trial insurance with that of ordinary life insurance makes this cost differential obvious. Those with the largest incomes, who find it easiest to save and whose saving is to some degree automatic, receive the highest rates of return upon their saving because they employ low-cost methods and because the information available to them permits them to take advantage of high-yield opportunities.21

The tax structure of the Federal, State, and local governments, despite the tax measures which have progressive features, does not appear to have affected the volume of saving in recent years. The Twentieth Century Fund found that the combined tax structure in 1936 was regressive up to an income level of $2,000 per year,22 and thus fell with disproportionate weight upon those least able to save and to make ends meet. On the basis of the Colm and Lehmann study in 1938, it would seem that the Federal tax system, particularly since the repeal of the undistributed profits tax, has increased rather than decreased the volume of savings.23 Dennison estimated that the Federal State, and local tax system fell 73 percent upon consumption and 27 percent upon savings in 1936.24 It has been estimated that the tax structure in 1938-39 fell with approximately the same weight upon savings as in 1936.

In recent years, therefore, the volume of saving has for practical purposes been a function of the level of national income and of the concentration of individual and corporate income.

THE RESERVOIRS IN WHICH SAVINGS ARE COLLECTED

Savings may move into investment directly or indirectly. The indirect movement involves the transfer of savings from the saver, through one or more intermediaries, to the investor.25 A simple case may involve only the placing of mortgage money through a local real estate broker, or the deposit of funds with a building and loan association which lends these funds on mortgage. A more complex movement may easily involve two or more intermediaries. The saver pays a premium to his life insurance company; the life insurance company buys newly issued bonds offered by an investment banker; the investment banker, who has bought the bonds from the issuing corporation, in effect transfers the funds to the issuing corporation; and the latter invests them. In recent years life insurance companies and other financial institutions have bought more and more new bond issues directly from the issuing corporations, thus by-passing the investment banker.26

The transfer mechanism, whether simple or complex, is generally termed the capital market; and this term is convenient so long as it does not obscure the fact that the capital market consists of not one but many markets, that the connections among these markets are

21 Compare the advantage of wealthy individuals and others. The former were on the J. P. Morgan & Co. "preferred lists." On the other hand, the "immigrant population, who, untrained in banking habits and frequently the victims of unscrupulous banking practices, prefer the safety afforded" by postal savings banks at 2 percent. ("Postal Savings Banks," Encyclopedia of Social Sciences, vol. XII, pp. 268-269.)

22 Facing the Tax Problem, Twentieth Century Fund, New York, 1937, especially p. 233. See also Temporary National Economic Committee Monographs No. 3 and No. 20, pp. 171 ff. 23 G. Colm and F. Lehmann, Economic Consequences of Recent American Tax Policy. New School for Social Research, 1938, p. 42.

24 H. S. Dennison et al., Toward Full Employment, McGraw-Hill, New York, 1938, p. 185. See the discussion by D. H. Davenport in Hearings before the Temporary National Economic Committee, Part 9, pp. 3726-3734.

20 Ibid., exhibit No. 618, p. 3816.

frequently extremely tenuous, and that corresponding to these markets is an interest rate structure rather than a uniform interest rate. The major savings institutions in the capital market, as described by Davenport, are the life insurance companies, the mutual savings banks, the commercial banks, United States savings ("baby") bonds, the Postal Savings System, the social security and the Federal, State, and other pension and retirement funds, building and loan associations, investment trusts, and corporate and individual trustees.27 The principal auxiliary mechanisms in the capital market are the stock exchanges, security brokers and dealers, and the investment bankers.

To the individual saver the indirect movement of savings into investment offers many advantages. It means greater diversification, greater security, greater liquidity. To the investor it opens the possibility of obtaining funds in larger amounts and on a variety of terms. To the community the mobilization and allocation of savings through the capital market may result in their most effective employment and expenditure. Savings in large and small amounts flow into savings reservoirs, to be assembled and auctioned off to the highest bidders. To the extent that savings really go to the highest bidder (taking into consideration the risk involved) and to the extent that the greatest rate of return corresponds with the greatest social need, savings are most effectively employed.

On the other hand, the direct movement of savings into investmentwhere the saver invests his own savings-though involving no expense, may not result in the most efficient use of savings. Savings may be invested directly in low-yield employments instead of indirectly in higher-yield employments. Complaints were made during the 1920's that the growing corporate practice of achieving financial self-sufficiency was freeing investment policy from the "testing" of the capital markets.

