore available foT the amount of dividends for returns 
numbering somewhat more and sortiewhat less than 25,000. For the 
dividends corresponding to 25,000 returns, straight line interpolation 
on the cumulated dividend by cumulated number line was used. 
Only a slight error is involved in this process. 

General. — The effects of the tabulating procedure for incoine from 
fiduciaries and partnerships and of the change of procedure in 1936 
upon the figures have been noted in the text and in the preceding 
section. 

In addition, the question arises as to the extent to which fiduciaries 
returns are included among the 25,000 tax returns reporting the great- 
est amount of dividend receipts. If the beneficiaries of such a fidu- 
ciary return are also counted among the 25,000 there is a duplication 
of the number of "persons" and, prior to 1936, a duplication of divi- 
dends as well. On the other hand, if the fiduciary has two or more 
heneficiaries, and some or all of them are not counted in the 25,000, 
then the amount of dividends reported by the 25,000. tends to be high 
relative to the number of "persons" covered. 

No data are available with regard to the extent to which fiduciaries 
and their beneficiaries are included among the 25,000. But it is 
believed that the various counteracting effects are on balance not 
sufficient to destroy the general validity of the results. That this 
must be so is indicated by data for 1937. Total dividends reported 
by all of the 44,531 fiduciaries with taxable net income amounted to 
$325,000,000. Of those fiduciaries, only 12,300 were above the $5,000 
net income level and these, of course, received a considerably smaller 
volume of dividends. Subtracting the full dividends received by the 
44,531 from the estimate for the 25,000 would indicate about 24 per- 
cent of the net dividend outgo of the corporate system as the absolute 
minimum amount received by substantially fewer than 25,000 tax- 
payers other than estates and trusts. But a substantial portion of the 
$325,000,000 of dividends must be added back as wieU as the dividends 
reported by the additional tax returns required to make up a total of 
25,000. While no adequate basis for estimating these amounts ia 
available, inspection of official tabulations of fiduciary returns and 
of the data previously described indicates that together they would be 
sufficient to account for most of the difference between the 24 percent 
absolute minimum and the 31 percent figure in table IX. 



150 CONCENTRATION OF ECONOMIC POWER 

G. APPROXIMATE RELATION BETWEEN GROSS INCOME AND DIVIDEND 
RECEIPTS OF INCOME TAXPAYER 

Basic data were obtained from United States Treasury Department, 
Bureau of Internal Reyenue, Statistics of Income, annual volumes. 
Gross income for each net income class was taken as total income 
before deductions plus wholly tax-exempt interest (except for the 
"Under $5,000" class for which no figures are available) less business 
and partnership losses (except for 1929 for which the data are not 
available) less net capital gains. The omission of wholly tax-exempt 
interest for the "Under $5,000" class and of business and partnership 
losses for 1929 has little effect upon the final results. 

Straight line interpolation between adjacent average gross incomes 
was used to obtain the average dividends corresponding to the par- 
ticular gross incomes shown in table X except for gross incomes under 
$5,000. The latter are averages for the "Under $5,000" net income 
class. A relatively minor error is involved in the method of interpola- 
tion used. 

H. SAVINGS OUT OF DIVIDENDS 

Percentages of income saved at various income levels were based 
upon National Resources Committee Consumer Expenditures in the 
United States: Estimates for 1935-36 (United States Government 
Printing Office, Washington, D. C: 1939). The only adjustment made 
was to deduct taxes (personal income, poll,' and certain personal property" 
taxes) from the total income of each income level before computing 
the percentages of income saved. In order to subtract taxes it was 
necessary to estimate the taxes paid by single individuals since only 
figures for gifts and taxes combined were given. The estimates were 
obtained by assuming the division between gifts and taxes was the 
same for single individuals as for familjes. Even though the errors in 
this procedure were large, the effects on the end results would be small 
since the number of single individuals relative to families is small (less 
than 20 percent) for almost all of the income levels used in the succeed- 
ing computations. 

Savings as defined in the Consumer Expenditures report "* * * 
reflect changes in assets and liabilities, and may be either negative 
or positive. In- general, the savings category covers three groups of 
items: (1) Purchases of certain consumer goods and services, namely, 
purchases of houses and that part of life-insurance premiums and other 
payments which constitute a charge for selling and bookkeeping costs ; 
(2) purchases of producer good^, such as farm equipment and other 
direct investments in business; and (3) insurance payments, increases 
in bank accounts, payment of debts, purchases of stocks and bonds and 
other investments not directly involving any transfer of goods" (p. 
98. Greater detail is also given on the same page). 

Income as defined in the Consumer Expenditures report "* * * 
includes the total net money income received during the year by all 
members of the economic family, plus the value of certain items of 
non-money income. 

"Money income comprises the net earnings of all family members, 
including work relief earnings and'eamings from roomers and boarders 
and other paid work in the home ; net profits from business enterprise? 
operated or owned by the family, and from property bought and sold 



CONCENTRATION OF ECONOMIC POWER 151 

within the year; net rents from property; interest and dividends from 
stocks, bonds, and other property; pensions, annuities, and benefits; 
gifts in cash insofar as these are used during the year for current Hving 
expenses; income received as rewards, prizes, ahmony, or gambling 
gains, and money received as direct cash reUef" (p. 99. Greater detail 
is given on pp. 99-100 and in National "Resources Committee, Con- 
sumer Incomes in the United States, Uaited States Government 
Printing Office, Washington, D. C: 1938). 

To obtain approximately comparable data from the Statistics of 
Income to which to apply the savings percentages derived from the 
Consumer Expenditures jeport, adjustment for (a) differences in the 
definition of income, (6) price changes, and (c) differences in the income 
classes were made. 

Total income before deductions plus tax-exempt interest less busi- 
ness and partnership losses less net capital gains of taxpayers was 
used, with certain exceptions, for gross income figures of taxpayers 
which would conform approximately to the definition of income used 
in the Consumer Expenditures report. For 1929 and earlier years, 
business and partnership losses were not tabulated separately and, 
hence, could not be deducted; for 1920, tax-exempt interest figures 
were not available and, hence, could not be added in. Tax-exempt 
interest for the "Under $5,000" net income class also had to be omitted 
since the data were not available. The net effects of these various 
omissions are relatively small. 

In the Statistics of Income, tax returns are classified by statutory 
net income. As a basis for a conversion of the limits of the net income 
intervals to a gross income basis the difference between average gross 
income and average net income was computed. Straight line interpola- 
tion was then used to determine the differences appropriate for the 
class limits. These differences added to the net income class limits 
provided the estimated limits on a gross income basis in terms of 
current dollars. The National Industrial Conference Board cost of 
living index (shifted to a July 1935-June 1936 base) was then appHed 
to obtain the gross incpme class limits in 1935-36 dollars, namely 
on a scale comparable to the one underlying the Consumer Expendi- 
tures material. 

The next step was to shift gross income, dividends, taxes, and num- 
bers of returns between classes so that the class intervals would be 
the same as those underlying the savings percentages from Consumer 
Expenditures. Straight line interpolation was used for the various 
items as follows: 

(a) Number of returns and gross income. — Logarithms of the 
cumulated numbers, of cumulated gross income, and of the gross 
income class interval limits. 

(6) Dividends. — Except for 1925, cumulated dividends and the 
logarithms of the gross income clasf, interval Hmits; for 1925, the 
actual limits were used. ' 

(c) Taxes. — Logarithms of curulated taxes and the actual 
gross-income class interval hmitr. 

The effect of applying linear interp-. 1« tion in cases where deviations 
from linearity occurred is relatively t: nor. 

The savings percentages derived /r* m the Consumer Expenditures 
report were then applied to the grot . income after taxes derived in 



J 52 CONCENTRATION OF ECONOMIC POWER 

accordance with the procedure described above. The resulting total 
savings figures were then multiplied by the percentages which divi- 
dends were of gross income before taxes, for each gross income class, 
to obtain the low estimates of savings out of dividends. 

Computations were made for the 7 years, 1920, 1925, 1929, 1932, 
1935, 1936, an(^ 1937. For the remaining yeaTs, estimates were based 
upon, the relati6n of the low estimates of savings to the net dividend 
outgo for the 7 years for which the computations were made. They 
are, therefore, not as reliable as the estimates based upon computa- 
tions from basic data. 

For 1933 and 1934, the savings figures used were based upon the 
computations for 1932, U35 and 1936; for 1926-28, 1921-24, and 
1909-16, upon the computa io.is for 1920, 1925, and 1929; for 1930-31, 
and 1917-19, upon both sets of computations. This variation in pro- 
cedure was based upon differences in the level of income tax rates 
during the various periods. 



APPENDIX II 
DATA FOR PARTS III AND IV 

A. SOURCES 

Balance sheet and income account data for the years 1927 to 1933 
have been taken from the compilations of the Standard Statistics 
Co., Inc., Standard Trade and Securities, "Statistical Section," volume 
62, No. 18, section 2 (November 11, 1931), volume 65, No. 21, section 
1 (August 17, 1932), and volume 73, No. 6, section 3 (July 13, ,1934). 
Data for the vears 1934 to 1938, inclusive, were obtained from the 
United States l)epartment of Commerce which had transcribed then* 
from the unfniblished compilations of the Standard Statistics Co., 
Inc., for use in connection with a study it was making for the Tem- 
porary National Economic Committee. 

End of 1926 balance sheet data were taken from Poor's and Moody's 
Industrial Manuals. 

The bulk of the material on revaluations was obtained from the 
Registration Statements and Annual Reports of the respective com- 
panies on file with the Securities and Exchange Commission. Regis- 
trants were requested by the Securities and Exchange Commission to 
report in their initial registration statements all substantial revalua- 
tions of property, plant, and equipment, intangible assets, and invest- 
ments for a 10-year period prior to 1934. However, since the Securi- 
ties and Exchange Commission did not provide a precise definition of 
the term "revaluation" there was considerable discretion with regard 
to what was reported. For 1934 and later years, registrants were 
required to report analyses of surplus so that the data for those years 
is more complete than for earlier years. 

Information on revaluations, parfcicula;rly for years prior to 1934 
and for corporations without registration statements, w;as also ob- 
tained from Poor's and Moody's Industrial Manuals. 

The bulk of the information on acquisitions, mergers, changes in 
acoountiug procedures, etc., was obtained from Poor's and Moody's 
Industrial Manuals. Some information was also obtained ffom Regis- 
tration Statements and Annual Reports filed with the Securities and 
Exchange Commission: ' While it is probable that some acquisitions, 
etc., were not reported in either Poor's or Moody's Manuals, it is 
believed that most if not all major items were covered. 

Finally, small amounts of data were taken from annual reports of 
various comJ)anies and from the various volumes of Railway and 
Industrial Compendium (Wm, B. Dana Co., New York). 

No attempt was made to obtain complete information on capital 
expenditures. Collection of such data was incidental and for the pur- 
pose of obtainifig collateral material with regard to particular cor- 
porations. 

153 



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CONCENTRATION OF ECONOMIC POWER 



159 



Appendix Table XV. — Revaluations of property, 1927-S8 * — Selected oil producing 

and refining corporations 



1928. 



1929. 
1932. 



Year 


Amount 


Item 


1. AMERADA CORPORATION 


1927 




Discontinued the practice of capitalizing Intangible drilling. 

After 1927 they are charged to Income. 
Created special reserve. 


1930 


-$1,052,482 






2. ATLANTIC REFINING CO. 


1927 


+$1,820,000 
+4, 889, 598 
-4, 037, 234 


1 Upon 'determination that depreciation and obsolescence charges 
1 had been in excess of requirements. 


1928.-. 




1936... 




3 refineries abandoned. 






3. BARNSDALL OIL CO. 



-$5, 556, 383 

-5, 207, 697 

-918, 797 

-31, 256, 065 

-7, 616, 255 



Productive drilling capitalized prior to Jan. 1, 1928. 
JAdjustment of unproductive property values. 

Oil and gas leases reduced to $1 and other property and equip- 
ment revalued: 

Adjustment for disposal via distribution of stock of a newly 
formed subsidiary consisting of former refining and market- 
ing divisions. 



4. CONSOLIDATED OIL CORPORATION (FORMERLY SINCLAIR) 



1931 (January 1932) J. 



-$107, .569. 504 
-22, 425, 099 



Property.' 

intangibles (goodwill, organization expenses, etc.) ' 



5. GULF OIL CORPORATION 

(No registration statement) 



6. HOUSTON OIL CO. OF TEXAS 



1930. 
1931. 



1933. 
1937. 



1932 .-. . 


-$1, 290, 374 

• -296, 762 

+94, 791 




1937... 


Reversal of leasehold costs capitalized in prior years. 


1938 


Partial reversal of 1932 property revaluation. 






7. HUMBLE OIL AND REFINING CO. 


1927 


-$8, 527, 598 
+6,033,262 


Appreciation in properties. , 


1931 ... . 


Depreciation disallowed by U. S. Treasury Department. 






8. INDIAN REFINING CO. 



— $1, 578, 657 I Lubricating plant. 

— l' 246* 113 {Property (at time control acquired by Texas Corporation). 
Trade-mark "HavoUne." 

Depreciation reserve decreased in accordance with Inteistdte 
Commerce Commissionand Internal Revenue determination. 



-850, 000 
+503, 944 



9. INDIANA PIPE LINE CO. . 
(No registration statement) 

' Only revaluations carried directly to surplus or capital reserves are included.' Adjustments made for 
reasons other than revaluation are also included. 

' Statement for 1931 covers 13 months ending Jan. 31, 1932; statement for 1932, 11 months ending Dec. 31, 
1932. 

) As per appraisal by Board of Directors. 



160 



CONCENTRATION OF ECONOMIC POWER 



Appendix Table XV. — Revaluations of property, 1927-38 — Selected oil producing 
and refining corporations — Continued 



Year 



Item 





10. 


MID-CONTINENT PETROLEUM CORPORATION 


1934..., 


-$1,382,036 


Property, plant and equipment (to reflect appraisal). 


1936 


-11,479,720 

-24, 077 

-847, 059 

-846, 135 


Intangibles (to reflect appraisal). 
Intangibles. 


1937 


Intangibles, amortization. 


1938 


Do. 









1932. 



, 11. THE OHIO OIL CO. 


1931 


-$11,450,068 
^-28,190,420 


Property reserves increased. 
Intangibles. 




