INDEBTEDNESS

IN THE

f UNITED STATES

I

-----------------------------------1929 -1941-----------

I I I_______I_______I_______I_____

35 1936 1937 1938 1939 1940 1941

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Federal Reserve Bank of St. Louis
U. S. DEPARTMENT OF COMMERCE

Jesse H. Jones, Secretary

BUREAU OF FOREIGN AND DOMESTIC COMMERCE

Carroll L. Wilson. D ire c to r

+

Economic Series—No. 21

INDEBTEDNESS IN THE 

UNITED STATES 

1929-41

UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHINGTON : 1942

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Page

Foreword_______________________________________________________________________ vn

Chapter I. Concepts of debt and problems of its measurement__________ 1

The nature of debt____________ _________________________________________ 1

Area covered by this report__ _________________________________________ 2

Varying quality of debt statistics_______________________________________ 2

Basic concepts of debt_______ __________________________________________ 3

Concepts employed in this study . _____________________________________ 4

Various concepts of duplicating debt___________________________________ 5

Long- and short-term indebtedness_____________________________________ 7

Treatment of defaulted obligations______________________________________ 8

Debt estimates affected by changing financial organization___________ 8

Significance of changes in outstanding debt____________________________ 9

Limitations of the estimates_____________________ ______________________ 10

Suggestions concerning interpretation of the estimates________________ 11

Relation to other studies_________________________________________________ 12

Chapter II. The volume of outstanding debt______________________________ 13

Combined public and private debt______________________________________ 13

Net public and private debt up 18 billions in 1941_______________ 13

Comparative changes in private debt______________________________ 13

Timing of public-debt expansion___ _____________________________ 15

Private-debt increase a result of business expansion______________ 15

Net debt 12.6 billion dollars higher in 1941 than in 1929_________ 15

Gross debt above 1929 level____________ ________________________ 18

Public debt_______________________________________________________________ 20

Trend of public debt upward_______________________________________ 20

Composition of gross Federal debt_________________________________ 22

State and local government debt___________________________________ 24

Private debt_______________ _________ ___________________________________ 27

Trends in net private debt, 1929-41_______________________________ 27

Gross private debt___________________________________________________ 29

Short-term private debt____________________________________________ 31

Short-term credit for commercial purposes__________________ 32

Trends in the volume of consumer credit_____________________ 33

Duplicating debt_________________________________________________________ 34

Duplicating debt of the United States Government and Federal

agencies___________________________________ ________________________ 35

Duplicating debt of State and local governments_________________ 36

Chapter III. The components of private debt_____________________________ 39

Debts of corporations____________________________________________________ 39

Railway debt________________________________________________________ 43

Public utility debt___________________________________________________ 44

Debts of industrial and financial corporations_____________________ 45

Debts of holding companies______ ________________________________ 47

Indebtedness on urban residential property____ ________________________ 48

Farm-mortgage debt reduced yearly since 1929________________________ 51

Short-term farm debt____________________________________________________ 53

Short-term debts of individuals__________________________________________ 54

Commercial debts declined sharply from 1929 through 1933_____ 54

Consumer debt in 1941 higher than in 1929_______________________ 57

Chapter IV. The changing structure of domestic indebtedness___________ 61

Investment holdings of banks and insurance companies_______________ 61

Debt and interest_________________________________________________________ 65

Interest payable_____________________________________________________ 65

Average interest rates_______________________________________________ 70

Public debt ________________________ ____________________________ 71

Private debt____________________________________________________ 71

CONTENTS

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Chapter IV— Continued.

Relation of interest payable to interest paid________________________________ 75

Refinancing and refunding activities, 1929-40____ _____________________ 75

Defaulted debt, 1929-40________________________ _____ __________________ ____ 77

Chapter V. The significance of a changing debt structure________________ ____ 79

Consequences of an expanding Government debt______________________ ____ 79

Areas of tension in the private-debt structure__________________________ ____ 80

The outlook for future debt developments__________________________________ 81

The significance of debt financing__________________1____________________ ____ 82

A P P E N D IX

Sources and methods of estimation___________________________________________ _____85

General_________________________________________________________________________85

Debts of the United States Government and Federal corporations

and agencies------------------------------------------------------------------------------------------ ------- 85

Debts of State and local governments________________________________________86

Debts of private corporations________________________________________________ 86

Farm-mortgage and other farm debt____________________________________ _____88

Urban real-estate mortgage debt________________________________________ _____89

Business and commercial debts of individuals__________________________ ____ 90

Interest payable----------------------------------------------------------------------------------------- -------91

T E X T TABLES

1. Net debt in the United States, 1929-41_________________________________ 16

2. Gross debt in the United States, 1929-41_______________________________ 19

3. Gross and net debt of the United States Government and Federal corporations and agencies, 1929-41______________________________________ 21

4. Gross and net debt of State and local governments, 1929-41__________ 24

5. Outstanding debts of selected special districts, as of June 30, 1940

and 1941__________________________ ____________________________________ 27

6. Gross and net corporate debt, 1929-41__________________________________ 41

7. Deposit liabilities of all banks in the United States, 1929-41__________ 46

8. Reserves and other selected liabilities of life-insurance companies to

policyholders, 1929-40________________________________________________ 46

9. Urban residential real-estate mortgages, 1929-41_______________________ 48

10. Urban real-estate mortgages owed by individuals and other noncorporate borrowers, 1929-41_____________________________________________ 49

11. Farm mortgages and short-term debts of farmers, by lending agencies,

1929-41__________________________________________________________________ 52

12. Loans to farmers’ cooperative organizations by selected Federal lending agencies in the United States, 1929-41___________________________ 54

13. Short-term debts of individuals and other noncorporate borrowers,

1929-41__________________________________________________________________ 56

14. Net public debt and net private long-term debt held by banks, lifeinsurance companies, and other investors, 1929, 1939, and 1940____ 61

15. Estimated distribution of tax-exempt securities, by class of holder,

as of June 30, 1937-40__________________________________________________ 63

16. Estimated outstanding mortgage loans on urban 1- to 4-family homes,

by type of lender, 1929-41_____________________________________________ 65

17. Net public and net long-term private interest-bearing debt, average

interest rates, and interest payable in the United States, 1929-41 __ 68

18. Gross public and gross long-term private interest-bearing debt, average

interest rates, and interest payable in the United States, 1929-41__ 73

19. Corporate bonds and notes in default, by major groups, 1929-40_____ 78

A P P E N D IX TABLE

I. Number of consolidated and unconsolidated returns filed by active

corporations, 1929-38____________________________________________________ 87

ILLU STR ATIO NS

1. Percentage changes, 1941 from 1940 and 1940 from 1939, in net

public and private debt, by classes____________________________________ 14

2. Net debt in the United States, by types, 1929-41______________________ 18

3. Gross and net public debt in the United States, 1929-41______________ 20

IV CONTEXTS

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4. Long-term private debt in the United States, by types, 1929-41______ 28

5. Indexes of components of long-term private debt in the United States,

1929-41_________________________________________________________________ 30

6. Short-term private debt in the United States, by types, 1929-41_____ 31

7. Indexes of components of short-term private debt in the United States,

1929-41______________________________ ___________________________________ 32

8. Short-term farm debt to Government farm-credit agencies, 1929-41__ 53

9. Indexes of consumer debt in the United States, 1929-41______________ 58

10. Indexes of interest payable on components of long-term private debt,

1929-41__________________________________________________________________ 66

11. Indexes of interest payable on components of public debt, 1929-41___ 67

12. Average interest rate on components of public debt, 1929-41_________ 70

13. Average interest rate on components of long-term private debt, 1929-

41___________________________________________ ___________________________ 72

14. Corporate bonds and notes in default, 1929-41_________________________ 77

CONTENTS V

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FOREWORD

This bulletin is one of the many basic economic studies which the 

Department of Commerce is making to provide reliable guides to 

business and governmental policy during the war and post-war 

periods. It presents an a lalysis of the composition of the domestic 

debt structure and the shifts in that structure during the past decade. 

It thus furnishes background data that should prove helpful in appraising the significance of future developments.

The sudden plunge of tins country into war on December 7, 1941, 

marked the end of a defir ite economic period and the inauguration 

of a new phase of industrial expansion based on arms output. The 

war as it progresses is bound to produce striking economic changes 

which will alter the financial structure inherited from the pre-war 

period. As yet, the type of financial changes which will accompany 

the war effort cannot be predicted in detail with accuracy. Certain 

inferences, however, may oe drawn from current information when 

projected against the background material presented in this bulletin. 

Only by studying the behavior of the credit structure over the past 

decade can we truly understand and appraise the financial trends 

being formed in the present period of economic transition.

The debt structure not only is a heritage of past economic activity 

but also is a factor modifying and conditioning present and future 

commercial and industrial expansion. Changes in the duration and 

terms of credit, as well as in the service and amortization charges 

required to support loans, may exercise a strong influence in determining the character and structure of economic development. Failure 

of the network of domestic indebtedness to fall in line with changing 

economic conditions may cause frictions which temporarily interrupt 

or retard the smooth flow of business activity.

Changes in the aggregate volume of private indebtedness are directly associated with major changes in business activity and national 

income, though movements in debt volume tend to lag somewhat 

behind the trends in these basic series, particularly during the downward phase of the business cycle. Both quantitative and qualitative 

changes in the structure of private indebtedness are important not 

only because they throw 1 ght upon the mobilization of savings and 

allocation of funds for capital formation but also because the conditions attending financial transfers may influence the distribution of 

income and wealth.

The volume of public debt is controlled by governmental fiscal 

policy as well as by changing economic conditions. Important 

changes in the uses and sources of public credit have occurred in the 

period since 1929 and these changes have affected the entire area of 

private as well as public finance. The expansion of the functions of 

government and the recognition that appropriate use of the public 

credit may be a necessary adjunct to positive economic policy during

VII

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depression periods have resulted in a steady growth in outstanding 

public debt over the past decade. The implications of this trend, 

together with the interrelations between public indebtedness and the 

structure of private lending activities, are treated in this report.

This study was prepared in the Bureau of Foreign and Domestic 

Commerce under the general supervision of M. Joseph Meehan and 

R. R. Nathan. The tables and manuscript were prepared by J. Wesley Sternberg prior to his transfer to another Government department. 

Revisions to bring the manuscript up to date were made by Robert 

B. Bangs and Milton Gilbert. The original Bureau study in this 

field, undertaken by Donald C. Horton, covered long-term debts only. 

The present bulletin covers both long- and short-term indebtedness 

and employs slightly different concepts than did the earlier study.

Acknowledgment is gratefully made for the assistance given by 

the individuals in many Government agencies who furnished materia] 

for this report.

C a r r o l l L. W il s o n , Director, 

Bureau of Foreign and Domestic Commerce.

M a y 1942.

VIII FOREWORD

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INDEBTEDNESS IN THE UNITED STATES 1929 41

C h a p t e r I

CONCEPTS OF DEBT AND PROBLEMS OF ITS

MEASUREMENT

As the American economy in 1942 is being converted from a peacetime to a wartime basis, numerous economic changes of a fundamental 

character are apparent. War production is causing tremendous shifts 

in the composition of output and in the balance among industries. 

The allocation of labor both industrially and geographically is changing and similar changes are occurring in connection with industrial 

facilities. In the financial sphere new sources of funds are being 

tapped, and the uses of funds are very different from those in normal 

peacetime activity.

In part, these financial changes are being reflected in the structure 

of indebtedness under which our economy operates. Public expenditure is accelerating at a r ipid rate and the fiscal demands of modern 

war are sharply increasing the public debt. Business indebtedness is 

shifting in industrial composition, in duration, and in ownership. 

Consumer debt is decreasing in volume as consumer durable goods 

become scarcer and as fiscil policy requires more drastic limitation of 

installment selling.

The developments now taking place in the credit structure of the 

American economy can best be appraised and analyzed against the 

background of financial experience over the past decade. In the 

following pages that part of this financial history which pertains 

to the relations of debtors and creditors is traced for the period 

1929-41. This period was featured by difficult debt adjustments 

during the years of dee]) depression but by the emergence at the 

decade’s close of a credit structure rather well adjusted to the current 

economic situation and tin is able to absorb many of the stresses of war 

finance.

THE NATURE OF DEBT

Debts arise from the numerous financial transfers which accompany the processes of production, distribution, and consumption of 

goods and services in the modern economy. From the standpoint of 

the borrower, debts consist of legal liabilities owed by individuals, 

by business enterprises, or by governments. From the standpoint 

of the lender, debts constitute receivables or assets signifying claims 

against the resources or income of the debtor. Every debt is thus a 

two-sided affair and implies a contractual relationship between debtor 

and creditor based on financial transfers.

The lending and borrowing operations which give rise to debt take 

place under a variety of circumstances and result in many distin1

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2 INDEBTEDNESS IN THE UNITED STATES

guishable types of contractual relationships between borrowers and 

their creditors. The generic term “debt” thus comprehends a wide 

range of both formal and informal obligations differing with respect 

to circumstances of origin, duration, and provisions for settlement.

In the broadest sense, debts may be defined as all recognized 

obligations to pay definite sums of money either on demand or at 

some future stated or determinable date. Thus defined, debts encompass liabilities varying in form from personal obligations on open 

accounts to claims evidenced by formal notes or indentures and 

varying in duration from contracts repayable on demand to those 

extending over many years. Though many debts arise out of actual 

transfers of funds, others result from the provision of services, 

from purchases, or from judgments or reorganization proceedings.

AREA COVERED BY THIS REPORT

The comprehensive debt totals presented in this report are estimates 

of the aggregate volume of all types of indebtedness outstanding in 

the United States, exclusive of the debts owed by certain financial 

institutions, such as banks and insurance companies, and excepting 

certain comparatively minor items specifically indicated below which 

must be omitted because the relevant primary statistics are too sketchy 

to permit significant estimation. The figures include short- and longterm debts and interest and non-interest-bearing obligations. In view 

of the significant difference between public and private finance, the 

debt aggregates are broken down into public and private debt.

Public debt includes Federal debt, which comprises the outstanding 

bonds, notes, and bills of the United States Government, plus the 

obligations of the Reconstruction Finance Corporation, agencies in 

the farm-loan system and the home-loan system, and the other Federal corporations and agencies. Public debt also includes the debts 

of States, counties, municipalities, school districts, and all other 

local governmental divisions and authorities.

Private debt, as defined for purposes of this study, is composed of 

the debts of corporations, other than credit institutions, and the 

obligations of unincorporated businesses, nonprofit associations, and 

individuals. Long-term private debt is represented largely by bonds, 

notes, and mortgages, while short-term private debt is evidenced 

chiefly by notes and open accounts. An obligation without maturity 

elate falls within the meaning of debt as here employed only when 

it contains provisions which call for fixed interest payments and 

which give to the lender creditor claims on the assets of the debtor 

for the principal amount in the event of default on interest payments 

or in case of nonperformance of other contractual provisions.

VARYING QUALITY OF DEBT STATISTICS

The accuracy of aggregate debt estimates depends to an important 

degree upon the completeness and availability of primary debt information. Unfortunately, statistics are not equally complete for 

all types of outstanding debt. Figures which are available for several classes of debt, for example, the debts of the United States 

Government, represent the full and exact amount of outstanding 

indebtedness as of a given date, since the data are taken directly from

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DEBT AND PROBLEMS OF ITS MEASUREMENT 3

financial statements. Figures for other debt categories, for example, 

certain classes of debts owed by individuals, are not complete accounting totals but are estimates based upon incomplete basic data. 

These estimates are naturally subject to varying margins of error, 

the amount of error being determined by the completeness and applicability of the available information. For certain relatively minor 

types of debt, such as obligations owed by individuals to other individuals and by unincorporated firms to other unincorporated firms, 

information is so fragmentary that these figures are omitted from 

the estimates. In view of such omissions the aggregates understate 

slightly the total amount of indebtedness outstanding.

The ever-increasing abundance of primary data available during 

the last several years 1 as appreciably improved the quality of the 

estimates for certain debt categories and lias permitted the general 

estimates to be extended so as to cover several of the classes of debt 

excluded in the previous debt study of this Department.1 The appearance of new information has necessitated frequent revisions of 

the debt figures and ha* caused some changes to be made in the concepts underlying the estimates. Though these revisions have not 

increased the accuracy of all the individual series carried into the 

aggregates, they have materially improved the quality and the coverage of the over-all estim ites.

BASIC CONCEPTS OF DEBT

The size of an aggregate debt estimate is in part determined by 

the concept of indebtedness employed. Statistics "of debt may be 

compiled in accordance with concepts ranging from a gross debt 

aggregate, encompassing all forms of negotiable and nonnegotiable 

debt obligations, to a net debt concept in wThich duplications are 

eliminated.

In its broadest sense, gross debt includes, in addition to the debts 

of final borrowers, the liabilities of all intermediaries who assemble 

the savings of individuals, corporations, and other initial lenders and 

who in turn make loans directly or through other intermediaries to 

home owners, businessn en, consumers, and other ultimate borrowers. 

For example, when the Federal Government or a Federal corporation 

issues bonds which pro 'ide funds to purchase mortgages on residential buildings, these debts, which are liabilities of either the Federal 

Government or its ere lit corporation or of both, are included in 

the gross debt totals almg with the original mortgage debts. Obligations of banks to de xxsitors and of insurance companies to their 

policyholders likewise might be said to fall within the definition of 

gross debt in this inchu ive sense. We have, however, excluded these 

liabilities from the gross debt totals on the ground that they are 

not contracts providing for repayment of principal at any certain 

time. Debts of issuer* held alive by such issuers, for example, in 

sinking funds, or held by their affiliates comprising a “system” or 

"'unit” constitute another class of obligations which are included in 

gross debt.

1 H orton, D onald C., Long-Term Debts in the United S'tates, D epartm ent o f Commerce, 

D om estic Commerce Series, Bu letin No. 96 (1 98 7 ).

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4 INDEBTEDNESS IN THE UNITED STATES

As used in this report, net debt consists of the debts remaining 

after deductions have been made for the duplicating debts of intermediaries. Duplicating debts are liabilities which have been incurred 

or recorded at two or more successive stages in the process of investment but which all refer to a single loan of funds to an ultimate 

borrower.

The magnitude of the deductions from gross debt on account of 

duplications depends to a considerable extent upon the definition of 

the basic economic unit adopted for purposes of compiling debt 

statistics. In the case of private corporations, if the unit consists 

of a single corporation, then the negotiable and nonnegotiable debt 

instruments of that corporation issued and held alive as treasury 

securities or as sinking-fund investments should be deducted for 

purposes of determining the net outstanding debt of that corporate 

unit. If the unit is a corporate system rather than a single corporation, then all liabilities of the parent company and its subsidiaries 

which are held by any unit within the corporate system should be 

eliminated in calculating net debt. In other words, purely nominal 

indebtedness should logically be excluded from the compilations.

For government units, also, amounts of duplicating debt deductible vary in accordance with the definition given a government unit. 

If the unit consists, for example, of a municipality, then the debt 

instruments issued and held by the municipality for its sinking, trust, 

and investment funds may be considered deductible from its total 

issued and outstanding debt. If the unit is defined to consist of a 

State and all its subdivisions, or of all States and their subdivisions, 

or of the United States Government and its agencies and all States 

and their subdivisions, then the debt instruments issued and held by 

divisions within the indicated unit comprise the obligations to be 

deducted from the total issued and outstanding debts of that unit. 

Obviously, the meaning which may be attached to debt estimates, in 

both absolute amount and trend, varies according to the concepts 

selected for statistical purposes.

CONCEPTS EMPLOYED IN THIS STUDY

In this survey the gross debt totals include all types and classes of 

debts irrespective of form, origin, duration, or ownership, except the 

debts of banks to depositors and the liabilities of insurance companies to policyholders, which are presented and analyzed separately. 

In the net debt totals, which are more significant from an economic 

standpoint, duplicating corporate and government debt is eliminated. 

The unit used in calculating net corporate debt for private corporations is the “corporate system,” composed of companies bound together by a common management. For governmental debts two units 

are employed. One unit comprises the United States Government 

and its corporations and credit agencies and the other consists of all 

State and local governments. The net debt totals of each of these 

two units represent the debts remaining after obligations issued 

and held within that unit have been eliminated. Federal debt appears in the combined public and private net debt totals after adjustment for the intermediary debt of the Federal Government and its 

agencies. .

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DEBT AXD PROBLEMS OF ITS MEASUREMENT 5

VARIOUS CONCEPTS OF DUPLICATING DEBT

Since the nature and purpose of the various sinking, trust, and 

investment funds of Federal, State, and local government units are 

not identical, it follows that the propriety of deducting the security 

holdings of one class oJ funds in reaching net debt may not apply 

to other classes of funds. Security holdings of sinking funds are 

generally considered deductible because in a large majority of cases 

they consist almost exclusively of issues originated by the government unit establishing the fund, and such securities are held virtually 

without exception for c irrent or ultimate retirement, in accordance 

with provisions of the debt contracts.

For example, in 1937, out of total security holdings of 256 million 

dollars in the sinking fin ds of the 94 cities having a population each of 

more than 100,000, all but 11 million dollars represented debt obligations of the issuer creating the sinking fund. In the case of State 

sinking funds, a smaller part of the security holdings consists of 

debt obligations of the State having jurisdiction over the sinking 

fund, but, if the securities of local divisions within that State are 

added, the proport on of such holdings to total holdings, likewise, is 

large.

Trust and investment funds differ in some respects from sinking 

funds both in nature *.nd in purpose. Some of these funds, for 

example, retirement and pension funds, are subject to large ultimate 

withdrawals, and the accumulation of securities and other assets is 

for the purpose of providing, in addition to an income, a means of 

meeting expected outlays. Withdrawals from these funds are controlled not by the rate at which the agency issuing the securities 

desires to retire its debt but by the disbursement provisions of 

legislation creating the retirement or pension system.

Certain other trust and investment funds, for example, endowments for libraries, hospitals, and schools, constitute a source of 

income without which the functioning of the recipients might be 

impaired. It may be argued, therefore, that such holdings should 

not be deducted in determining the debt of the issuer administering 

the fund. However, si] ice no new or additional net liabilities arise 

from securities issued 'vhen acquired by an agency of the issuer, 

they are, like sinking-fund holdings, deducted in obtaining net debt 

in this study.

Under the concept employed in this study, that part of duplicating 

debt which measures the duplications involved in sinking, trust, and 

investment funds is restricted to debts issued and held by issuers and 

their affiliates. Only debts of this character are deducted from gross 

debt in obtaining net debt.2 Somewhat different results would be 

obtained if the concept were broadened to include under duplicating 

debt all debt obligations held, irrespective of the issuer, or if it were 

broadened still further 1o include all assets of the sinking, trust, and 

investment funds. By applying each of these concepts to specific 

cases, the difference in volume of duplicating debt obtained under 

each concept becomes s ibstantial. For 1937, the sinking funds of

3 Thus, no deduction is made for sec urities issued by the U. S. G overnm ent and held in

trust or investm ent funds o f Sti te and local governm ents.

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6 INDEBTEDNESS IN THE UNITED STATES

the 94 largest cities in the United States contained securities of the 

respective cities administering the funds to the amount of 245 million 

dollars. This sum constitutes duplicating debt when each city is 

defined as the debtor unit. These sinking funds also held other 

securities in the amount of more than 10 million dollars, bringing 

the security holdings up to nearly 256 million dollars, a total which 

constitutes duplicating debt under the first alternative concept. These 

funds also held cash and other assets of 26 million, bringing the total 

assets of the sinking funds up to nearly 282 million, which is the 

amount of duplicating debt under the second alternative concept. 

It may be contended that the total assets of sinking funds rather 

than just the debt obligations held in the funds should be used as 

the figure representing duplicating debt. For sinking funds, it appears that this contention has some merit, particularly since normally 

all sinking-fund assets are used ultimatelv for debt retirement.

When the two broader concepts of duplicating debt are applied to 

trust and investment funds, however, their shortcomings as meaningful concepts applicable to all classes of debt become apparent. For 

example, in 1937, the investment funds of these identical 94 cities held 

debt securities owed by their own respective city governments to the 

amount of 5 million dollars and other securities totaling 4 million. 

In addition, these investment funds held real estate and other assets 

valued at 698 million. If total assets of investment funds were made 

deductible from gross debt in obtaining net debt, some governmental 

units would show no net debt. Thus, totally different results are 

obtained upon the application of each of the three concepts of duplicating debt.

Net debt, in effect, acquires an entirely different and not wholly 

unambiguous meaning when the concept of duplicating debt is broadened to include total assets of public investment funds. It can be 

contended, moreover, that this alternative concept of duplicating debt 

is less significant in an economic sense since the debt securities of investment funds are held for investment purposes, and since the assets 

of these funds, consisting as they do of real estate and other property, 

are seldom used for the reduction of debt.

Similarly, an entirelv different meaning attaches to net debt of 

private business establishments if either (1) all debt obligations owned 

or (2) all assets are deducted from outstanding debt obligations. 

Assume, for the sake of illustration, a private corporation with debts 

of 100 million dollars, which holds 10 million of its own obligations. 

50 million of debt obligations of nonaffiliated companies, and has 

assets in the amount of 300 million. Under the concepts employed in 

this study, the duplicating debt is 10 million and the net debt is 

90 million; under the first alternative concept in which all debts held 

are counted as duplicating debt, the duplicating debt wTould be 60 

million and the net debt 40 million; under the second alternative concept in which all assets are deductible from gross debt, no outstanding 

net debt would be shown. Thus, when applied broadly to the entire 

debt area such deductions as the last two prove useless in measuring 

duplicating debt and in determining net debt. The concept which 

restricts duplicating debt to the debt of issuers held by them or by 

their affiliates is uniformly applicable to all debt areas and results in 

net debt figures which are useful for analytical purposes.

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DEBT AND PROBLEMS OF ITS MEASUREMENT 7

Estimates of the volume of duplicating debt and of net debt are also 

influenced by the meaning given the term “affiliate.” Stated differently, the amount of debt regarded as “duplicating” depends upon the 

size of the area embraced by a “unit” of related debtors. Instead of 

employing two units— (1) the United States Government and Federal corporations and agencies and (2) State and local government 

divisions—one might consider government, Federal, State, and local 

alike, as a single unit within which all holdings of government securities by governmental divisions would constitute duplicating debt. 

The employment of this concept for purposes of arriving at net public 

debt would result in totals slightly lower than those presented in this 

study. For example, in 1940, a reduction of 815 million dollars in net 

debt would be shown since in that year the Federal Government and 

its agencies held State .md local securities in the amount of 479 

million dollars, and State and local units held Federal and Federal 

agency securities totaling 336 million.

Governmental divisions could also be divided into units so that each 

of the 48 States and its subdivisions wTould constitute a separate unit. 

Under this concept only the debts of a State held in funds of the same 

State would be deducted in calculating net debt. While such a definition differs slightly from the one used in this study, which treats all 

State and local divisions as a unit, its employment would not greatly 

change the net debt totals since the bulk of the holdings of State and 

of local government sinking and trust funds is composed of the debts 

of units controlling these funds. In practice, the more restrictive concept could not easily ha^e been employed in the present study since 

current debt statistics do not fully separate securities held in State 

funds into those issued by the particular State and those owed by 

some other State.

LONG- AND SHORT-TERM INDEBTEDNESS

In this study, all debts with maturity dates of less than 1 year 

from date of issue are defined as short-term obligations and most of 

those with maturity dates beyond 1 year as long-term. This dividing 

line corresponds with that commonly used by accountants in separating current and fixed liabilities. Because of the nature of the source 

materials, however, it has not always been possible to adhere rigidly 

to this classification. For example, the financial statements of steam 

railways show debts with maturities of 2 years or less as short-term 

obligations, and some of the governmental credit agencies do not 

give separate figures for short-term debts—principally because they 

have few7, if any, of this class of obligations outstanding. Debts of 

individuals originating from installment purchases of household furniture, refrigerators, automobiles, and so on, even though such debts 

may be liquidated by periodical payments extending considerably 

beyond a year, are also classed as short-term. In the main, however, 

obligations classed as short-term are those which have maturity dates 

of 1 year or less from the date of their contraction. The classification 

of debt into long- and short-term has been applied only to private 

indebtedness.

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8 INDEBTEDNESS IN THE UNITED STATES

TREATMENT OF DEFAULTED OBLIGATIONS

Debts of corporations in receivership, together with interest accruals on defaulted obligations, and also obligations of individuals 

and unincorporated businesses in default are retained in the debt totals 

until final disposition is made through reorganization or liquidation. Though from a legal standpoint long-term debts in default 

and unpaid interest accruals on these obligations are considered to be 

short-term debts, the adoption of such a concept in this study would 

blur the significant distinction existing between long-term and shortterm obligations. For example, if one followed the strict legal rule 

in the case of corporate receiverships, all long-term debts in default 

would become short-term obligations, again to become, in part, longterm debts upon reorganization. Though defaulted debts generally 

appear along with other outstandings in debt statistics, the precise 

amount in default is often not ascertainable. Thus, no comprehensive 

compilation of indebtedness in default has been attempted. Whenever possible, necessary adjustments have been made in primary data 

to retain defaulted debts in predefault duration categories.

The volume of defaulted debt on any given date is contingent 

upon the conditions which must obtain before debts are legally declared to be in default, and these conditions vary. For example, 

building and loan associations may not consider a note secured by 

real estate to be in default provided payments are adequate to meet 

interest charges, even though these payments be less than those 

specified in the contract; in many cases, a default is not declared 

until interest payments have been in arrears for a certain period 

of time. Among corporations where many classes of creditors are 

ordinarily affected, receivership proceedings are typically filed at the 

time of default on either interest or principal. During the period 

1929-41, both the absolute and relative amounts of defaulted debt 

have varied greatly among different classes of industries and governmental divisions, ranging all the way from no defaults on United 

States Government obligations to comparatively large defaults in 

the cases of farm and urban real-estate mortgages and bonds and 

notes of some industrial and railroad corporations.

Aside from the capacity of the debtor to meet interest charges and 

to make payments on maturing debt, the principal factor affecting the 

quantity of defaulted debt is the time elapsing before either reorganization or liquidation is effected. During the decade under review, 

receiverships of real-estate mortgage companies generally lasted from

1 to 3 years, and receiverships of industrial corporations from 2 to 5 

years. Railway receiverships extend over an even longer period. 

All major steam railways in receivership at the beginning of the 

decade and also those placed in receivership during the decade were 

still in receivership at the end of 1939.

DEBT ESTIMATES AFFECTED BY CHANGING FINANCIAL 

ORGANIZATION

As trusts, endowments, and such intermediaries as banks, insurance companies, corporate holding-cbmpany systems, and public lending agencies become more or less important in the economy, they 

assume a proportionately larger or smaller role in assembling and

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DEBT AND PROBLEMS OF ITS M EASUREMENT 9

investing the savings of individuals. Such changes in financial 

organization tend to be- reflected in the debt structure. Thus, 

when intermediary institutions, acting as borrowers in assembling 

savings and as lenders in making investments, become more important, the gross debt totals become larger than would be the case 

if initial lenders made loans directly to ultimate borrowers. To illustrate, if an initial saver lo med $1,000 directly to an ultimate borrower, 

the $1,000 would appear only once in the gross debt totals. On the 

other hand, if an initial lender purchased a Federal agency bond and 

if that agency in turn lo med the proceeds to an ultimate borrower, 

then .the debt would appear twice in the gross debt totals. Manifestly, if these intermediary financial institutions become less important as a means of m )bilizing savings, the gross debt totals will 

show a proportionate decline and will be relatively closer to the 

net debt figures. While the gross debt totals are thus importantly 

affected by the structure of intermediary lending agencies, the net 

debt totals, which exclude debts of intermediaries, remain unaffected.

Changes in financial oi ganization, accompanied as they are by the 

rise or fall in importance of such agencies as trusts and endowments, 

not only may affect the amount of accumulated national savings invested m debt obligations but also may exercise an influence on the 

type of obligations issued to conform to the requirements and preferences of these intermediary investing agencies. A further growth of 

such agencies, similar to that experienced during the last decade, may 

result in actual shortages of certain grades and types of public- and 

private-debt instruments or ultimately may necessitate modifications 

of investment restrictions some of which modifications would require 

extensive legislation to permit a wider range of choice in investments 

by institutional lenders.

SIGNIFICANCE OF CHANGES IN OUTSTANDING DEBT

Changes in the volume of debt from one period to another must be 

evaluated in the light of the principal factors which bring about economic expansion or contraction. Changes in the volume of aggregate 

net debt outstanding usually result from many specific developments. 

For example, debts may be reduced during periods of declining business 

activity (1) by the consequent lessening in need for financing and 

(2) by foreclosures and cc rporate reorganizations. During periods of 

low employment and earn ing power, additional debts may be incurred 

by some consumers for the acquisition of food, clothing, and other 

essentials, but this influence is usually more than offset, insofar as total 

consumer debt is concerned, by the reduction in installment purchases 

occasioned by a lower level of income.

The fact that aggregaie private debt declines during a period of 

depression thus does not alter the fact that many new loans may be 

granted during such period. For example, individuals may mortgage 

their property, thus adding to the total outstanding debt. Business 

enterprises may borrow to obtain funds essential to continued operation.

Public debt is, of course, less directly related to the level of economic 

activity than is private debt since public expenditure is more a matter 

of governmental policy than a reflection of government need. Thus, 

during a period when piivate debt is declining, governmental units

464252°—42-------2

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10 INDEBTEDNESS IN THE UNITED STATES

may greatly increase their indebtedness for the purpose of building 

roads, schools, dams, and other public assets which can be built more 

cheaply in periods of depression and which, at the same time, serve to 

provide employment for the jobless.

