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INDEBTEDNESS
IN THE

f

UNITED STATES

I

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

I

35

I

1936

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_______I
_____
1937
1938 1939
1940
1941




U. S. DEPARTMENT OF COMMERCE
Jesse H. Jones, S ecretary
BUREAU OF FOREIGN AND DOMESTIC COMMERCE
Carroll L. Wilson. D ir e c t o r

+
Economic Series— No. 21

INDEBTEDNESS IN THE
UNITED STATES
1929-41

UNITED STATES
GOVERNMENT PRINTING OFFICE
W ASHINGTON : 1942

For sale by the Superintendent of Documents, Washington, D. C.




Price 15 cents




CONTENTS
Page

Foreword_______________________________________________________________________
Chapter I. Concepts of debt and problems of its measurement__________
The nature of debt____________ _________________________________________
Area covered by this report_
_ _________________________________________
Varying quality of debt statistics_______________________________________
Basic concepts of debt_______ __________________________________________
Concepts employed in this study . _____________________________________
Various concepts of duplicating debt___________________________________
Long- and short-term indebtedness_____________________________________
Treatment of defaulted obligations______________________________________
Debt estimates affected by changing financial organization___________
Significance of changes in outstanding debt____________________________
Limitations of the estimates_____________________ ______________________
Suggestions concerning interpretation of the estimates________________
Relation to other studies_________________________________________________
Chapter II. The volume of outstanding debt______________________________
Combined public and private debt______________________________________
Net public and private debt up 18 billions in 1941_______________
Comparative changes in private debt______________________________
Timing of public-debt expansion___ _____________________________
Private-debt increase a result of business expansion______________
Net debt 12.6 billion dollars higher in 1941 than in 1929_________
Gross debt above 1929 level____________
________________________
Public debt_______________________________________________________________
Trend of public debt upward_______________________________________
Composition of gross Federal debt_________________________________
State and local government debt___________________________________
Private debt_______________ _________ ___________________________________
Trends in net private debt, 1929-41_______________________________
Gross private debt___________________________________________________
Short-term private debt____________________________________________
Short-term credit for commercial purposes__________________
Trends in the volume of consumer credit_____________________
Duplicating debt_________________________________________________________
Duplicating debt of the United States Government and Federal
agencies___________________________________ ________________________
Duplicating debt of State and local governments_________________
Chapter III. The components of private debt_____________________________
Debts of corporations____________________________________________________
Railway debt________________________________________________________
Public utility debt___________________________________________________
Debts of industrial and financial corporations_____________________
Debts of holding companies______ ________________________________
Indebtedness on urban residential property____ ________________________
Farm-mortgage debt reduced yearly since 1929________________________
Short-term farm debt____________________________________________________
Short-term debts of individuals__________________________________________
Commercial debts declined sharply from 1929 through 1933_____
Consumer debt in 1941 higher than in 1929_______________________
Chapter IV . The changing structure of domestic indebtedness___________
Investment holdings of banks and insurance companies_______________
Debt and interest_________________________________________________________
Interest payable_____________________________________________________
Average interest rates_______________________________________________
Public debt ________________________ ____________________________
Private debt____________________________________________________




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IV

CONTEXTS

Chapter IV — Continued.
Relation of interest payable to interest paid________________________________ 75
Refinancing and refunding activities, 19 29 -4 0____
_____________________ 75
Defaulted debt, 19 29-40________________________ _____ __________________ ____ 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 T A B LE S
1. Net debt in the United States, 19 29-41_________________________________
2. Gross debt in the United States, 1 9 29 -4 1_______________________________
3. Gross and net debt of the United States Government and Federal cor­
porations and agencies, 1929-41______________________________________
4. Gross and net debt of State and local governments, 1929-41__________
5. Outstanding debts of selected special districts, as of June 30, 1940
and 1941__________________________ ____________________________________
6. Gross and net corporate debt, 1929-41__________________________________
7. Deposit liabilities of all banks in the United States, 1929-41__________
8. Reserves and other selected liabilities of life-insurance companies to
policyholders, 1929-40________________________________________________
9. Urban residential real-estate mortgages, 1929-41_______________________
10. Urban real-estate mortgages owed by individuals and other noncor­
porate borrowers, 1929 -4 1_____________________________________________
11. Farm mortgages and short-term debts of farmers, by lending agencies,
1 9 29 -4 1__________________________________________________________________
12. Loans to farmers’ cooperative organizations by selected Federal lend­
ing agencies in the United States, 1 9 29 -4 1___________________________
13. Short-term debts of individuals and other noncorporate borrowers,
19 29 -4 1__________________________________________________________________
14. Net public debt and net private long-term debt held by banks, lifeinsurance companies, and other investors, 1929, 1939, and 1940____
15. Estimated distribution of tax-exempt securities, by class of holder,
as of June 30, 1937-40__________________________________________________
16. Estimated outstanding mortgage loans on urban 1- to 4-family homes,
by type of lender, 19 2 9 -4 1 _____________________________________________
17. Net public and net long-term private interest-bearing debt, average
interest rates, and interest payable in the United States, 1929-41 __
18. Gross public and gross long-term private interest-bearing debt, average
interest rates, and interest payable in the United States, 1929-41__
19. Corporate bonds and notes in default, by major groups, 1929-40_____

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A P P E N D IX T A B L E
I. Number of consolidated and unconsolidated returns filed by active
corporations, 1929-38____________________________________________________

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IL L U S T R A T IO N S
1. Percentage changes, 1941 from 1940 and 1940 from 1939, in net
public and private debt, by classes____________________________________
2. Net debt in the United States, by types, 19 29 -4 1______________________
3. Gross and net public debt in the United States, 19 2 9 -4 1______________




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CONTENTS

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Page
4. Long-term private debt in the United States, by types, 19 29 -4 1 ______
5. Indexes of components of long-term private debt in the United States,
1929-41_________________________________________________________________
6. Short-term private debt in the United States, by types, 1929-41_____
7. Indexes of components of short-term private debt in the United States,
1929-41______________________________ ___________________________________
8. Short-term farm debt to Government farm-credit agencies, 1929-41__
9. Indexes of consumer debt in the United States, 1 9 29 -4 1 ______________
10. Indexes of interest payable on components of long-term private debt,
1929-41__________________________________________________________________
11. Indexes of interest payable on components of public debt, 19 29 -4 1___
12. Average interest rate on components of public debt, 19 29-41_________
13. Average interest rate on components of long-term private debt, 192941___________________________________________ ___________________________
14. Corporate bonds and notes in default, 1929-41_________________________




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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 ap­
praising 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 determin­
ing 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 di­
rectly 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 down­
ward 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 condi­
tions 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

VIII

FOREWORD

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. Wes­
ley 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 i l s o n , Director,
Bureau of Foreign and Domestic Commerce.
M a y 1942.




INDEBTEDNESS IN THE UNITED STATES 1929 41
C hapter

I

CONCEPTS OF DEBT AND PROBLEMS OF ITS
MEASUREMENT
As the American economy in 1942 is being converted from a peace­
time 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 chang­
ing 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 expendi­
ture 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 accom­
pany 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 distin-




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2

IN DEBTEDNESS IN TH E 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 encom­
pass 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
o f 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 long­
term 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 Fed­
eral 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 in­
formation. Unfortunately, statistics are not equally complete for
all types of outstanding debt. Figures which are available for sev­
eral 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



DEBT AND PROBLEM S OF ITS M EASU REM EN T

3

financial statements. Figures for other debt categories, for example,
certain classes of debts owed by individuals, are not complete ac­
counting 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 ap­
plicability of the available information. For certain relatively minor
types of debt, such as obligations owed by individuals to other in­
dividuals 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 ap­
pearance of new information has necessitated frequent revisions of
the debt figures and ha* caused some changes to be made in the con­
cepts 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 cover­
age 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 which duplications are
T
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 residen­
tial 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. Obli­
gations 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 on a ld C., L on g-T erm D ebts in the U nited S'tates, D ep a rtm en t o f Com m erce,
D o m e stic C om m erce Series, Bu letin No. 96 (1 9 8 7 ).




4

IND EBTEDNESS IN TH E UNITED

STATES

As used in this report, net debt consists of the debts remaining
after deductions have been made for the duplicating debts of inter­
mediaries. Duplicating debts are liabilities which have been incurred
or recorded at two or more successive stages in the process of invest­
ment 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. I f the unit is a corporate system rather than a single corpora­
tion, 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 deduct­
ible vary in accordance with the definition given a government unit.
I f 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. I f 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 com­
panies 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 corpora­
tions is the “ corporate system,” composed of companies bound to­
gether 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 ap­
pears in the combined public and private net debt totals after adjust­
ment for the intermediary debt of the Federal Government and its
agencies. .




DEBT AXD PROBLEM S OF ITS M EASU REM EN T

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 govern­
ment 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 obliga­
tions 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 con­
trolled 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, endow­
ments 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 d ed u ction is m ade fo r sec urities issued by the U. S. G overn m en t and held in
tru st or in v estm en t fun ds o f Sti te and loca l governm ents.




6

IN DEBTEDNESS IN TH E

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 ap­
pears 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 meaning­
ful 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 dupli­
cating debt.
Net debt, in effect, acquires an entirely different and not wholly
unambiguous meaning when the concept of duplicating debt is broad­
ened 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 in­
vestment 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 w ould be 60
T
million and the net debt 40 million; under the second alternative con­
cept 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.




DEBT AND PROBLEM S OF ITS M EASU REM EN T

7

Estimates of the volume of duplicating debt and of net debt are also
influenced by the meaning given the term “ affiliate.” Stated differ­
ently, 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 Fed­
eral 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 se­
curities 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 would constitute a separate unit.
T
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 defini­
tion 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 con­
cept 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 separat­
ing 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 fur­
niture, 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.




8

IN D EBTEDN ESS IN TH E UN ITED STATES

TREATMENT OF DEFAULTED OBLIGATIONS

Debts of corporations in receivership, together with interest ac­
cruals 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 liquida­
tion. 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 short­
term 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, long­
term 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. When­
ever 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 de­
clared 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 govern­
mental 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 reorgani­
zation 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, insur­
ance companies, corporate holding-cbmpany systems, and public lend­
ing agencies become more or less important in the economy, they
assume a proportionately larger or smaller role in assembling and




DEBT AND PROBLEM S OF ITS M E ASU REM EN T

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 im­
portant, the gross debt totals become larger than would be the case
if initial lenders made loans directly to ultimate borrowers. To illus­
trate, 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. Mani­
festly, if these intermediary financial institutions become less im­
portant 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 in­
vested m debt obligations but also may exercise an influence on the
type of obligations issued to conform to the requirements and prefer­
ences 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 eco­
nomic 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




10

INDEBTED NESS IN TH E

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. In­
creased 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 in­
creased 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 cover­
ing 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 nonethe­
less 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, how­
ever, 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
in the field of State and local public debt, extrapolation and inter­




DEBT AND PROBLEM S OF ITS M EASU REM EN T

11

polation are necessary to develop estimates for the gross debt and net
debt totals and for debt holdings in various State and local govern­
ment funds during intercensal years. In all these categories, how­
ever, the development of estimates was aided materially by the exist­
ence 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 inter­
mediaries does not necessarily result in an increase in either the aggre­
gate 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 while some increase in net debt
7
doubtless resulted from the effect which the Home Owners’ Loan
r
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 re­
sults in a corresponding increase or decrease in gross debt while net
debt remains unaffected. Even though the financial structure of hold­
ing 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 correspond­
ing growth or decline in gross but not in net corporate debt out­
standing. 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




12

IN DEBTEDNESS IN TH E

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 rela­
tion 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 ear­
lier 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 D ebts and R ecovery, 1038.




C

h apter

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 associa­
tions, and governmental units in the United States reached an esti­
mated total of 185.1 billion dollars as of December 31, 1941, 18.5 bil­
lion, 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 indus­
tries 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 struc­
ture 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, out­
standing consumer credit rose markedly as a result of the expansion
4
N ot in clu d in g d ep osit lia b ilities o f banks or lia b ilities o f life -in su ra n ce com p a n ies to
p o licy h old ers.




13

14

IN D EBTED N ESS IN TH E U N ITED STATES

1940 FROM 1939

TOTAL

CLASS

1941 FROM 1940

FOR T H E P R E V I O U S YE A R

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




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 ex­
pansion 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 en­
larged outlays arising from (1) increases in Army, Navy, and other
defense personnel, (2) larger purchases and production of war mate­
rials 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 ad­
ditional 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 scar­
cities of many materials, together with the curtailment of many types
It was intended both to finance plant expanskm and to provide ad­
vances 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 capac­
ity 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 out­
standing 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 popu­
lation, 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.