1936 - - 








12. PHILLIPS PETROLEUM CORPORATION 


1928 


-$17,458,261 
-16,000,000 


Properties; reversal of 1925 write-up. 
Properties. 




1932 








13. PURE OIL CO. 



-$5,019,458 
-34, 521, 163 
-47, 606, 774 
H-19, 523, 031 



Fixed property; reversal of 1922 entries. 

Intangibles; reversal of 1922 entries. 

Properties. 

Contracts, rights, patents, trade-marks. 



14. SHELL UNION OIL CORPORATION 



.1935. 
1937. 



-|-$500, 896 
-492, 309 



Depreciation reserve of subsidiary decreased. 
Intangible development costs. 



15. SKELLY OIL CO. 



1931 » 


-$10,185,042 
+780, 334 
-728, 741 

-901,548 
-1-7,659.687 
-2, 778, 465 


Reserves for depletion and depreciation increased. 


1938. 


Reserves for depreciation of miscellaneous property decreased. 
Property; excess of investment in subsidiaries over equity as 

shown by subsidiaries' books. 
Property; advances to cover losses of a particular division. 
Adjustment of prior years' depreciation properties. 
Undeveloped oil and gas properties. 







16. SOCONY-VACUUM OIL CO., INC. 


1934 


-$228, 123, 580 

-3, 633, 580 

-87, 938 

-6, 732. 309 

-128, 167 


Goodwill and appreciation. 
Do. > 


1935 : 


1936........ 


Property of a subsidiary (in connection with settlement of 
income taxes for years prior to acquisition). 


1938 







17. STANDARD OIL CO. OF CALIFORNIA 



1936. 



-$839, 710 
-233, 178 



Properties. 

Depreciation reserves increased. 



CONCENTRATION OF ECONOMIC POWER 



161 



Appendix Table XV. — Revaluations of property, 1927-38 — Selected oil producing 
and refining corporations— ^Continued 



Year 



Amount 



Item 



18. STANDARD OIL CO. (INDIANA) 



1930 •- 


+$7, 830, 445 
-5,034,693 
-2.895,717. 

+10,770,390 

+14, 683, 100 

+802, 037 

-2,484,022 

-16,133,337 


Lands, leases, and concessions. 


1932 . . .. 


Reversnl of preceding item. 


1934 


Real estate, JDiiildin^s. machinery and equipment (to eliminate 


1935 


appraisal appreciation recorded in 1912). 
Subsidiary's reserves decreased (to conform with U. S. Treas- 
ury Department'.'! findings). 

1 Reserves decreased (to conform -with Treasury Department's 

/ findings^ 


1936 


1937 


Leaseholds. 


1938 


Intangibles representing excess of cost over book values of 




subsidiaries at date of acquisition. 



19. STANDARD OIL CO. (KENTUCKY) 



1931 
1934 

1927 
1929 
1931 
1932 
1938 



-$2,000,000 
+1,060,621 



Estimate write-off for refinery dismantled. 
Depreciation reinstated. 



20. STANDARD OIL CO. (N. J.) 



+$8,750,000 

+2,100,000 

■+244. 920, 000 

-31.809,719 

-16,153,565 



jpatents, copyrights, goodwill, etc. (to reflect appraisal). 

Estimated adjustment for consolidating subsidiaries 
Properties of a subsidiary (reversing a 1920 entry). 
Bolivian properties (reserves increased). 



21. STANDARD OIL CO. (OHIO) 
(None reported) 

22. SUN OIL CO. 

(None reported) 

23. TEXAS CORPORATION (THE) 



1933. 
1935. 
1936. 
1937. 



-$850,000 

+1,173,328 

+35, 927, 033 

+11,801,397 



Trademark "Havoline." 

} Depreciation reserves adjusted in accordance with I. C. C. and 
Bureau of Internal Revenue determination. 



24. TIDE WATER ASSOCIATED OIL CO. (DEL.) 



1927 


+$5, 780, 517 

-10,466,237 

-211,302 

-14,656,746 

-1,297,996 


Depletion reserves decreased. 

Property and equipment. 

Intangibles. 

Properties. 

Loss on sale of undeveloped properties. 




1932 




1936 


\ 







25. UNION OIL CO. OF 'CALIF. 



1930. 



1934. 



+$7,081,124 



-31, 624, 366 



Depletion reserves decreased in order to capitalize 1928 and 1929 
intangible drilling expenditures in accordance with change 
in accounting. 

Oil lands and development (reversal of 1926 entry). 



Sources: Registration Statements and Annual Reports filed with the Securities and Exchange Com- 
mission and Poor's and Moody's Industrial Manuals. For details, see appendix II, sec. A. 



162 



CONCENTRATION OF ECONOMIC POWER 



Appendxx Table XVI. — Revaluations of assets other than property, 1927-S8^- 
Selected oil producing and refining corporations 



Year 



Amount 



Item 



1. AMERADA CORPORATION 

2. ATLANTIC. REFINING CO. 



1928 ... 


—$260, 000 


1929-35 


-4, 601, 600 

f +330, 664 

I -473, 162 

—231, 243 


1936 


1932 


-29, 617 


1933 


—175, 000 


1934 


-75, 000 
-1,484,000 


1935 . 


1936. 


— 755,613 


1937 


+775, 125 


1938.... 


+124, 030 



Investments. 

Do. 
1 To reflect year by year profits and losses of unconsolidated sub- 
/ sidiaries. 
Practice discontinued in 1936 with write-down to record them 

at original cost. 
Investments. 
Do. 
Do. 
Do. 
Do. 
Do. 
Do. 



3. BARNSDALL OIL CO. 



1927 


-$986, 251 

-2, 007, 894 

-2, 391, 878 

-300,000 

-750,000 

-1, 350, 000 


Loss on investments charged off and mining properties dis- 
posed of. 
Cost of bond retirement and reduction of treasury stock to par. 


1929 .,. 


1932...:. 


1936 

1937^... 


Do. 
Do. 


1938 


Do. 







4. CONSOLIDATED OIL CORPORATION-(PORMERLY SINCLAIR) 



1930. 



-$680, 058 
-8, 783, 243 
-2, 679, 093 



Investments (reserve for insurance) . 
Investments in unconsolidated aflUiates. 
Miscellaneous investments. 



5. GULF OIL CORPORATION 
(No registration statement) 



1937. 
1938. 



+$90, 538, 437 
-2, 038, 193 



Unadjusted credits; increase in assets arising out of oil sale' con-. 

tract entered into by a subsidiary. 
Unamortized discount and expense and premium paid on funds 

retired. 



I. HOUSTON OIL CO. OF TEXAS 
(None reported) 

HUMBLE OIL & REFINING CO. 

(No registration statement) 

8. INDIAN REFINING CO. 
(None reported) 

9. INDIANA PIPE LINE CO. 
(No registration statement) 



1927. 



-$600,000 



Adjustment for segregation of cash and equivalent not previ- 
ously segregated. 



10. MID-CONTINENT PETROLEUM CORPORATION 
(None reported) 

11. THE OHIO OIL CO. 

12. PHILLIPS PETROLEUM CORPORATION 

(None reported) 

13. PURE OIL CO.' 
(None reported) 



' Only revaluations carried directly to surplus or capital reserves are included. Adjustments made for 
reasons other than revaluation are also included. 



CONCENTRATION OF ECONOMIC POWER 



163 



Appendix Table XVI. — Revaluations of assets other than property, 19S7-S8- 
Seleded oii producing and refining corporations — Continued 



Year 


Amount 


Item 


14. SHELL UNIPN OIL CORPORATION 


1936 


+$4.51, 451 


Investment in unconsolidated affiliate. 






15. SKELLY OIL CO. 


1938 


+$2, 305, 434 


Reserve no longer "needed. 







16. SOCONY-VACUUM OIL CO., INC. 
(None reported) 

17. STANDARD OIL CO. OF CALIFORNIA 

(None reported) 

18. STANDARD OIL CO. OF INDIANA 



1935 


-$6, 059, 072 


Investments (reserves set-up). 






19. STANDARD OIL CO. OF KENTUCKY 


1933 


-$13, 470, 000 
-362, 707 


Adjustment for segregation of cash and equivalent not pre- 


1935 


viously segregated. 
Investment in subsidiary. 






20. STANDARD OIL CO. OF NEW JERSEY 


1934 


-.«4, 000, 000 


Investment of a.subsidiary. 



21. STANDARD OIL CO. (OHIO) 

(None reported) 



22. SUN OIL CO. 



+$1, 691, 669 Adjustments, including oonsolidfltion of companies previously 
afBliated upon acquisition of hitherto outstanding minority 
interest. 



23. TEXAS CORPORATION (THE) 



-$5, 600, 000 



Investment in companies not consolidated. 



24. TIDEWATER ASSOCIATED OIL CO. OF DELAWARE 



1932. 



-$974,500 

-810, 699 

-1,745.252 

-2,221,787 



Investments. 

Stock discount and expense. 

Investments in affiliated companies. 

Inventories. 



25. UNION OIL CO. OF CALIFORNIA 



f -$7, 210, 063 
\ +31, 183 



Inventories. 

Difference between par and cost of bonds purchased. 



Sources: Registration statements and annual reports filed with the Securities and Exchange Commission 
and Poor's and Moody's Industrial Manuals. For details, see appendix II, sec. A. 



164 



CONCENTRATION OF ECONOMIC POWER 



Appendix Table XVII. — Acquisitions, consolidations, mergers, sales, etc., 1927— 
38 — Selecterl oil producing and refining corporations 

1. AMERADA CORPORATION 



Year 



Item 



1929. 
1930. 



A subsidiary sold to Dixie Oil Co. (now Stanollnd Oil & Gas) an undivided }4 interest 
in all nonproductive leaseholds in Oklahoma and Kansas for $10,000,000 Q4 in cash; 
li out of production). 

Sold to Union Oil Co. of California an undivided H interest in "King" lease in Cali- 
fornia for $8,000,000 m in cash; H out of production). 



2. ATLANTIC REFINING CO. (THE) 



1933- 
1937. 



Sold its 50 percent interest in Union Atlantic Co. (Philadelphia) (1932 net loss $395,422; 

December 1932, total assets $3,409,186; net property $1,593,425). 
Acquired Buffalo Pipe Line Co. (consideration not reported; investment carried at 

$999,700). 
Gross additions to plant and property at cost $33,977,000; retirements and sales, 

$8,784,000. 



3. BARNSDALL OIL CO. 



1928 
1929 
1935 



1936. 
1937. 



Acquired Wolfe Oil Corporation for 52,441 shares of class A common with par value of 
$1,311,025 (total assets, $1,401,064; net property, $1,395,554; 1927 net income, $66). 

Purchased an 85 percent interest in the Brownell Corporation.. Subsidiaries com- 
pleted 111 wells. 

Assets in the refinery and marketing divisions transferred to -a newly formed sub- 
sidiary, Barnsdall Refining Corporation, for 1,129,390 common shares, 21,635 pre- 
ferred shares, $5,000,000 in bonds, and $1,511,067 in notes. Net property transferred 
was valued at $7,553,921 ($7,616,255 at end of 1934); common stock of , the new cor- 
poration was distributed to Barnsdall Oil stockholders as a dividend. 

Acquired all capital stock of Midway Oil Co. for 116,884 shares of treasury stock 
(Midway not reported by financial services). 

Acquired all capital stock of Greta Oil Corporation for 54,570 shares and assumption 
of $1,132,857 of liabilities; Greta then liquidated (Greta not reported by financial 
services). 



4. CONSOLIDATED OIL CORPORATION (FORMERLY SINCLAIR) 



1928. 



1930. 



1932. 



1934 
1935 



1936. 



Acquired controlling interest in Venezuelan Petroleum Co. (1927-total assets, 
$4,743,641; net property, $4,0O9,]68:,net income, $108,625). 

.\cquired assets and business of Pierce Petroleum Corporation for 700,000 shares, 
$1,100,000 for retirement of Pierce preferred stock, and assumption of $3,570,000 of 
liabilities (1929-tatal as.sets, $24,797,650; net property, $16,620,209; net income, 
$1,067,402). 

Sold }/2 interest in Sinclair Pipe Line Co. and Sinclair Crude Oil Purchasing Co. to 
Standard Oil Co. (Indiana). 
1931 (January 1932). L Acquired all properties of Prairie Oil & Gas Co. and its subsidiary Prairie Pipe Line 
Co. for 2,441,432 shares and assumption of liabilities (1929-total assets, $209,807,373; 
net property, $69,717,050; net income, $14,331,643). 

Acquired assets and business of Rio Grande Oil Co. for 494,329 shares purchased (total 
assets, $49,007,613; property, $42,788,149; net income, .$5,659,943). 

.\cquired 85 percent interest in Penii-Mex Fuel Co. for cash (total assets, $20,094,342; 
net property, $11,516,029; net income, $283,510). 

Acquired 50 percent interest in Sherwood Bros., Inc., for $1,045,000. 

Completed purchase of all capital stock of Richfield Oil Corporation (New York) for 
4,408,800 shares; this purchase included the remaining 50 percent interest of Sher- 
wood Bros., Inc. (Richfield not reported by financial services'). 

A subsidiary, Rio Grande Oil Co., acquired certain undeveloped oil acreage in Cali- 
fornia, an interest in Richfield Oil Co. of California, and Pan-American Petroleum 
Corporation (in receivership) from Cities Service; for these Rio Grande issued to 
Cities Service stock in an amount equal to Consolidated's holdings so that Cities 
Service & Consolidated then each held 50 percent of Rio Grande stock. 

In reorganization of Richfield Oil Corporation and Pan-American Petroleum Cor- 
poration. Richfield of California, acquired properties and assets of Rio Grande. 
For its 50 percent interest in Rio Grande, Consolidated received a large interest, 
subsequently Increased to 100 percent, in Richfield of California. 



1937. 



5. GULF OIL CORPORATION 



1938. 



Acquired Royal Oil Corporation, a distributor of Shell products In northeastern 
Pennsylvania. 



6. HOUSTON OIL CO. OF .TEXAS 
(No acquisitions reported) 



CONCENTRATION OF ECONOMIC POWEU 



165 



Appendix Table XVII. — Acquisitions, consolidations, mergers, sales, etc., 1927- 
38 — Selected oil -producing and refining corporations — Continued 

7. HUMBLE OIL & REFINING CO. 
(No acquisitions reported) 

8. INDIAN REFINING CO. 



Year 



Item 



Texas Corporation acquired control by exchanging 1 share of Texas for 8 shares of 
Indian. 