In periods of expansion and prosperity, changes in the aggregate 

debt volume likewise represent the net effect of many increases and 

decreases in various classes of debt and in the obligations of different 

groups of debtors. Some consumers pay off their accumulated debts 

while others, in anticipation of continued or expanding earnings, buy 

heavily on credit. Some individuals use their increased earnings to 

pay off home mortgages; others, to purchase new homes, borrowing 

additional funds for this purpose. Some business enterprises retire 

debts, but many require funds for expansion of plant facilities. Increased revenues may permit government units to retire part of their 

obligations. In general, the tendency is for economic expansion to be 

accompanied by an increasing volume of private debt, since the increased rate of newr borrowing more than offsets the increased rate of 

retirement of old obligations.

LIMITATIONS OF THE ESTIMATES

To be significant, interpretations and analyses of debt figures must 

be made with a full realization of the nature of the estimates, the 

incompleteness of the figures for certain areas, and the unavoidable 

delects in some of the statistical methods employed.

There still are numerous gaps in the available source materials for 

certain debt classes. A case in point is the incompleteness of the 

records of debts incurred through consumers’ installment purchases. 

Despite the marked improvement in the available information from 

the retail trade on accounts and notes receivable, there are many areas 

in the retail purchases by consumers for which estimates must be made 

from incomplete debt information, such as, for example, figures covering open accounts of only a sample of the sellers. This is true also, 

but to a lesser extent, of consumer durable goods purchased on an 

installment basis.

In the real-estate mortgage field the estimates of the mortgage debt 

on farms and on unincorporated urban residential and commercial 

property owed to individuals are based upon substantial but nonetheless incomplete information. Sample studies made by the Bureau of 

Agricultural Economics covering recorded farm mortgages and by 

the Federal Home Loan Bank Board of recordings of new mortgages 

up to $20,000 issued against urban residential real estate have, however, appreciably improved the quality of these debt estimates for 

recent years. Such studies have also made possible revisions for the 

earlier years of the decade.

In the large category of corporate debt, intercorporate debt of nonrailway companies is based primarily upon a study covering the year 

1934, from which date both intercorporate and net corporate debt are 

estimated by employing the trend of net nonrailway corporate debt, 

measured by a sample of companies making consolidated statements, 

compared with the trend of gross nonrailwav corporate debt, shown 

since 1934 in compilations of the Bureau of Internal Revenue. Even 

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DEBT AND PROBLEMS OF ITS MEASUREMENT 11

polation are necessary to develop estimates for the gross debt and net 

debt totals and for debt holdings in various State and local government funds during intercensal years. In all these categories, however, the development of estimates was aided materially by the existence of a substantial part of the data for noncensus years. Although 

the inadequacy of data in some areas has made necessary certain broad 

assumptions, such as those involved in the estimates mentioned above, 

it is believed that the error in most instances is relatively small and 

that the estimates can be us<‘d for most purposes.

SUGGESTIONS CONCERNING INTERPRETATION OF THE ESTIMATES

In interpreting the estimates particular attention should be paid 

to the relative changes in gross and net debt. If the volume of gross 

outstanding indebtedness doubles during a stated period of time, the 

meaning of such an increase is entirely different if the increase is due 

to the growth in debts of end-borrowers owed directly to the initial 

savers of capital from what it is if the increase is due to a doubling 

of the debt of intermediary financing agencies. In the former case, 

the growth in gross debt is matched by an equal dollar increase in net 

debt; in the latter case, the increase does not result in any increase 

in net debt. The gross debt increase in the second case reflects merely 

the fact that more intermediaries have intervened between the lender 

and the ultimate borrower.

Similarly, an increase in the gross debts owed by one class of intermediaries does not necessarily result in an increase in either the aggregate gross or net debt outstanding provided the increase is offset by 

a decrease in debts ow^ed by other types of intermediaries, i.e., if the 

debt change is merely a transfer from one intermediary to another. 

The fact that these transactions were originally transfers does not 

mean that no increase in gross debt occurred as a result of the 

transfers. In the case of the Home Owners’ Loan Corporation for 

example, an increase in gross debt occurred because of the increase 

in the number of intermediary lenders w7hile some increase in net debt 

doubtless resulted from the effect wrhich the Home Owners’ Loan 

Corporation had on the availability of credit for the purchase of 

housing.

In the field of private debt, an increase or decrease in the number 

of steps from holding company to operating subsidiary generally results in a corresponding increase or decrease in gross debt while net 

debt remains unaffected. Even though the financial structure of holding companies remains unchanged, a growth or decline in the assets 

controlled by them may have some influence on the gross debt total. 

Similarly, a change in t ie policy of a holding company or any 

other unit of the corpoiate system with respect to procurement 

of funds for lending to other units of the system causes a corresponding growth or decline in gross but not in net corporate debt outstanding. The general tendency toward simplification in corporate 

structure during the decade has resulted in bringing gross and net 

corporate debt somewhat nearer together through a reduction in 

intercorporate debt.

It should be observed that increases or decreases in interest rates 

may greatly alter the total amount of interest payable though the

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12 INDEBTEDNESS IN THE UNITED STATES

volume of outstanding obligations may be unchanged. When declines 

in interest rates result in wide-scale refundings at lower rates, as 

has been the case in recent years, the amount of interest payable may 

increase but slowly or even decline in the face of a substantial increase 

in the principal amount of outstanding gross indebtedness. Finally, 

it should be noted that the estimates herein presented are expressed 

in terms of the unpaid face amount of the obligations outstanding, 

the repayment of which is affected not only by the economic activities 

of debtors but also by changes in the purchasing power of the dollar.

RELATION TO OTHER STUDIES

The concept of net debt which is employed in the present study 

differs somewhat from that employed in certain other studies. The 

only deductions made from total indebtedness in arriving at our 

estimates of net debt are nominal obligations and the intermediary 

obligations of financial institutions. In contrast to this concept, the 

net debt position of any group might be shown in terms of the relation of debts receivable to debts payable. This second concept of 

“netness” has been employed in a study made by the Twentieth 

Century Fund, covering the years 1929-37.3

In contrast to the previous debt study of the Department of Commerce, which covered long-term indebtedness only, the present report 

also includes short-term corporate and noncorporate debt. The earlier study did not distinguish between gross and net debt in all cases 

and thus the figures are not strictly comparable with those presented 

in this report.

8 Debts and Recovery, 1038.

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C h a p t e r II

THE VOLUME OF OUTSTANDING DEBT

In this chapter, summary figures on domestic indebtedness covering 

the period 1929-41 are presented and analyzed. Particular attention 

is paid to the changing composition of the debt aggregates and to the 

pattern of change irom year to year in the various series.

COMBINED PUBLIC AND PRIVATE DEBT

Despite the dissimilarity between public and private indebtedness, 

considerable interest attaches to the combined total and for certain 

purposes the two may be added together. Any interpretation of this 

combined total should be qualified, however, since the significance 

of a change in public debt is quite different from that attending a 

change in private indebtedness.

NET PUBLIC AND PRIVATE DEBT UP 18 BILLIONS IN 1941

Net indebtedness of individuals, business firms, nonprofit associations, and governmental units in the United States reached an estimated total of 185.1 billion dollars as of December 31, 1941, 18.5 billion, or 11 percent, more than the amount outstanding at the end 

of 1940. Increases in Federal, State, and local public debt accounted 

for 12.0 billion, or 65 percent of the rise, while the remainder of the 

increase was represented by private debt.

Gross indebtedness, consisting of net debt plus duplicating debt, rose 

during 1941 by 19.6 billion dollars to a year-end total of 219.5 billion.4 

Public debt accounted for 13.3 billion and private debt for 6.3 billion 

of this increase. Corporations and individuals alike contributed to 

the increase in gross private debt, both their long-term and short-term 

obligations rising moderately during the year.

The year 1941 was characterized by rapid expansion of war industries and by growing governmental outlays for war purposes. These 

outlays produced a sharp increase in the indebtedness of the Federal 

Government, which dwarfed the moderate rise in private debt.

As may be seen from figure 1, changes in the domestic debt structure during 1941 formed a markedly different pattern from that in 

the previous year. Whereas, in 1940, private debt had for the first 

time since 1929 increased more than had public debt, in 1941, with the 

increasing tempo of Government expenditure, this situation was 

reversed.

COMPARATIVE CHANGES IN PRIVATE DEBT

The comparative patterns of private-debt expansion during 1940 

and 1941 have several noteworthy features. Whereas, in 1940, outstanding consumer credit rose markedly as a result of the expansion

4 Not including deposit liabilities o f banks or liabilities o f life-insurance com panies to 

policyholders.

13

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14 INDEBTEDNESS IN THE UNITED STATES

1940 FROM 1939 CLASS 1941 FROM 1940

TOTAL FOR THE PREVIOUS YEAR

Figure 1.— Percentage changes, 1941 from 1940 and 1940 from 1939, in net public and private

debt, by classes.

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VOLUME OF OUTSTANDING DEBT 15

of consumer purchases, in 1941, this series increased only moderately. 

The curtailment of production of consumers’ durable goods, plus the 

control of installment credit which became effective on September 1, 

1941, had the effect of preventing any great expansion of consumer 

credit despite the sharp rise in consumer income during the year.

Since increases in the short-term debt of business establishments 

typically accompany expansion in the volume of trade, the growth 

of short-term private indebtedness during 1940 and 1941 is indicative 

of the marked expansion in the dollar volume of business activity 

which occurred during this period as a result of the mobilization of 

economic resources for a war effort.

TIMING OF PUBLIC-DEBT EXPANSION

The bulk of the increase in outstanding debt during 1940 occurred 

during the latter half of the year, mainly because of the financial expansion required by the national defense program. Of the increase of 

3 billion dollars in Federal obligations during the entire year 1940, the 

United States Government incurred 2 billion in the last 6 months 

of the year to meet, along with its other expenditures, greatly enlarged outlays arising from (1) increases in Army, Navy, and other 

defense personnel, (2) larger purchases and production of war materials and equipment, and (3) loans and advances made to private 

business establishments to assist them in financing the expansion of 

productive facilities.

Throughout 1941 the defense program continued to grow in size 

and Federal expenditure for rearmament continued to accelerate, 

thus adding to the deficit and enlarging the Federal debt. Despite 

the imposition of new and heavier taxes the outlook is for continued 

expansion of Federal borrowing as the war effort continues.

PRIVATE-DEBT INCREASE A RESULT OF BUSINESS EXPANSION

The expansion of private debt during 1940 was also confined 

largely to the latter half of the year, about two-thirds of the increase 

being concentrated in that period. This increase in debt of business 

enterprises took place through the sale of new bond and note issues 

and through the securing of new loans from banks and other lenders. 

It was intended both to finance plant expansion and to provide additional working capital for an increased volume of business, largely 

induced by national defense activities. During 1941, however, the 

expansion of private dett was continuous, though the increasing scarcities of many materials, together with the curtailment of many types 

It was intended both to finance plant expanskm and to provide advances over the previous year. Naturally, the largest increases in debt 

of business enterprises occurred in those industries of manufacturing 

and transport where the war-induced expansions in output and capacity have been greatest.

NET DEBT 12.6 BILLION DOLLARS HIGHER IN 1941 THAN IN 1929

Net public and private indebtedness of 185.2 billion dollars outstanding at the end of 1941 was 12.7 billion above the net debt of 

172.5 billion outstanding in 1929. Coupled with the increase in population, however, this increase in total net debt was reflected in a level 

of about the same net indebtedness per capita in 1941 as in 1929.

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Table 1.—Net Debt in the United States, 1929-411

Item 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Millions of dollars

Total net public and private debt_____________ _____________ 172,522 173,182 166,031 156, 584 150,641 150,187

1

151,659 i155, 696 159, 552 158, 289 162,195 167,041 185, 231

Net public debt_________________ ________ ________________ _______ 29, 412 30,097 33,009 35, 507 37, 835 38, 996 41, 897 45, 503 47,134 48, 300 50,765 52, 608 64,667

Federal and Federal agencies_______ ____ ________________ ___ 15, 698 15,391 17,091 18, 713 21,028 23,081 25,964 29,470 31. 310 32,618 34, 762 36,397 48,653

State and local governm ents_______ __________________________ 13, 714 14,706 15,918 16, 794 16,807 15,915 15,933 16,033 15,824 15.682 16,003 16, 211 16,014

Net private debt_____ _________ __________________ ______________ 143,110 143,085 133,022 121,077 112,806 111, 191 109, 762 110,193 112,418 109, 989 111, 430 114,433 120, 564

Long-term debt. ------------------------------------------------------------------- 86, 565 91,033 89,128 85, 517 80,687 77,275 75,140 73, 214 74, 747 76,110 76, 327 77,361 78,663

Corporate----- ----------------------- ------------------------------ 45,316 48,937 48,027 46,845 45,444 42,828 41, 637 40,361 42,086 43, 428 43, 355 43, 723 44,243

Individual and noncorporate _____________ __________ 41,249 42,096 41,101 38,672 35, 243 34, 447 33, 503 32, 853 32, 661 32, 682 32,972 33,638 34,420

Farm mortgage__________ _________ ____ _____________ 9,631 9,458 9, 214 8,638 7,887 7, 786 7,639 7,390 7, 214 7,071 6,910 6,821 6, 787

Urban real-estate mortgage ___________________________ 31,618 32, 638 31,887 30,034 27,356 26, 661 25, 864 25, 463 25, 447 25, 611 26,062 26,817 27,633

Short-term debt _______________ __________________ ________ 56, 545 52,052 43, 894 35, 560 32,119 33, 916 34, 622 36,979 37, 671 33, 879 35,103 37,072 41,901

Corporate^ ______ ____ _ ____________________ ______ ___ 28, 609 26,119 23,229 20,365 19,199 21,094 21, 164 21, 924 21, 392 18, 447 19, 250 20, 599 22,928

Individual and other noncorporate . ______________ 27, 936 25, 933 20,665 15, 195 12, 920 12, 822 13, 458 15,055 16, 279 15, 432 15,853 16,473 18,973

Commercial and for purchase of securities ___________ 19, 794 18, 533 14, 295 10, 472 8, 483 7,840 7, 598 7, 780 8,154 7, 668 7, 548 7, 623 9,380

Consumer.--------------------- ---------------------------- --------------- 8,142 7, 430 6,370 4, 723 4, 437 4,982 5, 860 7, 275 8,125 7, 764 8, 305 8,850 9,593

1'ercentages of total net debt

Total net public and private debt ____________ _______ _ 100.0 100.0 100.0 100.0 100.0 100.0 100, 0 100.0 100.0 100.0 100.0 100.0 100.0

Net public debt _ ................................ __ _____________________ 17 0 17.4 19.9 22.7 25.1 26.0 27.6 29.2 29.5 30.5 31.3 31.4 34.9

Federal and Federal agencies_______________ ______ ___________ 9.1 8.9 10. 3 12.0 14.0 15. 4 17.1 18.9 19. 6 20.6 21.4 21.7 26.3

State and local governm ents__________________________________ 7.9 8.5 9.6 10.7 11.2 10.6 10.5 10.3 9 9 9. 9 9.9 9.7 8.7

Net private debt______________________________ - ------------------------- 83.0 82.6 80.1 77 3 74.9 74 0 72.4 70.8 70.5 69. 5 68.7 68. 6 65.1

Long-term d e b t---------------------------------------------------------------------- 50.2 52.6 53. 7 54. 6 53.6 51 5 49.5 47.0 46.8 48. 1 47.1 46.4 42.4

Corporate___________ ____ _____. . . --------------- ------

Individual and noncorporate ___________________________

26.3 28.3 28.9 29. 9 30.2 28.5 27.5 25.9 26.4 27.4 26.7 26.2 23.8

23.9 24.3 24.8 24. 7 23. 4 22.9 22.1 21.1 20.5 20.6 20.3 20.2 18.6

Farm mortgage_______________________________________ 6.6 5.5 5.5 5.5 5.2 5.2 5.0 4.7 4.5 4.5 4.3 4.1 3.7

Urban real-estate mortgage _____________ ____ ________ 18.3 18.8 19. 2 19.2 18.2 17.8 17.1 16.4 15.9 16.2 16.1 16.1 14.9

Short-term d e b t..----------- ----------------------------------- -------------------- 32.8 30.1 26.4 22.7 21.3 22.6 22.8 23.8 23.6 21.4 21.6 22.2 22.6

Corporate............ ................... .................................................. 16. 6 15.1 14.0 13.0 12.7 14.0 14.0 14. 1 13.4 11.7 11.9 12.4 12.4

Individual and other noncorporate --------------------------------- 16. 2 15.0 12.4 9.7 8.6 8.5 8.9 9.7 10.2 9.7 9.8 9.9 10.2

Commercial and for purchase of securities_____________ 11.5 10.7 8.6 6.7 5.6 5.2 5.0 5.0 5.1 4.8 4.7 4.6 5.1

Consumer_____ -------------------------------------------------- 4.7 4.3 3.8 3.0 2.9 3.3 3.9 4.7 5.1 4.9 5.1 5.3 5.2

INDEBTEDNESS IN THE UNITED STATES

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Index numbers (1935-39=100)

Total net public and private debt...... ...............

Net public debt___________________________ _________

Federal and Federal agencies .................. ...............

State and local governments ____ ___________

Net private debt_____ _____ ______ _________________

Long-term debt_________________________________

Corporate____________ ______ _______________

Individual and noncorporate________________

Farm mortgage__________________ ______

Urban real-estate mortgage______________

Short-term debt___ _____ ________ ______________

Corporate____________ _____ _________________

Individual and other noncorporate__________

Commercial and for purchase of securities. 

Consumer_______________________________

109.6

63.0 

50. 9

86.3

129.2

115.3

107.5 

125. 2

13.3 

123. 1

158.6 

140.0

183.6 

255. 4

10. 9

110. 0 105. 4 99. 4 95. 7 95. 4 96.3 98. 9 101. 3 100. 5 103.0 105.9 117.6

64. 4 70. 7 76. 0 81. 0 83. 5 89.7 97. 4 100. 9 103. 4 108.7 112.1 136.8

49. 9 55. 4 60. 7 68. 2 74. 9 84.2 95. 6 101. 6 305. 8 112.8 117 3 155. 4

92. 5 100. 1 105. 7 105. 7 100. 1 100.2 100. 9 99. 6 98. 7 100.7 102. 0 100.7

129. 2 120. 1 109. 3 101. 8 100. 4 99.1 99. 5 101. 5 99. 3 100.6 103.3 108.8

121. 2 118. 7 113. 9 107. 4 102. 9 100.0 97. 5 99. 5 101. 3 101.6 103.0 104.6

116. 0 113. 9 111. 1 107. 8 101. 6 98.7 95. 7 99. 8 103. 0 102.8 103. 7 104.7

127. 8 124. 8 117. 4 107. 0 101. 6 101.7 99. 8 99. 2 99. 2 100.1 102.1 104.5

13. 1 12. 7 11. 9 10. 9 10. 7 10.5 10. 2 10. 0 9. 8 9.5 9.4 9.4

127. 0 124. 1 116. 9 106. 5 103. 8 100.7 99. 1 99. 1 99. 7 101.5 104.4 107.6

146. 0 123. 1 99. 7 90. 1 95. 1 97.1 103. 7 105. 7 95. 0 98.5 104.0 117.5

127. 8 113. 7 99. 7 94. 0 103. 2 103.6 107. 3 104. 7 90. 3 94.2 100.8 112.2

170. 8 135. 8 99. 9 84. 9 84. 3 88.5 98. 9 107. 0 101. 4 104.2 108.3 124.7

239, 1 184. 5 135. 1 10. 9 10. 1 9.8 10. 0 10. 5 9. 9 9.7 9.8 12. 1

9. 9 8. 5 6. 3 5. 9 6. 7 7.8 9. 7 10. 9 10. 4 11. 1 11.9 12.8

1 In general, the totals present indebtedness outstanding at the end of the calendar 

year. Net debt consists of the debts of end-borrowers. Except for minor unavoidable 

inclusions, it excludes the debts of intermediary financing agencies incurred in assembling 

savings and making loans to end-borrowers. It excludes, also, the debt obligations of

the Federal Government and Federal agencies held in Federal sinking, trust, and investment funds, the debts of State and local government divisions held in State and local 

government sinking, trust, and investment funds, and intercorporate debts held by units 

of a corporate system.

VOLUME OF OUTSTANDING DEBT

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18 INDEBTEDNESS IN THE UNITED STATES

After remaining relatively unchanged through 1930, aggregate net 

debt fell one-eighth to 150.6 billion dollars in 1933. From 1930 through

1933, the large decreases in private debt (resulting from payment, 

foreclosure, and liquidation) and a greatly diminished rate of new 

borrowing much more than offset increases in public debt. Prominent among the types of debt which decreased rapidly from 1929 

through 1933 were brokers’ loans, bank loans, consumer installment 

obligations, and other short-term debt.

During 1934, the net debt aggregate continued to recede to 150.2 

billion, the lowest year-end total for the 12-year period, in spite of 

the fact that an upward trend in business, which is often attended by 

an increase in debts of business enterprises, had been in progress since 

the spring of 1933. The continued decline in outstandings during 

1933 and 1934 resulted primarily from delayed debt deductions taking 

place through mortgage foreclosures and through the termination of 

corporate receiverships.

Legislation enacted to relieve distressed mortgage conditions existing in 1933 sharply reduced foreclosures of mortgages on urban resiBILLIONS OF DOLLARS

2 5 0

200

150

100

5 0

PUBLIC

SH O R T-TER M PRIVATE

LO NG -TERM PRIVATE

t f i r r t T i n 

III III II II i t t t t

1920 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

0.0. 41-369

Figure 2.— Net debt in the United States, by types, 1929-41.

dential property and farm land by 1934, but debt reductions arising 

from liquidation or readjustment of corporate debt continued in 

volume until 1937. After 1934, these reductions, together with retirements by payment, were more than offset by increases in other debt 

categories, and aggregate net debt rose annually from 1935 until the 

end of 1941, with the single exception of 1938.

GROSS DEBT ABOVE 1929 LEVEL

Gross public and private debt, after increasing from 194.8 to 195.9 

billion dollars during 1930, declined to 175 billion by 1933, a slightly 

smaller percentage decline than experienced by net debt during the 

same years. Unlike net debt, which continued to decline moderately 

during 1934, gross debt increased more than 7 billion to total 182.4

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VOLUME OF OUTSTANDING DEBT 19

billion at the close of that year. This increase in aggregate gross 

debt is attributable in the main to the enlarged volume of debts incurred by Federal agencies for the purpose of obtaining funds to refinance farm and urban residential real-estate mortgages in distress. 

The intermediary debt thus created by this refinancing of existing 

mortgages appears in gross debt, but is excluded from net debt since 

the debts of end-borrowers were not increased in the refinancing process. The fact that these debts of Federal agencies were incurred to 

finance already-existing private debts does not mean that the portion 

of Federal debt arising from this type of expenditure can be entirely 

neglected. The total Federal debt and the interest payments thereon 

both were increased by these refinancing operations, which in effect involved the substitution of public for private credit. After 1934, aggregate gross debt continued to show annual increases, except for 1938, 

and at the end of 1941 totaled 219.4 billion dollars, 24.6 billion more 

t*han the gross debt outstanding in 1929.

Table 2.— Gross Debt in the United States, 1929-41

[M illio n s of dollars]

Item 1929 1930 1931 ! 1932 ; 1933 1934 1935

Total gross public and private debt 194,839 195,873 187,711 178, 840 1174, 966 182, 353 184, 289

Gross public debt .. . -------------- 35, 404 36,375 1 39,182 43, 154 1 48, 176 57,274 60, 882

Federal and Federal agencies .. ______ - 18, 170 17, 916 19, 648 i 23,350 | 28, 191 37, 988 . 41,453

Federal. ___________ 16, 301 16, 026 17, 826 20, 805 1 23,815 1 28,480 1 30,557

Federal agencies ____________ 1,869 1, 8S0 1,822 2,545 4, 376 9, 508 [ 10,896

State and local governm ents____ _. 17, 234 18, 459 19, 534 19, 804 19,985 19,286 19, 429

Gross private debt _ . . _ - -------------- - 159, 435 159, 498 148, 529 135, 686 126, 790 125, 079 123,407

Long-term debt . _ ______ . -------------- 96, 597 301,865 99, 715 95,818 90, 653 1 86,658 84, 252

Corporate. ________ 55, 348 59, 769 58, 614 57, 146 55,410 . 52,211 50, 749

Individual and noncorporate _____ 41,249 42, 096 41, 101 38, 672 35, 243 34, 447 33, 503

Farm mortgage ______ 9, 631 9, 458 9, 214 8, 638 7, 887 7, 786 7, 639

Urban real-estate mortgage_____ 31,618 32, 638 31,887 30, 034 27, 356 26, 661 25, 864

Short-term debt_._ .. . . .. 62, 838 57, 633 48,814 39, 868 36, 137 38, 421 39,155

Corporate... . 34, 943 31.901 28,350 24, 842 23, 409 25, 716 25, 796

Individual and other noncorporate _ 27, 895 25, 732 20, 464 15,026 12, 728 12, 705 13, 359

Commercial and for purchase of

securities _____ 19, 753 18,332 14, 094 10,303 8, 291 7, 723 7, 499

C o n s u m e r _____ . . . _ . 8, 142 7. 400 6, 370 4, 723 4,437 4,982 5, 860

Item 1936 1937 1938 1939 1940 j 1941

Total gross public and private debt 188,011 192,727 189, 177 193, 215 199, 954 219, 508

Gross public debt. . . -------------- . 64, 732 67, 354 67, 033 69,896 73, 343 86, 598

Federal and Federal agencies... _______ 45, 070 47, 760 47, 457 49,900 53, 097 66, 415

Federal .. .. ______________ 34, 406 37, 286 39, 439 41, 961 45, 024 57, 938

Federal agencies ________ ... 10, 664 10, 474 8, 018 7,939 8, 073 8, 477

State and local governments _ _______ 19, 662 19, 594 19, 576 19, 996 20, 246 20,183

Gross private debt. _______ ______ ______ 123, 279 125, 373 122,144 123,319 126, 611 132, 910

Long-term d e b t _____ ___ _ _ _____ .. 81, 783 83, 445 84, 815 84, 772 85, 638 86, 860

Corporate . _ _ ________ 48, 930 50, 784 52,133 51,800 52, 000 52, 440

Individual and noncorporate _. . 32, 853 32, 661 32, 682 32, 972 33, 638 34, 420

Farm mortgage _______ 7, 390 7, 214 7, 071 6,910 6, 821 6, 787

Urban real-estate mortgage. ____ 25. 463 25, 447 25, 611 26, 062 26,817 27, 633

Short-term debt . .. . .. . . _ _________ 41, 496 41, 928 37, 329 38, 547 40,973 46,050

Corporate.. . . ......... 26. 579 25, 813 22,146 23, 000 24, 500 27, 077

Individual and other noncorporate___ 14,917 16,115 15,183 15, 547 16, 473 18, 973

Commercial and for purchase of securities __________________________ 7, 642 7, 990 7,419 7, 242 7, 623 9, 380

Consumer_______________________ 7, 275 8, 125 7, 764 8. 305

i

8, 850 9, 593

Thus, at the end of 1941, an intermediary or duplicating debt of 

34.3 billion dollars was outstanding, against a net indebtedness of 

185.1 billion by end-borrowers, a ratio of 1 to 5.4. This compares

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2 0 INDEBTEDNESS IN THE UNITED STATES

with 22 billion of intermediary debt and 173 billion of net debt for 

1929, a ratio of 1 to 8. This change in ratios indicates a very marked 

change in the financial organization of society—a marked change in 

the methods of mobilizing savings. It indicates that a smaller number of savers made loans directly to end-borrowers in 1941 than in 

1929 and other earlier years. Instead, more savers placed their accumulations with intermediaries for safekeeping and investment. A 

larger proportion of the Nation’s savings was held in unemployment 

insurance funds, pension funds, or by intermediary financial agencies.

PUBLIC DEBT

TREND OF PUBLIC DEBT UPWARD

Net public debt, that is, the balance of obligations outstanding 

against all government divisions in the United States but not held 

in government funds or offset by loans receivable from the public,

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Figure 3.— Gross and net public debt in the United States, 1929-41.

increased in each year of the 1929-41 period, from 29.4 billion at the 

beginning of the decade to 64.7 billion at the close of 1941. Federal 

debt accounted for the bulk of this increase by rising from 15.7 billion to 48.7 billion, but State and local government debt also increased by about 2.5 billion dollars during the period. The increase 

in public debt daring the thirties was the result of a rapid expansion 

in the number and scale of government services, most of which were 

undertaken to mitigate the social and economic effects of the depression and were aimed at promoting business recovery and economic 

readjustment.

Gross public debt rose from 35.4 billion dollars in 1929 to 86 6 

billion dollars in 1941, an increase of more than 50 billion for the

12-year period. Owing to substantial increases in the intermediary 

debt of Federal, State, and local governmental units, this increase 

was larger both in amount and in percent than the increase in net

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VOLUME OF OUTSTANDING DEBT 21

public debt. Except for 1938, gross public debt increased in each 

year from 1929 through 1940, the largest increases occurring in 1933,

1934, and 1941, when year-end outstandings were increased by 5, 

9, and 13 billion dollars, respectively.

Of the three major classes of public debt, gross Federal debt made 

the largest increase during the period 1929-41 in rising from 16 to 

58 billion dollars. Increases of 4.7 billion in 1934, 4 billion in 1936, 

and 13 billion in 1941 were the largest yearly changes in gross Federal debt. In 1933, the United States Government made large outlays 

for relief and large advances to its established and newly created 

agencies. Both these activities required the issuance of an increased 

volume of new debt obligations. In 1936, Federal expenditures were 

augmented by payment of the adjusted service certificates. Following the passage of the Social Security Act in 1935, gross Federal 

debt began to increase appreciably as a result of the issuance of debt 

obligations designated as “special issues.” These issues were placed 

and held in the unemplovment-insurance and old-age pension funds 

in accordance with provisions of the Social Security Act. In 1939, 

the addition of Federal debt obligations to these funds exceeded 1 

billion dollars. The rise in Government expenditures, especially in 

those outlays occasioned by the national defense program, resulted 

in an increase of 3 billion dollars in gross Federal debt in the calendar 

year 1940. This increase was small, however, compared with the

13-billion-dollar rise in gross Federal debt during 1941.

Table 3.— Gross and Net Debt of the United States Government and Federal 

Corporations and Agencies, 1929-41

[Millions of dollars]

Item 1929 1930

I

1931 1932 1933 1934 1935

Total gross Federal debt_____________ 18,170 17,916 19, 648 23, 350 28,191 37, 988 41,453

United States Governm ent_________________ 16,301 16,026 17, 826 20, 805 23, 815 28, 480 30, 557

Interest-bearing_________________________ 16, 029 15, 774 17, 528 20, 448 23,450 27, 944 29, 596

Public issues.------------------------------- - 15, 401 14, 993 17,135 20,097 23,079 27, 386 28,868

Bonds_________ .. ____________ 12,110 12,113 14, 298 14, 223 15, 569 16, 245 14, 672

Notes_______ - ----- 1,885 1, 561 600 3,075 4, 880 9,187 11, 792

Certificates of indebtedness and

Treasury bills . . . ___ - - 1,406 1,319 2,237 2, 799 2, 630 1,954 2,404

Special issues to Government agencies

and trust funds. _________ _____ 628 781 393 351 371 558 728

Non-interest-bearing____________________ 272 252 298 357 365 536 961

Debt bearing no interest. ______ 232 230 244 293 300 4i>5 737

Matured debt on which interest has •

ceased........................... -------- ---------- 40 22 54 64 65 51 224

Federal agencies ........... ............................ . 1,869 1,890 1,822 2, 545 4, 376 9,508 10,896

Farm loan system ______________________ 1,869 1,890 1,822 1, 735 1,819 3, 267 3,693

Homo loan system _____ 27 2,407 2,855

Reconstruction Finance Corporation 810 2, 530 3,834 4, 348

Other Federal corporations and agencies ____ ■ __

Total duplicating debt________________ 2, 472 2, 525 2, 557 4, 637 7,163 14, 907 15,489

United States Government and Federal

agency holdings of United States Government securities_______ __ ______ ___ .. 928 704 503 611 953 2, 840 1,731

United States Government and Federal

agency holdings of Federal agency securities--- ----------------------------------------------------- 116 116 111 918 2, 459 4, 653 5, 322

Loans receivable held by Federal agencies___ 1,428 1,705 1, 943 3,108 3, 751 7,414 8, 436

Total net Federal debt________________ 15, 698 15, 391 17,091 18, 713 21,028 23,081 25,964

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2 2 INDEBTEDNESS IN THE UNITED STATES

Table 3.— Gross and Net Debt o the United States Government and Federal 

Corporations and Agencies, 1929-41— Continued.

