1940: Income In The United States

National income in the United States was estimated at $73,700,000,000 in 1940. This value represented an advance of $4,300,000,000 over the total for 1939. It was $9,200,000,000 less than the national income in 1929 but was considerably higher than in any intervening year. It exceeded the depression low registered in 1932 by $33,600,000,000 and the previous recovery high in 1937 by $2,700,000,000.

National Income Defined.

National income is the net product of the national economy. It is the value of all the commodities and services produced by the nation's business enterprises in excess of the value of commodities and services consumed in the course of the production process. It includes the value of all products which are 'final,' in the sense that they either are ready, both in form and in place, for consumption or constitute net changes in stocks of goods held for future use. It includes the value of shirts and automobiles, government services and life insurance protection, transportation by bus, train, airplane and trolley, the services of professional men and religious institutions, the use of electric power and telephones in industry and in the home — the value of net production of all of these things during a given period and of thousands of others as well.

Value and Volume of National Income.

National income figures express the value of net production by the nation. The volume of net production also is very important. Because value is the product of unit price and unit quantity, changes in volume or quantity net production can be approximated by comparing changes in the value of net production with changes in the price level. If prices decline more than dollar national income, for instance, the net quantity of commodities and services produced may be said to have advanced because the decrease in value was more than offset by the fall in prices.

Prices of consumer commodities and services in 1940, as measured by the U.S. Bureau of Labor Statistics index of living costs for urban wage-earners, were more than 17 per cent below the 1929 level. Wholesale prices were down by 21 per cent. Neither series includes all of the commodities and services which are a part of the national net product, but they do serve as an adequate general measure of changes in the price level. They are, therefore, satisfactory for an approximate conversion of changes in national income values to changes in the quantity of net production.

While national income in 1940 was 10 per cent under the 1929 figure, price changes more than compensated for this difference in the value of net commodities and services produced in the two years. The price changes, in fact, apparently were great enough also to offset the population increase of 8 per cent during this period. Per-capita net quantity product — that is, real national income per person — was about the same in 1940 as it had been in 1929.

If there is a single purpose inherent in the national economic organization, it is the production of commodities and services. Out of such production, the nation's inhabitants both affect current consumption and set aside a stock of commodities for use in the future. National income is, therefore, the prime yardstick for measuring changes in the effectiveness with which the national economy is operating. A decline in real national income (net value of production adjusted for changes in prices) means that the nation has a lesser supply of necessities and luxuries upon which to draw for current requirements and a smaller pile of durable goods to reserve for future use, while an increase in real national income signifies that either consumption or savings or both may be expanded.

National income is not the sum of the money income of all persons in the nation and should not be so interpreted. Because the business community is so organized that the net production of each individual usually is paid for by a money transfer of equivalent amount, 'money income' sometimes is of about the same magnitude as national income. Money income often is received without the creation of equivalent net product, however, and many other types of monetary transfers similarly are quite unrelated to current production. Money incomes differ from national income. Each has its own significance and the two never should be confused.

Distributive Shares of National Income.

Since the right to the use and possession of all commodities and services always rests in the hands of individuals, however, an allocation of national income may be traced to different groups. These 'shares' of national income are the returns either transferred to or accruing to persons who supply the labor and capital which is utilized in creating the national net product. Persons supply labor and capital primarily in order to secure such returns out of the value thus created, and the reality of that purpose lends importance to measurement of the respective shares and the extent of changes from year to year.

Salaries and wages (62 per cent of total national income in 1940) measure the portion of the national net product going to employees. Almost all of salaries and wages is paid to employees in money, although small amounts take the forms of payments 'in kind' and sums set aside for old-age insurance reserves. Command over commodities and services necessarily is equivalent, however, since net production also is valued in the same money terms. The real significance of the monetary form of transfer lies in the manner in which money facilitates the exchange of products between those who participate in the production of one commodity or service and those who produce all other commodities and services, and the relationship between national income and salaries and wages would be about the same if money were not employed to facilitate production and exchange.

