Now, this chart shows the excess interest from 1921 to 1944. Excess interest as a percentage of premiums fell 75 percent during that period, from 11.8 percent to 2.9 percent. Excess interest as a percentage of the assets fell from 1.8 percent to approximately 0.3 percent, and the excess interest percentage to insurance in force fell from 0.4 percent in 1921 to 0.1 percent in 1944, or approximately a drop of 75 percent.

In 1944 with about double the volume of insurance in force, and assets over 32 times as large, the companies had only $21,000,000 above their requirements. The 982 percent increase in the insurance in force was accompanied by 46.8 percent decline in excess interest.

Now, these trends, I want to make clear to the committee, do not imply impending insolvency, because there are other sources of gains to surplus. However, the striking decline in interest earnings does mean an increase and a very substantial increase in the cost of security to the large group that through life insurance have provided some kind of a protection for their older years, or some sort of financial estate for their dependents.

Senator MURDOCK. Mr. Douglas, do you attribute-I am sorry I was not here during your early comments-do you attribute the present trend in low interest rates largely to the sale of Government securities?

Mr. DOUGLAS. Well, Senator, it would take probably a substantial period of time adequately to discuss all the causes, implications, and significance. Briefly, it is a function, I believe, Senator, of the public debt and the way in which the public debt and the deficit have been financed.

Senator MURDOCK. Now, you put your finger, as I see the picture, right on the crux of the whole thing. Interest is supposedly paid for a capital loan, isn't it?

Mr. DOUGLAS. Yes.

Senator MURDOCK. But when you have no capital to loan and the borrower is actually creating the capital fund and then borrowing it back, you are just in reverse of what the ordinary interest transaction involves, are you not? So that when we have our Government exchanging Government securities bearing interest for demand deposits with our commercial banks, we have got our whole financing system just in reverse, as I see it. Would it be fair to say, would you agree with me, that instead of financing the war as we have and instead of financing current Government transactions as we are today, by the bond route, that it would be better, taking the entire population and the entire structure here in America into the picture, for the Government to be paying the banks for the bookkeeping they do instead of paying interest on the funds that they have got?

Mr. DOUGLAS. Senator, you have raised one of the most fascinating questions, and I think one of the most interesting, one of the most pregnant with good or evil for the country. You may recall the chart showing the trend of the public debt in its relation to the trend of bank deposits, and I think as a historical fact that substantiates what you are saying.

Senator MURDOCK. Haven't we reached the point now, Mr. Douglas, that point in Government financing, where we are talking about a 42-billion-dollar loan to England, loans through the International

Bank, and contributions to the fund in the Bretton Woods agreement, haven't we reached the point where if we continue the financing of this Government's obligations by exchanging Government securities bearing interest for demand deposits without requiring any reserve, that if that thing is continued we may ruin the whole financial structure here in the United States?

Mr. DOUGLAS. Senator, I have felt-that has been my very strong feeling and conviction since 1934.

Senator MURDOCK. Well, it just seems to me, Mr. Douglas, that we have reached the point right now where if this Government and the Secretary of the Treasury and the Federal Reserve System do not take a look at that picture and present it squarely to the Congress as it should be presented, that insurance companies and all other organizations and institutions depending on interest are going to run into a stone wall that in my opinion will have very serious consequences.

Mr. DOUGLAS. Senator, it is terribly difficult to divorce one's self from one's deep convictions. Sometimes it is difficult to determine whether those convictions are actually the result of a wholly objective process of mind, an intellectual process, or whether in part at least they stem from some previous condition of servitude; but at any rate, as near as I can objectively view the problem, it has been my conviction that the piling up of the public debt and the financing of the deficit as it has been financed was pregnant with extraordinarily disadvantageous consequences for all the people of the United States, because it has an impact upon prices, it has an impact upon wages, it has an impact upon costs, and it has an impact upon almost every little nook and corner of American life.

Senator MURDOCK. In my opinion you are absolutely right. If your charts mean anything at all to me this morning, especially the one that you had up there a few minutes ago, it indicates to me that we are destroying our insurance companies or will destroy them, and all other institutions absolutely dependent on interest, if we continue what seems to me almost an imbecilic method of financing our Government transactions.

Mr. DOUGLAS. May I have the next chart? If the interest rate were 1 percent higher then-I want to silhouette the consequence of thisthese 11 insurance companies that in 1945 declared a dividend in the amount of $102,000,000 and thus reduced the cost of insurance: if, as I say, the interest rate were 1 percent higher, there would have been at least $76,000,000 that could have been declared as a dividend, in addition, or the total amount declared in dividends could have been $178.000,000. That is a model of understatement, and I want to tell you why it is a model of understatement. Practically all the insurance companies in the country have been deducting from gains from mortality and gains from loadings, very substantial sums each year, millions of dollars, to add to the reserve as a compensation for the declining interest rate. Now, if the interest rate were 1 percent higher it would not be necessary for them to make such deductions. Accordingly, while just a straight 1 percent increase in the rate of interest would add $76,000,000, or 75 percent, to the amount paid out in dividends in 1945 it would, in addition, under those circumstances be unnecessary to have made these substantial additions to