Item 1936 1937 1938 1939 1940 1941

Total gross Federal d e b t ____________ ____ ____ 45.070 47, 760 47, 457 49, 900 53, 097 66, 415

United States Government ______ _________________ 34, 406 37, 286 39, 439 41, 961 45, 024 57, 938

Interest-bearing . _____________________________ 33, 699 36, 715 38, 911 41, 465 44. 458 57, 451

Public issues___________ __________________ _ 33,067 34, 488 35, 754 37, 234 41, 544 50, 470

Bonds__ ________ ______ ____ __________ 20. 575 21, 989 25,952 29, 576 32,101 40. 000

Notes_____________________. . . . _________ 10, 289 10, 547 8, 496 6,203 6, 178 8,468

Certificates of indebtedness and Treasury

bills___________ . . _____ 2,203 1,952 1,306 1,455 3, 265 2,002

Special issues to Government agencies and

trust funds . __ _________________________ 632 2. 227 3,156 4, 231 2,914 6,981

Non-interest-bearing _ _ _____________________ 707 571 528 496 566 487

Debt bearing no interest _ _ _ _______ ____ 554 472 427 398 377 362

Matured debt on which interest has ceased___ 153 99 101 98 189 125

Federal agencies . __________________ . ___________ 10, 664 10, 474 8, 018 7, 939 8,073 8. 477

Farm loan system_______________________________ 3, 732 3, 557 3, 464 3, 356 3,922 3, 925

Home loan system. _ ___ _____ ______________ 2,995 3, 015 2, 988 2, 800 3,034 2. 729

Reconstruction Finance Corporation __________ 3, 937 3, 902 1,264 1,107 1,097 1,802

Other Federal corporations and agencies ________ 302 676 20 21

Total duplicating debt______________ ____ _____ 15.600 16, 450 14, 839 15,138 16, 700 17, 762

United States Government and Federal agency holdings of United States Government securities . _ 

United States Government and Federal agency holdings of Federal agency securities. ._ .................. .......

Loans receivable held by Federal agencies __________

Total net Federal debt________________________

2, 528

4,910 

8,162

3.800

4.801 

7, 849

4, 990

1,985 

7, 864

6,166

1,222 

7, 750

7, 542

1,212 

7, 946

8, 352

923

8,487

29, 470 31.310 32, 618 34, 762 36, 397 48, 653

Source- Reports of the Treasury Department and Federal corporations and agencies.

COMPOSITION OF GROSS FEDERAL DEBT

Of the gross Federal interest-bearing debt of 57.9 billion dollars 

outstanding at the end of 1941, bonds accounted for 40 billion dollars; 

notes, 8.5 billion; certificates of indebtedness and Treasury bills, 2 

billion; and special issues, nearly 7 billion. Treasury bonds comprise 

obligations with maturity dates of 5 or more years from date of 

issue; notes consist of obligations with maturity dates of between 1 

and 5 years; and Treasury bills consist of debt instruments with 

maturity dates of less than 1 year from date of issue. In governmental finance, short-term obligations do not necessarily signify 

short-term needs for funds. Instead, the relative uses made of shortterm and long-term obligations are determined by such factors as 

differentials in long-term and short-term interest rates, the conditions 

of the financial and security markets, and the fiscal policies of the 

Treasury.

A small part of the gross debt of the United States Government 

represents non-interesjt-bearing debt. At the end of 1941, noninterest-bearing debt totaled 487 million dollars, or approximately 

0.8 percent oi the total Federal Government indebtedness. Noninterest-bearing debt consists of obligations, such as United States 

notes, which are required to be reissued when redeemed. It also includes obligations that will be retired upon presentation, such as 

national bank notes and Federal Reserve bank notes assumed by 

the United States on deposit of lawful money for their retirement, 

as well as fractional currency, thrift stamps, and Treasury savings 

stamps. A third class of Federal non-interest-bearing indebtedness

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VOLUME OF OUTSTANDING DEBT 23

consists of matured debt on which interest has ceased. The lastmentioned item totaled 125 million dollars as of December 31, 1941.

Gross debts of Federal corporations and agencies outstanding in 

1929 consisted of obligations of the Federal land banks and other 

agricultural credit agencies which in that year totaled 1,869 million 

dollars. All of these obligations, except to an amount of 116 million 

dollars, were held by nongovernment investors. The volume of Federal agency outstandings was increased by the creation of the Reconstruction Finance Corporation in 1932, by the absorption of the 

joint-stock land banks, and by the development of Land Bank Commissioner and other agricultural loans. In the period immediately 

following its organization, the Reconstruction Finance Corporation 

obtained its funds from, and issued its debt obligations to, the United 

States Government, which in turn raised the needed funds by the 

sale of its own issues of bonds and notes. In the later years of the 

period under review, the Reconstruction Finance Corporation made 

public offerings of its own debt issues. The largest year-end outstandings of Reconstruction Finance Corporation debt obligations 

were 4,348 million dollars for 1935, of which obligations in the amount 

of 4,095 million were held by the United States Government or by 

its agencies. As of June 30, 1940, Reconstruction Finance Corporation debts totaled 1,103 million dollars. All of these debts, except 

obligations in the amount of 7 million, were held by nongovernmental investors. As of December 31, 1941, the outstanding debt of 

the Reconstruction Finance Corporation had risen to 1,802 million 

dollars.5

Outstandings of Federal agencies were further augmented during 

these years by the creation of new agencies, chief among which, from 

the viewpoint of debt obligations issued, was the Home Owners’ 

Loan Corporation established in 1933. To provide funds with which 

to refinance distress mortgages on nonfarm homes, this agency issued 

debt obligations which reached a vear-end peak of 3,015 million 

dollars in 1937. By June 30, 1940, Home Owners’ Loan Corporation 

outstandings had receded to 2,652 million dollars, and they continued 

to fall to a figure of 2,416 millon at the end of 1941.

Since 1934, the larger part of the debt issues of Federal agencies 

has been guaranteed by the United States Government. At the end of 

1940, guaranteed issues held by nongovernmental investors amounted 

to 5,917 million dollars. These consisted of 696 million dollars of 

Commodity Credit Corporation notes, 1,269 million of Federal Farm 

Mortgage Corporation bonds, 13 million of Federal Housing Administration debentures, 2,600 million of Home Owners’ Loan Corporation bonds, 1,097 million of Reconstruction Finance Corporation 

notes, and 226 million of United States Housing Authority notes. 

When the United States Government enacted legislation to guarantee outstanding Federal agency issues, the yield of these agency 

securities naturally found a level approximating that of United 

States Government obligations. In 1940, Federal land bank issues 

were the only ones outstanding in substantial volume not guaranteed 

by the United States Government.

• Bonds, notes, and debentures, exclusive of accrued interest, in the hands o f the public.

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24 INDEBTEDNESS IN THE UNITED STATES

STATE AND LOCAL GOVERNMENT DEBT

The net indebtedness of State and local governments in the United 

States increased most rapidly during the years 1930-33, when these 

government divisions were forced to make heavy outlays for relief 

as a result of the rapid increase in unemployment. In 1933, the 

bulk of this burden was assumed by the Federal Government and, 

consequently, State and local governmental net debt remained fairly 

stable at about 16 billion dollars all during the 1934-41 period.

Gross debt of State and local governments rose from 17.2 billion 

dollars in 1929 to 20.2 billion in 1941. Unlike the figures for the 

debts of the United States Government and Federal agencies, these 

figures as an aggregate do not refer to any specific date. The fiscal 

years of the more than 180,000 State and local governmental units 

fall on many different dates throughout the calendar year, although 

the fiscal years of a large majority end either on December 31 or on 

June 30. In this bi-modal distribution of fiscal periods, nearly twothirds of the States have fiscal years ending June 30, while a rather 

large number of the cities have fiscal years ending December 31. 

Some State and local governments changed their fiscal periods during 1929-41.

Table 4.— Gross and Net Debt of State and Local Governments, 1929-41 1

[Millions of dollars]

Item 1929 1930 1931 1932 1933 1934 1935

Total gross d eb t____________________ 17, 234 18, 459 19, 534 19,804 19,985 19, 286 19,429

Interest-bearing 2_--------- ------------------------

N on-interest-bearing___________________ 1

Local government___________ ___________ -

Interest-bearing______________ _______

Non-interest-bearing................................ i

2. 300 

2, 233 

67 

14, 934 

14, 527 

407

2, 444

2, 377 

67

16,015 

15, 608 

407

2, 666 

2, 599 

67 

16, 868 

16, 461 

407

2,896 

2,829 

67 

16, 908 

16, 501 

407

3,018 

2,958 

60 

16,967 

16, 560 

407

3,201 

3,148 

53

16,085 

15, 679 

406

3,331 

3, 286 

45

16,098 

15, 693 

405

C o u n ty .-.................................................... '

Municipal 3__----------------------------------------

School district__________________________

Special district-______ _________________

2, 270 

9, 259 

1.956 

1, 449

2, 434

9,929 

2,098 

1, 554

2, 564 

10, 458 

2, 210 

1,636

2, 565 

10, 483 

2, 207 

1, 653

2, 521 

10, 577 

2,142 

1, 727

2, 477

9, 730 

2, 078 

1,800

2,433 

9, 778 

2,013 

1, 874

Total duplicating debt........... ................ 3, 520 3, 753 3,616 3.010 3,178 3, 371 3,496

State and local government:

Sinkine fund___________ _______ ________ 2, 281 2,418

1,335

2,141 

1, 475

1,399 1, 417 

1,761

1,436 

1, 935

1,454 

Investment and trust fund______________ 1, 239 1, 611 2,042

State_________ _________ ________ __________ - 1,143 

402

1,204

412

1,290 1, 403 

471

1,525

496

1, 663 

521

1, 763

Sinking fu n d .............. ................................- 446 546

Investment ana trust fund_____________

Local government__________________________

Sinking fund___________________________

Investment and trust fund______________

741

2, 377 

1,879 

498

792 

2, 549 

2,006 

543

844 

2, 326 

1,695 

631

932

1,607

928

679

1,029 

1, 653 

921 

732

1,142 

1, 708 

915 

793

1,217 

1, 733 

908 

825

Total net debt......................................... 1 13,714 14, 706 15,918 16, 794 16, 807 15,915 15,933

State - ______________________________ 1,157 

12, 557

1,240 

13, 466

1,376 

| 14,542

1,493 

15,301

1,493 

15,314

1, 538 

14,377

1, 568 

Local covernment_______ _______ - .......... - 14,365

i Adapted from reports of the Bureau of the Census and the Treasury Department, 

i Excludes State loans to local government units.

* Municipal divisions include cities, towns, villages, boroughs, and townships.

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VOLUME OF OUTSTANDING DEBT 25

Tabl^ 4.— Gross and Net Debt of State and Local Governments, 1929-41— Con.

Item 1936 1937 1938 1939 1940 1941

Total gross debt............................... ..................... . 19, 662 19, 594 19, 576 19,996 20, 246 20,183

State_______ ____________ _____ _____________ ______ 3,318 3,276 3, 309 3, 343 3, 526 3,370

Interest-bearing 2.... ............ . . . ______ ________ . 3, 277 3, 242 3, 277 3,313 3,498 3,334

Non-interest-bearing______ ______________ ___ 41 34 32 30 28 36

Local government - _______________ ________________ 16, 344 16, 318 16, 267 16. 653 16, 720 16,813

Interest-bearing __________ _______ _______ _ 1.5,941 15, 918 15, 887 16,298 16, 393 16,476

Non-interest-bearing. __________________________ 403 400 380 355 327 337

County____ ____ _______ ________________________ 2, 389 2, 345 2, 282 2, 219 2,156 2,046

M unicipal3______________________________________ 10,058 10, 067 9, 923 10, 215 10,189 10,210

School district___________________________________ 1, 949 1,884 1,860 1,837 1, 813 1, 787

Special district_________________________________ 1,948 2,022 2,202 2, 382 2, 562 2, 770

Total duplicating debt___________ ____________ 3, 629 3, 770 3, 894 3, 993 4,035 4,169

State and local govemment:

Sinking fund____________________________ ________ 1, 473 1,491 1,501 1,530 1, 535 1,649

Investment and trust fund________ _____________ 2,156 2, 279 2, 393 2, 463 2, 500 2, 520

State_____________________ __________________________ 1,868 1, 979 2,056 2,107 2,137 1,826

Sinking fund___________ __________ ____ ________ 571 596 606 632 637 416

Investment and trust fund______________________ 1,297 1, 383 1, 450 1,475 1, 500 1,410

Local government - ____ _________________ ____ . .. 1,761 1,791 1,838 1,886 1,898 2,343

Sinking fund____________________________________ 902 895 895 898 898 1, 233

Investment and trust fund______________________ 859 896 943 988 1,000 1,110

Total net d e b t..____________ __________________ 16,033 15,824 15, 682 16,003 16, 211 16,014

State ________________ ____________ _________________ 1, 450 1,297 1, 253 1,236 1, 389 1,544

Local govemment ________ ______ ____ ____________ 14, 583 14,527 14,429 14, 767 14,822 14,470

2 Excludes State loans to local government units.

3 Municipal divisions include cities, towns, villages, boroughs, and townships.

Gross State and local government debts experienced their most 

pronounced rise in the early part of the period 1929-41, when they 

advanced more than 2.7 billion dollars during the 4 years 1929-33. 

This increase in gross debt was slightly smaller than the increase 

in net State and local government debt over the same period. Some 

of the State and local government outlays during these years were 

met by nonmaintenanc'e of sinking, trust, and investment funds 

rather than by resorting to new borrowing. From 1933 through 

1938, gross debts of State and local governments receded slightly because of reduced outlays for public works and relief following increased outlays by the United States Government. This shifting of 

the relief load enabled the State and local governments to add to 

the securities in their debt-retirement and special-purpose funds, thus 

producing the slight decrease in outstanding debt during this 5-year 

period. From 1939 through 1940, debts both at gross and net levels 

rose moderately following resumption by State and local governments 

of a somewhat larger share of relief costs, together with enlarged 

outlays for public improvements. In 1941, State and local government debt declined slightly. This change is a result of the increase in 

State and local government revenue accompanying the rise in national 

income plus the fact that expenditures had not risen appreciably.

The gross debts of States aggregated 3.4 billion dollars in 1941— 

equal to approximately one-sixth of total State and local government 

debt. This represents a somewhat larger share than that obtaining in

1929, when State debt outstandings comprised slightly less than oneseventh of State and local government debt. Enlarged payments for

464252°— 42-------3

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26 INDEBTEDNESS IN THE UNITED STATES

direct relief, grants and advances to local subdivisions, pensions, and 

public works were the principal factors instrumental in bringing 

about this relatively moderate increase in the gross debt of States.

Since the difference between gross and net State and local government debts consists of securities held in sinking, trust, and investment 

funds, it should be kept in mind that both State and local government 

securities are included in the holdings of the various funds of either 

State or local government units and that the holdings in a State fund 

need not consist entirely of the debt issues of the State having jurisdiction over the fund. In most cases, however, especially in the case 

of sinking funds, holdings consist almost entirely of liabilities of the 

issuer creating and controlling the funds. Thus, though the securities in State and local government funds are not exclusively nominal 

debt, the error in so regarding these funds is relatively small.

Of the four local governmental divisions—municipalities, school 

districts, counties, and special districts—outstanding debts of three 

registered declines during recent years. Municipalities (including 

townships), the largest debtors in the local group, decreased their 

debts from 10.5 billion dollars in 1932 to 10.2 billion in 1941. Counties lowered their outstandings from 2.6 billion in 1932 to 2.0 billion 

in 1941. School districts decreased their outstanding obligations 

from 2.2 billion dollars in 1932 to 1.8 billion in 1941. It should be 

remembered that the debts of school districts do not comprise the 

entire school debt of local government divisions. Municipalities, 

townships, and counties, particularly in instances w7here school districts have not been created, issue their own debt obligations for 

the construction of school buildings and for other school purposes. 

In 1940, outstanding indebtedness of municipalities and counties for 

educational purposes amounted to 1,024 million dollars, substantially 

the same as the amount outstanding in 1932.

Beginning in 1933, financial aid from Federal agencies to local 

governments for the purpose of partially defraying the cost of public 

works and relief lessened the need of these local divisions for new 

funds from traditional sources and thus made possible a decrease in 

the rate of new borrowing. Similarly, larger sums received from 

States enabled local government divisions to carry on relief work and 

other activities without proportionate increases in debt. From 1932 

through 1940, State aid, including grants and the share of local 

government divisions in State-collected taxes, rose from 600 million 

dollars to more than 1.5 billion dollars. An increase of approximately 350 million dollars in locally collected taxes during the same 

period further tended to reduce the need for the issuance of debt 

obligations.

Only special districts showed an increase in outstanding debt from

1932 through 1941. Under special districts are included a wide variety of overlapping local governmental divisions, such as drainage, 

levee, and irrigation districts; sewage and sanitary districts; and 

public utility, port, tunnel, and local housing authorities. On June 

30, 1940, the local housing authorities had outstanding debts of 318 

million dollars. Both the variety of functions performed and the 

many localities served by these special districts are reflected in the 

following list of the 18 largest districts. The various local housing 

authorities are referred to but not individually listed.

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VOLUME OF OUTSTANDING DEBT 27

Table 5.—Outstanding Debts of Selected Special Districts, as of June 30, 1940 and

1941

[Thousands of dollars]

Special district

229, 431 190,985

168, 588 187,110

110, 583 114, 568

98, 500 98, 500

97, 598 98. 597

57, 235 55, 605

63, 320 51, 533

41, 800 40, 800

40,116 45,116

38, 550 11,000

37,054 36, 600

35,000 35,000

30, 632 29,116

25,000 25,000

23,183 45,146

23,161 26, 540

20, 300 0)

19, 793 0)

317, 638 0)

Port of New York Authority__________________________

Metropolitan Water District of Southern California___

Chicago Sanitary District--------------------------------------------

Triborough Bridge Authority--------------------------------------

Chicago Park District_______________ _______ _________

East Bay Municipal Utility District__________________

Boston Metropolitan District_____________ ___________

Pennsylvania Turnpike Commission.____ ____________

New York City Tunnel Authority____________________

Coachella Irrigation D istrict_______________________

Delaware River Joint Commission_________ ______ ___

Golden Gate Bridge and Highway District____________

Los Angeles County Flood Control District___________

Northern Colorado Water Conservancy District_______

Imperial Irrigation District____________________________

Salt River Valley Water Users’ Association____________

Lower Colorado River Authority______________________

Central Nebraska Public Power and Irrigation District 

Various local housing authorities___________________ _

1 Not available.

As shown in table 4, a small part of State and local government 

debt is non-interest-bearing. The largest item of this long-term noninterest-bearing debt consists of 40-year bonds of western land reclamation districts held by the United States Bureau of Reclamation. 

Short-term non-interest-bearing debt of State and local governments 

consists mainly of accounts due but unpaid. A part of the decline 

shown in State and local government non-interest-bearing debt in recent years has been due to a change in the definition of debt. Current 

bills, in earlier years frequently treated as debt, more recently have 

not been classed as debt until the accounts became overdue.

PRIVATE DEBT

TRENDS IN NET PRIVATE DEBT, 1929-41

Net private debt, composed of all long- and short-term obligations 

of final borrowers other than governments, stood at 143.1 billion 

dollars at the end of 1929. (See table 1.) Of this aggregate more 

than 60 percent, or 87 billion, was long-term while the remainder had 

been contracted, at least nominally, mainly for a period of 1 year 

or less. All during the 1929-41 period, changes in net private longterm debt were smaller than those taking place in short-term obligations. This is to be expected since short-term obligations can be 

adjusted to changing economic conditions much more readily than 

can long-term debts.

In 1930, net private debt held to the previous year’s level. Even 

though short-term obligations fell by 4% billion dollars, because of 

declines of more than 2 billion each in corporate and noncorporate 

obligations, the increase in long-term debt of corporations and the 

higher debt of individuals on real-estate mortgages approximately 

offset the reduction of short-term indebtedness.

In 1931, however, net private debt fell precipitously, by 10 billion 

dollars, 8 billion dollars of this being the decrease in short-term indebtedness. Similar decreases of 12 and 8 billion in net private debt

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28 INDEBTEDNESS IN THE UNITED STATES

followed in 1932 and 1933, respectively. At the end of 1933, shortterm private debt was only 32 billion, compared with the 56 billion 

outstanding at the close of 1929. Meanwhile, long-term debt, though 

lower each year after 1930, had fallen less than 6 billion below its 

1929 level. Thus, by the end of 1933, short-term private debt had 

fallen, in dollar terms, about four times as far as had long-term private 

debt, and considerably more than that in relative terms.

Beginning in 1934, short-term private debt rose in accompaniment 

to the business recovery, but long-term obligations continued to be 

reduced. Thus, though short-term outstandings rose by nearly 2 

billion in 1934, long-term debts were reduced nearly 3y2 billion, 

largely through reorganizations and repayments. Corporations were 

still adjusting their financial structures to depression conditions, even 

though recovery was well under way by December 31,1934.

The years 1935 and 1936 saw the same pattern—long-term private 

debt falling, but short-term obligations rising, as the recovery proBILLIONS OF DOLLARS

120

100

8 0

60

40

20

0

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

D.D. 41-367

Figure 4.— Long-term private debt in the United States, by types, 1929-41.

gressed. By the end of 1936, however, long-term debt had reached a 

final low and in 1937 it rose iy2 billion, against an increase of only 

700 million in short-term obligations. Adjustment in the long-term 

debt structure had reached a point where new capital financing was 

in sufficient volume to more than offset the retirement and cancellation 

of old debt contracts.

The year 1938 saw private long-term net debt continuing to advance by more than 1 billion but the business recession of that year 

was reflected in a sharp 4-billion-dollar decrease in the short-term 

debts of final corporate and individual borrowers. In 1939, both 

short- and long-term private debt increased, and in 1940 and 1941, 

under the stimulus of the defense program, the rate of increase in 

both types of obligations was accelerated. At the end of 1941, however, long-term private debt was still 8 billion dollars below the level 

for 1929 while short-term obligations were nearly 15 billion below 

the 1929 short-term figure.

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GROSS PRIVATE DEBT

Private indebtedness, as tabulated in this study, is composed of the 

long-term and short-term debts of corporations, of individuals, and 

of other noncorporate borrowers. Continuing the upward movement 

inaugurated in 1939, gross private debt increased in 1941 to a yearend total of 132.9 billion dollars, up 6.3 billion for the year and up 

10.8 billion from 1938, when gross private debt reached its low for 

the 1929-41 period. The 1941 total, however, was nearly 27 billion 

dollars, or IT percent, lower than that at the end of 1929. Aggregating close to 160 billion in 1929, gross private debt was maintained 

at that level through 1930 before dropping abruptly to 127 billion 

at the close of 1933. It continued to decline in the period 1934-36 but 

at a much slower rate. Thus, beginning in 1931, gross private debt 

decreased for 6 consecutive years. Then, in 1937, it rose moderately, 

only to decline to a new low of 122.1 billion dollars in 1938. The annual 

advances since that year have been relatively small.

There was a marked difference during the period in the behavior 

of gross long-term private debt, compared with gross short-term. 

In contrast with the drop in short-term obligations, long-term outstandings rose 5.3 billion dollars—from 96.6 to 101.9 billion—during

1930. An increase from 55.3 to 59.8 billion dollars in the bonded 

and other long-term debt of corporations accounted for four-fifths 

of the rise, while increases in urban real-estate mortgages owed by 

individuals and noncorporate groups acounted for the remainder. 

A part of the difference in trend between long-term and short-term 

outstandings was due to the funding of short-term debt incurred 

originally to finance construction programs begun before 1930. At 

the end of 1931, long-term outstandings were still 3 billion dollars 

above the 1929 total. Though business activity had declined and 

construction in many lines had fallen off appreciably, public utilities 

carried on a substantial construction program through 1930 and 1931. 

To finance this construction these companies increased their long-term 

outstandings by the close of 1932 to 16 billion dollars, the high point 

for the period. During the latter part of 1930 and in 1931 and 1932, 

the investment and security markets no longer readily absorbed bond 

issues, and, accordingly, a large part of these public-utility debt 

increases took the form of long-term loans from affiliates or from 

banks. The debts of both holding and operating companies increased 

as a result of the above-mentioned construction program. Obligations of public-utility holding companies, however, reached their 

peak in 1931, while those of operating companies moved to a slightly 

higher level in 1932.

Urban real-estate mortgages owed by individuals and noncorporate 

groups constitute the remaining class of long-term debt to rise from 

1929 to 1930. This category increased 1 billion dollars in 1930, 

largely as a result of office building, hotel, and apartment house 

construction, much of which was begun in 1929. By the end of 1932, 

urban real-estate-mortgage outstandings had receded to a level 

slightly below 1929, in contrast with the net debts of private corporations as a whole, which were still above the 1929 level, and with those 

of public utility corporations, which were still moving upward. 

Farm-mortgage debt, shown in table 12, w as the only class of longterm debt to move lower in 1930. During that year, farm-mortgage

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30 INDEBTEDNESS IN THE UNITED STATES

outstandings were reduced 200 million dollars, from 9.6 billion dollars 

to 9.4 billion.

Beginning in 1931, gross corporate and noncorporate long-term 

debt began to decline at an accelerated pace. It did not reach its 

low of 81.8 billion dollars for the 12-year period until 1936—3 years 

after gross private short-term debt had reached its minimum for the 

period. One factor delaying the start of the decline and accelerating 

the rate of decline when it did begin was delayed action relating to 

the disposition of debts, including interest accruals on defaulted 

obligations, of corporations in receivership.

1929 1930 193! 1932 1933 f934 1935 1936 1937 1938 1939 1940 1941

D.D. 41-475

Figure 5.— Indexes of components of long-term private debt in the United States, 1929-41.

From 1936 through 1941, total private long-term debt, at both the 

gross and net levels, moved narrowly higher. Attention is called to 

the fact that gross and net long-term private debts are identical in 

composition except for the intercorporate obligations of corporate 

systems under a common management.

Other long-term private debts, such as farm mortgages and urban 

real-estate mortgages, are deb.ts of end-borrowers and accordingly appear at the same level in both the net and gross debt totals.

Gross private long-term debt during 1936-41 moved from 85 percent 

to 90 percent of the 1929 figure, or from 81.8 billion dollars to 86.8 

billion. More than 3 million of this increase was in corporate longterm debt—an increase that merits special examination. Two factors 

are mainly responsible for this increase in long-term debts of corporations. In the first place, bank loans of short duration, commonly renewed at maturity, were to some extent replaced by loans drawn for 

a period of 1 year or more. In the second place, since 1937, more detailed income-tax returns have been submitted by corporations and in 

these statements notes payable are segregated into (1) those with 

maturity dates of less than a year and (2) those with maturity dates 

of more than a year from date of issue. This additional information 

has resulted in the classification as long-term of many obligations

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VOLUME OF OUTSTANDING DEBT 31

previously tabulated as short-term. Undoubtedly this second factor 

is primarily responsible for the increase in gross long-term corporate 

debt from 49 billion dollars to 50.8 billion in 1937.

SHORT-TERM PRIVATE DEBT

Private short-term debts, as here defined, consist of debt obligations, 

with maturity dates generally of less than a year from date of issue, 

owed by private corporations, individuals, and noncorporate groups. 

In tables 1 and 2 the latter are grouped into noncorporate short-term 

debts (a) arising from commercial and financial activities and (b) 

originating in the purchase of consumer goods on a def erred-payment 

basis. Since these classes represent the debts of end-borrowers, their 

gross and net debt totals are identical. Only in the case of short-term 

corporate debt is there a difference in the gross and net aggregates. 

Gross short-term corporate debt consists of liabilities owed to creditors 

outside a corporate system plus intercorporate debts held by the issuer

BILLIONS OF DOLLARS

6 o -------------------------------------------------------------------------------------------

5 0

4 0

3 0

2 0

10 

0

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

D.D. 41-368

Figure 6.— Short-term private debt in the United States, by types, 1929-41.

or by affiliates within a corporate system. Net short-term corporate 

debt consists only of those obligations owed to creditors outside the 

corporate system. The volume of gross private short-term debt measured by year-end outstandings dropped from 62.9 billion dollars in 

1929 to 57.6 billion in 1930. This trend was in contrast with increases 

in gross private long-term debt in that year.

Gross private short-term debts continued to drop sharply and in

1933 reached a low of 36.1 billion, 43 percent below the 1929 total and 

the low point for the entire period 1929-41. These debts then rose 

to 42 billion by December 31, 1937. After dropping sharply in 1938, 

they recovered to a 46-billion level at the end of 1941. The sharp drop 

in i938 was caused in part by the slackening in business activity during 

the second half of 1937 and during 1938 and by a further reduction in 

commercial and financial debts of individuals; but the major part of 

the decline was due to an improved method of reporting notes payCONSUMER

NONCORPORATE COMMERCIAL

CORPORATE

II III I 1 I 1 1 1 i

1

I I 1111111 I I I

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32 INDEBTEDNESS IN THE UNITED STATES

able. As a result of these changes in the method of reporting notes 

payable, a part of the debts previously shown as short-term was allocated to long-term in 1938 and subsequent years. Another fact worth 

noting is that bank loans, which formerly were made on a 3- or 6-month 

basis and not infrequently renewed at maturity, have, in recent years, 

been more commonly made into initial loans of a duration of 1 year 

or more.

S h o r t -T e r m C r e d it f o r C o m m e r c ia l P u r p o s e s

Of the three classes of short-term private debts, those incurred 

for business or commercial purposes, including loan balances for the 

purchase of securities, experienced the largest and most sustained 

decline. Totaling 19.8 billion dollars in 1929, these debts fell to 7.7 

billion in 1934, a figure equal to only 40 percent of their 1929 total, and 

then continued to recede moderately to a new low of 7.2 billion by 1939. 

One important reason for the sharp decline in the early years of the

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Figure 7.— Indexes of components of short-term private debt in the United States, 1929-41.

period and the continued decline later is that these figures contain 

customers’ obligations owed to brokers—obligations which amounted 

to 5 billion dollars at the end of 1929, but which fell to only 906 million 

dollars at the close of 1939, reaching a low of 606 million in 1941. This 

class of short-term debt also contains balances owed by individuals 

to banks on loans secured by bonds and stocks. The volume of these 

bank loans on securities was particularly large in 1929 and 1930, 

when the banks were furnishing credit for speculation, but, since bank 

loans against securities were not segregated from those made for other 

purposes, it is not possible to separate speculative debt from other 

bank loans. A part of the loans from banks represents borrowings 

used to finance the purchase of consumer goods, but the exact portion 

of the loans made for this purpose cannot be determined. The desire 

of business establishments—corporate and noncorporate alike—to 

increase the rate of inventory turn-over and, accordingly, to reduce

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the need for cash and credit in financing a given volume of business 

also has contributed to the low level, compared wTith that of 1929, of 

this series during recent years.

Despite a further drop in brokers’ loans to customers in 1940, the 

figures indicate that borrowing by individuals and unincorporated 

firms for business purposes during the latter half of the year was in 

sufficient volume to arrest an uninterrupted 10-year decline beginning 

in 1929 and to bring about a small upturn in the loans incurred for 

commercial and financial purposes. This trend was strongly reinforced 

during 1941 and by the end of the year these outstandings had risen 

by 23 percent.

T r e n d s i n t h e V o l u m e o f C o n s u m e r C r e d it

Debts arising from the purchase of consumer goods and services, 

covering both open-account and installment types of credit financed 

either by vendors or by banks and financing companies, also declined 

sharply during the early part of the decade. These obligations, as 

measured by year-end outstandings, dropped from 8.1 billion dollars in 

1929 to 4.4 billion in 1933, a decrease of 45 percent. Unlike the series 

comprising debts incurred for commercial and investment purposes, 

consumer outstandings were as responsive to the rise in the volume 

of business as they had been to the earlier decline. They advanced 

steadily from 1933 and in 1937 regained their 1929 level. Reflecting 

the downward trend in business and employment which began in 1937, 

consumer debts fell 360 million dollars in 1938. With improving trade 

and employment, consumer outstandings recovered in 1939, and in 

1940 exceeded by more than 700 million dollars the level established 

in 1937. The year 1941 saw a continued advance in outstanding consumer credit despite the fact that the trend in this series was sharply 

downward during the last quarter.

In addition to the uplift from business improvement, the rise in 

consumer debt in recent years has been due in part to a broader use 

of credit by consumers. This has taken the forms (a) of lengthening 

the time of payment on charge-account and installment-payment plans 

and (b) of extension of credit selling to more lines of retailing. If 

allowance is made for the rising trend resulting from more general 

use of installment selling, fluctuations in outstanding consumer credit 

have paralleled very closely the changes in national income.

As might be expected, gross short-term corporate debts were much 

more responsive than were long-term corporate debts to a decline in 

the volume of business, but they fell less rapidly from their 1929 level 

than did the short-term debts of individuals. Totaling 35 billion 

dollars in 1929, gross short-term corporate debts declined to 23 billion 

in 1933. Responding only partially to a larger volume of business, 

they recovered to a moderately higher level during the 4 following 

years, but fell to a new low for the period in 1938. As previously 

explained, improved methods of reporting revealed that a substantial 

part of the debts formerly classed as short-term were more properly 

long-term since they had maturity dates of 1 year or more from date 

of issue. Accordingly, the figures for 1938-41 reflect this change, the 

transfer of probably as much as a billion dollars of short-term to longterm corporate debt being effected. Though consideration was given

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34 INDEBTEDNESS IN THE UNITED STATES

to the question of revising the figures for corporate short-term and 

long-term debt for 1929-37 as a result of the findings, it was decided 

that in this instance unrevised figures would give a better portrayal 

of debt information. However, in certain other instances, adjustments and corrections which are described in detail in the appendix 

were made in the corporate debt information for 1929-41.