Other shares also are transferred in monetary form or accrue to individuals in some other way. Supplements to salaries and wages (4.7 per cent) include employer contributions to pension, retirement and unemployment compensation funds, work-relief wages, workmen's compensation payments, and so on, and are partially accruals to employed labor and partially transfers to unemployed persons. Net income of corporations (6.5 per cent) is the total current return on equity capital. Dividends (6.4 per cent) are paid from current or past net income and are amounts actually transferred to individuals. Corporate savings (.1 per cent) measure either values retained by corporations out of earnings or amounts paid out in excess of earnings, but accruing to stockholders in either case through changes in the net worth of their equities.

Net incomes of unincorporated businesses (17 per cent) are returns for the use of both labor and capital, since owners usually contribute both elements to the productivity of unincorporated enterprises. Entrepreneurial withdrawals in other respects are analogous to dividends and savings of corporations. Net interest (6.6 per cent) and net rents and royalties are returns allocated to long-term creditors and to owners of leased real property.

Corporate net income registered the largest percentage advance from 1939 to 1940. The improvement of 26 per cent resulted largely from a gain in production volume in the second year, since there was only a slight rise in prices. Because this gain in production was superimposed upon a fair level of capacity utilization in 1939, the increase in corporate profits was much greater than the rise in net production. Increasing business volume usually means a decline in unit costs of production, and the combination of higher unit profits and larger volume resulted in substantially higher net profits in 1940.

Employee compensation also improved, although by a lesser percentage that the gain in total national income. While direct labor costs per unit of production have some tendency to rise as production expands, other labor costs (as management costs, for example) tend to decline, and total salaries and wages generally are a lesser percentage of total national income in years of higher net production. The large labor element in net income of unincorporated enterprises explains the similar change for that share.

Interest rates are fixed by long-term contract, and debt volume does not change rapidly in response to business fluctuations. These two factors account for the relative stability of the return allocated to the holders of credit instruments. Net rents and royalties are more responsive to changes in business conditions but advanced only moderately from 1939 to 1940.

Industrial Origin of National Income.

These advances and declines from year to year and from one phase of the business cycle to another also may be examined in terms of the industrial origin of national income. Industrial origin figures indicate the net production of different industries. Each industry creates only a portion of the value of different products. When the production process (including distribution) is completed, the sum of net production by the different industries equals the total stock of commodities and services produced during the period and available for current or future consumption.

Changes in the Make-up of the National Income.

The major portion of year-to-year changes in national income arises through variation in the net output of commodity producing industries: Agriculture, Mining, Manufacturing and Contract Construction. These four industries, for example, together accounted for nearly two-thirds of the increase in national income from 1939 to 1940, although they provided little more than one-third of the national net product in 1939. The primary effect of the national defense program is concentrated in these industries, can be noticed in results for 1940, and promises to be even more apparent in 1941 and subsequent years.

Income originating in government has expanded in recent years with the growth in the volume of services performed by governmental agencies under regular appropriations and emergency work programs. Net production in other industries has been more stable. In general, industries producing services (Communications, Finance, Government, Service, and most of the Not Allocated group) have been providing, in total and as a secular movement over an extended period of time, a gradually increasing share of the national net product, while the importance of commodity producing industries has tended to decline.

National income has expanded rapidly during the last 40 years. Population growth and changes, including especially the increasing proportion of the total population in the age ranges of greatest productivity, have been very important factors conditioning this gain. The period also has been marked by expansion in the volume of capital utilized in production and by an increasing productivity per unit of labor utilized in production.

These are value figures, of course, and have been influenced heavily by changes in the price level as well as by variations in net quantity production. Prices were considerably lower in the earlier years and much higher in the middle years than they are today, and net quantity product has been much more stable than net value of output.

Income Payments to Individuals.

