NATIONAL SAVINGS. Estimates of aggregate national savings may proceed upon two quite distinct bases: (a) That amount which is definitely saved out of the national income from current consumption for capital purposes.
(b) The net additions to national resources.
If a man spares out of his income £200 to build a garage, he has, in the first sense, clearly saved £200, irrespective of the fact that a greenhouse worth ioo has been burnt down by acci dent during the year. But in the second sense his total resources have only increased by 1 'co. It is clear, therefore, that a nation may be making handsome savings from its current production, but if existing assets are falling into disuse or obsolescence and losing their productive power, the net addition to national re sources is not as great as it might otherwise have been. It may be said that this is sufficiently covered if, before savings are reckoned, proper provision is made for the upkeep of existing assets, but, in fact, long-period obsolescence, except in going con cerns, is not usually specifically provided for. If estimates of national wealth are made on the same principle at two different dates, the difference between them represents roughly the addition to national resources, provided there has been no change in the purchasing power of money, or the rate of interest by which cap italization is computed, in the meantime. If either of these factors is present, the same assets may present a very different money valuation, or conversely the same money valuation may hide a real difference in physical assets. Thus between the years 1885 and 1895 the national capital, measured in the same way, increased by only 63 millions annually, whereas between 1895 and 19o5 it increased by 237 millions annually.
Estimates of national savings are extremely difficult to compile, because they are necessarily partial blends of two distinct things —one the value of objective things and the other the value of titles to objective things. Thus it might be thought, when a new company is floated with a capital of 15oo,000 fully subscribed by the public, that this represents so much actual saving. If, how ever, the company acquired existing factories which originally cost £250,000, all that may have happened is that the subscribers have sold out 15oo,000 worth of securities to make the subscrip tion, the owner of the factories gives up the property, receives the money and reinvests it indirectly in the securities so given up. There has been a change of values of existing wealth on its
exchange, but no addition to the real wealth.
Estimates of savings made by way of deducting a large total, such as total consumption from total income, are open to a large risk of error for two reasons; first, because the totals are both large by contrast with the difference sought, and a very small percentage of error in either total (or both) will be a very large error, proportionally, in the difference sought. Secondly, there is a great difficulty in determining the value of consumption goods as distinguished from capital goods.
Past Estimates of British Savings.—In 188o Mulhall esti mated the savings of the United Kingdom as 4o millions per annum from 182o to 1840; 8o millions from 1841 to 186o, and 120 millions from 1861 to 1880. Baxter had put the ten years' average 1855 to 1865 at 124 millions. In 19°7 the official Census of Pro duction Reports estimated from 17o to 190 millions sterling as the value of production available for new capital investment within the United Kingdom. It must not, however, be overlooked that the new investments do not constitute as a whole a net addition to capital values. Even in cases in which plant, machinery, build ings, etc., are maintained in good physical condition, their value may be reduced owing to the fact that changes in the require ments of the community are in progress, and that the methods of production are undergoing continuous modification, so that ob solescence destroys the value of capital, even though its physical condition be maintained. There is further some apparently new investment which does not, in reality, correspond to extensions of the capital of the community. The annual sum assigned for wear and tear and replacement is only in part dissipated in current repairs and renewals. The reserve funds of individual businesses, provided out of the total, are invested either outside of, or in the businesses themselves, and are to a large extent designed to provide for the ultimate substitution of fresh forms of capital for the capital now existing, rather than for the current main tenance of such capital. But, if a vessel is written off over 25 years at 4 per cent per annum, the fund ostensibly provides no increase in assets or saving.