Two other factors have contributed to the reduction of gross shortterm debts in recent years. Many corporations have carried on a given 

volume of business with smaller inventories and lower outlays, thus 

necessitating smaller loans, and others have made their purchases on 

more nearly a cash basis than formerly. For these reasons, gross 

short-term corporate debts, while still highly responsive to changes 

in the volume of business, moved in a range substantially below the 1929 

level. From 1938 through 1941, they moved upward by 22.6 percent to 

a total of 27.1 billion dollars—a total which was only 78 percent of 

that for 1929.

DUPLICATING DEBT

Duplicating debt, as previously described, consists of the debt issued 

and held by issuers or their affiliates and debt incurred by intermediaries 

in assembling savings and making them available to ultimate users 

of capital funds. At the end of 1941, duplicating debt totaled 34 

billion dollars, compared with net indebtedness of 185 billion owed 

by end-borrowers, a ratio of $1 of duplicating debt to each $5.40 of 

net debt. This constitutes a substantial increase from 1929, when

duplicating debt was 22 billion and net debt 173 billion, a ratio of 

$1 to $8. Such a change indicates a marked variation both in the 

financial organization of the economy and in the investment habits 

of savers. In 1929, a larger proportion of accumulated savings was 

represented by loans directly to home owners, owners of business 

property, farmers, and operating corporations than in 1941. During 

the thirties, a growing proportion of savings reached industry through 

intermediaries, since these savings were placed in unemployment insurance and pension funds, or were used to purchase life-insurance 

policies, or were deposited in checking or savings accounts.

Adding the liabilities of banks and life-insurance companies to 

duplicating debt, as defined in this study, there existed, in 1940, $1 

of such combined duplicating debt for each $1.38 of outstanding net 

debt of end-borrowers, compared with a ratio of $1 to $1.88 for 

1929. This is indicative not only of the very large amount of intermediary debt outstanding but also of the pronounced trend away from 

direct loans by savers to end-borrowers and toward the indirect transfer 

of individual savings through intermediaries to end-borrowers.

A pronounced increase took place in all classes of duplicating debt 

except intercorporate debt, which, in response to an offsetting trend 

toward simplification of the structure of corporate systems, showed 

a moderate shrinkage during the period 1929-41. An examination of 

the figures given in table 6 reveals that short-term and long-term 

intercorporate debt holdings declined 25 percent, from 16.4 billion 

dollars in 1929 to 12.3 in 1941. Since gross corporate debt including 

railway obligations declined only 15 percent and gross corporate debt 

excluding railway obligations declined 20 percent, it is apparent that 

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porate debt in 1941 than in 1929. The greater part of the decline in 

intercorporate debt occurred during the more recent years of the 

period when many industrial and public utility corporate systems 

reduced the number of their subsidiaries by consolidation, thus diminishing the volume of their intercorporate obligations.

DUPLICATING DEBT OF THE UNITED STATES GOVERNMENT AND FEDERAL

AGENCIES

As described in chapter I, for purposes of measuring duplicating 

debt and determining net debt governmental divisions and their agencies have been combined into two major units: (1) The Federal Government with its corporations and agencies and (2) State and local governments. Intergovernmental holdings by divisions within each unit, 

together with debts incurred by governments when acting as financial 

intermediaries, constitute the duplicating debt of government. In 

1929, intergovernmental holdings of Federal debt and Federal intermediary debt amounted to 2,472 million dollars, as shown in table

3. Of this sum, 928 million consisted of United States Government 

obligations held by the United States Government and Federal agencies, the agencies at that time comprising Federal land banks only. 

Another 116 million consisted of Federal land-bank bonds held by the 

United States Government and its agencies and a final 1,428 million 

consisted of intermediary debt of the Federal land banks as calculated 

by referring to their loans receivable from end-borrowers. These 

loans to final borrowers duplicate the debts of Federal land banks, 

which totaled 1,869 million in 1929. Since only one purpose was 

served in this chain of loans, namely, that of providing funds to 

farmers, the 1,428 million dollars loaned to end-borrowers must be 

deducted from Federal land-bank outstandings of 1,869 million to 

obtain net debt. In addition, there must be deducted 116 million, 

which represents the volume of Federal land-bank bonds held by the 

United States Government and its agencies. This leaves 325 million 

of Federal land-bank bonds held outside the Federal Government 

that were not offset by receivables, and this figure appears in the net 

debt totals for 1929.

The volume of duplicating debt of the Federal Government and its 

agencies remained almost stationary until 1932, when it rose by

2 billion dollars, to 4.6 billion, a rise due principally to the lending 

program of the Reconstruction Finance Corporation established 

in that year. From 1932 to 1935 duplicating debt mounted 

rapidly, to 15.5 billion, chiefly because of the enlarged financial aid 

extended to borrowers by lending agencies of the farm-credit system, 

by the Reconstruction Finance Corporation, and by the Home Owners’ Loan Corporation. After 1935, duplicating debt represented by 

intragovernmental holdings of the securities of Federal corporations 

and agencies fell substantially, the drop being due in part to the 

reduction of Federal-agency debt outstanding and in part to the 

sale to nongovernmental investors of Federal-agency securities 

previously held by the Federal Government or by its agencies.

Starting in 1935, the United States Government began to enlarge 

its holdings of Federal obligations because of the provisions of the 

Social Security Act, thus offsetting the decline in duplicating debt 

of Federal agencies. Special issues of the United States Government,

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36 INDEBTEDNESS IN THE UNITED STATES

that is, issues placed in the unemployment and old-age pension funds, 

increased the amount of direct Federal Government obligations held 

by the funds of the United States Government and its agencies from 

1.7 billion dollars in 1935 to 8.4 billion as of December 31, 1941. At 

the end of 1941, Federal and Federal-agency duplicating debt stood 

at 17.8 billion dollars, a gain of more than 1 billion during the year 

and a figure more than seven times that for 1929. Deducting duplicating debt from the combined gross debt of the United States Government and its agencies, which totaled 66.4 billion dollars as of 

December 31, 1941, leaves a net debt of 48.7 billion outstanding for 

the Federal Government and Federal agencies on that date.

DUPLICATING DEBT OF STATE AND LOCAL GOVERNMENTS

State and local government duplicating debt, comprised of obligations of State and local governments held by those divisions in their 

various funds, totaled 4.2 billion dollars in 1941, equal to nearly 

one-fourth of the net, and approximately one-fifth of the gross, 

State and local government debt. In that year, as shown in table

4, 1.6 billion, or approximately three-eighths of the duplicating debt, 

consisted of sinking-fund holdings, more than 74 percent of which 

was held by sinking funds of municipalities and other local government units.

The sinking funds maintained by State and local government units 

are of two classes, those containing investment holdings and those 

not containing such holdings. The sinking funds without security 

holdings are maintained primarily to purchase and retire serial bonds 

or to amortize debt obligations by repurchase prior to their maturity. 

These objectives are usually accomplished without the accumulation 

of securities or other assets in large amounts since the governmental 

unit by its sinking-fund provisions merely reduces its own indebtedness. The sinking funds with security holdings are also established 

and maintained primarily to purchase and hold for redemption at 

maturity securities of the issue for which they were created, but the 

securities held need not be those issued by the governmental division 

establishing the fund. One principal purpose of converting accumulated cash into securities is to increase the earning powder of the 

funds intended for debt retirement.

The remaining class of State and local government duplicating 

debt consists of securities of those divisions held in their public trust 

and investment funds. In 1941, these holdings aggregated 2.5 billion 

dollars, or five-eighths of the volume of duplicating debt. Under 

public trust and investment funds are included all funds other than 

sinking funds. Public trust funds are established by States, cities, 

and other local government divisions to administer moneys and other 

forms of wealth that come to them by donation, bequest, or otherwise, 

under such conditions that the recipient becomes a trustee charged 

with the administration of the fund and with disbursements for 

designated public uses from it or out of income derived from its principal. The most common purposes for w7hich these funds are created 

are the support of schools and libraries, the maintenance of health and 

hospital services, the care of defectives, and the provision of pensions 

for teachers and other employees. Some of these funds have become 

large in recent years.

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The designation “investment funds” includes a wide variety of 

funds established for many different purposes. They may be funds 

created to acquire assets in consideration of financial aid or grants 

to railroads or other public service corporations. They may consist 

of funds securing rents or of bonds and mortgages received in 

exchange for real property and held as investments awaiting maturity 

or a favorable market. Some are accordingly of relatively short 

duration, existing until such time as the assets remaining in the fund 

can be turned over to the general treasury. Funds accumulated for 

the purchase, construction, or equipment of buildings or other permanent properties of State and local governments, and invested in 

income-bearing obligations during the period of accumulation, are also 

treated as investment funds. These funds sometimes have large 

holdings in real estate, corporate stocks and bonds, and assets* other 

than State and local government securities. In calculating net debt, 

only securities of State and local governments appearing as assets 

in these funds are deducted from the gross debt totals. Other assets 

cannot rightly be deducted, as such assets, unlike those of sinking 

funds, are ordinarily not applied to debt retirement.

The volume of State and local government securities held by governmental sinking funds and by trust and investment funds, and the 

ratio of these holdings to gross and net State and local government 

debt, varied greatly from 1929 through 1941. In 1929, State and local 

government securities held in sinking funds of those divisions totaled 

2,281 million dollars, almost twice the holdings of trust and investment funds. Four-fifths of these sinking-fund holdings were those 

of local division funds. From 1930 through 1932, the holdings of 

local government sinking funds dropped from 2,006 million to 928 

million. This pronounced reduction was occasioned chiefly by the 

retirement at maturity of securities to the value of 728 million dollars 

in various sinking funds of New York City. From 1933 through 

1940, holdings of local government sinking funds remained steady at 

a level approximating 900 million dollars. In 1941, these sinkingfund assets rose sharply to 1,233 million. Holdings of State sinking 

funds rose from 402 million in 1929 to 416 million in 1941, but this 

comparatively small increase represented a much smaller relative 

change than did the decline in the holdings of local government funds. 

Holdings of State and local government sinking funds considered 

as a unit declined appreciably during 1929-41. Conversely, holdings 

of State and local government trust and investment funds doubled 

during the period, totaling 2.5 billion in 1941.

It should be pointed out that the quality of State and local government debt statistics varies somewhat for different years. Census 

figures, or those obtained from joint questionnaire surveys of the 

Bureau of the Census and the Treasury Department which show 

State debts as separate from local government debts, are available 

only for 1929-1932, 1937, 1940, and 1941. For the remaining years, 

special compilations were made of State debts from the financial reports of each of the 48 States. When questions arose relating to 

whether borderline debts should be classed as State or local government, the basis of classification used in the census years was followed. 

The margin of error in the State debt totals for these intercensal 

years probably does not exceed 1 percent. For intercensal years,

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Federal Reserve Bank of St. Louis
38 INDEBTEDNESS IN THE UNITED STATES

figures on the debts of local governmental divisions were obtained by 

deducting the State debt from the State and local government debt 

as estimated by the Department of the Treasury. In order to arrive at figures on net State and local government debt, special studies 

for intercensal years were made of State and local government debts 

held in the sinking, trust, and investment funds of these government 

divisions. The studies covered all States, and all cities with a population of 100,000 or more, plus a sample of smaller cities. They make 

possible reasonably good estimates of securities held in these funds, 

and thus permit calculation of net debt for the intercensal years.

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C h a p t e r III

THE COMPONENTS OF PRIVATE DEBT

This chapter presents somewhat more detailed estimates of the 

major components of the private-debt structure than those presented 

in chapter II. For many purposes these detailed figures are more 

significant.

DEBTS OF CORPORATIONS

In table 6; corporations are classified as railway, public utility, 

and industrial, financial, and miscellaneous. A more detailed 

industry classification of corporations on a strictly comparable basis, 

by years, for 1929-41 is not possible owing to changes in industry 

classification arising from modifications in the revenue acts and to 

changes in classification made by the Bureau of Internal Revenue. 

Provisions in the Revenue Act of 1934, requiring all corporations 

except steam railroads to file unconsolidated tax returns, produced 

major shifts in industry classifications. Modifications in the Revenue 

Acts of 1932 and 1935, relating to consolidated returns, likewise 

affected industry grouping though to a lesser extent.

In classifying consolidated returns industrially, a corporation was 

assigned to an industry on the basis of the predominant industrial 

activity of the consolidated group. In classifying unconsolidated 

returns for each subsidiary or unit of the consolidated group, each 

corporation was classified according to its own predominant industrial 

activity, which in many instances differed from the predominant industrial activity of the affiliated group of corporations of which it was 

a member. A special tabulation of 1934 returns showed that the 

effect of the shift from consolidated to unconsolidated returns was to 

reduce the number of firms in the manufacturing group, and to increase the number in the extractive and merchandising classifications. 

Many corporate systems engaged jointly in extractive activities, in 

manufacturing, and in trade were classified under consolidated returns 

as manufacturers since this was their predominant activity. But 

when each unit filed an unconsolidated return, the return was classified according to the predominant activity of that unit.

If no other difficulties existed the classifications for 1929-33 could 

be adjusted with reasonable accuracy to an unconsolidated basis in 

accordance with the findings of the special tabulation of 1934 returns, 

since 1929-33 was virtually a standstill period in corporate organization. However, two other difficulties stand in the way of such a 

reclassification, insofar as studies of indebtedness are concerned. In 

the first place, the change from consolidated to unconsolidated returns 

resulted in the appearance of a large new sum of intercorporate debt 

in the unadjusted debt totals. This intercorporate debt, an undetermined proportion of which is the debt of holding companies, aver39

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40 INDEBTEDNESS IN THE UNITED STATES

aged $1,640,300 per consolidated return and approximately one-fourth 

that sum for each unconsolidated return. But since the size of the 

corporate systems and the volume of intercorporate debt manifestly 

vary greatly from industry to industry, it would be virtually impossible to apportion accurately the aggregate intercorporate debt for all 

industries to different industry classifications. To determine from 

existing data how much below or above the average per return the 

intercorporate debt was in specific industries is likewise difficult. In 

the second place, the compilations for 1934 and for all other years prior 

to 1938 do not contain information which makes possible an apportionment of holding-company debts to specific industries.

These deficiencies in the primary source material, which lead to 

errors when minor industry classifications are attempted, do not, 

however, mar the quality of classifications when only broad groupings 

are undertaken.

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Federal Reserve Bank of St. Louis
Table 6.— Gross and Net Corporate Debt, 1929-41 1

[Millions of dollars]

Item 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

GROSS CORPORATE DEBT

Total, all corporations................ ............................................... _ 90, 291 91, 670 86, 964 81,988 78, 819 77, 927 76, 545 75, 509 76, 597 74, 279 74,800 76, 500 79, 517

Long-term_________________________________ _____ _____ 55, 348 59, 769 58, 614 57,146 55,410 52, 211 50, 749 48,930 50,784 52,133 51, 800 52, 000 52, 440

Short-term_ _................................... ................. ................. . 34, 943 31, 901 28, 350 24,842 23, 409 25, 716 25, 796 26, 579 25, 813 22,146 23,000 24, 500 27,077

Railway corporations____________________________________________ 14, 638 14,885 14, 838 14,968 15,011 15, 052 15, 037 15, 508 15, 532 15, 683 15,833 15,900 15,968 O

Long-term_____________ _____________________________________ 13, 415 13, 709 13, 690 13,831 13, 786 13, 788 13, 662 13, 993 13,964 13, 969 13, 963 13, 963 13, 963 O

Short-term_____________ __________________________ ______ _ 1,223 1,176 1,148 1,137 1,225 1, 264 1,375 1,515 1,568 1, 714 1, 870 1,937 2,005 g

Nonrailway corporations________________________________________ 75, 653 76, 785 72,126 67,020 63, 808 62, 875 61,508 60, 001 61, 065 58, 596 58,967 60, 600 63, 549

Long-term ..._____________ ___________________________________ 41, 933 46,060 44, 924 43,315 41, 624 38, 423 37, 087 34, 937 36, 820 38,164 37,837 38,037 38, 477 o

Short-term.......... ................... .......................... .................................. 33, 720 30, 725 27, 202 23, 705 22,184 24, 452 24, 421 25, 064 24, 245 20, 432 21,130 22, 563 25,072

3

Public utilities____________________ ____ ________ _________ ___ 17, 213 18, 648 18, 307 18, 386 17, 710 17,097 16, 742 15, 871 16,136 16,197 16,005 15,993 15, 991 a

Long-term _____ _________________________________________ 14, 467 15, 665 15, 839 16,071 15,874 15,135 14, 776 14, 241 14, 427 14, 469 14, 324 14, 338 14, 355 t—3

Short-term_____ ___ _____________________________________ 2, 746 2,983 2, 468 2,315 1, 836 1, 962 1,966 1,630 1,709 1,728 1,681 1,655 1,636 XSl

Operating companies_______________________________ ____ 14, 693 15,828 15, 387 15, 566 14, 940 14, 377 14,122 13, 331 13, 633 13, 716 13, 536 13, 536 13, 546 o

Long-term___________________________________________ 12, 267 13,165 13, 239 13, 571 13, 424 12, 735 12, 476 12, 021 12, 242 12, 304 12,169 12,193 12, 220 hr*

Short-term_____ ______________________________________ 2, 426 2, 663 2,148 1,995 1,516 1,642 1,646 1,310 1, 391 1, 412 1,367 1,343 1,326

Holding companies___________ ____ _______________________ 2, 520 2, 820 2, 920 2, 820 2, 770 2, 720 2, 620 2, 540 2,503 2, 481 2, 469 2,457 2,445

Long-term________ ______________________________ .. 2,200 2,500 2,600 2,500 2, 450 2, 400 2, 300 2,220 2,185 2,165 2,155 2,145 2,135 S3

Short-term________ _ _______________________ 320 320 320 320 320 320 320 320 318 316 314 312 310

Industrial, financial, and miscellaneous._____ _________________ 58, 440 58,137 53, 819 48, 634 46, 098 45, 778 44, 766 44,130 44, 929 42, 399 42, 962 44, 607 47, 558 >

Long-term ...____ ________________ _____ _________________ 27, 466 30, 395 29, 085 27, 244 25, 750 23, 288 22, 311 20, 696 22, 393 23, 695 23, 513 23, 699 24,122 H

Short-term_____ __________________ ________ ______ ______ 30, 974 27, 742 24, 734 21, 390 20, 348 22, 490 22, 455 23, 434 22, 536 18. 704 19,449 20,908 23,436

0 perating companies_____________ ______ __________ ______ 55, 861 55,374 51, 218 46, 220 43, 796 43, 639 42, 704 42,181 42, 870 40, 301 40,879 42,491 45, 390 O

Long-term_____________________________________ ____ _.! 25,310 28,011 26, 822 25,123 23, 727 21, 457 20, 556 19, 068 20, 641 21,851 21,693 21,864 22, 254 ft!

Short-term___________________________________________ 30, 551 27, 363 24, 396 21,097 20, 069 22,182 22,148 23,113 22, 229 18,450 19,186 20, 627 23,136 W

Holding companies________ _______________________ _____ 2, 579 2, 763 2, 601 2,414 2, 302 2,139 2, 062 1,949 2, 059 2,098 2, 083 2,116 2,168

Long-term___________________________ ________________ 2,156 2,384 2, 263 2,121 2, 023 1,831 1, 755 1,628 1,752 1,844

254

1,820 1,835 1, 868

Short-term________________ _____ _______ ____ _____ 423 379 338 293 279 308 307 321 307 263 281 300

INTERCORPORATE DEBT

Total, all corporations__________________________ _________ 16,366 16,614 15, 708 14,778 14,176 14, 005 13, 744 13, 224 13,119 12, 404 12,195 12,178 12,346

Long-term------------------------------------------------------------------- 10,032 10, 832 10, 587 10,301 9,966 9, 383 9,112 8, 569 8, 698 8, 705 8,445 8, 277 8,197

Short-term______ ____________ ____ _______________ - 6, 334 5,782 5,121 4,477 4, 210 4, 622 4, 632 4,655 4,421 3,699 3, 750 3,901 4,149

Railway corporations___________________ ____ ______________ ______ 2,045 2,079 2,073 2,091 2,097 2,103 2,101 2,166 2,170 2,191 2, 212 

1,951

2, 221 2,234

Long-term______ ________________ ____ _____________ ____ _ . 1, 874 1,914 1,912 1,931 1, 925 1,926 1,909 1,955 1,951 1,951 1,949 1,950

Short-term_____________________ ____ _________________________ 171 165 161 160 172 177 192 211 219 240 261 272 284

i Adapted from reports of the Bureau of Internal Revenue and the Interstate Commerce Commission.

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Federal Reserve Bank of St. Louis
Table 6.— Gross and Net Corporate Debt, 1929-41— Continued

Item 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

i n t e r c o r p o r a t e d e b t — continued

Nonrailway corporations________________ ________ 14,321 

8,158 

6,163

14, 535 

8,918 

5, 617

13, 635 

8, 675 

4, 960

12, 687 

8, 370 

4, 317

12, 079 

8,041 

4, 038

11,902 

7,457 

4,445

11, 643 

7, 203 

4, 440

11, 058 

6,614 

4,444

10,949 

6. 747 

4, 202

10, 213 

6, 754 

3,459

9,983 

6,494

Q AQO

9,957 

6, 328 

3, 629

10,112 

6,247 

3,865

Long-term................. ................

Short-term.................... ........ ...

n e t c o r p o r a t e d e b t

Total, all corporations_________________ 73,925 

45, 316 

28,609

75,056 

48,937 

26,119

71, 256 

48,027 

23, 229

67, 210 

46, 845 

20, 365

64, 643 

45, 444 

19,199

63,922 

42,828 

21,094

62, 801 

41, 637 

21,164

62, 285 

40, 361 

21,924

63,478

42,086 

21, 392

61,875 

43, 428 

18,447

62, 605 

43,355 

19, 250

64,322 

43, 723 

20, 599

67,171 

44,243 

22,928

Long-term................................ ................

Short-term_______ ____ _______________

Railway corporations________ _____ _____

Long-term____________________ ___

Short-term______________________

Nonrailway corporations______________

Long-term______________________ .

Short-term_____________________________ _

12, 593 

11,541 

1,052 

61,332 

33, 775 

27, 557

12, 806 

11, 795 

1,011 

62, 250 

37,142 

25,108

12, 765 

11, 778 

987 

58, 491 

36, 249 

22, 242

12, 877 

11, 900 

977 

54,333 

34, 945 

19,388

12, 914 

11, 861 

1,053 

51, 729 

33, 583 

18,146

12, 949 

11, 862 

1,087 

50, 973 

30, 966 

20, 007

12, 936 

11, 753 

1,183 

49, 865 

29, 884 

19, 981

13,342 

12,038 

1,304 

48, 943 

28, 323 

20,620

13,362 

12, 013 

1,349 

50,116 

30, 073 

20,043

13, 492 

12, 018 

1,474 

48, 383 

31, 410 

16,973

13, 621 

12, 012 

1,609 

48, 984 

31, 343 

17,641

13, 679 

12, 014 

1, 665 

50, 643 

31, 709 

18,934

13,734 

12,013 

1,721 

53, 437 

32, 230 

21, 207

INDEBTEDNESS IN THE UNITED STATES

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COMPONENTS OF PRIVATE DEBT 43

More than 400,000 active corporations submit balance sheets when 

filing their annual income tax returns. In the railway and public 

utility industries and in some lines of manufacturing the corporation 

is the only or substantially the only form of organization used. In 

other lines of endeavor the corporation is extensively, though not 

exclusively, used. Even in farming and in holding and operating 

residential real estate the corporate form of organization is used to 

some extent. It is to be expected, therefore, that the outstanding 

debts of all corporations in the United States will be large. In 1941 

gross corporate long-term and short-term debt totaled 79.4 billion 

dollars and amounted to 60 percent of gross private debt and 36 

percent of gross public and private debt. In 1929, corporate debt 

comprised a somewhat smaller part of private debt but a larger part 

of total public and private debt.

RAILWAY DEBT

Of the three major classes of corporations presented in table 6, 

only railways showed an increase in gross debts during the period 

1929-41. Their gross debts advanced from 14.6 billion dollars in 

1929 to nearly 16 billion in 1941, small annual increases being registered for all but 2 years. Two factors were chiefly responsible for 

this increase. First, a considerable number of railways were obliged 

to borrow to raise funds for the purchase of equipment and to meet 

interest and other charges. A substantial part of these loans was 

obtained from the Reconstruction Finance Corporation, especially 

during the period 1932-35. Second, interest accrued and unpaid on 

defaulted debt accounted for a substantial part of the rise in railway 

debt. Railway debt in default rose from 99 million dollars in 1929 

co 3.2 billion dollars in 1940, the lastest year for which statistics are 

available. During 1936-40, interest accrued and unpaid, which was 

added to the outstanding railway debt, averaged approximately 125 

million dollars a year.

A factor contributing to the large volume of accrued interest unpaid was the long duration of the default period. For some railways 

in receivership this period continued throughout 1929-41. Receiverships of industrial and public utility corporations generally were 

of shorter duration. In comparing unpaid interest accruals of railways with those of other corporations, the fact must be kept in mind 

that such accruals are included in the outstanding debt of railways 

but are not always promptly or fully added to the debt of industrial 

corporations because of irregular and incomplete reporting by receivers of those corporations.

Only about 10 percent of railway debt is short-term. This low 

percentage obtains despite the fact that in railway accounting all 

debts with maturity dates of less than 2 years from date of issue are 

classified as short-term, and despite the further fact that interest 

accrued and unpaid on short-term and long-term debt alike is treated 

as a short-term obligation. Long-term debt comprises the bulk of 

railway debt because railways have relied heavily on long-term bonds 

to finance the outlays for roadway and equipment which constitute the 

bulk of railway investment.

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44 INDEBTEDNESS IN THE UNITED STATES

Intercorporate railway debt remained slightly above the 2-billiondollar level during the entire period 1929-41. In 1941, it totaled

2.2 billion. A part of this intercorporate debt, possibly as much as a 

billion dollars, bears no interest or only a nominal rate. The main 

purpose of such indebtedness is to evidence existing obligations 

between units of a railway system. Railway intercorporate debt, as 

measured in this study, consists of the difference between the debts 

reported to the Interstate Commerce Commission by railways on unconsolidated statements and, with certain adjustments, the debts 

shown on consolidated statements submitted in connection with the 

filing of income tax returns.

PUBLIC UTILITY DEBT

Public utility corporations, as here defined, comprise electric light 

and power companies, natural and manufactured gas companies, pipeline companies, telephone and telegraph companies, water companies, 

radio broadcasting companies, and companies engaged in the operation of terminal stations, toll bridges, toll roads, and irrigation 

systems. Included also are companies, other than steam railways, 

engaged in furnishing various forms of ocean and fresh-water transportation services. The designation, public utility corporations, also 

covers docking, drawbridge, wharfage and salvaging, electric railway and aerial transportation, autobus, taxicab, cartage, storage, shipping, and packing services. This utility group includes, finally, Pullman-car, refrigerator, stock, poultry, and fruit-car companies, not 

owned by steam railroads.

The gross debts of public utility corporations totaled nearly 16 

billion dollars at the end of 1941, an amount approximately equal 

to the gross railway debt outstanding on that date and to about onefifth of the total gross debt of all corporations. The debts of public 

utility corporations moved in a comparatively narrow range during 

the period 1929-41. They advanced from 17.2 billion dollars in 1929 

to 18.6 billion in 1930, registering by far their largest annual change 

in the latter year because of the financing and funding operations 

occasioned by the expansion programs carried on then, particularly 

by the electric light and power and natural gas companies. From 

1931 through 1936 they declined by 2.4 billion to total 15.9 billion, 

the decrease being due principally to the fact that retirements by 

payment exceeded the very low volume of debts incurred to obtain 

new capital. The receivership and reorganization of a large electric 

utility system, together with the reorganizations of bridge, warehouse, water-transportation, and other corporations which resulted in 

a smaller debt structure for those companies, also contributed to the 

decline. In 1937 and 1938, outstanding public utility debts reversed 

their trend and registered small increases. Debt reduction by reorganization was small in these years and moderate increases in new 

capital issues more than offset retirements by payment. The small 

declines which followed in the years from i939 through 1941 were 

due both to the reorganization of several street railway companies 

and to repayment of some debts by several public utility systems, 

following sales of property to Federal and local power authorities.

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COMPONENTS OF PRIVATE DEBT 45

As in the case of railroads, the short-term debts of public utilities 

comprise only a small portion of their total debt. In 1941 their 

short-term debts amounted to 1.6 billion dollars, or slightly more 

than 10 percent of total debt. The figure 1.6 billion dollars is in 

contrast with the 2.7 billion for 1929, when short-term borrowings 

were more extensively made in financing construction programs undertaken in advance of funding operations.

The volume of debt shown as owed by public utility holding companies, as distinguished from operating companies, depends to a 

considerable extent upon the definitions employed. * In this study, 

holding companies are defined as corporations “who at any time during the taxable year owned 50 percent or more of the voting stock 

of another corporation and whose income from such stock was 50 

percent or more of the amount of dividends received.” This definition is the same as that used by the Bureau of Internal Revenue in 

its statistical compilations for 1938.6 Defined in this manner, there 

were, in 1938, 199 such public utility holding companies, whose assets 

amounted to 9.1 billion dollars and whose debts totaled nearly 2.5 

billion, equal to one-seventh of the debts of holding and operating 

companies combined. All but 316 million dollars of the debts of the 

holding companies consisted of long-term obligations. The portion 

of public utility debt allocated to holding companies for years other 

than 1938 was determined somewhat arbitrarily by assuming a trend 

for the holding companies similar to that experienced by all public 

utilities and by taking into consideration specific instances of increases or decreases in the debts of holding companies in the cases 

where such data were available.

DEBTS OF INDUSTRIAL AND FINANCIAL CORPORATIONS

Industrial, financial, and miscellaneous corporations, whose gross 

debts are presented in table 6, comprise the third and largest class 

of corporations, as grouped in this study. Industrial corporations 

comprise companies engaged in all lines of manufacturing, mining 

and quarrying, construction, agriculture, and trade. They include 

corporations owning and operating theatres, hotels, restaurants, office 

buildings, and residential properties. Financial corporations include 

loan companies and associations, investment companies, investment 

trusts, and holding companies. Finally, under financial corporations 

are included companies (other than investment trusts and investment companies) owning industrial, railway, public utility, or 

financial securities “who (a) at no time during the taxable year 

owned 50 percent or more of the voting stock of another corporation or 

(b) at any time during the taxable year owned 50 percent or more of 

the voting stock of another corporation but whose income from such 

stock was less than 50 percent of the amount of dividends received.” 7 

Liabilities of banks to depositors and liabilities of insurance companies to policyholders are not included in these figures, but are 

shown separately in tables 7 and 8.

6 Statistics of Income for 1938, part 2, p. 146.

7 Ibitl., p. 146.

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46 INDEBTEDNESS IN TH E UNITED STATES

Table 7.— Deposit Liabilities of All Banks in the United States, 1929-41

[Millions of dollars]

Year Total, all 

banks

National

banks

Other than national banks

Total

State

(commercial)

Mutual

savings Other

1929..

1930..

1931..

1932..

1933.. 

1934._

1935.. 

1936__

1937.. 

1938_.

1939.. 

1940__

1941..

55, 289 

53,039 

45,821 

41,642 

38, 505 

44, 771 

48,964 

53, 702 

52,440 

54,054 

58,344 

65,021 

70, 792

20, 290 

20,138 

17, 271 

16,101 

15, 386 

18,519 

20, 886

23,107 

22, 655 

23,497 

25, 661 

29, 214 

32, 672

34, 999 

32,901

28, 550 

25,541

23.119 

26, 252 

28,078 

30, 595

29, 785 

30,557 

32, 683 

35,807

38.120

13, 575 

12, 422 

10,161 

8 , 701 

8,385 

10,424 

11,273 

12,786 

12,155 

12,714 

14,269 

16, 793 

18, 520

8,916 

9,507 

10,105 

10,022 

9, 708 

9,828 

9,963 

10,143 

10,257 

10, 365 

10,613 

10, 658 

10, 525

12,508 

10, 972 

8,284 

6 . 818 

5,026 

6,000

6 , 842

7, 6 6 6

7, 373 

7,478 

7,801

8 , 356 

9,075

Source: Reports of the Federal Reserve Board and the Comptroller of the Currency.

Table 8.— Reserves and Other Selected Liabilities of Life-Insurance Companies to

Policyholders, 1929-40

[Millions of dollars]

Year Reserves

Losses and 

claims not 

paid

Claims

resisted

Dividends 

unpaid and 

left to accumulate

Total liabilities to 

policyholders

Loans to 

policyholders 1

Net liabilities to 

policyholders

1929________ ______ _ 14,948 113 1 0 267 15,338 2,379 12,959

1930........................... - 16, 231 135 11 303 16,680 2,807 13,873

1931......................... . 17,384 153 17 316 17,870 3,369 14, 501

1932........................... ... 17,839 157 21 323 18,340 3,806 14,534

1933............................. 18,077 162 25 337 18,601 3,769 14,832

1934....................... . 19,030 154 25 344 19, 553 3,658 15,895

1935............................ 20,404 153 24 366 20,947 3, 540 17,407

1936............................... 21,800 1 1 2 2 0 371 22, 303 3,411 18,892

1937............................... '23,202 111 18 401 23,732 3,399 20, 333

1938_________ _______ 24,495 117 17 432 25,061 3,389 21,672

1939............... ............. 25,827 124 18 467 26,436 3,248 23,188

1940............ ................. 27,238 125 16 539 27,918 3,091 24,827

1 Including premium notes.

Source: The Spectator Insurance Year Book.