31

Whether the indirect movement of savings into investment is more effective socially than the direct movement depends upon whether the capital market mechanism operates without bias and in the full light of day. Various congressional investigations since 1931 have established that the unregulated markets of the boom era did not operate in that manner. But the facts disclosed by the Hearings on the Sale of Foreign Securities, the Hearings on Utility Corporations,20 the Investigation of Railroads, Holding and Affiliated Companies,30 the Hearings on Stock Exchange 1 and the Reports on Protective and Reorganization Committees 32 have had their effect. The enactment of the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, and the revisions of the bankruptcy and reorganization procedures have done a great deal to remove the abuses of the boom era and to make the capital markets function more adequately. It is probably true that the principles of full disclosure and adequate information-some conditions of a properly functioning market-are more thoroughly observed now than ever before.

"Ibid., p. 3727.

28 S. Rept. 41, 73d Cong., 1st sess.

29 Pursuant to S. Res. 83, 74th Cong., 1st sess.

80 Pursuant to S. Res. 71, 74th Cong., 1st sess., 1936-37.

推!

Pursuant to S. Res. 84, 72d Cong., and S. Res. 56, 73d Cong.

2 Securities and Exchange Commission, 1936.

INSTITUTIONALIZATION OF SAVINGS

In 1922 the assets of the principal savings institutions totaled $30,000,000,000; in 1929, $55,000,000,000; and in 1939, $69,000,000,000,33 The yearly increase in the assets of the principal savings institutions averaged more from 1937 to 1939 than from 1927 to 1929. The average yearly increase relative to national income, however, was greater in the later period. For the 3 years 1927-29 the average ratio of the yearly increase in assets to national income was 4.5 percent; for the 3 years 1937-39 the ratio was 5.9 percent.

These data not only suggest the efforts of the American people to save but they testify to the institutionalization of savings. An analysis of all savings by individuals in the period 1933-37 illustrates this situation in another way. From 1933 through 1937 individuals had gross savings of 1.9 billion dollars.84 This was the final result of saving 16.1 billion dollars in some forms, and of drawing upon 5.2 billion dollars in other forms. Individuals reduced their holdings of securities by 2.1 billion dollars, and their ownership of homes, automobiles, and household property by 3.1 billion dollars. On the other hand, they saved 16.1 billion dollars through financial institutions. These savings were represented by:

An increase in currency and deposits__

An increase in insurance and pension reserves__

A decrease in equities in building and loan associations-

A net increase in all these forms__.

Billion

8.3

9.4

1.6

16.1

These 16.1 billion dollars of individuals' savings were institutionalized and became the investment problem of financial institutions.

The institutionalization of individual savings may be indicated in another manner. The increase in the assets of the principal savings institutions represents principally savings by individuals, although some small business savings are undoubtedly included.35 From 1927 to 1929 slightly less than half, and from 1936 to 1939 slightly more than half, of individual savings flowed through these institutions.

Most of the individual savings flowing into savings institutions go into the assets of life insurance companies, the time deposits of commercial banks, and mutual savings banks. In 1939, when the assets of the principal savings institutions totaled $69,000,000,000, life insur ance company assets were $27,000,000,000, time deposits in commercial banks totaled $15,000,000,000, and mutual savings banks assets were $12.000,000,000. The remaining $15,000,000,000 was divided among building and loan associations, governmental pension and trust funds, postal savings, and United States savings bonds. The growth of these components is sketched in table 51.

33 Temporary National Economic Committee Monograph No. 37, appendix XII, p. 120. 84 Goldsmith and Salant, op. cit., vol. III, p. 237.

For an estimate of the number of persons employing the various savings processes, see hearings before the Temporary National Economic Committee, Part 9, p. 4063.

TABLE 51.-Assets or funds in the principal savings institutions in the United
States, 1922-39

[Amounts in millions of dollars]

1 Admitted value basis; includes fraternal insurance. These figures are published for 306 life insurance companies and for fraternal orders in the Spectator Life Insurance Yearbooks, as of Dec. 31, of each year. June 30 figures were estimated by using the percentages of the total life insurance assets which were held by the 49 companies reported on a monthly basis by the Association of Life Insurance Presidents and published in the Bureau of Foreign and Domestic Commerce, Survey of Current Business.