9. INDIANA PIPE LINE CO. 
(No acquisitions reported) 

10. MID-CONTINENT PETROLEUM CORPORATION 



Purchased from Frank E. Kistler and associates approximately 137 tank stations 
and 224 service stations in lOwa, Illinois, Indiana, Kentucky, and Minnesota, 
formerly owned by Black Hawk Oil Co., Rex Oil Co., and Hawkeye Oil Co. for 
66,481 shares of common stock. 



11. OHIO OIL CO. 



1927. 
1930. 



Purchased for $2,000,000 the leases and drilling contracts of Enalpac Oil & Gas Co. 
Company issued $60,000,000 of preferred stock with which to reacquire the capital 

stock ($20,000,000 par) of Illinois Pipe Line Co. on a 3 for 1 basis (Illinois had formerly 

been a subsidiary but was sold by Ohio in 1914). 
Acquired properties an3 assets and assumed liabilities of Transcontinental Oil Co., 

exchanging 5^ share of common for 1 share of Transcontinental (1929-total assets, 

$64,621,056; net property, $48,062,107; net income, $4,723,990). 
Acquired, through a subsidiary, Laramie Gas Co. (Laramie not reported by financial 

services) . 



12. PHILLIPS PETROLEUM CORPORATION 



1928 
1929 

1930 

1935. 

/ 

1937. 



Purchased control of Benzo-Gas Motor Fuel Co. (total assets, $1,120,593; net property, 

$472,279; net income, $1,643). 
Acquired Wilhoit Oil Co., Winters Oil Co., State Oil Co., Morrison Oil Co., Hancock 

Oil Co., and a number of smaller concerns; also acquired Mitchell Oil & Gas Co. 

(none of the companies reported by financial services). 
Acquired the assets (subject to the liabilities) of Independent Oil & Gas Co. for. 

1,025,170 common shares (1929, total assets, $46,205,825; net property, $35,045,165;' 

net income, $3,170,087). 
Acquired Armould Oil Co. (not reported by financial services). 
Purchased Central Kansas Pipe Bine Co. but resold all the property except a stretch 

of pipe line (details not reported). 
Purchased properties of Mead Oil Co. (consideration not reported). 
Acquired all outstanding stock of United Broadcasting Co. (consideration not je- 

ported). 



13. PURE OIL CO. 



1928. 



195!&(Mar.30, 1930). 



1931-38. 
1936-38. 



Purchased substantially all capital stock of Seaboard Oil Co. for a reported price of 

$325,000. (December 1927-total assets, $3,153,028; net property, $2,109,278; net loss, 

$180,803.) 
Sold $20,000,000 sinking fund notes to finance pipe line from its "new field in Van 

Zandt County, Texas." 
Acquired controlling interests in 28 marketing companies operating in 18 States, most 

of which had been customers of Pure Oil. 
Several new refinery units built and extensions and improvements made. 



14. SHELL UNION OIL CORPORATION 



ia28... 

1929... 
1928-29 

1938 :.. 



Acquired New England Oil Refining Co. (December 1925-total assets, $27,767,167; 

net property^ $15,797,967; net loss, $1,138,551.) 
Acquired New Orleans Refining Co. (not reported by financial services). 
Sold 3,000,000 shares, of common in December 1928 and $40,000,000 preferred in June 

1929, the purpose of which.was to finance purchase of companies listed above and 

to increase and improve the company's facilities. 
Sold holdings (22 percent interest) m Flintkote Co. to bankers for $6,600,557. 



166 



CONCENTRATION OF EXX)NOMIC POWER 



Appendix Table XVII. — Acquisitions, consolidations, mergers, sales, etc., 1927— 
38 — Selected oil producing and refining corporations — Continued 

16. SKELLY OIL CO. 
(No aoquisltloiis reported) 

16. SOCONY-VACUUM OIL CO., INC. 
(1927-30: Figures for Standard Oil Co. of New York) 



Year 



Item 



1930 


Acquired all properties and assumed the liabilities of White Eagle Oil & Refining 


1931 


Co. for 429,335 shares (December 1928, total assets, $19,957,397; net property, 

$12,535,369). 
Acquired several retail marketing companies— Allen Lubricating Co., Harbor Oil 

Co., Menard Oil Co., Dahlstron Lubricating & Distributing Co. (none reported 

by financial services). 
Socony and Vacuum merged. 










Socony 


Vacuum 




Total assets 


$720,305,566 
459,259,294 


$240, 545, 975 




Net property - 


75, 188, 374 








1938 


Purchased block of stock in Martin & Schwartz, Inc., from Sun Oil for $110,000 and 




23,435 shares; later acquired control by purchasing entire new issue. 



17. STANDARD OIL CO. OF CALIFORNIA 



1936. 
1938. 



A subsidiary built a 20 mite pipe line and acquired a V4 interest In another pipe-line 
• system. 
Mexican Govemmept expropriated the properties of 2 Mexican subsidiaries. 



18. STANDARD OIL CO. (INDIANA) 



1929. 



1930. 



1932. 
1933 
1935 



Offered to Class "A" and class "B" common stockholders of Pan-American Petroleum 
& Transport Corporation, 7 shares of Standard for fi of Pan-American. Standard 
previously held'control through ownership of Class "A", the voting rtock. 

Dixie Oil Co., Inc. (wholly owned .subsidiary), acquired a H interest in all unde- 
veloped acreage of Amerada Peti'oleum Corporation in Oklahoma and Kansas, 
approximating 500,000 acres. 

Purchased the outstanding 50 percent interest (60 percent already held) in Sinclair 
Crude Oil Purchasing Co. (1929-total ^sets, $120,352,029; net property, $7,218,948; 
net los^, $641,444). 

Piu-chased outstanding 50 percent interest in Sinclair Pipe Line Co. (1929, total 
assets. $53,464,735; net property, $42,876,014; net income, $9,420,757). 

Sold the foreign properties of a subsidiary (Pan-American Petroleum & Transport 
Co.) to Standard Oil of New Jersey for $47,910,107 and 1,778,976 shares of Standard 
Oil of New Jersey, stock payable over a period of years. 

Pan-American Petroleum & Transport Co. acquired balance of interest in American 
Oil Co. (already controlled) for 1,286,876 shares. American Oil Co. had in turn 
recently acquired all stock of Lord Baltimore Filling Stations, Inc. 

A subsidiary (Stanolind Oil & C as Co.) purcha.sed all oil properties and operating 
equipment of Yount-Lee Oil Co. for $42,000,000. Purchase included all stock of 
Yount-Lee Pipe Line Co. 



19. STANDARD OIL CO. (KENTUCKY) 



1931. 
1935. 



Refinery at Louisville dismantled and reflnine operations discontinued. 
Purchased Refiners Oil Corooration and took over assets consisting of several bulk 
plants and 15 service stations in Kentucky (further details not reported). 



20. STANDARD .OIL CO. (NEW JERSEY) 



1928. 

1929 

1930 
1931 



Acquired control of Creole Petroleum Corporation In exchange for all outstanding 

stock of Standard Oil Co. of Venezuela and $8,000,000 (total assets, $55,685,015; 

property, $12,778,865 as df Dec. 31, 1928). 
Acquired control of Colonial Beacon Oil Co. (Dec. 31, 1928-total assets, $33,354,586; 

property, $18,445,496). 
Colonial Beacon sold 5 ocean going tankers (consideration not reported). 
Colonial Beacon purchased controlling interest in Ke.shec, Inc. operating a chain of 

75 service stations in New York (Keshec n»t reported by financial services). 
Reports placed upon a consolidated basis. 



CONCENTRATION OF ECONOMIC POWER 



167 



Appendix Table XVII. — Acquisitions, consolidations, mergers, sales, etc., 1927- 
38 — Selected oil producing and refining corporations — Continued 

20. STANDARD OIL CO. (NEW JERSEY")— Continued 



Item 



Purchased the properties of Pan-American Petroleum & Transport Co. for $47,910,107 

and 1,778,976 shares of Standard Oil of N v Jer.sey stock, payable over a period of 

years. 
Colonial Beacon purchased outstanding s ock of Busfleld Oil Co. and Arthur H. 

Ballard, Inc., both distributors in New England (neither reported by financial 

services). ' 

Bolivian Government moved to confiscate holdir-e-S in that country. "The matter 

is now in hands of U. S. State Department. 



21. THE STANDARD OIL CO. (OHIO) 



Purchased refinery at Latonia, Ky., from Petroleum Refining Co. 

Purchased tank-car division of Spears & Riddle. 

Purchased Solino Service Station Corporation with 25 service stations in Cleveland. 

Purchased Caldwell & Taylor, Inc., a service station and tank-wagon business (not 
reported by financial services). 

Purchased entire assets of Refiners OU Co. (service and bulk stations) (not reported 
by financial services). 

Acquired the service and bulk stations of Fort Industry Oil Co. (not reported by 
financial services) . 

AcQuired entire assets and business of the Solar Refining Co. (Dec. 31, 1930, total 
assets. $6,157,002: property, $2,099,894). 

Built 122 miles of gasoline pipe line. 

Acquired control of Western Kentucky Petroleum Corporation, M. O. K. Corpora- 
tion, Owensboro Corporation, Clay City Pipe Line Co., Simrall Corporation, 
Michigan-Toledo Pipe Line Co., Berea Engineering Co.— representing about 
$2,000,000 of property . 

Acquired a number of new leases in Kentucky, new pipe lines and extension of old 
ones, new eonipment and new crackine plant at Toledo — total spent on new prop- 
erty, $6,687,978: retirements and sales, $1,521,479. 

Extended pipe lines and laid about 56 miles of new ones. Spent $5,978,733 on new 
property; sales and retirements, less than $1,000,000. 



22. SUN OIL -CO. 



Consolidated "companies previously aCBlisted upon acquisition of hitherto outstand- 
ing minority interest." 

Acquired 100 nercent interest in Martin <t Schwartz, Inc. 

Sold 23,435 of 58,435 shares of M. & S., inc., to Socony-Vacuum to which control passed 
upon purchase "of new issue of 41,565 shares. 



23. TEXAS CORPORATION 



Company organized. , _ 

Acquired 99.9 percent control (substantially all in 1928) of California Petroleum Cor- 
poration bv offering 1 share Texas for 2 of California. (Dec. 31,. 1928- total assets, 
$85,424,896; net propertv, $55,891,630; net income, $1,648,920.) Consolidated in 1928. 

Acquired certain properties of Galena-Signal Oil Co. including a refinery, land, tank 
farms, deep water terminals at Bay water, N. J., and Wilmington, N. C, bulk plants, 
service stations, certain inventories and equipment including 2 ocean going tankers 
(consideration not reported) . 

Acquired 50 percent interest in Texas Empire Pipe Line Co. (not consolidated); 
other 50 percent owned by Empire Gas fi Fuel Co. 

Texas Petroleum Co.. a subsidiary, acquired 53,906 acres of exploration and exploita- 
tion conce.ssions in Venezuela. ■ ■ . 

Acquired control of Indinn Refining Co. through exchange of 1 share of Texas for 8 of 
Indian. 

Acquired 50 percent interest in Valley Pipe Line Co. 

Acquired 50 percent interest in South American Gulf Oil Co. 

Acquired 50 percent interest in Bahrein Petroleum Co., Ltd., In exchange for all 
stock of 5 subsidiaries transferred to Br.hrein, representing property valued at 
$15 439 718 

Acquired 50 percent interest in 3 foreign 'o apanies from Far Eastern Petroleum Co. 
for $18,000,000 (none of these companies ■</■ re consolidated). 

Acquired joint interest with Soconv-Vaf n m in 99.76 percent of Columbia Petroleum 
Co. which in 1937 started constructi< j if a pipe line from its "Barco" concession 
in the interior of Columbia to the sc a- d completed construction in 1939 (not con- 
solidated) . 



168 



CONCENTRATION OF ECONOMIC POWEE 



AppFiNDix Table XVII. — Acquisitions, consolidations, mergers, sales, etc., 1927- 
.-\'v 38 — Selected oil producing and refining corporations — Continued 

24. TIDEWATER ASSOCIATED OIL CO. (DEL.) 

(No acquisitions reported) 

25. UNION OIL CO. OF CALIFORNIA 

(No acquisitions reported) 

Sources: Poor's and Moody's Industrial Manuals and Registration Statements and Annual Reports filed 
with the Securities and Exchange Commission. For details, see appendix II, sec. A. 
.n -isi 
'khd'- _______ 



C. DATA FOR SELECTED STEEL AND IRON CORPORATIONS 

Appendix Table XVIIL- — Rate of return on invested capital, 1927-88 — Selected 
steel and iron corporations 



I Number and company 


1927 


1928 


1929 


1930 


1931 


1932 


1933 


a934 


1935 


1936 


1937 


1938 


1. Acme Steel Co.. .-_ 

2'. American Rolling Mill Co 

3. Bethlehem Steel Corporation 

(Delaware). 