In 1941 the gross debts of industrial and financial corporations 

aggregated 47.6 billion dollars, equal to almost three-fifths of total 

gross corporate debt. The 1941 total was greater by 4.6 billion 

dollars and 3 billion dollars, respectively, than the 1939 and 1940 

totals, but less by 10.8 billion than the debts of industrial and 

financial corporations outstanding in 1929. From 1929 through 1938 

the outstandings of this group of corporations followed a downward 

trend since new capital issues were exceeded by retirements by payment. In addition, reorganization and liquidation were responsible 

for large reductions in debt during this period. The important 

part that corporate reorganization and liquidation had in debt reduction is shown by a special analysis of the indebtedness of 792 

industrial corporations, selected without reference to their solvency, 

for the 1934-37 period. Sixty-eight of these companies were in 

receivership and were reorganized or liquidated by the end of 1937. 

Principally because of the liquidation or the terms of reorganization, 

the outstanding long-term debt of these 68 corporations was reduced 

from 511 million dollars to 275 million, a decline of 46 percent. 

This compares with a decline of only 8 percent in outstanding longterm debt of the 724 solvent corporations for the 3-year period.

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COMPONENTS OF PRIVATE DEBT 47

In sharp contrast with the situation respecting railway and public 

utility corporations, the short-term obligations of industrial and 

financial corporations comprise a large part of their gross debt. 

Corporations in this group quite commonly purchase their inventories on a deferred-payment basis or borrow from banks on a shortterm basis to pay for inventory purchases and to make other current 

outlays. In 1941 gross short-term debts of these corporations totaled 23.4 billion dollars, or nearly 50 percent of their gross debt. 

In 1929 the ratio of short-term to total debt among these corporations 

was even higher. In that year, gross short-term debts totaled 31 

billion dollars, equal to 53 percent of total gross corporate debt. 

Generally, short-term debts fluctuate more widely with changes in 

the volume of business than do long-term debts. Since approximately one-half of the debts of industrial and financial corporations 

are short-term, it follows that changes in their total outstandings 

were larger than those of corporations whose debts were composed 

principally of bonds and other long-term debt. Another noteworthy 

feature of the corporate debt picture is that industrial corporations 

in more recent years have handled a larger volume of business on a 

given volume of debt. Factors making this possible include a more 

rapid turn-over of inventories and better transportation and delivery 

facilities.

DEBTS OF HOLDING COMPANIES

Holding companies, a subclass in the industrial, financial, and 

miscellaneous group of corporations, are defined in the same manner 

as are the public utility holding companies discussed above, that is, 

companies “who at any time during the taxable year owned 50 percent or more of the voting stock of another corporation and whose 

income from such stock was 50 percent or more of the amount of 

dividends received.” Under this restricted definition there were 128 

industrial holding companies in 1938 with outstanding short-term 

and long-term debts of 553 million dollars and 32 companies holding 

bank securities with outstanding debts of 20 million. Another and 

much larger group of corporations conforming to the definition of 

holding companies, but whose securities were not classified, was 

composed of 643 companies with outstanding debts of 1.5 billion 

dollars.

Corporations, other than investment trusts and investment companies holding less than 50 percent of the voting stock of another 

corporation, or if holding more than 50 percent of the voting stock 

receiving less than 50 percent of its dividends from such stocks, 

numbered 4,275 and had outstanding debts totaling 2.2 billion dollars. 

It can safely be assumed that a substantial part of the holdings of 

these companies consisted of the securities of corporations in the 

public utility or industrial fields of enterprise. But these corporations do not come within the scope of holding companies as defined 

in this study, and accordingly neither these corporations nor their 

outstanding debts are allocated to the industries with which the 

corporations whose securities they hold are identified. These facts 

should be remembered when the volume of holding company debt, 

in the strict sense, is compared with that of the operating companies.

Intercorporate debt, as distinguished from holding company debt, 

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48 'INDEBTEDNESS IN THE UNITED STATES

bers of the same corporate system. It may consist of the debts of a 

subsidiary or affiliate held by a parent company, or of the debts of a 

parent company held by a subsidiary, or of both. Thus, if a holding 

company has a bond issue outstanding, part of which is publicly held 

and part of which is held by an affiliate, that part held by the affiliate 

comprises intercorporate debt. Owing to the difficulties involved in 

making a detailed breakdown from available data, intercorporate debt 

is classified in the present study into railwray and nonrailway categories 

only. As stated previously, intercorporate debt of railways has ranged 

slightly above the 2-billion-dollar level in recent years. Nonrailway 

intercorporate debt totaled slightly more than 10 billion dollars in 

1941, compared with 14.3 billion in 1929. Since 1935 intercorporate 

debt has declined at a somewhat faster pace than has net corporate 

debt, largely as a result of the trend toward reducing, by consolidation 

or sale, the number of affiliates or subsidiaries within a corporate 

system.

A comparatively small number of corporations do not submit balance sheets when filing tax returns. This results in some understatement of corporate debt. But since the companies not submitting balance sheets are typically small and frequently have no outstanding debt 

obligations, the omissions probably do not exceed 1 or 2 percent of 

total corporate indebtedness.

INDEBTEDNESS ON URBAN RESIDENTIAL PROPERTY

Indebtedness on urban or nonfarm residential property is composed 

principally of the mortgage notes of individuals and other noncorporate persons, but includes also the mortgage bonds of incorporated companies. In addition, it includes a small quantity—estimated to be less 

than 1 percent of total outstandings—of debenture bonds and unsecured notes of corporations owning and operating residential real 

estate. Inasmuch as the unsecured debt of real-estate corporations is 

generally small and since a mortgage lien may ordinarily be obtained 

by unsecured creditors in event of default, the aggregates are referred 

to as mortgage indebtedness.

Table 9.— Urban Residential Real-Estate Mortgages, 1929-41

[Millions of dollars]

All residential properties Multifamily 1- to 4-family

Year

Total Corpor­ Noncor­ Total Corpor­ Noncor­ Total Corpor­ Noncorate porate ate porate ate 1 porate

1929____________ 29, 390 2,789 26,601 7,831 1,711 6 ,1 2 0 21,058" 1,053 20,005

1930____________ 30, 314 2,839 27, 475 8 , 473 1,747 6 , 726 21, 259 1,063 20,196

1931...................... 29, 571 2, 763 26,808 8,291 1, 699 6 , 592 20,685 1,034 19,651

1932____________ 27,843 2,620 25, 223 7,993 1, 627 6 , 366 19/242 962 18, 280

1933____________ 25, 796 2, 458 23,338 7,478 1,542 5,936 17,878 894 16,984

1934____________ 24,933 2, 309 22, 624 6,944 1,410 5, 534 17,857 893 16,964

1935____________ 24, 232 2,161 22,071 6 , 548 1, 277 5,271 17, 510 876 16, 634

1936____________ 23, 660 2,096 21, 564 6,311 1, 229 5,082 17, 225 861 16, 364

1937____________ 23,595 2,075 21,520 6,191 1,205 4,986 17, 344 867 16,477

1938____________ 23, 792 2,079 21,713 6,071 1,193 4,878 17, 646 882 16,764

1939....... ............ - 24, 385 2,090 22, 295 5,970 1,169 4,801 18,216 911 17, 305

1940____________ 25, 307 2,127 23,180 5,907 1,157 4, 750 19,123 956 18,167

1941_................ 25,878 2,145 23,733 5,870 1,145 4,725 20,008 1 , 0 0 0 19,008

1 Twenty-five percent of bonded debt of domestic corporations.

Source: Division of Research and Statistics, Federal Home Loan Bank Board, for figures on 1 - to 4-family 

urban residential real-estate mortgages.

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COMPONENTS OF PRIVATE DEBT 49

Table 9 classifies urban residential mortgage obligations by type 

of property pledged as debts on 1- to 4-family dwelling properties 

and debts on multifamily properties (of 5 or more families), and 

shows the amount and trend of total outstandings as well as the debts 

for each of the two classes from 1929 through 1941. Comprising the 

largest item of long-term consumer debt, indebtedness of individuals 

on urban residential properties aggregated 26.1 billion dollars in 1929. 

(See table 10.) Of this amount 20 billion, or approximately threefourths of the total, represented debts on 1- to 4-family properties.

Following the general pattern of several other types of long-term 

debt, outstanding mortgages on 1- to 4-family properties rose moderately in 1930 to 21.3 billion. After 1930, outstandings on this class 

of urban residential property dropped for 6 consecutive years, receding to a 17.2-billion level in 1936—the low mark for the 12-year 

period. The most rapid declines occurred in 1931 and in 1932, when 

ordinary debt reduction by payment was greatly augmented by forced 

reduction through foreclosure or through surrender or transfer of 

title to avoid foreclosure. In these years unemployment was widespread and the income of residential property owners was small compared with that of earlier years or compared with their fixed payments of principal and interest. Loans were difficult to arrange and 

maturation of mortgages frequently resulted in defaults and foreclosures.

Following the enactment of debtor-relief legislation in 1933, marfy 

distress mortgages on 1- to 4-family properties were refinanced and 

mortgage reduction by foreclosure declined sharply.

Table 10.— Urban Real-Estate Mortgages Owed by Individuals and Other Noncorporate Borrowers, 1929-41

[Millions of dollars]

Year Total Residential

Commercial

1929 ____________ 31,618 26,125 5,493

1930 ____________ 32,638 26,922 5, 716

1931_________ .. . 31.887 26, 243 5,644

1932______________ 30,034 24,646 5, 388

1933 ____________ 27, 356 22,920 4,436

1934 _____________ 26,661 22,498 4,163

1935______________ 25,864 21,905 3,959

Year Total Residential

Commercial

1933 _____________ 25, 463 21,446 4,017

1937 ____________ 25,447 21,463 3,984

1938 _____________ 25, 611 21, 642 3,969

1939 __________ .. 26,062 22,106 3,956

1910 _____________ 26, 817 22, 917 3,900

1941______________ 27,633 23,733 3,900

By 1937, new mortgage indebtedness, created to finance a marked 

growth in residential construction engendered in part by the National 

Housing Act, more than offset mortgage reductions by payment and 

foreclosure. Consequently, urban residential mortgage outstandings 

since 1937 have made annual advances. Mortgages of 19.1 billion dollars outstanding in 1940 on 1- to 4-family properties wTere only about 

10 percent below the 1929 total of 21.1 billion. At the end of 1941, 

the volume of these mortgages had risen to 20 billions of dollars.

Mortgage outstandings on multifamily property followed a course 

markedly different from that taken by those secured by the 1- to 4- 

family properties. From 1929 to 1930, they followed the general pattern of most classes of long-term debt by rising from 7.8 to 8.5 billion 

dollars, but from 1930 they registered successive declines for 11 consecutive years. At the end of 1941, the multifamily mortgage-debt

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50 INDEBTEDNESS IN THE UNITED STATES

index (1929 = 100) stood at 75, compared with 95 for debts against 1- 

to 4-family residences.

The larger percentage decline registered by debts on multifamily 

property is due partly to the fact that legislation to refinance distress 

mortgages did not apply to this type of property. Hence, outstandings continued to shrink because of foreclosure actions or reorganizations during 1933-36, when declines in the 1- to 4-family group had 

abated. Another cause contributing to the continued decline of debts 

on multifamily property is the fact that recovery in apartment-house 

construction had been relatively slight. Hence, the new debt issued 

to finance this construction has been less than retirements made on 

outstanding obligations.

For recent years, statistical estimates of outstanding mortgages 

against multifamily and 1- to 4-family property have been materially 

improved in quality by better classification of real-estate loans in 

the statements of banks and by questionnaire surveys conducted by 

life-insurance companies. Formerly, these financial institutions 

divided loans secured by real estate into farm and nonfarm loans. 

Recently, nonfarm loans have been divided into 1- to 4-family, multifamily, and other real-estate loans. In applying this breakdown to 

earlier years, somewhat arbitrary procedures are required, and it 

follows that the distribution shown in earlier years is subject to some 

error.

* Other statistical data much needed in this field consist of information showing the extent of the mortgage bonded indebtedness of corporations owning residential real estate, especially in the multifamily 

group, where, because of the larger capital requirements per unit, the 

corporate form of organization is more common than in the 1- to 

4-family group. A sample study made by the Department of Commerce of Internal Revenue statistics of corporations owning business 

and residential real estate in 1937, together with a questionnaire survey covering the larger cities, provided the basis for an estimate of

1.2 billion dollars as the outstanding mortgage debt of corporations 

owning multifamily residential property in that year. This was 

equal to one-fifth of the entire amount of mortgage debt outstanding 

against this class of residential real estate. Predicated upon the 

1937 estimate, the outstandings for other years were based on the 

year-to-year trend for the comparatively few corporations holding 

residential real estate that publish financial statements.

The debt of corporations owning 1- to 4-family residential property 

was placed arbitrarily at 5 percent of total outstandings. Holdings 

of residential real estate by financial corporations, that is, banks, insurance companies, and so on, assumed considerable proportions in 

some years of the 1929-41 period, but the debt outstanding on these 

properties generally was quite small because many of the properties 

were acquired by foreclosure or by transfer of title to avoid foreclosure, and, consequently, were often free or nearly free of debt at 

the time of such acquisition.

From the foregoing it is evident that the debts of individuals and 

other noncorporate borrowers comprise almost the entire indebtedness 

on 1- to 4-family properties and the bulk of the mortgage indebtedness on multifamily residential real estate. It should be noted that 

“individuals and other noncorporate persons” is a broad category

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COMPONENTS OF PRIVATE DEBT 51

which includes not only individuals and unincorporated businesses, 

but trust and investment funds, and eleemosynary corporations or 

associations which may have mortgages outstanding on a wide variety 

of property held by them for investment or for use in their activities.

The debts of individuals and other noncorporate borrowers owed 

on urban real property are presented in table 10. In addition to the 

debts against residential property discussed above, this table gives 

the debts secured by commercial or business real estate owed by individuals and other noncorporate persons. Commercial property, as 

here defined, includes business and professional office buildings, 

hotels, restaurants, theaters, and retail and wholesale store buildings. Debts of individuals on these classes of property aggregated

5.5 billion dollars in 1929. After rising moderately in 1930 to 5.7 

billion, they responded to the depression years by declining to a 

level slightly below 4 billion dollars by 1935. From 1936 they moved 

narrowly lower to a year-end total of 3.9 billion in 1941. This represents a decline of 29 percent from 1929, compared with declines of 

25 percent and 5 percent in the amounts owed by individuals and 

others on multifamily and 1- to 4-family residential property, respectively. All in all, the debts of individuals and others on urban 

commercial and residential real estate combined totaled 27.6 billion 

dollars in 1941, compared with 31.6 billion in 1929.

Although primary statistics relating to the debts owed by individuals and other noncorporate persons on commercial real estate are 

still lacking in completeness and quality, marked improvements in 

these data have been made in recent years. The breakdown of nonfarm real-estate loans of banks and insurance companies referred to 

above permits approximations of the total loans made by these institutions against commercial real estate. The studies which have 

been made of the debts secured by commercial real estate make possible approximations of the portions of such loans that are corporate 

and noncorporate. Further advances in primary data must be made, 

however, before estimates in this area approach the quality of those 

for other debt categories. As additional data become available, revisions in this and in related groups of debt estimates are to be 

expected.

FARM-MORTGAGE DEBT REDUCED YEARLY SINCE 1929

It will be observed from table 11 that there was a continuous 

decrease in the volume of outstanding farm-mortgage debt from 1929 

through 1941. At the end of the latter year, estimated debt secured 

by liens on farm real estate totaled 6.8 billion dollars. This figure 

is 2.8 billion, or 29 percent, below the 1929 total of 9.6 billion, and 3.9 

billion below the peak amount of 10.8 billion outstanding at the end 

of 1922.

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52 INDEBTEDNESS IN THE UNITED STATES

Table 11.— Farm Mortgages and Short-Term Debts of Farmers, by Lending

Agencies, 1929-41

[Millions of dollars]

Item 1929 1930 1931 1932 1933 1934 1935

Total farm mortgages and short-term 

d e b t s _________ __ ______ _________ 11, 460 8,951 8,992

Total farm-mortgage debt________ ____ ______

Federal land banks and Land Bank Commissioners 1_______ __ ________________

Joint-stock land banks 2_________________

Life-insurance companies 3 ........ ................

Commercial banks «

9,631

1,186 

627 

2,105

9,458

1,176 

591 

2,059 

«945 

93

9, 214

1,152

537

2,007

8,638

1,106

459

1,869

7,887

1,274 

392 

1,661 

6 556 

.80

7,786

2,502

256

1,259

499

62

7,639

2,854 

176 

1,055 

488 

*_____________ 48Three-State credit agencies 

Farm Security Administration___

93 93 84

Construction of farmstead improvements__ _________ ____ ____ _____

Tenant purchase and developments8.

Individuals and others__________________

Total short-term debts _ _______ ___ _

5, 619 4, 595 

2 , 0 0 2

6 6

5, 425 5,120 3,924 3,208

1,165

56

61

87

79

32

13 6

37

808

3,019 

1,353

47

94

43

107 

6 6 

is 63 

16 271 

662

Agencies supervised by Farm Credit Administration:

Federal intermediate credit banks . 

Prod uction credit associations____

60 75 83 61

Regional agricultural credit corporations ______ ____ _____________ 24

90

145

Emergency crop loans10_____________ 91

Drought-relief loans _ _ _ - ______

9 0 1) 50

Farm Security Administration 12________

Commodity Credit Corporation 1 4 _____ 15 65

Commercial banks 17_________ _________ (“ ) 1,936 (“ ) (“ ) 09

Item 1936 1937 1938 1939 1940 1941

Total farm mortgages and short-term debts____

Total farm-mortgage debt______ ___________________

Federal land banks and Land Bank Commissioners1-- _______ - ________ _______________ ___

8 , 660 8 , 705 9,033 8,855 9,118 ----------

7, 390

2,889

133

936

488

33

7, 214

2,836

104

895

501

25

4

4

2,849 

1,491

40 

138 

16 

116 

57 

13163 

16173 

788

7,071

2 , 723 

87 

887 

519 

17 

15 

6 

9

2,808

1,948

34

148

11

117

55

2 1 0

309

1,065

6,910

2, 584 

6 6 

4 874 

534

6,821

2, 488 

49 

887 

543

6 , 787

Joint-stock land banks 2____________________ ____

Life-insurance companies 3_......................................

Commercial banks 6___ _______________ ____ ____

Three-State credit agencies 7._ .................... .............

Farm Security Administration__________ _ ____ 39

6

32 

2,775 

1,908

33 

154

8

116

53

276

173

1,094

' 72 

7 

65 

2 , 710 

2, 227

34

172

6

118

50

313

252

1,281

Construction of farmstead improvements____

Tenant purchase and development8_________

Individuals and others___________ ______________

Total short-term debts____________ ______________ .

Agencies supervised by Farm Credit Administration:

Federal intermediate credit banks 9__________

Production credit associations _ ___ ________

Regional agricultural credit corporations_____

Emergency crop loans 10_____________________

Drought-relief loans______ __________________

Farm Security Administration 12 ______ ________

Commodity Credit Corporation 14_______________

Commercial banks 17_______ ___________________

2, 911 

1,270

41

105

25

105

60

13 132

16 208

594

2, 220

} 230

7

120

48 

354 

198 

i* 1,263

* Excluding Puerto Rico.

2 Including banks in receivership.

• Estimates based upon direct reports from life-insurance companies, official reports submitted to the 

insurance commissioners of the various States and the District of Columbia, and Best’s Life Insurance 

Reports.

4 Preliminary.

• 1934-39, insured commercial banks; prior to 1934, open State and national banks.

8 June 30.

7 Rural Credit Bank of South Dakota, Bank of North Dakota, and Department o f Rural Credit of 

Minnesota.

* Including Bankhead-Jones loans and loans from corporation trust funds.

9 Loans to, and discounts for, private financing institutions.

10 Revised to include 1918-19 seed loans to farmers.

11 Not available.

12 Rural rehabilitation loans to individuals. Includes loans from State rural rehabilitation corporations.

13 Estimated.

14 Does not include loans held by other financing institutions, mainly commercial banks, and covered Commodity Credit Corporation purchase agreements.

16 Revised.

1P Revised to exclude loans to cooperative associations.

17 Insured commercial banks only, except in 1931, when all open State and national banks are covered.

18 Estimate based on percentage change in agricultural loans of operating insured commercial banks from 

June 1940 to June 1941.

Source: Bureau of Agricultural Economics, except for short-term debts owed to commercial banks for 1929 

and 1931-33.

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COMPONENTS OF PRIVATE DEBT 53

Among the factors contributing to a decline in farm-mortgage debt, 

repayment of principal has been of increasing importance in recent 

years. Wider prevalence of provisions in the debt contracts for the 

amortization of a small part of the principal at regular intervals has 

also aided the repayment of debt. In the case of Federal land bank 

and Land Bank Commissioner loans, repayments since 1936 have been 

particularly large compared with earlier years.

Though farm-mortgage debt has declined for the country as a whole, 

small increases have been registered in recent years in certain regions, 

particularly in New England and in the East South Central States. 

In 1939, farm-mortgage outstandings in Mississippi increased 7 percent, the largest increase shown for any State.

Foreclosures and other forced sales were debt-reducing factors 

throughout the 1929-41 period. During several of the earlier years 

they were a principal cause of farm-mortgage reduction, but recently 

they have been of minor and declining importance. Forced sales 8 

rose from 26 per thousand farms in 1931, to 42 in 1932, and to 54 in 

1933. In 1934, they fell to 39 per thousand farms and by 1938 had 

fallen to 18.

SHORT-TERM FARM DEBT

For their short-term financial needs, farmers borrow chiefly from 

commercial banks and from Federal and Federally sponsored agencies. 

Preliminary estimates for 1941 place short-term farm loans slightly

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

0 0. 4!~474

Figure 8.— Short-term farm debt to Government farm-credit agencies, 1929-41.

above the 2-billion-dollar mark—slightly higher than the level of 1939 

and substantially above the 1.2-billion level of 1934. These figures do 

not include loans of Federal agencies to farmers’ cooperative organizations, presented in table 12. Figures giving outstanding balances of 

such loans by commercial banks are not available prior to 1934, except

8 Agricultural Statistics, Department of Agriculture.

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54 INDEBTEDNESS IN THE UNITED STATES

for 1930. In that year, short-term obligations of farmers totaled 2 

billion. In 1941, somewhat more than one-half of the short-term outstandings of farmers were owed to commercial banks. Of the sum 

owed to Federal agencies, the largest amounts were owed to the Commodity Credit Corporation, the Farm Security Administration, the 

Federal intermediate credit banks, and the regional agricultural 

corporations.

The debts of farmers’ cooperative associations comprise a part of 

the debts of farmers which have been classified as short-term productive debts. The amounts owed Federal agencies are shown in table 12. 

Amounts owed banks comprise a part of the short-term obligations 

of individuals owed to banks. Outstandings of farmers’ cooperatives 

have fluctuated rather widely during the 1929-41 period. In 1941, 

farmers’ cooperatives owed Federal agencies approximately 431 million dollars. These short-term farm debts comprise a part of the shortterm debts of individuals discussed below.

Table 12.— Loans to Farmers’ Cooperative Organizations by Selected Federal 

Lending Agencies in the United States, 1929-41

[Millions of dollars]

Agencies supervised by Farm 

Credit Administration

Rural Farm 

Security 

Administration 2

ComYear Total, all 

agencies Federal

intermediate

credit

banks

Banks 

for cooperatives

Agricultural Marketing Act 

Revolving 

Fund

Electrification 

Administration 1

modity

Credit

Corporation

1929...................................... 41 26 15

1930 .................................. 201 64 137

1931 ________ ______ ___ 201 45 156

1932 ___________________ 169 10 159

1933 _____ _____________ 192 15 19 158

1934. ____________________ 117 34 28 55

1935 _____ _____________ 99 3 50 44 2

1936_____________________ 138 2 70 54 3 2 3 8

1937._____ ______ ______ 165 2 8 8 31 3 30 3 4 10

1938 ................................... 248 1 87 24 3 79 8 49

1939................................ 307 2 76 21 169 12 27

1940...................................... 368 1 75 17 232 15 28

1941 ............... . 427 109 17 301

1 Formerly, allotments to all borrowers, rather than loans outstanding to cooperatives, were shown under 

this heading.

2 Including loans from State rural rehabilitation corporation trust funds. Does not include loans to 

individuals to participate in cooperative enterprises.

8 Revised.

Source: Bureau of Agricultural Economics.

SHORT-TERM DEBTS OF INDIVIDUALS

The short-term debts of individuals and other noncorporate borrowers comprise one of the large categories of outstanding debt. 

These debts may be divided into two large classes— (1) those created 

for commercial and financial purposes and (2) those originated to 

finance the purchase of consumer goods.

COMMERCIAL DEBTS DECLINED SHARPLY FROM 1929 THROUGH 1933

Short-term debts of individuals created for commercial purposes 

and for the purchase of securities have undergone a drastic shrinkage since 1929. Nearly all the decline occurred between 1929 and

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COMPONENTS OF PRIVATE DEBT 55

1933 when the volume of these outstandings decreased from 19.8 

to 8.3 billion dollars. From 1933, they moved narrowly but irregularly lower to a year-end total of 7.6 billion dollars in 1940, a decline 

of 62 percent from 1929. Forced liquidation of investment and 

speculative loans secured by marketable collateral undoubtedly contributed most heavily to the decrease in this class of debt. Customers’ 

debts to brokers fell sharply from an estimated year-end total of 5 

billion in 1929 to 800 million in 1932. After rising to 1.4 billion 

by 1936, they receded to a new low when they stood at 677 million 

at the end of 1940. In 1941, loans for the purchase of securities 

continued to fall slightly but this trend was much more than offset by 

a sharp rise in the obligations of individuals to banks on account 

of short-term borrowing. These commercial loans have expanded 

rapidly as business activity has advanced and as new working capital 

has been required.

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Table 13.— Short-Term Debts of Individuals and Other Noncorporate Borrowers, 1929-41 Cn

Item 1929 1930 | 1931 | 1932 1933 | 1934 1935 1936 1937 1938 1939 1940 1941

Millions of dollars

Total short-term debt................................................................... . . 27,895 25, 732 20, 464 15,026 12,428 12, 705 13, 359 14,917 16,115 15,183 15, 547 16, 473 18, 973

Commercial and financial________ ______ ________ ________ — ........ 19,753 18,332 14,094 10,303 7, 991 7,723 7,499 7, 642 7,990 7,419 7,242 7, 623 9,380

Owed to banks................. ........................... ........... ......................... 14,654 15,266 12,469 9,136 6,469 6,085 5, 514 5,557 6,128 5, 247 5,190 5,578 7,486

Owed to brokers________________ ______________ ___________ - 5,000 2,800 1,300 800 1, 270 1,170 1,258 1,395 985 991 906 677 606

Owed to Government credit agencies (farm)_________ _______ 99 266 325 367 552 468 727 690 877 1,181 1,146 1,368 1,288

Farmers_____________________________ __________ ___ _____ _ 59 66 124 197 361 352 629 552 712 932 840 1,000 857

Farmers’ cooperative associations......... .................................. 40 200 201 170 191 116 98 138 165 249 306 368 431

Consumer . . ___________________________ _______________ _______ 8,142 7,400 6,370 4, 723 4, 437 4,982 5,860 7, 275 8,125 7,764 8,305 8,850 9,593

Owed to retail merchants 1. _............... ........................................... 4,564 4,261 3,734 2,925 2,878 3,010 3, 221 3, 566 3, 818 3,572 3,668 3,840 4,136

Owed to service creditors __ ............................................... 585 560 520 480 450 440 465 510 550 500 540 590 603

Intermediary financing agencies.......................................... ............ 1,343 981 817 325 261 602 1,049 1, 777 1,979 1,950 2,165 2,210 2,442

Cash-lending agencies 1_____ __________ _________ ________ , . . . 1,650 1,598 1,299 993 848 930 1,125 1,422 1, 778 1,742 1,932 2,210 2,412

Percentages of total

Total short-term d eb t.................. .............................................. . 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Commercial and financial........ .......................................... .................... 70.8 71.2 68.9 68.6 65.1 60.8 56.1 51.2 49.6 50.1 47.3 45.5 49.4

Owed to banks...................... ................... ........................................... 52.5 59.3 60.9 60.8 50.8 47.9 41.3 37.2 38.0 35.4 33.9 33.4 39.5

Owed to brokers_______________ __________________ _____ ____ 17.9 10.9 6.4 5.3 10.0 9.2 9.4 9.4 6.1 6.7 5.9 4.0 3.2

Owed to Government credit agencies (farm )...............................

.4 1.0 1.6 2.5 4.3 3.7 5.4 4.6 5.5 8.0 7.5 8.1 6.8

Consumer___ _______ . . . ____________________ ___________ _____ 29.2 28.8 31.1 31.4 34.9 39.2 43.9 48.8 50.4 49.9 52.7 54.5 50.6

Owed to retail merchants................................... ................... ............ 16.4 16.6 18.3 19.4 22.6 23.7 24.1 23.9 23.7 24.1 24.0 23.0 21.8

Owed to service creditors.__ ............. ........................................... 2.1 2.2 2.5 3.2 3.5 3.5 3.5 3.4 3.4 3.4 3.5 3.5 3.2

Intermediary financing agencies.............. ....................................... 4.8 3.8 4.0 2.2 2.1 4.7 7.9 11.9 12.3 13.2 14.1 13.2 12.9

Cash-lending agencies................... ........................ .......... .................. 5.9 6.2 6.3 6.6 6.7 7.3 8.4 9.6 11.0 11.8 12.6 13.2 12.7

Index numbers 1935-39=100

Total short-term debt................................................................... 187.2 172.7 137.3 100.8 85.4 85.3 89.6 100.1 108.1 99.4 102.7 112.2 124.0

Commercial and financial ______ _____ ____________ ________ _____ 261.4 242.6 186.5 136.3 109.7 102.2 99.2 101.1 105.7 98.2 95.8 100.9 124.1

Owed to banks________________________________________________ 265.1 276.2 225.6 165.3 117.0 110.1 99.8 100.5 110.9 94.9 93.9 100.9 135.4

Owed to brokers_____________________________________________ _ 451.7 252.9 117.4 72.3 114.7 105.7 113.6 126.0 89.0 89.5 81.8 61.2 54.7

Owed to Government credit agencies (farm)_______ _______ ___ 10.7 28.8 35.2 39.7 59.7 50.6 78.7 74.7 94.9 127.8 . 124.0 147.9 139.4

Farmers......... ............. ... ...... ............................................. 8.0 9.0 16.9 26.9 49.2 48.0 85.8 75.3 97.1 127.1 114.6 136.4 116.9

Farmers’ cooperative associations......................................... . 20.9 104.7 105.2 89.0 100.0 60.7 51.3 72.3 86.4 130.4 160.2 192.7 225.7

Consumer____ _____ ___ __________________________ _______ ___ 109.1 99.1 85.3 63.3 59.4 66.7 78.5 97.4 108.8 104.0 111.2 118.5 128.5

Owed to retail merchants_____ ________ _______________________ 127.9 119.4 104.6 82.0 80.6 84.3 90.2 99.9 107.0 100.1 102.8 107.6 115.9

Owed to service creditors.. _ ........................................................... 114.0 109.2 101.4 93.6 87.7 85.8 90.6 99.4 107.2 97.5 105.3 115.0 117.5

Intermediary financing agencies........................... ....................— 75.3 55.0 45.8 18.2 14.6 33.7 58.8 99.6 110.9 109.3 121.4 123.9 136.9

Cash-lending agencies....................... ................................................ 103.1 99.9 81.2 62.1 53.0 58.1 70.3 88.9 111.1 108.9 120.8 138.1 150.8

i Consumer Credit and Economic Stability, by Rolf Nugent, Russell Sage Foundation, for figures, 1929-37.

INDEBTEDNESS IN THE UNITED STATES

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COMPONENTS OF PRIVATE DEBT 57

During the period under review, individuals and other noncorporate borrowers liquidated a large part of their debts owed to banks 

and incurred for investment and speculative purposes. As stated 

previously, statements of condition filed by banks with the Comptroller of the Currency do not segregate loans made to corporate and 

those to noncorporate borrowers nor, prior to 1938, do they separate 

loans made for commercial purposes from those made for the “purpose of carrying or purchasing securities."

The breakdown into corporate and noncorporate bank loans, as 

elsewhere described, was the product of a special study. No similar 

breakdown of the loans of individuals into those incurred for commercial as distinguished from investment and speculative purposes 

has been attempted. However, taking into consideration the changing volume of general business activity, the probable shift of some 

businesses to the corporate form of organization, and the lower 

volume of loans needed to finance a given volume of sales because 

of more efficient marketing methods, it appears probable that not 

more than from two-fifths to one-half of the decline of 9 billion 

dollars in bank loans to individuals represented declines in loans 

for business purposes. The remaining portion represented debt reduction of financial loans by sale of collateral or by payment. It is 

evident that shrinkages in the volume of debts incurred for investment and speculative purposes, including reductions in obligations 

to brokers, accounted for a large part of the decline in the outstanding obligations of individuals and other noncorporate borrowers 

incurred for both commercial and financial purposes.

Because of deficiencies in primary statistics, the debts of unincorporated businesses owed to other such businesses, to individuals, and 

to corporations other than banks are not included in the totals 

presented above.

