The Income of the Puerto Rican Economy, 1940-1944

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EXCESO DE COPIA PARA DONAR CPR UPR RP

THE NET INCOME of the PUERTO RICAN ECONOMY 1940 - 1944

DANIEL CREAMER

Social Science Research Center UNIVERSITY OF PUERTO RICO RIO PIEDRAS

339,37L-

THE NET INCOME of the

PUERTO RICAN ECONOMY 1940 - 1944 EXCESO DE COPIA PARA DONAR CPR UPR RP

DANIEL CREAMER

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Social Science Research Center UNIVERSITY

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FOREWORD The Social Science Research Center presents this report on the income of the insular economy in the certainty that it will be of value to both private citizens and government officials. It provides basic factual material on the degree of industrialization, industry-agriculture balance, government enterprises, distribution of income among the factors of production, federal contributions to the insular income and other crucial public issues. The material here presented is the result of fifteen months work by a group under the direction of Daniel Creamer, formerly on the staff of the Division of National Income, United States Department of Commerce. The value judgments are exclusively Dr. Creamer's. This study is one in a series dedicated to an intensive examination of the insular economy. Others now under way will result in reports on the national gross and net product, balance of external payments, the marketing system, and an overall analysis of the structure and functioning of the Puerto Rican economy. This and the balance of payments study have been made in close cooperation with the Office of Statistics, Bureau of the Budget, which will in the future maintain running accounts and publish annual reports in these fields, based on this and the forthcoming balance of payments report. CLARENCE SENIOR

Director

ACKNOWLEDGMENTS The preparation of a net income estimate in any detail is a work of collaboration. It was particularly true in estimating the net income of Puerto Rico because the absence of summarized statistics imposed upon the investigator the necessity of preparing compilations from uncollated, primary data collected by various governmental agencies. The estimate could not have been prepared in its present form without the cooperation of the Office of the Auditor, The State Insurance Fund of Puerto Rico and the Bureau of Income Tax. All of these offices graciously placed their records at our disposal. The Division of National Income of the Department of Commerce and the Bureau of Research and Statistics of the Social Security Board were helpful in the collection of data required to estimate the net income originating with the Federal Government. An even greater debt of gratitude is owed to those who performed the laborious task of collecting and processing the underlying data. Jorge Ahumada, of the social science faculty of the University of Puerto Rico, assumed the major responsibility for the collection of data required for the estimates of net income originating in the Insular government, banking and insurance industries, and in the liberal professions. Similar responsibilities were accepted by Francisco Zorilla and Antonio Ríos, of the Minimum Wage Board, for the motor transportation, shipping, and public utility industries, and by Jesús Diaz Hernández of the Office of Statistics, Bureau of the Budget, for the contract construction industry. The Division of Economics of the Agricultural Experiment Station of the University of Puerto Rico agreed, fortunately, to assume the primary responsibility for the estimate of gross farm income. Mr. Daniel Haddock did yeoman service on this part of the estimate with the unfailing and expert advice of his colleagues, Ramón Colón Torres, Luis Nazario and J. J. Serrallés. It is a pleasure to be able to express my appreciation to my two assistants at the Social Science Research Center of the University of Puerto Rico, Mrs. Elydia Fort de Net and Mrs. Ruth Senior, for their perseverance, diligence and competence. 5

Thanks are also due to Sol L. Descartes for advice and suggestions at all stages of the investigation; to Dudley Smith, economist for the Association of Sugar Producers of Puerto Rico, for the courtesy of making available his work sheets of an earlier estimate of Puerto Rico's net income, and to Henrietta L. Creamer for providing whatever readibility the report may possess. Needless to add, all errors of commission and omission are my sole responsibility. DANIEL CREAMER

6

TABLE OF CONTENTS PAGE

Foreword Acknowledgments I. Introduction—Concepts and Problems of Estimation Concepts Problems of Estimation II. Recent Trends in the Level of Insular Net Income Total and Per Capita Net Income in Current Prices Total and Per Capita Net Income in 1940 Prices Per Capita Income and the Population Problem Changes in Income Payments and the Problem of Inflation Income Payments in Puerto Rico and in the Poorest States of the Union Net Income in Puerto Rico and in Other Caribbean Economies Net Income Produced and Received III. Industrial Sources of Puerto Rico's Net Income Prewar Structure of the Puerto Rican Economy The Government as a Source of Net Income Wartime Trends in the Private Economy Federal Relationships and the Level of Insular Net Income Relative Importance of Government Business Enterprises by Industry Groups

3 5 9 13 21 22 23 25 26 27 28 29 29 35 39 41

IV. Shares of Labor and Capital in the Net Income Distributive Shares of the Insular Net Income Total Variation Among the Distributive Shares by Industry Groups The Potential Redistribution of Income Through the Proportional Profit Farms Comparison with Other Economies

45 47

Appendix A—Basic Tables with Notes on Sources and Methods of Estimates

49

Appendix B—Deflation of the Insular Net Income

92

Appendix C—Notes on the Estimates of Income Payments to Individuals

94

Appendix D

96 7

43 44

INDEX OF TABLES PAGE

TABLE

1 2 3

4 5 6 7 8 9

Rico,

Al

Estimates of Net Income, Population and Per Capita Net Income of Puerto Rico, 1930-1944 Derivation of Estimates of Income Payments to Individuals from Estimates of Insular Net Income, 1940-1944 Indexes of Income Payments to Individuals, Agricultural Production for Local Consumption and Physical Volume of Imports of Selected Foodstuffs for Puerto Rico, 1940-1944 Per Capita Income Payments in Puerto Rico and In the Five States with the Lowest Per Capita Income Payments, 1940 and 1944 Per Cent Distribution of Insular Net Income by Industrial Source, 1940-1944 Absolute and Relative Distribution of Net Income Originating in the Private Economy and in Government and its Subdivisions, Puerto Rico, 1940-1944. . Relation of Federal Funds Received by Insular Treasury to the Net Income Originating in the Insular Government, 1940-1944 Relative Changes (1940=100) in Net Income of Specified Industries of Puerto Rico, 1940-1944 Distributive Shares as a Percent of Total Net Income by Major Industry Groups, 1940-1944 Total Production, Farm Price and Gross Income from Agriculture, Puerto 1939/40 to 1943/44 Farm Expenditures and Net Profit, Puerto., Rico, 1939/40 to 1943/44 Derivation of Net Profit in Sugar Cane Cultivation in Puerto Rico, 1939/40 to 1943/44 Index of Physical Production in Puerto Rican Agriculture, 1939/40 to 1943/44 Net Income of Puerto Rico by Minor Industrial Divisions and Distributive Shares, 1939/40 to 1943/44 Indexes of Retail Prices of Foodstuffs and of Consumers' Prices for Selected Months, July 1939 to June 1944 Federal Grants-in-Aid, Payments Under Cooperative Arrangements and Refunds of Excise and Customs, Puerto Rico, Fiscal Years 1940-1944 8

A2 A3 A4 A5 B1 D1

22 25

26 27 30 31 34 36 44 50 63 68 70 71 93 96

I INTRODUCTION - CONCEPTS AND PROBLEMS OF ESTIMATION Concepts In general and brief terms the productive process, during any period, may be described as Labor working on Capital to produce Output.l This description applies equally to the productive process of a single business enterprise and to the productive processes of all enterprises composing the economy of a given area. In the latter instance the Output is usually referred to as the National Output, but in the case of Puerto Rico it may be more appropriate to refer to the Insular Output. It is the purpose of this report to present a measure of the Insular Output that will show clearly how much of the Insular Output originates in each of the major branches of the Puerto Rican economy and how much of the Output accrues to Labor and how much to Capital. Such information has several important uses. Except under exceptional circumstances involving a drastic alteration of institutional arrangements, annual changes in total Output may be taken to register approximate changes in the economic welfare of the community. To a community such as Puerto Rico, engaged in developing new approaches to its economic problems, it is especially desirable .to have a basis for appraising and establishing its objectives, for measuring the magnitude of its efforts and for gauging the gap between accomplishment and objective. The measure of Insular Output can provide a meaningful basis for such evaluations. The Output in any year consists of a great variety of goods and services that satisfy people's wants. This diversity complicates the problem of measurement. Obviously it is impossible, for example, to add mangos, a ride in a público (inter-urban taxicab) and attendance at a cock fight unless they are all expressed in common terms. The most convenient common denominator—although it is not without its limitations—is money 'The ensuing discussion on concepts has been adapted from J. R. Hicks, The Social Framework (Oxford at the Clarendon Press, 1942), Part IV. 9

value. Hence our measure of the Insular Output is expressed in terms of United States dollars. The measurement of the community's Output most commonly employed makes use of the very important principle that the value of the net output of the community and the total of the incomes of members of the community are exactly equal. The example used by J. R. Hicks illustrates this principle: "It will be convenient to begin with a special case in which this principle is directly obvious. Let us suppose that the whole of the productive system of our community is organized in a single giant firm, which controls all the capital equipment, and employs all the labour. . . "The net social output and the net output of our Firm are then one and the same thing. It consists, as we know, of the total amount of Consumption Goods and Services produced, plus Net Investment, which is the increase in capital equipment brought about by the year's production. The wages of labor have tb be paid out of the value of this output; but all the rest is profit, belonging to the stockholders. The wages of labor are the incomes of the laborers; the profit left over is the income of the stockholders. The value of the social output is thus equal to Wages plus Profits; and Wages plus Profits equals the sum of incomes. The net social output equals the social income. . . ." 2 "The part played by the giant Firm is exactly the same as that played in reality by all the firms which compose industry and commerce, when they are taken all together. Our Firm is simply the whole collection of actual firms rolled into one. . . "The new points which emerge when we pull apart our giant Firm into the multitudinous separate firms, large and small, which correspond to it in reality, are only two in number. On the one hand, we have to take account of the materials and services which are produced by one firm and sold to another, which uses them in its own production. These materials do not come into the picture, so long as industry and commerce are supposed to be amalgamated into a single firm, because the passing on of materials from one stage of production to another is then a purely internal matter within the Firm. When the firms are pulled apart, the sale of materials looks just the same to the firm which ' Ibid., p. 108. 10

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sells them as any other sort of sale does. But since we have also to take into account the purchase of the materials by the firm which uses them, the sale and purchase of such materials will cancel out where all firms are taken together. "The other point which has to be taken into account when we have more firms than one is the possibility that a part of the shares (or other obligations) of one firm may be owned, not by private persons who are stockholders, but by another firm. If this happens, a part of the profits of the one firm will be paid out to the other firms; but here again, when all the firms are taken together, these transferences of profits will cancel out. The only profits left will be those which are actually paid out to private persons, or which remain as undistributed profits." It is this cancellation or elimination of the inter-firm transactions in materials and services that are incorporated in the final output of goods and services of consumers and in the new investment goods, which makes it possible to refer to the final output as net output. The measurement is net in the sense that the total is an unduplicated sum of the output of individual firms. The exact character of this cancellation process is clearly illustrated by the way in which firms do calculate their profits in practice. "The profits which are earned by a firm from the production of a particular year equal the value of its output minus the expenses to which it has been put in order to produce that output; but in the case of a firm which has obligations (stocks or bonds) owing to it from other firms, the interest or dividends received from these other firms may also make a contribution to the firm's profits. The expenses of producing output include (1) wages and salaries; (2) cost of materials used up in order to produce the output; (3) cost of services, such as transport and insurance, provided by other firms; (4) depreciation of the fixed capital equipment. The profit left over after these expenses have been covered is due to the owners of the firm's capital equipment, or to people who have lent money to it with which the equipment has been acquired; thus some parts of the profit may have to be paid out in rent of land or buildings (hired directly), or in interest on borrowed money; what remains is available for dis° Ibid., p. 114. 11

tribution to the firm's shareholders, though a prudent management will usually not distribute the whole of the residue, but will keep back some part of it to add to reserves." 4 A tabular presentation of a more or less typical profit-and-loss account assumes the following form, with hypothetical figures used for illustration: EXPENSES Wages and salaries Cost of materials Transport, insurance and other business services. Depreciation

5,000 2,000

Value of output

250 750

Interest and dividends received from other firms. .

10,000

500

PROFITS Rent of land or buildings. 500 Interest to bond-holders 500 Dividends to stock-holders 1,000 Undistributed profits 500 10,500

10,500

a

$

This is the arrangement of entries that has meaning to the individual enterprise. Our interest, however, extends to the total of economic activity of all enterprises. For this purpose, a more significant total is arrived at if the entries are rearranged in the following manner (permissible so long as the equality of the two sides is retained) 5,000 Value of output

Profits

2,500 Cost of material

10,000

less

Wages and salaries

less

2,000

less Interest and dividends received from other firms. . . .

Transport, insurance, and other business services 500 Depreciation 7,000

250 750 7,000

The significance of the second total consists in the fact that it represents the net output of the enterprise or, as some prefer to call it, the "value added" by the enterprise. It is this total that 'Ibid., pp. 115-16. Hicks notes at this point that "In practice, it would be more usual to reckon the rent of land or buildings as an expense, rather than as part of profits. But since renting is nothing but an alternative way of getting control of capital equipment (the firm might have borrowed money and purchased the land or buildings outright), our tables will come out more neatly if we reckon the rent as part of profits."—Idem. 12

measures the contribution of the enterprise to the net output of the community by measuring the net income accruing to individuals. If the accounts of every enterprise were cast in this form, their total would represent simultaneously the net output of the community's economy and the net income of its individuals. It should be noted in the above example that indirect taxes, which figure in the prices paid by consumers, are not counted as part of the net product. By virtue of excluding indirect taxes, the income is measured in terms of the cost for, or the returns to, the factors of production used in creating the total of goods and services. Hence it is usual to describe the estimate of net income as measured at factor cost. Our illustration serves to clarify the concept and suggests two of several statistical approaches to the measurement of Insular net income. That is, if it is possible to estimate for a given period, say a year, the returns to the Labor factor (salaries and wages) and the returns to the Capital factor (rents, interest, dividends, undistributed profits of corporations, and the net profits of partnerships and proprietorships), the sum of these returns equals the income of the Insular community, which, we have seen, is identical with the Insular net Output. This, in effect, would be the addition for all enterprises of the entries in the left-hand side of the second tabular form. The other statistical approach would involve the addition of all the entries on the right-hand side of the second tabular form. That is, from an estimate of the value of total output there would be deducted estimates of the cost of all materials, transportation, insurance and other business services, and depreciations. The resulting estimate of "value added" by all enterprises also would be equivalent to the net output of the Insular economy. Which approach is in fact used depends on the available data and the type of details deemed most relevant to problems on which the net income estimates are to throw some light. Problems of Estimation A full appreciation of the exact content and limitátien of the 6 A completely different approach measures the value of the output or product directly. This method provides details on the value of different kinds of consumers' goods and services and on new producers' goods (capital). This type of product estimate for Puerto Rico is now in the course of preparation and will be the subject of another report.

13

estimate is necessary if the estimates are to be interpreted and used correctly. One limitation has already been mentioned but needs to be elaborated, i.e., the limitation imposed by the use of money as a standard of measurement. If money is the measure of value of the goods and services or economic activity that satisfies our wants, it is possible to include in our total only those activities which are priced, or, in other words, which are bought and sold in a market. There are, however, activities affecting economic welfare that bear no price. The most obvious example is the activity of housewives. Their services escape the estimator since, their services are not priced in a market nor is there any reasonable basis for imputing a money value to them. When, however, household activities are performed by paid domestic servants, or when work once restricted to the household, such as laundry, is transferred to commercial establishments, these household services have a price and are then included in the net income total. This suggests the need for caution in interpretation. Whenever activities outside the orbit of the market economy come inside that orbit, the net income totals for the two periods are not strictly comparable because, despite the pecuniary increase, there has been no real increase in goods and services. Certain transactions short-circuit the market. Farmers, for example, frequently consume some of the produce they raise, and persons who own and occupy their own dwellings pay no rent. However, since identical commodities or services are priced in a market, it is a relatively simple matter to impute values, and this is the practice followed in this report. Values are also imputed for the part payment of income in kind, such as the meals received by waiters in a restaurant or room and board provided some domestic servants. Some economic activities, though bearing a price are nonetheless deliberately excluded from the net income estimate. Illegal transactions come under this category. Since one of the major uses of the net income total is the determination of trends in economic welfare of the population, it is necessary, therefore, to exclude those items which the community in its legislative wisdom has declared counter to public welfare. The other major problem arising from the use of money values is the fact that the value of money itself fluctuates from one 14

period to another, or, in other terms, there are changes in the level of prices. Such changes impair the significance of year to year comparisons of the net income totals. Unless correction is made for the change in prices, it is impossible to know whether a change in the income totals represents also a change in the flow of goods and services. Íf, however, the income total in each year is expressed in terms of constant prices, no such difficulty arises. Unfortunately, at this time only a crude correction for this factor can be made in the Puerto Rican estimates.° Another limitation concerning the term "net" as it is used in income estimates needs to be appreciated fully. The estimate is defined as net because the intermediate products embodied in final products are excluded from the total. Government services provide a special problem in measurement in accordance with the concept of net income or output. The difficulty stems from the fact that many governmental services do not lend themselves to the twofold classification of intermediate and final products. How much of police protection, for example, is, in effect, a service to business enterprise, and how much a service to the individual members of the commmunity? How allocate the benefits of the construction and maintenance of streets and highways, the work of the sanitation and health departments, the administration of the courts, etc.? In the present stage of the estimating art there is no widely accepted procedure for making the distinctions appropriate to the concept. Under the circumstances, it has been necessary to accept a less rigorous net concept and to include all services of government. The only exception is government-owned business enterprises which may be and are treated like any other business enterprises. That is, the measure of government services is a gross value rather than a net value, since intermediate services to the business community are included and since no allowance is made for the depreciation of government assets. The total for the entire economy, nevertheless, is still referred to as the net income total. In the estimate of Puerto Rican net income, this fact is not a significant bias, since, even in time of war, the share of income originating in government does not exceed one-third of the total net income. 'The character of the correction made is described in Appendix B. 15