4. Byers (A. M.) Co 

6. Castle (A. M.) & Co 

6. Crucible Steel Co. of America- -. 

7. Inland Steel Co 

8. Jones & Lauglilin Steel Corpo- 

ration 

9. Keystone Steel & Wire Co 

10. Otis Steel Co 


16.3 
6.6 

4.5 
8.3 
10.2 
5.3 
9.1 

6.2 
.13.1 
6.3 
4.7 
-.9 
12.9 
8.7 
4.5 

3.2 
5.5 


22.5 
5.9 

5.0 
9.0 

15.5 
5.2 

11.9 

8.1 
15.4 
11.0 
4.7 
2.2 
13.5 
4.7 
5.7 

1.1 
6.9 


23.1 
8.2 

7.2 
7.8 

17.3 
7.4 

13.7 

10.2 
13.4 
11.3 
3.3 
2.6 
13.5 
6.6 
9.6 

3.0 
11.6 


8.4 

1.8 

4.6 
4.6 
7.8 
3.8 
8.1 

4.5 

7.8 
4.3 
3.3 
-3.7 
6.6 
7.9 
4.9 

4.7 
5.0 


4.0 
-.7 

1.1 

.4 

-.2 

-1.2 

. 3.0 

-.9 

4.1 

-2.5 

1.2 

-6.3 

-4.f 

2.6 

.8 

7.1 
-1.2 


0.1 
.2 

-1.9 
-4.4 
-3.8 
-2.8 
-1.4 

-4.0 
-.2 
-6.8 
-3.1 
-9.5 
-13.1 
-3.6 
-3.1 

-1.3 
-4.6 


9.7 
1.5 

-.3 

-5.3 
2.3 
.4 
2.3 

-2.8 

3.6 

-2.8 

-.7 
-3.2 
-7.1 

-.2 
-1.5 

3.2 
-2.0 


10.2 
3.3 

1.2 

-4.1 
9.1 

5.9 

-1.4 

13.2 

4.4 

.5 

-3.8 

-2.6 

2.4 

-1.0 

8.9 
.9 


18.3 
6.2 

1.8 
-4.9 
8.0 
1.9 
10.4 

-.07 

13.4 

9.1 

.2 

2.5 

-2.9 

3.5 

.4 

4.9 
3.1 


19.6 
7.6 

3.2 
-1.9 
12.4 
3.5 
11.6 

2.6 
16.9 
8.3 
3.9 
10.1 
4.5 
9.4 
3.2 

10.2 
7.1 


15.8 
7.0 

5.8 

.5 

19.8 

4.2 
10.0 

3.1 
13.0 
8.5 
6.5 
7.0 
2.8 
8.3 
5.6 

14.3 
7.8 


3.4 
-.9 

1.9 

-4.1 
4.6 

-1.8 
8.6 

4.6 
-1.8 
-1.6 


11. Sloss-Sheffleld Steel & Iron Co.. 

12. Superior Steel Corporation- 

13. Truscon Steel Co 

14. U. S. Pipe & Foundry Co 

15. U. S. Steel Cprporation 


2.6 
-6.9 
-5.5 

6.2 
3 


16. Warren Foundry & Pipe Corpo- 

ration _ 

17. Youngstown Sheet & Tube Co.. 


7.0 
1.1 



Source: Standard Statistics Co., Inc. For details, see appendix II, sec. A. 

.'vpFENDix Table XIX. — Percent change in net property (adjusted), 1927-38 — 
Selected steel and iron corporations 



Number and company 



1928 


1929 


.5.9 


.TO.O 


65.2 


2.6 


-2.2 


-.3 


2.6 


40.7 


12.4 


.0 


.4 


1. 1 


-1.7 


10.0 


.4 


-.6 


2.7 


8.2 


.5.1 


.5 


-.1 


-8.5 


4.8 


1.6 


19.8 


13.9 


-3.5 


-3.8 


-.7 


-.4 


-3.3 


.0 


5.6 


5.4 



1932 


1933 


1934 


1935 


1936 


-6.2 


-3.2 


-3.3 


3.8 


1.2 


-2.6 


-1.2 


-.6 


4.7 


12.2 


-2.9 


-2.6 


-2.6 


1.3 


-1.5 


-3.0 


-3.2 


-3.0 


-2.6 


-3.0 


-4.1 


-2.9 


-6.6 


11.5 


1.6 


-1.2 


-1.2 


-1.0 


-.4 


1.3 


-•" 


-2.9 


-2.9 


6.9 


12.6 


-2.2 


-2.8 


-1.0 


-.8 


14.1 


-3.9 


-5.2 


-2.4 


-4.3 


-1.1 


-1.1-3.0 


-2.6 


-2.9 


-3.3 


-2.71-3.5 


-4.4 


-4.6 


-4.3 


-2.6 


-1.7 


-2.8 


-3.3 


2.1 


-2.2 


-.8 


-2.5 


-.7 


-8.0 


-4.0 


-2.9 


-3.0 


-3.1 


2.6 


-2.0 


1.5 


-1.7 


-1.3 


.9 


-4.3 


-.3.1 


1.8 


-3.2 


-1.9 


-3.6 


-^3.9 


'■' 


1.6 


-1.6 



1937 1938 



1. .\?me Steel Co 

2. '. merican Rolling Mill Co -.. 

3. ]i, thlehem Steel Corporation 

' Delaware) 

4. B-vcrs (A. M.) Co 

6. Castle (A. M.) & Co . 

6. Crucible Steel Co. of America 

' 7. Inland Steul Co.. 

h. Joiios & Laughlin Steel Corpora- 
lion.., _ 

9. Keystone Steel & Wire Co 

10. Otis Steel Co :.. 

11. Sloss-Sheffield Steel & Iron Co 

12. Superior Steel Corporation -.. 

13. Truscon Steel Co 

14. United States Pipe & Foundry Co . 
l.'i. United States Steel Corporation... 
Id Warren Foundry & Pipe Corpora- 
tion . 

1". Youngstown Sheet & Tube Co 



1.5 
12.4 

2.7 
-3.2 
(') 

.4 
-.5 

7.9 
1.1 
1.3 
.2 

-2.6 
8.9 

-2.7 
2.5 

(') 
-2.7 



0. 7 -4. 6 
17.7 -1.7 



20.8 
3.5 



0.7 
3.7 



10.31 

55.7 

-1.9 

7.0 

8.4! 

10.3 
7.4 
-1.2 
-2.2 
-4.7 
8.4 
-4.5 



-9.3 
4.9 



6.7 
-1.5 
-3.3 
-1.1 
25.1 

3.8 
-1.2 
14.5 
-3.2 
-1.6 
5.7 
-3.9 
.4 

-1.9 
-1.4 



4.7-1.4 

-3. 6 -2. 9 

1.6-2.3 

-1.2-1.1 

21. 2. 7 



6.3 
2.1 
2.1 

-3.6 
6.7 

-1.2 
-.2 
4.5 



-1.0 

-2.2 

.3 

1.7 
27.6 
-2.7 
-1.1 

1.4 

-2.4 
-1.6 



> Not available. 

Sourc"s and methods: Based largely upon Standard Statistics Co., Inc., and Registration Statements 
filed with the Securities and Exchange Commission. For other sources and details as to methods, see appen- 
dix II, sec. A and chs. IX and XI • ' 



CONCENTRATION OF ECONOMIC POWER 



169 



APPENDIX Table XX.— Boofc value of net property as of the end of the year, 
1926-38 — Selected steel and iron corporations . 

fMillions of dollars] 



Number and company 



1926 


1927 


1928 


6.08 


6.26 


6.63 


32.99 


37.37 


61.75 


465. 30 


477. 98 


454. 32 


8.53 


8.26 


7.78 


(.') 


1.37 


1.54 


84.64 


85. 01 


85.36 


54.05 


53.80 


52.90 


114.43 


123.42 


123. 93 


5.55 


5.61 


5.76 


25 68 


26.02 


2V.34 


30.80 


30.86 


30.84 


4.30 


4.19 


4.39 


5.71 


5.22 


7.85 


25.53 


24.85 


23.98 


1, 667. 39 


1. 709. 78 


1,661.12 


(') 


8.70 


8.41 


123.64 


120.25 


126.90 



1930 


1931 


8.68 


8.28 


72.84 


71.58 


502. 15 


530. 81 


18.01 


17.61 


1.51 


1.46 


92.27 


91.29 


62.67 


78.27 


135. 94 


141.15 


6.69 


6.61 


27.17 


30.17 


27.60 


26.72 


4.25 


4.18 


9.69 


10.24 


22.04 


21.19 


677. 33 


1, 683. 98 


7.63 


2.60 


140. 33 


138.34 



1932 



Acme Steel Co 

American Rolling Mill Co 

Bethlehem Steel Corporation (Del- 
aware) 

Byers (A. M.) Co 

Castle (A. M.) & Co 

Crucible Steel Co. of America 

Inland Steel Co -._ 

Jones & Laughlin Steel Corpora- 
tion 

Keystone Steel & Wire Co.- 

Otis Steel Co. 

Sloss-Sheffield Steel & Iron Co 

Superior Steel Corporation 

Truscon Steel Co 

U. S. Pipe & Foundry Co 

V. S. Steel Corporation 

Warren Foundry & Pipe Corpora- 
tion 

Youngstown Sheet & Tube Co... 



8.62 
64.67 

455.29 

10.95 

1.54 

-86.26 
57.84 

123.21 

6.23 

27.49 

28.22 

4.46 

8.94 

23.08 



8.41 
133. 73 



7.77 
69.76 

515.29 

17.09 

1.40 

90.22 

77.69 

138.04 
6.35 
28. 33 
26.01 
4.07 
8.76 
20.35 
1,650.81 

2.25 
133. 33 



Number and company 



1. Acme Steel Co 

2. American Rolling Mill Co 

3. Bethlehem Steel Corporation (Dela' 

ware) 

4. Byers (A. M.) Co.. 

5. Castle (A.M.) & Co 

6. Crucible Steel Co. of .America 

7. Inland Steel Co.- 

8. Jones <h Lauqhlin Steel Corporation. 

9. Keystone Stoel & Wire Co 

10. Otis Steel Co 

U. Sloss-ShefBeld Steel <t Iron Co.. 

12. Superior Steel Corporation ., 

13. Trufpon Steel Co 

14. U. S. Pipe & Foundry.Co 

15. U. S. Steel Corporniion 

16. V.'arreo Foundry & Pipe Corporation, 

17. Youngstown Sheet & Tube Co 



7.52 
68.88 

501. 76 

16.55 

1.36 

89.10 

73.62 

133. 40 

6.02 

27.49 

25. 11 

4.00 

8.69 

19,76 

1,653.92 

2.18 

127. 34 



1934 



1935 



7.27 
67.80 

485. 12 

16.02 

1.27 

88.21 

70.56 

131.83 

5.61 

26.79 

22,81 

3.89 

8.47 

19.17 

1, 626. 14 

2.22 

130. 72 



6.33 
70.32 

491.38 

15.61 

1.26 

87.88 

75.21 

130. 82 

5.37 

26. QP 

21.77 

3.76 

8.41 

18.19 

1,338.52 

2.15 

132. 85 



1936 



6.97 
75.93 

470. 04 

15.14 

1.28 

88.99 

84.69 

149. 23 

5.31 

25.13 

20.83 

3.84 

7.74 

18.64 

1, 350. 04 

2.11 

130. 74 



1937 



8.42 
76.63 

492. 13 

13.79 

1.30 

87.90 

102. 24 

158. 25 

5.42 

25.57 

20.08 

4.06 

7.65 

18.68 

1, 410. 43 

2.13 

133,88 



1938 



8.48 
79. 34 

484. 35 

12.32 

1.27 

86.65 

105. 03 

157. 44 

5.30 

25.65 

20.43 

1.99 

7.44 

18.48 

1, 166. 52 

2.04 

130. 68 



'Not available. 

Sources: Standard Statistics Co., inc., and Poor's & Moody's Industrial Manuals, 
pendix II, sec. A. 



For details, see ap- 



170 



CONCENTRATION OF ECONOMIC POWER 



Appendix Table XXI. — Revaluations of property, 1927-38 ' — Selected iron and 

steel corporations 



Year 



Item 



1. ACME STEEL CO. 



1927 

1935 
1936 



+$91, 933 



-1,168,236 
+555, 123 



Property; amortization reserve decreased to adjust for depreci- 
ation disallowed by Internal Revenue. 

Fixed asset appreciation recorded in 1919. 

Building machinery and equipment; reserves decreased to ad- 
just for depreciation disallowed by Internal Revenue. 



2. AMERICAN ROLLING MILL CO. 



1927 -- 


+$256,632 
+1,661,021 

-349, 167 
+96, 350 
-1,351,173 
-1,507,222 
-255,087 
-136.545 
-248, 131 
-192.606 
-244. 251 
-221, 736 
+91, 234 

-786. 152 
-78, 807 
-1,653,856 
-231, 789 
-900, 312 

-38,807 

-939, 450 

-5,681 

-104, 419 


Assets acquired in 1921 from Ashland Iron & Mining Co. 


1929 -- 


Write-up in assets acquired through merger of Columbia 


1930 - 


Steel Co. 
Property. 
Leasehold formerly carried at zero^ 


1934 


Property. 

Current year's depreciation. 

Loss on retirement of property. 


1935 -.- 


Do. 
Depreciation on appreciation of property. 
Loss on retirement of property representing appreciation. 


1936 


Depreciation on appreciation of property. 

Lo.ss on retirement of property. 

Depreciation adjustment in accordance with Internal Revenue 


1937 


allowances. 
Loss on retirement of property. 

Loss on retirement of property representing appreciation. 
Appreciation. 

Depreciation on appreciation. 
Loss on extraordinary abandopments and retirements of prop- 


1«38 


erty. 
Do. 
Appreciation on property of a subsidiary. 
Loss on extraordinary abandonments and retirements of prop- 
erty. 
Do. 



3 


BETHLEHEM STEEL CORPORATION (DEL.) 


1928.-.. •.— 


+$1, 615, 782 

} -15, 000, 000 

+2, 131, 593 

-3, 747, 375 

-14,033,793 

-950, 000 


Property. 


1929 


Do. 
Do. 


1934 


Do. 


1936 


Do. 


1938 


Land and buildings. 







4. A. M. BYERS CO. 



1928 

1930 

1931 
1934 
1937 
1938 



-$684, 349 



+238, 
-156, 
-126, 
-34, 
-854, 
-1,098, 



Loss on abandonment of Gerard blast furnace and Pittsburgh 

puddle mill. 
Appreciation of property abandoned in prior years. 
Net loss on property abandoned. 

Do. 
Dismantlement of Orient C. & C. property units. 
Property; subsidiary to $1. 
Fixed assets. 



6. A. M. CASTLE & CO. 


1935... 


-$142, 301 








6. CRUCIBLE STEEL CO. OF AMERICA 


1938 


-$286,085 


Property. 





' Only revaluations carried directly to surplus or capital reserves are included. Adjustments made for 
reasons other than revaluation are also included. 

> Estimate of part of transfers from surplus to special depreciation reserves for depreciation reported as 
$31,430,542 for 1924 and 1928 combined. 



CONCENTRATION OF ECONOMIC POWER 



171 



Appendix Table XXI. — Revaluations of property, 1927-38 — Selected iron and 
steel corporations — Continued 



Year 



Amount 



Item 



7. INLAND STEEL CO. 



1929 


-$307, 577 

-79, 407 

-1,851,227 

-924, 936 

-193,685 

-208, 058 


Loss on property sold. 


1931 


Loss on property dismantled. 


1933, 


Property; represents amortization of war facilities. 


1934 


Loss on abandoned property. 
Property abandoned. 


