Does our nation have the patience to become prosperous? Finnish income, consumption and saving in the beginning of the 1950s

Abstract

The purpose of this article is to analyse the possibilities of Finnish households saving and their consumption patterns in the beginning of the 1950s. As a tool for this analysis, the article estimates unbalanced sector accounts and private consumption for 1950s Finnish households. These accounts allow analysing the structure of the Finnish households' income and the structure of household consumption. As these accounts are estimated for the whole country and in addition for three different categories of municipalities, they allow an analysis of welfare differences between different regions. This article is not limited to the macro analysis. Based on the individual replies of the cost living studies, some households are analysed in more depth to get a broader view on their way of living. The analysis of individual household replies is also based on the sector accounts, i.e. accounts similar to those on the aggregated level are estimated for individual households.

Keywords:

• households
• household sector
• sector accounts
• growth studies
• historical national accounting
• household consumption expenditure
• disposable income
• saving
• saving ratio

Acknowledgements

I would like to thank the Finnish Cultural Foundation (Suomen Kultuurirahasto) for financially supporting my research. Additionally, I would like to thank an anonymous referee and the participants of the 3rd Sound Economic History Workshop, Gothenburg, Sweden, 3–4 October 2008, for helpful comments without implicating them in any remaining errors.

Notes

1. See, for instance, Urho Kekkonen, Onko maallamme malttia vaurastua? (Helsinki: Otava, 1952), 116–19.

2. Please refer to Rütta Hjerppe (1988), Süomen talous 1860–1985, Kasvu ja rakennemuutos, Kasvu-tutkimuksia XIII, Suomen Pankin julkaisuja, Helsinki 1988. And also to Rütta Hjerppe (1996), Finland's Historical National Accounts 1860–1994. Calculation Methods and Statistical Tables. jyväskylän yliopiston Suomen historian julkaisuja Z4, Jyväskylä 1996.There are also separate studies in which the national accounts framework has been applied. For instance, an input–output framework has been applied to the historical data. The last application of input–output tables is Jari Kauppila's application for 1928 in The Structure and Short-Term Development of Finnish Industries in the 1920s and 1930s – An Input-output Approach (Helsinki: Statistics Finland Research Reports 246, Statistics Finland, 2007). Additionally, Eino H. Laurila, Consumption in Finnish Economy (Helsinki: ETLA, 1985), made some historical private consumption estimations.

3. Peter Vikström, The Big Picture – A Historical National Accounts Approach to Growth, Structural Change and Income Distribution in Sweden 1870–1990. Umeå Studies in Economic History nr 26/2002 (Umeå: Umeå University, 2002).

4. The coverage of the accounts in this article do not correspond with the growth studies and thus are not consistent with the ones in growth studies, i.e. these accounts are in this sense independent and the accounts have not been reconciled with the growth studies. Conceptually, the accounts are consistent as both follow either the SNA93 or the SNA68 except in the cases in which exceptions have been explicitly mentioned; System of National Accounts 1993 (SNA93) (Commission of the Brussels/Luxembourg, New York, Paris, Washington DC: European Communities, International Monetary Fund, United Nations, World Bank, 1993).

5. In the theoretical literature, the used income concept is called ‘Hicksian Income’; John R. Hicks, Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory (Oxford: Clarendon Press, 1939). The SNA93 recognises the linkage to the income concept of Hicks, although it is arguable whether the SNA93 disposable income is the Hicksian income, as Hicks included, for instance, holding gains in his income concept. From that point of view the income concept is nearer to the one of James E. Meade and Richard Stone, ‘The Construction of Tables of National Income, Expenditure, Savings and Investment’, The Economic Journal 51, no. 202/203 (1941): 216–33.The overall national accounting system is based on the Keynesian theory; John Maynard Keynes, The General Theory on Employment, Interest and Money (London: Macmillan, 1936). From that point of view, this paper estimates the private consumption component and compensation of employees of the Keynesian macroeconomic equilibrium. According to the Keynesian theory, the GDP can be defined as follows: GDP(B1G) = OP(P1) – IC(P2) + TAX(D21) – SUBP(D31) = CE(D1) + OS(B2N/B3N) + TAPRI(D2) – SUB(D3) + CFC(K1) = C(P31) +I(P5) + G(P32) + EXP(P6) – IMP(P7) , where OP stands for output, IC for intermediate consumption, TAX for taxes on products, SUBP for subsidies on products, CE for compensation of employees, OS for net operating surplus (mixed income), TAXPRI for taxes on production and imports, SUB for the respective subsidies, CFC for consumption of fixed capital, C for private consumption, I for investment, G for government consumption, EXP for export and IMP for import. The codes in brackets are referring to the standard codes of the SNA93 and the ESA95, (see European System of Accounts 1995 (ESA95), European Commission Regulation number 2223/1996 (Eurostat, 1996)). The last part of the presented formula is the Keynesian macroeconomic equilibrium, which is known as goods and services accounts in the national accounts.

6. The standard SNA abbreviations have been presented in brackets. The U and R are, however, not standard abbreviations. U refers to ‘uses’ and R refers to ‘resources’.

7. The full sequence of accounts for households is presented in the SNA93, table A.V.6.

8. See more in detail: SNA93, 1.13–14 and 4.1–4.165.

9. Due to the source data, this is also the case in the total economy accounts, which are presented later in this article.

