The Social Cost of Federal Financing 81 



tures from Chapter II's idealized picture, in which we assumed the 

 savings of individuals to be the source of capital, with investors 

 paying the market rate of interest on the requisite loans. ^ House- 

 holds financed their purchases of automobiles in large part through 

 installment credit, with the total outstanding increasing |4 billion 

 over the year, an amount which is about half the net investment 

 in cars after depreciation. About $15 billion of $17 billion of 

 residential construction was offset by an increase in mortgages,* 

 but the $18 billion of other durables was financed out of income 

 for the sector as a whole. The Department of Commerce reports 

 total personal saving to be $17 billion, but this figure does not 

 reflect the borrowing done by households in the form of mortgages. 

 If we subtract money borrowed in this way, we find that net per- 

 sonal saving is at most $2 billion or $3 billion. That is, the house- 

 hold sector — which in our theoretical model was to provide the 

 savings for the business sector — actually saved little more than it 

 invested in its own durables. 



Of the $30 billion of real investment carried on by corporations, 

 $15 billion came from depreciation and amortization allowances 

 and another $9 billion from retained earnings. Only the remaining 

 $6 billion was financed by new securities — $2 billion in common 

 stocks and $4 billion in bonds and notes. And of this total, public 

 utilities issued all but $400 million of the stock and $2 billion of 

 the bonds and notes. There was also an increase of bank loans of 

 $4.5 billion, and an increase of other liabilities of $1.5 billion, but 

 this was more than offset by the increase in customer receivables. 

 Thus the business sector as a whole, other than public utilities, 

 borrowed no more than 8 or 10 per cent of the funds for its real 

 investment. 



Unincorporated business, which is typically small, and for which 

 our figures are much more sketchy, invested about $4 billion in 

 plant and equipment. Much of the investment of this sector, which 

 consists primarily of retail and other service establishments, con- 

 sisted of the construction and improvement of stores, which were 

 financed largely by mortgages and bank loans. But the sector as a 

 whole withdrew relatively little from the capital market; rej^ay- 



' See W. A. Salant, "Saving, Investment, and Stability," American Economic 

 Review, ^fay 1956, pp. 42-54. 



* This figure includes mortgages issued on old houses. 



