Popular Science Monthly/Volume 28/December 1885/Postal Savings-Banks
By Professor D. B. KING.
IT is generally agreed that a system of savings institutions that would be easily accessible to the people throughout the country, give them absolute security for their small savings, and repay deposits at short notice, would, even if the rate of interest were very low, be a great convenience to many people in every community, and a great encouragement to economy and thrift among working-men and people of small incomes. There are many who think that postal savings-banks similar to those which have been in successful operation in Europe and in the British colonies for a number of years would furnish just the sort of facilities for saving that are needed in this country. Many Americans know something of the working of the postal savings-banks in England, where they have been in operation since 1861.
There are now upward of 7,800 of the post-offices in the United Kingdom open, commonly from nine in the morning until six, and on Saturday until nine, in the evening, for the receipt and repayment of deposits. One shilling is the smallest sum that can be deposited. The Government has, however, recently issued blank forms with spaces for twelve penny postage-stamps, and will receive one of these forms with twelve stamps affixed as a deposit. This plan was suggested by the desire to encourage habits of saving among children, and by the success of penny banks in connection with schools and mechanics' institutes. No one can deposit more than £30 in one year, or have to his credit more than £150, exclusive of interest. When principal and interest together amount to £200, interest ceases until the amount has been reduced below £200. Interest at two and a half per cent is paid, beginning the first of the month following the deposit and stopping the last of the month preceding the withdrawal, but no interest is paid on any sum that is less than a pound or not a multiple of a pound. The interest is added to the principal on the 31st of December of each year.
The methods used for the receipt and repayment of deposits are simple and take but little of the depositor's time. One is not limited, in making deposits or withdrawals, to the office in the town in which he lives. If at any time he desires to do so, he may make deposits in other offices, provided he does not go beyond the total sum allowed a single depositor; his accounts will all be kept together in London, and he can withdraw his money on short notice at any office. These provisions for deposit and withdrawal are sometimes a great convenience to travelers and laborers who make frequent removals. The absolute secrecy which is "enforced upon all officers connected with the banks" leads many working-men to deposit their savings with the Government, who could not be induced to deposit their money with private or ordinary savings-banks where their employers might find out that they were laying by money.
Good results almost always follow the opening of one of these savings-bank offices. Numbers of men and women, boys and girls, are gradually induced to become depositors; money that would otherwise be spent in needless indulgence is left at interest with the Government, and habits of thrift and economy are formed. From December 31, 1874, to December 31, 1884, the number of depositors increased from 1,668,733 to 3,333,675, and the deposits from £23,157,409 to £44,773,773. Trust funds and the funds of charitable and friendly societies, for which special provision is made, are deposited in considerable amounts, so that a large number of persons are interested in the banks in this way.
Since the era of the great frauds which led to the establishment of the postal savings-banks, the ordinary trustee savings-banks have been more carefully managed and guarded. While their number has decreased from 653 in 1801 to 411 a year ago, their depositors have not decreased, numbering more than a million and a half, nor have the deposits fallen off. The slightly higher rate of interest which they pay and the prominent and influential persons who are sometimes connected with their management have made them quite popular in some communities. The funds are invested in Government securities and the chances for fraud are slight. The limit to the amount which one person may deposit in the postal savings-banks has prevented their interfering seriously with private banking enterprises. The proposition to extend this limit has been strongly and, thus far, successfully opposed, the opposition coming chiefly from private bankers. It is generally conceded that, without interfering with established institutions to any considerable extent, the postal savings-banks in Great Britain and Ireland have furnished the working classes with excellent facilities for saving, ami have exerted a most beneficial influence in promoting habits of economy and thrift.