1935 


1937 


Property not used in operations. 







8. JONES & LAUGHLIN STEEL CORPORATION 



1933 


-$797, 306 
-150,247 
-94, 252 
-319, 429 
+837, 854 
-100,795 


Ore property abandoned. 


1934 


Depreciation; to conform to Federal income tax allowances. 


1937 


Ore property abandoned. 

Loss on retirement of fixed assets. 


1938 


Adjustment for consolidation of subsidiary report. 




Loss on retirement of fixed assets. 



9. KEYSTONE STEEL & WIRE CO. 



—$274,276 Patents (apparently included in property account). 



10. OTIS STEEL CO. 



1931. 
1932. 
1937. 



—$828, 241 Loss on equipment dismantled. 
—1, 534, 819 Obsolete and unused plant facilities. 
-89, 260 Loss on equipment dismantled. 



11. SLOSS-SHEFFIELD STEEL & IRON CO. 



1934. 



-$1, 240, 000 



Adjustment for mortgages not shown as a deduction from prop- 
erty in 1933 but either retired or shown as a deduction in 1934. 



12. SUPERIOR STEEL CORPORATION 



1938. 



—$2,500,000 Plant; to eliminate appreciation recorded in 1923. 



13. TRUSCON STEEL CO. 



1928. 
1932. 



+$325, 000 
-325, 000 
-548, 962 
-404, 028 



Building and machinery. 

Reversal of 1928 write-up. 

Depreciation charges applicable to prior years. 

Dies, tools, and rolls. 



14. UNITED STATES PIPE & FOUNDRY CO. 



1935. 
1937. 



-$396, 774 
+73, 727 



Demolished plant.' 

Partial reversal of 1935 entry In accordance with deitermlnation 
of tax authorities. 



15. UNITED STATES STEEL CORPORATION 



1928 


-$30, 205, 076 

-6,500,000 

-88,296,020 

-25, 000, 000 
-21, 000, 000 

-270, 000, 000 

-260, 368, 520 




1929 „ 

1933 


in excess of their investment in tangible property. 

Addition to deprecjatjon reserves for general obsolescence and 
adjustment of prior year's depreciation accruals. 

Amortization of appreciated cost of investment In subsidiaries 
in excess of their mvestment in tangible property. 

Property write-ofif. > 

Addition to general reserve for plant and property amortiza- 
tion and obsolescence. 

Addition to depreciation reserves and reserve for amortization 
of tangible property investment. 

Reduction of intangible assets to $1. 


1936 


1938 





172 



CONCENTRATION OF ECONOMIC POWER 



Appendix Table XXI. — Revaluations of property, 1927-38 — Selected iron and 
steel corporations — Continued 



Year 



Amount 



Item 



16. WARREN FOUNDRY & PIPE CORPORATION 



1931 


-.$4, 984, 495 

-250, 000 

-38, 925 


Property. 


1932 


Property of a subsidiary. 


1938 


Property of inactive subsidiary. 







17. YOUNGSTOWN SHEET & TUBE CO. 



1933. 

1937. 
1938. 



-$803, 999 



' -2, 716, 394 
3 -1,027,387 



Losses due to cancelation and abandonment of iron ore con- 
tracts and leases and sale of other properties. 
Loss on plant and equipment dismantled. 
Do. 



' Prior to 1937, loss on dismantled property was charged to depreciation reserves. 

Sources: Registration Statements and Annual Reports filed with the Securities and Exchange Commission 
and Poor's and Moody's Industrial Manuals. For details, see appendix II, sec. A. 

Appendix Table XXII. — Acquisitions, consolidations, mergers, sales, etc., 
1927-38 — Selected steel and iron corporations 



Year 



Item 



1. ACME STEEL CO. 



1928 
1929 
1934 
1936 
1938 



Constructed building for extension of galvanizing facilities. 

Built its third hot strip mill. 

Constructed building for additional electro-galvanizing equipment. 

Constructed another building for additional electro-galvanizing equipment. 

Built a 4 story oflSce and factory building for a reported $1,750,000. 



2. AMERICAN ROLLING MILL CO. 



1929.... 
1930.... 

1934... 
1935.... 

1936.... 

1936-37 
1937.... 



Acquired the controlling interest in Norton Iron Works, taking over property and dissolving 

Norton in 1928 (Norton not reported by financial services). 
Acquired half interest in Hamilton Coke & Iron Co., the other 50 percent being owned by 

The Koppers Co. (Hamilton not reported by financial services). 
Acquired Columbia Steel Co. of Pennsylvania for $2,500,000 5 percent serial no ces, $5,000,000 

6 percent preferred stock and $5,000,000 first mortgage. ' Columbia had been formed shortly 

before this to acquire the properties of Forged Steel Wheel Co. and 99 percent of stock of 
• Columbia Steel Co. of Elyria, Ohio. (Financial statements of latter companies not 

published.) 
Acquired 100 percent interest in Lyle Culvert & Road Equipment Co. (Not reported by 

financial services.) 
Purchased assets- and business of Sheffield Steel Corporation of Delaware for 200,000 shares 

of common stock ($25 par value) and 25.000 shares of preferred stock ($100 par value). 

Total assets of Sheffield were $11,137,833; net properties $8,415,069; and 1929 net profit 

$1,216,880. 
Sheffield leased and operated plant of Scullin Steel Co. in St. Louis. 
.\cquired assets of Calco Iron Pipe Ltd. for 71,494 shares of common. Calco (not reported 

by financial services) is a holding company ith 6 subsidiaries. 
Acquired the remaining 50 percent intcp'st in ilamilton Coke & Iron Co. 
Sheffield leased a plant from Scullin Steel Co. at Sand Spfings, Okla. 
Acquired 47 percent of common and 19 percent of preferred stock of Rustless Iron <fe Steel. 
Acquired 100 percent Interest in Steel Buildings, Inc.. for $200,000 (not consolidated). 
Acquired 100 percent interest in Dakota Culvert & Pipe Co. (not reported by financial 

services). 
Completed a cold reduction mill and blast furnace inHiyftJened an existing hot-strip mill. 



CONCENTRATION OF ECONOMIC POWER 



173 



Appendix Table XXII. — Acquisitions, consolidations, mergers, sales, etc., 
1927-38 — Selected steel and iron corporations — Continued 



Year 



3. BETHLEHEM STEEL CORPORATION (DELAWARE) (FORMERLY SUBSmL\RY OF 
BETHLEHEM STEEL OF NEW JERSEY) 



BetWehem Shipbuilding Corporation (subsidiary of Bethlehem Steel Corporation of New 
Jersev) purchased the Atlantic Works for assumption (in part payment) of $422,500 first 
mortgage bonds. Atlantic Works had total assets of $2,234,017; net property $1,717,570; 
1927 net income $38,811; and 1926 net loss $58,887. 

Bethlehem Steel Corporation (Delaware) at that time calted Pacific Coast Steel Corpora 
tion (a subsidiary of Bethlehem Steel of New Jersey) acquired all properties and busines 
of Pacific Coast Steel Co. and Southern California Iron & Steel Co. for $20,010,600 in 5- 
percent bonds plus the assumption of liabilities. As of Dec. 31, 1928, Pacific Coast Steel 
Co. had total assets of $10,260,642 and net property of $4,843,781; Southern California Iron 
& Steel had total assets of $3,587,128 and net property of $1,751,928. Both paid dividends 
in 1928. 

Acquired properties and business of Danville Structural Steel Co. (Not reported by finan- 
cial services.) 

Bethlehem Steel (New Jersey) acquired fabricating properties and business of McClintic- 
Marshall Corporation for 240,000 shares common , $8,200,000 notes and assumption of liabilities 
including $12,000,000 of bonds. 

Bethlehem Steel (New Jersey) purchased Levering & Oarrigues Co., Hay Foundry & Iron 
Works, Hidden Iron Construction Co. and (most important) Kalman Steel Co. properties 
for $5,500,000 bonds and assumption of .$240,000 bonds of Kalman. Kalman had total assets 
of $4,775,802 and property of $2,280,637. Other companies and earnings of Kalman not 
reported. 

Bethlehem Steel (New Jersey) purchased properties and assets of Seneca Iron & Steel Co. for 
6,000 preferred and 10,000 common shares and assumption of liabilities (Seneca not reported 
by financial services) . 

Acquired 100 percent interest in Taubman Supply Corporation (not reported by financial 
services). 

Purchased Williams Wire Rope Co. properties at receiver's sale for $3,300,000. 

Subsidiary purcha.sed shipbuilding and ship repairing facilities of United Shipyards, Inc., for 
$9,031,872. 

Another subsidiary purchased the Internat;.>nal Supply Co. (oil business) . Not consolidated. 

Purchased control of Lewis I. Shoemaker . Co. from bondholders' committee for reported 
$430 per $1,000 bond (Shoemaker statenn-i 's not published). 



4. A. M. BYERS CO. 



Operations at Girard, Ohio, plant permanently discontinued. 

New plants completed near Pittsburgh. 

Spent $11,000,000 constructing a plant designed for the new process substituting mechanical 

for hand puddling. 
Reports not consolidated as in previous years. 



5. A. M. CASTLE & CO. 
6. CRUCIBLE STEEL CO. OF AMERICA 



Purchased half interest in ore properties (mines in Minnesota) of Shenango Fnrnace Co. 

(Not reflected in property account.) 
A subsidiary (National Drawn Steel Co.) completed plant at East Liverpool, Ohio, costing 

around $2,000,000. 



7. INLAND STEEL CO. 



Acquired Wheelright Coal Mine. 

New plant at Indiana Harbor costing over $1,800,000 placed in operation. 

Construction of facilities at new Indiana Harbor plant completed. 

Acquired 100 nercent interest in S.T. Ryerson & Son, Inc., for 240,000 shares with cash equiva- 
lent of ovcr'$8,000,000; Rverson had net property account of $4,229,143. 

Acquired 100 percent interest in Milcor Stoi-l Co. for 59,000 shares with cash equivalent of 
over $2,000,000; Milcor had net property iccount of $1,194,8^9. 

Acquired 50 percent interest in Dunwood v Iron Co. (Not reported by financial servic-s ) 

Subsidiary (Milcor Steel) purchased former plan„ of G. E. in Rochester with 78,000 s ;uare 
feet of floor space (company has total floor space of over 1,000,000 square feet.) Considera- 
tion not reported. 



260751 — 41— No. 12- 



-13 



174 



CONCENTJIATION OB' ECONOMIC POWER 



Appendix Table XXII. — Acquisitions, consolidations, mergers, sales, etc.-, 
1927-38 — Selected steel and iron corporations — Continued 



Item 



8. JONES & LAUQHLIN STEEL CORPORATION 



(No data as to acquisitions, etc.) 

Company spent $17,770,000 for capital Improvements. 

Company spent $3,337,000 for capital improvements. 



9. KEYSTONE STEEL AND WIRE CO. 



Acquired outstanding interest (69 percent) in National Lock Co. and controlling interest la 

Mid-States Steel & Wire Co. (Neither company consolidated.) 
Plan for reorganization of National Lock under 77b declared effective (July).- 



10. OTIS STEEL CO. 

11. SLOSS-SHEFFIELD STEEL & IRON CO. 

12. SUPERIOR STEEL CORP. 

13. TRUSCON STEEL CO. 



Purchased properties, plant and business of Hydraulic Steel Co. at receiver's sale — total assets 
approximately $4,SOO,000; property $3,670,000. Hydraulic showed net losses during several 
years prior lo acquisition. 

Sold substantial portion of holdings in Truscon Steel Co. of Canada, Ltd., reducing holdings to 
about 30 percent of common. 

So'dTruscon Laboratories Divlsioti to Varnishes & Paints Inc. 

Sold Indiana Culvert division to Indiana Toncan Culvert Co. 



14. U. S. PIPE AND FOUNDRY CO. 



Seottdale Connecting Railroad Co. (a subsidiary) ceased operations. (Demolished in lOSSand 
liquidated in 1936.) 



15. UNITED STATES STEEL CORPORATION 



Purchased assets and business of Atlas Portland Cement Co. (appraised at not less than 

$31,137,000) for 176,265 common shares. 
Purchased properties and business of Columbia Steel Co. (appraised at not less than $41,376,- 

000) for 251,771 common shares. 
Purchased properties and business of Oil Well Supply Co. (appraised at $19,057,930) for 10"^,402 

common shnres. 
A<;quiied business and smelling plant of Edgar Zinc Co. (through a subsidiary). 
Purchased property (including mines) of Pittsburgh and Erie Coal Co.(throuRh a subsidiary). 
Sold 5 Canadian subsidiaries having properties in that country to Dominion Steel & Coal Co., 

Ltd., for cash and mortgage bonds. Net property of the subsidiaries was about $9,000,000. 

(Note.— During the past 5 years United States Steel and subsidiaries have spent nearly 
$300,000,000 on new plant and equipment— about J^ since 1936, while depreciation charged 
to income has been over $250,000,000.) 



16. WARREN FOUNDRY 4 PIPE CORPORATION 



Organized to take over the business and assets of Replogle Steel Co. 
Disposed of Its inactive coal mining properties in West Virginia. 

Sold Wharton & Northern Railroad and ?i inter6st in Mount Hope Mineral Railroad to 
Central Railroad of New Jersey (consideration not reported). 



17. YOUNOSTOWN SHEET & TUBE CO. 



Acquired remaining ^ interest (not previously owned) in the Brule Mining Co. 

Plant at Warren, Ohio, dismantled. 

Acquired buttonweld pipe manufacturing business of Clayton Mark & Co. (no consolidation). 

Installed various mills and equipment costing $13,097,631. 

Dismantled property valued at $7,973,191. 



Sources: Poor's and Moody's Industrial Manuals and Registration Statements and Annual Reports filed 
with the Securities and Exchange Commission. For details, see appendix II, sec. A. 



