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| (Millions of dollars.) | |||||||||
| 1925 | 1926 | 1927 | 1928 | 1929 | 1930 | 1931 | 1932 | 1933 | |
| Consumer's durable commodities |
8,664 |
9,316 |
8,887 |
9,175 |
10,058 |
7,892 |
5,885 |
4,022 |
3,737 |
The above figure for 1929 includes 3,400 million dollars for motor-cars,
whilst the depreciation in respect of the same item for that year is estimated
at 2,500 million dollars.
(2) Residential Construction
This is an important and highly fluctuating item which should undoubtedly
be included in investment, and not in consumption expenditure, since houses
are usually regarded as purchased out of savings and not out of income, and are often owned
by others than the occupiers. In the Bulletin from which these figures
are taken Mr Kuznets gives no estimate for the annual rate of depreciation,
etc. More recently, however, his colleague, Mr Solomon Fabricant, has published
such estimates, which I have used in the following table:
| (Millions of dollars.) | |||||||||
| 1925 | 1926 | 1927 | 1928 | 1929 | 1930 | 1931 | 1932 | 1933 | |
| Residential construction |
3,050 |
2,965 |
2,856 |
3,095 |
2,127 |
1,222 |
900 |
311 |
276 |
| Depreciation* | 1,554 | 1,676 | 1,754 | 1,842 | 1,911 | 1,901 | 1,698 | 1,460 | 1,567 |
| Net investment | 1,496 | 1,289 | 1,102 | 1,253 | 216 | -679 | -798 | -1,149 | -1,291 |
* These figures are calculated in terms of current (reproduction) costs.
Mr Fabricant has also provided estimates in terms of original cost, which
for the years prior to 1932 are considerably lower.
(3) Business Fixed Capital
Mr Kuznets here distinguishes expenditure on new producers' durable goods and business construction from the net change in 'business inventories,' i.e. in working and liquid capital; and we shall, therefore, deal with the latter under a separate heading.
The amount of the deduction to obtain net investment in respect of parts, repairs and servicing, and repairs and maintenance of business construction as distinct from depreciation and depletion, which is not made good, depends, of course, on whether the former have been included in gross investment. Mr Kuznets gives a partial estimate for the former but the figures given below exclude these items both from gross and from net investment. But whilst the result of deducting both the repairs item and the depreciation item probably corresponds fairly closely to my net investment, the two deductions taken separately do not closely correspond to my deductions for user cost and supplementary cost; so that it is not possible to calculate from Mr Kuznets' data a figure corresponding to my (gross) investment.
The following table gives in the first line 'the formation of gross
capital destined for business use, exclusive of parts, repairs and servicing,
and repairs and maintenance of business construction, and excluding changes
in business inventories'; and in the second line the estimated 'depreciation and depletion' on
the same items:
| (Millions of dollars.) | |||||||||
| 1925 | 1926 | 1927 | 1928 | 1929 | 1930 | 1931 | 1932 | 1933 | |
| Gross business capital formation
(as above) |
9,070 |
9,815 |
9,555 |
10,019 |
11,396 |
9,336 |
5,933 |
3,205 |
2,894 |
| Depreciation and depletion* |
5,685 |
6,269 |
6,312 |
6,447 |
7,039 |
6,712 |
6,154 |
5,092 |
4,971 |
| Net investment | 3,385 | 3,546 | 3,243 | 3,572 | 4,357 | 2,624 | -221 | -1,887 | -2,077 |
* These figures are not taken from Mr Kuznets' memoranda, hut from Mr
Fabricant's later and revised estimates. As before they are in terms of
current (replacement) cost. In terms of original cost they are appreciably
lower prior to 1931 and higher subsequently.
(4) Business Inventories
For the financial gains or losses arising out of this item there appear
to be fairly adequate statistics in the United States, though not in this
country. Mr Kuznets' figures are as follows:
| (Millions of dollars.) | |||||||||
| 1925 | 1926 | 1927 | 1928 | 1929 | 1930 | 1931 | 1932 | 1933 | |
| Net gain or loss in business inventories |
916 |
2,664 |
-176 |
511 |
1,800 |
100 |
-500 |
-2,250 |
-2,250 |
This table covers not only manufacturers' stocks but also stocks of
farmers, mines, traders, government agencies, etc. From 1929 onwards the
figures given in Mr Kuznets' memorandum of 1934 proved to require correction.
Those given above are provisional and approximate estimates, pending the
publication of revised figures by the National Bureau.
