period, from 1896 to 1900, was observed a rather rapid upward movement to over 3 per cent. The author states the fact that in America, Russia, France, and Austria the rate of interest has also declined since 1870, and comes to the following conclusion:

*

Constantly increasing commerce converts the national money markets into an international money market, contracting more and more, so that the rates of the separate countries tend to adjust themselves each to the other. Whether the rate of interest in one of the civilized states will ever again deviate from that in another by 4 per cent, as was the case in 1869 between the United States and England, is highly questionable. The development of an international rate of interest produces the natural result that by an extension of the market, the rate of interest in the separate countries is secured against too low a decline as well as against an immoderate rise. * The reac tion of the foreign upon the domestic rate of interest can, therefore, be generally only favorable and by no means predominantly unfavorable.1

*

Another strong speech, bringing out the same point, was made on that occasion by Mr. Charlton T. Lewis, of the United States. Said he:

It has been often asserted in the public press and sometimes in the writings of economists, that there is a progressive and secular tendency to diminution in the rate of interest. This theory has been widely accepted among financial men, yet on examination it proves to be without foundation. All these diagrams, all these tables, the whole history of the rate of interest go to disprove it.

He then went on to trace the history of the rate of interest in Europe and the United States from the time of the Napoleonic wars down to the present day, showing the same general fluctuations in the rate that had been noted by Ernst Voye in his book. From 1815 to 1845 a general decline, from 1846 to 1871 a general rise, from 1872 to 1897 a general decline, and from 1897 to 1903, the year in which he spoke, a general rise again, "so marked that it is astonishing to me that the facts have not obtained more prominence in this debate." He opposed next "another theory by which many economists have been influenced," and that is "that the accumulation of capital in itself has a tendency to lower the rate of interest, and that as the world grows richer the rate of interest must progressively decline."

If there is any established fact in the financial history of the world, any general truth which is demonstrated by experience on the largest scale, it is that this theory is unfounded. Is there a man with any knowledge of economic history who doubts that the world's wealth made enormous progress in the century from 1760 to 1860? Is there any possible question that the growth of capital in the period which some of us are able to remember, from 1845 to 1870. was rapid and magnificent, far outstripping the growth of population? Yet if we inquire into the market of each of these epochs we shall find that in each case the rate of interest at the later date was materially and universally much higher than it was at the early date.

1 See Proceedings of the Fourth International Congress of Actuaries, Vol. II, p. 150.

These facts, which can not be disputed, show that while the normal rate of interest is a function of the average productiveness of capital, its fluctuations depend not simply day by day and month by month, and even year by year, but sometimes from generation to generation upon other influences. These are mainly the forces which shape the imaginings and expectations of men. The most potent of them is the spirit of enterprise, the degree in which the tendency prevails among men to reach forward energetically for the future and to shape it for themselves with confidence.

Reasoning thus, Mr. Lewis comes to the conclusion that the rate of interest

Will undergo fluctuations, but as long as capital in the hands of human industry and of human ingenuity can reproduce its kind, the rate at which it promises to increase will be the only limit beyond which enterprise and sanguine hope will be unwilling to pay for the use of it.1

Bearing all these facts and arguments in mind, it would seem reasonable to assume that a permanent fund invested in stable securities will yield, on the average, a moderate rate of interest such as it is here proposed shall be guaranteed the Government employees on their savings.

1 See Proceedings of the Fourth International Congress of Actuaries, Vol. II, pp. 156-161.

74196-S. Doc. 745, 61-3—14

APPENDIX A.

TEXT OF PERKINS BILL.

[S. 1944, Sixty-first Congress, first session.]

A BILL For the retirement of employees in the classified civil service.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That beginning with the first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or compensation of every officer or employee of the United States to whom this act applies an amount, computed to the nearest tenth of a dollar, that will be sufficient, with interest thereon at three and onehalf per centum per annum, compounded annually, to purchase from the United States, under the provisions of this act, an annuity, payable quarterly throughout life, for every such employee on arrival at the age of retirement as hereinafter provided, equal to one and one-half percentum of his annual salary, pay, or compensation for every full year of service or major fraction thereof between the date of the passage of this act and the arrival of the employee at the age of retirement. The deductions hereby provided for shall be based on such annuity table as the Secretary of the Treasury may direct, and interest at the rate of three and one-half per centum per annum, compounded annually, and shall be varied to correspond to any change in the salary of the employee.

SEC. 2. That the amounts so deducted and withheld from the salary, pay, or compensation of each employee shall be deposited in the Treasury of the United States and shall be credited, together with interest at three and one-half per centum per annum, compounded annually, to an individual account of the employee from whose salary, pay, or compensation the deduction is made. The moneys so deducted and the income derived therefrom may from time to time be deposited in savings banks designated by the Secretary of the Treasury for that purpose: Provided, however, That the savings banks receiving such deposits shall pay interest thereon at a rate of not less than three and one-half per centum per annum, compounded annually. For the safe-keeping and prompt payment of the money deposited with them the Secretary of the Treasury shall require the savings banks to give satisfactory security, by the deposit of bonds of the United States, bonds or other interest-bearing obligations of any State of the United States, or any legally authorized bonds issued for municipal purposes by any city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than twenty-five thousand inhabitants, as established by the last national census, and whose net indebtedness does not exceed five per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes; or any legally authorized bonds issued for municipal purposes by any

