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Postal savings went down $200,000,000.
And that the net gain in total savings was $1,800,000,000.

But, actually, in the larger figures, are included accumulated savings on life-insurance policies, which would also include automatic increments of interest paid during the year, building up policy reserves.

What I am interested in is trying to get at the actual savings being made by the individual today, by way of individual deposits,

so that we know what is there, to come out of savings, in order to affect the purchasing power of the people.

Mr. MARTIN. I will be glad to get you the best that we have. I question very much the figures you have just supplied. They do not sound reasonable to me.

Mr. WIDNALL. The source was a division of the American Bankers Association.

Mr. MARTIN. Well, I would have to study those figures. I would say my offhand impression would be that they are not right. Now, when I say "Not right,” I am talking about the best that we can put together.

Mr. WIDNALL. In the figures that you would give us, could you break them down, percentagewise, as to the amounts which might be attributed to business excess that have been placed in savings temporarily, and to those that might be called cold savings, which are a steady accumulation? Mr. MARTIN. We will do the very

best we can. Mr. WIDNALL. That is all.

(The information referred to is as follows:) ANALYSIS OF PERSONAL SAVINGS DATA SUBMITTED BY WILLIAM McC.

MARTIN, JR., CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

INTRODUCTION Savings is a many-sided activity and takes many forms. There are a number of statistical series that are widely used to measure saving activity, either in terms of its total or in terms of particular types of saving. Each series is usually reasonably accurate in estimating the area it sets out to measure. However, since each series is usually intended for use in connection with analysis of particular problems, it differs somewhat from other measures that are directed to dealing with other problems. Unfortunately, the term "saving" is used to cover widely different kinds of activities, and the user must be sure that he knows which activities are covered in the series he is using and whose saving is being measured.

To avoid confusion among the variety of saving measures available, we will concentrate our discussion on the concept of "personal saving” as defined and measured by the United States Department of Commerce in connection with its comprehensive estimates of national income and product. This concept and measure is probably the most widely known and used series, especially in connection with the analysis of general economic conditions. We will supplement this series, however, by some estimates of our own compiled from data published by the Securities and Exchange Commission and other agencies, showing a breakdown of total "personal saving” in terms of the different ways such saving is used or applied. This breakdown permits the reader to see the relationship between total saving activity and saving in liquid form. For some purposes, such as in dealing with problems of debt-management policy, the form and composition of saving may be as important as the total volume.

DEFINITIONS Personal saving, in the Department of Commerce usage, is the difference between disposable personal income (personal incomes after deducting taxes) and personal-consumption expenditures. To understand the significance of this concept, it is necessary to define what is meant by “persons," and what is actually

included in the measures of personal income, taxes, and consumption expenditures. "Persons,” to which the definition applies, refers to the consuming public, including the proprietors of farm and nonfarm unincorporated enterprises and nonprofit institutions, such as private schools, colleges, universities, religious and welfare organizations.

Personal income, as defined by the Department of Commerce, is composed of receipts from current productive activity plus so-called transfer payments; i. e., receipts for which no current service is rendered. Receipts from current productive activity include such income as wages, salaries, interest, dividends, and the net incomes accruing to proprietors of farms and other unincorporated enterprises. Transfer payments include social-insurance benefits, veterans' benefits, relief and other similar governmental and private payments to individuals. The earned income, and donations from business, received by nonprofit organizations are also counted as part of personal income. Receipts from borrowing or from sales of assets are not counted as part of current incomes.

Personal taxes, which are deducted from personal income in arriving at disposable personal income, include the direct taxes paid by consumers-such as income, estate, and gift taxes as well as other fees and charges paid to governments. Tax refunds are deducted from tax payments.

Personal-consumption expenditures include consumers' current purchases of food, clothing, rent and other services, plus their purchases of durable goods, such as automobiles and furniture. Such consumer expenditures make up the bulk of the total, but also included are current operating expenditures-rents, payrolls and the like-of nonprofit organizations.

Personal saving is calculated by deducting consumption expenditures from disposable income, both as defined above. It can readily be seen, therefore, that this residual (personal saving) includes more than just the accumulation of liquid assets such as currency, bank deposits, and securities. In addition to the acquisition of cash and other liquid assets, consumers can apply current saving toward the acquisition of new homes, toward increases in private insurance and pension reserves, and, in the case of business proprietors, toward increases in business assets (including inventories) of farm and other noncorporate enterprises. The residual also includes saving done by nonprofit organizations, through purchases of securities and construction of new buildings.