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
185, 231
64,667
48,653
16,014
120, 564
78,663
44,243
34,420
6, 787
27,633
41,901
22,928
18,973
9,380
9,593

THE

1'ercentages of total net 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

17 0
9.1
7.9
83.0
50.2
26.3
23.9
6.6
18.3
32.8
16. 6
16. 2
11.5
4.7

17.4
8.9
8.5
82.6
52.6
28.3
24.3
5.5
18.8
30.1
15.1
15.0
10.7
4.3

19.9
10. 3
9.6
80.1
53. 7
28.9
24.8
5.5
19. 2
26.4
14.0
12.4
8.6
3.8

22.7
12.0
10.7
77 3
54. 6
29. 9
24. 7
5.5
19.2
22.7
13.0
9.7
6.7
3.0

25.1
14.0
11.2
74.9
53.6
30.2
23. 4
5.2
18.2
21.3
12.7
8.6
5.6
2.9

26.0
15. 4
10.6
74 0
51 5
28.5
22.9
5.2
17.8
22.6
14.0
8.5
5.2
3.3

27.6
17.1
10.5
72.4
49.5
27.5
22.1
5.0
17.1
22.8
14.0
8.9
5.0
3.9

29.2
18.9
10.3
70.8
47.0
25.9
21.1
4.7
16.4
23.8
14. 1
9.7
5.0
4.7

29.5
19. 6
9 9
70.5
46.8
26.4
20.5
4.5
15.9
23.6
13.4
10.2
5.1
5.1

30.5
20.6
9. 9
69. 5
48. 1
27.4
20.6
4.5
16.2
21.4
11.7
9.7
4.8
4.9

31.3
21.4
9.9
68.7
47.1
26.7
20.3
4.3
16.1
21.6
11.9
9.8
4.7
5.1

31.4
21.7
9.7
68. 6
46.4
26.2
20.2
4.1
16.1
22.2
12.4
9.9
4.6
5.3

34.9
26.3
8.7
65.1
42.4
23.8
18.6
3.7
14.9
22.6
12.4
10.2
5.1
5.2

STATES

100.0

UNITED

Total net public and private debt ____________ _______ _
Net public debt _
............................... . __ _____________________
Federal and Federal agencies_______________ ______ ___________
State and local governm ents__________________________________
Net private d eb t______________________________ - ------------------------Long-term d e b t ------- -------------------------------------------------------- ------Corporate___________
____ _____. . .
--------------- -----Individual and noncorporate
___________________________
Farm mortgage_______________________________________
Urban real-estate mortgage _____________ ____ ________
Short-term d e b t ..----------- ----------------------------------- -------------------Corporate............ ................... ..................................................
Individual and other noncorporate --------------------------------Commercial and for purchase of securities_____________
Consumer_____
--------------------------------------------------




I
N

29, 412 30,097 33,009 35, 507 37, 835 38, 996 41, 897 45, 503 47,134 48, 300 50,765 52, 608
15, 698 15,391 17,091 18, 713 21,028 23,081 25,964 29,470 31. 310 32,618 34, 762 36,397
13, 714 14,706 15,918 16, 794 16,807 15,915 15,933 16,033 15,824 15.682 16,003 16, 211
143,110 143,085 133,022 121,077 112,806 111, 191 109, 762 110,193 112,418 109, 989 111, 430 114,433
86, 565 91,033 89,128 85, 517 80,687 77,275 75,140 73, 214 74, 747 76,110 76, 327 77,361
45,316 48,937 48,027 46,845 45,444 42,828 41, 637 40,361 42,086 43, 428 43, 355 43, 723
41,249 42,096 41,101 38,672 35, 243 34, 447 33, 503 32, 853 32, 661 32, 682 32,972 33,638
9, 214
7,887
7, 786
7,639
7,390
7, 214
7,071
9,631
9,458
6,821
8,638
6,910
31,618 32, 638 31,887 30,034 27,356 26, 661 25, 864 25, 463 25, 447 25, 611 26,062 26,817
56, 545 52,052 43, 894 35, 560 32,119 33, 916 34, 622 36,979 37, 671 33, 879 35,103 37,072
28, 609 26,119 23,229 20,365 19,199 21,094 21, 164 21, 924 21, 392 18, 447 19, 250 20, 599
27, 936 25, 933 20,665 15, 195 12, 920 12, 822 13, 458 15,055 16, 279 15, 432 15,853 16,473
7, 598
7, 780
8, 483
8,154
7, 668
7, 548
7, 623
19, 794 18, 533 14, 295 10, 472
7,840
4, 437
4,982
5, 860
7, 275
8,125
7, 764
8, 305
4, 723
8,850
8,142
7, 430
6,370

Net public debt_________________ ________ ________________ _______
Federal and Federal agen cies_______ ____ ________________ ___
State and local governm ents_______ __________________________
Net private debt_____ _________ __________________ ______________
Long-term d eb t. -------- ------- ---------------------------------------------------Corporate--------------------------- -----------------------------Individual and noncorporate _____________
__________
Farm mortgage__________ _________ ____ _____________
Urban real-estate mortgage ___________________________
Short-term debt _______________ __________________ ________
Corporate^ ______ ____ _ ____________________ ______ ___
Individual and other noncorporate .
______________
Commercial and for purchase of securities ___________
Consum er.----------- ---------- ---------------------------- ------- --------

INDEBTEDNESS

1
Total net public and private debt_____________ _____________ 172,522 173,182 166,031 156, 584 150,641 150,187 151,659 i155, 696 159, 552 158, 289 162,195 167,041

Index numbers (1935-39=100)

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

109.6

110. 0

105. 4

99. 4

95. 7

95. 4

96.3

98. 9

101. 3

100. 5

103.0

105.9

117.6

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

64. 4
49. 9
92. 5
129. 2
121. 2
116. 0
127. 8
13. 1
127. 0
146. 0
127. 8
170. 8
239, 1
9. 9

70. 7
55. 4
100. 1
120. 1
118. 7
113. 9
124. 8
12. 7
124. 1
123. 1
113. 7
135. 8
184. 5
8. 5

76. 0
60. 7
105. 7
109. 3
113. 9
111. 1
117. 4
11. 9
116. 9
99. 7
99. 7
99. 9
135. 1
6. 3

81. 0
68. 2
105. 7
101. 8
107. 4
107. 8
107. 0
10. 9
106. 5
90. 1
94. 0
84. 9
10. 9
5. 9

83. 5
74. 9
100. 1
100. 4
102. 9
101. 6
101. 6
10. 7
103. 8
95. 1
103. 2
84. 3
10. 1
6. 7

89.7
84.2
100.2
99.1
100.0
98.7
101.7
10.5
100.7
97.1
103.6
88.5
9.8
7.8

97. 4
95. 6
100. 9
99. 5
97. 5
95. 7
99. 8
10. 2
99. 1
103. 7
107. 3
98. 9
10. 0
9. 7

100. 9
101. 6
99. 6
101. 5
99. 5
99. 8
99. 2
10. 0
99. 1
105. 7
104. 7
107. 0
10. 5
10. 9

103. 4
305. 8
98. 7
99. 3
101. 3
103. 0
99. 2
9. 8
99. 7
95. 0
90. 3
101. 4
9. 9
10. 4

108.7
112.8
100.7
100.6
101.6
102.8
100.1
9.5
101.5
98.5
94.2
104.2
9.7
11. 1

112.1
117 3
102. 0
103.3
103.0
103. 7
102.1
9.4
104.4
104.0
100.8
108.3
9.8
11.9

136.8
155. 4
100.7
108.8
104.6
104.7
104.5
9.4
107.6
117.5
112.2
124.7
12. 1
12.8

OUTSTANDING
DEBT




the Federal Government and Federal agencies held in Federal sinking, trust, and invest­
ment 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.

O
F

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

VOLUME

Net public debt___________________________ _________
Federal and Federal agencies .................. ...............
State and local governments
____ ___________
Net private debt_____ _____ ______ _________________
Long-term d eb t_________________________________
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_______________________________

18

INDEBTEDNESS IN TH E 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. Promi­
nent 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 exist­
ing in 1933 sharply reduced foreclosures of mortgages on urban resiBILLIONS OF DOLLARS
250
PUBLIC
S H O R T -T E R M

200

PRIVATE

LO N G -T E R M PRIVATE

150

t

100

50

f

II II IIi I
I I
I

i
t

r

r
t

t

T
t

i

n
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 retire­
ments 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




VOLUME

19

OF OUTSTANDING DEBT

billion at the close of that year. This increase in aggregate gross
debt is attributable in the main to the enlarged volume of debts in­
curred by Federal agencies for the purpose of obtaining funds to re­
finance 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 proc­
ess. 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 in­
volved the substitution of public for private credit. After 1934, ag­
gregate 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 o f d olla rs]

Item
Total gross public and private debt
Gross public debt . . .
-------------Federal and Federal agencies .. ______ Federal.
___________
Federal agencies
____________
State and local govern m en ts____ _.
Gross 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
_____
. _ .
C o n s u m e r _____ . .
Item

1929

1930

1931

! 1932

;

1933

1934

1935

194,839 195,873 187,711 178, 840 1
174, 966 182, 353
35, 404 36,375 1 39,182 43, 154
18, 170 17, 916 19, 648 i 23,350
16, 301 16, 026 17, 826 20, 805
1,869
1,822
2,545
1, 8S0
17, 234 18, 459 19, 534 19, 804
159, 435 159, 498 148, 529 135, 686
96, 597 301,865 99, 715 95,818
55, 348 59, 769 58, 614 57, 146
41,249 42, 096 41, 101 38, 672
9, 214
9, 631
9, 458
8, 638
31,618 32, 638 31,887 30, 034
62, 838 57, 633 48,814 39, 868
34, 943 31.901 28,350 24, 842
27, 895 25, 732 20, 464 15,026
19, 753
8, 142

1 48, 176
| 28, 191
1 23,815
4, 376
19,985
126, 790
90, 653
55,410
35, 243
7, 887
27, 356
36, 137
23, 409
12, 728

184, 289

57,274
60, 882
37, 988 . 41,453
1 28,480 1 30,557
9, 508 [ 10,896
19,286
19, 429
125, 079 123,407
1 86,658
84, 252
. 52,211
50, 749
34, 447
33, 503
7, 786
7, 639
26, 661
25, 864
38, 421
39,155
25, 716
25, 796
12, 705
13, 359

18,332
7. 400

14, 094
6, 370

10,303
4, 723

8, 291
4,437

7, 723
4,982

1936

1937

1938

1939

1940

7, 499
5, 860
j

1941

188,011 192,727 189, 177 193, 215 199, 954

219, 508

64, 732 67, 354 67, 033 69,896 73, 343
Gross public debt.
.
. -------------- .
45, 070 47, 760 47, 457 49,900 53, 097
Federal and Federal agencies.. . _______
34, 406 37, 286 39, 439 41, 961 45, 024
Federal ..
.. ______________
10, 664 10, 474
8, 018
7,939
8, 073
Federal agencies
___ _____ .. .
19, 662 19, 594 19, 576 19, 996 20, 246
State and local governments
_ _______
123, 279 125, 373 122,144 123,319 126, 611
Gross private debt. _______
______ ______
Long-term d e b t _____ ___ _ _ _____ ..
81, 783 83, 445 84, 815 84, 772 85, 638
48, 930 50, 784 52,133 51,800 52, 000
Corporate
._ _
________
32, 853 32, 661 32, 682 32, 972 33, 638
Individual and noncorporate
_. .
6,910
6, 821
7, 214
7, 071
Farm mortgage
_______
7, 390
25. 463 25, 447 25, 611 26, 062 26,817
Urban real-estate mortgage. ____
41, 496 41, 928 37, 329 38, 547 40,973
Short-term debt . . . . . . . . _ _________
26. 579 25, 813 22,146 23, 000 24, 500
C orporate..
.
. .........
Individual and other noncorporate___
14,917 16,115 15,183 15, 547 16, 473
Commercial and for purchase of securi­
7,419
7, 242
7, 642
7, 990
7, 623
ties __________________________
8. 305
8, 850
8, 125
7, 764
7, 275
Consumer_______________________
i

86, 598
66, 415
57, 938
8, 477
20,183
132, 910
86, 860
52, 440
34, 420
6, 787
27, 633
46,050
27, 077
18, 973

Total gross public and private debt

9, 380
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




IND EBTEDNESS IN TH E

20

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 num­
ber of savers made loans directly to end-borrowers in 1941 than in
1929 and other earlier years. Instead, more savers placed their ac­
cumulations 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 bil­
lion to 48.7 billion, but State and local government debt also in­
creased 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 depres­
sion 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




VOLUME

21

OF OUTSTANDING DEBT

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.
O f 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 Fed­
eral 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. Follow­
ing 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]
I
Item

1929

1930

1931

1932

1933

1934

1935

18,170

17,916

19, 648

23, 350

28,191

37, 988

41,453

United States G overnm ent_________________
Interest-bearing_________________________
Public issues.------------------------------- Bonds_________ . . ____________
N otes_______
----Certificates of indebtedness and
Treasury bills . . . ___ - Special issues to Government agencies
and trust funds. _________ _____
Non-interest-bearing____________________
Debt bearing no interest. ______
Matured debt on which interest has
ceased ........................... - ------- ---------Federal agencies
........... ............................ .
Farm loan s y s tem ______________________
Homo loan system
_____
Reconstruction Finance Corporation
Other Federal corporations and agencies

16,301
16, 029
15, 401
12,110
1,885

16,026
15, 774
14, 993
12,113
1, 561

17, 826
17, 528
17,135
14, 298
600

20, 805
20, 448
20,097
14, 223
3,075

23, 815
23,450
23,079
15, 569
4, 880

28, 480
27, 944
27, 386
16, 245
9,187

30, 557
29, 596
28,868
14, 672
11, 792

1,406

1,319

2,237

2, 799

2, 630

1,954

2,404

628
272
232

781
252
230

393
298
244

351
357
293

558
536
4i>5

728
961
737

40
1,869
1,869

22
1,890
1,890

54
1,822
1,822

64
2, 545
1, 735

371
365
300
•
65
4, 376
1,819
27
2, 530

51
9,508
3, 267
2,407
3,834

224
10,896
3,693
2,855
4, 348

Total duplicating debt________________

2, 472

2, 525

2, 557

4, 637

7,163

14, 907

15,489

Total gross Federal d eb t_____________

810

____

■ __

United States Government and Federal
agency holdings of United States Govern­
ment securities_______ __ ______ ___ ..
United States Government and Federal
agency holdings of Federal agency securi­
ties--- -------------------- --------------------------------Loans receivable held by Federal agencies___