CONSUMER DEBT IN 1941 HIGHER THAN IN 1929

Debts incurred to finance the purchase of consumer goods, measured 

by year-end outstandings, followed a course during the period 1929 

to 1941 quite different from that taken by commercial and financial 

debts of individuals. Moving generally in direct association with 

the volume of retail sales, consumer debts fell abruptly from a level 

of 8.1 billion dollars outstanding in 1929 to 4.4 billion by 1933, 

recovered to approximately the 1929 level in 1937 and 1939, and, 

in 1940, reached a new peak level of nearly 9 billion. In 1941, consumer debt continued to rise for the first three quarters but under 

the Federal Reserve restriction declined in the final quarter to a level 

only 750 million above that of the previous year-end.

The pronounced expansion of consumer debt wThich had taken 

place in the twenties came to an end soon after the severe decline in 

security prices that occurred in the fall of 1929.9 Consumer-debt 

reduction was first reflected in the receivables of installment finance 

companies which financed the sale of durable consumers’ goods, then 

among open-book credit establishments in both the merchandise and 

professional groups, and finally among the cash-lending agencies.

Liquidation of consumer debt continued at an accelerated rate 

until the spring of 1933, when some types of consumer debt abruptly

0 Nugent. R olf, Consum er Credit and E conom ic Stability, Russell Sage Foundation. 

464252°— 42-------5

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reversed their downward trend. It was at this time that the movement to reopen closed banks began, that legislation was passed to 

relieve strained farm mortgage and urban residential mortgage debt 

conditions, and that extensive outlays for work relief were undertaken. These and other happenings made possible the diversion of 

a larger proportion of many individuals’ incomes to long-postponed 

purchases of consumer goods. National income assumed an upward 

trend and commodity sales in many lines began to rise markedly, 

thus providing the circumstances that produce increases in consumer 

debt.

Beginning in the late spring of 1933, automobile sales led the expansion in the sale of consumer goods. Other consumer durable

58 INDEBTEDNESS IN THE UNITED STATES

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Figure 9.— Indexes of consumer debt in the United States, 1929-41.

goods of comparatively high unit cost also were sold in enlarged 

volume. These included washing machines, vacuum cleaners, and 

mechanical refrigerators. Sales of the latter soon exceeded past 

peaks, since the mechanical refrigerator was a comparatively new 

product in 1929.

These goods typically were bought on long-term contracts with 

low down payments. Thus, rapid increases in sales were accompanied by concomitant increases in the volume of debt owed to 

mstallment-finance companies. Increases in debts due merchants on 

open account soon followed, though in some lines the downward 

trend continued for a time. For cash-lending agencies as a group, 

outstandings due from borrowers did not rise until during 1934. 

Outstandings due on professional services also did not show increases 

until that year.

Once under way, the expansion in consumer debt, as measured by 

year-end outstandings, continued through 1937, the peak being 

reached in the spring of that year. Outstandings dropped in 1938 

in response to lower sales in 1937 and 1938, but rose again in 1939 

and, reflecting record sales in some lines, reached a new high level 

of 9.6 billion dollars in 1941. Reductions in the amount of down 

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COMPONENTS OF PRIVATE DEBT 59

ment and charge-account systems to more retail outlets, as well as 

increases in sales volume, contributed to the increases in consumerdebt outstandings.

Since consumer debts are compiled largely from information supplied by creditors, they are broken down into obligations owed to 

(1) retail merchants, (2) service creditors, (3) installment-finance 

companies, and (4) cash-lending agencies. All four classes of debt 

followed a pattern roughly similar to changes in the dollar volume of 

trade, declining in the early thirties and expanding in the later 

thirties, but there were marked differences in the timing and amplitude of these fluctuations. Fluctuations in consumer outstandings 

are numerous and differ greatly from commodity to commodity, from 

one period to another, and among different types of financing agencies. In this analysis, only the broader movements will be given brief 

treatment.

Under the retail-merchant classification are included apparel, food, 

drug, hardware, and jewelry stores, general merchandise stores, 

furniture and household-equipment stores, fuel and ice dealers, automotive dealers, and miscellaneous retail outlets. The service creditors include physicians, surgeons, dentists, and others engaged in 

the curative services, funeral directors and embalmers, hospitals, lawyers, laundries, and cleaning and pressing establishments. The third 

group of consumer creditors is comprised of installment-finance companies. The fourth group is made up of credit unions, industrialbanking companies, regulated and unregulated small-loan companies, 

pawn brokers, and miscellaneous lending agencies.

Beginning in 1930, sales of automobiles, refrigerators, gas and 

electric stoves, radios, furniture, other household appliances, and 

other types of consumer durable goods soon declined to a level where 

the debts incurred on new purchases were below the collections payable on existing installment accounts. This process continued 

through 1932 with the result that the unpaid amounts due installment-finance companies were reduced to two-fifths of their 1929 outstandings. Reductions in the sums due merchants on open-book 

accounts occurred more gradually. Purchases on a deferred-payment 

basis were continued for a time at clothing and department stores.

Contributing also to the delay in reduction of this class of consumer debt was the virtual absence of any specific requirements for 

periodic payments in many open-book credit accounts. Differences 

in the time and degree of reduction in outstandings also arose from 

changes in the character of the goods purchased in this manner. 

Purchases of certain durable commodities, such as automobiles or 

refrigerators, could often be postponed. Other products, such as 

food and drugs, were more nearly indispensable. Consequently, the 

debts that consumers owed food and drug stores continued to increase 

during 1930 and 1931, after most other consumer debts had declined. 

Taken as a whole, however, year-end outstandings of open-charge 

accounts of retail merchants showed annual declines for 4 consecutive 

years following 1929, as shown in table 13.

Similarly, a decline in the debts owed service creditors set in after 

1929 and continued through 1933, despite the fact that payments on 

many individual accounts were delayed. Even in the curative services, many consumers, faced with diminished incomes, dispensed 

with all but what they deemed immediately essential dental, medical,

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6 0 INDEBTEDNESS IN TH E UNITED STATES

and surgical services. There were fewer new accounts to replace 

those that were being paid off or written off and outstandings accordingly declined until this condition was reversed in 1934. Debts owed 

cash-lending agencies declined from 1929 through 1932. It is noteworthy that when loans at low rates of interest were made available 

in 1931 on veterans’ bonus certificates, they had the effect of reducing 

outstandings with cash-lending agencies but, by providing the means 

of making down payments on automobiles or other durable commodities, they stimulated installment-company financing. Such new 

financing, however, was short-lived and insufficient to offset the downward trend in outstandings under way at that time.

The consumer-debt aggregates presented in this study contain a 

small amount of producer debt which cannot easily be excluded, 

especially when, as in the case of automobiles, a product may be used 

for both production and consumption purposes. Such producer debt 

is believed, however, to be a relatively small part of the total consumer 

debt.

It is perhaps quite significant, when viewed from the standpoint of 

economic stability, that once the downward trend in consumer-debt 

outstandings set in during 1930 it proceeded at an accelerated rate. 

The decline of 9 percent in 1930 was followed by declines of 14 percent 

in 1931, 26 percent in 1932, and 6 percent in 1933. Similarly, once the 

upward movement started, it gained momentum, expanding 12 percent in 1934, 18 percent in 1935, and 24 percent in 1936. After expanding at an unabated rate during the first quarter of 1937, consumer 

debts declined later in that year and during 1938. The year-end outstandings for 1937, which show a gain of 12 percent over 1936, conceal 

the marked expansion and contraction occurring within the year. The 

decline which began in April or May seems to have gained momentum 

late in 1937 and early in 1938. This downward movement was followed by an upturn in consumer debt which amounted to 7 percent 

both in 1939 and in 1940, and to 8 percent in 1941.

The consumer-debt totals presented in this study are carried over 

into the net debt aggregates shown in table 1. This leads to some overstatement of outstanding net debt, since, under our definition of net 

debt, debts are to be included only once in the net debt totals even 

though they may be incurred and recorded at several stages in the flow 

of savings to the end-borrower. Insofar as the cash-lending agencies 

are concerned, the duplicating debt has been for the most part excluded, since the liabilities of all banks, including all private banks 

reporting to the Comptroller of the Currency, are not included in the 

gross debt totals.

The extent to which professional service practitioners, merchants, 

and installment companies have gone into debt specifically to obtain 

funds to finance purchases by consumers cannot, except possibly in the 

case of installment companies, be established beyond a rough approximation. For this reason, it was decided to carry the consumer-debt 

figures into the net debt totals, though this inclusion may result in an 

overstatement of net debt by about 5.5 billion dollars for 1929 and 6 

billion for 1940, equal to two-thirds of total consumer debt for those 

years. These figures, however, probably do not exceed those omitted, 

on account of inadequate statistics, from other categories of individuals’ indebtedness. Since consumer debt is included for all the 

years, the error for trend is comparatively small.

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C h a p t e r IV

THE CHANGING STRUCTURE OF DOMESTIC

INDEBTEDNESS

A rounded analysis of the domestic-debt structure must treat the 

pattern of indebtedness not alone from the borrowers’ point of view but 

also from the standpoint of the lending agencies which supply credit 

for industrial and commercial purposes. For this analysis we require 

information on the ownership of evidences of indebtedness and on the 

volume of service charges required to maintain the debt structure 

in normal condition. The present study does not give information on 

debt ownership in detail but supplies summary tabulations which may 

be used to gain a rough picture of the concentration of debt ownership 

in key financial institutions. Similarly, the information on interest 

rates and interest charges which is presented below is necessarily 

approximate and is valuable chiefly for indicating general magnitudes 

and trends.

INVESTMENT HOLDINGS OF BANKS AND INSURANCE COMPANIES

Banks in the United States, including national and State banks, 

trust companies, mutual-savings banks, and private banks, held 37 

billion dollars, or 29 percent, of the public debt and the private longterm debt outstanding in 1940. These holdings are in addition to 

agricultural loans (not secured by farm land), commercial and industrial loans, and all other loans, many of which are short-term or are 

not classified by banks as securities or mortgages.

Table 14.— Net Public Debt and Net Private Long-Term Debt Held by Banks, 

Life-Insurance Companies, and Other Investors, 1929, 1939, and 1940

Item

Total holdings Banks Life-insurance

companies Other investors 1

1929 j 1939 1940 1929 1939 -1940 1929 1939 1940 1929 1939 1940

United States Government and Federal

agency______________

State, county, and

municipal _________

Corporate. ................

Farm mortgage_______

Urban real-estate mortgage-------------------------

Total net public and 

long-term private 

debt______________

Millions of dollars

15,698

13. 714 

45,316 

9,631

31, 618

34, 762

16,003 

41,474 

6,910

26.062

36, 296

16,211 

41,692 

6,821

26,817

4,018

1,737 

10,505 

997

9,388

19, 219

3,903

4,271

519

8,335

20,180

4,230 

3,673 

534

8,660

320

544

4,384

2,105

4,800

5,084

1,641 

7,774 

887

4,331

5,584

1,777 

8,235 

874

4, 540

11,360

11,433 

30,427 

6, 529

17,430

10.459

10.459 

29,429

5,504

13,396

10,532

10,204 

29,784 

5,413

13,617

115,977 125, 211 127, 837 26,645 36,247 37,277 12,153 19, 717 21,010 77,179 69, 247 69,550

1 Includes Federal Reserve Bank holdings of United States Government obligations.

61

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62 INDEBTEDNESS IN THE UNITED STATES

Table 14.—Net Public Debt and Net Private Long-Term Debt Held by Banks, 

Life-Insurance Companies, and Other Investors, 1929,1939, and 1940— Continued.

Item

Total holdings Banks Life-insurance

companies Other investors

1929 1939 1940 1929 1939 1940 1929 1939 1940 1929 1939 1940

Percentages of total holdings

United States Governernment and Federal

agency____ _________ 100.0 100.0 100.0 25.6 55.3 55.6 2.0 14.6 15.4 72.4 30.1 29.0

State, county, and

municipal.................. 100.0 100.0 100.0 12.7 24.4 26.1 4.0 10.2 11.0 83.3 65.4 62.9

Corporate ___________ 100.0 100.0 100.0 23.2 10.3 8.8 9.7 18.7 19.8 67.1 71.0 71.4

Farm mortgage_______ 100.0 100.0 100.0 10.4 7.5 7.8 21.8 12.8 12.8 67.8 79.7 79.4

Urban real-estate mortgage----- ------------------- 100.0 100.0 100.0 29.7 32.0 32.3 15.2 16.6 16.9 55.1 51.4 50.8

Total net public and

long-term private

deb t--........-............ 100.0 100.0 100.0 23.0 28.9 29.1 10.5 15.7 16.4 66.5 55.4 54.5

Bource: Reports of the Federal Reserve Board, Comptroller of the Currency, and Association of Life 

Insurance Presidents.

In 1940, banks held 32 percent of outstanding urban real-estate mortgages, 26 percent of the net State and local debt, and 56 percent of 

the net debt of the Federal Government and Federal agencies. Banks 

held a larger proportion of the total outstandings of each of these 

debt classes in 1940 than in 1939 and 1929. Their proportion of urban 

real-estate mortgages held in 1940 showed a small increase over 1929, 

while the ratio of holdings to net outstandings of Federal, State, and 

local government securities in 1940 was twice that of 1929. In absolute 

amount, bank holdings of United States Government and Federal 

agency securities increased from 4 billion dollars in 1929 to 20 billion 

in 1940. For the same years, State and local government security 

holdings increased from 1.7 billion to 4.2 billion.

Bank holdings of corporate securities and farm mortgages in 1940 

were smaller than in 1929, both in proportion to total outstandings 

and in absolute amount. It should be noted, however, that a part of 

the decline shown in corporate-security holdings is due to a change 

in the basis of reporting by banks and to an increasingly common 

banking practice of making direct long-term loans to corporations. 

These are classified as commercial and industrial loans. Such obligations of corporations appear, however, in the net corporate debt outstandings presented in table 6, since long-term corporate debt embraces both funded and unfunded long-term debt. In absolute amount, 

bank holdings of urban real-estate mortgages also were lower in 1940 

than in 1929, though relative holdings were somewhat higher.

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CHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS 63

Table 15.— Estimated Distribution of Tax-Exempt Securities, by Class of Holder,

as of June 30, 1937-40 1

[In billions of dollarsl2

Wholly tax-exempt securities Partially tax-exempt securities

Item and year

All

taxexempt

securities

Total

Securities of 

the 

United 

States 

Government

Securities of 

Federal 

instrumentalities 

guaranteed by 

the 

United 

States 

Government

Securities of 

State 

and local 

governments 

and of 

territories 

and insular 

possessions

Total

Securities of 

the 

United 

States 

Government

Securities of 

Federal 

instrumentalities 

guaranteed by 

the 

United 

States 

Government

Securities of 

Federal 

instrumentalities not 

guaranteed by 

the 

United 

States 

Government

TOTAL AMOUNT OUTSTANDING

1937 .................. ........ ............... 65.6 36.6 15.1 2.2 19.3 29.0 20.7 8.3

1938 ............................. ............. 63.9 35.0 13.5 2.2 19.3 28.9 23.1 5.7 0.1

1939 ............................................. 67.7 34.7 12.8 2.1 19.8 33.0 27.1 5.7 .2

1940 ................................................ 70.2 35.0 12.9 2.1 20.0 35.2 29.5 5.5 .2

HELD BY GOVERNMENTAL

FUNDS, ETC.3

1937 .................. ............................- 15.1 8.6 3.5 .8 4.3 6.5 2.5 4.0

1938 ..................................- 13.8 9.9 4.6 .8 4.5 3.9 2.7 1.2

1939 . . . ..................................... 14.3 10.8 5.5 .8 4.5 3.5 2.9 .6

1940 .............................................. 15.4 11.4 6.0 .8 4.6 4.0 3.6 .3 . 1

TOTAL AMOUNT PRIVATELY

HELD

1937 ............................................. 50.5 28.0 11.6 1.4 15.0 22.5 18.2 4.3

1938 ...................................... .......... 50.1 25.1 8 .9 1.4 14 8 25.0 20.4 4.5 .1

1939 ____________ ______________ 53.4 23.9 7.3 1.3 15.3 29.5 24.2 5.1 .2

1940 __________________________ 54.8 23.6 6.9 1.3 15.4 31.2 25.9 5.2 .1

HELD BY ALL ACTIVE BANKS,

EXCEPT MUTUAL SAVINGS

BANKS

1937 ________________________ 17.7 9.0 5.9 .3 2.8 8. 7 6.5 2.2

1938 ................ - .............................. 17.3 7.7 4.6 .3 2.8 9.6 7.1 2.4 .1

1939 ................................................. 19.4 7.3 3.8 .3 3.2 12.1 8.7 3.2 .2

1940 - .................. - .......................... 20.7 7.6 3.7 .3 3.6 13.1 9. 5 3.5 . 1

HELD BY MUTUAL SAVINGS

BANKS

1937 ............................................... 3.2 1.1 .3 .8 2.1 1.9 .2

1938 ____________ ______________ 3.4 .9 .2 .7 2. 5 2.2 .3

1939 . __________________ 3.7 .9 .3 .6 2. 8 2.4 .4

1940 - - - - - - - _____________ 3.7 .9 .3 .6 2.8 2.3 .5

HELD BY INSURANCE COMPANIES

1937 .............................................. 6.8 3.1 1.3 1.8 3. 7 3.1 .6

1938 _____ ____________ _______ 7.1 2.7 .8 1.9 4.4 3. 7 .7

1939 .........................- .......... 7.8 2.6 .6 2.0 5. 2 4.6 .6

1940 ________________________ 8.2 2.5 .4 2.1 5. 7 5.2 .5

1 Tax-exempt securities comprise all securities the interest on which is wholly or partially exempt from the 

Federal income tax. The total amount outstanding of tax-exempt securities of the several borrowers differs 

from the gross indebtedness of these borrowers in that the former excludes noninterest debt and taxable 

interest-bearing debt, both of which are included in the gross indebtedness of the borrowers. The total 

amount privately held differs from the net indebtedness of the borrowers in several additional respects. 

The former is derived by deducting from the total amount of tax-exempt securities outstanding the amount 

of all tax-exempt securities held by governmental funds, and so on. Net indebtedness, on the other hand, 

is derived by deducting from the gross indebtedness an amount equivalent to the total volume of sinkingfund assets of the respective borrowers, but makes no allowance for any other public assets.

2 Because the figures in this table are rounded to hundreds of millions of dollars, they will not necessarily 

agree with other published figures on tax-exempt securities.

3 Comprises securities held by (1) U. S. Government, (2) Federal agencies and trust funds, including 

Exchange Stabilization Fund but excluding individual Indian trust funds, (3) Federal Reserve banks, 

(4) joint-stock land banks, and (5) sinking, trust, and investment funds of State and local governments 

and of territories and insular possessions.

Source: Treasury Department.

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64 INDEBTEDNESS IN THE UNITED STATES

Table 15.—Estimated Distribution of Tax-Exempt Securities, by Class of Holder, 

as of June 30, 1937-40— Continued

Wholly tax-exempt securities Partially tax-exempt securities

Item and year

All

taxexempt

securities

Total

Securities of 

the 

United 

States 

Government

Securities of 

Federal 

instrumentalities 

guaranteed by 

the 

United 

States 

Government

Securities of 

State 

and local 

governments 

and of 

territories 

and insular 

possessions

Total

Securities of 

the 

United 

States 

Government

Securities of 

Federal 

instrumentalities 

guaranteed by 

the 

United 

States 

Government

Securities of 

Federal 

instrumentalities not 

guaranteed by 

the 

United 

States 

Government

HELD BY C O R P O R A T IO N S

OTHER THAN BANKS AND

INSURANCE COMPANIES

1937 _______ ________________ 2.8 1.8 1.1 . 1 .6 1.0 .7 .3

1938 __________________ _______ 2. 6 1.5 .8 . 1 .6 1.1 .8 .3

1939______________________________ 2.5 1.3 .6 . 1 .6 1.2 .9 .3

1940 _______________________ 2.4 1.2 . 6 . 1 . 5 1.2 1.0 . 2

HELD BY TAX-EXEMPT INSTITUTIONS OTHER THAN MUTUAL SAVINGS BANKS

1937 _________________________ 1.0 .6 . 1 .5 .4 .3 . 1

1938 __________________________ 1.0 . 6 . 1 .5 .4 .3 . 1

1939 __________________ ________ 1.3 .8 . 1 .7 .5 .4 . 1

1940 - ________________ 1.3 .8 .1 .7 .5 .4 . 1

HELD BY INDIVIDUALS

1937 ___________________________ 19.0 12. 4 2.9 1.0 8.5 6.6 5.7 .9

1938 ___________________________ 18. 7 11.7 2.4 1.0 8.3 7.0 6.3 . 7

1939 __________________________ 18. 7 11. 0 1.9 .9 8. 2 7.7 7.2 .5

1940 __________________________ 18.5 10.6 1.8 .9 7.9 7.9 7.5 .4

In 1940, investment holdings of net public debt and net long-term 

private debt by the larger life-insurance companies, representing about 

95 percent of the holdings of all life-insurance companies, totaled 

21 billion dollars, or 16.4 percent of total outstandings. This compares with 37 billion, or 29 percent of outstandings, held by banks. In 

absolute amount, holdings of life-insurance companies in 1940 were 

below those of 1929 in only two categories—farm mortgages and urban 

real-estate mortgages, but the percent of holdings to total outstandings 

of the latter for 1940 was slightly above that for 1929.

In each of the other classes of securities presented in table 14 lifeinsurance-company investments in 1940 were greater in amount and in 

percent of total outstandings than in 1929. In 1940, their holdings of 

obligations of the United States Government and Federal agencies 

reached a new peak approximating 5.6 billion dollars, compared with 

320 million dollars for 1929. Investments in State and local government securities totaled 1.8 billion, or slightly more than three times the 

investments in these securities in 1929.

Table 16, showing the mortgage debt on 1- to 4-family urban residential properties classified according to principal lending agencies, 

and table 11, showing farm-mortgage debt similarly classified, present 

additional information on the holdings of these types of debt by principal investor classes. Perhaps the most important change occurring

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in the investor holdings of farm-mortgage debt was the increase in 

holdings of Federal land banks and Land Bank Commissioners from

1.2 billion dollars in 1929, equal to one-eighth of total outstandings, to 

2.6 billion, or two-fifths of outstandings, in 1940. Similarly, the transfer by banks, insurance companies, building and loan associations, and 

other private investors of 3 billion dollars in urban residential realestate mortgages to the Home Owners’ Loan Corporation constitutes 

an important occurrence in this field. By the end of 1940, the Home 

Owners’ Loan Corporation holdings had been reduced to about 2.0 

billion, or to slightly more than 10 percent of the outstanding mortgages on 1- to 4-family urban residential property.

Table 16.— Estimated Outstanding Mortgage Loans on Urban 1- to 4-Family 

Homes, by Type of Lender, 1929-41

[Millions of dollars]

CHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS 65

Year Total

Savings 

and loan 

associations

Insurance

companies

Mutual

savings

banks

Commercial banks

Home

Owners'

Loan

Corporation

Individuals and 

others 1

1929____ _____ ____ _____ ____ _ 21,058 6,507 1,626 3,225 2,500 7,200

1930................................................. 21,358 6,402 1, 732 3,300 2,524 7,400

1931___________ ____ __________ 20,685 5,890 1, 775 3.375 2,145 7, 500

1932___________________ _______ 19, 242 5,148 1, 724 3,375 1,995 7,000

1933................................................ 17,878 4, 437 1,599 3, 200 1,810 132 6, 700

1934................................................ 17,857 3, 710 1,379 3,000 1,189 2,379 6,200

1935............................ ..............._. 17, 510 3, 293 1, 281 2,850 1,189 2,897 6,000

1936_________________ _________ 17,225 3, 237 1, 245 2,750 1, 230 2, 763 6,000

1937......... ..................................... . 17, 344 3, 420 1, 246 2,700 1,400 2, 398 6,180

1938___________________________ 17, 646 3, 555 1, 320 2, 670 1,600 2,169 6, 332

1939.............................................. 18, 216 3, 758 1,490 2. 680 1, 810 2,038 6,440

1940............................................. 19,123 4,104 1, 758 2, 700 2,0*5 1,956 6, 510

1941................................................ 20,008 4,479 2,058 2,720 2,380 1,781 6,590

1 Includes fiduciaries, trust departments of commercial banks, philanthropic and educational institutions, 

fraternal organizations, real-estate, bond, title and mortgage, and construction companies, the R. F. C. 

Mortgage Company, and so on.

Source: Division of Economic Research, Federal Home Loan Bank Board.

DEBT AND INTEREST

INTEREST PAYABLE

The concept of “interest payable,” as used in this study, is intended 

neither as a measure of interest actually paid nor as an indication of 

the rate of return or yield of bonds and mortgages sold at various 

prices* above or below par. It is intended simply to indicate the 

amount of interest accruing and payable under the terms of existing 

debt contracts. An interest total of this kind is useful mainly in 

that it indicates the volume of fixed charges payable compared with 

the income or assets of a debtor or a class of debtors. The interestpayable totals do not include amortization of debt discount and 

expense.

It may be observed that private short-term debts are excluded from 

the interest-payable computations. Short-term debts are excluded 

because no interest, as such, is explicitly paid on some types of 

short-term debt, as, for example, open accounts of retail establishments. Other types, exemplified by accounts payable, do not bear 

interest unless payment is deferred beyond a given date, when some

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66 INDEBTEDNESS IN THE UNITED STATES

accounts become subject to an interest charge, others to a loss of the 

privilege of discounting the face amount 01 the accounts payable. 

Still other types, as, for example, the debts incurred in connection 

with the purchase of automobiles and other relatively durable merchandise, bear interest, but the interest charges may be so intermingled with other charges and payments that the segregation of 

interest from other charges is not always possible.

The classes of private debt on which estimations of the rate of 

interest and interest payable have been made comprise the long-term 

debts of railway, public utility, industrial, and financial corporations, the mortgage debts of farmers, and the commercial and residential urban real-estate mortgage debts of individuals and other 

noncorporate borrowers. Public debt for purposes of interest-rate 

and interest-payable analyses consists of the short-term and longINDEX NUMBERS (1935-39 = lOO)

D O 41-477

Figure 10.— Indexes of interest payable on components of long-term private debt, 1929-41.

term interest-bearing debt of the Federal, State, and local governments. Only non-interest-bearing public debt is excluded from these 

computations.

Interest payable is shown on both a gross and a net debt-basis. 

The function of estimates of interest payable on gross debt is to 

depict the aggregate of all interest payable. It is then possible, by 

taking the difference between gross interest payable and net interest 

payable, to measure the amount of interest payable by one affiliate 

to another within the debtor units, and thus to determine the interest 

payable on duplicating debt, as previously defined. The rate of 

interest applied in estimating gross interest payable is based on the 

rates paid on publicly held obligations. This may lead to a slight 

overstatement of intercorporate interest payable since the rate on 

some intercorporate obligations is only nominal.

Interest payable on net public interest-bearing debt and net private 

long-term debt was 5,122 million dollars at the end of 1941. This

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was higher by only 58 million than interest payable in 1939, despite 

a rise of nearly 26 billion dollars in debt, and lower by 1,101 million, 

or 18 percent, than interest payable in 1929, despite a rise in outstandings of nearly 37 billion. Such a decline in interest payable 

in the face of a growth in the volume of outstandings can only be 

explained by the pronounced decline in interest rates together with 

the change in the composition of total debt during these years.

CHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS 67

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Figure ll.-'-Indexes of interest payable on components of public debt, 1929-41.

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Table 17.— Net Public and Net Long-Term Private Interest-Bearing Debt, Average Interest Rates, and Interest Payable in the United States, §3

1929-41

Item

Total net long-term debt..

Public debt_____________________

Federal and Federal agencies.

Federal_________________

Federal agencies_________

State and local governments..

Private debt____________________

Railway_____________________

Nonrailway_________________

Farm mortgage______________

Urban mortgage____________

Total net long-term d e b t...

Public debt--------------------------------

Federal and Federal agencies

Federal_________________

Federal agencies________

State and local governments

Private debt____________________

Railway____________________

Nonrailway_________________

Farm mortgage—....................

Urban mortgage...................... .

Total net long-term debt—

Public debt_____________________

Federal and Federal agencies.

Federal__________________

Federal agency__________

State and local governments.

115, 230 120,405 121,365 120,193 117,690 115, 277 115,627 117, 566 120,880 123,483 126, 249 128,904 142,470

28,666 29,371 32,237 34,676 37,003 38,002 40,486 44,352 46,129 47,360 49,884 51,472 63,807

15,426 15,139 16, 793 18,356 20, 663 22, 545 25,003 28, 763 30, 739 32, 090 34, 266 35, 531 48,166

13,673 13,365 15,082 16,729 18,746 17, 690 19.429 23,009 25,066 26,057 27, 549 28, 970 40,612

1,753 1,774 1, 711 1,627 1,917 4, 855 5, 574 5, 754 5.673 6.033 6, 717 6,861 7,554

13,240 14, 232 15,444 16,320 16, 340 15,457 15,483 15, 589 15,390 15, 270 15,618 15,641 15,641

86, 564 91.034 89,128 85,517 80,687 77, 275 75,141 73, 214 74, 751 76,123 76,327 77,361 78,663

11,541 11, 795 11, 778 11,900 11,861 11,862 11, 753 12,038 12,013 12,018 12,012 12, 014 12,013

33,775 37,142 36, 249 34,945 33, 583 30, 966 29,884 28,323 30, 073 31, 410 31,343 31, 709 32,230

9,630 9,459 9, 214 8, 638 7,887 7, 786 7,640 7,390 7,218 7, 084 6,910 6,821 6,787

31, 618 32,638 31,887 30, 034 27, 356 26, 661 25, 864 25,463 25,447 25,611 26,062 26,817 27,633

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Volume of debt outstanding (millions of dollars)

Average interest rates

5. 347 5. 335 5. 285 5.187 5.020 4. 710 4.463 4.303 4.199 1 4.073 3.886 3.784 3.595

4. 264 4.188 4.105 3. 978 3.745 3.402 3.101 3.010 2.951 2.986 2.890 2. 789 2.670

3. 994 3.838 3.695 3.496 3. 202 2. 862 2.501 2.472 2.464 2. 571 2.548 2. 519 2.420

3.919 3. 750 3. 599 3.407 3.296 2. 960 2. 554 2. 570 2. 568 2. 586 2. 598 2. 566 2. 518

4.650 4. 550 4. 590 4.200 2.700 2. 580 2. 360 2.170 2.100 2. 510 2. 290 2. 250 1.902

4. 550 4. 530 4. 520 4. 550 4. 520 4.480 4.380 4. 250 4.150 4. 000 3. 750 3. 500 3.400

5. 730 5.740 5.740 5. 720 5. 680 5. 560 5.420 5.310 5.190 4. 920 4. 700 4. 620 4. 350

4.670 4.620 4.670 4.640 4.690 4. 590 4.600 4. 550 4. 500 4. 450 4. 500 4. 500 4. 500

5.420 5.460 5.460 5.460 5.460 5.400 5.310 5.140 5. 070 4. 680 4. 360 4.250 3.610

6.000 6.000 6.000 6.000 5.800 5. 500 5.100 5.100 5.000 5.000 5.000 5.000 4.940

6. 500 6. 500 6.500 6.500 6.500 6.300 6.100 6.000 5. 800 5.500 5.200 5.100 5.000

Average interest-rate index (1935--39 = 100)

127.8 127.5 126.3 123.9 120.0 112.6 106.6 102.8 100.3 97.3 92.9 90.4 80.3

142.7 140.2 137.4 133.2 125.4 113.9 103.8 100.7 98.8 99.9 96.7 93.4 89.4

159.0 152.8 147.1 139.2 127.5 114.0 99.6 98.4 98.1 102.4 101.5 100.3 96.4

152.2 145.6 139.8 132.3 128.0 114.9 99.2 99.8 99.7 100.4 100.9 99.6 97.8

203.4 199.0 200.8 133.7 118.1 112.9 103.2 94.9 91.9 109.8 100.2 98.4 83.1

110.8 110.3 110.1 110.8 110.1 109. 1 106.7 103.5 101.1 97.4 91.3 85.2 82.8

3

W

O

3MCO

CO

CO

>HMCOIN THE UNITED

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Private debt_______

Railway________

Nonrailway____

Farm mortgage.. 

Urban mortgage.

Total net long-term debt—

Public debt_____________________

Federal and Federal agencies

Federal_________________

Federal agencies________

State and local governments..

Private debt__________________ _

Railway___________ ____ ____

Nonrailway._____ __________

Farm mortgage....... .......... ......