The exact territorial area covered by the net income estimate needs to be clearly understood. We are interested, as we said before, in measuring the output (or net income) resulting from Labor in Puerto Rico working with Capital located in Puerto Rico. Or, we should say, this is a first approximation of our objective. The total as just stated measures the net income produced in Puerto Rico. While this is a meaningful total, since annual changes in this total measure annual changes in the "productiveness" of the Puerto Rican economy, for purposes of judging trends in economic welfare it is more relevant to know what is received in return for their economic activity by persons resident in Puerto Rico. Since there is no slavery in Puerto Rico, the return to the labor factor employed in Puerto Rico accrues to Puerto Rican residents. This need not be true, however, of the returns on capital which accrue to the owners of capital who may or may not be residents of Puerto Rico. It is necessary, therefore, to subtract returns to capital of owners who reside outside of Puerto Rico. By the same token it is necessary to add to the Puerto Rican net income total the returns on capital owned by Puerto Rican residents, but employed outside of Puerto Rico. The resulting total will be called "net income received" by Puerto Ricans, including those temporarily absent from the Island— such as soldiers on overseas duty.' For certain problems—inflation would be one of them—it is helpful to use a variant of the "net income received" concept which, we have seen, measures undistributed profits of corporations plus the income received by individuals in return for economic activity. Individuals may also receive income that is not a return for labor expended or for the use of their capital. Examples of this are relief grants. Such receipts of income by individuals are called transfer payments. On the other hand, the undistributed profits of corporations, although accruing to the individuals who own the stock, are not available to those individuals to dispose of as they see fit. When the problem is, therefore, to compare the flow of income in a given period with 'For more extended discussion of these and other problems surrounding the net income concept and its measurement see Simon S. Kuznets, National Income—A summcury of Findings (National Bureau of Economic Research, Inc. New York, 1946), Part IV "Problems of Interpretation." 16

the flow of goods and services, the net income estimates have more relevance if the undistributed profits of corporations are excluded from the total of net income received and the transfer payments are added. The resulting total is referred to as "income payments to individuals." Comparisons of income estimates among different countries necessitate agreement on the definition of concepts and on estimating procedures. A start in this direction has been instituted by the official income estimators in the United States, Great Britain and Canada. The area of their agreement was described by Mr. Edward Denison at the Conference on Research in National Income and Wealth in 1945.8 The estimate for Puerto Rico has been prepared in accordance with these agreed-upon procedures to the extent that available data permit. The only departure from these accepted procedures occurs in the treatment of the banking industry. Data are lacking for imputing a service income to enterprises (by major industry classification) holding deposits in banks. The effect on the net income total, however, is nil, although it does involve some slight distortion of the industrial distribution of net income. While the net income estimate for Puerto Rico conforms conceptually to the net income estimate of the United States, the Puerto Rican estimate cannot be presented in the same detail as the latter. There are several reasons for the difference in detail; for example, variations in types of economic activities and differences in the adequacy of statistics. Perhaps of more importance, however, in this connection are the institutional differences in the business structure. The dominant organizational form in the United States is the corporation, with ownership of stock widely dispersed among the people. For this reason, in the estimates for the United States it is significant to show the net profit of proprietorships (which also includes a return for the proprietors' labor) separately from the net profit of corporations, broken down into dividends disbursed and undistributed profits (corporate savings). By contrast, the predominant organizational units in Puerto Rico are the single proprietorship, partnerships, and family"A Report on International Discussions of National Income Measurement" by Edward F. Denison, Vol. 10 of Studies in Income and Wealth of the Conference on Research in Income and Wealth. 17

owned corporations, the last named form being in most essentials indistinguishable from the first two forms. The exceptions are some of the corporations owned by Continental interests which operate the four largest sugar mills, several of the distilleries, the telephone system, the steamship lines, and some of the banking facilities, to name the most outstanding examples. Since dividends paid, therefore, are virtually identical with dividends paid to non-residents, they are eliminated from the total of net income produced to arrive at the total of net income received by Puerto Ricans. For this reason corporate profit and its components are not singled out. The general statistical approach, as previously stated, involves estimates of the income shares in each major industry group, with the exception of agriculture, where the "value added" method was used. The estimates have been prepared on a fiscal year basis running from July 1 to June 30 for the five-year period 1940-1944. The selection of the fiscal year as the time period was dictated by several considerations, viz., the wage records and government expenditures are on this basis, and it coincides with the sugar crop year. In Appendix A the source of data and methods of adjustment are set out in considerable detail. At this point, however, a few general remarks on the data and their adjustment are pertinent. The Puerto Rican population and the important segments of the Puerto Rican economy were surveyed by the United States Bureau of the Census in its decennial canvass of 1940. Agriculture, manufactures, trade, services and housing were the subjects of enumeration. The amount of detail provided by each enumeration varies from industry to industry. In agriculture, for example, there is a comprehensive report on physical production, but very restricted information on the value of production. The Census of Manufactures contains the standard Census information on personnel, value of production, wages and salaries, and cost of materials, fuel and power by minor industries. The Census of Trade and Services is the least informative with tabulations limited to the number of enterprises, volume of sales, and number of employees and proprietors. In one way or another these Census data were used to estab18

lish benchmark figures in the fiscal year 1939/40,8 and these figures were extrapolated to 1943/44 on the basis of relative movements in sample totals, which, in the case of wages and salaries, were in many instances virtually identical with their particular universe. The main source for wages and salaries are the records of the State Insurance Fund which administers the workman's compensation system. All employers, including farmers and households, of three or more employees are obliged to report their payrolls annually as a basis for the assessment of premiums. It is possible to tabulate the payroll data by minor industry groups. To determine the magnitude of the returns accruing to capital, i.e., net profits, interest and rents, the files of the Insular Bureau of Income Tax were canvassed for the income tax schedules of those enterprises which reported to the State Insurance Fund. The tabulation of entries from income tax schedules was necessary because summary statistics of income by industry groups were not available. These tabulations derived from income tax data were used to determine ratios of return on capital to the payroll or sales, as the case might be, industry by industry and year by year. The ratios were then applied to the appropriate industry totals. BIn a few instances there was evidence of under-reporting to the Census enumerator. This was notably true in the reporting of the number of cattle and milk production. The discrepancy was disclosed by a comparison with the number of cattle reported to the U. S. Bureau of Animal Industry in a census taken at the same time in preparation for the tick eradication program. The under-reporting on this item seems to have been a chronic problem of the estimator. Thus, one investigator writing in 1834 reported the following:—"By taking into consideration the quantity of hides manufactured into leather by two tan-yards, which tan upwards of 2,000 annually, —and bearing in mind that a great numb& of raw hides are converted by the inhabitants to different uses, such as making gear and harness for mules, working horses, etc.,—I form (as an approximate estimate, deduced from all the information I have been able to obtain) the calculation, that there are about 23,000 head of horned cattle, great and small, slaughtered and consumed on the island annually. I make this calculation to show that the number of cattle in this island is more than double the number which the statistical account of the government presents. As a proof of this I may mention the fact, that when the magistrates of different valleys of the island, after the dreadful hurricane of 1825, gave in a return to government of the number of cattle destroyed by its violence, the magistrates of Yabueao and Bayamón gave in, as drowned and killed, more than double the number that was returned officially to government as existing that year in those places." Colonel Flinter, An Account of the Present State of the Island of Puerto Rico. (London: Longman, Rees, Orme, Brown, Green and Longman, 1834) p. 165. 19

Due to the problems of enforcement, the smaller firms, though they are liable to file, do not in fact file income tax returns, and there is a strong presumption that many of those who do return income tax schedules understate net profits. These two considerations tend to be offsetting biases. That is, the larger enterprises—those that render returns—tend to have higher ratios of net profit to sales than do the smaller enterprises that do not file. This factor, unless counter-balanced by other factors, would mean that the sample profit ratio in a given industry is higher than the profit ratio typical for that industry, thus imparting an upward bias to the estimates. This upward bias, however, is countered by the downward bias which results from the understatement of the reported net profits. The resulting profit ratios, therefore, are probably close to the "real" ratios. On the whole, the estimate may be considered a conservative one, and in view of the data on which the estimate is grounded, it qualifies as a Class I estimate. The latter has been defined by Colin Clark as, "based on accurate taxation or production census statistics." While the estimate for Puerto Rico is not as detailed or as firmly based on underlying data as the estimate for the United States, it is clearly more firmly grounded than are the official estimates of Great Britain and Canada, both considered by Colin Clark as Class I estimates.* * Colin Clark, The Conditions of Economic Progress (Macmillan & Co., Ltd., London 1940), p. 35.

20

II RECENT TRENDS IN THE LEVEL OF INSULAR NET INCOME 1° Total and Per Capita Net Income in Current Prices During the first year of European hostilities Puerto Rico's net income amounted to $228 millions. With the subsequent rise in prices and the consequent stimulation to production, Puerto Rico's net income continued to rise steadily and substantially above the 1940 level. By 1944 the Insular net income was more than double the total of 1940. The rising trend however antedates the war years. Some perspective is gained by linking our estimates for 1940-44 with those relating to the preceding decade prepared by Dudley Smith for the Sugar Producers' Association of Puerto Rico.11 This series is set forth in Table 1. Annual averages for each of the three five-year periods more clearly establish the trend: Insular net income, annual averages (in millions of $) 167 202 357

1930-34 1935-39 1940-44

Recovery from the depression of the early 30's, as reflected by income estimates, had begun in the second half of the decade. The wartime conditions supported the rising trend and sharply accelerated the rate of increase. More meaningful for considerations of changes in economic welfare are the trends in per capita net income (Table 1). In 1930, Puerto Rico's per capita net income amounted to $122, less than one-fifth the per capita net income of the United States in the calendar year 1929, the year of greatest prewar prosperity in the United States. With the onset and the worsening of the Great Depression the per capita net income of Puerto Ricans de-

u

10 Unless otherwise stated the time unit employed is the fiscal year ending June 30. Dudley Smith, Puerto Rico's Income, Sugar Producers' Association of Puerto Rico, Wash., D. C., 1943.

21

TABLE 1. Estimates of Net Income, Population and Per Capita Net Income for Puerto Rico, 1930-1944. Population Per capita Insular net income of Puerto Rico net income (in dollars) Year ending June 30 (in thousands) (in millions of $) 1930 1544 122 189 107 1931 1580 169 97 1616 1932 156 85 1652 1933 140 106 1934 1688 179 103 1935 1723 177 114 1754 199 1936 118 1785 1937 210 119 1816 1938 217 112 1847 1939 207 121 1878 1940 228 145 1914 1941 278 185 1950 1942 361 219 1987 1943 436 239 2024 1944 483 Source: For net income estimates see text above. Population estimates 1930-1935 and 1935-1940 are straight line interpolations between Census enumerations; thereafter population extrapolated on basis of geometric rate of growth in period 1935 to 1940, see Basic Statistics on Puerto Rico (Office of Puerto Rico, Washington, D. C. 1946) p. 4.

creased precipitately, reaching a low level of $85 in 1933. After a sharp rebound in 1934, the increases in per capita net income were much more moderate and gradual and it was not until 1940 that the 1930 level was again attained. During the war years, however, the gains in net income greatly outstripped the everincreasing population. Thus the per capita net income of $239 in 1944 was almost double the per capita figure for 1940. Once again the annual averages for each of the five-year periods clearly disclose the recent trend: Per capita net income, annual averages (in dollars) 102 113 182

1930-34 1935-39 1940-44

Total and Per Capita Net Income in 1940 Prices Still more relevant to considerations of economic welfare are the various measures of net income in constant dollars. This concept eliminates the effect of price changes. Unfortunately, because of the inadequacy of the price statistics for the earlier 22

years, such correction can be made only for the last five-year period: 12

1940 1941 1942 1943 1944

Total net income In In 1940 current prices prices (in millions of $) 228 228 252 278 272 361 285 436 305 483

Index of total net income In In 1940 current prices prices 100 122 158 191 212

100 111 119 125 134

We see from the above that the 112 percent increase in net income between 1940 and 1944 was only a 34 percent real gain on the basis of 1940 prices. That is, about 70 percent of the nominal rise in net income resulted merely from bidding up prices for the factors of production. Only 30 percent of the nominal rise can be attributed to an increase in output. A comparison of the per capita net income in current and constant prices indicates differences of nearly the same relative magnitude:

1940 1941 1942 1943 1944

Per capita net income In In 1940 current prices prices (in dollars) 121 121 131 145 140 185 143 219 151 239

Index of per capita net income In In 1940 current prices prices 100 120 153 181 198

100 108 116 118 125

Thus a per capita net income of $239 in 1944, when' expressed in 1940 prices, becomes $151, only 25 percent higher than the prewar per capita figure of $121. Per Capita Income and the Population Problem These findings should give serious pause to those who contend that the Puerto Rican population problem will solve itself when wage-earner families attain a level of income between $700-$800 in prewar prices. While it goes beyond the scope of our data to question the validity of this proposition, the income estimates, however, can serve to indicate the enormity of the economic task 'a

For the method used in correcting the net income totals, 1940-44, for price changes, see Appendix B. 23

involved in the fulfillment of the terms of the premise. A survey of wage-earner incomes in 1941 disclosed that the average annual earnings per family were $341.13 Expressed in prewar (193940) prices this would amount to about $250. That is, to reach the desired objective the real annual income of wage-earner families must be treble their 1941-42 earnings. During the war period, which, on balance, was an auspicious time for the expansion of the Puerto Rican.economy, the average annual gain in per capita income (in pre-war prices) was $5.20. On the assumption of 5.2 persons per family reported by the Census of Population, 1940, this amounts to an average annual real gain per family of $26. If this average annual addition to family income could be continued without interruption, it would require about 18 years to achieve the objective. That is, the goal would be achieved in 1960 when, according to estimates based on medium assumptions, the population would be about 2,800,000. It would not be far wrong to assume further that a tripling of the real income per wage-earner family would also entail a tripling of the real per capita net income. The latter, in prewar prices, we have seen above, is estimated at $140 in 1942; tripled, it amounts to $420. This figure multiplied by the estimated population for 1960 yields a net income total of $1.2 billions in prewar prices. Thus, to apply the economic brake on population growth would entail in 18 years an Insular net income, in prewar prices, five times larger than the prewar net income of $228 milliens. Such a rate of expansion of real income is without precedent. Moreover, in order that the Puerto Rican economy undergo such rapid and sustained expansion in the face of an ever growing population, it would be necessary to assume that the pressure of population on resources had not reached serious proportions. Casual observation, however, and the knowledge that there are no reserves of arable land, no mineral deposits of any consequence, and, by Western standards, a relatively low level of education and health, all serve to render such an inference false. It is because the potentialities for expansion of real income appear to be much more limited, that it is imperative to devise and exe"Alice C. Hanson, "Income and Expenditures of Wage Earners in Puerto Rico, 1940-41," Monthly Labor Review, (U. S. Department of Labor), Feb. 1943. 24

cute policies without delay that will serve to stabilize, if not reduce, population and simultaneously serve to expand real income. Changes in Income Payments and the Problem of Inflation To appreciate the magnitude of the inflationary pressures generated during the war, it is necessary to use a variant of the net income estimate, namely, income payments to individuals. As explained previously, this total includes the receipt of income by individuals not necessarily earned as returns to the factors of production and, in the case of Puerto Rico, the earnings of the Continental servicemen stationed on the Island. The following table indicates the derivation of the total of income payments to individuals from the Insular net income tota1:14 TABLE 2 Derivation of Estimates of Income Payments to Individuals from Estimates of Insular Net Income, 1940-1944. 1944 1941 1942 1943 1940 (in thousands of $) 278,240 360,730 1. Insular net income . . . 227,789 436,199 482,670 2. Interest received by individuals from Govern29 32 49 116 296 ment 3. Veterans' pensions and 1,741 1,990 1,975 1,503 cash grants under NYA 4. Net pay of Continental servicemen stationed in 13,184 3,944 7,484 8,825 23,137 Puerto Rico Less 5. Net pay of Puerto Rican servicemen stationed 728 8,997 outside of Puerto Rico Total income payments to 450,274 497,106 individuals 233,503 287,746 371,579

The inflationary pressure resulted from the disparity in the rate of increase in the income of individuals and in the available supplies of commodities (Table 3). Income payments, for example, increased by 113 percent over the five years, while agricultural production, excluding sugar, coffee, and tobacco, expanded in the best of the five years only by 18 percent. On the other hand, imports of several important foodstuffs such as rice, wheat flour, lard, corn meal, and dried beans and peas, on the average, either declined or were no more than maintained at the " For the notes on its derivation see Appendix C. 25

prewar level. Only fish and meats were imported in any appreciably greater volume. Commodities other than foodstuffs, most of which are imported, were in still shorter supply due to shortages in the Continental United States and severe restrictions on shipping space. TABLE 3 Indexes of Income Payments to Individuals, Agricultural Production for Local Consumption, and Physical Volume of Imports of Selected Foodstuffs for Puerto Rico, 1940-1944. (1940 = 100) 1940 1941 1942 1943 1944 Index of income payments to individuals 100 123 159 193 213 Index of Agricultural production, excl. principal crops and mist, products 100 111 107 118 116 Indexes of physical volume of imports: Fish 100 105 108 86 142 100 106 104 175 173 Meat 100 79 86 98 123 Lard and lard compounds 100 103 65 92 98 Rice 100 162 72 92 92 Wheat flour 100 81 74 59 49 Corn meal 94 132 Beans and peas dried 100 103 76 100 126 116 10 68 Potatoes Source: For income payments see text above. Index of agricultural production based on data in Appendix Table Al, and indexes of selected imports based on official import statistics reported in Annual Book of Statistics, issued by P. R. Dep't. of Agriculture and Commerce and data supplied by the P. R. General Supplies Administration; adapted from Basic Statistics, op. cit., p. 52.

So great were the resulting pressures on prices that consumers' prices had risen by more than 50 percent between 1940 and 1943 when OPA controls were initiated. Income Payments in Puerto Rico and in the Poorest States of the Union The use of this variant of income payments also makes possible a comparison of the level of income in Puerto Rico with that of the poorest areas in the United States. In Table 4 are shown the five States with the lowest per capita incomes in 1939 and 1944.iá In 1940 the per capita income payments to Puerto Ricans were only three-fifths of the per capita income payments received by Mississippians, the lowest in the United States. The differences in real income may be somewhat less than these nominal differFor this purpose the income received by Continental servicemen stationed in Puerto Rico is excluded from the computations. Imputed rents are also excluded to achieve comparability with the state estimates. 26

TABLE 4 Per Capita Income Payments in Puerto Rico and In the Five States with the Lowest Per Capita Income Payments, 1940 and 1944 Per capita income payments 1944 1940 (in dollars) 117 228 Puerto Rico 541 202 Mississippi 252 617 Arkansas 677 268 Alabama 652 286 South Carolina 701 308 Kentucky Source: Figures for the states taken fr at Survey of Current Business, (U. S. Department of Commerce) August, 1946.

ences since even in these southern states larger expenditures on clothing and housing are required than in Puerto Rico to attain the same degree of comfort. During the war years the gap between Puerto Rico and the lowest income states was further widened. In each of the five states the per capita income payments more than doubled over the five years; in Puerto Rico the increase was less than 100 percent. Moreover, since the rise in consumers' prices was much higher in Puerto Rico than in these Continental areas, difference in real gain was even more marked than the difference in to nominal gain. These comparisons suggest in a rough way the size of any undertaking designed to raise the level of per capita income payments in Puerto Rico to the level of those in the lowest income states, which, incidentally, have long been characterized as the number one problem area of the United States. Net Income in Puerto Rico and in Other Caribbean Economies In the light of this, Puerto Ricans can derive small comfort from the fact that their per capita net income exceeds that of Cuba and the British Caribbean possessions. This is disclosed by the following comparisons :16 Per capita net income 1942 (in dollars) 185 159 138 104 102 90 57

Puerto Rico Cuba (Calendar year 1943) British Guiana Jamaica Barbados Grenada St. Vincent

These differences in per capita net income probably reflect 1°

Unfortunately there are no reliable net income estimates for any of the 27

quite closely differences in real income, since variations in consumption habits resulting from differences in climate are excluded. Moreover, price level differences due to inclusion in different trading areas were largely dissipated in the war years by the main dependence of the entire region upon supplies from the continental United States. Net Income Produced and Received Our estimates also make it possible to establish the relative importance of the Insular net income produced in Puerto Rico but claimed by persons residing outside of Puerto Rico. To reach the total of net income produced, it is necessary to add the net income originating in each industry without any allowance for the international flow of capital returns: 17

Net income produced 1940 1941 1942 1943 1944

231 282 366 441 488

Net income received by Net income residents of paid to nonresidents Puerto Rico (in millions of dollars) 3 228 4 278 361 5 5 436 5 483

Net income paid to nonresidents as percent of net income produced 1.3 1.4 1.4 1.1 1.0

In no year during this period did the returns on property claimed by non-residents exceed one and one-half percent of the net income of Puerto Rico. (On a net income basis there were virtually no counter-claims by residents of Puerto Rico.) Much the larger part of these transfers of capital returns were the transfers of profit of the four companies operating in the sugar industry and owned by residents of the Continental United States. If all payments to non-residents for the use of their property in Puerto Rico were retained in Puerto Rico, in no year of the five would this amount have added more than two and a half dollars to the per capita net income of Puerto Ricans. independent islands or countries of the Caribbean region except Cuba. The estimates for the British possessions are adapted from the estimates prepared by Frederic Benham and published as Bulletins 5, 8, 9, 12 and 17 in Development and Welfare in the West Indies (Advocate Co., Bridgetown, Barbados.) Pounds sterling converted into dollars at the rate of $4.00 per pound. The estimate for Cuba is adapted from "National Income Estimates of Latin American Countries" by Loreto M. Dominguez, a paper presented to the 1945 Conference on Research in Income and Wealth of the National Bureau of Economic Research. One Cuban peso = one dollar. " See Appendix Table A5. 28

