Sales Of Manufacturing Industries
( Originally Published 1939 )
Goods sold by manufacturers alone amounted to $69.6 billion, or more than three times the total value of goods from primary sources. Substantial amounts of manufactured goods-about $7.2 billion worth-were sold direct to household and other terminal buyers, including public utilities, government institutions, the construction trade and transportation agencies. An additional $3.1 was exported directly and sales of $6.4 billion were made direct to retail trade.
As indicated above, the total of $65.6 billion paid by consumers and other terminal buyers of finished goods measures in a very rough way the total cost of producing and distributing these commodities, including profits all along the line. How this total results from the gradual accumulation of costs and increase of prices at successive stages throughout the entire process can be seen from the Flow Chart and in the last three lines of Table 10. Every time a commodity moves ahead in the flow of trade, costs are incurred and its value is increased. When the farmer sells wheat to the miller a transportation value is added; when the wholesale merchant buys it from the flour miller the value of the milling process is added and so on through the bakery to the ultimate consumer who buys the wheat as part of a loaf of bread. The price he finally pays for the bread is an accumulation of all these increments of value.
On the Flow Chart the increment, or value increase at each stage of the process, is shown by the difference between the amount represented by the bands going into each rectangle on the left and that of the outgoing bands. For example, the value of commodities sold by agriculture amounted to $12.4 billion. But farmers bought or retained for their own use $5.3 billion worth of goods-fertilizer, feed, tools and other products used in production, farm products retained for use on the farm, and livestock transferred from one farm to another for fattening purposes. Hence the net amount received by farmers for their products, or the increment of value created by agriculture, was $7.1 billion.
In the same way the increment of value added by the extractive industries is the difference between the $4.9 billion sales of these industries and the $1.2 billion which they paid for supplies and materials, or $3.7 billion. The total value of imports-$4.4 billion -may be considered an increment so far as the domestic economy was concerned.
The increment of value resulting from the activities of manufacturers amounted to $22.4 billion, or the difference between sales of $69.6 billion and purchases of $47.2. A large part of this increment, of course, is chargeable to the strictly productive operations of manufacturing industries as distinguished from their distributive activities.
With total sales only slightly less than for manufacturing, the value increment of intermediary trade (sales of $69.3 billion minus purchases of $62.2 billion) amounted to only $7.1 billion, or less than a third of that of manufacturing industries. This disparity reflects the smaller expense involved in the purely distributive operations of intermediaries.
Retail trade, with sales of $49.2 billion and purchases of $37 billion, shows a value increment of $12.2 billion, which reflects the fact that retail distribution is a much more elaborate and costly process than wholesale distribution, requiring more labor, more costly equipment and facilities, and therefore necessitating larger mark-ups and expense ratios.
3. TOTAL SALES AND PURCHASES
Taken as a whole the various branches of trade and industry shown in the Chart-agriculture, extractive industries, import trade, manufacturing, and intermediary and retail trades-show total sales of $218.6 billion, which represents the amounts paid by all purchasers including terminal buyers, and total purchases of $153 billion, the amount paid for goods by all producing and selling agencies. The difference between the two, or the aggregate value increment of $65.6 billion,' representing total costs of producing and distributing goods, is equal to the total amount paid by terminal buyers for finished goods. Of this aggregate value increment of $65.6 billion, about 87 per cent, or $56.9 billion, rep-resents value increases added by all the various agencies of extracting or growing, buying, storing, manufacturing, and selling, and $8.7 billion, or 13 per cent, represents the services of transportation agencies. Transportation charges are shown on each band on the Chart as the difference between the amount received by the selling agency and the amount paid by the purchasing agency. Thus, intermediary dealers received $16.4 billion for goods sold to manufacturers, for which the latter paid $17.3 billion, the difference of $900 million being estimated transportation charges.
While the total of $65.6 billion sales to terminal buyers (or the aggregate of value increments) may be regarded as a rough approximation of the total costs of commodity production and distribution, the increments occurring at each stage in the process cannot be considered as a measure of the costs of distribution, or of production, incurred at that stage. In Chapter 5 an attempt is made to estimate the total cost of distribution, as well as the costs attributable to various branches of industry and trade. Before attempting to measure costs, however, it is important to describe in greater detail the nature and functions of the various agencies engaged in distribution.