The English colonies, seeing the good results of the system that has been described, have established postal savings-banks of a similar character. A higher rate of interest is paid—commonly four per cent—and larger sums are taken from single depositors. The Canadian system, which went into operation in 1868, did not make rapid progress for a time, on account of the good institutions already in existence and the small number of offices of deposit. Greater progress has been made recently. The deposits in
In July, 1884, there were 343 savings-bank offices and 66,682 depositors. Of the depositors, 1,400, having 84,722,000 on deposit, were supposed to be farmers; 7,850, having 81,422,000, mechanics; 4,270, having 8724,000, laborers; 12,000, with 82,350,000 deposits, married women; and 10,500, with deposits amounting to 81,275,000, single women. The accounts are all kept at the head office in Ottawa, to which each postmaster makes daily reports, and from which receipts are sent to every depositor for every deposit that he makes. Although the amounts received have in the aggregate been large, the losses through frauds have been very small.
Influenced by the success of the English system of postal savings banks, the governments on the Continent of Europe have now nearly all made similar provisions for the investment of the surplus earnings of the people. The Italian system of postal savings-banks went into operation February 29, 1876. A year ago all the post-offices, except ten, were open as savings-banks. The interest paid is three and half per cent. In 1883 there were 1,305,743 deposits made, amounting to 105,582,729.55 lire. These savings-bank funds are loaned to provinces, communities, parishes, and their divisions, or are invested in fundable bonds or other securities. In France the proposal to establish postal savings-banks was frequently discussed, but not adopted until March, 1881, although the ordinary savings-banks had for several years been allowed to use the post-offices as places for the receipt and repayment of deposits. On December 31, 1883, there were 77,430,000 francs on deposit in the French postal savings-banks to the credit of 374,970 depositors. The well known success of school savings-banks, which are now or will shortly be established in all the schools of France, and the economical and thrifty habits of the French peasantry, would seem to indicate a demand for good and generally accessible facilities for the secure keeping of savings. The Austrian postal savings-banks were first opened January 12, 1883. Up to December 31, 1884, they had received in all 3,311,233 deposits, amounting to 64,703,350 florins. They are well conducted, and likely to prove very successful. The Belgian system has been in successful operation for more than fifteen years; that of the Netherlands was established some three years ago; while Sweden has just followed her neighbors, Denmark and Norway, in establishing similar institutions.
In 1871 Postmaster-General Creswell recommended the establishment of postal savings depositories in connection with the United States post-offices, and two years later he discussed the subject very fully in his annual report. Several of his successors have renewed his recommendation with great earnestness. Hon. Thomas L. James, after referring to and highly approving of these recommendations, said: "It is my earnest conviction that a system of this description, if adopted, would inure, more than almost any other measure of public importance, to the benefit of the working people of the United States." In 1873 Hon. Horace Maynard brought before Congress a bill to establish a national savings depository, but no action was taken. Since then a number of efforts have been made to induce Congress to enact the necessary legislation. The latest of these efforts was made in 1882, under the leadership of Mr. Lacey, whose report from the Committee on Post-Offices and Post-Roads contains valuable information and suggestions on the subject. The bill which Mr. Lacey introduced, and which has recently been strongly indorsed by the State Charities Aid Association of New York, and other advocates of postal savings banks, provided that none but money-order offices should receive deposits; that no single deposit should be less than ten cents or more than one hundred dollars; that no one person should deposit more than one hundred dollars within thirty days, or have at any time more than five hundred dollars to his credit; and that interest at two per cent should be paid on all sums over three dollars and multiples of one dollar, beginning the first of the month following the deposit, and stopping the last of the month preceding the withdrawal.
Would such postal savings-banks be more convenient and accessible to the masses of the people than existing institutions and organizations which undertake to safely keep the surplus earnings of the people? Would they furnish better security for deposits and greater encouragement to thrift? Could the Government, without interfering with existing institutions and without loss to itself, carry on this savings-bank business? Would the benefits resulting from properly conducted postal savings-banks be sufficient to justify the necessary extension of the functions of our Government and the increase in the number of our civil servants? These are the chief questions to be considered in deciding whether or not it would be wise for the Government to undertake to keep securely the small savings of the people.