III INDUSTRIAL SOURCES OF PUERTO RICO'S NET INCOME Prewar Structure of the Puerto Rican Economy The prewar structure of the Puerto Rican economy may be discerned from the industrial sources of its net income in 1940. ( Relative . distribution of net income by minor industries is set forth in Table 5.) For summary purposes the economy may be divided into three groups of industries: commodity producing (agriculture, manufactures and contract construction) ; distributive industries (transportation, power and gas, communication, and trade) and the service industries (finance, real estate, services and government) . Of these three groups the commodity producing industries were most important in 1940, accounting for 44 percent of the Insular net income. The predominance of agriculture is established by the fact that it originated threefourths of the group's net income and 31 percent of the Island's net income. By comparison, the income derived from manufactures represented only 12 percent of the Puerto Ricap total. Net income from the distributive industries in 1940 was the source of almost one-fifth of all net income, with retail and wholesale trade almost equal in importance to manufactures. The service industries, on the other hand, producing 38 percent of all net income, more nearly rivaled in importance the commodityproducing group. Income from Government services dominated the service group. The activities attendant upon the prosecution of the war resulted in the relative decline of the commodity-producing industries, the maintenance of the importance of the distributive industries and a very sharp rise in the role of the services, more particularly, of government. So great was the expansion of government services during the war, that it is necessary to separate the governmental sphere from the private economy in order to observe the more moderate changes in the latter. The Government as a Source of Net Income Income originating in government increased by almost 300 29

TABLE 5 Per Cent Distribution of Insular Net Income by Industrial Source, 1940-1944" Percent of total net income for years ending June 30 Industry Groups 1940 All industries 100 31.0 Agriculture, total Sugar cane cultivation 15.7 Other agriculture 15.3 Manufactures, total 11.5 Sugar mills and refineries 4.0 Distilling and bottling spiritous 0.7 liquors Breweries and carbonated Bever0.3 ages Bakery products 0.5 0.3 Misc, food products 1.0 Tobacco products 2.4 Needlework and other textiles. . . Lumber, furniture and other wooden products 0.3 Stone and clay products 0.3 Printing, publishing and allied 0.4 trades 0.5 Chemicals and allied products 0.5 Machinery and mist. metal prod 0.3 Misc. manufactures 1.1 Contract construction Transportation, total 5.9 0.7 Steam railroads Shipping, stevedoring and harbor1.1 craft 4.0 Motor transportation 0.1 Other transportation serv. 0.8 Power and gas 0.3 Communication 10.7 Trade 1.4 Finance, total Banking 0.8 0.6 Insurance 18.5 Government, total 9.1 Federal 8.2 Insular, total 7.2 Regular agencies 1.0 Business enterprises 1.2 Municipal 9.0 Service 9.4 Real estate Miscellaneous 1.9 Net internat. flow of capital returns. . —1.5

1941 100 28.2 13.1 15.1 10.6 3.9

1942 100 29.4 14.2 15.2 11.7 4.1

1943 100 27.6 11.5 16.1 9.6 2.4

1944 100 22.7 7.1 15.6 11.7 2.0

1.0

1.4

1.6

3.0

0.3 0.4 0.3 1.0 1.7

0.5 0.5 0.3 1.1 1.9

0.6 0.6 0.4 1.1 1.4

0.7 0.7 0.4 0.8 2.2

0.3 0.3

0.3 0.2

0.2 0.2

0.3 0.3

0.4 0.3 0.4 0.3 4.2 7.1 0.6

0.3 0.4 0.5 0.2 2.0 6.8 0.4

0.3 0.3 0.3 0.2 0.3 5.7 0.5

0.3 0.4 0.3 0.3 0.3 5.9 0.4

1.5 4.9 0.1 0.7 0.3 10.5 1.2 0.7 0.5 20.4 12.0 7.4 6.5 0.9 1.0 8.9 7.7 1.7 —1.5

1.3 5.0 0.1 0.5 0.3 10.7 1.1 0.6 0.5 22.9 15.2 6.8 5.8 1.0 0.9 7.9 6.6 1.4 —1.3

0.7 4.4 0.1 0.1 0.2 10.2 1.0 0.6 0.4 31.1 23.3 7.1 5.9 1.2 0.7 8.0 6.0 1.3 —1.1

0.8 4.5 0.2 0.1 0.3 11.1 1.0 0.6 0.4 33.1 24.4 7.9 6.7 1.2 0.8 7.7 5.8 1.3 —1.0

'The dollar aggregates are given in Appendix Table A5. 30

Percent of Insular net income originating in specified industry group 1940 1941 1942 1943 1944

Industry groups All industries 10o Commodity-producing industries 44 Agriculture (31) Distributive industries 18 Trade (11) Service industries 38 Government (18)

100 43 (28) 19 (10) 38 (20)

100 43 (29) 18 (11) 39 (23)

100 38 (28) 16 (10) 46 (31)

100 35 (23) 17 (11) 48 (33)

percent; income originating in the private sphere expanded by only 77 percent. After allowance for price changes, the expansion of the private economy in "real terms" was very modest indeed—only 10 percent. Or, expressed another way, income from governmental activities constituted 18 percent of the total net income in 1940 and 33 percent in 1944, (Table 5) . For obvious reasons, the most rapid expansion occurred in the Federal government: from 9 percent of total net income in 1940 to 24 percent of the total five years later. Income directly traceable to the war activities of the Federal government increased from $8.1 millions in 1940 to $106.4 millions in 1944. The magnitude of the war created income is also an approximate measure of the magnitude of the postwar problem that confronts Puerto Rico if it is to maintain TABLE 6 Absolute and Relative Distribution of Net Income Originating in the Private Economy and in Government and Its Subdivisions, Puerto Rico 1940-44 Net income in year ending June 30th (in millions of dollars) 1941 1940 1942 1943 1944 278.2 227.8 360.7 436.2 482.7 Insular net income, total 300.4 185.7 221.5 278.2 322.9 Net income from private econ 42.1 56.7 82.5 135.8 159.8 Net income from government Federal government War agencies 4.3 8.7 11.2 33.8 51.1 Armed forces 26.6 46.9 52.8 10.2 Construction of bases. . 3.8 2.5 0.2 0.6 2.2 Executive agencies 14.2 16.3 18.6 11.3 12.4 Peacetime agencies Insular government 32.3 16.5 18.0 20.9 25.7 Regular agencies 6.0 2.6 5.5 2.4 3.6 Business enterprises 3.1 3.8 2.8 3.3 2.7 Municipal government Insular net income, total Net income from private econ Net income from government. .

100.0 81.5 18.5 31

Percent of Insular net income 100.0 100.0 100.0 77.1 68.9 79.6 31.1 20.4 22.9

100.0 66.9 33.1

Net income from government Federal government War Agencies Armed forces Construction of bases Executive agencies Peacetime agencies Insular government Regular agencies Business enterprises Municipal government

Percent of net income originating in government 100 100 100 100 100

29.4

15.3 18.0 0.3 25.1

13.6 32.4 0.7 19.7

24.9 34.6 1.6 13.7

32.0 33.0 1.6 7.0

39.2 5.6 6.4

31.8 4.5 5.0

25.3 4.4 3.9

18.9 4.0 2.3

20.2 3.8 2.4

10.3 9.1

its wartime level of net income. With the completion of demobilization, income originating from Federal military expenditures in Puerto Rico would probably not exceed $25 millions at 1944 prices. On the basis of this calculation, in order to maintain the 1944 level of net income, the remainder of the economy would have to generate an additional $81 million of net income, or about 17 percent of the 1944 total. Such a replacement of income by peacetime endeavor would be a large task, especially when we remember that despite a war impetus, the private economy of Puerto Rico increased only 10 percent from 19401944, although these years, on balance, were favorable ones for economic development. Even if this goal were achieved, however, it would involve a decline in per capita net income since.population will continue to increase. Moreover, if genuine advances toward collective security should occur, income from military • expenditures would be less than the estimated amount, thereby widening the gap to be filled. The income originating in the non-war agencies of the Federal government fluctuated within a much narrower range, expanding by 50 percent in 1943 and contracting below prewar levels in 1944 with the liquidation of the program of the Works Progress Administration. Little or no expansion of this sector is anticipated unless Puerto Rico is to be covered by all the titles of the U. S. Social Security Act, which would require the presence of administrative personnel. The net income generated by the Insular and municipal governmental agencies has also undergone a steady rise but at a somewhat lower rate than the net income total. While income from this source accounted for 9.4 percent of Puerto Rico's net income in 1940, it constituted only 8.7 percent in 1944. The most strik32

ing gains have been made by the business enterprises, of the Insular government.18 This reflects the decision of the Insular government to improve and expand the services of the public utilities through government ownership and operation, to carry out a land reform program, and to provide private entrepreneurs with examples of the feasibility of risk-taking in untried fields of manufactures. The income from these enterprises increased steadily over the five years, from $2.4 million to $6 million, a gain of 156 percent. In 1944, however, income from this source accounted for only 1.2 percent of the Island's total net income and only 1.9 percent of the net income originating in the private economy. In the light of this, the characterization of the Puerto Rican economy as one of State socialism constitutes an extravagant example of poetic license. The gradual increase over these years in the income derived from the regular agencies of the Insular and municipal governments is due only in small part to the upward pressure on wage rates and salaries. For the most part it represents a real expansion in government services. For example, during this period public health units were increased from 81 to 160 and more than 1,000 teachers were added to the public school system, an increase of 17 percent in the teaching stafl'.19 It is only in a technical sense that we may refer to all the income paid out by the Insular government as originating with it. True, the work of the government is organized and performed by the servants of the Insular government and payment for the work is made with funds from the Insular treasury. Some of these funds, however, have been derived from Federal sources. The importance of Federal funds can be seen from the following data: 19 For a list of government business enterprises, see item 28 of the notes to Appendix Table A5. Most of the Authorities were created by the Legislatures of 1941 and 1942. The latest enterprise, the Agricultural Company, was given legislative sanction in 1945. For a description of these business enterprises see "Puerto Rico's Bootstraps", by Grace and Rexford Tugwell, Harpers Magazine ( Feb. 1947) . 1B

Basic Statistics on Puerto Rico, op. cit. p. 20 and p. 75.

33

TABLE 7 Relation of Federal Funds Received by Insular Treasury to the Net Income Originating in the Insular Government, 1940-1944 (in thousands of dollars)

Net income of regular agencies of Federal Insular Govfunds less Federal Insular Net income ernment acoriginating tually adFederal surplus as funds less vanced by funds in regular Annual Insular Total dispercent of received by Insular Treasury bursements Insular dis- agencies of the Federal Insular Treasury by Insular bursements the Insular Government surplus Year Treasury (1) — (2) Treasury (3) — (4) Government (5) X (6) Surplus (1) (2) (4) (5) (6) (7) (3) 1,783 1940 16,505 5,557 303 5,254 48,795 10.8 2,525 1941 7,664 266 14.0 18,036 7,398 52,779 647 1942 19,099 17,272 3.1 20,881 1,827 58,333 3,670 1943 19,362 25,661 9,112 10,250 71,709 14.3 1944 68,146 32,281 4,035 57,013 11,133 89,993 12.5 Source: For derivation of figures in column 1 see Appendix D. Figures in columns 2 and 4 from Basic Statistics op. cit., p. 69. Of the total Federal funds received the following amounts (in thousands of dollars) were derived from the refund of Federal internal revenue taxes on distilled spirits: $2,763; $4,552; $13,901; $13,938; $65,768. Ibid. p. 71.

In the last three years the budgetary surplus was relatively substantial and was due entirely to Federal funds. Except during the period 1942, these surpluses were, in addition, sufficient to account for one-tenth to one-seventh of actual disbursements of the Insular Treasury. The ratios (Table 7, col. 5), when multiplied by the net income technically originating in the regular agencies of the Insular Government, provide a measure of the additional net income that may be said to originate actually with the Federal government. It has varied from $650,000 to $4,000,000, or from approximately two-tenths of one percent to about one percent of the total net income of Puerto Rico. From this analysis it is clear that Federal aid through Insular instrumentalities has consisted primarily in the creation of a surplus to finance capital improvements and government business corporations. The net income of the business enterprises of the Insular government, therefore, also may be attributed in a real sense to Federal funds. Net income from this source has been in the neighborhood of one percent of Insular net income. Wartime Trends in the Private Economy It was noted above that during the five year period examined, net income originating in the private economy expanded 74 percent; in government (Federal and Insular combined), 280 percent, and that in 1940 prices the expansion of the private sphere did not exceed 10 percent. That is, about five-sixths of the nominal rise could be attributed to higher prices. The "real" gain was circumscribed by the fact that there were no unused agricultural lands or idle capital equipment to be brought into productive use during the war years. Moreover,, new capital goods for non-ordnance production—and virtually no other existed in Puerto Rico—were severely limited by Federal regulation. Thus, Puerto Rican industries were not in a specially favorable position to take advantage of the war-created shortages that existed both in Puerto Rico and in the Continental United States. Nonetheless, certain developments did occur, and some of them may persist beyond the war and its immediate aftermath. Net income originating in sugar cultivation, for example, failed to keep pace with the expansion of the private sector generally; income increased in the best year by 43 percent (Table 35

8) . The decline registered in the last year reflects the crop failure caused by a drought, and the relatively smaller gains in the other years stem from early and effective control over prices at every stage by the Federal government. Inadequate supplies of fertilizer also contributed to this result. TABLE 8 (1940 = 100) in Net Income of Specified Industries of Puerto Rico, 1940-1944° Industry groups 1941 1942 1943 1944

E..d Li+C Cliar.gs

122 All industries 119 Private economy 111 Agriculture, total 102 Sugar cane cultivation 121 Other agriculture 111 Manufactures, total 116 Sugar mills and refineries 181 Distilling and bottling of spiritous liquors. . 133 Breweries and carbonated beverages 100 Bakery products 133 Misc, food products 117 Tobacco products 78 Needlework and other textiles Lumber, furniture and other wooden products 133 133 Stone and clay products 111 Printing and publishing and allied trades 91 Chemicals and allied products 109 Machinery and misc, metal products 133 Misc. manufactures 450 Contract construction 147 Transportation, total 107 Steam railroads 158 Shipping, stevedoring and harborcraft 151 Motor transportation 133 Other transportation services 111 Power and gas 114 Communication 121 Trade 109 Finance, total 111 Banking 108 Insurance 135 Government 162 Federal 110 Insular, total 109 Regular agencies 113 Business enterprises 104 Municipal 120 Service 100 Real Estate 112 Miscellaneous 119 Net international flow of capital returns

158 150 150 143 158 160 160 306 300 150 200 167 117 183 133 122 118 189 150 273 182 93 177 199 167 94 143 158 131 121 146 196 266 130 127 156 118 140 113 121 139

The dollar aggregates are given in Appendix Table AS. 36

191 162 170 140 203 158 111 431 433 225 283 212 96 183 167 144 127 109 150 54 183 147 115 207 233 22 157 183 138 126 154 323 493 165 156 235 118 169 122 143 142

212 174 155 95 217 214 105 894 583 275 350 171 181 217 217 189 164 136 233 54 210 127 150 240 267 17 186 220 153 158 146 380 571 204 196 261 141 181 134 150 139

The net income generated in other branches of agriculture, on the other hand, outstripped general developments, particularly during the last two years of the period. This rise was attributable to substantial increases in production of foodstuffs locally consumed (except green únd leafy vegetables) and to even more substantial relative increases in prices which were not controlled until 1943, and then without the same effectiveness as in the case of sugar.20 In the latter part of the period covered, these branches of agriculture overshadowed in importance, as measured by net income generated, the cultivation of sugar. This shift may well continue as a structural change in the Puerto Rican economy. It is pertinent at this point to compare the size of the net income originating in agriculture with the size of the Federal subsidies received by this industry. The following table indicates that about one-eighth of agriculture's net income during these years actually originated with the Federal Government: Net income in agriculture

Federal subsidies received by agri.

Federal subsidies as percent of agricultural net income

(In millions of dollars) 11.1 15.7 1940 70.5 14.4 11.3 1941 78.5 11.8 11.1 1942 106.1 13.4 11.1 1943 120.7 14.6 13.3 1944 110.1 Source: Agricultural net income includes net income of government enterprises in agriculture. See Appendix Table A2. Federal subsidies taken from Basic Statistics, op. cit., p. 100. Fiscal-year figures derived from averaging successive calendar-year figures.

By the end of the period, manufactures as a group were relatively more important than they had been in the prewar years. In 1944, for the first time, net income from manufactures was approximately one-half as large as the net total derived from agriculture. Before the war the most important branches of manufactures were sugar milling and refining, needlework and other textiles, and the stripping and stemming of tobacco. In 1940 about two-thirds of the net income derived from manufactures was created by the three principal industries; sugar processing alone accounted for 4 percent of total Insular net income and for more than one-third of the net income originating in manufactures. On agricultural prcduction see Appendix Table A4. 37

War time developments and a crop shortage, however, resulted in some changes in the peacetime structure of manufactures. By 1944 the distilling and bottling of spiritous liquors, mainly rum, became the single most important branch of manufactures. This industry's development during these years was more rapid than that of any other segment of the economy, including the Federal Government. Net income originating in the industry increased eight-fold: from $1.6 million to $14.3 million in five years. This expansion was made possible by the absence in the U. S: market of competition from European imports and from the domestic production of alcoholic' beverages derived from cereals. The Puerto Rican rum industry undoubtedly must undergo a contraction as the competing beverages return to the market. After this transition, however, it probably will operate at a level considerably above its prewar production total. The relative decline in the milling and refining of sugar can be explained by the same factors that retarded expansion in the agricultural branch of the industry. Needlework in the home and factory was the other manufacturing industry which generated a larger net income in 1944 than sugar processing. In the early years of the period its development was impeded by crippling wage regulation of the Federal Government and by shipping shortages. Despite the alleviation of both conditions, it is unlikely that all of the industry's recent gains can be retained when the cheaper producers of the Orient again enter the Continental market. Among the minor manufactures, breweries, bakeries and miscellaneous food products made relatively much larger gains than the private economy generally, and much of this gain probably will be retained. It is now possible to establish the importance of sugar in the Puerto Rican economy, measuring importance by its contribution to the net income total. The sugar industry, for this purpose, is defined as the growing of sugar cane, its milling and refining, and the distillation of its by-product, molasses. These sugarbased industries originated 20 percent of the Island's net income in 1940, 15 percent in 1943 and 12 percent in 1944, despite the crop failure. The marked fluctuations in income from contract construction is explained by shifts in the formal organization of construction work on military installations. Until July 1942, much of this 38

work was carried out by private contractors hiring their own workers. Thereafter, the workers were paid directly by the War and Navy Departments and this income was then recorded as originating in the Federal Government. Despite the shift of the largest private bus company in the San Juan area to the Insular Government in 1943, privately owned motor transportation developed so markedly that .net income from transportation showed a more rapid gain than did the net income for the private economy as a whole. The fact that the Public Service Commission does not exercise any control over rates charged by the inter-urban taxis (públicos) was an important factor contributing to this result. Government purchase and operation of the electric power and light industry account for the absolute decline of net income originating in the privately owned branch of this industry. Despite the shortages of goods, net income from wholesale and retail trade increased by 120 percent. This was the largest relative gain among all major industries in the private economy and one and two-thirds the relative increase experienced by the private economy as a whole. In the services, (personal, professional, business and domestic), by contrast, the rise in income closely paralleled the rise for all private industry. This may be attributed to the fact that in Puerto Rico the manpower shortage was very much less acute than the goods shortage. The .control over rents and the severe limitation on new building served to restrict the rise of income from real estate (including imputed rents on owner-occupied dwellings) to one-third of the prewar total. A somewhat larger increase, about 40 percent, occurred in the payments for capital used in Puerto Rico but owned by persons living abroad. This relative gain was about one-half of the comparable gain made by the whole private sector. This relatively modest advance is related to the equally modest advance in the income generated by the cultivation and processing of sugar, in which industries the bulk of these payments originate. Federal Relationships and the Level of Insular Net Income The data developed thus far make it possible to summarize the economic effects of the present Federal relationships upon the Puerto Rican .economy. Although such measures in net in39