928

704

503

611

953

2, 840

1,731

116
1,428

116
1,705

111
1, 943

918
3,108

2, 459
3, 751

4, 653
7,414

5, 322
8, 436

Total net Federal debt________________

15, 698

15, 391

17,091

18, 713

21,028

23,081

25,964




22

INDEBTED NESS IN TH E

U N ITED STATES

Table 3.— Gross and Net Debt o the United States Government and Federal
Corporations and Agencies, 1929-41— Continued.
Item
Total gross Federal d e b t ____________ ____ ____
United States Government ______ _________________
Interest-bearing . _____________________________
Public issues___________ __________________ _
Bonds__ ________ ______ ____ __________
Notes_____________________. . . . _________
Certificates of indebtedness and Treasury
bills___________
. .
_____
Special issues to Government agencies and
trust funds . __ _________________________
Non-interest-bearing _
_ _____________________
Debt bearing no interest
__ _ _______ ____
Matured debt on which interest has ceased___
Federal agencies . __________________ . ___________
Farm loan system_______________________________
Home loan system. _ ___ _ _ _ _ _ ______________
Reconstruction Finance Corporation __________
Other Federal corporations and agencies ________
Total duplicating debt______________ ____ _____
United States Government and Federal agency hold­
ings of United States Government securities
._
United States Government and Federal agency hold­
ings of Federal agency securities. ._ .................. .......
Loans receivable held by Federal agencies __________
Total net Federal debt________________________

1936

1937

1938

1939

1940

1941

45.070

47, 760

47, 457

49, 900

53, 097

66, 415

34, 406
33, 699
33,067
20. 575
10, 289

37, 286
36, 715
34, 488
21, 989
10, 547

39, 439
38, 911
35, 754
25,952
8, 496

41, 961
41, 465
37, 234
29, 576
6,203

45, 024
44. 458
41, 544
32,101
6, 178

57, 938
57, 451
50, 470
40. 000
8,468

2,203

1,952

1,306

1,455

3, 265

2,002

632
707
554
153
10, 664
3, 732
2,995
3, 937

2. 227
571
472
99
10, 474
3, 557
3, 015
3, 902

3,156
528
427
101
8, 018
3, 464
2, 988
1,264
302

4, 231
496
398
98
7, 939
3, 356
2, 800
1,107
676

2,914
566
377
189
8,073
3,922
3,034
1,097
20

6,981
487
362
125
8. 477
3, 925
2. 729
1,802
21

15.600

16, 450

14, 839

15,138

16, 700

17, 762

2, 528

3.800

4, 990

6,166

7, 542

8, 352

4,910
8,162

4.801
7, 849

1,985
7, 864

1,222
7, 750

1,212
7, 946

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 govern­
mental finance, short-term obligations do not necessarily signify
short-term needs for funds. Instead, the relative uses made of short­
term 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 in­
cludes 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




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 Fed­
eral agency outstandings was increased by the creation of the Recon­
struction Finance Corporation in 1932, by the absorption of the
joint-stock land banks, and by the development of Land Bank Com­
missioner 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 out­
standings 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 Corpora­
tion debts totaled 1,103 million dollars. All of these debts, except
obligations in the amount of 7 million, were held by nongovern­
mental 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 Admin­
istration debentures, 2,600 million of Home Owners’ Loan Corpora­
tion 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 guaran­
tee 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.
• B onds, n otes, and d ebentures, exclu siv e o f accrued in terest, in th e hands o f the public.




24

IN DEBTEDNESS IN TH E

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 dur­
ing 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

17, 234

18, 459

19, 534

19,804

19,985

19, 286

19,429

2. 300
2, 233
Interest-bearing 2_--------- -----------------------67
N on-interest-bearing___________________ 1
14, 934
Local government___________ ___________ 14, 527
Interest-bearing______________ _______
407
Non-interest-bearing................................ i

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 t y .-.......................................... .......... ' 2, 270
9, 259
M unicipal 3__---------------------------------------1.956
School district__________________________
1, 449
Special district-______ _________________

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 gross d e b t____________________

1935

3, 520

3, 753

3,616

3.010

3,178

3, 371

3,496

State and local government:
Sinkine fund___________ _______ ________
Investment and trust fund______________

2, 281
1, 239

2,418
1,335

2,141
1, 475

1,399
1, 611

1, 417
1,761

1,436
1, 935

1,454
2,042

State_________ _________ ________ __________ Sinking fu n d .............. ................................Investment ana trust fund_____________
Local government__________________________
Sinking fund___________________________
Investment and trust fund______________

1,143
402
741
2, 377
1,879
498

1,204
412
792
2, 549
2,006
543

1,290
446
844
2, 326
1,695
631

1, 403
471
932
1,607
928
679

1,525
496
1,029
1, 653
921
732

1, 663
521
1,142
1, 708
915
793

1, 763
546
1,217
1, 733
908
825

Total net d ebt......................................... 1 13,714

14, 706

15,918

16, 794

16, 807

15,915

15,933

1,240
1,376
13, 466 | 14,542

1,493
15,301

1,493
15,314

1, 538
14,377

1, 568
14,365

Total duplicating d eb t........... ................

State
- ______________________________
Local covernm ent_______
_______ - .......... -

1,157
12, 557

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.




VOLUME

25

OF OUTSTANDING DEBT

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

1936

1937

1938

1939

1940

1941

19, 662

19, 594

19, 576

19,996

20, 246

20,183

State_______ ____________ _____ _____________ ______
3,318
Interest-bearing 2.... ............ . . . ______ ________ . 3, 277
41
Non-interest-bearing______ ______________ ___
Local government - _______________ ________________ 16, 344
Interest-bearing ___ _______ _______ _______ _ 1.5,941
Non-interest-bearing. __________________________
403

3,276
3, 242
34
16, 318
15, 918
400

3, 309
3, 277
32
16, 267
15, 887
380

3, 343
3,313
30
16. 653
16,298
355

3, 526
3,498
28
16, 720
16, 393
327

3,370
3,334
36
16,813
16,476
337

County____ ____ _______ ________________________
M u nicipal3______________________________________
School district___________________________________
Special district_________________________________

2, 389
10,058
1, 949
1,948

2, 345
10, 067
1,884
2,022

2, 282
9, 923
1,860
2,202

2, 219
10, 215
1,837
2, 382

2,156
10,189
1, 813
2, 562

2,046
10,210
1, 787
2, 770

Total duplicating debt_____ ______ ____________

3, 629

3, 770

3, 894

3, 993

4,035

4,169

State and local govemment:
Sinking fund____________________________ ________
Investment and trust fund________ _____________

1, 473
2,156

1,491
2, 279

1,501
2, 393

1,530
2, 463

1, 535
2, 500

1,649
2, 520

State_____________________ __________________________
Sinking fund___________ __________ ____ ________
Investment and trust fund______________________
Local government - ____ _________________ ____ . . .
Sinking fund____________________________________
Investment and trust fund______________________

1,868
571
1,297
1,761
902
859

1, 979
596
1, 383
1,791
895
896

2,056
606
1, 450
1,838
895
943

2,107
632
1,475
1,886
898
988

2,137
637
1, 500
1,898
898
1,000

1,826
416
1,410
2,343
1, 233
1,110

Total net d e b t ..____________ __________________

16,033

15,824

15, 682

16,003

16, 211

16,014

State ________________ ____________ _________________
Local govemment ________ ______ ____ ____________

1, 450
14, 583

1,297
14,527

1, 253
14,429

1,236
14, 767

1, 389
14,822

1,544
14,470

2 Excludes State loans to local government units.
3Municipal 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 be­
cause of reduced outlays for public works and relief following in­
creased 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 govern­
ment 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




26

IN DEBTEDNESS IN TH E

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 govern­
ment 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 juris­
diction 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 securi­
ties in State and local government funds are not exclusively nominal
debt, the error in so regarding these funds is relatively small.
O f 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. Coun­
ties 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 where school dis­
7
tricts 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 approxi­
mately 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 vari­
ety 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.




VOLUME

27

OF OUTSTANDING DEBT

Table 5.— Outstanding Debts of Selected Special Districts, as of June 30, 1940 and
1941
[Thousands of dollars]
Special district
Port of New York A uthority__________________________
Metropolitan Water District of Southern California___
Chicago Sanitary D istrict-------------------------------------------Triborough Bridge A uthority---------------------- ---------------Chicago Park District_______________ _______ _________
East Bay Municipal Utility District__________________
Boston Metropolitan District_____________ ___________
Pennsylvania Turnpike C om m ission.____ ____________
New York City Tunnel A uthority____________________
Coachella Irrigation D is tr ic t _______________________
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___________________ _

229, 431
168, 588
110, 583
98, 500
97, 598
57, 235
63, 320
41, 800
40,116
38, 550
37,054
35,000
30, 632
25,000
23,183
23,161
20, 300
19, 793
317, 638

190,985
187,110
114, 568
98, 500
98. 597
55, 605
51, 533
40, 800
45,116
11,000
36, 600
35,000
29,116
25,000
45,146
26, 540
0)
0)
0)

1Not 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 recla­
mation 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 re­
cent 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.) O f 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 long­
term debt were smaller than those taking place in short-term obli­
gations. 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 in­
debtedness. Similar decreases of 12 and 8 billion in net private debt




28

IND EBTED NESS IN T H E UN ITED STATES

followed in 1932 and 1933, respectively. At the end of 1933, short­
term 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

80

60

40

20

0
1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941
D.D. 4 1 -3 6 7

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 iy 2 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 ad­
vance 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, how­
ever, 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.




VOLUME

OF OUTSTANDING DEBT

29

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. Aggre­
gating 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 out­
standings 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. Obliga­
tions 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 corpora­
tions 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 long­
term debt to move lower in 1930. During that year, farm-mortgage




30

IN DEBTEDNESS IN TH E

UN ITED 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 ap­
pear 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 long­
term debt—an increase that merits special examination. Two factors
are mainly responsible for this increase in long-term debts of corpora­
tions. In the first place, bank loans of short duration, commonly re­
newed 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 de­
tailed 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




31

VOLUME OF OUTSTANDING DEBT

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 ------------------------------------------------------------------------------------------CONSUMER
NONCORPORATE COMMERCIAL

50

CORPORATE

40

30

20

10
0

1

I II
I I

I

1

I

1

1

1

i

I I 1111111III

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 meas­
ured 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 pay­




32

IN DEBTEDNESS IN TH E U N ITED 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 allo­
cated 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 i a l P u r p o s e s

O f 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
o f business establishments—corporate and noncorporate alike—to
increase the rate of inventory turn-over and, accordingly, to reduce




VOLUME OF OUTSTANDING DEBT

33

the need for cash and credit in financing a given volume of business
also has contributed to the low level, compared with that of 1929, of
T
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 con­
sumer 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. I f
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 long­
term corporate debt being effected. Though consideration was given




34

IND EBTEDNESS IN TH E U N ITED 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
o f debt information. However, in certain other instances, adjust­
ments 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 short­
term 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 o f
$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 in­
surance 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 inter­
mediary 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
intercorporate debt was a somewhat smaller component of gross cor­




VOLUME

OF OUTSTANDING DEBT

35

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 dimin­
ishing 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 agen­
cies have been combined into two major units: (1) The Federal Govern­
ment with its corporations and agencies and (2) State and local gov­
ernments. 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 inter­
mediary debt amounted to 2,472 million dollars, as shown in table
3. O f this sum, 928 million consisted of United States Government
obligations held by the United States Government and Federal agen­
cies, 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 Own­
ers’ 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,




36

INDEBTEDNESS IN T H E

U N ITED 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. A t
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 dupli­
cating debt from the combined gross debt of the United States Gov­
ernment 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 obliga­
tions 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 govern­
ment 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 indebted­
ness. 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 accu­
mulated 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 prin­
cipal. The most common purposes for which these funds are created
7
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.




VOLUME

OF OUTSTANDING DEBT

37

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 per­
manent 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 gov­
ernmental 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 invest­
ment 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 gov­
ernment 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 re­
ports of each of the 48 States. When questions arose relating to
whether borderline debts should be classed as State or local govern­
ment, 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,




38

INDEBTEDNESS IN TH E 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 ar­
rive 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 popu­
lation 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.




C hapter

II I

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 in­
dustrial 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 in­
crease 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 classi­
fied according to the predominant activity of that unit.
I f 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 organiza­
tion. 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 undeter­
mined proportion of which is the debt of holding companies, aver­




39

40

IND EBTEDNESS IN T H E

U N ITED 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 impos­
sible 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 appor­
tionment 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.




Table 6.— Gross and Net Corporate Debt, 1929-41 1
[Millions of d olla rs]
1941

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

1940

Total, all corporations................ ............................................... _
Long-term_________________________________ _____ _____
Short-term_ _................. .................. ................. ................. .

90, 291
55, 348
34, 943

91, 670
59, 769
31, 901

86, 964
58, 614
28, 350

81,988
57,146
24,842

78, 819
55,410
23, 409

77, 927
52, 211
25, 716

76, 545
50, 749
25, 796

75, 509
48,930
26, 579

76, 597
50,784
25, 813

74, 279
52,133
22,146

74,800
51, 800
23,000

76, 500
52, 000
24, 500

79, 517
52, 440
27,077

Railway corporations____________________________________________
Long-term_________ ____ _____________________________________
Short-term_____________ __________________________ ______ _
Nonrailway corporations________________________________________
Long-term ..._____________ ___________________________________
Short-term.......... ................... .......................... ............ ......................

