Knowledge that Transforms

A BUNDANT supplies of all forms of energy are to be found in the United States: in addition to huge coal resources, the country possesses large reserves of crude oil and natural gas as well as plentiful water power. These sources of energy are not, of course, distributed equally over the country and, therefore, the distances between the localities in which each type of fuel is produced and the areas in which it is consumed differ very widely. On that account prices at which primary and, consequently, also secondary types of energy (e.g., coke, manufactured gas, and electricity generated in thermal power plants) can be supplied, as well as the relative prices of the different fuels themselves, vary from place to place. Electricity is generated practically all over the country. In addition to electricity, consumers generally have a choice among solid, liquid, and gaseous types of fuel. Whenever the nature of a production process does not make it imperative to use a particular type of fuel, the decision as to which form of energy will be utilized by an industry will depend partly on its relative cheapness. For present purposes it has been assumed, however, that mechanical processes generally call for the use of electricity. In heating processes, the number of possibilities is reduced accordingly as higher temperatures are required. For instance, a temperature exceeding 3s500F can only be attained by aid of electricity. Nevertheless that does not mean that all such industries are solely dependent on electricity. The requisite electric current need not necessarily be obtained from the grid, but might be generated by plant on the premises. The I947 Census of Manufactures shows that several of these industries do in fact purchase other fuels in order to produce electricity themselves. Furthermore, it should be borne in mind that all forms of energy are suitable for heating factory buildings. By utilizing the data derived from the aforesaid 1947 Census of Manufactures an attempt is here made to compare the elasticity of substitution of gas with respect to solid fuels (coal and coke), liquid fuel (fuel oil), and electricity.

Unpublished data supplied in correspondence by the Department of Commerce. Nontax payments and motor vehicle licenses are published in National Income, I95I edition, p. I54. These nontax and miscellaneous tax items have been allocated to our three income shares in proportion to the occupational distribution of the population to obtain an alternative concept of disposable income adding up to the estimates of the total published by the Department of Commerce. The occupational distribution of the population among employees, farm operators, and proprietors was estimated from the I930 and I940 Census tabulations. Intervening years are interpolated from these benchmarks so as to have the same year-to-year percentage changes as the estimates by the Department of Commerce of full-time employees, farm operators, and proprietors. See National Income, I95I edition, pp. i8o-8i, I86-87.

THE treatment of institutions remains one of the most unsatisfactory areas in national income accounting. Standing at the end of a long process of evolution in both concepts and methods, the recognized experts in the field are still compelled to admit that their procedures, best exemplified today by those of the United States Department of Commerce, remain open to much basic criticism.' This paper proposes to reformulate the current treatment of bank income, including a reopening of the discussion of financial intermediaries in their role as contributors to the national income and product. It is believed that the methodology suggested here is simpler, more in accord with reality, theoretically sounder, and of greater analytical value in deriving series of bank income and, ultimately, of productivity estimates. In the beginning of this study, the concepts proposed and those now in use by the Department of Commerce will be described.2 As a second step, the two opposing methods will be examined for their underlying rationale and philosophy. Third, technical procedures will be compared by means of simplified accounting models. Fourth, a number of refinements and qualifications both of principle and technique will be introduced, which are important in facilitating the passage from didactic framework to the final statistical series of income and product originating in banking. These series, if they are to be useful, must be capable of being integrated into the total national accounts. How this can be done will be demonstrated at various points along the way. I

THE present paper is an initial attempt to determine the secular trend in the proportions of each of the major functional types of to the national in the United States during as long a period of time as available data permit. It relies on the classical studies in this field, supplemented by important new data. The well known studies of King1 and Martin 2 covering the early periods were concerned with the distribution of what has come to be called income payments to individuals or personal income. The lack of adequate estimates of business savings, estimates which exclude capital gains and losses, has limited severely the use of these studies for the purpose at hand. This deficiency is now being overcome by the efforts of such researchers as Simon Kuznets 3 and Raymond Goldsmith.4 For the period since Ii9, the studies of Kuznets and the U.S. Department of Commerce Office of Business Economics (hereinafter abbreviated as O.B.E.) are well known.5 point has been reached where it may be worthwhile to combine the data of some of these studies in an effort to cast new light on the secular changes in shares during the past eighty years, recognizing from the outset that the reliability of the data diminishes progressively as the inquiry delves backward in time, that the effort to combine independent statistical studies must ride roughshod over numerous discrepancies in concepts and methods which cannot be eliminated without reworking the data to an extent impossible here, and that the well known differences between the statistical and theoretical categories in the field of distribution seriously limit the usefulness of the empirical findings in answering the important problems raised by distribution theory. The ultimate objective motivating the present investigation is to seek new light on the market power or bargaining power of quasifunctional classes of income-recipients, although the conceptual problems raised by this approach are too complex to be given more than an occasional mention in the present article. The method of procedure followed was to begin with each of the more or less comprehensive and self-consistent sets of time series, each covering a period of about twenty years and overlapping with another set at ten-year intervals, to introduce some slight changes for comparability with the other sets, and to add business savings, thereby arriving at estimates of national more or less compatible with the estimates of the shares. Annual ratios of major shares to the composite national were then computed, and from these ratios ten-year arithmetic means were drawn. The percentage point changes in arithmetic means of annual ratios in each of the overlapping sets of series were then added together to provide an admittedly rough and preliminary estimate of the secular trend in each series. The procedure was applied first to the series covering all industries and then, in order to reduce the gap between the empirical and theoretical areas of distribution analysis, to the private nonagricultural sector. Certain modifications in the above basic data are here pubI Willford I. King, The Wealth and Income of the People of the United States (New York, I9I5); The National Income and Its Purchasing Power (National Bureau of Economic Research, New York, I930). 2Robert F. Martin, National Income in the United States 1799-1938 (New York, I939); Conference Board Studies in Enterprise and Social Progress (New York, I939). 'Simon Kuznets, National Product since 1869 (National Bureau of Economic Research, New York, I936), and Capital Requirements Study (in process of completion, same organization and publisher). 'Raymond W. Goldsmith, Saving and Capital Market Study (in process of completion, National Bureau of Economic Research, New York); especially Summary of Annual Estimates of Saving, I897 to 1949, Advisory Committee Memorandum No. 4I, same publisher, February I5, I95I, mimeographed, not for publication or quotation. Preliminary published quadrennial data may be found in same author, A Perpetual Inventory of National in Conference on Research in Income and Wealth, Studies in Income and Wealth, Vol. I4 (National Bureau of Economic Research, New York, I95I), pp. 5-73. 'Simon Kuznets, National Income and Its Composition, 2 vols. (National Bureau of Economic Research, New York, I94I); reprinted in one vol., I947. U.S. Office of Business Economics, Department of Commerce, National Income: 1951 Edition. Supplement to the Survey of Current Business (Washington, D. C., I95I).