come terms must, of necessity, be rough approximations, nevertheless such an analysis may be suggestive. Our data may be brought to focus on this relationship by asking what the Insular net income would have been in the absence of the current Federal relations. Under these conditions, Puerto Ricans would no longer receive (1) the net income that has originated in the Federal Government; (2) that fraction of net income originating in the Insular Government but financed by Federal funds; and (3) that part of net income originating in agriculture by way of Federal subsidies. In 1940, net income from these Federal expenditures amounted to $34.4 millions or 15 percent of the Insular net income. These effects are direct and easily commensurable. The economic effects upon private industry, though important, are much more difficult to measure. Puerto Rican industry, sugar producers in particular, derived considerable advantages from the privilege of selling their products in a market protected against world prices which are lower. The U. S. Tariff Commission has estimated that in typical prewar years these price premiums on Puerto Rican sugar alone have varied from $24 million to $46 million.21 If we assume for 1940 the minimum price premiums of $24 million, the elimination of this sum would have reduced the receipts from sale of sugar by 38 percent: from $63.4 million to $39.4 million. Presumably an equal reduction would have occurred in the net income of the sugar industry (both producing and processing) after the elimination of the subsidy of the Agricultural Adjustment Administration. This would have amounted to a reduction in net income of $13 million, or a loss of 5.7 percent of the Insular net income. The offset of Puerto Rican purchases of a limited list of commodities at world prices lower than the U. S. protected price is relatively small, according to the analysis of the Ti. S. Tariff Commission,22 and probably does not United States Tariff Commission, The Economy of Puerto Rico (Washington, March 1946) p. 9. This argument assumes, of course, that all Puerto Rican sugar could be marketed without tariff protection. This is doubtful, since Puerto Rico is a high cost producer of sugar cane. The text statement refers only to the short run; in time, the Puerto Rican economy may be able to make satisfactory adjustments. Such adjustments, however, are bound to be painful and prolonged, in view of the scarcity of natural resources and the relatively low level of private entrepreneurship. These conditions impart a conservative bias to the text statements. " Ibid. 40

exceed the total price premiums on Puerto Rican shipments, other than sugar, sold in the U. S. market. This loss of premium price on sugar and the loss which would be sustained by the elimination of Federal activities would immediately impose a minimum reduction of 20 percent in Puerto Rico's peacetime net income. Such a sharp reduction in net income, moreover, would cause, at least, an equally sharp contraction of activity and income in other parts of the economy, particularly in trade, services, and construction. Although the ultimate ramifications of diminishing the income stream, the multiplier effect in reverse, cannot be established, the immediate impact, a minimum reduction of 20 per cent in the Island's income, is established with reasonable firmness, and it is sufficient to give some idea of the magnitude of the economic importance of the Island's present relationships with the Federal Government. Relative Importance of Government Business Enterprises by Industry Groups At an earlier point we noted the importance of government business enterprises in the entire economy. For certain purposes it is helpful to know the relative importance of government business enterprises in each of the industries in which such enterprises operate. These relationships as of 1944 are shown in the following table:

1944 net income originating in the Government Sector Private Sector (1) (2) Agriculture 109,419 695 Sugar cane 33,979 695 Manufactures 56,634 674 Stone and clay products 1,338 674 Transportation 28,425 636 Motor transportation 21,784 636 Power and gas 4,004 302 Finance 4,892 25 Banking 3,052 25

Net income in government enterprises as percent of industry total (2)=(1)-x(2) (3) 0.6 2.0 1.2 33.5 2.2 2.9 93.0 0.5 0.8

Of all the major industry groups, electric power and gas, long a traditional field for governmental operations, was the only one dominated by government enterprise. The Government cement and glass plants accounted for only 1.2 percent of the 41

net income generated in manufactures, but originated one-third of the net income derived from the manufacture of stone and clay products.23 Measured by net income, the Government was not a significant factor in any of the other branches of business activity in 1944, and it is apparent that with the exception of the power and gas group, the inclusion of Government enterprises does not change the percentage distribution of net income to any one industry group by more than two-tenths of one percent. 33 Government operations in the field of communications are not regarded as a business since there is no effort to balance operating expenditures and operating receipts. This is also true of the Isabela Irrigation System.

42

Iv SHARES OF LABOR AND CAPITAL IN THE NET INCOME Distributive Shares of the Insular Net Income Total These estimates also serve to indicate the share of the Insular net income that is received by employees and the share that is received by or accrues to owners of property or capital. These two groups are roughly congruent with the lower and upper income classes. In the absence of reliable estimates on the distribution of family income by size of income, the relative changes in the shares received by the two factors of production may be taken as indicative of the direction of shifts in the size distribution of family income. An analysis of the distributive shares by industries provides, in addition, a basis for evaluating the economic importance of any legislative program aimed at redistribution of income. It also indicates the varying importance of labor and capital in each of the industries. Labor's share in the total is measured by payrolls disbursed plus supplements to payrolls, including workmen's compensation, work relief and contributions to pension funds. This has been designated "compensation of employees". The return to capital is subdivided into "interest and net rents", including imputed net rent of owner-occupied dwellings, and "net profit of business enterprises". The latter category, as noted at an earlier point, also includes a labor return for the services of proprietors and partners since net profit is computed before the withdrawals made by the proprietors or partners. These withdrawals might be regarded as compensation for the labor services rendered to the business enterprises. Trends over this five-year period in relative shares claimed by labor and capital are shown by major groupings in Table 9. Labor's share of the Insular net income total was larger at the end of the period than in the prewar year. The declining trend in capital's share was most pronounced in the case of interest and net rent. This is customary in a rapidly expanding 43

TABLE 9 Distributive Shares as a Percent of Total Net Income by Major Industry Groups, 1940-1944 1940 1941 1942 1943 1944 All Industries 100 100 100 100 100 Compensation of employees 51.2 53.1 52.1 55.0 58.7 10.4 Interest and net rent 12.9 8.8 7.9 7.7 Net profit of business enterprises 35.9 36.5 39.1 37.1 33.6 Private economy 100 100 100 100 100 38.4 Compensation of employees 40.7 41.6 35.6 38.9 11.4 11.3 Interest and net rent 15.7 13.1 11.3 Net profit of business enterprises 43.6 50.2 53.1 49.8 45.3 Sugar cane cultivation 100 100 100 100 100 Compensation of employees 43.4 47.2 79.6 45.7 44.8 4.4 5.8 Interest and net rent 7.2 7.2 4.6 Net profit of business enterprises 47.1 48.4 14.6 48.0 52.0 Other agriculture 100 100 100 100 100 7.4 6.5 Compensation of employees 8.2 10.0 8.9 3.4 3.4 Interest and net rent 6.2 4.5 8.0 89.2 Net profit of business enterprises 82.0 87.3 90.1 84.9 Non-agricultural private economy 100 100 100 100 100 Compensation of employees 43.5 48.4 50.4 46.6 43.6 Interest and net rent 16.4 14.9 20.7 16.6 15.6 41.6 Net profit of business enterprises 30.9 40.0 33.0 37.8 The dollar aggregates are given in Appendix Table AS.

economy, even in the absence of governmental control, because these classes of capital returns are fixed by relatively long contracts and are therefore not sensitive to immediate market changes. The trend in net profits was mixed with a declining share evident by the end of the period. These relationships for the entire economy conceal, however, some significant deviations from the overall pattern by some of the important branches of the economy. Variation Among the Distributive Shares by Industry Groups In the private economy, for example, labor's share of the total net income declined; the upward trend noted above for the entire economy was the result of the relatively large expenditures for labor by government, especially the Federal Government. The declining trend in interest and net rents was more than offset by the rising trend of net profits. Thus, while in 1940 all capital returns amounted to 59.3 percent of the net income of the private economy, in 1943 they equalled 64.4 percent, and 61.1 percent in 1944, when profits were relatively depressed by the sugar crop failure. It appears, therefore, that the wartime operations of Puerto Rico's private economy have tended to further the concentration of income. This tendency 44

was evident in agriculture (other than sugar cane cultivation) and in the non-agricultural segment of the private economy. That is, during the war years the aggregate rise in net profits far outstripped the aggregate rise in wage and salary payments and the more modest rise in interest and rent payments. Included among the recipients of net profits, however, are many thousands of operators of family-size farms whose incomes in many instances do not exceed the incomes of wage earners. The trend in sugar cultivation and processing is distorted by the crop failure in 1944, which affected profits much more seriously than payrolls. If one disregards this abnormal year, the same pattern of a declining share to labor and an increasing share to capital is manifested through 1942. In the following year the trend was reversed as wage rates were allowed to rise, while sugar prices and subsidies remained relatively fixed by the Federal Government. These figures also reflect the organizational differences between sugar cane cultivation and all other Puerto Rican agriculture. In sugar cane production payrolls constitute about 45 percent of the total net income, and net profits a slightly higher percentage. Much of the sugar cane is raised on large plantations with paid managers, supervisors, foremen and hired farm labor. In the remainder of agriculture, where crops are typically raised on family-size farms operated with unpaid family labor and with a minimum use of hired labor at harvest time, payrolls amounted to 10 percent or less, and net profits, from 82 to 90 percent. The most notable example of the increase in the share of net income by capital occurred in the distilling and bottling of spiritous liquors. The same trend in distributive shares has characterized transportation, finance, real estate and trade. The only important major industry that moved counter to the general trend was the service industry, and in that instance the relative movements were narrowly limited. The Potential Redistribution of Income Through the Proportional Profit Farms While the probable postwar trend in Puerto Rico's distributive shares is beyond the scope of this report, it may be helpful to evaluate the effect of one factor—a legislative program de45

signed to alter the relative share of net income to be received by labor and by owners of property. Certain aspects of the land reform program have this purpose. Among the several programs designed to improve the economic well-being of the farm laborer, one approach involves the purchase by the Land Authority of large sugar plantations. These plantations, called "proportional profit farms", are operated by Land Authority managers and the profits are divided among the farm workers in proportion to man-hours worked by each one.24 The distribution of the net profits among the workers constitutes a deliberate attempt at a redistribution of income. It is the potentialities of this phase of the program which can be gauged in income terms. Let us assume that the Land Authority would acquire holdings up to the maximum permitted under the 500-acre regulation incorporated in the Organic Act. On the basis of holdings registered with the Agricultural Adjustment Administration in 1939-40, potential maximum purchases by the Land Authority of excess corporate holdings would amount to 119,900 acres, or 45 percent of the acreage planted to sugar cane. We shall assume further that the proportional farms would operate at the same level of efficiency as the privately owned farms. On this premise, the proportional profit farms would hold 45 percent of the sugar crops and 45 percent of the net profits earned in the cultivation of sugar cane. Since the events of the war years have not effected any fundamental changes in the prewar relationships of sugar supply and demand, it may be assumed that after the transitional period, earnings in this industry will revert to their prewar level. In 1939-40 the net profit in sugar cane cultivation was about $17 million before income taxes. On the basis of our assumptions, the proportional profit farms would, therefore, earn a net profit of $7.6 million. Provision for contingency reserves and incentive payments to managers might well account u

For a description of the complete land reform program see Sol L. Descartes, "Land Reform in Puerto Rico", The Journal of Land and Public Utility Economics, Nov. 1943, pp. 397-417. For accomplishments to date see the paper prepared by Sol L. Descartes and included in the Proceedings of Land Tenure Conference of the Farm Foundation, University of Chicago, February 1946. The proceedings are being published by the University of Chicago Press. 46

for 25 percent of the net profit, or $1.9 million. This would leave $5.7 million for redistribution among the workers. The amount redistributed would have constituted about 2 percent of the Insular net income total in 1939-40. It would have meant, however, a 36 percent addition to payrolls disbursed by sugar growers in that year.25 Comparisons with Other Economies Great care must be exercised in interpreting differences in the relative distribution of the income shares among different economies. Differences can arise from a different aggregate of minor industries, each of which tends to have its own unique relationPercent of total net income 1940 1944 Puerto Rico Compensation of employees Interest and net rent Net profit of businses enterprises Mississippi Compensation of employees Interest and net rent Net profit of business enterprise

Percent of income in privvate economy 1940 1944

53.4 9.2 37.4

60.4 5.0 34.6

42.8 11.4 45.8

40.5 7.5 52.0

49.4 7.9 42.7

56.0 6.1 37.9

43.1 8.9 48.0

45.2 7.5 47.3

Source: Figures for Mississippi adapted from unpublished records of the Division of National Income, U. S. Department of Commerce. The net income concept was approximated by excluding transfer payments and Federal interest and by including estimates of employers' contribution to social security programs and corporate savings. Corporate savings were in turn estimated on the basis of the ratio of dividends received in Mississippi to total dividends for U. S. applied to total corporate savings for U. S. The figures for Mississippi relate to calendar years 1939 and 1944. 'Imputed net rents were excluded from Puerto Rican estimate to achieve comparability with estimate for Mississippi.

ship of labor income to capital income; from differences in the predominant organizational form of business enterprises (corporations versus proprietorships) ; from differences in labor productivity, and from differences in unit costs of capital and labor. For these reasons among others, it does not seem meaningful to compare the Puerto Rican economy, embracing an area pf 3,500 square miles, with a complex, continental economy such as the United States. Other Caribbean economies, which are quite Of course, if in the postwar years the Insular net income in current prices should remain above the 1939-40 level, which is virtually a certainty, the relative importance of the redistributed amount becomes less. A total net income higher than the prewar total is not incompatible with the assumption of net income from sugar cane cultivation at its prewar level. 47

similar to Puerto Rico's, cannot provide a basis for comparison because of the lack of appropriate income estimates. However, the economy of a very low income state, such as Mississippi, has sufficient similarities to the Puerto Rican economy to make comparison profitable. With respect to the total economy, the relative shares claimed by labor and capital in Puerto Rico and Mississippi were approximately of the same magnitude and the direction of the changes over the period were similar. In both areas military expenditures—counted as wages—figured prominently by 1944. The effect of such expenditures can be eliminated by restricting our attention to the distributive shares in the private economy. In the Puerto Rican private economy, during the war years, labor's share declined, while capital's share increased. In Mississippi the contrary occurred; labor's share increased during the war years. The relative shifts, however, were not large. The limited evidence of this single comparison suggests that the opportunity for owners of capital to improve their relative position varied directly with the acuteness of the shortages of goods.

48

APPENDIX A Basic Tables with Notes on Sources and Methods of Estimates

49

TABLE Al Total Production, Farm Price and Gross Income From Agriculture, Puerto Rico, 1939-40, 1943-441

Crop

Unit

Principal crops: 1. Sugar canee tons 2. Molasses bonus to colonos3 3. Tobacco cwt. 4. Coffee Total

Legumes: 11. Dry beans 12. Pigeon peas 13. Cowpeas 14. Others4 Total Fruits: 15. Bananas 16. Plantains 17. Grapefruits 18. Pineapples 19. Oranges 20. Avocados 21. Citrons 22. Limes 23. Mangoes 24. Guava 25. Vanilla 26. Breadfruits 27. Papaya

1940-41

1941-42

Total Farm Production Price

Farm Total Farm Value Production Price

Farm Total Farm Value Production Price

(dollars)

(thous. of dollars)

8,795,931 4.92

43,301

280,870 15.33 326,520 12.78

qts. 114,054,500 dozs. 4,364,212 cwt. "

Livestock products: 5. Milk 6. Eggs Meats: 7. Beef Pork 8. 9. Poultry 10. Goats and others Total

1939-40

cwt.

thous. crates thous.

cwt. lbs. thous.

0.077 0.242

4,306 4,173 51,780

(thous. of (dollars) dollars)

7,745,421 5.69 302,000 18.98 162,314 14.60

8,782 114,664,000 1,056 5,228,325

0.092 0.256

(thous. of (dollars) dollars)

44,064 10,010,132 5,733 2,370 52,167

Farm Value

5.91

59,138

318.000 19.89 307,059 14.60

6.323 4,483 69,944

10,549 104,303,000 1,338 5,830,586

0.110 0.400

11,473 2,332

185,000 18.00 132,460 19.00 100,000 28.00 10,000 18.00

3,330 2,517 2,800 180 18,665

179,080 19.00 132,460 19.00 119,800 35.30 10,000 19.00

3,403 2,517 4,229 190 22,226

218,485 27.00 132,460 23.00 133,600 42.60 10,000 27.00

5,899 3,047 5.691 270 28,712

4.50 2.50 2.25

866 391 112 12 1,382

218,820 157,405 59,944

5.90 2.80 2.97

1,291 441 178 12 1,922

2^1.986 157,890 64,929

6.98 4.23 5.02

1,619 668 326 12 2,625

1,080,977 1.07 184,987 8.00 24,830 4.00 319,234 1.25 225,000 2.50 31,397 7.00 2,799 10.00 2,327 2.50 65,002 1.00 7,500 0.60 3,059 1.64 20,666 10.00 268 50.00

1,157 1,480 99 399 562 220 28 6 65 4 5 207 13

896,284 1.73 254,919 11.44 25,415 7.00 346,667 1.40 225,000 2.75 31,929 8.80 3,899 17.50 2,413 3.75 66,116 1.20 7,500 0.80 4,169 2.00 21,018 13.60 221 50.00

1,551 2,916 178 485 619 281 68 9 79 6 8 286 11

803,937 2.29 289,885 12.48 23,000 10.00 398,333 1.48 225,000 3.00 32,450 10.50 5,000 25.00 2,500 5.00 67,194 1.40 7,500 1.00 10,210 2.48 21,360 16.60 174 50.00

1,841 3,618 230 589 675 341 125 12 94 7 25 355 9

192,488 156,436 49,975

TABLE A1—(Continued) 1939-40 Crop 28. Coconuts 29. Cacao 30. Others Total Starchy vegetables: 31. Sweet potatoes 32. Cassava 33. Taniers 34. Yams 35. Potatoes 36. Dasheen Total Green and leafy vegetables: 37. Tomatoes 38. Peppers o' 39. Cabbage ~ 40. Squash 41. Others Total Cereals: 42. Corn 43. Rice Total Other agricultural products: Forest products: 44. Charcoal 45. Wood Fibers: Cotton, raw 46. 47. Other? 48. Ornamentals 49. Honey Total 50. A.A.A. benefit payments, other cropss GRAND TOTAL

1941-42

1940-41

Total Farm Farm Unit Production Price Value

Total Farm Production Price 22,388 17.46 856 9.00

Farm Total Farm Farm Value Production Price Value

21,776 15.00 856 8.00 _

327 7 30 4,609

928,440 0.60 108,313 0.40 422,801 1.00 255,940 0.90 13,810 2.50 142,629 0.55 ____

557 43 423 230 35 78 1,366

1,303,877 180,008 690,840 303,816 10,905 171,652

0.77 0.54 1.21 1.12 5.00 0.75

1,004 97 836 340 55 129 2.461

cwt.

195,470 2.25 79,400 2.50 66,870 1.60 150,000 0.75

440 198 107 112 278 1,136

179,387 69,700 58,435 150,000

2.92 2.75 2.23 1.12

cwt.

147,244 1.50 77,573 4.25 - - --

221 330 551

207,968 1.34 96,238 4.76

cwt.

cwt. u

it

bags

7,000,000

0.25

1,750 500

cwt.

24,690

9.83

gals.

