Institutions for Saving and Investment 1

Additional funds are obtained when needed by issuing paid-up stock to non-borrowers. This is convenient at the beginning of an association and when the movement in build ing is more active than usual. But if an association has funds that cannot be loaned, outstanding paid-up stock may be called in. In practice a large part of the paid-up stock as well as of the running stock is subscribed for and held, not by large capitalists, but by persons of small means, especially "the more frugal element in the working classes." Non-borrowing members desiring to withdraw may do so at any time under certain conditions; but the laws usually require that thirty days' notice of intention to withdraw shall be given, that not more than one half of the funds received in any one month shall be paid on withdrawals, and that withdrawing shareholders shall be paid in the order of the notices of intention to withdraw. These safeguards make impossible anything like a "run" on a bank or a forced liquidation of the association.

The most intelligent and prudent workers were formerly deterred from subscribing by the fear that sickness, unemploy ment, or other mishap might make it impossible to keep up regular payments. Now, however, fines for late payment have been almost entirely done away with. On the other hand, extra payments may be made at any time by borrow ing members, to hasten the date when their shares mature and their debt will be discharged. These privileges are pos sible because of the method of distributing profits, which will now be described.

§ 13. The distribution of profits.

At least twenty-five plans, with hundreds of variations in details, have been in operation for the distribution of profits. The essential fea tures are, however, these. Periodically, usually every six months, is ascertained the amount of the gross earnings, which, under this plan, consist almost entirely of interest paid on loans. From this amount are deducted expenses (and in some states 5 per cent of the total is placed in a "loss fund" to meet possible losses), and the rest is divided in proportion to the amount standing to the credit of each member, being credited to the account of running stock, in creasing its "book value," and paid in cash to holders of paid-up stock. The dues frequently are 25 cents a week per share, in other cases $1 per month. Take, for example, the latter case, when the maturing value of a share is $200. If all of the capital paid in is lent out continuously at 6 per cent, the profit's will be equal to about 6 per cent com pound interest, and the shares will mature in about years (the average experience has been 138 months). A non

borrower will then be paid $200, of which $138 has been paid as dues over the period and $62 is the accumulated profit of each share. A borrower of $3000 (on this plan) must take at least fifteen shares, and would pay $30 each month, $15 as dues and $15 as interest. If he keeps up his regular payments, he will at the maturity of his shares have a capital just sufficient to pay off the whole debt. In most cases a prudent tenant can become the owner of a house while paying no more than the rent would be. As the active investor he becomes his own rent-collector, and uses the house with less need of repairs, thus dispensing with services and costs that are included in contractual rents." § 14. Possible developments of savings institutions. The social importance of increasing and improving the agencies of savings for the masses is being more fully recog nized, but much more might be done in these directions. Some possible changes have been suggested above, and a few words more may be added.

Probably the greatest developments in the near future will be through the savings departments of commercial banks (favored by the reserve rules of the Federal Reserve Act) rather than by the increase in the number of special banks for savings. The initial expense and risk of starting a sav ings bank is considerable, and outside of cities of some size this is prohibitive; whereas a savings department, with its funds and reserves separated, can be easily and cheaply oper ated in connection with a general bank. It is much to be de sired, however, that a larger measure of popular cooperation might be made possible to the depositors, both for its educa tional value and to reduce the real evil of the autocratic or the plutocratic centralization of the money power in the small communities. Savings banks usually limit the amount of an account to $3000. It is desirable that depositors should be able easily to convert their savings-bank deposits over cer tain amounts into good bonds, bearing a higher rate of in terest (after the method of the issue of postal savings bonds). There is need of a central market in each community where bonds can be bought and sold at any time; and banks ought, as they increasingly do, to buy and sell for their customers in this way in the larger bond market. This would be of benefit also to the states and municipalities that issue bonds for such purposes as schools, roads, and public utilities, by creating a more open and regular market to small in vestors than now is provided for such securities. This might somewhat reduce the rate of interest, and there would be 10 On these economies, see Vol. I, p. 298.