PROFIT MARGINS AND HOURLY EARNINGS

IN MANUFACTURING

PERCENT

Profit Margin on Sales

-10

'29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

40+

29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

Chart 5

This scale here is in cents per hour. This scale is the profit margin. In other words, of every dollar spent by anybody for anything, this is the part that was represented by manufacturers' net profit.

The highest point that we have reached since 1929 was in 1941 and we have not reached that point subsequently.

Chart No. 6 shows the historical record of this country insofar as that portion of its total national productivity which was reinvested each year in capital formation.

You will observe there in the decades 1869 to 1878, 1879 to 1888, 1889 to 1898, 1898 to 1908, 1909 to 1918, and to 1928 we used approximately one-fifth of our total national product for capital formation. I am coming back to that chart in a moment.

Chart No. 7, you will note, only goes back to 1928. It shows, in relation to the total national product in each of the years from 1929 to

1938, what would have been required at the historic rate in relation to the national product and the black bars the amount we actually devoted to capital formation.

The CHAIRMAN (interposing). You mean the cross bars?

Mr. BUNTING. The cross bars is what we needed to spend.

The CHAIRMAN. That is about 20 percent.

Mr. BUNTING. Yes, sir. That is the same figure, and the black is what we actually spent.

The CHAIRMAN. I see.

Mr. BUNTING. There is the effect of the continuation of the fear philosophy and the many other things which happened in this country through this decade, when we did not put back into capital formation the historical ratio of 1889 to 1928.

We failed to do that during that period and we paid the penalty for it.

Now, over a long period of time we have had a growth in our national economy to the extent of approximately 3.8 percent per year compounded.

So, that if we start with an index of 1, at the next year we have 103.8 plus 3.8.

The CHAIRMAN. What are you talking about?

Mr. BUNTING. The record of our growth in the United States.
The CHAIRMAN. National productivity?

Mr. BUNTING. National productivity. We have taken approximately one-fifth of that amount and reinvested it in capital formation to provide for a continuing successively higher plateau of continuing investment.

Now that is well set up on this next chart (chart 8). If we are to do this job which is ahead of us during the next decade, starting in this year, in 1947, then we will be required to put into capital formation this year approximately $42,000,000,000, with each succeeding year increased by 3.8 percent.

Our deficiency in capital formation in the United States in the decade 1937-46 amounted to a total of $125,000,000,000.

We cannot possibly expect to make up for that deficiency by an investment at this late date. So, let's cut it in two, or to $62,000,000,000. We still could not make that type of investment all at once, so let's cut our total in two again, and assume that the remaining total of $30,000,000,000 is spread over 1947, 1948, 1949, 1950, and 1951 to the extent of $6,000,000,000 a year.

Prospective Deficiency in Capital Formation

That is why there is a drop in this chart of $6,000,000,000 between 1952 and 1953.

The CHAIRMAN. That dropped?

Mr. BUNTING. That is just because we will, theoretically, at least, have made up to that $30,000,000,000.

The CHAIRMAN. It does not indicate a depression?

Mr. BUNTING. No, sir. We are not predicting any depression except on one issue, and I will come back to that.

Now, assuming a present taxation level in this country, gentlemen, if we take all of the money that we have in sight-all the money which individuals can put up, all the money which corporations will be permitted to retain out of their reserves for depreciation and replacement and obsolescence and all the rest of it—we are going to have to face the deficiency of capital as shown by the light black line on chart 9.

And beginning in 1950, we will be faced with the necessity of finding a way to get this volume of capital, as shown by the heavy black line, out of our venture savings-the money which people can afford to risk in new industries.

I do not know how many of you gentlemen realize that from the time the first automobile turned the first wheel on the first street in America, more than 1,200 companies were formed to build passenger automobiles. A lot of them were ill-timed, ill-advised, ignorant attempts to get into a new industry by people who had more enthusiasm than other qualifications. A lot of those companies thought that they would benefit themselves by the process of merger with some others. There is no question but what the investing public lost a lot of money in the investment which went into those 1,200 new automobile manufacturing ventures formed in this country.

Senator WATKINS. How many do we have today?

Mr. BUNTING. About nine, I think. There is likewise no questioning the fact that the introduction of the automobile was a distinct economic gain to America and all the world-and I am not in the automobile business.

Now what have we got to do if we carry out the historical program and pattern of the past? It is to devise a system whereby the necessary venture capital can be made available.

We have a 3-year period in which we assume that the corporations of this country, out of their liquid assets, will invest every cent of that of their own voluntary free will in the next 3 years, and if they do, it will allow a sum of $30,000,000,000 which they have remaining in their savings accounts.

Then we come into the next 2-year period where we are going to have tremendous deficiencies.

The CHAIRMAN. Mr. Bunting, I do not understand the chart. It is a prospective deficiency?

Mr. BUNTING. A prospective deficiency.

The CHAIRMAN. That is what?

Mr. BUNTING. Mr. Chairman, it is the difference between what we have got to have if we carry the historical pattern through and what we will have available from all sources if we do not do something about the present taxation structure, which will make it possible for venture capital to go into investments.

The CHAIRMAN. The difference between what and what?

Mr. BUNTING. The total amount available for investment as venture capital and what we ought to have to do the job, and it runs roughly around $7,000,000,000 or $8,000,000,000 a year average.

The CHAIRMAN. You start from an assumed amount of savings? Mr. BUNTING. No, we start from the job that we did historically from 1869 to 1928 with 3.8 percent compounded each year.

The CHAIRMAN. I thought that had to do with the gross national product?

Mr. BUNTING. It was all part of the gross national product that went into capital formation.

The source of this information is the National Bureau of Economic Research.

The CHAIRMAN. How do you assume there is going to be a deficiency?