123,877

0.40

243 43 500 50 3,085

w

________

7,250,000

524 192 130 168 369 1.383

163,304 3.80 60,000 3.00 50,000 2.86 150,000 1.50

621 180 143 225 493 1,662

279 458 737

238,329 1.71 105,570 8.08

407 853 1,260

0.32

2,400 712

37,700 12.98 _______ __ 119,979 0.80 ______

489 48 500 95 4,245

38,638 11.11

429 44 500 88 3,697

1,491,595 215,855 824,859 327,754 8,000 186,164

7,500,000

899

829 __

—_

475 9 40 8,445 1,238 142 1,386 459 60 169 3,454

2,030 606

121,464 0.72

23,000 20.65 856 10.00

0.83 0.66 1.68 1.40 7.50 0.91

0.28

1,290 83,864

391 8 35 6,931

92,352

_

_,_

121,248

TABLE A1—(Continued)

Crop

1942-43

1943-44

Total Farm Unit Production Price

Farm Total Farm Value Production Price

Principal crops: 1. Sugar canee tons 2. Molasses bonus to colonoss 3. Tobacco cwt. 4. Coffee Total Livestock products: 5. Milk 6. Eggs Meats 7. Beef 8. Pork 9. Poultry 10. Goats and others Total Legumes 11. Dry beans 12. Pigeon peas 13. Cowpeas 14. Others4 Total Fruits: 15. Bananas 16. Plantains 17. Grapefruits 18. Pineapples 19. Oranges 20. Avocados 21. Citrons 22. Limes 23. Mangoes 24. Guava 25. Vanilla 26. Breadfruits 27. Papaya 28. Coconuts 29. Cacao 30. Others

(dollars)

8,678,013 6.52 -— 94,220 41.87 169,590 19.50 _

(thous. of dollars)

56,545 3,945 3,307 63,797

Farm Value

(thous. of (dollars) dollars)

.5,602,437 7.50 285,000 38.93 222,317 23.50 _ —

qts. 107,959,800 0.132 14,251 98,817,900 dozs. 6,454,668 0.438 2,827 5,817,493

42,000 679 11,095 5,226 59,000

0.131 12,945 0.479 2,787

cwt.

228,660 32.00 148,355 38.00 147,900 49.90 11,120 32.00

7,317 5,637 7,380 356 37,768

255,300 32.00 118,684 33.00 133,300 55.80 8.960 32.00

8,170 3,917 7,438 287 35,543

cwt.

245,153 10.40 158,375 6.02 69,915 7.58 ---

2,550 953 530 12 4,045

246,090 10.58 127,177 5.94 80,274 5.76 -- -

2,604 755 462 12 3,833

711,590 3.35 324,852 18.16 20,585 13.00 458,333 1.48 225,000 3.25 32,987 12.20 6,100 32.50 2,586 6.25 68,307 1.60 7,500 1.20 13,291 1.49 21,714 24.90 127 50.00 23,612 56.96 856 11.00

2,384 5,899 268 678 731 402 198 16 109 9 20 541 6 1,345 9 45

672,963 2.57 378,576 13.92 18,670 16.00 526,667 1.73 225,000 2.76 33,525 14.00 7,200 40.00 2,672 7.50 69,420 2.10 7,500 1.40 23,409 1.50 22,068 20.50 80 50.00 24,224 64.00 856 12.00

1,729 5,270 298 911 621 469 288 20 146 10 35 452 4 1,550 10 42

',

thous. `°

crates thous.

cwt. lbs. thous. cwt.

TABLE A1—(Continued) 1942-43 1943-44 Total Farm Farm Total Farm Farm Unit Production Price Value Production Price Value 12,584 11,738

Crop Total Starchy vegetables: cwt. 31. Sweet potatoes 1,679,314 1.25 2,099 1,590,789 1.31 2,084 32. Cassava 251,702 1.00 252 311,693 0.82 256 958,878 2.38 2,282 33. Taniers 979,654 1.87 1,832 34. Yams 351,692 2.34 823 591,337 1.84 1,088 35. Potatoes 5,095 10.00 51 2,190 12.50 27 36. Dasheen 200,676 1.37 280,489 1.13 317 275 Total 5,782 5,604 Green and leafy vegetables: 147,221 5.33 785 cwt. 143,800 7.54 1,084 37. Tomatoes 176 142 50,300 3.50 40,600 3.50 38. Peppers 39. Cabbage 41,565 3.50 145 33,130 3.50 116 282 40. Squash 150,000 1.88 150,000 2.25 337 41. Other8 766 776 Total 2,154 2,456 Cereals: cwt. 822 42. Corn 268,691 3.06 224,541 3.79 851 cn 1,298 200,951 9.39 43. Rice 114,903 11.30 1,887 2,121 ___ Total 2,738 Other agricultural products: Forest products: 2,712 3,440 Charcoal bags 8,000,000 0.43 7,750,000 0.35 44. 819 925 45. Wood — Fibers: cwt. 31,020 16.42 509 351 27,897 12.58 46. Cotton, raw 55 69 47. Other? 500 50€ 48. Ornamentals 86,808 0.99 86 106 gals. 108,097 0.98 49. Honey 4,681 5,397 Total 50. A.A.A. benefit payments, other crops8 696 916 133,705 GRAND TOTAL 127,339 1 Totals do not necessarily equal sum of components due to rounding. 2 Includes A.A.A. benefit payments. 3 Bonus payments made to colonos only in 1943-44. 4 Includes peanuts, peas, lima beans, etc. 5 Includes soursop, star apple, custard apple, sweet apple, sapodilla, mamey, tamarind, cashew, passifiora, pomegranate, etc. s Includes lettuce, okra, recado, string beans, onions, carrots, apio, turnip, chard, chayote, etc. Other fibers include hard palm leaves, binds, maguey, etc. 8 Include A.A.A. payments for all soil conservation practices.

Notes to Table Al PRINCIPAL CROPS: 1. Production in all years reported by the Association of Sugar Producers of Puerto Rico. The farm value of the crops was estimated by the Sugar Branch, Office of Production and Marketing Administration, U. S. Department of Agriculture, in the following manner: The New York market price of raw sugar was multiplied by the production of raw sugar less the cost of selling and shipping. These latter costs were estimated at $5.40 in 1939/40, $6.20 in 1940/41 and $9.40 in the following years. These computations yield the f.o.b. mill value of raw sugar. The colonos in this five-year period realized, on the average, 63 percent of f.o.b. mill value, to which is added the conditional benefit payments of the Federal Government. 2. Information supplied by the San Juan branch of the Office of Production and Marketing Administration of the U. S. Department of Agriculture. 3. Production and farm price estimated by the Tobacco Institute of Puerto Rico, an official agency of the Insular Government. 4. Production for 1939/40 reported in the U. S. Census of Agriculture for Puerto Rico, 1940, p. 71. Production in subsequent years taken from Circular No. 73 of the Agricultural Extension Service of the University of Puerto Rico, "La Perspectiva del café en Puerto Rico para el año 1945/46" by Messrs. H. Zayas Chardón and L. A. Nazario. Farm price for 1939/40, taken from unpublished studies conducted by J. J. Serrales, Jr., for the Agricultural Experiment Station of the University of Puerto Rico. Farm prices for 1940/41 and 1941/42 were fixed by the Puerto Rican Coffee Price Stabilization Board at $15.00 and $13.00 per hundredweight for first and second class coffee, respectively (80 percent of total production considered first class coffee) . Farm price for 1942/43 estimated by "Cafeteros de Puerto Rico", a large cooperative marketing association for coffee. Farm price for 1943/44 equivalent to O.P.A. ceiling prices fixed at $23.00 per hundredweight for green coffee sold to wholesalers and at $24.75 for green coffee sold to retailers. The 64,150 hundredweights handled by the "Cafeteros de Puerto 54

Rico" were sold to retailers. The balance of the crop was assumed to be sold to wholesalers. LIVESTOCK PRODUCTS: 5. Production in 1939/40 based on yield per cow as reported in U. S. Census of Agriculture, 1940 (p. 56) and on the number of cows milked estimated from the unpublished census of livestock taken by the Bureau of Animal Industry, U. S. Department of Agriculture (the number of cows reported to the Census of Agriculture, 1940, involves a gross understatement) . The resulting estimate of milk production is in close agreement with the per capita consumption studies of 1940. Production in subsequent years based on extrapolation of a twofold breakdown for 1939/40 of milk produced in commercial dairies and other milk production. In a study by the OPA, "La Leche y su suministro en Puerto Rico" (mimeographed), production in commercial dairies in 1939/40 was estimated at 60,946,600 quarts. Production for 1943/44 in commercial dairies was determined by extrapolation on the basis of milk produced in 16 dairies located in the metropolitan district of the Island. This series was compiled by Mr. Carlos Gaztambide Arrillaga, dairy specialist in the Extension Service, University of Puerto Rico. It has been assumed that production outside of commercial dairies remained constant during the five-year period studied. Total production is the sum of the two extrapolations. Farm price for 1939/40 was taken from U. S. Census of Agriculture, 1940, p. 56, and extrapolated through 1943/44 on the basis of price per quart reported by the 16 commercial dairies in the series cited above. 6. Production in 1939/40 taken from U. S. Census of Agriculture, 1940, p. 57, and extrapolated through 1943/44 by means of an index based on imports of corn, local production of corn and imports of mixed feeds used for poultry and cattle. According to Carlos Gaztambide Arrillaga, Extension Service, U.P.R., the following proportions of importations of mixed feeds were feed for poultry: 5 percent in 1939/40 and 1940/41; 10 percent in 1941/42 and 1942/43 and 15 percent in 1943/44. Farm price in 1939/40 taken from U. S. Census of Agriculture, 1940, p. 57, and extrapolated through 1943/44 on the basis of the import price of eggs. 55

7. Production in 1939/40 based on per capita consumption studies in 1940 prepared by the Agricultural Experiment Station of the U.P.R. This total was extrapolated through 1942/43 on the basis of the slaughtering in municipal pens reported by Frank Picó in "Estudio sobre la merina en la producción de leche en la Zona Metropolitana", Almanaque Agrícola de Puerto Rico, 1944, issued by the Insular Department of Agriculture and Commerce. Production in 1943/44 estimated to be 11.6 percent higher than in 1942/43; this increase was based on the percentage increase in the slaughtering of the ten largest municipal pens according to statistics collected by the Insular Department of Health. Farm prices from 1939/40 through 1941/42 obtained from meat dealers in Rio Piedras. Farm prices for 1942/43 and 1943/44 are the OPA ceiling prices corrected for black market practices. 8. Production in 1939/40 based on per capitá consumption studies, op. cit. Production in following years estimated on basis of information obtained from meat dealers in Rio Piedras. Latter reported no change in production between 1939/40 and 1941/42, a 12 percent increase in production in 1942/43 in response to a substantial price rise and a 20 percent decrease in 1943/44 over the previous year as prices leveled off. Farm prices 1939/40 through 1941/42 were taken from unpublished studies of the Agricultural Experiment Station, U.P.R. These were extrapolated through 1943/44 on the basis of price quotations obtained from meat dealers in Rio Piedras. 9. Production in 1939/40 based on per capita consumption studies, op. cit. and extrapolated through 1943/44 on the index described in 6. Farm price in 1939/40 based on market quotations in Ponce, Arecibo, Rio Piedras, Mayaguez and Caguas compiled by the Extension Service, U.P.R. Wholesale prices for 1942/43 and 1943/44 obtained from the Office of Distribution of the War Food Administration in Puerto Rico. Ninety percent of these market quotations constituted the farm price. It was assumed that there was a straight line increase in farm prices between 1939/40 and 1942/43. 10. Production estimated as in 8. 56

Prices are identical with those for beef according to the unanimous opinion of dealers interviewed. LEGUMES: 11, 12, 13 and 14. Production for 1939/40 taken from the U. S. Census of Agriculture, 1940, and for 1942/43 and 1943/44 taken from the reports of the Crop Forecasting Division, Insular Department of Agriculture and Commerce. The rise in production between 1939/40 and 1942/43 was determined for each crop, and on the basis of rainfall records for the base year and intervening years, it was decided that 50 percent of the increased production occurred in 1940/41 and 25 percent in 1941/42. Following deductions were made to account for the use of these crops as fodder: 0.5 percent for pigeon peas and one percent for cowpeas. Farm prices for 1939/40 taken from Colón Torres, R., "Estudio económico de 270 fincas de tabaco en Puerto Rico, 1936/37" Bul. 50 (1939) of the Agricultural Experiment Station, U.P.R. and from unpublished study on land utilization on 196 tobacco farms 1939, conducted by the Agricultural Experiment Station, U.P.R. Base year prices were extrapolated through 1943/44 on the basis of wholesale prices, except in the case of pigeon peas. In the latter case more reasonable results were obtained by placing the farm value at 40 percent of wholesale price in 1941/42 and at 45 percent in each of the following two years. The wholesale price quotation up to 1942/43 were obtained from weekly reports of the Insular Department of Agriculture and Commerce, as summarized by Luis M. Geigel in his "Economic Brief on Locally Produced Minor Food Crops in Puerto Rico." An unweighted average of the monthly quotations in five important markets, (Aguadilla, Arecibo, Mayaguez, Ponce and Río Piedras), compiled by the Office of Distribution of the War Food Administration in Puerto Rico constitutes the wholesale price for 1943/44. FRUITS: 15 & 16. Production estimates based on sources and procedures used in estimating production of legumes. Ten percent of banana production is used as fodder, hence deducted. 57

Farm prices based on sources and procedures used in estimating prices of legumes. 17. Production 1939/40 taken from U. S. Census of Agriculture 1940, p. 74, and extrapolated through 1943/44 on the basis of shipments into the important municipal markets, as reported by the Office of Distribution of the War Food Administration in Puerto Rico. Farm price 1939/40 based on unpublished studies of the Agricultural Experiment Station, U.P.R. and extrapolated by general farm prices. 18. Production in 1939/40 as reported by the U. S. Census of Agriculture, 1940, p. 77. Production estimates in all other years supplied by Pineapple Growers Association. Farm prices in all years also supplied by the Pineapple Growers Association. 19. Most orange trees in Puerto Rico serve primarily as a cover for coffee plants. For this reason there is little year-toyear variation in output. Accordingly, the total production of 225,000,000 fruits per year estimated by the "Cafeteros de Puerto Rico' was held constant throughout this five-year period. For farm price see 17. 20. Production in 1939/40 as reported in U. S. Census of Agriculture, 1940, p. 70. It was assumed that production per capita remained constant throughout the five years studied. Total production, therefore, would vary with changes in population. The latter was estimated by L. A. Nazario. Farm price 1939/40 based on unpublished study on land utilization on 196 tobacco farms in Puerto Rico made by the Agriculture Experiment Station, U.P.R. For 1942/43 and 1943/44 wholesale prices were derived from quotations in the principal municipal markets, as reported by the Office of Distribution of the War Food Administration. These wholesale prices were reduced to farm prices by deducting the cost of distribution to wholesale markets obtained from unpublished studies of the Agriculture Experiment Station, U.P.R. There was assumed to be a straight line increase in farm prices between 1939/40 and 1942/43. 21. Production in 1939/40 as reported in the U. S. Census of 58

Agriculture, 1940, P. 73, and extrapolated through 1943/44 by volume of exports. Farm price in 1939/40 derived from unpublished studies of the Agricultural Experiment Station, U.P.R. and extrapolated through 1943/44 on the basis of export prices. 22. Production in 1939/40 taken from U. S. Census of Agriculture 1940, p. 74. Estimates for other years based on interviews with dealers at the Rio Piedras and Santurce markets. Farm price in 1939/40 based on unpublished studies of the Agriculture Experiment Station, U.P.R. and extrapolated by the index of general farm prices. 23. Production and farm price estimates based on the sources and procedures used in making the estimates for avocados, item 20. 24. Production in 1939/40 as reported in the U. S. Census of Agriculture, 1940, p. 75, and held constant for the years following. Farm price in 1939/40 based on unpublished farm management studies of coffee farms, 1934 through 1938, conducted by the Agriculture Experiment Station, U.P.R. Extrapolated thereafter by means of the index of general farm prices. 25. Production and prices in all years supplied by "Cooperativa de Cosecheros de Vainilla de Puerto Rico" by letter on file with Agriculture Experiment Station, U.P.R. 26. For sources and method of production estimates for all years see item 20. Farm price 1939/40 based on unpublished study of land utilization on 196 tobacco farms, 1939, by the Agriculture Experiment Station, U.P.R., and extrapolated through 1943/44, by the combined index of wholesale prices of sweet potatoes, yams, taniers, plantains and bananas. Studies in previous years indicate a high correlation between the wholesale and farm prices of these crops. 27. Production in 1939/40 as reported in the U. S. Census of Agriculture, 1940, p. 77. Production in subsequent years estimated by José Adsuar of the Agriculture Experiment Station, U.P.R., who has devoted much time to the study of the effects on production of the "bunchy-top" disease. It is the spread of 59

this disease that accounted for the continuous decline in production. Farm prices have been held constant in all years on the advice of Agriculture Experiment Station specialists. 28. Production in 1939/40 as reported in U. S. Census of Agriculture, 1940, p. 76. Production in other years taken from unpublished report on "Some Economic Aspects of the Coconut Industry in Puerto Rico," prepared by the Agriculture Experiment Station, U.P.R. Farm price in 1939/40 based on unpublished studies of the Agriculture Experiment Station, U.P.R. Farm prices in 1940/41 and 1941/42 based on index of export prices of coconuts. Farm prices for 1942/43 and 1943/44 obtained from David Rodríguez, staff member of Agriculture Experiment Station, U.P.R. and experienced coconut grower. 29. For sources and method of estimate see item 24. 31, 32, 33, 34 & 36. For sources and method of production estimates, see items 11-14. Percent deductions for fodder as follows: sweet potatoes, 10 percent; dasheens, 331/3 percent; yams, 1 percent; taniers, 1 percent; and cassava, 5 percent. Farm prices in 1939/40 derived from Daniel Haddock's "Estudio de 96 granjajs de la P.R.R.A. establecidas en Cayey, Cidra y Aibonito", Bul. 63 (1942), Agriculture Experiment Station, U.P.R. and from unpublished study on land utilization on 196 tobacco farms, 1939, op. cit. For sources and methods of estimating farm prices for sweet potatoes, yams and taniers in all other years, see items 11-14. For dasheens and cassava farm prices 1940/41 through 1943/44 obtained from sources and by method identical with that followed in item 26. 35. Production in 1939/40 as reported in U. S. Census of Agriculture, 1940, p. 63. Production in other years estimated by Policarpo González I:íos, specialist with Agriculture Experiment Station, U.P.R. Farm price in 1939/40 taken from unpublished studies on farm management studies of coffee farms and on land utilization on 196 tobacco farms conducted by the Agriculture Experiment Station, U.P.R. Farm prices for other years supplied by González Ríos. 60

GREEN AND LEAFY VEGETABLES: 37. Production in 1939/40 as reported in the U. S. Census of Agriculture, 1940, p. 69. Production in 1942/43 and 1943/44 based on shipments into important municipal markets as reported by the Office of Distribution, adjusted for consumption estimates based on food consumption studies of the Agriculture Experiment Station, U.P.R. Straight line decrease in production between 1939/40 and 1942/43 assumed. The decrease in amount of available seed and the shipping shortage which impeded the possibilities of export resulted in a steady decline in quantity produced. Farm price for 1939/40 based on unpublished studies of the Agriculture Experiment Station, U.P.R. Farm prices for other years determined as explained in item 26. 38, 39 & 40. Production in 1939/40 based on yields per cuerda as determined by farm management studies made by the Agriculture Experiment Station, U.P.R. and total cuerdas planted to these crops as reported by the U. S. Census of Agriculture, 1940, p. 69. Production for 1942/43 and 1943/44 based on shipments into the five important municipal markets as reported by the Office of Distribution of the War Food Administration in Puerto Rico and adjusted in accordance with the results of the Food Consumption Studies, op. cit. Production between 1939/40 and 1942/43 based on straight line interpolation. Farm price in 1939/40 based on unpublished farm management studies made by the Agriculture Experiment Station, U.P.R. Farm prices for 1942/43 and 1943/44 based on wholesale price quotations furnished by the Office of Distribution. Farm prices for intervening years interpolated on basis of index for general farm prices. 41. Farm value for all years based on interview with wholesale buyers at the Rio Piedras and Santurce markets. CEREALS: 42 & 43. See items 11-14 for sources and method of estimating production for all years. Fodder amounting to 60 percent of corn crop and 2 percent of rice crop was deducted. 61