14, 638
13, 415
1,223
75, 653
41, 933
33, 720

14,885
13, 709
1,176
76, 785
46,060
30, 725

14, 838
13, 690
1,148
72,126
44, 924
27, 202

14,968
13,831
1,137
67,020
43,315
23, 705

15,011
13, 786
1,225
63, 808
41, 624
22,184

15, 052
13, 788
1, 264
62, 875
38, 423
24, 452

15, 037
13, 662
1,375
61,508
37, 087
24, 421

15, 508
13, 993
1,515
60, 001
34, 937
25, 064

15, 532
13,964
1,568
61, 065
36, 820
24, 245

15, 683
13, 969
1, 714
58, 596
38,164
20, 432

15,833
13, 963
1, 870
58,967
37,837
21,130

15,900
13, 963
1,937
60, 600
38,037
22, 563

15,968
13, 963
2,005
63, 549
38, 477
25,072

Public utilities____________________ ____ ________ _________ ___
Long-term _____ _________________________________________
Short-term_____ ___ _____________________________________

17, 213
14, 467
2, 746

18, 648
15, 665
2,983

18, 307
15, 839
2, 468

18, 386
16,071
2,315

17, 710
15,874
1, 836

17,097
15,135
1, 962

16, 742
14, 776
1,966

15, 871
14, 241
1,630

16,136
14, 427
1,709

16,197
14, 469
1,728

16,005
14, 324
1,681

15,993
14, 338
1,655

15, 991
14, 355
1,636

14, 693
Operating companies_______________________________ ____
Long-term___________________________________________
12, 267
Short-term_____ ______________________________________ 2, 426
2, 520
Holding companies___________ ____ _______________________
2,200
Long-term________ ______________________________ ..
320
Short-term________
_ _______________________
Industrial, financial, and miscellaneous._____ _________________ 58, 440
Long-term ...____ ________________ _____ _________________
27, 466
30, 974
Short-term_____ __________________ ________ ______ ______

15,828
13,165
2, 663
2, 820
2,500
320
58,137
30, 395
27, 742

15, 387
13, 239
2,148
2, 920
2,600
320
53, 819
29, 085
24, 734

15, 566
13, 571
1,995
2, 820
2,500
320
48, 634
27, 244
21, 390

14, 940
13, 424
1,516
2, 770
2, 450
320
46, 098
25, 750
20, 348

14, 377
12, 735
1,642
2, 720
2, 400
320
45, 778
23, 288
22, 490

14,122
12, 476
1,646
2, 620
2, 300
320
44, 766
22, 311
22, 455

13, 331
12, 021
1,310
2, 540
2,220
320
44,130
20, 696
23, 434

13, 633
12, 242
1, 391
2,503
2,185
318
44, 929
22, 393
22, 536

13, 716
12, 304
1, 412
2, 481
2,165
316
42, 399
23, 695
18. 704

13, 536
12,169
1,367
2, 469
2,155
314
42, 962
23, 513
19,449

13, 536
12,193
1,343
2,457
2,145
312
44, 607
23, 699
20,908

13, 546
12, 220
1,326
2,445
2,135
310
47, 558
24,122
23,436

o

55,374
28,011
27, 363
2, 763
2,384
379

51, 218
26, 822
24, 396
2, 601
2, 263
338

46, 220
25,123
21,097
2,414
2,121
293

43, 796
23, 727
20, 069
2, 302
2, 023
279

43, 639
21, 457
22,182
2,139
1,831
308

42, 704
20, 556
22,148
2, 062
1, 755
307

42,181
19, 068
23,113
1,949
1,628
321

42, 870
20, 641
22, 229
2, 059
1,752
307

40, 301
21,851
18,450
2,098
1,844
254

40,879
21,693
19,186
2, 083
1,820
263

42,491
21,864
20, 627
2,116
1,835
281

45, 390
22, 254
23,136
2,168
1, 868
300

O
ft!
W

Total, all corporations_____________________ _____ _________ 16,366
Long-term--------------------------------------------- ---------------------- 10,032
Short-term______
____________ ____ _______________ - 6, 334

16,614
10, 832
5,782

15, 708
10, 587
5,121

14,778
10,301
4,477

14,176
9,966
4, 210

14, 005
9, 383
4, 622

13, 744
9,112
4, 632

13, 224
8, 569
4,655

13,119
8, 698
4,421

12, 404
8, 705
3,699

12,195
8,445
3, 750

12,178
8, 277
3,901

12,346
8,197
4,149

2,045
1, 874
171

2,079
1,914
165

2,073
1,912
161

2,091
1,931
160

2,097
1, 925
172

2,103
1,926
177

2,101
1,909
192

2,166
1,955
211

2,170
1,951
219

2,191
1,951
240

2, 212
1,951
261

2, 221
1,949
272

2,234
1,950
284

Item
GROSS CORPORATE DEBT

0 perating companies_____________ ______ __________ ______

55, 861
Long-term_____________________________________ ____ _.! 25,310
Short-term___________________________________________ 30, 551
2, 579
Holding companies________ _______________________ _____
2,156
Long-term___________________________ ________________
423
Short-term________________ _____ _______ ____ _____
INTERCORPORATE DEBT

Railway corporations___________________ ____ ______________ ______
Long-term______ ________________ ____ _____________ ____ _
.
Short-term_____________________ ____ _________________________

i Adapted from reports of the Bureau of Internal Revenue and the Interstate Commerce Commission.




O
O
g
o
3
a
t3
—

Xl
S
h*
r

S
3
>

H

Table 6.— Gross and Net Corporate Debt, 1929-41— Continued
Item
in t e r c o r p o r a t e

debt—

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

1940

1941

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

9,957
6, 328
3, 629

10,112
6,247
3,865

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

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

continued

Nonrailway corporations________________ ________
Long-term....... .......... ................
Short-term.......... .......... ........ ...

Q AQO

THE
UNITED
STATES




_

I
N

Railway corporations________ _____ _____
Long-term____________________ ___
Short-term______________________
Nonrailway corporations______________
Long-term______________________
.
Short-term_____________________________

INDEBTEDNESS

net corporate debt

Total, all corporations_________________
Long-term................................ ................
Short-term_______ ____ _______________

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.
R A IL W A Y 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 regis­
tered 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 un­
paid was the long duration of the default period. For some railways
in receivership this period continued throughout 1929-41. Receiver­
ships of industrial and public utility corporations generally were
of shorter duration. In comparing unpaid interest accruals of rail­
ways 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 re­
ceivers 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.




44

IN D EBTED N ESS IN TH E UN ITED 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 un­
consolidated 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, pipe­
line companies, telephone and telegraph companies, water companies,
radio broadcasting companies, and companies engaged in the opera­
tion 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 trans­
portation services. The designation, public utility corporations, also
covers docking, drawbridge, wharfage and salvaging, electric rail­
way and aerial transportation, autobus, taxicab, cartage, storage, ship­
ping, 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, ware­
house, 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 re­
organization 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.




COMPONENTS OF PRIVATE D EBT

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 under­
taken in advance o f funding operations.
The volume of debt shown as owed by public utility holding com­
panies, 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 dur­
ing 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 defini­
tion 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 in­
creases 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 invest­
ment 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 com­
panies 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.




46

IN D EBTED N ESS IN T H E U N ITED STATES

Table 7.— Deposit Liabilities of All Banks in the United States, 1929-41
[Millions of dollars]
Other than national banks
Total, all National
banks
banks

Year

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

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

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

Total
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

State
Mutual
(commer­
savings
cial)
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

Other
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

1929________ ______ _
1930........................... 1931......................... .
1932.... ....................... ...
1933.................. ...........
1934....................... .
1935........................... .
1936...............................
1937...............................
1938_________ _______
1939............... .............
1940............ .................

14,948
16, 231
17,384
17,839
18,077
19,030
20,404
21,800
'23,202
24,495
25,827
27,238

1

Losses and
claims not
paid
113
135
153
157
162
154
153
112
11 1

117
124
125

Claims
resisted

10
11

17
21

25
25
24
20

18
17
18
16

Dividends
unpaid and
left to ac­
cumulate
267
303
316
323
337
344
366
371
401
432
467
539

Total lia­
bilities to
policy­
holders
15,338
16,680
17,870
18,340
18,601
19, 553
20,947
22, 303
23,732
25,061
26,436
27,918

Loans to
policy­
holders 1
2,379
2,807
3,369
3,806
3,769
3,658
3, 540
3,411
3,399
3,389
3,248
3,091

N et liabili­
ties to
policy­
holders
12,959
13,873
14, 501
14,534
14,832
15,895
17,407
18,892
20, 333
21,672
23,188
24,827

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 pay­
ment. 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 re­
duction 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 long­
term debt of the 724 solvent corporations for the 3-year period.




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 inven­
tories on a deferred-payment basis or borrow from banks on a short­
term basis to pay for inventory purchases and to make other current
outlays. In 1941 gross short-term debts of these corporations to­
taled 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 approxi­
mately 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 per­
cent 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 com­
panies 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 corpora­
tions 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,
consists of the debts of an issuer held by that issuer or by other mem­




48

'INDEBTEDNESS IN TH E 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 bal­
ance sheets when filing tax returns. This results in some understate­
ment of corporate debt. But since the companies not submitting bal­
ance 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 noncorpo­
rate persons, but includes also the mortgage bonds of incorporated com­
panies. In addition, it includes a small quantity—estimated to be less
than 1 percent of total outstandings—of debenture bonds and unse­
cured 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
Year
Total

1929____________
1930____________
1931......................
1932____________
1933____________
1934____________
1935____________
1936____________
1937____________
1938____________
1939....... ............ 1940____________
1941_............... .
1

Corpor­
ate

Noncor­
porate

29, 390
30, 314
29, 571
27,843
25, 796
24,933
24, 232
23, 660
23,595
23, 792
24, 385
25, 307
25,878

2,789
2,839
2, 763
2,620
2, 458
2, 309
2,161
2,096
2,075
2,079
2,090
2,127
2,145

26,601
27, 475
26,808
25, 223
23,338
22, 624
22,071
21, 564
21,520
21,713
22, 295
23,180
23,733

M ultifamily

Total

7,831
473
8,291
7,993
7,478
6,944
6 , 548
6,311
6,191
6,071
5,970
5,907
5,870

8,

1- to 4-family

Corpor­
ate

Noncor­
porate

1,711
1,747
1, 699
1, 627
1,542
1,410
1, 277
1, 229
1,205
1,193
1,169
1,157
1,145

6 ,1 2 0
6 , 726
6 , 592
6 , 366

5,936
5, 534
5,271
5,082
4,986
4,878
4,801
4, 750
4,725

Total

21,058"
21, 259
20,685
19/242
17,878
17,857
17, 510
17, 225
17, 344
17, 646
18,216
19,123
20,008

Corpor­
ate 1
1,053
1,063
1,034
962
894
893
876
861
867
882
911
956
1 ,0 0 0

Noncor­
porate
20,005
20,196
19,651
18, 280
16,984
16,964
16, 634
16, 364
16,477
16,764
17, 305
18,167
19,008

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.




49

COMPONENTS OF PRIVATE DEBT

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.) O f 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 mod­
erately in 1930 to 21.3 billion. After 1930, outstandings on this class
of urban residential property dropped for 6 consecutive years, reced­
ing 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 wide­
spread and the income of residential property owners was small com­
pared with that of earlier years or compared with their fixed pay­
ments of principal and interest. Loans were difficult to arrange and
maturation of mortgages frequently resulted in defaults and fore­
closures.
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 Non­
corporate Borrowers, 1929-41
[Millions of dollars]

Year
1929 ____________
1930 ____________
1931_________
...
1932______________
1933 ____________
1934 _____________
1935______________

Total
31,618
32,638
31.887
30,034
27, 356
26,661
25,864

Residen­
tial
26,125
26,922
26, 243
24,646
22,920
22,498
21,905

C om ­
mercial
5,493
5, 716
5,644
5, 388
4,436
4,163
3,959

Year
1933 _____________
1937 ____________
1938 _____________
1939 __________ ..
1910 _____________
1941______________

Total
25, 463
25,447
25, 611
26,062
26, 817
27,633

Residen­
tial
21,446
21,463
21, 642
22,106
22, 917
23,733

Com­
mercial
4,017
3,984
3,969
3,956
3,900
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 dol­
lars outstanding in 1940 on 1- to 4-family properties w ere only about
T
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 4family properties. From 1929 to 1930, they followed the general pat­
tern 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 con­
secutive years. At the end of 1941, the multifamily mortgage-debt



50

IND EBTEDNESS IN T H E

U N ITED STATES

index (1929 = 100) stood at 75, compared with 95 for debts against 1to 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, outstand­
ings continued to shrink because of foreclosure actions or reorganiza­
tions 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, multi­
family, 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 informa­
tion showing the extent of the mortgage bonded indebtedness of cor­
porations 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 Com­
merce of Internal Revenue statistics of corporations owning business
and residential real estate in 1937, together with a questionnaire sur­
vey 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, in­
surance 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 fore­
closure, 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 indebted­
ness on multifamily residential real estate. It should be noted that
“ individuals and other noncorporate persons” is a broad category




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 o f 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 in­
dividuals and other noncorporate persons. Commercial property, as
here defined, includes business and professional office buildings,
hotels, restaurants, theaters, and retail and wholesale store build­
ings. 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 repre­
sents 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, re­
spectively. 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 indi­
viduals 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 non­
farm real-estate loans of banks and insurance companies referred to
above permits approximations of the total loans made by these in­
stitutions against commercial real estate. The studies which have
been made of the debts secured by commercial real estate make pos­
sible 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, re­
visions 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.