Urban mortgage____________

112.2 112.4 112.4 112.0 111.2 108.8 106.1 104.1) 101.6 96.3 92.0 90.4 85.2

103.3 102.2 103.3 102.7 103.8 101.5 101.8 100.7 99.6 98.5 99.6 99.6 99.6

110.3 111.2 111.2 111.2 111.2 109.9 108.1 104.6 103.2 95.3 88.8 86.5 73.5

119.0 119.0 119.0 119.0 115.1 109.1 101.2 101.2 99.2 99.2 99.2 99.2 98.0

113.6 113.6 113.6 113.6 113.6 110.1 106.6 104.9 101.4 96.2 90.9 89.2 87.4

Interest payable (millions of dollars)

6, 223

1,220 

618 

536 

82 

602 

5,003 

539 

1,831 

578 

2,055

227 

582 

501 

81 

645 

i, 261 

545 

!, 028 

567 !, 121

6,475

1,319 

622 

543 

79 

698 

5,155 

550 

1, 979 

553 

2,073

6, 314

1, 381 

638 

570 

68

743 

4, 930 

552 

1,908 

518 

1,952

6,034

1, 409 

670 

618 

52 

739 

4, 625 

556 

1,834 

457 

1, 778

5,665

1,341 

649 

524 

125 

692 

4,324 

544 

1,672 

428 

1,680

5,288

1,379 

716 

591 

125 

663 

3,909 

548 

1,456 

377 

1, 528

5, 305

1,402 

763 

644 

119 

639 

3,903 

541 

1,525 

361 

1,476

5, 204

1, 436 

825 

674 

151 

611 

3, 768 

535 

1,470 

354 

1,409

5,065

1,456 

870 

716 

154 

586 

3,608 

541 

1,366 

346 

1,355

5,048

1,446 

899 

745 

154 

547 

3,602 

541 

1,348 

345 

1,368

5,121

1,699 

1,167 

1,023 

144 

532 

3,422 

541 

1,164 

335 

1,382

Interest-payable index (1935-39=100)

Total long-term debt.. _________ ___ ______________ ____ 118.5 123.6 123.3 120.3 114.9 107.9 102.7 100.7 101.0 99.1 96.4 96.2 97.5

Public debt-------------------------------------------------------------------------- ---------- 87.4 87.9 94.6 98.9 100.9 96.1 93.6 98.8 100.4 102.9 104.3 103. 6 ' 121.7

Federal and Federal agencies_________________________________ 81.3 76.5 81.8 83.9 88.1 85.3 82.6 94.2 100.3 108.5 114.4 118.3 153.6

Federal__________________________________________________ 85.9 80.3 87.0 91.3 99.0 83.9 79.5 94.7 103.2 108.0 114.7 118.3 163.9

Federal agencies _______ ________________ ____ ______ 60.2 59.5 58.0 49.9 38.2 91.8 96.9 91.8 87.4 110.9 113.1 113.2 105.9

State and local governments . _ ______________________________ 94.7 101.5 109.9 116.9 116.3 108.9 106.7 104.3 100.6 96.2 92.2 86.1 83.8

Private debt_______ ____________________________________________ 129.8 136.5 133.7 127.9 120.0 112.2 106.0 101.4 101.3 97.8 93.6 93.4 88.8

Railway_____________________ _____ ___________________________ 99.6 100.7 101.6 102.0 102.7 100.5 100.0 101.3 100.0 98.9 100.0 100.0 100.0

Nonrailway_________________________ ____ ____________________ 123.6 137.0 133.6 128.8 123.9 112.9 107.2 98.2 103.0 99.3 92.2 91.0 78.6

Farm m ortgage_________________________ _____ _______________ 158.1 155.1 151.3 141.7 125.0 117.1 106.7 103.1 98.7 96.8 94.6 94.6 91.6

Urban mortgage_______________________ ________ ______________ 140.1 144.6 141.3 133.1 121.2 114.5 106.8 104.2 100.6 96.0 92.4 93.3 94.2

CHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS

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70 INDEBTEDNESS IN THE UNITED STATES

AVERAGE INTEREST RATES

As shown in table 17, the average interest rate on the total debt 

for all classes covered declined 33 percent over 12 consecutive years, 

from 5.35 percent in 1929 to 3.60 percent in 1941. The largest declines 

in interest rates occurred in connection with public debt. On United 

States Government obligations the rate of interest declined from 

3.919 percent in 1929 to 2.518 percent in 1941. Comparatively moderate declines in the interest rate on United States Government obligations occurred in each of the years during the period 1930-33. 

These declines were followed by sharp reductions in rates, the index 

(1935-39=100) dropping 13.1 points to 114.9 in 1934 and 15.7 points 

to 99.2 in 1935. From 1935 through 1941, the average interest rate 

on United States obligations moved in a narrow range, about 35 percent below the 1929 level.

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

D.D. 41 - 479

Figure 12.— Average interest rate on components of public debt, 1929-41.

The rate on United States securities used here consists of the average 

weighted rate on all interest-bearing outstandings as of the end of 

the calendar year. Consequently, the interest payable on these obligations reflects the amount payable if all securities outstanding at 

the year’s end were outstanding throughout the year. Such amounts 

payable differ from the interest actually paid by the United States 

Government because of the changes in the rates on outstandings 

through refundings, also because of increases or decreases in the 

volume of outstandings during the year. Since increases in Federal 

debt have occurred yearly since 1930, interest payable, computed by 

applying an average rate to outstandings at the end of the year, 

slightly exceeds in each year the interest actually paid. As of June 

30, 1940, interest payable totaled 1,095 million on gross Federal debt, 

whereas interest actually paid during the fiscal year 1940 amounted 

to only 1,041 million.

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CHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS 71

P u b l ic D e b t

Of all the classes of debt covered in the analysis of interest rates, 

Federal agency securities experienced the sharpest year-to-year drop 

in the average interest rate when the rate on this class of obligations 

fell from 4.2 percent to 2.7 percent from 1932 to 1933. This resulted 

in a fall of the Federal agen'cv interest-rate index (1935 = 100) from 

183.7 to 118.1. For the 1929-41 period, average interest rates of 

Federal agency securities declined 59 percent. This compares with a 

decline of 33 percent in the average interest rate on direct United 

States Government obligations, the class of securities experiencing 

the second largest decline in interest rates.

The particularly large decline in interest rates of Federal agency 

securities was due to guarantees, begun in 1933, of the bulk of Federal agency issues by the United States Government. In 1932, the 

average interest rate on Federal agency securities was 4.2 percent, 

compared with 3.4 percent for United States Government obligations. 

In 1941, the rate on Federal agency securities had fallen to 1.9 percent, lower by 0.6 percent than the rate on United States Government 

securities. Two factors account, in the main, for the lower rate on 

Federal agency outstandings—the existence of United States Government securities issued in years past and bearing a comparatively 

high interest rate, which were not subject to call prior to 1940, and 

the proportionately large use by the agencies of issues not exceeding 

5 years in duration. Such issues with near-term maturities have 

had markedly low interest rates in recent years.

Interest rates on State and local government outstandings did not 

share in the decline observed for rates on Federal and Federal agency 

securities during the 1929-33 period. Even in 1934, the average interest rate of 4.5 percent on State and local government securities 

was little different from the rate of 4.6 for 1929. By the end of 1941, 

it had dropped to 3.4 percent, a decline of 25 percent from 1929. Widespread defaults in the securities of local government units during 

1931-33 were not conducive to lower interest rates for this group. 

Also, the impracticability of realizing any material savings in interest 

by refunding small serial issues on which substantial retirement had 

already been made somewhat limited the opportunity to accomplish 

reductions in interest rates by refunding existing issues. Interest payable by State and local divisions on gross debt outstandings of 19.8 

billion dollars and net debt outstandings of 16 billion dollars amounted 

to 673 million and 544 million, respectively, in 1941. This was appreciably below the 763 million and 602 million, respectively, payable 

on a smaller volume of outstandings in 1929.

P r iv a t e D ebt

The average interest rate on private long-term debt has experienced 

a decline of only 20 percent since 1929, compared with a decline of 35 

percent in public debt. The decline in the average rate of interest on 

outstanding private long-term debt differed in timing and amplitude 

from the decline in the average rate on public debt. From 1929 through 

1933, the interest rate on private debt remained almost constant, wThile 

that on public debt declined more than one-tenth and that on United 

States Government obligations fell nearly one-fifth.

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72 INDEBTEDNESS IN THE UNITED STATES

Unsatisfactory earnings of many corporations kept the rate of interest at a relatively high level for the very small quantity of new 

capital issues marketed, and prevented refundings at lower rates by 

these corporations. For those corporations whose credit warranted 

new capital or refunding issues at lower.rates, the frozen condition 

of the securities markets prevented any large-scale financing or refinancing.

Outstandings on urban real-estate mortgage debt owed by individuals and other noncorporate borrowers did not reflect the lower 

rates resulting from the Home Owners’ Loan Corporation refinancing 

program until 1934. The reduction in interest rates on farm mortgages 

was on too small a volume of outstandings to have an appreciable 

effect on total private long-term outstandings.

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Figure 13.— Average interest rate on components of long-term private debt, 1929-41.

From 1933 to 1941, the average rate on private long-term debt declined about one-fifth to 4.35 percent at the end of 1941. The decline, 

however, was not distributed evenly among all classes of private 

long-term outstandings. The average rate of interest on railway obligations was down only slightly principally because of the low earnings of railways but also because of the comparatively low interest 

rates on railway securities obtaining in 1929. The largest decline in 

the average rate occurred on the debt obligations of industrial and 

financial corporations, which experienced a decline of one-third during 

the 1929-41 period. Next in point of decline were public-utility and 

urban real-estate mortgage interest rates, each of which was lower by 

one-fifth. The relatively large decline in these two classes is due to 

the fact that it began from rather high levels in 1929. For all classes 

of net private long-term debt, interest payable totaled 3.4 billion 

dollars on outstandings of 79 billion in 1941, compared with interest 

payable of 5 billion on outstandings of 87 billion in 1929.

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464252'

Table 18.— Gross Public and Gross Long-Term Private Interest-Bearing Debt, Average Interest Rates, and Interest Payable in the United

States, 1929-41

Item

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Volume of debt outstanding (millions of dollars)

Total gross long-term debt__________________________________ 131,254 137, 515 138,125 138,141 137,997 142,937 143,724 145,364 149, 798 150,921 153,825 158,131 172,598

Public debt._______________________________________ ____ . ________ 34, 658 35,649 38,410 42,323 47, 343 56, 279 59,471 63, 575 66,349 66,093 69,015 72,422 85,738

Federal and Federal agencies. _______________________________ 17,898 17, 664 19,350 22,993 27,826 37,452 40,492 44, 363 47,189 46,929 49,404 52,531 65,928

Federal___________________________________________________ 16,029 15. 774 17, 528 20,448 23,450 27, 944 29, 596 33, 699 36, 715 38,911 41,465 44,458 57,451

Federal agencies___ _ __ _________ _______ ________ 1,869 1,890 1,822 2,545 4, 376 9,508 10,896 10, 664 10,474 8,018 7,939 8,073 8,477

State and local governments. ______________ ____ _____________ 16, 760 17, 985 19,060 19, 330 19, 518 18,827 18,979 19,218 19,160 19,164 19,611 19,891 19,810

Private debt________________________________________________ _____ 96, 596 101, 866 99,715 95,818 90, 653 86, 658 84,253 81, 783 83,449 84,828 84,810 85, 709 86,860

Railway.. _____________________________________________________ 13,415 13,709 13,690 13,831 13,786 13,788 13, 662 13,993 13,964 13,969 13, 963 13, 963 13,963

Public utility______________________ ____ _______ ____ ________ 14, 467 15,665 15,839 16,071 15, 874 15,135 14, 776 14, 241 14, 427 14,469 14,324 14, 338 14,355

Industrial and financial_________________ ______________ _____ _ 27,466 30,395 29,085 27, 244 25,750 23, 288 22, 311 20, 696 22, 393 23, 695 23, 513 23,699 24,122

Farm mortgage________ ___________ _____ ______ ______ _______ 9,630 9,459 9, 214 8, 638 7,887 7,786 7, 640 7, 390 7,218 7,084 6,948 6,892 6, 787

Urban mortgage............................- -------------- ----------------------------- 31, 618 32, 638 31,887 30,034 27,356 26, 661 25,864 25, 463 25, 447 25, 611 26,062 26,817 27,633

Average interest rates

Total gross long-term d e b t........... ................................................. 5.347 5.335 5.285 5.187 5.020 4. 710 4.463 4.303 4.199 4.073 3.886 3.784 3.360

Public debt_____________________________ _________ _________ _____ 4.264 4.188 4.105 3.978 3.745 3.402 3.101 3.010 2.951 2.986 2.890 2.789 2.670

Federal and Federal agencies________________________ ______ _ 3.994 3.838 3.695 3.496 3.202 2.862 2.501 2.472 2.464 2. 571 2.548 2. 519 2.420

Federal_____________________________ ____ ________________ 3. 919 3.750 3. 599 3.407 3. 296 2.960 2. 554 2. 570 2. 568 2. 586 2. 598 2. 566 2. 518

Federal agencies___ ____________________________________ 4.650 4. 550 4.590 4.200 2.700 2.580 2.360 2.170 2.100 2. 510 2.290 2.250 1.900

State and local governments_________________________ ________ 4.550 4. 530 4. 520 4. 550 4.520 4.480 4.380 4. 250 4.150 4.000 3. 750 3. 500 3.400

Private debt— _______ ____________________________________ _______ 5.730 5.740 5.740 5.720 5.680 5.560 5.420 5.310 5.190 4.920 4. 700 4. 620 4.350

Railway__________ ____ ___________________________ _____ _____ 4.670 4.620 4.670 4.640 4.690 4.590 4. 600 4. 550 4.500 4.450 4. 500 4.500 4.500

Public utility_______ __ _________ _______________ _________ 5.200 5.200 5.200 5.200 5.200 5.100 4.970 4. 750 4.650 4.500 4.300 4.100 4.000

Industrial and financial. ___________________ ____ ___________ 5. 550 5.600 5.600 5.600 5.600 5.600 5. 550 5.420 5.280 4.800 4.400 4.100 3.900

Farm mortgage... __________________________________________ 6.000 6.000 6.000 6.000 5.800 5. 500 5.100 5.100 5.000 5.000 5.000 5.000 4.940

Urban mortgage_____ _________________________________________ 6.500 6.500 6.500 6.500 6.500 6.300 6.100 6.000 5.800 5.500 5.200 5.100 5.000

COCHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS

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464252'

Table 18.— Gross Public and Gross Long-Term Private Interest-Bearing Debt, Average Interest Rates, and Interest Payable in the United

States, 1929-41

Item

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Volume of debt outstanding (millions of dollars)

Total gross long-term debt__________________________________ 131,254 137, 515 138,125 138,141 137,997 142,937 143,724 145,364 149, 798 150,921 153,825 158,131 172,598

Public debt._______________________________________ ____ . ________ 34, 658 35,649 38,410 42,323 47, 343 56, 279 59,471 63, 575 66,349 66,093 69,015 72,422 85,738

Federal and Federal agencies. _______________________________ 17,898 17, 664 19,350 22,993 27,826 37,452 40,492 44, 363 47,189 46,929 49,404 52,531 65,928

Federal___________________________________________________ 16,029 15. 774 17, 528 20,448 23,450 27, 944 29, 596 33, 699 36, 715 38,911 41,465 44,458 57,451

Federal agencies___ _ __ _________ _____ ________ 1,869 1,890 1,822 2,545 4, 376 9,508 10,896 10, 664 10,474 8,018 7,939 8,073 8,477

State and local governments. ______________ ____ _____________ 16, 760 17, 985 19,060 19, 330 19, 518 18,827 18,979 19,218 19,160 19,164 19,611 19,891 19,810

Private debt________________________________________________ _____ 96, 596 101, 866 99,715 95,818 90, 653 86, 658 84,253 81, 783 83,449 84,828 84,810 85, 709 86,860

R ailw ay..-____ _______________________________________________ 13,415 13,709 13,690 13,831 13,786 13,788 13, 662 13,993 13,964 13,969 13, 963 13, 963 13,963

Public utility______________________ ____ _______ ____ ________ 14, 467 15,665 15,839 16,071 15, 874 15,135 14, 776 14, 241 14, 427 14,469 14,324 14, 338 14,355

Industrial and financial_________________ ______________ _____ . 27,466 30,395 29,085 27, 244 25,750 23, 288 22, 311 20, 696 22, 393 23, 695 23, 513 23,699 24,122

Farm mortgage________ ___________ _____ ______ ______ _______ 9,630 9,459 9, 214 8, 638 7,887 7,786 7, 640 7, 390 7,218 7,084 6,948 6,892 6, 787

Urban mortgage............................- -------------- ----------------------------- 31, 618 32, 638 31,887 30,034 27,356 26, 661 25,864 25, 463 25, 447 25, 611 26,062 26,817 27,633

Average interest rates

Total gross long-term debt__......... ................................................. 5.347 5.335 5.285 5.187 5.020 4. 710 4.463 4.303 4.199 4.073 3.886 3.784 3.360

Public debt_____________________________ _________ _________ _____ 4.264 4.188 4.105 3.978 3.745 3.402 3.101 3.010 2.951 2.986 2.890 2.789 2.670

Federal and Federal agencies________________________ ______ _ 3.994 3.838 3.695 3.496 3.202 2.862 2.501 2.472 2.464 2. 571 2.548 2. 519 2.420

Federal_____________________________ ____ ________________ 3. 919 3.750 3. 599 3.407 3. 296 2.960 2. 554 2. 570 2. 568 2. 586 2. 598 2. 566 2. 518

Federal agencies___ ____________________________________ 4.650 4. 550 4.590 4.200 2.700 2.580 2.360 2.170 2.100 2. 510 2.290 2.250 1.900

State and local governments_________________________ ________ 4.550 4. 530 4. 520 4. 550 4.520 4.480 4.380 4. 250 4.150 4.000 3. 750 3. 500 3.400

Private debt— _______ ____________________________________ _______ 5.730 5.740 5.740 5.720 5.680 5.560 5.420 5.310 5.190 4.920 4. 700 4. 620 4.350

Railway__________ ____ ___________________________ _____ _____ 4.670 4.620 4.670 4.640 4.690 4.590 4. 600 4. 550 4.500 4.450 4. 500 4.500 4.500

Public utility_______ __ _________ _______________ _________ 5.200 5.200 5.200 5.200 5.200 5.100 4.970 4. 750 4.650 4.500 4.300 4.100 4.000

Industrial and financial. ___________________ ____ ___________ 5. 550 5.600 5.600 5.600 5.600 5.600 5. 550 5.420 5.280 4.800 4.400 4.100 3.900

Farm mortgage... __________________________________________ 6.000 6.000 6.000 6.000 5.800 5. 500 5.100 5.100 5.000 5.000 5.000 5.000 4.940

Urban mortgage_____ _________________________________________ 6.500 6.500 6.500 6.500 6.500 6.300 6.100 6.000 5.800 5.500 5.200 5.100 5.000

COCHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS

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T .H . U . - 0 TM . P .H * G ,..» U „ 8. r „ » P H ,„ . In,et„ » „ In, . res, ^

Item

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Interest payable (millions of dollars)

Total gross long-term debt 

Pnhlip flpht

7,013 7,331 7,185 7,158 6,922 6,732 6,412 6,254 6,290 6,147 5,976 5,979 6,144 A ti-Wliv Ut/ut_

Federal and Federal agencies_______

Federal________ _

Federal agencies______

State and local governments

Private debt__________

Railway______

Public utility_________

Industrial and financial 

Farm mortgage

Urban mortgage " "

1,478 

715 

628 

87 

763 

5,535 

626 

752 

1, 524 

578 

2,055

1,493

678

592

86

815

5,838

633

815

1,702

567

2,121

1,577

715

631

84

862

5,608

629

824

1,529

553

2,073

1,684 

804 

697 

107 

880 

5,474 

642 

836 

1,526 

518 

1,952

1,773 

891 

773 

118 

882 

5,149 

647 

825 

1,442 

457 

1, 778

1,915 

1,072 

827 

245 

843 

4,817 

633 

772 

1,304 

428 

1, 680

1,844 

1,013 

756 

257 

831 

4, 568 

628 

734 

1,238 

390 

1,578

1,914 

1,097 

866 

231 

817 

4,340 

637 

676 

1,122 

377 

1,528

1,958 

1,163 

943 

220 

795 

4,332 

628 

685 

1,182 

361 

1,476

1,974 

1,207 

1,006 

201 

767 

4,173 

622 

651 

1,137 

354 

1,409

1,995

1,259

1,077

182

736

3,981

628

616

1,035

347

1,355

2,019 

1,323 

1,141 

182 

696 

3,960 

628 

645 

972 

347 

1,368

2,281 

1,608 

1,447 

161 

673 

3,863 

648 

574 

941 

335 

1,365

INDEBTEDNESS IN THE UNITED STATES

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T .H . U . - 0 TM . P .H * G ,..» U „ 8. r „ » P H ,„ . In,et„ » „ In, . res, ^

Item

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Interest payable (millions of dollars)

Total gross long-term debt 

Pnhlip flpht

7,013 7,331 7,185 7,158 6,922 6,732 6,412 6,254 6,290 6,147 5,976 5,979 6,144 A ti-Wliv Ut/ut_

Federal and Federal agencies_______

Federal________ _

Federal agencies______

State and local governments

Private debt__________

Railway______

Public utility_________

Industrial and financial 

Farm mortgage

Urban mortgage " "

1,478 

715 

628 

87 

763 

5,535 

626 

752 

1, 524 

578 

2,055

1,493

678

592

86

815

5,838

633

815

1,702

567

2,121

1,577

715

631

84

862

5,608

629

824

1,529

553

2,073

1,684 

804 

697 

107 

880 

5,474 

642 

836 

1,526 

518 

1,952

1,773 

891 

773 

118 

882 

5,149 

647 

825 

1,442 

457 

1, 778

1,915 

1,072 

827 

245 

843 

4,817 

633 

772 

1,304 

428 

1, 680

1,844 

1,013 

756 

257 

831 

4, 568 

628 

734 

1,238 

390 

1,578

1,914 

1,097 

866 

231 

817 

4,340 

637 

676 

1,122 

377 

1,528

1,958 

1,163 

943 

220 

795 

4,332 

628 

685 

1,182 

361 

1,476

1,974 

1,207 

1,006 

201 

767 

4,173 

622 

651 

1,137 

354 

1,409

1,995

1,259

1,077

182

736

3,981

628

616

1,035

347

1,355

2,019 

1,323 

1,141 

182 

696 

3,960 

628 

645 

972 

347 

1,368

2,281 

1,608 

1,447 

161 

673 

3,863 

648 

574 

941 

335 

1,365

INDEBTEDNESS IN THE UNITED STATES

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RELATION OF INTEREST PAYABLE TO INTEREST PAID

It is to be noted that interest payable includes interest accrued but 

unpaid on debt contracts in default, and is, accordingly, larger in 

amount—particularly for some years and for certain'classes of debt— 

than the interest actually paid. Defaults on corporate bonds and notes 

aggregated 4.2 billion dollars in 1940, 200 million below the peak level 

for defaulted issues established in 1936, but approximately nine times 

higher than the defaulted issues outstanding in 1929. It is estimated 

that interest accrued but unpaid on these defaulted obligations 

amounted to 26 million dollars in 1929, 235 million in 1933, and 210 

million in 1940. Though in some instances adjustments ultimately may 

be made without loss of interest to creditors, the adjustments so to 

be made are not treated as interest paid.

Thus it appears that the differential between interest payable and 

interest paid on corporate bonds and notes broadened rapidly to 1933, 

after which it narrowed only slightly because of the mounting volume 

of railway securities in default. The differential between interest payable and interest paid on farm-mortgage debt and urban real-estate 

mortgage debt owed by individual and other noncorporate borrowers 

was progressively narrowed, according to the principal barometers of 

defaults in these categories. Farm foreclosures, after rising from 20.8 

per thousand farms in 1929 to 54.1 in 1933, made annual declines to 

less than 18 per thousand farms in 1939. Foreclosures on urban or 

nonfarm dwellings fell from 12 per thousand urban dwellings in 1934 

to less than 5 per thousand in 1940. Total nonfarm foreclosures, after 

rising from 135,000 in 1929 to 250,000 in 1933, declined to 80,000 in 

1940, the lowest level since 1926. Excluding foreclosures by the Home 

Owners’ Loan Corporation, foreclosures during the last 2 years have 

been around 70,000 per year.

REFINANCING AND REFUNDING ACTIVITIES, 1929-40

The marked reductions in interest rates which began in 1933 resulted 

in the issuance of a large volume of debtor securities carrying lower 

rates and issued for the purpose of refunding outstanding debt bearing 

higher rates. Beginning in 1933, large-scale refundings were carried 

out in United States Government outstandings until finally all the 

major issues subject to call were refunded. Existing issues refinanced 

at lower rates, as well as the large volume of new issues, had the effect 

of lowering appreciably the average rate of interest payable.

Refundings of State and local government securities, which were in 

very small volume until 1934, aggregated 2 billion dollars for the period 

1929-40. Refundings thus accounted for only 15 percent of State and 

local government security flotations of 13\2 billion dollars. In local 

government finance, the issuance of serial obligations and of obligations 

with relatively near-term maturity dates reduces the need for largescale refundings.

Corporate bond and note refundings averaged 600 million dollars 

annually during 1929-31, far below the average bond and note flotation 

of 4.3 billion for these years. Bond and note refundings shrank to an 

average of only a quarter of a billion dollars annually from 1932 

through to 1934. Of the two principal reasons for refundings—to 

replace a maturing bond issue and to take advantage of lower interest

CHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS 75

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76 INDEBTEDNESS IN THE UNITED STATES

rates—the first was the more important in these years. Several issues 

actually were replaced by issues bearing higher interest rates. The 

volume of refundings mounted rapidly to 1.7 billion dollars in 1935, 

and in 1937 rose to a level of 3.2 billion, the highest for the period. 

Because of a smaller volume of business and reduced earnings, conditions were less favorable for refunding activities in 1937, and refundings fell by three-fourths to 856 million. In the 3 remaining years 

of the period, refundings recovered to an average of approximately

1.5 billion annually.

On all corporate debt, refundings aggregated 10.5 billion dollars 

during 1935-40, nearly four times the refunding flotations made during 

1929-34. These unusually large refundings were equal to one-fourth 

of the outstanding net corporate long-term debt and, excluding railway debt, were equal to more than one-third of corporate long-term 

outstandings. The proportion of refundings to bonded debt was even 

higher. Declining rates of interest provided the mainspring for these 

large-scale refinancing operations. Utilities led in volume with refundings totaling 6.6 billion dollars, equal to 63 percent of all corporate 

refundings in the 6 years from 1935 through 1940. Refunding of railway issues, on the other hand, was small when considered in relation 

to outstandings. Only in 1936, when refundings of railway securities 

reached the half-billion mark, did they attain any volume, and this 

volume was equal to only one-sixth of public utility refinancing in 

that year.

Refundings by industrial and miscellaneous corporations amounted 

to 2.7 billions of dollars during 1935-40. The iron and steel, copper, 

and coal industrial groups led with refundings of 900 million dollars, 

the petroleum group ranked second with 736 million, and “other industrial and manufacturing corporations” followed with refundings of 

596 million.

The refunding in 1939 and 1940 of several issues which had previously been refunded during the period 1934-36 is indicative both of the 

improvement in the credit position of individual companies and of the 

decline in the cost of capital during those years.

Refinancing in the farm mortgage and urban residential mortgage 

fields consisted principally of shifts in the holdings of private lenders 

to Federal credit agencies. From 1932 through 1936, Federal land 

bank and Land Bank Commissioner farm-mortgage outstandings rose 

from 1.1 billion dollars to 2.9 billion, an increase of 161 percent. As 

indicated by the marked contraction in the holdings of other lenders 

and by the decline in total farm-mortgage debt, this increase came 

about through the absorption of holdings by other lenders.

In the home-mortgage field, the largest volume of refinancing occurred from 1933 to 1936 during which period the Home Owners5 Loan 

Corporation purchased, to the amount of nearly 3.1 billion dollars, 

distress mortgage loans held by other lenders. Of this amount, 2.7 

billion, or just under 90 percent, went to former mortgagees in payment of indebtedness due them. Approximately 230 million, or more 

than 7 percent, were applied to the payment of taxes and assessments. 

The remainder went to reconditioning of the properties and to payment of insurance, appraisal, legal, and other costs.

All in all, two noteworthy objectives of debtors were accomplished 

in the extensive refunding and refinancing activities carried on during

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CHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS 77

1929-40. Many debtors, especially farm mortgage and urban residential mortgage borrowers, avoided foreclosure losses by refinancing 

their loans with Federal agencies, and all classes of borrowers substantially lowered their interest payments by refinancing their obligations 

at lower rates of interest.

Since corporate receiverships are typically of several years’ duration, and since defaulted obligations are retained in the financial 

reports of receivership corporations and in the debt totals until final 

disposition of them is made by liquidation or reorganization, sizable 

reductions in corporate debt from this source did not occur until 

some time after the decline in business had been arrested and after a 

reduction in most forms of debt had taken place. It should be noted 

that the debts of active corporations in receivership at the end of 

1940 appear in both the gross and net debt totals, even though the 

corporations had been in receivership during a part or all of the 

1929-40 period. Railway corporations alone had 3.2 billion dollars of 

defaulted obligations outstanding in 1940.

DEFAULTED DEBT, 1929-40

In recent years, defaulted railway obligations have accounted for 

nearly three-fourths of total corporate defaults. This is due not 

only to the large number of railways placed in receivership but also 

to the protracted period of receivership. At the close of 1940, only 

one road—a comparatively small one—had reached the final stages 

of reorganization. Based on debt reductions being made in this reorganization and those proposed in other reorganizations at various 

stages of completion, it appears that, when additional railway reorganizations become effective, material reductions will be shown in 

outstanding railway debt as well as in the volume of defaulted 

obligations. For several years interest accrued but unpaid on railway 

issues in default has averaged slightly more than 125 million dollars 

annually.

BILLIONS OF DOLLARS

Figure 14.— Corporate bonds and notes in default, 1929-41.

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During the years following 1929, many corporations owning and 

operating office buildings, theaters, hotels, apartments, and other 

urban real estate also defaulted on their debt obligations. Unlike 

railway defaults, however, defaults in real-estate mortgage bonds were 

of relatively short duration. A corporation holding urban real estate 

which defaulted on its debt contracts usually reorganized within 2 

or 3 years after being placed in receivership. Defaults of real-estate 

corporations rose sharply from the low level of 60 million dollars in 

1929 to just under 1 billion in 1933, then, unlike railway defaults, 

which continued to rise, dropped abruptly to 648 million in 1934. 

Further substantial declines in defaulted debt occurred in 1935 and 

in 1936, after which the volume of real-estate bond and note defaults 

leveled off near the 200-million-dollar level.

In most instances, a large reduction in outstanding bonds and notes 

was made in these reorganizations. A special analysis of corporations 

owning and operating urban realty property placed in receivership 

and reorganized during 1930-39 disclosed that their long-term debt 

of 236 million dollars at the time of receivership had been reduced 

to 83 million by reorganization, as reported in the first published 

financial statements following reorganization. This represents a decline of 65 percent, compared with a reduction of 46 percent in the 

long-term debts of reorganized industrial companies referred to 

previously. The short-term debts of the real-estate corporations 

declined from 83 million dollars before receivership to 14 million 

after reorganization.

Table 19.— Corporate Bonds and Notes in Default, by Major Groups, 1929-40

78 INDEBTEDNESS IN THE UNITED STATES

[Millions of dollars]

Year Railway

Public

utility

Industrial

Urban

realestate

Total,

all

classes

Year Railway

Public

utility

Industrial

Urban

realestate

Total,

all

classes

1929___ 99 236 64 60 459 1935___ 2,386 673 684 572 4,315

1930___ 96 285 104 137 622 1936___ 2, 710 561 706 409 4,386

1931___ 260 371 345 328 1,304 1937___ 2, 774 504 552 262 4,092

1932___ 411 795 658 739 2,603 1938___ 3,178 412 401 224 4, 215

1933___ 1,484 906 852 995 4,237 1939___ 3, 263 426 361 205 4,255

1934___ 1, 509 756 731 648 3,644 1940___ 3, 247 265 350 197 4,059

Source: Wall Street Journal,

Industrial and public utility bond defaults also reached their peak 

in 1933 at about 900 million dollars each. Yearly changes in defaults 

after 1933 were much smaller because of the greater length of the 

receivership period. In 1939, the defaulted obligations of public 

utilities were still above 400 million dollars, owing chiefly to the protracted receivership of several street-railway systems.

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C h a p t e r V

The statistical material on indebtedness which has been presented 

shows in rough outline the manner in which the pattern of credit 

transfer has altered in the period since 1929. Perhaps the outstanding 

feature of this changing pattern has been the increasing importance 

of Government debt—a consequence of the rising tide of Government expenditure and the resultant broader use of public credit. In 

many fields, such as the financing of home ownership and the provision of funds for farmers, the past decade has brought a substitution of public for private credit. The degree of this substitution 

has varied from one type of borrowing to another and, in most cases, 

has followed the partial restriction of traditional private sources of 

funds. More recently, the wartime expansion of industrial facilities 

has further accelerated the substitution of public for private credit 

since the war industries are relying heavily on public funds to finance 

their growth.

CONSEQUENCES OF AN EXPANDING GOVERNMENT DEBT

The growth in volume of public borrowing during the thirties has 

had several general effects on the structure of private indebtedness. 

The relatively low yields on Government flotations, together with 

the employment of public credit in certain high-interest-rate areas of 

private finance, have tended to help reduce service charges on virtually all private indebtedness. In addition, the relatively low rates 

of capital expenditure by business firms during the thirties were 

accompanied by apparent surpluses of investible funds so that interest 

rates on private loans declined to exceptionally low figures. This 

lowering of interest rates, by enabling a larger total debt to be carried with a given income, has appreciably improved the position of 

many debtors and thus eased the strains which developed in credit 

relationships during the depression period.