Farm price in 1939/40 based on information in (1) "Estudio económico de 270 fincas de tabaco en Puerto Rico, 1936-37" by R. Colón Torres, Bul. 50, 1938, Agriculture Experiment Station, U.P.R.; (2) unpublished study on land utilization on 196 tobacco farms, op. cit. and (3) five-year farm management study of coffee farms, op. cit. Farm prices for 1939/40 extrapolated through 1943/44 by the indexes of import price of corn and rice, respectively. OTHER AGRICULTURAL PRODUCTS: 44. The Forest Service of the U. S. Department of Agriculture estimated a production of 7 million bags in 1939/40 and 8 million in 1943/44. A straight line increase was assumed to take place throughout the whole period studied. 45. Farm value of wood estimated by the Forest Service of the U. S. Department of Agriculture for all years. 46. Production and price data supplied by the Cotton Marketing Cooperative. 47. Information on farm value obtained from the Extension Service of U.P.R.; the handicraft cooperatives operating under the auspices of the Puerto Rico Reconstruction Administration, Self-Help Corporation and from private individuals in the business. 48. Farm value estimated by Mr. Charles Pennock, experienced grower and shipper of flowers. His figures revealed that despite the loss of export markets during the war years, the value received by farmers from the sale of flowers remained unchanged. 49. Production and farm price derived from unpublished statistics on commercial production on the Island, compiled by the Division of Economics of the Agricultural Extension Service of the U.P.R. 50. Taken from Annual Report of the U. S. Secretary of Agriculture. 62

TABLE A2 Farm Expenditures and Net Profit, Puerto Rico, 1939-40 to 1943-44 (in thousands of dollars) 1939-40 1940-41 1941-42 1942-43 1943-44 1. Gross farm income 83,864 92,352 121,248 133,705 127,339 Farm expenses: 2. Cash wages 18,738 19,057 25,484 27,001 31,311 3. Wages in kind 165 172 222 234 273 4. Premiums to State Insur741 ance Fund 833 1,093 1,608 1,591 5. Feed for livestock & poultry 1,560 1,774 2,136 1,845 2,649 6. Seeds & insecticides 318 203 290 110 177 7. Fertilizers 4,474 4,236 4,156 1,696 5,377 8. Cost of operating trucks, tractors and engines 1,411 1,411 1,667 1,667 1,667 9. Cost of twine, rope and cordage 316 365 755 487 901 10. Cost of containers 551 542 695 851 860 11. Irrigation taxes 291 246 300 297 284 12. Interest paid 5,343 5,231 4,807 4,601 4,595 13. Rents paid non-farm land1,044 lords 1,128 975 876 781 14. Depreciation 564 641 692 750 728 15. Property taxes 2,533 2,580 2,783 2,882 2,985 16. Miscellaneous 610 685 908 908 908 Total Expenses Net Profit

38,552 45,312

39,211 53,141

46,731 74,517

46,023 87,682

55,109 72,230

Notes to Table A2 1. See Appendix Table Al. 2. The payroll total for 1939/40 as reported by the U.S.Census of Agriculture, Puerto Rico, 190, p. 13. This total is extrapolated through 1943/44 on the basis of payrolls reported to the State Insurance Fund of Puerto Rico for agricultural occupations. The following occupational codes used by the State Insurance Fund are classified as agricultural codes: 0005, 0006, 0008, 0014, 0030, 0031, 0033, 0035, 0036, 0401, 2070, 2105. 3. Wages in the form of room and board as a percent of the total wage bill were determined from farm management studies for each of the three principal crops. These percentages were applied to the total wage bill for each crop, respectively, as reported by the State Insurance Fund. The following farm management studies were consulted: Sugar cane—"Estudio eco-. nómico del suroeste de P. R." unpublished study of the Agri. Exp. Sta., U.P.R.; tobacco—(a) "Estudio económico de 270 fincas de tabaco en P. R. 1936-37", Bul. 50 (Junio 1939), Agri. Exp. Sta., U.P.R. and (b) "Analisis de la organización y de los fac63

tores que influyen en los ingresos de 194 fincas pequeñas de tabaco en P. R., 1935-36", Bul. 46 (Julio 1938), Agri. Exp. Sta., U.P.R.; coffee—Unpublished 5-year farm management study of coffee farms in P. R., 1934-1938, U.P.R. 4. Taken from the records of the State Insurance Fund for the codes listed in item 2. 5. Figure for 1939/40 taken from U. S. Census of Agriculture, 1940, p. 13, and extrapolated through 1943/44 on the basis of the excise taxes collected on cattle and poultry feeds. It is an ad valorem tax rate that has remained constant throughout this five-year period. 6. Seeds purchased from farmers are excluded since it is both an income and an expense item. To the import value of seeds and insecticides was applied a mark-up of 150 percent to arrive at the cost to the farmer. The mark-up was supplied by dealers. 7. Figure for 1939/40 taken from U. S. Census of Agriculture, 1940, p. 13, and extrapolated through 1943/44 on the basis of excise taxes collected on fertilizers. It is an ad valorem tax rate that has remained constant throughout this five-year period. 8. Based on cost of operations per vehicle or engine as disclosed by farm management studies and the number of vehicles and engines reported by the Census, op. cit. Estimate adjusted for changes in the retail price of gasoline. The following farm management studies were consulted: On cost of operating tractors—"Cost of Production Study of Sugar Cane, 1941-42", Minimum Wage Board of P. R., in cooperation with the Insular Experiment Station; on cost of operating trucks—S. Díaz Pacheco and J. R. Noguera, "Distribution de legumbres y hortalizas en las Ciudades de Río Piedras y San Juan", Bul. 62 (May 1942) Agri. Exp. Sta., U.P.R., and the study used to estimate cost of operating tractors; on the cost of operating engines and motors—"Estudio económico del suroeste de P. R.", unpublished study, Agri. Exp. Sta., U.P:R. 9. Figure for 1939/40 based on aforementioned farm management studies and acreage planted. The base year figure extrapolated through 1943/44 by an index of the import price of twine, rope and cordage. 10. Cost of bags, bottles and cans, and crates and boxes estimated separately from the above farm management studies and 64

production estimates, adjusted for changes in prices as reported by specialists of the Extension Service, U.P.R. 11. Taken from the Annual Reports of the Auditor of Puerto Rico, which include the receipts of the Isabela Irrigation System and the Puerto Rican Irrigation System. In the case of the Isabela Irrigation System, tax collections for delinquencies are attributed to the year immediately preceding the year of collection. In the case of the Puerto Rican Irrigation System the figure used is the "tax assessed for current fiscal year." 12. Interest paid by farmers is a total of interest paid on farm mortgages and on production loans. Interest on mortgages: Total mortgages outstanding for 1934 were estimated on the basis of a sample survey made by S. L. Descartes and reported in "La Situación hipotecaria rural en Puerto Rico", Bul. 42 (Enero 1936) Agri. Exp. Sta., U.P.R. This total was extrapolated on the basis of the total amount of mortgages on rural real property in the Registries of Property maintained by the Attorney General's office and included in his Annual Report. The relative movement of these totals seems to be accurate although they cannot be used as absolutes, since there are considerable delays in recording mortgage deductions and cancellations. The loans outstanding with the Federal Land Bank and the Land Bank Commissioner and the interest rates applicable to each type of loan (4.0 and 3.5 percent, respectively) were determined from the Annual Reports of the Farm Credit Administrations. The 12th Annual Report for 1944/45 contained the information on interest rates. The multiplication of loans outstanding by interest rates yields interest accruing to the Farm Credit Administration for mortgage loans. Since commercial banks make no mortgage loans, the difference between the total of all rural mortgage debt and interest accruals to the Farm Credit Administrations represent the total of farm mortgages held by individuals. Specialists of the Agri. Exp. Sta., U.P.R., were of the opinion that these mortgage loans bore an interest rate of 6.5 percent during this 5-year period. From the total of mortgage interest it is necessary to subtract the amount of mortgage interest paid by landlords of farm property who do not live on farms. This amount more properly belongs in the real estate industry. See notes to Table A-5, line 31, for derivation of this estimate. 65

Interest on production loans: This is a total of seven components. (a) Interest accruing on the production loans extended by the Farm Credit Administration. The loans outstanding and the applicable interest rates were ascertained for Banks for Cooperatives, The Federal Intermediate Credit Bank, Production Credit Associations and Emergency Crop Loans from the Annual Report, op. cit., (b) Interest received by sugar mills on loans extended to colonos tabulated from the income tax schedules of the sugar mills. (c) Interest on other production credit extended to sugar growers. From "A Credit Survey of 347 Sugar Cane Farms, Puerto Rico, 1939-40", by Julio O. Morales and Daniel Haddock, Bul. 70 (March 1946), Agri. Exp. Sta., U.P.R., it was ascertained that loans extended by sugar mills constituted 47 percent of all production loans granted to sugar growers. Dividing interest received by sugar mills by 47 percent yields a total of interest paid on all production loans held by sugar growers. The same study discloses that 31.4 percent of all production loans on sugar cane are owed to lenders other than sugar mills and the Farm Credit Agency. The multiplication of total interest by 31.4 percent gives the amount of interest on other production credit extended to sugar growers. (d) Interest on non-governmental production loans extended to tobacco growers. For 1939/40 this total is based on data reported in "A Credit Study on 167 Tobacco Farms, Puerto Rico, 1939-40", by Julio O. Morales and Sol L. Descartes, Bul. 69 (March 1946), Agri. Exp. Sta., U.P.R. The base year total is extrapolated by the index of tobacco acreage, which is one of the main determinants of the amount of credit extended by the refactionists. (e) Interest on loans extended by the Farm Security Administration. Data supplied by the San Juan office of Farm Security Administration. (f) Interest oh non-governmental loans to coffee growers. It was established that half of the interest received on the Emergency Crop Loans, administered by the Farm Credit Administration, was from the Cafeteros de Puerto Rico. It was assumed that that part of the coffee crop not marketed by the Cafeteros de Puerto Rico paid a proportionate amount of interest to private lenders. (g) Interest on non-governmental loans on minor crops. Specialists at the Agri. Exp. Sta., U.P.R., estimate that such loans are four times larger than the Rural Rehabilitation loans granted by the Farm 66

Security Administration. Since the latter are known (see (e) ), the desired total could be estimated. 13. This was assumed to be equal to the rents paid by the sugar mills. These data were tabulated from the income tax returns of the sugar mills. 14. The value of buildings on farms is reported in the U. S. Census of AgricnUure, 1940, p. 20, and extrapolated by the assessed value of rural buildings and machinery as reported by the Property Tax Office in the Annual Reports of the Treasurer of Puerto Rico. The standard depreciation rate on farm buildings established by Agri. Exp. Sta., U.P.R., is 5 percent. The Census also reports the value of implements and machinery in 1940. The extrapolating index used was the same as that used to extrapolate the value of buildings. A weighted average of the depreciation rates applicable to various types of agricultural machinery is 10 percent. 15. Property taxes vary by municipalities according to the amount of municipal debt outstanding. An average tax rate weighted by the assessed value of rural land in each municipality was computed for each of the five years. The average tax rate was applied to the total assessed value of rural lands, buildings (except dwellings), machinery, livestock and vehicles. All data included in the Annual Reports of the Treasurer of Puerto Rico. 16. Figure for 1939/40 based on farm management studies referred to in item (8) . Extrapolation arbitrary.

67

TABLE A3 Derivation of Net Profit in Sugar Cane Cultivation in Puerto Rico, 1939-40 to 1943-44 (in thousands of dollars) 1939-40 1940-41 1941-42 1942-43 1943-44 44,064 59,138 56,545 42,679 1. Farm value of sugar crop 43,301 Expenses: 22,681 26,093 2. Wages in cash 15,751 15,744 21,367 136 157 3. Wages in kind 94 94 128 1,385 1,328 4. Premiums paid to S.I.F.' 611 933 707 3,334 1,052 5. Fertilizers 3,006 2,793 2,847 6. Cost of operating trucks 1,500 1,500 1,270 1,500 and tractors 1,270 265 277 7. Irrigation taxes 234 283 276 8. Interest on production 533 1,014 952 788 credit 763 1,425 1,413 1,417 9. Mortgage interest 1,805 1,619 781 1,044 975 876 10. Rents paid" 1,128 412 381 11. Depreciation 353 400 310 1,267 1,243 1,101 1,170 12. Property taxes 1,087 616 603 606 13. Other expenses 415 466 Total expenses Net profit

26,411 16,890

26,605 17,459

32,513 26,625

32,339 24,206

37,711 4,968

State Insurance Fund. "To landlords not living on farms.

Notes to Table A3 1. From line 1, Appendix Table Al. 2, 3, 4, 8, & 9. See the comparable items in Appendix Table A2 and the appended notes. The cost of these items chargeable to sugar cultivation were among the several components estimated separately in arriving at the total for all farm operations. 5,6,11,&13. Percentage of total cost assigned to sugar cultivation on the basis of farm management studies carried out by the Agri. Exp. Sta., U.P.R., Insular Minimum Wage Board, and the U. S. Tariff Commission as interpreted by the specialists of the Agri. Exp. Sta., U.P.R. The following percentage allocations were used: Fertilizers, 84 percent of total; cost of operating trucks, tractors and engines, 90 percent of total; depreciation, 55 percent of total; feed for livestock and poultry, 6 percent; cost of twine, rope 68

and cordage, 5 percent; and miscellaneous, 50 percent. The latter three items are included under "other expenses". None of the cost of seeds and insecticides and of containers was charged to sugar cultivation. 7. All the taxes collected by the Puerto Rican Irrigation System were assumed to be chargeable to sugar cultivation. 10. Taken from income tax returns of sugar mills. It excludes rent paid to landlords living on farms. 12. Based on the ratio of assessed value of sugar land to total assessed value of farm land.

69

TABLE A4 Index of Physical Production in Puerto Rican Agriculture 1939-1940 to 1943-1944 Agricultural Products 1939-40 1940-41 1941-42 1942-43 1943-44 100 94.2 112.6 100.0 85.5 TOTAL PRODUCTION Principal Crops 100 86.5 112.1 89.4 67.2 113.4 Livestock Products 100 103.8 106.1 105.3 100 103.2 115.7 118.3 117.2 Legumes 114.8 120.8 131.8 100 109.0 Fruit Production 100 142.0 162.7 176.1 201.3 Starchy Vegetables 100 92.5 82.8 75.3 68.8 Green & Leafy Vegetables 146.4 214.5 100 131.0 161.9 Cereals 140.2 119.8 147.3 130.7 Other Agricultural Products . . . 100 Index of Value of Total Agri110.4 145.6 160.1 152.5 100 culture Production Note: Based on the production statistics presented in Appendix Table Al, weighted by the 1939-40 prices. Index of value of agricultural production also based on Appendix Table Al.

70

TABLE A5

i

Net Income of Puerto Rico by Minor Industrial Divisions and Distributive Shares, 1939-40 to 1943-44 (in thousands of dollars) Total Compensation of emp. Interest Net profit Industry Net Salaries and and net of business and year Income Total wages only rents' enterprises 1939-40 227,789 116,725 110,812 29,330 81,734 1940-41 278,240 147,621 135,914 29,194 101,425 1941-42 360,730 187,806 173,076 31,889 141,035 240,034 1942-43 436,199 223,893 34,228 161,937 1943-44 482,670 283,316 268,914 37,018 162,336 1. Agriculture', total: 1939-40 70,468 19,813 18,911 5,343 45,312 1940-41 78,474 20,102 19,237 5,231 53,141 1941-42 106,016 26,692 25,717 4,807 74,517 1942-43 120,534 28,251 27,244 4,601 87,682 1943-44 32,594 109,419 31,613 4,595 72,230 2. Sugar cane cultivation:' 1939-40 35,810 16,352 15,845 2,568 16,890 1940-41 36,437 16,345 15,838 2,633 17,459 1941-42 22,182 51,172 21,495 2,365 26,525 1942-43 50,058 23,647 22,817 2,205 24,206 1943-44 33,979 27,053 26,250 1,958 4,968 Manufactures, total: 1939-40 26,365 18,989 18,737 905 6,471 29,375 1940-41 18,267 18,015 853 10,255 1941-42 42,118 23,975 23,685 1,049 17,094 41,713 23,999 1942-43 24,312 1,122 16,279 1943-44 56,634 30,695 30,368 870 25,069 3. Sugar mills and refineries: 1939-40 9,272 7,942 7,788 559 771 10,774 1940-41 7,345 7,196 480 2,949 1941-42 14,879 8,329 8,167 489 6,061 8,344 1942-43 10,333 8,162 615 1,374 1943-44 8,045 9,843 8,192 390 1,261 4. Distilling and bottling of spiritous liquors: 1939-40 1,579 516 510 53 1,010 1940-41 2,857 641 632 56 2,160 4,861 1,014 84 1941-42 1,008 3,763 1,062 1,051 94 1942-43 6,943 5,787 1943-44 14,323 2,102 2,080 113 12,108 5. Breweries and carbonated beverages: 294 1939-40 633 300 4 329 1940-41 781 412 11 408 358 1941-42 1,775 655 644 20 1,100 780 12 1942-43 2,600 768 1,808 1,034 2 1943-44 3,461 1,050 2,409 6. Bakery products: 1,217 700 688 482 1939-40 35 1940-41 1,238 740 726 472 26 1941-42 1,819 1,093 1,075 58 668 2,694 1,478 1,449 1,149 1942-43 67 1,381 1943-44 3,316 1,895 1,864 40 71

Compensation of emp. Interest Net profit Total Salaries and and net of business Industry Net enterprises wages only rents Income Total and year 7. Misc, food products: 183 402 392 49 634 1939-40 272 431 418 57 1940-41 760 521 585 570 47 1,153 1941-42 780 772 49 851 1942-43 1,680 817 1,215 34 2,081 1,230 1943-44 8. Tobacco products: 84 725 1,625 2,444 1,635 1939-40 1,866 1,852 82 873 1940-41 2,821 90 1,023 3,975 2,862 2,848 1941-42 1,338 5,054 3,605 3,592 111 1942-43 1,732 2,242 2,228 128 1943-44 4,102 9. Needlework and other textiles: 4,914 4,910 86 826 1939-40 5,826 3,678 3,674 80 777 1940-41 4,535 1,006 5,701 5,696 59 1941-42 6,766 1,015 4,520 4,515 50 5,585 1942-43 1,604 8,877 59 8,885 1943-44 10,548 10. Lumber, furniture and other wooden products: 594 345 340 1 248 1939-40 818 439 432 2 377 1940-41 586 12 530 1,142 600 1941-42 1,064 532 524 10 522 1942-43 598 8 686 1943-44 1,292 587 11. Stone and clay products :' 308 291 4 286 1939-40 598 346 472 456 5 1940-41 823 510 76 228 814 495 1941-42 626 79 280 1,019 660 1942-43 770 736 96 472 1,338 1943-44 12. Printing, publishing and allied trades: 552 12 307 872 553 1939-40 294 692 11 998 693 1940-41 291 1,115 812 809 12 1941-42 491 754 753 10 1,255 1942-43 10 628 1,028 1,026 1943-44 1,666 13. Chemicals and allied products: 387 -13 669 1,053 397 1939-40 439 -24 618 1,042 448 1940-41 29 730 497 488 1,256 1941-42 475 20 873 480 1,373 1942-43 1,040 775 763 8 1943-44 1,823 14. Machinery and misc, metal products: 30 447 593 579 1,070 1939-40 474 65 614 603 1,153 1940-41 825 784 73 799 1,697 1941-42 447 4 753 757 1,208 1942-43 409 -25 1,108 1,119 1943-44 1,503 15. Miscellaneous manufacturers: 2 188 381 383 573 1939-40 2 284 488 486 774 1940-41 347 1 543 894 546 1941-42 344 1 586 933 588 1942-43 520 6 840 1,372 846 1943-44 72