Income Payments to Individuals provide a measure of the current flow of purchasing power. Such payments include net salaries and wages (that is, after deduction of employee contributions to retirement and other funds), direct relief payments, social security benefits and other pension payments, workmen's compensation payments, veterans' compensation and pensions and amounts paid on account of adjusted service certificates, dividends, interest, net incomes of farmers and professional men, withdrawals from business funds by other owners of unincorporated enterprises, and net rents and royalties.

Income payments to individuals differ from national income, however, because the payments series includes funds flowing to individuals which do not in any way reflect directly the value of current net production of commodities and services. On the other hand, national income measures include certain values for which equivalent shares are not transferred directly to individuals (such as savings of incorporated and unincorporated businesses and employer and employee contributions to retirement and unemployment reserve funds), and these are not included in the income payments figures.

The seasonally adjusted index of income payments, although it contains some elements not related to current production, provides a comprehensive measure of changes in business activity from month to month or over any other short period of time. Movements for longer periods sometimes are influenced markedly by these non-production items, and their importance should be recognized in utilizing the figures for business cycle analysis. The index is useful primarily as a measure of changes in purchasing power.

From a high at 102.2 in August 1929, the seasonally adjusted index declined, almost without interruption, to 53.0 in April of 1933. Payments on adjusted service certificates in early 1931 provided the only break in this steady fall. Recovery after April, 1933, extended to June of 1937, when the index was 89.3, although additional payments on adjusted service certificates in 1936 pushed the index momentarily to 92.4 in June of that year. The Federal tax on undistributed earnings was responsible in part for the unusually high dividend figures in December of 1936 and 1937.

The decline from mid-1937 extended to June of 1938, when the index registered a low at 78.7. Initiation of unemployment compensation benefit payments in 1938 provided some support for total payments during this recession. A sharp advance in the fall months of 1938 was followed by a period of relative stability in the first half of 1939, but improvement was resumed in the second half of that year under the stimulus of conditions expected to arise out of the war abroad.

The index declined sharply again from January to April in 1940, but evolution of the national defense program began to have its effect thereafter. By the fall months, production on defense orders had created boom conditions in some industries and was so diffused through and to others that the seasonally adjusted index advanced to 95.2 in December. Coupled with the indicated price declines and the known increase in population, the standing of the index at the end of the year indicates that per-capita real purchasing power may have been at the highest level on record. (See also WORLD ECONOMICS.)

1939: Income In The United States

The year 1939 was characterized by a moderate decline in business activity during the first half and a substantial recovery in the last half. The gains were particularly sharp after the outbreak of war in Europe early in September. The improvement which began in June was of sufficient magnitude to bring the production level for the entire year considerably above that of 1938.

For the year 1939 as a whole, the national income totaled approximately $68,500,000,000, as compared with a level of $64,000,000,000 in 1938, the recovery peak of $71,900,000,000 in 1937, and the record 1929 total of $82,700,000,000. In view of the relatively small change in the general price level between 1938 and 1939, the $4,500,000,000 increase in the national income reflected a considerable gain in the physical quantity of goods and services produced in the latter year. All industrial segments and all types of income payments participated in the 1939 advance.

Definition of Terms.

Estimates of the national income, if properly understood and interpreted, are of considerable value in determining and evaluating the performance of the economic system. It is important that the reader possess an understanding of what the figures mean and what they purport to measure. Because of their comprehensive nature and significance as the most inclusive measure of economic activity, the estimates are widely used. Unfortunately they are also frequently misused. Some individuals conceive of the national income as a measure of total government receipts, but these have been about one-fourth or less as large as the national income in recent years. Others conceive of it as the total of all transactions between all business enterprises and individuals, which total is many times as large as the national income. Neither of these concepts is directly related to the national income, which is defined in the official reports of the United States Department of Commerce and by most economists as 'the net value of all goods and services produced within a given year.' It is net in the sense of being the excess output over what is needed to maintain the productive machine at its beginning-of-the-year level.