10. See more in detail: SNA93, 4.11, 4.132–160, 19.17–29.

11. More on this issue: SNA93, 9.38–9.40; Jukka Jalava and Ilja Kristian Kavonius, The Effect of Durable Goods and ICT on Euro Area Productivity Growth? (European Central Bank, Working Paper Series No. 940, September 2008); and Jukka Jalava and Ilja Kristian Kavonius, ‘Measuring the Stock of Consumer Durables and its Implications for Euro Area Saving Rations’, Review of Income and Wealth 55, no. 1 (2009): 43–56. Additionally, C.R. Hulten, ‘The “Architecture” of Capital Accounting: Basic Design Principles’, in A New Architecture for the US National Accounts, NBER Studies in Income and Wealth, vol. 66, ed. D.W. Jorgenson, J.S. Landefeld and W.D. Nordhaus (Chicago and London: University of Chicago Press, 2006); and OECD, OECD Manual: Measuring Capital, draft version 30 May 2008’ (Paris: OECD, 2008) support the view that durable goods should be included in the investments.

12. This would also raise a juristic problem as indicated in Statistics Finland, Minutes of the Committee on the Ethics of Statistics (Tilastoeettinen lautakunta) 3/2007.

13. Elinkustannustutkimus helmikuu 1950–tammikuu 1951 (Cost of Living Study from February 1950 to January 1951), micro dataset, file number I, the Archive of Statistics Finland. (The data have been moved in 2008 to the National Archive.)

14. However, as required in the minutes of the Committee on the Ethics of Statistics (Tilastoeettinen lautakunta) 3/2007, the description has been changed in that sense that the families cannot be recognised.

15. Sosiaalisia erikoistutkimuksia 21, elinkustannustutkimus helmikuu 1950–tammikuu 1951 (Cost of Living Study from February 1950 to January 1951) (Helsinki: Suomen virallinen tilasto, 1954).

16. Susan Porter Benson, Household Accounts – Working-Class Family Economies in the Interwar United States (Ithaca, NY: Cornell University Press, 2007) has done a similar kind of analysis on households' standard of living in the 1920s and 1930s US which is based on household interviews.

17. Hannu Tanninen and Matti Tuomala, ‘Tuloerot ja makrotaloustiede’, in Kansantaloustiede, talouspolitiikka ja hyvinvointivaltio – juhlakirja Jukka Pekkarisen kunniaksi, ed. Visa Heinonen, Markus Jäntti ja Juhana Vartiainen Helsinki: Palkansaajien tutkimuslaitos, reports number 11, 2007):159–69.

18. Riitta Hjerppe, Kasvun Vuosisata (Helsinki: VAPK kustannus, 1990).

19. Cost of Living Study from February 1950 to January 1951, Sosiaalisia erikoistutkimuksia 21, elinkustannustutkimus helmikuu 1950–tammikuu 1951 (Helsinki: Suomen virallinen tilasto, 1954).

20. The middle–large towns in the sample are Turku, Tampere, Lahti, Pori, Oulu, Kuopio and Kotka. Kokkola, Kajaani, Lappeenranta, Karkkila, Suolahti, Valkeakoski and Rovaniemi are representing small towns and market towns.

21. The economic growth and the increase of the welfare were rapid at those days. For this reason, a new cost of living study was already conducted in 1955–56.

22. Sosiaalisia erikoistutkimuksia 21, elinkustannustutkimus helmikuu 1950–tammikuu 1951 (Cost of Living Study from February 1950 to January 1951) (Helsinki: Suomen virallinen tilasto, 1954), 9.

23. Suomen kansantalouden tilinpito 1948–1964 (National Accounting in Finland 1948–1964). Tilastollisia tiedonantoja no. 43 (Helsinki: Tilastollinen päätoimisto, 1968).

24. The bridge table has not been added in this article as it does not differ so much from the one presented in the appendix. The table can be obtained on request from the author.

25. Sosiaalisia erikoistutkimuksia 21, elinkustannustutkimus helmikuu 1950–tammikuu 1951, 15.

26. The name of the family is invented and does not appear in the data.

27. Arabia is a Finnish ceramics company which is currently owned by the Iittala Group. Since 2007, Iittala Group is 97% owned by Fiskars Corporation, while its operative management holds 3% of the shares. In the 1950s, Arabia used to be an independent company. Arabia has specialised in kitchenware and tableware, china and sanitary porcelain.

28. Porter Benson, Household Accounts.

29. The name of this family is invented and does not appear in the data.

30. In Finnish: Huoltokonttori. Helsinki City has a financial services office for its employees. It provides instance credit with low interest rates. As in the 1950s financial markets were controlled, the financial service office played an important role in financing its employees.

31. See more on differences between macro and micro approaches for instance: Ilja Kristian Kavonius and Veli-Matti Törmälehto, ‘Household Income Aggregates in Micro and Macro Statistics’, Statistical Journal of the United Nations Economic Commission for Europe 20, No. 1 (2003):9–25; Expert Group on Household Income Statistics,The Canberra Group: Final Report and Recommendations (Ottawa, 2001).

32. In Finnish: halpamakkara.

33. In Finnish: pulla

34. For instance, the ESA95 has a threshold of ECU 500 at 1995 prices. This is an example of the borderline case of durable goods and investment as referred earlier in this article.