2 Excludes postal-savings deposits.

Source: Adapted from Hearings before the Temporary National Economic Committee, Part 9, p. 4052. Col. 1 is from the Spectator Insurance Yearbooks, Life Volume; cols. 2, 3, 4, and 6, from the Bureau of the Census, Statistical Abstract of the United States; col. 5, data for 1937 from a study made by the U. S. Treasury Department, with the other years estimated; col. 7, from the Annual Reports of the Secretary of the Treasury.

The relative importance of life insurance in the total has been increasing since 1924. In that year the life insurance companies held 25 percent of these savings. Since then the proportion has grown as

follows:

Year: 1927. 1930 1933.

GEOGRAPHICAL CONCENTRATION OF SAVINGS

One-third of the principal reservoirs of savings is concentrated in New York; another third in New Jersey, Massachusetts, Pennsylvania, and Connecticut; and the remaining one-third is in the other 43 States.36 Life insurance companies show the greatest geographical concentration. For the 25 largest companies, with 87 percent of all life insurance assets, 57 percent of the assets are controlled from New York and Newark, 17 percent from New England, and 4 percent from Pennsylvania-that is, 78 percent of these assets are controlled from the financial East. The other savings institutions show similar concentration. Ninety percent of the assets of mutual savings banks are in 5 States.37 with 54 percent in New York; 59 percent of the assets of commercial banks are in 5 States,38 with 29 percent in New York. The value of

26 Hearings before the Temporary National Economic Committee, Part 9, pp. 3751-3768, "New York, Massachusetts, Connecticut, Pennsylvania, New Jersey. (Ibid., p. 4059.) For an explanation of this concentration, see ibid., pp. 3770-3771.

28 New York, Pennsylvania, Illinois, California, Ohio (Ibid., p. 4060).

assets entrusted to corporate and individual trustees is not known with any precision, but it may amount to $50,000,000,000, or almost twice as much as the assets of life insurance companies. The control over trust assets rests primarily in New York and a few other cities.

CONCENTRATION OF SAVINGS IN LARGE INSTITUTIONS

39

Savings are largely concentrated in the large savings institutions. The 308 legal reserve life insurance companies under investigation reported total admitted assets of $26,000,000,000 at the end of 1937. The five largest companies held 54 percent of this total:

The Metropolitan is by far the largest business organization in the `United States, and the Prudential is third, with only American Telephone & Telegraph ahead of it. In fact, there are only nine corporations in the country as large as, or larger than, the smallest of these five life insurance companies-three industrials, two public utilities, and four railroads.40

The five insurance giants located in New York City and Newark, N. J., are surrounded by a host of companies that seem small only by comparison. For the 16 largest companies hold 81 percent ($21,000,000,000) of total life assets and the 25 largest companies hold 87 percent ($23,000,000,000).

Other financial and savings institutions show a similar concentration. The 543 mutual savings banks in 1939 held $11,600,000,000 of assets, but the 25 largest banks held 42 percent of the total. The 50 largest commercial banks held $26,000,000,000 of assets at the end of 1939, while the total bank assets of $57,000,000,000 were held by almost 14,000 banks. Thus, less than two-tenths of 1 percent of all commercial banks held 46 percent of all the assets. The building and loan associations are probably the least concentrated of all the savings institutions.

The institutionalization of savings thus presents on one hand millions of persons employing the various savings processes and on the other, a relatively small number of savings institutions, in many cases linked by interlocking officers and directors, that hold, manage, and control these savings. The extent of concentration on the one side has been sketched, and it may be of interest to indicate the extent of the dispersion on the other. In 1937-38 there were with many duplications within classes and among classes-35,000,000 ordinary life policies, 89,000,000 industrial policies, 31,000,000 savings depositors

39 Hearings before the Temporary National Economic Committee, Part 9, pp. 3751–3768,

4051-4059.

40 Assets in millions of dollars; Standard Oil Co., (N. J.), 1,895; U. S. Steel Corporation, 1,822; General Motors Corporation, 1,492; American Telephone & Telegraph Co., 3,998; Consolidated Edison Co. of New York, 1,377; Pennsylvania R. R. Co., 2,863; New York Central R. R. Co., 2,356; Allegheny Corporation, 1,379; and Southern Pacific Co., 1,678. See National Resources Committee, Structure of the American Economy, Washington, 1939, pp. 99-101,