There are in this country a number of institutions and organizations which undertake to persuade poor people to form habits of thrift, and to so invest portions of their earnings as to make some provision for the future. Mutual benefit societies are among the oldest of these organizations, and are very numerous. Some of them confine their operations mainly to giving temporary relief in time of sickness or misfortune, or on the death of their members; others have become practically co-operative life-insurance companies. The sums annually paid into these organizations are in the aggregate astonishingly large. None of these societies, however, enable their members to accumulate capital, and many of them are very unstable and unreliable. The better class of them is not accessible to the masses of the people.
Co-operative societies for production and distribution are not numerous in this country. Many co-operative enterprises have been started, but most of them have failed. The interest in such enterprises seems to be increasing, but at present they furnish but few of our working-men with opportunities for the investment of their surplus earnings.
Building and loan associations have done excellent service in some parts of the country by encouraging persons of small incomes to save money and to invest it in houses for their families. In some parts of Pennsylvania these associations have been particularly beneficial. Large sections of Philadelphia, and of some of the smaller cities of the State, have been built up by them, and thousands of working-men have been led to save portions of their wages, and enabled to own their homes through their agency. In some parts of the country, however, they have not been so well managed, and poor people have sometimes suffered loss and hardship in consequence. These hardships and losses have created great distrust of these associations in some communities. Excellent as is the service which they do, they do not furnish facilities for saving which are available for all classes of the people, nor, with their liability to careless or dishonest management, do they furnish anything like an absolute security for money. The necessity of making regular payments to them and to the mutual benefit and co-operative insurance societies is sometimes an additional incentive to economy, but in other instances it is productive of inconvenience and hardship.
The ordinary savings-banks have furnished all classes of the people in some parts of the country with good facilities for saving small sums, and have especially encouraged habits of thrift among the poorer classes. In 1882 there were in the entire country 667 savings-banks, the average deposits of which amounted to $1,003,737,087. At that time the New England States and New York together had about eighty-one per cent of the savings-banks, and eighty-three per cent of the savings-bank deposits of the entire country.
The New England States are, on the whole, fairly well supplied with savings-banks, having, on the average, one for every ten thousand of the population. In some of these States the banks are so distributed as to be easily accessible to most of the people; in others there are many communities which are inconveniently remote from any savings institution. Outside of New England, none of the States are well supplied. Even New York, with its one hundred and twenty-seven banks, contains large sections of populous country in which there is not a single savings-bank. The other States are still worse off. In 1882 there were in the Southern States only nine, and in the Western States, outside of Ohio, Indiana, and California, only twenty-one savings-banks. Pennsylvania, with its great manufacturing and mining industries, employing regularly several hundred thousand laborers, is very badly supplied. A few years ago there were a number of savings-banks doing a large business in various parts of the State. Many of these were loosely or dishonestly managed, and their affairs were wound up, sometimes with loss to depositors or stockholders, or both. There still exist a few old and perfectly sound savings institutions, and there are, besides, many private banking concerns which receive large sums of working-men's earnings, but, on the whole, the lack of facilities for the secure investment of small savings is deplorable.
Where the population is dense and conveniently grouped about a number of centers, as is the case in some parts of New England, the ordinary savings-banks may be made to furnish adequate facilities for the small savings of the people. Most sections of this country are, however, rather sparsely populated, and it would not be possible to maintain a good savings-bank in every small town. Some of the savings-banks have been so well managed and are so strong that it would be hard to find better security than that which they offer. In general, the savings-banks of New England have been well managed. Occasionally there has been bad management, and general financial depression has brought disaster upon some of them. Three out of every eight of the savings-banks of Maine suspended between 1872 and 1870. While the losses to depositors were probably less, as a rule, than those sustained by men who had invested their money in land or other securities, the value of which shrank greatly during those years, still these suspensions greatly impaired the confidence of the people in the stability of savings-banks. New York has some very solid savings institutions. The losses, however, to depositors from the failures of twenty-two savings-banks in that State between 1872 and 1879 amounted to $4,475,061. These losses have led many people to distrust perfectly sound institutions. In some parts of New York, New Jersey, and Pennsylvania great hardship and suffering have been caused by savings-bank failures, and great distrust and discouragement have followed.