(5) Public Construction and Borrowing
The relevant figure in this context is not so much the gross (or net) expenditure on construction, as the amount of expenditure met out of a net increase in borrowing. That is to say in the case of public authorities and the like, their net investment may be best regarded as being measured by the net increase in their borrowing. In so far as their expenditures are met by compulsory transfer from the current income of the public, they have no correlative in private saving; whilst public saving, if we were to find a satisfactory definition for this concept, would be subject to quite different psychological influences from private saving. I have touched on the problem in my General Theory, footnote. I propose, therefore, to insert in place of the figures of public construction the 'loan expenditure' of public bodies.
Mr Kuznets has very kindly supplied me with figures for the net changes
in the amount of public debt (Federal, State and local) outstanding in
the United States, which, except for minor changes in the Government's
cash balances, represent the amount of public expenditure not covered by
taxes and other revenues. This is given below in parallel with his estimates of the amount of construction
by public authorities. The interesting result emerges that up to 1928 there
was a net reduction in the public debt in spite of a large expenditure
on public construction, and that even up to 1931 some part of public construction
was met out of revenue. The excess of borrowing over construction in 1932
and 1933 represents, of course, various measures of public relief.
| (Millions of dollars.) | |||||||||
| 1925 | 1926 | 1927 | 1928 | 1929 | 1930 | 1931 | 1932 | 1933 | |
| Public construction |
2,717 |
2,612 |
3,045 |
3,023 |
2,776 |
3,300 |
2,906 |
2,097 |
1,659 |
| Net change in outstanding public debt** |
-43 |
-280 |
-244 |
-50 |
+441 |
+1,712 |
+2,822 |
+2,565 |
+2,796 |
* See Mr Kuznets' Bulletin, Table II, line 22, brought up to date on the basis of more recent data.
** See col. 9 of the table given in the appendix below.
(6) Foreign Investment
Finally, we have the net change in claims countries, estimated by Mr
Kuznets as follows:
| (Millions of dollars.) | ||||||||
| 1925 | 1926 | 1927 | 1928 | 1929 | 1930 | 1931 | 1932 | 1933 |
| 428 | 44 | 606 | 957 | 312 | 371 | 326 | 40 | 293 |
(7) Aggregate Net Investment
We are now in a position to combine the above items into a single aggregate.
This total is not quite comprehensive, since it excludes construction by
semi-public agencies, and a small amount unallocable construction. But Mr Kuznets is of the opinion that
both omissions are quite minor in character and could not much affect the
movements of net investment in the table which now follows.
| (Millions of dollars.) | |||||||||
| 1925 | 1926 | 1927 | 1928 | 1929 | 1930 | 1931 | 1932 | 1933 | |
| Residential construction |
1,496 |
1,289 |
1,102 |
1,253 |
216 |
-679 |
-798 |
-1,149 |
-1,291 |
| Business fixed capital |
3,385 |
3,546 |
3,243 |
3,572 |
4,357 |
2,624 |
-221 |
-1,887 |
-2,077 |
| Business inventories |
916 |
2,664 |
-176 |
511 |
1,800 |
100 |
-500 |
-2,250 |
-2,250 |
| Net loan expenditures by public authorities |
-43 |
-280 |
-244 |
-10 |
441 |
1,712 |
2,822 |
2,565 |
2,796 |
| Foreign investment |
428 |
44 |
606 |
957 |
312 |
371 |
326 |
40 |
293 |
| Aggregate net investment |
6,182 |
7,263 |
4,531 |
6,283 |
7,126 |
4,128 |
1,629 |
-2,681 |
-2,529 |
It is evident that this table is of first-class importance for the interpretation of business fluctuations in the United States. In matters of detail the following points stand out:
(a) The arrears of residential construction at the end of 1933 must have been enormous. For there had been no net investment in this field since 1925. This does not mean, of course, that the actual state of housing was so bad as this. Some gross investment in housing continued throughout, and the gradual deterioration in the state of accommodation, through obsolescence and decay not made good, does not impair forthwith to an equal extent the actual accommodation available for the time being.
(b) The part played by fluctuations in business inventories is very marked, especially in accentuating the depression at the bottom of the slump. The increase in inventories in 1929 was probably for the most part designed to meet demand which did not fully materialise; whilst the small further increase in 1930 represented accumulations of unsold stocks. In 1932 and 1933, manufacturers met current demand to an extraordinary extent out of stocks, so that effective demand fell largely behind actual consumption. But this, fortunately, is a state of affairs which could not continue indefinitely. A further depletion of stocks on this scale could not possibly take place, since the stocks were no longer there. A level of business inventories so low as that which existed in the United States at the end of 1933 was an almost certain herald of some measure of recovery. In general an aggregate of net investment which is based on an increase in business inventories beyond normal is clearly precarious; and it is easy to see in retrospect that a large growth of inventories in 1929, coupled with a decline in residential construction, was ominous. The figures for 1934, 1935, and 1936 will be most interesting when we have them. One would expect that the recovery of the two former years has been based on a return of inventories to normal and on public loan expenditure, but that by 1936 durable investment was beginning to supplant inventories in making up the total. It is on the continued steadiness of the first two items of the above table at figures not less than those of 1925 to 1928 that the maintenance of prosperity must depend; and it is for this reason that a low long-term rate of interest is so vitally important.
