Page:Walter Renton Ingalls - Wealth and Income of the American People (1924).pdf/233

Rh of having earned monumental surpluses in 1915 and 1916, putting them wholly into additional plant, and not having paid any dividend or now being able to.

This history of the zinc industry reflects what is perhaps an exaggerated manifestation, but nevertheless some of the same elements are to be found in copper production, automobile manufacturing, ship- building and probably in many industries. From early in 1920 until late in 1921 the stock-market was trying to express the writing off that must be done for overbuilding, that absorbed many surpluses, which no longer will be of any use.

It is undeniable that many great enterprises have been built up out of earnings and have annually created surplus accounts that have stood for something durable. Examples of this will be found in the steel industry and in the meat-packing industry. It is to be conjectured, however, that this happened more before the war than during it.

The conclusions to be drawn from these considerations are these:

1. Corporate surpluses are accumulated out of gross income.

2. They do not constitute net income if (a) they are accumulated at the expense of capital previously earned or invested; or if (b) they accrue for the provision of plant of only temporary usefulness.

3. Earned surpluses of one year should be balanced against shrinkage of inventories and writing-off of plant in another year.

It follows from this that after an economic determination of gross income has been made, corporate surpluses should be deducted and carried as a suspense account.