In general, the national income is measured by aggregating the contribution of each industry to the total output of the economic system. The contribution of each industry represents the gross value of the production of that industry less costs of all tangible and intangible raw materials and depreciation charges. Thus the contribution of each industry is the value of what that industry adds to the value of products it obtains from other industries, after making allowance for the capital equipment it consumed in the process of production during the year.

Estimates of the national income are not completely satisfactory for determining changes in the general welfare and the standard of living because the dollar figures are subject to changes in both the quantity of goods and services produced and in the general level of prices. Thus the drop in the dollar national income of more than 50 per cent from 1929 to 1932 was paralleled by a sharp decline in prices so that the quantity of production in 1932 was probably not more than one-fourth below the 1929 level. Even if the dollar figures are corrected for price changes, it is important to note that the national income estimates are confined to the value of those goods and services which enter into the market place. This means that goods and services produced within the home as part of the family life are not included in the estimates. Thus the services of the housewife, shaving one's self, cleaning one's own car, and similar activities are excluded from the national income, whereas the services of hired servants, barbers and garages are included in the estimates. The shift of such activities from the home to the market over a long period of time gives an upward bias to the estimates. Similarly, during depressions some of these functions are performed within the home rather than in the market.

In addition to annual measures of the national income, there are available monthly estimates of income payments to individuals. These figures differ somewhat from the national income. They are designed to approximate the current flow of income to persons rather than the value of production. The monthly income payment figures do not include undistributed profits of corporations, which are reflected in the national income. Payments made by corporations from net worth rather than from current production are included in income payments but not in the national income. Income payment figures include direct relief, soldiers' bonus payments, social security benefits and similar funds flowing to individuals, for which services may not be rendered currently by the income recipient. On the other hand, the national income does not include direct relief nor the soldiers' bonus, and instead of social security benefits it includes social security payroll assessments. In the past five years, income payments have averaged about $2,000,000,000 per year above the national income. In 1931 and 1932 income payments were some $8,000,000,000 to $9,000,000,000 more than the national income as a result of large negative savings of corporations, that is, disbursements from capital and surplus.

Monthly Income Payments.

The first half of 1939 revealed little change in the general flow of income to individuals in the United States. The seasonally adjusted index of total income payments on a 1929 basis varied within approximately one point during the first six months of the year. From the level of 83.0 in April, the index turned upward, and rose steadily throughout the remaining months of the year, with the exception of a slight decline in July, which is probably accounted for by the questionable seasonal correction for agricultural income. By December the adjusted index had recovered to approximately the recovery peak recorded in the middle of 1937. In each month of 1939 the index was above the corresponding month of 1938, with the margin of increase being largest in the final months of the year.

Particularly marked was the movement during 1939 in salaries and wages. The index of salaries and wages adjusted for usual seasonal changes, dropped from 82.3 in January to 81.0 in April and then increased approximately 9 points in 8 months to a new recovery level at the close of the year. Dividends and interest also recovered substantially during the final half of 1939, exceeding the corresponding 1938 figures in each month after April.

The increased flow of income in the final months of 1939 resulted in large measure from forward buying on the part of producers and distributors and to some extent even by consumers, in anticipation of expanded business activity and higher prices in consequence of the war in Europe. Exports during the final months of the year showed only moderate-gains, price rises were confined to few commodities and were of short duration, and there were indications that increased output of goods and services resulted in enlarged business inventories. Consumption was considerably higher as a result of expanded payrolls and dividend disbursements, but the increase in production was larger than the rise in consumption. It was generally observed that a continued rise in income in 1940 would depend in large measure upon a rise in exports and upon expanding private investment activities in the United States. Prospects for expansion in both of these areas were rather indefinite at the close of the year.

National Income.