Total Compensation of emp. Interest Net profit Industry Net Salaries and and net of business and year Income Total wages only rents ° enterprises 16. Contract construction: 1939-40 2,224 2,609 1,981 --13 398 1940-41 11,753 11,277 10,915 1 475 1941-42 7,135 5,852 5,574 12 1,271 1942-43 1,445 980 451 907 14 1943-44 1,416 1,193 10 213 1,132 Transportation, total: 1939-40 13,538 6,190 7,096 7,048 252 1940-41 19,782 10,123 258 9,401 10,057 1941-42 24,602 12,031 11,971 275 12,296 1942-43 24,733 264 14,284 10,185 10,105 1943-44 28,425 13,942 13,843 251 14,232 17. Steam railroads: 1939-40 1,521 1,214 1,196 220 87 1940-41 1,592 59 1,312 1,2'87 221 1941-42 1,360 908 242 210 885 1942-43 1,574 2,189 1,547 246 369 1943-44 1,862 1,811 1,778 -188 239 18. Shipping, stevedoring and harborcraft: 1939-40 2,584 2,235 2,216 - 1 350 1940-41 4,105 3,466 3,440 0 639 1941-42 4,622 4,092 536 4,069 - 6 1942-43 2,976 2,775 2,748 -12 213 1943-44 3,945 235 3,716 3,683 - 6 19. Motor transportation: ° 1939-40 9,099 3,408 3,401 34 5,657 1940-41 13,675 8,612 5,025 5,015 38 1941-42 18,056 38 11,431 6,587 6,578 1942-43 18,781 5,210 5,191 28 13,543 1943-44 , - - - - 21,784 7,664 14,103 7,633 17 20. Other transportation services: 1939-40 334 96 239 235 - 1 91 1940-41 410 315 — 1 320 1941-42 564 444 119 439 1 1942-43 787 159 619 2 626 1943-44 834 82 751 749 1 21. Power and gas: 1939-40 1,838 638 630 128 1,072 1940-41 2,040 712 694 46 1,282 1941-42 1,704 830 54 811 839 1942-43 400 113 113 61 226 1943-44 302 128 127 50 124 22. Communication: ° 1939-40 739 449 413 37 253 1940-41 834 497 465 18 319 1941-42 1,051 706 677 21 324 1942-43 1,088 793 766 57 238 1943-44 1,282 1,043 1,018 88 151 23. Trade: 1939-40 24,330 7,164 7,122 591 16,575 1940-41 29,341 8,088 8,048 713 20,540 1941-42 38,505 10,501 10,454 802 27,202 1942-43 44,494 10,585 10,536 863 33,046 1943-44 53,431 12,575 12,538 810 40,046 73

Industry and year

Total Net Income

Finance,' total: 1939-40 3,161 1940-41 3,454 1941-42 4,197 1942-43 4,415 1943-44 4,892 24. Banking: ° 1939-40 1,924 1940-41 2,127 1941-42 2,339 1942-43 2,440 1943-44 3,052 25. Insurance: 1939-40 1,237 1940-41 1,327 1941-42 1,858 1942-43 1,975 1943-44 1,840 Government, total: 1939-40 42,104 1940-41 56,713 1941-42 82,518 1942-43 135,760 1943-44 159,841 26. Federal : ° 1939-40 20,553 1940-41 33,320 1941-42 54,784 1942-43 101,509 1943-44 117,695 Insular, total: 1939-40 18,857 1940-41 20,582 1941-42 24,479 1942-43 31,122 1943-44 38,315 27. Regular agencies: 16,505 1939-40 1940-41 18,036 1941-42 20,881 1942-43 25,661 1943-44 32,281 28. Business enterprises:' 1939-40 2,352 1940-41 2,546 3,598 1941-42 5,461 1942-43 1943-44 6,034 29. Municipal: 1939-40 2,694 1940-41 2,811 3,255 1941-42 1942-43 3,129 1943-44 3,831

Compensation of emp. Interest Net profit Salaries and and net of business Total wages only rents' enterprises 1,517 1,582 1,763 1,861 1,893

1,481 1,532 1,714 1,813 1,832

922 1,028 1,168 1,227 1,259

886 978 1,119 1,179 1,198

595 554 595 634 634

595 554 595 634 634

—23 —34 —32 —23 —23

665 807 1,295 1,364 1,229

41,097 55,399 80,856 133,151 157,778

36,773 45,394 67,890 118,627 144,988

242 224 226 335 654

765 1,090 1,436 2,274 1,409

20,553 33,320 54,784 101,509 117,695

16,506 23,868 42,313 88,616 112,040

17,850 19,268 22,817 28,513 36,252

17,625 18,749 22,383 26,926 29,151

242 224 226 335 654

765 1,090 1,436 2,274 1,409

16,505 18,036 20,881 25,661 32,281

16,291 17,722 20,471 24,101 25,222

1,345 1,232 1,936 2,852 3,971

1,334 1,207 1,912 2,825 3,929

242 224 226 335 654

765 1,090 1,436 2,274 1,409

2,694 2,811 3,255 3,129 3,831

2,642 2,777 3,194 3,085 3,797

74

—23 —34 —32 —23 —23

1,667 1,906 2,466 2,577 3,022 1,002 1,099 1,171 1,213 1,793

Compensation of emp. Interest Net profit Total Industry Salaries and and net of business Net and year Income Total wages only rents° enterprises 30. Service: 1939-40 20,489 13,813 13,798 87 6,589 1940-41 24,526 17,112 17,098 141 7,273 1941-42 28,604 19,816 19,791 182 8,606 24,104 24,085 10,035 1942-43 34,678 539 604 10,797 1943-44 37,114 25,713 25,695 31. Real estate: 21,074 1939-40 21,454 380 373 364 21,102 1940-41 21,469 367 1941-42 24,182 297 295 23,885 26,055 323 322 25,732 1942-43 1943-44 28,596 386 384 28,210 32. Miscellaneous: 1939-40 4,252 3,545 3,545 707 4,095 641 1940-41 4,736 4,095 4,478 608 1941-42 5,086 4,478 5,376 5,376 663 1942-43 6,039 899 1943-44 6,275 5,376 5,376 33. Net international flow of capital returns: -3,558 1939-40 —3,558 -4,257 1940-41 —4,257 -4,988 1941-42 —4,988 -5,155 —5,155 1942-43 —4,957 -4,957 1943-44 Business enterprises owned and operated by the Insular Government are included in the industry classification of "Government". Includes cash pay of Puerto Rican servicemen regardless of location of station, Dependency Benefits (net of soldiers' contribution) paid to families resident in Puerto Rico, and cost of food and personal clothing. The estimates for military pay are as follows in thousands of dollars: 4,328 for 1940; 8,675 for 1941; 11,223 for 1942; 33,813 for 1943; 51,096 for 1944. Includes the proportional profit farms of the Land Authority; the irrigation (except Isabela project), electric light and power and street railway systems of the Water Resources Authority and predecessor agency; the Development Bank; the Cement Company, Glass Company and Transportation Authority. °Includes the earnings of hucksters and peddlers, shoemakers not in factories, newsboys and bootblacks, practical nurses and midwives and musicians and music teachers. Interest payments represent the amount of interest imputed to the individual owners of bank deposits. " All net rent (contractual and imputed) included in "real estate".

75

Notes to Table A5 The general sources and method may be briefly indicated: Wages and salaries—With few exceptions, the payroll estimates involve the use of the payroll statistics reported to the State Insurance Fund by all employers of three or more persons; before 1942, of more than three persons. This agency, which administers workmen's compensation legislation, tabulates payroll data by occupations and by policy holders (business enterprises) classified according to predominant business activity. It is the latter classification that has been used in the estimate. The payroll data of the Fund have been used either in the form of the absolute totals or as extrapolating indices for base-year totals derived from a Census survey. Wherever the comparability of industrial classification seemed reasonably good, the higher of the two base-year figures was used. Since the U. S. Census of Manufactures for Puerto Rico, 1939, included all firms with total receipts in 1939 of $2,000 or more, its coverage is more comprehensive than that of the Fund, particularly in industries in which very small business units are numerous. Total compensation of employees—This total, in addition to payrolls, includes workmen's compensation benefits (cash payments and medical care), contributions of employers to pension funds in the case of government and communications and work relief payment and pay of the National Guard in the case of government. With the sole exception of the Federal Government, the statistics on workmen's compensation benefits have been taken from the records of the State Insurance Fund. No further mention will be made in these notes of these supplements to salaries and wages, except in the cases of government and communications. Interest and net rent—To eliminate the duplication involved in the inter-business transfers of interest payments, the item measured is interest paid less interest received, with individuals owning real estate considered as business enterprises. Rent has also been adjusted for duplication of inter-business transfers and for cost of operating and maintaining property. All rents are included in the industrial category of "real estate". 76

Net profit of business enterprises—Net profit is defined as gross receipts less costs, including depreciation and business taxes but excluding income taxes. The effect of capital gains and losses on net income is also excluded. Information on all property returns—interest, net rents and net profit of business enterprises—is derived from the income tax returns filed with the Insular Income Tax Bureau. Since not all enterprises file returns, the information is, in effect, sample information. The method of inflating the samples is indicated in the detailed notes that follow. With the exception of the sugar mills and refineries, most returns are rendered on a calendar-year basis rather than on a fiscal-year basis. Calendar-year returns have been converted to a fiscal-year basis by averaging the statistics for returns for two successive years. 1. See Appendix, Table A-1. 2. See Appendix, Table A-2. 3. The payrolls of the sugar mills and refineries, as reported to the State Insurance Fund, excluding that part of their payroll which was paid out for agricultural labor. For 1939/40 the amount excluded had to be estimated; the ratio of the agricultural payroll of these companies to their total payroll in 1940/41 was applied to their total payroll in 1939/40. Property income—Income tax returns of all sugar mills and refineries for all years were tabulated. Sales of previous year's production were assigned to the year of production rather than to the year of sale. Most sugar mill operators who are also sugar cane growers render a consolidated income tax return for both agricultural and manufacturing activity. Since net income of this agricultural activity has already been included in the estimate of net income in agriculture, it was necessary to adjust for this duplication. The San Juan Office of the Agricultural Adjustment Administration provided annual information on the tonnage of sugar cane produced by sugar mills filing a consolidated return. The percent of this production to the Island's total sugar production was applied to the net income shown in Appendix Table A2, and the resulting amount deducted from the net income of sugar mills and refineries. 4. Salaries and wages—Reports of employers in this industry (2130 and 2131) to the State Insurance Fund. Property income—Income tax returns of a large sample ex77

panded to include the entire industry on the basis of the relationship of payrolls of the sample to total payrolls of the industry. 5. Same as (4). State Insurance Fund codes 2131 and 2143 used to define the industry. 6. Wages and salaries—The Census total is used for the baseyear figure, 1939/40; it was extrapolated through 1943/44 on the basis of the payroll totals reported to the State Insurance Fund under its codes 2002 and 2003. Property income—Same as (4). 7. Wages and salaries—Composed of eight sub-classifications each of which was estimated separately. In the case of salt production and refining, canneries, coffee roasting, and coconut desiccation, payrolls reported to Fund were used as absolutes. In the case of candy, ice manufacture, ice cream and miscellaneous foods, the Census totals were used for the base-year figures and the payroll statistics of the Fund were used as extrapolating indexes. Property income—Same as (4). 8. Wages and salaries—Composed of two sub-groups: tobacco stemming and stripping (2173) and cigar and cigarette manufactures (2177). For the former, the payrolls reported by the Fund were used as absolutes; for the latter, base-year figure taken from Census was extrapolated by payrolls reported to the Fund. Property income—Same as in (4) with the following addition: The U. S. Census of Business for Puerto Rico, 1939, under its classification of custom trades, reported 352 self-employed cigar makers with average receipts of $751. From a comparable industry in the Census of Manufactures, it was determined that 38.9 percent of receipts equalled value added, and it was assumed that value added equalled the net income of these proprietors. Fluctuations in the net income of the remainder of industry were used as extrapolating indexes. 9. Wages and salaries—Composed of two groups: Needlework in the home and needlework and other textile manufactures produced in factories. Homework is covered neither by the Census of Manufactures nor by the State Insurance Fund. In recent years, however, homework has been regulated by the Wage and Hour Division of the U. S. Department of Labor. Beginning with 1941, this agency, through its own staff, has collected 78

data on homework earnings from contractors. Since the Wage and Hour Division is of the opinion that its statistics cover only 90 percent of the industry, the totals were divided by 0.9. The figure for 1940 was obtained by extrapolating the 1941 total on the basis of the relative change in needlework exports between the two years, corrected for changes in hourly wage rates in needlework between these two years. The resulting figure for 1940 was in turn extrapolated to 1939 on the basis of the relative change in the value of needlework exports between 1940 and 1939. This appeared to be a valid procedure, since the unit price of needlework articles and hourly wage rates were virtually identical in both years. These calendar year payrolls were divided into semi-annual payrolls in accordance with percent of total needlework exports in the year that occurred in each semi-annual period. The semester payrolls were then recombined into fiscal year payrolls. The base figure for the other component, needlework and other textiles produced in factories, was derived from the Census. It was shifted from calendar year 1939 to fiscal year 1939/40 on the basis of the percent change in the value of needlework exports between these two periods. The 1939/40 figure was extrapolated through 1943/44 on the basis of payrolls reported to the Fund for codes 2388, 2501 and 2531. Property income—By the nature of the arrangement there is no net profit in homework, as both the homeworker and the contractor receive only a labor income, and, aside from a sewing machine, employ no capital of their own. For work done in factories see (4). 10. Wages and salaries—Base-year figure was taken from Census and extrapolated by payrolls reported to Fund for codes 2570, 2710, 2731, 2763, 3076, 3300 and 3864. Property income—Same as in (4) with following addition: Census of Business reports 77 self-employed carpenters in shops with receipts per establishment of $704. From a comparable industry in the Census of Manufactures it was determined that 49.1 percent rf total receipts was value added, and it was assumed that value added equalled net earnings of the carpenters. It was also assumed that this part of the industry varied from year to year in the same manner as the remainder of the industry. 11. Wages and salaries—Base-year figure was taken from 79

Census of Manufactures and extrapolated by payrolls reported to Fund for codes 1624, 1710, 2702, 4000, 4034, 4061 and 4130. Payroll of privately owned cement company (code 1701) was added to the extrapolated figure beginning with 1941/42. 12. Wages and salaries—Base-year figure was taken from Census of Manufactures and extrapolated by payrolls reported to Fund for code 4299. Property income—Same as in (4). 13. Wages and salaries—Payrolls reported to Fund for codes 1640, 4536, 4583, and 4611. Property income—Same as in (4). 14. Wages and salaries—Payrolls reported to Fund for codes 2763, 3220, 3647, 3824 and 3631. Property income—Same as in (4). 15. Wages and salaries—Payrolls reported to Fund for codes 2623, 2660, 2835, 3384, 4240, 4480 and 6824. Property income—Same as in (4). 16. Wages and salaries—Payrolls reported to Fund by policyholders are regarded by Fund officials as contractors, including the Continental companies working on military installations until July 1, 1942, when their workers became employees of the Federal Government. The payroll total also includes those construction workers hired by an individual for his own force-account construction work. Much of the remodeling and construction of dwellings is performed this way. A building permit is not issued unless the individual has a workmen's compensation policy for the construction workers. In this way their payrolls are reported to the Fund. Property income—Same as in (4), with no allowance for net profit accruing to those hired for personal force-account construction. 17. The classification of steam railroads is restricted to public carriers that file income tax returns covering their own operations exclusively. Railroads operated as a department of a sugar mill which files a consolidated income tax schedule have been excluded. The Compañía Ferroviaria de Circunvalación de Puerto Rico, which is a holding company, has been included in "Finance." Wages and salaries—Payrolls reported to the Fund by American Railroad Co. of Puerto Rico, Fajardo Development Co., Ponce 80

and Guayama Railroad Co., Ferrocarriles del Este and Compañia de los Ferrocarriles de Puerto Rico. Property income—Based on the income tax returns of the above companies. 18. Wages and salaries—Payrolls reported to Fund for codes 6872, 6874, 7024, 7027, 7028, 7088, 7089, 7090, 7091, 7309, 7313, 7317, 7333, 7335, 7336, 7395, 8709 and 8726. Property income—Same as in (4) for enterprises in which operations are restricted to Puerto Rico. For Continental companies, allocation to Puerto Rico of net profit or loss from all operations, Puerto Rico and elsewhere, was based on the ratio of revenue originating in Puerto Rico to total revenue of the enterprise. 19. The motor transportation industry, for purposes of estimate, has been divided into three sub-groups: (a) trucking for hire, (b) bus transportation and (c) públicos and taxis. Wage and salaries—(a) Payrolls reported to the Fund for codes 7219 and 7380; (b) ditto for code 7382 excluding operations of the P. R. Transportation Authority; (c) the earnings of drivers of hired públicos. Estimate described in (c) under "property income". Property income—(a) Same as in (4) ; (b) from income tax returns, net income per bus was estimated separately for those operating in the San Juan metropolitan area and for those operating in the remainder of the Island, and these averages were multiplied by the number of buses reported by the P. R. Public Service Commission to be operating in the two areas; (c) The net income per público was multiplied by the number of públicos and it was assumed that one-half of the net income of driveroperated públicos was rent; the remaining half, the driver's wages. The Annual Report of the Commissioner of Interior contains statistics on the number of públicos registered and the number insured which during the years under review must have been owner-operated. From discussions with personnel of Minimum Wage Board, we concluded that the net income per público in 1942/43 was $3,000. It was assumed that the net income per público varied over the years as the net income per bus in the non-metropolitan area. 20. This industry group is composed of air transportation, 81

storage and warehouses and miscellaneous transportation services, such as tourist agencies and freight handlers. Wages and salaries—Payroll reports to Fund for codes 7360, 7403, 7405, 7406, 7408, 8291, 8292, 8294 and 8813. Property income—Same as in (4) with exception of a Continental air transport company which was handled as in (18) . 21. Wages and salaries—Payrolls reported to the Fund for codes 7500, 7538 and 7539, excluding operations by the P. R. Water Resources Authority. Property income—Estimates were based on the income tax return of all enterprises. 22. Wages and salaries—Payrolls reported to Fund for codes 7600, 7601 and 8901, excluding operations of the P. R. Communications Authority. Included in supplements to wages and salaries are payments made by the P. R. Telephone Company to the pension fund. Property income—Same as in (21) . 23. It was necessary to make several departures from the classification of the U. S. Census of Trade. Restaurants were excluded from trade and combined with hotels because they are so classified by the Fund. It seemed more reasonable to classify coffee roasting and tobacco stripping in manufactures, rather than in wholesale trade as has been done by the Census. Payrolls for 1939/40 include the payrolls reported to the Fund under codes 8006, 8010, 8013, 8015, 8017, 8018, 8037, 8039, 8050, 8105, 8107, 8203, 8232, 8263, 8264, 8306, 8350, 8387, 8742 and 8748, and the payrolls of establishments not covered by the Fund estimated as follows: It was assumed that all trade establishments reporting sales in 1939 to the U. S. Census of Business of less than $5,000 did not employ hired labor. The number of establishments reporting to the Fund was also subtracted from the Census total of establishments. The annual payroll of each of the remaining number of establishments was assumed to be $500. The sum of the reported and estimated payrolls was extrapolated through 1944 by the payrolls reported to the Fund. Property income—Sales for 1939 reported to the Census of Business were extrapolated by link relatives derived from sales reported for two successive years on income tax returns by a sample of identical firms. Interest paid less interest received 82

and net profit, each expressed as a percent of sales for the sample firms, were applied to the estimate of total sales. 24. Wages and salaries—Payrolls reported by the banks on their income tax returns. Bonuses to employees were included in this category. Property income—The only property income deemed to originate in banking is net profit. Interest and dividends received (excluding interest received from governmental instrumentalities) less interest paid is considered imputed interest accruing to owners of deposits for the use by the bank of capital which is exchanged by the owners of deposits for the banking service. The interest actually paid and the interest imputed to individual owners of deposits are entered in the "miscellaneous" classification. A railroad holding company is included in the banking classification. The payroll was taken from Fund records and the property income from the income tax returns. 25. This classification is composed of (a) the only insurance company organized under the laws of Puerto Rico and (b) the agents and sub-agents for insurance companies organized elsewhere and with their main offices elsewhere. Estimates for the two components were prepared separately. (a) Wage and salaries were taken from Fund records and property income, from income tax returns. (b) From the income tax returns of a sample of insurance agents' offices it is possible to determine the following ratios: (1) Commissions received to premiums collected; (2) Wages and salaries paid to commissions received; (3) Commissions paid to sub-agents to commissions received; (4) Interest received to commissions received; (5) Interest paid to commissions received; (6) Net profit of proprietors to commissions received. The application of ratio (1) to total premiums collected, which is reported by the Superintendent of Insurance in his Annual Report, yields an estimate of total commissions received. The application of the other ratios to the estimate of commissions received provided the remaining items required for the estimate. 83