52

IND EBTEDNESS IN T H E

UNITED STATES

Table 11.— Farm Mortgages and Short-Term Debts of Farmers, by Lending
Agencies, 1929-41
[Millions of dollars]
Item

1929

Total farm mortgages and short-term
d e b t s _________ _ ______ _________
_

1930

1931

Item

T otal farm-mortgage debt______ ___________________
Federal land banks and Land Bank Commis­
sioners1 _______ - ________ _______________ ___
-Joint-stock land banks 2____________________ ____
Life-insurance companies 3_......................................
Commercial banks 6 ___ _______________ ____ ____
Three-State credit agencies 7._ .................... .............
Farm Security Administration__________ _ ____
Construction of farmstead improvements____
Tenant purchase and d evelopm ent 8 _________
Individuals and others___________ ______________
Total short-term debts____________ ______________ .
Agencies supervised by Farm Credit Administra­
tion:
Federal intermediate credit banks 9__________
Production credit associations _ ___ ________
Regional agricultural credit corporations_____
Emergency crop loans 10_____________________
Drought-relief loans______ __________________
Farm Security Administration 12 ______ ________
C om m odity Credit Corporation 14_______________
Commercial banks 17_______ ___________________

1933

8,951

8,992

8,638

7,887

7,786

7,639

1,106
459
1,869
84

1,274
392
1,661
6 556
.80

2,502
256
1,259
499
62

2,854
176
1,055
488
48

5,120

3,924

3,208
1,165

3,019
1,353

83

61

56
61

47
94

24
90

145
91

87
79
32

43
107

1934

11, 460

9, 214
Total farm-mortgage debt________ ____ ______ 9,631
9,458
Federal land banks and Land Bank Com­
1,152
missioners 1 _______ __ ________________
1,186
1,176
Joint-stock land banks 2_________________
591
537
627
Life-insurance companies 3 ........ ................
2,007
2,105
2,059
Commercial banks «
«945
*_____________
Three-State credit agencies 93
93
93
Farm Security A dm inistration___
Construction of farmstead improve­
ments__ _________ ____ ____ ____
_
Tenant purchase and developments8.
Individuals and others__________________
4, 595
5, 425
5, 619
2 ,0 0 2
Total short-term debts _
_______ ___ _
Agencies supervised b y Farm Credit A d ­
ministration:
66
75
Federal intermediate credit banks
.
60
Prod uction credit associations____
Regional agricultural credit corpora­
tions
______ ____ _____________
9
50
Emergency crop loans 10 _____________
0 1
)
Drought-relief loans __ _ - ______
Farm Security Administration 12________
C om m odity Credit Corporation 1 4 _____
1,936
Commercial banks 17_________ _________
(“ )
(“ )

T otal farm mortgages and short-term debts____

1932

1935

13 6

37
808

1 65
5
09

(“ )

66

is 63
1 271
6
662

1936

1937

1938

1939

1940

8 , 660

8 , 705

9,033

8,855

9,118 ----------

7, 390

7, 214

7,071

6,910

6,821

2,889
133
936
488
33

2,836
104
895
501
25
4
4

2,

2, 584

2, 488
49
887
543

2, 911
1,270

2,849
1,491

41
105
25
105
60
13 132
1 208
6
594

40
138
16
116
57
13163
16173
788

723
87
887
519
17
15

66
4

874
534
39

6

6

9
2,808
1,948

32
2,775
1,908

34
148

33
154

11

117
55
210

309
1,065

8

116
53
276
173
1,094

'

1941

72
7
65
2 , 710
2, 227
34
172 }
6

118
50
313
252
1,281

6,

787

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 B est’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.
1 Revised to include 1918-19 seed loans to farmers.
0
1 N ot available.
1
1 Rural rehabilitation loans to individuals. Includes loans from State rural rehabilitation corporations.
2
1 Estimated.
3
1 Does not include loans held by other financing institutions, mainly commercial banks, and covered C om ­
4
m odity Credit Corporation purchase agreements.
1 Revised.
6
1 Revised to exclude loans to cooperative associations.
P
1 Insured commercial banks only, except in 1931, when all open State and national banks are covered.
7
1 Estimate based on percentage change in agricultural loans of operating insured commercial banks from
8
June 1940 to June 1941.
Source: Bureau of Agricultural Economics, except for short-term debts owed to commercial banks for 1929
and 1931-33.




53

COMPONENTS OF PRIVATE DEBT

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 per­
cent, 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 !~ 4 7 4

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 organiza­
tions, 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.




54

IN D EBTED N ESS IN T H E U N ITED 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 out­
standings of farmers were owed to commercial banks. O f the sum
owed to Federal agencies, the largest amounts were owed to the Com­
modity 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 produc­
tive 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 mil­
lion dollars. These short-term farm debts comprise a part of the short­
term 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
Total, all
agencies

Year

1929......................................
1930 ........................ ..........
1931 ________ ______ ___
1932 ___________________
1933 _____ _____________
1934. ____________________
1935 _____ _____________
1936_____________________
1 9 3 7 ._____ ______ ______
1938 ...................................
1939................................
1940......................................
1941
............... .

Federal
inter­
mediate
credit
banks

41
201
201

169
192
117
99
138
165
248
307
368
427

Agricul­
Banks
tural M ar­
for coop­ keting Act
eratives Revolving
Fund

26
64
45
10

15
34
3
2
2
1
2
1

19
28
50
70
88

87
76
75
109

15
137
156
159
158
55
44
54
31
24
21

17
17

Rural
Farm
Electrifi­
Security
cation
Adminis­
Adminis­
tration 2
tration 1

Com ­
modity
Credit
Corpo­
ration

2

32
3 30
3 79
169
232
301

3
34
8
12

15

8
10

49
27
28

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 bor­
rowers 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 shrink­
age since 1929. Nearly all the decline occurred between 1929 and




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 irregu­
larly 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 con­
tributed 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.




Table 13.— Short-Term Debts of Individuals and Other Noncorporate Borrowers, 1929-41
Item

1929

1930

| 1931

| 1932

1933 | 1934

1935

1936

Cn

1937

1938

1939

1940

1941

Millions of dollars
25, 732

20, 464

15,026

12,428

12, 705

13, 359

14,917

16,115

15,183

15, 547

16, 473

18, 973

19,753
14,654
5,000
99
59
40
8,142
4,564
585
1,343
1,650

18,332
15,266
2,800
266
66
200
7,400
4,261
560
981
1,598

14,094
12,469
1,300
325
124
201
6,370
3,734
520
817
1,299

10,303
9,136
800
367
197
170
4, 723
2,925
480
325
993

7, 991
6,469
1, 270
552
361
191
4, 437
2,878
450
261
848

7,723
6,085
1,170
468
352
116
4,982
3,010
440
602
930

7,499
5, 514
1,258
727
629
98
5,860
3, 221
465
1,049
1,125

7, 642
5,557
1,395
690
552
138
7, 275
3, 566
510
1, 777
1,422

7,990
6,128
985
877
712
165
8,125
3, 818
550
1,979
1, 778

7,419
5, 247
991
1,181
932
249
7,764
3,572
500
1,950
1,742

7,242
5,190
906
1,146
840
306
8,305
3,668
540
2,165
1,932

7, 623
5,578
677
1,368
1,000
368
8,850
3,840
590
2,210
2,210

9,380
7,486
606
1,288
857
431
9,593
4,136
603
2,442
2,412

100.0

Percentages of total
Total short-term d e b t .................. .............. ................................ .

100.0

70.8
52.5
17.9
.4
29.2
16.4
2.1
4.8
5.9

71.2
59.3
10.9
1.0
28.8
16.6
2.2
3.8
6.2

68.9
60.9
6.4
1.6
31.1
18.3
2.5
4.0
6.3

68.6
60.8
5.3
2.5
31.4
19.4
3.2
2.2
6.6

65.1
50.8
10.0
4.3
34.9
22.6
3.5
2.1
6.7

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

60.8
47.9
9.2
3.7
39.2
23.7
3.5
4.7
7.3

56.1
41.3
9.4
5.4
43.9
24.1
3.5
7.9
8.4

51.2
37.2
9.4
4.6
48.8
23.9
3.4
11.9
9.6

49.6
38.0
6.1
5.5
50.4
23.7
3.4
12.3
11.0

50.1
35.4
6.7
8.0
49.9
24.1
3.4
13.2
11.8

47.3
33.9
5.9
7.5
52.7
24.0
3.5
14.1
12.6

45.5
33.4
4.0
8.1
54.5
23.0
3.5
13.2
13.2

49.4
39.5
3.2
6.8
50.6
21.8
3.2
12.9
12.7

187.2

172.7

137.3

100.8

85.4

85.3

89.6

100.1

261.4
265.1
451.7
10.7
8.0
20.9
109.1
127.9
114.0
75.3
103.1

242.6
276.2
252.9
28.8
9.0
104.7
99.1
119.4
109.2
55.0
99.9

186.5
225.6
117.4
35.2
16.9
105.2
85.3
104.6
101.4
45.8
81.2

136.3
165.3
72.3
39.7
26.9
89.0
63.3
82.0
93.6
18.2
62.1

109.7
117.0
114.7
59.7
49.2
100.0
59.4
80.6
87.7
14.6
53.0

102.2
110.1
105.7
50.6
48.0
60.7
66.7
84.3
85.8
33.7
58.1

99.2
99.8
113.6
78.7
85.8
51.3
78.5
90.2
90.6
58.8
70.3

101.1
100.5
126.0
74.7
75.3
72.3
97.4
99.9
99.4
99.6
88.9

108.1

99.4

102.7

112.2

124.0

105.7
110.9
89.0
94.9
97.1
86.4
108.8
107.0
107.2
110.9
111.1

98.2
94.9
89.5
127.8
127.1
130.4
104.0
100.1
97.5
109.3
108.9

95.8
93.9
81.8
. 124.0
114.6
160.2
111.2
102.8
105.3
121.4
120.8

100.9
100.9
61.2
147.9
136.4
192.7
118.5
107.6
115.0
123.9
138.1

124.1
135.4
54.7
139.4
116.9
225.7
128.5
115.9
117.5
136.9
150.8

UNITED

100.0

THE

Commercial and fin a n cia l........ .......................................... ....................
Owed to banks...................... ................... ...........................................
Owed to brokers_______________ __________________ _____ ____
Owed to Government credit agencies (fa rm )...............................
Consumer___ _______ . . .
____________________ ___________ _____
Owed to retail m erchants................................... ................... ............
Owed to service creditors.__ ............. ...........................................
Intermediary financing agencies.............. ............ ................... ........
Cash-lending agencies................... ........................ .......... .......... ........

100.0

100.0

I
N

27,895

INDEBTEDNESS

Total short-term d ebt................................................................... . .
Commercial and financial________ ______ ________ ________ — ........
Owed to banks................. ........................... ........... .........................
______________ ___________ Owed to brokers________________
Owed to Government credit agencies (farm)_________ _______
Farmers_____________________________ __________ ___ _____ _
Farmers’ cooperative associations......... ..................................
Consumer . . _____________ ______________ _______________ _______
Owed to retail merchants 1. _............... ....... ....................................
Owed to service creditors
__ ...............................................
Intermediary financing agencies.......................................... ............
Cash-lending agencies 1_____ __________ _________ ________ , . . .

Index numbers 1935-39=100

Commercial and financial ______ _____ ____________ ________ _____
Owed to banks________________________________________________
Owed to brokers_____________________________________________ _
Owed to Government credit agencies (farm)_______ _______ ___
Farmers......... ............. ... ...... .............................................
Farmers’ cooperative associations......................................... .
Consumer____ _____
___ __________________________ _______ ___
Owed to retail merchants_____ ________ _______________________
Owed to service creditors.. _ ...... .....................................................
Intermediary financing agencies........ ................... ....................—
Cash-lending agencies....................... ................................................

i Consumer Credit and Economic Stability, b y Rolf Nugent, Russell Sage Foundation, for figures, 1929-37.




STATES

Total short-term d eb t...................................................................

COMPONENTS OF PRIVATE DEBT

57

During the period under review, individuals and other noncorpo­
rate 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 Comp­
troller 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 “pur­
pose 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 com­
mercial as distinguished from investment and speculative purposes
has been attempted. However, taking into consideration the chang­
ing 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 re­
duction of financial loans by sale of collateral or by payment. It is
evident that shrinkages in the volume of debts incurred for invest­
ment and speculative purposes, including reductions in obligations
to brokers, accounted for a large part of the decline in the out­
standing obligations of individuals and other noncorporate borrowers
incurred for both commercial and financial purposes.
Because of deficiencies in primary statistics, the debts of unincor­
porated 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, con­
sumer 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 which had taken
T
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 N ugent. R o lf, C onsum er C redit and E co n o m ic S ta b ility, R ussell Sage F ou n d a tion .