The rising national income in 1939 marked a resumption in the upward trend which had begun in 1933 and which continued in each succeeding year with the exception of 1938. Except for the $71,900,000,000 level in 1937 and the $69,000,000,000 total in 1939, the 1938 national income of $68,500,000,000 was higher than that of any other year since 1929. It was more than 70 per cent above the depression low of $40,109,000,000 recorded in 1932.

As previously stated, the dollar national income figures are determined by both the quantity of goods and services produced and by prices. In 1939 the average level of prices was practically the same as in 1938 so that the increase in the national income in 1939 resulted entirely from an enlarged output of goods and services. If the price indexes are compared with the dollar income figures, it appears that the actual production of goods and services in both 1937 and 1939 were approximately equal to the pre-depression peak of 1929. The dollar national income in 1937 was 13 per cent lower than the 1929 total, whereas wholesale prices were 9 per cent and the cost of living 15 per cent below the 1929 levels. In 1939 both of these price series and the dollar national income were about one-sixth under their respective 1929 amounts, indicating practically the same level of quantity output in both years. The index of industrial production of the Federal Reserve Board was somewhat under the 1929 average in both 1937 and 1939, but it is certain that the quantity production of many services in 1938 was higher than in 1929. Certainly the services performed by the Federal Government in recent years have been at new peaks.

It is important to note, however, that while the quantities of goods and services produced in 1937 and in 1939 were at the 1929 level, there was a substantial increase in the population throughout the decade. On a per capita basis, production in 1939 was about 7 or 8 per cent less than in 1929. Had the 1929 per capita output been reached in 1939, the average number of persons unemployed in 1939 would have been closer to 5,000,000 or 6,000,000 persons instead of the 8,000,000 to 10,000,000 level which is indicated by available estimates. The continued existence of 5,000,000 or 6,000,000 unemployed even at the 1929 per capita production results from a larger proportion of the population being in the employable age groups and from improved technological developments. The reduction in labor requirements from technological changes has been offset only in part by substantially reduced average hours worked per week. Full employment would thus appear possible only with expanding production above the 1929 per capita level or further reduced hours of work. Certainly the unsatisfied needs of the population are such that a greatly increased output of goods and services could be effectively consumed.

Industrial Contributions.

Perhaps the most significant change among the industries over the past two decades is the marked decline in the relative importance of the commodity producing industries, especially agriculture, and the increase in the contribution of the service industries, particularly government. The 1939 total national income is approximately the same as the 1919 and 1920 totals and also the level which prevailed in 1923 and 1924. The contribution of each of the commodity producing industries (agriculture, mining, manufacturing and construction) was substantially lower in 1939 than in these earlier years. The contributions of the trade and the transportation and public utility industries were about the same for the two periods. Government's contribution approximately doubled over the period, and the service industry also shows a sharp rise in relative importance over the past two decades. The finance industry, which includes banking, insurance and real estate, also has increased as a contributor to the national income.

Not only have the commodity producing industries tended to decline in relative importance in the United States, but these industries also tend to show the most pronounced fluctuations from one stage of the business cycle to another. This is particularly apparent in the declines from 1929 to 1932 and the subsequent increases to 1937. In 1932 the net value of output in each of the four commodity producing industries was less than one-third as large as in 1929, whereas not one of the other industries, except trade, shows a decline as much as 50 per cent. See also BUSINESS.

1938: Income In The United States

References to a national income of 60 billion dollars or 80 billion dollars, or of a goal of 100 billion dollars or more, bewilder the average reader and even most persons who quote the figures. It is difficult to comprehend such a magnitude or the precise meaning of such large totals. Despite the general lack of understanding and the misinterpretations relating to the use of statistics of the national income, ever increasing importance is being attached to these data. This may be explained by the comprehensive nature of the figures, since the product of all economic activities is included in the measurement of the national income.

The National Income.