None of these organizations or institutions, excellent as they may be, furnish the masses of the people throughout the country with convenient facilities for depositing their savings, nor do they, as a rule, give anything like an absolute security for the funds intrusted to them. There are, moreover, some large sections of the country in which there are no facilities whatever for the safe-keeping of surplus earnings.
Postal savings-banks could easily be made accessible to all the people. There is in every town a post-office, generally conveniently situated, open all day, and visited by many of the people. All classes are accustomed to intrust their letters, and perhaps their money or property, to it. A depository for savings in this office would certainly be accessible to the whole community. A Government guarantee for the money deposited would furnish the absolute security that is needed to encourage the people to intrust their surplus earnings to such savings depositories.
Whether the Government could conduct such institutions without loss to itself, or injury to private enterprise, or the unsafe enlargement of its functions, is a question in regard to which there is some difference of opinion. Perhaps the greatest difficulty would be that of finding some safe, permanent, and profitable use for the money deposited. Many hold that, if the Government should only guarantee the repayment of deposits without interest, large numbers of the people would gladly place their surplus earnings with it for safe keeping. However this may be, a low rate of interest would add much to the popularity and attractiveness of the arrangement. Two per cent has been suggested as a rate that would be attractive to depositors without interfering much with private banking enterprises, provided the sums taken from individual depositors were not too large. It is estimated that the cost of management might, for the first few years, reach three fourths of one per cent. It would be much more likely to fall considerably below than go above this limit. The problem before the Government, then, would be to safely invest the deposits at two and three fourths per cent.
The European nations which have postal savings-banks, with two or three exceptions, have large national debts, which are not likely to be paid off for centuries to come. The investment of small sums by large numbers of the people in Government securities greatly increases the loyalty of the masses and their interest in governmental affairs. The Government thus borrows at a low rate, and an incidental result of its so doing is to render its citizens more thrifty, independent, self-respecting, and loyal. It is certainly an open question whether the policy of rapidly paying off our national debt, when it could be refunded at so low a rate, is wise. Apart from the necessities of the national banking system, there is a great deal to be said in favor of allowing the principal to remain for an indefinite period when the masses of our laboring-men and poorer classes would gladly take the greater part of the loan at two and three fourths per cent, or perhaps even at a lower rate, and be greatly benefited by so doing. The adoption of such a policy would not necessarily involve the abandonment of the policy of protection. The removal of a portion of the internal revenue taxation would accomplish the necessary reduction of the income of the Government. Of the $348,519,869.92 receipts of the Government for last year,$195,067,4899.76 were from customs, $121,586,000 from internal revenue, and the remainder from other sources. Prominent men of both parties are now vigorously advocating a reduction of the burdens of taxation, and, notwithstanding the battle between the free traders and the protectionists, the general demand for relief will no doubt lead to the adoption of some measure that will cut off the unnecessary revenue. It is evident that the adoption of such a measure can not be delayed many years.
Besides national securities, State, county, and municipal bonds would be available for investment by the Government. Many doubt the wisdom of investing in these, because such securities have in so many instances proved unsafe. The bonds, however, of a number of the States and cities are now considered, by those who are accustomed to invest large sums of trust funds, very nearly as good as Government bonds. If the Government should offer to loan the deposits at two and three fourths per cent, numbers of States, counties, and cities which now pay a much higher rate would be glad to refund portions of their debts, and, in consideration of the very low rate of interest, would doubtless be willing to so draw the bonds that in case of default the Government would have no difficulty in enforcing payment. It would of course be necessary that the investments be made with the greatest care, and that those who have the making of them should possess the confidence of the people in a high degree. The good results that came from the Freed man's Bank when it was wisely administered, and the deplorable effects of the loose management of its affairs in the later years of its existence, would serve as valuable lessons for the conduct of Government savings-banks.