464252°— 42------- 5




58

IN D EBTEDN ESS IN T H E U N ITED STATES

reversed their downward trend. It was at this time that the move­
ment 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 under­
taken. 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 ex­
pansion in the sale of consumer goods. Other consumer durable

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 accom­
panied 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
payments* lengthening of the debt contract, and extension of install­



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 sup­
plied 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 ampli­
tude 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 agen­
cies. 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, auto­
motive dealers, and miscellaneous retail outlets. The service credi­
tors include physicians, surgeons, dentists, and others engaged in
the curative services, funeral directors and embalmers, hospitals, law­
yers, laundries, and cleaning and pressing establishments. The third
group of consumer creditors is comprised of installment-finance com­
panies. 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 pay­
able on existing installment accounts. This process continued
through 1932 with the result that the unpaid amounts due install­
ment-finance companies were reduced to two-fifths of their 1929 out­
standings. 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 con­
sumer 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 ser­
vices, many consumers, faced with diminished incomes, dispensed
with all but what they deemed immediately essential dental, medical,



60

IN D EBTED N ESS IN T H E

UNITED

STATES

and surgical services. There were fewer new accounts to replace
those that were being paid off or written off and outstandings accord­
ingly declined until this condition was reversed in 1934. Debts owed
cash-lending agencies declined from 1929 through 1932. It is note­
worthy 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 commodi­
ties, they stimulated installment-company financing. Such new
financing, however, was short-lived and insufficient to offset the down­
ward 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 per­
cent in 1934, 18 percent in 1935, and 24 percent in 1936. After ex­
panding at an unabated rate during the first quarter of 1937, consumer
debts declined later in that year and during 1938. The year-end out­
standings 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 fol­
lowed 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 over­
statement 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 ex­
cluded, 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 approxi­
mation. 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 indi­
viduals’ indebtedness. Since consumer debt is included for all the
years, the error for trend is comparatively small.



C hapter

IV

THE CHANGING STRUCTURE OF DOMESTIC
INDEBTEDNESS
A rounded analysis of the domestic-debt structure must treat the
pattern o f 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 long­
term debt outstanding in 1940. These holdings are in addition to
agricultural loans (not secured by farm land), commercial and indus­
trial 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
Total holdings
Item
1929

j

1939

1940

Banks
1929

1939 -1940

Life-insurance
companies
1929

1939

1940

Other investors 1
1929

1939

1940

Millions of dollars
United States Govern­
ment and Federal
agency______________
State, county, and
municipal _________
Corporate. ................
Farm mortgage_______
Urban real-estate mort­
gage-------------------------

15,698 34, 762 36, 296 4,018 19, 219 20,180

320 5,084 5,584 11,360 10.459 10,532

544 1,641 1,777 11,433 10.459 10,204
13. 714 16,003 16,211 1,737 3,903 4,230
45,316 41,474 41,692 10,505 4,271 3,673 4,384 7,774 8,235 30,427 29,429 29,784
534 2,105
997
519
887
9,631 6,910 6,821
874 6, 529 5,504 5,413
31, 618 26.062 26,817 9,388 8,335 8,660 4,800 4,331 4, 540 17,430 13,396 13,617

Total net public and
long-term private
debt______________ 115,977 125, 211 127, 837 26,645 36,247 37,277 12,153 19, 717 21,010 77,179 69, 247 69,550

1Includes Federal Reserve Bank holdings of United States Government obligations.




61

62

IN DEBTEDNESS IN TH E

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.
Life-insurance
companies

Banks

Total holdings

Other investors

Item
1929

1939

1940

1929

1939

1940

1929

1939

1940

1929

1939

1940

Percentages of total holdings
United States Governernment and Federal
agency____ _________
State, county, and
m unicipal..... ............ .
Corporate ___________
Farm mortgage_______
Urban real-estate mort­
gage----- ------- ------------

100.0

100.0

100.0

25.6

55.3

55.6

2.0

14.6

15.4

72.4

30.1

29.0

100.0
100.0
100.0

100.0
100.0
100.0

100.0
100.0
100.0

12.7
23.2
10.4

24.4
10.3
7.5

26.1
8.8
7.8

4.0
9.7
21.8

10.2
18.7
12.8

11.0
19.8
12.8

83.3
67.1
67.8

65.4
71.0
79.7

62.9
71.4
79.4

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
d e b 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 mort­
gages, 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 obliga­
tions of corporations appear, however, in the net corporate debt out­
standings presented in table 6, since long-term corporate debt em­
braces 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.




CHANGING STRUCTURE

63

OF DOMESTIC INDEBTEDNESS

Table 15.— Estimated Distribution of Tax-Exempt Securities, by Class of Holder,
as of June 30, 1937-40 1
[In billions of dollarsl2

W holly tax-exempt securities

Item and year

All
taxex­
empt
secu­
rities

Partially tax-exempt securities

Securi­ Securi­
ties of
ties of
State
Federal
Securi­
Securi­
ties of instru­ and local
ties of
mental­ govern­
the
the
ities
ments
United
United guaran­ and of
Total States
Total States
teed by
terri­
G ov­
G ov­
the
tories
ern­
ern­
United and in­
ment
ment
States
sular
Govern­ posses­
ment
sions

Securi­
ties of
Federal
instru­
mental­
ities
guaran­
teed by
the
United
States
Govern­
ment

Securi­
ties of
Federal
instru­
mental­
ities not
guaran­
teed by
the
United
States
Govern­
ment

TOTAL AMOUNT OUTSTANDING
1937
1938
1939
1940

.................. ........ ...............
............................. .............
.............................................
................................................

65.6
63.9
67 .7
70.2

36.6
35.0
34.7
35.0

15.1
13.5
12.8
12.9

2 .2
2 .2
2.1
2.1

19.3
19.3
19.8
20 .0

29.0
28.9
33.0
35.2

2 0 .7
23.1
27.1
2 9 .5

8 .3
5 .7
5 .7
5 .5

0.1
.2
.2

15.1
13.8
14.3
15.4

8 .6
9 .9
10.8
11.4

3 .5
4 .6
5 .5
6 .0

.8
.8
.8
.8

4.3
4.5
4 .5
4 .6

6.5
3.9
3 .5
4 .0

2 .5
2 .7
2 .9
3 .6

4.0
1.2
.6
.3

.1

5 0 .5
50.1
53 .4

28 .0
25.1
23.9

1.4
1.4
1.3

15.0
14 8
15.3

22.5
25.0
29.5

18 .2
20 .4
24.2

4 .3
4 .5

.1

54.8

23.6

11 .6
8 .9
7 .3
6 .9

1.3

15.4

31.2

25.9

5.1
5.2

.2
.1

17.7
17.3
19.4

7.7
7.3

2.8
2.8
3.2
3.6

6.5
7.1

12.1
13.1

8 .7

7 .6

.3
.3
.3
.3

8. 7
9 .6

2 0 .7

5.9
4.6
3.8
3.7

9. 5

2.2
2.4
3.2
3.5

.1
.2
.1

3.2
3.4
3.7
3.7

1.1
.9
.9
.9

.3
.2
.3
.3

.8
.7
.6
.6

2.1
2. 5
2. 8
2.8

1.9
2.2
2.4
2.3

.2
.3
.4
.5

6.8
7.1

3.1
2.7
2.6
2.5

1.3
.8
.6
.4

1.8
1.9
2.0
2.1

3. 7
4.4
5. 2
5. 7

3.1
3. 7

.6
.7
.6
.5

HELD BY GOVERNMENTAL
FUNDS, ETC.3
1937
1938
1939
1940

.................. ...................................................................................................
...
................................. .............

TOTAL AMOUNT PRIVATELY
HELD
1937
1938
1939
1940

................................... ..........
...................................... ..........
____________ ______________
__________________________

HELD BY ALL ACTIVE BANKS,
EXCEPT MUTUAL SAVINGS
BANKS
1937
1938
1939
1940

________________________
................ - ..............................
.................................................
- .................. - ..........................

9 .0

HELD BY MUTUAL SAVINGS
BANKS
1937
1938
1939
1940

...............................................
____________ ______________
__________________
.
- - - - - - - _____________

HELD BY INSURANCE COM­
PANIES
1937
1938
1939
1940

..............................................
_____ ____________ _______
.........................- ..........
________________________

7.8

8.2

4 .6

5.2

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 b y deducting from the total amount of tax-exempt securities outstanding the amount
of all tax-exempt securities held b y governmental funds, and so on. Net indebtedness, on the other hand,
is derived b y 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 b y (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.




64

IN DEBTEDNESS IN TH E UNITED

STATES

Table 15.— Estimated Distribution of Tax-Exempt Securities, by Class of Holder,
as of June 30, 1937-40— Continued
W holly tax-exempt securities

Item and year

All
taxex­
empt
secu­
rities

Securi­
ties of
the
United
Total
States
G ov­
ern­
ment

Partially tax-exempt securities

Securi­ Securi­
ties of
ties of
Federal
State
instru­ and local
mental­ govern­
ities
ments
guaran­ and of Total
teed b y
terri­
the
tories
United and in­
sular
States
Govern­ posses­
ment
sions

Securi­
ties of
the
United
States
Gov­
ern­
ment

Securi­
ties of
Federal
instru­
mental­
ities
guaran­
teed b y
the
United
States
Govern­
ment

Securi­
ties of
Federal
instru­
mental­
ities not
guaran­
teed b y
the
United
States
Govern­
ment

HELD BY C O R P O R A T I O N S
OTHER THAN BANKS AND
INSURANCE COMPANIES
1937
_______ ________________
1938
__________________ _______
1939______________________________
1940
_______________________

2 .8
2. 6
2 .5
2 .4

1.8
1.5
1.3
1 .2

1.1
.8
.6
.6

1.0
1.0
1.3
1.3

.6
.6
.8
.8

.1
.1
.1
.1

19.0
18. 7
18. 7
18.5

12. 4
11.7
11. 0
10.6

2 .9
2 .4
1.9
1.8

.
1
.
1
.1
.
1

.6
.6
.6
.5

1 .0
1.1
1 .2
1 .2

.7
.8
.9
1 .0

.3
.3
.3
.2

.5
.5
.7
.7

.4
.4
.5
.5

.3
.3
.4
.4

.1
.1
.1
1

8 .5
8 .3
8. 2
7 .9

6 .6
7 .0

5.7
6 .3
7 .2
7 .5

.9
.7
.5
.4

HELD BY TAX-EXEMPT INSTI­
TUTIONS OTHER THAN MU­
TUAL SAVINGS BANKS
1937
1938
1939
1940

_________________________
__________________________
__________________ ________
________________

.

HELD BY INDIVIDUALS
1937
1938
1939
1940

___________________________
___________________________
__________________________
__________________________

1.0
1 .0
.9
.9

7.7
7 .9

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 com­
pares 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 govern­
ment 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 resi­
dential 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 prin­
cipal investor classes. Perhaps the most important change occurring




CHANGING STRUCTURE OF DOMESTIC INDEBTEDNESS

65

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 trans­
fer 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 mort­
gages 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]

Year

1929____ _____ ____ _____ ____ _
1930.................................................
1931___________ ____ __________
1932___________________ _______
1933................................................
1934............. ...................................
1935............................ ..............._.
1936_________________ _________
1937......... ..................................... .
1938___________________________
1 93 9 ..............................................
1940.............................................
1941...................... ..........................

Savings
and loan
associa­
tions

Total

21,058
21,358
20,685
19, 242
17,878
17,857
17, 510
17,225
17, 344
17, 646
18, 216
19,123
20,008

6,507
6,402
5,890
5,148
4, 437
3, 710
3, 293
3, 237
3, 420
3, 555
3, 758
4,104
4,479

Insurance
com­
panies

1,626
1, 732
1, 775
1, 724
1,599
1,379
1, 281
1, 245
1, 246
1, 320
1,490
1, 758
2,058

Home
Mutual Commer­ Owners' Indivi­
savings
Loan
duals and
cial banks
banks
Corpora­ others 1
tion
3,225
3,300
3.375
3,375
3, 200
3,000
2,850
2,750
2,700
2, 670
2. 680
2, 700
2,720

2,500
2,524
2,145
1,995
1,810
1,189
1,189
1, 230
1,400
1,600
1, 810
2,0*5
2,380

132
2,379
2,897
2, 763
2, 398
2,169
2,038
1,956
1,781

7,200
7,400
7, 500
7,000
6, 700
6,200
6,000
6,000
6,180
6, 332
6,440
6, 510
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 establish­
ments. Other types, exemplified by accounts payable, do not bear
interest unless payment is deferred beyond a given date, when some




66

IND EBTEDNESS IN TH E 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 mer­
chandise, bear interest, but the interest charges may be so inter­
mingled 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 corpora­
tions, the mortgage debts of farmers, and the commercial and resi­
dential 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 govern­
ments. 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




CHANGING STRUCTURE

OF DOMESTIC INDEBTEDNESS

67

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 out­
standings o f 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.

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

1940

Figure ll.-'-Indexes of interest payable on components of public debt, 1929-41.




1941

Table 17.— Net Public and Net 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

§3

1941

Volume of debt outstanding (millions of dollars)
Total net long-term d e b t..

