Evening star., 1939-07-09
Interest, Once Called 'Murder,'
Now Is Dying Over Wide Areas
Low Rates, Coupled With High Taxes Force Man
to Earn S325,OOO to Leave S5,OOOa
Year, Experts Calculate
By Richard L. Stokes.

The time-honored institution of in
terest. or compensation paid by a bor-
rover for the use Of money. now ap-
pears to be swinging about full circle,
after influencing civilization as much,
probably, as any single factor.
Among enlightened ancients the lend
ing Of money at interest was regarded
as pernicious crime, comparable only
TO murder. During centuries of the
Middle Ages the practice was for
hidden by canon and civil law. With
the onset OF modern trade and industry,
1t became the most honored means of
livelihood, so that possession of income
based not on labor but interest rose
to be hallmark of aristocracy. During
late years, however, interest has sud-
denly lapsed into senility and, over
wide areas, into virtual death.
This swapping of a financial main
spring has exercised violent consequences
on poor and rich. Savings banks have
cut interest rates to insignificant figures
and even nothing. Insurance companies
have increased premiums and drastical-
ly reduced dividends to poicyholders or
stockowners. Charitable and educational
foundations, with endoWments larger
than ever, have beheld their income
vanishing into thin air. Finally, the
investment-living caste, small in num-
Der but commanding one-tenth of the
national income, appears to be under
silent but inexorable process of liquida-
ton. What with falling interest rates
and taxation, it may come to pass in
no remote future that heirs will actually
be compelled to work
Within recent memory, it was a simple
process for man TO leave TO wife or
child An income of 5000 year. All
he had to do was accumulate and invest
the sum of 500 OOO That even so modest
benefaction has grown as inaccessible
as the moon to average Americans is
demonstrated by fiscal experts in Wash
ington.
Earned 357 Per Cent.
To begin with, they point out that the
Metropolitan Life Insurance Co, with
assets of nearly $4,000, ,000,0ot and
portfolio of 100000 separate investments,
probably the most diversified in history,
was able during 1888 to earn only 357
per cent on its loans as a whole With
resources microscopic in comparison, it
is held that no individual seeking a fair
amount OF safety can expect today re-
turn higher than az per cent. There
fore, the capital estate needed to yield
$4,000 a year takes sudden bound to
$3.50 900.
This sum, of course, must be net un-
encountered estate. Taking Federal and
State death duties into account, experts
calculate that testator would be COM
PEELED to amass gross estate of some
thing like $325,00 That is not all.
During the process of accumulation he
would be subject to income tax. A rough
estimate is that man would be required
to earn more than $500 000 exclusive of
living expenses, in order to leave to one
heir a tolerably sure income of 500
week.
These figures are based on a supposed
estate consisting of securities and realty,
entitled under death tax laws to an ex-
emption of $4,000 There is a further
exemption of $4,000 for life insurance.
The property may be conveyed in the
form of an "irrevocable" trust, exempt
from estate duties during the lives of two
heirs "in being" Or a life insurance
trust may be established, under which
the beneficiary renounces cash rights in
the policy and accepts what amounts to
an annuity. Both forms of trust are
mately tWo-thirds of the death duties.
Drive by Insurance Firms.
Under these circumstances insurance
companies are beginning drive to take
over the whole volume of bequests. They
represent that man aged IS may take
out life policy of $250,0O0 at annual
premiums of $5,940. With an expectancy
of 50 years, the average policyholder
would pay total of $l80O80, or he may
acquire $4,000 annuity for a daughter
aged 80 through cash outlay of some
thing like $l28,00O. With an expectancy
of IS years, the daughter may count on
drawing an average of s175OOo Annui-
ties, of course, are subject to gift tax.
The decline of interest rates is repre-
sented graphically enough in the rec
ords OF private corporations. Statistics
OF the Federal Reserve System reveal
that the average bond yield for indus
trials fell one-half, from 6S4 to $50,
between 1920 and 1898. Railroad bonds,
during the same period, slipped from
Tia to 5,l2, and utilities from 7.19 to
3.87. The aggregate return from pre-
ferred stocks fell from 679 to 5.14. Cash
dividend rates of 800 companies, between
1929 and 1887, showed a decline of %
per cent, from 296 to 210 The cost
OF living, based on the purchasing power
OF the dollar, rose from 86.1 in 1920
to 1l49 in 1887, taking the year 1924
as standard.
This interest showing is brilliant COM
pared with that Of public financing. The
United States Treasury is expected dur
ing the hscal year ls3s-4o to absorb
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