APPENDIX III 
COLLATERAL DATA 



Appendix Table XXIII. — Profit rate on net worth, 1900-14 — Selected Industrial 
corporations; unweighted averages 

[Percent of net worth] 



Year 


Total 


Producers 
of nondur- 
able goods 


Producers 

of durable 

goods 


Year 


Total 


Producers 
of nondur- 
able goods 


Producers 

of durable 

goods 


Number of 
companies 


24 


10 


14 


Number of 
companies 


24 


10 


14 


1914 


6.60 
6.16 
6.20 
7.10 
7.28 
6.89 
6.07 
7.90 


6.97 
6.78 
6.61 
8.26 
8.26 
8.05 
7.61 
8.61 


6.34 
6.43 
5.91 
6.27 
6.55 
6.07 
6.05 
7.46 


1906 


8.34 
7.09 
6.46 
7.67 
8.25 
7.72 
8.34 


8.47 
7.39 
7.71 
7.03 
6.94 
7.31 
6.72 


8 25 


1913 


1905 ■ 


6 87 


1912 


1904 


6.66 


1911 


1903 


7 96 


1910.. 


1902 


9.19 


1909 


1901 


8 02 


1908 


1900 


9 69 


1907 - 











Source: Epstein, E. I., and R. A. Gordon, "Profits of Selected American Industrial Corporations, 1900- 
1914," The Review of Economic Statistics, vol. XXI, No. 3. (August 1939), table I, p. 125. 

Appendix Table XXIV. — Indexes of net profits of industrial, railroad, and utility 
corporations, by quarters, 1924-S9 

[Quarterly average 1926=100] 



, Year and quartei" 



Number of coifapanies- 



1939 average 

Fourth quarter. 

Third quarter.. , 

Second quarter. 

First quarter 

1938 average 

Fourth quarter- 
Third quarter... 

Second quarter. 

First quarter 

1937 average.. 

Fourth quarter. 

Third quarter... 

Second quarter. 

First quarter 

1936 average 

Fourth quarter. 

Third quarter... 

Second quarter. 

First quarter 

1935 average 

Fourth quarter. 

Third quarter... 

Second quarter. 

First quarter.... 
1934 average , 

Fourth quarter. 

Third quarter... 

Second quarter.. 

First quarter.... 



Total 


Indus- 
trials 


Railroads 


Public 
utilities 




120 


26 


15 






75.9 


79.3 


13.6 


123.1 


114.5 


118.8 


74.2 


135.9 


66.6 


63.5 


34.2 


116.7 


62.0 


69.8 


-28.5 


114.9 


60.4 


65.0 


-25.4 


rl24. 7 


46.2 


45.2 


-18.4 


107.1 


76.7 


69.3 


31.9 


12.3.0 


38.5 


34.4 


2.0 


90.7 


36.8 


40.4 


-44.5 


102.6 


32.8 


36.6 


-63.0 


112.1 


95.4 


106.1 


14.0 


125.8 


78.7 


81.4 


9.8 


135.9 


98.4 


111.4 


24.6 


109.7 


110.4 


127.8 


12.5 


125.1 


93.9 


103.6 


9.1 


132.4 


89.0 


•95.7 


25.2 


121.0 


115.1 


114.6 


74.8 


158.4 


84.4 


. 89.2 


39.7 


106.6 


92.5 


,108.1 


2.7 


107.4 


04.0 


71.0 


-16.4 


(Jll.O 


56.9 


61.4 


-0.5 


93. 1 


78.8 


81.3 


37.5 


108.8 


50.2 


54.9 


-Z8- 


80.7 


55.2 


62.6 


—10.9 


8&.3 


43.4 


46.9 


-25.7 


.96.5 


38.1 


36.5 


-4.3 


88.1 
J&4.8 


28.2 


20.0 


2.f 


34.5 


35.5 


-6.3 


%<i 


50.7 


55.2 


-4.6 


H* 6 


38.8 


35.3 


-•9.& 


1(0.4 



175 



176 



CONCENTRATION OF ECONOMIC POWER 



Appendix Table XXIV. — Indexes of net -profits of industrial, railroad, and utility 
corporations, by quarters, 1924-39 — Continued 



Year and quarter 



Number of companies: 



1933 average 

Fourth quarter. 

Third quarter... 

Second quarter.. 

First quarter 

1932 average 

Fourth quarter. 

Third quarter... 

Second quarter. 

First quarter 

■1931 average. 

Fourth quarter. 

Third quarter.. 

Second quarter. 

First quarter... 
1930 average 

Fourth quarter. 

Third quarter.. 

Second quarter- 
First quarter 

1929 average 

Fourth quarter. 

Third quarter... 

Second quarter. 

First quarter..;. 
1928 average 

Fourth quarter. 

Third quarter... 

Second quarter. 

First quarter 

1927 average 

Fourth quarter. 

Third quarter... 

Second quarter. . 

First quarter 

192fi average 

Fourth quarter. 

Third quarter... 

Second quarter. . 

First quarter 

192.') average.. 

Fourth quarter. 

Third quarter... 

Second quarter.. 

First quarter 

1924 average 

Fourth quarter.. 

Third quarter... 

Second quarter.. 

First quarter 



Total 



29.4 

35.0 

52. 1 

34.0 

-3.7 

9.6 

3.5 

3.9 

12.6 

18.4 

45.1 

20.9 

44.8 

61.3 

53.4 

87.8 

63.1 

S3. 8 

105.1 

99.3 

136.7 

119.3 

150.5 

150.9 

126.1 

117.5 

124. 5 

128.0 

117.6 

99.9 

95- 5 

86.8 

100.2 

102.2 

92.6 

100.0 

98.4 

110.2 

100.3 

91.1 

83.8 

87.9 

91.2 

85.2 

70.9 

62.9 

65.8 

56.4 

58.2 

71.1 



Indus- 
trials 



21.9 

25.1 

46.7 

29.0 

-13.4 

-1.6 

-14.4 

-5.9 

6.0 

8.0 

34.1 

2.9 

36.2 

54.2 

43.1 

82.6 

46.1 

76.8 

106.8 

100.7 

139.1 

109.0 

154.8 

162.0 

130.7 

119.3 

119.2 

132.8 

124.4 

100.9 

94.1 

78.4 

98.9 

106.1 

92.9 

100. 

92.7 

110.1 

103.7 

93.4 

82.6 

83.0 

89.0 

88.1 

70.2 

60.4 

57.9 

51.4 

58.1 

74.2 



Railroads 


26 


—2.0 


14.0 


38.1 


-3.8 


-56.4 


-22.3 


8.3 


-23.1 


-41.9 


-32.3 


20.9 


10.6 


27.4 


29.0 


16.6 


73.8 


74.3 


89.9 


74.6 


56.2 


119.4 


128.8 


153.6 


112.6 


82.7 


102.2 


132.0 


122.1 


84.5 


70.2 


90.8 


96.8 


112.9 


81.0 


72.4 


100.0 


111.8 


1.30. 8 


90.2 


67.2 


86.0 


97.6 


114.7 


73.4 


58.5 


67.3 


88.5 


77.5 


49.7 


53.3 



Public 
utilities 



97.8 

104.8 

92.3 

96.7 

97.5 

96.9 

86.4 

79.7 

100.0 

121.3 

123.6 

119.5 

104.5 

129.1 

141.3 

127.7 

135.3 

111.7 

127.4 

136.5 

142.6 

159.8 

125.5 

135.2 

149.8 

124.0 

142.4 

110.2 

117.9 

125.3 

106.9 

117.4 

93.3 

104.9 

111.8 

100.0 

112.7 

89.3 

94.3 

103.7 

•87.3 

101.6 

77.8 

82.6 

87.2 

70.5 

81.3 

59.8 

67.0 

73.7 



Source: Standard Statistics Co., Inc. 



CONCENTRATION OF ECONOMIC POWER 



177 



Appendix Table XXV. — Profits and losses of corporations, 1920-37 (intercor- 
vorate dividends included) 

[Millions of dollars] 





Compiled 
net profit 
of all cor- 
porations ' 


Total profit of corpo- 
rations with profits ' 


Total toss of corpo- 
rations with losses 


Range be- 
tween limits 
(non statu- 


Year 


Upper 
limit ' 


Lower 
limit ' 


Upper 
limit* 


Lower 
limit » 


tory income 
of corpora- 
tions with no 

statutory 
net income) 


1937 


6,554 

6,580 

4,688 

2,374 

-1, 353 

' -4,115 

-1, 176 

3,937 

10, 676 

9,482 

, 7,538. 

8,280 

8,147 

5,914 

6,697 

5,183 

533 

4,874 


8.835 
8,732 
8,157 
6,555 
4,180 
3,681 
5,795 
8,814 
13, 591 
11,873 
10, 010 
10, 450 
10, 109 
8, 138 
8,711 
7,377 
4,411 
6,903 


8,572 
8,635 
6,119 
4,818 
3,157 
2,451 
4,352 
7,830 
13, 081 
11,446 
9,563 
10, 08o 
9,793 
7,811 
8,392 


2,281 
2,152 
3,469 
4,181 
5,533 
7,796 
6,971 
4,877 
2,915 
2,391 
2, 472 
2.170 
1,962 
2. 224 
2.014 
2,194 
3.878 
2,029 


2,018 
1,955 
1,431 
2,444 
4,510 
6,566 
5,528 
3,893 
2.405 
1.964 
2.025 
1.805 
1,646 
1,897 
1,695 


263 


1936 


197 


1935 


2,038 
1,737 
1,023 
1 230 


1934 . . .. 


1933 


1932 


1931 


1,443 
984 


1930 


1929 


510 


1928 


427 


1927 


447 


1926 


365 
316 


1925 


1924 - 


327 


1923 


319 


1922 




1921 








1920. 

















' Excludes Federal income and war, excess, and undistributed profits taxes. 

' Compiled net profit of corporations with statutory net income plus nonstatutory income of corporations 
with no statutory net income. 

' Compiled net profit of corporations with statutory net income. 

* Compiled net loss of corporations with no statutory net income. 

' Compiled net loss of corporations with no statutory net income less nonstatutory income of those corpora- 
tions with no statutory net income. 

Sources: Based largely upon U. S. Treasury Department, Bureau of Internal Revenue, Statistics of 
Income, annual volumes. For other sources and details as to methods, see Aopendlx I, Section A. 



178 



CONCENTRATION OF ECONOMIC POWER 



Appendix Table XXVI. — Profits of 951 industrial, utility, and railroad corpora- 
tions, and of all corporations, 1926-38 — After taxes; intercorporate dividends 
included 



Year 



AH cor- 
porations 



Selected industrial, utility, and railroad 
corporations 



Total 



Indus- 
trials 



Utilities 



Railroads 



Number of corporations. 



1938 



961 



728 



82 



Amount in millions of dollars 



'1937 


6,554 


1936 


6,580 


1935 


4.688 


1934 


2,374 


1933 


-1,353 


1932 


-4, 115 


1931 


-1, 176 


1930 


3,937 


1929. 


10, 677 


1928 


9,483 


1927 


7,538 


1926 


8,280 



1,648 


1,359 


412 


3,243 


2,657 


488 


3,041 


2.402 


473 


1,997 


1.611 


378 


1,442 


1,113 


346 


1,092 


735 


363 


375 


98 


416 


1,402 


714 


553 


2,955 


1,842 


589 


4,813 


3.319 


597 


4.125 


2,823 


615 


3,327 


2,210 


444 


3,700 


2,492 


399 



Percent distribution 



1937 
1936 

1935 
1934 
1933 
1932 
1931 

1930 
1929 
1928 
1927 
1926 



100.0 


49.6 


40.6 


7.4 


100.0 


46.2 


36.5 


7.2 


100.0 


42.6 


34.3 


8.1 


100.0 


60.8 


40. 9 


14.6 


100.0 


> -80. 7 


» -54. 2 


»-26.9 


100.0 


»-9. 1 


« -2.4 


« -10. 1 


100.0 


« -119.2 


'-60.7 


'-47.0 


100.0 


75.1 


46.8 


16.0 


100.0 


45.1 


31.1 


6.6 


100.0 


43.6 


29.8 


6.4 


100.0 


44.1 


29.3 


5.9 


100.0 


44.7 


30.1 


4.8 



141 



-123 
98 
166 



-17 

-6 

-139 

135 

624 

897 
787 
673 



1.8 
2.6 

.2 

I -.7 

«.4 

«3.4 
-11.5 

13.3 
8.4 
8.3 



' Loss as percentage of profit. 
» Profit as percentage of loss. 
• Loss as percentage of loss. 

Sources: All corporations— U. S. Treasury Department, Bureau of Internal Revenue, Statistics of Income, 
annual volumes; 951 corporations— Standard Statistics Co., Inc., Standard Trade and Securities, "Statis- 
tics Section," vol. 93, No. 16, sec. 2. 



CONCENTRATION OF ECONOMIC POWER 



179 



Appendix Table XXVII. — Profits of 46S industrial, utility, and railroad cor- 
porations and of all corporations, 1927-S8- — After taxes; intercorporate dividends 
included > 



Year 



All cor- 
porations 



Selected industrial, utility, and railroad 
corporations 



Total 



Indus- 
trials 



UtUlties 



Rail- 
roads 



Number of corporations. 



1938. 
1937. 
1936. 

1935. 
1934. 
1933. 
1932. 
1931. 

1930. 
1929. 
1928. 
1927. 



1937. 
1936. 

1935. 
1934. 
1933. 
1932. 
1931. 

1930. 
1929. 
1928. 
1927. 



463 



400 



21 



Amount in millions of dollars 



6,554 
6,580 



4, 

2, 

-1, 

-4, 

-1, 

3, 
10, 



1,328 


1, 198 


223 


2,750 


2,412 


253 


' 2,654 


2,142 


251 


1,674 


1,427 


229 


1,150 


950 


206 


852 


627 


228 


227 


61 


260 


1,081 


623 


345 


2,558 


1,743 


365 


4,158 


3,065 


353 


3,587 


2,643 


307 


2,800 


1,988 


251 



Percent distribution 



100.0 


42.0 


36.8 


3.9 


100.0 


38.8 


32.5 


3.8 


100.0 


35.7 


30.4 


4.9 


100.0 


48.4 


40.0 


.8.7 


100.0 


«-63.0 


»-46.4 


«16.7 


100.0 


»-5.5 


'-1.5 


«-6.3 


100.0 


' -91.9 


•-53.0 


>-29.3 


100.0 


65.0 


44.3 


9.3 


100.0 


38.9 


28.7 


3.3 


100.0 


37.8 


27.9 


3.2 


100.0 


37.2 


26.4 


3.3 



43 



-93 
85 
101 

18 

-6 

-1 

-94 

113 

450 
740 
637 
561 



1.3 
2.6 

.4 

« -.3 

».l 

«2.3 

»-9.8 

11.4 
0.0 

8.7 
7.8 



1 Loss as percentage of profit. 
• Profit as percentage of loss. 
» Loss as percentage of loss. 

Sources: All corporations— 17. S. Treasury Department, Bureau of Internal Revenue, Statistics of Income, 
annual volumes: 463 corporations— Standard Statistics Co., Inc., Standard Trade and Securities, "Statistics 
Section," vol. 93, No. 16, sec. 2. 