Acquisitions of homes and increases in personal and business assets—and, in fact, many consumption expenditures—are not entirely financed out of current incomes, but depend in part on borrowed funds, drawing down of liquid assets, and on retained charges against income (such as depreciation charges). That is why personal saving is often described as net saving. The total reflects only the net contribution of current incomes toward the purchase of homes and other personal and business assets. If savings were calculated as the net addition to wealth of persons and unincorporated businesses, borrowing, drawing down of assets and depreciation charges would have to be subtracted from expenditures for assets in order to equal the estimate of saving obtained by subtracting consumption expenditures from disposable income. The calculation of personal saving from the income and expenditure side is shown schematically in table A on the following page, which also gives preliminary estimates of the magnitude of the various uses of saving in 1951. Some of the estimates are preliminary and will need revision when later data become available.

1 Expenditures for the purchase of existing homes are mostly offset by receipts of other consumers from the sales of such homes. Therefore, these transactions largely cancel out within the personal group; the net amount bought outside the personal group represents a fairly small use of personal saving.

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TABLE A.--Calculation of personal saving

[Preliminary estimates for 1951, in billions of dollars) Personal income.

251. 1 Less personal taxes

28. 4 Equals disposable personal income

222. 6 Less personal consumption expenditures-

205. 5 For durable goods, including automobiles.

(26. 8) For nondurable goods, including food and clothing

(111. 8) For services, including rent

(66.8) Equals personal saving --

17. 2 Saving applied by consumer

25. 8 To increase holdings of liquid assets..

(8. 6) To increase private insurance and pension reserves

(5.8) To increase equities in net worth of farms and other unincorporated enterprises 1

(1.2) To purchase homes

(10. 2) LessNet increase in home-mortgage and other consumer debt.

7.1 Depreciation on homes.

2. 1 Equals saving applied by consumers.

16. 6 Plus saving applied by nonprofit organizations.

1. 1 Plus saving not accounted for (statistical discrepancy).

-.5 Equals personal saving.

17. 2 1 Depreciation charges by unincorporated enterprises, and changes in their business assets and debts, are included in this item.

Source: Estimates by Board of Governors of the Federal Reserve System, based on data from the Department of Commerce and the Securities

and Exchange Commission.

POSTWAR TRENDS IN SAVING For most of the postwar period, personal saving has been far below the amounts achieved during the war. For the 5 years from 1946 through 1950, such saving averaged about $8 billion, as compared with the wartime peak in 1944 of over $35 billion. In relation to disposable personal income, saving has ranged between 2 and 8 percent of income, as compared with the peak rate of over 24 percent in 1944.

Although relatively small, the postwar volume of saving permitted continued moderate additions to consumers holdings of liquid assets and continued additions to their stake in life-insurance and private-pension reserves. Some saving was also applied to the purchase of homes, but for the entire consumer group the aggregate value of homes bought was not very much greater than the net funds obtained through mortgage borrowing and the amount of depreciation on the existing stock of homes.

Offsetting the continued liquid saving and the increased equity in homes were decreases in the net worth of unincorporated enterprises.2 . In addition, there was substantial dissaving through the incurrence of debt to finance purchases of automobiles, furniture, and other consumer goods.

The rise in indebtedness over this period resulted in a steady deterioration of consumers' financial positions. At the end of the war, consumer debts amounted to about $30 billion, or only a quarter of the quick assets (cash and U.S. Government securities) held by consumers, excluding assets and debts of unincorporated enterprises in this comparison. After 5 years of large purchases of homes and durable goods, consumer debts had more than doubled and at the end of 1950 amounted to almost half of their quick assets.

The burden of servicing these debts-interest charges and required repayments of principal-increased steadily, rising from about 6 percent of personal income in 1946 to over 10 percent of their income in 1950. In addition, consumers undertook other commitments which exerted a regular drain on their funds, principally an expansion in the various types of life and nonlife insurance policies they carried. These commitments, plus the high level of tax payments, took

2 Although the data in this arsa are far from adequate, they indicate that borrowing for business purposes by farmers and proprietors of nonfarm unincorporated enterprises, plus depreciation charges on their fixed capital, apparently exceeded their expenditures for new plant and equipment, inventories, and additions to liquid asset holdings.

an ever-increasing proportion of consumers' receipts. The remainder-income left after payment of taxes, insurance premiums, and required debt service increased over this period by about the same percentage as the cost of living.