115, 230 120,405 121,365 120,193 117,690 115, 277 115,627 117, 566 120,880 123,483 126, 249 128,904
28,666
15,426
13,673
1,753
13,240
86, 564
11,541
33,775
9,630
31, 618

29,371
15,139
13,365
1,774
14, 232
91.034
11, 795
37,142
9,459
32,638

32,237
16, 793
15,082
1, 711
15,444
89,128
11, 778
36, 249
9, 214
31,887

34,676
18,356
16,729
1,627
16,320
85,517
11,900
34,945
8, 638
30, 034

37,003
20, 663
18,746
1,917
16, 340
80,687
11,861
33, 583
7,887
27, 356

38,002
22, 545
17, 690
4, 855
15,457
77, 275
11,862
30, 966
7, 786
26, 661

40,486
25,003
19.429
5, 574
15,483
75,141
11, 753
29,884
7,640
25, 864

44,352
28, 763
23,009
5, 754
15, 589
73, 214
12,038
28,323
7,390
25,463

46,129
30, 739
25,066
5.673
15,390
74, 751
12,013
30, 073
7,218
25,447

47,360
32, 090
26,057
6.033
15, 270
76,123
12,018
31, 410
7, 084
25,611

142,470

49,884
34, 266
27, 549
6, 717
15,618
76,327
12,012
31,343
6,910
26,062

51,472
35, 531
28, 970
6,861
15,641
77,361
12, 014
31, 709
6,821
26,817

63,807
48,166
40,612
7,554
15,641
78,663
12,013
32,230
6,787
27,633

4. 264
3. 994
3.919
4.650
4. 550
5. 730
4.670
5.420
6.000
6. 500

5. 335

5. 285

5.187

5.020

4. 710

4.463

4.303

4.199 1 4.073

3.886

3.784

CO

3.595

4.188
3.838
3. 750
4. 550
4. 530
5.740
4.620
5.460
6.000
6. 500

4.105
3.695
3. 599
4. 590
4. 520
5.740
4.670
5.460
6.000
6.500

3. 978
3.496
3.407
4.200
4. 550
5. 720
4.640
5.460
6.000
6.500

3.745
3. 202
3.296
2.700
4. 520
5. 680
4.690
5.460
5.800
6.500

3.402
2. 862
2. 960
2. 580
4.480
5. 560
4. 590
5.400
5. 500
6.300

3.101
2.501
2. 554
2. 360
4.380
5.420
4.600
5.310
5.100
6.100

3.010
2.472
2. 570
2.170
4. 250
5.310
4. 550
5.140
5.100
6.000

2.951
2.464
2. 568
2.100
4.150
5.190
4. 500
5. 070
5.000
5. 800

2.890
2.548
2. 598
2. 290
3. 750
4. 700
4. 500
4. 360
5.000
5.200

2. 789
2. 519
2. 566
2. 250
3. 500
4. 620
4. 500
4.250
5.000
5.100

2.670
2.420
2. 518
1.902
3.400
4. 350
4. 500
3.610
4.940
5.000

2.986
2. 571
2. 586
2. 510
4. 000
4. 920
4. 450
4. 680
5.000
5.500

CO

>
H
M

CO

Average interest-rate index (1935--39 = 100)
Total net long-term d ebt—

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

Public debt_____________________
Federal and Federal agencies.
Federal__________ ________
Federal agency__________
State and local governments.

142.7
159.0
152.2
203.4
110.8

140.2
152.8
145.6
199.0
110.3

137.4
147.1
139.8
200.8
110.1

133.2
139.2
132.3
133.7
110.8

125.4
127.5
128.0
118.1
110.1

113.9
114.0
114.9
112.9
109. 1

103.8
99.6
99.2
103.2
106.7

100.7
98.4
99.8
94.9
103.5

98.8
98.1
99.7
91.9
101.1

99.9
102.4
100.4
109.8
97.4

96.7
101.5
100.9
100.2
91.3

93.4
100.3
99.6
98.4
85.2

89.4
96.4
97.8
83.1
82.8




O
3
M
CO

UNITED

Public d ebt-------------------------------Federal and Federal agencies
Federal_________________
Federal agencies________
State and local governments
Private debt____________________
R ailway____________________
Nonrailway_________________
Farm mortgage—....................
Urban mortgage...................... .

5. 347

W

THE

Average interest rates
Total net long-term d e b t ...

3

I
N

Public debt_____________________
Federal and Federal agencies.
Federal_________________
Federal agencies_________
State and local governments..
Private debt____________________
Railway_____________________
Nonrailway_________________
Farm mortgage______________
Urban mortgage____________

Private d ebt_______
Railway________
N onrailway____
Farm mortgage..
Urban mortgage.

112.2
103.3
110.3
119.0
113.6

112.4
102.2
111.2
119.0
113.6

112.4
103.3
111.2
119.0
113.6

112.0
102.7
111.2
119.0
113.6

111.2
103.8
111.2
115.1
113.6

108.8
101.5
109.9
109.1
110.1

106.1
101.8
108.1
101.2
106.6

104.1)
100.7
104.6
101.2
104.9

101.6
99.6
103.2
99.2
101.4

96.3
98.5
95.3
99.2
96.2

92.0
99.6
88.8
99.2
90.9

90.4
99.6
86.5
99.2
89.2

85.2
99.6
73.5
98.0
87.4

6, 223
1,220

618
536
82
602
5,003
539
1,831
578
2,055

6,475
227
582
501
81
645
i, 261
545
!, 028
567

!, 121

6, 314

6,034

5,665

5,288

5, 305

5, 204

5,065

5,048

5,121

1,319
622
543
79
698
5,155
550
1, 979
553
2,073

1, 381
638
570
68
743
4, 930
552
1,908
518
1,952

1, 409
670
618
52
739
4, 625
556
1,834
457
1, 778

1,341
649
524
125
692
4,324
544
1,672
428
1,680

1,379
716
591
125
663
3,909
548
1,456
377
1, 528

1,402
763
644
119
639
3,903
541
1,525
361
1,476

1, 436
825
674
151
611
3, 768
535
1,470
354
1,409

1,456
870
716
154
586
3,608
541
1,366
346
1,355

1,446
899
745
154
547
3,602
541
1,348
345
1,368

1,699
1,167
1,023
144
532
3,422
541
1,164
335
1,382

O
F

Interest-payable index (1935-39=100)
___ ______________ ____

123.6

123.3

120.3

114.9

107.9

102.7

100.7

101.0

99.1

96.4

96.2

97.5

87.4
81.3
85.9
60.2
94.7
129.8
99.6
123.6
158.1
140.1

87.9
76.5
80.3
59.5
101.5
136.5
100.7
137.0
155.1
144.6

94.6
81.8
87.0
58.0
109.9
133.7
101.6
133.6
151.3
141.3

98.9
83.9
91.3
49.9
116.9
127.9
102.0
128.8
141.7
133.1

100.9
88.1
99.0
38.2
116.3
120.0
102.7
123.9
125.0
121.2

96.1
85.3
83.9
91.8
108.9
112.2
100.5
112.9
117.1
114.5

93.6
82.6
79.5
96.9
106.7
106.0
100.0
107.2
106.7
106.8

98.8
94.2
94.7
91.8
104.3
101.4
101.3
98.2
103.1
104.2

100.4
100.3
103.2
87.4
100.6
101.3
100.0
103.0
98.7
100.6

102.9
108.5
108.0
110.9
96.2
97.8
98.9
99.3
96.8
96.0

104.3
114.4
114.7
113.1
92.2
93.6
100.0
92.2
94.6
92.4

103. 6 '
118.3
118.3
113.2
86.1
93.4
100.0
91.0
94.6
93.3

121.7
153.6
163.9
105.9
83.8
88.8
100.0
78.6
91.6
94.2

INDEBTEDNESS




118.5

DOMESTIC

Total long-term debt.. _________

Public debt-------------------------------------------------------------------------- ---------Federal and Federal agencies_________________________________
Federal__________________________________________________
Federal agencies
_______ ________________ ____ ______
State and local governments . _ ______________________________
Private debt_______ ____________________________________________
Railw ay_____________________ _____ ___________________________
Nonrailway_________________________ ____ ____________________
Farm m ortga ge_________________________ _____ _______________
Urban mortgage_______________________ ________ ______________

STRUCTURE

Total net long-term debt—
Public debt_____________________
Federal and Federal agencies
Federal_________________
Federal agencies________
State and local governments..
Private debt__________________ _
R ailway___________ ____ ____
N onrailw ay._____ __________
Farm mortgage....... .......... ......
Urban mortgage____________

CHANGING

Interest payable (millions of dollars)

70

IN D EBTED N ESS IN TH E

UNITED

STATES

A V E R A G E IN TER E ST R ATE S

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 mod­
erate declines in the interest rate on United States Government obli­
gations 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 per­
cent below the 1929 level.

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

1940

1941
D.D. 41 - 47 9

F igu re 12.— A verage interest rate on com ponents o f p ublic 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 obli­
gations 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.




CHANGING STRUCTURE

OF DOMESTIC INDEBTEDNESS

P u b l ic

71

D ebt

O f 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 Fed­
eral 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 per­
cent, 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 Gov­
ernment 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 in­
terest 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. Wide­
spread 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 pay­
able 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 ap­
preciably 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, while
T
that on public debt declined more than one-tenth and that on United
States Government obligations fell nearly one-fifth.



72

IN DEBTEDNESS IN TH E UNITED

STATES

Unsatisfactory earnings of many corporations kept the rate of in­
terest 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 re­
financing.
Outstandings on urban real-estate mortgage debt owed by indi­
viduals 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

F igu re 13.— A verage interest rate on com ponents o f long-term private debt, 1929-41.

From 1933 to 1941, the average rate on private long-term debt de­
clined 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 ob­
ligations was down only slightly principally because of the low earn­
ings 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
o f 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.




Table 18.— Gross Public and Gross Long-Term Private Interest-Bearing Debt, Average Interest Rates, and Interest Payable in the United
States, 1929-41
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
34, 658 35,649
17,898 17, 664
16,029 15. 774
1,890
1,869
16, 760 17, 985
96, 596 101, 866
13,415 13,709
14, 467 15,665
27,466 30,395
9,630
9,459
31, 618 32, 638

38,410
19,350
17, 528
1,822
19,060
99,715
13,690
15,839
29,085
9, 214
31,887

42,323
22,993
20,448
2,545
19, 330
95,818
13,831
16,071
27, 244
8, 638
30,034

47, 343
27,826
23,450
4, 376
19, 518
90, 653
13,786
15, 874
25,750
7,887
27,356

56, 279
37,452
27, 944
9,508
18,827
86, 658
13,788
15,135
23, 288
7,786
26, 661

59,471
40,492
29, 596
10,896
18,979
84,253
13, 662
14, 776
22, 311
7, 640
25,864

63, 575
44, 363
33, 699
10, 664
19,218
81, 783
13,993
14, 241
20, 696
7, 390
25, 463

66,349
47,189
36, 715
10,474
19,160
83,449
13,964
14, 427
22, 393
7,218
25, 447

66,093
46,929
38,911
8,018
19,164
84,828
13,969
14,469
23, 695
7,084
25, 611

69,015
49,404
41,465
7,939
19,611
84,810
13, 963
14,324
23, 513
6,948
26,062

172,598

72,422
52,531
44,458
8,073
19,891
85, 709
13, 963
14, 338
23,699
6,892
26,817

85,738
65,928
57,451
8,477
19,810
86,860
13,963
14,355
24,122
6, 787
27,633

STRUCTURE

Public d eb t._______________________________________ ____ . ________
Federal and Federal agencies. _____________________ __________
Federal___________________________________________________
Federal a gencies___ _ __ _________ _______ ________
State and local governments. ______________ ____ _____________
Private debt________________________________________________ _____
R ailw ay.. _____________________________________________________
Public utility______________________ ____ _______ ____ ________
Industrial and financial_________________ ______________ _____ _
Farm mortgage________ ___________ _____ ______ ______ _______
Urban mortgage............................- -------------- -----------------------------

CHANGING

464252'

1929
Item

O
F

Average interest rates
5.335

5.285

5.187

5.020

4. 710

4.463

4.303

4.199

4.073

3.886

3.784

3.360

4.188
3.838
3.750
4. 550
4. 530
5.740
4.620
5.200
5.600
6.000
6.500

4.105
3.695
3. 599
4.590
4. 520
5.740
4.670
5.200
5.600
6.000
6.500

3.978
3.496
3.407
4.200
4. 550
5.720
4.640
5.200
5.600
6.000
6.500

3.745
3.202
3. 296
2.700
4.520
5.680
4.690
5.200
5.600
5.800
6.500

3.402
2.862
2.960
2.580
4.480
5.560
4.590
5.100
5.600
5. 500
6.300

3.101
2.501
2. 554
2.360
4.380
5.420
4. 600
4.970
5. 550
5.100
6.100

3.010
2.472
2. 570
2.170
4. 250
5.310
4. 550
4. 750
5.420
5.100
6.000

2.951
2.464
2. 568
2.100
4.150
5.190
4.500
4.650
5.280
5.000
5.800

2.986
2. 571
2. 586
2. 510
4.000
4.920
4.450
4.500
4.800
5.000
5.500

2.890
2.548
2. 598
2.290
3. 750
4. 700
4. 500
4.300
4.400
5.000
5.200

2.789
2. 519
2. 566
2.250
3. 500
4. 620
4.500
4.100
4.100
5.000
5.100

2.670
2.420
2. 518
1.900
3.400
4.350
4.500
4.000
3.900
4.940
5.000




INDEBTEDNESS

5.347
4.264
3.994
3. 919
4.650
4.550
5.730
4.670
5.200
5. 550
6.000
6.500

DOMESTIC

Total gross long-term d e b t ........... .................................................
Public d eb t_____________________________ _________ _________ _____
Federal and Federal agencies________________________ ______ _
Federal_____________________________ ____ ________________
Federal agencies___ ____________________________________
State and local governments__________________ _______ ________
Private debt— _______ ____________________________________ _______
R ailway__________ ____ ___________________________ _____ _____
Public utility_______ __ _________ _______________ _________
Industrial and financial. ___________________ ____ ___________
Farm m ortgage... __________________________________________
Urban mortgage_____ _________________________________________