180 



CONCENTRATION OF ECONOMIC POWEK 



Appendix Table XXVIII.— 
and of all corporations, 1914- 



Profits of 109 industrial arid railroad corporations 
■26 — After taxes; intercorporate dividends included. 



Year 



Number of corporations. 



1926. 

ro28. 

1924. 
1923. 
1922. 
1921. 

1920. 
1919. 
1918. 
1917. 
1916. 

1916. 
1914. 



1926. 

1926. 
1924. 
1923. 
W22. 
1921. 

1920. 
1919. 
1918. 
1917. 
1916. 

1915. 
1914. 



All cor- 
pora- 
tions 



Selected industrial and railroad 
corporations 



Total 



109 



Indus- 
trials 



Rail- 
roads 



Amount in millions of dollars 



8,280 


1,354 


724 


8,146 


1.229 


093 


5,913 


1,008 


,=i69 


6,697 


1, 037 


599 


5,183 


743 


462 


533 


499 


215 


4,874 


304 


644 


6,683 


547 


546 


4,974 


725 


533 


7,942 


1.183 


741 


7,908 


1,292 


803 


*,443 


770 


375 


2,721 


456 


208 1 



630 

536 
439 
438 
281 

284 

-240 

1 

192 

442 

489 

395 

248 



Percent distribution 



ioo.o 


10.4 


100.0 


15.1 


100.0 


17.1 


100.0 


15.5 


100.0 


14.3 


100.0 


93.6 


100.0 


. 6.2 


100.0 


3.2 


100.0 


14.6 


100.0 


14.9 


100.0 


16.3 


100.0 


17.3 


100.0 


16.8 



8.6 
9.7 

s.'g 

8.9 
40.3 

11.1 
8.2 

10.7 
9.3 

10.1 

8.4 
7.7 



7.6 

6.6 
7.4 
6.5 
5.4 
53.3 

-4.9 

.0 

3.9 

5,6 
6.2 

8.9 
9.1 



' Loss as percentage of profit. 

Source: All corporations— Based largely upon U. S. Treasury Department, Bureau of Internal Revenue, 
Statistics of Income, annual volumes. For other sources and details as to methods, see Appendix I, sec. A; 
109 corporations— Standard Statistics Co., Inc., Standard Trade and Securities, "Statistics Section," vol. 93, 
No. 16, sec. 2. 

Appendix Table XXIX. — Profit rate on net worth of 400 industrial and 21 utility 

corporations, 1927-38 
[Money figures in millions of dollars] 





400 industrial corporations 


21 utility corporations 


Year 


Net 
worth, 
end of 

year 


Profits 1 


Net 
worth, 
end of 

year 


Profits I 




Amount 


Percent of 
net worth 


^Amount 


Percent of 
net worth 


1938 


$23, 617 
23,584 
22, 646 
22, 019 
22, 120 

22, 746 
23,059 

24, 812 
26, 151 

25, 705 

23, 215 
21, 6^0 


$1, 198 

2,412 

2,142 

1,427 

950 

627 

61 

623 

1,743 

3, 065 

2,643 

1,988 


5.07 
10.23 
9.46 
6.48 
4.29 
2.76 
.26 
2.51 
6.67 
11.92 
11.38 
9. 17 


$4, 252 
4,283 
4,273 
4,456 
4,487 
4,485 
4,622 
4, 679 
4,633 
4,042 
3,541 
3,028 


$223 
253 
251 
229 
206 
226 
260 
345 


5.24 


1937 


6.91 


1936 


6.87 


1935 


6.14 


1934 


4.69 


1933 


6.04 


1932.... 


6.75 


1931 


7.37 


1930 • 


365 3. 06 


1929 


353 
307 
251 


8.73 


1928 


8.67 


1927 


8.29 











> After taxes. 

Source: Standard Statistics Co., Inc., Standard Trade and Securities, "Statistics Section," vol. 93,,No.l6 
sec. 2. 



INDEX 

Page 

ACCOUNTING: Current income accounting procedures 1 4-7 

Earning power ^ 24 

Inventory revaluation ; comment and table 6 

ADVERTISING: Base, in part, upon which capital rights and profits 

are built 4 

ASSET EXPANSION RATE: 
Profit rate relationship: 

Findings summary xvii 

Oil producing and refining corporations; 1928-37; comment, 

charts 14-15; tables 21-22 , 87-100 

ASSET REVALUATIONS: Oil producing and refining corporations, 

1927-38; appendix 2, table 16 162-163 

BOOK VALUES: Technical bias arising from use of . 86 

BREAK-EVEN POINT: Corporate system xv, 38-39 

BURR, SUSAN S., joint author. See (Ebersole, J. Franklin.) ' 

CAPACITY: Fixity in corporate system ■ 33 

Steel and iron industry: 1925-38. Beginning of year, steel ingot 

(gross tons); table 24. ..^ , 117 

CAPACITY EXPANSION RATE. (See Property-expansion Rate.) 
CAPACITY UTILIZATION: Changes in capacity versus variation in 

percent of capacity utilized and relations between output and profit 38, 94 

CAPITAL VALUES: Basis upon which capital values and profits are 

built 4 

CHEMICAL INDUSTRY: Corporate profit and property-expansion 

rates relationship 123 

COMMERCIAL AND FINANCIAL CHRONICLE: Stock issues series. 19, 142 
CONCENTRATION: 

Consumer purchasing power , — 132 

Findings summary xix 

Dividend income: 

Effect on income distribution , 51-56 

Income and wealth. (See below Wealth and income.) 

Oil producing and refining industry, tendency toward concentration.. 100 

Savings : 

Eflfect on concentration of wealth, concentration of savings out of 

corporate profits . . 70-71 

Wealth: 

Effect of concentration of savings out of corporate profits on 

concentration of wealth. _: '. . 70-71 

Wealth and income: 

Effects on rate of introduction of new technologies 136 

Effects on volume of capital expenditures required to prevent 

declines in national income . 131-135 

Importance of xix-xx, 131 

Findings, summary. xvii 

AUTOMOBILE PARTS AND ACCESSORIES INDUSTRIAL GROUPS: 

Corporate profit and property-expansion rates relationship 123 

CONSOLIDATIONS, MERGERS AND ACQUISITIONS: 

Measurement of J s 85 

Oil producing and refining corporations, 1927-38; appendix 2, table 17. 164-168 

Steel and iron corporations, 1927-38; appendix 2, table 22 172-174 

CONSUMER PURCHASING POWER: Concentration xix, 132 

181 



182 IiNDEX 

CONTROLS: 

Price and production: Page 

Effect on effectiveness of profit rate in determining differential 

expansion rates; oil industry 98 

Influenced by force of pressure upon productive capacities 97-98 

N. R. A. codes; petroleum code 97-98 

Raw materials control, base, in part, upon which capital rights and 

Srofits are built _ 4 

RATE SYSTEM: 
Assets: 

Expansion rate. (See Asset Expansion Rate.) 

Break-even point xv, 38-39 

Capacity fixity 33 

Cycle phases, 1909-37; change in profit per dollar of change in income 

produced; comment table 6 and chart 5 33-38 

Income. {See Income.) 

Investment. {See below Investment.) 

Large-scale productive effort confined to corporate system -., 4 

Net worth. {See below Net Worth.) 

Oil producing and refining corporations. {See below Oil Producing and 

Refining Corporations.) 
Profits. (See Profits.) 

Savings. {See Savings Absorption : Savings Created and Absorbed by 
the Ownership Accounts; Savings out of Corporate Profits.) 

Size comparison of corporate versus noncorporate system . 3 

CRUM, W. L.: Cyclical changes in corporate profit^ (1939); cited (n.) — 27 
CYCLICAL PHASES: Net profit of and income produced by corporate 

system, 1909-37: comment table 5 and chart 5 33-38 

DAVIDSON, CLINTON, JR.: The myth of profitless prosperity (1940); 

; cited (n.) : -. — 33 

DIVIDEND OUTGO: 

Retained profits and net dividend outgo, 1909-32, comment, chart 6 

and table 6 43-46 

DIVIDEND RECEIPTS: 

Concentration of dividend income: 

Effect on income distribution, 1929, 1932, 1936; comment, table 

10 and charts 8-9., 52-56 

Findings..: xvi 

Relative to other forms of income, i 51-52 

Distribution of dividend receipts: 

1916-37. Reported by all income taxpayers; comment chart 7 

and table 7 47-49 

1916-37. Reported by income taxpayers with net incomes of 

$5,0©0 and over; comment and table 8 49 

1916-37. Reported by income taxpayers required to file returns; 
percent net dividend outgo of corporate system, aggregate 
income .payments, national income paid out; App. 1, table 8.. 146 
1927-37. Reported by 25,000 income taxpayers receiving the 

greatest amounts of dividends; coinment and table 9 50 

1927-37. Reported by 25,000 income taxpayers receiving the 

greatest amounts of dividends; "notes on data and methods. 148-149 
1937. By class of taxpavers; amount and percent; appendix 1, 

table 9 - 1^8 

Notes on data and methods , 146-148 

DIVIDEND RECIPIENTS: 

Distribution of dividend recipients: 

1920-37. Percent of total dividend receipts reported by income 
taxpayers with incomes of 5,000 or more 1935-36 dollars; com- 
ment, chart 10, and' table 11 - 56-59 

Distribution of dividend recipients by income levels: 

1920-37. Selected years; amount and percent; comment, chart 

10, and table 11 56-59 

Income level, major findings summary xvi 

DIVIDETS'DS: Major findings, summary xv 

EARNING POWER: Book values and 24-27 

EBERSOLE, J. FRANKLIN, SUSAN S. B]JRR, and GEORGE M. 
PETERSON: Income forecasting by the use of statistics of income 
data (1929); cited 137 



INDEX 183 

Page 
EDDY, GEORGE A.: The present status of new security issues (1939); 

cited (n.) 80 

Security issues and real investment in 1929 (1937); cited (n.)- 77 

EPSTEIN, E. I., and R. A. GORDON: Profits of selected American indus- 
trial corporations, 1900-1914 (1939) ; cited (n.) 27 

EPSTEIN, RALPH C: Industrial profits in the United States 1934; 

quoted xi, 27 

FUNDS: Availability of funds xviii, 129 

Flow of, in the economy; comment and chart 20 127 

GORDON, R. A., joint author. {See Epstein, E. I.) 
INCOME— CORPORATE : 

Current income accounting procedures , . 4-7 

Income produced by private enterprise, relative share of corporate 

and noncorporate enterprise 3 

Net profit of and income produced by corporate system, 1909-37. 

Comparison; comment, table 4, and chart 4 29-33 

1909-37. With Federal income and profits taxes included in income 
produced; dollar amounts and percent net profit of income produced; 

appendix 1, table 7 145 

Notes on data and methods 143-145 

Profits change versus income produced change, ratio indicative of 

level of output 33-38 

INCOME— INDIVIDUAL: 

Concentration of income and wealth: 

Importance of findings summary xix-xx, 131 

Dividends received. (See Dividend Receipts.) 
Tax rate: 

1916-37. Eflfective tax rates on statutory net income of indi- 
vidual income taxpayers; selected net income classes; comment 

and table 15 64 

INCOME— NATIONAL. (See National Income.) 
INCOME AND WEALTH: 
Concentration: 

Effects on rate of introduction of new technologies __ 136 

Effects on volume of capital expeitditures required to prevent 

declines in national income 131-135 

Importance of xix-xx, 131 

INVENTORIES: Revaluation accounting; comment and table 6 

INVESTMENT: 

Property rate investment: 

Corporate profit and investment in propertv rate relationship; 

analysis / . 103-121 

Measurement of rate of investment; method 103-104 

Nature of investment expenditures-. 104 

Rate of return: 

1927-38. Invested capital, steel and iron corporations; appendix 

2, table 18 - 168 

1927-38. Invested capital, oil producing and refining corpora- 
tions; appendix 2, table 10 154 

JOURNAL OF COMMERCE: Stock issues series 19,142 

KREPS, THEODORE J.: Letter of transmittal '.. xi 

KUZNETS. SIMON: Changing inventory valuations (1937); extract 6 

Commoditv flow and capital formation * * * 1932-38. (1938); 

cited (n') 68 

National income and capital fotmation, 1919-35. (1938); cited (n.)._ 68 
LARGE versus SMALL BUSINESS: Large-scale productive effort con- 
fined to corporate system --- 4 

LEVEN, MAURICE, H. G. MOT^^.TON and CLARK WARBURTON: 

America's capacity to "consume. (1934); cited (n.) 52 

MERGERS. {See Consolidations, Mergers and Acquisitions.) 
MONOPOLISTIC PRACTICES: Capacity and use of capacity limita- 
tions, relationships between output and profits bearing on 38 

Moulton, Harold Glenn, joint author. (See Leven, Maurice.) 
NATHAN, ROBERT R.: Income in the United States, 1929-37. (1938) ; 
cited (n.) 29, 52 



184 



INDEX 



NATIONAL BUREAU OF ECONOMIC RESEARCH: Bulletin 71. 
Commodity flow and capital formation * * * 1932-38. (1938); 
cited (n.) 68 

NATIONAL INCOME: 

Effects of concentration of income and wealth on volume of capital 

expenditures required to prevent decline of national income 131-135 

Gross national income, its break-down, net national income, its break- 
down, conversion, and flow of funds process; comment and chart 

20 - 127-129 

Major determinants of the income level 127-128 

Treatment of taxes in measurement of national income 29 

NATIONAL INDUSTRIAL RECOVERY ADMINISTRATION: 

Petroleum code . 97-98 

NATIONAL RESOURCES COMMITTEE: Consumer expenditure in 
the United States; estimates for 1935-36 (1939); cited (n.) and com- 
ment 61, 150 

Consumer incomes in the United States. (1938); cited (n.) 51 

NERLOVE, S. H.: A decade of corporate incomes, 1920-29 (1932); 

cited (n.) -..- 19,27 

NET WORTH: 

