Evening star., 1946-02-24
Higher Interest Rates
Held Desirable Now
Observer Sees Need to Change
Trend Against Personal SAVINGS
By Raymond Moley

lrend Against Personal SavlnSS
By Raymond Moley
One of the most striking changes in
American life In the past Is years has
been. the long decline of interest rates.
II this we're condition in this country
alone, we might find easy explanations.
Our business life, up to the First
World War, was considerably dependent
on foreign funds; early America was
rich in her soil, but poor in capital.
Our railroads originally were built, to q
large degree, by loans from Europe
In the whole period of our 18th GEN.
tury development, capital was scarce
and interest rates were high. Then {: :
decline took place, from the '70s to 1900.
In the 20s, interest rates reverted to
the high ranges of the '80s and '90s.
gone down steadily.
Three years ago, competent authori-
ties forecast an average interest rate of
2A%o per cent for the overall service Of
the national debt. In this years budget
the President predicted an interest rate
OF per cent on the debt for years to
come. This created a mild sensation
Yet, last week railroad bond issue was
In demand at shade less than per
cent. private loan thus went below
the Government rate.
The sinking interest rate is not q
trend peculiar to America. England
has shown the classical example of
cheap money. 1t helped get itself out
of the depression in 1881 by refunding
its debt burden at lower rate. One of
Hitlers most seductive appeals to the
| German people was ito break the in
| terest rate slavery" However he found
| nothing to break, because the German
| interest rate fell along with that Of
other nations.
| The biggest break came with the New
Deal. Mr.. Roosevelt, in answer to the
complaints of people living on interest,
said that he was trying to give them
general security by saving the economic
system, although he was pinching them
in the process
| This ebbing tide of interest was pre-
dicted long time ago by Lord Keynes.
He was convinced that the savings of
individuals, as source of support for
industrial expansion, would be sup
planted more and more by the savings
Of the corporations themselves. This
point has been echoed and re-echoed
by Stuart Chase and other New Deal
economists. 1t certainly Is not in line
with present facts. Some old and we'll
established corporations can do a great
deal OF self Financing. But if we are to
| progress as a nation, most old COM
panies and all new ones must 20 to
outside sources for new money. Saving
still is legitimate. necessary and proper
American habit.
| A strong demand is growing now to
halt the decline and to turn the rate
upward, even for long-term bonds. The
arguments for this are as follows:
/. A rate Of 2 per cent is not a SUI
f1cient inducement to save, and ut .
time when commodities are scarce,
money ought to go into the means
OF production.
| 2. Low interest rates are infiationary
When the prospect is for lower and
lower return on sayings, people spend
them.
| 3. The prospects for family security
grow more and more dim. With an in
terest rate of per cent, a retired person
might have lived on capital of, say,
$4,000. Now such a person needs twice
as much capital. And meanwhile, higher
prices and taxes make it well nigh i'm
possible to save any such amount.
4. Life insurance particularly is AZ
fected by low interest rates Lewis w.
Douglas, president of the Mutual Life
Insurance Co. and former director of
the budget, pointed this out recently
before Senate committee. He said:
May 1 remind you of fundamental
distinction between a life insurance
company and bank? The earnings of
bank need not be seriously or adverse
ly affected by decline in the interest
rate, II at the same time the decline in
the rate is accompanied by an increase,
or corresponding increase, in deposits,
for the bank need not put up additional
capital. A life insurance company, how
ever, and the amount of its investment
income available for refund to policy
holders Is very seriously affected by q
decline in the interest rate For a life
insurance company must each year
add to its capital in the form of addi-
tions to its policy reserves. If these in
crements were not made, the life in
surance company would be unable to
meet the death claims OF its policy
holders when they fall due"
In the housing field, however, low
interest rates would stimulate building.
and with more building there will be
more saving, more production, more en-
ployment and more happiness. But
cheap financing of home construction
need not depend entirely on generally
low interest rates. Devices through
which Government bonds and insurance
policies can be put up as collateral can
be developed which can lower the finan-
cial costs, despite some increase of in
terest rates.
All In all, it would seem that the
revolution in money rates we'll might
be stopped, even reversed, in the ma
tional interest. For it is a revolution
which takes from some and gives to
others. The taking away has gone far
enough.
Of the former Secretary of State. Since
the last previous assembly, she an