(c) The manner in which the changes in public loan expenditure came in to moderate the fluctuations, which would have occurred otherwise, is very apparent. The manner in which from 1931 Federal borrowing took the place of State and local borrowing, as shown in the Appendix below, is striking. From 30 June 1924, to 30 June 1930, Federal loans outstanding fell from 21 to 15 billions, whilst in the same period State and local loans rose from 10 to 16 billions, the total remaining unchanged; whereas from 30 June 1930 to 30 June 1935, Federal loans rose from 15 to 26 billions and the others from 16 only to 17 billions. The appendix, which gives the figures of public borrowing up to 30 June 1935, shows¾contrary, perhaps, to the general impression¾that public borrowing was at its height in 1931, and that in 1934-35 it was but little more than in 1929-30.
(d) When comparable figures of income are available, we shall be able to make some computations as to the value of the Multiplier in the conditions of the United States, though there are many statistical difficulties still to overcome. If, however, as a very crude, preliminary test we take the Dept. of Commerce estimates of income (uncorrected for price changes), we find that during the large movements of the years from 1929 to 1932 the changes in money-incomes were from three to five times the changes in net investment shown above. In 1933 incomes and investment both increased slightly, but the movements were too narrow to allow the ratio of the one to the other to be calculated within a reasonable margin of error.
J. M. KEYNES
A Note to Appendix 2
TOTAL AND NET OUTSTANDING ISSUES OF PUBLIC DEBT
| (Millions of dollars.) | ||||||||
| Total outstanding issues | Net outstanding issues | |||||||
|
Date
(1) |
Federal (2) |
State, county, city, etc. (3) |
Combined (4) |
Federal (5) |
State, county, city, etc. (6) |
Combined (7) |
Net change (8) |
Average for calendar year
(9) |
| 1924 | 20,982 | 11,633 | 32,615 | 20,627 | 9,921 | 30,548 | - | - |
| 1925 | 20,211 | 12,830 | 33,041 | 19,737 | 10,975 | 30,712 | +164 | -43 |
| 1926 | 19,384 | 13,664 | 33,048 | 18,790 | 11,672 | 30,462 | -250 | -280 |
| 1927 | 18,251 | 14,735 | 32,986 | 17,542 | 12,610 | 30,152 | -310 | -244 |
| 1928 | 17,318 | 15,699 | 33,017 | 16,522 | 13,452 | 29,974 | -178 | -10 |
| 1929 | 16,639 | 16,760 | 33,399 | 15,773 | 14,358 | 30,131 | +157 | +441 |
| 1930 | 15,922 | 17,985 | 33,907 | 14,969 | 15,887 | 30,856 | +725 | +1,712 |
| 1931 | 16,520 | 19,188 | 35,708 | 16,098 | 17,457 | 33,555 | +2,699 | +2,822 |
| 1932 | 19,161 | 19,635 | 35,796 | 18,673 | 17,828 | 36,501 | +2,946 | +2,565 |
| 1933 | 22,158 | 19,107 | 41,265 | 21,613 | 17,072 | 36,685 | +2,184 | +2,796 |
| 1934 | 26,480 | 18,942 | 45,422 | 25,323 | 16,771 | 42,094 | +3,409 | +2,173 |
| 1935 | 27,645 | 19,277 | 46,922 | 26,137 | 16,895 | 43,032 | +938 | - |
(Source: Report of the Secretary of the Treasury for year ended 30 June 1935, p. 424.)
Total outstanding issues exclude a small volume of matured and non-interest bearing obligations (see ibid., p. 379).
Net outstanding issues are equal to total outstanding issues less those held in U.S. Government trust funds, or owned by U.S. Government or by governmental agencies and held in sinking funds.
The table above does not include the contingent debt of the Federal
Government, i.e. obligations guaranteed by the United States. These, comprising
largely debt issues of the Federal Farm Mortgage Corporation, Home Owners
Loan Corporation and the Reconstruction Finance Corporation, were as follows:
| Date | Millions of dollars |
| 30 June 1934 | 691 |
| 31 December 1934 | 3,079 |
| 30 June 1935 | 4,151 |
| 31 December 1935 | 4,525 |
(See Cost of Government in the United States, by the National Industrial Conference Board, pub. no. 223, New York, 1936, Table 26, p. 68.)