The growth of public debt has also affected the duration of certain 

private loans by lengthening the amortization period in some cases, 

for example, home mortgages, while shortening the credit period in 

other cases, for example, consumer-installment debt. These effects 

stem, of course, from deliberate governmental policy rather than from 

the use of public credit, as such, but are related indirectly to the 

growth of public loans.

A third effect of the relative expansion of Government indebtedness has been to modify the investment portfolios of such financial 

institutions as banks and life-insurance companies. These institutions 

have absorbed comparatively large amounts of new public issues and 

thus the ownership of public debt has been concentrated to an increasing degree. In effect, then, an increasing portion of the savings of

THE SIGNIFICANCE OF A CHANGING DEBT STRUCTURE

79

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individuals is being tapped by Government for public expenditure 

instead of flowing through the capital market to private business 

firms for capital expenditure. Despite the rapid growth of outlays 

for producers’ durable goods, business firms have, in recent years, 

shown a certain reluctance to resort to long-term borrowing as a 

source of funds. This preference for short-term borrowing has been 

noticeable throughout the past decade and is partly a matter of interest-rate structure. For the most part, short-term rates during the 

thirties were unusually far below corresponding longer-term rates 

mainly because of the excess of investible funds and the desire of 

investors to retain their assets in liquid form. During the past year, 

uncertainty as to the duration of the war and the character of the postwar economy has merely reinforced this preference for short-term 

borrowing. Furthermore, the war-stimulated industries have borrowed such funds as they have required from the capital market 

mainly on short term both because they consider the present boom to 

be temporary and because they expect to meet the costs of plant 

expansion largely from the proceeds of war contracts.

AREAS OF TENSION IN THE PRIVATE-DEBT STRUCTURE

Crises in private debtor-creditor relationships arise chiefly during 

periods of general depression when the contraction of national income 

and employment makes difficult the meeting of contractual service and 

amortization charges. In such periods, the burden of private indebtedness is apt to become intolerable, leading to moratoria and 

legislation calculated to relieve financial distress. At such periods, 

the judicious use of public credit may aid greatly in removing pressure from business firms in arrears, thus preventing wholesale liquidation with its adverse effects on economic activity. At the same time, 

however, certain elements in the debt structure will prove obviously 

to be unsound. Prevention of liquidation in these cases merely delays the readjustments essential to sound recovery. This does not 

imply that recovery can be hastened by permitting a general liquidation of debt. On the contrary, the implication is that policies to cope 

with distress indebtedness need to be selective rather than broad and 

designed merely to perpetuate predepression arrangements.

At the present time, no major crises in the private-debt structure 

appear imminent, though special problems may occur in those industries which are seriously curtailed by the war effort. The conservative policy relative to long-term borrowing practiced by business 

firms now expanding rapidly also suggests that the present boom 

may leave a less troublesome heritage of debt to be resolved during 

the post-war period. Nevertheless, the transition back to peacetime 

production, when it comes, may very possibly be attended by a crisis 

in debtor-creditor relations, by liquidation and reorganization with 

resultant changes in the ownership of wealth, and by employment of 

public funds to aid private debts. In brief, the prospects for maintaining a healthy debt structure depend both on the prevention of 

inflation during the war period and the maintenance of a high level 

of national income after the wTar.

If too rapid price increases in the immediate future are permitted, 

many capital values, such as the market prices of farm land, housing, 

and certain business property, will reach a level which cannot eco80 INDEBTEDNESS IN THE UNITED STATES

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CHANGING DEBT STRUCTURE 8 1

nomically be supported after the war. This inflation of capital values, 

undoubtedly accompanied by substantial increases in the volume of 

debt against these properties, will seriously disturb the security of 

creditors holding these mortgages and other evidences of debt when 

war ends, thus producing a debt crisis which might have been avoided 

by appropriate fiscal measures. Hence, the degree of success of wartime inflationary controls will help to determine the soundness of 

the post-war private-debt structure.

Likewise, even though some inflation does accompany the war 

effort and the debt structure is somewhat swollen in consequence, 

the problems of adjustment will be greatly eased provided the 

national income can be maintained at a high level after the war has 

ceased. If maintenance of the national income is accepted as a 

necessary post-war program and if this program is carried out by 

appropriate governmental action when necessary, the weaker portions 

of the debt structure may gradually be adjusted and strengthened 

without the necessity for drastic or general reorganization.

THE OUTLOOK FOR FUTURE DEBT DEVELOPMENTS

The capital market is now dominated by the demands of the 

Federal Treasury for the enormous volume of funds required for the 

war effort. Despite the prospect of very much higher rates of taxation, public debt is bound to rise to levels much above any we have 

yet experienced. It is both socially desirable and economically necessary that a large part of war expenditures be financed by borrowing. 

In real terms part of the war effort will be met by capital depletion ; 

yet many business firms wTill continue to accrue depreciation allowances. Furthermore, the large volume of institutionalized personal 

savings can best be tapped through borrowing. These funds constitute the main sources from which government may borrow without 

inflationary effects. The fact that priority and allocation control 

must necessarily restrict investment-goods output to make materials 

and facilities available for war production in large measure assures 

that such funds will not be spent privately.

Although Federal debt will rise sharply, the prospect is for a 

decline in the outstandings of State and local government divisions. 

These governments will perhaps be obliged to pay higher prices for 

labor and materials but will also be forced to curtail certain construction activities on account of shortages of equipment and supplies. At the same time, the increased yield of existing rates of 

taxation resulting from the economic expansion, plus the fact that 

no large new demands on the fiscal capacity of local government are 

in prospect, indicates an ability to repay State and local government 

obligations and thus to prepare for expenditures which may be required in the not too-distant future.

Corporate indebtedness in recent years has shown only a moderate 

expansion relative to the growth of business activity, but this moderate over-all growth has covered marked changes in composition. 

Railroad and public utility corporations, the chief corporate borrowers on long term, are at present expanding very much less rapidly 

than are manufacturing enterprises. Thus, relatively fewer longterm debt flotations, compared to new short-term borrowing and to 

increased sales of corporate stock, appear likely. This trend toward

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82 INDEBTEDNESS IN THE UNITED STATES

more short-term borrowing in the private sphere—a trend which has 

been apparent since 1929 but which was even more prominent in 

1941—undoubtedly also reflects an increased preference by investors 

for liquidity and some recognition of the essentially temporary 

character of the present expansion, as well as some preoccupation 

with the post-war problem of industrial transition.

In the mortgage-debt field, changes over the past decade have 

perhaps been more important qualitatively than quantitatively. The 

year-to-year changes in outstanding farm and urban mortgages are 

relatively small and tend to follow closely the volume of net capital 

formation by private enterprise in these fields. However, important 

changes have occurred in the terms, tenure, and sources of both 

home- and farm-mortgag;e credit and these developments point to 

a structure of mortgage indebtedness more in line with widespread 

but judicious use of this type of loan.

In the field of consumer credit the period since 1929 has witnessed 

a rapid expansion in the use of this type of loan and a trend in 

outstandings very closely related to the level of consumer income. 

The outlook for this form of credit is at present clear, all the evidence pointing toward contraction. The diminishing volume of 

production of new consumers’ durable goods and the prospect of 

even more stringent restrictions upon installment sales than those 

now in force indicate a sharp fall in the volume of consumer loans. 

As the war effort progresses, restriction of consumer borrowing will 

doubtless become increasingly desirable as a method of partially 

closing the inflationary gap which is appearing between the flow of 

consumer income and the volume of available consumer goods. Thus, 

it is conceivable that outstanding consumer credit may shrink to a 

negligible amount in the next few years. Already, as of 1941, a substantial restriction may be noted since outstandings did not rise at 

a rate commensurate with the marked upward course of consumers’ 

income.

THE SIGNIFICANCE OF DEBT FINANCING

Statistical evidence indicates that an increasing volume of debt 

is a normal accompaniment to expanding economic activity, while 

debt in total can decrease only as a result of general economic contraction. During the decade of the twenties, economic expansion 

was financed in part by the growth in debt of business enterprises 

both on short term and long term. Some savings of individuals 

were transferred directly to businesses by purchases of stock but the 

remainder of these savings was placed primarily with financial institutions. These agencies, in turn, invested chiefly in bonds, notes, 

and mortgages of business enterprises, thus transferring indirectly 

the savings of individuals to business enterprises undertaking capital 

formation. During this period, with private indebtedness increasing, 

public debt could be reduced without repercussions other than possibly a shortage of Government securities for those institutions which 

were accustomed to this sort of portfolio.

With the advent of the depression at the end of the decade, private 

capital formation declined drastically in volume, and business indebtedness ceased rising. As the depression deepened, the ability 

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standing obligations became impaired. In this debt crisis the policy 

was adopted of using the public credit to promote economy recovery 

and to ease the burden on distressed debtors. Thus, public debt 

came to play the same role in financing capital formation that private 

business debt had played previously.

As the economy emerged from depression, public expenditure continued to account for a large portion of new capital formation and 

the public debt continued to grow. Indeed, in 1937-38, when public 

expenditure was reduced, business suffered a sharp decline owing 

partly to this curtailment of expenditure and partly to excessive 

inventory accumulation. In general, savings were not flowing to 

industry as freely as they had during the twenties and some use of 

Government fiscal powers seemed required to facilitate this process.

Since the middle of 1940, rearmament and war expenditures have 

been added to the already high level of Government disbursements, 

thus making necessary an even more rapid expansion of public debt. 

Wartime demands for military equipment have promoted a rapid 

expansion of industrial plant, chiefly in the durable-goods manufacturing industries. To finance this spurt in capital expenditure both 

public and private funds have been tapped. Public credit, however, 

has provided the bulk of the funds for capital outlay in the strictly 

armament industries. Those industries the expansion of which has 

been derived indirectly from the war boom have naturally relied on 

credit from private sources.

CHANGING DEBT STRUCTURE 83

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APPENDIX

GENERAL

Since the statistics of indebtedness embraced in this study cover virtually

every field in which debts originate, it was necessary to resort to a wide

variety of source materials and to employ various methods in developing the

information. In quality, the primary statistics range from figures taken from

accounting records of all the debt-creating units within specific areas of the

economy to estimates made from incomplete and fragmentary debt information.

In several instances, the data are far more complete for the later years of

the decade than for the earlier years.

In some classifications, the figures for gross debt are complete except for

minor deficiencies, while the figures for duplicating debt are based on somewhat

less complete data. Consequently, in these classifications the net debt estimates are subject to wider margins of error than are the gross debt figures.

In still other instances, the debt statistics consist of a composition of gross

and net debt which required adjustment before the figures conformed to either

the gross or the net debt concept. No estimates are attempted for debts

between unincorporated nonfinaneial business firms or for informal, short-term

debts between individuals, since the information in these areas is virtually

nonexistent. Such omissions probably result in a slight understatement of the

total volume of outstanding debt.

DEBTS OF THE UNITED STATES GOVERNMENT AND FEDERAL CORPORATIONS

AND AGENCIES

Except for the years 1940 and 1941, the figures on the gross debt of the United

States Government have been taken from the annual reports of the Secretary

of the Treasury. Data for 1940 and 1941 are from the Monthly Statements

of the Public Debt of the United States and the Daily Treasury Statements.

The gross debt totals include interest-bearing debt— bonds, notes, bills, and

special issues; matured debt on which interest has ceased, payable upon presentation ; and debt bearing no interest, also payable upon presentation. The

latter item consists of old demand notes, national bank notes, and Federal

Reserve bank notes assumed by the United States Government, fractional currency, thrift stamps, Treasury savings stamps, and so on. Figures giving gross

debt totals of Federal corporations and agencies were taken from the financial

statements of those corporations and agencies and from the Daily Treasury

Statements for January 15 and January 30.

Duplicating debt of the United States Government and Federal corporations

and agencies consists of two classes. One class includes the issued obligations

of the United States Government and Federal corporations and agencies held

by those units in their sinking, trust, and investment funds. Duplicating

Federal debt does not include United States Government and Federal corporation and agency securities held by Federal Reserve banks. The other class of

duplicating debt is composed of debt obligations receivable by Federal corporations and agencies.

Figures on net debt were obtained by subtracting duplicating debt, based on

Daily Treasury Statements, from gross debt, the United States Government

and Federal corporations and agencies being treated as a unit in making the

computations.

For all years covered in this study, the gross, duplicating, and net debt totals

of the United States Government and Federal corporations and agencies show

the indebtedness outstanding as of the end of the calendar year. Special studies

were made to place on a calendar-year basis the indebtedness outstanding and

SOURCES AND METHODS OF ESTIMATION

85

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86 INDEBTEDNESS IN THE UNITED STATES

loans receivable of Federal corporations and agencies. A similar analysis was

made of United States Government and Federal corporation and agency securities held in the sinking, trust, and investment funds of the United States

Government and Federal corporations and agencies.

DEBTS OF STATE AND LOCAL GOVERNMENTS

Data on the gross debts of States for the census years of 1929-32, 1937,

and 1938 were taken from the annual reports of the Bureau of the Census

on the financial statistics of State governments. For 1940 and 1941 the data

were taken from a joint questionnaire survey of the Bureau of the Census and

the Treasury Department. Figures on the gross debts of local governmental

units— counties, municipalities (including townships), school districts, and special districts— were taken from the decennial report of the Bureau of the

Census for 1932 and from the joint questionnaire surveys of the Bureau of the

Census and the Treasury Department for 1937, 1940, and 1941.

For intercensal years and for years not covered by the questionnaire surveys,

data on the gross indebtedness of State governments were compiled from the

financial reports of each of the 48 States reporting outstanding indebtedness,

while the gross debts of local divisions were determined by straight-line interpolation of the Census figures.

Duplicating debt of State and local governments, consisting of securities of

those units held in their sinking, trust, and investment funds, was likewise

determined from Census reports and from the questionnaire surveys for the

years covered by those publications, and by interpolation for the remaining

years. In interpolating, it was assumed that the trend of such fund holdings

for local divisions is similar to that shown for the larger cities as published

in the annual reports of the Bureau of the Census entitled, “Financial Statistics

of Cities.”

Net indebtedness of State and local governments was determined by deducting

duplicating debt, as herein defined, from gross State and local government

debt.

DEBTS OF PRIVATE CORPORATIONS

Two major sources of data are used in estimating the debts of private

corporations. Estimates of the gross debt of steam railways are based on

compilations made by the Interstate Commerce Commission, while figures on

the net debt of steam railways and on the gross and net debts of nonrailway

corporations are based on compilations of the Bureau of Internal Revenue.

Substantial adjustments are required before these data can be used to depict

either the amounts or the trend of corporate debt. The unadjusted figures of

the Bureau of Internal Revenue present the sum of the debt obligations of all

nonrailway corporations submitting balance sheets along with their Federal

income tax returns. Estimates covering years for which the Bureau of Internal

Revenue or the Interstate Commerce Commission tabulations are not yet

available were projected from a corporate sample and from current information covering security issues and retirements. These figures for 1940 and 1941

are thus subject to a larger margin of error than are the data for earlier years.

Though during the period under review only about 87 percent of the active

corporations filing returns submitted balance sheets, the unadjusted figures

understate the indebtedness of nonrailway corporations only slightly, probably

by not more than 1 or 2 percent, since the corporations not submitting balance

sheets generally are small and often are units of corporate systems with few,

if any, outstanding liabilities.

The principal defect in the unadjusted debt compilations of nonrailway corporations is that these compilations consist of a changing mixture of net debt compiled from consolidated financial statements of corporate systems and gross debt

compiled from unconsolidated financial statements of individual corporations.

As a result, the debt totals are subject to substantial changes resulting from

shifts between consolidated and unconsolidated returns. For the most part,

such shifts take place because of corporation tax provisions in the several revenue

acts in effect during the period.

Under the Revenue Acts of 1932 and 1934, consolidated returns were taxed at

higher rates than were unconsolidated returns. This caused many corporations

to shift from consolidated to unconsolidated returns. The result was that the

volume of corporate debt shown was materially increased since intercorporate

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APPENDIX 87

debt, not appearing in the consolidated statements, showed up in the unconsolidated balance sheets.

Section 1 of the Revenue Act of 1934 restricted the use of consolidated returns

by prohibiting all corporations except “common carriers by railroad” from filing

this type of return. In the Revenue Act of 1936, the privilege of filing consolidated returns was broadened slightly to include street, suburban, and interurban

electric railways.

As shown in the tabulation below, nonrailway corporations, prior to the discontinuance of the consolidated returns in 1934, filed 8,861 of these returns in

1930, 7,013 in 1933, and 369 in 1934. This decline in the use of consolidated returns

caused a substantial part of the pronounced rise in the volume of nonrailway

corporate debt as shown in the Bureau of Internal Revenue data. Unadjusted

nonrailway debt compilations showed an increase of approximately 10 billion

dollars— from 52 billion in 1934 to 62 billion in 1935— whereas, in fact, a small

decline in debts outstanding occurred since, in 1934, total retirements slightly

exceed the volume of new borrowing. For the years from 1930 through 1933,

shifts from consolidated to unconsolidated returns were much smaller but still

took place in sufficient number to make the unadjusted totals virtually valueless

as a measure of actual changes in nonrailway outstanding debt.

Table I.— Number of Consolidated and Unconsolidated Returns Filed by Active

Corporations, 1929-38

Year

Consolidated

returns Unconsolidated

returns

Total

returns

Steam

railway

Nonrailway

1929 _ ____ 8,664 447,267 455, 931

1930.................. i 90 8,861 454 085 463,036

1931 ________ 8, 405 451, 209 459, 614

1932.............. . 90 7, 336 444,458 451, 884

1933.................. 88 7,013 439,741 446, 842

Year

Consolidated

returns Unconsolidated

returns

Total

Steam

railway

Nonrailway

returns

1934............ 76 369 469,359 

477,050 

478, 759

469,804 

477,113 

478, 857 

477, 838 

471,032

1935 ................. 63

1936............ 2 98

1937.................. 2 93 477, 745 

1938.................. 102 470, 930

1 Estimated.

2 Includes consolidated returns of street, suburban, and interurban electric railways.

Adjustments to exclude the effect of these shifts were necessary in order that

the yearly totals would reflect only the debt changes arising from issuance of

new debt and retirement or cancellation of existing debt. To show trends in

the volume of intercorporate debt, the unadjusted figures required correction so

as to represent both the net and gross debt series. No entirely satisfactory basis

of adjustment covering all the years could be developed since adequate data

whereby intercorporate debt can be measured are available only for 1933

and 1934.

The net indebtedness shown by 7,013 nonrailway corporations filing consolidated returns for 1933 was less by 11.5 billion dollars— equal to $1,640,300 per consolidated return— than that shown on an unconsolidated basis for 1934 by the

27,021 corporations which comprised those 7,013 corporate systems reporting

for 1933. Although a year had elapsed between the time consolidated and unconsolidated returns were filed, $1,640,300 appears to fairly well represent the

intercorporate debt per consolidated return, since 1934 was a year without major

changes in corporate organization and since changes in volume of outstanding

debt arising from debt issuance and retirement amounted to less than 1 percent in that year.

The nonrailway intercorporate debt for 1930, the year in which the largest

number of consolidated returns were filed, was then arrived at by multiplying

the number of consolidated returns for 1930 by the figure for average intercorporate debt per consolidated return determined as indicated above for

1933-34. This intercorporate debt was placed at 14,535 million dollars for

1930. The unadjusted total, as compiled by the Bureau of Internal Revenue,

may be taken as representing the nonrailway net debt for 1930. Nonrailway

gross debt was computed by adding to net debt the intercorporate debt of

14,535 million dollars.

During the entire 1930-34 period there were almost no major changes in nonrailway corporate organization. Few subsidiaries were created or dissolved. The

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88 INDEBTEDNESS ITST TH E UNITED STATES

indebtedness of some existing units owed to other units within given corporate systems may have changed, however. Gross debt for each of the years from

1931 through 1935 was computed by adding the intercorporate debt, as determined

for each year by the method used for 1930, to the Bureau of Internal Revenue

totals for that year. For 1935 and subsequent years, the unadjusted figures

of the Bureau of Internal Revenue have been used to represent nonrailway

gross debt.

For 1930, intercorporate and net corporate nonrailway debt comprised 18.94

percent and 81.06 percent, respectively, of gross nonrailway corporate debt.

These percentages were then applied to the nonrailway gross debt in computing

intercorporate and net debt for each of the other years from 1929 through 1935.

A study of all published consolidated statements obtainable revealed that,

starting around 1935, intercorporate debt began either to experience a slightly

greater proportionate decline or, in the years increases in outstanding debt

occurred, to show a slightly smaller proportionate increase than did net corporate debt. This shrinkage in intercorporate debt wras the result of a reduction

in the number of subsidiaries of various corporate systems in these years. To

take account of this trend the percentage relationship of intercorporate debt to

gross debt was reduced arbitrarily by from y2 to 1 percent yearly beginning

in 1935. The preliminary estimates of intercorporate debt for the years 1940

and 1941 were placed at 16.4 percent and 15.5 percent, respectively, of gross

debt. These preliminary percentages may need revision when more reports

for these years become available.

Both gross and net nonrailway debt were broken down into short-term and

long-term classifications in accordance with the percentage of long-term and

short-term debt shown in the Bureau of Internal Revenue compilations. Before

.such apportionment was made for 1934, however, the short-term debts shown in

the Bureau of Internal Revenue compilations were reduced by 2,065 million

dollars and the long-term debts increased by a like amount. This adjustment

was made to allow for the fact that debts of this amount maturing in more

than 1 year were classed as short-term debts in the Bureau of Internal Revenue

figures. For 1938-40, classification of notes payable into (1) those with maturity

dates of less than 1 year from date of issue and (2) those with maturity dates

of more than 1 year from date of issue resulted in the reclassification as longterm of a considerable amount of debt which previously had been listed as

short-term. No adjustment has been made to take into account the shift caused

by this change in the method of reporting notes payable.

Figures on the gross debt of steam railways were taken from the general

balance-sheet statements of railroads, prepared by the Interstate Commerce Commission and published in Statistics of Railways. The debt totals represent all

the debt obligations of Class I steam railways, lessor companies, and switching

and terminal companies. Funded debt matured but unpaid, classified by the

Interstate Commerce Commission as a short-term obligation, is treated in this

study as a long-term obligation. All interest in arrears and unpaid is treated

as a short-term obligation.

Since steam railways were permitted to file tax returns on a consolidated basis

during the period 1929-41, consolidated balance-sheet statements generally were

submitted by railways in connection with the tax returns filed by them. Wide

year-to-year fluctuations in these net debt totals in the early years of the period,

a time when the gross debt totals and all other supporting evidence indicated

stability, make the figures for the early years unsuited as a measure of net railway debt.

The Bureau of Internal Revenue compilations appear to best reflect the net

debt of railways for 1935-37. An average of both the net debt and the gross

debt was taken for these years, the difference representing intercorporate

or duplicating debt. For the three years, 1935, 1936, and 1937, intercorporate

railway debt averaged 13.97 percent of gross railway debt. This percentage was

accordingly applied to each of the years during the 1929-41 period for the

purpose of arriving at intercorporate and net debt.

FARM-MORTGAGE AND OTHER FARM DEBT

The farm-mortgage debt totals and figures on the debts of farmers’ cooperative

associations and the short-term debts of farmers are taken from reports of the

Bureau of Agricultural Economics. A statement of the sources used and methods

employed in estimating farm-mortgage debt is presented in an article by Donald

C. Hortoii entitled, “Fluctuations in Outstanding Farm Mortgage Debt, 1910-39,”

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APPENDIX 89

published in the November 1939 issue of the Agricultural Finance Review. In

this article the sources and methods used are described, in part, as follows:

“For the Census years 1930 and 1935 data are available for full-owner operators

who reported to the Bureau of the Census the amount of their outstanding

mortgage debt. To these figures have been added an estimated amount of

mortgage debt to account for the remaining mortgaged full-owner operators

who did not report their mortgage obligations. On the basis of sample data

collected by the Department of Agriculture for Census years, estimates have

been prepared showing the mortgage debt on farms operated by part owners,

tenants, and hired managers. For the intercensal years the estimates are based

on data showing the mortgages held by certain lender groups for which fairly

complete annual data are available, and on data for mortgages filed and released

each year in selected counties compiled in a nation-wide W. P. A. project. Since

1935, the annual estimates are based on the known mortgage holdings of the

leading lending agencies and estimates of mortgages filed and released prepared

by the Farm Credit Administration.”

URBAN REAL-ESTATE MORTGAGE DEBT

Estimates of mortgage indebtedness outstanding on 1- to 4-family urban residential property are taken from reports prepared by the Federal Home Loan

Bank Board. The following description of the sources and methods used appeared

in the September 1940 issue of the Federal Home Loan Bank Review:

“The estimates of outstanding mortgage loans on nonfarm 1-4 family homes

have been developed from comprehensive analyses of recent surveys of mortgages

recorded throughout the country by type of mortgagee, used in conjunction with

reported statistics and special studies. Chief sources of basic information are

summarized below:

“Savings an$ loan associations: figures based on a compilation of the annual

reports of Feueral savings and loan associations to the Federal Home Loan

Bank Board, and of the annual reports of state-chartered savings and loan

associations to their supervisors and to the Federal Home Loan Bank Board.

“Insurance companies: estimates developed from study and summary of detailed reports received from a sample group of insurance companies holding

more than 85 percent of life insurance company assets. These schedules provide

a detailed breakdown of their mortgage loan portfolios.

“Mutual savings banks: basic figures are their total mortgage holdings reported

by the Comptroller of the Currency. A special investigation by the Division of

Research and Statistics made it possible to segregate these mortgage holdings

into the farm and nonfarm elements and further to separate the nonfarm element

into mortgages on homes and other-than-home property. This project covered

mutual savings banks in the States of New York and Massachusetts, and involved institutions containing more than 50 percent of all mutual savings

bank assets.

“Commercial banks: a study conducted at the end of 1934 by the Federal

Housing Administration in conjunction with the Comptroller of the Currency,

Federal Reserve Board, and Federal Deposit Insurance Corporation segregated

mortgages on homes from other nonfarm real estate holdings of the reporting

commercial banks. The relationships shown then have been applied to total

mortgage holdings of the banks for earlier years. In recent reports the Comptroller of the Currency has provided a segregation of mortgage holdings by

national banks. Adjustments have been made in the estmated data on the basis

of the Comptroller’s reports as well as the Federal Housing Administration reports

indicating increased mortgage lending by commercial banks.

“Home Owners’ Loan Corporation: figures reflect the actual balance of mortgage loans held and advances outstanding.

“Individuals and others: estimates for recent years developed on the basis

of studies of mortgage recordings by types of mortgagee conducted by the Division

of Research and Statistics. For earlier years the estimates have been prepared

after reviewing many studies, bulletins, and researches of various Government

and private agencies. Included in these sources are the Financial Survey of

Urban Housing, the refinancing operations of the Home Owners’ Loan Corporation by type of mortgagee, local surveys conducted by the National Association

of Real Estate Boards, special surveys of the Federal Home Loan Banks, figures

supplied by the New York State Mortgage Commission, sundry reports of the

Mortgage Bankers’ Association, and hearings of the Sabath Committee investigating real-estate bond holdings committees.”

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For the more recent years, comparatively complete statistics of certain types

of outstanding loans by the principal lenders also have become available. These

newly available figures cover the volume of loans secured by multifamily (five

or more families) residential property and commercial real estate. For 1939 and

1940, figures compiled by the Comptroller of the Currency and by other regulatory

agencies from statements of condition made by trust companies and commercial,

mutual savings, and other banks break down nonfarm real-estate mortgage debts

into those secured by 1- to 4-family residential property, multifamily residential

property, and other nonfarm real estate. The term “other nonfarm real estate”

has been defined in this study to consist essentially of commercial property.

Studies made of the annual reports of savings and loan associations and

questionnaire surveys made of the nonfarm real-estate mortgage loans of lifeinsurance companies also have- produced greatly improved estimates, especially

for the more recent years, of mortgages outstanding on multifamily residential

property and on commercial property.

Classification of mortgage indebtedness on multifamily residential property and

on commercial property into that owed by corporations and that owed by

individuals and unincorporated businesses was made on the basis of a study of

some 9,000 balance sheets, submitted by corporations owning and operating either

apartment houses or commercial real estate at the time of filing tax returns for

1937. Though this information falls far short of that necessary to make highly

accurate apportionments for all years, it marks a beginning of useful primary

data in this area. Less accurate methods were resorted to in making the apportionment for the other years covered. Indebtedness of corporations owning

1- to 4-family residential property was somewhat arbitrarily placed at 5 percent

of the total of such debt outstanding.

BUSINESS AND COMMERCIAL DEBTS OF INDIVIDUALS

The short-term debts of individuals and noncorporate firms and associations

are compiled from several primary sources. These estimates vary in quality

depending upon the class of debt and the years covered. Estimates of debts

owed by customers to security brokers for the years 1931-39 were taken from

reports made by brokers to the Federal Reserve Board. They represent substantially complete figures taken from accounting records. In carrying this

series back to include 1930 and 1929, brokers’ loans for these years as reported

by the Federal Reserve Board and by the New York Stock Exchange were of

assistance. It is assumed that all loans by brokers to customers are made to

individuals and other noncorporate borrowers.

Estimates of the volume of loans made by banks to individuals and to noncorporate firms and associations are difficult to make since banks do not report

loans made to corporations and to noncorporate borrowers separately. The

change, effected in 1938 in classification of bank loans as reported to the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit

Insurance Corporation increased the difficulty of classifying, on a comparable

basis for all years, debts owed by individuals to banks. Prior to 1938, bank

loans were grouped mainly according to the type of security pledged, while since

1938 they have been classified more nearly according to the purpose of the loan.

However, it was possible, with little or no error, to allocate several types of loans

either to the corporate or to the noncorporate group. Thus, short-term agricultural loans were classified as noncorporate since, with few exceptions, they are

made to noncorporate borrowers. Loans to brokers and dealers in securities

also were classified as noncorporate since businesses of such individuals generally are not incorporated. The fact that a few of the security dealers are

incorporated and that there has been some slight tendency toward incorporation

indicates some error in the allocation made but it is known to be small. Special

studies of so-called “personal loans” by banks— a type of loan which has grown

rapidly in popularity during the last years of the decade— permit a further

quite accurate allocation to the. noncorporate group. “Open-market paper bank

loans” are treated as made exclusively to corporations.

Somewhat arbitrary methods were employed in apportioning “commercial and

industrial” loans to corporate and to noncorporate borrowers. This class of loans

was first broken down by Federal Reserve districts and then further divided into

loans by banks located in central Reserve cities, Reserve cities, and country

towns. Bankers, bank examiners, and officials of regulatory bodies were then

asked to give judgments, based on their experience and observation, as to what

proportion of the outstanding commercial and industrial loans was owed by

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APPENDIX 91

individuals. As long as statements of condition called for by bank regulatory

bodies do not show corporate and noncorporate loans separately, estimations of

these categories will have to be made by indirect methods.

Data on short-term debts owed by farmers to lending units of the Farm

Credit Administration were taken from reports issued by the Farm Credit Administration and the Bureau of Agricultural Economics. Short-term debts originated

by purchases of goods and services on the installment plan are based on the Retail

Credit Survey and other surveys of the Department of Commerce and on a study

by Rolf Nugent, Russell Sage Foundation, entitled, “Consumer Credit and

Economic Stability.”

INTEREST PAYABLE

Interest payable, which is not to be confused with interest paid, is confined

in this study to long-term and short-term public debt and to long-term private

debt. For all debts of the United States Government the computed rate published

by the Treasury Department as of the end of the calendar year is used in determining the amount of interest payable. This computed rate of interest and

the amount of interest payable may differ from the average rate and the amount

actually paid during the year since the outstandings at the end of the year

may differ in amount and rate of interest from the average for the year. For

present purposes, the computed rate and amount of interest payable appear

to be the best measure of interest charges because they more nearly state the

extent of interest obligations on amounts outstanding at the end of the year. A

special study made by the Treasury Department for the Department of Commerce

likewise places the interest payable by Federal corporations and agencies on a

computed interest payable basis at the end of the calendar year.

The findings of an extensive study of the contract interest rates on State and

local government securities outstanding in 1929 and 1930 provided the basis for

estimating the rates of interest payable for these years and for computing the

rates payable in subsequent years. For these later years, the rate payable is

determined by adjusting the rate of the preceding year to allow for changes in

the contract rates caused by the funding and retirement of issues and by the

issuance of new securities with rates differing from those previously outstanding.

To determine the rate and amount of interest payable on gross private longterm debt, corporate long-term debt was divided into three classes— industrial,

public utility, and railway— and noncorporate real-estate mortgage debt was

divided into two classes— urban and farm.

In the former case, several thousand corporate issues were examined to arrive

at an average weighted contract rate of interest payable for 1929. In fixing rates

for succeeding years, the rate payable on outstandings for each year was adjusted to take into account the contract rate on retirements, refundings, and new

issues made during such year.

It should be noted that here as elsewhere these calculations of the rate and

amount of interest payable are made without reference to the solvency of the

borrowers concerned, the contract rate on debts in default being included with

that of the solvent outstandings. The growing practice of corporations in borrowing from banks on serial notes up to 10 years has made the task of determining the contract rate of interest payable more difficult because a description

of the issues, together with the serial rates, is not always available.

Rates of interest payable on urban real-estate mortgages are based on sample

studies of contracts held by principal lenders. Those payable on farm mortgages

are based on studies made by the Bureau of Agricultural Economics.

o

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