city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than two hundred thousand inhabitants, as established by the last national census, and whose net indebtedness does not exceed seven per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes. In this clause the words "net indebtedness" mean the indebtedness of any city or town, omitting debts created for supplying the inhabitants with water, and debts created in anticipation of taxes to be paid within one year, and deducting the amount of sinking funds available for the payment of the indebtedness included. The Secretary of the Treasury shall accept, for the purpose of this act, securities herein enumerated in such proportions as he may from time to time determine, and he may at any time require the deposit of additional securities, or require any bank to change the character of the securities already on deposit. It shall be the duty of the Secretary of the Treasury to obtain information with reference to the value and character of the securities authorized to be accepted under the provisions of this section, and he shall from time to time furnish information to savings banks as to such bonds as would be accepted as security. When consistent with the best interests of the fund created by this act, the Secretary of the Treasury shall distribute the deposits herein provided for, as far as practicable, equitably between the different States and sections.

If, for any reason, the Secretary of the Treasury shall not be able to make satisfactory arrangements with savings banks for all of the funds, then he may invest the balance in any of the aforementioned securities.

The moneys deducted from salaries and the income derived therefrom shall be held and deposited or invested, as above described, by the Secretary of the Treasury until paid out as hereinafter provided. Any deficiency in the fund hereby created to carry out the provisions of this act shall be paid out of any money in the Treasury not otherwise appropriated.

For the purpose of aiding the Secretary of the Treasury in depositing and investing the funds created by this act a board of investment is hereby created, composed of the Treasurer of the United States, the Comptroller of the Currency, the chief of the office created by the provisions of this act, and two persons to be designated by the President from among the employees of the classified civil service. The members of the board of investment shall be sworn, and shall hold office until others are appointed and qualified in their stead.

SEC. 3. That the retirement age herein referred to shall be sixty-five years for group one, sixty-five years for group two, and seventy years for group three. And the President of the United States shall designate the branches of the service to be included in each group.

SEC. 4. That if within thirty days before the arrival of an employee at the age of retirement the head of the department or independent office in which he is employed certifies to the Secretary of the Treasury that by reason of his efficiency and his willingness to remain in the service the continuance of such employee therein would be advantageous to the public service, such employee may be retained for a term not exceeding two years; and at the end of the two years he may by similar certification be continued for an additional term of two years, and so on. Upon the failure of the head of the department or independent office to make the above-described certificate it shall be the duty of the Secretary of the Treasury to place such employee upon the retired list in accordance with the provisions of this act.

SEC. 5. That if an employee is retained in the service after reaching the retirement age a deduction of ten per centum of his monthly salary, pay, or compensation shall thereafter be made while he remains in the service, and the same shall be treated as other deductions under section two of this act. SEC. 6. That upon retiring at the age of retirement, or thereafter, the employee may withdraw his savings, with the increment of interest as berein provided, under one of the following options, and if Option I or Option II is selected, receive in addition thereto such annuity, if any, as may be apportioned by the Secretary of the Treasury out of accumulations in excess of three and one-half per centum guaranteed by the provisions of this act, and such apportionment by the Secretary of the Treasury shall be conclusive:

Option I. In an annuity payable quarterly throughout life.

Option II. In an annuity payable quarterly throughout life, with the provision that in case of the death of the annuitant before he has received in annuities the amount of his savings, plus the interest credited thereon, the balance shall be paid to his legal heirs. In determining at his death the amount due to his heirs no account shall be taken of the annuities paid to him by the United States under section eleven of this act.

Option III. In one sum.

If after retirement the employee does not avail himself of one of the foregoing options, but leaves the amount due him on deposit, interest at the rate of two per centum per annum on the original sum so left on deposit on retirement shall be credited thereto for a period not exceeding twenty years, and if not then withdrawn the money so left on deposit, without interest, shall be covered into the Treasury as a miscellaneous receipt.

SEC. 7. That upon absolute separation from the civil service prior to the retirement age, and only upon such separation, the employee may withdraw his savings in one sum, and in case he has been in such service not less than six years he may also receive in addition thereto interest on his savings at the rate of three and one-half per centum per annum, compounded annually; or, in case his savings amount to at least one thousand dollars, he may withdraw the same under any one of the foregoing options computed on the basis of his attained age. In case of the death of an employee while in the service the amount of his savings, together with the interest credited thereon, shall be paid to his legal heirs.

SEC. 8. That beginning with the first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or compensation of every employee newly entering the service to whom this act applies an amount equal to one-fifth of his monthly salary, pay, or compensation during the first six months of his employment; and in every case of promotion of any person to whom this act applies there shall be deducted and withheld from the monthly salary, pay, or compensation of such person an amount equal to the increase made by such promotion during the first three months from the taking effect thereof; and the amounts so deducted and withheld shall be deposited in the Treasury of the United States to the credit of a special fund to carry out the provisions of section nine of this act.

SEC. 9. That beginning one year after the first day of July next following the passage of this act, any employee to whom this act applies, who has served the United States for not less than twenty years, and who, by reason of accident or illness not due to vicious habits or by reason of exigencies of the service but without fault or delinquency on his part, has become totally and permanently disabled, may retire from active service prior to the age of retire ment, and, on certificate from the head of the department or independent office in which he is employed to the Secretary of the Treasury setting forth such