RECENT DEVELOPMENTS The burden of these committed or obligated payments rose sharply in 1951, partly as the result of repayments of debts incurred in the buying wave of the preceding year and partly as the result of the high taxes imposed by the tax rate increase in the fall of 1950. After a buying flurry in the early months of 1951, consumer purchases of durable goods fell off and have remained at reduced levels through the first quarter of 1952. Although incomes continued to rise, the increase in consumer expenditures for nondurable goods and services was moderate. The rise in total consumer expenditures was less than the rise in disposable income and, therefore, personal saving rose sharply from the first to the second quarter of last year and has remained at or close to these high levels ever since. For the first 3 months of 1952 personal saving (seasonally adjusted, at annual rates) amounted to $17 billion, or about 742 percent of disposable incomes.

Part of this increase in saving was applied to an increased rate of acquisition of liquid assets. Consumer net purchases of corporate securities rose to the highest point in many years and their holdings of currency and bank deposits also increased. While redemptions of savings bonds continued to exceed new purchases, the rate of net redemptions declined toward the end of the year and has been quite low in recent months. Saving through increased equities in unincorporated businesses also increased as there was less net drawing down of nonfarm business assets. A substantial increase occurred in the net worth of farm businesses, with the latter largely due to an increase in farm inventories.

One of the sharpest changes in savings patterns was in the rate at which consumers incurred new debt. Net mortgage borrowing was somewhat lower than the preceding years and the net increase in consumer debt was very much less. Consumer credit outstanding increased by only half a billion dollars in 1951 as compared with an average of almost 3 billions a year in the preceding 5 years.

Many factors combined to effect the substantial change in consumers' spending and saving habits last year. To some extent consumers were "stocked up and loaned up." Further, adjust ent in consumer psychology to continued international tension, direct controls on prices, and increases in production which permitted an expanding defense program without seriously affecting supplies of consumers' goods, all combined to deter scare buying. Credit restraints, both selective and general, decreased the ease with which the purchase of homes and durable goods could be effected. All of these combined to moderate consumer demand and maintain general price stability.

Table B.The composition of personal saving

(Annually 1946 through 1951; in billions of dollars]

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1 Preliminary estimate.
NOTE.- Columns may not add precisely because of rounding.

Source: Estimates by the Board of Governors of the Federal Reserve, System based on data from the
Department of Commerce and Securities and Exchange Commission.

TABLE C.-Changes in consumers' holdings of liquid assets 1

(Annually 1946 through 1951; in billions of dollars)

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Estimates of amounts owned directly by consumers and by personal trusts. Excludes estimated hold. ings by unincorporated enterprises and nonprofit organizations and private pension plans.

2 Preliminary estimate.
a Less than $50 million.
Source: Estimates by the Board of Governors of the Federal Reserve System based on data from the
Department of Commerce and Securities and Exchange Commission.

Mr. BETTS. To follow that through with one more question, Mr. Martin, I was asked this question when I was home over the week end, if savings include inventories?

Mr. MARTIN. I do not think so.

Mr. Noyes. The Department of Commerce series on gross savings includes inventory accumulation by nonincorporated businesses.

Mr. BETTS. By nonincorporated businesses.
Mr. NoYES. I believe that is correct, sir.

Again this is a little out of my field, I would not want to speak authoritatively on it, but I believe that is correct.

Mr. BETTS. Someone was under the impression that savings, as interpreted currently, include inventories, and I was wondering if you had

any

information on that.
Mr. Noyes. I believe you are correct, sir. There has been the
problem of farm inventories with relation to savings. I believe
farmers increased their inventory holdings and that appears as a
residual in the savings figures. I believe that is correct.

Mr. MARTIN. I will do the best I can to get up the data on that.
Mr. BETTS. Thank you.
Mr. BARRETT. Mr. Chairman,
The CHAIRMAN. Mr. Barrett.

Mr. BARRETT. Mr. Martin, I would like to bring you back to regulation W for a moment. Would you recommend that this committee go on record for the abolition of regulation W, or set up a stand-by?

Mr. MARTIN. No, I would not recommend that you abolish it. I would recommend that you renew the authority. I would even go so far as to hope you would restore the flexibility in it. But that might be too much to ask.

Mr. BARRETT. But you would recommend it being inserted as a standby?

Mr. MARTIN. I would indeed, yes, sir. I consider it as auxiliary fire-fighting equipment that we ought to have available in these times.

Mr. BARRETT. Then let me ask you another question, if I may:
What would be your attitude on regulation X?

Mr. Martin. I would feel the same way about regulation X.
Mr. BARRETT. That is all, Mr. Chairman.

97026–52—pt. 2-37

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