For many years our post-office management has been rapidly growing more and more efficient. Perhaps at the present time no great business is managed more efficiently and economically. There is every reason to believe that still further improvements will be made. Every one is so directly interested in cheap postage, and in the sure and quick delivery of the mail, that inefficiency or dishonesty in the Post-Office attracts attention more quickly than in any other department of the Government. Our rates of postage are now as low as those of Great Britain, although we are compelled to maintain several times as many offices and miles of mail-routes in proportion to the quantity of mail-matter as the latter country. It is scarcely conceivable that, with so strong a public sentiment in favor of honest and efficient civil service, any Administration for partisan reasons would dare to substitute to any considerable extent dishonest and inefficient men for those whose ability and integrity have been tried and proved. It would be suicidal in any party to pursue such a course in a department of the Government which reaches and interests so much all classes of the people. The popular interest in its being well managed would be greatly increased if large numbers of the people were in the habit of intrusting their small savings to it for safe-keeping. The new duties and responsibilities would make the demand for the appointment of honest and capable officials even greater than it is at present, and would, therefore, promote the cause of civil-service reform. The additions to our civil-service list required by reason of such an addition to the functions of the Government would be comparatively few. The Post-Office Department, by means of money-orders and postal-notes, now transmits large amounts of money from office to office. Postmasters and clerks are, therefore, in the habit of receiving and paying out many small sums of money, of keeping detailed accounts, and of making frequent reports. No very great modification of the machinery now in use would be needed for conducting a system of savings depositories in connection with the money-order offices. Occasionally a little more office-room, and another clerk or two, would be needed, but the additions would be comparatively insignificant. The new business would require the same sort of talent and skill as that needed for the issue and payment of moneyorders and postal-notes. We might afford to run the risk of whatever danger may come from such an enlargement of the functions and patronage of the Government if postal savings-banks would really prove a great boon to the masses of our people.
Post-office savings-banks would probably not seriously interfere with private banking institutions unless a very high rate of interest were paid and large sums were taken from single depositors. While occasionally deposits would be withdrawn from the ordinary banks and left with the Government, it would probably happen more frequently that poor people who now have no bank accounts would be induced to save some of their earnings, and would in time become capitalists and patrons of national or private banks. In 1873 Mr. Creswell strongly urged that a system of postal savings depositories would not only strengthen our national finances, by bringing large sums into circulation, but would indirectly afford our monetary and banking institutions "the very relief" of "which they stood in need."
It goes without saying that many American working-men are frugal and save considerable portions of their earnings. Evidences of their economy and thrift are seen in the large numbers of capitalists who began life as laborers, and in the thousands of comfortable workingmen's homes which the owners have built or bought with their savings. It is evident, however, that great numbers who might live comfortably, and at the same time save enough to make them independent in sickness or old age, and to give their children a fair start in life, spend all their earnings, and are never far from want. The average American laborer is apt to be too generous and open-handed, spending his hard earned wages recklessly for the gratification of his momentary desires or fancies. Such a man is liable to be largely at the mercy of his employers. Although wages may be at starvation-point, he can not lake his labor to a better market elsewhere. When times are hard, he and his family are likely to suffer. If the great majority of our working-men could be persuaded to save something, however small the sum, each week, the habits of economy and thrift thus acquired would be a great gain to the nation: pauperism and crime would decrease; the comfort, self-respect, and independence of the people would increase; and there would be fewer interruptions to the business and industries of the country growing out of troubles between laborers and employers, for the laborers would become more steady, trustworthy, and independent, less liable to rush recklessly into strikes, and would be less at the mercy of an unfair employer.
Were a system of postal savings-banks established and well conducted, there is no doubt that large numbers of our laboring classes would soon become depositors of small sums. Many working-men now have great difficulty in keeping securely money which they wish to save; others often spend all their earnings for drink or the gratification of their whims or fancies, when they would not do so if they had some perfectly safe and convenient place to deposit the money where it would bring them a little interest, and the fact of their having it be kept a secret. The masses of the people have the greatest confidence in the Government, and would gladly intrust their small savings to its keeping, provided such a system of savings depositories were devised, with such men in charge of it as would command their confidence. It is a question whether at the present time our Congressmen could do so much for the working-man in any other way as by providing him with this means of helping himself.