1909-37. Changes in corporate' net worth exclusive of indicated book 

changes in valuation; comment and table 20 78-80 

Profit rate on net worth: 

1900-14. Selected industrial corporations, unweighted averages; 

appendix, 3, table 23 - 175 

1909-37. -Profit rate on net worth, net profit before and after 

ta:^es, respectively; comment, table 3, and chart 3--~ ._ 21-24' 

1927-38. Industrial (400) and utiUty (21) corporations; net 
worth end of year, amount and percent profits of net worth; 

appendix 3, table 29... - 180 

NET WORTH MEASUREMENT: 

Book value as reported to Internal Revenue Bureau and indicated 
changes in valuation for corporate svstem, 1909-37; comment, 

table-2, and chart 2 17-21 

Book value changes, reasons for 24 

Notes on data and methods 137-142 

OIL PRODUCING AND REFINING CORPORATIONS: 
Acquisitions, consolidations, mergers, sales, etc.: 

1927-38. Itemized each of 25 named companies, various years; 

appendix 2, table 17 164-168 

Assets: 

1926-38. Book value of total assets, exclusive of cash and 
equivalent, as of end of year, each of 25 named companies; 

appendix 2, table 25 157 

1927-38. Percent change in total assets, exclusive of cash and 
equivalent, each of 25 named companies; appendix 2, table 11-- 155 
Invested capital rate of return, 1927-38j each of 25 named companies; 

appendix 2, table 10 - 154 

Profit and asset expansion rates, analysis of relationship, 1928-37; 

comment, charts 14-15, and tables 21-22 87-100 

Property: 

1926-38. Book value of net property, as of end of year, each 

: of 25 named companies; appendix 2, table 14 158 

1927-38. .Percent change in net property (adjusted); each of 

25 named companies; appendix 2, table 1-2 ^ — 156 

Property expansion rate: 

Corporate' profit rate and propertv-expansion rate relationship; 

1928-29 to 1935-37; comment, charts 16, 17, and table 23-. 107-113 
Revaluations of assets other than property: 

1927-38. Amount and item, various years, each of 25 named 

companies; appendix 2, table 16 ." ^ 162-163 

Revaluations of property: 

1927-38. Amount and item, various years, each of 25 named 

companies; appendix 2, table 15 ■ 159-161 



INDEX 185 

OIL PRODUCING AND REFINING INDUSTRY: Pag« 

Concentration tendency ^_ 100 

Production, efficiency, and prices, selected iteins, 1925-38; comment 

and table 22 93 

Technology, role of 94, 96 

PATENT RIGHTS: Base, in part, upon which capital rights and profits 

are built . 4 

PETERSON, GEORGE M., joint author. {See Ebersole, J. Franklin.) 
PRICE ADMINISTRATION: Base, in part, upc which capital rights 

and profits are built 4 

PRICE AND PRODUCTION CONTROLS: Effect on effectiveness of 

profit rate in determining dijfferential expansion rates; oil industry 98 

Influenced by force of pr.etesure upon productive capacities 97-98 

N. R. A. codes: petroletuii code j 97-98 

PRODUCTION: Oil. (^See Oil Producing and Refining Industry.) 

Steel industrv. {See Steel Industry.) 
PRODUCTION AND PRICE CONTROLS: Effect on effectiveness of 

profit rate in determining differential expansion rates; oil industry 98 

Influenced by force of pressure upon productive capacities 97-98 

N. R. A. codes: petroleum code 97-98 

PROFITS: Bases upon which capital values and profits are built ^^ . 4 

Consistency of corporate profits... 14-15 

Effects of profit income on flow of funds; findings summary xviii 

High and low, 1916-37, historical factors underlying changes.^ 12-13 

Im; ortance of, due to dominant role of recipients in determining level 

of national income xix, 131 

Industrial (68) and .-ailroad (41) corporations (109): 

1914-26. All corporations and 109 selected corporations, after 
taxes, intercorporate dividends included; dollar amount and 

percent distribution; appendix 3, table 28 , - 180 

Industrial (120), railroad (26), and utility (15) corporations (161): 

1924-39. Indexes of net profits, by quarters; appendix 3, table 

24 175-176 

Industrial (400), utility (21), and railroad (42) corporations (463): 

1927-3S. All corporations and 463. selected corporations, after 
taxes, intercorporate dividends included; dollar amount and 

percent distribution; appendix 3, table 27 179 

Industrial (728), utility (82), and railroad (141) corporations (951): 
1926-38. AH corporations and 951 selected corporations after 
taxes, intercorporate dividends included; dollar amount and 

percent distribution; appendix 3, table 26-.. 178 

PROFITS AND LOSSES: 

1920-37. Compiled net' profits of all corporations, total profit of cor- 
porations with profits (upper and lower limit), total loss of corpora- . 

tions with losses (upper and lower limit) ; appendix 3, table 25 177 

PROFITS DISPOSAL: 
F]xternal : 

Dividend outgo. {See Dividend Outgo.) 

Savings. {See Savings Out of Corporate Profits; Savings Created 
and Absorbed b\' the Ownership Accounts.) 
Internal and external: 

Retained profits and net dividend outgo, 1909-37; comment, 

chart 6 and table 6 43-46 

PROFIT MARGIN: Income produced and net profit of the cor- 
porate system, 1909-37; comment, table 4, and chart 4 29-33 

Major findings, summary xv 

Output level relation to profit volume: comment, table 5, and chart 

5..: . 33-38 

Ratio of profit to gross receipts versus ratio of profit to net product 

of business , 29 

PROFIT MEASUREMENT: Character, compe rf bility, procedures 4-7 

Indeterminacy of profits 7 

PROFIT RATE:" 

Asset-expansion rate relationship: 

Findings summary . xvil 

Oil producing and refining corporations 1(28-37, comment, charts 

14-15, tables 21-22 .^ 87-100 



186 INI>BX 

PROFIT RATE— Continxied. Pag« 

Invested capital return, measurement method 83 

Investment in property rates relationship; analysis . 103-121 

Major findings, summary •_ xv 

Measurement, net worth base 17-21 

Notes on data and methods , 137-142 

Property-expansion rate relationship: 

Automobile parts and accessories, industrial groups 123 

Chemical industry; summary 123 

Findings summary . xvii 

Oil producing and refining corporations, 1928-29 to 1935-37; 

comment, charts 16, 17, and table 23- 107-113 

Steel corporation, 1 ""'25-38; comment, charts 18-19, and table 

24 : 115-122 

Significance of analysis of 27 

PROFIT RATES AND SAVINGS ABSORPTION RATES: 

Measurement method. . 83-86 

Relation between profit and asset expansion rates . 87-100 

PROFIT RATE ON NET WORTH: 

1900-14. Selected industrial corporations, unweighted averages; ap- 
pendix 3, table 23 175 

1909-37. Pro£t rate on net worth, net profit before and after taxes, 

respectively; comment, table 3 and chart 3 ^ 21-24 

1927-38. Industrial (400) and utility (21) corporations, net worth end 
of year, amount and percent profits of net worth; appendix 3, 

table 29 180 

PROFIT VOLUME: Major findings, summary xv 

1909-37. , Dollar volume of compiled net profi.t, intercorporate divi- 
dends received, net profit after intercorporate dividends. Federal 
income and p'rofits taxes, net profit after intercorporate dividends 

and taxes; comment, table 1 and chart 1 ^' 9-11 

1909-37. Notes on data and methods ....... 137-138 

PROPERTY EXPANSION RATE: 
Corporate profit rate relationship: 

Automobile parts and accessories, industrial groups 123 

Chemical industry; summary 123 

Findings, summary xviii 

Oil producing corporations, 1928-29 to 1935-37; comment, charts 

16-17, and table 23 , 107-113 

Steel corporations, 1925-38; comment, charts 18-19 and table 24. 115-122 
PROPERTY INVESTMENT RATE. (.See a6ot;e Investment in Property.) 
PROPERTY REVALUATIONS: 

Oil producing and refining corporations, 1927-38; appendix 2, table 

15 - 159-161 

Steel and iron corporations; 1927-38; appendix 2, table 21 170-171 

RAW MATERIALS CONTROL: Base, in part, upon which capital 

'rights and profits are built 4 

REFERENCES TO LITERATURE: 

Crum, W. L. Cyclical changes in corporate profits. (1939); cited (n.). 27 
Davidson, Clinton, Jr. The myth of profitless prosperity (1940); 

cited (n.) ...^... . 33 

Dun & Bradstreet. Vital statistics of business; release (1939); cited 

(n.) 3 

Ebersole, J. F., S. S. Burr, and G. M. Peterson. Income forecasting 

by the use of, statistics of income data. (1929); cited 137 

Eddy, George A. The present status of new security issues. (1939); 

cited (n.) 80 

Security issues and real investment in 1929. (1937) ; cited (n.) 77 

Epstein, E. I. and R A. Gordon. Profits of selected American indus- 
trial corporations 1900-14. (1939) ; cited (n.) . - 27 

Epstein, Ralph C. Industrial profits in the United States. (1934); 

quoted xi, 27 

Kuznets, Simon. Changing inventory valuations. (]')37); extract 6 

Commodity flow and capital formation * * * 1932-38. 

(1938); cited (n.) 68 

National income and capital formation, 1919-35. (1938); cited 

(n.) 68 



INDEX 187 

REFERENCES TO LITERATURE— Continued. Page 

Leven, Maurice, H. G. Moulton, and Clark Warburton. America's 

capacity to consume. (1934); cited (n.) J 52 

Moody's Industrial Manual; cited 153 

Nathan, Robert R. Income in the United States, 1929-37. (1938); 

cited (n.) .. 29,52 

National Bureau of Economic Research, Bulletin 71. Commodity 

flow and capital formation * * * 1932-38. (1938); cited (n.). 68 
National Resources Committee, Consumer expenditure in the 
United States: Estimates for 1935-36. (1939); cited (n.) and 

comment 1 61, 150 

Consumer incomes in the United States (1938); cited (n.) 51 

Nerlove, S. H. A decade of corporate incomes, 1920-29. (1932) ; cited 

(n.) 19,27 

Poor's Industrial Manual; cited. 153 

Standard Statistics Co., Inc. Standard Trade and Securities, Sta- 
tistical Section, vols. 62, 65, 73 153 

Thorp, Willard L. Problems in a changing world. (1939) ; quoted xi 

REVALUATIONS: 

Assets other than property. 

Oil producing and refining corporations, 1927-38; appendix 2, 

table 16 .' 162-163 

Conditions conducive to . 25-27 

Factors accounting for book changes in valuation 24-25 

Inventories,, accounting ; comment and table 6 

Property. {See Property Revaluations.) 

Sources of data 153 

SAVINGS ABSORPTION: 

Findings summary xvii 

Measurement of ' 84 

SAVINGS CREATED AND ABSORBED BY THE OWNERSHIP 
ACCOUNTS: 

Dissavings and reductions of corporate equity capital __ 78 

Leakages between savings absorbed and investment expenditures. 78 

Net absorption of savings: 

, 1908-37. Indicated net absorption of savings by the equity 
accounts of the corporate system; comment, table 19 and chart 

13 75-77 

Summary . 73-75 

SAVINGS OUT OF CORPORATE PROFITS: 

Concentration of, effect on concentration of wealth xvi, 70-71 

Private and corporate compared: 

1919-34. Corporate profits and savings out of corporate profits 
compared with total private income and savings; comment and 

table 17 . 67-69 

Savings out of dividends: i 

1920-37. Notes on data and methods . 145-148,150-152 

1920-37. Selected years; income taxpaj^ers with incomes of 5,000 

or more 1935-36 dollars; comment and table 14 63 

1920-37. Selected years; percent distribution by income level of 

dividend recipients; comment, chart 12 and table -18 70-71 

1935-36. Average savings of families and single individuals by 

income level; comment and table 12 61 

Total sayings: 

1909-37. Savings out of the net profits of the corporate system; 

comment, table 16 and chart 11 . 65-67 

STANDARD STATISTICS CO., INC<.: 

Source of rates of asset change 86 

Standard Trade and Securities, Statistical Section, volumes 62, 65, 73. 153 
STEEL AND IRON CORPORATIONS: 

Acquisitions, consolidations, mergers, sales, etc.: 

1927-38. Itemized, each of 17 named companies, various years; 

appendix 2, table 22 ^'...J 172-174 

Invested capital, rate of return: 

1927-38, each of 17 named companies; appendix 2, table 18 168 

Profit and property-expansion rate relationship, 1927-38; comment, 

charts 18-19 and table 25 . 115-122 



188 INDEX 

STEEL AND IRON CORPORATIONS— Continued. 

Property : ^age 

1926-38. Book value of net propertj' as of end of year, each of 

17 named companies; appendix 2, table 20 169 

1927-38. Percent change in net property (adjusted), each of 17 

named companies; appendix 2, table 19 168 

Revaluations: 

1927-38. Revaluations of property, each of 17 named com- 
panies, various years, amount and item; appendix 2, table 21 _. 170-171 
STEEL INDUSTRY: Capacitv, production, and prices, selected items, 

1925-38; table 24... I 117 

STOCK ISSUES: Commercial and Financial Chronicle series 19,142 

Journal of Commerce series. 19, 142 

Notes on data and methods; appendix 1, section C 142 

1909-38. Total, new and refunding stock issues, dollar amount; ap- 
pendix 1, table 4 142 

TAITEL, MARTIN: Profits, productive activities and new investment. 
T. N. E. C. Monograph No. 12. 

TAXES: Treatment in measurement of national income 29 

TECHNOLOGICAL CHANGE: 

Concentration of wealth and income, effect on introduction of new 

technologies 136 

Economy's need for introduction of new technologies: 

Cost-reducing xvii 

Pressure upon business for introduction of available new technologies, 

a determinant factor of level of capital expenditures xix 

Property-expansion rate xvii-xviii 

Oil producing and refining industry: 

Effect on costs 94 

Increase in volume of business, profit increase by cost reduction, 

rate of asset expansion, threefold role of technology 96 

THORP, WILLARD L.: Problems in a changing world. (1939) ; quoted. xi 

VALUATION: Factors accounting for book changes in valuation 24-25 

Warburton, Clark, joint author. (See Lever, Maurice.) 
WEALTH AND INCOME: 
Concentration: 

Effects on rate of introduction of new technologies 136 

Effects on volume of capital expenditures required to prevent 

declines in national income 131-135 

Importance of xix-xx, 131 



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