CO

Table 18.— Gross Public and Gross Long-Term Private Interest-Bearing Debt, Average Interest Rates, and Interest Payable in the United
States, 1929-41
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
34, 658 35,649
17,898 17, 664
16,029 15. 774
1,869
1,890
16, 760 17, 985
96, 596 101, 866
13,415 13,709
14, 467 15,665
27,466 30,395
9,630
9,459
31, 618 32, 638

38,410
19,350
17, 528
1,822
19,060
99,715
13,690
15,839
29,085
9, 214
31,887

42,323
22,993
20,448
2,545
19, 330
95,818
13,831
16,071
27, 244
8, 638
30,034

47, 343
27,826
23,450
4, 376
19, 518
90, 653
13,786
15, 874
25,750
7,887
27,356

56, 279
37,452
27, 944
9,508
18,827
86, 658
13,788
15,135
23, 288
7,786
26, 661

59,471
40,492
29, 596
10,896
18,979
84,253
13, 662
14, 776
22, 311
7, 640
25,864

63, 575
44, 363
33, 699
10, 664
19,218
81, 783
13,993
14, 241
20, 696
7, 390
25, 463

66,349
47,189
36, 715
10,474
19,160
83,449
13,964
14, 427
22, 393
7,218
25, 447

66,093
46,929
38,911
8,018
19,164
84,828
13,969
14,469
23, 695
7,084
25, 611

69,015
49,404
41,465
7,939
19,611
84,810
13, 963
14,324
23, 513
6,948
26,062

172,598

72,422
52,531
44,458
8,073
19,891
85, 709
13, 963
14, 338
23,699
6,892
26,817

85,738
65,928
57,451
8,477
19,810
86,860
13,963
14,355
24,122
6, 787
27,633

STRUCTURE

Public d eb t._______________________________________ ____ . ________
Federal and Federal agencies. _____________________ __________
Federal___________________________________________________
Federal a gencies___ _ __ _________
_____ ________
State and local governments. ______________ ____ _____________
Private debt________________________________________________ _____
R a ilw a y ..-____ _______________________________________________
Public utility______________________ ____ _______ ____ ________
Industrial and financial_________________ ______________ _____ .
Farm mortgage________ ___________ _____ ______ ______ _______
Urban mortgage............................- -------------- -----------------------------

CHANGING

464252'

1929
Item

O
F

Average interest rates
5.335

5.285

5.187

5.020

4. 710

4.463

4.303

4.199

4.073

3.886

3.784

3.360

4.188
3.838
3.750
4. 550
4. 530
5.740
4.620
5.200
5.600
6.000
6.500

4.105
3.695
3. 599
4.590
4. 520
5.740
4.670
5.200
5.600
6.000
6.500

3.978
3.496
3.407
4.200
4. 550
5.720
4.640
5.200
5.600
6.000
6.500

3.745
3.202
3. 296
2.700
4.520
5.680
4.690
5.200
5.600
5.800
6.500

3.402
2.862
2.960
2.580
4.480
5.560
4.590
5.100
5.600
5. 500
6.300

3.101
2.501
2. 554
2.360
4.380
5.420
4. 600
4.970
5. 550
5.100
6.100

3.010
2.472
2. 570
2.170
4. 250
5.310
4. 550
4. 750
5.420
5.100
6.000

2.951
2.464
2. 568
2.100
4.150
5.190
4.500
4.650
5.280
5.000
5.800

2.986
2. 571
2. 586
2. 510
4.000
4.920
4.450
4.500
4.800
5.000
5.500

2.890
2.548
2. 598
2.290
3. 750
4. 700
4. 500
4.300
4.400
5.000
5.200

2.789
2. 519
2. 566
2.250
3. 500
4. 620
4.500
4.100
4.100
5.000
5.100

2.670
2.420
2. 518
1.900
3.400
4.350
4.500
4.000
3.900
4.940
5.000




INDEBTEDNESS

5.347
4.264
3.994
3. 919
4.650
4.550
5.730
4.670
5.200
5. 550
6.000
6.500

DOMESTIC

Total gross long-term debt__......... .................................................
Public d eb t_____________________________ _________ _________ _____
Federal and Federal agencies________________________ ______ _
Federal_____________________________ ____ ________________
Federal agencies___ ____________________________________
State and local governments__________________ _______ ________
Private debt— _______ ____________________________________ _______
R ailway__________ ____ ___________________________ _____ _____
Public utility_______ __ _________ _______________ _________
Industrial and financial. ___________________ ____ ___________
Farm m ortgage... __________________________________________
Urban mortgage_____ _________________________________________

CO

T .H . U . - 0 ™ . P .H *

G ,..» U „ 8. r „ » P H , „ .

1929

In ,et„

1930

1931

1932

Item

1933

1934

» „ In, . res,

1935

1936

1937

1938

^

1939

1940

1941

Interest payable (millions of dollars)
Total gross long-term debt

"

7,185

7,158

6,922

6,732

6,412

6,254

6,290

6,147

5,976

5,979

6,144

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

I
N
THE
UNITED
STATES




"

7,331

1,478
715
628
87
763
5,535
626
752
1, 524
578
2,055

INDEBTEDNESS

7,013

Ai-W U _
t liv t/

Pnhlip flpht
ut
Federal and Federal agencies_______
Federal________ _
Federal agencies______
State and local governments
Private debt__________
R ailw ay______
Public utility_________
Industrial and financial
Farm mortgage
Urban mortgage

T .H . U . - 0 ™ . P .H *

G ,..» U „ 8. r „ » P H , „ .

1929

In ,et„

1930

1931

1932

Item

1933

1934

» „ In, . res,

1935

1936

1937

1938

^

1939

1940

1941

Interest payable (millions of dollars)
Total gross long-term debt

"

7,185

7,158

6,922

6,732

6,412

6,254

6,290

6,147

5,976

5,979

6,144

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

I
N
THE
UNITED
STATES




"

7,331

1,478
715
628
87
763
5,535
626
752
1, 524
578
2,055

INDEBTEDNESS

7,013

Ai-W U _
t liv t/

Pnhlip flpht
ut
Federal and Federal agencies_______
Federal________ _
Federal agencies______
State and local governments
Private debt__________
R ailw ay______
Public utility_________
Industrial and financial
Farm mortgage
Urban mortgage

CHANGING STRUCTURE

OF DOMESTIC INDEBTEDNESS

75

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
o f railway securities in default. The differential between interest pay­
able 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
o f 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




76

IND EBTEDNESS IN TH E U N ITED 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, con­
ditions were less favorable for refunding activities in 1937, and re­
fundings fell by three-fourths to 856 million. In the 3 remaining years
o f 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
o f the outstanding net corporate long-term debt and, excluding rail­
way 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 re­
fundings totaling 6.6 billion dollars, equal to 63 percent of all corporate
refundings in the 6 years from 1935 through 1940. Refunding of rail­
way 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 in­
dustrial and manufacturing corporations” followed with refundings of
596 million.
The refunding in 1939 and 1940 of several issues which had previ­
ously 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 oc­
curred from 1933 to 1936 during which period the Home Owners5Loan
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 pay­
ment 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 pay­
ment 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




CHANGING STRUCTURE

OF DOMESTIC INDEBTEDNESS

77

1929-40. Many debtors, especially farm mortgage and urban resi­
dential mortgage borrowers, avoided foreclosure losses by refinancing
their loans with Federal agencies, and all classes of borrowers substan­
tially lowered their interest payments by refinancing their obligations
at lower rates of interest.
Since corporate receiverships are typically of several years’ dura­
tion, 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 re­
organization and those proposed in other reorganizations at various
stages of completion, it appears that, when additional railway re­
organizations 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

F igu re 14.— C orporate bonds and notes in default, 1929-41.




78

IND EBTEDNESS IN TH E

UNITED

STATES

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
o f 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 de­
cline 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
[Millions of dollars]

Year

Rail­
way

Public
utility

Indus­
trial

Urban
realestate

Total,
all
classes

1929___
1930___
1931___
1932___
1933___
1934___

99
96
260
411
1,484
1, 509

236
285
371
795
906
756

64
104
345
658
852
731

60
137
328
739
995
648

459
622
1,304
2,603
4,237
3,644

Year

Rail­
way

Public
utility

Indus­
trial

Urban
realestate

1935___
1936___
1937___
1938___
1939___
1940___

2,386
2, 710
2, 774
3,178
3, 263
3, 247

673
561
504
412
426
265

684
706
552
401
361
350

572
409
262
224
205
197

Total,
all
classes
4,315
4,386
4,092
4, 215
4,255
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 pro­
tracted receivership of several street-railway systems.




C hapter V

THE SIGNIFICANCE OF A CHANGING DEBT STRUCTURE
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 Govern­
ment expenditure and the resultant broader use of public credit. In
many fields, such as the financing of home ownership and the provi­
sion of funds for farmers, the past decade has brought a substitu­
tion 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 virtu­
ally 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 car­
ried 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 indebted­
ness 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 increas­
ing degree. In effect, then, an increasing portion of the savings of




79

80

IN DEBTEDNESS IN TH E

UNITED STATES

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 post­
war economy has merely reinforced this preference for short-term
borrowing. Furthermore, the war-stimulated industries have bor­
rowed 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 in­
debtedness 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 pres­
sure from business firms in arrears, thus preventing wholesale liquida­
tion 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 de­
lays the readjustments essential to sound recovery. This does not
imply that recovery can be hastened by permitting a general liquida­
tion 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.
A t the present time, no major crises in the private-debt structure
appear imminent, though special problems may occur in those in­
dustries which are seriously curtailed by the war effort. The con­
servative 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 main­
taining 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 w ar.
T
I f 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 eco­




CHANGING DEBT STRUCTURE

81

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 war­
time 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. I f 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 taxa­
tion, public debt is bound to rise to levels much above any we have
yet experienced. It is both socially desirable and economically neces­
sary 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 w ill continue to accrue depreciation allow­
T
ances. Furthermore, the large volume of institutionalized personal
savings can best be tapped through borrowing. These funds consti­
tute 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 con­
struction activities on account of shortages of equipment and sup­
plies. 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 re­
quired 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 mod­
erate over-all growth has covered marked changes in composition.
Railroad and public utility corporations, the chief corporate borrow­
ers on long term, are at present expanding very much less rapidly
than are manufacturing enterprises. Thus, relatively fewer long­
term debt flotations, compared to new short-term borrowing and to
increased sales of corporate stock, appear likely. This trend toward




82

IND EBTEDNESS IN TH E

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 o f 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 evi­
dence 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 sub­
stantial 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 con­
traction. 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 institu­
tions. 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 pos­
sibly 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 in­
debtedness ceased rising. As the depression deepened, the ability
of debtors to meet service and amortization charges on their out­




CHANGING DEBT STRUCTURE

83

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 con­
tinued 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 manufac­
turing 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.







APPENDIX
SOURCES AND METHODS OF ESTIMATION
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 esti­
mates 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 presen­
tation ; 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 cur­
rency, 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 corpora­
tion and agency securities held by Federal Reserve banks. The other class of
duplicating debt is composed of debt obligations receivable by Federal corpora­
tions 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




85

86

IN D EBTED N ESS IN TH E U N ITED STATES

loans receivable of Federal corporations and agencies. A similar analysis was
made of United States Government and Federal corporation and agency securi­
ties 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 spe­
cial 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 inter­
polation 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 informa­
tion 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 corpora­
tions is that these compilations consist of a changing mixture of net debt com­
piled 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




87

APPEN D IX

debt, not appearing in the consolidated statements, showed up in the unconsoli­
dated 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 consoli­
dated returns was broadened slightly to include street, suburban, and interurban
electric railways.
As shown in the tabulation below, nonrailway corporations, prior to the dis­
continuance 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
Consolidated
returns
Year
N on­
Steam
railway railway
1929
_ ____
1930..................
1931 ________
1932.............. .
1933..................

i 90
90
88

8,664
8,861
8, 405
7, 336
7,013

Uncon­
solidated
returns

Total
returns

447,267
454 085
451, 209
444,458
439,741

455, 931
463,036
459, 614
451, 884
446, 842

Consolidated
returns
Year
Steam
N on­
railway railway
1934............
1935 .................
1936............
1937..................
1938..................

76
63
98
93
102

369

2
2

Uncon­
solidated Total
returns returns

469,359
477,050
478, 759
477, 745
470, 930

469,804
477,113
478, 857
477, 838
471,032

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 consoli­
dated returns for 1933 was less by 11.5 billion dollars— equal to $1,640,300 per con­
solidated 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 un­
consolidated 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 per­
cent 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 inter­
corporate 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 non­
railway corporate organization. Few subsidiaries were created or dissolved. The




88

IN D EBTED N ESS IT T T H E UNITED
S

STATES

indebtedness of some existing units owed to other units within given corpo­
rate 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
o f 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 cor­
porate debt. This shrinkage in intercorporate debt w
ras 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
o f more than 1 year from date of issue resulted in the reclassification as long­
term 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 Com­
mission 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 rail­
way 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,”




A PPEN D IX

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 follow s:
“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 resi­
dential 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 de­
tailed 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 in­
volved 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 Comp­
troller 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 mort­
gage 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 Corpora­
tion 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 investi­
gating real-estate bond holdings committees.”




90

IN D EBTED N ESS IN TH E

UNITED

STATES

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 appor­
tionment 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 sub­
stantially 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 non­
corporate 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 Comp­
troller 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 agricul­
tural 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 gen­
erally 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




APPEN D IX

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 Admin­
istration 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 de­
termining 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 long­
term 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 ad­
justed 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 bor­
rowing from banks on serial notes up to 10 years has made the task of deter­
mining 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


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102