The national income for any year may be defined as 'the net value of all goods and services produced by the economy within the year.' Also, it may be expressed as 'the value of goods and services available for consumption resulting from all economic activities performed within the year.' Again, it can be viewed as 'the value of all goods and services consumed plus the value of net increases in the national wealth.' It includes not only the net value of output of commodity-producing industries but also the value of the services of commodity-handling industries and service-creating industries. The contribution to the national income of each industry or producing unit represents the gross value of output of that unit less the value of all raw materials and capital equipment it consumed in the productive process.

There has been a marked increase in the national income since the turn of the century. The upward trend has suffered only two substantial setbacks. The postwar depression resulted in a decline in the national income of approximately 25 per cent from 1920 to 1921. The unprecedented severity of the depression subsequent to 1929 is evidenced by the decline in the national income from $81,000,000,000 in 1929 to only $40,000,000,000 in 1932. The recovery movement from 1932 to 1937 brought a total national income of $70,000,000,000 in the latter year, the highest level since 1929.

In 1938 a decline of approximately 12 per cent was recorded in the national income. This was the result of a short but precipitous decline in business activity which began in the fall of 1937 and continued into the second quarter of 1938. A steady and measurable recovery occurred in the final half of 1938.

When estimates of the national income are divided by the total number of men, women, and children in the United States, the extent of increase from 1900 to date is reduced somewhat. From a level of $241 in 1900 and $324 in 1910, the per capita national income rose to more than $600 in 1919 and 1920. In each of the seven years from 1923 to 1929, inclusive, the per capita income exceeded $600 per year with a peak of $668 recorded in 1929. By 1932 average income had declined to $320, the lowest point in more than two decades. The recovery movement brought about an increase to $540 in 1937. In 1938 the per capita income again fell below the $500 mark.

Price Influences.

While the dollar income figures are of considerable value, they are not a wholly satisfactory measure of changes in welfare nor of variations in the quantity of goods and services produced and available for consumption. Fluctuations in real national income are important in attempting to evaluate trends and fluctuations in the productivity of the economy. There are two conceivable methods of measuring real income. One measure would require the conversion of all goods and services produced by every industry into a common unit, the value of which itself was invariable. To date, no such unit has been found. The other alternative relates to the use of a general price index for deflating or adjusting the dollar income figures to a fixed price base. Unfortunately there is no single price index sufficiently representative to permit satisfactorily converting the dollar income figures into real income figures.

A comparison of the year-to-year changes in dollar income and in the cost of living makes it apparent that a substantial part of the variations in the dollar income figures represents pure price changes. Thus, from 1915 to 1920, the total national income increased slightly more than 80 per cent and the per capita national income increased 68 per cent, whereas the cost of living rose more than 90 per cent during this same period. This would indicate that the real national income in 1920 was lower than in 1915, but the limitations of the cost-of-living index do not warrant an unqualified acceptance of this indication. Throughout the 20's the cost of living remained fairly stable whereas income increased substantially, indicating a marked rise in the quantity of goods and services produced in the United States during that period.

The declining price level accounted for a substantial portion of the 50 per cent fall in national income from 1929 to 1932. In 1932 the cost of living was 25 per cent lower than in 1929. Subsequent to 1932 the total national income as well as per capita income increased substantially more than did the cost of living. The figures tend to reveal approximately the same total real income in 1937 as in 1929. As a result of an increase in population, however, the per capita real income in 1937 no doubt continued well below that of 1929. A decline in real income in 1938 was favorably comparable with the much greater decline in income relative to prices.

Income Paid Out.

Another measure of income is entitled 'income paid out'; it is comprised of wages, interest, dividends, entrepreneurial withdrawals, and net rents and royalties. These payments represent compensation to individuals for the efforts and services they render to business enterprises in the form of labor, management, capital, and land. In some years the national income or income produced is greater than income paid out, business enterprises retaining part of their net product. This excess, or amount retained, has been termed 'positive business savings.' In other years business enterprises pay out more than they produce; and the difference, which is termed 'negative business savings' represents a draft upon the resources of business enterprises.