~ f

Commissions of sub-agents are not considered subject to any expense deductions and are included in net profit. 26. Wages and salaries—Payrolls expended by branch offices of regular Federal agencies were derived from a variety of sources: Reports submitted to the Bell Committee and Chavez Committee; declaration of individual incomes filed by several of the agencies with the Insular Income Tax Bureau and the Victory Tax Division, and by correspondence with several of the larger agencies, such as the Puerto Rican Reconstruction Administration, Agricultural Adjustment Administration and Selective Service. To estimate the military payroll, it is necessary to distinguish between the civilian employees working on military installations and service personnel. The payroll of civilians employed by the War Department in Puerto Rico was obtained by letter from the Headquarters of the Antilles Department, San Juan Office. The Navy Department Office of Industrial Relations submitted data on the number employed and their payroll. The resulting average pay seemed absurdly high. It was decided, therefore, to multiply the average pay received by civilian workers of the War Department by the number of civilians employed by the Navy Department. Only Puerto Rican enlistees and officers are included in the Insular net income. For the Navy, all personnel enlisting in Puerto Rico, as reported by Navy Department office in Washington, D. C., for fiscal years 1940, 1941 and 1942 were assumed to represent Puerto Rican enlistments. Arbitrary figures for the remaining years were: 300 enlistees in 1943 and 500 enlistees in 1944. Pay of enlisted personnel was computed by multiplying the number of enlisted personnel by average pay for Continentals enlisted in the Navy. These averages were supplied by the National Income Division of the U. S. Department of Commerce. The cost of food and personal clothing provided for enlisted personnel was treated as a wage payment in kind. The ratio of these payments in kind to cash pay, as estimated for the United States by the Department of Commerce, was applied to the total of cash pay received by Puerto Rican enlistees. The number of Puerto Ricans in the Army was obtained from Army Headquarters, Antilles Department, San Juan Office. Average net pay for 1944 was supplied by Department of Corn84

merce and extrapolated to 1939/40 on the basis of average pay to Navy enlisted personnel. Family allowances paid to payees residing in Puerto Rico were also included as part of Army pay. For period October 1943, through June 1944, the data were supplied by Office of Dependency Benefits. To obtain the full year's total for 1943/44, the total was increased by one-third. Total for 1942/43 was based on ratio of Puerto Rican enlisted personnel in 1942/43 to enlisted personnel in 1943/44. The estimate of payments in kind was derived as described above for Navy personnel. Supplements to wages and salaries—This total is comprised of: (a) Wage and salary payments for work relief, (b) Workmen's compensation, (c) Federal Government's contribution to the Civil Service Retirement System, and (d) Pay of National Guard. Labor payments on WPA projects and CCC projects constitute the total for (a) . Figures for WPA projects were supplied by the Bureau of Research and Statistics of the Social Security Board; figures for CCC projects were taken from Annual Reports of Governor of Puerto Rico and from data on file with the Forestry Service, Rio Piedras office. The total for (b) is an arbitrary figure arrived at on the basis of discussions with officials of the San Juan office of the U. S. Employee's Compensation Commission. The total for (c) was reached in the following manner: estimated percent of Federal payroll in Puerto Rico subject to the regulations of the classified service upon basis of data in Monthly Labor Review (U. S. Department of Labor) April, 1942, and applied thereto the employee deduction rate to arrive at employees' contributions to the Retirement Fund. Computed, from U. S. experience, the government's contribution as a percent of Federal workers' contribution and applied these percentages to the estimates of Federal workers' contributions in Puerto Rico. The pay of the National Guard (d), before its absorption into the regular army was obtained from their Annual Reports. Property income—For conceptual reasons, interest paid by Governments, except their business enterprises, is excluded from the measurement of net income. 85

/

27. Wages and salaries—Payrolls based on our tabulation of the settlement warrants as posted by the Office of the Auditor for the general fund and for all trust funds. We were able to check our tabulation when for 1943/44, Insular government payrolls were reported to the State Insurance Fund, and found that for this year our tabulation differed by less than one percent from the total reported to the Fund. Supplements to wages and salaries—Work relief wages obtained by letter from the War Emergency Program Administration. Workmen's compensation was taken from the records of the State Insurance Fund. Insular government's contribution to the pension fund was taken from the records of the Auditor's Office. Property income—Excluded. See above (26). 28. Business enterprises of the Insular Government include the proportional profit farms of the Land Authority, the irrigation, electric light and power and street railway operations of the Water Resources Authority and predecessor agency; the operations of the Transportation Authority; the Development Bank; the Cement Company and the Glass Company. Wages and salaries—Payrolls—reported to the Fund. Property income—Data taken from the profit and loss account of the respective enterprises. 29. Wages and salaries—Payrolls reported to the Fund. Supplements to wages and salaries—Workmen's compensation was taken from the records of the Fund. Municipalities' contribution of teachers' pension fund was taken from records in the Auditor's Office. 30. For purposes of estimating, the service category has been subdivided into 9 groups: (a) Private clinics and hospitals; (b) Other personal services; (c) Business services; (d) Professional services; (e) Automobile garages and repair shops; (f) Places of amusement; (g) Hotels and restaurants; (h) Private schools, religious institutions and other non-profit organizations, and 86

(i) Domestic servants. Wages and salaries—(a) Payroll reported to Fund for code 8833; (b) Payroll reported to Fund adjusted for under-coverage in laundries and dry cleaning establishments, barber and beauty shops and funeral parlors, as disclosed by comparison of number of enterprises reporting to the Fund in 1939/40 and to the Census of Business in 1939. The average payroll of the smallest enterprises reporting to the Fund was used to make the adjustment; (c) Payroll reported to the Fund and payrolls for radio broadcasting; (d) Payrolls reported on income tax schedules; (e) Payrolls reported to Fund; (f) Ditto;

~

(g) Payrolls from Fund (which include the value of the meals provided the employees) plus estimate of tips received. The estimate of tips was based on a study by the Minimum Wage Board for 1942/43, "El Negocio de Hoteles, Restaurantes, Cantinas y Fuentes de Soda en Puerto Rico" which disclosed that tips amounted to 72.39 percent of cash wages. This percentage was applied to the payrolls reported to the Fund to determine supplement to salary and meals; (h) Payrolls reported to Fund plus an imputed payroll of $500 per person for 879 religious workers reported by the Population Census; (i) The Census of Population, 1940, reports the number of domestic servants living with families and the number not living with families. For the lack of evidence to the contrary, the number has been held constant in all years. The annual cash wage of domestics in each group was set at the following mounts: $120 in 1939/40, $150 in 1940/41 and in 1941/42 and $180 in 1942/43 and in 1943/44. To the cash wage was added the value of payments in kind calculated according to the regulations prescribed by the State Insurance Fund in its Bulletin Number 10 (1943) . The component for board was assumed to fluctuate as the import price of rice and beans. Property income—(a) Data from income tax returns for a large sample expanded to the total on the basis of the ratio of 87

"patient-days" of hospitals in our sample for 1941. "Patientdays" data taken from "El Servicio de Hospitales en Puerto Rico", mimeographed report of Junta de Salario Mínimo (August, 1942) P. 50; (b) In "other personal services" too few enterprises filed income tax returns for them to serve as a basis of estimate. Business receipts of these enterprises in 1939 are reported by the Census of Business and were extrapolated on the basis of the payroll totals. It was arbitrarily determined that 25 percent of receipts constituted net profit. If this should be an overstatement, it cannot be a serious one since even in 1943/44 the net profit so estimated amounted to less than $600,000; (c) Property income for radio broadcasting based on income tax returns of all enterprises. Except for radio broadcasting, however, too few enterprises filed income tax returns to be useful. Business receipts in 1939 from all other business services were, therefore, taken from Census of Business and extrapolated by changes in their payroll. The ratio in each year of net profit to receipts in radio broadcasting was applied year by year to receipts of other business services to arrive at their net profit. The net profit so derived varied from $70,000 in 1939/40 to $100,000 in 1943/44; (d) Derived from information reported in income tax returns for a large sample in each profession. Sample was divided, in each profession, into those practicing in the San Juan area and those practicing in the remainder of the Island, and average income per self-employed professional person was computed for each of two strata. These averages were multiplied, respectively, by the number of self-employed professionals practicing in each of the two areas. The number of professionals was obtained from various professional associations; (e) Total receipts for 1939 taken from Census of Business and extrapolated by relative changes in payrolls for this industry. From income tax returns of sample enterprises the ratios of interest and net profit to receipts were computed and applied to the estimate of total receipts; (f) Receipts in 1939 from Census of Business extrapolated by excise taxes on public shows, corrected for changes in tax rate. Ratios of interest and net profit to receipts computed from in88

I

k

I

come tax returns of sample enterprises and applied to the estimate of total receipts; (g) Same as (f) ; (h) Property income restricted to private schools operating for profit. Information for all such enterprises was taken from income tax returns; (i) No property income accruing to domestic servants. 31. Wages and salaries—Payrolls reported to Fund for codes 8741, 9014 and 9015. The first code relates to real estate agencies and the latter two to building care and maintenance. Property income—Estimates prepared separately for (a) Tenant-occupied dwellings, (b) Owner-occupied dwellings, and (c) Rented property used by business enterprises. Gross rentals in each of the three categories were estimated first. (a) The U. S. Census of Housing for Puerto Rico, 1940 (pp. 45-46) reported average rentals by specified number of rooms per dwelling units for urban and rural communities occupied by whites and non-whites. From this table it was possible to compute the gross rentals paid by tenant-occupiers and the average rental per unit by size of dwelling for urban and rural area and for white and non-white occupants. The gross rental paid by tenant-occupiers was extrapolated by link relatives of rental receipts obtained from income tax returns by persons whose major source of income was rent. (b) The Census (pp. 41-42) also reports owner-occupied dwellings in 1940, by number of rooms per dwelling for urban and rural communities and by white and non-white owner. It was assumed that the computed gross rental for owner-occupied dwelling was the same as the contractual rent paid by tenant of same color for dwelling of same size located in same type of community. Hence the averages computed in (a) were multiplied by the number of owners in each class. Except for 1943/44 this estimate of imputed gross rent for 1940 was extrapolated by a link relative based on contractual rentals used in (a). Since, according to the Insular Bureau of Labor Statistics, rental rates had increased by 1.2 percent between 1942/43 and 1943/44, the decline in rental receipts shown by sample could only mean that tenants had purchased their dwellings, and that, therefore, 89

imputed rents should increase. Imputed rents were increased by 1.2 percent plus 1.6 percent, the amount of the negative link relative. (c) Gross rental paid less gross rentals received by business enterprises has been estimated industry by industry in the same manner as the other items of property income already discussed in entries (1) to (30). It is probable that some part of the gross rent received by business enterprises was obtained from tenants occupying dwellings. To the extent that this is true, it is offset by our exclusion of rents paid by Federal and Insular governments from the gross rental total. Gross rent was reduced to net rent by applying the appropriate ratio of net to gross derived from the income tax returns by persons whose major source of income was rent. In the case of agricultural rents the only deductible expenses allowed were interest and property taxes. 32. The "miscellaneous" category comprises activities which should more properly have been included in other classifications. It was, however, clear that the sources relied upon excluded these activities. The error of estimate, by the nature of the case, is much larger for this group than is the error of estimate for income originating in the specified industrial classifications. "Miscellaneous" includes: (a) Hucksters and peddlers; (b) Shoemakers not in factories who were not included in the Census of Business enumeration; (c) Newsboys and bootblacks; (d) Practical nurses and midwives; (e) Musicians and music teachers. In each case, the number of persons was obtained from the Census of Population, 1940, and held constant for all years. The net earnings of (a) and (b) were considered to have been equal to the annual wage of servants living with families. Net earnings of (c) were assumed to have been one-half, and of (d), one and a half times the annual wage of servants living with families. The annual earnings of musicians and music teachers were arbitrarily set at $2,000 per person. The entry under "interest" is the imputed interest accruing to individual owners of bank deposits as explained in (24). The 90

amount imputed to individuals was based on the ratio of time deposits to all deposits. 33. Since payments outside of Puerto Rico for use of capital in Puerto Rico are subject to a withholding tax by the Insular Income Tax Bureau, the amounts transferred are reported to the Income Tax Bureau. The totals entered here were derived from a tabulation of these records.

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APPENDIX B Deflation of the Insular Net Income At this time only the crudest approximation of Insular net income in constant prices can be undertaken. The crudeness is attributable to two major factors. Except for periods of drastic change in the composition of an economy's output, the most satisfactory method of deflation involves the conversion of the net income estimate into a net product estimate, with each component of the net product deflated by appropriate price indexes. Unfortunately, there is no net product estimate for Puerto Rico at the present time. The alternative expedient is to correct the net income totals for changes in consumers' prices. Even on this basis the data leave much to be desired. The official index of consumers' prices has been computed continuously only since January 1943. Prior to that date, because of the paucity of data, indexes were computed only for March 1941, June 1942 and December 1942, with March 1941 selected as the base. Since other indicators reveal, however, that by the base-month prices had already risen sharply, it appeared more desirable to use an earlier period as the base of the index. Accordingly, the prices in the fiscal year, 1939/40, a prewar year, and the first year of this net income estimate, were taken as the base of comparison. The statistical problem of extrapolating the index of consumer price to 1939/40 was accomplished by relating an index of the retail prices of foodstuffs to the index of consumers' prices. The former index had been prepared by S. L. Descartes for the University of Puerto Rico Agricultural Experiment Station. The index covered the selected months of July 1939, the base; July 1940; July 1941; November 1941 and monthly thereafter through December 1942. By reference to the index of wholesale prices of foodstuffs, an index of retail prices of foodstuffs was interpolated for March 1941, which was then made the base of the index. The two indexes shown in Table B1 were obtained in this manner. The relationship of the two indexes was established by plotting the two index series for identical months (four in number) and drawing a freehand curve through these points. Values were read from the curve for the months for which indexes of retail prices of foodstuffs were available. These values are entered in column 3 of Table B1. Straight line interpolations were made for the missing months and monthly averages on a fiscal year basis were computed. The latter, shifted to a 1939/40 92

base, constitute the deflators of the Insular net income and are as follows: Index of Consumers' Prices 100.0 110.3 132.6 153.2 158.2

1939/40 1940/41 1941/42 1942/43 1943/44 TABLE B1

Indexes of Retail Prices of Foodstuffs and of Consumers' Prices for Selected Months—July 1939 to June 1944. Index of Index of Consumers' prices Consumers' Retail prices —values read of foodstuffs prices from freehand March 1941 = 100 curve. 86.0 July 1939 86.2 93.8 July 1940 94.0 100.0 March 1941 100.0 110.8 July 1941 112.8 113.3 November 1941 116.4 December 1941 118.2 114.3 116.0 120.9 January 1942 117.5 February 122.7 121.5 March 129.9 125.0 April 136.2 129.8 146.1 May 130.2 148.3 June 131.2 July 150.0 135.0 August 159.9 136.0 September 163.5 137.8 169.8 October 140.0 November 178.8 139.3 December 175.0 136.6 136.8 137.2 139.3 141.4 142.2 141.8 142.1 142.2 141.0 141.5 141.6 142.3 142.5 142.0 142.5 143.2 143.4

January 1943 February March April May June July August September October November December January 1944 February March April May June

Source: Adapted from original data presented in Basic Statistics on Puerto Rico, compiled and edited by S. L. Descartes (Office of Puerto Rico, Washington, D. C., 1946) pp. 79-80. 93

APPENDIX C Notes on the Estimates of Income Payments to Individuals The numbered line references correspond to the entries in Table 3, p. 26. 1. Insular net income estimates taken from Appendix Table A5. 2. Interest received by individuals from government refers only to the Federal government. Securities of the Insular and municipal governments are not held by individuals resident in Puerto Rico. Federal interest payments comprise interest on postal savings deposits, from the Annual Reports of the U. S. Board of Trustees of the Postal Savings System, and interest on War Bonds. War bond interest was estimated as follows: The purchase of E bonds in Puerto Rico was reported by years in Minute Man, February 1946—Field Publication of U. S. Savings Bonds Division of the Treasury. The cumulated holdings of E bonds for each year were expressed as a percent of the comparable total for the entire United States. To obtain the interest accruing to Puerto Rican owners of E bonds, these percentages were applied each year to the accrued discount on all E bonds, reported in the Treasury Rulletin for March 1946. This method implies, of course, that the redemption rates in the United States and Puerto Rico were the same. The same assumption was made in estimating interest received by individuals holding F and G bonds which are coupon bonds. After deducting redemptions, based on U. S. experience, from Minute Man reports of purchases of F and G bonds by Puerto Rican residents, the amount outstanding in each year was computed. The rate of 2.53 percent was applied to the amount outstanding in each year to obtain the amount of interest received. 3. The amount of veterans' pensions and of cash grants under National Youth Administration were obtained from a special tabulation prepared by the Bureau of Research and Statistics, Social Security Board, Washington, D. C. 4. The number of Continental soldiers' stations in Puerto Rico was supplied by the San Juan Office of Army Headquarters, Antilles Department; the number of Continental Navy personnel in uniform based in Puerto Rico was supplied by Bureau of Naval Personnel, Navy Department, Washington, D. C. These 94

average figures on station strength in each branch of the service were multiplied by the respective average pay in cash and kind used in the net income estimates. Average pay was adjusted for deductions from pay for dependency benefits and allotments. 5. The number of Puerto Rican servicemen stationed outside of Puerto Rico was supplied by the San Juan Office of Army Headquarters, Antilles Department. The number was multiplied by the average pay used in (4) above.

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APPENDIX D TAoBLE Dl Federal Grants-in-Aid, Payments under Cooperative Arrangements, and Refunds of Excise and Customs, Puerto Rico, Fiscal Years 1940-1944 (In thousands of dollars) 1942 1943 1944 Federal Agency 1940 1941 Total

5,557

Department of Agriculture Agricultural experiment stations Agricultural extension work Forest funds, roads, trails, etc.

7,664 19,099 19,362

68,146

93 158 8

99 185 11

103 197 11

101 202 15

139 280 15

Federal Security Agency Office of Education Morril Nelson grant Cooperative vocational education and rehabilitation Training of defense workers Public Health Service Grants under Social Security Act Grants under "Venereal Disease Control Act"

50

50

50

50

50

275

345 399

451 844

349 862

373 244

290

727

282

286

265

193

313

Federal Works Agency Public Roads Administration

874

575

866

583

368

318

413

4,477 13,940 13,550 840 2,085 2,450

63,884 1,900

Department of Labor Children's Bureau, grants under Social Security Act Treasury Department Refund of excise taxes Refund of custom duties

2,779 1,030

531

Source: All figures, except refunds of excise taxes and custom duties, from the Annual Report of the U. S. Secretary of the Treasury on the State of Finances. Figures on refunds of excise taxes and custom duties, from Basic Statistics on Puerto Rico, op. cit., p. 69. We have included only the taxes actually collected by the Federal Government and given to the Insular Government. It has been pointed out that the Federal Government also foregoes additional revenue by its failure to collect an income tax from Puerto Rican residents, and to collect excise taxes on certain articles and services consumed on the Island.

96