During the 1920's subsequent to 1921, moderate positive business savings occurred in each year. As a result of the much greater decline in national income than in income paid out after 1929, negative business savings rose to more than 8 billion dollars by 1932. The recovery after 1932 was more pronounced in the national income, and negative business savings were substantially reduced from 1932 to 1937. In 1938 preliminary figures indicate an increase in negative business savings.

Industrial Sources of National Income.

Available data do not permit a satisfactory analysis of the industrial sources of the national income prior to 1919. The commodity-producing area of our economy, including the agriculture, mining, manufacturing, and construction industries, appears to have declined in relative importance over the past two decades. These industries accounted for nearly 45 per cent of the national income in the three years 1919 to 1921 as compared with about 35 per cent in 1935 to 1937. On the other hand, the service-creating division, including finance, government, service proper, and miscellaneous, increased in relative importance from less than 30 per cent in 1919 to 1921 to 41 per cent in 1935 to 1937. The commodity-handling industries, trade and transportation, have shown a moderate decline in the proportion they contribute to the national income. Of the specific industrial categories, agriculture has shown the largest relative decline, and government the largest relative increase.

Over the period 1919 to 1938 the manufacturing industry alone accounted for nearly one fourth of the net product of the nation. It is of interest to note that such basic industries as mining and contract construction accounted for only about 2 per cent and 4 per cent, respectively, of the national income for the past two decades.

Shares in Income Paid Out.

Considerable interest attaches to data showing the distribution of income to various segments of the population. Labor income generally accounts for nearly two thirds of total income paid out and an additional one-sixth goes to entrepreneurs (self-employed persons and owners of unincorporated enterprises). The remaining one-sixth is received by those who provide land and capital. While these statistics are valuable for measuring the return to the various factors of production, the recipients of each type of income are not distinctive groups. Many individuals receive more than one type of income.

Over the period since 1919 shifts in the distribution of income paid out have been only moderate. Within most industries labor's share has tended to decline; but, for all industries combined, labor income has risen slightly in relative importance. This results from the marked increase in the importance of service and government in the economy, in both of which labor income represents a large percentage of income paid out. Entrepreneurial withdrawals have tended to decline as a share in total income paid out, largely because of the declining importance of agriculture. Total return on effort, including both labor and entrepreneurial income, has not varied substantially relative to total income paid out.

Both dividends and interest have increased moderately, whereas net rents and royalties have declined slightly in relation to the total. Interest payments, representing a fixed return, increased sharply in relative importance during periods of depression. Dividends, on the other hand, decline both absolutely and relatively when business activity is curtailed.

Comparisons with Other Countries.

Although scattered statistics of income are available for a great many foreign countries, comparisons are difficult. Seldom are the definitions or the scope of the measures similar. It is often necessary to rely on artificial exchange rates in converting the incomes of different countries into the monetary unit of one country. Also, comparable figures on the cost of living are not available for most nations, and this further limits the validity of the figures.

The $688 per capita income of the United States in 1929 was higher than the average for any other country in the world. Canada, Great Britain, Switzerland, and Australia all varied from about two thirds to three fourths of the United States level. In Germany and France the per capita incomes were less than half the United States average, and in Italy average income was less than one fourth of that in the United States. In the late 1920's many countries, including Japan, Hungary, Rumania, Venezuela, Peru, Bolivia, and India showed incomes of less than $100 per person.

For the year 1935 average income in Switzerland was higher than in the United States. In that year Switzerland was enjoying a new high level of prosperity, and the United States was just recovering from a severe depression. The figures for single years must be used with caution because the same stage of the business cycle does not exist simultaneously in all countries. Generally, it may be stated that the per capita national income of the United States is higher than that of any other country; followed by Canada, Great Britain, Switzerland, Australia, Argentina, and Sweden as a group. France and Germany fall in the next lower group with the southern European and most South American countries still lower, and the far-eastern countries lowest of all.